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Avista Labs adds venture capital – San Diego-based firm, Enterprise Partners invests $5 million in company

Avista Labs is done raising money.

The Spokane fuel-cell maker has landed another $5 million, adding to the $7.5 million in venture capital it secured in July.

Alison Boggs
Staff writer

The additional money brings to a close the long process of searching for investors, which at one point raised a question about whether the company would continue to exist.

The company — which does not expect to be profitable until 2005 — needed $12 million to fully fund its path to commercialization.

The new investor is Enterprise Partners Venture Capital http://www.epvc.com/home1.html , a San Diego-based firm with more than $1 billion in assets and a deep network of contacts within the telecommunications industry. Avista Labs CEO Mike Davis said telecommunications accounts for half his company’s target market.

"They’re not trying to reinvent us," Davis said of the consortium of investors backing Avista Labs. "They’re trying to help us be successful based on what we’ve committed ourselves to do."

Avista Labs’ fuel cells provide a backup power supply that aims to replace industrial batteries anywhere 50 watts to six kilowatts of energy is needed. Fuel cells are promoted as a nonpolluting way to create electricity. They convert pure hydrogen into electricity through an electrochemical reaction and the only byproducts are heat and water.

The additional funding means Avista Labs is likely to hire five or six people within the next year. It also means its manufacturing capacity will quintuple, Davis said. He said local manufacturers will benefit from increased orders. They include: Servatron, Apex sheet metal, H&H Molds and Nott-Atwater, which makes gaskets and die-cut products.

"If we’ve got a dollar of sales, we’re putting 75 cents into the manufacturing base," Davis said. "We’re comfortable we can improve those margins and still have it be good business for our manufacturers."

In July, Avista Labs announced its first round of investment, from Avista Corp.; Buerk Craig Victor of Seattle; Vancouver, B.C.-based Chrysalix Energy, and Wall Street Technology Partners.

Previous corporate parent Avista Corp. divested from all but 19.9 percent ownership of Avista Labs when the other three investors bought in.

Like the other partners, Enterprise Partners was impressed with Avista Labs’ unique design, which they said makes its power supply more reliable and more easily serviceable than other fuel cells. The fuel cells are set up in cartridges, installed into a unit about the size of a microwave. If one cartridge fails, the rest keep running, with no interruption in power. Servicing is as easy as pulling out the failed cartridge and putting a new one in.

"The focus of all these fuel cell technologies is — can you deliver fuel cell technology at a price point that is going to rival batteries and make money at it? Our view is that Avista is the only fuel cell technology that can do that," said Carl Eibl, managing director and chief operating officer for Enterprise Partners. "Everybody else … has a cost position that is much higher than Avista."

Enterprise Managing Director Naser Partovi will join Avista Labs’ board of directors. Partovi, a former vice president for Nortel, brings extensive contacts within the telecommunications and optical network markets.

"We literally can walk the company into some of the most senior executives and make the introductions," Eibl said, adding that Enterprise’s connections should help Avista Labs market its product outside the United States as well.

Davis said the company is working through a certification process that will help Avista Labs access the telecommunications market. The company also recently received certifications allowing its products to be sold in the European Union and to federal agencies in this country.

The recent blackout on the East Coast highlighted the need for better backup power supplies, Eibl said. To provide that magnitude of backup power, a customer can either buy a "football field" worth of batteries or a fuel cell and an additional tank of hydrogen, he said.

"The incremental cost of additional tanks is incredibly low for added backup power," Eibl said.

The blackout will create an incentive for wireless carriers and others to reconsider their backup systems, Eibl said.

Davis agreed, saying, "The court of public opinion is very powerful. A lot of the systems we depended on to work in an emergency didn’t work. I couldn’t have hoped for a better commercial."

Also enticing for Enterprise Partners, Eibl said, are products in development at Avista Labs. The company has fuel cells in the 1-kilowatt, 500-watt and 100-watt ranges. However, Eibl said, Avista Labs also is working on some fuel cell-based products that could provide a primary power supply.

"There’s quite a bit that’s under the hood in the development lab we’re excited about," Eibl said. "Fundamentally you invest in people. It’s the people there that developed these products and have focused the product on real markets that exist today."

http://www.spokesmanreview.com/news-story.asp?date=091803&ID=s1412115&cat=section.business

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