Raj Atluru, a managing director at Draper Fisher Jurvetson, remembers the data that convinced him that power was a tech industry pain point. A large Japanese consumer electronics company (he won’t say which one) had reported that consumers would pay a good deal more for batteries that were only two to three times better.

“In the IT space, you are looking for 10X improvements—10 times better on price or on performance,” he says. “TwoX doesn’t sound like a lot for a VC, but it is a lot in this space because people are willing to pay for it. That’s one reason I started getting excited about batteries.”

Another factor is the increased applications for batteries, including medical devices, RFID tags, and security cards. Colleagues were also looking for ways to close the “run-time gap”—the unmet need for consumer electronics to run during an entire workday. Two years ago, Menlo Park, California’s Draper Fisher Jurvetson invested in Solicore, a Lakeland, Florida-based company with a thin, flexible battery based on new lithium-ion chemistry it claims is more powerful. DFJ, like many other VC firms, is on the lookout for more power-source investments, says Mr. Atluru.

“Historically, battery investments have not been good investments.” –Raj Atluru, Managing Director, Draper Fisher Jurvetson

OnPoint Technologies, in Maitland, Florida, led a $10-million round in November for PowerGenix, a San Diego-based company with a nickel-zinc battery, and led a $9-million round in October for Zinc Matrix Power, a Santa Barbara, California-based firm with a zinc battery technology. Micro Power, a Hillsboro, Oregon-based battery integrator for medical devices, received $5 million in October and $9 million last May, in rounds led by Palisades Ventures of Los Angeles and Sierra Ventures of Menlo Park, California.

It’s a switch for the battery sector, which has usually been dismissed as too low tech for new investment. “Historically, battery investments have not been good investments,” says Mr. Atluru. “Batteries have been commoditized. But now the pain points are just really strong.” Devices such as digital cameras, cell phones, portable music players, and handheld computers and video games are becoming more power-hungry and more popular, and the need for smaller and stronger batteries has cracked the battery industry open to startups.

Surging Need

The science of batteries leaves plenty of room for improvement, says Rob Enderle, a principal analyst for the Enderle Group, a firm in San Jose, California, that provides technology analysis and consulting.

A battery, which is made up of plates of reactive chemicals separated by barriers, is polarized so all the electrons gather on one side. That end becomes negatively charged, and the other side becomes positively charged. Connecting a device creates a current and the electrons flow through the device to the positive side. At the same time, an electrochemical reaction takes place inside the batteries to replenish the electrons.

“Basically, you’re converting electrical energy into a chemical process, and then the chemical process reverses to put electrical energy back out,” says Mr. Enderle, adding that about 80 percent of the energy put into batteries is lost in the process. “It’s incredibly inefficient.”

Inefficient, yet invaluable. According to the Freedonia Group, a Cleveland-based market research firm, the worldwide battery industry is worth $48 billion and is expected to grow 6.5 percent annually until 2008. The Euromonitor International, a consumer market research and analysis firm based in London, estimates the U.S. market for batteries and rechargers at about $2.8 billion in 2003, and projects it will reach about $3.4 billion by 2008.

The top four manufacturers—Rayovac in Atlanta, Matsushita Electric Industrial in Osaka, Japan, the Gillette Company in Boston (now merging with Proctor & Gamble), and Energizer Holdings in St. Louis—controlled 87 percent of the U.S. market in 2003, according to Euromonitor. Sony, Panasonic, Sanyo, Samsung Electronics, and BYD are also power players.

The industry faces pressure to improve battery technology before other technologies, such as fuel cells and photovoltaic solar cells, disrupt its market. “Current battery technologies are certainly not adequate,” says Mr. Enderle. “We’ve got a fairly staid group of companies that operate batteries, and we do have people investing in next-generation technologies, in trying to move the ball forward to make batteries better, cheaper, stronger.”

Tinkering with the Science

Lithium-ion batteries (Li-ions) are generally considered the most powerful, offering the same energy as nickel metal hydride (NiMH) batteries, with 20 to 30 percent less weight. They are expensive compared to older battery technologies, but are valued for high-power portable applications, such as laptops, cell phones, and PDAs.

But even Li-ions aren’t strong enough to power all of the functions manufacturers want to add to their devices. “With Moore’s Law, the chip capacity is increasing every 18 months, and competition requires all manufacturers to bring out all these new functions,” says Atakan Ozbek, a former analyst with ABI Research. “Power suppliers are lagging behind what’s really required by the [original equipment manufacturers], by more than a factor of 30. That’s why batteries are always being called ‘the weakest link.’”

Zinc is one company hoping to challenge Li-ions, with a new zinc manganese alkaline battery expected to launch in mid-2006. The battery has no lithium or other explosive compound, says Jerome Wiedermann, the company’s vice president of marketing, and it provides twice the runtime as Li-ions of the same size. The company will target consumer electronics. But Zinc’s competitors are working to bring strong batteries to applications where Li-ions have yet to take hold.

Alkalines are still the most prevalent batteries, and Panasonic in January announced that it will launch new AA and AAA batteries—targeting digital cameras—in Europe and the United States this spring. According to the company, the Panasonic Oxyride Extreme Power batteries provide higher voltage than other alkalines, and last between one and a half to two times longer. They will sell for $3.99 for four, roughly the price of other alkalines.

