Biofuel developer Amyris Biotechnologies said Wednesday it closed the first tranche of what will be a $70-million round of venture funding.

The company didn't disclose how much it raised in the leg. But when the full round closes, it will bring the company's total funding to $90 million.

Investors for Amyris' second round include Duff Ackerman & Goodrich Ventures, which led the round, Khosla Ventures, Kleiner Perkins Caufield & Byers and TPG Ventures.

Amyris plans to spend the money on development and production of biogasoline, biodiesel, and biojet fuel. The Emeryville, Calif.,-based company expects to bring its biofuels to market as early as 2010.

The financing highlights an explosion of biofuel funding this month. VentureBeat wrote today that Solazyme, which is developing algae for both biofuels and health products, raised $5 million in debt from BlueCrest Capital Finance.

Earlier this month, Canada launched a $500-million fund to back next-generation renewable-fuel companies, and Endicott Biofuels, Cilion and Virent Energy Systems also raised cash (see Are Biofuels Pushing VCs Into a New Role?).

Despite the timing of all these announcements, "I don't think there is anything magical about September 2007," said Matt Horton, a principal at @Ventures, which is not an investor in Amyris.

Horton said many of these deals have been in the works for a while, but added the downpour of fundings underscores the interest in the area.

That could be a cause for worry.

"It concerns me that [riskier biofuel startups with new technology] are able to raise money at such valuations," he said, which could set investors up for a fall if the companies don't meet their milestones perfectly.

Horton sees the investment interest in biofuels continuing next year. But one thing might be different. "I don't think the companies that still have technology risk will be able to raise money at valuations that are this high," he said, adding that the current valuations are not sustainable.

Still, Horton said companies pursuing highly disruptive technology in the area, like Amyris, have the potential to see exceptional returns.

Biofuels From Designer Bugs

Amyris is unusual because its technology comes from a nonprofit project to produce lower-cost anti-malarial drugs.

The company is now using the microorganism-based technology to create biofuels from renewable feedstocks, including sugar cane, corn and cellulose.

How did that happen?

Artemisinic, the active ingredient in the malaria drug, is made from an extract of the Chinese sweet wormwood plant, also called qinghao, which is in short supply. By reverse engineering, Amyris came up with an enzyme to convert sugar into artemisinin, the active component of the malaria drug.

As it turns out, the cell that makes artemisinic is the same kind of cell that could be re-engineered to make a biorefinery.

"We have already succeeded in creating these biofuels in our lab," said CEO John Melo, in a statement.

According to the press release, John Doerr, partner at Kleiner Perkins Caufield & Byers said Amyris' technology is a big deal because it will enable cost-competitive biofuels to work with existing engines without sacrificing performance.

Amyris expects its Series-B financing to close by the end of the year. But will it be enough to bring biofuels to the masses? And will investors delight in the financial returns?