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Fully Charged for the Future

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For more than a decade, Rochester-based battery manufacturer Cellec Technologies has been hard at work developing clean, sustainable energy solutions. But sometimes, even brilliant problem-solvers need help to keep the momentum going and scale their business.

 

Lithium-ion battery maker Cellec has significantly improved the capability and safety of lithium-ion cells that vital defense and aerospace efforts rely upon (think satellites, remote sensors, and GPS). They’ve eliminated the need to store and transport cells at a partial state of charge, delivering efficiency and savings to customers while preserving high performance. But Cellec recently hit a logistical wall. Scale for ClimateTech, a climate technology manufacturing accelerator, was there to partner with this promising venture to keep them on track. The firm—which started in a Rochester Institute of Technology lab and launched as an independent company in 2016—has conducted years of meticulous research aimed at making lithium-ion cells safer.

 

The challenge of moving a product into manufacturing

Through state and federal grants and programs, Cellec advanced beyond their initial research and development and was ready to manufacture products. But the elaborate MRL threads necessary represented an obstacle to their reaching a full product launch.

“Earlier programs helped accelerate our technology,” says Christopher Schauerman, CEO and Founder of Cellec. “But we soon realized we lacked the standard documentation known as high Manufacturing Readiness Level, or MRL. We needed help with that to keep the momentum going.”

MRL is shorthand for standards created by the U.S. Department of Defense and industry leaders to assess the readiness of suppliers to make reliable products. It’s all about reducing risks involved in doing business with new suppliers.

Cellec’s products go into several satellite applications led by U.S. government agencies and contractors that require substantial validation documentation, which the MRL threads enable companies like Cellec to provide. Those threads—or topical criteria—number in the dozens.

“Once we started looking at the MRL requirements, it was clear the enormous volume of documentation our customers were asking for,” Schauerman says.

While Cellec understood the need, the process was overwhelming.

“Even with my 15 years of experience making and testing batteries, having all of this MRL documentation down in black and white instead of in my head was a different matter entirely,” Schauerman says.

And MRL documentation extends to a company’s own suppliers, too.

“With our customers, the suppliers we work with matter just as much because their materials go into our batteries,” Schauerman says. “They consider those materials separate products when it comes to verification, so Cellec has to go through the entire verification matrix again in order to test supplier products under the same conditions. It’s one more way to make sure we can handle the manufacturing process.”


How does a company get up to speed on an unfamiliar process that is crucial to moving the company forward?
An expert partner scales up the process.


Cellec connected with Scale for ClimateTech—a NextCorps and SecondMuse program supported by NYSERDA to help climate tech startups navigate the world of manufacturing—through the company’s contacts at RIT. The program offered Cellec a clear roadmap forward to continue their work. Its staff of manufacturing experts understood how to navigate MRL threads and processes, how to collect enormous amounts of information, and how to track down third-party validators to keep the process moving swiftly.

Scale For ClimateTech provided Cellec with a dedicated team of mentors, intensive workshops, and access to New York State’s manufacturing ecosystem that they would not have otherwise had. The company was able to master its understanding of MRL assessment—and understand the benefits of the process.

For instance, working through MRL threads not only legitimizes a company’s fitness to manufacture products, the process builds their confidence in the path they’re taking to market. It reduces mistakes along the way, too. The program teaches clients how to speak the language and express the same metrics that matter to their prospective customers, which further builds their credibility. And the process enables companies to scale up manufacturing faster to meet growing demand, while avoiding costly mistakes at the same time.

“Coming from a science and engineering background, I had limited exposure to manufacturing methodologies. As people sometimes put it, ‘I didn’t know what I didn’t know,’” Schauerman says. “The MRL framework laid out a clear path for developing a complete manufacturing plan. And the Scale For ClimateTech program has been instrumental in developing our manufacturing plan.”

Scale For ClimateTech also supported Cellec’s efforts in negotiating partner and supplier agreements and managing logistics, all while helping the company take control of time-sensitive, critical decisions throughout the full manufacturing process.

