Flagship Ventures is combining a biofuels business that it first invested in eight months ago with a renewable fuels maker that it created eight years ago.
The reason? To have one project that should generate cash in the near term (from the more recent investment) under the same roof as the more innovative long-term investment, which is still in the research and development phase.
“We have a short-term actionable project, something where if it’s successful and it generates cash, you can couple that with a long-term, high-value R&D effort,” says Brian Baynes, a partner at Flagship Ventures and the CEO of the newly combined company.
Flagship announced last week that Fort Collins, CO-based Red Rock Biofuels is being merged into Bedford, MA-based Joule Unlimited. The combined company will retain the Joule name. Financial terms of the deal weren’t disclosed.
Cambridge, MA-based Flagship invested an undisclosed amount in Red Rock in March for a Series A round. Flagship then led a $40 million venture round in May for Joule, a company Flagship formed in 2007 that is developing a process to convert carbon dioxide, water, and sunlight into fuels using microorganisms.
Red Rock, on the other hand, converts biomass—typically the leftover plants, branches, trees, and other carbon-based materials that are the byproduct of forest clearing and saw mills—into jet fuel and diesel products using a combustion process. Red Rock is planning to build a production facility in Lakeview, OR, in 2016, which it hopes to complete in as soon as two years.
Once that is running, Red Rock expects to produce around 15 million gallons of the fuels each year, Baynes says, and the company already has agreements to sell jet fuel to FedEx and Southwest Airlines.
While any cash Red Rock generates may be used to build something like new biofuel plants for Red Rock, combining the two companies also allows it to use cash it generates for Joule’s research, Baynes says. Plus, fuel that Red Rock creates could be used to provide fuel to companies that have partnered with Joule previously, including the carmaker Audi.
“Their primary interest is renewable diesel,” Baynes says. “They don’t care if it comes from bacteria like it does in Joule’s case or biomass residue.”
Joule has been a highly touted company since its inception, given its mission to create biofuels using a novel technique. It has spent all of its existence in research and development, and will continue to be in that stage for the foreseeable future, until the company is able to improve the rate at which its organisms convert carbon dioxide and water into fuel, while also lowering the cost of the production, Baynes says. Combining the company with Red Rock helps make time for that research, he says.
“Having a little cash-generating engine inside the company could be a very important asset,” he says.
Joule’s former CEO, Serge Tchuruk, is staying on the company’s board of directors. Tchuruk, who spoke with Xconomy in May, became CEO in mid-2014.
