Javier García-Martínez, Kunhao Li - Chemistry Entrepreneurship-Wiley-VCH (2021)

Chemistry Entrepreneurship
Chemistry Entrepreneurship
Edited by Javier García-Martínez and Kunhao Li

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v
Contents
Foreword xv
Preface xvii
1 We Need An Entrepreneurial Culture in Chemistry: Do You

Have What It Takes to be a Chemistry Entrepreneur? 1
Frank L. Jaksch
1.1 Introduction: Disruptive Innovation in Chemistry is in High Demand 1
1.2 Examples of Innovation in Chemistry Catching the Eye of the
Mainstream Market 2
1.2.1 Food and Nutrition 2
1.2.1.1 Just (formerly Hampton Creek) 2
1.2.1.2 Impossible Foods 2
1.2.1.3 Perfect Day 2
1.2.1.4 Endless West (formerly Ava Winery) 3
1.2.2 Sustainable/Renewable Chemistry 3
1.2.2.1 Ginkgo Bioworks 3
1.2.2.2 Modern Meadow 3
1.2.2.3 Genomatica 3
1.2.2.4 Zymergen 3
1.2.3 Biotech/Pharma 3
1.2.3.1 Moderna Therapeutics 4
1.2.3.2 Unity Biotechnology 4
1.2.3.3 CRISPR Therapeutics, Intellia Therapeutics, and Editas Medicine 4
1.2.4 Diagnostics 4
1.2.4.1 23andme 5
1.2.4.2 Grail Diagnostics 5
1.2.4.3 Viome 5
1.2.5 Cautionary Tales 5
1.2.5.1 Theranos 5
1.2.5.2 Solazyme (TerraVia) 6
1.3 Unique Challenges for Chemistry Entrepreneurs 6
1.3.1 The Most Important Trait of Every Chemical Entrepreneur 7
vi Contents
1.3.2 Chemistry Accelerators, Incubators, and Academic Spin-offs 9

1.3.3 Do Something, do Anything, even if it is Wrong 10
1.3.3.1 Penicillin 10
1.3.3.2 Post-It 11
1.3.3.3 Saccharin 11
1.3.3.4 Teflon 11
1.3.3.5 Viagra 12
1.3.4 You have your Discovery; now you need a Patent 13
1.3.4.1 Provisional Patent 13
1.3.4.2 Patent Application 13
1.3.4.3 Patent Prosecution 13
1.3.4.4 Structure of the Patent Claims 13
1.3.4.5 Patent Search and Prior Art 13
1.3.4.6 Publishing Before Patenting 14
1.3.4.7 PCT International Patent 14
1.3.4.8 Protectable Patent Value 14
1.3.4.9 Selecting the Wrong Lawyer for the Job 14
1.4 Invention is Only the Beginning of Creating a Company 15
1.4.1 Know your Role: Founding CEO vs. Founder vs. Inventor 16
1.4.2 Raising Money: Acquiring the Right Money at the Right Time 17
1.4.2.1 Self-funding 18
1.4.2.2 Friends and Family 18
1.4.2.3 Angel Investors 18
1.4.2.4 Accelerators and Incubators 18
1.4.2.5 Debt 18
1.4.2.6 Strategic Investment 19
1.4.2.7 Private Equity 19
1.4.2.8 Venture Capital 19
1.4.2.9 Investment Banks 20
1.4.3 Can you get the idea for Commercialization? 21
1.4.4 When you are Ready to Commercialize, which path do you take? 22
1.4.4.1 Licensing Deal 22
1.4.4.2 Business-to-Business (B2B) 23
1.4.4.3 Business-to-Consumer (B2C) 23
1.5 Do you have the Traits of an Entrepreneur? 24
1.6 Summary: Do You Have What It Takes? 28
Recommended Readings and References 30
Author Biography 30
2 Taking Ideas Out of the Lab: Why and When to Start

a Company in the Biomedical Field 33
Miguel Jimenez, Jason Fuller, Paulina Hill, and Robert Langer
2.1 Introduction 33
2.2 Company Case Studies: Interviews with the Founding Scientists 34
2.2.1 Advanced Inhalation Research: Interview with David Edwards 34
Contents vii
2.2.1.1 Core Technology 34

2.2.1.2 What was the Key Problem and Initial Idea that Sparked the Work? 34
2.2.1.3 Why was it Important to Start Advanced Inhalation Research? 35
2.2.1.4 When was the Technology Ready to Start Advanced Inhalation
Research? 35
2.2.1.5 What Lessons Did You Learn Through This Process? 35
2.2.1.6 Current Status 35
2.2.2 Kala Pharmaceuticals: Interview with Justin Hanes 36
2.2.2.3 Why was it Important to Start Kala Pharmaceuticals? 36
2.2.2.4 When was the Technology Ready to Start Kala Pharmaceuticals? 36
2.2.3 Moderna: Interview with Derrick Rossi 37
2.2.3.3 Why was it Important to Start Moderna? 38
2.2.3.4 When was the Technology Ready to Start Moderna? 38
2.2.4 Sigilon Therapeutics: Interview with Arturo Vegas 38
2.2.4.3 Why was it Important to Start Sigilon? 39
2.2.4.4 When was the Technology Ready to Start Sigilon? 39
2.2.5 Suono Bio: Interview with Carl Schoellhammer 40
2.2.5.3 Why was it Important to Start Suono Bio? 40
2.2.5.4 When was the Technology Ready to Start Suono Bio? 41
2.2.6 Vivtex: Interview with Thomas von Erlach 41
2.2.6.3 Why was it Important to Start Vivtex? 42
2.2.6.4 When was the Technology Ready to Vivtex? 42
2.3 Why Start a Company? 43
2.3.1 To Have the Largest Impact on Patients 43
2.3.2 To Introduce a New Platform Technology 44
viii Contents
2.3.3 Is Licensing an Alternative? 45

2.3.3.1 Licensing to Existing Companies 46
2.3.3.2 Corporate-sponsored Academic Research 46
2.4 When to Start a Company? 47
2.4.1 Is There Enough In Vivo Validation? 47
2.4.2 Was a Patent Filed? 48
2.4.3 Was a Paper Published? 49
2.5 The Secret Ingredient: Who and What? 51
2.5.1 Who Will Start the Company? 51
2.5.1.1 Seasoned Mentors as Co-founders 52
2.5.1.2 Finding a Great CEO 52
2.5.2 What Will the Company Actually Sell? 53
2.6 Summary: Lessons Learned 54
2.6.1 Lesson 1: Work on a High-impact, Platform Technology 54
2.6.2 Lesson 2: Patent Early and Broadly 54
2.6.3 Lesson 3: Keep the Tech in the Lab as Long as Possible 55
2.6.4 Lesson 4: Must have in vivo Efficacy and Safety 55
2.6.5 Lesson 5: Publish in Top Scientific Journals 55
2.6.6 Lesson 6: Partner with Seasoned Entrepreneurs 55
Further Reading 57
Author Biographies 58
3 In Pursuit of New Product Opportunities: Transferring

Technology from Lab to Market 61
Alex Duchak
3.1 Introduction 61
3.1.1 Entrepreneurship and Technology Transfer 61
3.1.2 Pursuing Commercial Product/Service Opportunities via Technology
Transfer 63
3.1.3 A Model for Entrepreneurship via Technology Transfer 65
3.1.4 Extracting Technologies from Research Institutions 68
3.2 Technology Discovery and Development 69
3.2.1 Origins of Technology 69
3.2.2 Technology Transfer Communication Models 70
3.2.3 Transitioning Technologies into Products 70
3.2.4 Timing Technology with Industry Acceptance 73
3.3 Customer Discovery and Development 76
3.3.1 Origins of Market Demand and Unmet Needs 76
3.3.2 Identifying a Technology’s Uses 77
3.3.3 The Value Chain for Target Applications 77
3.3.4 Identifying Stakeholders in the Value Chain 78
3.3.5 Designing Product Experiments 82
3.3.6 Customer Discovery and Validation Model 83
3.3.6.1 Customer Routines Analysis 85
Contents ix
3.4 Case Study: The Naval Research Laboratory’s Self-Decontaminating

Material 89
3.4.1 The Challenge 90
3.4.2 The Scientist 90
3.4.3 The Problem 90
3.4.4 The Solution 90
3.4.5 The Future of the Technology and Future Applications 91
3.4.6 Technology Background and Advantages 91
3.4.7 Benefits 92
3.4.8 Problem 92
3.4.9 Technical Approach 93
3.4.10 Solution 93
3.4.11 Industrial Safety and Hygiene 96
3.4.12 Healthcare and Pharmaceuticals 97
3.4.13 First Response 98
Suggested Reading and Resources 101
Author Biography 101
4 Financing and Business Development for Hard Tech

Startups 103
Bernard Lupien and Andrew Dougherty
4.1 Introduction 103
4.2 Challenges in Financing Hard Tech Startups 104
4.2.1 Balancing Ambition with Reality 104
4.2.2 Hard Tech Sure Is Not Software 104
4.2.3 Hard Tech Investors Are a Skeptical Bunch 105
4.2.4 What Do You Mean I Will Not Exit for $1B? 105
4.2.5 Hard Tech Fundraising Dissonance 106
4.3 Fundraising the Right Way 108
4.3.1 What Kind of Investors Should You Raise from? 108
4.3.1.1 Friends and Family 109
4.3.1.2 Angels 109
4.3.1.3 Early-Stage Institutional Venture Capitalists 110
4.3.1.4 Late-Stage Institutional Venture Capitalists 110
4.3.1.5 Corporate Venture Capital 111
4.3.2 Venture Capital Uncovered 112
4.3.2.1 Fund Life 112
4.3.2.2 Return the Fund 112
4.3.2.3 The Mythical 10× and Why It Is Important to You 113
4.3.3 How to Generate Interest from Investors? 114
4.3.3.1 Team 115
4.3.3.2 Differentiated Technology and Customer Value Proposition 115
4.3.3.3 Large Target Market 115
4.3.3.4 Compelling Plan to Build a Business 116
4.4 The Case for Early-Stage Business Development 119
x Contents
4.4.1.1 Playbook for Early-Stage Business Development 121

4.4.1.2 Getting Started 121
4.4.1.3 Getting to the Finish Line 122
4.4.1.4 Avoiding Common Pitfalls 123
4.5 Summary 125
Suggested Reading 128
5 Battery Entrepreneurship: Gameboard from Lab

to Market 129
Elena V. Timofeeva, John P. Katsoudas, Carlo U. Segre, Alex Duchak, and
Thomas Day
5.2 Finding a Market Fit for Your Technology 131
5.3 Energy Storage Markets 133
5.3.1 Portable Electronics, Drones, and Medical Devices 134
5.3.2 Grid Energy Storage and Renewable Energy 134
5.3.3 Industrial Batteries and Back-up Power 136
5.3.4 Home Energy Storage 136
5.3.5 Electric Vehicles 137
5.3.5.1 Passenger Cars 137
5.3.5.2 Light Electric Utility Vehicles 137
5.3.5.3 Heavy-duty Utility Vehicles, Trucks, and Buses 138
5.3.6 Other Nascent Energy Storage Markets 138
5.3.7 Airplanes 138
5.3.8 Ships and Boats 139
5.4 Battery Startup Case Studies 139
5.4.1 Boston Power 140
5.4.2 A123 Systems 141
5.4.3 Aquion Energy 143
5.4.4 Tesla 144
5.4.5 Fluidic Energy 145
5.4.6 Envia Systems 146
5.4.7 Alevo 147
5.4.8 SiNode/Nanograf 148
5.4.9 Sakti3 149
5.4.10 Cadenza Innovation 150
5.4.11 24M Technologies 151
5.5 Lessons Learned from the Case Studies 152
5.5.1 Market Challenges 152
5.5.2 Technical Challenges 153
5.5.3 Financial Challenges 154
5.5.4 Team Challenges 154
5.6 Strategies for Startups and Academic Inventors 154
5.6.1 Funding Strategy 155
Contents xi
5.6.2 Strategic Partnerships 158

5.6.3 Intellectual Property (IP) Management Strategy 159
5.6.4 Technology Licensing 162
5.6.5 Press Relations (PR) and Marketing Strategies 162
5.7 Summary 163
Further Reading 165
6 Growing a Business in the Chemical Industry 169

Michael Lefenfeld
6.2 Strategic Market Segmentation 172
6.2.1 Do I Have a Solution to an Existing Problem or a Solution Looking
for a Problem? 173
6.2.2 A Solution Looking for a Problem 174
6.2.3 A Problem Looking for a Solution 175
6.2.4 The Opportunity Matrix: A Roadmap for Scaling a Chemical
Business 177
6.2.5 Find the Right Niche 180
6.2.6 Sometimes a Pivot Strategy Can Work 182
6.2.7 Select the Best Path to Market 183
6.2.8 Licensing vs. Manufacturing 184
6.2.9 Strategic Market Assessment 186
6.3 Building Economies of Scale 189
6.3.1 Gaining Customer Traction 190
6.3.2 Customer Testimonials 191
6.3.3 Pricing Models 191
6.3.4 Market Entry and Initial Sales 192
6.3.5 Focus on Measured Growth 193
6.3.6 Direct Sales vs. Distributors 193
6.3.7 Testing and Pivoting 194
6.4 Growing to Commercial Scale 196
6.4.1 Best Practices 196
6.4.2 Financing 197
6.4.3 Growth Constraints 199
6.4.4 Primary and Secondary Markets 199
6.4.5 Insource vs. Outsource 200
6.4.6 Growing Too Fast 201
6.4.7 Hidden Landmines 203
6.4.8 Overcoming Competitive Threats 203
6.4.9 Case Study 205
6.4.9.1 ActiveEOR for the CHOPS Oil Sector 205
6.4.9.2 New Market Strategy 206
6.4.9.3 Introducing a New Chemical to the Oil Market 206
6.4.9.4 Proof of Concept 207
xii Contents
6.5 Summary 208

Suggested Reading 211
7 New Models to Foster Big Pharma and Chemistry

Entrepreneurship 213
Antonio Gómez
7.2 Setting the Stage 214
7.3 Big Pharma and the Open Innovation Model 216
7.3.1 Universities/Research Institutions 218
7.3.2 Biotech Companies 219
7.3.3 Venture Capital 219
7.3.4 Patient Associations and Charities 220
7.3.5 Public Administrations 221
7.3.6 Contract Research Organizations (CROs) 221
7.4 Considerations for Would-Be Entrepreneurs 222
7.4.1 General Reflections on Collaborations with Big Pharma (the How) 222
7.4.2 Areas of Collaboration Between Chemical Companies and Big Pharma
(the What) 225
7.4.2.1 Compound Providers: Custom Synthesis 225
7.4.2.2 Medicinal Chemistry-Based Biotechs 228
7.4.2.3 Cheminformatics-Based Startups 228
7.4.2.4 Getting Information from X-ray Diffraction Studies 229
7.4.2.5 Other Areas 230
7.4.3 Getting in Touch (the Where) 231
7.5 Novel Business Models 232
7.6 Case Study: JJI and the I2D2 Initiative 235
7.7 Summary 237
8 The Economic Need for Chemically Based Start-Up

Companies 241
Daniel Daly
8.2 Promising Programs 244
8.2.1 NSF’s I-Corps (Innovation Corps) Program 244
8.2.2 I-Corps Teams or National Cohorts 246
8.2.3 I-Corps Sites 249
8.2.4 I-Corps Nodes 249
8.2.5 Case Study 249
8.2.6 Non-dilutive Funding Opportunities 250
8.2.7 Angel Funding: Dilutive Funding 252
8.2.8 Accelerators 252
8.3 Other Potential Programs 253
Contents xiii
8.3.1 Case Studies 256

8.3.1.1 Evotec 256
8.3.1.2 CatSci 256
8.3.2 Agile Innovation Teams 257
8.3.3 Case Studies 257
8.3.3.1 525 Solutions, Inc. 257
8.3.3.2 ThruPore Technologies 259
8.4 Summary 260
Recommended Reading 262
Index 263
xv
Foreword
Javier García Martínez and Kunhao Li have put together what I believe is a fascinat-
ing book – to my knowledge the first of its kind – on chemistry entrepreneurship.
I feel privileged to contribute to it, as well as to write this foreword.
The basic goal of the book is to provide guidance to chemists, biochemists, chemi-
cal engineers, and scientists in related disciplines on how to start a company that can
create products from their research, as well as the elements of being an entrepreneur
coupled with being a scientist. There are eight chapters, which I will discuss briefly
below.
The first chapter is aimed at explaining what it takes to be a chemistry
entrepreneur. It discusses examples of innovation in chemistry in food and nutri-
tion, sustainable/renewable chemistry, biotech/pharma, and diagnostics, followed
by a discussion of key challenges like patents. It then discusses invention being only
the beginning of creating a company and examines raising money and getting one’s
key ideas to commercialization.
The second chapter is from our laboratory and discusses starting companies in
the biomedical field. There are six examples: Advanced Inhalation Research, Kala
Pharmaceuticals, Moderna, Sigilon Therapeutics, Suono Bio, and Vivtex. We also
discuss why to start a company (e.g. to have the largest impact on patients), when to
start a company, and related issues.
Next, transferring technology from the lab to the market is evaluated. Such issues
as entrepreneurship and technology transfer, pursuing commercial product/service,
and extracting technologies from research institutions are examined. This is
followed by a discussion of technology discovery and development and customer
discovery and development. A case study of the Naval Research Laboratory’s
development of Self-Decontaminating Materials is also evaluated.
The fourth chapter involves financing and business development, such as balanc-
ing ambition with reality. It then discusses challenges in financing hard tech startups
such as fundraising the right way, including what kind of investors you should raise
funds from and how to generate interest from investors.
The next chapter discusses battery entrepreneurship, including finding a market
for your technology. There is a focus on energy storage markets such as portable
electronics, drones, and medical devices; grid energy storage and renewable energy;
industrial batteries and back-up power; home energy storage; electric vehicles; and
xvi Foreword
other nascent energy storage markets. It then covers battery startup case studies and
lessons learned from these case studies, such as market challenges, technical chal-
lenges, financial challenges, and team challenges. Finally, it evaluates strategies for
startups and academic inventors, such as funding strategies, strategic partnerships,
intellectual property (IP) management strategies, technology licensing, press rela-
tions (PR), and marketing strategies.
The sixth chapter covers growing a business in the chemical industry. It examines
strategic market segmentation, such as situations where one has a solution looking
for a problem as well as a problem looking for a solution. In addition, roadmaps for
scaling a chemical business, finding the right niche, pivot strategies that can work,
selecting the best path to market, licensing vs. manufacturing, and strategic market
assessment are examined. It also evaluates building economies of scale, including
gaining customer traction, customer testimonials, pricing models, market entry and
initial sales, and direct sales vs. distributors. Finally, the chapter discusses growing
to a commercial scale and includes such factors as best practices, financing, growth
constraints, primary and secondary markets, in-sourcing vs. outsourcing, growing
too fast, hidden landmines, and overcoming competitive threats.
The next chapter discusses new models to foster big pharma and chemistry
entrepreneurship. It examines issues specific to universities and research insti-
tutions, biotech companies, venture capital, patient associations and charities,
public administration, and contract research organizations (CROs). It also provides
considerations for would-be entrepreneurs such as reflections on collaborations
with Big Pharma and areas of collaboration between chemical companies and Big
Pharma, as well as novel business models.
The final chapter discusses the economic need for chemically based start-up
companies. It discusses promising programs such as National Science Foundations
(NSF’s) I-Corps and also evaluates non-dilutive funding opportunities, angel
funding, and accelerators.
Overall, I found this to be a very unique book with many real life lessons and
case studies for potential entrepreneurs. I expect we will see more and more compa-
nies started in the future by chemical entrepreneurs, and this book illustrates critical
examples and lessons from which all of us can learn.
Professor Robert S. Langer, MIT

xvii
Preface
When someone decides to embark on the adventure of publishing a new book, a

process that usually requires years of work and a lot of sleeplessness, you should
think hard about why you want to do it. Likewise, when a person decides to purchase
a book, it is convenient that the reader knows why the authors decided to dedicate
themselves to writing it and what can be expected from it. In these first pages, I
would like to answer those two questions in a clear and brief way, why we decided
to edit “Chemistry Entrepreneurship” and what you will learn after reading it.
About the motivation of this book, I think the best way to summarize why we
decided to edit it is because there was nothing similar and I would have loved to have
it when I decided to found Rive Technology in 2006 to commercialize the technology
I discovered at the Massachusetts Institute of Technology. Chemistry Entrepreneur-
ship is the first book to explain how to become a chemical entrepreneur, from cre-
ating a business plan to selling the company. At MIT, I was fortunate to have many
people who helped me create Rive Technology. As a Fulbright post-doc there, I had
no idea about how to create, grow, and sell a company. I was almost fully tied up
with conducting my research and advancing my academic career. Fortunately, I had
a lot of help from industrial veterans. Thanks to my co-founders, Dr. Larry Evans, a
former MIT professor and then recently retired founder and CEO of Aspen Technol-
ogy, leader of chemical process simulations, and Mr. Andrew Dougherty, an business
executive at Aspen, who joined the company we founded together, Rive Technol-
ogy, full time a year later, we managed to protect the intellectual property, raise a
total of $87 million, build a winning team with some of the most respected people
in the industry, secure great strategic partners, and finally sell our company to W. R.
Grace, a leading multinational chemical company. It has not been an easy process
and I have had to learn a lot along the way with experts in almost every aspect of
protecting, licensing, and commercializing chemical innovations. My co-editor, Dr.
Kunhao (Eric) Li, who worked with me at Rive Technology and now is a Director of
R&D at W. R. Grace, and I decided to put together this guide book so that anyone
who wants to start a business in the chemical sector can do so with the resources,
advice, and information at their fingertips.
Another reason why we decided to edit and publish this book is that we strongly
believe that Chemistry Entrepreneurship is a topic of great importance. Many inno-
vations never leave the lab because those who made those discoveries do not know
xviii Preface
how or have not considered commercializing those technologies. We hope that this
book will inspire them to become entrepreneurs. The society will benefit from more
discoveries reaching the market, as those innovations could not only create jobs and
wealth but also help solve some of our most pressing problems from fighting climate
change to curing new illnesses.
One of the key messages we want to convey with this book is that it is not necessary
to make a great scientific discovery in order to create a company. Many successful
businesses are based on new types of business, on improving practical aspects or
reducing costs. As frequently said, an entrepreneur is a person who where others
see a problem, he or she sees a business opportunity. The chemical sector, despite
its size, maturity, and resources, presents numerous opportunities for improvement,
whether toward a more circular economy or its decarbonization. On the other hand,
commercialization of a discovery, product, service, improvement, or new business
model in the chemical sector does not always (and rarely does) involve the creation
of a new company. There are many other ways to reach the market without having
to found a company, such as licensing a patent, a joint development agreement, or
selling rights. It is very important that we think about which of these and other busi-
ness models suits the best. This book tries to provide you the resources to help you
make these important decisions.
Despite the fact that many chemists, especially in academic institutions, make
discoveries that are potentially the seeds of new businesses, the average chemists
receive very little training on how to patent, write a business plan, or create a com-
pany from their formal education. We are glad to see that in recent years there are
increasing interests in formal and informal trainings on entrepreneurship at various
educational levels. We hope that this book will be useful to both those learning and
teaching those courses.
We would like to thank the authors of the different chapters of this book, who
themselves have been actively engaging with chemistry entrepreneurship, for shar-
ing their knowledge and first-hand experience in this book. We are especially grate-
ful to Professor Robert Langer of MIT, a leading scientist and serial inventor and
entrepreneur, for writing the Foreword for the book, in addition to contributing an
excellent chapter with his colleagues. We also want to thank Wiley who believed in
this project from the beginning and helped produce this book in your hands.
“Chemistry Entrepreneurship” is meant to be a practical guide instead of an aca-
demic book for chemists and chemical engineers who want to start a business to
bring chemical innovations to markets. In each chapter, there are highlighted “Tips”
or “Key Takeaways,” figures, images and diagrams that help emphasize and visual-
ize the basic concepts. Each chapter also has at least one case study to exemplify how
the concepts are applied by real-life entrepreneurs at different stages of a chemical
start-up, the resources available to new chemical entrepreneurs, the common mis-
takes and consequences, etc. We believe that these case studies offer unique learning
experience to the readers. In addition, each chapter ends with a thematic drawing as
visual summary of the main idea the authors have decided to highlight in his con-
tribution. We hope you find this book a visually attractive, easy to read, and useful
to your own entrepreneurial endeavors.
Preface xix
Lastly, I wish you all the success in creating and growing your own chemical
start-ups in near future!
Javier García-Martínez
Co-founder of Rive Technology, Inc.
Professor of Chemistry, University of Alicante, Alicante, Spain
1
We Need An Entrepreneurial Culture in Chemistry: Do You

