A marquee group of venture capital firms pumped $120 million into Altra on Tuesday, fueling the startup’s plans for increased ethanol and biodiesel production.
Kleiner Perkins Caufield & Byers, Omninet Private Equity, Sage Capital Partners, Angeleno Group, and Khosla Ventures were co-leads in the round, the quarter’s largest energy investment so far.
When Los Angeles-based Altra raised its first round of $50 million in April, it played coy about the amount of money raised, leaving the possibility of an additional debt-and-equity financing amount of $80 million. Today they said they have raised a total of $250 million, a substantial war chest.
The first round represented Southern California’s second-highest first-quarter investment, according to a report by Ernst & Young LLP and Dow Jones VentureOne (see Q2 Sees Record Funds).
”I think this industry has momentum,” Altra CEO Larry Gross said. “I think investors see it as a real growth industry, a rising-tide industry that’s going to lift many people’s boats.”
Altra wants to crank up ethanol and biodiesel production to 500 million gallons a year. The biofuel company is building new ethanol facilities, including a 60-million-gallon center in Ohio scheduled for September 2007 completion. And what Altra doesn’t produce, it plans to purchase to meet its goal.
Last month, Altra completed the acquisition of a Goshen, California-based ethanol production facility. Once expanded to a 35-million-gallon plant, it is expected to be the state’s largest producer of ethanol.
Washington MandateEthanol has been under the spotlight in Washington. The Energy Policy Act of 2005 says that all gasoline in the United States must be supplemented with 7.5 billion gallons of renewable fuel by 2015.
Reacting to this legislation, fuel suppliers have increased their estimates of ethanol they plan to sell, said Mark Routt, senior consultant for Energy Security Analysis. That in turn has caused them to be oversupplied with ethanol as demand for ethanol-gasoline mixtures haven’t been realized, he said.
“It means that, for a fuel provider who’s most likely overcommitted to their ethanol requirement earlier in the year, the fuel provider is saying, ‘I don’t want anymore,’” Mr. Routt said.
Typical fuel suppliers create a ratio of gasoline sales against the ethanol they’re required to sell. With the demand for gasoline currently at one of the lower points of the last 20 years, said Mr. Routt, it forces the provider to either sell more gasoline or sell more ethanol per unit of gasoline sold.
For consumers, ethanol is more expensive. “There’s a dilemma here,” said Larry Rinek, senior consultant of automotive technologies for Frost & Sullivan. “How can we allow this to become a major motor fuel when it costs so much more than gasoline?”
Growth Prospects
But Altra doesn’t want ethanol to replace gasoline. It’s not actually possible. There simply isn’t enough agricultural room in the U.S. to produce enough ethanol to remove gasoline from the equation.
Rather, Mr. Gross estimates the alternative fuel industry has room to expand by 300 percent, and when Altra builds or acquires approximately a half-dozen more plants, it will hit its 500-million-gallon mark.
Altra’s California plant is already profitable, according to the company. Mr. Gross expects the company overall to be profitable by the end of the year.
“All of these geopolitical forces are pushing gasoline and oil prices higher, and the demand is high, so we feel that ethanol will be part of that future,” Mr. Gross said.
Contact the writer: DMurphy@RedHerring.com