“For Cellec, going through the MRL thread has helped us meet our customers’ expectations so much more effectively,” Schauerman says. “It’s in a format and language they expect to see, so it’s giving them more confidence that we’re moving in the right direction—especially as a small company with a new technology that began at a university.”

 

Successfully charging ahead

Cellec is thriving and recently outgrew its second facility. The company now occupies 7,200 square feet of space in Henrietta. And they’re fully equipped to work with new customers, as well as with other contractors they rely on to build their batteries.

“Now I can give our suppliers the right documents and explain how to do every step in the process, rather than just relying on the knowledge in my head,” Schauerman says.

That wasn’t always the case because it’s never easy to put the knowledge in your head on paper in ways that conform to an established standard set of metrics for the operational environment.

“When our customers express interest in doing business with us, now we can more easily prove the soundness of our manufacturing because we know how to speak their language,” Schauerman says.

And Cellec’s batteries will soon reach the next level—literally. They’ll live in the systems of satellites slated to be launched into space.

But the progress won’t end there. Cellec is working toward advancing their products to third parties that need lithium-ion cells to fuel their devices, which will enable the company to get involved in bigger programs and contracts in the near future.

The MRL thread process is key to those advances.

“We’re developing MRL threads for new tasks and statements of work for upcoming programs we anticipate with the government,” Schauerman says.

It’s a framework Scale For ClimateTech helped Cellec build right into its way of work.

“The MRL framework simplifies a very complicated process into manageable threads,” Schauerman says. “By implementing the MRL methodology, my employees are able to independently develop each aspect of the manufacturing process, following a logical progression. That’s really helped us push us closer to our first product.”

 

It Matters Where It’s Made

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Considerations for Contract Manufacturing of New Climate Tech Devices


Making a difference in reducing the emissions of greenhouse-gasses (GHG) requires changes in a myriad of devices that are used daily in our modern life.  In the total lifetime of each of those devices, GHG emissions during use is often the focus though for many products.  However, there are products such as mobile phones and other consumer electronics, packaging materials, clothing and many lower-cost household furnishings where the GHG impacts result from the materials, initial manufacturing and shipping to the end customer.  Use of the products may involve no production of GHGs – but the product may still have a significant “carbon footprint.”  

Products designed to have lower GHG emissions in use compared to products they are to replace, such as an induction oven compared to a conventional natural gas oven, can be very helpful in achieving longer-term GHG reductions.  Assuming the materials used and GHGs emitted during manufacturing and at the end of product life are similar, the GHG reductions for the use case of an induction oven are going to make all the difference.  

 

A still greater impact might be made by selecting materials and manufacturing processes that have lower GHG content for the initial product.  Materials selection can be complex depending on customer product requirements, supply-chain availability, design-for-manufacturing limitations and end of product life options.  There are many resources now in development, such as “The Circular Economy Resource Registry” (https://www.nist.gov/circular-economy/data-decision-tools ) in development at the National Institute of Standards and Technology that will be a platform for finding data, tools, and informational resources useful to facilitating a circular economy.  

 

Selecting contract manufacturers that use energy from non-fossil fuel generation is an approach that can be done with a minimal amount of effort that offers the potential for immediate reduction of GHGs.  Climate tech product developers are encouraged to add requirements on energy sources used in production to qualify contract manufacturers.  Seeking contract manufacturers in areas where most of the available energy used in manufacturing comes from non-fossil fuel and renewable sources is a way to begin the process.

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Within the State of New York, where Scale For ClimateTech is based, the Upstate region is rich in contract manufacturing resources and non-fossil fuel energy.  Some areas within the state have combinations of hydroelectric, wind and solar power generation that can provide 100% fossil-fuel-free electricity at industrial scale.  While there are important initiatives underway (https://www.nyiso.com/-/new-transmission-investments-add-a-new-chapter-to-the-tale-of-two-grids-#🙂 to bring more renewable energy into the downstate New York area in the years ahead, upstate New York has the energy and infrastructure now to enable manufacturing of new climate tech equipment at scale.

