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Nanostart’s investment in ItN Nanovation starting to show real potential

ItN Nanovation is a portfolio company of Germany's Nanostart (ETR:NNS, PINK:NASRY), a leading nanotechnology investment company. Nanostart has nine portfolio companies including previously profiled Magforce. It seeks to identify the most promising nanotechnology companies from around the world, providing capital and management expertise. The size of each investment ranges from between one and ten euro per deal with the goal of successful exits through a trade sale or initial public offering. Nanostart has thus far invested around €7 million in ItN Nanovation (ETR:I7N) and holds a 19% stake in the company.

ItN Nanovation joins the growing ranks of nanotechnology companies following scientific breakthroughs in the 1990s. It was formed in 2000 and went public in 2006. The Nanostart portfolio company produces high-performance ceramic water filters for industrial customers with nanoparticles as building blocks. These ceramic filters are more efficient than standard products, allowing for both energy and cost savings. The ceramic material's high stability opens up an array of possible uses for the filter including municipal sewage and wastewater treatment, pretreatment of sea water for desalination, the beverage industry, and separation of oil contaminants from water. ItN also uses its technology to create ceramic coatings as protective layers and catalysts with utility in industries ranging from aluminum foundries to coal-fired power plants. 

On October 20, Nanostart-holding ItN announced the finalization of a joint venture with Saudi-Arabian partner Juffali and a consortium of German industrial investors. A preliminary agreement from the previous year had been fully hashed out after intense negotiations. The new venture will be called Saudi Water Nanovation LLC and will distribute ItN Nanovation's ceramic flat membranes, or CFM Systems along with corresponding accessories in the Middle East and North Africa. 

The deal calls for the establishment of a dedicated CFM manufacturing facility with production to occur locally in Saudi Arabia. Final construction is expected in 2014 while production may start by 2013. Once complete, ItN's capacity will be increased three fold.

Nanostart-held ItN will have an initial 17.5 percent stake in the joint venture and recognize $2.35 million in income as advance payment for a limited contribution of production expertise. Two-thirds of this payment will be used to acquire its initial stake. Once the business license for this venture has been granted by the Saudi government, ItN will recognize the payment as other operating income. A license is expected by the end of 2011. The contract also gives ItN the option to increase its stake to 40% if exercised by 2015. 

Furthermore, ItN will receive revenue-based royalties and share in the earnings from the operation. CFM Systems produced under the Saudi Water Nanovation venture will be used for pre-filtration as part of the reverse osmosis process in the treatment of drinking water. 

The Middle-East and North Africa represents a core market for water filtration due to its arid environment and lack of surface fresh water. Nanostart-holding ItN Nanovation's new joint venture gives it a local presence with production facilities and an improved ability to address this important region. The collaboration provides additional validation of ItN's ceramic technology. At the same time, it allowed the company to ramp up mass production of the CFM Systems. 

Benefits of the joint venture go both ways. Dry Saudi Arabia has virtually no natural surface lakes or rivers, while annual precipitation is around 10 cm. Nearly all drinking water comes from deep underground wells; the initial quality of this water is poor and not suitable for consumption due largely to a high salt content. With a large and growing population, the Kingdom is in constant need of clean drinking water.

Salt removal is done through a process called reverse osmosis whereby semi-permeable membranes are used to trap salt molecules. Because these membranes are extremely delicate and expensive, a pre-filtration step used to remove larger particles such as dissolved metals. Nanostart’s portfolio company has developed a technique to precipitate these large particles into a sludge, then filter them off with the ceramic flat filters. The high quality filters protect and prolong the life of the reverse osmosis membranes. 

A nine month pilot study by ItN Nanovation demonstrated its filters to be superior to both conventional polymer and simple sand filters. It withstood the harsh conditions of Saudi Arabia's high temperature, high-salt well water showing a much longer lifetime while at the same time requiring less maintenance. And unlike other filters, the ItN filters can be back-flushed. According to the company, efficiency is four and a half times better than products from competing top manufacturers. 

While we in Western society take fresh water for granted, it is truly a commodity in much of the world. It is estimated a billion people suffer from water shortages. Water filtration products from Nanostart-held  ItN Nanovation can be part of the solution.