Biofuels technology startup Qteros announced today it has secured $22 million in the first phase of its third round of financing.

It’s a sign that the venture-capital industry hasn’t entirely given up on ethanol, a sector in which startups have chewed up a lot of capital without delivering great returns. Though it has not secured all of the funds it is seeking for this round of financing, it’s likely that Qteros’s ability to snag funds comes in part from the developmental partnership it has signed with Praj, a well-established Indian multinational company that supplies equipment and engineering services to bio-ethanol and wastewater plants.

The company calls the funds “sufficient” to support continued development and commercialization. Though it did not announce investors, Battery Ventures confirmed it participated in the round, and existing Qteros investors include Venrock Associates, BP Technology Ventures, Valero and George Soros’s fund, Soros Fund Management.

Qteros will collaborate with Praj in a multi-year deal to create process design packages that combine its ethanol-producing microbe and Praj’s production engineering design that will be initially marketed to Praj’s existing customers. The partnership aims to deliver by the end of 2012 process design packages that are optimized to break down sugarcane, corn and wheat. For starters, the companies will retrofit an existing plant in India with Qteros’ technology platform, which the company says will be the foundation for accelerated production scaling.

Qteros makes a microbe — the Q microbe — that it says “dramatically accelerates” and streamlines the process in which biomass is transformed into cellulosic ethanol by producing enzymes to break down biomass into sugars while simultaneously co-fermenting the sugars into ethanol. It offers a bioprocessing platform that companies can use in low-cost, large-scale production of ethanol. Biofuels are expected to become cost competitive with traditional gasoline by 2012-2015.

[Photo via Flickr/jayneandd]