Have Energy Crops Found the Inflection Point? NexSteppe Raises $22M in Series C Financing

Posted on November 1st in news

Have Energy Crops Found the Inflection Point? NexSteppe Raises $22M in Series C Financing

New Investors Total Energy Ventures and ELFH Holding join existing investors Braemar Energy Ventures, CYM Ventures and DuPont Ventures

In California, NexSteppe, announced that it has raised $22M in its third round of funding. New investors Total Energy Ventures and ELFH Holding GmbH, a vehicle of the Berninghausen family in Germany, a serial founder and investor in cleantech, the wood industry and real estate, join existing investors Braemar Energy Ventures, CYM Ventures, DuPont Ventures and others.

The company will use the proceeds from the round to continue to improve its Palo Alto biomass sorghum and Malibu sweet sorghum product lines, already available to customers in Brazil and the U.S., as well as to launch additional product lines and expand its market development efforts around the world.

NexSteppe is a seed company focused on developing crops that provide optimized raw materials for biofuels, biopower and biobased products. Sugars and biomass from NexSteppe’s tailored crops can be processed by biomass boilers, anaerobic digesters and biorefineries into a myriad of products from power and electricity to first and second generation biofuels to plastics and chemical intermediates.

The biobased industries are experiencing rapid growth driven by increasing energy demand, a desire for energy security, volatile fossil fuel prices, and concerns about the environmental impacts of fossil fuel use. In order to maintain this growth, these industries need scalable, reliable and sustainable feedstocks that won’t negatively impact the environment or the world’s food supply. This need is particularly clear as we see the first wave of commercial-scale, cellulosic biorefineries beginning operations in the U.S. NexSteppe’s products, optimized for these applications, will allow bioenergy and biobased products to become mainstream, largescale, sustainable solutions.

Reaction from the investor group
Total is actively involved in the development of innovative solutions to produce biofuels and bioproducts through R&D programs, industrial developments and participations in various companies or startups, and Total’s objective is to increase the use of feedstock avoiding competition with food.

“Availability of feedstock on a sustainable basis will be critical for the development of the biobased industries and we believe that NexSteppe will be a leader in providing the requested feedstock. We are also confident that by working together, Total and NexSteppe will each get a better understanding of the whole supply chain” said Francois Badoual, CEO of Total Energy Ventures.

“DuPont is pleased that our collaboration with NexSteppe has helped them achieve their first commercial sales for more sustainable feedstocks in the United States and Brazil,” said Michael Blaustein, director DuPont Ventures. “As a science company, we believe that collaborations with new ventures such as these are an important part of helping bring cutting edge science to market.”

Where is NexSteppe now and where is it going? The Digest Interview with founder and CEO Anna Rath

BD: What’s the strategy in terms of getting adoption and proving the viability of the company?
AR: There are two components. One is Brazil. That’s ground zero for energy crops. There’s plenty of opportunity with existing sugar to ethanol and existing boiler-based power gen. Seond, we want to demonstrate other markets, to show that we understand the markets and can show that the same concept applies, and have enough sales to see the economics.

BD: What’s if it’s only Brazil?
AR: If it’s only Brazil that’s one thing, and you could have a good company just on biopower in Brazil. But if it is not just Brazil? What if the new sorghum is a global crop? What if yuo have multiple end users in multiple regions?

BD: How is it going at Ground Zero?
AR: We’ll have multiple fold growth in Brazil vs last year, and people will be able draw a line from last year to this year and see a strong trend.

BD: What do need to have to “win”?
AR: The 3 things that are most important are: first, the germplasm collection. Second, the improvement we see per cycle. Third, how much per cycle, and that’s reflecting the breeder expertise, with a combination of traditional artistry and modern tools. There’s no question that marker breeding and development of complex multi genetic traits is important — that’s why we put so much value on our strategic partnership with DuPont that we entered into in 2012. Now there’s a company that can help with the big lift on science.

BD: Speaking of DuPont, how long do you think it will be before the usual suspects in the global seed business decide to get active in this market — is that a threat?
AR: Well, they’re already active. Monsanto with Ceres, DuPont with us. We welcome the day when the major seed companies step in. They have a history of acquisition as opposed to organic growth when it comes to a new crop. Look at everything that has happened since 1996 with corn, and see how the majors have mowed through the crops — corn, soy, canola. There are not many major crops left. There’s rice, but it has some policy conflicts. There’s wheat, but you have tricky genetics. And there’s sorghum. Especially if we are having success in developing markets where they would like to be stronger. They have amazing grower networks, but in some regions have had more success on the crop protection side rather than the seed side.

