Blog posts tagged in Exit
In December 2015, Dow and DuPont set off the greatest wave of consolidation ever seen in the agricultural chemistry and agricultural biology sector. Two years later, the two have become DowDuPont: the largest chemical company in the world. But in-between, the entire ag-chem-bio industry has been mired in uncertainty with a focus on demonstrating synergy, at the expense of innovation.
As discussed last week in my blog entitled Add Licensing to your Business Model Toolkit, licensing is an important tool for the advanced materials start-up CEO. However as I pointed out last week, concerns about value capture and loss of market influence cannot be ignored if the goal is to build a valuable and important business capable of generating venture capital returns. Furthermore, when licensing technologies in energy or industrial markets that often place less value on IP compared to IP-centric businesses such as IT and biotech., deal creativity can be the order of the day. The four tactics described below should be considered in formulating a start-up company licensing strategy:
Venture capital investments in “hardware” companies such as advanced materials start-ups have typically focused on productization and scale-up as the key value creation activities. Partnering in the form of joint ventures, joint development or distribution agreements have traditionally been the business model of choice. Licensing models are often shunned with the argument being that you leave money on the table and your ability to influence is lost while fate is determined by corporate and market forces beyond your control. Valid points! But these issues can often be mitigated and should be weighed against the advantages of licensing, of course in the context of the market dynamics and industry structure that is faced.
Where has the vast majority of cleantech venture capital funding flowed over the last decade? The answer is "trillion dollar markets" such as electricity, fuels, chemicals and building materials. Several prominent cleantech VCs have proclaimed that the immense size of these opportunities offset the investment realities of time, significant CAPEX and entry barriers. Indeed these are massive markets that dwarf the size of cloud computing, SaaS, mobile and social media. But unlike these traditional VC segments, these are commodity markets where the public markets and corporate M&A departments are not used to paying the high margin and rapid growth multiples that have become the foundation of venture capital funding success.
Chances are, some of you have pitched to Pangaea in the past. We probably said "no". Although we invest at a good pace, saying "yes" to the most compelling opportunities, we don't like to waste our time, or yours. So, if we're going to say "no", we'll try to do so as quickly as possible.
I'd like to summarize some of the reasons we say no, grouping them in 4 basic areas: Fit, Management, Momentum and Exit.
Can you name a cleantech subsector that has generated five or more grand slam VC exits (>10x, >100% IRR) in the past 2 years? Tough, isn't it? But there is an answer: Biopesticides. Biopesticides are pesticides derived from natural organisms, although the EPA definition also allows for substances derived from natural minerals.