Lots of VC chatter today about green energy, following President Bush’s lip service during last night’s State of the Union address. Most of the focus has been on increased ethanol production (did you see Iowa Sen. Charles Grassley cheer like Oprah had given him a new car?), but there also is piqued interest among those with a stake in the next-generation battery space.
This brings us to A123 Systems Inc., a Watertown, Mass.-based battery maker that today raised $40 million in Series D funding (literally closed just a few hours ago, with a press release slated for tomorrow). This makes it the sector’s best-capitalized company, having raised a total of around $102 million since being founded in 2001. General Electric Commercial Finance led the round, with other return backers including Sequoia Capital, North Bridge Venture Partners, Motorola Ventures, MIT, Qualcomm Ventures, OnPoint Technologies, GE Equity, FA Technology Ventures, Boston University, Alliance Capital Partners and Sycamore Networks co-founder/A123 chairman Desh Deshpande. The only new investor was Duracell maker Procter & Gamble.
The company’s previous round was a $30 million Series C deal that had been marketed with a pre-money valuation of between $90 million and $100 million.
A123 Systems makes lithium-ion batteries, which have become the industry-standard power source for high-tech devices like laptops and cellphones. One big downside to date has been that most lithium batteries use combustible oxide-active materials (think last year’s laptop fire issue), but A123 products are non-combustible and “do not release oxygen if exposed to high temperature or in the event of battery failure or mechanical abuse.”
This lack of combustibility is extremely important when one considers the beyond-gadget market. Its initial contract was for a line of Black & Decker power tools, but more recently signed a deal to help develop battery packs for General Motors’ upcoming line of plug-in hybrid vehicles (most current hybrids use nickel-metal hydride). This is why the company’s efforts might have gotten a significant boost from last night’s speech. Moreover, A123’s relationship with the U.S. Army – via Army venture arm OnPoint – is largely designed so that soldiers can carry lighter battery packs that won’t catch fire if pierced by shrapnel.
A quick search of the Thomson VentureXpert database shows that ten lithium-ion battery companies have raised VC funding in the past two years. The second-largest raiser after A123 is Golden, Colo.–based Infinite Power Corp., which scored around $35 million in Series A funding from firms like Applied Ventures, Core Capital Partners, D.E. Shaw, Polaris Venture Partners, In-Q-Tel and Springworks. Next up was Boston-Power, which raised nearly $25 million (at a $60m post-money valuation) from firms like Gabriel Venture Partners, Granite Global Ventures and Venrock Associates.
More on this tomorrow in PE Week Wire, including insights from company co-founder Ric Fulop and A123 seed investor Howard Anderson. If you don’t already get PE Week Wire, just sign up for free.