GreenFuel Technologies, one of the earliest, best funded and most publicized algae companies, is shutting its doors, a victim of the credit crunch.

"We are closing doors. We are a victim of the economy," said Duncan McIntyre at Polaris Venture Partners, which invested in Greenfuel.

Although it has raised millions of dollars and landed a high-profile deal with Auranta in Spain to erect test facilities, it could not get money to complete the project. In January, it laid off 19 people, or half of the staff.

The company has also been chronically saddled with delays and technical problems. The company's plan was to pump carbon dioxide from smokestacks into bioreactors – i.e., sealed plastic bags filled with algae and water. The algae would grow fat on the carbon dioxide and later be harvested by GreenFuel to be turned into oil for biodiesel. Protein and other matter from the algae would also be sold to pet food manufacturers.

Ideally, GreenFuel's plants would sequester greenhouse gases, help the U.S. get off foreign oil, and bring the company revenue from carbon credits and product sales.

Getting the whole thing to run smoothly, though, was tougher than expected. GreenFuel could grow algae. The problem was controlling it. In 2007, a project to grow algae in an Arizona greenhouse went awry when the algae grew faster than they could be harvested and died off. The company also found its system would cost more than twice its target.

That led to the company laying off about half its staff of 50 at the time and hiring Ethernet inventor Bob Metcalfe as interim CEO. Metcalfe led the restarting and decommissioning of the Arizona project after what he said was a successful trial, and helped the company raise $13.9 million in funding from VCs including Access Private Equity, Draper Fisher Jurvetson and Polaris Venture Partners.

In July, shortly after Metcalfe said GreenFuel was seeking a series C round of funding and was looking into two projects in the United States (see GreenFuel Closes In on Series C), GreenFuel named former Dow Chemical executive Upfill-Brown as its new CEO. Since then, GreenFuel hasn't announced any more funding or any U.S. projects.

Join industry leaders and influencers at Greentech Media's Enterprise Carbon Accounting event.