It’s very rare to find a startup that actually builds things. In fact, I’ve never once walked into the offices of a startup and seen machinery cranking away at full production scale*, with workers on the factory line, and with a shipping facility on the premises for distribution. Of course, the unexpected happens when you travel to the deepest bowels of Upstate New York to visit the headquarters of Ioxus.
If you were thinking of founding a company that supplied ultracapacitors primarily for transportation and vehicles, you probably wouldn’t found it in the small town of Oneonta, NY. Maybe Detroit, near the Big Five, or Silicon Valley, where the technical talent is, or perhaps even Asia, where the factories are.
But Ioxus isn’t a normal company, and its story isn’t like most modern-day startups. In fact, it reads a little bit like the older companies from the last era of Silicon Valley. Manufacturing, spinoffs, hardware, and revenue. You know, the good old days.
Ioxus’ story begins inside of another New York-based electronics company named Custom Electronics. CE builds exactly what its name implies: custom electronics. The company has a catalog of thousands of items, but builds only a few dozen everyday, mostly for large organizations like the military. The electronics are hard and expensive to build.
Because of this, when Ioxus founder Chad Hall began developing a next-generation ultracapacitor inside of the company, and began to see that it could be a business all of its own, Custom Electronics allowed the company to be spun-out.
While being spun out of a local company may be reason enough to stay in the area, according to Hall, there are plenty of other reasons to build a hardware startup in New York. “It’s inexpensive, the State is helpful, and we’ve gotten grants from a number of places,” say Halls. “We’ve also been able to create local jobs, which was a goal of ours.”
The new company was going to have a much smaller catalog of products, and operate at a much higher scale. Because of this difference, the new company raised some venture capital from a number of investors, including General Electric. Then the hard part started: building a hardware company.
According to Hall, the average development cycle for an industrial-level ultracapacitor company is five to seven years. For much of the last decade, Hall has worked to bring the ultracapacitors to market, and was finally able to begin production ultracapacitors in 2010.
So far, the company has ramped up production to produce roughly 200,000 ultracapacitor cells every month, at the hands of over 100 employees, and according to Hall, the company sells out almost on a monthly basis, with a few months missed here and there. In fact, the company is even gearing up to expand the manufacturing capabilities to respond to an expected increase in demand.
The reason behind the lengthy developmental process is that ultracapacitors are incredibly hard to balance. An ultracapacitor, which augments batteries by quickly taking on and discharging energy, needs the right balance of polymers, filters, and coatings. In addition, because the ultracapacitors are used in critical locations like cars and construction equipment, they need to be absolutely reliable. Product failure can mean a breakdown of the entire machine.
The fact that Ioxus has been able to balance the materials to produce reliable ultracapacitors means that the company has a head-up over competitors, according to Hall. There are competitors, in the form of electronics giant Maxwell, as well as smaller companies like LS mtron and NESSCAP.
In addition to the established competitors, Hall shared that 20 new potential competitors popped up in China in the last year alone, although he did admit that their inability to master the basic manufacturing processes means that they won’t be able to succeed in the long-term.
On top of the basic market competition, the hardware market is much more litigious. When walking into the company’s headquarters, there are well over a dozen placards on the wall, each denoting a patent that the company has been awarded. It’s not exactly the type of thing you see in a software startup’s offices, but it’s the rules of the market for ultracapacitor manufacturers.
Despite the hurdles that Hall and the company have faced in the beginning, as well as the intense competition for large-scale contracts, it may pay off in the long run. According to estimates that the company has worked up, the ultracapacitor market will grow from a $245 million market to a $7 billion market. Having the lead over most potential competitors means that the company is poised to steal a big piece of that pie.
The reason behind the market explosion is based in how energy usage is expected to change. Already, there are a number of applications for ultracapacitors, with more expected to appear. For example, forklifts can be close to energy-neutral by taking in energy as the lift descends, and giving it back in equal parts as it goes back up. Similarly, ultracapacitors preserve energy in cars through start-stop systems, and by recapturing the energy normally lost by braking.
As these industries expand, there will be an increased need for proven and reliable ultracapacitors. Which is where Ioxus’ real opportunity lies.
*I would post pictures, but I wasn’t allowed to take pictures inside of the facility.
[Image courtesy Ioxus]