Battery maker working with GM on hybrids gets $40 million

Battery maker A123 Systems is off to a blistering 2007. Earlier in the year, General Motors said it would evaluate the company's lithium ion batteries for its coming Saturn Green Line Vue hybrid.

This week, the company announced it has received $40 million in venture funds from, among others, General Electric and Procter and Gamble.

So far, the company has raised $102 million.

Being a battery maker a few years ago was no bargain. Battery technology improves about six to seven percent a year, slow by Silicon Valley standards. And they are batteries for god's sakes. Mention that you work at a battery company at a cocktail party and everyone thinks you're the guy that fills up the Ray-o-Vac display at Walgreen's.

All that has changed with the energy crisis and exploding laptops. Venture capitalists are putting money into companies like Zinc Matrix Power and PowerGenix that are coming up with batteries for power tools and hybrids.

The fact that A123 has raised $102 million, however, can be seen as a good sign and a bad sign. It shows that people believe in the technology. Hardware companies also typically need more than software companies to get off the ground because they need factories.

Still, a large investment like that becomes tough to recover through an IPO. Venture capitalists look for 10X or even 100X returns on investments. Some of the new investors, however, are corporations. These companies are typically more interested in linking up strategic supply agreements. The returns on investments aren't as important.