Solugen’s sweet spot in hydrogen peroxide
Compound’s use in hydraulic fracturing makes it a popular substance in Texas
Gaurab Chakrabarti was studying cancer cells in 2013 when he discovered a protein that turns sugar, water and oxygen into hydrogen peroxide — a surprisingly versatile (and lucrative) chemical.
His initial focus was understanding how cancer cells make hydrogen peroxide to mutate their DNA and survive attacks from the body’s immune system. But upon discovering the protein, Chakrabarti recognized the chemical’s positive uses. It prevents infection on a scraped knee, cleans up grease, helps etch printed circuit boards and kills bacteria on fruits and vegetables.
Its ability to clean wastewater from hydraulic fracturing could be the most popular use in Texas, a proposition that has helped Houston-based Solugen raise nearly $20 million from investors in Silicon Valley.
“What if you could use that water for other things?” Chakrabarti said.
Solugen creates hydrogen peroxide by placing natural materials — sugar, water, oxygen and a proprietary catalyst derived from the protein — into a reactor system. The system does not require the high pressure or intense heat typical of making the chemical compound.
And by building a portable reactor system that’s 23 feet tall and mounted on a semi-trailer truck, Solugen could help companies make hydrogen peroxide on their job sites. They would no longer pay to ship it across the country.
“If you look at the chemicals market, in a large nutshell, it’s really constrained by logistics and shipping,” he said.
Chakrabarti became interested in hydrogen peroxide while earning his Ph.D. in biochemistry and M.D. training in oncology at the University of Texas Southwestern Medical Center in Dallas. His friend and cofounder Sean Hunt was scrutinizing the more traditional method for making hydrogen peroxide while earning his Ph.D. in chemical engineering at the Massachusetts Institute of Technology.
Long-distance partners
They teamed up and started Solugen in early 2016. Still at school, Chakrabarti worked from his kitchen in Dallas and Hunt worked from his apartment in Cambridge.
The company became a full-time endeavor after graduation, and their first round of funding came in May 2016 when Solugen won $10,000 at an MIT business competition. That was enough money to lease a sliver of warehouse space in Dallas, buy PVC pipe from Home Depot and order used pumps from eBay. The first reactor system cost $7,000 to make.
Orders trickled in as the company pitched its product to semiconductor manufacturers. Then word got out among the float spas, where people get into pods filled with Epsom salts and water to float in silence and darkness. The spas use hydrogen peroxide to clean the water, and Solugen was quickly overwhelmed with orders.
“We literally slept on the floor of the warehouse because we had to operate this thing continuously,” Chakrabarti said.
But those spas turned the company’s initial $10,000 investment into monthly revenue of $12,000 to $14,000. It also helped Solugen get accepted into the Y Combinator accelerator program in Silicon Valley, where Chakrabarti and Hunt spent the first three months of 2017.
“Y Combinator shifted our thinking,” Chakrabarti said, “into how do we create a minimum viable product that gets the customer excited enough to take out their checkbook.”
They received $5 million in seed financing from Y Combinator and others, and they used the money to launch a consumer cleaning product called Ode to Clean.
‘Trojan horse’
From the start, these wipes were intended as a steppingstone to something grander. A plan that needed Houston’s petrochemical workforce. So the company returned to Texas and leased a warehouse in Bellaire, where it produced the hydrogen peroxide cleaning portion of the wipes. The liquid was then sent to a company that turned plant materials into disposable wipes, and that company manufactured the end product.
“We wanted to use this as a Trojan horse to go into these bigger companies who wouldn’t even look at us before,” Chakrabarti said.
The plan worked. Roughly six months after its launch, Ode to Clean was acquired by wet wipe manufacturer Diamond Wipes International in a deal Chakrabarti said was worth tens of millions of dollars. This included a contract where Solugen would continue supplying the company with hydrogen peroxide.
The wipes caught the attention of venture capitalists, too, who invested $14 million in a Series A round that closed November 2018.
But the main draw was Solugen’s potential to disrupt the chemical market. In addition to hydrogen peroxide, the company’s catalyst could be used to make peracetic acid, polymers used in plastics and other chemicals.
“The petrochemical industry hasn’t seen fundamental innovation since the age of the polymers,” said Seth Bannon, founding partner at San Franciscobased venture capital firm Fifty Years. “The entire industry is somewhat stagnant and, on top of that, it’s incredibly environmentally destructive.”
One in five of his firm’s portfolio companies are headquartered outside of Silicon Valley. Yet Fifty Years has invested more than $8 million into Solugen. Bannon said he would have supported Solugen’s team from almost anywhere, praising their speed as “exceptionally fast, even compared to companies that are just making software.” But he thinks Houston is a good location for attracting petrochemical talent that could help them scale.
Solugen has 24 workers, including Chakrabarti and Hunt, and plans to double that within the next year.
Expansion in 2020
It produces 120 tons of hydrogen peroxide a year, about 300 gallons a day, but is investing in a facility near Stafford that could produce 50 times that. The $10 million project is expected to open in early 2020.
And for a poetic note to this entrepreneurial tale, Chakrabarti said the new location was previously occupied by a chemical manufacturer that used fossil fuels as feedstock. Solugen has knocked down its building and its old-school way of thinking and will build a biobased chemicals plant.