Have What It Takes to be a Chemistry Entrepreneur?
Frank L. Jaksch
ChromaDex, 10900 Wilshire Blvd, Westwood, Los Angeles, CA 90049, USA
Many scientists intrinsically understand that their discoveries might translate

into important, highly profitable entrepreneurial enterprises,” says Madeleine
Jacobs, executive director and CEO of the American Chemical Society, which
published a report last year on chemical entrepreneurs (C&EN, Nov. 7, 2011,
page 47). “But making a discovery or patenting an invention is only the begin-
ning of creating a company. Bringing that idea or invention to commercialization
and creating a successful company requires a different set of skills and knowledge
than carrying out basic research. [1]
1.1 Introduction: Disruptive Innovation in Chemistry

is in High Demand
When I think about the future of chemistry entrepreneurship, the term limitless
comes to mind. Chemistry is associated with more than 96% of all the world’s
manufactured goods today. Over the last 25 years, there has been an explosion of
innovative and disruptive chemistry companies entering the market and using
chemistry to create products ranging from food, beverage, supplements, biofuel,
drugs, diagnostics, and skin care, naming a few. So, if you have a chemistry or
biochemistry background, a good idea, and want to start your own company – now is
the time to do it. The market is ready to keep rewarding those who bring innovative,
disruptive solutions based on science.
However, for many scientists, this innovation process works backward. The prod-
uct is created before they even know it has value. One of the main reasons the market
has a growing interest in chemistry companies is that they are often established with
a central mission to solve a problem. They may not have a solution yet, but they have
a strategic plan to find one.
Chemistry Entrepreneurship, First Edition. Edited by Javier García-Martínez and Kunhao Li.
© 2022 WILEY-VCH GmbH. Published 2022 by WILEY-VCH GmbH.
2 1 We Need An Entrepreneurial Culture in Chemistry
As a scientist entrepreneur, your time should be spent exclusively on how your

business can use science to address a specific problem. Chemists are naturally look-
ing to do something that has never been done before, so the ideation and innovation
process comes naturally. Many chemistry entrepreneurs come not with creating an
idea but also turning that idea into a successful, thriving business.
1.2 Examples of Innovation in Chemistry Catching

the Eye of the Mainstream Market
About 10–15 years ago, the term “innovation” started to become a cliché. Every com-
pany was touting innovation when what they were doing, in reality, was nothing
more than ordinary. Adding buckwheat, the latest and greatest “super grain” to your
vegetable soup product is not innovation. Real innovation should mean creating or
inventing something that never existed.
If we look at the buzzword landscape today, it is all about “disruptive” innovation.
While I think the word disruptive is also overused, some cool companies are doing
some cool things worthy of being called disruptive.
1.2.1 Food and Nutrition

Imagine a world where a steak was not from a cow, and eggs were not from a chicken
instead were manufactured in bioreactors. Recently, there has been a tremendous
amount of activity in the category of engineered food. These five companies collec-
tively raised over $500 million in the past few years, and chemists founded all.
1.2.1.1 Just (formerly Hampton Creek)

A plant-based food company founded in 2011 launched Just Mayo, an eggless mayo
product, in 2013. Just is included here because they have a very sophisticated high
throughput screening model for identifying ingredients from plants that can be used
to formulate products.
1.2.1.2 Impossible Foods

Founded in 2011 by Stanford biochemistry professor Patrick Brown, Impossible
Foods develops plant-based alternatives for meat and dairy. The company uses
chemistry to look at animal products down to the molecular level and then identifies
plant-based proteins and nutrients to create new products. Their first product, the
Impossible Burger, was launched in 2016.
1.2.1.3 Perfect Day

Founded in 2014 to create sustainable, animal-free dairy products, Perfect Day is
developing novel fermentation methods for manufacturing dairy proteins.
1.2 Examples of Innovation in Chemistry Catching the Eye of the Mainstream Market 3
1.2.1.4 Endless West (formerly Ava Winery)

Founded in 2016, Ava Winery is now rebranded under Endless West. This company
started off trying to reverse engineer the usual grape fermentation wine-making
process to develop a more synthetic means of replicating wine. It looks like they may
have had some initial challenges with synthetic wine. However, their rebranding has
positioned them to focus on synthetic spirits such as whiskey or rum.
1.2.2 Sustainable/Renewable Chemistry

There has been much activity in synthetic biology over the past few years, with
numerous startups jumping into space in just the last two decades. Advances in the
speed and cost of deoxyribonucleic acid (DNA) synthesis and gene editing have made
it much easier to engineer microorganisms to be used as factories producing food
ingredients, drugs, biofuels, specialty chemicals, and more in an environmentally
safe and sustainable way.
1.2.2.1 Ginkgo Bioworks

A synthetic biology biotech company was founded in 2009 by a scientist from
the Massachusetts Institute of Technology (MIT). The company has a rapid, high
throughput development process for genetically engineering microorganisms to act
as factories to manufacture chemicals that can produce food, drugs, cosmetics, or
pretty much anything for that matter.
1.2.2.2 Modern Meadow

Founded in 2011, this company uses a yeast fermentation process to make collagen
used to produce leather or “biofabricated” leather without the cow.
1.2.2.3 Genomatica
This San Diego-based bioengineering company develops biobased, sustainable
processes to manufacture industrial chemicals that can be used for food packaging,
auto parts, clothing, tires, carpets, and more. They successfully commercialized a
process to make bio-BDO for plastics and butylene glycol for cosmetics.
1.2.2.4 Zymergen
Like Ginkgo Bioworks and Genomatica, Zymergen is a synthetic biology company
that genetically engineers microbes to manufacture chemicals. In a world that seems
skeptical of words such as “synthetic” and “genetic engineering,” it is hard to ignore
innovation that could dramatically impact sustainable and more environmentally
suitable production.
1.2.3 Biotech/Pharma
Innovative and emerging technologies are changing the landscape across the entire
pharmaceutical industry. Today, the innovators of drug development are the smaller
and quite often startup biotech and pharma companies. Large pharma companies’
development process has shifted from R&D to acquiring the innovative small
companies that demonstrate success and paying handsomely for them. This trend
has a healthy pool of investment dollars to further fuel the innovation in smaller
startups.
1.2.3.1 Moderna Therapeutics

This company was founded by Harvard researchers in 2010 who developed a method
for modifying mRNA to dedifferentiate human cells into stem cells. Their drug devel-
opment platform has received a tremendous amount of publicity, and as a result, the
company has raised well over a billion dollars in equity financing. Since the original
draft of this manuscript, Moderna has become quite famous by utilizing this model
to create a Covid-19 vaccine. They now have an $87 billion market capitalization,
amazing what can happen to a disruptive company in a short time.
1.2.3.2 Unity Biotechnology

This biotech company is aiming its drug development platform toward finding a
cure for aging. It seems like that might be a lofty goal, but in reality, they are focused
on developing drugs for the many diseases of aging. Their platform centers around
senescent cells (those that are stuck, neither dividing nor dying). Unity Biotech-
nology was created based on licensed technology from the Mayo Clinic and the
Buck Institute. Their focus on the science of aging has made the company a media
darling that has received tremendous interest in the venture capital (VC) funding
community.
1.2.3.3 CRISPR Therapeutics, Intellia Therapeutics, and Editas Medicine

These are the three main companies battling for a position in the CRISPR gene edit-
ing drug development. They all had in common that they are all focused on develop-
ing platforms around CRISPR-Cas9 technology. Intellia and Crispr are co-founded
companies by Doudna and Charpentier and backed by the UC Berkeley CRISPR
patents. Editas was created around the Broad Institute, MIT, and Harvard patent.
Historically, there has been a tremendous interest in gene therapy as a way to cure
diseases or conditions, and CRISPR seems like it might be a very promising path to
fixing past failures in the category, which is why we see so many companies battling
for control.
1.2.4 Diagnostics
Personalized medicine or nutrition is one of the hot areas in pharmaceuticals,
foods, and supplements. Imagine a world where you could actively monitor your
health through devices (such as a Fitbit or Apple watch). Another diagnostic testing
(such as blood, sweat, or urine), to receive drugs, supplements, or food specific to
your health needs. Without innovation in diagnostics, it will be virtually impossible
to enable the idea of personalized medicine. Tests are being developed to rapidly
screen and provide early detection for diseases or conditions that previously were
detectable only through symptoms and a biopsy. There was also an explosion of
1.2 Examples of Innovation in Chemistry Catching the Eye of the Mainstream Market 5
at-home tests, in which sample kits are sent to and taken by the consumer, then
sent to a lab for testing. These at-home test kits have also led to several startups
combining at-home testing with personalized medicine/nutrition solutions. The
company uses the testing data to prescribe vitamins, medicine, or nutrition pro-
grams to improve health and wellness. There was some early success in both areas,
which led to an explosion of VC financing activity over the past few years.
1.2.4.1 23andme
Founded in 2006, 23andme has become a household name due to all of the adver-
tising and sponsorship programs they ran to engage consumers in DNA testing. The
company is named for the 23 pairs of chromosomes in a human cell. They are quickly
moving from ancestry-based DNA service to genetic testing services for health and
wellness.
1.2.4.2 Grail Diagnostics

This startup cancer diagnostics company was a spin-out from Illumina and entered
the space with too much fanfare raising over $1 billion in financing – not bad for a
startup. Grail aims to develop a blood test to detect cancer early before symptoms
begin.
1.2.4.3 Viome
Viome is a personalized nutrition company that combines an at-home diagnostic
testing kit with a nutritional program based on that data results.
1.2.5 Cautionary Tales

Success in chemistry entrepreneurship brought a healthy supply of funding to the
entire field. It was only natural that this success might lead to some failures as well
and attract bad actors. Being an early chemistry innovator is difficult. The more
money you raise, the farther you have to fall when things go wrong. In the end,
even the early innovators that fail usually blaze the trail for new ones who often go
on to succeed or blaze trails of their own.
1.2.5.1 Theranos
This company blew up terribly. I cannot imagine that anyone does not know about
this story. Theranos was going to disrupt and reinvent the entire blood-testing busi-
ness. They developed an all-in-one device called Edison to do all of the testing needed
from a single drop of blood from a finger prick. It sounds great when you say it
like that, and on that basic premise, Elizabeth Holmes, the founder, raised around
$1 billion, with a valuation as high as $9 billion. Unfortunately, their device was a
fantasy. To provide blood test results, Theranos relied on the same blood testing
equipment and technique other blood testing labs employed. They were trying to
fake it until they made it, or at least that was the plan until an investigative writer
from the Wall Street Journal exposed the company as a gigantic fraud. The US Attor-
ney is currently indicting Holmes in San Francisco for fraud, and the company has
been formally dissolved.
1.2.5.2 Solazyme (TerraVia)

This company was founded in 2003 to utilize microalgae to create renewable
fuels. Using their algal molecular biology platform, they found that the pro-
cess created other compounds valuable for health and nutrition. The company
successfully received millions of dollars in government grant money to develop
commercial-scale algal oils. Solazyme went public on the NASDAQ in 2011 and
raised almost $200 million in the initial public offering (IPO). As the oil price
continued to decline, however, it becomes difficult to support the use of algal oil as
a cost-effective, renewable energy source. Solazyme officially changed its name to
TerraVia in 2016 to focus on food, nutrition, and personal care. However, the debt
accrued during their time as an algal oil business left them in a precarious position.
TerraVia filed for bankruptcy protection in 2017.
Tips for Readers
As capital market interest in the space continues to grow, these companies will get
more and more competitive, which can be both a good and bad thing. The compe-
tition among financiers grows in the category, as does a phenomenon called FOMO
or fear of missing out. That means that they sometimes start making poor invest-
ment decisions by not spending as much time doing due diligence as they should.
This behavior can sometimes fuel a “fake it until you make it” mentality within the
startup community. Fake it until you make it may work in the internet, software, and
app development. However, it is unacceptable in markets, products, or services that
can impact human health.
As you can see, it is a great time to be a chemistry entrepreneur. There are many
early signs of success, and that success will bring additional interest and funding.
Now that we have established a need for chemistry in business, let us look at how to
start and run a successful chemistry business.
1.3 Unique Challenges for Chemistry Entrepreneurs

Everyone loves a plot twist. We root for the heroes of stories like those behind
Facebook or Apple, where soon-to-be global companies began in college dorm
rooms or parent’s garages. However, these tales are not the reality for a chemistry
entrepreneur. Our kind of innovation requires specific facilities and expensive
equipment. The only exception to that rule would be a PhD student or professor
coming up with an idea during already funded research. Although discoveries such
as those come with complications of their own.
This may not come as a surprise, but the biggest challenges facing the chemistry
entrepreneur have nothing to do with chemistry. They come from personality and
business savvy.
1.3.1 The Most Important Trait of Every Chemical Entrepreneur

One of the first and most important traits you will need is also one of the most impor-
tant challenges you will face. It can be particularly tempting for chemists to value
their inventions over the works of others. The field, after all, can be rather com-
petitive and non-collaborative. To be a successful chemical entrepreneur, you will
need the ability to identify ideas worth commercializing, whether you invented them
or not.
In my experience, chemists are trained to find something truly unique. It is part of
the culture in chemistry to find a new theory, do the research to prove it, and publish
in a top-tiered peer-reviewed journal (perhaps even get the patent). What chemists
are not trained to do is figure out whether their invention could create a viable prod-
uct. This can be especially difficult for chemists as many of their innovations may
not easily translate into a product.
One of the best examples of this is 3 M’s Post-It note. Spencer Silver accidentally
created a weak glue that seemed to serve no purpose until Art Fry applied it to paper
and made sticky notes. Without this ingenuity and collaboration, Spencer’s adhesive
may have never been commercialized at all.
I have seen hundreds of university inventions or patents over the last 20 years
resulting from years of hard work and research. Only a small fraction of those
inventions were worth further evaluation, and only an even smaller fraction proved
to have commercial value. Recognizing the difference between the two sets apart
those who merely want to be a successful chemistry entrepreneur from those who
become one.
Educating and Preparing Chemists to be Entrepreneurs
Another unique challenge presented to the chemistry entrepreneur is education.

According to a recent Wall Street Journal article, chemistry as a major is on
the decline [2]. One-third of all college freshmen in the United States pursue a
STEM major, but only 1.2% of those students become chemists. Recent numbers
show this percentage is still on the decline. Even those students who do join as
chemistry majors soon transfer out to pursue another program.
This is a problem for the field. It creates problems for those in the chem-
istry businesses looking to hire chemists. Undergraduate programs are too rigid
and leave little room for students to pursue side passions. We need to reinvig-
orate these programs at the university level, to entice students into becoming
chemists and retain those who already want to be one. It is important to note
that companies looking to hire students with a technical background in chem-
istry also desire students with practical business and commercial experience
or awareness. Just because you have a chemistry degree does not mean you
understand what the day-to-day jobs or responsibilities would be if you worked
in pharmaceutical quality control or research lab.
(Continued)
(Continued)
In the 2015 Survey of Employers (CBI), it was noted that 34% of businesses
said that the quality of STEM graduates was not good enough, and 46% said
they lacked business and commercial awareness in the workplace [3].
As an employer in chemistry, I can confirm that most straight out of school
applicants we interview do not understand how to apply the chemistry they
learned in a business environment. Three main areas need to need to incorpo-
rate into the undergraduate curriculums to fix this problem. First, both class-
room and laboratory courses should integrate real-world business examples of
chemistry at work. For example, while learning about high-performance liquid
chromatography (HPLC) in the analytical chemistry laboratory, students should
be challenged with something more than a simple mixture of amino acids.
Students should be doing work on real-world drug samples, where they have
to prepare the sample and run it as if they were working in the quality con-
trol department for a pharmaceutical company. Second, chemistry curriculums
should include or integrate education about how chemistry is used in busi-
ness. There are so many different types of companies that utilize chemistry
such as pharmaceutical (Pfizer), biotechnology (Amgen), food (Nestle), beverage
(Pepsi), cosmetic (Estee Lauder), consumer products (Procter&Gamble), chemical
(Dupont), diagnostics (Labcorp), agrochemicals (Monsanto), dietary supplement
(ChromaDex), the list goes on. Many different types of chemistry are being uti-
lized by different departments such as quality control, manufacturing, research
and development, product development, and many others, even within these
companies. Students must learn how the chemistry they are learning is applied
in business and how that might translate to career opportunities. Finally, it is
important to bring in people from the outside world to speak and interact with
students, preferably former students working in chemistry labs for these types
of businesses. If these topics were part of the curriculum, it is safe to say that
the survey numbers would probably improve dramatically.
Emory University in Atlanta and Davidson College in North Carolina are
two examples of programs that recognize this trend and attempt to challenge
the norm. For example, Davidson’s new curriculum requires students to take
one course each in five foundational areas. It then allows the up-and-coming
chemists to choose from a range of higher-level classes on subjects such
as medicinal chemistry and immunology. Both universities move beyond the
traditional format and on to a new chemistry style based on interdisciplinary
foundational courses and various electives.
There is also an interesting publication worth reading by Wolfgang
Runge and Stefan Brase at the University of Karlsruhe called “Education
in Chemical Entrepreneurship: Towards Technology Entrepreneurship for an in
Chemistry-Related Enterprises.” It summarizes their experience in executing
a “Theory-to-Practice” model for teaching technology entrepreneurship and
intrapreneurship [4].
Economics used to be referred to as the “dismal science,” but chemistry

is now taking its place. If we capitalize on this movement toward chemistry
entrepreneurship across multiple markets worldwide, we need to rethink how
we groom those who lead it.
1.3.2 Chemistry Accelerators, Incubators, and Academic Spin-offs

Raising money for an early-stage idea in chemistry can be very difficult or very
expensive. It means you do not get the funds necessary to get to the next stage, or if
you do find someone willing to finance the company, you will find yourself giving
away the majority of the company right out of the gate. Finding a cost-effective way
to get to a proof of concept or prototype will dramatically improve your ability to get
that seed round or Series A.
Incubators and accelerators have become an increasingly important early-stage
funding option for chemistry startups over the past few years.
Y Combinator is an American seed accelerator, started in March 2005. They have
a very interesting incubator model, whereas they invest a small amount of money,
$150 000, in many companies twice a year. The startups all move to Silicon Val-
ley for three months to refine their business models and prepare them for pitching
investors. The most important thing they do at YC is not providing the funding, but
their experience in helping these very young startups with their ideas. Y Combinator
has spawned several highly successful companies and is consistently ranked at the
top of US accelerators. YC has companies such as Dropbox, Airbnb, and its chemistry
participant Ginkgo Bioworks in their portfolio.
Incubators are not new, but many university and corporate incubators have
popped up over the past few years. Historically, incubators have not been very
successful, but the concept is beginning to turn a corner, and they are starting to
achieve results.
In October 2016, MIT announced creating a startup incubator called The Engine,
which will provide funding, workspace, and access to equipment and experts to help
them during the early stages of establishing a product or a business. The Engine
has a straightforward application process that references the Heilmeier Catechism,
created by George H. Heilmeier, former DARPA director, who established a set of
questions to help the Agency evaluate these types of proposals [5].
The Heilmeier Catechism
1. What are you trying to do? Articulate your objectives using absolutely no jargon.
2. How is it done today, and what are the limits of current practice?
3. What is new in your approach, and why do you think it will be successful?
4. Who cares? If you are successful, what difference will it make?
5. What are the risks?
6. How much will it cost?
7. How long will it take?
8. What are the mid-term and final “exams to check for success”?
This is a simple yet brilliant approach to evaluating these types of early-stage

opportunities.
In 2017, DuPont and the University of Delaware established the Delaware Innova-
tion Space (DIS) incubator, a chemistry incubator, right on their own Experimental
Research campus in Delaware. The DIS provides opportunities for students, an out-
let for intellectual property developed at the university, and a way of creating value
from DuPont’s decommissioned assets. Even more interesting was that the estab-
lishment of the incubator was not too long after they made cutbacks in their central
research unit.
One of the reasons incubators are important has to do with visibility. Scientists can
see a place on campus where they can talk to somebody and try to find a way to take
their interests and research and transfer them into a startup. Without incubators,
these scientists may not know where to start or how to take their ideas to market.
Incubators also relieve the founders of many pressures of getting a business up and
running, to focus on developing and innovating.
The visibility angle is half the battle. How do we find more chemists that have
an entrepreneurial spirit and are willing to take the necessary risks to make
entrepreneurship happen?
1.3.3 Do Something, do Anything, even if it is Wrong

The best way to learn is by doing. The problem is that many people never get to the
doing phase. Why? The primary reason is the fear of making a decision.
As a kid, when I was struggling to decide about something, my father would always
say, “Do something, do anything, even if it is wrong.” I always remember thinking,
what the hell does that mean? It was not until years later that I finally figured it out,
right or wrong, just decide and get moving. The biggest mistake you can make as an
entrepreneur is hesitating to decide, primarily out of fear of failure. No one can be
right every time, and you will not know if you were right or wrong until you have
either tried and succeeded or tried and failed.
Failure is part of the process. Great chemists and entrepreneurs learn to harness
failure by learning from their mistakes. It is amazing what clarity failure can bring,
not always knowing what to do, but what not to do.
When it comes to chemistry and research, chemists seem to understand the link
between failure and success. Some of the biggest commercial success stories in the
field of chemistry started as accidental findings from failure.
1.3.3.1 Penicillin
Penicillin was first discovered in 1928 and is perhaps the most widely used antibiotic
in the world today. Sir Alexander Fleming found penicillin during the cleanup of a
failed microbiological experiment attributed to a careless lab technician handling
the experiments while he was on vacation. Accidental mold contamination of the
microbiological experiment led to an unexpected finding. From his failure, the world
got penicillin.
Tips for Readers
Failure can provide great insight. Take time to evaluate failure. If Alexander Fleming
did not take the time to look at his failure, we might not have penicillin today.
1.3.3.2 Post-It
In 1968, Spencer Silver was trying to develop a strong adhesive for 3M. Instead, he
developed the opposite, a weak but reusable glue that could easily be lifted from
the surfaces it was on. There was no real-world application for Silver’s reusable glue
until 1974 when a colleague in new product development, Art Fry, who was aware
of the adhesive, conceived of using the glue as a way of holding bookmarks in his
hymnal while singing in his church choir. From this, Post-It notes were born.
Tips for Readers
As chemists and scientists, sometimes we are too close to the invention to identify
practical commercial use for the technology. Surround yourself with people with
backgrounds and experience in different markets or fields and communicate with
them. This will increase your chances of finding an application for your invention.
1.3.3.3 Saccharin
In 1879, Constantin Fahlberg, who was researching new uses for coal tar, had spilled
some chemicals on his hands and forgot to wash his hands before eating. He found
a super sweet substance on his hands, and saccharin was born. Ultimately it took
many years for the market to find any commercial value in saccharin. It did not
become popular until the 1960s and 1970s, when the Sweet’N Low brand started to
take hold.
Tips for Readers
It is hard to imagine replicating this discovery in the lab safety environment we work
in today. However, it is still a great example of an accidental chemistry invention.
1.3.3.4 Teflon
While researching new chlorofluorocarbon refrigerants, Dupont chemist Roy Plun-
kett produced tetrafluoroethylene (TFE) gas stored in cylinders before use. When
they tried to use the cylinders of TFE, no gas came out, and when they opened them,
they found a white powder. Despite the failure, Plunkett chose to analyze the white
powder and found it chemically inert, heat resistant, and low surface friction, which
ultimately became a new polymer called polytetrafluoroethylene known as Teflon.
This accidental discovery ultimately took years to develop into a cost-effective com-
mercial product. It took a team of chemists and engineers in polymer research to
evaluate the chemical properties of Teflon and identify commercial applications.
1.3.3.5 Viagra
More recently, Pfizer chemists came up with a compound called sildenafil citrate.
They were testing high blood pressure, a heart drug candidate that failed during
clinical trials but exhibited some very interesting side effects. Even with the news of
this interesting side effect, the development team was dangerously close to shutter-
ing the program. One persistent R&D team member was begging for a small amount
of additional funds to further evaluate the side effect, which ultimately led to the
development of what we know as the little blue pill called Viagra.
Tips for Readers
Do not be so quick to throw failures away. Whether you work for a significantly larger
company or a small startup, sometimes it can be hard to resist a quick exit from a
failed project. Failure is often a critical part of the R&D process and costs significant
time and money. However, failure also delivers data, results, and experience, which
can have tremendous value in the right hands. In the Viagra example, an unexpected
finding delivered value well beyond the initial focus of the study.
If you are not afraid to take risks in chemistry research, why would you be afraid to
take risks in business? When it is all said and done, good chemists and entrepreneurs
will not regret their failures anywhere near as much as they regret the chances they
did not take.
Successful people never stop learning, evolving, or changing themselves for the
better, even when they have found success.
Tips for Readers
As an entrepreneur, you cannot be afraid of failure. Unless you are very lucky, you will
need to fail repeatedly to land on something that will work eventually. The road to
success is paved with failure. Like my father told me when I was a kid, do something,
do anything, even if it is wrong.
1.3.4 You have your Discovery; now you need a Patent

Another challenge or pitfall for chemists is the patent process. As technical experts,
we think we understand how to structure patent claims. However, the patent process
can be a costly and complicated exercise, as it will require patent lawyers’ expertise.
You could take the patent filing challenge on yourself, many have tried, but most fail.
Whether you came up with the idea while doing your research or found something
you can license, you will need money to bring the invention to the next stage: filing
or licensing a patent.
1.3.4.1 Provisional Patent

The provisional patent process can be a good way to get started on protecting your
invention. For example, your invention is still very conceptual, and you do not have
enough data to enable the idea fully. This process gives you one year to do your
research and provide the data necessary to file a patent application. However, if the
provisional patent is not drafted properly, it could cause problems during the appli-
cation and prosecution phases.
1.3.4.2 Patent Application

Suppose you want to have a patent with protectable value. Much work goes into the
application. There are many factors in filing a solid patent application, such as struc-
ture of claims, patent search, prior art, and international considerations, to name
a few.
1.3.4.3 Patent Prosecution

Once your patent application has been filed, that is only the beginning. The patent
application will be assigned to a patent examiner, and the fun begins. Many people
underestimate the amount of work that goes into the prosecution phase. It can take
years and much money to get a patent application, and in many cases, the patent
issued can be vastly different from what was initially proposed.
1.3.4.4 Structure of the Patent Claims

There are many ways of structuring patent claims. A truly great invention could be
worth very little if the claims are not structured properly. This is perhaps one of the
most important reasons you want a solid patent lawyer working on the application.
Some chemists believe that since they are technical experts, they know how to struc-
ture claims, which is a big mistake. There are many complicated nuances in getting
the language correct, and doing it poorly could cost you big time.
1.3.4.5 Patent Search and Prior Art

