At our Cleantech Forum San Francisco last week, we were able to convene three companies – EXEGER, NanoSpun Technologies, and Polar Sapphire – to present various new advanced material technologies. We were also joined onstage by two domain-specific investors in Pangaea Ventures and M-Ventures (the corporate venture arm of Merck KGaA, Darmstadt, Germany) for a discussion of new technologies, common opportunities and challenges that innovators in the space commonly face.
Throughout the panel, we were able to uncover a few common opportunities and challenges in this space.
Connecting facilitators to new ideas
The hard-science nature of most innovations makes the sector particularly well-suited to university- and government-led R&D to drive the pipeline of new technology that does not come out of existing corporate R&D offices. This is partially an acknowledgement that there will always be a need for exploratory, purely-for-the-science, experimental initiatives that might “push” unexpected new innovations to market, in addition to those innovations that derive from a specific existing market need, or “pull.” These latter innovations might be the domain of a corporate-sponsored lab project within a university, incubator, or government-funded R&D facility (increasingly a strategy of corporate innovation & venturing offices).
This strategy of venture investors and corporations with the institutions that churn out new intellectual property to be developed and tested, today, feels robust. That being said, if you’ve read this far, you are likely one of the actors who should be plugged into this network, and there are likely industry stakeholders both known and unknown to you, with whom you’ve not yet connected. That is an opportunity for all of us, and we’d love to hear what is needed in terms of working groups, gatherings, and the like.
Advanced material start-ups are rarely going to see a big exit purely from intellectual property generation. Potential customers, investors, corporate partners, and acquirers will commonly tell young materials companies that they’re only interested once a certain manufacturing volume is achieved. So, how to get there?
Minding the gap between prototyping and volume manufacturing becomes very important in a materials start-up’s financial life. Increasingly, in places like Sweden, Canada, and Israel (the homes of EXEGER, Polar Sapphire, and NanoSpun, respectively), public sector funding schemes supplement venture capital during this important phase of a company’s development. It is often difficult to secure bank financing without some demonstrated cash flow and customers.
Toll-manufacturing/toll-processing is another avenue that is open to innovators. In a toll manufacturing arrangement, an entrepreneur engages a third-party manufacturer who often has specialized equipment or infrastructure. The third-party manufacturer provides a subset of manufacturing processes based on the entrepreneur’s technology for a fee. Jabil is one such contract-manufacturer whose Blue Sky Center we visited in San Jose in 2016. Blue Sky is meant both to showcase Jabil’s impressive manufacturing capabilities and also, apropos of this conversation, to enable Jabil to form relationships with tomorrow’s transformative material and device innovators. Their door is quite literally open, folks.
At some point, however, a disruptive materials start-up may find it advantageous to bring volume manufacturing in-house, and one common investment challenge we heard is that this often necessitates custom-designed and fabricated machines. To be sure, this is exactly the sort of plant-and-equipment risk that venture investors do not like to take. And so, while it may seem like the perfect stage in terms of risk profile (technology is demonstrated, initial customers satisfied with runs produced via toll-manufacturing) for a VC to enter the picture, do not be surprised if equity investors are still hard to come by.
Platform technologies & narrowing the focus
It is common for disruptive material start-ups to find many theoretical market applications for their technologies, and to conceptualize the technology to potential backers as a “platform” from which many new streams of economic value creation may be opened. The natural inclination for many entrepreneurs, at the earliest stages, is to thoroughly vet and pursue all potential applications under the belief that investors will want to hear about all of the associated revenue opportunities. An entrepreneur may also simply elect to spread his or her bets initially, not yet knowing which market application is more likely to pay off first. The former may be true but can likely be achieved quickly and cheaply via more crude validation of market size and market need, while the latter is just a bad go-to-market strategy. The unified opinion of our expert investors indicates that it is always preferable to see a company dedicate resources to one or two initial market applications, so as not to spread resources too thin and kill all possible market opportunities.
EXEGER, for example, brought to our event a prototype e-Reader case using its proprietary, screen-printed material that converts solar, ambient light, or artificial light to electricity. This is one of the first few applications the company is targeting, anticipating it being high on the consumer-demand and adoptability scale, whereas larger and more impactful building-integrated PV (BIPV) and other device integrations with larger power requirements will be possible later on.
These were just a few of the things we learned at Cleantech Forum San Francisco. We welcome the opportunity to speak with you about these or others, and to introduce you to our panel.