 

Gearing up for production? Start here.

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Five critical documents to know when working with contract manufacturers 

Contract manufacturers are in the business of building products that entrepreneurs like you have designed. They bring your vision to life in precise detail. In preparing to work with these vital partners, there are several documents you need to have ready to go when you approach them, from your product’s key components to the instructions for making to other detailed considerations.

There are lots of things you can do to increase your chances of signing a deal with a contract manufacturer. But having these five documents prepared in advance is an important place to start.

Bill of Materials (BOM)

A BOM is like the list of ingredients in a recipe. It lists the components that form your product, how those components relate, and how long it takes to produce each component (lead time). A BOM also describes the necessary quantities of those components and a product hierarchy that goes from the individual parts to the finished produced. It may also include engineering aspects of the product, such as subassemblies.

BOMs are important because they show contract manufacturers specific product parts so that they can maintain product consistency and understand costs. The document also ensures parts and materials are traceable, which some federal agencies require.

Bill of Process (BOP)

While a BOM is like the list of ingredients in your recipe, the BOP is like the recipe’s instructions. It describes the processes and sequence of production for your product, as well as the specifications and parameters of each step. BOPs are important because they ensure that the right resources are available when production begins—and that the product is built the same way every time. They also support regulatory and certification requirements.

A BOP usually takes the form of a table that includes routing information. BOPs typically number these processes—or operations—and describe each one in detail. They also outline the resources necessary for each operation. Operations include setup required for process; setup and cycle times; labor involved; necessary equipment, like tooling; and standard operating procedures (SOPs).

Engineering & Assembly Drawings Summary

A summary of your engineering and assembly drawings provides a visual representation of your product and components, including fit, tolerances, and assembly specifications.

Quality Manual

This document standardizes your approach to production—something every contract manufacturer will need to do their work for you. A Quality Manual features descriptions of rules and procedures necessary to make high-quality products to your specifications. Your contract manufacturer will use it to devise new processes or improve existing ones to maximize their efficiency while preserve high quality. They may use it to troubleshoot production issues, too. The key sections of a Quality Manual are:

  • Your mission statement, to set expectations.

  • Your company values, to help contract manufacturers make decisions about quality and safety.

  • Instructions about how to perform tasks like inspection, calibration, and maintenance schedules.

  • Your company policies related to health, safety, environment protection.

Product Requirements Document (PRD)

This document has a particularly vital role in ensuring product quality and controlling production costs, because it answers key questions across an array of subjects, from a product description to regulatory and financial considerations, to design and packaging.

  • Product—Explains why the marketplace needs this product, what it does, and the features that will make it valuable and successful for customers.

  • People—Describes the end users of your product, and what they care about, as well as those who will be involved in selling, shipping, installing, and repairing the product.

  • Regulatory—Explains any legal considerations necessary for your product to be sold.

  • Financial—Describes anticipated pricing for customers, as well as costs to build and ship.

  • Industrial Design—Focusing on the usability and aesthetics of your product, in terms of the way users will interact with it.

  • Packaging—Covers how your product will be contained for safe shipping, and what information needs to be included.

  • Serviceability—Policies related to service and repair of your product.

 

These five standard documents are necessary when you’re looking to do business with a contract manufacturer because they communicate technical instructions and requirements. And Scale for ClimateTech has plenty of resources to help you get started in preparing them, including this helpful tool.

 

Tips from Contract Manufacturers for Entrepreneurs

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Prep work you can do to increase your chances of signing a deal

Getting ready to go to market with your brilliant idea is exciting. One of the most important steps in your new venture is finding a contract manufacturer who can make your product well. By doing some homework ahead of time, you can boost your chances of securing a signed deal with someone who’s right for you. Check out this advice we’ve gathered from our manufacturing partners.