One of the main reasons many patents do not issue or are later overturned is prior
art. You need to do a thorough search for any prior art that could be problematic
during prosecution or future defense of the patent. This is another good reason to
have patent counsel, as they have access to the tools and staff necessary to do this
kind of in-depth investigative work.
1.3.4.6 Publishing Before Patenting

One common mistake with researcher inventors is the publication of the research
underlying their invention. We can all admit that finding something innovative,
groundbreaking, and the novel is very exciting stuff. However, if you intend to file a
patent, you need to hold the publication until after you have a solid invention disclo-
sure in place. I cannot emphasize this point enough, as valuable licensed patents had
vanished right before my eyes, knocked out by an early publication of the research.
This is yet another good reason to have patent counsel advising right from the
beginning.
1.3.4.7 PCT International Patent

Most inventions have an international scope. The Patent Cooperation Treaty (PCT)
allows you to expand your patent scope from the US to pretty much every country if
you wanted to do that. When you file the PTC application, you can choose all coun-
tries or pick the highest value countries. Once a PTC application is filed, you will
have a timeline by which you will need to file a formal application in that country.
The PTC process can cost hundreds of thousands of dollars, and that is just the filing
fees. It does not include the translation, formatting, and filing of an application in
each country.
1.3.4.8 Protectable Patent Value

The goal is to obtain a patent that can defend and protect your invention. The prob-
lem is that not all patents are equal. There are strong, weak, and mediocre ones.
Patents that have survived challenges or were successfully defended in litigation
have considerably more value than patents that have never been challenged.
1.3.4.9 Selecting the Wrong Lawyer for the Job

There are good and bad lawyers. There are also many different types of patent
lawyers, such as prosecutors and litigators, and each has varying degrees of familiar-
ity with our field. Some may have experience working with chemistry, while some
may have no technical background whatsoever. Finding a good attorney to cover all
of the items listed above can be challenging and does require some due diligence.
Since this will be such a big expense, it is worth spending the time interviewing and
selecting the right lawyer for the job.
There are many pitfalls and traps when navigating the patent process, which is
why it is better left to a qualified, trained professional. There is a great guidance
document created and updated by the American Chemical Society (ACS), “What
Every Chemist Should Know About Patents,” that goes into a lot more detail about
the patent process [6]. It can help familiarize yourself with the patent process and
lingo before you start working with a patent lawyer. However, I would not suggest
navigating this incredibly valuable and complex process on your own.
Ultimately, how valuable a patent depends on how defendable in the face of a
challenge. Obtaining a solid patent that is defendable in the commercial world can
be very complicated, expensive but, in the end, will be very valuable if done properly.
Find a good patent lawyer and let them do the heavy lifting.
Tips for Readers
Suppose you are considering filing your patent, without a patent attorney, especially
for those working in the field of chemistry. In that case, there is a very low likelihood
that the patent will deliver any substantial protectable value. Do your best to find a
way to obtain the funds to have a patent attorney do the work. However, if the money
is not available, do not let that hold you back. Start by filing a provisional patent,
which will buy you one more year to find the funds to hire a qualified attorney. At the
same time, you continue to work and develop the idea to enable the invention better.
Case Study 1.1
The CRISPR patent wars
If you are an aspiring chemistry entrepreneur and you have not been follow-
ing the patent battle over CRISPR, you need to start reading up on that story.
CRISPR-Cas9, which turned out to be a ridiculously simple way of editing genes,
is perhaps one of the biggest stories in chemistry over the past decade.
It all started in 2012 when Jennifer Doudna, from UC Berkeley and whom
many consider the creator of CRISPR, published the first paper on the enzyme
in Science. Further advances followed when Feng Zheng, at the Broad Insti-
tute, co-authored a paper in Science in February 2013. Ever since, UC Berkeley,
Broad, Harvard, and MIT have been locked in a patent battle over CRISPR-Cas9.
In September 2018, the US Court of Appeals for the Federal Circuit issued a
decisive ruling, awarding CRISPR-Cas9 gene editing to the Broad Institute.
Tips for Readers
This CRISPR patent battle is the perfect example of why you should spend the time
and money on intellectual property and take the patent process very seriously. Just
put yourself in Jennifer Doudna’s shoes and imagine you were the inventor of a
revolutionary new technology that someone else outsmarted you on the patent front.
1.4 Invention is Only the Beginning of Creating

a Company
Now that you have your product, or at least a prototype of it, and have done the best
you can to protect its patent, the next logical step is to form a company – maybe.
Just because you have a protected invention does not necessarily mean it has to be a
company. For all of you that might watch Shark Tank regularly, you will often hear
the sharks’ comments to the presenter that they have a product, not a company, and
more so than not, that statement will lead to an “I’m out.” The first step is to assess
whether your product is enough to form a company.
If your invention is indeed only a product, do not be discouraged, many inventions
are licensed, distributed, or sold. Licensing or selling a patent to a company with the
resources necessary to get a product to market, or better yet, using the invention for
improving an already existing product, can be a very financially lucrative option.
If you decide to start a company based on your invention or idea, there are still
many critical decisions. At what point do you need to raise money to capitalize the
company for success appropriately? As the founder, are you going to be the right
person to run the company as the CEO? How are you going to get your invention to
commercialization? When the product is ready, how are you going to market or sell
it? All of these are crucial decisions that will impact the future success or failure of
your company.
1.4.1 Know your Role: Founding CEO vs. Founder vs. Inventor
I have seen many inventors make the classic mistake of thinking that since they
created the product or idea, they also need to start and lead the company. It is quite
common for founders to lead the company during the early formative years. This is
when the founder should be doing some serious self-reflection focused around one
question: Am I the person who can take this company to the next level?
In a recent article in Science, the concept of “founders and joiners” was discussed
about chemistry [7]. There are two styles of entrepreneurs: the ones who will found
a company and the ones who take a risk by joining a company at an early stage. As a
rule, “founders” are significantly more risk-tolerant and have a stronger interest in
management, whereas “joiners” are more interested in functional work activities,
such as research and development.
In a recent study, 4000 PhDs were interviewed about their opinion on this topic.
Forty-six percent expressed interest in joining a startup as an employee, while 11%
expected to start their own company one day. The article also cited that mandated
entrepreneurship training is likely to be inefficient in fostering the “founders and
joiners” relationship.
Let us look at the GEN (Genetic Engineering & Biotechnology News) annual “Top
10 Under 40” list. You will find a pretty consistent mix of researchers, business exec-
utives, and entrepreneurs, with only four out of ten in the business and entrepreneur
category. Until the 2017 list was published, entrepreneurs were not even included in
the mix. I think that speaks volumes about the chemistry community’s mentality
in the past, where the recognition was focused on the researcher. The recent pivot
to include entrepreneurs is also an excellent sign, as the rewards continue to move
towards starting new companies. Let us face it, even with the recent change, six out
of ten that receive recognition are researchers, and only two of four in the business
category are entrepreneurs. However, we have got to start somewhere.
Tips for Readers
You may be a great researcher and inventor. You might even have some
entrepreneurial spirit, but that does not necessarily mean that you will be the CEO
guiding the company you created to the promised land. It takes much self-awareness
to identify your role with the company as it develops. It takes a strong person to
step aside from running the day-to-day operations, and I have seen many examples
of success from an early decision to let someone more qualified step in and run
things. I have also seen the flip side with the founder and inventor determined to
be the CEO to run the company to the ground. Seek counsel from employees and
outside relationships and listen to what they have to say.
1.4.2 Raising Money: Acquiring the Right Money at the Right Time
The one question I am asked most often when speaking with startup entrepreneurs
is, “How much of my company do I need to give up for the amount of money I need?”
That is a challenging question to answer. Ultimately it will be a function of valua-
tion. How much money do you need to raise, and what valuation can you get based
on your progress? Any early-stage company will find out pretty quickly. When it
comes to valuation, you can walk into the meeting with a model to justify the value
of the company, but ultimately it will be a negotiation. As a startup, you need to start
becoming familiar with financing jargon like seed round, Series A, and Series B.
Seed Round. The first rounds of funding for a new company, where this money is
used for early product development and initial market research. Typically anywhere
from $50 000 to $1.5 million. Anything above that range could be viewed as a Series A
round.
Series A. This is the first round of financing after the seed capital has been secured,
and the product and market development were successful. Typically anywhere from$2
million to $10 million. This is typically the funding round that will make the company
into a real operating business with actual employees and possibly get you to revenue,
depending on the nature of the business.
Series B, C, D, …. Suppose you were lucky enough or good enough to make it through
your seed round and Series A. In that case, you would have a healthy operation that
will not require additional capital, but for those that do you will continue to follow the
letters in the alphabet after A, until you stop raising money. As long as the company’s
valuation continues to increase with each round, you should be in good shape. However,
if the business or product hits a snag and you face a notorious down round to keep things
going, buckle up because the smooth ride you may have enjoyed is about to become a
roller coaster ride.
The first thing you need to consider your financing options, and when you are
pitching, you need to approach groups that are most likely a good match for the type
of funding round you are seeking.
1.4.2.1 Self-funding
The more money you put in on your own, especially during the early stages of devel-
opment, the better off you will be. It does not matter where the money originated. If
it is cash, taking a second mortgage on your house, or credit cards, investors like to
see that the entrepreneur has skin in the game. One of the first questions I ask any
entrepreneur asking me for money is how much have you personally invested in this
company? If you believe in your product or business and have the capital to self-fund
your company through the seed round, you would be crazy not to take that risk.
1.4.2.2 Friends and Family

This is usually a good option during the early stages of the company and shows a dif-
ferent skin-in-the-game type. If you believe in the company, invention, or discovery
enough to take money from friends and family and put them at risk, you must feel
pretty good about the opportunity. It is very common to see friends and family par-
ticipating in the seed round, especially if the product or company does not require
more than $500 000 to get to proof of concept.
1.4.2.3 Angel Investors

If you have access to high net worth individuals who like to make seed investments
in startup companies, there is a good fit between yourself and the company. This
can be a very favorable way of financing the company in the early days. If you do
not have a list of millionaire or billionaire investors on your speed dial, there are
other ways to find and pitch angel investors. Here in California, an angel investor
group called Tech Coast Angels, has about 300 members and consists of experienced
CEOs, current and former entrepreneurs, venture capitalists and some generally
high net worth individuals. Groups like this accept applications or proposals and
are very active in funding startups. Angel investors usually only focus on the early
rounds, some only focus on seed round investments, and others will focus on Series
A rounds. If you are pursuing angel investors, it is worth the time to identify investors
that will be the best fit.
1.4.2.4 Accelerators and Incubators

As discussed in Section 1.3.3, it can be a lot more challenging to get a chemistry
startup going than other businesses, largely because you will need access to some
pretty expensive equipment and laboratory resources to prove a concept. Accelera-
tors and incubators that can provide access to these resources and funding are often
a cost-effective to get through the initial startup phase and make it easier to obtain
additional financing.
1.4.2.5 Debt
A startup or early-stage company can obtain debt as a non-dilutive way of financ-
ing. However, I would not recommend any early-stage company that pre-revenue or
losing money to consider debt a viable option. Almost every company that took on a
debt too early resulted in the company filing bankruptcy, including a few companies
that achieved over $1 billion. Debt can be a very useful tool for companies that have
an established business with predictable cash flow. However, the minute you take
the debt for startups burning cash, the clock starts ticking pretty much immediately.
I have seen startups take debt instead of an equity deal, thinking they are getting a
better deal to avoid dilution. They ultimately had to raise money via an equity offer-
ing significantly below the valuation they would have had, so they can pay off the
debt and still not have enough cash to grow or run the business.
1.4.2.6 Strategic Investment

Many large companies have found out the hard way that size can kill innovation.
As a result, most large companies have created venture funds to make strategic
investments in innovative startup companies to provide capital and resources
while maintaining a placeholder position as the company develops. This can be
a great way to finance a startup, but you need to be careful about how the deal
terms are set up. You would not want to find out several years later, after you are
successful, that your only option is to sell to that investor. Many consumer products,
food, and pharmaceutical companies have created venture funds to make strategic
investments in innovative startups. Many of the innovative companies identified in
Section 1.2 have received strategic investments from these corporate VC arms.
Food Company VCs: Large food companies like Nestle, Coca Cola, Kraft Heinz,
Campbells, General Mills, Kellogg, and Tyson Foods have all started VC operations.
Primarily driven by pressure, successful startup brands and e-commerce growth
make it easier for startups to reach the consumer directly.
Consumer Brand Company VCs: Large consumer product companies like Proc-
ter&Gamble, Unilever, Colgate-Palmolive, and Church and Dwight have all suffered
from nimble e-commerce startups Dollar Shave Club and Honest Company, and
have reacted by establishing VC investment arms to do early-stage investing in these
types of businesses.
1.4.2.7 Private Equity

These private capital investment funds typically acquire or invest in late-stage pri-
vate companies and are not normally known for making early-stage investments.
The largest and most well-known PE firms are Blackrock, The Carlyle Group, and
Kohlberg Kravis Roberts (KKR). These PE firms typically look to purchase under-
valued companies or assets that they can break-up, streamline, or fix. As a startup, I
would not expect to see PE firms knocking on your door anytime soon.
1.4.2.8 Venture Capital

VCs are a form of private equity known for financing high-risk, high-reward startups,
and early-stage companies. As you can imagine, any investment firm willing to make
a bet on a high-risk venture will want a large share in the company to justify the risk.
The earlier you take VC money, the more you will pay inequity, so my advice is to
bring the company as far as possible before going to a VC. You will be in a better
position to negotiate if you have made substantial progress. Sometimes you hear
people refer to VCs as vulture capitalists, and there is some truth in that, but VCs
have also been very helpful in financing some of the most well-known, innovative
companies worldwide. There are VC firms of just about every shape and size you can
think of, just like any form of financing. It is worth your time to find a VC that would
be the best fit for what you are trying to accomplish. VCs will tend to focus their
investments and expertise on specific industries, so dealing with a tech or internet
VC might not be a good fit for a chemistry oriented business.
1.4.2.9 Investment Banks

These financial institutions help companies look to raise money in equity offerings
through the public markets, i.e. IPOs. Using the public markets is not common for
startups. It is usually done during the later phases of the money-raising process, in
most cases as a way of providing liquidity for the early-stage investors and founders.
Large investment banks. Goldman Sachs, JP Morgan Chase, Morgan Stanley, and
Citigroup are the best examples of large full-service investment banks.
Medium-sized banks. Jeffries, Lazard, Oppenheimer, and William Blair
Small investment banks. Cowen, Roth, HC Wainwright, and Craig Hallum
There are several ways to become a public company, and the IPO is the route most
people think of when considering going public, but there are other routes of bringing
a company public. IPOs are very glamorous and exciting events, especially for the
founders and management team of the company, but pulling off a successful IPO is
not as easy as it sounds. The very high profile and successful IPO we all get to see on
CNBC make it look easy. However, the reality is that most IPOs never even make it to
the market. Suppose the investment bank cannot find enough interest in the offering,
which usually decreases the offering price. In that case, the company and its key
shareholders will eventually get to the point that it is no longer worth going public.
Another common route to becoming public is through a reverse merger, also
known as a reverse IPO, which is the acquisition of a public company by a private
company so that the private company becomes public due to the merger. Many
bankers and investors do not favor this route. However, it can be a very efficient
and cost-effective way of becoming a public company if done properly. ChromaDex
became public due to a reverse merger in 2008, which proved to be a very successful
route to become public and continue to raise the capital we required to grow
the business. Like any of the financing options listed here, you need to do your
homework for the process to go well.
ChromaDex uplisted to NASDAQ in April 2016. That is me ringing the opening bell.
In the end, you will find the most successful startups got there by using a combina-
tion of these financing options. Generally, the longer you can operate without taking
investors, without dramatically impacting the growth of the company, the better off
you will be. Ensure you are raising money for the right reasons and asking yourself
if the additional investment capital helps you accelerate your business plans.
The money you raise is not there to make you feel comfortable. You are an
entrepreneur. It is your job to be uncomfortable. Any sense of comfort from having
cash in the bank will quickly be replaced with the discomfort that comes with
reporting to investors.
Tips for Readers
One thing I have found to be true over the many years I have been doing this is that
you can do your best to predict how long and how much money you will need to get
your business going, but in the end, it always takes twice as long and requires more
than double the amount of capital you would expect. You may think it is painful
giving away a huge chunk of your company during your initial seed financing, but
that is nothing compared to the pain of doing a down round after you run out of
money after failing to meet your initial objectives as a startup.
Tips for Readers
It is not uncommon for financing deals to go bad before and sometimes after they
are completed. In my experience, most go bad because there was not a good fit
between the company and the financier. It can be fascinating to have an individual
or a group willing to invest millions of dollars in your company or idea, but that is
no reason to abandon common sense. Ensure that you do an appropriate amount
of due diligence on people or businesses that you choose to finance your company.
Background checks are generally pretty easy to do. However, the best way to manage
their money is by researching the portfolio of companies they are currently invested
in and the companies they have exited. If that information is not publicly available,
you will need to ask for it, including a list of founders or CEOs at each company you
can call and interview.
1.4.3 Can you get the idea for Commercialization?

“Build it, and they will come” is not a business model. One of the industry’s
main problems is that many great inventions never make it to commercialization.
A chemist-scientist could have the greatest product innovation on the planet, but it
is dead if it cannot be successfully commercialized. Moreover, the best product is

not always the winner.
Failed commercialization is a common problem with scientist founders who
believe their technology is so good it will sell itself. Some will succeed with this, but
the odds are heavily stacked against it.
Another key reason for commercial failure is product-market fit. Two great
examples of this are Post-it Notes and Teflon. Spencer Silver’s accidental weak
glue would probably never have had commercial success without Art Fry finding a
product-market fit. Roy Plunkett’s Teflon might not have found commercial success
without an experienced team of engineers and product developers identifying a
product-market fit.
To set yourself up for success, you have to build a business plan, find a way to fund
it, and then hire a team to execute that plan. When you build your team, you want
to find people committed to the company and stay for a long time. You do not want
to train people and have them leave.
Another key issue is establishing a sales and marketing team. A common pitfall
is that scientists do not often understand sales and marketing. However, there is a
caveat to that: If you are a biotech company, you do not need to focus heavily on sales
and marketing. Instead, it is more important to put your energy toward a develop-
mental plan to get the drug to market.
If success comes, be prepared to grow. There have been stories where success killed
the company, so it is possible to fail by succeeding.
1.4.4 When you are Ready to Commercialize, which path do you take?
Innovation in chemistry rarely creates and a plug-and-play consumer-ready prod-
uct. In most cases, innovation in chemistry is going to enable a better or improved
consumer product. An excellent example of this is the airbag. The idea of an airbag
existed long before the chemistry innovation occurred that would enable the con-
cept to work. The airbag probably would not be in cars today if not for the chemical
at the heart of the airbag reaction called sodium azide.
Suppose we assume that your technology is consistent with other innovations in
chemistry, meaning that it is not a consumer product on its own. In that case, there
are several ways of bringing your invention to market.
1.4.4.1 Licensing Deal

Instead of creating and selling a product, and perhaps avoiding the complication
of building a company, you could pursue a licensing strategy. You would identify
the company or companies that would be the best fit for your invention and do
some form of an exclusive or non-exclusive licensing deal so they could integrate the
invention into their business or product. Economically, these deals typically include
upfront, milestone, and royalty payments, which would also require the licensee to
bear the cost of development. This route, if executed properly, can be an efficient,
low-risk, and lucrative model.
Tips for Readers
A quick word of caution when dealing with large companies: it is not uncommon
for companies to license technology only to “put it on the shelf.” They will license
the invention with no intention of ever using it and therefore keeping anyone else
from using it as well. If you pursue this path, I would highly recommend having an
experienced contract attorney familiar with these types of negotiations, as there are
ways of protecting yourself against this type of behavior.
1.4.4.2 Business-to-Business (B2B)

In this scenario, you would establish a company that would produce a product sold
to other businesses to use in their products. It is common in chemistry that those
inventions or ideas are not consumer products but rather fixes or improvements to
a manufacturing process such as scale, efficiency, safety, or cost. I have always loved
the BASF tagline, “We don’t make a lot of the products you buy. We make a lot of the
products you buy better.” Many of the chemical companies like BASF that provide
innovation in chemistry exist not to produce consumer products but work with con-
sumer goods companies to improve the sold products, which can be a very lucrative
business.
1.4.4.3 Business-to-Consumer (B2C)

There is little doubt that the most lucrative path to commercializing your chem-
istry innovation is bringing a consumer product to market. However, this is also the
riskiest path. It is challenging to translate innovation in chemistry into a success-
ful consumer product. That said, money flows to innovative chemistry companies
that have identified a problem with a path to identify a solution, which is ultimately
a much more efficient way of creating high-value consumer product innovation.
Companies like Just, Beyond Meat, and Impossible Foods are great examples of com-
panies that followed that path, and I expect the trend will continue.
One thing is pretty clear, the less you know about how your chemistry invention
can be used in the real world, the less it will be worth. The more you know about its
value, the more economic value you will be able to capture along the way.
Tips for Readers
Access to capital/financing will play a big part in determining the best route to
commercialize. The more money you have, the more options you have. One piece of
advice I would offer is do not choose a path of commercialization without the money
necessary to succeed. Whatever the amount of time and money you think you will
need to commercialize, double it, and you still may fall short.
1.5 Do you have the Traits of an Entrepreneur?

I first realized that I would be an entrepreneur when I was in my third year of col-
lege. I can remember the exact moment it happened. At the time, my girlfriend was
a fashion merchandising major, and she was tasked with putting together a detailed
business plan for her concept of a fashion store. It included designs and idea boards
for the store and products. Somehow, she managed to convince me to help her with
what turned out to be a huge project. Please bear in mind that I was a 19-year-old
chemistry major with no prior business training whatsoever. She struggled with the
project, so I looked at the outline provided, and the main three items were prod-
uct line design and selection, store design and budget, and a financial plan forecast.
Since she was a fashion major, I figured let us start with the more difficult task of
designing the store, so I handed her a couple of blank sheets of paper and asked her
to draw a concept for the store’s front and a floor plan. The response is one that I
will never forget because when I looked into her eyes, I saw a combination of con-
fusion and panic all at the same time. How could a blank sheet of paper elicit such
a response?
I could visualize the entire store design and floor plan in my head, down to the
smallest details, front door, signage, window graphics, flooring, shelves, racks, light-
ing, displays, sitting area, just to name a few. The difference was that I just needed to
transfer what was in my head to the paper. Was I some retail clothing store savant?
Far from it. I had spent plenty of time shopping in clothing stores, but that was about
it. It just seemed intuitive and logical to me, almost easy, which was not the case with
her. Once we had the outline in place, her creative side kicked in, and she designed
a store that was way beyond anything I would have been able to visualize. This expe-
rience showed me that I had some of the key traits of an entrepreneur that others
lacked. I had the vision, curiosity, decisiveness, risk tolerance, and reasoning. What
came naturally to me did not come naturally to everyone, and I could use that to my
advantage.
Even before graduating with a chemistry degree, I knew that I was not destined for
a life at the bench. I knew I wanted my career to be involved in the field of chemistry,
so the next logical step was to look at options on the business side of chemistry. I will
not bore you with the details of a 21-year-old kid trying to find his way. However, I did
end up getting very lucky to find a sales job at a small but entrepreneurial analytical
chemistry company in Los Angeles, and I loved analytical chemistry.
It did not take me long to figure out that I was pretty good at selling chemistry.
This provided me with other opportunities within the company to be even more
entrepreneurial. While helping my girlfriend on her college project, those traits I
found were coming in very handy in the real world. While talking with customers,
I would identify product needs that were not part of our product offerings. If the
opportunity appeared to be lucrative, I would research the product, identify
additional customers with the same need, find a viable supplier with a suitable
wholesale price that would provide good margins for the company, test the product
details and pricing with the customer, and prepare mock-up marketing materials.
If everything lined up, I would pitch management to consider adding the product
line to our catalog.
The point is, I did not have any clue I wanted to be a chemistry entrepreneur until
I did it. That is the whole spirit of this business. I knew I had something valuable,
I made a plan, and I went for it.
Case Study 1.2
The Path to ChromaDex
When I graduated from Valparaiso University in 1991, I did what every chemistry
major was supposed to do – get a job working in a lab.
My time at the quality control lab did not last long. After a year, I decided that
I needed to move on to something different. I knew that I still wanted to stay in
chemistry and use my education for something productive. I loved science and
the chemistry side of things, but I did not want to work in a laboratory.
What were other options there for someone with an undergraduate degree
in chemistry? After all, there are plenty of businesses that involve chemistry.
There must be jobs outside of the lab that require chemistry. The decision was
clear. I moved towards the business side of chemistry and landed a job in 1992
with the technical sales division of a growing analytical chemistry business.
By 1993, my technical sales success led to an opportunity to set up and run
international subsidiaries for this growing analytical chemistry business. These
technical sales and management jobs allowed me to be very entrepreneurial.
However, this was still not enough, and something was still missing.
In 1998 I decided to leave and pursue what would become ChromaDex. I was
29-years-old, which was the ideal time for starting a business. I had minimal
obligations, family, or financial, and was perfectly positioned to take this type
of risk.
Tips for Readers
and think you want to start your own business, the best way to learn how the busi-
ness side of chemistry works is to get a job working in the industry. You will learn the
basics of how these businesses operate and how they interact with their customers.
Case Study 1.3
ChromaDex Unique Business Model
ChromaDex is a NASDAQ public company built on a natural products chemistry

platform that utilizes business relationships with universities to track and
license research-backed ingredient technologies. The company began in a
(Continued)
Case Study 1.3 (Continued)
spare bedroom of my house in 1999 and is now a publicly-traded leader in

its field.
For many years, we have been the go-to company for anything related to
the research, development, or testing of foods, beverages, supplements, sports
nutrition, skincare, and related products. ChromaDex has a solid brand and rep-
utation firmly rooted in science and innovation of natural products. As such,
our expertise allows us to get a very early look at university research. We also
have business relationships with many of the world’s largest consumer products
companies. This advantage puts us in a unique position to cherry-pick highly
valuable intellectual property based on solid research, and more importantly,
relevant to the consumer product markets. We have used this strategy to develop
a portfolio of novel ingredients, including our flagship nicotinamide riboside
(NR). This is all based on university licensed research and patents.
Finding and licensing these opportunities is less than half the battle. Univer-
sity patent technologies are never plug-and-play. Licensing the patent is only
the first step in what ultimately becomes a long and expensive development
process to take it from a dream to reality. We are in a unique position to
license the patents because we have the expertise, assets, and capabilities to
take it from an idea to a developed commercial product. On top of that, we
know how to sell and market it successfully. Sounds simple enough, right? Not
quite. Most of these innovators do not fail because they had the wrong idea.
They fail because they underestimated the difficulty in turning that idea into a
commercial product.
Case Study 1.4
The Nicotinamide Riboside (NR) TRU NIAGEN Story
NR is a vitamin B3 metabolite that was first described in 1944. However, its

true function was unknown until Dr. Charles Brenner identified NR as an NAD+
precursor in his 2004 Cell publication. I started following Dr. Brenner’s research
on NR as an NAD+ precursor in 2006, while he was at Dartmouth. I quickly
recognized that NAD+ was a very important part of the healthy aging story and
that NR was the most effective way of raising NAD+. As a result, ChromaDex
began actively pursuing the research behind both NR and NAD+ in 2009. It took
a few years to do our due diligence and get everything in position for licensing
the patents, but after that, things started to move very quickly.
● ChromaDex licensed the Cornell patents (Dr. Anthony Sauve) in 2011.

