Deal focus: GPs go big on China biosynthesis

Over a decade ago, biosynthesis was regarded as an ideal alternative to heavy polluting chemical plants. Capital chased the opportunity, but to little effect. Now, though, the situation has changed.

“Synthetic biology is booming in China. Start-ups might be entering the space 10 years later than their US peers, but technology has undergone earth-shaking changes in the past decade, so China is entering at the best time. It’s a blessing for China,” said Bo Bai, a founding partner at Asia Green Fund, a private equity firm that makes green impact investments across the region.

Produced in the traditional way, chemicals are the result of a series of engineered reactions intended to break or reform bonds between atoms. Biosynthesis achieves the same result through enzymatic reactions, drawing on the power of microorganisms and naturally occurring enzymes to turn simple compounds into macromolecules or more complex products.

“It’s like cooking – you need the right recipe, with the right microorganisms, the right enzymes, in the right environment, at the right temperature,” Bai added. “It’s a very difficult process.”

He first investigated biosynthesis projects in 2008, while working for Warburg Pincus in New York. Many of these projects consumed hundreds of millions of dollars without finalising the recipe. When Bai re-visited the space in 2018 in China, he was surprised to find that local companies could find the right recipe at 1% of the 2008-level costs.

Progress was driven by the maturation of gene sequencing technology and proliferation in its use, which helped reduce costs. By 2018, recipe discovery had fallen to around USD 10m. Moreover, relevant use-cases for biosynthesis had expanded, thanks to the formation of databases and big data analysis. Numerous healthcare professionals returning to China from overseas started targeting the space.

In 2019, Asia Green Fund identified Shanghai bio-manufacturing start-up Mojia Biotech as a potential investee. Due diligence included sending Kuan Huang, an executive director at the firm who holds a PhD in environmental science and engineering, to conduct experiments on-site. Asia Green Fund became Mojia’s first institutional investor, leading a CNY 100m (USD 14.8m) Series A in 2020.

Later the same year, GL Ventures and agrifood tech-focused investor Bits x Bites participated in a Series A extension. The company recently closed a USD 80m Series B led by Temasek Holdings. Sento Investment and biotech specialist Lyzz Capital came in as new investors, while Bits x Bites and Asia Green Fund re-upped.

Founded in 2018, Mojia produces food ingredients and chemical materials, notably vitamin B5. It relies on a patented bioprocess involving enzyme and metabolic engineering that consumes less energy and emits less waste than traditional methods. Whereas other B5 manufacturers have been caught out by China’s tighter line on environmental regulation, Mojia is a stable source of supply.

“Mojia’s robust technology platform enables ingredients to be synthesized in a simple and cleaner process, and most importantly at a much competitive cost structure. This is what initially drove us to the company,” said Joseph Zhou, a partner at Bits x Bites.

“The company has now successfully launched its industrial bio-manufacturing business, and it keeps developing new bio-derived pipelines, including biopolymer. At the same time, the team is being strengthened to scale-up production and focus on downstream application development.”

Mojia is well-positioned to benefit from China’s drive to bring emissions to a peak by 2030 and achieve carbon neutrality by 2060. Biosynthesis and other relevant themes have received considerable attention from generalist and consumer investors since the “dual carbon goal” strategy was announced in September 2020.

This focus has only intensified in the wake of last year’s regulatory crackdown on the likes of consumer-facing internet platforms, after-school tuition providers, and gaming companies. Investors are looking for themes that enjoy policy tailwinds and carbon neutrality sits high on the list alongside deep technology and advanced manufacturing.

“The slowdown in investment and the reduction in capital allocations are not as pronounced in our field as in others. Some sub-sectors are even hotter this year than last year,” said Bai. He added that Asia Green Fund made twice as many investments in the first half of 2021 compared to a year earlier.

At the same time, Asia Green Fund is looking to do more deals because it is moving to earlier-stage deals. The internal view is that mid to late-stage projects in biosynthesis, energy storage, and batteries are overheated and no longer represent good value. Focusing on angel and pre-Series A rounds is a significant departure for the GP, which has a buyout and M&A heritage.

Bai observes that, in many cases, the technologies and materials have been available for years; the bottleneck is commercialisation. "Actually, the difficulty lies in the fact that the maturation process is really a slow and drawn-out process.”

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• Topics
• Greater China
• Early-stage
• Cleantech
• Industrials
• China
• manufacturing
• Chemicals
• Asia Green Fund
• Temasek Holdings
• Bits x Bites