Our Mascoma Math Coma

5/6/08Follow @wroush

Here at Xconomy, tracking venture funding for local technology startups is one of our favorite pastimes. We don’t report on every single funding round we hear about, but when large amounts are involved we like to bring you all the facts. There’s one local startup, however, whose big Series C funding round has had us tied up in knots. The story got partially untangled today, but it’s still a bit of a mystery.

Mascoma, which is developing a biological process for converting high-cellulose matter such as wood chips into ethanol for biofuels, announced an equity investment today from oil giant Marathon. The investment is the first one in some time for which the company has provided an exact dollar amount: $10 million. And it’s part of a Series C round that adds up to $61 million, according to Mascoma. But the company is being somewhat evasive about where the other $51 million has come from.

Based on previous reports, including a regulatory filing cited in February by Private Equity Hub, it seems clear that a group of venture investors who participated in Mascoma’s Series B round—including Khosla Ventures, Flagship Ventures, General Catalyst Partners, Atlas Venture, Kleiner Perkins Caufield & Byers, Vantage Point Venture Partners, and Pinnacle Ventures—have ponied up $30 million for the Series C round.

The round also includes money from General Motors, which announced a strategic partnership with Mascoma last week, and number of unnamed strategic investors. Subtracting the venture funders’ $30 million and Marathon’s $10 million from the $61 million total reported today gives a remainder of $21 million. But how much of this amount is from GM, and how much is from the unnamed investors, Mascoma isn’t saying. According to Mascoma president Colin South, the $61 million does not include debt financing provided by Pinnacle Ventures in the amount of $20 million.

Assiduous readers will also remember an April report, based on first-quarter numbers from the National Venture Capital Association, that put Mascoma’s Series C round at $44.9 million.

Part of the mess of conflicting numbers stems from the fact that Mascoma’s “rolling” Series C round has extended over a period of months, triggering several reports to the Securities and Exchange Commission with changing investment totals. But part of it is also attributable to Mascoma itself, which is being deliberately vague about magnitude of its various partners’ investments.

When I ran my breakdown past South—$30 million from the venture backers, $10 million from Marathon, and $21 million from GM and other unnamed strategic investors—he said “Your math is generally in the ball park.”

But he added that “it’s difficult to extrapolate [the exact amounts] in that way.” Most of Mascoma’s Series C investors haven’t yet given the company permission to disclose the size of their investment, he said. “At this stage, I can’t give you a breakdown on anyone other than Marathon because we haven’t got releases to talk about the actual quantities.”

One thing is certain: Mascoma’s capital requirements are escalating drastically as it tries to move its patented bioprocessing technology—which uses a special strain of anaerobic bacteria to break down cellulose into sugars that can be fermented into ethanol—out of the lab and into pilot facilities in New York and Tennessee. “We’re doing what we can to minimize [the cost of the pilot plants] through the effective use of grants and the like, but it’s an expensive business,” says South.

A $26 million grant to Mascoma and the University of Tennessee from the U.S. Department of Energy, announced April 21, is helping with that, South says. So are the investments from GM and he unnamed strategic investors, says Jim Matheson, a partner at Mascoma backer Flagship Ventures. “We’ve basically assembled strategic investors all along the ethanol value chain that are going to help us now move to the deployment phase of the company,” Matheson told Bob this morning.

Mascoma’s name, by the way, has nothing to do with math or comas. It comes from Mascoma Lake in Lebanon, NH, near the company’s R&D headquarters.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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