● The Cornell patent was the base we used to start developing the commercial
manufacturing quantities of NR. Before ChromaDex started making NR, it was
not easy to find even a few grams of NR for research. We achieved metric ton
scale for NR by the middle of 2013.
● ChromaDex launched NR as an ingredient under our NIAGEN brand in May of
2013.
● ChromaDex licensed the Dartmouth (Brenner) dietary supplement and
food-related patent in 2013.
● ChromaDex licensed the Washington University (Dr. Jeff Milbrandt) patents in
2013.
● ChromaDex licensed the Dartmouth (Brenner) NR pharmaceutical patents in
2014.
● During the period between 2013 and 2015, ChromaDex performed numer-
ous safety and toxicology studies, beyond the already published studies, to
prepare for regulatory filing with the US FDA.
● In 2014, ChromaDex started its first human clinical trial on NR.
● In 2015, the first human clinical study of NIAGEN®, NAD+ metabolomic anal-
yses were completed in blood for various time points over 24 hours. For the
first time, the study also established an effective dose range for NR in humans.
● In 2015, ChromaDex submitted and received notification of New Dietary Ingre-
dient (NDI) status from the FDA for our patented NR.
● In 2016, ChromaDex submitted and received notification of Generally
Regarded as Safe (GRAS) status from the FDA for our patented NR.
● In 2016, ChromaDex’s second study, a 140-participant trial evaluating the
effect of repeated doses of NIAGEN on NAD+ metabolite concentrations in
blood, urine, and muscle in healthy adults, analyzed the impacts of three dose
levels of NIAGEN compared to a placebo. The recruitment and dosing portions
of the trial have been completed. We are finalizing the analysis of data from
this trial, and we are working on the timing of the release of top-line data,
which we expect to report over the coming months.
● ChromaDex completed our pre-IND meeting with the US FDA in November
of 2016 to develop of NIAGEN as a drug in treating of Cockayne Syndrome.
(Continued)
(Continued)
This rare pediatric orphan disease that results in a significantly shortened
lifespan for the affected children.
● Since launching NIAGEN in 2013, ChromaDex has signed over 160 collabora-
tive research agreements with numerous prestigious universities and research
institutions worldwide.
● In 2017, ChromaDex pivoted from selling NIAGEN as an ingredient to selling
our consumer product brand TRU NIAGEN.
1.6 Summary: Do You Have What It Takes?

It does not matter if you have the most innovative and disruptive technology in the
industry. If you cannot bring it to market, it will die. If you bring it to market with-
out the proper patents or preparation for success, it will die. Success as a chemistry
entrepreneur is a delicate balance that requires patience and a plan, even when it
seems like there is not the time for either.
The industry is currently moving so quickly that even companies like ChromaDex
struggle to keep up with new technology opportunities. We have had to pivot our
business model to continue building upon our reputation as a viable partner in com-
mercialized technology. That kind of success will inevitably open doors for many
others. All we need is more people willing to walk through them.
We need more chemistry entrepreneurs. We need more researchers with the talent
for identifying promising discoveries, who are also willing to learn how to com-
mercialize them. There are a lot of truly disruptive technologies already out there.
Overall, I would say the best way to figure out if you have got what it takes to be a
chemistry entrepreneur – is to become one.
1.6 Summary: Do You Have What It Takes? 29
Light bulb File a patent Publish Due diligence Make a

moment Protect your Word of wisdom: Commercial prototype
invention Do not publish until feasibility if possible
after patent is filed
Business
plan
executive
summary
Beta launch Hire your team Develop the Seed funding Form your
product – Friends/family company
the product
– Self fund Set founders
– VC equity
Improve
Feedback product
Editing Relaunch Series A Grow and keep Success

product growing
Recommended Readings and References
1 Jacobs, M. (2011). Chemical & Engineering News (7 November), p. 47. https://cen

.acs.org/articles/90/i34/Researchers-Want-Entrepreneurs-Need-Know.html.
2 Korn, M. (2015). Chemistry departments try to attract more students by retooling
the major. The Wall Street Journal (US Edition) https://www.wsj.com/articles/
chemistry-departments-try-to-attract-more-students-by-retooling-the-major-
1428880862.
3 Ghatora, B. and Strutt, R. (2017). Incorporating entrepreneurship skills into chem-
istry and related curriculums. New Directions in Teaching of Physical Sciences 12
(1) https://journals.le.ac.uk/ojs1/index.php/new-directions/article/view/2335/2275.
4 Runge, W. and Brase, S. (2009). Education in Chemical Entrepreneurship:
Towards Technology Entrepreneurship for and in Chemistry-Related Enterprises.
Self published. https://www.researchgate.net/publication/228801210_Education_
in_Chemical_Entrepreneurship_Towards_Technology_Entrepreneurship_for_and_
in_Chemistry-Related_Enterprises.
5 G. Heilmeier (1992). "Some Reflections on Innovation and Invention," Founders
Award Lecture, National Academy of Engineering, Washington, D.C., as published
in The Bridge, National Academy of Engineering.
6 McLeland, L. (2002). What Every Chemist Should Know About Patents, 3e.
https://www.acs.org/content/dam/acsorg/about/governance/committees/what-
every-chemist-should-know-about-patents.pdf.
7 Roach, M. and Sauermann, H. (2015). Founders and joiners. Science 348 (6240):
1200. https://science.sciencemag.org/content/348/6240/1200.3.
Author Biography
Frank L. Jaksch, Jr., co-founded ChromaDex®, Inc. in 1999,
brought the company public in 2008, listed the company on
NASDAQ in April 2016, and serves as Executive Chairman.
Under his leadership, ChromaDex has focused on develop-
ing a comprehensive natural products chemistry business,
expanded into international markets, and built an impressive
roster of Fortune 500 customers.
As it is built on science, ChromaDex (NASDAQ: CDXC)
has been transformed into an integrated, global nutraceutical
company devoted to improving the way people age. Its flagship ingredient, NIAGEN®
nicotinamide riboside, sold directly to consumers as TRU NIAGEN®, is backed with
clinical and scientific research, as well as extensive IP protection. TRU NIAGEN® is
helping the world AGE BETTER®.
Author Biography 31
Mr. Jaksch holds a Bachelor of Science degree in Chemistry and Biology from
Valparaiso University in Valparaiso, Indiana, and serves on the Natural Products
Association (NPA) board. Mr. Jaksch was the co-editor of Current Opinion in
Biotechnology: Analytical Biotechnology in February 2014, highlighting new
technologies for quantitative analysis of natural products. He also co-authored “The
Handbook of Analytical Methods for Dietary Supplements” with Drs. Mark Roman
and Mingfu Wang, which was published by the American Pharmacists Association
in June 2005.
33
Taking Ideas Out of the Lab: Why and When to Start

a Company in the Biomedical Field
Miguel Jimenez 1 , Jason Fuller 2 , Paulina Hill 3 , and Robert Langer 1
1
Koch Institute of Integrative Cancer Research, Massachusetts Institute of Technology, Cambridge, MA, USA
2
Deerfield Management, New York, NY, USA
3
Omega Funds, Boston, MA, USA
2.1 Introduction
Traditionally, academic investigators are primarily concerned with answering
fundamental scientific questions through their research. Meanwhile, their home
institutions, through technology transfer offices, are responsible for patenting and
licensing any resulting technology to established companies. However, today more
researchers have the opportunity and resources to take charge of their work beyond
the academic setting. Now, academic investigators are encouraged to work alongside
their institutions to push discoveries out of the laboratory as new companies.
In this chapter, we discuss the lessons we have learned in the Langer Laboratory
of why and when it makes sense to take ideas out of the lab and how to do so suc-
cessfully. Our experience is based on over 40 biomedical companies started by or
in collaboration with our group over its 40 years. Specifically, we will dive into six
of those companies started over the most recent 20 years, representing ventures at
varying stages of maturity.
We limit our discussion to the biomedical industry, which encompasses biotech-
nology, pharmaceutical, diagnostic, and medical device companies. At its core, the
biomedical sector is shaped by the demands of the U.S. Food and Drug Adminis-
tration (FDA) regulatory process and is primarily focused on developing and selling
products that enhance clinical practice and improve human health.
Our aim is to share the minimum considerations an academic investigator should
heed before making the transition to an academic entrepreneur and founder in the
biomedical industry. Starting a company is a challenging, demanding, and risky ven-
ture – requiring large investments of your time and money – with a high likelihood
of failure. Therefore, our discussion is centered on what an academic investigator
can do in the laboratory to secure a strong place at the negotiation table when it is
time to raise investment capital.
The overarching lesson we have learned is that the people are the most impor-
tant factor in any venture. In this spirit, the chapter is started by interviewing six
34 2 Taking Ideas Out of the Lab: Why and When to Start a Company in the Biomedical Field
of the academic founders that were central to establishing the following companies:
Advanced Inhalation Research, Kala Pharmaceuticals, Moderna, Sigilon Therapeu-
tics, Suono Bio, and Vivtex. Through their words, we remember their key motiva-
tions for taking their technologies out of the lab and learn how they started these
companies.
Through these interviews and our discussion, we hope to highlight the unique
advantages and challenges of starting a company in the biomedical sector. In our
view, pushing ideas out of the lab and transforming them into a commercial venture
is the best way to directly impact patient lives. The goal of this chapter is to inspire
and motivate young academic entrepreneurs to take on this challenge.
2.2 Company Case Studies: Interviews with

the Founding Scientists
In the following section, we present interviews with six academic founders central
to the beginnings of the following companies: Advanced Inhalation Research, Kala
Pharmaceuticals, Moderna, Sigilon Therapeutics, Suono Bio, and Vivtex. In each
case, we first list the key aspects of the company: the early patents and papers, the
founding year and team, and a brief synopsis of the core technology. We then present
a summary of their responses to the following questions:
1. What was the key problem and initial idea that sparked your work?
2. Why was it important to start a company?
3. When was the technology ready to start the company?
4. What are some key lessons that you learned from this process?
Finally, we provide the current status of the company.
2.2.1 Advanced Inhalation Research: Interview with David Edwards

Key Patent (earliest filing date): US08/739308 (1996)
Key Early Paper(s): Edwards, D.A. et al. Science 276, 1868–1872 (1997).
Founded: 1997
Founders: David Edwards, Terrance McGuire (VC), Robert Langer
2.2.1.1 Core Technology

Here, the core technology is aerodynamically light porous particles for pulmonary
drug delivery.
2.2.1.2 What was the Key Problem and Initial Idea that Sparked the Work?
David Edwards came to the Langer Lab with a background in theoretical fluid
mechanics searching for a way to apply theory to real patients. Delivery of drug
particles to the lung was an enticing new mode of drug delivery since there was
the potential to access a very large surface area of exchange directly into the blood
stream. The theory of fluid flow during inhalation dictated that the team needed a
fluffy forestlike particle that could be carried deeply into the lung. However, even
though the target was clear, there was no known way to manufacture this type of
particle. A serendipitous experimental mistake led to the discovery of a method to
make the ideal particle predicted from theory. This enabled the team to start reliably
producing these fluffy particles out of different drugs (e.g. insulin, testosterone).
2.2.1.3 Why was it Important to Start Advanced Inhalation Research?

Edwards notes that in traditional research, people can get stuck in a narrow field.
In contrast, pushing a technology from the laboratory to a new company allows for
a much broader conversation with people well outside the initial field. This allows
the core technology to be stripped down to those aspects most useful for patients
and society. In addition, from his point of view, a revolutionary idea stands almost
no chance to be developed effectively if handed over to others through licensing.
Instead, the initial team of people who were present at the inception of the
technology are the most apt to drive the technology passionately to its highest
potential.
2.2.1.4 When was the Technology Ready to Start Advanced Inhalation

Research?
For Edwards and his team, the key turning point came from the in vivo results,
demonstrating that their aerodynamically light particles could deliver insulin and
testosterone into circulation in rats with an extended effect as compared to injec-
tions. After continued support from Langer, these results were published in Science
in 1997, leading to talks with Terry McGuire at Polaris. Edwards comments that there
comes a point when you must be intellectually honest and decide for yourself if the
technology really has the potential to be a real product and company – if it can actu-
ally have an impact on patients.
2.2.1.5 What Lessons Did You Learn Through This Process?

– Develop the idea, and value, as long as possible before initial venture capital (VC)
investment. Angel investments can be critical during this period.
– Serendipity and innocence are key to developing innovative solutions to impor-
tant problems. Create a team of both experienced and inexperienced members.
You need the experience to know what is important, but the inexperience is key
to finding solutions that are not entrenched in the history of the problem.
2.2.1.6 Current Status

Advanced Inhalation Research was acquired by Alkermes in 1999 and later spun
out as Civitas, which was acquired in 2014 by Acorda. In 2018, Acorda received
FDA approval for Inbrija (levodopa inhalation powder), a treatment based on the
Advanced Inhalation Research technology used for OFF episodes in adults with
Parkinson’s disease. Additional products in the Acorda pipeline are also based on
the original pulmonary drug delivery technology.
2.2.2 Kala Pharmaceuticals: Interview with Justin Hanes

Key Early Paper: Lai, S.K. et al. PNAS 104, 1482–1487 (2007).
Founded: 2009
Founders: Robert Langer, Justin Hanes, Colin Gardner (Exec.)

Here, the core technology is mucus-penetrating nanoparticles for drug delivery.
As a junior faculty member at Johns Hopkins in the early 2000s, Justin Hanes set out
to develop a nanoparticle-based gene delivery technology to tackle genetic muta-
tion that causes cystic fibrosis. Based on his work in the Langer Lab on inhalable
drug particles, he knew that, if successful, these types of gene-carrying particles
could deliver therapeutic gene therapy directly to the lung airways of cystic fibrosis
patients. However, back-of-the-envelope calculations showed that even if the parti-
cles reached their target location in the airways, it would take days or even weeks
for them to diffuse across the mucous layer that was orders of magnitude more
viscous than water. This was much too slow to compete with the self-cleaning mech-
anisms of the lungs that replenished the mucus layer in a matter of hours. However,
Hanes was aware of the work that showed that certain viruses, such as the Norwalk
virus and the human papilloma virus efficiently diffused through human mucus.
Inspired by these naturally existing examples, his group set out to develop synthetic
mucus-penetrating particles by first understanding the interactions of diffusing par-
ticles with human mucus.
2.2.2.3 Why was it Important to Start Kala Pharmaceuticals?

For Hanes, starting Kala Pharmaceuticals was a way to push the impact of the tech-
nology as far as possible. By starting a company, the technology had a chance to
impact the largest number of patients. While licensing alone can sometimes effec-
tively translate the technology out of the laboratory, the licensing companies can
become disinterested or maintain a narrow focus and not push the technology to its
fullest potential.
2.2.2.4 When was the Technology Ready to Start Kala Pharmaceuticals?

In 2007, publishing of a strong proof of concept using real human mucus in the
Proceedings of National Academy of Science was pivotal for sparking interest and
confidence from several VC firms. Following these initial results, it was important
to demonstrate the technology in vivo across multiple indications. Early proof of
concept of the technology applied to the eye at the Center for Nanomedicine of
the Wilmer Eye Institute at Johns Hopkins was followed by key studies led by
Dr. Hongming Chen of Kala, which to an initial focus on using this technology
to target drugs across the mucus membrane of the eye. Following support from
multiple VC firms, Robert Paull from Lux Capital became Kala’s first CEO with
Hongming Chen as head of research and development (R&D).

– Bring in seasoned mentors and advisors as early as possible, and give them a large
stake in the equity of the company. “It is better to have small piece of a large pie,
than a large piece of a small pie.”
– Collect key in vivo data for multiple indications before approaching investors.
– “Publish great papers, get blocking patents, and assemble a strong team to help
you realize your dreams.”

Today, Kala Pharmaceuticals is a publicly listed company (NASDAQ: KALA) focused
in ophthalmology. It is a commercial stage company with one FDA-approved drug
(Inveltys) on the market based on its mucosal penetrating particle technology and
another in Phase 3 development.
2.2.3 Moderna: Interview with Derrick Rossi

Key Patents (earliest filing date): US13/088009 (2010), US14/009351 (2011)
Key Early Paper: Warren, L. et al. Cell Stem Cell 7, 618–630 (2010).
Founded: 2010
Founders: Derrick Rossi, Kenneth Chien, Robert Langer, Noubar Afeyan (VC)

Here, the core technology is delivery of chemically modified mRNAs to generate
therapeutic proteins in situ.
Though Derrick Rossi’s lab primarily focused on hematopoietic stem cell research,
the report by Shinya Yamanaka published in Cell in 2006 on the ability to induce
pluripotent stem (iPS) cells from fibroblasts immediately caught his attention. As
he took his group into the world of iPS cells, it became clear that the use of DNA
to deliver the key inducing factors was a big problem when used in patients. Viral
delivery of integrating DNA constructs could lead to unintended modifications of the
cell’s genome, and more importantly it could lead to permanent expression of these
factors, some of which were known oncogenes. Therefore, Rossi and his team envi-
sioned using transfected mRNA as a non-mutagenic and transient way to generate
the required protein factors. However, there was a big problem. Exogenous mRNA
caused a strong antiviral response, leading to the death of most of the cells. Rossi
credits the work of Katalin Karikó and Drew Weissman for providing a road forward.
They had shown that short RNA oligonucleotides containing modified nucleosides
avoid detection by Toll-like receptors. Rossi and his team applied this knowledge
to make chemically modified mRNA encoding proteins that successfully induced
pluripotent stem cells from multiple types of human cells.
2.2.3.3 Why was it Important to Start Moderna?

Soon after the team published their results in Cell Stem Cell in 2010, Rossi started
receiving several inquiries from industry to license the technology. However, these
companies were only interested in the technology as a way to improve their methods
for making iPS cells. For Rossi, the potential was much bigger – the ability to generate
any protein in situ. In fact, he points to an often-missed experiment in their paper
as the most significant. The team had shown that the modified mRNAs could also
be used to make several other proteins, which they used to direct the differentiation
of the iPS cells. For Rossi, starting Moderna was the only way to realize this much
larger potential of the technology.
2.2.3.4 When was the Technology Ready to Start Moderna?

Initially, with the results from the paper in hand, Rossi approached several VC
firms; however none of them were interested in making the bet on the technology in
its state at the time. As a junior faculty, Rossi had neither the experience nor track
record to placate the worries of the VC firms. However, Rossi did gain the interest
and support from his faculty colleague Tim Springer who in turn introduced him
to Robert Langer. While Rossi’s initial report had shown great promise, it was only
demonstrated in vitro with primary human cells. For Rossi, the turning point was
when they injected unformulated modified RNA coding for luciferase into the
flanks of mice and saw strong expression. The fact that the technology worked
easily in this unoptimized experiment combined with the support from two
seasoned entrepreneurs led to a new round of talks with VC firms. This time their
efforts were successful, leading to the creation of Moderna, which has now grown
to one of the most highly valued biomedical companies.

– It is critical to have mentors that have “seen the movie before.” Enlist them as
advisors or co-founders. Seasoned co-founders are taken seriously and open many
doors.
– Hold out as long as possible before raising money. This allows you to build as much
value and come to the negotiating table with a much stronger position.

Today, Moderna is a publicly listed company (NASDAQ: MRNA) pioneering mRNA
therapeutics for a wide range of human diseases. The company has a pipeline of over
20 mRNA drugs in development consisting of prophylactic and therapeutic vaccines,
and therapeutics for immuno-oncology and rare diseases. Moderna has developed
drug delivery technology (nanoparticles) used in nearly all these drugs, including its
COVID vaccine (mRNA in nanoparticles) that has been used across the world.
2.2.4 Sigilon Therapeutics: Interview with Arturo Vegas

Key Patents (earliest filing date): US13/487524 (2011); US14/817084 (2014)
Key Early Papers: Vegas, A.J. et al. Nat. Med. 22, 306–311 (2016); Vegas, A.J. et al.
Nat. Biotechnol. 34, 345–352 (2016).
Founded: 2016
Founders: Daniel Anderson, Robert Langer, Jose Oberholzer, Arturo Vegas, Omid
Veiseh

Here, the core technology is anti-fibrotic materials for cell encapsulation and
cell-based therapies.
In 2007, when Arturo Vegas joined the groups of Daniel Anderson and Robert Langer
as a postdoctoral researcher, the idea to use encapsulated beta islet cells to treat dia-
betes was already being explored in rodent models. However, the field had not been
able to translate these cell-based therapies to patients because there was a strong
immunogenic response that generated fibrotic tissue around the encapsulated cells
and over time rendered them inactive. Together with their colleagues Omid Veiseh
and Jose Oberholzer, Anderson, Langer, and Vegas envisioned carrying out an in
vivo combinatorial screen of chemically modified alginates to find a derivative that
could evade the immune system and suppress fibrosis. Alginate was an established
material with great properties such as a mild gelation procedure compatible with
mammalian cell encapsulation, but it was missing this key anti-fibrotic property.
2.2.4.3 Why was it Important to Start Sigilon?

During the development of their project, there were no other major companies that
were commercially tackling cell encapsulation. While there had been previous com-
mercial attempts, all major players had failed or ceased operations. Therefore, there
were no commercial partners that could easily incorporate this technology through
licensing. Any existing major companies would need to set up a whole new cell
encapsulation program to appropriately take advantage of the anti-fibrotic alginates.
2.2.4.4 When was the Technology Ready to Start Sigilon?

From the team’s point of view, the critical tipping point came in late 2012/2013 with
the first nonhuman primate data, demonstrating that their lead material reduced
long-term fibrosis in this fully immunocompetent animal model. This result in pri-
mates was particularly necessary for translation of the idea to a commercial company
since the cell encapsulation field had a checkered past of promising results in rodents
followed by failure when tested in animal models with strong immune responses.
Then in 2014, the commercial potential became even clearer when a publication
in Cell in 2014 from Doug Melton’s group led to a collaboration to encapsulate the
Melton Lab’s human stem cell-derived functional pancreatic β cells in the team’s
anti-fibrotic material. Together, they went on to show long-term glycemic control
through the implantation of these encapsulated pancreatic β cells, demonstrating
the potential of the technology as a treatment for diabetes. These key in vivo results
led to conversations with Flagship ventures, which brought in founding CEO Paul
Wotton to create the new company. Veiseh and Vegas continued as Head of Inno-
vation and Scientific Consultant, respectively, and have since gone on to faculty
positions at Rice University and Boston University.

– The most important aspects of starting a company from academia are to have the
three “P’s”: people, patents, and papers.
– After a VC is interested in becoming involved, the most difficult part for a first-time
entrepreneur is to know what a fair term sheet looks like and what is a reasonable
value for the current state of the technology. Have advisors that have been through
process so that you learn what terms are negotiable and which are just standard.

Today, Sigilon is a privately held company with VC backing and a seasoned manage-
ment team. The company is in Investigational New Drug (IND)-enabling studies for
treatment of rare blood diseases with a pipeline of preclinical programs behind it.
2.2.5 Suono Bio: Interview with Carl Schoellhammer

Key Early paper: Schoellhammer, C.M. et al. Sci. Transl. Med. 7, 310ra168-310ra168
(2015).
Founded: 2017
Founders: Carl Schoellhammer, Amy Schulman (VC), Giovanni Traverso, Robert
Langer

Here, the core technology is ultrasound-mediated delivery of small molecules and
macromolecules.
During his PhD work with Robert Langer, Carl Schoellhammer initially focused
on developing dual frequency ultrasound as mode of transdermal drug delivery.
Together with gastroenterologist Giovanni Traverso, Langer and Schoellhammer
imagined that this physical mode of drug delivery could be adapted to target the
mucosal membranes of the gastrointestinal (GI) tract. They wanted to overcome
the long-standing challenge of delivering large biomolecules such as proteins
and nucleic acids directly to the GI tract. In particular, they saw the potential of
ultrasound-mediated delivery to be generalizable to a wide array of molecules.
This was because ultrasound-based delivery relied much less on the specific chem-
ical characteristics of the molecule to be delivered as compared with traditional
formulation-mediated drug delivery.
2.2.5.3 Why was it Important to Start Suono Bio?

