Funny thing about the biofuels business. Roughly 200 companies are pursuing the perfect biofuel -- as cheap as fossil fuels, adaptable to today’s infrastructure, low-carbon, sustainable and no threat to the food supply or to tropical forests. But even cutting-edge startups that say they have the puzzle just about solved can’t raise the money they need to get into commercial production.

“Everyone wants to be the first to finance the second plant,” says Arnold Klann, the CEO of biofuels firm Blue Fire Ethanol. “No one one wants to be first to finance the first one.”

“Banks are not willing to lend,” Klann said. “They’re risk averse.” The industry needs the support of banks or the public markets because a commercial scale will cost upwards of $100 million, more than the venture capitalists now financing the industry want to put at risk. Publicly-traded Blue Fire makes ethanol from wood wastes, urban trash, rice and wheat straws, and it was awarded a $40 million U.S. Department of Energy grant, but it has been slow to get to commercial production and investors are skeptical. The firm’s market capitalization is only about $25 million.

Biofuels are on my mind because I  spent the day at BIO International, a sprawling (14,000 attendees) biotech industry convention in Atlanta. I’ve written very little about biofuels, mostly because the science of turning plants into fuel is quite complicated, and so it’s hard to separate companies with a shot at making it big from those with no hope. That’s not just a challenge for me -- the corn ethanol industry has destroyed many millions of dollars of capital from investors who rushed in too quickly.

Still, there are strong forces driving biofuels, most of them emanating from Washington where Congress has adopted biofuels mandates. The historic Waxman-Markey climate change bill just passed by the House energy committee will, if it becomes law, provide another boost to biofuels by raising the price of gasoline and diesel fuels.

At BIO, Laurence Alexander, the managing director of investment bank Jefferies & Co., moderated an excellent panel that taught me a bunch of things. Some highlights:

It takes a lot of feedstock to make biofuels. For ethanol to account for 5 percent of U.S. gasoline use, it would require turning 33 percent of the U.S. corn crop into ethanol. Globally, it would take 100 percent of the soy, rapeseed and palm oil production to produce 10 percent of the global supply of diesel. That’s at current yields, of course, which is why it’s so vital to drive up yields.

Biofuels have an image problem. “Glib critics,” Alexander said, “could shift the policy debate.” The industry needs to prepare to answer tough questions, even if they are only loosely based on reality: How many children did you starve to drive to work today? Can we run out of arable land? Will biofuels drain the acquifers?

Not all feedstocks are created equal. I knew that, of course, but the variations in productivity are dramatic. In terms of gallons of fuel that can be produced per acre, according to Aristides Patrinos, the president of a company called Synthetic Genomics, sugar cane (800) and switchgrass (500) outperform corn (375) and jatropha (202). Still, his company, which was started by Craig Venter, is excited about jatropha because it yields a high quality oil, grows in poor soils and can live in semi-arid regions. “That’s in our view an ideal fuel because it doesn’t really compete for the same land where you can grow food,” Patrinos said. It’s ripe for significant genetic modification to improve yields. “We’ve just recently announced the sequencing of the jatropha genome,” he said. Who knew?

Two well-funded startups delivered impressive presentations. One was Amyris Biotechnologies, which I knew about. A fascinating company, backed by Kleiner Perkins, that first produced a low-cost anti-malaria drug for the Gates Foundation and is now making diesel fuel at a pilot plant in Northern California. (Jack Newman, a co-founder, has twice been a popular speaker at FORTUNE’s Brainstorm Green.) The other was Solazyme, another Bay Area firm that uses algae to convert cellulosic feedstocks into fuel. Harrison Dillon, the president and chief technology officer, who also happens to be a patent lawyer, said the firm is able to make oil-based fuels at a commercial scale but that its cost are still higher than fossil fuels.

Because of capital constraints, it may be that well-established players will have to enter the market to take biofuels to scaleor . DuPont and Genencor, a division of a Danish firm called Danisco, formed a joint venture last year to develop a cellulosic ethanol business using corn stover or switchgrass in Tennessee, which has provided grants to the plant and pays farmers to plant switchgrass. (It takes three years to develop the first group)  DuPont -- whose Pioneer division hired me to moderate a panel at BIO -- and Genencor have committed to a three-year investment of $140 million. They obviously have the capacity to invest more if needed.

They’ve also got a track record.  DuPont and Genencor got together nearly 15 years ago to research the process that now produces a renewable material known as bio-PDO, which is made from corn starch, that goes into carpets, textiles and shampoos. It’s one of the big successes of the bio-materials biz.

_{Sugar cane image CC licensed by Flickr user fsgm.}