Improved battery technology has the potential to improve a range of applications, from the flexibility of our power grids, to the durability of consumer electronic devices and functionality of next-generation electric vehicles.
To understand the appeal, it is best to understand how today’s batteries work. Most are constructed with an alkaline metal called lithium, favoured for its ability to store large quantities of electricity. Power is produced when a device is connected to the battery terminals – the cathode and the anode – allowing lithium ions to flow through a liquid electrolyte inside the battery. But electrolytes can also be a potential safety hazard – if too much heat is generated in the solution, the battery can ignite.
This has already caused problems for consumer electronics producer Samsung, which was forced to recall its Note7 smartphone after handsets began bursting into flames.
Safety, then, is a major driver for corporate venturing investment in new battery technologies, but there are others. Capacity is a concern as applications become more demanding. Consumers yearn for smartphones that last for weeks rather than hours, while electric vehicles must operate over distances similar to those of conventional vehicles if they are to secure widespread adoption.
The changing nature of the energy mix itself is also a factor, in addition to the need for better performance from grid storage units. Growing roles for intermittent renewable inputs such as wind and solar as well as electricity produced by households are big CVC drivers, in addition to the growing number of electricity customers globally.
The challenge
Depending on the application, a host of materials and innovations could fundamentally change how batteries are manufactured. These range from simple supercapacitors intended to sustain minute power requirements over longer periods, to paper-based designs offering a biodegradable option in challenging operational environments.
But some are sceptical such innovations can be translated into commercial success, and there is a sense that it has been a struggle to monetise new battery technologies.
According to GCV Analytics, the value of corporate-backed deals for battery-related technologies has varied year to year, slumping to $93m in 2016 from $415m in 2015 before recovering to $625m in 2017 and $288m so far in 2018.
Keith Gillard, general partner at advanced materials-focused and corporate-backed VC fund Pangaea Ventures, said the battery segment remained a “challenging space” associated with incremental gains and “less venture dollars”.
He added: “Batteries are always a high percentage of our new dealflow every month but it would take a truly exceptional opportunity for us to invest in another battery company.”
Pangaea Ventures is backed by an array of corporate investors, including oil company BP, chemicals conglomerate BASF and Samsung Venture Investment, a corporate venturing arm of the consumer electronics producer.
The fund, whose investment purview takes in advanced materials and chemicals, has now sold its position in three battery developers – electric car battery manufacturer Envia Systems, carbon nanotube producer Cnano Technology and performance additive developer Boulder Ionics.
Pangaea had tried to compartmentalise its investments around different elements of battery design, according to Gillard. Envia and Boulder Ionics, for instance, offered insights into improving cathode or anode materials and electrolytes respectively.
Consumer electronics and electric vehicles
Consumer devices, such as smartphones and tablets, have proliferated, each new release arriving with more advanced processing specs that often drain the battery faster. Replacing or augmenting conventional battery technology is therefore a valuable proposition in the consumer space, and there is also clear CVC incentive for improvements which support the transition to electric vehicles.
While electric cars have increased in popularity in recent years for their ability to reduce greenhouse gas emissions, the limitations of current lithium-ion batteries frustrate their ability to supplant conventional automotive technology on a grander scale.
Electric vehicle batteries still do not offer enough mileage to satisfy the most demanding of motorists, and many are unlikely to accept recharging times causing disruption to a journey. Safety, again, is an absolute must, as is pricing, which must be affordable enough to lure users from petrol.
Gillard said the ideal battery for electric vehicle applications should possess strong energy-to-weight ratio and be capable of delivering multiple currents and voltages without using a transformer, which steps voltages up and down between circuits.
One of the sector’s most promising technologies involves replacing flammable liquid electrolytes with a solid material such as polymer or ceramic, in what is known as a solid-state battery (SSB).
The size of the prize means automotive firms are willing to plough resources into pursuing a solid-state breakthrough, either through venturing or through in-house R&D programs and industry partnerships.
Frank Blome, head of carmaker Volkswagen’s centre for excellence for battery cells, said: “The solid-state-battery can be a real game-changer in the future of electric vehicles. The technology can provide higher performance with even more safety at lower cost.”
In June, Volkswagen invested $100m in solid-state battery developer QuantumScape, which it first partnered in 2012, taking a board seat in an agreement aimed at deploying an SSB production line by 2025.
The QuantumScape agreement came after Ionic Materials drew $65m in series C capital in February this year from investors including Alliance Ventures, the collaborative VC fund of carmakers Renault, Nissan and Mitsubishi.
Another solid-state battery developer, Sakti3, was acquired by cleaning and climate management equipment maker Dyson for $90m in 2015. It had raised approximately $50m in venture and grant funding, with backers including Dyson, automotive manufacturing group General Motors and trading conglomerate Itochu.
In spite of these investments, a marketable solid-state battery remains elusive. There remain questions over how soon a viable solid electrolyte might be produced at commercial scale. Shinzuo Abe, head of carmaker Toyota’s powertrain division, has reportedly conceded an SSB may not be ready for mass-production until at least 2030, rather than early in the coming decade as previously thought.
Toyota, which is exploring a battery tech tie-up with electronics producer Panasonic, now expects only to begin internal testing of its SSB technology by the early 2020s.
Sluggish progress on SSBs is reflected by modest corporate venturing inflows for the technology compared with developers working with conventional lithium-ion parameters – solid-state developers have raised $239m since 2015, against $572m for lithium-ion, according to GCV Analytics.
