Getting oil from algae is nothing new, according to Lissa Morgenthaler-Jones. Nature has been doing it over millions of years.

The challenge, she says, is doing it profitably. And a little faster.

Morgenthaler-Jones is founding CEO of LiveFuels, an 11-month old Silicon Valley-based company that today announced a Series A round of $10 million, led by David Gelbaum of the Quercus Trust—a major donor to conservation advocacy and environmental organizations. The Gelbaum family itself contributed the lion's share of the money.

If its source of funds sounds unconventional, and an uncharacteristically large bet for a single investor, LiveFuels is anything but a typical startup. It's been seeded to date with private money from the Morgenthaler family. And joining Morgenthaler-Jones on the executive team is David Jones, chief operating officer, the Jones in Morgenthaler-Jones.

Lissa Morgenthaler-Jones (L), Dave Jones (C), and Charity DeLuca, LiveFuels VP of Research Relations (R) at an investor conference earlier this year. >> [1]

If you follow biofuels, you've already heard rhapsodic waxings about the promise of algae as a feedstock. Yields of oil from algae promise to be vastly higher than those for traditional oilseeds. The crop can be grown in places far from farmlands & forests, minimizing the damages caused to the ecological and food chains and obviating the food vs. fuel dilemma. And algae can be grown in sewages and next to power-plant smokestacks where they digest pollutant and harmful emissions.

But what not everyone understands is that the technology doesn't yet work at scale.

"This is a game about biomass. The biomass itself has to be very cheap, and there has to be a lot of it given everything else you have to do to it. People all over the world are making algae oil, but they're doing it in drops," Morgenthaler-Jones told the Cleantech Group.

LiveFuels aims to change that, cost-effectively producing large amounts of what it calls biocrude, i.e. oil derived from algae—not fuel itself, per se—by 2010. The company plans to then sell the oil to others, or as last resort, to refine it itself.

To do so, in intends to staff up with its new funding, while continuing to fund research by Sandia Labs and elsewhere.

Respected government, academic and private researchers around the world are pursuing biofuels from algae. LiveFuels says it's funding "one or two full time," and part time consultants numbering in the tens. LiveFuels invested $100,000 with Sandia Labs in the fall of 2006 for help on process engineering, however no algae research, strictly speaking, has yet been done at Sandia for LiveFuels, said Morgenthaler-Jones.

A handful of other companies are invested in the space, most notably Cambridge, Mass.-based GreenFuel Technologies [2], which has raised some $20 million over several years. GreenFuel is growing algae primarily in bioreactors, fed by CO2 from industrial smokestacks [ed.: there's also an ever-expanding algae industry fringe; the curious will enjoy this [3], this, [4] and especially this [5].]

LiveFuels plans to take a different tack, without the bioreactors espoused by companies like GreenFuel and others.

"The company is going to grow vast amounts of biomass, we hope, and very cheaply, and we'll be doing it in open ponds."

"It's got to be like the semiconductor business. You throw a fair amount of capital equipment at it, but you ultimately start cranking out a very cheap product," said Morgenthaler-Jones.

"I think venture capitalists have been largely fooled by photobioreactors and genetic modification. I believe both are useful for certain purposes, and we'll make use of both in small amounts, but the fact of the matter is, the capital expenditures of photobioreactors will simply kill a company."

LiveFuels expects genetically modified algae to be a dead end, given the years of regulatory approval required, and the expected difficulty for engineered 'hothouse microbes' to compete with indigenous organisms that have evolved over millions of years for specific light levels, temperatures, annual climates and PH levels.

To critics who've questioned whether LiveFuels has the right facilities and staff to be able to deliver, Morgenthaler-Jones acknowledged her lab was small but functional, that she believed her team has what it takes, and will be hiring more people on.

"We've got more serious people involved in this company than any other algae company. The former head of Xerox PARC is our chairman. And we have the chief science officer of the Moore Foundation [David Kingsbury, chair of company's scientific advisory board], who, at Chiron, helped coordinate 1,400 external collaborators."