Published on December 3rd, 2016 | by Sponsored Content0
How Can Cleantech Companies Fast-Track The Path To Success? Borrow From Biopharma’s Playbook.
December 3rd, 2016 by Sponsored Content
This article has been sponsored by Propel(x)*.
After years of living in biopharma’s shadow, the cleantech sector is showing encouraging signs of life. New cleantech startups are popping up, and angel investors are again interested in investing in the promise of clean energy. According to the Propel(x) Survey of Angels, more than half reported that they are interested in the sector. That’s a far cry from the early 2000s, when cleantech was avoided by the investment community. Still, whether biopharma or cleantech, promising new ideas can take years to grow into viable offerings — not to mention large amounts of capital for conducting research, building infrastructure, and establishing distribution networks. That’s where cleantech could benefit by borrowing a few pages from the biopharma playbook.
While both biopharma and cleantech are focused on discovery and innovation, biopharma companies have been more successful in getting to market due partly to the fact that they have a natural organizing framework thanks to — of all things — the Food and Drug Administration’s (FDA) regulatory framework with which they must comply. Regulation has provided a data-driven map with specific milestones that has helped guide their development, funding, and go-to-market strategies. And while the same organizing framework doesn’t exist for cleantech, here are five lessons that cleantech entrepreneurs and investors can learn from their successful life science counterparts.
Outsource to Innovate
Many bioscience companies adopt a virtual organization model, and there is no reason why cleantech can’t do the same. Smart biopharma companies have outsourced every non-core activity — from clinical research to regulatory strategy and accounting. As a result, they stay laser-focused on innovating — a strategy investors tend to find very appealing.
In the life science sector, new types of organizations have emerged to fill startup needs. You no longer need your own research facilities or labs because there exist accelerators that provide lab facilities, clinical research organizations that run experiments, and so on. Cleantech companies would do well to adopt as many pieces of that “virtual” model as possible.
For example, cleantech companies might look for outsourced partners to conduct repetitive testing or experiments while they themselves remain focused on only innovation — that is what they are good at, that is their raison d’etre.
Build Strategic Relationships Early
What’s a new company without relationships? Alone and vulnerable. Biopharma companies start talking to strategic partners early on in their development cycle — even before seed funding. They look for partnerships in research, distribution, and also start early conversations for potential exits. Similarly, cleantech startups should be building relationships with corporate partners that can assist in testing, jointly developing specific components, introducing early customers (or being the early customer), taking on the distribution burden, or becoming a strategic investor.
Often, entrepreneurs try to protect their intellectual property from strategic partners. But that desire should be balanced with the equally important need to demonstrate a market. Startups perceive a corporate strategic investment as a double edged sword — they fear that if they take a strategic investment, they may be held hostage by the corporate investor. In the new age, corporates are very aware of this perception and are eager to accommodate startups. New corporate investment or accelerator programs are often “no strings attached” (i.e. no rights of first refusal, no exclusivity, no IP rights). The Open Innovations Program at Schneider Electric is a great example. Joint development programs are similarly flexible. Therefore, startups should start a conversation with corporates early.
Finally, startups should look for a distribution partner early. Corporates are best set up for sales and marketing with large sales and distribution organizations and marketing muscle. Startups are best set up for innovating quickly. Therefore, startups should focus on innovation; let the corporates take on the sales, marketing, and distribution.
Today, startups have more avenues to reach potential strategic partners, including incubators, their university’s innovation and technology transfer efforts, and online investment platforms. For example, Propel(x) has built a strategic council made up of industry leaders who provide mentorship, help build key customer relationships, and invest in startups fundraising on Propel(x).
Tap Angel Investors for Financing
Another thing that life science companies have done very well is tapping angel investors to raise large rounds. Life science companies routinely raise millions of dollars from angels alone. This debunks the myth that you need a lead VC investor to anchor your investment rounds. A notable example is Smart Cells, which was acquired by Merck for ~$400 million, and who raised almost exclusively angel funding before being acquired. One reason angel funding is so helpful is that you don’t need to wait around for a “lead.” You can get angel investors to invest small amounts in convertible notes or equity fairly quickly. The first few investors are the hardest to persuade. However, as you get rolling, it’s much easier to fill in the last fraction of the round.
