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The advanced battery market appears to be dominated by several companies — Panasonic and Siemens on the high end, with A123Systems, Johnson Controls-Saft and Valence Technologies still up and coming. So it’s surprising to see a new name among them today: Sakti3, a builder of highly-efficient batteries for cars and portable electronics that has caught Khosla Ventures‘ eye.

Still stealthy, the University of Michigan spinoff announced today it raised $7 million in a second round of venture funding led by capital firm Beringea, in addition to Khosla. The deal highlights the latter firm’s emphasis on energy storage and efficiency over more traditional green sector investments like solar and smart grid. In addition to building solid-state batteries, Sakti3 also plans to patent a new manufacturing process that limits material use and waste.

Previous reports about Sakti3’s technology pointed to its replacement of carbon with a cathode material in its lithium-ion models — a shift that adds mass to rechargeable batteries so that they don’t degrade as fast. The ultimate goal is to extend the driving range for plug-in vehicles getting over 100 miles per gallon of gasoline — for a lower cost, the startup says. Vinod Khosla, founder of the company’s chief investor, says the technology could be game changing for the battery industry.

Scoring Khosla’s endorsement is a big win for the company. As a relative unknown in an industry dominated by large corporate players, it wouldn’t stand a chance without formidable backing. Not only does the Khosla name add legitimacy to the concept, it attracts media and investor attention that other recent entrants have missed out on.

Based in Ann Arbor, Mich., Sakti3 is one of several companies — including Dow Chemical, General Motors and Ford — that have established battery-making operations in Michigan, a state that has bent over background to create a hospitable environment for battery companies. Last year, Governor Jennifer Granholm pushed through $300 million in tax credits for these companies, hoping to lure more to the region to compensate for the demise of the automotive industry in the Detroit Metro area. So far, it looks like her plan to turn Michigan into the lithium-ion capital of the U.S. is headed in the right direction.

Founded in 2007, Sakti3 previously raised $2 million from Khosla Ventures and $3 million in grant money from the Michigan Economic Development Corporation. The newest round will be used to epand the company’s research, development and manufacturing options, according to the announcement. It has 20 employees.

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