As they carried out the initial proof-of-concept experiments in the laboratory, the
method continued to work for different types of molecules even without optimiza-
tion. This pointed to the robustness of the method and its potential to become a
platform technology. Starting a company was important for Schoellhammer as a
means to take an active role in shaping the direction of the technology and making
sure it could be developed to its greatest potential.
2.2.5.4 When was the Technology Ready to Start Suono Bio?

For Schoellhammer, the end goal was never to start a company. Instead the time-
line toward the eventual inception of Suono Bio was always science driven. Since
the idea was to apply this ultrasound-based drug delivery in humans, safety and effi-
cacy were key in deciding when to start the company. In particular, demonstration of
safety and efficacy in a large animal model (swine) as reported in their publication
in Science Translational Medicine in 2015 was critical to taking the next step of com-
pany creation. This led to conversations with Amy Schulman at Polaris Partners and
mapping out of a strategy to focus on inflammatory bowel disease as an initial com-
mercial application. Schoellhammer went on to become the founding CEO of Suono
Bio, securing space at Lab Central through their “Golden Ticket” competition and
eventually raising seed funding from The Engine, Polaris Partners, and MedTech
Venture Partners.

– Participate in pitch and startup-focused competitions to educate yourself how
businesses are put together and especially to make key contacts with people who
have done it before.
– Keep the technology in the academic laboratory as long as possible to de-risk any
safety and efficacy issues as much as possible.

Today, Suono Bio is a privately held company with VC backing and a growing
team of scientists and business leaders. Suono Bio is focused on developing ther-
apeutic products for inflammatory-mediated diseases leveraging their ultrarapid
and formulation-independent delivery technology. One of its lead products is a
disease-monitoring device designed to help patients absorb medication in the GI
tract as described in the Journal of Controlled Release in 2019.
2.2.6 Vivtex: Interview with Thomas von Erlach

Founded: 2018
Founders: Thomas von Erlach, Douglas Eby, Giovanni Traverso, Robert Langer

Here, the core technology is drug development based on robotic screening using
intact organs such as the GI tract.
In 2014, when Thomas von Erlach started his postdoctoral research with Robert
Langer and Giovanni Traverso, early-stage drug discovery and development was car-
ried out using cell lines. For example, to study the effects of drugs on the GI tract,
the cell line Caco-2 was the go-to model system. However, cell lines such as this one,
while technically very accessible, were a far cry from the real in vivo cellular envi-
ronment of intact organs. In drug development, these differences often lead to high
failure rates of drug candidates and formulations as they transition from the in vitro
to in vivo stages. Inspired by this shortcoming, the team set out to develop a robotic
platform that could screen drug candidates against intact organs. They imagined this
platform would capture the complex in vivo environment much earlier in the drug
development process, leading to more robust leads.
2.2.6.3 Why was it Important to Start Vivtex?

von Erlach points out that their technology is not just an off-the-shelf tool that can
be used by others, and therefore it is not trivial for an existing company to license the
technology and incorporate it into their workflows. More importantly, he comments
that even if other companies would license the technology, it is very likely that the
technology would be applied very narrowly to only one step of their work flow. For
von Erlach, it was important to start Vivtex to be able to apply the technology to all
aspects of drug development, taking it to its fullest potential for patients. In addition,
von Erlach notes that starting a company allows for a much quicker pace and simpler
process for engaging with third parties such as clinicians and other area experts,
which greatly accelerates the development and increases the potential of the initial
technology.
2.2.6.4 When was the Technology Ready to Vivtex?

von Erlach suggested that there was no one single experiment that signaled the
technology was ready to be translated into a company. Instead he says it was an
accumulation of a sizable amount of in vivo data that showed repeatedly that the
team’s approach continued to work for multiple applications. This led to conversa-
tions with and support from Douglas Eby to iron out the core goals and application
areas for the new company with Eby becoming the founding CEO and von Erlach
the founding CSO.

– Take your time to define the core application area with the biggest impact. Know-
ing what the company will actually do is the most important and most difficult
part. Do not rush this step.
– Include industry leaders and clinicians in your conversations as early as possible.
This helps to quickly move past dead ends without the need to expend experimen-
tal time and money.

Today, Vivtex is a young startup that is residing in LabCentral’s shared wet lab space.
The company is in preclinical stage and has multiple drug development programs
including reformulations of existing drugs and new chemical entities.
Key Takeaways
● The most important aspects of starting a company from academia are to have
the three “P’s”: people, patents, and papers.
● Know what a fair term sheet looks like and what is a reasonable value for the
current state of the technology.
● Include industry leaders and clinicians in your conversations as early as pos-
sible. This helps to quickly move past dead ends without the need to expend
experimental time and money.
● You need the experience to know what is important, but the inexperience is key
to finding solutions that are not entrenched in the history.
2.3 Why Start a Company?
Starting a new company is a very challenging, time-intensive process with a high

likelihood of failure. This process is particularly risky in the biomedical field due to
the large upfront costs and long time required before a single product can be sold.
So why do it?
Based on the interviews above, the simple answer is that the founding scientist
saw starting a new company as the only viable way to get their technology to as
many patients as possible. To them, taking another approach such as licensing the
technology would have severely narrowed the potential of the technology and, to
some, would have made it impossible to actually get it to patients.
2.3.1 To Have the Largest Impact on Patients

The successful companies described above all have one unifying quality: scientific
founders working on “platform” technologies driven to apply them to as many
patient populations as possible. In each case, these scientific entrepreneurs chose to
take on the high risk of starting a new company because of their desire to maximize
the potential reach and impact of their work on real patients.
But why was taking on this challenge necessary? On first approaching this ques-
tion, we might consider that large established companies would be better positioned
to bring a nascent technology to fruition. After all, large companies already have
the necessary financial and physical resources required. In fact, many technologies
developed in academic laboratories are successfully passed on to large companies
through licensing. However, what we learned from the scientific founders we inter-
viewed is that in general this approach works best if the technology in question has
a narrow focus by nature. This might be the case for a new small molecule that tar-
gets a specific receptor in one disease mechanism. If instead the technology has the
potential to be applied across a variety of diseases, the scientific founders interviewed
unanimously conclude that a startup company is the best way to increase the chances
of reaching multiple patient populations.
The academic founders we interviewed cite two main reasons why directly passing
on a technology to a large established company may limit its potential: (i) the tech-
nology is often in-licensed to enhance preexisting projects, and (ii) the technology
can be more easily shelved or killed.
Although established companies may have more resources at their disposal com-
pared with a startup company, those resources are spread across several preexisting
goals set before the technology in question is in-licensed. This often means that a
technology is in-licensed because it is perceived to overcome a particular gap or
challenge faced on one established project. This was the case with Derrick Rossi’s
modified RNA technology. Since the key paper his group published had a focus on
the use of the technology for iPS cell production, most of the interested companies,
which sought to in-license the technology, simply wanted a tool to enhance their
iPS production workflows. However, Rossi’s technology had much larger potential
as a tool to transiently deliver any therapeutic protein in a patient. It took starting
Moderna to be able to apply the technology to this much wider array of applications
ranging from cancer therapies to vaccines.
Additionally, established companies often have a diverse portfolio of technologies
that are all competing to become a real product. An in-licensed technology is just one
of many competing technologies, which may be prioritized or deprioritized based on
the overall performance of the company’s portfolio. Therefore an in-licensed tech-
nology may be shelved because it is taking longer to develop compared with other
unrelated projects or it is simply no longer aligned with the overall direction of
the corporate licensee. Arturo Vegas notes that this was the state of the corporate
field surrounding cell encapsulation when his team decided to start Sigilon. Several
potential corporate licensees had already invested in and shelved projects involv-
ing cell encapsulation technologies. In Vega’s case, it was critical to start Sigilon
to develop the modified alginate cell encapsulation technology. Only in the setting
of this new company was there the focus and commitment to see the technology
through its potentially long and challenging development that had discouraged pre-
vious established companies.
2.3.2 To Introduce a New Platform Technology

Beyond enhancing the potential impact on patients, the academic founders inter-
viewed also suggest that starting a company is the appropriate and sometimes even
necessary road to take if the work in question is a “platform” technology.
So what is a “platform” technology? It is an enabling technology that has a
broad set of potential applications across multiple diseases and indications. In
each of the companies we mentioned, we can see these key qualities: (i) Advanced
Inhalation Research focused on inhalable drug-eluting particles that can serve
as a platform to deliver any compatible drug, (ii) Kala Pharmaceuticals focused
on mucus-penetrating particles that can also be used to deliver any compatible

drug, (iii) Moderna developed chemically modified RNAs that have the potential
to encode any therapeutic protein of interest, (iv) Sigilon centered on anti-fibrotic
materials that can be used to encapsulate any cell-based therapy that requires
implantation and protection from the host immune system, (v) Suono Bio focused
on an ultrasound method to administer any molecule or macromolecule that would
otherwise not reach the bloodstream, and (vi) Vivtex focused on a whole tissue
screening method that can enhance the development of any drug that requires
uptake across the GI epithelium.
As we discussed above, one reason that starting a new company based on
a “platform” technology makes sense is that it enhances the likelihood that it
will be explored to its greatest potential. However, the academic founders cite a
second reason why taking such a technology out of the laboratory often requires
starting a new company. They note that “platform” technologies may simply be too
incompatible with the workflows of established companies.
For example, a large pharmaceutical company is the ideal place to take a new
molecules and run them through the drug development process for a specific dis-
ease, since such a company already has the relevant cell based assays, animal models,
and even clinical protocols in place for that specific disease. However, as noted by
Arturo Vegas and Thomas von Erlach, the same company would require a signif-
icant investment in capital or even a complete change in process to incorporate
their technologies into existing workflows. For Vegas, starting Sigilon was necessary
since potential corporate licensees simply no longer had cell encapsulation programs
that could directly leverage the anti-fibrotic material. For von Erlach, starting Vivtex
was necessary since the intact organ technology was not yet an off-the-shelf prod-
uct that an established company could immediately incorporate into their screening
pipelines.
It takes a new company to invest in and de-risk the potentially unusual infrastruc-
ture required to implement a “platform” technology. Once validated and established
as a viable way to develop a commercial product, the technology then becomes more
palatable to established companies, now meriting the potentially large investment
and change in process. This was the case for Advanced Inhalation Research, which
after a significant development period was acquired and integrated into the more
established Alkermes. After an additional spinout as Civitas Therapeutics and
acquisition by Acorda Therapeutics, the original technology is now part of an
FDA-approved product (Inbrija) and continues to play a part in the development
pipeline at Acorda Therapeutics.
2.3.3 Is Licensing an Alternative?

Starting a new company is not always the best course of action to get a technology out
of the academic laboratory. Sometimes, even if the idea is appropriate for a startup,
there may just not be the right team or resources available to tackle the arduous road
of starting a new company. So what are the alternatives for an academic entrepreneur
who may anyways want to go beyond the bench and proactively help translate ideas
out of the laboratory?
2.3.3.1 Licensing to Existing Companies

As mentioned above, a researcher need not worry at all about commercialization and
instead can let their institution’s technology transfer office take care of patenting,
finding potential licensees, and securing licensing contracts. However, even in this
situation, the researcher can be more involved and initiate patenting discussions
with their institution before publication of the research paper, giving the institution
ampler time to file a patent. Additionally, the researcher can work closely with their
institution to guide them toward the most relevant existing markets. Ultimately the
researcher has the most intimate knowledge of the technology and can play a critical
role in generating broader patents that will increase the likelihood of the technology
being licensed.
2.3.3.2 Corporate-sponsored Academic Research

In between licensing and starting a NewCo lies the realm of academic research
directly funded by company-backed grants. Large corporations sometimes have
programs to fund startup companies and sponsored research programs with
universities to fund projects in academic laboratories. Established companies use
this as a way to diversify their product pipelines to areas outside of their main
scope without directly taking on the risk and overhead cost of carrying out basic
research internally. Through these academic/corporate partnerships, an academic
researcher can find future licensees for their ideas even before any research has
taken place.
This type of company-backed grant usually comes with a blanket licensing agree-
ment between the university and the company that gives the funding company first
rights to license any technology developed from the project (rights of first refusal).
This can increase the likelihood of a technology making it out of the laboratory
as it guarantees that there is a licensee ready at the end of the project. Addition-
ally, the funding company can help shape a more direct path to translation out of
the laboratory by setting timelines and goals that better align the technology for
licensing. Finally, the corporate research counterparts can ensure the technology is
better aligned for integration into existing workflows by providing access to technical
resources during the life of the project.
Key Takeaways
● The researcher can work closely with their institution to guide them toward
the most relevant existing markets
● Sometimes, even if the idea is appropriate for a startup, there may just not
be the right team or resources available to tackle the arduous road of start-
ing a new company. Alternatives could be licensing to existing companies or
corporate-sponsored academic research.
2.4 When to Start a Company?

Starting a company can be as simple as filling the correct paperwork. However, suc-
cessfully funding and growing that company can be extremely challenging. A critical
part of taking this step is making sure that the core technology is ready and palatable
to outside investors. This is particular important in the capital-intensive biomedical
sector.
So when is a technology mature enough to start knocking on the doors of venture
capitalists?
In our experience, outside investors will ask three things: (i) Is there significant in
vivo validation of the technology? (ii) Was a patent filed? (iii) Was a paper published
in a reputable journal? In accordance with this, the scientific founders interviewed
also cite strong in vivo results, patents, and papers as having been crucial to start
conversations with outside investors and to have a strong position at the negotiation
table. Ultimately, VC and angel investors want to know if the core technology has
been significantly de-risked to merit taking the next step of company creation.
2.4.1 Is There Enough In Vivo Validation?

When weighing potential investments, outside investors look at many aspects of a
company to ultimately assess one thing: Can the company sell a product? In the
biomedical sector, that translates to: Can the company successfully get a product
through the FDA approval process? That is because a biomedical company simply
cannot sell a product unless it has FDA approval.
This means that, unlike in other sectors where investors must judge the growth
potential (e.g. user acquisition rate and max user base), in the biomedical sector,
investors must instead judge whether the product will actually work clinically
(e.g. is the efficacy and safety better than the current standard of care?). Therefore,
results and data that move a technology further along toward FDA approval increase
its value to investors and enhance the likelihood of an investment.
As we see from the interviews above, the scientific founders strove to amass as
much in vivo data as possible before successfully reaching out to outside investors. In
the case of Moderna, we see how initial attempts to find investors were unsuccessful
and how the in vivo rodent demonstration of the chemically modified RNAs express-
ing luciferase played a key role in securing funding. Similarly, Justin Hanes notes
from his experience starting Kala Pharmaceuticals that it was critical to demonstrate
their mucus-penetrating particles across multiple distinct indications in vivo to build
more value before approaching the negotiating table.
In addition, from Arturo Vegas, we learned that it is not enough to have any kind
of in vivo data and that the animal model used can be just as important. To start
Sigilon Therapeutics, Vegas notes that the team pushed all the way to immune com-
petent nonhuman primates to demonstrate the efficacy of their anti-fibrotic alginate.
In their case, the field had already seen companies fail based on positive results
from simplified rodent models. To the team and the initial investors, it was crucial
to demonstrate their technology in more complex animal models.
So how does all this in vivo data collected at the academic stage enhance the value
of a technology in the eyes of investors?
The reason is that this kind of data provides early proof that the technology
may fair positively in the stringent animal and human trials demanded by the
FDA approval process. While the details differ depending on the type of product
(i.e. drug, biologic, or device), this process generally involves first carrying out
animal trials to demonstrate safety and determine dosing (preclinical), then testing
the safety in a small number of healthy volunteers (Phase 1), followed by testing
the efficacy in a small number of patients (Phase 2), and finally testing a large
population of patients to characterize rare adverse effects (Phase 3). Furthermore,
all these stages must be carried out under the useful but costly good laboratory
practice (GLP) and good manufacturing practice (GMP) regulations.
While successful FDA approval is a multifactorial outcome, it is primarily based
on the intrinsic safety and efficacy of the biomedical product in patients. There-
fore, all early experiments that can predict this intrinsic safety and efficacy help
convince investors that the technology will be profitable. In other words, each addi-
tional experiment that establishes the margins of efficacy and safety lowers the risk
of failure in a later stage of the approval process.
Therefore, at the academic stage it is important to invest time both in experiments
that are academically interesting (e.g. in vitro assays that support a basic mechanistic
hypothesis) and experiments that de-risk the core technology (e.g. in vivo assays that
define a safety margin). Engaging with investors too early with minimal or no in vivo
results can lead to closed doors or to small investments and low initial valuations. In
general it is best to grow a technology in the academic setting and de-risk it through
in vivo experiments as much as possible before heading to the negotiating table.
2.4.2 Was a Patent Filed?

Beyond the product itself, outside investors must also judge if the company will have
the ability to sell that product at a reasonable price point to make a return on their
investment. In the biomedical sector, this centers on having patents that block com-
peting companies from selling the same product at a cheaper price. This is because
while a biomedical product is quite expensive to research and develop, once estab-
lished and approved, it is relatively inexpensive to manufacture and sell. Therefore,
patent protection is critical to enable a reasonable return on the investment required
to complete the arduous development process.
In other sectors, where the time and money required to get a product to market is
a relatively small, investors might value other aspects, such as current market pene-
tration, more than patents. In contrast, in the biomedical sector, at the time of initial
investment, a company may be up to 10 years from selling its first product. In the
United States, patents give the company exclusive rights to profit from the protected
technology for a period of 20 years since initial filing. Therefore, with a patent filed,
outside investors can rest assured that there is at least the possibility that the new
company can carry out the required FDA approval process and still have time to
recover returns on their investment.
In addition, patents, through their list of claims, help define precisely the space in
which the company plans to operate. This allows investors to determine if in fact the
company’s technology is novel or if instead it infringes on another preexisting patent.
As defined by most patent laws, a patentable invention must not only be novel and
useful but must also include a nonobvious, inventive step. Defining exactly how and
what about the company’s core technology is nonobvious and inventive helps both
the researchers and potential investors define the space they hope to claim for the
new company.
As we can see from the companies interviewed, all the relevant patents were initi-
ated well before the company was founded. At minimum, a patent needs to be initi-
ated before any public disclosure of the details of the technology such as in published
papers or conference posters. The reason is that these public disclosures become part
of the general knowledge or prior art and render the technology unpatentable.
In our opinion, a patent should be filed as early as possible to facilitate any pub-
lic discussion of the technology without jeopardizing its patentability. Initiating the
patenting process just requires filing a provisional patent application. This appli-
cation is relatively simple to file, remains confidential, and gives the inventors a
one-year period to define the set of claims and file a full patent application. As soon
as this provisional application is filed, the researchers can publish their work and
have the flexibility of freely discussing their technology with outside investors.
While your institution’s technology transfer office largely handles this process,
the inventors can greatly enhance it. The technology transfer office invests the
time and money to pay lawyers to write the provisional and non-provisional patent
applications and argue your case for patentability to an examiner at the US Patent
and Trademark Office (USPTO). Throughout this process, the researchers have the
opportunity to work together with the lawyers to shape the scope and clarity of the
claims, increasing the likelihood of securing a broad patent.
Therefore, it is important to start internal patent discussions early in the tech-
nology development process. This allows ample time to review and understand the
distinctions between the technology being developed and any relevant prior art. This
facilitates discussions with the technology transfer office and ultimately facilitates
the negotiations with outside investors.
2.4.3 Was a Paper Published?

Having significant in vivo data and a filed patent application are the minimum
requirements to approach outside investors. However in our experience, having
the work published in a top, high-impact journal is important for securing outside
investment. As discussed above, in the biomedical sector, outside investors must
judge the likelihood that a technology will successfully make it through the FDA
approval process. To do this, outside investors will evaluate whether the technology
can actually work (i.e. it can be effective and safe) by consulting with key experts.
While the relevant in vivo data is the minimum requirement to carry out this due
diligence, a published paper bolsters this process through the journal’s peer review
and by providing a clear and complete communication of the context and technical
details.
Publishing in a high-impact journal also provides a standardized way to demon-
strate to investors the impact and interest in the technology. In sectors such as the
technology sector, entrepreneurs might back their claims through active user sur-
veys and statistics. However in the biomedical sector where there are no active users
for up to a decade from initial investment, publication in a top scientific journals
provides a proxy for potential demand of the technology. While publication in a
high-impact journal does not guarantee the quality of the science nor is publication
in such a journal a requirement for good science, ultimately it can boost broader
interest and excitement in the technology.
From the academic founders interviewed above, we find that nearly all the com-
panies had papers published in top scientific journals before or coinciding with com-
pany formation. David Edwards notes that the publication of their aerodynamic
porous particle work in Science directly led to talks with the VC firm Polaris. Sim-
ilarly, both Justin Hanes and Carl Schoellhammer state that their publications in
PNAS and Science Translational Medicine allowed them to kick-start conversations
with outside investors. In the case of Moderna, Derrick Rossi noted that as soon as
the technology was published in Cell Stem Cell, interested parties started inquiring
about licensing and commercialization. Additionally, he notes that the discussion
of the paper at a seminar helped spark the interest of his colleague and eventual
business partner Tim Springer.
In the case of Sigilon Therapeutics, Arturo Vegas notes that high profile publi-
cations helped in a different aspect. It was the publication of Doug Melton’s pan-
creatic β cell work in Cell that brought the two groups together. This collaboration
ultimately led to a publication in Nature Medicine that demonstrated the clinical
potential and robustness of the anti-fibrotic alginate technology, possibly leading to
the foundation of Sigilon Therapeutics. These two lines of work may not have come
together if each technology had been published in more niche scientific journals.
In contrast, from the case of Vivtex, we can see that a company can be started and
receive outside investment even before a publication is in place. Even so, Thomas
von Erlach notes that there were a sizable number of in vivo results that ultimately
were key to the foundation of Vivtex.
Ultimately, any kind of publication of the technology facilitates discussion with
outside investors and increases awareness of the technology in the broader com-
munity. This in turn increases the number of potential collaborators and interested
business partners. While narrow field-specific journals are a great forum to publish
high-quality research, in our opinion, high-impact journals provide a far-reaching
forum that enhances the likelihood of securing outside investment.
Key Takeaways
● In the biomedical sector, results and data that move a technology further
along toward FDA approval increase its value to investors and enhance the
likelihood of an investment.
● In general, it is best to grow a technology in the academic setting and de-risk
it through in vivo experiments as much as possible before heading to the
negotiating table.
● Having the work published in a top, high-impact journal is important for secur-
ing outside investment.
2.5 The Secret Ingredient: Who and What?

Starting and funding a company is an extremely competitive process. VC firms and
angel investors see many proposals come through their doors. On top of this, over
our career, we have seen a steady increase in the number of academic-initiated com-
panies backed by solid in vivo data. Yet not all new companies successfully convince
outside investors to invest.
So what distinguishes successful biomedical ventures? What is their secret ingre-
dient?
From the interviews above and our experience, the ultimate distinguishing factor
is determining the founding team. The best in vivo data and patents do not guarantee
success. These factors merely allow for the possibility of success in the biomedical
sector. Investors know that even for the best technologies, there will be a myriad
of unexpected obstacles that stand between their investment and a return. Thus,
investors ask not “what am I investing in?” but “whom am I placing my trust in to
navigate this arduous path?” Outside investors place their trust not in an idea but in
the people who will champion it, rework it, expand it, challenge it, and implement it.
2.5.1 Who Will Start the Company?

The founding team must convince outside investors that they can overcome any
unknowns to reach a viable product. As discussed above, in the biomedical sec-
tor, the stakes are high since a viable product must pass through the rigorous FDA
approval process. Fortunately, this also means that many of the unknowns will be
expected since the approval process has several phases and requirements that are
standard regardless of the product. Therefore, a founding team can distinguish itself
by having a demonstrated track record of success in the biomedical sector.
But how do you do this as a new academic founder? The junior founders inter-
viewed above all point to one key piece of advice: recruit and retain seasoned and
experienced mentors. In contrast, from the senior founders we learn that even with
a seasoned founding team, the ultimate key to success is a passionate CEO. In our
opinion, a successful founding team combines these two aspects: passionate mem-
bers backed by experienced mentors and advisors.
2.5.1.1 Seasoned Mentors as Co-founders

As discussed by Justin Hanes and Derrick Rossi, for each of their ventures, it was crit-
ical to recruit well-established academic entrepreneurs to their team of cofounders.
They both suggest that while it is great to have these experienced people as mentors,
it is even better to have them commit to the venture by becoming cofounders with
a real equity stake. Hanes mentions that retaining a seasoned co-founder through a
large equity stake is well worth it since having a committed entrepreneur with a
strong track record can make the difference between having a company and not
having it at all.
Even just through their presence, seasoned co-founders demonstrate to investors
that based on their previous experience, they believe the venture has a path to suc-
cess. Beyond this, through their network, experienced co-founders can tap into a
pool of potential investors or even back the initial stages themselves. Additionally,
Arturo Vegas notes that a key factor for a successful negotiation with investors is sim-
ply knowing what is negotiable and what is just a standard clause in the contract.
Having a co-founder that has gone through the negotiation process even once before
gives the whole team an advantage. In addition, a reputable co-founder can also help
beyond negotiation and investments. Such a co-founder can help find, recruit, and
retain a great management team and top technical talent.
If you do not have immediate access to a seasoned co-founder, Carl Schoellham-
mer points out that pitch competitions are an effective way to seek out potential
mentors and partners. For him, taking part in these competitions was critical to
starting Suono Bio.
2.5.1.2 Finding a Great CEO

A great CEO is critical to the initial success of the company. This person makes
the daily strategic decisions driving the company forward through hiring, acquir-
ing physical resources, and raising additional capital. In our experience, great CEOs
do not come from a common background, but rather they have a common set of
qualities. The best CEOs have passion and can walk through walls of failure, they
have charisma and can raise money credibly, they can listen to others carefully and
with good judgment, and most importantly they have gotten rid of any pride and will
hire people who are better than them.
From the companies we have been involved in, and interviewed above, it is clear
that the founding CEO can be anyone. In cases like Kala and Sigilon, the founding
CEO was an experienced industry leader brought in with the help of the VC firms.
In other cases like Suono Bio, the founding CEO was the passionate student and aca-
demic. And yet in other cases like Vivtex, the founding CEO was the angel investor.
Each type of CEO brings their unique experience, but it is their drive, commitment,
and humility that will shape the company.
Finally, while a founding team is minimally composed of a CEO, in our experi-
ence, the founding team is usually composed of the scientist, a seasoned mentor,
and a partner investor. During initial funding, this small team assumes all the roles
critical for a company to function: employees, consultants, management team, sci-
entific advisory board, board of directors, investors, and entrepreneurs. Then as the
company takes off, a successful founding team will find replacements for themselves
in all these roles as efficiently as possible.
2.5.2 What Will the Company Actually Sell?