BD: How far does this series C take you down the road towards some of those longer-range goals like new market development?
AR: A long ways. It’s a lovely thing about seed, it’s a high gross margin product, and there are not huge amounts of steel in ground like you have with the industrial technologies.

BD: You’ve come a long ways in a short time.
AR: It takes no time at all to develop compared to other sectors of this industry. Palo Alto was 3 years in development, and now it is completely different.

BD: Different how?
AR: The highest yielding biomass sorghum was thrown out for years. Breeders wanted to retain moisture for silage, for example. The breeding target was optimized based solely on animal feed. But, in energy crops, you want the lowest moisture you can get. Traditional sorghums are 75-80% moisture. But you can’t throw that into the boiler. So we are aiming for high yield, low moisture. We focus on 50-55% moisture, for instance.

BD: Why so fast?
AR: We get 2-3 breeding cycles per year for yield optimization. It’s the advantage of annuals vs perennials that you get with a number of crops — versus trees, for example, where it takes a long time to get the genetics because of the long cycle.

BD: How does that help with grower adoption — the fast cycle time?
AR: Huge. We’re in touch with the boiler operators in Brazil watching bagasse prices going up. And they see “here’s the great crop, let’s do a year to get comfortable with yield trials and boiler tests.” Then it just drops in, and the questions become “help me figure how to get 10 million tons” and we get into discussions around customizations such as “delivered, or you pick up”. ANf the price depends on the customizations.

BD: So what happened to the days of “feedstock agnostic” and everything just dropping in?
AR: There’s so much that can be done with customization. Ad, how much can you love some types of those “truly low quality feedstocks” when you get all those rocks and dirt.

BD: So the operators are key for you?
AR: We do lots of field days, we did 60 trials last year, growers and dealers, or networks. But the operators are important to reach the network.

BD: What’s the grower adoption process like?
AR: It’s pretty much what you’d think. Here’s the crop, here’s the data, here’s the costs, here’s the operation, would you like to do a test or trial?

BD: What’s the pitch for sorghum vs other crop options, in terms of addressing grower risk?
AR: When you think about biomass sorghum, even if its down, you get somethijng. With real drought and corn you can lose the crop, you’re out. Sorghum will still get something, like 2/3. So, a) you be getting better chance of a full crop, and b) sorghum is just better in trickier conditions. And you are getting an annual instead of a perennial. We’re only asking them for 120 days.

BD: Sorghum has this huge reputation as a drought-tolerant crop.
AR: Don’t kid yourself. Drought will affect the yield of any crop., And it depends on when in the season. At the beginning, it hits hard, but you can replant.

BD: Brazil has been hit hard by drought. A wake up call for agriculture, for power?
AR: It’s three things. Yes, it’s a a good wake up call here. Any country that is 80% single source, such as Brazil with hydroelectric, you see the search on for alternatives. Because it is going to takes years to fully recharge the rivers. In Brazil, biomass makes sense, vs coal, or increasing natural gas, because natural gas is not cheap everywhere like it is in the US. And there’s lots of land, and there’s lots of land.

But it’s more than just a wake up call on drought. Nobody knows what weather looks like in the future — but what if it is going to more erratic in the future? The energy technologies that are dependent on weather are going to be affected. For example, what is the wind shifts pattern, or the solar patterns change? Here you have a annual, it doesn;t take years to establish, it’s not stuck in one spot forever.

And then there’s growth. There’s going to be incraesing water use and gentrification — no matter what happens with drought or weather patterns, countries like Brazil need more power. So that drives the increased search for alternatives.

BD: Are we seeing the growth impact already?
AR: Sure we are. We see much more of the biomass boilers that have been using bagasse, moving towards biomass. There’s a 40% increase in Brazil.

BD: Pellets?
AR: Pellets are really EU, the feedstock for biopower. But the growth has been strong.

BD: Speaking of other geographies, where are trails taking place now?
AR: Mozambique, Angola, Zambia, South Africa trials. Overall, we got to the point of 15 trials on 5 continents with no dedicated business dev people. And we though, “what if we had someone?” So we brought in 2 VPs of Bus Dev. One is based in Singapore and covers Asia. The other is based in here and covers North America, the EU and Africa. The pace has been strong. I am just back from Africa.

BD: Which geographies are on the minds of your investor group. Lot of growth there. Total, ELFH and the entire existing group re-upping?
AR: Total have made a number on investments in the space, and they’re closely associated with Brazil because of Amyris, for example, but they also have a biomass business, they are like a POET Biomass in EU and are active in Africa. The investor group for sure is looking at our journey at Brazil. Everyone is. We are. But those future markets, that’s the next step in the journey. We’re well underway.

Biofuels Digest
~ Jim Lane