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Expert View: Invest-ability of the bio-economy.

Posted on Aug 28, 2018 4:00:00 PM

Untitled design (64)“Several of the success stories have helped today to demonstrate that it is possible to build a real business, and many more are on the verge of larger scale breakthroughs to the real economy.”

Capricorn Venture Partners (CVP) believes the bio-economy is turning into a world economy writes Rob van der Meij. The momentum is definitely picking up with a variety of companies going into commercial stages after a long development road, as well as a lot of new initiatives these past few years. Consumer acceptance and demand play a big role. Compared to 10 years ago, when we made our first investments in bio-based companies, we see distinct differences:

Drivers. While 10 years ago the promise to turn a fossil economy into a bio-economy on a like-for-like basis was a main driver for innovation and investment. Today we see that product performance, sustainability and customer awareness are driving the demand for new products. It is not enough just to be ‘green’, products require a distinct advantage over its chemical alternative, while at the same time sustainability over the life of a product is also required.

Enablers. ‘Start-ups, scale-up, accelerators and hubs’ are the buzz-words of today. Historically they tended to focus more on IT sectors but we have also seen a steady rise in the number of bio-based economy clusters in operation. Biobased Delta, Biovale and bio NRW are just a few of the many ‘connectors’ creating the enabling environment for startups, scale ups and established companies to meet, interact and grow.

Pilot facilities. There’s no doubt that the Capex needed for pilot plants was one of the constraints in the past for bio-based company developments. However, today we see that many private and (semi-)governmental institutions have made the investments and multi-purpose pilot facilities are available, saving both money and time for developments.

Sense of reality. Costs, complexity and timelines were initially heavily underestimated. This has lowered credibility of the sector as a whole for investors and off-take partners (B2B consumers).

Several of the success stories have helped today to demonstrate that it is possible to build a real business, and many more are on the verge of larger scale breakthroughs to the real economy.

World Bio Markets 2019 Prospectus This is helping to create credible investment cases today. Funding for demonstration-stage facilities remains difficult. We see the EU stepping up with new finance instruments but many are still equity based. Debt-based structures are less of a barrier to the early stage investors and are easier to structure. Government supported or partially guaranteed ‘green’ loans can unlock the participation of banks. We now see a lot of banks with ‘sustainability’ initiatives, but we also see limited potential for banks to participate directly in projects that still face technology and/or early stage business risks. Smart debts structured instruments can be an enormous help at this stage because they keep a fair reward in play for the early stage investment risk.

Early stage investors have stepped in in a big way regarding synthetic biology with high profile investments coming as a result. We observe that those investors are also diverging from the historic build-own-operate model to service and CMO-based models as a way to preserve capital efficiency. At CVP we remain careful in this area, and we observe the early warning signs of a hyped investment sector such as rapidly increasing (early stage) valuations and very high revenue expectations. We keep a very close eye on this sector but remain selective in our target screening.

Nutrients for human and animal food are a big attention area. The challenge of providing healthy and sustainable nutrition to the world is a very big one that drives a lot of innovations across the value chain.

While operational farming technologies are out of our scope, we see good investment opportunities for bio-stimulants, fertilisers and pesticides. Also, the use of industrial bio-tech is developing rapidly and has proved extremely suitable for specialised and large scale ingredient manufacturing. Industrial bio-tech seems to be at the verge of larger market penetration, supported by the use of synthetic biology to accelerate and reduce the costs of the development cycle.

Fermentation remains challenging as a manufacturing technology for low-priced molecules but is getting very good traction for higher value products. At the same time, we see very promising developments in improved fermentation technology, process optimisation, and intensified separations technology, which are necessary to improve the economics of the process.

Our Capricorn Sustainable Chemistry Fund is very well positioned to capture opportunities in the bio-based investment space. We currently have a fund size of €50 million but expect to have increased this considerably before the end of 2018. Our current investments, ViroVet and DMC BIO, have taken significant development steps since we provided funding and we expect we will close a third investment later this summer. Our flow of deals is constant and it continues to increase on an almost daily basis. To handle this properly we have expanded our team and filled it with new talent, so we are excited and ready to roll!

Rob van der Meij, Investment Manager CSCF, Capricorn Venture Partnersrob@capricorn.be

This interview first appeared in Issue #10 of the Bio-Based World Quarterly, read the full issue here.

Guest posts do not necessarily reflect the views of Bio-Based World News' editorial team and management. 


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About the Author

Rob van der Meij, Capricorn Venture Partners.