Link to the new post.

Link to the new post.

Several recent scientific articles indicate the actual existence of geological hydrogen, prompting certain countries’ governments to grant licenses for hydrogen geological surveys.

As long-term investors and hydrogen technology researchers, we aim to elucidate the processes behind the emergence of hydrogen within geological formations and explore methods for its storage and production.

Hydrogen palette

Traditionally, various colors are utilized to distinguish between different types of hydrogen:

Gray hydrogen originates from fossil fuels (oil and gas), releasing CO2 and contributing to global warming through steam methane reforming.

Brown hydrogen is derived from coal and also emits CO2, thus contributing to global warming.

Blue hydrogen, akin to gray and brown hydrogen, involves capturing and storing CO2 through Carbon Capture, Utilization, and Storage (CCUS) methods.

Green hydrogen is generated without carbon emissions, utilizing renewable or nuclear electricity (also known as pink hydrogen) to electrolyze water.

Turquoise hydrogen employs methane pyrolysis to produce hydrogen and solid carbon. While a promising concept, its feasibility on a large scale is yet to be demonstrated.

Gold hydrogen is extracted from natural underground deposits.

Orange hydrogen is produced by injecting water into deep source rocks.

Additional information regarding the various types of hydrogen can be found at the provided link.

This article aims to explore recent breakthroughs in underground hydrogen production, focusing on “Golden hydrogen” and a cutting-edge method that which we believe can surpass team methane reforming (gray hydrogen) in terms of ease of extraction, cost of hydrogen and environmental benefits.

Underground steam methane reforming — is it possible?

As of now, steam methane reforming (SMR) is considered the most cost-effective ($0.90–3.20 per kg) and well-established method for hydrogen production. According to the IEA’s Global Hydrogen Review 2023, SMR without CCUS accounted for 62% of global hydrogen production in 2022, whereas SMR with CCUS represented only 0.6%. However, SMR without CCU significantly contributes to environmental emissions, with CO2 levels reaching 10kg per 1kg of produced hydrogen.

Technically, SMR involves converting methane (the primary component of natural gas) using water steam and solid catalysts to produce hydrogen and carbon oxide. This process occurs at high temperatures (typically between 700–1100 degrees Celsius) and pressures (usually in the range of 20–30 atmospheres), facilitating chemical reactions. Solid catalysts, commonly made of nickel, activate methane decomposition reactions into hydrogen and carbon dioxide.

CH4 + H2O → CO + 3H2

CO + H2O → CO2 + H2

These reactions serve as the foundation for hydrogen production, resulting in the release of CO2 as a byproduct.

Technology startups such as Proton Energy and Hydrogen Source offer solutions that relocate hydrogen generation to oil and reservoir rocks. They leverage two industry-proven technologies: steam methane reforming (SMR) and in-situ combustion, commonly used worldwide for heavy hydrocarbon production.

Hydrogen Source’s patented process introduces a novel method for producing clean, affordable, and pure H2 directly from gas wells.

By applying in-situ combustion to gas fields, the SMR process can be conducted directly within the hydrocarbon reservoir. This transforms the gas reservoir into a high-pressure hydrogen storage cell with carbon capture, utilization, and storage (CCUS) capabilities automatically. Such technology represents a clean source of hydrogen.

The process involves injecting a liquid catalyst (typically nickel-based), air, and water steam in predetermined proportions through injection wells to initiate in-situ hydrogen generation. The presence of methane, water steam, and catalyst at specific temperatures enhances the hydrogen generation processes within the reservoir. The produced hydrogen is then extracted from production wells, while the generated CO2 either remains in the reservoir or undergoes further reactions. Production wells can be equipped with hydrogen-selective membranes, or purification units can be installed on the surface to achieve industry-standard purity levels ranging from 99.95% to 99.98%.

Proton Energy’s technology is deployed within oil reservoirs and involves an in-situ oil combustion process, followed by coke gasification and a water gas shift reaction, alongside the injection of air and water steam.

As previously mentioned, hydrogen generation is achieved through the primary chemical reactions of steam reforming of methane and a water gas shift reaction. Here’s how they operate:

• Water Gas Shift Reaction: CO + H2O = CO2 + H2 + 41 kj — an exothermic reaction. This reaction exhibits almost complete conversion of CO to H2 and initiates at 200 ºC, with an active process temperature range of 350–550 ºC (1st stage) and 200–250 ºC (2nd stage).
• Steam Methane Reforming: CH4 + H2O = CO + 3H2–206.1 kj — an endothermic reaction. This reaction yields synthesis gas with high H2 content. The generated CO also undergoes conversion to H2 via the water gas shift reaction. The reaction commences at 300 ºC, with an active process temperature range of 800–900 ºC.
• Carbon Dioxide Conversion of Methane: The generated CO2 can further react with CH4 via carbon dioxide conversion of methane. CH4 + CO2 = 2CO + 2H2–248.3 kj — another endothermic reaction. This leads to synthesis gas generation. The reaction starts at 400 ºC, with an active process temperature range of 700–800 ºC.

The released CO2 either accumulates in the reservoir or undergoes further reaction with CH4.

The projected cost range for this type of hydrogen is estimated to be below $0.5 per kg at scale. Additionally, in some instances, depleted oil and gas deposits could find a second economically viable life. There may be no need to drill new wells, as existing ones could be retrofitted for hydrogen production.

Our primary concerns associated with these technologies include:

1. The cost and quantity of catalyst utilized to enhance the in-situ reaction. Unlike traditional SMR, which employs a solid nickel-based catalyst that remains intact and can be recycled with the generated hydrogen, the liquid nickel-based catalyst injected into the reservoir remains there without the possibility of being upgraded or returned to the surface for reuse.

2. The practical implementation of methane combustion in a gas well. As SMR requires high temperatures (700–1100°C), it remains unclear how to achieve such temperatures within the reservoir.

3. The complexity of controlling the in-situ oil combustion process, which necessitates additional surface equipment to maintain continuous operation.

4. The corrosive and volatile nature of hydrogen gas, requiring high-integrity wells to transport hydrogen to the surface without leaks.

5. The accuracy of all cost projections for hydrogen output is heavily contingent upon the aforementioned complexities, which remain inadequately verified.

How natural hydrogen forms underground

Surprisingly, it’s feasible to extract hydrogen directly from wells similar to those used for natural gas extraction, introducing a new variant known as “Golden hydrogen”.

A recent 2023 Science article introduces the concept of Golden hydrogen. The underlying principle suggests that hydrogen is generated through reactions between water and rocks rich in radioactivity or iron deep within the Earth. This hydrogen then migrates upwards through the crust and sometimes accumulates in underground reservoirs.

While the formation of oil and gas typically requires extensive transformation of organic matter over many years, geological hydrogen may renew continuously through the ongoing generation from water.

According to an October 2022 presentation by the U.S. Geological Survey (USGS), this source of hydrogen might be substantial enough to satisfy global demand.

The Earth-Science Reviews 2020 article outlines several potential origins of geological hydrogen:

1. Radiolysis: Radioactive elements present in rocks emit radiation capable of splitting water molecules. The decay of elements like uranium and thorium in the Earth’s crust releases alpha particles and other radiation, leading to the production of hydrogen underground.

2. Serpentinization: At elevated temperatures, water reacts with iron-rich rocks to produce hydrogen. This process involves the oxidation of iron, which seizes oxygen atoms from water molecules and releases hydrogen. Under conditions where minerals like olivine are buried deeply enough to maintain temperatures exceeding 200°C and are exposed to surface water percolation, hydrogen production can occur rapidly. Renewable reactions may drive a significant portion of natural hydrogen production.

Australia is actively investigating this field, benefitting from favorable geological conditions. The region is covered by the ancient Gawler Craton, and the presence of iron and uranium mines suggests the existence of source rocks crucial for both serpentinization and radiolysis processes.

3. Deep-seated Hydrogen: Streams of hydrogen originating from Earth’s core or mantle may ascend along tectonic plate boundaries and faults. However, the existence of these extensive, deep hydrogen reservoirs remains a topic of debate.

Similar to oil and gas, hydrogen, once generated, accumulates in various reservoir rocks capped with impermeable formations such as salt formations. Subsequently, it needs to be brought to the surface, with drilling serving as a potential solution through various methods and locations.

• Traps: Direct drilling into hydrogen traps.
• Direct: Tapping into iron-rich source rocks directly, provided they are shallow and fractured enough to facilitate hydrogen collection.
• Enhanced: Stimulating hydrogen production by injecting water into iron-rich rocks.

Hydrogen seeps have been documented globally, characterized by hundreds of thousands of shallow, circular depressions in the land, ranging from tens to hundreds of meters across, known by various names such as circumments, witch rings, or water basins.

In places where natural hydrogen flows outlets, soil, grass and tree vegetation degrade within 5–10 years. Circumments are formed.

Natural hydrogen is already produced today.

Evidence of geological hydrogen exists in the Mali case. Twenty-four other hydrogen wells in Mali have confirmed the presence of natural H2, with one well specifically generating hydrogen to power a village streetlight. Despite this, commercial utilization remains distant, although production costs for natural hydrogen are estimated at $1.0–0.5 per kg.

In Spain, Helios Aragon is awaiting regulatory advancements. The company is encouraged by data from the Monzon-1 well drilled in 1963, indicating a 25% hydrogen content. Munro, the company’s representative, sees potential in the Pyrenees, where iron-rich marine rocks offer an ideal setting for hydrogen production. Plans for an exploratory well in 2024 are in place. However, commercial production is on hold pending an exemption for hydrogen operations, as mandated by a 2021 climate law.

Several companies in the USA have already drilled wells for geological H2, including HyTerra with two projects and Natural Hydrogen Energy, which successfully drilled a hydrogen well in 2019.

In the USA, two regions show potential for significant hydrogen reserves. Off the Eastern Seaboard, iron-rich mantle rocks could produce hydrogen migrating toward the shore. In the Midwest, a failed volcanic rift has brought iron-rich rocks close to the surface, making it another hotspot. In Nebraska, Natural Hydrogen Energy’s 2019 well is strategically positioned near deep faults connected to the rocks of the failed rift zone, indicating significant hydrogen production potential. Preliminary data also suggests proven reserves of natural hydrogen in Russia.

Instead of conclusion

In this post, I attempted to showcase several cutting-edge technologies for extracting hydrogen directly from a well.

The relocation of SMR into the reservoir is an intriguing technology that has the potential to convert old and depleted oil and gas wells for hydrogen extraction. SMR is initiated by igniting and sustaining combustion within the reservoir and is associated with high complexities in maintaining and controlling the combustion process that could bury the hope of low hydrogen costs even at scale.

The possibility of extracting hydrogen directly (without SMR) from a well sounds fantastical. However, we see scientific justifications and even the first real examples of hydrogen wells. With a high probability, as the industry scales up, it will encounter a long list of operational challenges associated with the characteristics of hydrogen, such as its volatility and flammability.

Given the possibility of direct hydrogen production using existing methods, it can be assumed that the cost of hydrogen production as it is scaled up can fall to less than $0.5 per kg, which is substantially less than the goals set by the U.S. Department of Energy.

What inspires most in this technology is that hydrogen (unlike conventional hydrocarbons) can relatively quickly accumulate naturally in the well again, which could potentially enhance the economic viability of extraction projects.

We are at the starting point of a potential new trend in mineral extraction.

