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NZ Super Fund invests US$60 million in LanzaTech, taking 17% stake

The New Zealand Superannuation Fund has invested US$60 million in LanzaTech, taking a 17 percent stake, in what may be the gas fermentation company's last capital raising before beginning to earn revenue.

The investment values the company at about US$400 million and makes the Super Fund the second-biggest shareholder behind Silicon Valley-based Khosla Ventures with 42 percent. One of Lanzatech's original investors was Stephen Tindall's KIWI fund, which owns 8.66 percent, while founder Sean Simpson has retained 1.4 percent.

Founded in New Zealand in 2005 and now headquartered in Chicago, Lanzatech turns waste gas from steel mills into ethanol and other high-value fuels and chemicals. It has 130 staff globally, including 15 in New Zealand.

Super Fund head of international direct investment Nigel Gormly said LanzaTech was one of the most exciting companies New Zealand has produced, with significant global potential. The Super Fund was attracted to the company because of the exposure it provides to the waste-to-energy sector.

"We are actively diversifying into alternative and non-conventional energy, alongside traditional energy investments," he said. The Super Fund has a 20 percent stake in petrol company Z Energy.

LanzaTech is one of a series of expansion capital investments made by the Super Fund in recent years and about 1 percent of its $27 billion of funds is now in privately-owned, early-stage companies.

The Super Fund carried out the most extensive due diligence LanzaTech has undergone to understand the risks to commercialisation, Gormly said.

"They're in the position where they need an investor like us now because of the scale of what they're doing," he said. "We've been talking to them for a number of years but our investment discipline is clear and they haven't filled the criteria for what we look for until now."

Simpson said LanzaTech had been working for a long time to get into a position where it could attract an investor like the Super Fund.

"We're tremendously proud of it and more so because it is investment from New Zealand, and even more so, because the NZ Super Fund is not known for investing in pre-revenue companies, therefore that was a huge compliment," Simpson said.

LanzaTech has raised more than US$160 million from other investors and Simpson said more Kiwi companies should be trying to make the connections that would get them capital from deep-pocketed US venture capitalists, as LanzaTech did with Khosla Ventures. It allowed him to have a "grand vision" to scale up the company well beyond what he had first envisaged and to hire a quality management team to help it grow faster.

"You can't just rock up and knock on their door and pitch your story. You have to get them to take you seriously and in our case, it was an early investor, the late, great Professor Ross Clark, who knew venture capitalists in Silicon Valley and made the introductions for us that gave us a leg up," Simpson said.

LanzaTech chief executive Jennifer Holmgren said the Super Fund investment should see it through until 2017 when it would generate revenue from its first commercial plant, which is targeted for operation in 2016.

"This is huge for us because it allows us to go through to cash positive," she said. "As a company we can stop looking over our shoulders and start looking forward."

LanzaTech's patented technology uses microbes in the fermentation stage where gas is converted to ethanol and chemicals. It has demonstrated the technology works converting steel mill gases to ethanol in China and is about to set up pilot plants next year for converting carbon dioxide emissions to produce omega-3 rich fatty acids in India and processing municipal solid waste to ethanol in Malaysia.

Holmgren said the company would also be announcing a number of partnerships next year with major chemical companies for a portfolio of chemicals made using the technology. The chemicals include butadiene, a key element in nylon and synthetic rubber production, and the company had been working with US-based Invista, the world's largest nylon producer, she said.

Within a couple of years, Holmgren is also hopeful LanzaTech can work with New Zealand partners to convert wood and municipal solid waste into ethanol and high value chemicals.