TMO's heat-loving bug helps secure £11 million for cellulosic ethanol technology

It started with a little, high-temperature loving bug discovered in a compost heap. That bug, which prefers to eat complex carbohydrates rather than simple sugars, is gaining attention from investors today for what it can do.

Guildford, Surrey-based TMO Renewables CEO Hamish Curran told the Cleantech Group his company closed £11 million ($18.6 million) in financing today from blue chip institutional shareholders and private investors, bringing the company’s total fundraising to date to more than £34 million. TMO said it has developed a proprietary, patented process for converting biomass into fuel ethanol.

The company had hoped to close the round last fall, but Curran said that wasn’t possible given the lack of confidence in the equity markets. So the company went into what he called a “tuck and holding pattern” until closing the follow-on round announced today.

TMO stands for thermophilic (literally heat-loving) microorganisms—the bacterial ethanologen at the core of the company’s process. This organism thrives at high temperatures and can quickly digest a wide range of feedstocks.

TMO’s process uses those organisms to produce ethanol from any cellulose-based material, in a way that the company says is economical and carbon neutral.

See a photo of the process »

It's an area a number of companies including Cambridge, Mass.-based Mascoma are pursuing (see Converting cellulosic ethanol into cash and Biomass-to-ethanol developer Mascoma gets $30M shot in arm).

TMO also licensed ERGO bioinformatics software from Integrated Genomics of Chicago in 2007 for a genome analysis tool for gene annotation, metabolic reconstruction and enzyme data-mining as well as comparative genomics (see Cellulosic ethanol company licenses genome tool).

Today's funds are expected to be used as working capital, primarily to support the company’s entry into the U.S. market, where it wants to roll out its second-generation technology. The funds are expected to last the company well into 2011, Curran said.

“The United States is where the world’s most established renewable fuels market is,” he said.

TMO’s technology can be retrofitted to improve the yields of existing corn-ethanol plants by 10 percent to 15 percent or applied to newly built, non-food related biofuel facilities, according to the company. However, TMO doesn’t plan on owning or operating any facilities in the United States, Curran said. Instead, the company’s business model focuses on licensing the technology and receiving royalties.

An IPO could also been in the company's cards on the Nasdaq or London Stock Exchange, when the time is right and the markets open properly again, Curran said.

Curran said TMO's process demonstration unit has been operating for the past year successfully, and has seen interest from 23 existing ethanol companies. Some of those potential clients in Iowa and the Midwest have sent over materials to be tested, wanting to see how the process works, Curran said.

TMO said it has successfully trialled a range of feedstocks including grasses, wheat straw, newspaper, municipal waste, and distillers grains—a byproduct of the traditional corn ethanol process.

Some ethanol producers use distillers grains for revenue, but Signal Hill, Calif.-based Primafuel is developing what it thinks is another, more profitable use for the byproducts. The company's proprietary technology, which boosts the efficiency and profitability of biofuels, extracts high-value compounds from biomass waste streams (see Startup puts new spin on biofuel byproducts).

Existing shareholders in TMO include Jupiter Asset Management, Noble Group, RAB Capital and retail investors, as well as new investors Presnow, Diverso Management, and U.S. investment fund Libra Advisors. TMO raised some smaller angel rounds in before 2005, Curran said, followed by a £17 million round in 2006 targeted for the construction of the company’s demonstration facility.

Presnow has invested £4 million in TMO and offers the company knowledge of the ethanol and agrarian sectors in the United States and Brazil. Cleantech private equity fund Diverso, which specializes in renewable and cleantech opportunities in China, contributed £2 million as part of this round.

China poses as an expansion opportunity for TMO, Curran said.

“The Chinese have a huge appetite for automobiles in the future,” he said. “They clearly recognize the need to answer the energy security questions that have been well recognized in the United States. We see a real growth opportunity there and in the United States.”

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