Natural Hydrogen as a Mineral Resource was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Key takeaways

In the realm of mature ‘non-lithium’ alternatives, experts are highlighting sodium-ion technology. Despite its drawbacks including lower energy density (twice as poor as Li-Ion) and complexity in recycling, this technology won’t become the primary choice for electric vehicle and portable electronics manufacturers, who are the main consumers of energy storage solutions today. Sodium does have the advantage of being widely available. Notably, sodium batteries are in an early developmental stage and currently lag behind Li-Ion by a factor of 3 in terms of recharge cycle counts. Sodium batteries will find applications in scenarios where size constraints are absent.

In the burgeoning segment of grid-scale energy storage, lithium will face competition from sodium-ion, flow, and other battery types. Here, demands for weight and dimensions are less stringent, and charge-discharge cycles are more forgiving. This represents a potentially significant market where lithium technology will continue to dominate for the majority of energy storage solutions.

The most likely successor to Li-Ion is an improved lithium-based energy storage technology. Candidates in this category include lithium-cobalt-manganese batteries, boasting an energy density of around 300 Wh/kg. Substantial bets are also being placed on solid-state lithium-based battery technology, with energy densities exceeding 1000 Wh/kg in lab conditions.

In my opinion, as well as that of several industry experts, over the next 30 years, only other lithium-based energy storage technologies will present serious competition to Li-Ion technology.

Powering the Energy Storage Industry

The primary growth driver in the industry is currently electric vehicle electrification. This includes consumer vehicles as well as buses, all aimed at reducing CO2 emissions. Countries like China, Norway, and various European nations are actively participating in this transformative process. While electric transport has been implemented in tier-1 cities in China, tier-2 and tier-3 cities, which host a significant portion of the population, are yet to be electrified. This dynamic spurs the advancement of the battery industry.

Lithium remains an exceptional technology despite the emergence of alternative avenues like sodium batteries and hydrogen fuel cells. When evaluating lithium against its competitors, considering factors like energy density, lithium will maintain its superiority in the market for the next 30 years. The higher energy density of lithium batteries makes them a suitable choice for electric transportation.

The next growth driver is batteries for electrical grids, representing a substantial market. Lithium technology seems to be the most advantageous for energy storage applications from renewable sources, including solar and wind energy. I believe the demand for lithium will outpace supply, as lithium extraction poses intricate challenges.

Projections of battery power needs indicate that the key consumer propelling growth will be electric vehicles. Parameters such as cost and weight are crucial for this market segment:

Lithium based vs other types

The primary advantage of a lithium battery lies in its higher theoretical energy density due to lithium’s atomic mass being 3.3 times smaller than that of sodium. However, when considering other battery components, the picture changes. For instance, comparing the cathode materials LiFePO4 and NaFePO4, the latter’s mass is only 10% greater. Notably, in the case of the 2023 CATL sodium automotive batteries, the declared energy density is 120–160 Wh/kg, equivalent to the widely adopted lithium iron phosphate batteries. Novel technologies are actively being developed to enhance energy storage density for both sodium and lithium, such as lithium-sulfur batteries, solid-state electrolytes, nanomaterials, etc. Lithium-based batteries hold the highest commercial potential. However, if sodium batteries surpass current lithium ones in capacity, they could fulfill the needs of a larger consumer base.

Among sodium’s advantages are its abundant distribution and the presence of salt deposits, eliminating the need for complex concentration and purification processes. In contrast, lithium, being a rare element, is extracted from brines containing less than a gram of lithium per liter.

Nevertheless, lithium batteries will continue to be used in electronics, where compactness is crucial. The energy density of lithium-cobalt-manganese batteries is around 300 Wh/kg, twice that of alternatives. Manufacturers of premium car models also prefer lithium for its superior characteristics. Despite the potential (though not anticipated) decrease in the share of lithium batteries, the demand for lithium is expected to grow for many years (10+ years).

In any case, the highest capacity is achieved in metal-air batteries, whose capacity (thousands of Wh/kg) far exceeds existing market products. While such batteries are currently distant from industrial implementation, their advantage of lithium’s low atomic mass will be maximally evident.

Other potential alternatives to lithium include potassium, a close sodium analogue with even higher atomic mass and thus lower energy density. However, it is precisely in the case of a potassium-air battery where the cycle efficiency (>95%) is maximized due to minimal overpotential.

In the energy storage market, there are options for utilizing alternative battery technologies, such as flow batteries. Flow batteries have gained some traction in the energy storage sector, but not so much for consumer products and electric vehicles, where lithium-ion batteries are predominantly employed.

Another technology to consider for the future is solid-state lithium-based batteries. Solid-state batteries are particularly promising for lithium as they employ lithium on both the cathode and anode sides, utilizing a very thin lithium metal foil. This results in exceptionally high energy density, far surpassing current lithium-ion technology. However, they also feature a solid electrolyte, leading to improved characteristics and representing a technology of the future. I believe it will take at least another decade before they see widespread adoption. Currently, most solid-state batteries are handcrafted, and automation in manufacturing remains a bottleneck. This is where lithium-ion batteries hold a significant advantage, as their production technology is fully automated in terms of battery component manufacturing.

Sodium batteries potential

There are Chinese manufacturers like CATL, but overall, these batteries are not yet of high quality. Significant investments have been made in lithium, and attempts by Chinese companies to move away from lithium signify its high value.

Nonetheless, there are scenarios where sodium batteries could find application. They might be suitable when battery size is non-critical and space constraints are absent.

Moreover, in terms of recharge cycle count, sodium batteries significantly lag behind lithium. On average, sodium batteries can endure around 1,000 charge-discharge cycles, but this number could vary depending on the specific model and usage conditions. Lithium outperforms sodium in this aspect by 2–3 times under similar conditions.

In my perspective, sodium technology won’t become the primary replacement, especially in advanced markets such as Europe, the USA, Japan, and Korea. It suffers from very low energy density, rendering it unfit for vehicles with extended range requirements. It might only be applicable to vehicles with limited range, essentially inexpensive cars. Most electric vehicle buyers desire flexibility to travel long distances. The issue with sodium lies in its incapability to offer range flexibility or energy density.

Another significant problem with sodium-ion technology is recycling. When you consider lithium-ion batteries, they contain several metals that can be recycled, such as nickel, cobalt, copper, and lithium. However, this isn’t the case with sodium batteries. Consequently, commercializing this technology might prove highly problematic. Sodium-ion batteries hold energy storage potential. For mobile phones, I believe most people prefer lithium due to energy density and rapid charge-discharge cycles. Lithium-ion technology facilitates extremely fast charging.

Our forecast

In the near future, a replacement for Li-ion technology isn’t foreseen. Li-ion batteries have been in existence for over 30 years and have proven their worth across various industries, including consumer electronics, industrial storage, electric vehicles (as a primary consumer), and more. Any substitute technology before it can be widely adopted in the electric vehicle industry must undergo decades of development before automakers are willing to take on the risks of adopting a new technology. Hence, in my view, a viable replacement isn’t on the immediate horizon. Additionally, lithium battery technology is still evolving and continually improving in terms of performance and safety. That’s why, as a private investor, I’m putting my investments into the lithium industry as no substitutes are on the horizon. Most lithium producers are poised to capitalize on this situation, as developing new projects is challenging, time-consuming, and fraught with numerous entry barriers.

I’m well-acquainted with the supply chain, and discussions within the electric vehicle industry are centered not so much on substitutes, but rather on the lithium supply deficit in the market. This presents a significant challenge for the industry that needs to be addressed in the future.

The most likely successor to Li-ion is an improved lithium-based energy storage technology. Lithium-cobalt-manganese batteries, with an energy density of around 300 Wh/kg, are among such contenders. High expectations are also placed on solid-state lithium-based battery technology, which boasts energy densities exceeding 1000 Wh/kg in laboratory conditions.

Summing up our research, it’s evident that within the next 30 years, other types of lithium-based energy storage systems are the only ones likely to pose serious competition to Li-ion technology.

P.S.

For a detailed report from Tesla on energy storage systems and the types of materials used in their production, and also for the report from Phystech Ventures describing lithium demand structure and production methods, you might want to refer directly to their respective reports and official documentation.

Energy Storage: Who Will Succeed Lithium? was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

As an investor in a venture capital fund, I naturally also actively follow hydrogen. My firm has executed a number of investment deals in this segment. Based on my experience in the sector, I have decided to share my vision of where the industry is heading, in terms of technology.

Introduction

Demand for hydrogen has grown more than threefold since 1975. According to the World Bank, the annual demand for hydrogen reached an estimated 87 million metric tons (MT) in 2020, and is expected to grow to 500–680 million MT by 2050. Hydrogen has great potential as a fuel for rockets, airplanes, and public transport. Additionally, it can cogenerate electricity or heat.

We are constantly monitoring hydrogen technology startups. To date, we have identified a total of 227 startups in the hydrogen vertical.

Both Investments in the sector and the number of deals executed have grown for two successive years. 2020 marked the beginning of the energy transition, and this was reflected in the strong growth in investments in the hydrogen technology sector. In 2020, $5.5b was invested in total in hydrogen technology across 57 deals. In 2021, this grew to $7.2b investment and 67 deals. However, by Q3 2022, we have so far seen only $2b in investments.

We segmented the vertical into the following categories: Fuel cells, Mobility, Generation and Storage.

Generation: companies that create technologies for the generation of different types of hydrogen.

Storage category: companies developing hydrogen storage technologies and solutions.

Fuel cells category: companies that are developing fuel cells or their components. A fuel cell uses the chemical energy of hydrogen or other fuels to cleanly and efficiently produce electricity. If hydrogen is the fuel, the only products are electricity, water, and heat. Fuel cells can provide power for systems as large as a utility power station and as small as a laptop computer.

Mobility category: companies creating mobility technologies based on fuel cells. So far, companies have developed ground, air, and water transport using hydrogen.

The Generation segment is the current leader in terms of the number of companies, and we will discuss this in greater detail below. The dark horse of the sector, with the minimum number of companies, is the Storage segment. However, in spite of this, it is probably one of the most investment-attractive segments on the 5–7 year horizon. Fuel cells are a key element of the hydrogen ecosystem, and they are divided into technological (electrolyte type) and functional types. The mobility segment includes companies that are creating transport based on fuel cells. To date, startups have developed cars, buses, planes, yachts, and many other forms of transport that harness hydrogen technology. We also include infrastructure builders, such as companies constructing fuel stations, in this segment.

Generation. What is hydrogen and how clean can it be?

The lightest element, a component of the stars, and a part of the energy and rocket business — all of this is true of hydrogen (H). Since the discovery and first production of hydrogen, this “water-former” element has occupied a special place in both science and industry. The range of hydrogen applications depends on its cleanliness. In turn, this depends on the carbon footprint (CO2) of the hydrogen production method.. In terms of cleanliness, hydrogen can be gray, blue, green, and some also distinguish turquoise.

Gray is the least renewable form of hydrogen, as it is extracted from natural gas and fossil fuels. In this case, hydrogen is produced by reforming, which refers to the rearrangement of the molecular structure of hydrocarbons. Methane (the main component of natural gas) is mixed with steam at a high temperature to yield hydrogen and carbon dioxide through a catalytic chemical reaction.

Gray hydrogen is used in the chemical industry. It is a fast and cheap way to get hydrogen, so it’s the most common. However, for every 1kg of hydrogen produced using this method, 10kg of CO2 emissions are released into the atmosphere.

Blue hydrogen is extracted using the same method as gray hydrogen, but the management of the CO2 produced is completely different. As opposed to allowing CO2 to escape into the atmosphere, it is captured at the production facility and stored separately. The technology used to achieve this is called Carbon Capture and Storage (CCS).

