Advanced Materials: A Dark Horse to Watch
On May 10, 2013, Cleantech Group, Silicon Valley Bank, and Wilson Sonsini Goodrich & Rosati hosted a Power Breakfast focused on Advanced Materials, featuring participants from BASF Venture Capital, Kleiner Perkins Caufield & Byers, Dow Chemical, Applied Materials, and a number of promising startups in the space.
From graphene’s astounding material properties to cleaner polymer feedstocks, advanced materials innovations are quietly transforming cleantech behind the scenes. In our 1Q13 Quarterly Investment Monitor, we asked if Advanced Materials could be the dark horse of the cleantech sector. After a dynamic discussion during our quarterly Power Breakfast, the answer looks to be a resounding yes.
The conversation opened with investors’ interest areas in this space. While the VCs favored disruptive technologies that could upend entire industries, corporates leaned toward incremental innovations to augment their core materials capabilities. All parties agreed on the difficulty of adapting entire supply chains to new materials, as well as the application discovery process to determine target markets in the first place.
Last week’s discussion also turned to the importance and difficulties of forging successful partnerships. Besides capital, corporate partnerships can provide startups with support from business units, access to customers, pilot opportunities, and market insights. However, partnerships can also limit materials startups, locking them in exclusivity agreements that become acquisitions in disguise. Similarly, corporate board seats can ensure accountability for a startup’s success, but may scare away potentially competitive corporate partners.
What does success look like for these startups? Besides recurring revenue, strong market channels, and scalability, one founder mentioned that being closer to the end consumer makes the company happier and more likely to succeed. One VC expressed the need to see successful corporate relationships before considering a later stage investment in an Advanced Materials startup. Most of the startups sought a successful exit through acquisition.
Investors and public markets see a future in Advanced Materials. These companies make more durable and more efficient materials, but avoid controversial connotations associated with cleantech while serving growing markets in water, agriculture, solar, aerospace, and other sectors.
Advanced Materials received $57 million in venture capital over 11 deals in 1Q13 and has seen moderate but steady deal flow for years. Pangaea Ventures recently closed a $50 million fund focused on Advanced Materials in cleantech. BioAmber, a producer of bio-based succinic acid, listed for $80 million on the NYSE. Are these portents of Advanced Materials’ move from dark horse to headline success? The excitement and engagement at the Power Breakfast would suggest that this just might be the case.