The same data indicates there have been 11 deals with corporate involvement since 2015 for SSB businesses, compared with a total of 24 for batteries based on lithium-ion, grid storage and other materials.
Blome said an improved battery solution for electric vehicles was likely to be found with time. Asked whether he was concerned about obstacles in delivering new battery technologies, he said: “I have no big concerns, but there is still a lot of hard work to do in order to shape the future. This business is still quite young in the realm of the high-scale automotive world and we still learn a lot every day.
“The long-term task is to develop a battery technology platform that delivers e-mobility for vehicles in all segments. That is to say, batteries going up to super-sportscars and down to the mass volume segment, always combining good technical performance with best costs.”
Companies targeting electric vehicle applications with more conventional lithium-ion approaches include Proterra, which develops buses powered by electricity. The company’s latest vehicles come equipped with a lithium-ion battery said to have fuelled a record 1,100 miles on a single charge.
Automotive manufacturer Daimler co-led Proterra’s $155m round earlier this month, joining fellow carmakers BMW and General Motors in backing the company and illustrating the scope for performance gains from lithium-ion electric vehicle batteries.
Grid storage
The need for improved grid batteries is becoming clearer as developing countries connect more of their citizens to electricity, necessitating the development of vast networks of power plants and transmission lines.
Last month, multilateral financial institution World Bank was reported by the Financial Times to be lining up a $5bn funding initiative, including $4bn from external investors, to drive a fourfold expansion in the battery storage capacities of developing countries. Huge batteries are used by electricity grids to manage peak demand, offset congestion and ensure a consistent output of power.
Gillard said energy storage operators most appreciate battery technologies that offer downward pressure on costs, an advantage that helps upgrade existing grids effectively. Another consideration is the growing prevalence of renewable power plants, which require a robust storage solution to compete with the fossil-fuel facilities traditionally relied on for constant provision of a minimum level of power.
One material finding favour for energy storage purposes is sodium. Batteries made with sodium could supplant more precious compounds that drive up overheads for grid stores. CVC-backed sodium-ion battery developers include UK-based Faradion, which received $4m in funding from investors including catalyst technology supplier Haldor Topsoe in January 2017. While exploiting sodium for its batteries, Faradion also claims to have packed in enough energy density to target low-speed electric vehicle applications.
Pangaea Ventures’ interest in this space is an investment in US-based developer Energy Storage Systems (ESS), whose batteries employ an all-iron flow battery it claims can sustain 20,000 cycles of power.
ESS received $13m in series B capital in a December 2017 round led by chemicals producer BASF’s Venture Capital division and backed by Pangaea Ventures among others.
Software
CVCs are also taking an interest in software-led designs that enhance the performance of existing and future battery technologies. The data shows software developers, together with companies focused on auxiliary battery-related products, have taken a 32.9% share of corporate-backed funding in the battery sector since 2015.
Software-led designs benefit from faster applicability than models that alter the manufacture of batteries, something of a tonic for investors wary of slower progress in the hardware segment. One such emerging company is energy storage software developer Greensmith Energy, which was picked up by energy integration services provider Wärtsilä in July last year.
Greensmith had secured $18.3m in a two-tranche 2015 round featuring energy utilities Eon and American Electric Power, adding to $8.9m in equity previously disclosed in regulatory filings. The company claims its software is already installed in more than a third of US energy storage capacity.
Operating in a similar space to Greensmith is GreenSync, which last raised $8.7m in January 2017 from companies including Southern Cross Renewable Energy Fund, backed by telecom and internet group SoftBank.
Software is also increasingly integral to battery performance in consumer electronics. Examples include diversified conglomerate Alphabet’s latest Android operating system, which uses artificial intelligence to predict when and how smartphones are being used so that energy demands can be adjusted accordingly.
Android’s market penetration means Alphabet’s solution is likely to secure widespread adoption, and such is the scale of the opportunity for emerging software battery products in the consumer space.
Given Samsung’s experience with faulty batteries, software intended to prevent battery overload and degradation is also likely to draw corporate venturing interest.
Power-charging software developer Qnovo is one CVC-backed developer in this field, having secured $8.6m of series B funding in 2015 from investors including Intel Capital, a corporate venturing arm of chipset maker Intel. Intel’s involvement gave Qnovo the opportunity to install its software on mobile devices powered by the corporate’s processing chips, a route to market share.
Energy CVCs are also ploughing cash into auxiliary products and services that augment batteries, such as upgraded power chargers that could help reduce downtime for consumers and motorists.
Oil producer BP, for instance, committed $20m to battery charging technology creator StoreDot in May 2018 through its strategic investment subsidiary, BP Ventures. StoreDot, which also counts Daimler, Samsung and cybersecurity technology provider Nation-E among its backers, has devised an “ultra-fast” charger and flash battery that offer vastly reduced charging times for both electric vehicles and consumer devices.
Conclusion
As Gillard noted, real barriers to investment exist for material-led battery technologies. Each of the array of materials vying for adoption brings its own unique challenges in development. But strategic capital is likely to continue following battery innovations – either tracking technologies with maximum potential over the longer term or those with advantages that can be implemented a faster.
The biggest question from an electric vehicle perspective remains how fast a solid-state solution can be commercialised. Manufacturers, which often buy electric vehicle batteries from China-based suppliers, will be anxious to avoid missing the opportunity to take the lead on manufacturing internally.
For this reason, solid-state manufacturers are likely to continue drawing high-value investments, though the number of deals may be smaller, perhaps due to a modest pool of strategic interest compared with other battery technologies.