Navigating the valley of death
Taking an innovation from the lab to the market is hard in any discipline, but physics start-ups face some unique challenges crossing the so-called “valley of death”. James Dacey speaks to scientists and business professionals in the Boston area of the US who have dared to take on this journey
Many of you reading this will have, at least once in your lives, thought of some clever invention that doesn’t yet exist but which you were sure would change the lives of countless people. It seemed really obvious once you thought of it, and if you’d only had a bit more free time you could have developed your fantastic idea. “Why has no-one thought of this before?” you said to your friends as you told them at length about how it works. In the end though, everyday life got in the way and either the world is still waiting for your genius invention or somebody else got there first.
That’s because, although great ideas and beer-swigging visionaries are rarely in short supply, much rarer are the individuals or teams with that perfect blend of innovation and business know-how – plus the bloody-minded determination needed to persist even when faced with frequent set-backs and personal financial sacrifices.
One of the most gruelling challenges faced by any start-up company is finding a way to navigate through what is known as the “valley of death”. Precise definitions vary, but this is essentially the stage at which a company has an initial prototype for a product or service, but lacks the resources needed to translate this into a fully fledged profitable business (figure 1). Not having enough money to transform a prototype into a viable product is usually the main culprit. To overcome this hurdle, innovators must reach into their own pockets, approach individual investors or even seek crowdfunding (see “A little help from the crowd”). Often, though, the start-up simply runs out of money and falls by the wayside. It has been estimated that thousands of ideas meet this fate for every one product or company that succeeds.
Cash-flow problems are not, however, the only factors that can keep a company trapped in the valley of death. In tandem with developing a sellable product, a company must acquire an in-depth knowledge of the market it is entering – which takes time and money. There may also be extensive health and safety regulations to comply with, particularly when developing innovations for medical applications.
An even deeper valley
Innovators from all disciplines – from brewers to toymakers – have to contend with the valley of death. But the bad news for physicists is this: they face an even deeper valley because physics-based inventions are usually at the technological cutting edge, making them typically far from being market-ready. And sometimes, physics start-ups face the biggest business taboo of all: that there is no market yet for their product at all (see “More push than pull”).
But physicists are a resourceful bunch, accustomed as they are to solving problems by finding the right tools for the job – be it the right spanner, software or project funding – as well as tracking down people to collaborate with on projects for which they don’t have the correct expertise. One place where physicists and the right resources collide, resulting in a hotbed of science innovation, is the Boston area of the US, which hosts world-leading universities such as Harvard and the Massachusetts Institute of Technology (MIT), as well as many wealthy investors and other sources of financial support.
One such investor is venture capitalist Stan Reiss, who works for Matrix Partners – a firm that primarily supports companies developing technical components, systems and software. Reiss says that the valley of death can be particularly punishing for innovators in the physical sciences who are at the stage where they’ve got off the ground and built a team, but still have a lot of technical development to do before their product is commercial. “In physics-based start-ups that happens very, very frequently because physics is hard and commercializing physics can take a very long time,” he says.
One reason for the high death-rate among physics start-ups is that the products often turn out to be a lot more complicated than the inventors originally thought
According to Reiss, one reason for the high death-rate among physics start-ups is that the products often turn out to be a lot more complicated than the inventors originally thought. Early on in a company’s life, the founders often receive initial investments from people like Reiss, based on a yearly financial forecast and how promising the product seems. The start-up then invests this cash in resources – such as developing a prototype and setting up a work space – and hires a small team to get the project off the ground. But if the product development runs into teething problems, the company could easily reach the end of its first year still way off its initial targets. Unless the investors have a lot of faith and deep pockets to match, the start-up could find itself in grave trouble very early on.
“Academic people tend to be slightly optimistic in terms of what still needs to be done,” admits Reiss, who says he’s met a lot of professors who have a great idea and want it to succeed, but aren’t prepared to put in the necessary graft to make it happen. Reiss says that in his experience, the science start-ups that succeed are those co-founded by academics who are prepared to set aside their research – either tenured staff who take long-term sabbaticals, or postdocs who are willing to leave academia and focus on the business. In fact, Reiss is only prepared to invest in start-ups if he feels the firm has somebody committed to the cause full-time.
One Boston-area firm that brought dedicated business brains on board from the start is MC10. The company was co-founded in 2008 by materials scientist John Rogers at the University of Illinois, Urbana-Champaign, who had developed processes for printing flexible electronics that can be integrated with the human body. According to Ben Schlatka, another co-founder of MC10, right from the start the company also employed a team of business personnel – including himself – to identify and build relationships with customers, while a group of engineers was hired as well to take the science developed by Rogers and translate it into products that appeal to customers. Indeed, Schlatka feels that employing people with a diverse set of skills was key to the success of the company. He adds that watching the family of staff grow over time – from an initial team of four or five to about 40 people currently – has been “a really exciting adventure to be a part of”.
MC10 successfully bypassed the valley of death and now has products in a range of sectors including health and defence. One of its high-profile products is the Reebok CHECKLIGHT, developed in partnership with the consumer sports giant Reebok. Essentially a type of skull cap that can be worn in contact sports, when the device flexes it provides a measure of the severity of blows to the head. In the event of a collision, medics can see the extent of the impact by looking at the data on a small digital interface at the back of the skullcap that pokes out beneath a player’s helmet.
