Business

Phononic, buoyed by cash, looks toward global growth

Phononic Inc. has raised a lot of cash — and from a lot of places.

In total, the Durham-based startup has now raised $120 million — with half of it coming from overseas — as the company begins to put a marketing and sales division into drive.

The company, which is attempting to upend the cooling and refrigeration market, makes tiny chips out of semiconductors, which power thermoelectric heat pumps for cooling rather than use freon or air compressors. The chips takes up less space and are more efficient than traditional cooling devices.

It does all this from a typical office park on the edge of Research Triangle Park, which they began beefing up around 2012 to be the home of a high-tech semiconductor production facility.

The company, which was recently named on CNBC’s 2016 Disruptor List, wants to put those semiconductor chips in as many items as possible: from hospital cold storage units to wine coolers; gaming consoles to database servers.

“We are unapologetically building a global powerhouse,” CEO Tony Atti said in an interview. “Capital knows no boundaries. Capital knows growth and opportunity, so I get very frustrated when people beat up the Triangle or get chips on their shoulder about bringing capital here. If you have a discernable value proposition, money does not care where you are.”

The company was started by a group of venture capitalists who had the idea that the refrigeration market could be changed by semiconductors, like the lighting industry had been changed by semiconductors.

The group leased some promising technology from the University of Oklahoma and the California Institute of Technology. They moved the operations to North Carolina State University's Centennial Campus, which they saw as having the best facilities for the company to grow from and made Atti the CEO and president.

Atti, whose most recent round of funding brought in $30 million, sometimes speaks like someone from Silicon Valley, using words like “disruption” and having world-beating ambition — but still sounds like someone who was born in Buffalo, N.Y.

Atti has now lived a decade in the Triangle and has proven to be adept at luring investments to Phononic. He said he is constantly flying to New York, California and China to meet with investors and clients. His sales pitch is shaped by his unique background — he once worked in venture capital, he was a research scientist for a NASA-sponsored program, and he has a Ph.D in organic chemistry as well as an MBA .

The company counts investments varying from UNC Rex Healthcare’s Rex Health Ventures, Palo Alto-based Venrock and Chinese-based venture capital firms Tsing Capital and GGV capital, among many others.

The Chinese investors might be most telling on where the company sees future growth.

“[Asia Pacific] is where you need to be,” Atti said. “Between China and Taiwan, whether it’s electronics or refrigeration, that’s where we see the true dramatic growth opportunity for our company.”

Up to this point, it has used its funding to build out its campus in Durham. They now have two sites: one for the front-end team and the other for the production of chips that will be sent to China for final installation.

But this round of funding, in a testament to where the company now sees itself in the growth cycle, is using the money to increase its marketing and sales staff. Phononic, which currently has around 110 employees is adding 20 to 30 positions — mostly regionally based sales reps around the country and in offices in Asia.

The company has also recently landed some major partners and customers in the refrigeration and electronics business, including Chinese firm Haier, which recently bought General Electric Appliances, and Helmer Scientific, which makes medical refrigerators.

Haier has already put into production a line of refrigerators using Phononic technology, and they are likely to hit U.S. shelves in 2017, though it still isn’t clear whether they will be under the Haier or GE Appliances name.

“When we’ve finished on 2017, ironically it will end up being split 50-50 [between electronics and refrigeration revenue],” Atti said. “I wish I could tell you I intended that to be the case, but it wound up being the case.”

Atti wouldn’t give specifics on what revenue numbers Phononic forecasted, but he said that the company feels comfortable with it and that success will be measured in customers signing back up.

“[Success would be] recurring volume commitments,” he said — giving the example of one client that went from ordering hundreds of units a month to soon ordering hundreds of thousands of units a month.

Atti said the company intends to keep chip production in RTP going forward and that they are committed to the space.

The company has gained a lot of traction in recent time, and it will be Atti’s role to make sure that the growth continues through 2017, which is set up as a critical year for how its products are adopted.

Zachery Eanes: 919-419-6684, @zeanes

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