The interesting thing about the $500,000 financing of Mycodev Group announced on Wednesday is the company is working with other startups to develop a whole new niche market.

Mycodev’s development will depend to some extent on how quickly these clients can increase demand for the Fredericton company’s product – high-quality chitosan.

“We have some really great early adopters,” said CEO Brennan Sisk in an interview. “Some of them are startups themselves, and as they develop so will we.”

The company said this week that it has received a $500,000 investment from the New Brunswick Innovation Foundation, with which it will flesh out its team and complete its initial plant. Mycodev also raised additional funding from angel investors and assorted programs, but did not release details of this additional financing.

Mycodev set out about two years ago to develop a new method of producing chitosan – a material that has numerous commercial applications in such fields as medicine, agriculture, wine or industry. The higher quality chitosan – which can cost thousands of dollars per kilogram -- is usually associated with medical applications, and this is the segment that Mycodev has targeted. The total market for chitosan is expected to reach $21 billion this year.

Though the biopolymer is usually extracted from the discarded shells of shellfish, Sisk and his co-founders CTO David Brown and Chief Engineer Peter Dean set out to extract chitosan from a species of fungus. It avoids the use of harsh chemicals need in the crustacean-based processes and produces chitosan of a high purity with its own special composition.

“Chitosan is an extremely effective coagulant that, when combined with other agents, can almost immediately stop bleeding and promote healing in humans,” said NBIF CEO Calvin Milbury in a statement.  “Although chitosan is already on the market, its traditional production method leaves impurities that can prevent its use in pharmaceutical products.”

Mycodev is now working with three early adopters – two in wound care and one in cancer treatment. In particular, the company and its partners are targeting bandages and wound dressings that that would stop bleeding. By the end of the summer, Mycodev hopes to be supplying them with medical-grade chitosan.

So far, the company has developed methods for producing the fungal biomass that it needs. It plans to complete the extraction system by mid-June and spend months after that validating the system, making sure it can produce required amounts of high-quality product.

NBIF – which advertises on Entrevestor – said its investment will be used in part for the purchase of production equipment. It will also be used to fine-tune the production and extraction process to meet growing customer demand for the ultra-pure chitosan.

Then things get interesting: the early adopters will work with Mycodev’s chitosan to develop products. As those products reach the market, the demand for chitosan increases and Mycodev would ramp up its own production. Sisk said any future funding for Mycodev will really depend on how much demand and value is created by the development of its clients’ new products.

“The technology we’ve developed is highly scalable so as the market grows we have the flexibility to replicate that growth,” said Sisk.