Chubais’s “Unicorn”: Who Is Behind RUSNANO’s First $1 Bln Project
Alexander Mamut’s investment holding A&NN valued OCSiAl, a graphene nanotube manufacturer included in RUSNANO’s portfolio, at $1 bln. Why are investors prepared to inject so much money into a company with an annual turnover of $10 mln? And how are its founders planning on capturing the global market with its products?
“For now, OCSiAl, just as any startup, is selling the future,” explains Yury Udaltsov, the Deputy Chairman of the Executive Board at RUSNANO Management Company LLC. In 2019, OCSiAl, with its annual earnings of only $10 mln, became the first “Unicorn” in RUSNANO’s investment portfolio. The company was deemed worth $1 bln by A&NN, an investment holding owned by the billionaire Alexander Mamut, which acquired a 0.5% share of the startup for $5 mln. Forbes has learned who created the first “Unicorn”, nurtured under the guidance of Anatoly Chubais’s team. And also what unique features and future prospects OCSiAl’s products have in the eyes of investors, and why sceptics doubt that this project can deliver returns on the substantial investments made in the company.
Before OCSiAl, Yuri Koropachinsky found the time to work on different types of businesses / Photo OCSiAl
Idea Generated in Australia
In December 2009, entrepreneur Yuri Koropachinsky was celebrating his birthday among friends and business partners, Oleg Kirillov, Yuri Zelvensky and Mikhail Predtechensky, in his wife’s house. Fortunately, all four friends had managed to make the journey to Australia where the event was held. As Yuri Koropachinsky recalls in his interview with Forbes, at some point in time, the conversation turned to business and new ideas. Mikhail Predtechensky, an academician at the Russian Academy of Sciences (RAS), suggested that they “start at the end instead of the beginning”, and create a unique product, which no one in the world had produced before. And then build a global company on the basis of it.
Yuri Koropachinsky, a 53-year-old entrepreneur famous in Siberia, is the son of Igor Koropachinsky, an expert in dendrology and an academician at RAN. Together with Oleg Kirillov and Yuri Zelvensky, he was involved in a number of well-known business ventures in 1990s and 2000s, ranging from founding the URSA Bank to running a Krasnoyarsk-based manufacturing plant for producing combine harvesters. As for individual achievements, Yuri Koropachinsky gained experience during a government posting in the team of Alexander Lebed, the Governor of Krasnoyarsk. In 2006, the three friends and Mikhail Predtechensky created a venture capital fund, Edison Innovations, in order to invest in science-driven projects. According to Yuri Koropachinsky, over a number of years, they reviewed 360 initiatives, spent $2 mln, and also discovered a startup which the fund was then able to sell at a profit.
By and large, Mikhail Predtechensky was the one who suggested the best idea at that celebration in Australia. Out of five innovative businesses with potential to succeed on the global market, he chose synthesis of single wall carbon (or simply graphene) nanotubes. The “only task” still at hand was to lower manufacturing costs a hundred-fold and to make the product affordable on the mass market.
Carbon nanotubes are a “product of the future”, and many scientists have been hoping for their wide-spread utilization in recent decades. The unique combination of nanotubes’ low electrical resistance and specific weight with their high durability means that this product is a potential “gold mine” for many industries, from the automotive to construction spheres. These nanotubes are promising materials as illustrated by the fact that, within a quarter of a century, two Nobel prizes in chemistry and physics were received by “expert” scientists in this field, i.e. Robert Curl, Harold Kroto and Richard Smalley in 1996 for their work on novel carbon structures, and Andre Geim and Konstantin Novoselov in 2010 for their research on graphene. Graphene is a lattice comprised of a one-atom-thick layer. Single-walled carbon nanotubes are produced by rolling this material into a tube with a diameter of several nanometers (i.e. a billionth of a meter).
Despite unique properties of these nanotubes, 20 years after their discovery they remained virtually unutilized outside the walls of laboratories. The main issue was their price, as the cost of 1 ton of single wall carbon tubes was $150 to $500 mln, which made their use in the mass market impossible. Mikhail Predtechensky, a thermal physicist, suggested that they (together with his 3 partners) solve this problem. From the very beginning, the team came to the conclusion that to reach their aim, they would need an influential partner who could help them obtain necessary resources.
An Experienced Startup
Oleg Kiselev, the Deputy Chairman of the Executive Board at RUSNANO Management Company LLC, says that the company’s Chairman Anatoly Chubais is always ready to personally listen to entrepreneurs with extraordinary ideas.