Oxyride batteries have been on sale in Japan since April 2004, and have already won 10 percent of the market share there. Oxyrides use a new oxy-nickel-hydroxide mixture with manganese dioxide and graphite, and Panasonic says it uses a new vacuum-pouring technology to pack more electrolytes into the battery.

Lead-acid batteries, the standard for vehicles and other large-format applications, are another area of interest. Lead-acid is fairly inexpensive, and many new technologies must overcome significant cost barriers to break into that market, says Mr. Enderle. But startups are trying, anyway. Firefly Energy, based in Peoria, Illinois, is developing a new lead-acid battery that it says will match the performance of NiMH or Li-ion, at one-tenth of the cost. It has a coating process that will prevent corrosion, giving its battery a much longer life, says Firefly. The company, a Caterpillar spin-off that completed a $4-million venture round in October, estimates the worldwide lead-acid industry at $30 billion.

Austin-based Valence Technology is bringing Li-ions to large-format applications currently using lead-acid or NiMH batteries, such as scooters and wheelchairs. The company says its technology, Saphion, is safer than regular Li-ions because phosphate, an element used to extinguish fires, is structurally bound to the metal. The Segway Human Transporter got four hours of runtime using NiMH batteries, and doubled its runtime to a full workday by switching to Saphion, says CEO Stephan Godevais. Valence’s battery is less powerful than other Li-ions, but is not a competitor, he says, as Valence isn’t targeting consumer electronics.

Shrinking to Grow

Cell phones, digital cameras, and other gadgets are getting smaller while doing more. Manufacturers can make batteries stronger by making them larger, but that doesn’t work for these devices. Some battery makers have tackled the problem by transferring stronger technologies to miniature sizes.

Last fall, for instance, Energizer introduced a Li-ion battery in AAA size, called Energizer e2, to fill the need for stronger batteries in the smaller size, which are often used for digital cameras. Sony and Sanyo also introduced new Li-ion and Li-ion-polymer batteries in the fourth quarter of 2004.

Nanotech companies are also getting involved. mPhase, for example, is partnering with Lucent’s Bell Labs to make smaller batteries with longer shelf lives. The “nanograss post” technology will reduce the internal packaging to allow practically all of the battery to be filled with chemicals, says Bell Labs.

The nanograss posts, so called because they look like grass when seen under a microscope, are made of silicon and are 30 times thinner than a red blood cell. Their pointy shape adds reactive surface area to a smaller space, making them more efficient. Those same posts keep the chemicals separated when the battery is not being used, increasing shelf life. mPhase says its first products will come out around 2007 and target the military and government markets.

BatMax uses a new nanoceramic material called IonXR to make battery boosters for a number of consumer electronics, and Toshiba in March announced a breakthrough using nano-particles, which boost the power density of Li-ions and allow them to recharge 60 times faster than today’s Li-ions.

Sometimes the main problem isn’t size, but shape, however. Medical devices, along with small consumer electronics and military devices, have weird shapes that often don’t work with standard batteries. One solution in development is the lithium-polymer (Li-polymer) battery, which looks like a thin film and is moldable, fitting inside products of all shapes.

One such battery comes from Biophan Technologies, a company based in West Henrietta, New York. The company develops batteries for implantable medical devices, a market it estimates at $500 million. Biophan’s thin-film battery would use the difference between the temperature inside the body and the temperature at the surface of the body to create energy for low-power, implantable medical devices like pacemakers, sensors, or miniature drug pumps, says CEO Michael Weiner. The battery would be about the size of a matchbook cover, about one-tenth of the thickness of today’s pacemaker batteries, and would contain no chemicals, using existing energy rather than creating new energy, he says.

Companies such as Solicore, Cymbet, Excellatron Solid State, and Great Power Battery are among those developing thin-film Li-polymer batteries. But they have less energy density, so more of the film must be used to power the same device, compared with Li-ions, says Mr. Enderle. Sony, Hitachi, Toshiba, and BYD already make Li-polymer batteries.

Quality of Shelf Life

Critical medical devices, such as implantable cardioverter defibrillators that save patients from sudden cardiac death, depend on batteries. So do weapons, communications equipment, and other military gear. In both cases, the stakes are high—if batteries fail, people could die—but so are the margins. Both the medical industry and the military are willing to pay for high reliability.

So manufacturers have much to gain by making batteries more dependable. Ultralife Batteries, EaglePicher, BST Systems, and Yardney Technical Products’ Lithion division are all companies that have successfully thrived on the military market, which Mr. Ozbek puts in the tens of millions of dollars.

Micro Power, a company that integrates battery packs into medical devices, is profiting on the medical side. CEO Greg Love says the company’s margins are around 30 to 40 percent, compared with about 5 percent for laptop batteries. Micro Power estimates the 2004 market for battery packs in the medical industry is $406 million, and expects that market to grow to $711 million by 2008.

Biophan is also taking action. The company has a thin-film Li-polymer technology, and its goal is to double or triple the life of implantable batteries in low-power devices such as pacemakers, says Mr. Weiner. When used to top off a rechargeable battery, Biophan’s technology could also potentially extend battery life in medium-power devices, such as implantable defibrillators, to 10 to 20 years, he says.

Valence is increasing reliability by making Li-ions safer, and could eventually succeed in powering airplanes and military vehicles, which can handle larger batteries, as long as they are safe, says Mr. Enderle. “You don’t really want something else on a military vehicle that can explode,” he says.

“This is a growth decade for batteries in all sectors,” adds Mr. Enderle. “We’re hungry little consumers. We like lots of power.”