It looks like algae is about to come of age.

True commercial success in producing fuel in quantity from microrganisms has represented an all but impossible dream for most of the hundred or so companies that have tried to achieve it in the past decade, as well as for the venture capitalists who backed them.

But the still-nascent industry could be about to take a significant step forward with the recent initial public offering filing of Solazyme Inc.

The eight-year-old South San Francisco, Calif.-based company, which filed its IPO papers March 11, has developed a unique approach to growing algae that doesn't use photosynthesis. Instead, it feeds its genetically modified algae plant-based sugar in dark fermentation tanks, then literally squeezes the oil out of their crop.

Solazyme couldn't have picked better timing to approach the public markets. Unrest in the Middle East is driving up oil prices, which always renews the focus on alternative sources of fuel. The company also stands to benefit from the groundwork laid by a couple of other VC-backed biofuel companies that have gone public successfully in recent months. Biofuel developer Gevo Inc. raised $107 million in an IPO last month, while Amyris Inc., a renewable fuels and chemicals producer, debuted in September, raising $85 million.

All that said, Solazyme hasn't hit the big time yet, as it is still looking for a cost-effective way to produce algal fuel in significant quantities. There's no doubt turning algae into a viable fuel source is where the real money is, and also where the serious challenge lies, as the list of failed attempts to turn green goo into fuel on a significant scale attests.

The big flameout in the industry was GreenFuel Technologies Corp., a startup spun out of Harvard University and the Massachusetts Institute of Technology. The company absorbed $79 million in funding from Draper Fisher Jurvetson, Polaris Venture Partners and others to grow algae from the carbon dioxide emitted by industrial smokestacks. The recession, in tandem with higher-than-expected costs, killed its plans, however, and it shut down in May 2009 after running out of funds.

Most of the $38 million in revenue Solazyme booked in 2010 is derived from research and development programs with government agencies, including development agreements with Australian airline Qantas Airways Ltd. to develop jet fuel, the U.S. Navy to produce diesel for ships and Dow Chemical Co. to make algal oils used as insulating fluid in electrical transformers.

It also has licensed its oils to dietary supplement makers and said it plans to start generating sales from skin- and personal-care products this year. But significant sales from the fuels and chemicals markets are still a ways off, and they will require the company to continue ramping up its manufacturing capacity, as it said in its IPO filing. It is losing money and expects to do so for some time.

Yet, partly because of the difficulty in commercializing biofuel production on a large scale and partly because of the number of failures in the field, skeptics abound. "There has been a lot of hype and overpromising, so a healthy dose of cynicism is warranted," says Eric Wesoff, a senior analyst with Greentech Media Inc., a cleantech market analysis firm. "To really be successful, the scale these companies need to achieve is almost unfathomable."

Indeed, the algae biofuel market at large has a long way to go before making any significant dent in the world's consumption of petroleum-based fuels. Experts estimate that algae will be converted into 61 million gallons per year of biofuel by 2020. That's a drop in the bucket compared with the 178 million gallons of gasoline consumed by the U.S. every day.

Yet the company is heading in the right direction, says Tim Keating, president of Keating Capital Inc., a Solazyme investor. "We feel it is highly likely that Solazyme is in the early innings of its growth and potential," says Keating, whose late-stage investment firm put $1 million into Solazyme last July.

Other investors in Solazyme, which has absorbed about $130 million of their money, include Roda Group, the company's largest shareholder; Morgan Stanley; Braemar Energy Ventures; Lightspeed Venture Partners; Harris & Harris Group Inc.; VantagePoint Venture Partners; Zygote Ventures; Chevron Corp.'s venture capital affiliate CTTV Investments LLC; Japanese food company San-Ei Gen F.F.I. Inc.; and agribusiness Bunge Ltd.

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Investors in algal oil producers may finally be about to see a worthwhile exit. Whether Solazyme can convert that into a viable future for algae-based fuel alternatives is yet to be seen.