Solazyme Finds Investor Appetite for Renewables, Sees Shares Boom on Day One

5/27/11Follow @xconomy

Solazyme must be getting ready for a heck of a company party this Memorial Day weekend. The renewable oils company pulled off its long-awaited IPO last night, and got a quite bullish (although not exactly LinkedIn-style) reaction from investors.

South San Francisco-based Solazyme (NASDAQ: SZYM) raised more than $197 million through its initial public offering by selling almost 11 million shares at $18 apiece. Demand for the new shares was intense for an otherwise slow Friday heading into the Memorial Day weekend, as the stock shot up 16 percent to $20.81 at 2:26 pm Eastern time. That frenzy of activity has left Solazyme sitting pretty, with a market valuation of more than $1.2 billion.

This is a much richer outcome for Solazyme’s investors and employees than what was envisioned back in March, when the company filed paperwork that said it was hoping to pull in $100 million through the IPO. The company, founded in 2003, has become a bellwether of sorts for the young biofuels industry, having put together diverse set of partnerships with big companies like Chevron, Dow, Qantas, Sephora, and Unilever. It also has contracts to supply renewable diesel to the biggest user of diesel on the planet—the U.S. Department of Defense.

This deal means a lot for the biofuels sector, as other companies have been counting on it to provide a spark of enthusiasm. The deal also means that Solazyme’s co-founders, CEO Jonathan Wolfson and chief technologist Harrison Dillon, both at age 40, have done particularly well for themselves financially. The biggest single shareholder in Solazyme now is The Roda Group, with 24 percent ownership, Braemar Energy Ventures (13.1 percent through a couple different entities), followed by Dillon (7.2 percent), Wolfson (7 percent), the Fiddler Group (6.3 percent), and Lightspeed Venture Partners (4.9 percent), according to a regulatory filing.

It will be interesting to see what markets Solazyme pursues most vigorously with its newly topped-off war chest of cash. The company has been on a mission to show it can produce renewable fuels at large scales, in industrial fermenters, as I described in a feature last July.

While Solazyme’s investor prospectus notes that the conventional oil market was worth a mind-boggling $3.1 trillion in 2010, Solazyme is a long way from making a serious dent in a market that size, if it ever gets there. Solazyme generated revenues of $38 million in 2010, and had a net loss of $16.3 million, according to its investor prospectus.

Critics have questioned whether it can scale up to the really gigantic volumes needed to be a major player in fuels. And Solazyme has been careful to build up a diversified product lineup. The company has been making its oils into some of the common petrochemical derivatives that we get from fossil fuels today—things like specialty chemicals, nutritional supplements, and personal skin care products. Those oil-based compounds are thought to be attractive because they can be made in lower volumes, and sold at higher profit margins than fuel. So while most people get intrigued by the idea of renewable fuels for cars, quite a bit of Solazyme’s fortunes will be riding on these lesser-known niche markets in the near future.

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