 

What to consider, what to ask

  • Climate consciousness—What environmental/sustainability compliance do you require? If you’re an entrepreneur in climate technology, you may want to work with partners who have the same earth-friendly priorities as you. For instance, contract manufacturers with whom Scale for ClimateTech communicates in Upstate New York typically source more than 90 percent of their energy from renewable resources—from hydroelectric to nuclear power. 
  • Stage of development—Are you at the concept phase? Prototype? Alpha or Beta build? Make sure your potential contract manufacturer has the capability to see you through based on what stage of development you’re in. If you’re pretty far along in product development, that means you’ve already figured out a lot of your processes and requirements—as well as your Intellectual Property (IP). Are you ready for production, or do you need support with software or hardware design? Some contract manufacturers welcome early ideas that need some help being developed—and talking to them may garner free advice and lower costs down the road.
  • Patent status—Is your product patented? Can it be? Contract manufacturers will be looking for something new and unique to produce. That means it’s patentable. Similarly, do you have a Non-Disclosure Agreement (NDA) ready for your partners to sign to protect your IP?
  • Supply chains—What kind of issues could come up in your production related to supply chains? In recent years, supply chains have struggled and contract manufacturers will be thinking about potential snags.
  • Future outlook—What’s the difference between your short-term and long-term goals? This could have an impact on whether or not a contract manufacturer considers working with. For instance, if you anticipate reaching a much higher volume within a few years, they might be more interested than if you envision remaining at a lower-volume production. Talk to contract manufacturers about their capabilities in terms of scale. Some businesses work at such high volume that they might not consider a customer who only needs low-volume support. Look for one who can meet your volume needs—and offer you the attention you deserve.
  • Money—Do you have adequate funding to keep your startup costs fueled for production? Contract manufacturers will want to make sure they understand the risks of doing business with you early.

 

Know your production process

Be prepared to describe the key aspects of producing your product, including materials and parameters, so potential partners can assess if you might be a good fit. See more about the Critical Documents you should have prepared before you talk to a contract manufacturer. Here are some best practices for two of those documents.

  • Bill of Material (BOM) best practices—One of the critical documents you’ll need to prepare when shopping for a contract manufacturer is your Bill of Materials, or BOM. As you build that document, there are some important things to keep in mind:
    • Does your BOM include custom-made parts as well as those purchased from suppliers?
    • How much of the raw materials involved in production will be lost to waste?
    • Is your ultimate unit cost economically feasible for your manufacturer?
    • What are the total costs in your BOM?
    • What is the most expensive part of your BOM? How can you drive down costs for this part?
  • Bill of Process (BOP) best practices—Similarly, your Bill of Process, or BOP, is a critical document to share with potential contract manufacturers, and there are some key considerations to help your BOP shine.
    • Make sure it includes the same list of materials as your BOM
    • Design your BOP to track precisely with the product itself
    • Follow best practices around Design for Assembly, or DFA, to minimize costs like labor and material handling, as well as assembly time
    • The materials, equipement, and labor requirements described in your BOP help estimate the cost for each step in assembly. What’s the most expensive step in that assembly?
    • What is the total cost of all of the steps in assembly?
    • As with your BOM, is the unit cost for assembly ecnonomically feasible for a contract manufacturer?

 

Final thought

The more you prepare before approaching contract manufacturers, the better your shot at finding the right one—and getting a “yes” from them.

Funding that Fits Your Product Stage

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Fundraising can be a particularly difficult part of building your startup.

There are many nuances to what kind of funding you should be pursuing and when, and misunderstanding these nuances can lead to a lot of wasted time and effort. Therefore, understanding where you are in development is vital to finding the right funding sources. Below, we’re going to connect the broader Prototype Stages from the Manufacturing Readiness Level (MRL) methodology to the appropriate funding sources to pursue at each stage. While the MRL methodology touches on financials, it does not provide a comprehensive framework for pursuing external capital and the significant body of knowledge required to be successful.

