Access to venture capital is frequently identified as a key factor in moving ideas beyond the lab and enabling start-ups to turn functional prototypes into market-ready devices.
“Venture capital can bring not just money to a project, but also business skills and technical knowledge, which are different from the connections and advice that the state and the region can provide,” Serdar Sariciftci, a leading researcher in the field of organic photovoltaics, told Translational Materials Research (TMR) in a recent interview. “Experienced venture capitalists (VCs) who have done this thing before in similar sectors are invaluable to a scientist like me.”
VCs are well-placed to examine what it takes to translate research breakthroughs into products and TMR is fortunate in being able to draw upon the experience of Andrew Haughian, partner at Pangaea Ventures and a member of the journal’s Editorial Board. Haughian is a regular contributor to TMR, and has written for the journal on the topics of ‘Focus’, ‘Licensing’ and ‘Funding mathematics’, with more articles in the pipeline.
Here are 10 tips from the discussion so far, with links to the original opinion pieces after the bullet points.
Highlights from the VC desk
- On the one hand, there is a temptation to ‘add value’ by demonstrating as many applications as possible. On the other, there is the repeated message to do one thing and do it well. The reality is that the key to building an important and valuable company usually lies somewhere in between.
- The 80:20 rule applies to start-ups. 80% of the effort is focused on getting the first product to market, while 20% is spent on what’s next. The first product should meet minimum market requirements, and market entry should primarily facilitate organizational learning about the market and operations while at the same time building a brand.
- An ideal licensing situation is when there are levers in addition to intellectual property (IP) that can be incorporated into the licensing negotiation. One lever is the control of a key ingredient(s) used in the production process.
- Getting technology into the market as soon as possible is critically important, while the real game-changer continues to brew. The key here is that the next-generation technology must be substantially differentiated in terms of IP and product benefits, such that a ‘Gen One’ licensee does not effectively undermine the possibility of successfully commercializing ‘Gen Two’.
- There are many considerations in picking the best licensee partner(s), but picking a brand name that will lend credibility should be at the top of the list.
- A licensing deal can create a significant draw on management and technical resources, so care must be taken to ensure core activities are not disrupted.
- When mergers and acquisitions is the likely endgame, acquirers are unlikely to pay a technology premium unless they truly believe that buying a company gives them a long-term sustainable advantage.
- In many cases, new materials technologies are competing against incumbent commodity-like products. Usually these incumbent technologies are well along in bottoming on the cost reduction curve, whereas the new technology is starting at the top.
- Poor consideration of value chain issues usually ends up being the Achilles’ heel of even the most exciting materials technologies. Finding the right set of partners that complement the core value proposition is vital for eliminating the cost and time of reinventing the wheel.
- There are a lot of moving parts in getting focus right. The good news is that this critical commercialization skill is transferable to other technology industries, and so a vast network of management talent can be tapped.
Original articles from the journal Translational Materials Research (TMR)
From the VC desk: striking a balance on focus – Transl. Mater. Res. 1 010202 (2014)
From the VC desk: add licensing to the materials start-up toolkit – Transl. Mater. Res. 1 020201 (2014)
From the VC desk: venture capital funding math, making it work – Transl. Mater. Res. 2 010201 (2015)
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