Batteries change by “quantum leaps from one chemistry family to the next,” Maurice Gunderson, a senior partner for Energy and Materials at CMEA Capital, told GigaOM Pro in an interview.
Consider the progression from lead acid to nickel cadmium, then to nickel metal hydride and, most recently, to the lithium-ion batteries powering laptops, plugin cars and new large-format battery systems for the power grid. With each “leap,” new opportunities arise for entrepreneurs and investors in the energy storage market — and in the market for devices they can power.
“Anything that has a battery in it is enabled by a battery chemistry,” said Gunderson. But innovation in energy storage demands thinking beyond lighter-weight or longer-lasting batteries in the electronics we’re already accustomed to recharging. Develop the right chemistry, and products ranging from home appliances to who-knows-what could be outfitted with next-gen batteries and untethered from the socket.
In other words, one key for investors, inventors and entrepreneurs when building or sizing up a battery business, Gunderson suggested, is to resist focusing too narrowly on the challenge du jour (e.g. lower-cost lithium-ion for transportation) and instead evaluate what unique applications might be transformed by that particular energy storage solution.
Battery Breakthroughs
Exciting breakthroughs in energy storage technology don’t flow out of research labs all that often, and it’s a long road from breakthrough to commercial success. Many factors affect whether a new chemistry or other battery breakthrough makes it out of the academic research stage, gains traction in commercial applications and turns a nice profit for its inventors and investors.
Most batteries aren’t the “quantum leap” that will disrupt energy storage and electronic devices. There are breakthroughs in the lab that might seem like a “nice idea,” Gunderson said, but prove largely impractical for commercial applications due to high costs, safety concerns or other issues. “Batteries are, generally speaking, nasty stuff,” commented Gunderson. “There’s a lot you can think up but [is] just too dangerous to put in the hands of consumers.”
More often, the improvements are more incremental, like nine-year-old battery maker A123 Systems’ lithium-ion technology — “a valuable incremental improvement on an existing chemistry” that attracted CMEA’s investment. More recently, MIT scientists Byuongwoo Kang and Gerbrand Ceder tweaked the surface structure of the battery material lithium ion phosphate in a way that allows the material to conduct electricity very quickly and handle repeated charges without degrading. This could open the door for smaller, lighter, quick-charging batteries.
Attracting Investment
Commercializing these breakthroughs will typically require no small amount of capital (see How to Break Into The Energy Storage Market for ideas on less capital-intensive entry points), and solid investments have to be based on much more than a buzz-generating breakthrough. Gunderson walked us through some of the key steps CMEA’s process of getting to know and ultimately backing battery startup Contour Energy Systems (previously named CFX Battery).
He first encountered the team and technology behind Contour at an electrochemical conference. At the time, “they had some coin cells working,” Gunderson explained. Coin cells basically are a mixture of battery chemicals crimped into a coin-sized can for testing.
Contour’s testing had produced data indicating the chemistry was “safe and inexpensive,” said Gunderson. The company, which is starting with primary lithium carbon fluoride battery systems (which can’t be recharged) and working on rechargeable carbon fluoride battery packs, hadn’t figured out how to make their battery at larger scale. The company is focused on fluorine-based battery chemistries, as well as manufacturing processes for key materials in lithium-ion energy storage devices.
Contour is still at a relatively early stage with the primary batteries — the first revenue shipments are slated to begin around September; deliveries of rechargeable batteries are still at least a year and a half away. By contrast, A123, also a part of the CMEA portfolio, had already “been through the difficult steps of getting out of the lab” for seven to eight years by the time CMEA invested, said Gunderson.
But Gunderson believes Contour’s progress so far on the journey from the lab to the marketplace traces back to three basic needs that can apply to other startups slogging through the same phase:
- Sound science. There’s no guarantee that what looks promising at the small scale of laboratory tests will pan out in commercial applications, he said.
- An investor syndicate that includes venture capitalists and an energy technology firm (Schlumberger).
- A strong team. This loops back to the science, according to Gunderson. “If you start with a great new technology, one problem you don’t have is getting great people to work on it.”
Finding a Killer App
Having a breakthrough battery technology — even one built on sound science by an ace team — isn’t enough to build a business though. For that, said Gunderson, the team needs to “define what’s the killer application? Who’s willing to pay for it?”
Investors shouldn’t expect this riddle to be solved overnight, however. As Scott Faris, CEO of battery developer Planar Energy told us in an interview last year, the early stage of the market for vehicle batteries means even the biggest players are still trying to grow the market for a specific tech, so “you don’t really have big companies looking for good R&D to bring into their pipeline,” in the battery sector. As a result, said Faris, “there’s got to be some ownership of the manufacturing” in order for most venture-backed battery startups to get past the R&D phase and start generating revenue. (This is part of why some venture capital investors are more keen on peripherals to this emerging market, such as software and services related to energy storage, as Accel Partners’ Peter Wagner told me for this GigaOM Pro piece last year.)
Finding the killer app and paying customers “took A123 a while and it’s taking Contour awhile as well,” Gunderson commented. A123 sold its first products for the consumer market in the first quarter of 2006. A year later, it followed that move with sales into the transportation market. While electric grid services have made up a growing portion of A123’s revenue during the last few years, the company has “only recently” shipped its first products for the electric grid services market, according to regulatory filings.
Contour’s chemistry, meanwhile, is particularly well suited to withstanding high heat, so the company is pursuing applications in specialized instruments used in oil wells. For military applications, Gunderson said Contour’s battery meets the demands of light-weight and long run times for devices that soldiers would carry in the battlefield.
How about electric vehicles? “We purposely didn’t go after a lot of the auto funding opportunities,” opened up through the Recovery Act, Contour CEO Joe Fisher told us in an interview earlier this year. “We didn’t want to take our eye off the ball.” In other words, rather than chase government funds available for electric vehicle battery projects, Contour chose to focus on building “primary” lithium batteries, gaining a foothold in established markets (for tire pressure monitoring and custom RFID cards, for example) and later reinvesting the revenue into work on rechargeable batteries for applications including electric cars, as well as mobile phones and laptops.
While this strategy of opting out of highly competitive funding opportunities can keep a company somewhat under the radar in a time when billions of dollars (public and private) are flowing into energy storage, it can help attract investors looking for the next leap. Contour’s chemistry may be well suited to automotive applications, but Gunderson considers energy storage for electric vehicles, “an area that has a lot of interest and probably too much investment. A lot of money probably will be lost.”
Similarly, cleantech investor Vinod Khosla has spoken about hype in the lithium-ion battery market and commented that costs have to drop or oil prices have to shoot up for most of these ventures to make big winners of entrepreneurs and their investors. “I can’t imagine lithium-ion making low-carbon cars pervasive anytime soon,” he said at an event last summer. Then again, if oil prices jump to $100-150 per barrel, he said “you’ve got a different ball game.”
Today’s battery innovators, however, may bring us a different ball game by changing the variables of batteries themselves, rather than the price of the fossil fuel competition.