With a solid founding team in place, the next most critical aspect is establishing a
viable business plan, in other words, deciding what company will actually sell and
how much money is needed to reach key milestones. In the biomedical sector, this
decision is complex and takes into account the potential patient population, payers,
clinicians, competitors, regulations, manufacturers, and corporate partners as well
as the feasibility of achieving technical milestones (e.g. dose range finding studies,
biomarker and end-point development, first-in-human trials, etc.).
In sectors like tech, companies can usually approach investors with a business
plan defined by key parameters of an existing user base. However, in the biomedi-
cal sector, a company must raise significant funds just to start asking research and
development question regarding their technology. In our experience, approaching
investors with a platform technology allows the business plan to include a range of
potential products. This flexibility spreads out the risk of failure; however deciding
on this prioritized list of potential applications is difficult.
Thomas von Erlach and David Edwards suggest that the most effective way to
come to these decisions is to get “outside eyes” on the problem. That is, to consult
with key field experts such as clinicians, disease-specific experts, and even patients.
In our laboratory, we try to incorporate expert opinions as early in the academic
development process as possible. In some cases, more experiments may validate a
particular application; however a field expert can eliminate a potential path more
quickly. In this way, the list of potential products that the platform technology can
be applied to can be trimmed and honed.
The academic founders interviewed above note that this process can and should
take time. It is better to eliminate dead ends by talking to experts and reading the
work of others, rather than investing time and money to explore a knowable dead
end. Outside investors also help prune and revise this list of products by connecting
the team with key experts from their networks. With a vetted list of potential prod-
uct paths, the founding team can leverage the initial investment to experimentally
evaluate and further eliminate any unexpected dead ends as quickly as possible.
Key Takeaways
● Retaining a seasoned co-founder through a large equity stake is well worth it

since having a committed entrepreneur with a strong track record can make
the difference between having a company and not having it at all.
● A great CEO is critical to the initial success of the company. Each type of CEO
brings their unique experience, but it is their drive, commitment, and humility
that will shape the company.
● Establishing a viable business plan, i.e. deciding what company will actually
sell and how much money is needed to reach key milestones, is critical.
2.6 Summary: Lessons Learned
Knowing whether to start a company and when to do so are critical decisions faced by
any entrepreneur. An academic entrepreneur in the biomedical field has the advan-
tage of incubating the underlying technology within the context of an academic
research laboratory. This is critical because not all technologies make good compa-
nies and it often takes longer than expected to put together the people, papers, and
patents required to successfully start and fund a company.
Through the companies and founders we have worked with, including the ones
interviewed at the beginning of this chapter, we have formulated the following
lessons for what is needed before setting off on a new venture in the biomedical
sector:
2.6.1 Lesson 1: Work on a High-impact, Platform Technology

High impact technologies that strive to impact large patient populations are well
aligned with the goals of VC investors in the biomedical field. A platform technology
gives you the flexibility to generate a venture with multiple potential products that
can reach multiple patient populations. This allows the risk to be spread out over a
larger product pipeline.
2.6.2 Lesson 2: Patent Early and Broadly

Most outside investors will simply not even consider investing unless a patent has
been filed. In the biomedical sector, a product is extremely expensive to develop and
2.6 Summary: Lessons Learned 55
put through the FDA approval process. Yet it is relatively cheap to manufacture.
A broad blocking patent prevents others from selling it cheaply and allows you to
recover a return on the initial investment.
2.6.3 Lesson 3: Keep the Tech in the Lab as Long as Possible

A technology can be significantly de-risked in the laboratory before any outside
investment is required. Each additional piece of data that supports that a technology
can be developed into a viable product adds value to the proposition you make to out-
side investors. Try to increase this value as much as possible through non-diluting
funds (i.e. grants).
2.6.4 Lesson 4: Must have in vivo Efficacy and Safety

The most important pieces of data are information demonstrating efficacy and safety
in the correct animal models for the intended disease application. One of the largest
risks of developing a biomedical product is failure of the technology to work in
humans. In vivo data is the closest we can get to de-risking these aspects short of
trying them in humans.
2.6.5 Lesson 5: Publish in Top Scientific Journals

A published paper is a clear, concise, and contextualized way to communicate the
impact and novelty of your technology. Publication in a top scientific journal is short-
hand for those outside your field that the research has been vetted and is of wide
interest.
2.6.6 Lesson 6: Partner with Seasoned Entrepreneurs

One of the best predictors of future success is having been successful before. Outside
investors invest in the team not just the idea. Therefore, having seasoned co-founders
will open many doors and will go a long way to securing funding.
These lessons form just the beginning of the long, arduous journey needed to turn
a technology into a successful company. We hope that this chapter will encourage
academic researchers to take on the challenges of nurturing their technologies and
translating them into viable products. Ultimately startup companies are great tools
to take groundbreaking discoveries out of the laboratory and mature them into prod-
ucts that can improve human health.
Ideas in the lab
Patents
Papers +
Great people
In vivo
Outside investment
Further Reading 57
Further Reading
Suggested Reading
Butler, D. (2008). Translational research: crossing the valley of death. Nature 453:
840–842.
Dooley, J. and Dooley, J. (2003). Convincing a venture capitalist to invest in your idea.
Bioentrepreneur https://doi.org/10.1038/bioent735.
FDA (2020). Office of the Commissioner, The Drug Development Process. https://www
.fda.gov/patients/learn-about-drug-and-device-approvals/drug-development-
process (accessed 13 April 2020).
Frølund, L., Murray, F., and Riedel, M. (2017). Developing Successful Strategic
Partnerships With Universities. MIT Sloan Management Review 59.
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Author Biographies
Dr. Miguel Jimenez joined the laboratory of Robert Langer
as a postdoctoral associate in 2017, where he works with
Giovanni Traverso on the development of drug delivery sys-
tems for microbial therapeutics. He is part of the Academy
of Bioastronautics at the Translational Research Institute for
Space Health (TRISH). Miguel earned his PhD in Chem-
istry at Columbia University where he developed synthetic
biology-based microbial diagnostics under the supervision of
Virginia Cornish as a National Science Foundation Fellow.
Miguel earned his BA in Chemistry and Chemical Biology at Harvard University,
where he developed a vinyl siloxane metathesis methodology under the supervision
of Damian Young and Stuart Schreiber as a Herchel Smith Undergraduate Fellow.
Jason Fuller, is a Partner on the Biotherapeutics group at
Deerfield Management and joined the Firm in 2021. Prior to
Deerfield, Dr. Fuller was an investor at New Enterprise Asso-
ciates (NEA), where he co-managed several investments in
therapeutics, as well as in tools and diagnostics. Previous to
NEA, he served as Head of Corporate Development at Jounce
Therapeutics, one of several company formation projects he
helped initiate in his role as Principal at Third Rock Ventures
before joining Jounce. Dr. Fuller holds a B.S. in Chemical
Engineering from Michigan State University, an M.Phil. from Cambridge University,
and a Ph.D. in Chemical Engineering from Massachusetts Institute of Technology,
where he completed his degree in the lab of Robert Langer.
Dr. Paulina Hill is a Principal at Omega Funds. Prior to
joining Omega in 2019, Paulina was on the healthcare
team at Polaris Partners since 2012. Paulina is currently
an observer on the board of Arrakis Therapeutics. Paulina
previously served on the boards of Kala Pharmaceuticals
(NASDAQ: KALA), Neuronetics (NASDAQ: STIM), Lyra
Pharmaceuticals, Faraday Pharmaceuticals, Arsenal Medi-
cal, and CAMP4 Therapeutics, where she was the found-
ing CEO. Paulina completed her postdoctoral fellowship in
Robert Langer’s lab in the Chemical Engineering department at the Massachusetts
Institute of Technology. Paulina was the founding president of the MIT Postdoctoral
Association and served on the MIT Intellectual Property Presidential Committee.
Paulina completed her PhD in Molecular Medicine from the Wake Forest University
School of Medicine and graduated magna cum laude from East Carolina University
with a quadruple major in biochemistry, neuroscience, biology, and chemistry.
Dr. Robert Langer is an Institute Professor at the Mas-

sachusetts Institute of Technology (MIT). There are 10 Insti-
tute Professors at MIT, and being an Institute Professor is the
highest honor that can be awarded to a faculty member. He
has written over 1500 articles, which have been cited over
353 000 times; his h-index of 293 is the highest of any engi-
neer in history. He has more than 1400 issued and pending
patents worldwide. His patents have licensed or sublicensed
to over 400 companies. He served as Chairman of the FDA’s
Science Board (its highest advisory board) from 1999 to 2002. His over 220 awards
include both the United States National Medal of Science and the United States
National Medal of Technology and Innovation, the Charles Stark Draper Prize (con-
sidered the engineering Nobel Prize), Albany Medical Center Prize, the Wolf Prize
for Chemistry, the Millennium Technology Prize, the Priestley Medal (highest award
of the American Chemical Society), the Gairdner Prize, and the Lemelson-MIT
prize, for being “one of history’s most prolific inventors in medicine.” He holds 36
honorary doctorates, including honorary degrees from Harvard and Yale. Langer is
one of the very few individuals ever elected to the National Academy of Medicine,
the National Academy of Engineering, the National Academy of Sciences, and the
National Academy of Inventors.
61
In Pursuit of New Product Opportunities: Transferring

Technology from Lab to Market
Alex Duchak
The University of Illinois at Chicago, 1200 West Harrison St., Chicago, IL 60607, USA
3.1 Introduction
3.1.1 Entrepreneurship and Technology Transfer

Research institutions and laboratories, both public and private, around the world
are engaged in “basic research.” That is, their mission, according to their sponsoring
governmental and sometimes industry agencies are to advance their constituents’
knowledge of basic scientific principles as it relates to the emergence of new
technologies. Discovering new science is often long and arduous, and new science
may never yield a direct commercial disruption. So how do entrepreneurs effectively
transfer technology from laboratories to market?
There are two, often siloed, worlds to explore in-depth to more deeply under-
stand entrepreneurship via technology transfer (Figure 3.1). Research institutions
engaged in basic and applied research develop new technology platforms. However,
they are very rarely intimately aware of the more comprehensive and exact needs of
the industry and government when it comes to using. At a high level, we know we
as a society must advance our knowledge of topics such as how to clean water, clean
air, and use fuel more efficiently and effectively. Nevertheless, how do entrepreneurs
take new battery chemistries, new air filtration media, and new selective targeting
chemistries and mold them into salable products and services that some group
of customers will predictably buy? Those customers can be difficult to identify,
difficult to persuade, and their current solutions difficult to displace. Technology
does not sell; products do. To leverage new science and transfer technology to
commercially-viable solutions, we have to crack the outer shell of obvious and
apparent problems and needs we understand as a society and work to reveal true
needs based on those customers’ job processes and routines. There are a few things
we need to understand to do this effectively.
The first, and arguably the most important, is to fully comprehend the roles and
responsibilities of target customers and understand their job processes or routines.
Entrepreneurs must paint a picture of the routines their customers go through and
the products they “hire” to get the tasks they are responsible for doing. By beginning
62 3 In Pursuit of New Product Opportunities: Transferring Technology from Lab to Market
Entrepreneurial
opportunity
True customer
New technology
platforms ? problems
and needs
Obvious problems
Obvious needs
Figure 3.1 Positioning entrepreneurial opportunity.
with the routines and tasks of potential customers, we can better understand where
the opportunities to innovate and build new solutions reside.
Key Takeaways
When mapping customer workflows, consider the following questions to help

frame the potential opportunities to explore.
● Can we improve the quality of information the customer is using to complete
their job?
● Can we automate or digitize part of their routine?
● Can we shift the responsibility they have to another stakeholder?
● Can we eliminate steps in their process or eliminate “negative” tasks they
have?
Solutions are temporary, but customers’ core jobs (driven by their needs and
objectives) are permanent. We used to listen to music, the process we used to make
our morning coffee, the products we used to mow our lawns all looked very different
ten, twenty, and thirty years ago. However, customers’ needs, as it relates to their
roles and responsibilities as a consumer (whether business-to-business [B2B] or
business-to-consumer [B2C]), rarely change. Consumers still need to cut their grass
and maintain their yard. They still need their morning coffee, and they still need
to listen to music. Leveraging new technology platforms from world-class research
institutions will have a little commercial impact if we do not move beyond the
apparent needs, and thoroughly analyze the consumers’ job routines, influenced
by their roles and responsibilities. Only then will we have cogent conversations
with technology transfer offices at leading laboratories to facilitate the transfer
of technology into commercially viable solutions that empower the customers’
lives. This requires an understanding of both the technology (its benefits and its
3.1 Introduction 63
Building technology-
enabled solutions Customers’ workflow
Activity 1
Activity 2
Technology Economic
model model
Activity 3
Activity 4
Entrepreneurial
opportunity Activity 5
Activity 6
Solution Activity 7
Activity ‘n’
Figure 3.2 New solutions and a customer’s workflow.
constraints) and the economics of integrating that potential solution into the life of
a customer (Figure 3.2).
The commercialization of technology is a complex, often convoluted process by
which technologies take shape economically meaningful ways. This chapter defines
this process as technology transfer or how technology platforms, such as advanced
chemistries and new materials, are translated and de-risked by and for users down-
stream of their origins. This process typically begins with researchers, inventors,
scientists, engineers, and entrepreneurs pushing what is physically possible to
pursue something scientifically novel. The entrepreneur’s role is to observe and
translate customer job processes and their respective gaps into opportunities that
can be empowered by the performance of a new technology or technology platform.
3.1.2 Pursuing Commercial Product/Service Opportunities

via Technology Transfer
Within the context of any commercialization framework, technologies need to be
seen not as a physical asset but rather as knowledge and know-how from a process
perspective. For example, that process may be how to algorithmically compute a
function, develop chemistry with certain performance factors, or provide actionable
intelligence from a sensor array. In any case, this knowledge, at the point of inven-
tion, is typically isolated from any user experience. Technology must be translated
or integrated into salable forms by which it affects the jobs and routines of end users
or customers in order for it to be commercialized. Furthermore, effective technology
transfer operations must be operated by senders and receivers of technical and indus-
try sector knowledge. Knowledge must originate somewhere (e.g. research organi-
zations, small businesses). However, it is critical that the knowledge ultimately is
co-developed and co-engineered with the technology users (external parties such as
small-medium size businesses or new ventures). Once these external parties clearly
understand the technology’s basic functions and performance factors, rough use
cases can be constructed. This is important because it turns an abstract technical
concept into a tangible one where the value to a stakeholder can be noticed. Only
then will laboratory or research personnel and industry effectively communicate
about real, customer-driven solutions.
To achieve this, the maturity of a technology platform must also evolve in step with
the design of its end (commercial) use. Innovation can be described as a derivative
of advancing both the technical and commercial states of an invention (Figure 3.3).
Furthermore, when technological advancements are made without regard to the
economic reality of that potential product, the value of that technology remains low.
The same low-value state remains present when the economic reality of the potential
product is assumed without interaction with users and beneficiaries of the technol-
ogy (think “business plans” with no customer interaction or testing of key assump-
tions and hypotheses). As a result, value innovation truly occurs when technical and
commercial progress is made in lockstep. It is the invention plus implementation
that leads to value innovation.
When facilitating the transfer of technology out of a research institution and
into a commercial marketplace, some critical stakeholders must understand the
technical maturity of an existing invention. They should identify uses of that tech-
nology, establish hypotheses about the value added to potential customers in key
categories, integrate the technology function into a user experience acceptable to a
customer, and cross the threshold from a low to a medium value.
When ideas are in a low-value state that their technical and commercial maturity is
not advancing in lockstep, this usually means ideas exist without a fully thought-out
use. We define applications as the combination of technologies (its form, fit, and
Figure 3.3 To overcome

the Valley of Death.
A laddered development
$ pathway that moves the
technical progress in step
(Driven by economic reality)
with the commercial

Commercial maturity
progress ensures a
SBIR II
High
value tighter-fitting product with
its target market.
Medium
value SBIR I
Valley of death
Low
value
Technical maturity (TRL)

(Driven by physical reality)
3.1 Introduction 65
Value creation Value extraction
a
Ide
Idea
Idea
ea
a Preliminary
Id
Ide Idea assessment Feasibility Development Scale-up Idea
stage stage stage stage Idea
Ide
a
a
a Ide
Ide
Idea without
a use Idea with an intent
Commercial product/service
Figure 3.4 Moving from value “creation” to value “extraction” involves discovering and
assigning priority uses and intents to the initial concepts.
function) plus space (or markets) it can be utilized. An algorithmic sensor system
does not mean much on its own. However, an algorithmic sensor system in the
form of a software/hardware device to identify soil compositions prone to drought
in the agriculture space is a solid application. As ideas take shape and use, and mar-
kets are identified, we begin to move from value creation towards value extraction
(Figure 3.4).
3.1.3 A Model for Entrepreneurship via Technology Transfer

Often entrepreneurs think of markets as the groups of buyers and consumers of
solutions. The solutions themselves are thought of as markets, too, which requires
some clarification to engage research institutions more effectively about their
technology platforms. For example, there is the “higher education” market, but
there is also the “textbook” market. These clusters refer to different stakeholders
with different motivations and needs. As we prepare to engage the technology
transfer office at a laboratory, we must delineate the category of the solution we
wish to disrupt from the cluster of buyers and consumers who realize value from the
technology product. This is important because laboratories can be better leveraged
to connect entrepreneurs with the right research teams if they understand your
current knowledge of the solution space and how you seek to disrupt it.
First, we assume the general space you would like to operate is defined (i.e. battery
space). Our goal is:
● To understand and articulate what is driving innovation in your space and how
the solutions can be organized;
● To organize competitive research and how the underlying technology empowers
today’s solutions across all markets;
● To assess how the landscape is shifting relative to the variables that are driving
innovation in your space.
Questions to Explore
● What is driving innovation in your space? These are quantifiable variables. Think
of the “battery” space. Portability or size, energy density, and the safety of mate-
rials used are all factors that drive innovation in the space. Today, every research
institution has it on their agenda to improve their batteries and battery chemistries
based on these variables and more. Entrepreneurs looking to exploit this space will
be engaging research teams to gain some technical edge, such as higher energy
density and a smaller footprint.
● What are the alternative solutions in your space? These current and future
solutions can be categorized based on their drivers and mapped out relative
to one another. Suppose we choose two drivers to map the solutions against,
for example, volumetric energy density (Wh/l) and gravimetric energy density
(Wh/kg). In that case, we will see the categories of solutions customers have to
select their applications. Entrepreneurs can look to these maps of competitive
technologies in order to track improvements over time. Ph-acid, Ni-MH, Li-ion,
and solid-state (Li metal) are all battery space categories. Entrepreneurs and
opportunity seekers may notice that Pb-acid batteries have changed little relative
to Li-ion and solid-state chemistries. From the industry’s perspective, certain
categories of solutions may be more suitable than others.
● What is your strategy to alter the solution space? Once competing technologies are
mapped based on variables that are driving innovation, entrepreneurs can brain-
storm and determine how they would like to disrupt their space. Can you expand a
category, unite two categories, or create your brand-new category? In the comput-
ing space 20 years ago, mobile phones and laptops were discrete categories. Today,
we see those categories converging with tablet devices, which have the processing
power of laptops but the portability and connectivity of mobile phones. In the bat-
tery space, Li-ion’s energy densities are marginally improving. However, is there
an opportunity to create a separate category of battery solutions with energy den-
sities much higher than the alternative? It is important to note that these thought
exercises require numerous combinations and variations to determine the best
strategies for technology disruption.
Accepting innovation as a technical or economic disruption to a product, process,
or model alters how customers get their jobs done. Most entrepreneurial practices
can traditionally be seen as incremental adjustments to existing product lines that
leverage existing customer channels to stay competitive and relevant. New ventures
enter a market by traditionally getting a customer job done more effectively or at
a cheaper cost. To build on this concept, entrepreneurship via technology transfer
in the majority of circumstances looks beyond incremental adjustments to a core
product. It requires a thorough exploration of a new set of customers’ routines, their
jobs to be done, and the challenges with how those jobs are completed today. It also
examines early technical concepts that may empower a new solution that meets
an identified unmet need from these new customers. Fundamentally, technical
concepts must be identified, demystified, and classified by use, and the unmet
needs of new clusters of customers must be identified and prioritized.
3.1 Introduction 67
New ventures that enter a market to build solutions to address unmet needs have
the opportunity to benefit from building new products built on technology platforms
that were developed in a laboratory or research institution. Opportunities for trans-
ferring technical concepts from research institutions to new commercial markets
have two commercial entry points: via technology push (the technical concept is
identified first) or market pull (the customer routine to be disrupted is identified
first) (Figure 3.5).
We vet and advance product concepts through metered experiments where
demand for a new solution and technical capabilities to design and produce those
new solutions become refined and more robust.
The transfer of technology to commercial markets is typically a lengthier process
than marginal improvements (or core enhancements) to existing product lines. Both
establish an unmet need to under- and overserve markets via an analysis of a cus-
tomer’s journey and develop a technical team to support the new product’s pathway.
There are two methods to leverage new technology platforms. The first is based on a
technology push method, meaning a new technical concept is identified at a research
institution. The internal/new venture team seeks to identify, build, and prioritize use
cases for different applications. The second is based on a market pull method where
the core technical concept is secondary to an identified unmet need for a solution
in a known market. The former method requires more discovery and analysis to
identify and prioritize customers’ unmet needs via an in-depth analysis of their job
process or jobs to be done. The latter requires the same understanding of positioning
Tech transfer via

technology push
Low
Metered
Technical confidence
Technology
product
discovery
experimentation
Disruptive
innovation
Tech transfer via
market pull
Incremental Customer
innovation discovery
High
High Low
Demand confidence
Figure 3.5 New opportunities can initiate from two directions. The first focuses on
searching for technical capabilities from research institutions that effectively complement
the internal capabilities of the IP seekers (to understand what can be built). The other
focuses on customer research and discovery to scope new value demand from existing and
new customer channels. Metered experimentation is a process by which technical and
market demand confidence is gained so as to hone a specified, acceptable solution.
a new solution within the customer’s routine. However, more emphasis on identi-
fying new technology that can enable the performance the end product requires for
customer acceptance. As a result, effective technology transfer requires both a base-
line understanding of the technical concept as it exists currently (what it is, how it
works, what was tested, and how it was tested) and a complete understanding of the
customer’s routine, their jobs to be done, and how they are measured and assessed
by their superiors.
3.1.4 Extracting Technologies from Research Institutions

As the technological world becomes more and more complex, it is important
more than ever before to create a two-way dialogue between the ultimate users
of technology and those researchers developing the basic science at research
institutions. Technology concepts residing at research institutions can empower
the next wave of solutions that address the unmet needs of customers. It is up
to the founders and operators of new and internal ventures to advance the next
generation of technology via commercial products. If one can guide research early
on toward relevant commercial applications, stronger regional economies can also
be built on federally-funded research. Below is a simplified process representing the
methodology behind entrepreneurship via technology transfer (Figure 3.6).
Analyze customer Establish a Construct Legally extract

job processes and technology roadmaps technology
routines baseline and use cases from its source
● What is the ● Collect technol- ● Build a use ● Engage technology

routine? ogy/inventor case transfer office on the
Who is baseline ● Build a statement of work
involved? Information technology (SOW) for select
● What is used ● Verify details with roadmap technologies
now? How Technology ● Build a ● Execute Collaborative
is it used? Transfer (T2) office, customer Research and
● Where are rank according to roadmap Development
there inventor Agreements (CRADAs)
limitations? personality and and relevant licenses
accessibility ● Begin product
● Connect to development
researchers to (technology to product)
verify, learn ● Execute final license
additional unseen (with an included
information commercialization plan)
Analyze Establish a Construct Legally extract

customer technology roadmaps and technology from
routines baseline use cases its source
Figure 3.6 Process for entrepreneurship via technology transfer.