Blue hydrogen is substantially greener than gray, although it still leaves a carbon footprint. According to recent research on the topic, only a maximum of 90% of CO2 can be captured. 100% can be achieved by increasing the cost of CCS. The second issue with blue hydrogen is the extraction of hydrogen from natural gas and the subsequent loss of methane, a greenhouse gas, into the atmosphere.

Green (clean) hydrogen seems to be the closest to sustainability. As you may guess from the title, green hydrogen technology has no carbon footprint. Hydrogen is produced using electrolysis. This involves the separation of hydrogen and oxygen molecules through the application of electrical energy to water. The electricity for this process comes from renewable sources such as wind or solar power.

Although green hydrogen seems the best from an ecological perspective, its production faces certain challenges. Firstly, the equipment for electrolysis is expensive. Secondly, renewable sources cannot produce energy 24/7, which means that it is in limited supply. In short, green hydrogen solves the problem of the carbon footprint, but production issues are currently a major obstacle for its large-scale use.

Recently, another color of hydrogen has also been distinguished. Turquoise hydrogen can be produced using a pyrolysis process. This technology is in the experimental phase but could potentially also be zero-carbon. During pyrolysis, natural gas is passed through a molten alkali or metal. The process produces solid carbon, meaning that CCS is not required and the carbon can be utilized in other applications.

For more information on the classification of hydrogen, see my previous post.

Today, 98% of hydrogen is either gray or blue (produced from steam reforming and gasification). Just 2% is produced from electrolysis (green hydrogen), due to its cost and dependence on “unstable” renewable sources. We therefore only expect green hydrogen at scale in the early 2030s, when its value is approximately $0.5–1.5/kg. Blue hydrogen is capital intensive in terms of CO2 capturing, but will still likely dominate the sector for the next 8–10 years. Turquoise hydrogen may also gradually begin to displace blue hydrogen and compete with green hydrogen, because it is significantly less energy intensive compared to water electrolysis and SMR, from a thermodynamic perspective (see the article), and benefits from the existing natural gas infrastructure.

Investments in the sector have not fallen below $1b for three years in a row. Within the generation segment, we see the highest number of deals in 2021, with 42, a 27% increase over 2020.

The future of hydrogen generation

As of today, many experimental technologies have been developed for each stage of the hydrogen production chain. While some of them may seem visionary, it is possible that they can become the future of hydrogen.

The startup Proton Technologies, for example, has started injecting steam and air into fields in Canada. 700 meters beneath the fields, a layer of sand can be found which holds 200 million barrels of thick, viscous oil. By setting the oil on fire, the company can spur underground chemical reactions that churn out hydrogen gas and CO2. This technology is known as underground burning or fire flooding.

First, Proton Technologies plans to produce membranes to plug its wells. This will ensure that only the clean-burning hydrogen reaches the surface, while the CO2 remains deep in the earth. The company will use membranes made of palladium alloys, that will divide the gaseous hydrogen into individual hydrogen atoms. These atoms will diffuse through the metal lattice and combine again to form hydrogen gas on the other side of the membrane.

This technology faces a few challenges. First, palladium membranes can be fragile, even if you use them on the surface, to say nothing of their use at greater depths. Secondly, underground burning requires high temperatures of above 500°C, which are not easy to control. Nevertheless, this approach potentially provides a green, low-cost way of extracting hydrogen in the future.

In addition, Proton’s technology allows for the concurrent production of oil, gas, and hydrogen, although it gives a low hydrogen yield of 2%. Research must therefore continue to identify more promising technologies to convert oil and gas wells into hydrogen wells, where pure hydrogen is the output, and the CO2 will naturally remain in the reservoir. Today, there are several startups attempting to develop this approach in laboratories.

Hydrogen storage. Dark horse.

Hydrogen storage can’t be underestimated, as it is crucial to the future of technology, and the great hope of power generation from alternative energy sources. Hydrogen has a much higher energy density (33 kWh/kg) than batteries (about 1 kWh/kg), gasoline, and diesel (both about 12 kWh/kg). There are several ways to store the chemical element, depending on its standard conditions. For mobility applications, the dimensional characteristics of the fuel storage system, which are dependent on the compression density of hydrogen, are extremely important.

Hydrogen can be physically stored as either a gas or a liquid.

Physical storage is the most mature hydrogen storage technology. The volume of hydrogen is much larger than that of other hydrocarbons, such as natural gas. This means that hydrogen needs to be compressed. Storage as a gas typically requires high-pressure tanks (350–700 bar). Modern technology makes it possible to reach a pressure of 700 bar, using a hydrogen compressor. At this pressure, hydrogen has a density of 42 kg/m3 , approximately 500 times higher than its density at atmospheric pressures and temperatures.

Storage of hydrogen as a liquid requires cryogenic temperatures, because the boiling point of hydrogen at one-atmosphere pressure is -253°C. This technology is complicated and expensive, and so far only has applications for fueling stations. Liquid hydrogen takes up one seventh of the volume of hydrogen in a gaseous state and has a density of 70.9 kg / m3. Under these conditions, the volume of a tank with a storage capacity of 4kg of hydrogen (400 km trip) would be 56 liters, equivalent to the volume of the tank of modern gasoline-powered cars.

Hydrogen can also be stored on the surfaces of solids (by adsorption) or within solids (by absorption).

In adsorption, hydrogen is attached to the material’s surface, either as hydrogen molecules or as hydrogen atoms. In absorption, hydrogen is dissociated into separate H-atoms, then are incorporated into the solid lattice framework.

One of the newer approaches is to store hydrogen in underground salt caverns (also known as geological storage). The Advanced Clean Energy Storage project will ultimately implement this method in Delta, Utah, and has already received funding from the US Department of Energy.

This project intends to store green hydrogen and then burn it as fuel for the Intermountain Power Agency’s (IPA) Renewed Project. Storage will be carried out in above ground tanks (short term) and underground, in salt domes (long term). According to the roadmap, the project will construct a hydrogen-capable gas turbine, combined cycle power plant, that, by 2045, will be fueled by 100% clean energy hydrogen.

In 2012, Berkeley Lab identified a new material that can be used for hydrogen storage — metal-organic frameworks (MOFs). MOFs are three-dimensional sponge-like framework structures that are composed primarily of carbon atoms, and are extremely lightweight. The Berkely Lab’s project to identify and develop these materials was also funded via a grant from the U.S. Department of Energy.

10 years later, the lab said their MOFs “could be cost-competitive with other energy storage technologies”. During the study, it was found that MOFs can be used for liquid hydrogen storage and have a higher system-level energy density than compressed hydrogen storage, thus requiring less space.

In terms of startups, Storage is the least populated segment of our map. This segment also lags behind in terms of investment, although there has been a clear increase in interest in 2021, with a cumulative investment of $182m.

China has completed the construction of over 250 hydrogen refueling stations in 2022, accounting for roughly 40% of the global total. Sinopec further intends to accelerate its hydrogen infrastructure roll out, with the aim of building 1,000 new stations by 2026. In the country, Hydrogen energy is used to power vehicles, especially buses and heavy-duty trucks. Over 6,000 vehicles on the road in China are installed with hydrogen fuel cells, accounting for 12% of the global total.

Globally, 99% of hydrogen refueling stations use compressed H2, with very few refueling stations with liquid hydrogen storage constructed in either the US or China. It is therefore safe to say that compressed H2 is the overriding trend in the industry.

The future of hydrogen

Another fantastical technology is co-called Powder power, from Israeli startup Electriq Global, whose founders claim they can “turn hydrogen into a coffee-like powder form, then back into electricity”. This powder is obtained through a hydrogenation process, where hydrogen gas reacts with potassium metaborate (KBO2). The ultimate product is a “coffee-like compound (KBH4)”.

In September 2022, Electriq Global introduced its first 8kW/80kWh genset powered by hydrogen powder. The set was installed in Amsterdam, Netherlands, where they are phasing out diesel generators.

Fuel cells

Put simply, fuel cells are distinguished terms of the type of electrolyte used and the purity of the hydrogen consumed. The most commonly used fuel cells are currently proton exchange membrane (PEM) and solid oxide fuel cells (SOFCs).

PEM fuel cells use a solid polymer as an electrolyte and porous carbon electrodes containing a platinum or platinum alloy catalyst. To operate, they only require hydrogen, oxygen from the air, and water. They are also typically fueled with pure hydrogen supplied from storage tanks or reformers. PEM fuel cells deliver high power density and offer the advantages of low weight and volume, compared with other fuel cells.

Solid oxide fuel cells (SOFC) use a hard, non-porous ceramic compound as an electrolyte. SOFCs are also the most sulfur-resistant fuel cell type; they can tolerate several orders of magnitude more sulfur than other cell types. In addition, they are not poisoned by carbon monoxide, which can even be used as fuel. This property allows SOFCs to utilize natural gas, biogas, and gasses made from coal.

You can read about other, much rarer fuel cell technologies here. .

PEM fuel cells lead the market both in units and shipped MW capacity. Over 53,000 PEM units were shipped for a range of applications in 2020, increasing to around 55,000 units in 2021.

SOFCs haves also increased their market share in recent years, reaching 207 MW capacity in 2021 (up from 148 MW in 2020). SOFC has been gaining share in the Ene-Farm programme, due to the higher efficiency and higher-grade heat from the stack, but overall, Ene-Farm shipments fell in 2021, affecting SOFCs as much as PEM fuel cells.

In terms of geography, Asia has continued its strong lead, both in terms of unit numbers and in MW. Alongside the 8,500 Hyundai NEXOs in Korea and 2,450 Toyota Mirais in Japan, 1,800 buses and trucks have been deployed in China.

Unit shipment levels remained steady in Asia during 2020 (57,600 units) and 2021 (56,100 units). An increase from 8,100 to 13,000 vehicles was offset by a fall in the number of micro-CHP units shipped to Ene-Farm from 46,200 to 39,800 . In MW, 1,493MW were shipped to Asia in 2021(65% of global shipments), dominated by vehicles. Korea accounted for 65%, while Japan and China accounted for 23% and 12%, respectively.

This followed a previous record in 2019, when annual fuel cell shipments finally exceeded one-Gigawatt in aggregate power. However, 2021 appears to have been even more remarkable, with 85,850 units forecast, equating to 2,313 MW, even with COVID still hanging over markets.

The 2.31 GW shipped capacity to Asia appears to largely be the result of the production of the Hyundai NEXOs and Toyota Mirais. Hyundai now accounts for 38% of global fuel cell power shipments, and Toyota 33%. The cars consequently have a large effect on the market share of PEM fuel cells in Korea (NEXOs), and Japan and the USA (Mirais).

The world’s largest deployment of fuel cell systems by unit numbers continues to be the Ene-Farm project in Japan. A fleet now of almost 424,000 domestic CHP units (stationary) utilizing both PEM and SOFC technology has been deployed across Japan since 2009. Shipments of CHP have fallen somewhat over 2021, at nearly 44,000 units, from over 52,000 units globally in 2020.

The several-year trend continues, with the two fuel cell cars dominating the MW count, at 72% of capacity shipped. Including buses and trucks the figure rises to 83%, and to 85% when materials handling vehicles are included. This increase to nearly 2 GW of total shipments contrasts with the much slower growth in stationary and portable applications, which together account for 348 MW of the overall 2021 total (You can read more analytics in the E4tech report).

