Small tech siblings pursue military and industrial applications

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PISCATAWAY, N.J., April 23, 2003 — The two companies work literally side by side in the Rutgers Industrial Park, but Nanopowder Enterprises Inc. (NEI) and Structured Materials Industries Inc. (SMI) are each following their own paths toward full commercialization.

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Like many small high-tech companies, NEI and SMI have survived due to a steady flow of  Small Business Innovation Research (SBIR) funding from federal agencies including the Department of Energy, NASA and the Missile Defense Agency (MDA).

SMI is developing a radiation detector module based on the neutron-sensing film that the company hopes to produce for the U.S. military, homeland defense and nuclear power industry, said Gary Tompa, the company’s president.

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SMI produces complex oxide materials such as photonic crystals using its own chemical vapor deposition (CVD) systems. The company plans to market its process equipment as well as specialized products made with it, including a thin film of ferroelectric material that can detect neutrons.

NEI, co-founded by Ganesh Skandan to produce nanostructured materials, got its start in 1997 as a spinoff from Rutgers University that incubated within Structured Materials. One of NEI’s potential products is a coolant fluid enhanced with nanoparticles for automotive or industrial applications. NEI is also working on a transparent nanomaterial for use in the optical nose cone of laser-guided Hellfire missiles.

In 2001, MDA awarded NEI a $970,000 Phase II SBIR contract to develop nanomaterials that improve performance and reduce the cost of lithium ion rechargeable batteries. The company is also working on less-expensive magnesium nanoparticles for use in battery electrodes.

MDA has tapped SMI to develop infrared detector arrays made of thin films of pyroelectric materials. SMI is working with defense giant Raytheon Co. on the project. SMI makes the infrared thin films, used in thermal imaging applications such as night-vision scopes, at low temperature using its SpinCVD process, which uses a rotating disk to deposit chemical vapors on a surface.

Small companies like NEI and SMI can “grow up” on SBIR money while developing their business skills, intellectual property and product prototypes. Indeed, the Small Business Administration’s 20-year-old program, the largest source of early stage technology funding in the United States, helps young tech companies get on their feet while providing different federal agencies with targeted research and development. More than a billion dollars in SBIR funds will be awarded this year.

Now, NEI is making the transition from SBIR support to a fully commercial business. The company has hired a new president, Richard Ziminski, and is gearing up to talk to venture investors. Tompa said that NEI is seeking funds because it is at the point where capital can go directly toward expanding commercial production, not merely financing R&D.

“NEI is looking at a rapid ramp up in delivering products to customers and needs company growth funds,” he said. “SMI has established self-funded routes to meet present growth needs,” but may seek a capital infusion down the road.

Skandan said that preparing NEI for its next phase required rethinking the business of producing nanoparticles. First, he said, rather than focusing on a low-cost production technology, NEI’s plan is to start with the lowest-cost raw material and then adapt a production process to “offer the best possible performance at the lowest possible cost.”

Second, he said that NEI’s goal is to provide value-added products, not merely raw nanomaterials. “We do as much of the integration into the product as we can on our end.”

For its nanoparticle-enhanced coolant project, NEI researched and patented the formulation of the particles within the coolant. Skandan said the plan is to provide a concentrated form of the nanoparticle dispersion that can be shipped to the manufacturer, who can then easily mix it into the coolant.

This approach, roughly akin to selling frozen orange juice concentrate, protects NEI’s intellectual property and allows the company to be more of an integral participant in an end product.

Silicon Alley Seed Investors co-founder George Abraham is familiar with Structured Materials and the SBIR program that sustains companies like SMI and NEI. He noted that venture capital firms tend to see SBIR funding as “a double-edged sword.”

On the one hand, in the current economic environment, a developing company can definitely benefit by building its value through SBIR grants. From an investor perspective, Abraham said it is important for young companies to get to a product prototype stage as economically as possible.

The downside, said Abraham, is that some companies “get addicted to grant money” and fail to evolve into viable commercial businesses.

Ultimately, Abraham said, SBIR money can be most constructive with grants won in tandem with well-established partner companies, such as SMI’s work with Raytheon on infrared films.

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