Concept Stage

The Concept Stage roughly corresponds to MRLs 1-3. It is the ideation phase; you are still doing research, still testing out ideas, and still trying to establish product-market fit. At this stage, prototypes are either nonexistent or only proof of concept. From a financing perspective, this is the stage with the most risk and many sources of funding will simply be unavailable until you can establish proof that there will be a future return on investments. Because of these difficulties, many grant and accelerator programs are targeted at this early stage to help. 

Some of the most common grants startups take advantage of are from the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. These are government programs that provide funding from different federal agencies to support research and development (R&D) into novel and innovative technologies. They are both broken into 2 phases with funding from $50,000 – $250,000 for the first phase and $1,000,000 for the second phase. Because these programs are handled individually by each agency, it is important to find the one that is most relevant to you and stay up to date on the details of their program. For particularly early-stage ventures, the National Science Foundation provides more general funding than other agencies like the Department of Energy or Defense. Outside of these programs, many other sources of grant funding will vary based on what local and federal programs are currently being supported. It’s important to stay connected to the organizations that distribute this funding to stay up to date on new opportunities.

Realistically, it is the founders’ time and money that will start a venture, and friends and family can provide some invaluable early support. Association with academia, either as a student or as faculty, can also provide an opportunity to explore new technologies, potentially with funding as well. Some grants, like STTR, also require contracting research work from an academic institution using a certain percentage of the award. For these reasons, many ventures involving new technologies will have individuals with an academic background on their team. Finally, crowdfunding can provide another potential source of funding at this stage but can be a very involved process with many pros and cons to consider.

At this stage, it is imperative to both create a proof of concept prototype and establish proof of product-market fit as leanly as possible to open up further sources of funding and make steps towards securing revenue.

 

Prototyping Stage

The Prototyping Stage roughly corresponds to MRLs 4, 5, and 6. This is the stage where you are developing Works-like and Looks-like prototypes and bridging the gap between the proof of concept and the customers’ expectations. At this stage, you’ve eliminated the biggest risks in your technology and product market fit, and are now aiming to run pilot projects with potential customers. From a financing perspective, you have unlocked the possibility of early-stage venture capital (VC) and hopefully established a short history of securing grant funding to help with any more grant applications you might apply for. 

At this point, it becomes possible to pursue angel investors that are appropriate to your venture. Angel investors typically lend a lot of domain experience both in technology and fundraising to help at this early stage. However, because these investors will be joining you at a very early stage, it becomes especially important to assess whether they will be a fit for your team. Consider the alignment between your technology, skill gaps, and other needs and the investor’s experience and network. While looking for the right investor to work with, it’s also important to consider what they’re looking for as well. They’re likely to have certain requirements for the startups they’ll work worth and will tend to be inflexible on these requirements. Trying to understand their portfolio by looking into previous investments and talking with them about their requirements early can save everyone time. In some cases, you might end up talking with someone that would be a good fit, but only at a later stage in your development or a different time for their portfolio. In those cases, it can be beneficial down the road to maintain a good relationship for the future. Some startups even maintain a mailing list of potential investors and send out regular updates before any actual investment to stay in communication.

Some alternative forms of financing include seeking out Single Family Offices (SFOs), High-Net-Worth Individuals (HNWIs), and companies with investing arms that might have an interest in your technology. Typically SFOs and HNWIs will have fewer requirements than other VCs about the stage and particular technology but may have more specific requirements in other areas.  It’s important to note that they may not be able to bring the same network capabilities or level of expertise as other investors might. Seeking out investment from an investing or venture arm of a company that might be interested in your technology is another possibility. This kind of investment is considered a sort of R&D expense for them and, depending on your technology and your team, can provide a path to acquisition, if that is your goal.  

At this stage, it is important to produce proof that you have achieved product market fit and traction through things like pilot projects, sales contracts, partnerships, investments, and revenue. Funding sources will start to be less interested in the details of technical development and much more interested in the details of business development, which can be a jarring shift for some teams. 

