A number of very tiny companies, sometimes penny stocks, are rallying to start 2021. Gevo $GEVO is one of them.

The stock is up >700% in three months, which means the business is now valued at $1.2 billion.

Here's why investors need to be careful.

I've covered $GEVO for nearly a decade. It's an industrial biotech company that's been trying (and failing) to commercialize its isobutanol technology platform.

Idea = feed agricultural sugars to genetically engineered yeast, yeast make higher value chemicals.

Isobutanol can be used to manufacture chemicals and (most importantly) be added to gasoline as an oxygenate, similar to ethanol. Isobutanol is significantly better than ethanol in energy density, compatibility with existing infrastructure, carbon reduction, and value. $GEVO

That sounds all well and good, but the reason industrial biotech companies have mostly failed is that they focused too much on low-margin, low value markets. Like fuels.

Tough to commercialize, especially given our relatively poor understanding of biology / scale-up. $GEVO

On the one hand, we have much better tools from R&D to commercialization in 2021 than in 2008. On the other hand, petro-based inputs have only become cheaper & more accessible.

The latter trend has outpaced the gains of the former. Industrial biotech still can't compete. $GEVO

Recently, $GEVO has pivoted to new marketing around Net Zero facilities.

Net Zero 1 will produce 45 million gallons per year of jet fuel & gasoline, 158 metric tons of animal feed, and have net-zero carbon emissions. It will cost $700 million to $800 million.

First, that's a ridiculously tiny facility for a low-margin market. The scale almost certainly isn't large enough to enable profitable operations. In my experience, the cost is also insanely high for such a small facility. This doesn't signal "profitable technology" to me. $GEVO

Second, $GEVO keeps adding complexity. Each process step is a cost, each cost reduces margins.

Grow crops (1), process crops (2), ferment sugars (3), process products (4), catalyze into jet / gasoline (5). These are just the main steps -- engineers have to optimize many more.

Third, the unfortunate reality is $GEVO hasn't found a way to commercialize its technology. The technology might "work", but that doesn't mean it can be successfully commercialized. I don't see any reason this will change given market conditions.

Good to see $GEVO raise $350 million (it can thank Twitter I imagine) and pad its balance sheet, but I'm fairly confident this technology platform will continue to disappoint. Industrial biotech isn't mature enough for these markets.