Canada grabbed the most attention when it launched a $500-million fund to back next-generation renewable-fuel companies this week. Canadian companies are now free to pursue the funding, which is earmarked to cover up to 40 percent of the cost of a demonstration plant.

Also this week, Endicott Biofuels raised $40 million from Haddington Ventures and Cilion raised $105 million in debt financing. Virent Energy Systems also closed a funding round last week.

All this news highlights a cleantech-investing trend.

Companies working on next-generation biofuels might have the technology, but they've lacked the capital to build the plants and other infrastructure required to fully prove it.

An untraditional ally has stepped into the shoes previously filled by project finance - venture capital. In biofuels, venture capitalists are foregoing their customary role as just technology investors.

When it comes to biofuel investments, they are throwing their money at infrastructure as well.

Endicott Biofuels and Cilion are perfect examples. Endicott's funding this week is for the construction of a "second-generation technology" refinery for biodiesel and other bio-derived products. Cilion's debt financing is for the construction of two ethanol plants in California.

But is this type of equity investment the right move for the venture-capital community?

Joel Makower, executive editor of, said he sees nothing wrong with venture capitalists spending cash to build plants.

"I don't think it's any riskier than betting on the next enzyme to break down cellulose," he said, referring to a key ingredient used to make cellulosic ethanol.

Cellulosic ethanol is a next-generation fuel made from nonfood biomass like switchgrass, wood chips and corn cobs. Companies developing alternative fuel still haven't been able to produce it on a mass scale, or at an affordable price.

Makower thinks venture capitalists that fund biofuel infrastructure are pushing themselves toward a potentially bigger payoff.

"Someone is going to be the next Exxon of biofuels, and I think people want in on that," he said.

But some venture capitalists, such as RockPort Capital Partners, have declined such investments so far, and not all venture capitalists who have made the leap are happy about their role as project financiers.

"It's an area where VCs would prefer not to be investing," said Matt Horton, a principal at @Ventures.

Perhaps it's more by default that VCs have taken on the new investment role.

Horton said that project-finance players by nature are conservative and risk-adverse, which makes them withhold financial support until the technology has been proven at a commercial scale.

"Essentially, venture capitalists have found they have to get involved in some project and provide some project equity to really prove the technology at commercial scale," he said. "It's hard to say at this point if it'll pay off in the end."

Once large-scale biofuel production is proven, he thinks venture capitalists will be off the hook.

"The project-equity players are in a big hurry to invest in the second project," he said. "Nobody wants to invest in the very first plant for a given technology."

Biofuel venture-capitalists, including @Ventures itself - which invested in Earthanol, a startup hoping to make ethanol from waste - surely hope he is right.