With Big Funding, Phononic CEO Targets New Cooling Applications

Semiconductor startup Phononic entered 2014 with a $21 million funding round to bring the company’s new cooling technology into refrigerator production lines.

Phononic is still on track to break into home refrigeration. But the company is closing the year with an additional $44.5 million in funding as it stakes out opportunities to cool other devices beyond the home. The Durham, NC, company raised its latest funding in a Series D round led by Eastwood Capital Corp. and the Wellcome Trust.

Barring any new financing announcements before the end of the year, Phononic’s $44.5 million round could end up being the largest for any North Carolina company in 2014, based on a review of figures kept by the National Venture Capital Association.

Phononic does not make refrigerators, air conditioners, or any other type of cooling equipment. It makes a solid-state heat pump that replaces the compressor—the motorized pump that moves refrigerant throughout a conventional cooling system. In addition to eliminating the need for a toxic refrigerant, the technology also uses less energy. Those characteristics have drawn attention from a swath of industries ranging from telecommunications to the life sciences.

“We revisited the other markets,” CEO Tony Atti tells Xconomy. “We found the opportunities in electronics were not only compelling, they were remarkable.”

The technology is based on thermoelectric generators, devices that convert heat into electricity. That process can be reversed, resulting in thermoelectric cooling. Phononic’s business model is to work with equipment makers, such as refrigerator manufacturers, who incorporate the Phononic heat pumps into their production lines.

Phononic Logo

Atti won’t disclose Phononic’s refrigerator partner in China, nor will he say whether the company has more than one partner in Asia. But he has said that the company initially focused on Asia because it represented the best market opportunity. Many households in Asia are getting refrigeration for the first time, so market adoption could be faster there than in the United States, where consumers would need to be convinced to upgrade.

Last year’s $21 million Series C round actually topped out at $26 million, Atti says. That funding was applied to Phononic’s North Carolina manufacturing facility, located just outside Research Triangle Park, while also supporting the steps needed to bring a new component into refrigerator production with Phononic’s undisclosed partner. Atti says the new financing will be used to expand the company’s manufacturing capabilities along with its sales and marketing efforts.

Phononic is now split into two business units: a cold products division, which targets refrigerators, and an electronics division. The electronics division will address cooling needs for data centers and telecommunications equipment, among other applications. Customers are already using Phononic’s devices for electronics cooling. Atti says such opportunities were apparent at an earlier stage of Phononic’s development, before Atti chose home refrigerators as the company’s first target.

Phononic’s work on home refrigerators revealed a new opportunity that wasn’t initially apparent, Atti says—cooling for laboratories and hospitals. Unlike compressors, Phononic’s solid-state heat pump has no moving parts. That means Phononic’s devices don’t create vibrations and noise, nor do they require an intake fan and exhaust like conventional refrigerators. While those features might go unnoticed by consumers, they stand out to medical professionals and researchers. They tell Phononic the technology is ideal for laboratories and medical facilities, which need to keep lab samples and biological products in a uniformly cool and undisturbed environment.

In September, Phononic announced that Raleigh, NC-based hospital Rex Healthcare would be a test site for the company’s new line of commercial refrigerators for labs and medical facilities. Phononic is now taking orders for laboratory and medical refrigeration applications, which should ship in 2015. Though home refrigerators were the company’s first target, Atti says it takes time to integrate the technology into refrigerator production lines. He expects the first home refrigerators employing Phononic’s heat pumps will reach the market next year, in both Asia and the United States.

Before founding Phononic in 2009, Atti worked in energy technology and also as an energy tech investor; he is a former director at MHI Energy Partners, a seed and early-stage private equity fund. Phononic’s technology comes from semiconductor and thermoelectric research at the University of Oklahoma, the University of California, Santa Cruz, and the California Institute of Technology. While Phononic is currently focused on cooling applications, Atti acknowledges that the company’s thermoelectric devices can also be used to create heat and he says the company is exploring heating applications.

Heating applications could mean the creation of a third business unit within Phononic. That pursuit could move it closer to the work of other thermoelectric startups. Both GMZ Energy, a Waltham, MA, company, and Hayward, CA-based Alphabet Energy have developed technologies to convert heat into electricity. But for now, Atti won’t disclose where Phononic plans to go with heat applications of its technology, other than to say “there are interesting consumer products on the road map.”

Frank Vinluan is an Xconomy editor based in Research Triangle Park. You can reach him at fvinluan [[at]] xconomy.com. Follow @frankvinluan

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