Investment in the fuel cell segment is growing rapidly, with investments exceeding $5b in 2021, a 3x YoY increase. However, this achievement is largely due to both the second private offering of Plug Power and SK Telecom’s investment, together accounting for $3.5b. In contrast, we see only a modest increase in the number of deals in the segment, from 10 in 2020 to 11 in 2021.

Mobility

As we saw in the previous section of the report, transportation applications of fuel cells dominate in terms of installed capacity, and also largely account for the rate of growth in sector sales.

2021 saw the highest number of fuel cell passenger car shipments to date, with global sales rising above 15,800 vehicles — almost twice that of 2020. Unsurprisingly, most deployments came from the Hyundai NEXO and the new Mirai from Toyota. Deliveries of the former increased to over 9,300 units in 2021, mainly in South Korea, while the latter has been well-received in Japan and overseas. Both vehicles are also in the running for range records.

In April, the NEXO travelled the then longest distance by a hydrogen powered vehicle on a single tank., at 887.5km (551mi). However, a few months later, the new Mirai set a new Guinness World Record, with an unprecedented 1,360 km (845 mi) — three times or more than the range of a battery-powered car.

However, the refueling infrastructure remains a major point of weakness for the industry. In fact, LBST’s ‘H2Stations’ website suggests that only 685 active HRS sites operate globally, as of the end of 2021.

At COP26, 13 governments from across the world committed to the objective that all new medium- and heavy-duty vehicles from 2040 would be zero emission, with 30% by 2030 as an interim target. Buses fall under these categories, and although some countries and cities/regions have more ambitious target dates, the recognition of the environmental and social imperatives of clean transport indicates that the future is undoubtedly Zero Emission.

The number of fuel cell buses in operation between 2015–2020 in China is estimated at over 3,700, which dominates the market in terms of quantity. China also has a sizeable lead in the truck segment. Conversely, the car segment is dominated by the U.S., with 15,000 hydrogen-powered vehicles on U.S. roads right now, all of them in California.

The price of an equivalent amount of hydrogen ($5) may be favorably compared to the cost of gasoline per gallon ($8). However, charging an electric vehicle (EV) overnight usually equates to gasoline at just $1 to $2 a gallon, which speaks to the need to reduce the cost of hydrogen in the future to compete with EVs.

Hydrogen is stored in gaseous form, making the fuel cells lightweight, and an empty tank can be filled up in just five minutes, whereas current EV chargers can power the battery from 0% to 80% in roughly 30 minutes to several hours, depending on the charger type. Hydrogen is viewed as a potential alternative to EVs, because EV batteries are huge, expensive, and require rare earth metals, such as cobalt, nickel, and lithium.

Based on the above, we assume that, in the segment of private cars, EVs will continue to dominate, while in the segment of commercial and public transport, hydrogen will develop a significant market share over the next 10 years. This is due to at least two technological factors: refueling speed and distance traveled per refueling.

The world is witnessing a competition between EVs and hydrogen transportation systems. While in the segment of automobiles, hydrogen is still far behind in terms of its rate of introduction, the prospects for hydrogen in aviation look highly promising.

Several factors contribute to this. Firstly, the energy density of the best rechargeable series li-ion batteries does not exceed 200–250 Wh/kg, while compressed hydrogen is 1500–2000 Wh/kg. The development of cryogenic storage systems could further widen the gap into an obscene one.

In addition, hydrogen has 180x more specific energy than lithium batteries (120 MJ/kg vs 0,65 MJ/kg), and 3x more than gasoline (120 MJ/kg vs 44 MJ/kg). On the basis of these factors, we believe that hydrogen will become a serious player in aviation in the next 10–15 years.

We see a decrease in investment in startups in the mobility segment, against the backdrop of increased investment by corporations.

TOP companies in the hydrogen industry

We counted eight unicorns among the startups in the hydrogen ecosystem. The main representatives in the list of expensive companies are electrolyzer and fuel cell manufacturers. All of these companies generate revenue. The Mobility segment is represented by two companies, both at the R&D pre-revenue stage.

Valuations are as of 26.09.2022.

How governments support hydrogen

45 countries are devising or have published hydrogen strategies over the last 18 months.

Of particular note is the Hydrogen Strategy for a Climate-Neutral Europe. This document envisages that hydrogen technologies should reach maturity and be deployed at a large scale in all hard-to-decarbonize sectors by 2050.

According to the document, the development of renewable hydrogen, produced mainly by wind and solar energy, is clearly a priority. However, in the short to medium term, other forms of low-carbon hydrogen are needed to rapidly reduce emissions and support the of a viable market.

Elsewhere, the USA has devised the “Energy Earthshot — Hydrogen Shot” strategy. It aims to create more extensive, affordable, and reliable green solutions based on hydrogen. In 2021, a $1trn bill was planned for a national hydrogen strategy. According to the roadmap, the strategy aims to reduce the cost of green hydrogen from more than $5 per kilogram to $2 by 2026. It also provides for the identification of opportunities to use existing infrastructure for hydrogen, such as gas pipelines.

The UK’s Industrial Decarbonisation Strategy proposes the ambitious target of reaching net zero carbon emissions by 2050. Notably, this document does not distinguish between blue and green hydrogen, referring only to “low-carbon hydrogen”. The strategy also assigns a special role to the government, stating that it “should play a key role in delivering large infrastructure projects for critical technologies where cost or risk is too high for the private sector”.

Conclusion

The energy transition has moved from words to deeds. In reflection of this, the hydrogen economy is showing strong growth rates. Investments in the sector, as well as the number of deals, have grown for two years in a row. In 2020, $5.5b was invested across 57 deals. This increased to $7.2b and 67 deals in 2021. In 2022, we expect a slight decrease due to the global economic downturn, but 2023 should be a record number for investment.

98% of hydrogen is gray or blue. Just 2% is produced from electrolysis, as green hydrogen is still the most expensive ($4–10/kg), and mostly depends on “unstable” renewable sources. We expect green hydrogen at scale in the early 2030s, at $0.5–1.5/kg. Blue hydrogen is capital intensive in terms of CO capturing, but is still expected to dominate for the next 8–10 years, and also benefits from its use of pre-existing infrastructure.

The hydrogen storage segment will begin to come to the fore in the next decade. The energy density of energy systems strongly depends on the storage system. We expect liquefied hydrogen storage to significantly increase its market share, both for stationary storage systems (refueling), and in transportation applications.

We expect fuel cells to be a serious competitor to batteries in the commercial and public transportation segment, due to their fast refueling and longer mileages. In the aviation sector, we expect hydrogen systems to dominate the 10-year horizon. Among other factors, this is because has 180x more specific energy than lithium batteries and 3x more than gasoline, and is CO neutral.

Hydrogen Technology Outlook: Current Trends and Forecasts was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Key takeaways

• Investment volume in quantum technology grew more than 2x year-over-year (YoY) in 2021 for the second year in a row, reaching $2.3bn. The first half of 2022 recorded an investment of $509m, up 30% from the same period in 2021.

• Hardware remains the leading segment in terms of investment volume, where investment grew 2.6 times to $1.5b.

• The combined value of the top 10 companies increased 2.3 times in 1H2022, compared to 1H2021, to $10b. 93% of this figure is made up of companies building quantum computers.

• Unfortunately, however, the companies’ high valuations are not yet supported by any significant revenues. The startups developing hardware are just at the beginning of commercialization, with revenues of below $10m per year each.

“The main challenge for quantum computers is to fulfill and address the various promises and hopes, to demonstrate a ‘economic benefit’. Something that actually helps end-users and customers beyond something they can do on a laptop, and offers an economic incentive to use quantum technologies beyond academic interests. If the community fails at that, despite the funding, support, and investments received, there will be a loss of confidence in the entire quantum community.” — Thomas Monz, CEO & Co-founder of Alpine Quantum Technologies

• Today quantum computers are starting to perform necessary and relevant tasks. In the next 6–8 years a quantum computer will act as a co-processor, solving complex but narrow computational problems in a short time and transmitting the results to classical computers.

“At present, there are two big hurdles hampering the wide-spread use of quantum computing for industrial applications — first, the capabilities of the hardware. Second, the extremely wide application areas of a mature quantum computing, and the resulting heterogenous skill set of users (engineers, chemists, etc) is in stark contrast with the niche expertise required to run a job on a quantum computer.

Software for quantum computers can address both of these hurdles. Interfaces that are tailored to the skills and requirements of the wide array of different user types is key to ensure adoption of the benefits of quantum” — Dr. Daniel Volz, Project manager at BASF

• A major established trend of 2021 was that hardware companies continued to seek acquisitions or mergers with software start-ups. We have observed at least three cases of this. ColdQuanta, acquired Super.tech, a Chicago-based leader in quantum software application and platform development. Quantinuum, a spin off from Honeywell’s Quantum activity, merged with the Cambridge-based CQC, and is now raising $300m to integrate both hardware and software in a true full stack company. In addition, the Delft-based start-up Qu&Co, a quantum algorithm and software developer, merged with French company Pasqal.

Startup Map

Geographical distribution

The US continues to lead in terms of total investment in quantum technologies. In 2021, US companies invested $1.38b in the sector, constituting a 2+x increase over 2020. The most substantial growth in investment was in the UK, which retained its second position in the “ranking”, and increased its volume of investment in quantum startups by 3 times, to $466m. Canada rounds out the top 3, with $156m invested in 2021.

However, if you look at the specific metric of investment per million inhabitants of the country, the leaders are the UK, Israel and Finland.

In 2022, the number of quantum startups grew from 197 to 267 companies. As with investment volume, the US, UK, and Canada retained their leadership in terms of quantum startups, with 59, 38, and 34 companies based in the countries, respectively. Canada and Germany exhibited the highest growth rate in this area, at 160+%.

Our forecast

Despite the sizeable growth observed in 2021, we do not expect a notable increase in investment in quantum start-ups in 2022. This is both due to the coming economic recession and the relatively slow progress of companies in the space. As you might have noticed from our brief review of the articles, we are only expecting major breakthroughs. Conversely, growth in investment can be expected after 2023, after the economic downturn passes its minimum.

Today quantum computers are starting to perform necessary and relevant tasks. In the next 6–8 years, we expect a time when a quantum computer will act as a co-processor, solving complex but narrow computational problems in a short time and transmitting the results to classical computers. We expect quantum computers to produce computations that match the capabilities of their architecture, which is limited by qubit control ability, constraints on qubits entanglement, gates creation, error correction, etc.

Scientists today are addressing a variety of engineering issues in order to build and scale a quantum computer. Encouragingly, most of these questions are of an applied nature, but a number of tasks, such as 1000 fully connected logical qubits, are extremely challenging.

Finally, we expect that the development of quantum computers is crucial for making further breakthroughs in regard to life-extending technologies, including in drug discovery, gene-editing, biochemistry, and high-performance computing. Сlassical computers are not designed to simulate complex quantum mechanical systems, like enzymes or other molecule structures. Furthermore, other industries like finance, logistics, material science, and many others will also likely leverage quantum computational power to improve performance.

Link to the full report.

Who spearheads the Quantum Leap? was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

The price per ton of lithium carbonate increased almost 7 times since the beginning of 2021, and almost doubled since the beginning of this year.

By 2023 demand is expected to surpass 821,000 tonnes. Assuming that after 2023 lithium consumption will only grow by 30% a year, there will be enough reserves until 2030.

This increasing demand for lithium is growing concurrently with the rising popularity of electric vehicles, which require batteries. In fact, about 40% of all mined metal today is used to create batteries.

The top five lithium battery manufacturers are:

• Albemarle (USA)
• Ganfeng Lithium (China)
• SQM (Chili)
• Tianqi Lithium (China)
• Livent (USA)

How is lithium mined?

