VentureBeat

(Update: More investor info and other detais below)

When we launched Thursday morning, our first story was a scoop about ethanol company Cilion raising the largest venture round ever — $200 million — for an alternative energy company.

Of course, the story got buried when our site went down. We confirmed the story yesterday attorneys from Morgan, Lewis & Bockius, who handled the transaction for Cilion: Denis Segota and Matthew Bartus.

In May, the central California company raised $40M in a first round, when it launched, from Western Milling and Vinod Khosla. Now, it has just finished raising another $170M. Finally, it may raise another $25M shortly.

It is significant because Vinod Khosla, an influential Silicon Valley venture capitalist who made all his money in technology during the Internet boom, is investing in a non-tech company.

ML&B’s Segota confirmed this is simply an “execution” play. It is expensive to build ethanol facilities, highly capital and property intensive. Cilion is planning to build eight of them. The technology is trivial: “Making ethanol isn’t rocket science,” said Segota. “This is clearly not a pure technology play. It’s almost like making moonshine.”

The majority of the latest capital was supplied by new investors, although Khosla and Western Milling both participated. The new investors are apparently big-name “interesting” investors, but they’re being held confidential for now. Anyone know who they might be? (Update: The company has made an official announcement, which mentions other backers, including Virgin Fuels, a newly-formed part of Virgin Group, Yucaipa Cos. and Advanced Equities. Moreover, Khosla has been spending a lot of time in India with a public company there called Praj. He has invested in the company, which has a bullpen of trained ethanol engineers, and which is building ethanol plants in 30 different countries. The company will be furnishing Cilion with its ethanol plants, and notable example of how India is boosting its export market in the U.S. in new ways.)

We are still pinning this story down, but we’re hearing that Cilion, the California ethanol comany formed by well-known Silicon Valley venture capitalist Vinod Khosla (pictured here), has just raised $200 million.

This may be the largest ever alternative energy deal by venture capitalists. It is also significant because the company is so young; it was formed barely three months ago.

But with everyone from Bill Gates to Virgin Airways chief Richard Branson and California’s two big public pension funds, CalPERS and CalSTRS, poking around for alternative energies to invest in, you are going to get these sorts of big deals, even if they are fabricated from scratch.

We wrote about Cilion here, when it first emerged that Khosla teamed up Western Milling to form the company. Western Milling is a grain-milling firm near Visalia, south of Fresno, in central California. Cilion aims to build eight plants by 2008 capable of producing a total of 440 million gallons of ethanol a year.

We’re going to write more about Khosla’s big bets shortly — and how he’s brushed up against big critics in the oil industry.