Biomaterials boosted as investors return

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The “bioeconomy” enjoyed a lucrative burst of attention a few years ago as investors grew excited about start-ups’ potential to use natural inputs to displace polluting fossil fuel-based materials. But the sector’s growth has been slower than anticipated, and share prices of its listed companies have slumped, with one of them filing for bankruptcy last month.

Yet investment in this space seems to be ticking up again, as I highlight below. Can it pay off?

fossil fuel alternatives

Inside the renewed effort to make consumer goods less oily

Every day, people all over the world eat, rub into their faces and spray their bodies with products made from crude oil.

Switzerland-based start-up Bloom Biorenewables hopes to do its part to change that, bolstered by a $15mn funding round announced today. It’s one of dozens of companies developing nature-based alternatives to the petrochemical-based materials heavily used in consumer goods. While Bloom’s new cash injection is of modest size, it’s part of a funding bounce that points to a partial recovery in investor sentiment towards this sector.

Bloom grew out of work pursued by three scientists at Switzerland’s École Polytechnique Fédérale de Lausanne, where they developed a process to extract lignin and cellulose from plant material — substances commonly discarded as waste, but which can be used to create high-value chemicals.

Bloom has now started working with partners including the European flavourings and chemicals giant DSM-Firmenich, to develop plant-based products for use in cosmetics, perfumes, food additives and packaging.

Bloom co-founder Florent Héroguel told me that its future products would be safer for users and less damaging to the environment, in terms of both carbon emissions and toxic waste.

While the technology could also be used to produce liquid fuels, he said, Bloom will focus for the foreseeable future on low-volume, high-value speciality products. “That’s the way to get margins in the development phase,” Héroguel said.

Investment into this space has started to pick up after a painful slump. According to data provider Net Zero Insights, funding raised by biomaterials companies (not including biofuels) reached a record $1.7bn in 2022, only to sink to $583mn last year.

But the figure for just the first three months of this year was $392mn, a significant acceleration from last year’s pace. Significant fundraisings included a $140mn Series B round by US-based Tidal Vision, which is developing chemical products from crustacean shells, and a £62mn ($80mn) Series D raised by the UK’s Pulpex, which makes bottles from wood pulp.

Bio-based approaches could yield chemical products, such as coatings, “with characteristics that will be much superior to the petroleum-derived alternatives”, said Fadi Noureddine, managing partner at Valquest Partners, one of the investors in Bloom’s funding round. “We see that the dynamics are there; the market is there.”

Other investors in Bloom’s fundraising included Bill Gates’s Breakthrough Energy Ventures, Swiss fund Anaïs Ventures, and banking group Lombard Odier.

The uptick in biomaterials fundraising comes despite some major setbacks in this space — notably at US-based Danimer Scientific, which promised to deliver plant-based plastics that would biodegrade far more rapidly than conventional materials.

Danimer went public through a merger with a special-purpose acquisition company in 2020, and raised a total of $385mn from investors. But it struggled to scale up, and was hurt by a lawsuit alleging it had exaggerated its claims about the biodegradability of its products. Last month it filed for bankruptcy.

“Three or four years ago, you could see companies with poor technology and very little track record, raising ridiculous amounts of money,” said Mathieu Flamini, chief executive of France-based GF Biochemicals, which develops bio-based consumer product ingredients. Flamini argues that his sector has opportunities to benefit as European regulators tighten standards around “forever chemicals” and other potentially toxic products.

In the US, however, the sector has taken a hit from the change of government. Joe Biden had issued a lengthy executive order demanding a “whole-of-government approach” to promoting biomanufacturing, which was rescinded last month by Donald Trump. This will raise new questions about corporate appetite for green alternative materials, which had already been disappointing producers’ bullish hopes.

“The adoption of biomaterials by large companies hasn’t been as fast as expected,” said Edward Shenderovich, chief executive of Synonym, a digital service provider to the bioproducts industry.

There have been some notable exceptions, such as a $1bn commitment by South Korea’s Hyosung, the world’s biggest spandex producer, for a facility in Vietnam that will use inputs derived from sugarcane rather than fossil fuels. L’Oréal, the world’s biggest cosmetics company, has promised that 95 per cent of its product ingredients will be bio-based by 2030.

Bloom’s co-founders are hoping that consumer unease with fossil fuel-based products will create mounting pressure for other companies to follow suit, particularly in the cosmetic and food industries. But they acknowledge that, in order to gain serious scale, they will need to focus on eliminating the cost premium of their product over the existing fossil-based options.

With their first full-scale commercial plant still about four years away, according to their own estimates, they have a long road ahead. “While we may not like the petrochemical industry, we have to learn from it and how efficient it is,” Héroguel said.

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