Lithium is a reactive metal, so how it is mined is differs slightly from other metals. Two methods exist for natural resources: pegmatite minerals and clays of solonchaks (saline solutions).

Mining from minerals and further ore processing (grinding and enrichment) were originally the main source of mining lithium. However, this method bears greater environmental risks and is not as economically viable as mining from saline solutions. Such financial concerns were confirmed during the coronavirus pandemic, as falling lithium prices led to the closure of Whabouchi, the major ore project in Canada. This was also despite the fact that the project planned to reach more than a billion dollars in project investments. Good article in Elsevier for an immersion in technology >>

The second mining method, from saline solutions, is more profitable, but also has several notable limitations. To isolate lithium from clays, multi-stage and long-term production, and large areas and volumes of water are required. This is because, conditionally, the metal is “evaporated” from saline solutions. On average, this process is reasonable, though it does last for 18–24 months. Good article for an immersion in technology >>

Another limitation is that lithium obtained from saline solutions often comes with impurities of iron and magnesium. Though it is possible to dispose of them, this also increases the cost of production. In addition, rich deposits (high in lithium and low in impurities) are limited, and very unevenly distributed worldwide, with a heavy concentration in South America.

Alternative methods

Difficulties with lithium mining from natural resources have stimulated the development of non-traditional technologies, i.e., laboratory ones. For example, attempts are currently being made to obtain lithium from saline solution using metal-organic framework membranes (MOF), as in living cells. Scientists propose to copy the mechanism of living cell filtering to identify lithium ions in saline solutions, i.e., ion selectivity. The 2003 Nobel Prize in Chemistry was awarded for the study of these channels in the cell membrane.

Using MOF, scientists propose that vast reserves of lithium can be accessed through filtering sea water. Fresh water, a by-product of the filtering process , is also drinkable. This means that, under this method, we can simultaneously obtain several valuable resources. These technologies are therefore highly promising, though are so far too expensive for widespread adoption.

The lithium reserves in sea water substantially exceed the known lithium lithospheric reserves, which turn them into an important long-term source. Therefore, attempts are being made to obtain the metal present in water by other methods. Developments in the field of lithium sorption mining have consequently been made over the last ten years. As a result of these developments, at this point, groundwater, including associated oil water, can be seen as a raw material. Japan and Korea, not possessing their own lithium deposits, are consequently investing in such projects.

Today, sorbent selectivity makes it possible to concentrate and obtain lithium even under the existence of independent elements, and new technologies (reverse osmosis, electrodialysis) are helping miners switch from traditional to intensive technologies in lithium solution processing (including sea water). Combining technologies (e.g., electrosorption, lithium selective membranes) will ultimately help improve process efficiency by reducing costs and increasing competitiveness.

Attempts to combine membrane technology and sorption can be seen as an experimental technology. By incorporating a sorbent into a polymeric membrane, we can create a membrane that is selective only for lithium. In simple terms, this would enable the extraction of lithium solutions without impurities. However, the problem of sorbent solubility is still not solved.

The main advantage of sea water is its availability, as it could eliminate the need for deep wells. Conversely, its major disadvantage is the high content of independent minerals and the low content of lithium in sea water (a thousand times lower than in current projects). Additionally, evaporating the large volumes of water necessary would not be economically feasible, even when using the latest technologies.

The use of a sorption column filled with a sorbent also leads to an increase in the process cost, due to the additional equipment and energy required. Another problem is the mechanical sorbent chafing during friction. The use of magnetic sorption particles is therefore an attempt to simplify the process. Sorption is performed by spraying sorption particles in the solution, then capturing particles using a magnetic field. This allows for the use of nanometric particles that accelerate the sorption process, and does not require high pressures.

Another method of lithium mining that does not use ores, clays, or water, is the deep processing of lithium batteries. For example, the main products for the Chinese company Jin Kunlun Lithium Industry are lithium metal and lithium chloride. Although the demand for such lithium forms is not as large as for the common carbonate, the use of recycled lithium from batteries could provide a significant increase in energy density. Scientific work has demonstrated the energy density of lithium metal batteries up to 560 Wh/kg.

Who is engaged in the lithium mining research?

According to our analysis, about a hundred companies in Australia, Canada, Germany, the USA, Japan, and China are currently conducting laboratory research on lithium mining.

These research companies can be divided into the several following groups:

Large corporations that have been mining for a long time. A suitable example would be the Korean company POSCO, which has historically focused on the production of steel. Extensive experience in field development, the availability of initial capital and business diversification allow the company to actively develop its lithium manufacturing capabilities and successfully overcome local challenges. Another notable company in this group is Albemarle, the largest global lithium producer.

The next group consists of the companies for which lithium is not a core business.

This includes large corporations that use lithium products in their core business, such as manufacturers of electric vehicles (Chinese company BYD) and electronics (Korean company LG). One of the factors to pay attention to for such a remote task is the lithium market price. For example, in 2018, it reached $17,000 per ton of carbonate equivalent, which is several times higher than its production cost. For certain companies, mining lithium themselves is therefore a good way to try and save money.

Numerous new companies are emerging with lithium mining as their only business, in connection with the rapid development of the lithium industry. As often happens, the price reality of mining has cooled an excess of enthusiasm. In 2021, lithium prices reached their minimum, and, in fact, approached the production cost, with a price of $4,000. Despite this, it is obvious that the price will inevitably go up as the demand is projected to grow. However, due to their age, it is not easy for many companies in this group to overcome difficulties, especially when it is currently important for them to expand production to simply maintain their market share.

Companies only planning to launch production. Perhaps the most prominent example today is Piedmont Lithium. This originally small company from Australia signed a contract with Tesla for the supply of lithium concentrate. At the same time, only preparatory work is underway. The characteristics of such companies include high expectations, expressed in constantly rising share prices. From the investor’s point of view, this means that growth is already accounted for in the current assets price. In the case of Piedmont Lithium, the company’s shares rose by 236% following the securing of the agreement. Although the demand for future products can be considered secured, there is always a risk of failure, as in the case of the previously mentioned Canadian Whabouchi project.

Conclusions

By 2022, many nations and companies will realize that lithium is a strategic resource with an exhaustible method of mining from ores. This will force developed countries to provide themselves with their own sources of lithium.

Although a substantial amount of lithium is mined in Chile and Argentina, the mining companies operating there are owned by foreign investors, and research in this area is conducted worldwide. In recent years, new investment directions have also emerged, particularly in South Africa. For now, manufacturing with the prospects for expansion already exists in Zimbabwe. Additionally, the nearby Democratic Republic of Congo does not have full-fledged manufacturing yet but is attracting investors, due to its vast reserves of lithium-containing ore.

The ongoing laboratory studies have to a great extent been effective thus far, but have not yet been “tested” for economic feasibility. Selective lithium mining with organic solvents has been known about for a long time, but despite numerous studies, this process has not yet been able to apply for industrial implementation. The main problem is the solubility of reagents in water, and the lower the lithium concentration (it decreases when switching to groundwater and sea water), the higher the losses. It is therefore hardly worth expecting a breakthrough in this area.

As the lithium battery industry expands, the issue of recycling time-expired batteries becomes relevant. Currently existing technologies already make it possible to obtain lithium almost completely using this method. The Chinese are the undisputed leaders in this area, as the largest company, CATL, is able to process over 100 thousand tons of batteries by itself. Traditional technology involves the leaching of metals with acids, though new developments are aimed at replacing acids with a less aggressive environment, such as a carbonate solution.

P.S.

The above factors make it clear that everything is not simple regarding lithium. I think many people are therefore wondering if there is a real alternative to lithium, in the context of rechargeable batteries. We have analyzed the market for electrochemical devices and found that the closest alternatives to lithium-based batteries are sodium-ion batteries.

Pros:

• Plenty of deposits, supplies are not limited, and because of this, it is also cheap to produce.
• An ability to charge to 80% state of charge in just 15 minutes, Sodium-ion cells are also well-suited for use in passenger EV buses.

Disadvantages:

• Low cyclability. Lithium batteries have a cyclic rate of up to 5,000 cycles (sometimes 8,000), which is equivalent to ~15 years of EV bus life. Conversely, sodium batteries have no more than 500 cycles so far.
• Relatively low power density — up to 120–130 Wt*h/kg, whereas in lithium batteries, density reaches 200–250 Wt*h/kg.

As a result, Adamas Intelligence experts believe that, by 2035, sodium-ion batteries will account for no more than 15% of the global market.

Some experts believe that batteries are an intermediate stage before switching to hydrogen technology. You can read about this technological segment in my previous post.

Will we run out of Lithium? was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

I had a talk with Gregoire Ribordy, the co-founder of ID Quantique — worldwide leader in quantum cryptography solutions, about the future of quantum technologies and his road success.

ID Quantique is the current global leader in quantum cryptography solutions, and one of the pioneers in the industry. Between 2013 and 2016, IDQ raised several investments rounds from venture capital firms, and finally, in 2018, was acquired by Korean public telecommunications company, SK Telecom. Today, IDQ’s success story remains a benchmark for the whole quantum technology industry, and Phystech Ventures is proud to be a part of it.

I decided to publish the full text of the interview for the convenience of my readers. Enjoy!

Daniel Shaposhnikov (DS): Our analysis of the quantum industry showed that about half of all quantum startups are created in Europe. At the same time, they have only raised 20% of the total capital invested in the sector over the last 3 years — $600m out of a total $3b. In your opinion, what is the reason for this imbalance?

Gregoire Ribordy (GR): I think this is a very important point. In Europe we have a challenge with capital availability. There is excellent science, when people do get great results. They can start companies, so it’s easy to find “seed funding” and “series A funding”. But when they grow a capital, it is very difficult to raise in Europe because there are not too big investors that you can find, typically, in the US. That’s a big challenge for European taxing.

DS: Until 2019, investment growth in the sector has been slow. However, by 2021, we expect a record investment in quantum technologies, of about $2.7b. With that forecast in mind, from 2019 to 2021, total investment in the sector will have tripled, two years in a row. In your view, what does this pattern of growth represent?

GR: I think it really means that the market is happening. Essentially in the 90th the science was done. 2000–2010 — the first prototypes were developed and demonstrated in the market. Around 2015 — the first application started to come. Now we see the effect of companies that have been created and raising funds. This is the way we see things in IDQ and we think that the 20th is going to be the quantum decade. Quantum technologies will start to have a completely massive impact on society in general.

DS: Major computing companies like Google and IBM are investing in superconducting qubit physical platforms, but these have problems with scalability and cryogenic issues. Alternatively, some consider photon-based quantum computers promising, but they suffer from problems with photon losses and large system sizes. Other platforms have their own distinct issues, too, and all platforms today are non-deterministic. In consideration of this, what is your overall view on the current level of development of quantum computers?

GR: We are still in a phase, where we have elementary qubits. But these qubits are not clean enough. They are too noisy, so we need to be able to implement the error correction. To put several qubits together, several physical qubits together, to have a state stable logical qubit. Often people talk about the number of qubits as one of the important metrics for progress. We are not there yet. We need to talk more about the stability of the qubits, how clean they are because they are still not good enough that we can do error correction. We should have elementary building blocks, put them together and then once we have this logical qubit, we will be able to talk about scaling. So, we are still in the phase where we demonstrate these qubits, so people talk about the nisk phase. You know, noisy intermediate scale points of computing and try to find some applications, typically, in areas where you can simulate quantum physics. And words useful, such as material sciences, drug discovery and things like this.

