Unilever invests in Solazyme: search for palm oil substitute expands algae's universe

In California, Solazyme announced that Unilever has joined its Series D financing round.  The strategic investment by Unilever adds to the previously announced Series D round, which has brought in a murderer’s row of strategic investors and VC into what is increasingly being seen as a breakout platform for renewable oils produced from microalgae.

The size of the investment was not disclosed, but total investment in Solazyme prior to the Unilever announcement had reached $152 million.

Unilever joined other strategic investors in the round including the venture capital arm of Chevron Technology Ventures LLC; San-Ei Gen, a major Japanese manufacturer and distributor of food ingredients, Braemer Energy Ventures, Morgan Stanley, Lightspeed Venture Partners, The Roda Group, Harris and Harris Group, VantagePoint Venture Partners and Zygote Ventures.

But of all the investors, the most eye-cathching among all those who did the high dive into the algal fermenter was Bunge.

Let’s rewind to the Bunge deal

“While Amyris uses modified yeast, and LS9 uses modified e.coli as platforms,” we wrote two weeks ago. “Solazyme uses optimized strains of heterotrophic algae, and for this reason the Bunge investment represents something quite new in US-Brazilian tie-ups – the first strategic investment that brings together powerful interests in sugarcane, and a powerful algal technology.

What’s common to the Amyris, LS9 and Solazyme is that they have a way to take low-cost sugars – which trade in the 12-cent per pound range when prices are high – and sugars are available as low as 6 cents per pound in the down cycle – and use them as a feedstock to produce renewable oils, which retail in the $.30 to $.40 cent per pound range, and with less risk than growing oilseeds in open fields where they are exposed to the elements.

The key: Bunge’s access to low-cost sugar, which is at the heart of the deal, is based in its assets in Brazil. A maxim in the business, process the feedstock as close to its origin as you can, then ship the product – rather than the other way around.

What’s different about the Unilever investment?

For starters, think downstream. While Bunge has the opportunity to leverage its low-cost sugar assets to tap into high-margin oil markets, for Unilever the

Unilever and the race for sustainably sourced oils

For many people – and for a long time – Unilever means palm oil – in fact, the company was originally established as a merger of Lever and Unie, aimed at achieving economies of scale in palm oil trading, and the company continues to  account for up to four percent of the global trade. For a long time, that meant serious opportunities for developing affordable new food, home, and health products and brands.

Lately, it means a rollercoaster of pricing – with swings of $500 per tonne in a single year. Plus, a relentless campaign from rainforest-oriented NGOs on the dangers of deforestation from the expansion of palm oil cultivation. Rarely is Unilever directly implicated in rainforest destruction. They simply have been exposed becuase of their size, and because of their role in driving 6-10 percent annual growth in palm oil demand, which inevitably puts pressure on land use in Malaysia and Indonesia.

Think downstream, think scale

What Unilever brings is, well, 1500 products, many of which depend on veggie oil as a key ingredient. Most of which are sector leaders or close competitors. Many of them marketing behemoths like Flora, Bertolli, Hellmann’s,
Knorr, Slim·Fast, Dove, Lux, Pond’s, Sunsilk, Vaseline
Omo, or Surf.

Its a downstream tsunami of oil demand, backed by marketing clout, advertising genius and shelf space.

The Solazyme and Unilever take on the investment

“Unilever products touch the lives of over 2 billion people every day. Solazyme’s tailored oils and bioproducts provide innovative and sustainable solutions across many of their well established product lines. Our technology compliments Unilever’s aggressive drive and commitment to deliver sustainable high performance products to consumers globally,” said Jonathan Wolfson, CEO and co-founder of Solazyme.”

Phil Giesler, Innovation Director at Unilever Corporate Ventures commented, “Solazyme is clearly a leading company in the biomaterials space. Unilever has been working closely together with Solazyme for two years now and this investment will help us to broaden our partnership in new application areas. It will also help us to plan for how future developments in Solazyme’s technology platform will contribute to Unilever’s supply options and assist us in our sustainability vision.”

Next week, next year, next century, when will the impact be felt.

According to a report in the Wall Street Journal, Unilever is saying publicly that it expects to use algal oil as a commercial-scale ingredient commencing between 2013 and 2017.

The issues? For now, production at scale, and at parity pricing with competing veggie oils.

Rewind to March

In California, Solazyme announced back in March that it has signed an R&D agreement with Unilever to develop oil derived from algae for use in soaps and other personal care products. The agreement follows the culmination of a yearlong collaboration between Solazyme and Unilever, in which Solazyme’s renewable algal oils were tested successfully in Unilever product formulations.

At the time, Solazyme and Unilever said they were working to demonstrate a process to incorporate targeted algal oils into personal care products at a commercially relevant scale. The work will further develop Solazyme’s technology platform, which allows algae to produce oil and biomaterials in standard fermentation facilities quickly, efficiently and at large scale.

Rewind to March (again)

Back in March, some other activities at Unilever caught our attention, in the -get-some-sustainability-quickly department.  At the time, Digest correspondent Per Dahlen wrote, “
The US and Europe will continue to set tighter rules and regulations with regards to imported biofuels. We already see momentum with regards to RFS-2 (US) and the RED (EU), and this is likely to increase in the future. Environmental organizations like Greenpeace already prove its power by forcing Unilever to cancel annual contracts with un-sustainable Palm manufacturers by the end of 2009.

“This trend is going to increase when the end-consumer can make informed choices between a sustainable and a less sustainable product or service. According to Procter & Gamble some 70% of the American consumers will choose a ‘more environmentally friendly’ product with the same performance.

Dahlen is right. Last year Unilever purchased 180,000 GreenPalm certificates, representing 80 percent of all GreenPalm certificates traded globally. They have projected that they will double their volumes this year. This is scale up in sustainability at world-class levels.

Further, Cargill and Unilever announced a deal to supply Unilever’s European operations with Roundtable on Sustainable Palm Oil (RSPO) certified palm oil – segregated from other sources. That is, accountable., traceable, and traded on that basis.

It goes back to a commitment that Unilever made in 2008 to “reducing our overall environmental impact while doubling the size of our business,” which included an assessment of the greenhouse gas, water and waste impacts of 1,500 products.

As a result of those assessment, they see the need for algal oil., In Solazyme, they see the source.

The Digest’s Take

For Solazyme, we continue to see the basis for the big, monster IPO. What do you need for that? A sustainable, feasible, scalable feedstock source – think Bunge. Proof that the technology works at scale – think US Navy. A monster downstream partner – think Unilever. Turning these contracts and investments into the sort of proof-positive, $100 million revenue, happy-margin darling of a revived IPO market will take some time. But how long can it be?

Back in 2009, Solazyme CEO Jonathan Wolfson told the Digest that he expected the company to reach 100 million gallons in production by 2012 or 2013. We suspect they might be reaching for something a little brighter by right about then.