Software Simulation Firm

DEM’s pioneering technology is proving invaluable in the engineering sector.

An Edinburgh-based company that has developed software for the simulation and analysis of granular processing and industrial-handling problems believes it is on track for annual sales of at least £10 million within five years.

“That is the pessimistic outcome,” says John Favier, DEM Solutions’s New Zealand-born chief executive. “We have a product which is ready to use, and the emerging computer-aided engineering sector is expected to be worth £100m within five or 10 years.

“Many of our rivals developed their systems for the mining and mineral- processes sector which means their interfaces can be somewhat rude.”

Rivals currently include MSC Software, LMS International, Fluent and Finite Element Analysis.

Based at the technology transfer centre in Edinburgh University’s King’s Buildings, DEM was one of 12 promising technology companies that presented to potential investors at last week’s Connect Springboard 2004 conference in Glasgow.

Favier says the company, which currently has just five staff, is now looking to raise £1.5 million to £2m of first-round funding over the next 18 months. It expects to employ 30 people within five years.

DEM’s main product permits the creation of “virtual prototypes” for the computer-aided engineering sector. These illustrate how particles move through a wide range of equipment in the chemicals, pharmaceuticals and agricultural construction equipment sectors without the need to produce expensive prototypes.

Its product has already been adopted by Norsk Hydro, the Norwegian energy company, to illustrate how oil-borne sand grinds away at the interior of a pipeline. It has also been used by US tractor giant John Deere to assess how seeds behave inside a high-speed seed-dispenser used for precision planting on farms .

But the software could equally be used to show how pills would move through a proposed dispensing device. In fact, the range of possible applications is immense.

“We are starting to talk to venture capitalists and other potential backers about first-round funding,” says Favier, 43, who previously worked as a lecturer in food-process engineering at Newcastle University. “But we don’t have to raise this money … We have sufficient revenues and funding to take us through to the launch of our first generation product and bring it to market … We have invoiced £100,000 since August 2003.

“We would use the [additional] money to build up our sales channel and we are targeting 250 clients by 2010. The new investment would also enable us to develop our version three flagship product within six months.”

Favier says DEM would consider funding from a range of sources. “It does not have to come from venture capitalists. It could equally well come from an industrial partner such as John Deere or Norsk Hydro.” Both are existing customers of DEM – which stands for Discrete Element Modelling and was founded in December 2002.

The extra funding requirement follows an initial funding round of £275,000 which is nearing completion. Early stage backers include the Bank of Scotland, the Edinburgh Technology Fund, Tony Quinn’s business growth fund and a £45,000 Smart Award.

“Because industry is not yet familiar with this technology, people generally need a demonstration before they can recognise the benefits. But as it becomes more widely adopted, it will become more familiar and sales are expected to pick up,” says Favier. “In the end of the day it’s going to save [customers’] time and money because it eliminates the need to develop a model mixing system.

“The sector is growing by 15-20% per annum as industry embraces this whole design prototyping approach.”

Favier adds: “Our software enables you to simulate what’s going on – and should eliminate the need to develop a £100,000 prototype.”

The company last week recruited three developers who will be Edinburgh-based. Visual demonstrations of DEM’s products were revealed to potential investors and other delegates at the Glasgow conference including technology- business professionals, business angels, venture capitalists and multinationals.

Alister Minty of Scottish Enterprise’s national high-growth unit, says: “One of the things about DEM is that it has realistic and deliverable objectives. As the sales momentum gathers pace, there will be less need to prove that it works.”

SE’s high-growth unit was founded in 2002 with the aim of delivering 30 high-growth start-up projects over a three-year period and only works intensively with companies that have the potential to reach a valuation of £5m within three years.

Sunday Herald Ian Fraser