DS: Can we expect quantum advantage in a wide range of computational tasks during the coming years?

GR: It’s a difficult question. It’s hard to say because there may be some good ideas about new qubits. One, you haven’t mentioned, is the approach that IBM follows with majorana fermions, topological qubits, which seems to hold good promises. I would say that we are still in the phase when we need to explore many platforms and we are still not able to pick the winning candidate for the qubits.

DS: What industries will change or be disrupted after the quantum computer is developed? How much of our data will be stolen, Gregoire?

GR: Well, that’s a good question. If you consider hacking as an industry it will clearly be disrupted by quantum computing. Because, in principle, the challenge is that we could be already vulnerable to some attacks because data, which we encrypt and consider protected today, could be intercepted and stored in an encrypted form today by some hackers. And then when a quantum computer becomes available, they can then break the encryption that we use and then make the data available. That could be hackers, that could be nation states also, that would go after some very important state secrets or commercial secrets. So, that’s clearly something very important that we need to take into account and start preparing.

I think it’s been one of the messages that IDQ, as an organization, has tried to pass this. That we must prepare early enough because it’s hard to predict when quantum computing will come. But also, because migrating to a secure solution will take time. You know, it’s not going to be overnight, just an upgrade of windows or something like this.

And so that’s clearly one area. Then, go back to your question — the bright side of quantum computing again — I think simulation of quantum mechanics which is hugely important for material sciences, biotech and things like this is going to be the first area where will be an impact because we will understand that instead of doing trial and errors to optimize molecules and things like this, we will be able to simulate molecules and then just design them in the way that they’re supposed to work instead of just going by chance and experience.

DS: Is post-quantum cryptography sufficient, or should protection also be built at the physical level, for example, through quantum key distribution technology (QKD)?

GR: Yeah, that’s a very important question because some people say: “Oh, let’s just use post quantum cryptography”. New encryption schemes which are based on mathematics but which are designed or, you know, to be resistant to quantum computing. I think, for me the biggest question is that probably we’ll never really know how resistant these crypto systems are. Traditionally, in cryptography what you do is that you design a new system, you make it public, you wait until many people have tried to break it. If they haven’t succeeded to break it, then you consider that it offers some security. In general, this is the way it worked. It’s not ideal in a way because there can always be a new approach sometime later that finds a vulnerability in the encryption systems. If you want long-term security, you’re always vulnerable to new and more powerful computers that could come.

Our view is that post quantum crypto is very important but it’s not sufficient, it must be combined. Sometimes people say: “Oh, there’s post quantum and there’s QKD”. No, these are two parts of the solution QKD which is based on the laws of physics. To provide very long-term security is very important for the main line, the backbones, the main lines, the systemic part of our communication systems. And then, of course, PQC can be used in areas where there’s less impact and typically endpoint security. That’s a little bit of what we see. And one example of this is what our partner and shareholder SK Telecom is doing in Korea. The vision of SK telecom is that the backbone must be protected by QKD and so really the optical backbone in Korea for 5G networks, for example. But then the the radio part the last mile which goes through the air to the smartphone then PQC is suitable provided that you do it right and also that you have good keys and and that’s an area where quantum random number generator can also play a role to ensure that even if you use PQC at least you have strong keys in your systems.

DS: What should the Quantum Internet look like? What technologies do we need for getting the Quantum Internet in place?

GR: QKD now is about you transmit a qubit from A to B. And one of the challenges is that you have a limitation in distance because you cannot replicate, you cannot amplify the qubit. The signal, after a certain distance in optical fiber, will get absorbed and you don’t have enough signal at the end. The idea of the quantum internet is to be able to distribute entanglement.

This entanglement is this resource from a quantum information point of view — it’s a resource that is a property of quantum objects which offers very strong correlation at a distance. And the idea is to be able to distribute between any points in a network of the quantum internet to distribute entanglement. Once you have entanglement, you can do many things. The first and obvious thing to do is to create encryption keys, symmetric keys. And so that will be the way to do a very secure long distance key distribution. But you can also use it to connect in a quantum way, quantum computers remotely. As you can imagine, probably, initially, we’ll have smaller quantum computers, and for some calculation we’ll need to build a cluster of quantum computers. That’s where the quantum internet will play a role: in connecting some smaller quantum processors into a bigger meta large quantum computer.

DS: What do you think about quantum memory?

GR: Quantum memory is one of the challenges. It’s one of the bricks or build technological building blocks that are missing. And the reason is that if you want to build the quantum internet, you’re going to get resources from two different points. And these are typically going to be photons. And they don’t get exactly at the same time in the routers, you know, they’re going to be routers, they’re known as quantum repeaters in quantum jargon.

But their role will be equivalent to the routers of the classical internet. Photons will not get at exactly the same time. And in order to build this entanglement we’ll need to store one photon for a little while until the second photon arrives. For that we need these memories. That’s one of the hot areas of research right now.

DS: Yeah, it’s a problem not only for repeaters but also for photon-based quantum computers.

Why did you decide to start a company? What was your motivation?

GR: You know, lack of other options could be one answer. I finished my PhD at the university of Geneva in 2000. We had this cool technology. People were interested about QKD but also random number generation. So I was interested in this, and there were no other companies to go to. So that’s why we decided to start the company, I guess.

DS: What was the first product IDQ made, and why?

GR: So, I think the first product was a quantum random number generators which, I believe, we sold to HPlabs at the time HP had labs in Bristol. They were our first customers when we delivered our product. Now we got an order from the university in the US for a product that we had not developed — the single photon detector before the product existed and before the company existed. Kind of put together a spec sheet, sent it to them and a couple of days later I got a fax with the purchase order and I said ok, now we need to start a company, we have no choice.

DS: How have investors been able to help the company?

GR: Not all investors are always completely useful but some of them have a huge impact. First, experience helping with problems when entrepreneurs face critical questions and don’t know how to handle certain situations. Second is opening doors, making contacts, meeting with people that can be customers, partners and save a lot of time. When you are an entrepreneur, you are running, you have to move fast and sometimes opening these doors is what takes you a lot of time.

DS: When you were asked to sell SK Telecom, why did you accept an offer?

GR: I think, because I was the right partner, the right investor. As an entrepreneur you know that companies are a little bit like a child and you are so emotional about the company, so you want to be sure that investors that you picked share the same vision. SK Telecom had an activity in quantum technologies — they had a lab — so they understood the importance and they were very smart and very sophisticated in their understanding of quantum technologies. At the same time they valued what IDQ had done right which was early a revenue generation.

I think one of our skills is to key the technologies very quickly, turn it into a product and revenue validations from the market. They saw that this combination — of financial power, market access, market power — and the agility of two small companies together would make a lot of sense. That’s what convinced me to go ahead with this company. I should also say that I knew people there — had known them for six-seven years, so the trust element already existed.

DS: What targets do you set for your team for the next five years?

GR: We typically have annual targets and a long-term vision. In general, we are on a very aggressive growth path. This year, for example, 40% is our goal and we’ve already achieved it — that’s one of the key targets. Another target is to find a way to make quantum technologies more competitive. I think it is very important because there are some customers we cannot address now with a current approach. That’s one of the targets for the next 5 years. Then, if you look in a longer term the target of IDQ is to be the company that is building the quantum internet.

DS: I wish you all the best in achieving your targets. Thank you for this conversation. See you soon!

Future of Quantum technologies was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Over the recent years, there has been a growing interest in unmanned aerial taxis and cargo drones. Here at Phystech Ventures, we have been observing this segment for more than 4 years. We publish a 2021 industry report, where we share our observations and present an analyst review of the air taxi and cargo VTOL market. Our insights are based on open sources, so we understand that the actual figures may be somewhat different.

Underdeveloped tech, overblown valuations

Our report reveals a disparity in the quickly developing air taxi industry, where valuations have run too far ahead of the actual maturity of the underlying tech. Between the beginning of 2020 and now, various funds have invested over $5B in the sector. This is more than 10x the amount invested during the entire decade before that (2009–2019) — nothing short of an explosion.

Key Takeaways:

• In 2020 and 2021, $5 billion has been invested in air taxi and cargo drones, $4.6b of which were raised by six companies from the US and EU: Joby Aviation, Lilium, Paragon, Archer Aviation, Beta Technologies, and Volocopter.

By cargo drones we mean a vertical takeoff and landing (VTOL) aircraft that can carry 20+kg payload

• Today there are 129 companies developing air taxi or cargo VTOL, of which only 13 companies are currently selling final products. Out of those, ten companies are working on cargo-only aircraft, while the other three companies, Beta Technologies, Volocopter, and Ehang, are developing both passenger and cargo versions.

• All emission targets notwithstanding, current batteries do not offer sufficient power density and cannot provide long flight ranges and times. Of the 169 identified VTOL projects, 35% employ internal combustion engine (ICE) or hybrid technology. Only three companies offer pure battery electric vehicles today, with the rest supplying conventionally driven VTOLs.

• Zero-emission technology meets practicality in the 13% of the electric VTOL designs that use hydrogen fuel cells, a promising technology in terms of both power density and temperature envelope.
• Today, 6 VTOL companies are valued more than $1b. All VTOL unicorns appeared during the last 2 years: Joby Aviation (U.S.) Lilium (Germany) Archer Aviation (U.S.) Beta Technologies (U.S.) EHang (China), Volocopter (Germany). Together they account for 72% of all sector investments. All of the companies on the list make all-electric VTOLs. On average it takes 7.5 years and $450m of investment to achieve unicorn status.

Our forecast

Over the last 5 years, an average of about 12 new heavy payload VTOL companies have appeared, annually. There are several reasons for this modest figure, including the long development cycle of VTOL vehicles, their high capital intensity, the limitations of current power systems, and regulatory uncertainty, which all create additional risks for investment in the industry.

Of the 13 companies currently selling aircraft, only Ehang ships the electric version today, with the rest supplying VTOL using ICE or hybrid engines. Based on our analysis of the current power density of electric systems, we don’t expect logistics VTOLs to be fully electric. Instead, it is likely that ICE or hybrid versions will dominate the market over the next several years.

In the next 5 years, we predict that there will be a mass deployment of drones for cargo delivery. It is likely that heavy payload UAVs are going to replace helicopters in a wide number of use cases, since they are both 5–10x cheaper, and do not risk the lives of pilots. As a result, we predict that VTOL aircraft will be used to deliver cargo to densely populated areas, over rivers, water, and to other hard-to-reach places where ground transport cannot easily be used. Rotorcraft and Lift & Cruise design types are the most efficient VTOL aircraft today, in terms of energy consumption. We consequently expect these design types to dominate in logistical use cases. In addition, the temperature limitations of batteries make ICE VTOLs practically the only option in cold climates.

Comparatively, air taxis are forecasted to commence mass operation in 5–10 years. This is because not all engineering problems have yet been solved, including outstanding aerodynamic and safety issues. Air taxis will push their batteries to the max, limit the range of their routes, and wait for more energy-efficient batteries and for hydrogen fuel cells to enter the market before passenger applications can occur on a wide scale. The safe deployment of passenger VTOLs will also require long and thorough testing procedures, as well as further certification of the vehicles. Additionally, a certification system for passenger VTOLs will need to be formed in parallel with their development, and VTOL urban mobility control systems will also need to be implemented. For urban mobility, the Vectored Thrust and multicopter VTOL types are currently the most ideal designs, due to their sound properties, safety, and compact size.

The report and industry expert’s quotes could be found by the link.

