There are few career paths I can think of that are more challenging than trying to launch a new venture whose success is centered around the development and subsequent roll-out of a new technology. We have countless success stories to point to, and entrepreneurs who are revered, almost worshipped, … but what is often left out is truly how long it took, and how much money (including academic research dollars, grants, and private capital) was required to get there.
There have also been numerous studies which look at entrepreneurship, average time to exit (or failure), technology development cycles, and how companies fare in different sectors (just see this article written by Dr. Elicia Maine and Dr. Purnesh Seegopaul which appeared in Nature Materials last year). Across the board, materials-based startups take more time, take more money, and have more risk associated with them than their software-based counterparts.
Given this, why on earth would investors, Pangaea Ventures included, put money into early stage materials companies which are characterized by high technology risk, long technology adoption cycles, and unknown (or yet to materialize) markets??? While VCs are comfortable with risky investments, rational behaviour would suggest that collectively we would avoid this segment of the asset class all-together. But actions tell a different story.
Interest in seed and pre-seed stage materials-based companies is growing. Y Combinator, a well-known San Francisco-based accelerator largely focused on mobile and software companies, recently began to include hardware, materials science, and biotech companies in their cohorts. Cyclotron Road, a joint initiative between Lawrence Berkeley National Lab and the Department of Energy was created to help reduce the risk profile of promising energy- & materials-based technologies and help build investible business models around them. Breakout Labs, funded by the Thiel Foundation, provides grants to startups who are fundamentally creating new technology solutions in the thorniest areas. And the list goes on… It is also important to consider that the creation of a robust innovation, financing, and resource rich ecosystem is key for both the success of start-up companies and their early investors. We all need a community of like-minded investors to syndicate with, lead follow-on funding rounds, and provide diversity of perspective.
So why do Pangaea Ventures and other VCs invest at this riskiest stage? At the highest level, it’s because we believe in the entrepreneurs, the technology, and the potential for impact. My colleagues have previously written about “why invest in materials” (here and here) so I won’t rehash that here.
More specifically to Pangaea Ventures – investing in innovative materials technologies and visionary entrepreneurs at the early stages has always been a fundamental component of our investment thesis. SWITCH Materials, for example, is a Pangaea Ventures Fund II company developing smart window films for the automotive sector that we invested in as it was being spun out from Simon Fraser University. In Fund III we made a seed stage investment into Tivra, a nitride materials based semiconductor company focused on the power electronics market.
These early stage investments not only serve to provide diversity amongst our portfolio; we are also provided with the opportunity to help passionate innovators make a difference in the world of tomorrow. At Pangaea Ventures we have created a seed-investment program called Pangaea Spark to better support our seed-stage investments. For us, seed investing has always been about more than just providing capital. With Pangaea Spark we are explicitly looking to work with founders and entrepreneurs with breakthrough technology innovations where we know we can add experience and help accelerate the time to market. We have the pleasure of working with some of the world’s largest chemical and industrial companies as they work to build their own versions of the future. We look to leverage these relationships to help our portfolio validate market assumptions, determine product market fit, and most importantly understand what a minimum viable product looks like for their target customer.
We’re always happy to meet great teams and discuss how we might be able to work together to bring new advances in materials technology to market in order to make our world better. Get in touch so we can start the conversation!
Director of Pangaea Spark