3.2 Technology Discovery and Development

3.2.1 Origins of Technology
Most technology, research, and intellectual property (IP) databases are currently
based on patents, academic publications, and few sector-specific publications. Most
of these collections include the bare minimum amount of information available
around a technology concept. However, they are not dynamic. There is no two-way
communication pathway established between an inventor and a technology user
(Figure 3.7).
Two-way communication is sparse between most technology transfer offices and
technology users.
What one can establish using these current databases is the technical pedigree
of the concept and inventors. From there, the next critical step is to confirm the
operational parameters of the technology, what it is intended to do, what it can do,
and what it cannot do.
The good technical publications include information about the original problem,
original or intended use, feasibility requirements, and some evaluation of current
research efforts in that domain. Laboratories and research institutions that can
reduce their IP into a basic understanding tend to offer the most opportunity for
successful new venture creations.
The most successful technology users have established relationships with technol-
ogy transfer offices, go-to researchers in particular fields of study, or the laboratory
administration. The starting point for most technical innovations begins with a basic
research question or challenge. Often the combination of existing technologies can
lead to something new that performs in a new way.
Figure 3.7 Technology users and Technology users

consumers tend to learn about
research organizations competencies
via the technical publications that get
regularly distributed by that
organization. Technology users
typically must consume the publicly
available information before they can
have a deeper discussion with the
technology transfer office or invention
team.
Technical
publications
Research organizations
3.2.2 Technology Transfer Communication Models

The traditional one-way technology transfer model dates back to the early 1980s.
It was based on an oversimplified representation of technology as a physical “thing.”
Suppose end users and acquirers waited until researchers were finished inventing
and refining technology. It would be a very long wait. In these scenarios, basic
research was driven passively through academic and technical publications.
However, technology is not a “thing,” but rather is an iterative effort. Technolo-
gies, therefore, are more about the know-how or knowledge behind a concept than
a physical asset. The physical assets are manifestations or proof of feasibility along
the development spectrum, and technology users are more interested in the transfer
of knowledge.
For this model to be effective, technology users and other external parties must
be involved early and help facilitate knowledge transfer. Early and often, feedback
helps the technology take shape for multiple external parties. As the translational
phase develops, external parties help analyze “fit.” This helps transition a “science”
problem into “engineering”, “sales and marketing”, and “manufacturing” prob-
lems – what startups, small-medium corporations, and large corporations are
equipped to handle.
3.2.3 Transitioning Technologies into Products

Entrepreneurial and corporate product developers alike typically begin with a con-
cept or solution statement, develop and design a roadmap to get there, collaborate
with the necessary technical, design, and customer experts before building out key
feature sets and launching a product (Figure 3.8).
When pursuing technology transfer opportunities via technology market pull
methods, this approach is effective.
However, where challenges occur when innovating via a technology push
approach. For this spectrum to hold, it is assumed the concept has been connected
to a real, observable problem. Once a solution statement (the concept) is clearly
articulated, the process of commercialization is relatively straightforward. However,
how is it that solution statements get generated from very raw, very complex
technical concepts? To answer this question, one must either first look to analyzing
the routines of target customers and identify the challenges in completing their jobs
Challenge
Concepts Design Collaborate Feedback Beta launch

Create Subject Subject Primary
? Solution Process
Roadmaps matter matter value
statements sprints
experts experts offering
Figure 3.8 Example concept-to-prototype launch process.

with the tools and resources available or exploring applications for a technology
given the competitive edge its performance and features can offer.
Technologies have distinctive performance characteristics in their infancy that
only the technology (end) users can connect to a value offering. Technologies do
not serve the unmet needs of markets; products do. It is the function of startups,
small-medium businesses, and large corporations to deconstruct their customers’
routines, engineer solutions empowered by novel technologies, and manage the
sales and distribution of those products (Figure 3.9).
If research organizations can simplify the background info industry needs, new
ventures and small businesses can leverage federal research grants like SBIR I for
development. Those ventures can ladder the development of technology with corpo-
rate contracts to meet the industry’s technical requirements. These ventures’ func-
tion is to truly observe and understand industry needs and interests to extract value
(Figure 3.10).
When pursuing the transfer of technical concepts from research institutions into
salable products, complexity and cooperation amass considerable effort to move the
Need
#1
Industry A
Need
#2
Need
#3
Technology X ? Industry B
Need
#4
Need
#5
Industry C
Need
#6
Figure 3.9 Technology is considered to be an actual product or process (e.g. software,

material, manufacturing process), whereas intellectual property is the knowledge and
expertise underpinning the product or process Patents are a recognition of the right to use
(or exclude others from using the technology. Technologies can often be refactored and
reconfigured through a systems integration process that meet the needs of the end user
who purchases solutions from the end industry.
Need
#1
Industry A
Component Need
level System level
#2
product C product A
Need
#1
Technology X Industry B
Need
#2
Component
System level
level Need
product D product B
#1
Industry C
Need
#2
Figure 3.10 Understanding how the core technology takes “shape” is a function of
understand which components, sub systems, and systems it enables to perform better or in
a unique way. That development pathway is guided by the performance needs of the end
users who purchase solutions from the end industries.
concept beyond the passive transfer of knowledge via technical papers and publica-
tions. As the technical and customer roadmaps are created and refined, culture and
skill become driving forces that ultimately determine how well fitted the technol-
ogy is for the new or internal venture. As the technical maturity of a concept moves
forward with the commercial maturity, the new or internal venture can have a real
commercialization conversation. Linking the power and performance of the under-
lying technology to the form, fit, and function of a product-driven by real customer
feedback becomes the focus of metered product experimentation.
It is important to understand that as technologies are identified, and technology
intent is hypothesized, the core technology begins to take economic shape. That is,
technologies find their shape and function, as defined by specific economic needs.
A need is a state of frustration or discontent that becomes apparent in customers’
jobs. Whether it is an algorithm or a new material, the core technology needs to
shape something usable with economic benefits for specific audiences. The tech-
nology commercialization and technology development process can be “laddered”
and funded by key corporate supporters. Technical concepts should be guided by
the needs and interests of key industry players so that proper applications can be
identified and economic cases can be established.
Lastly, deconstructing the customers’ routines and understanding the channels
existing small-medium and large corporations have established can profoundly
impact the development of a technical concept. If this is teased out in the discovery
of technology applications (very early on), downstream partners have a much
higher probability of engaging in new technical solutions.
Do’s
● Do use the general description of a novel technology of interest to begin your

conversations with potential users and customers. When speaking about their rou-
tines, tasks, and workflows, translate the technology’s general benefits into “what
if” and “how might” statements to extract information from customers about the
scope of their needs and problems.
Do Not’s
● Do not sell the benefits of a technology to an industry without first understanding

your customers’ routines and the scope of their needs and problems. The bene-
fits of a novel technology platform may not be the same benefits an end user or
customer expects, given their specific use case. Understand the technology plat-
form’s capabilities, but first, deconstruct your customer’s routine so you may more
accurately pinpoint how the technology could fit their routine.
3.2.4 Timing Technology with Industry Acceptance

According to Steven Johnson in his text, “Where Good Ideas Come From,” evolution
and innovation happen in the “realm of the adjacent possible.” There are very few
technological “disruptions” as they require the commercial infrastructure to be used
and valued by industry and are built on the previous inventors’ findings. In studying
the history of technological advances, every commercial innovation seen has had a
history leading to its full adoption. Electric vehicles required capacitors that could
handle certain environmental constraints. Today’s e-commerce web stores required
backend architecture stemming from the 1990s, and IoT devices are built on decades
of sensor technology.
It is important to note that when extracting novel technologies from research orga-
nizations today, external parties must look at the cusp of technical knowledge about
to break. Laboratories are often too early or too late for the industry to benefit. The
industry must be made aware early and often of the technological advances so that
timing is not an inhibiting factor to a concept’s commercialization.
To effectively identify technology opportunities, one must begin with the informa-
tion available to them through various channels today. Now there are some nuances
here. Our goals are to gather enough background information from what is publicly
available without overloading the laboratories with requests and forcing the disclo-
sure of information that cannot be disclosed or is difficult to disclose. The quality
and accuracy of this information are important because it allows for more informed
and targeted matchmaking between external stakeholders outside the laboratory
system. These are key technologists, academics, industrialists, venture capitalists,
and entrepreneurs. Once the technology opportunities are clear to external partners
(and reasons to engage), it becomes more straightforward to engage these players
and shake out product opportunities by establishing a champion or a customer.
“To effectively interview a scientist or engineer and gain a deep and true under-
standing of the technology’s origins and design, the above process (Figure 3.11) has
The Challenge Determine what is ‘difficult’ to solve currently.
The Scientist/ Collect information on the academic and professional

Inventor Team pedigree of the scientist involved.
Determine the issues with the current methods used to

The Problem
accomplish some set of tasks.
The Solution Determine the response to the current problem and how the
solution approaches the challenge.
Understand the current state of things as it relates to the

The Future of the
invention, what was developed first and why, and what is next.
Technology
Figure 3.11 Process for summarizing key pieces of information needed to facilitate the
transfer of technology to a consuming entity.
Figure 3.12 Reducing a proposed

technology to a process flow helps to
Input(s) provide context for how it may deliver
value in an overall solution that a
customer’s workflow can accept.
Step1
The ‘Magic’ Step2
Stepn
Outputs
System
integration
requirements
been derived from more than two dozen interviews with scientists and engineers
from research organizations.
Reducing a technology concept to a process flow to understand where the tech-
nology starts and ends and how it yields something of “value” with a set of inputs
(data and raw materials). After all background information has been collected on
a technology concept, it must be reduced to a process flow (Figure 3.12). This is a
priority format that makes the technology relatable to external audiences.
1. What does the technology look like in a process flow? (i.e. the tasks or functions,
beginning with the input, that yields value)
2. What are the operational parameters in each task/function?
3. What are the differentiators (at the task level) that lead to some technological
performance gain?
Often, we get engrossed in technical concepts and forget to back out and back up
for new audiences to the concept. It is important to start at a high level and define
the objective of the technology. What are you trying to do? However, use no technical
jargon. Once you have that high-level objective statement, you can begin to decipher
the key components of the technology that allow it to achieve that objective.
Key Takeaways
When mapping technology process flows and customer workflows, try using a
blank sheet of white paper. Visually render the process and explain it to someone
else. Listen to what you say and how it is comprehended. This combination of
visual and auditory learning can help you succinctly illustrate a process.
Below are three steps to frame technologies and prepare the concept to be com-
municated with more general audiences.
If you can extract the information above and establish the inventor’s perspective
of the challenge and their solution, you are in great shape. However, some circum-
stances may require you to gather additional information. Below is an exhaustive
list of questions that help entrepreneurs gather more data points to paint a more
comprehensive picture of the technology.
Step 1: 1. What do you call the technology (name)?

Investigating 2. How would you classify the technology (e.g. device, software,
a Technology hardware, algorithm, and advanced material)?
3. What technology areas would this technology fall under
(e.g. “machine learning,” “sensors,” “biomarkers,” and
“cybersecurity”)?
4. What does the technology do or achieve?
5. What big problem were/are you trying to solve?
6. What is the development status of the technology (idea or
prototype)? Explain.
7. What is the Technology Readiness Level (TRL) for the technology?
8. How do you justify that TRL?
9. What was/were the funding source(s) thus far? From whom/which
agency?
10. If applicable, what was the original application, and who was the
target customer/user?
Step 2: 1. Please provide a step-by-step process of how the technology works.

Reducing a 2. What is the development status of each feature (what has been built,
Technology to tested, and hypothesized)?
a Set of 3. Do you have any supporting documentation and information for
Features each step (where valid)?
4. What do you think are the most valuable features (the one’s
people/customers care or would care about)?
5. What other options did you explore in building your technology?
6. What do future development plans include (high-level)?
7. What other research/technologies were out there, and why did you
need to develop this?
8. What were the limitations of the current solutions?
9. Can you share any papers, presentations, and publications about
this technology?
Step 3: 1. Have you had any partners from the government or industry test
Verifying and verify your technology?
Legal Aspects 2. Do you have protectable IP?
of the 3. What is the protection status (trade secret, provisional patent,
Technology application, issued patent)?
4. What are the patent numbers/application numbers for the public IP?
5. What are the potential applications for this technology (a few words
to describe where the technology could be used, e.g. “water
filtration,” “enterprise security,” and “industrial processes”)?
6. Can you provide a more detailed (but brief) description of
how/where and who can use it?
3.3 Customer Discovery and Development
3.3.1 Origins of Market Demand and Unmet Needs

Technologies today are adopted faster than ever before. Diffusion cycles are
shortened, and enabling technologies like sensors, processing units, and advanced
materials find their way into early adopters’ products rather quickly. Those early
product versions are tested and iterated on quickly, too.
Long over are the days of Godzilla vs. King Kong, corporate giant vs. corporate
giant. Corporate incumbents face new threats from smaller, more agile entities:
startups. As a result, their innovation landscape has changed. The way corporations
engage in research projects, new product development methods, and protect their
channels will require a new, more adaptive strategy.
If we accept the “death by a thousand cuts” theory to understand corporate threats,
then startups are those ‘cuts’. Therefore, in the recent decade, the most agile larger
corporations have accepted and embraced startups into their innovation framework,
rather than ignoring them and trying to outrun them. There are two key variables
to pay attention to here. This is relevant because innovating via technology transfer
has long technical and customer development pathways. New ventures may operate
more nimbly than their big corporate counterparts. However, medium-large busi-
nesses have channel access, which new ventures do not. As a result, there is an
opportunity to align new ventures and larger businesses with validating and testing
novel technologies.
Efficient corporations have expended resources in developing channels for scale.

● Sales channels.
● Manufacturing and assembly channels.
● Distribution channels.
When analyzing a corporation’s innovation or product development portfolio and
strategy, much of their resources are spent on established products. More aggressive
innovation strategies push corporate leaders to test technical feasibility against new
and existing customers by introducing new products and new business models.
The most successful startups can develop tighter-fitting products than their cor-
porate counterparts because of their proximity to new and potential customers.
● Tight product-market fit driven by quick development and feedback cycles.
● Lean methodologies are leveraged to achieve tighter development cycles.
● Customer development and product development are two sides of the same coin,
not a linear activity.
As a result, startups can leverage corporations’ existing channels to fit their inno-
vation strategy.
3.3.2 Identifying a Technology’s Uses

Once a technology has been understood from a “50 000 foot” view, the next step
is to understand where it can play and who would benefit from the value it deliv-
ers. Entrepreneurs can leverage stakeholders in their value chain to better under-
stand the relative value of their proposed solution for their technology’s application.
These include, but are not limited to, government agencies, investment firms, end
users, manufacturers, and distributors. By gathering input from these stakehold-
ers, you can better determine the required features an application-specific solution
must-have. Secondly, these stakeholders can be tapped for information related to
current alternative solutions. Once applications are identified, it becomes a process
of scoping the value a technology adds to stakeholders within each application and
prioritizing the pathways to market (Figure 3.13).
By identifying applications, we move to form a technology platform to a general
solution for a designated space. This is where your core understanding of the cus-
tomers’ roles and responsibilities, coupled with their task-driven routines, comes
into play.
3.3.3 The Value Chain for Target Applications

Typically, what is seen above constitutes a product’s “value chain” (Figure 3.14). This
refers to the process or activities by which companies add value to customers and
create markets (including production, marketing, and the provision of after-sales
service). What is required first is to understand what the value chain looks like for
prioritized industries. After understanding the landscape, one can investigate who
the participants are, who the customers are at each interval, and where the most
Pathway 1
• Required features? Pathway 2

Application 1 • Competing solutions?
Pathway 3
Pathway 1
Application 2 • Required features? Pathway 2

• Competing solutions?
Pathway 3
New
technology
Pathway 1
• Required features?
Application 3
• Competing solutions? Pathway 2
Pathway 3
Pathway 1
Application n • Required features?
• Competing solutions? Pathway 2
Pathway 3
Figure 3.13 Process for technology application identification and their respective
pathways.
Customer Product
Sourcing,
Technology Design and Specific management installation,
Raw materials design and
components(s) fabrication product(s) (channels and service and
fabrication
relationships) maintenance
Figure 3.14 Example framework for a value chain.
(financial) value resides. Understanding the internal or new venture team’s core
competencies and the value landscape will help identify where to best position new
technology solutions in the target industry’s value chain.
3.3.4 Identifying Stakeholders in the Value Chain

Once potential and target applications and their value chain have been identified, it
is time to map out influential stakeholders for specific applications.
Above is a matrix of questions to ask to find, demonstrate, deliver, secure, fund,
assess, and realize your technology’s value (Figure 3.15).
Demonstrate Value. Who
can help you Deliver Value. Who can Secure Value. Who can Find Value. What Assess Value. Who is
Find Value. Who is Realize Value. Who are
domonstrate your value help you understand, help you protect your prototyping resources manufacturing or
interested in solving you missing on your
or give evidence that break into, or create technology product’s can be acquired from distributing similar
your problem? team?
your solution provides customer channels? core value? stakeholders? solutions?
value to a customer?
Which government Which agencies are

Government
Which agencies could do What data can you pull Which agencies could you
agencies could assist you Which government funding companies that
Which government collaborative research from government reports find an advisor in that
in collecting data about agencies can assist in deliver solutions like
agencies are interested in (joint or shared IP)? (emerging techs, SBIR would assist with any
your problem or your developing the customer yours? Industry specific
your problem? What is the regulatory topics, etc.) about aspects related to realizing
potential customer channels for your solution grants? Purpose-specific
pathway? competing solutions? your product’s value?
groups? grants?
Which investment firms/arms Which industry-specific What investment data and

Which firms could you find
STAKEHOLDERS
can could mentor your Which investors can assist What kind and level of investors are interested in acquisition/exit reports
Investors
Which investment firms/ technology development? an advisor in that would

in developing the protection do investors the problem you are trying exist? What data on
arms are interested in your Your business case assist with any aspects
customer channels for need to see in your to solve? Which investors investor activity in this
problem? development? Which firms related to realizing your
your solution? space? fund in companies at space exist? What do the
invest in early stage techs product’s value?
your stage? trends look like?
and proofs-of-concept
or prototypes?
Which strategic partners/ Are there end users who

would provide prototyping
End Users
end users could give you

Which companies could
Which strategic partners/ data (qualitative and Which end users can assist capital or resources to test
Which partners can advise Who in industry is affected you find an advisor in that
companies (public and quantitative) that in developing the your concept? Marketing
you on securing product by or working to solve your would assist with any
private) are interested demonstrates a problem customer channels for resources? Distribution
IP? problem? aspects related to realizing
in your problem? and the requirements your solution? resources? Where are you
your product’s value?
needed to remedy it? aligned with end users?
Manufacturers
Where is there alignment What resources can you From which manufacturers
with potential Which manufacturers can What IP do manufacturers acquire from a could you find an advisor
Which manufacturers Who is manufacturing
manufacturers in assist in developing the of similar products have? manufacturing partner? that would assist with
are interested in products similar products that solve
developing a prototype customer channels for Trademarks? Utility or Can you test any aspects related to
that solve similar similar problems?
that meets their customer your solution? design patents? Other? manufacturing and realizing your product’s
problems?
needs? packaging? value?
What resources can you From which distributors

Distributors
Which distributors can What IP do manufacturers

Which distributors are Which distributors would acquire from a distribution Who is distributing similar could you find an advisor
assist in developing the of similar products have?
interested in products be interest in supporting partner? How could you products that solve similar that would assist with any
customer channels for Trademarks? Utility or
that solve similar your product? understand customer problems? aspects related to realizing
your solution? design patents? Other?
problems? demand from them? your product’s value?
Figure 3.15 Stakeholder matrix for mobilizing stakeholders and building advocacy for a new concept.
The matrix is designed to identify stakeholders along your value chain (distrib-
utors, manufacturers, end users, investors, and government agencies) and for each
ask questions about how they may be able to assist you in:
1. Identifying stakeholders who have an interest in the problem your technology

product could solve;
2. Demonstrating value through co-development or pilot projects;
3. Delivering value through leverage of existing sales channels;
4. Securing value through the protection of IP;
5. Funding your value offering through investment, presales contracts, or
co-development contracts;
6. Assess value through the acquisition of relevant data sets from industry and
government;
7. Realize value through advising and mentorship from different stakeholders.
I. Find value: Who is interested in solving your problem?
Government Which government agencies are interested in your problem?

Investors Which investment firms/arms are interested in your problem?
End Users Which strategic partners/companies (public and private) are
interested in your problem?
Manufacturers Which manufacturers are interested in products that solve similar
problems?
Distributors Which distributors are interested in products that solve similar
problems?
Other Stakeholders Can you identify other stakeholders affected by similar problems?
Keep in mind: What is the problem you want to solve? How can your technology solve
the problem? How will you make money? How do you know?
II. Demonstrate value: Who can help you demonstrate your value or give evidence
that your solution provides value to a customer?
Government Which government agencies can assist you in collecting data about
your problem or your potential customer groups?
Investors Which investment firms/arms can could mentor your technology
development? Your business case development? Which firms invest in
early-stage techs and proofs-of-concept or prototypes?
End Users Which strategic partners/end users could give you data (qualitative
and quantitative) that demonstrates a problem and the requirements
needed to remedy it?
Manufacturers Where is there alignment with potential manufacturers in developing
a prototype that meets their customer needs?
Distributors Which distributors would be interested in supporting your product?
Other Can you identify other stakeholders who can help you demonstrate
Stakeholders value in simple, disposable prototypes?
Keep in mind: What are you assuming your technology will do? What data supports
that? What data do you need? How will you collect this data?
III. Deliver value: Who can help you understand, break into, or create customer
channels?
Government Which government agencies can assist in developing the customer

channels for your solution?
Investors Which investors can assist in developing the customer channels for
your solution?
End Users Which end users can assist in developing the customer channels for
your solution?
Manufacturers Which manufacturers can assist in developing the customer channels
for your solution?
Distributors Which distributors can assist in developing the customer channels for
your solution?
Other Can you identify other stakeholders who have potential customer
Stakeholders channels that would benefit from your solution?
Keep in mind: How will you develop, test, manufacture, deliver, and maintain your
product?
IV. Secure value: Who can help you protect your technology product’s core value?
Government Which agencies could do collaborative research (joint or shared IP)?

What is the regulatory pathway?
Investors What kind and level of protection do investors need to see in your space?
End Users Which partners can advise you on securing product IP?
Manufacturers What IP do manufacturers of similar products have? Trademarks?
Utility or design patents? Other?
Distributors What IP do manufacturers of similar products have? Trademarks?
Utility or design patents? Other?
Other Can you identify other stakeholders who stand to benefit from your IP
Stakeholders protection?
Keep in mind: What is your IP? What IP protects your product’s value? How will you
secure it?
V. Fund value: What prototyping resources can be acquired from stakeholders?
Government Which agencies are funding companies that deliver solutions like
yours? Industry-specific grants? Purpose-specific grants?
Investors Which industry-specific investors are interested in the problem you are
trying to solve? Which investors fund companies at your stage?
End Users Are there end users who would provide prototyping capital or
resources to test your concept? Marketing resources? Distribution
resources? Where are you aligned with end users?
Manufacturers What resources can you acquire from a manufacturing partner? Can
you test manufacturing and packaging?
Distributors What resources can you acquire from a distribution partner? How
could you understand customer demand from them?
Other Can you identify other stakeholders who have prototyping resources
Stakeholders that could be leveraged for anything from disposable feasibility
prototypes to a more complex demonstration of value?
Keep in mind: How much capital do you need to get started? How much to realize
your product vision? What are your obstacles? How can you stage funding?
VI. Assess value: Who is manufacturing or distributing similar solutions?
Government What data can you pull from government reports (emerging techs and
SBIR topics) about competing solutions?
Investors What investment data and acquisition/exit reports exist? What is the
data on investor activity? What are the trends?
End Users Who in the industry is affected by or working to solve your problem?
Manufacturers Who is manufacturing similar products that solve similar problems?
Distributors Who is distributing similar products that solve similar problems?
Other Can you identify other stakeholders who use or have channel access to
Stakeholders similar solutions?
Keep in mind: What is your value relative to the current market? The future market?
VII. Realize value: Whom are you missing on your team?
Government Which agencies could you find an advisor to assist with any aspects
related to realizing your product’s value?
Investors Which firms could you find an advisor in that would assist with any
aspects related to realizing your product’s value?
End Users Which companies could you find an advisor to assist with any aspects
related to realizing your product’s value?
Manufacturers From which manufacturers could you find an advisor that would
assist with any aspects related to realizing your product’s value?
Distributors From which distributors could you find an advisor that would assist
with any aspects related to realizing your product’s value?
Other Can you identify other stakeholders who would benefit from an
Stakeholders advisory position in your operation?
Keep in mind: Do you have a team that can execute your product vision? Whom do
you need? How can you stage talent acquisition?
3.3.5 Designing Product Experiments

Entrepreneurs identify and pursue solutions among problems, possibilities among
needs, and opportunities among challenges. New ventures and small-medium
sized corporations have a function of creating, delivering, and extracting value
for a targeted customer segment. To effectively leverage research conducted at
federal and university laboratories, a customer’s routine must be truly understood,

hacked, and disrupted with a salable solution. Novel technology can empower this
disruption but cannot lead it. Therefore, big and small corporations must have
channel access to take advantage of research technology fully.
Eric Ries’ lean methodology is an effective approach to fully articulating the rou-
tines of target customers so that the right features can be packaged into the right
solution for the right people. Whether the champion leading these initiatives are
product developers and marketers at large corporations or technologists at a startup,
the customer’s routine becomes the roadmap for how novel technology may be lever-
aged to add value to a customer’s life. This is important to remember when designing
methods for cataloging technologies at research organizations. If external parties
cannot conceive the solution, the technology is not fully understood. Technologies
require enough understanding to tease out an external interest so that its future
development can be guided by the requirements observed in a customer’s routine.
Customer discovery and validation are critical steps in the commercialization pro-
cess. Tighter product-market fit makes for shorter customer creation times. Compa-
nies and product lines both cannot exist with customers. Discovery and validation
ensure customer acceptance. The right solution with the right features is built for
the right customers. Product developers and entrepreneurs must package the tech-
nology’s performance into an acceptance feature set to create meaningful products
with model technology.
Customer discovery and validation activities ensure we answer the following:
● Who is the customer?
● What problem do they have?
● How will you solve the problem?
● Identify a scalable and repeatable sales model.
Customer discovery is similar in execution to technology discovery. We are study-
ing unknowns related to how customers become aware of a problem/need and go
through their selection process for a candidate solution. What is the core routine,
and where does a solution add value? How do emotional and social factors influ-
ence the consumption process? How is the core routine executed, and what are the
financial drivers?
Here we are beginning to bridge the technology and customer sides of the
equation. We do this as entrepreneurs. Through diligent interviewing and observing
activities, we can match the prioritized features for a specific solution and judge
how they might perform against the customer’s expectations. Entrepreneurs must
layer technical and customer information to create a technology product roadmap
that illustrates how the solution must perform within a customer’s routine. From
there, we can sketch out what the bare minimum demonstrable unit might look
like to satisfy those customer expectations (Figure 3.16).
3.3.6 Customer Discovery and Validation Model

There are several steps to this model (Figure 3.17). We begin by mapping cus-
tomers’ routines, verifying our understanding of those routines through customer
Customer discovery Technology discovery

Scientific
challenge
Solution
consumption Technology product
process roadmap
Scientist/inventor
pedigree
Core job process Prioritized features

map
Customer Scientist/inventor
interviews Problem
interviews
Emotional, social Key performance
drivers and factors map
expectations
Lab solution
Financial drivers
and expectations
Demonstrable
unit
Future of
Technology
Figure 3.16 Mapping customer value (customer expectations) against a proposed

technical solution.
Consumption Business model design

routine
Assumptions?
Customer Feature
Core routine Demos
interviews mapping
Assumptions?
Validated list Non-functional

get feedback
Emotional
expectations
Assumptions?
Figure 3.17 Customer discovery and validation model.

interviews, distilling a priority list of features related to the context of customers’

routines, then creating a plan for demonstrating the value of the technology related
to customers’ routines.
3.3.6.1 Customer Routines Analysis

We begin by drafting what we believe the routines of our potential customers to be.
These are based on our assumptions, which must be validated.
I. What is the routine? II. What is used now? III. Where are there
Who is involved? How is it used? limitations?
● Describe the routine. ● Describe in detail the ● Attempt to

● Who is participating? use of a current describe/hypothesize how the
● What are the tasks solution in the routine. current solution came to be.
being done to ● What is used, and how ● Why do you think the solution
complete the routine? is it used to complete is used (what are the benefits)?
● What is/are the tasks in the routine? ● What possible limitations may
objective(s) of the there be to the current
routine? solution?
Key Takeaways
Discovery interviews can illuminate your understanding of your customer’s

world. It is important to note how you, as an entrepreneur, can positively
disrupt that world. Consider the following:
● Do the routines (objectives and tasks) look the same for all customers?
● How are they different?
● Can the customer’s routine be executed in a more effective sequence? Can any
portion be automated?
● Where do the major problems seem to reside?
● Do certain profiles of customers struggle more with their routines than others
(e.g. novices)?
● Do customers struggle with their routine because they rely on multiple
solutions? Is it possible to eliminate or consolidate the use of any of those
current solutions?
● What does solving that problem look like?
● From awareness of the problem to maintaining a purchased solution, how can
I hack their routine and solve their major problem?
Once our routines are mapped, we begin interviewing potential customers about
the roles, responsibilities, and routines. We can use our routines draft to verify and
clarify information in the model.
1. What do you do professionally?