Cargo drones and air taxi — Industry report 2021 was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Over the last 12 months, I have spoken to around 600 companies, and I can’t think of a single presentation I’ve seen where HR personnel were mentioned alongside other team members. This strongly suggests that most current founders do not view HR as playing a critical role in their team’s success.

When discussing with seed / series A stage startup CEOs about their ideal executive management structure, it is also rare to hear the role of HR Director (HRD) brought up. Moreover, the CEOs who are aware of the need for a HRD, or who have already hired one, usually only make reference to recruitment as their sole function. Corporations tend to use the “HR Business Partner” position on their organigrams, but for the purposes of simplicity, I will use the term HR Director in this article going forward, which I think is more appropriate for the organigram of a startup.

In view of this, I decided to look into whether a startup really needs an HRD, and if so, for what purposes. While writing this post, I incorporated the views of startup founders and CEOs, HR directors from startups, and colleagues from Venture Capital, prior to making any conclusions.

This post aims to provide a complete picture of the requisite skills and knowledge of an HRD. I subsequently hope it will help startups to understand the need to hire an HRD in general, as well as for the candidate selection process.

As I wrote in my previous post, at the earliest stages of a startup, founders often will play more than 2 roles in the team at any given time. However, the faster the startup is growing, the more likely an overburdened founder can negatively impact the speed and maintenance of the company’s growth rate. In my experience, I most often see founders focusing on product or sales, while also being responsible for other roles like HR, marketing, operations management, and international development at the same time.

Usually, founders are professionals in their core area of responsibility, for example, in sales or product creation. However, they often lead other functions based on their intuition/experience, and may also not have enough time to oversee the competency properly, which can weaken the company. This can happen for a variety of reasons. First, there can be no guarantee that the founder’s experience. Second, founders often lack the specific skills to effectively perform other managerial roles. Hiring an HRD is not just about getting someone who can fulfill their responsibilities, but employing doing so will also allow companies to more easily find quality candidates for other roles in the company.

Of course, one of the main functions of an HRD is to search for and hire employees, but it is fortunately not the only one. Many startups, however, outsource this function to recruiting agencies. Often, the founders and the startup’s management will also look for personnel through their own networks for candidates. And while it is true that highly strong personnel can sometimes be hired this way, it is impossible to cover all the needs of a growing company through a network, no matter how well connected you are.

Usually, the idea of hiring an HRD comes to a startup at the round B/C stage, because this is when a greater number of issues start to arise in relation to HR. An array of problems and hiring tasks push business owners to look for an inhouse HRD. However, I strongly believe in the effectiveness of hiring HRDs as soon as startups have attracted seed round investors. Even if you are the founder of a Deep Tech company and sales are not yet close, the HRD can at least provide qualitative benefits in the formation of the R&D team, its motivation, a greater control of the “pulse and pressure” in the team, competent onboarding of new team members, and internal communications. If a company is at the stage of sales growth and going through a phase of scaling operations, the need for a HRD is even more pronounced.

The HRD is a full-fledged business partner of the company’s CEO. He or she deeply understands the company, the business, and the situation in the product market. They are also able to offer insight into HR strategy, help companies with opening a foreign office, and have a sense when changes in the top management team are needed. A good HRD ensures explosive growth of the company, without a reduction of quality in their services, or a deterioration of operational management. The HRD is the person that can confidentially discuss the performance of each top-manager with the CEO, identify problems in the management, and develop individual motivation and development plans jointly with the CEO. A further discussion of the key areas an HRD can help a company with are detailed in the following section on this post.

Balance of roles in the team

A startup has a number of key competencies or areas of responsibility it must account for to be successful, namely strategy, operations, product, sales, marketing, and HR.

Depending on the maturity of the company, one manager, the CEO for example, may be responsible for a number of these functions at once. If the number of competencies overseen by one individual is more than 2 or 3, it can affect the quality of management or the performance of these functions during the growth of the company.

First-time founders can find managing this balance particularly difficult, as it becomes overly challenging for them to prioritize tasks. With time management for founders containing a high amount of float, emotional burnout and physical fatigue periodically set in, which can reduce drive and, as a consequence, affect the morale of the entire team. This can subsequently pose a significant threat to the company’s growth rate. Investors and the Board of Directors may insist on speeding up development, thus creating further conflicts, and exacerbating these issues. I have modeled one of the situations which can be generic. The imbalance of roles and responsibilities is one of the reasons why a startup’s growth rate slows down, and the HRD’s task is to prevent this scenario from happening.

Hiring plan

The HRD is a full-fledged top-manager of the company they work for, as he or she is aware of both its financial indicators and strategic goals. His or her task is to provide support for development plans through timely hiring from the external market, facilitating the career growth of talented internal employees, the formation of a talent pool, and reducing the company’s number of employees who are either underachieving or not a fit with the startup’s specific corporate culture.

Talent pool

The HRD is intimately aware of the company’s plan, and in view of this, should proactively shape the company’s talent pool in the external labor market. This should include the creation of new positions in top and middle management, the establishment of mass line positions, the advertisement of promising new vacancies in the company, and the anticipation of upcoming changes in the company’s management. HRDs possess a network of reliable contacts at top-executive search agencies and recruiting companies on different continents. The HRD most often has his or her own experience of personnel search, is active on LinkedIn, knows how to use his / her network of contacts, and understands how to correctly use networks of colleagues, top-managers, board members and even shareholders of the company for the purposes of personnel search and talent pool formation.

Personal motivation of key employees

An HRD who understands people’s motivating factors is able to tell management the right keys to ensuring high performance from their personnel. Let’s call this the principle of inflamed eyes, as one of my BCG alumni friends says. Each employee has several key personal drivers. One of these is driven by goal achievement, another by teamwork, and others are driven by power, fairness, independence, security, or other factors. It is important for HRDs to understand the top 3 drivers of the company’s employees, or at the very least, the team of employees which has the highest impact factor in the company. This is because doing so will equip their managers with the requisite knowledge to select, together with the HRD, appropriate motivation tools for their workers, as well as enable management to monitor the level of employee engagement. You can find more details in this post.

Motivation system

On the basis of the goals agreed at a shareholders’ meeting or by the BoD, companies should necessarily build an internal system of staff motivation. This is a structure of Objectives and Key Results (OKRs) (or KPIs), distributed across employees and/or departments, tied to Employee Stock Ownership Plans (ESOPs)), material bonuses or, less frequently, intangible rewards. The good thing about a startup is that there is a direct correlation between risk and return, even for its employees. The first employees of a startup who find themselves in a situation of high uncertainty (in all senses) for the company can get the most options, and as a result, earn very well on a takeover or IPO.

An effective motivation system should also take into account the individual motivational track of key employees.

Control the level of motivation of top management and key personnel

The HRD should record signals of employee demotivation. These signals can include an increase in conflicts involving the employee, a higher amount of complaints, a decrease in performance, and a decrease in hours of work. In the crisis moments of a company, the majority of employees can be subject to a decrease in motivation. As a consequence, it is at this time when it is necessary to mobilize all forces in overcoming the crisis. The HRD’s task is to communicate any signals of employee demotivation to either the top management group or the immediate superior of the demotivated employee. Regular one-to-one conversations are a particularly effective tool in this scenario, as they help to establish a frank conversation with the employee, to extinguish the employee’s emotional crisis, and to form a set of steps to improve the situation.

Building a corporate culture

Building a corporate culture is often not among the top priorities of the founders at the seed and round A stages of development. However, it is worth noting that the quality of corporate culture affects a company’s staff turnover, the attractiveness of the company to talented applicants, and the company’s overall image on the labor market. In response to this, corporations have developed the ENPS or employee Net Promoter Score, an index of employee loyalty, which allows them to assess their personnel’s satisfaction with the company, and effectively understand whether employees would likely recommend the company to their friends and peers or not.

Corporate culture is a humanitarian concept that has to do with the extent to which the goals and values set in the company are shared by employees, and whether these goals and values effectively motivate them. For an example, look at Netflix and their approach.

Corporate culture begins to have a significant impact on businesses when they reach 20–30+ employees. This is the moment when it starts becoming difficult for the CEO to effectively oversee the whole team. When the number of employees exceeds 50, culture begins to play a highly significant role in the growth of the company.

A positive corporate culture can provide a company with the following:

• A decrease in sales churn rate;
• A reduction in employee turnover;
• The creation of a strong employer brand;
• The development of an entrepreneurial atmosphere in the team, as well as the emergence of fresh business ideas and new points of growth for the company;
• A foundation for scaling your company.

Guide to building culture: Builtin

Mashable provides an interesting article on the importance of corporate culture to startups.

Global development

The HRD is directly involved in the building of a team for a new branch. The head of the new office should necessarily be strong and trustworthy employee. As a result, the task of leading a new branch is usually a kind of promotion, as it involves a substantial increase in responsibility. The CEO, in conjunction with the HRD, decides on the candidate, considering the fit of the new role with the employee’s specific type of motivation. Usually, people with a goal motivation will do well, while staff who are primarily driven by independence or security are less likely to be effective leaders of the new branch.

An important factor in the development of a startup is global growth. Opening branches or representative offices in new countries requires the HRD to have knowledge and experience in cross-cultural communications; though the HRD should also know that assistance will be needed in finding, hiring, and adapting personnel with a different cultural code.

When considering this point, I think it’s relevant to point out that failed global development is one of the top 20 reasons why startups fail, according to CB Insights.

Onboarding staff

In a startup, staff onboarding is usually handled by the immediate supervisor, who may urgently need fresh heads and hands. The HRD must consequently establish a more consistent process of onboarding. The HRD should advocate for the utilization of the company’s knowledge base, which he or she can help create tools for rapid learning with, as well as help facilitate its company-wide adoption. An effective supporting tool used in onboarding is the allocation of a Buddy (permanent or temporary) to employees, who is either a more experienced employee or a top manager.

Psychological help for the team

It is obviously great news if the HRD you hire is qualified as a psychologist or coach, but of course this is not the most important thing in this respect. Instead, a high level of empathy and trust on the part of the company’s employees is necessary. Working in a startup means often operating in an environment of high uncertainty, as well as being in a constant race for growth rates, investments, and clients, while also facing continuous competitive struggle. Breakdowns and emotional burnout (also one of the top 20 reasons why startups fail) are therefore not uncommon in these circumstances. If you’ve watched the Billions TV series, you can imagine Andy Rhodes’ daily routine. HRDs consequently must take on a high psychological load, and have to be prepared to handle this.

Conflict Arbitration

It is rare to find a startup without some degree of conflict among the founders. This is another one of the main reasons for early-stage startups to fail. Conflicts among employees are fairly common, in general. The subsequent task of the HRD is to act as a third party in conflicts in a timely manner, and to prohibit any conflicts from spoiling the atmosphere in the team, affecting company results, or irrevocably damaging the company.

Organizational structure

A two-tiered structure is usually the most logical and feasible option for a company at the seed stage. Using a flat organization allows employees to make decisions based on their knowledge, experience, and the strength of their ideas, rather than their hierarchical position. Maximum flexibility is required at the seed stage, so the fact that this organizational structure facilitates this is largely beneficial to startups.

An org chart with a formal structure should be implemented when a startup becomes a company of 20–30+ people. Often, the CEO is late in adopting the new structure, and this is where the HRD can help the startup by initiating this change. The increase in headcount is indicative of the expansion of the business. The founders or the CEO can’t effectively complete all of the work or manage all the staff, both because of the limits of their specialization and their energy. In addition, they must also maintain sufficient focus on other factors, such as strategy, company development, or fundraising. In view of these challenges, a three-level organizational structure is depicted below. I note that for many startups, a matrix structure, based on the principle of dual reporting to executives, may be relevant.

