Palmerston North’s Novolabs is moving from start-up into growth mode as revenue flows in for its patented ultraviolet water purification systems.
The company aims to disrupt and infiltrate a global UV market estimated at $8 billion a year.
New Zealand’s Royal Society has taken note and, on October 29, awarded Novolabs’ founder and chief technology officer, Andy Shilton, its Tahunui-a-Rangi Innovation Medal.
According to Shilton, wherever Novolabs has installed its units, it has saved the client at least a million dollars. The company has exported its systems to Australia, Europe and the Americas.
“We’ve done an installation in Australia where the payback was, I think, 12 weeks.”
There was little point in going to market with a product from NZ that was only 10% or 20% cheaper.
“We have to turn up with these massively improved value propositions,” he said.
“We do a lot of piloting. We put things out on people’s sites and say, ‘Take it for a test drive, run it on your liquid, do the analysis yourself’.”
Venture capital backing
In 2024, Climate Venture Capital Fund invested $1 million for a 7% stake in the company.
This year its Fund II led a follow-on investment, doubling down on Fund I’s original position.
Meanwhile, shareholder Massey Ventures has progressively reduced its shareholding in the company between January and April this year, mainly selling to Shilton and his wife and to Climate VC Fund II.
According to NZ Companies Office records, Massey Ventures now has a 14.7% stake in Novolabs post-transactions.
Shilton said Massey Ventures wasn’t in the business of long-term ownership. It preferred to get spinout companies up and running and then reinvest in new ones.
Basing the business on a base unit model
Novolabs’ business plan is to replace multiple water disinfectant systems for different applications with one base model that can be combined and configured into large arrays as needed.
“It’s very much like the IT industry. They don’t build a big supercomputer for Google. They just build servers, and they rack and stack it, and they’ll fill a whole warehouse with it.”
Although Novolabs is pushing for growth, it isn’t yet rushing to raise more capital.
It is already earning revenue, it has bought out its early-stage investor and has a decent amount of money from Climate VC’s latest investment.
“There’ll be some stage where production really starts to ramp, and that’s where a Series B [raise] would come in,” Shilton said.
A (UV) lightbulb moment
Ultraviolet light is a well-established disinfectant method for liquids, but it barely penetrates beyond the surface, or through cloudy liquid.
Novolabs’ system applies UV to water spread into a very fast flow just millimetres thick, where it can reach every drop.
Shilton came up with the idea while teaching at Massey University, where he established NZ’s first environmental engineering degree in 1994.
The day’s topic was the difference between subcritical and supercritical water states under flow.
A slow and steady river flow is subcritical, but if it goes over a dam spillway, it can become supercritical.
“That’s when I thought, ‘Hang on, I’m still getting that high throughput, but now if it’s very thin, everything’s going to get an exponentially higher dose of the light.’
“I thought that could work really well, and that’s where the journey started.”
After years of work on the idea, Novolabs was spun out of the university in 2021.
The technology has applications in municipal wastewater, dairy effluent, and food and meat processing.
A recent sale was to Colombia.
“Colombia is actually a lot like New Zealand. It’s got a lot of rural communities, a lot of meat processing and industry. We sort of stumbled on to that one.”
It has also just completed a pilot project with Taswater in Tasmania where it massively reduced counts of E. coli in water.
Scaling up production
Last year Novolabs received a $2.8m loan from the Regional Infrastructure Fund towards a $5.6m project to scale up its production facilities and increase the pre-production and inventory of UV units.
“It’s turned us from a bespoke tailor into a proper production facility.”
Shilton said Novolabs ticked quite a few boxes for the regional fund.
The company was based in the Manawatū, was a deep tech company and was creating good jobs.
One Novolabs employee went from a supermarket job to on-site equipment servicing.
“He’s done three-dimensional modelling on computers and rapid prototyping of these little parts and components he’s developed, which are actually now on our commercial models.”
Another aspect is that between about 60% and 70% of Novolabs’ construction costs are subcontracted to other companies.
Shilton described Novolabs’ in-house manufacturing as more of an assembly and quality testing process.
“If somebody else is really good at welding stainless steel, we’re not going to hire a stainless-steel welder. We’ll just give it to them to do.
“We’re using people all across New Zealand in that regard.”
No, you can’t have a patent
When Shilton was at intermediate school, a teacher told his parents he would never pass his School Certificate exams, the Fifth Form/Year 11 rite of passage for generations of New Zealanders.
His palaeontologist mother just told him to carry on. In all likelihood, Shilton was a bright but just very bored pupil.
When Shilton later expressed a hankering to train as a mechanic, mum steered him towards studying engineering.
Despite a long and distinguished career in engineering design and academia, he still can’t fix the clutch in a Holden.
An early problem Shilton faced was getting a patent, or at least convincing a patent lawyer his idea was patentable. The first answer was no.
They got a second opinion.
Since then, Novolabs has patented its IP in 29 countries, or more than 70% of the world’s economy.
“It’s been through rigorous exams in the United States, Canada and Australia and all over the world and it’s passed with flying colours.”
It goes back to the Shilton’s youthful School Cert prospects.
“There are too many times I hear where people get told stuff, and it’s not like teachers were being mean or anything; it’s generally what they thought.
“But the impact on people can just turn them off. “
Shilton said the company was reinvesting plenty of funds into R&D design to refine its technology and develop multiple products from it.
“I didn’t come into this to make money.
“I’m an engineer. I just want to deliver technology, and this one is just the best technology I’ve worked on in my entire career.”