In 2018, Edmonton-based Direct-C began engaging with German manufacturing giant Henkel Adhesive Technologies to assess whether the startup’s oil leak detection technology could be combined with Henkel’s repair wrap product.
Fast forward four and a half years later, and the startup has secured a long-term commercial supply agreement with Henkel to procure and resell its tech—and Henkel’s venture arm has co-led Direct-C’s $3.9 million CAD Series A round, alongside Toronto-based GreenSky Capital.
GreenSky’s Michael List described Henkel’s investment and commercial agreement with Direct-C as “a powerful endorsement of both the technology and the company’s prospects.”
“Securing a partnership-slash-commercial agreement with a major corporation by a tech company is pretty tough,” Direct-C CEO and CTO Adrian Banica told BetaKit in an interview, expressing excitement to have Henkel on board. “It’s a long road.”
With the capital that Direct-C has raised to date, Banica says the startup has been able to achieve product-market fit. Armed with fresh funding and a deal with Henkel, Direct-C is ready to start scaling, and the company plans to use the fresh capital to support a marketing and sales push as it looks to expand beyond just oil and gas.
Direct-C’s all-equity Series A round, which closed in early August, was co-led by Henkel Tech Ventures and previous investor GreenSky, with some follow-on support from undisclosed angel investors and participation from unnamed employees. It brings Direct-C’s total funding to around $7 million.
Founded in 2014 by University of Calgary professor Simon Park and then-postdoctoral fellow Kaushik Parmar, Direct-C has developed a software and sensor-based solution for monitoring leaks in the energy sector, which Banica described as inevitable given how often and how far oil and gas are typically transported.
While the industry has always used various technologies for leak detection, Banica claims that there is a gap in the market for identifying “really small leaks.” While smaller leaks can be less consequential, the CEO says the issue becomes “much more acute at high consequence areas,” such as lakes and other environmentally-sensitive locations, and this is Direct-C’s niche.
RELATED: GreenSky Capital secures $15 million in first close of Fund IV
Direct-C has developed patented platform sensor tech that uses a proprietary, polymer-based nanocomposite “paint” that can be applied to any surface that requires large area measurements for temperature, stress, strain, or cracking, and chemical exposure—such as a building, bridge, engine, pipeline—or built into small area sensors.
The company opted to focus on oil and gas to start primarily because the startup is based in Alberta, which is known in part for the size and strength of its energy sector. But Banica sees applications for Direct-C’s tech beyond just oil and gas, including in the pharmaceutical processing industry to detect small, water-based leaks, which Direct-C is currently exploring.
Because its sensors are coating-based, Banica says that they can be deployed “in more unique ways than hard sensors.” According to Banica, the potential applications for Direct-C’s tech “are very broad and quite exciting.”
While Henkel has backed larger Canadian firms before, Henkel VP Kourosh Bahrami told BetaKit that this round marks the firm’s first investment in a Canadian startup.
“Direct-C’s proprietary technology for rapid and accurate hydrocarbon leak detection perfectly fits into [Henkel’s] strategy and offers great opportunities for collaboration and innovative future solutions,” said Bahrami, who added that critical leakages remain “a significant [health, safety, and environmental] risk and cost driver,” especially in the oil and gas and chemical industries. “With the help of a digital solution, this risk can be minimized and expenses reduced.”
RELATED: CruxOCM secures $7.6 million CAD to bolster automation software for energy sector operations
Henkel Adhesive Technologies head of corporate venturing Paolo Bavaj added that he sees “great potential” in combining Direct-C’s sensor tech with Henkel’s portfolio of maintenance, repair, and overhaul (MRO) solutions.
While Banica has been commercializing tech for Canada’s oil and gas industry for quite some time—this is technically his fifth company—all of his previous ventures were hardware-based. While Direct-C’s tech involves both hardware and software, Banica says it differs from what he has previously sold from a cost-point perspective.
“I’ve been selling solutions and services to the gas sector, particularly for water-level monitoring [and] leak detection for 15 years of my life,” said Banica. “It’s a tough go.”
Banica described Direct-C’s technology as sitting at the “holy grail” of low-cost point and higher value proposition given how cheaply it can be manufactured and deployed. This combo was part of what attracted him to join Direct-C as CEO and CTO in 2016.
In an interview with BetaKit, GreenSky managing partner Michael List described Direct-C as an “attractive entry” into the industrial IoT and cleantech space, given its early traction in the oil and gas industry and simpler, less capital-intensive commercialization path compared to other players in the sector.
RELATED: Validere acquires Clairifi to offer regulatory reporting capabilities for oil and gas firms
“Having a strategic that is as significant a player in the market as Henkel is [sign] a go-forward commercialization plan for the Direct-C technology, but also step in with their venture arm and make an investment alongside GreenSky is really a powerful endorsement of both the technology and the company’s prospects,” said List.
As List puts it, given the versatility of its tech, Direct-C also has a “fortunate problem.”
“This is not just something that you can use for detection of oil leaks—it has very broad applications in many different verticals,” said List. “That is another factor that separates them from the crowd.” Over the coming quarters, List says the challenge the startup will face is flagging and targeting the best ones.
Direct-C’s Adrian Banica described Direct-C’s tech as sitting at the “holy grail” of low-cost point and higher value proposition.
GreenSky previously led Direct-C’s seed round. Banica noted that to date, the firm has played an important role in guiding the startup towards “winning from a financial and business perspective.”
“A lot of times, when you’re an R&D company with an exciting product, especially when you can have multiple paths you can go down, it does help to have that voice on your table,” Banica added.
According to Banica, the long-term “conundrum” that a company like Direct-C faces is that, since it has such a wide array of potential applications in a number of highly-differentiated verticals, down the road, it might be tough to find a buyer interested in serving all of the verticals that Direct-C plans to target.
Given this, the CEO says that at an early stage, Direct-C has opted to structure itself in such a way as to be able to sell, for instance, just the oil and gas portion of its business and retain the remainder by structuring each vertical as a subsidiary. “It creates the opportunity for multiple exits,” said Banica.
Feature image courtesy Direct-C.