Employee development

The experience, knowledge, loyalty, and dedication of the first employees of a startup are so important that it is worth investing in training them, even if their competencies lag critically behind the level of new positions being created. Establishing a proper system of employee development is therefore an important task for startups, despite the fact that the CEO or founders often do not take a hands-on approach to it. This consequently falls directly under the HRD’s remit of activity. The audit of employees’ competencies begins with gathering information from managers, and defining a set of competencies and knowledge that current and future positions in the company must have.

During this process, it is also useful to collect feedback directly from employees, as many of them will understand themselves what competencies they should concentrate on in terms of professional development. Based on the data collected, the HRD can form individual development plans for management and employees alike.

Employer brand

A startup’s employer brand is the company’s reputation as an employer. Simply put, it’s what applicants and employees think of you. The employer brand may not be tangible, but it is nevertheless an asset that needs constant attention and development.

This is because startups are in constant competition with other corporations for the most talented employees. It is therefore the task of the CEO and HRD to create company value for job seekers. The following statistics demonstrate the importance of a strong employer brand in respect to this.

• Glassdoor research shows that 95% of candidates consider company reputation to be a key factor in choosing a job.
• LinkedIn survey results found that 66% of candidates learn about a company’s culture and values first if they are offered a new career opportunity with that organization.
• CR Magazine research shows that 69% of job seekers are not willing to accept an offer when they are aware the company has a negative employer brand.

At the early stages of a project, a startup’s PR can also act as a company’s employer brand. The HRD’s task is thus to adjust company PR based on employer brand objectives, and offer specialized tools related to this. A useful guide to employer brand can be found here with a list of tools.

Internal communications

Internal Communications (IC) are the eyes, ears and voice of the organization. In essence, it is the connection of all of the above initiatives and actions, though its full scope extends far beyond this. Broadly, IC refers to the quality and clarity of interactions between employees in different departments and the company’s management. In building internal communications, the HRD is responsible for making sure that employees receive the right information, that the organization is sufficiently transparent, and that employees are properly engaged. I would like to particularly address the following aspects related to IC in further detail:

· Internal and executive communications plan: Internal and official messages conveying the vision and positioning of the company, including presentations, announcements, and blogs, which will be transmitted through various communication channels. These are generally used to communicate new policies and internal company rules to employees.

· The development of internal communication channels and tools, such as email, messengers, online & offline meetings, etc. The internal communication tools of companies can include meetings, presentations, lunch & learn sessions, offsite events, random coffee meetings, magazine clubs, and corporate sports events, among other things.

· Collecting feedback from employees on strategy and operational interaction can help the HRD further determine how to better streamline IC within the company.

· Ongoing consultations of top management on the style of communications and the style of employee treatment should be encouraged. As the company grows, the importance of building internal communications grows correspondingly. It is therefore important that the topic is reviewed frequently with key management personnel.

To summarize, it is clear from the above considerations that the HRD can have a substantial impact on the running of a startup, even from an early stage. But how, then, should the founders or CEO of a startup motivate the HRD? The role of HRD is crucial to a company’s success and his / her motivation should be exclusively long-term, at least until the company is sold. It is consequently reasonable to include HRDs in the ESOP, because his or her work directly affects the capitalization of the startup. This will enable and encourage the HRD to achieve significant long-term results.

As a venture capitalist, startups often ask me what help we can offer besides investment. I therefore hope that this article can give founders and CEOs a deeper understanding of what we can offer, and how this support is provided.

I’m sure the more experienced VCs will definitely have something to add to this list. However, less experienced VCs may gain some additional insight from hearing an inside-out account of effective portfolio management

From my experience, it is true that first-time founders, or founders who have not previously raised venture capital, benefit more from getting VCs on board than others.

The more I invest, the more I am convinced that the founding team and further HR strategy have the greatest impact on the ultimate success of the company. The next section of this article elaborates on what factors I’ve found to be most indicative of a company’s success.

Human relations. During the due diligence (DD) stage, we conduct an audit of the startup team. Regardless of whether the startup is involved in deep tech / hardware, IT, or a different branch of technology, we seek to identify key areas of responsibility in each company we work with. These are Strategy, Operations, Product(s), Sales, Marketing, and HR. Depending on what development stage the company is at, one person can be responsible for a number of competencies in the company. However, if an individual is in charge of more than 3, it usually causes problems. As the company grows, these problems can snowball quickly.

Our task as a VC is to build an HR Map of the company, to identify and notify the founder of weaknesses in the startup’s HR policy and, in future, to assist the company in recruiting strong, experienced managers, in specific areas of expertise. We have an HR function in the fund for this exact purpose, which can also help create a system of motivation within the entire team.

Industry insights. Since we invest in technology companies, one of our core principles is to always carry out proper due diligence of the technology itself. DD results usually include industry insights, potential clients’ and experts’ contact details, and market reports, as well as other analyses. We share this information with companies after the investment is made.

Additionally, our DD is updated at every follow-on round. We use this to monitor a number of industries, and to keep our portfolio companies informed of any discoveries and insights we make.

Advisory Board. We systematically develop our networks in a dedicated number of industries, which enables us to identify high-quality experts for both DD and portfolio management. This is a crucial element of the support we offer, since one of the most important tasks of an early-stage company is to establish the Advisory Board (AB). The AB is not about photos and short bios for the investment deck. Instead, an effective AB constitutes a group of experienced and motivated people ready to share their expertise with the founder, to reduce mistakes, and expedite the company’s growth. As a result, we have helped to create to create ABs for several of our portfolio companies.

Board of Directors. A slightly less scalable, though equally important aspect of a startup is the Board of Directors (BoD). In his article, Baz Banai gives a comprehensive and detailed view of BoD dynamics and targets. If we enter a company as its first institutional investor, we help them establish a working ( helpful) BoD, and arrange corresponding processes. We always strive to strengthen the BoD with external experts, and further encourage the inclusion of independent directors with strong industrial competencies. This can provide startups with a valuable source of unbiased expertise.

Founder’s skill set. In the course of working with and getting to know a founder, I will always note their specific strengths and weakness. My job is to provide honest feedback, and offer assistance in strengthening the founder’s skill set. We have a pool of proven professionals who can help with this, including mentors, coaches, advisors, and trainers, all of whom are ready and eager to assist. This is especially beneficial for tech founders (“hackers”).

We also promote a knowledge sharing practice that includes providing our portfolio companies with a useful, detailed list of information. This can comprise of legal templates, playbooks, relevant pieces of content written by experts, training materials, and any other relevant documents that we deem useful to the company.

One of our most popular areas of assistance is advice on entering new geographical markets. The MENA region is an effective example of how we can aid companies in this respect. Our Dubai office is responsible for industrial, energy and robotics collaborations, and works with the majority of the region’s countries, including Oman, Saudi Arabia, Bahrain, Egypt, and others. Consequently, our team members can help facilitate communications between industry and investment groups, and give guidance on cross-cultural communications and business practices in the region’s countries.

As a result of economic and cultural differences between countries, entering a new geographical market in most instances requires adjustments to a number of strategies. If the founders find it useful, we will also join discussions on this topic through strategic reviews or brain storming sessions. Most often, we get involved on the following issues:

HR strategy. Expansion into a new region is usually not possible without a minimal local team or, in the case of online businesses, a team with knowledge of the specifics of doing business in the region, and who have an appropriate network. Based on the region’s specifics, we help companies determine the minimum team composition required, as well as the budget and headhunting plan.

Product and operations strategy. Regional industry specifics, as well as climatic and environmental conditions, can significantly influence product features. Moreover, consumer habits can also be reflective of the cultural and religious practices of a particular country, or even a province.

Sales & Marketing strategy. Additionally, we can help with the testing of marketing models, by studying the effectiveness of funnels and different marketing channels. We also audit end-to-end analytics, and can even set up analytics for companies on their behalf, if they have not yet done so themselves. Effective marketing analytics can analyse cohorts in terms of engagement channels, geographies, and assess how marketing efforts are impacting key performance indicators, such as LTV, conversions, ROI, Retention Rate, CAC, etc.

Less frequently, we may also be involved in the development of our portfolio companies’ PR, IP, and legal strategies.

Accelerators. We assist companies with getting into the most effective accelerators across the world. From my experience, acceleration has proven to be a valuable tool for entering new markets, and can also have a positive impact on the founder’s “business” mindset. Moreover, accelerators also enable founders to begin developing a wider understanding of the specifics and dynamics of the fundraising process.

Fundraising strategy. The majority of founders, particularly first-time ones, only have a modest understanding of the particulars of the fundraising and investment process. This is even true of experienced, former senior managers of multinational corporations. As a result, advice on this is one of the most common requests from founders at the early stage. As experts in this area, we are happy to be involved in fundraising strategy development. A key aspect of creating a sound fundraising strategy is establishing a clear and solid plan. Specifically, founders should consider when to pursue fundraising, for what purpose they will use it, and how much investment they will need to raise. Tactics and methods are also strongly connected with the founder’s mindset and soft skills. Tools like investment decks, pitches, and financial model optimization are also important, and we can assist here in evaluating these components of a fundraising strategy.

Non-dilutive funding. We can also assist early stage startups with raising R&D grants, though this is primarily for deep tech companies. In the last 4 years, I can clearly recall at least 10 cases alone where we assisted in this manner. However, we receive more requests today for support in obtaining credit lines, to establish and scale up production facilities or large service hubs for hardware companies.

Production facilities advice. While this is far from a common competency for VCs, oddly enough, we have been directly involved in the creation of five hardware productions with our portfolio companies over the last 5 years. Because of this, we have accumulated significant in-house experience in this area, and are able to provide guidance on a number of issues:

• Organisational chart and team composition
• Production processes and quality control
• HSE and tech regulations

Network. Please don’t think I’ve forgotten about network development — I’ve just decided to leave the most obvious, but no less important part, for the final section of this article. I particularly like the statement “Venture capitalists tend to be networking machines” — from my experience, it’s largely true.
Our thoughts and actions are largely focused on establishing lucrative business relationships of our portfolio companies through introductions to:

• prospective customers
• thought leaders and industry experts
• potential new talent
• legal advisory, law, accounting and audit firms
• other VCs (who might partake in future funding rounds)

Communities. One specific form of networking and business collaboration we engage in is the creation of micro-communities. We establish these by bringing together representatives of portfolio companies and industry experts in a single communication channel.

Exit strategy. We can also guide founders of when and how to execute their exit strategy. Our support in this respect includes introductions to corporate development people, IB firms, and strategic advice, as conversations progress. Guidance in this area can also cover deal terms, pricing, and value capture in an earn-out deal, among other things.

Last, but not least — we invest money. In addition, we are happy to invite our limited partners (LPs), value-adding VCs, or angel investors into further investment rounds we participate in.

Instead of a conclusion. Since we do not profess a spray and pray strategy, but rather make point-by-point, thoughtful investment decisions, we do not invest in a large number of companies. Usually we do 4–8 deals per year, which allows us to allocate significant time and resources to delivering the above set of services for our portfolio companies.

PS. Hands off. The fundamental principle is not to do business instead of management. On the basis of this principle, we believe only recommendations, advice, consultancy and intros should be provided. This is because the development and accumulation of experienced individuals and key competencies is crucial to a company’s value creation.

VC Support is Best when it’s Hands-Off, Right ? was originally published in Phystech Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.