 

Validation Stage

The Validation Stage corresponds to about MRLs 6 and 7 onwards. This is the stage where you are finished with or finishing your engineering prototypes and the associated Design for Manufacturing, DFM, and other Design for X, DFX, processes. Technology development has mainly become a process of validation at progressively higher production levels and resolving any issues that appear in that process. Business development has mirrored this through progressively larger and more impactful pilot projects and sales. On the fundraising side, grant funding is generally being phased out as the ROI on the team’s time is less valuable than other funding avenues. Some longer-term angel and pre-seed / seed stage investors have been secured and are providing valuable guidance, and the team is either conducting or planning series X rounds. Revenue has generally been established at this stage, and the team is looking at the final steps to move over from financial support through fundraising to self-sufficiency through revenue.

After building your business to this point and with regular revenue and customers as an added layer of financial security, new sources of funding will become available to you. Previously non-dilutive grant funding and equity-based venture capital were all that were readily available. While any non-dilutive funding will always be a boon, equity-based financing can be supplemented with debt-based financing to avoid losing valuable equity. Venture banks specifically work with startups to provide debt-based financing, assuming you can provide some collateral and have generally mitigated financial risks significantly. Their risk tolerance is markedly lower than VCs, and utilizing this type of financing leaves the majority of the financial risk on the shoulders of the startup, unlike VCs who share both the highs and the lows. Venture banks tend to have higher interest rates as well, but preserving equity can make it well worth it. Lastly, if you’ve built a sufficient proof of financial reliability, debt financing through a bank can be a much easier and faster way to flex your cash flow than other forms of funding. 

Once you’ve reached a certain stage, going public with an Initial Public Offering, IPO, can also become a consideration. This is a form of equity-based financing where you sell shares of your company to investors. An IPO can be a lengthy and complex process with many implications for your organization and how it is run, the overwhelming majority of which is beyond the scope of what is presented here. Financial expertise should be consulted throughout the process and many parts of your organization will have to weigh in on the decision, Board of Directors, Board of Advisors, shareholders, founders, etc.

Finally, there is another option for debt-based financing. You can issue bonds to investors to spread your costs out over time. Similar to loans from venture banks, these bonds will carry significant interest and will also require a record of financial stability to even attempt to issue. Identifying investors to purchase these bonds may also prove difficult as the market for startup-issued bonds is much smaller than for other financial tools at your disposal. Generally, venture banks will provide an easier means of debt financing.

At this stage, your goal is to achieve some kind of financial stability, but what that looks like is up to you and your company to decide. For some that might be a financially sustainable, privately owned company. For others, their goal might be to grow the company as large as possible with an IPO. Many aren’t interested at all in running a company for the long term and are simply looking for a successful acquisition. In the case of an acquisition, you may never actually reach the Validation Stage in some aspects of your business. In any case it is important to have conversations about this with your co-founders and investors early on to ensure there is alignment on these tremendously important decisions.

 

In conlcusion

Throughout growing your startup you’ll utilize many sources and methods of fundraising. Early on, grants will be your primary source of funding and any gaps will have to be supplemented by the founding team. The SBIR and STTR programs are nationwide and fund a swathe of new technology ventures, but there may be many local grants to take advantage of as well. It is important to stay in touch with local support organizations to keep up to date on these. Once you’ve advanced past the Concept Stage, venture capital will become an increasingly large part of your funding. It can be very helpful to start with angel investors that have a network and expertise in your industry as they often provide significant support throughout their involvement. Seeking financing from venture arms of larger corporations can support fundraising efforts and secure a path to acquisition. At the Validation Stage, venture capital becomes less personal and many alternative forms of financing become available. As you approach this stage it becomes increasingly important to have alignment with your team on your long-term goals to determine what success looks like. Regardless of whether you’re looking for an IPO, an acquisition, or just to build your own company, fundraising will be an inevitable part of the process. 

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