August 4, 2009 / 2:56 PM / in 9 years

Canadian fusion startup powers up with $22 million

SAN FRANCISCO (Private Equity Week) - A Canadian-based startup that is experimenting with fusion energy technology has quietly raised $22 million in early stage funding from venture capitalists.

Burnaby, British Columbia-based startup General Fusion plans to develop a prototype that will show its fusion technology can produce energy cheaper than coal-fire plants and safer than standard nuclear fission plants.

“What General Fusion is working on is game changing,” says investor Rolf Dekleer, vice president of investments for Canadian venture capital firm GrowthWorks Capital. “If they were working on this 10 years ago, we wouldn’t be talking about global warming today.”

GrowthWorks Capital, Braemar Energy Ventures, Chrysalix Energy Ventures and The Entrepreneurs Fund combined to provide $9 million for General Fusion. The Sustainable Development Canadian Technology Fund, a government entity charged with financing environmentally friendly technology projects, additionally kicked in more than $13 million, contingent on General Fusion’s ability to meet key milestones.

It’s easy to understand the market potential with fusion, but the technology has proven to be more complicated.

General Fusion has developed a technology that was abandoned more than 30 years ago because precision controls, computer processing power and plasma technology were not able to sustain its design.

“What we’re doing is taking that technology and speeding it up by about a thousand-fold,” says General Fusion CEO Douglas Richardson.

The company is working on two types of fusion projects: magnetic fusion, which uses large magnets to force particles together to fuse, and inertial confinement fusion, which uses lasers to shoot high-density fuel pellets. The company hopes that it can cut costs by combining aspects of each of the fusion technologies.

The aim is to achieve a net gain, says Richardson, in which the fusion produces more power than it consumes. If General Fusion can get to that point with its prototype, Dekleer is confident that strategic buyers will take notice.

“When they get to the point where they can produce net gain, than a company, such as General Electric, could likely buy out the investors,” Dekleer says.

Richardson says that when he began shopping his company around Silicon Valley to raise money, he ran into a lot of closed doors.

“Investors in Silicon Valley have made a pile of money in software and everyone wants to get behind the next Google, Facebook or Twitter,” he says. “They like to follow precedents and there is no precedent in fusion.”

But the problem of having no precedent wasn’t the only obstacle. The problem was that some VCs have been burned on other capital-intensive cleantech projects that hadn’t panned out, Richardson says.

Many VCs felt they’d be tossing their money into something that would never come to fruition, says Richardson.

“Fusion is 30 years away and it’s been that way for 50 years,” he says. “It lost a lot of credibility, and there are some really hard skeptics and getting past the skepticism is hard.”

Indeed, Dekleer says it was difficult to get past his initial skepticism, too. But Dekleer says he was impressed that Richardson and co-founder Michel Laberge had worked together at Creo Products, a precision manufacturing company for the printing industry.

Their former employers thought they were brilliant, Dekleer says.

Then the investors brought in experts from Boeing and the University of California Berkeley’s nuclear engineering department to look into the technology. They couldn’t find any reason why it couldn’t be done. In fact, they even thought it could be done inexpensively: with $50 million invested over four years.

If General Fusion can meet its first milestones, it may have access to larger rounds of capital. One investor, the Entrepreneurs Fund, is backed by the Brenninkmeijer family, a wealthy family office in Europe. The Brenninkmeijer family also funds Good Energies, an investor in cleantech projects and an early backer in such solar companies as Q-Cells.

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