The search giant’s venture capital unit, Google Ventures, last week led a $20 million investment into CoolPlanetBioFuels, a Camarillo, Calif.-based company that says it can make high-octane fuel out of low-grade biomass. Other investors included North Bridge Venture Partners and Energy Technology Ventures — a collaboration between GE (GE), NRG Energy Inc. (NRG) and ConocoPhillips (COP).

CoolPlanet says that its process is “carbon negative,” cheaper than traditional gasoline production and doesn’t require permanent refineries. So I spoke with Google Ventures partner Wesley Chan to get a better understanding of why Google is involved, and how CoolPlanet will avoid the sorry fate of many other VC-backed biofuel startups:

Fortune: Google Ventures is known for IT investing. How much attention do you pay to cleantech?

Chan: I work with Bill Maris, and together we look at all of the clean-tech deals coming into Google Ventures. We run away from most of them, because they don’t scale off because they require huge rounds to get to the point where they can, possibly, get to market. Plus even more growth capital at the end to become a pseudo sustainable business, and the economic equation rarely plans out. You’ll hear they can produce a certain amount of energy for X, and then it costs three times that much.

We also don’t invest in businesses that require government intervention or subsidies, which is a reason we haven’t done solar or batteries.
But the worst thing about these deals is that something better usually comes along while you’re trying to build, which means that we can’t usually make a technology play.

So that’s why we’ve only done two cleantech deals – Silver Spring Networks and Transphorm — before CoolPlanetBiofuels.
We heard about it from some friends in the VC community who had looked at it. We were initially skeptical, but got convinced otherwise after an intense amount of due diligence. It really was different than everything else we had seen in the biofuels space.

Is the goal simply to license out the technology, or will there be CoolPlanet-branded gasoline?

I don’t think they necessarily need to have branded product, but their goal is to make the fuel. Most biofuel companies are about turning food into alcohol, which can kill your engine, or algae fermentation, which I don’t think can scale very easily.

The thing about CoolPlanet is that it uses low-grade biomass, like used corn cobs or wood chips from grinding a stump. This is the stuff which today is mostly trash that we burn, and which people actually will pay you to take away. CoolPlanet can take that and make it into high-octane fuel – which then can be cut into diesel and other grades – for less than it costs to drill or dump it out of the ground.

The beautiful thing is that an oil company has already invested, which is important validation. Plus, it’s carbon-negative technology, because the carbon resulting from the profess can be sequestered and either buried or turned into fertilizer. From our perspective, this company is a complete outlier.

You said that you avoid companies that will need “huge rounds” of capital. How does CoolPlanet avoid needing one of those? Don’t you need to build refineries?

That’s a key here: The company uses mobile refineries that sit on the back of four to five flatbeds. It can go to the trash, rather than having to pay for the trash to be delivered. In fact, when you look at the overall biomass conversion market, the most expensive thing is the transport of the biomass to refineries. We avoid that, and even can have the oil companies come pick up the fuel from our mobile refineries directly and cut it themselves.

A couple of VC-backed biofuel companies – Amyris and Gevo – went public late last year, and now are trading well above their IPO prices. Still not VC grand-slams, but also not strike-outs. Is this because the public markets now appreciate biofuels, or is it just a reaction to rising oil prices due to Middle Eastern unrest?

I don’t want to wax poetic on the public markets or other companies, although both are very possible explanations. From a VC perspective, both of those deals obviously now are looking better than they were, but they aren’t the types of deals we would have done at Google Ventures. The numbers are too high.

Speaking of numbers, how much private funding does CoolPlanet require?

I’m not going to discuss that…

Is it below triple-digit millions?

Again, I can’t discuss it. But we try to avoid deals in the ballpark.

What does Google Ventures bring CoolPlanet, besides the money?

Two things. First, we’re spending inordinate amounts of time helping our portfolio companies on tech recruiting. Google, of course, has one of the strongest tech forces the nation. CoolPlanet doesn’t need computer scientists – except for a few to do modeling – but they do need tech experts in other fields, and we can help [CoolPlanet CEO] Mike Cheiky recruit the best people out there to build out his vision.

Second, Mike appreciates Google’s brand and expertise in terms of being a test bed for the company. For example, we run buses around the Bay Area to pick up employees – it’s been called one of the nation’s largest private transportation programs – so we can help give the company opportunities to prove its technology works.