It was a face-to-face meeting in 2011 that ensured OCSiAl would receive investment. At the time, Yuri Koropachinsky and his partners had just won an open call competition aimed at creating a nanotechnology center in Akademgorodok, Novosibirsk. And they ensured that their startup became a resident in this center. However, the founders did not have enough money to build an industrial-scale installation for synthesizing nanotubes. Hence, Yuri Koropachinsky managed to arrange a meeting with Anatoly Chubais.
In truth, the entrepreneur had few arguments in support of the revolutionary technology. As the founder recalls, during the meeting all he had was an idea for a fast synthesis of a large number of nanotubes, some “black dust” on a white filter paper and a photograph made with an electron microscope.
Nevertheless, Anatoly Chubais bought into the idea. A deciding factor for him was the team’s background, as OCSiAl’s founders had a vast experience in business. “They came and unabashedly stated ‘We are successful businessmen and we can get the initiative to manufacture single wall nanotubes off the ground’,” recalls Oleg Kiselev.
As a result, at first, OCSiAl received funding for building an installation for synthesizing nanotubes, and three years later, in 2014, RUSNANO bought a share of the company. According to Yuri Udaltsov, the Deputy Chairman of the Executive Board at the state company, RUSNANO has invested $20 mln into the initiative and has also purchased OCSiAl’s eurobonds for $40 mln. Why do managers of the state company believe so strongly in the future of this startup?
At center for nanomodified materials / Photo OCSiAL
Product Superior to Matryoshka Doll
Before partnering with RUSNANO, the founders of OCSiAL had invested $20 mln of their own savings in the startup. The team had experimented with different arrangements of installations for synthesizing the nanotubes, but they were unable to find the optimal one for manufacturing the product. When the team finally worked out what may work, they realized the project would require an additional $20 mln in financing. It was then that Yuri Koropachinsky had a meeting with Anatoly Chubais.
According to the former, RUSNANO not only helped the company with funding but also provided an independent assessment of their idea. With regards to managing OCSiAL, Yuri Koropachinsky says that the founders still have control over running the business, but investors have the right of veto in relation to strategic issues. The team needs to justify every decision it makes about the direction the business develops in.
Anatoly Chubais involved leading academicians from RAS, including its former President Vladimir Fortov, in the assessment of OCSiAl’s merits. Vladimir Fortov forecast that the idea would not work because of too high a number of impurities in the final product of the synthesis. But Mikhail Predtechensky found a solution. Once he gained support from Mikhail Alfimov, an academician, RUSNANO agreed to finance the first installation for the synthesis of graphene nanotubes, Graphetron 1.0 with a capacity to make 1 ton of products per year.
Yuri Koropachinsky explains that they were able to substantially reduce the cost of manufacturing nanotubes owing to a completely novel idea for their synthesis. “Instead of producing nanotubes on a mount (within the Graphetron installation), nanoparticles generated travel in a hydrocarbon gas (i.e. methane), heated to a temperature above 1,000 degrees Celsius. A graphene tube is then formed on each nanoparticle. This process does not happen on a surface but within the reactor,” elaborates the entrepreneur.
In 2010, the German pharmaceutical giant Bayer also introduced its own installation for synthesizing graphene nanotubes. But their equipment was meant to produce multi-walled, and not single-walled, nanotubes (similar in composition to a matryoshka doll). Properties of such carbon nanotubes are noticeably inferior to those of their single-walled equivalents. Even the enormous 200 ton capacity of the installation did not save the German project from its demise in 2013.
OCSiAl, on the other hand, received the green light from RUSNANO, and that same year, its installation became operational. In 2014, Graphetron 1.0 produced its first nanotubes under the brand name, TUBALL, which turned out to be 75 times cheaper than their equivalents on the market. In 2016, the installation began working to its capacity, and in 2018, its updated version synthesized 11.7 tons of nanotubes.
Carbon Tubes for Electric Cars
In his interview with Forbes, Yuri Koropachinsky muses: “Electric vehicles will benefit the most from the use of nanotubes.”
He lists the revolutionary properties of OCSiAl’s product: vehicle bodies will become lighter, accumulators more energy-efficient and long-lasting, and car ranges longer. Adding TUBALL to rubber will lower rolling resistance, which is a key reason for energy losses experienced by electric vehicles. In addition, the use of nanotubes in interior car panels will ensure vehicles are effectively heated from within in colder regions.
Overall, according to estimates made by OCSiAl founders, the use of TUBALL will improve energy efficiency of electric vehicles by more than 50%. And this will challenge the hegemony of internal combustion engines on the market.
