Mascoma files IPO: A first look inside the biofuels company

Biofuels company Mascoma filed an IPO on Friday, providing the first public peek at the guts of the business.

Mascoma, the biofuels company backed by high-profile investor Vinod Khosla, filed Friday an initial public offering in a bid to raise up to $100 million and ultimately produce cellulosic ethanol on a commercial scale. The company's S-1 filing -- the first public glimpse of what's under the hood -- provides some sobering details that aren't unique within the fledgling cellulosic ethanol industry.

For one, the company is far from profitable. Mascoma generated $15.5 million in revenues in 2010 -- 86 percent of which came from government grants -- and had a net loss of nearly $26 million, according to the s-1 filed with the Securities and Exchange Commission. And it has accumulated a deficit of $138 million.

Mascoma's technology, which has attracted venture capitalist support as well as an investment from U.S. oil refiner Valero (VLO), is compelling. The company has created genetically modified yeasts and other microorganisms that convert non-food biomass into cellulosic ethanol. The yeasts help eliminates the need for expensive enzymes used in ethanol production. That, in turn, create a cheaper product -- a primary challenge to producing commercially viable cellulosic ethanol.

But like the rest of the cellulosic ethanol industry, Mascoma has floundered in spite of a federal mandate, government subsidies and backing from private investors.

The slow progress has forced the EPA to slash its cellulosic ethanol mandate on numerous occasions. The mandate originally called for 350 million total gallon of cellulosic ethanol to produced by the end of 2011. As R-Squared blogger Robert Rapier noted last month, zero gallons of qualifying cellulosic ethanol has been produced.

In most ways, Mascoma is no different than other cellulosic startups. The company has struggled to scale beyond its demonstration plant and begin producing cellulosic ethanol at a commercial level. Construction on a commercial production facility in Michigan was originally slated to begin in 2009 and has been repeatedly delayed. Back in January, the company indicated construction was to begin this year. Within the S-1 filing, Mascoma indicates that construction is expected to begin in the next three to six months.

Two components of Mascoma worth noting:

1.) A plan to diversify it revenue stream

The company plans to sell its yeast product to corn ethanol producers in 2012, which will help diversify its business in the long term and should improve revenues.

UPDATE: However, Gigaom noted something I initially missed. The yeast won't  be sold to help these companies move into cellulosic ethanol production, but to cut the costs of making more corn ethanol.

2.) Valero's role

Valero agreed back in January to enter into an off-take agreement for the project's cellulosic ethanol production, assuming the plant gets built. Meaning, whatever Mascoma produces, Valero will buy and use to blend into gasoline.

Back when I first wrote about the Valero deal, I added a note of caution because of the tentative wording from the oil company. The s-1 makes no mention of the "potential investment up to $50 million." Instead, there's a reference to Valero buying a $5 million equity in a series of financing. It's unclear if Valero is still committed to the company.

Photo: Flickr user sergio, CC 2.0

This post was originally published on Smartplanet.com