Fuel-cell firm powers up in Bothell, Wash.

The Seattle Times --Aug. 20

Aug. 20--For five years, Neah Power Systems has been working on a new approach to developing fuel cells.

"If it works (in the market), that's nice because no one else is doing what we are doing, and it's patent-protected," said David Dorheim, chief executive of the Bothell company.

Investors are betting it will work, and they are funding a $12 million second round of venture capital being announced today.

The new investors are Castile Ventures and WestAM. Frazier Technology Ventures, Alta Partners and Intel Capital also participated.

Neah Power has raised $20 million in all.

Since its creation in 1999, the company has been working to make fuel cells small enough for use in a laptop computer, DVD player or other mobile devices. Under its approach, the device would still have a battery, but combined with the fuel cell to increase operating time.

Together, a three-hour battery could last almost all day, and the two components would take up as much space as the current battery alone.

Fuel cells generate electricity rather than store it. In Neah Power's case, the cells uses methanol, commonly called wood alcohol.

Although several companies are working on fuel-cell prototypes, including electronic giants Sony and Sanyo, Neah Power says it has the better solution.

Fuel cells typically use a two-dimensional surface to create the right chemical reaction. Leroy Ohlsen, Neah Power's founder and chief technology officer, proposed drilling holes in that surface -- made of silicon -- to create a three-dimensional surface.

In doing so, the amount of surface area for a chemical reaction is increased, creating more energy without having to build a larger surface, Dorheim said.

This approach has attracted the interest of not only scientists but also business types.

Roger Walton, a partner at Castile Ventures, said he chose to invest because he could see applications not from a scientific viewpoint but from his specialty, wireless devices.

"I've recognized for several years that one of the biggest unsolved problems (in mobile electronics) is power," he said. "It turns out that the only cord you need these days is your power cord. ... Certainly, fuel-cell technology has huge potential for solving the power problem."

Anyone who travels knows the problem, Walton said, pointing to users wandering around an airport looking for an outlet for their power cord.

Dan Rosen, managing partner at Frazier Technology Ventures, invested in the company personally about five years ago, then later through Frazier. He said he knows the downside of batteries first hand.

"I'm the first one to be cursing when the battery runs out when I'm doing a document or presentation or something like that."

Walton said that in addition to longer-lasting power, fuel cells may hold answers to power-supply needs for potential gadgets that could be developed.

"It's not just about extending the life of a class of products we have now; it's a technology that sets the stage for all new generations of products," he said.

For starters, however, Neah Power is focusing on a more defined market -- laptop users who tote more than one battery.

About 25 to 30 percent of laptop buyers purchase a spare battery in the first 30 to 60 days of ownership, Dorheim said. That market alone could total a few billion in annual revenues in five to seven years, he said.

By 2012, micro fuel-cell technology is expected to power 13.5 percent of laptops, according to ABI Research in Oyster Bay, N.Y. Analysts expect prototypes to be ready by year's end and on sale in 2005.

Neah Power, which has 35 employees, said it is on such a timetable. With this round of funding, the company plans to finish a prototype that it can shop around to equipment manufacturers by the end of the year. The company already has one agreement with an undisclosed manufacturer.

The manufacturer would integrate the fuel cell into the laptop. It would also solve such logistics as showing how much fuel remains in the cell.

When low, a user could pop in a new cartridge, much like disposable batteries.

Neah Power expects to see the first products on the market by 2006.

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