Khosla-backed Coskata, EcoMotors come out of stealth

Warrenville, Ill.-based Coskata and Detroit's EcoMotors pulled off their veils of secrecy this weekend, with the Khosla Ventures-backed companies coming out of stealth mode just in time for the North American International Auto Show in Detroit.

Coskata, which is developing cellulosic ethanol from waste, stepped into the spotlight with the news that Michigan's General Motors (NYSE: GM) is taking a significant stake in the startup.

The other end of the fuel equation is being covered by a stake from Khosla in EcoMotors, a developer of highly efficient diesel engines.

Both startups are making bold claims about their technologies, with Coskata saying it will produce ethanol for less than $1 per gallon, about half of today's cost of producing gasoline.

EcoMotors is working on a diesel engine that it says will deliver 100 miles per gallon by 2011.

The two companies join a growing list of biofuel and vehicle related fundings at Khosla.

"We have, obviously, multiple investments per segment, and we, on a regular basis, get the companies in those segments together to try and understand if there are any synergies," Ford Tamer, operating partner at Khosla, told the Cleantech Group.

The investment firm already has a hand in Broomfield, Colo.'s Range Fuels, which is close to commercial ethanol production (see Range Fuels' Mitch Mandich breaks ground), as well as Cambridge, Mass.-based Verenium, another cellulosic biofuels company.

And while Tamer said Khosla has no plans to invest in a car maker, the venture group does have some stakes in car parts.

Camarillo, Calif.'s Transonic Combustion, a developer of fuel injection systems, and Berkeley, Calif.-based Seeo, a battery maker, are both part of the Khosla portfolio.

Coskata was founded in 2006 with $17 million from Khosla, Advanced Technology Ventures and Great Point Ventures, but has been operating in stealth mode until now.

The size of the latest investment from General Motors was not disclosed.

Khosla's stake in EcoMotors, a newly formed company, also was not revealed.

Take a look at Vinod Khosla, GM chairman and CEO Rick Wagoner, and Coskata president and CEO Bill Roe at the auto show here >>

The team behind EcoMotors company has been designing engines for the past forty years, and already has a prototype for military aircraft and trucks that, while not at the 100 mpg mark, is very efficient in terms of its small size and big power.

"The fuel efficiency came along as a big bonus," said John Colletti, COO of EcoMotors.

"The high specific output of this engine, over 130 horsepower per liter, is what's really the attraction for the military, because you can make a much smaller, much lighter, much more compact installation."

Colletti said the U.S. Department of Defense plans to evaluate the engine in May.

The company's consumer engines, which are expected to be cost efficient as well as fuel efficient, will target the rising demand for vehicles in developing countries.

"Diesel engines are used all over the world. China, India are big growing markets right now, and diesels are carrying the brunt of the transport business," said Colletti.

Cellulosic ethanol maker Coskata, named after a wildlife refuge on the island of Nantucket, off the coast of Massachusetts, uses microorganisms and a bioreactor in its system.

And it says it can use a variety of feedstocks, including biomass, municipal solid waste, discarded plastics and old tires.

Coskata plans to have a pilot facility operational by the fourth quarter of this year, with some early batches of fuel going over to GM so the automaker can start testing the fuel in its vehicles.

GM is working on doubling its North American flex-fuel vehicle production to 800,000 by 2010, and has committed to making half of its vehicles flex-fuel-capable by 2012.

Part of that manufacturing process could create feedstock for Coskata. GM said the two companies will look into making ethanol from the waste and non-recyclable vehicle parts left over at GM plants.

Coskata expects to have a commercial-scale plant making 50 to 100 million gallons of ethanol up and running in 2011.

The un-stealthing of both companies comes less than a month after a new law boosting fuel efficiency and biofuels was signed into law in the U.S. (see U.S. solar & wind incentives on the way?).

Under the new law, all car makers will need to improve fuel economy by 40 percent beginning in 2011, and achieve a fleetwide average of 35 miles per gallon by 2020.

The new energy legislation also calls for annual production of 36 billion gallons of biofuels by 2022, a fivefold increase from current production levels, with 21 billion gallons of that required to be cellulosic ethanol.

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