Next-gen battery startup South 8 raises $12M

South 8, a San Diego-based startup that makes a gaseous electrolyte component for lithium-ion batteries, raised $12 million in Series A funding, the company tells Axios exclusively.

Why it matters: Batteries keep getting bigger to support homes, EVs and entire power grids, but battery makers haven't addressed existing safety or cost concerns with current battery technology.

Driving the news: Anzu Partners led the round and will gain a board seat as part of the deal, South 8 CEO Cyrus Rustomji tells Axios.

• LG Technology Ventures, Shell Ventures, Foothill Ventures and Taiyo Nippon Sanso Corporation (TNSC) also participated in the round.
• Rustomji declined to reveal the valuation on the deal.

How it works: Rustomji discovered a breakthrough while working on his chemistry Ph.D at the University of California, San Diego.

• Instead of using solid- or liquid-state electrolytes inside a lithium-ion battery, he found that certain materials worked particularly well in a gaseous state.
• He likened the process to a standard propane tank you can hook up to a barbecue or outdoor heater, but with a different base to become the "blood" of the battery with increased safety and performance measures.

South 8 makes the electrolyte replacement and is currently delivering prototypes to its customers, which make battery cells for the defense and automotive industries. South 8 is not involved in manufacturing and does not intend to own or operate any factories.

• Once out of the beta phase, the company will license its technology to the manufacturers and collect licensing fees as revenue.
• Rustomji says a better-performing electrolyte replacement could help reduce the content of cobalt and nickel in future lithium-ion batteries, insulating the industry somewhat from supply chain constraints while decreasing battery cost.

State of play: Lithium-ion batteries were commercialized in the 1990s and have powered consumer electronics and more ambitious devices like EVs since.

• The underlying technology hasn't changed much, and large batteries with liquid electrolytes are a fire hazard due to the chemical reaction that occurs when the battery is damaged.
• Full-scale electrification requires large batteries that are less combustible to power homes, vehicles and larger initiatives like defense or aerospace.
• LG Technology Ventures, Shell Ventures, Foothill Ventures and Taiyo Nippon Sanso Corporation (TNSC) are all strategics that could become South 8 customers down the line.

Yes, but: Building and scaling a new battery component, even if safer, is an expensive undertaking that will require the entire battery industry to rethink its manufacturing process.

• Existing factories are often equipped to use South 8's technology, but the business relies on large customer contracts from down-stream manufacturers to get off the ground.