Historically, energy and cleantech have both gone the venture route. Since VCs are still reeling from poor outcomes in cleantech in the early 2000s, that route is a difficult one for energy/cleantech companies. So why not explore alternative routes? There are many companies nowadays that are raising from angels. One example is Seatrec, which is currently fundraising on Propel(x). Seatrec aims to harness small temperature differences to generate energy — a breakthrough technology by all standards and, at this stage, probably a bit early for VCs. Angels are a great alternative. Another particularly successful example is Axiom Exergy, which has raised funds from angels and micro VCs.
Identify Early Exits
One important lesson cleantech startups can learn from life sciences companies is the value of an early exit. This can be difficult for a cleantech entrepreneur to hear, as they often have their sights on creating the next Tesla Motors. While incredibly admirable, that can turn into a very long, winding, and expensive road, which can be off-putting to an early investor. The sooner the exit, the more attractive the opportunity.
In contrast, life science companies still want to change the world, but aren’t burdened by needing to create the biggest sales and marketing organizations on their own. Once they gain FDA approval, they often sell that innovation to larger companies that are in business to acquire innovation and sell widely via their sales & marketing machines.
Of course, biotech firms are fortunate to have huge pharmaceutical companies waiting in the wings to buy up smaller firms. That’s not as simple on the cleantech front where attractive exits in the current climate can be hard to come by. Life sciences companies also benefit from having the obvious inflection point of FDA approval. Once a new drug or device gets the greenlight from the FDA, many are fine with letting someone else taking that new innovation to market. For cleantech, there is no standard, industry-wide inflection point.
But if you’ve developed a prototype, tested it, and demonstrated market demand, start looking for an exit sooner than later. Exits can take time to fully mature. Why? Because it takes time to build relationships. Just remember that acquirers are out there. Start early and take the time to find the right acquirer that’s a good fit for the company.
Explore Early IPOs
Biopharma companies have also innovated around access to capital, including accessing the public markets at various stages in their development. Cleantech companies should do the same for the simple reason that you often need large amounts of capital to take your product to market. Exploring the public markets doesn’t mean going public at any price, but by not exploring the public markets, you’re not pursuing all of your options.
Take Juno Therapeutics, a company focused on re-engaging the body’s immune system to cure cancer. It successfully went public after its stage 1 trial with an IPO valuation at about $1.65 billion, soaring to $2.4 billion by end of their first trading day. It didn’t yet have full FDA approval at the time, but it was still able to successfully tap the public markets based on early results and an inspiring story.
Companies like Juno Therapeutics — whose market cap today is $3.7 billion — demonstrate that there’s no reason to wait for a multi-billion-dollar valuation. Begin exploring ways to access the public markets as soon as you have proof of concept. Of course, once you go public, you fall under SEC regulation, but the fact remains that certain growth stages require large alternative sources of capital. Try to remain open to exploring the public markets.
An Exciting Time to be Exploring Cleantech Opportunities
So, again, it’s an exciting time to be exploring the cleantech sector. The framework that has been so valuable to biotech can be effectively applied to cleantech — which will provide the necessary markers to help investors more easily evaluate cleantech opportunities and more readily invest in this crucial sector.
To explore cleantech companies currently fundraising on Propel(x), click here.
About the Author: Swati Chaturvedi is the founder and CEO of Propel(x), an online investment platform that brings together investors, startups, and experts to support and invest in breakthrough technologies. Prior to starting Propel(x), Swati worked in management consulting and investing. Most recently, Swati worked at Exigen Capital on IT Telecom, Travel, and BPO deals. Before this, she sourced and evaluated deals in the Industrial Automation sector with Siemens Venture Capital. Swati is also the co-founder and coordinator of the MIT Alumni Angel Investors group.
Swati has an MBA from the Sloan School of Management, an M.S. from MIT (Technology and Policy Program) and an M.S. from UC Berkeley (Civil Engineering). She holds a Bachelor’s degree in Architecture from the Indian Institute of Technology.
*As always, CleanTechnica wouldn’t run a sponsored post unless we thought it was a high-quality article that would be useful for our subscribers to read. However, we also think it’s important to disclose when an article has been sponsored.