Algae 2.0 is here. Emerging technology is transforming this diverse group of photosynthetic organisms into a robust, sustainable production platform for multiple applications across various markets. And that’s exactly why we at Better Ventures have taken interest in this category. We’ve spent time over the last couple of months researching this fascinating category and have unearthed many companies that are leveraging algae to make valuable products, from textiles and plastics to pigments and nutrient-rich food.
Similar to our thesis that synthetic biology is enabling the climate-friendly factory of the future, we believe that algae represents an emerging and attractive bio-synthetic production chassis for sustainable products. In this post, we’ll explore some of the science behind these amazing organisms, discuss emerging trends in the space, and highlight a number of companies doing exciting work with algae.
While plants tend to hog the spotlight, in reality, algae is the queen of sustainability. Compared to their terrestrial counterparts, algae grow considerably faster, sequester more carbon dioxide, remediate aquatic habitats, don’t use arable land, require less water or no freshwater, and can use waste streams as nutrient sources. Algae also win in terms of their broad range of sizes, from microscopic green algae (called microalgae) to behemoth size kelp (macroalgae).
Microalgae has a checkered past. From the mid 2000s to early 2010s, there was a biofuel boom as countries were desperate to find cheap and sustainable alternatives to petroleum. Microalgae was an attractive candidate for biodiesel and bioethanol production due to its high concentration of lipids (engineered strains could reach 70% cell content). VCs and government agencies alike invested billions into microalgae biofuel startups that touted price competitiveness and a speedy time to market. These companies failed to deliver: biofuels were simply uneconomical, unable to compete with low-margin, high-volume petroleum-derived fuels as the price of oil tanked.
Source: Better Ventures (Data from IRENA)
Source: Better Ventures (Data from IRENA)
The resulting bust didn’t end entirely in tears. Seeing the insurmountable challenges of biofuels growing evermore, many algae companies scrambled for survival by pivoting to emerging markets where microalgae could offer inherent advantages over the competition. Some succeeded, a great many failed, and a few refused to concede (like Synthetic Genomics).
Whereas biofuels had focused on lipids, Algae 2.0 startups are focusing on burgeoning applications that leverage the wide variety of value-added components algae innately offer, including proteins, carbohydrates, pigments, polyunsaturated fatty acids, vitamins, amino acids, antioxidants, and more. These compounds naturally lend themselves to an array of verticals, including biomaterials, cosmetics, agriculture, health, and food. The aforementioned markets offer non-commodity products with much higher margins.
The new generation of startups focus on demonstrating product differentiation and building strong business to business collaborations. They target big, profitable markets where their products can compete in terms of price and quality, not just sustainability - antithetical to the biofuels approach.
The current crop of microalgae startups have advantages over their ill-fated predecessors. The billions previously invested in biofuels enabled the construction of global microalgae cultivation facilities that can readily supply biomass for specialized processing, dramatically reducing capital requirements for newcomers. Current startups also benefit from years of algae research across broads fields of biology, chemistry, food science, and materials science, which has propelled many of these new applications and products. New algae companies also have a significant brand advantage in the current market where consumers are demanding environmentally friendly products.
Source: Seaweed Solutions
What about macroalgae? As arable land becomes frighteningly scarce, attention has increasingly turned towards the vast ocean. Kelp startups have been riding the same wave of innovation as microalgae with similar target markets, albeit with some unique advantages that we’ll dive into later. Although untarnished by biofuels, their growth has been slow in the Western market where kelp is vastly underutilized. Unlike in Asia, kelp in the US and Europe doesn’t fall into a normal feedstock category for food, materials, or really anything.
Because kelp farming is rarer in the West (95% of production occurs in Asia), kelp companies are fewer and more nascent than their microalgae counterparts. However, Seaweed Solutions puts it aptly when they write “As seaweed cultivation grows ..., so do the opportunities for new and exciting applications”. We’re using kelp and seaweed interchangeably, but here’s a great taxonomy lesson if you’re interested.
Innovative applications continue to emerge that leverage the full potential of algae as a sustainable, scalable production platform. We’ll be exploring three emerging areas that we believe are ripe for investment opportunities in the coming years: biomaterials, pigments, and food.
The environmental toll of plastics is undeniable. They pollute the land and water for centuries, wreaking havoc on fragile ecosystems while damaging plant, animal and human health. Recycling alone can’t be relied on to mitigate the crisis as less than 14% of plastic is recycled and plastic has limited capacity for reuse. As global plastic demand rises, there is an increasing need for truly sustainable bio-based plastics that reduce greenhouse gases and can degrade in nature, not in energy intensive commercial composting facilities. The estimated market for bioplastics is large ($10.5B) and growing (21.7% CAGR), driving the development of novel materials to meet demand. While many bioplastics products currently exist on the market, only some are naturally biodegradable without a commercial facility, as can be seen in the chart below.
Source: Bioplastics News