Yuri Koropachinsky claims that seven out of the 10 global leading producers of accumulators are either testing or using TUBALL in order to prolong life of and increase capacity of vehicle batteries. The entrepreneur adds that clients of the startup also include leading manufacturers of tires, silicones, polyurethanes, plastic, composites and equipment for the mining industry. He does not name their partner companies as non-disclosure agreements prohibit him from doing so.
“The nanotubes produced by Graphetron look like a sticky black cobweb, which is 100-fold lighter than water,” says Yuri Koropachinsky while describing TUBALL.
It is difficult for clients to add this to plastic and other substances uniformly, and if proportions change, structures at the core of the material fail to form, and, thus, magical properties of nanotubes are lost.
Albert Nasibulin, a professor of photonics and quantum materials at RAS and Skoltech, explains that OCSiAl’s method ensure synthesis of a fairly good yield of high quality product but in a shape of a thick bundle, which is difficult to break apart into individual nanotubes. The process of doing so is just as labor-intensive or even more so as the challenge of manufacturing the nanotubes themselves.
In the end, the difficulties, encountered when adding nanotubes to other materials (to enhance their properties), generated a new line of business for OCSiAl, which was born in a laboratory in Novosibirsk. The startup began manufacturing a product called MATRIX, which contains high concentrations of nanotubes making it easier to add required proportions of it to other materials. Therefore, a greater number of clients can now use TUBALL.
Debates about “Unicorn”
Accomplishments in manufacturing achieved by OCSiAl seem impressive. The legal entity comprises several companies based in Russia and one located in Luxembourg (the latter protects intellectual property rights of the firm and handles international sales), with their operations spanning markets in nine nations. In 2018, the company sold 5 out of 11.7 tons of products it had synthesized. Agreements have already been signed to sell 17 more tons. Based on data compiled by analysts at Future Markets, last year OCSiAl manufactured 86% of these innovative products globally, and accounted for 95% of their world-wide sales.
But does the size of the business match that of a “Unicorn”? According to the information provided by the company itself, OCSiAl’s revenue increased two-fold for the fourth year in a row and exceeded $10 mln in 2018. If we were to make a comparison, then both Amazon and Nvidia showed a similar correlation between their worth and revenue at some point in time. But for startups, such a correlation is, unquestionably, a gamble.
“The fact that OCSiAL is valued at $1 bln seems optimistic. The company is one of the leading manufacturers of single-walled nanotubes, but the market for such products is worth (in sales volumes) $30 to $50 mln. Even if OCSiAL has a 90% market share, it cannot be worth $1 bln, as this implies multiplying its revenue 22 times,” muses Petr Lukyanov, the Managing Partner at Phystech Ventures (a venture capital fund). He has called A&NN’s purchase of the share of the company a market overvaluation. He notes that when we take into account the nature of a business deal, it is far from certain that the acquisition price accurately reflects the actual company’s worth.
However, investors in OCSiAl disagree. According to Yury Udaltsov from RUSNANO, analysis of possible uses of carbon nanotubes indicates that potential demand for it may reach thousands of tons per year. The manager at the state company thinks that the purchase by A&NN (Alexander Mamut’s investment group) of a 0.5% share in OCSiAL from RUSNANO helped yield an independent valuation of the startup.
A&NN is also pleased with its investment. “We are confident that, in the long-term, OCSiAl will continue to grow in value and we are assessing the possibility of increasing our stake in this company,” stated Rafael Abramyan, the Investment Director at A&NN. He thinks that his group’s portfolio companies may become consumers of TUBALL “We believe it is possible that OCSiAL’s products will find practical applications in other projects that A&NN has invested in, including spheres such as helicopter manufacturing (Kopter, Switzerland), alternative energy (NexWafe, Germany) and transport (Tallano, France)”.
He dismisses any criticism that OCSiAl’s valuation is unjustified. “It is incorrect to evaluate the worth of such a business based on its current revenues. We are talking about a company that possesses disruptive technology and is a leader in its segment,” elaborates Abramyan. “According to our assessments, the market for graphene nanotubes will continue to grow, and the company has all the attributes to maintain its leading position, which should ensure that its financial indicators and shareholder value increase at a high pace”.
Market for Innovation
Petr Lukyanov from Phystech Ventures says that R&D departments in corporations and scientific laboratories remain the key consumers of single-walled nanotubes, graphene and similar substances. According to the expert, sometimes these materials are purchased for branding purposes (for example, graphene is added to tennis rackets), but for the mass market “cheaper equivalents” have more potential (i.e. carbon fibers, carbon black, multi-walled nanotubes and other products).
