The company, which is less than five years old, has been moving quickly to build a 300-acre algae farm as a large-scale demonstration of its process for making algae oils. The U.S. government has supplied over $100 million of the investments, including a $50 million Recovery Act grant designed in part to spur job creation.

But Sapphire's rapid expansion raises the question of whether it is scaling up its technology too soon. Some of its ideas for reducing the cost of algae fuels are at too early a stage to be implemented at the new farm. Yet these technologies might prove vital to making its fuels competitive.

Knowing when to move technologies out of the lab and into large-scale demonstrations is a perennial challenge for energy startups. According to some experts, Range Fuels, a startup founded to produce ethanol from wood chips, foundered because it built a large-scale plant too soon, before the bugs had been worked out of its technology at a smaller scale. As a result, the plant didn't work well enough to be economical.