Tuesday, September 07, 2010

Solazyme

Solazyme has been getting plenty of press in recent weeks as interest in its algae-based fuel picks up. The company raised $52 million in early August 2010 from group of strategic and financial investors that included consumer products leader Unilever, Morgan Stanley and Chevron Technology Ventures. Not a bad take, particularly given that Solazyme was one of the Department of Energy grant recipients.

Solazyme has made progress in scaling its unique biofuel process to commercial level. In late July 2010, Solazyme supplied 1,500 gallons of its Solajet HRJ-5 fuel, which is said to produce 85% less green house gas emissions than traditional fossil fuels, to the U.S. Navy. While this is a small portion of the 20,000 gallons the Navy expects to receive for its $8.5 million order, the initial delivery is encouraging that Solazyme can get its microrobes out of the lab and into a fuel tank.

I do not expect an initial public offering from Solazyme any time soon, leaving individual investors on the sidelines for the time being. The company needs significant capital to build a large scale production facility - $100 million or more. Given the current public equity markets in the U.S. we believe Solazyme will continue to rely on venture funding. Investors could consider taking positions in some of Solazyme's backers, Unilever (UL ADR: NYSE) or Chevron (CVX: NSYE). Although such companies trade on other factors than renewable energy, investors could have some confidence these two large caps are shifting to environmentally friendly operating strategies. It is also possible that Chevron qualifies as a good partner for large scale production and distribution.

Read our initial post on Solazyme’s DOE grant award, Mighty Microbes, published on March 23, 2010.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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