Avadain

Avadain is raising at a $27 million valuation. As always, our No. 1 focus as investors should be to determine whether an investment in this round can return at least 10x. To better understand this in the case of Avadain, let’s look at the fees Avadain will begin charging licensees this year.

The company requires an upfront payment of $1.25 million from each licensee, plus a 10% royalty on any graphene sold by these manufacturers. Avadain projects that each production line will produce around $200 million per year of graphene flakes. At a 10% royalty, this is $20 million in yearly royalty revenue per production line. 

You can see that with just a few customers, Avadain’s revenues could skyrocket very quickly. I firmly believe that this is a great entry point to invest in Avadain. (I personally invested in this round as well.) 

2022 has been called the “inflection year” for graphene. It is estimated that in every week of 2022, a new low-quality graphene enhanced product was brought to market. The need for high-quality graphene flakes currently stands around $1 billion, but that will increase to $50 billion within the next five to seven years. Avadain is the only (current) manufacturer of large high-quality graphene flakes, and this first-mover advantage should prove enormously valuable as the company begins to bring on new licensees in different industries. According to industry trade group The Graphene Council, graphene can disrupt more than 45 industries and thousands of products. 

Avadain’s team has immense experience bringing disruptive technologies to market. CEO Brad Larschan, whom we have spoken with numerous times, has been developing and patenting Avadain’s proprietary graphene manufacturing process since 2016 and is finally on the precipice of bringing it to market. While Brad doesn’t have direct experience in nanotechnologies, he has enlisted the help of Dr. William Grieco. As a nanotechnology expert with a PhD in chemical engineering from MIT, Dr. Grieco is particularly suited to advise Avadain on bringing its high-quality graphene flakes to market. Avadain’s other two co-founders have extensive experience in commercializing disruptive technologies and helping other startups grow. 

After having conversations with the Avadain team, I strongly believe that the company has a solid team in place to bring this technology to market and eventually bring the company to an exit.

Avadain is the only company with the manufacturing technology to produce industrial quantities of large, thin, and nearly defect-free graphene flakes. Avadain’s differentiation is its global patent portfolio and its first-mover advantage. The company has patents granted in 12 countries and pending in 17. This will ensure that Avadain will have protection worldwide once its products finally hit the market. 

Given that Avadain is pre-revenue, investors must look at other performance metrics when evaluating the company. 

For starters, the company has received more than $7.9 million in both dilutive and non-dilutive funding. $3.77 million of this was from the U.S. Department of Commerce and has been successfully used to scale Avadain’s manufacturing process and prepare it for commercialization. 

Avadain has continuously received requests from manufacturers wanting to sample Avadain’s graphene. The company is in advanced talks with about a dozen companies and is confident that at least half of those companies should eventually close. 

Avadain is projecting at least $1.25 million in upfront licensing revenue in 2023 and foresees securing additional government grants in the future as well. 

This is an extremely capital intensive space. To put it in perspective, it will cost a manufacturer between $20 million and $25 million to build a plant implementing Avadain’s production line. Because of this, the sales cycle for new clients will be considerably long — likely upward of a year. Even though Avadain predicts it will get its first licensee by the end of this year, there is no way of knowing exactly how long it will take. However, once this happens, I believe that many other manufacturing companies and government agencies will adopt Avadain’s core technology (the dominoes will fall, if you will). 

Additionally, there is no way of knowing what other issues may arise leading up to commercialization. Given how capital intensive this industry is, any major problems will be very costly. I don’t see this happening to Avadain, but it is always a risk investors should keep in mind.

Avadain represents a truly once-in-a-lifetime type of investment opportunity. The properties of graphene are so spectacular and use cases so far-reaching that investors could be looking at a return of significantly more than 10x. All signs signal that the company will be able to pull this off and grow at a massive clip in the next few years. Using a licensing model is brilliant and takes the risk off of Avadain’s hands. The government has taken notice of the importance of graphene and has put its money where its mouth is with non-dilutive grants. 

For a disruptive nanotechnology like Avadain, there are no true comparable transactions that we can turn to in order to get a sense of an exit multiple. But let’s take the very low end of the range: 5x revenue. If Avadain can get 10 licensees (which Avadain thinks is very conservative), that would equal $200 million in recurring revenue and instantly make Avadain a unicorn. 

This kind of upside is the epitome of why I love startup investing. And in the case of Avadain, I’d recommend taking advantage of it. 

Graphene — touted as the world’s next supermaterial — has the potential to completely revolutionize manufacturing across a wide variety of industries. The industry is gaining more traction as the years go on, and the demand for high-quality graphene will be extremely high in the near future. Avadain needs only a few customers in order for its revenue to absolutely skyrocket. Many parties are interested, and I believe it will be only a matter of time before Avadain becomes a $500 million-plus company. 

Report written by KingsCrowd Investment Analyst Teddy Lyons on April 14, 2023.