Nixon on how to identify a successful graphene business
They get some graphene and sell it for more than it cost. OK, this might sound trite, but there is more than a grain of truth in this seemingly bland statement. In creating the global graphene manufacturing report we have discovered many companies around the world in the graphene business. Not all of them will survive. How do investors recognise success factors in this market? Let’s explore this a little further and see what we should look for when considering a good investment opportunity in the world of graphene, I invite you to read on…
All successful companies get the basics right. They set up an infrastructure based on sound management practises to manage their operations, finances and people. In addition to this, graphene businesses need to understand the technology of production and the myriad applications of graphene.
Many aspiring high tech companies get carried away with the technology and do not pay enough attention to managing a profitable business. This is partly due to the fact that they often find the technology more exciting than the perceived chore of being profitable. In the early stages of formation a business consumes cash and generates it later. This tolerance of early losses for longer-term gain is essentially the risk / reward judgement that all investors must make. An exception to this is a government-funded organisation that can sustain loss-making operations for far longer, and there are organisations like this out there. In this column we are more interested in privately funded businesses that have an imperative to return shareholder investment.
The key to success is not to lose sight of value creating activities, this graphic shows the things you need to consider:
The production end of the graphene value chain
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The graphene value chain starts with a firm’s ability to source graphene. There are two routes to this, the Bottom-Up and Top-Down methods.
The bottom up method makes graphene from carbon compounds such as methane. It has the potential to large create sheets of the material. The current state of the art is creating imperfect samples on copper foil or coating copper surfaces with a single atom layer. The key value adding steps are either peeling a graphene layer from the surface on which it is made or to coat the surface of metal components to improve their physical and chemical properties. This route is still very much on small scales (of the order of square centimetres) at the moment and there is much development work yet to do.
The top down method starts with graphite that is made up of many tiny pieces of graphene stacked much like a set of playing cards. The key value-adding step is to separate the layers to liberate individual pieces of graphene called nanoplatelets as either powders or suspensions products.
For the bottom up method, the key value adding activity is to develop a scalable manufacturing method using simple raw materials and processing conditions. If this is patent protected so much the better, from the point of view of the firm developing the product.
For the top down method finding a high purity and high quality source of graphite is a critical value-adding component. Larger graphite flakes yield larger graphene nanoplatelets that make products with a better additive effect. Graphite with large flake size that can be mined and processed cheaply will yield a higher quality, more profitable, product than a raw material that needs intensive chemical and physical processing.
Pay attention to companies that have secure access to the best raw materials and use the most straightforward processing techniques and you will be looking at better investment potential. Companies that master the production of graphene will are more likely to be successful at the supply end of the value chain.
The application end of the graphene value chain
Moving up the value chain to the applications of graphene can access more value and this takes us to the realm of graphene additives. Top down produced graphene nanoplatelets is where mass production is in terms of applications. Teams of scientists around the world are discovering that graphene can be added to many things that improve their performance and they patent their discoveries to protect their research and development (R&D) investment.
A company can build a patent portfolio by doing its own R&D or buying intellectual property created by other organisations and stake a protected claim on market segments it chooses to target. The wise investor will know that just having lots of patents is not necessarily a sign of commercial success. The majority of the patents out there will never create value. To do this they need to protect applications of graphene that solve a particular customer problem better than alternative solutions so that customers will be prepared to pay a premium for the graphene product that gives them the benefit.
This takes us to the marketing and sales ability of the business. The marketing aspect builds the return on investment case for the customer. Essentially this means identifying the problem that can be solved for the customer by using the graphene product and communicating these messages to the target audience with a laser-like focus. New high tech products require messages that are usually one of developing awareness and educating potential customers about the benefits of the product. Marketing makes the sales process more effective. A good sales force uses tried and tested techniques to gain access to decision makers and complete the buying process.
Having made the sale the business needs to get the right product to the customer in the right amount at the right time. Good supply chain logistics are essential. Key questions to ask when evaluating a potential investment would be – How reliable is the supply of the raw materials from inbound logistics to the conversion operation and then the supply of the graphene product to the customer from the outbound logistics? Any concerns about this means a business may have issues fulfilling its sales promises.
Getting the right product at the right time to the customer needs to be done repeatably and reliably, however no system is perfect and issues will inevitably arise.
Resolving technical and supply issues is the realm of the customer service function. Looking after customers keeps them loyal. Loyal customers are linked to better profitability. The graphene business is no different to any other in this respect. Look for companies that take care of their customers well and you are probably looking at a successful graphene business.
We will be using this model as a lens to look at various businesses. This is part of our evaluation strategy to understand different businesses in the graphene space.
So, how to identify a successful graphene business? It doesn’t have to do everything in the value chain, but that might help. Rather it is a business that is clear about the stages of the value chain it occupies and does the things it is configured to do to the best of its ability.
Adrian Nixon is a Senior Editor at InvestorIntel. He began his career as a scientist and is a Chartered Chemist and Member of the Royal ... <Read more about Adrian Nixon>