From Predicted Phenomenon to Venture-Backable Business: An Epic Journey

From Predicted Phenomenon to Venture-Backable Business: An Epic Journey

In the worlds of Solid-State Physics and Materials Science, it is pretty common for exciting materials phenomenon to be predicted before they’re ever experimentally verified in the physical world. However, this typically occurs years, decades, or even centuries before commercial applications become viable and sustainable businesses can be formed. Many times, these jumps from prediction to demonstration to commercialization are never truly made.

The suitability of a startup idea for venture investment is an important question and one that many budding entrepreneurs may not spend enough time thinking about. After all, there are a number of different ways to build successful companies and the majority of these do not involve venture capital financing. VCs typically have a pretty clear-cut mission: invest in companies that can scale very rapidly and achieve a 10X or better return within the lifetime of a fund. The amount of capital needed to build a company vs. the value of that company at exit is an important ratio and one that is hard to optimize when investment is going to fundamental research compared to product development and revenue generation.

Lux Research recently released a report titled “Synthetic Biology: Applications and Lessons Learned in the Field of Bio-based Materials and Chemicals.” One of the conclusions from their analysis was that, on average, it takes 7.4 years to go from startup formation to launch of first product. While demonstrative of the time and difficulty to successfully take materials innovations out of the lab and interesting as a standalone statement, knowledge of the history from theorization to commercialization of synbio really takes this to the next level. The term “synthetic biology” (well, technically “La Biologie Synthétique”) dates back to at least 1912 and Frenchman Stéphane Leduc. By 2020, Lux Research predicts that a large percentage of the young synbio startups will launch their first products, over one hundred years after the initial concept! As I’ll explore further in the following examples, this type of timeline is not altogether unique.

Superconductivity: Superconductors are materials that have exactly zero resistance to electrical current flow below a critical temperature and current density. Today, they’re found in a number of commercial applications ranging from MRI & NMR machines to maglev trains. While they haven’t quite set the world ablaze (please excuse the mixed metaphor) like the silicon transistor, superconducting materials today represent a $400M+ market that is expected to grow to over $1B by 2020. Superconductivity was first shown experimentally over a century ago in 1911 and predicted, at least in part, in the 1860’s. In geological time scales, this is the blink of an eye, but for a VC, this is eons.

First and foremost, a new materials technology must be able to economically solve a major pain or add significant value to a product or service to be successful. For over 70 years, superconductors required ultra-cold temperatures only achievable with liquid helium to operate. Thus, they were relegated to academic curiosity and explored only for niche, very high-value markets. After high temperature superconductors were discovered in the 1980’s, this started to slowly change, as liquid nitrogen is now sufficient to cool the material.

Magnetoelectrics: The magnetoelectric effect is defined as inducing a magnetic polarization through application of an electric field or inducing an electric polarization through application of a magnetic field. It was first theorized way back in 1894 by Pierre Curie. Sixty plus years later, the magnetoelectric effect was experimentally confirmed in antiferromagnetic Cr2O3.

Magnetoelectrics have not yet been commercialized in any appreciable way though their potential in high-sensitivity magnetic field sensors as well as actuators, switches, spintronics, information storage, and energy harvesting has driven research interest for decades. Time will tell whether useful devices will emerge though I am cautiously optimistic. Correctly predicting the approach that will win out combined with getting the timing right for hockey stick-like growth curves is a difficult endeavor and VCs get it wrong more times than right.

Graphene was theoretically posited in 1947 and first isolated as a single layer sheet in 2004. If we see material impacts from graphene within the next few years, we’re moving relatively fast, historically speaking at least. However, historically speaking caveats don’t work for venture capitalists and we strive to identify technology and market inflection points and help companies quickly move from hypotheses to bona fide businesses. Pangaea emphasizes a product-driven strategy in conjunction with strategic partnering to navigate the value chain and reduce the time to market.

The information revolution has enabled global collaboration and the dissemination of ideas at rates we’ve never seen before. In the advanced materials sector, we’re witnessing the ramifications in computational materials discovery and genomics to name a few. In 1959, Richard Feynman’s prophetic lecture “There’s Plenty of Room at the Bottom” laid the groundwork for the field of nanotechnology decades before it became realizable and mainstream. In the same vein, I believe “there’s plenty of headroom to accelerate materials innovation.” What discoveries from decades ago might now be ripe for investment in the next few years to make our world better?

Associate, Pangaea Ventures Ltd. Matt holds an MPhil in Micro- & Nanotechnology Enterprise from the University of Cambridge and graduated summa cum laude from the University of Pennsylvania with a BSE in Materials Science & Engineering.View Matthew Cohen's profile on LinkedIn


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Guest Wednesday, 22 January 2020