World’s largest oil company takes $10 million stake in Springdale nanotechnology startup

by Wesley Brown ([email protected]) 511 views 

Northwest Arkansas startup NanoMech said Wednesday (April 13) that it secured $10 million in capital from the investment arm of Saudi Aramco, the deep-pocket state-owned national oil company of Saudi Arabia and world’s most valuable company.

NanoMech said the $10 million in capital and new relationship with Saudi Aramco Energy Ventures (SAEV) will jumpstart its Series C Financing round, which would help accelerate NanoMech’s manufacturing, sales and product development.

Nanotechnology is a research field that manipulates matter in a microscopic way allowing for applications. The scale of nanotechnology is so small – a billionth of a meter – or the equivalent of one ten-thousandth the size of a human hair. Applications may include hardening of tools so they last much longer, suspension in lubricants that improve performance up to 40%, and use in sprays to enhance protection from bacteria and other microorganisms.

NanoMech Chairman and CEO Jim Phillips said the strategic funding will allow his company to further use nanotechnology to develop advanced products for industrial and mechanical applications, such as lubricants, coatings and specialty chemicals.

“NanoMech is honored to achieve this recognition and investment by the world’s largest energy company. Building on current momentum, NanoMech will use this financing and relationship to expand our global reach, invest in additional sales and marketing resources, and increase investment in our market leading nanotechnology platforms, nGlide, GuardX, TuffTek, and nGuard,” Phillips said.

Phillips said the deal with Saudi Aramco, which has conducted due diligence of the Arkansas startup for the past six months, validates the Arkansas company’s intellectual property and confidential patented technology as “one of a kind.”

“This is first time we’ve had a true strategic investor who will also be one of our largest customers,” Phillips said of the national oil company of Saudi Arabia that is more than 20 times larger than a U.S. oil giant. “This ties us into the ecosystem of the oil and gas industry at the highest level.”

Cory Steffek, managing director, North America for SAEV, said the response to NanoMech at Saudi Aramco and several of the global oil giant’s major suppliers has been positive.

“A platform technology like NanoMech’s has significant potential to bring innovation not only to the energy sector, but also to many other critical industries,” said Steffek, who is based in Houston.

In the startup world, Series C financing is the third financing phase for successful early stage companies before “scaling up.” Generally speaking, a startup’s third injection of capital from outside sources is a signal to venture capitalists and institutional investors that a young company is maturing and has a viable business model. After exiting this round of financing, many startups look toward more robust growth through acquisitions, mergers or even an initial public stock offering (IPO).

“Aramco’s strategic investment in NanoMech will transform the productivity paradigm for sustainable global energy production and accelerate NanoMech’s position as the global leader in advanced nanotechnology delivering products, and solutions for enhanced business performance and competitive advantage,” NanoMech board member Deborah Wince-Smith, CEO of the U.S. Council on Competitiveness.

The Springdale-based startup also said it validated and commercialized its innovations to top U.S. companies and has completed scale up of its smart factory and labs.

“Several Fortune 100 and emerging companies have incorporated NanoMech’s nano-engineered solutions, to create disruptive and higher-performance products,” the company said. “Today’s announcement represents NanoMech’s most significant milestone in the continued validation and authentication of its unique technology.”

Phillips said earlier Series A and B rounds of financing raised $1.6 million and $14.6 million, respective. The talkative NanoMech CEO also said the Northwest Arkansas startup has been awarded several federal government grants and awards to further develop its “technology of the small.”

In late 2014, NanoMech celebrated the opening of its global headquarters and its 29,000 square foot manufacturing facility in Springdale. At the time, NanoMech said it had raised almost $15 million in venture capital, including a 5% equity stake in the company by the Arkansas Development Financial Authority (ADFA) and other state incentives from the Arkansas Economic Development Commission.

ADFA Spokesman Derrick Rose said Wednesday that the state’s total equity investment in the Springdale nanotechnology firm was $1.1 million at the end of 2014. He could not confirm if the state had plans to increase that investment.

Phillips said that since Saudi Aramco is the lead investor for Series C round of funding, the Northwest Arkansas company is looking to close on other venture capital deals in the pipeline. He said additional capital will allow the company to expand its Springdale location and possibly open up another office in Houston, near Saudi Aramco and at the center of the nation’s oil industry.

“This is really tribute to a company that started with two or three guys,” he said.

Phillips said the company is also looking to double the size of its 50-person workforce within the next year to “somewhere in the hundreds.”  He said most of the company’s employees are University of Arkansas at Fayetteville graduates, who have two or three scientific degrees.

“We don’t hire a lot of blue collars workers to do what we do,” he said. “We believe what we are doing, especially in its application to the energy, transportation and manufacturing industry, will one day dwarf Silicon Valley.”

For its part, Saudi Aramco has been upping its investments in U.S. and other global companies tied to the energy industry.  On April 1, amid the global slump in oil prices, Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman made public plans to create a $2 trillion investment fund to seek global investment opportunities for the Middle East country, wean the oil-rich kingdom from its dependence on crude oil, and partly privatize the national oil company within two years.

Saudi Aramco, based in Dhahran, Saudi Arabia, has an estimated market value of more than $10 billion and possesses nearly one-fifth of the world’s crude oil reserves. As the world’s largest crude oil and natural gas exporter, Saudi Arabia is also the most influential member of the Organization of the Petroleum Exporting Countries (OPEC). Aramco Services Co., the kingdom’s U.S.-based subsidiary, is based in Houston and employs more than 500 workers.

NanoMech’s new partner, Saudi Aramco Energy Ventures, is also based in Houston and invests in technologies in upstream and downstream oil and gas, petrochemicals, water, energy efficiency and renewable startups with application to the Saudi Arabian market. Its portfolio of U.S. startup companies includes Siluria, Wearable Intelligence, ConxTech, 908Devices, Braemer Energy Ventures and Utilidata.

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