How a clean tech startup can attract investors before it has a product

April 29, 2014 Financial Post

April 28, 2014

May Teresa Bitti

Colleen Legzdins is the inventor of technology that has the potential to be disruptive in the treating of industrial waste water. And it’s clear investors believe in its potential and are willing to back further growth.

This February, Vancouver-based Axine Water Technologies raised $5.6-million, one of the largest Series A rounds of funding for a water and wastewater company in the world in the past two years. That validation and support will help take the technology from pilot testing to commercialization.

It also highlights the power of a strong leadership team with equal strengths on the technical and business fronts. Ms. Legzdins is the technical founder and chief technology officer of Axine Water Technologies, while the business end is handled by Jonathan Rhone,  president and chief executive, who founded and built renewable energy firm Nexterra into a global leader.

A PhD materials engineer from University of British Columbia, Ms. Legzdins spent a significant part of her career working in fuel cells, including several years at Ballard Power and Ballard Material Products as a senior engineer on the fuel cell team. In 2009, she left Ballard to apply her knowledge of material sciences and the evolution of materials around fuel cells and electrochemical technologies to  clean technologies.

“She developed a feel for the market, which is highly uncommon for technical engineering people,” Mr. Rhone said. “She understood there is a tremendous amount of pain around the treatment of toxic organics in industrial wastewater. The science has evolved but there has never been a really good solution for a problem that affects the oil and gas industry, pharmaceuticals, textiles — virtually every industry produces these non-biodegradable organics in their waste water.”

Rather than treating these organics with a traditional expensive, often ineffective chemical oxidant, Ms. Legzdins’ basic idea was to create a device where the water would flow over a catalyst surface designed to generate hydroxy radicals (oxygen and hydrogen) in the presence of water and electricity. She built a prototype in her basement and worked for two years on her own in a borrowed lab building.

“The hydroxy radicals react with the organic molecules in the waste water and break them down into their basic building blocks of water, carbon dioxide and hydrogen,” Mr. Rhone said.

Mr. Rhone, who was entrepreneur in residence at leading clean-tech venture fund Chrysalix Energy Venture Capital, joined the company in June 2012. Chrysalix has been a part of both funding rounds. Mr. Rhone and Ms. Legzdins had no trouble securing an initial round of seed funding the following month and going out to the market with a strong pitch.

They were developing an electrochemical approach to oxidizing toxic organics in waste water without using chemicals and without producing any waste byproduct at a cost up to 10 times lower than anything else. What’s more, it allows industrial users to reuse that water on site.

Even in its earliest testing, multinational oil and gas, chemical and water waste-management companies were willing to pay for the opportunity to help prove it worked. “We have been selective, to work with customers that are experienced at working with early-stage tech companies and want to be early adopters,” Mr. Rhone said.

With the cost of performance validated, the new round of financing will help them expand their facilities, hire engineers, technicians and business development people and start putting field pilots on customer sites by the end of the year. By 2015, they plan to have commercial products ready to take to market.

“We are always looking for technologies that will help move the needle. Water is an important area. Many industries face challenges and need to recycle and treat it and face a regulatory environment that is more prescriptive,” said Jean-Michel Gires, a venture partner at Chrysalix. “Axine looked interesting as a platform technology and early testing has had encouraging results. That’s what we want: a technology that can make a difference.”

Marty Reed, partner at Berkeley, Calif.-based venture capital firm Roda Group, has been actively looking for water technology startups to invest in for the past three or four years. When Chrysallix introduced him to Axine Technologies, he found what he was looking for. “I’ve seen a lot of water technologies that address a very specific need. The challenge is scalability and can it have global impact. Axine is the rare technology I’ve looked at that meets a huge need across several industries,” he said.

He was equally impressed by the leadership team. “It’s the perfect combination: really smart technical founder and a successful CEO. You don’t see that too often.”

Another thing that sets Axine apart, is that Mr. Rhone and Ms. Legzdins are committed to solving customer problems. “It’s not about technology push; it’s about customer pull,” Mr. Rhone said. “We don’t expect customers to pay a premium for green. This is about solving pain points, improving environmental performance and cutting costs structure.”

The plan is for the initial beachhead clients to generate revenue and a pipeline of customers. Once that happens, Mr. Rhone and Ms. Legzdins hope to develop a service offering. “That will happen over time, once we have robust, proven technology in the field,” Mr. Rhone said.

“We’re seeing a growing trend in industrial waste water market for treating water as a service. We are looking at that now with a number of large service companies that are in that business. It’s an exciting development. Stay tuned.”

Read the article at: http://business.financialpost.com/2014/04/28/how-a-clean-tech-startup-can-attract-investors-before-it-has-a-product/