Biobased Chemical Industry Venture Funding Dries Up

Oct. 18, 2011
Wave of IPOs and acquisitions signals mature industry, but new opportunities exist in high-performance biobased products.

A venture funding boom for biobased materials and chemical start-ups is nearing an end as the market matures, according to a Lux Research report released Oct. 18.

Over the past seven years investors have poured $3.1 billion into ventures that utilize biomass to replace petrochemicals in chemical products, such as polyethylene. But a wave of IPOs and major acquisitions of the once-fledgling companies indicates the industry is rapidly maturing, says Mark Bunger, a Lux Research director and lead author of the report.

Bunger points to acquisitions such as DuPont & Co.'s $6 billion purchase of Danish food ingredient maker Danisco in May as an example of the industry's growth.

"Right now there are so many companies that have had their initial public offerings or they've been bought by another company that the funding starts to taper off," Bunger says. "In the next year or two you won't see new companies getting seed funding to enter this industry because they'd be competing with companies that have hundreds of millions of dollars."

Instead, Bunger says investors will begin to eye opportunities in more specialty, high-performance biobased chemical industries that don't compete directly with larger bulk chemical producers. Some of these technologies include artificial photosynthesis, novel molecules and biomimetic structural materials.

For instance, one company called Refactored Materials Inc. based in San Francisco utilizes synthetic biology and microfabrication to create commercially scalable products out of high-value natural materials that are too scarce or expensive to extract from nature, according to the company's Linkedin page.

The company's first product is natural dragline spider silk that the Refactored Materials says is six times stronger than Kevlar.

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