REVIEW: Simulating Plastic Products Before Production

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Psylotech received an $820K Army SBIR grant and raised $960K from private investors.

Founded in 2006, Psylotech has recently entered a new phase and may the third pivot be the charm. Originally conceived as a hardware company, Psylotech has now begun to focus on selling its proprietary data and software simulation module.

PRODUCT/SERVICE: Psylotech’s mechanical test instruments produce otherwise unavailable data on plastics, rubber, composites and nano materials. The proprietary data is used with their exclusive software to run simulations that validate a client’s product before they begin to build it, so they can iterate and optimize it virtually before producing physical prototypes. Their proprietary microscopic sensor technology measures different strains on materials and generates otherwise unavailable data. These products are based upon 5 years of intensive research by the founder/CEO, Alex Arzoumanidis.

VALUE PROPOSITION: By providing critical data and software modules to pre-test products in simulations, Psylotech empowers its clients to create a superior product while saving them time and money. In addition, their microscopic sensor technology combined with simulation empowers scientists to design superior materials by predicting their service lifetime and improving their tensile, compression, fatigue, torsion, bi-axial, flex, and fracture properties.

MARKET SIZE: The software simulation industry represents a $2.5 billion dollar market and has been growing at a 12% rate during the recession. The demand is global. Psylotech estimates that the TAM (Total Addressable Market) for their simulation software and testing service is approximately $325MM.

REVENUE MODEL: Psylotech charges between $2400 and $10,000 per standard test and one technician can perform up to 14 tests in 1 day. They charge between $5000 and $15,000 for an annual software license. The data and software modules are linked and must be used together.

MANAGEMENT TEAM: Alex Arzoumanidis is founder/CEO. He received a Ph.D. in Material Sciences & Engineering from the U. of Texas. He was a senior research scientist at Schlumberger, the premier oilfield services company in the world, where he worked on plastics simulation and nanotechnology. David Bird is VP of Business Development and Interim CFO. He has prior experience as a senior level executive with a simulation software company that had a successful exit. David was valedictorian of his Executive MBA class at Notre Dame. They have 5 full-time employees.

COMPETITIVE ADVANTAGE: Psylotech’s mechanical test instruments provide superior, proprietary data for software simulation of products and their microscopic sensors enable new types of testing which improve the performance of materials. Psylotech protects the value of its data through a contract test data distribution model locked into the software modules. Competitors need both hardware and software to compete.

PROOF OF CONCEPT: Psylotech instruments provide a streamlined commercial path for simulation techniques that have been vetted in peer-reviewed technical literature. These techniques are not currently used by the industry since the necessary data was previously unavailable.

CUSTOMERS/USERS: Psylotech generated $200K revenue in 2011. They project revenue of $450K in 2012. Clients include Argonne National Laboratory, Baker Hughes, IBM, Ecolab, Fermilab, Los Alamos National Laboratory, Northwestern University, Sandia, and the University of Texas. Recently, they closed their 1st sale overseas to King Abdullah University for Science and Technology (KAUST) in Saudi Arabia.

STRATEGIC PARTNERS: Psylotech is designing its software modules to fit with the products of all the major software simulation companies. They have relationships with e-Xstream Engineering (a multi-scale simulation company) as well as key technical experts in the relevant fields. Psylotech is also licensing a nano-mechanics testing technology from UIUC.

FUNDING: Psylotech received an Army SBIR grant for $820K. They raised $960K from private investors, including $100K from the founder/CEO, Alex Arzoumanidis. Currently, they are seeking to raise between $400K and $1MM. The valuation of the company is estimated at $4MM.

SUMMARY: Psylotech has impressive technology and name-brand customers. The big question is whether their recent pivot to a software model will act as a catalyst and significantly accelerate revenue. 2013 should prove to be a key year. ❒

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