On the surface, biofuels derived from algae seem to be an ideal solution to wean cars and trucks off gasoline. Algae grows anywhere, produces fuel that can work in today’s vehicle tanks, and seems cheap enough. Based on these arguments, Aurora Biofuels, a startup that cultivates algae to produce biodiesel, has just landed $15 million in a third round of venture funding. But it has yet to overcome the big hurdle standing between algae and the mass market: scale.

Aurora is far from alone in the algae fuel game. Companies like Sapphire Energy, Solazyme, and Amyris Biotechnologies are sprinting toward the same goal, but each have run into the problem of how to inexpensively and feasibly scale their operations to produce the millions of gallons of fuel needed to chip away at petroleum’s dominance.

Aurora will use the new money to commercialize its fuels, but doesn’t plan to come to market until 2011 or 2012, as Earth2Tech points out. With $40 million in capital raised, it seems to have enough runway to get it there, but then what? It says it plans to build fuel-producing plants near its algae farms so that they can feed on and recycle the carbon dioxide produced. But $40 million doesn’t seem like enough to make this happen.

Aurora’s one argument for why it will win out over its competitors, is that it has bred a strain of algae capable of generating 125 times as much fuel from the same amount of pond scum. If smaller acreages are needed, it can cut its costs by as much as half, and the company will be able to offer its fuel for cheaper — as low as $55 a barrel — undercutting its rivals and becoming more cost competitive with gasoline.

But Aurora’s high-yield algae isn’t that original of an idea. Solazyme says it is engineering its own high-efficiency strains that eat sugar and don’t require sunlight — not to mention it has the backing of Chevron and the U.S. Navy.

By comparison, last year at this time, Aurora had just completed an 18-month trial of its pilot plant, and announced development of a second, demonstration-scale facility, which is still underway. That initial pilot was only intended to prove the technology, capable of churning out less than 1,000 gallons of biodiesel a year. It seems like the company has a way to go before its first gallon hits the real-world market.

Based in Alameda, Calif., Aurora raised $5 million in Jan. 2007 and $20 million in June 2008 from Noventi Ventures, Gabriel Venture Partners and Oak Investment Partners — the same firms that provided the recent round of financing.