Herald Sun: Durham firm got a big cash boost for its green cooling technology. What comes next?

August 2, 2021

Phononic’s Co-Founder & CEO Tony Atti, recently spoke with Zachary Eanes of The Herald Sun about the latest round of funding provided by Goldman Sachs Asset Management. 

From the article:

Phononic, a Durham-based cooling technology startup, is eyeing big plans for expansion after receiving a cash injection from a Goldman Sachs fund focused on sustainability.

The investment from Goldman, valued at $50 million, puts the startup on a path for a potential initial public offering, company CEO Tony Atti told The News & Observer.

“We aspire to be a publicly traded company,” he said in a video interview, “and all we can say is the amount of capital that we raised, the investors at the table, and the growth metrics we’ve demonstrated give us that path.”

Phononic, founded in 2009, manufactures semiconductor chips that power thermoelectric heat pumps for cooling. The chips are smaller and more efficient than traditional cooling methods that use air compressors, the company says.

The potential of its technology to provide cleaner cooling caught the eye of Goldman’s new Environmental, Social and Governance (ESG) fund. ESG funds have exploded in recent years, taking advantage of investors growing desire to invest in more sustainably run companies in the face of climate change pressures. More than $51 billion of investor money went to ESG funds in 2020, a record amount, according to CNBC.

Refrigeration methods across the world account for 10% of global C02 emissions, the BBC reported, which is higher than the combined output of the aviation and shipping industries.

“We recognize the critical role cooling and refrigeration plays in the planet’s long term sustainability and climate viability,”Jeff Possick, a managing director at Goldman Sachs, said in a statement. “… Phononic’s solid-state solutions are delivering performance and sustainability not available through legacy thermoelectric or compressor incumbents, and our investment aims to help grow and expand their capabilities to meet anticipated demand.”

Phononic, which says it is now valued at more than $500 million, plans to use the money to expand its sales and marketing team and improve its ability to do high-volume manufacturing. It is investing in a contract manufacturer in Thailand, but plans to keep doing some manufacturing in Durham.

But going forward, its Durham office will be more focused on research and development as well as sales functions. It currently has around 250 employees around the world, and it expects that number to grow to between 500 and 1,000, depending on its ability to find new customers. Atti said his company should be able to leverage Goldman’s network for new customers.

Phononic is focused on three verticals: providing micro-cooling chips for fiber-optic communications, last-mile food logistics, and licensing its technology to other companies.

The food delivery business has exploded during the pandemic, as people chose to get their groceries and meals delivered rather than venture out to stores and restaurants. Phononic was investing in that business in 2019.

“People are just changing the way that they grocery shop,” Atti said. “That’s forcing stores to change their layouts. It’s forcing stores to change how you pick up your produce or your groceries, and it forces the stores to change how they’re delivered to you. So, we believed that was a promising segment in late 2019, and it caught on in a pretty dramatic way.”

Atti said he believes providing cooling services to grocery stores and food delivery companies could be a $9 billion to $19 billion market in coming years.

It is the licensing business, however, that has brought Phononic’s cooling tools to a wider variety of uses, from vaccine refrigerators in hospitals (UNC REX Healthcare was an early partner) to ice-cream coolers at more than 1,500 Circle K stores across the country.

Oftentimes, Phononic’s name doesn’t end up on the finished product. For example, it has partnered with Thermo Fisher to make refrigerators and freezers for hospitals.

“Licensing gives us flexibility,” Atti said. “Once a day, somebody emails us and says, ‘Hey, can you do drones, can you do air conditioning, can you do commercial refrigeration?’ The answer is yes, but it’s very difficult to do if Phononic has to productize each one.’”

Atti said Phononic hasn’t been affected too severely by the global semiconductor chip shortage that has plagued other industries, like car manufacturing.

The company does a lot of its own manufacturing, and crucially signed a contract last year with a Thai manufacturer that is shielding it from many shortfalls.

“Our team’s been running 24/7 all through the pandemic so we’ve been sort of prepared for growth,” Atti said. “Where the chip shortage impacts us is we do use, in some cases, conventional semiconductor equipment or conventional raw materials, and those have longer lead times that we were struggling with.”