The A123 Story: How a Battery Company Jumpstarted its Business
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while Riley was speaking. Fulop (who was still in his twenties back in 2001) had already formed or helped form five companies—all in hardware or software. None had been big winners, Riley related, but he had done well enough apparently. Only now, the Internet bubble had burst and he had decided to get into the energy field. According to Riley, Fulop (whom I later learned was doing an entrepreneur-in-residence stint with Xconomist Howard Anderson’s YankeeTek Ventures at the time) was essentially cold-calling different energy professors looking to start an energy company around carbon nanotubes. That same spring, he pitched the notion to Chiang, who told him, “No, no, no, no—we have a better idea.”
Enter the Naked Fish. That’s the area restaurant where Riley, Chiang, and Fulop met for dinner in July 2001 (Riley said they plan to go back for a celebratory dinner if and when the company goes public). Riley also said it was really Fulop who provided the, um, entrepreneurial spark to jumpstart the battery company. The three talked about their potential roles in the venture and liked the fit: Fulop, the entrepreneur and money-raiser; Chiang, the professor with key technology; Riley, the experienced engineer. As Riley puts it, “we all saw that our roles were different, and that was very good.”
Next step—raise money. The trio joked that they needed a 20-page PowerPoint presentation, so they put one together. Virtually simultaneously, they began negotiating for an exclusive license to Chiang’s core technology from MIT, which they soon got, along with rights to a nanophosphate cathode material that Chiang had recently created in his lab. The nanophosphate didn’t relate to the self-organizing concept, but they licensed it anyway. (How’s that for subtle foreshadowing?)
The group began actively pitching venture investors that September. The investors also played a role in the licensing, which, naturally enough, they made a condition of any financing deal, Riley told me later.
Around this point in his talk, Riley took a step back to outline the key ingredients he thinks charged up the company’s start:
Technology potential: the self-organizing battery concept promised to double energy density and halve the cost if it worked.
Great market: “Everybody wants a better battery, it’s just a basic fact,” Riley said. The green movement was also growing, although it’s far more important now. All this made the exit possibilities very apparent.
Nice timing with key results: Chiang and his students were getting increasingly positive results in their attempts to make self-organizing batteries work; the results added a sense or urgency to investing. “Nothing beats that, it’s that sense of momentum,” Riley said.
Aggressive (perhaps overly so, Riley confessed) business plan: prototype in 2002, product launch in 2003-4; profitability in 2004-5.
“The trick to getting funded is to create an environment of healthy competition between potential lead investors,” Riley later told me. And evidently it worked, as a bevy of venture firms wanted in. When all was said and done, though, the team went with North Bridge Venture Partners, which took the lead in an $8.3 million Series A round that closed in December 2001. It was the first energy and materials play for North Bridge, whose partner, Jeff McCarthy, joined the A123 board. Also taking part in the round was Sequoia Capital, (Sequoia’s Mike Moritz, of Google and Yahoo investment fame, is a board observer), YankeeTek Ventures, MIT’s venture fund, and Sparta Group. Four months later, an additional $4 million was put in by Motorola and Qualcomm, both of which saw the potential of better batteries: cell-phone maker Motorola also became a customer. Riley related how Fulop had run into Qualcomm’s Paul Jacobs (now the company’s CEO) at a conference, button-holed him to pitch the concept, and then asked him to invest. Jacobs now has an A123 board seat as well.
And there was more. At the end of 2001, as all this was underway, Chiang answered a U.S. Department of Energy solicitation that a few months later led to the firm’s being awarded a $100,000 Small Business Innovative Research grant for work on the nanophosphate material also licensed from MIT (more foreshadowing).
Everything, in short, was looking good. “I quit my day job,” Riley told the crowd, meaning he left … Next Page »