Yuri Koropachinsky insists that their technology is being deployed more widely. “TUBALL is used by large global companies in manufacture of really well-known products, but we cannot share details at this point,” he says. According to the entrepreneur, overall, OCSiAl has 2,600 partners, 600 of whom are loyal customers.
Publicly known examples of uses of the product include degasification composite pipes (containing single-walled nanotubes) for the Raspadskaya and SUEK (the Siberian Coal Energy Company) coal mine obtained from the company Altik. TeoHim uses TUBALL to impart antistatic properties to its floors and finishes. Lanxess, a German chemicals company, supplies TUBALL-based products to clients from sectors ranging from paints and finishes and latex to power sources and electronics.
Yuri Koropachinsky states that in the first quarter of 2019, one of the biggest companies in China began mass-producing Li-ion accumulators, containing TUBALL, designed specifically for a new electric vehicle model. But he did not mention the name of their partner from the PRC. According to the entrepreneur, OCSiAl is aware of more than a hundred successful uses of their technology on the market.
“I am very familiar with single-walled carbon nanotubes as I have been working with them since 2002, and I also know the product manufactured by OCSiAl,” says Albert Nasibulin from Skoltech. He confirms that almost all of the material available on the global market is synthesized by the Russian company. “The demand for nanotubes is not wide-spread yet, but in the nearest future it will increase. It is a new material, and markets where it will be consumed are still being established, thanks to OCSiAl among others.”
Investment by Fellow University Graduate
RUSNANO and A&NN are not the only investors in OCSiAl, the startup has managed to attract more than $200 mln in finances. And 47 % of the stake in the company (i.e. the majority voting shares) belongs to the four founders.
Igor Kim, a well-known Russian banker and a long-term acquaintance of the entrepreneurs, owns another 19% of the shares. Some time ago, Igor Kim studied in the Department of Economics of the Novosibirsk State University in the same year as Yuri Koropachinsky. Later on, the two became business partners, as they were both involved in the creation of the URSA Bank.
Igor Kim invested in OCSiAl when the business was in its founding stages and he still believes in its prospects today. The banker told Forbes that his optimism stems from the success of joint projects he worked on with Yuri Koropachinsky and Oleg Kirillov; Mikhail Predtechensky’s unrivaled research capabilities, and the startup’s global ambitions.
Yuri Koropachinsky also says that OCSiAl has another investor from Great Britain. According to the entrepreneur, it was the U.K.-based partner who first helped the company gain the status of a “Unicorn” with its valuation as far back as summer 2018. He did not reveal the name of the British investor due to terms and conditions of a non-disclosure agreement. Forbes was unable to independently verify that the company has a UK-based shareholder.
The founders of OCSiAl would like to keep the reins of the business in their hands in the future, but they are also planning to raise another $150 mln in funding. Yuri Koropachinsky already values the business at $2.5-3.5 bln.
Rocket Ship on Earth
OCSiAl has ensured protection of its method of synthesizing nanotubes with patents, but Yuri Koropachinsky admits that, sooner or later, the technology will be duplicated. Hence, the company has built a new installation for synthesizing nanotubes, Graphetron 50. This facility should leave its rivals behind, as it is designed to synthesize 50 tons of nanotubes per year. The company has already performed a test launch of the installation, and in 2019, the plan is for the facility to operate to capacity.
“Once the introduction stage of the product cycle is over, consumption will jump to dozens of tons,” Yury Udaltsov from RUSNANO elaborates. He agrees with OCSiAl’s decision to build the new installation in its attempt to overtake its competitors in advance.
Professor Albert Nasibulin notes that OCSiAl has not revealed the method it uses to synthesize carbon nanotubes as it is a commercial secret. In his opinion, it is highly likely that the actual manufacturing process is quite different from the method described in patents owned by the academician Mikhail Predtechensky and the company itself. The professor has not seen the installation, as it is one of OCSiAl’s best kept secrets.
If the plan to mass produce TUBALL comes to fruition, in 2023-2025 the company plans to have its IPO (initial public offering). By then, Yuri Koropachinsky hopes to have signed decades-long contracts with companies from various sectors and to have generated revenues in tens of billions of dollars.
“In the Silicon Valley there is a saying ‘This technology is not rocket science’,” concludes the founder of OCSiAl. “Well, we actually have a real one of a kind “rocket” on our hands. It is located on the ground and keeps operating thousands of hours without interruption.”