The funding gap
Along with getting the right people involved, MC10 had a healthy start from a funding point of view. Rogers had a connection with an investor in the Boston area, who helped get the company off the ground. Other start-ups, however, may lack those personal links that can provide financial support during its early days. In fact, the valley of death could be viewed as an inevitable feature of the way that many capitalist societies are structured. Industry tends to invest in products that are far along the innovation spectrum due to the lower perceived risk, while fundamental research is by-and-large supported by government money. The bit in the middle, where science is translated into commercial products, tends to miss out on the cash (see “The valley of death” cartoon).
The funding gap is related to the perceived risk among investors, who are acutely aware that the process of translating an innovation from the lab to the marketplace requires far more than just the initial invention. These risks can be uniquely large in the physical sciences, according to a recent paper by Jesko von Windheim and Barry Myers of Duke University in the US (2014 Transl. Mater. Res. 1 016001). Von Windheim and Myers point out that the time and capital required in the early stages of developments in the physical sciences are often much higher than their equivalents in other sectors such as information technology or consumer electronics. “Typical physical-science companies require 3–10 years for the concept stage alone,” the authors write. Faced with such risky long-term ventures, investors often reject the physics and place their money on a safer bet.
To cross the valley of death, physics start-ups often have to explore a range of financial options. They may look to venture capitalist firms, the wealthiest of which are able to invest tens of millions of dollars in a company over its lifetime while spending time helping the start-up to grow into a business. Or the start-up may look for smaller one-off sums from affluent individuals known as angel investors who may have fallen in love with the potential of a particular product. There may also be some funding available from government sources. In the US, for example, researchers can receive investment from the National Science Foundation (NSF).
Fortunately for academics, there do exist some “shepherds” that can help to guide them through these difficult early stages in the valley of death. Staff at the Deshpande Center for Technological Innovation, for example, support academics at MIT in two main ways, according to the organization’s executive director, Leon Sandler. First, it provides small amounts of money for researchers to further their research to the point where it can be spun out. And second, it offers support services and advice from business professionals to help academics to understand the market they are targeting. Since it was founded in 2002, the Deshpande Center has so far backed about 150 projects, which have led to 28 spin-offs that have together raised more than $500m in capital.
Sandler says that from his experience of working with MIT academics, those who do succeed in business have recognized how important it is to understand the marketplace. “I’d say a critical point – even before you start – is that you need to have something that is viable, which starts with customers,” says Sandler. “Whatever the product is that you’re about to produce, it has to be something that will meet a need, so there will be viable customers and it’s going to be competitive.”
Sticking to research
Commercializing research is all well and good, but how much of this process should scientists take on themselves? Joanna Aizenberg, who heads a bio-inspired engineering lab just down the road from MIT at Harvard, is one scientist faced with this dilemma. Aizenberg spends her days trying to understand some of the basic principles of biological architectures with a view to designing advanced materials inspired by the natural world. As an example, her group’s studies of the Nepenthes pitcher plant – which is notoriously slippery and traps unfortunate insects that land on it – led to them designing a highly fluid-repellent surface, which they call “slippery liquid-infused porous surface(s)”, or SLIPS.
Such a technology could be used, for example, to coat medical instruments to stop bacteria from sticking to them, or to line pipes to transport crude oil more efficiently. But as Aizenberg makes clear, being in the lab is what she enjoys and where she intends to stay. “I’m a scientist. To me, understanding basic concepts – basic physical, chemical, materials designs, that are involved in creating these materials – is extremely important,” she says. Indeed, her lab is not involved in the fine details of creating a finished product that come at the later stages of product development. “That is something that should be done in the start-up company, or should be developed further by industries that are interested in this technology,” she says.
Aizenberg does recognize, however, that her lab can provide more than just the initial science in the process of commercialization. In fact, her team does a range of optimization and development work that is not typical of everyday research. What’s more, some of the researchers in her lab are employed specifically to explore how these materials and systems can be transferred to the market, effectively providing a bridge between the lab and the commercial world. These researchers have been involved in the development of SLIPS and another technology spin-off called Watermark-Ink (W-INK), which can be used to identify liquids and liquid contaminants.
Taking the initiative
The model in Aizenberg’s lab of employing people who wear both science and business hats is a progressive move, which will perhaps become more commonplace in universities with the increasing pressure on academics to show the practical benefits of their research.
Likewise, academic institutions will no doubt take inspiration from business-support services such as the Deshpande Center given the revenue and prestige they can bring to a university. Indeed, in their paper in Translational Materials Research, Von Windheim and Myers outline a “roadmap” that could be adopted by universities to improve their ability to move the most promising academic projects towards real commercial activities. The most important focus, they say, should be on engaging sooner and more effectively with the marketplace when developing new products. While these initiatives will not in themselves plug the funding gap for translational research, they will at least make academics more aware of the possibilities and pitfalls in taking an idea from the lab to the marketplace.
What is clear from success stories such as MC10 is that anyone serious about navigating the valley of death needs to equip themselves with far more than just a nifty idea. Those people to have made it across the valley have surrounded themselves with teams with a diverse range of skills. They have also put in a heck of a lot of hard work and often set their research to one side while they focus on the business project.
So next time you come up with that brilliant idea for a product, don’t just tell your close friends about it, but share it with that contact on the other side of the campus who has an MBA from Harvard Business School. And rather than try to build a prototype yourself in the garage, make sure you enlist somebody who has at least a vague idea about design. Finally, no matter how confident you are of success, never forget these words of venture capitalist Stan Reiss: “There are a lot of dead bones and skeletons at the end of that valley.”