2. What is your position and role?
3. Can you tell me more about your role? Responsibilities?
4. Who handles (the process you are improving) at your home/office?
5. How much time do you spend on (the process you are improving)?
6. (Specific questions related to your product/customer) – for example, do you have
kids?
7. What is a typical day for you?
8. What are your tasks?
9. How much time is spent on (major) tasks?
10. How are you “assessed” or “measured”?
11. What is the hardest part of your day?
12. What are the top 3 challenges you face in your job?
13. What are some unmet needs you have?
14. If you could wave a magic wand, what would your solution be? What product
do you wish you had that does not exist yet?
15. What tasks take up the most time in your day?
16. What could be done to improve your experience with (process/role)?
17. What is the hardest part about being a (demographic)?
18. What are your biggest/most important professional responsibilities/goals?
19. What does a really good day look like for you?
20. What does a really bad day look like?
21. What keeps you up at night?
22. Do you find it hard to (process/problem)?
23. How important is (the value you are delivering) to you?
24. Tell me about the last time you (process you are improving) (listen for
complaints).
25. How motivated are you to solve/improve (problem/process)?
26. If you had a solution to this problem, what would it mean to you/how would it
affect you?
27. What do you think could be done to help you with (problem)?
28. What would your ideal solution to this problem look like?
29. If you could wave a magic wand and instantly have any imaginable solution to
this problem, what would it look like?
30. What is the hardest part about (the process you are improving)?
31. What are you currently doing to solve this problem/get this value?
32. What do you like and dislike about (competing product or solution)?
33. How is your budget handled?
34. How do you find new products?
35. Are you the person who deals with making the purchase decision?
36. What procedure do you follow when you decide to buy a new product?
37. Where do you potentially look while you make a decision that you have to buy
a new one? e.g. websites, brochures, catalogs, and contact someone.
38. Do you look for new resources each time or follow the same path you have
followed so far?
39. Do you make a purchase only when you have to replace an existing product
or launch something in the market? (Are you always notified about the new
products launched? If yes, what are the channels or resources that make you
aware of these things?)
40. Will you plan to bring something new to the market or plan to replace it with an
existing product?
41. Consider (verify) any process steps in your customer routines analysis.
Tips for Readers
Consider the following

● REALLY CAN YOU TELL ME MORE ABOUT THAT? (Even if you do not want to
know more about that, it gets them to talk about themselves).
● Always get a follow-on name or better follow-up introduction (used to identify
sub-avenues of customers in an ecosystem who will have to be addressed
separately).
● Be prepared to handle critical feedback.
● This will be hard, fast-paced, long hours. Understand how to communicate
and share responsibilities with your team.
Debrief with your team after the interviews.

1. Do the routines (objectives and tasks) look the same for all customers?
2. How are they different?
3. Where do the major problems seem to reside?
To understand the need for technical innovation, we must first understand how to
inject a technical innovation into the routines of potential customers we are trying
to disrupt. Whether it is a customer in a B2B, B2C, or B2G (business-to-government)
function, everyone has a routine with objectives and tasks they must perform to meet
some metric. When cataloging technology, we assess two processes: the customer
process (a workflow or routine) and the technical process (a workflow with inputs
and outputs) (Figure 3.18).
Although research organizations often use a technical spectrum like Technol-
ogy Readiness Levels (TRLs) to measure the development status and speed of
development, private industry refers to demos, prototypes, and minimum viable
products (MVPs) as a metric for customer acceptance. As a result, many of these
research organizations produce demos of technology that show technical feasibility.
However, this is not a measure of technology-product integration. Often the inte-
gration of novel technology into the appropriate form, fit, and function is the most
difficult part of the commercialization spectrum. Therefore, external parties must
understand the metric for technical feasibility and assess the product integration
difficulty and schedule.
User/customer Product Technology

routine process flow process flow
Features
Objectives Input
(Value, UX)
Product V1
Task1 (MVP, prototype, Magic
first iteration)
GAP
Product Vn
(Packaged Output
Taskn
offering) (performance)
Figure 3.18 Mapping customer routines with technical processes.
With priority features and an understanding of how your technology can empower
a solution in mind, what is the bare minimum solution built to satisfy customer
expectations?
User/Customer Routine What are the roles and responsibilities of the decision-
makers and influencers who use and purchase a solution? What are their current
methods and solutions to solving critical problems?
Product Process Flow How does a new packaged solution create gains or eliminate
pains for the customer? What are the key features in order for the customer to
use/accept this new solution?
Technology Process Flow What does the transformation of raw inputs look like? How
does the technology (out)perform? What are the key differentiators? How do the
performance factors empower a new product solution?
Business Model Design During customer interviews, you will learn much about their
consumption process and how their solutions get delivered, used, and maintained.
During this time, you will be satisfactorily equipped to sketch out how you can cre-
ate, deliver, and extract value from the operation.
During the research and development phases (Figure 3.19), appropriately cata-
loging technologies by their technical areas, collaboratively uncovering potential
uses with expert audiences, and cataloging technologies by their market relevance
is critically important. As internal development resources get allocated, technology
transfer offices can leverage matchmaking activities to target appropriate small busi-
nesses and federal grants, appropriate collaborative and licensing arrangements, and
3.4 Case Study: The Naval Research Laboratory’s Self-Decontaminating Material 89
Market-fit feedback
Product launch
Cumulative profit/loss
New product success
Research Development
Time
Commercialization
Business success
Tech cataloguing and

matchmaking
Customer discovery and Venture creation

validation
Customer creation
Figure 3.19 Technology commercialization spectrum.
give external partners sufficient time to model the technologies and distill key prod-
uct features from customer feedback. Entrepreneurs with new or internal ventures
can benefit from understanding where technology transfer offices’ technology port-
folio resides along this spectrum.
3.4 Case Study: The Naval Research Laboratory’s

Self-Decontaminating Material
In 2018, Duchak Ventures executed a partially-exclusive license for functionalized
silicate sorbents to use air purification materials in filtration media. Through a
series of interviews with the technology’s research and technology transfer team,
we collected background information on the original, core technology, what was
developed, how it was developed, and why it was developed, and consolidated
that information into marketing collateral and talking points we could use with
industry. We followed a “technology transfer via technology push” approach
to commercialization, meaning we had vague ideas for intended applications.
However, the performance of the material was what initiated the project. We had
to understand the performance of the advanced material and match it to an unmet
need in a certain industry. To do that, we had to understand the performance and
limitations of the material, understand the routines of key customers to uncover
unmet needs, and finally design a solution empowered by the advanced material
features to address the critical need of our identified customers (Figure 3.20).
Following the validation of this new product-market fit, we had to simultaneously
design a method to manufacture, test, and validate the performance of the material
and the product to generate interest from key early adopters. Below is an example
of the information generated from several interviews with the research team.
Need
#1
Industrial safety
and hygiene
Nanofiber mesh
Need
SDM filter mesh #2
materials
Need
Self-
#1
decontaminating Healthcare
material (SDM)
Need
#2
Component level System level

product D product B Need
#1
First response
Need
#2
Figure 3.20 Example technology positioning exercise for understanding the key
components, sub-systems, and systems requiring future integration in order to meet an end
user’s need.
3.4.1 The Challenge

Detecting and identifying airborne chemical compounds is a challenging problem
to solve.
3.4.2 The Scientist

For this case study, we have kept the research team anonymous.
3.4.3 The Problem

The current state-of-the-art for air purification materials relies on porous carbons,
such as metal-modified carbons or activated charcoal, with their inherent limitations
on capacity, target capture, and pressure drop.
3.4.4 The Solution

Advances in the development of porous sorbents provide the potential to address
the limitations of current air purification approaches. Naval Research Laboratory
(NRL) scientists selected sorbents comprised of a mixture of organic and silicate
groups, organic and porous organosilicate sorbents because of their familiarity, ease
of processing, and flexible chemical composition. The porous structure results from
a patented liquid synthesis process that provides a large degree of control over the
materials’ structural characteristics. This base structure may be synthesized with
appropriate chemical functionalities, or additional components can be grafted on to
the surfaces following synthesis. The resulting organosilicate sorbents can provide
interactions to capture a wide range of targets, including many beyond carbon sor-
bents’ capabilities. A patented approach provides the potential for incorporation of
components offering extended functionality through the use of the sorbents in cat-
alytic removal of targets or even in detection.
3.4.5 The Future of the Technology and Future Applications

Though the technology has been demonstrated for small scale tests using less than
30 mg of sorbent, referred to as micro-breakthrough experiments, it is in the early
stages of development. There are hurdles to overcome. One significant hurdle is pro-
duction scale-up. Large scale demonstrations of sorbent performance require larger
quantities of the sorbents than can be produced at the laboratory scale, currently
12 g. With large sorbent quantities in hand, full-scale demonstrations as supported
beds and in tube tests could be completed. The materials could be developed for
gas masks, building air purification, or shipboard air purification. For example, they
can be used as powdered sorbents in a supported bed or synthesized as coatings on
fibrous materials like those used in pleated air filters.
In parallel, we began countless conversations with different small-medium
size businesses representing a wide variety of technology applications, from first
response to hospital care to facility management. It was not until we encountered
(rather serendipitously) a small, privately owned facility service business (a build-
ing service contractor) with major accounts across North America. This company
represented a piece of the value chain we had specifically targeted: distribution. One
of the biggest challenges in licensing and transferring technology from a laboratory
to a commercial market is determining when and how to scale different operations
necessary to get a product launched. That is manufacturing, distribution, and sales
and marketing. Our self-decontaminating air filters had an extremely complex,
multistep manufacturing schema with several raw inputs in different geographic
locations. Below is an early draft of our collateral used to answer industry questions:
3.4.6 Technology Background and Advantages

Navy researchers designed self-decontaminating structures to capture and neutral-
ize targeted toxic gases. This adsorbing chemistry is bonded to materials and can be
used in protective masks and air filters. Recognizing that toxic industrial chemicals
and materials were posing threats to the lungs and eyes of deployed troops, these sor-
bents were designed to prevent users from absorbing and inhaling toxic industrial
gases.
The sorbents described here are based on organosilicate scaffolds that provide a
hierarchical material structure. This structure incorporates mesoporosity (45–75 Å),
leading to a high surface area (>500 m2 /g) with well-distributed reactive sites. The
structure also offers macroporosity through a cellular foam-type structure with fea-
tures on the order of 1 μm, providing facile access to the entire surface area and elim-
inating frequently encountered diffusion limitations. The silicate walls comprise
alternating silicon atoms and organic moieties, allowing for polymer-like binding
sites as part of the scaffold. Grafting of metalloporphyrins into the structure provides
the potential for additional interaction sites and catalytic activity. Metalloporphyrin
moieties have also been shown to offer the potential for residual life indication in a
sorbent bed.
The morphological and chemical composition of the sorbents provides methods
for capturing targets that are poorly addressed by carbon-based sorbents. It is possi-
ble to significantly alter interactions between irritant gases and the sorbents by mod-
ifying the surface chemistry and/or metalloporphyrin component during synthesis
and post-synthesis grafting. The materials also offer flexibility in their application
with simple approaches to production scale-up and adaptability for a supported bed
or surface coating.
3.4.7 Benefits
● Rapid target sequestration;
● Stimulation of catalysis by electric current or illumination;
● Tunable selectivity;
● Multiple possible material formats;
● Resistance to temperatures of up to 150 C;

∘
● Excellent chemical stability;
● Reusable/regenerable.
As we prepared our license application for the self-decontaminating material, we

interviewed several potential customers from our key markets to determine exactly
how our filters needed to perform under certain conditions. This information was
relayed back to the laboratory research team to determine how the core material
needed to behave to achieve these customers’ desired outcomes (Figure 3.21). Below
is an early draft of our executive summary used to license the material.
3.4.8 Problem
Current air purification materials rely on porous carbons, such as metal-modified
carbons or activated charcoal, with inherent limitations on capacity, target capture,
and pressure drop. These deficiencies are leaving emergency response, hospital,
manufacturing, and military personnel – many operating under widely varying
weather conditions comprising extreme ranges of humidity and temperature –
exposed to a range of chemical and biological hazards and significant health risks.
The majority of personal filter cartridges and large-volume filters currently in use
are composed of a supported carbon bed. While these filter materials are subjected
to a standardized testing regime, they are often utilized under conditions for which
these tests are irrelevant. For example, when these filter materials are exposed to
high humidity in the field, the carbon filter cartridges poorly capture basic gases.
Other materials, such as carbon sorbents, provide high adsorption capacity for
threats. However, these threats remain a risk during the carbon cartridge disposal
and lose filter capacity over time. High-efficiency particulate air (HEPA) filters, fre-
quently used in hospitals, require users to change the filters to maintain effectiveness
frequently.
A stronger, longer-lasting and more durable air filtration material is required.
Self-decontaminating Melt-blown nanofiber

material production
Fabricate sorbent compounds

Purchase plastic pellets (PP,
(enzymes + polyelectrolyte
PET...)
binder)
Self decontaminating material Integrate (pre-mix) plastic

is compressed into small pellets with SDM pellets
pellets
Wipes out
targeted
toxins
Melt-blown SDM nanofiber
production
High volume,
low cost,
breathable
Figure 3.21 Process mapping for two integrated technologies.
3.4.9 Technical Approach

Duchak Ventures leverages self-decontaminating sorbents developed at the NRL
that can safely capture contaminants. These NRL-designed sorbents have been
shown to target a wide range of chemical classes. They will support the design and
engineering of new air filtration media for industrial hygiene and safety, healthcare
and pharmaceutical, and first response markets.
In addition to the production of the sorbents as loose powders, the structure of
these sorbents has, at a laboratory scale, been shown to be suitable for use in the
generation of filtration cartridge relevant particles (20–40 mesh) and as a coating on
paper or fabric, providing several application-relevant formats.
3.4.10 Solution
Duchak Ventures is designing new air filtration media capable of instantaneously
rendering harmful chemical and biological particulates and toxins safe. In combina-
tion with cheaper-produced plastic nanofiber mesh media, the self-decontaminating
material will allow for the rapid adoption of new self-decontaminating nanofiber
filters. These new self-decontaminating nanofiber filters will give stakeholders in
environmentally-unsafe conditions peace of mind that targeted toxins have been
eliminated from the air they are breathing.
As our team validated key product features related to the routines of targeted cus-
tomers, we began to outline an early manufacturing process to support pilot testing
of our filters. In doing this, we kept the value-added to customers’ routines clear and
upfront (Figures 3.22–3.24).
What’s the What’s used Where are

routine? who’s now? how is it there
involved? used? limitations?
1. I’m a process engineer at a steel manufacturing plant. I’m

responsible for cleaning the raw steel before it’s coated.
2. There are several quality control engineers on my line
responsible for ensuring the steel meets the client’s standards.
Figure 3.22 Routine analysis.

1. The production line is open.We roll drums of chemicals to the

line needed, and wait until the last minute to open a new
drum.
2. Sometimes a new drum is open for 4–5 minutes before the
new solution is loaded. The smell is terrible at that time. We
don’t use air filters or personal masks.
Figure 3.23 Current workflow and solution analysis.
In analyzing customer routines and their respective jobs to be done, the tech-
nology process flow for both the self-decontaminating material and the nanofiber
production method was mapped out against the gaps in the target customers’ rou-
tines (Figure 3.25) to uncover the value add to these customers. Our next step was to
concoct clear strategies for each industry we want to target. In our market research,
we uncovered a few trends:
● There is a surging demand for HEPA air filters;

● Advances in new materials and efficient processes have driven the introduction
of new filters for high-end residential and commercial facilities; air filtration is
critical in commercial facilities;

1. The air quality is poor as a result of many different chemicals

mixing at once. There are ammonia toxins in the air.
2. Personal masks aren’t breathable enough for use running back

and forth between lines. Whole-plant filtration is cost
prohibitive.
Figure 3.24 Problem scoping and analysis.
Technology Technology User/customer

process flow1 process flow2 routine
Keep target toxins

Self
Plastic pellets out of lungs in a
decontaminating forest fire (no O2
(PP, PET..)
material tanks)
Fiber Pellet Purchase masks

manufacturing manufacturing use masks
Can’t breathe
Wipes out
Filtration media targeted toxins
(specialized air Take mask off
filter)
High volume, Gets ill
low cost,
breathability
Figure 3.25 Mapping technology processes to the customer’s workflow or routine.
● The largest revenue contributor to the industry is the industrial/heavy manufac-

turing sector;
● Because of rising incidences of asthma and airborne allergies, we see tremendous
growth in new air filtration products for residential customers;
● Nanofiber technology and associated advances in its manufacturing process will

alter the speed and volume at which new filters and components are produced;
● New filter media and its associated manufacturing processes increase the demand
for cartridge air filters, including the first responder space.
3.4.11 Industrial Safety and Hygiene

This technology can be applied to increase safety in industrial settings, in a similar
form that might be used in healthcare facilities. Industrial facilities used to manu-
facture pharmaceuticals and electronics – to give two examples – also require HEPA
filters (albeit without the same extreme filtration rigor as required in hospitals).
There exists a market to solve urgent safety concerns presented by chemical spills,
air filtration, and other hazard removals within industrial facilities, each slightly
different technical approaches.
This market for air filtration is proliferating as companies see this space to
differentiate the quality of life for prospective employees. It is also important as
government regulation has tightened, and fines for poor air quality have increased.
It is more expensive to pay for an employee’s cancer insurance than to buy a proper
decontamination solution. Most businesses are finally starting to choose the decon-
tamination solution. Current figures tell us that this market will grow in the near
future:
● Simple internal air-filtration systems will double in growth to $7.5 billion by 2022
in the United States.
● Pollution-control filtration solutions will reach a market of $250 billion by 2020,
globally.
● Industrial safety spending outside of these focuses on an $80 billion market in the
United States.
● Failure to adequately protect industrial workers costs businesses in the United
States anywhere from $50 to $60 billion annually.
Large firms largely dominate the industrial safety market. Excluding large-scale
or specialized solutions, much of the industrial safety market is led by groups that
offer various safety solutions as a one-stop shop, providing everything from earplugs,
noise screens, respirator masks, and gloves to higher-cost equipment.
This makes this market a less attractive option unless we focus exclusively on
high-margin, specialized (and quality-demanding) needs in this space. This can be
air filtration of specific chemicals, extreme quality, or the clean-up of higher risk
chemicals. This reduces the market size, but it offers a niche where most competitors
will be small, and there is still a reasonable margin for our firm.
Our ability to offer a simple powder will be useful in certain needs, others will
require an initial form factor, and others will require a whole system. These develop-
ments will match the requirements of other fields, and this will be our focus initially
as an entry point.
To reach the firms, we will again utilize sales channels and networks that we have
developed in previous efforts, primarily in the Midwest.
3.4.12 Healthcare and Pharmaceuticals

To apply this technology in healthcare fields, the team will initially focus on air fil-
tration. There is an almost unending list of filtration needs in this setting, but the
higher margin and more fragmented target market is larger-scale filtration.
Currently, this is largely done through HEPA filters. This name denotes quality.
Filters above a particular Minimum Efficiency Reporting Value (MERV) rating (and
other small metrics) are designated as HEPA filters.
HEPA filters can serve in a hospital setting to keep rooms or areas with serious
infection risks as clean as technically possible. This means isolation rooms, operat-
ing rooms, trauma rooms, and autoimmune deficient wards. Some hospitals will use
these filters for less high-risk populations and remove one less risk of infection, one
of the largest malpractice suits. To understand the size of this market, consider that:
Each year, one in ten patients suffer an infection acquired from within the hospital,
costing approximately $27 billion each year, both from legal costs for the hospital and
the costs of treatment by the insurance and patient.
Insurance groups, including Medicaid and Medicare, to offer incentives for hospi-
tal groups to improve air quality because of the risk of infections.
The top metric patients use to evaluate hospitals (and the same metric insurance
companies use to evaluate quality) has several hospital-acquired infections.
This market is rising quickly, as more attention is drawn to this concern, and
annual spending has been growing at a 5% clip.
Spending is partially fragmented. The average hospital will carry 250 HEPA filters
at one time, but that figure is somewhat misleading. The best hospitals in the world
will spare no expense on air filtration, using HEPA filters even in lobbies. In contrast,
the poorest hospitals will typically buy “HEPA-like” filters rather than true HEPA
filters. In most cases, this spending is regulated by Group Purchasing Organizations
(GPOs). However, due to the nature of the product, its importance, and ultimately
its cost, most hospitals handle these purchase decisions internally.
Finally, of note, having a HEPA filter means having serious air pressure drops
across a hospital system. Every drop in pressure across that membrane increases
the costs of energy to push air through circulation. A decrease in normal pressure
drops by 0.2 psi for this hospital saves over $10 000 each year.
This means that by simply offering a higher-quality HEPA filter (that relies less on
physical filtration), our company can “subsidize” higher cost margins.
Most HEPA filters are simply layers upon physical filtration layers, sometimes as
deep as three feet for a single room. By their very nature, they are a random assort-
ment of microfibers. Our solution offers a better, smaller, air-flow efficient option
that does not exist.
Competition in the healthcare space is heavy, but margins remain reasonably high.
There is not an economy of scale in this market. In other words, there are many
competitors in this area, but they are mostly small companies that have carved a
niche in this space. There are two small firms in Ohio alone that serve to make HEPA
filters, so on a national scale, many small competitors are dotting the landscape. This
provides our team with various partnership options, but it also means a few large
competitors can immediately drive prices down upon our market entry.
To reach our customers, we will utilize sales channels and networks we already
have access to and independently certify our HEPA filters per industry practice.
This usage carries great potential but a longer time-frame than first response or
industrial uses.
3.4.13 First Response

There has been an increasingly large emphasis on disaster preparation for chemical,
biological, and wildfire hazards in the first response market. Access to biological
dangers and delivery systems has increased. Emergency response personnel have
observed that wildfires are getting progressively larger and resource-draining.
These trends have been noticeable across various federal, state, and municipal
departments:
● Yearly federal spending on emergency response has tripled to more than $3 billion
annually;
● Emergency response represents half of the US Forest Service’s budget and 10% of
the entire Department of the Interior’s budget;
● States spend an additional $2 billion annually on emergency response, with
municipalities adding an unknown but likely significant amount of emergency
response funding.
Additionally, while the reported majority of deaths in firefighting occur due to
“burnovers”, deaths among firefighters do not include cancers caused by fumes
and similar exposures that occur when fighting fires. These cancers, including
oral, leukemia, lung, and others, have become a major political flashpoint as
firefighters are not compensated or protected from cancers caused by their work.
Evidence suggests that firefighters do indeed face significant health risks not readily
apparent to policy makers. The largest study of firefighting risks (60 years and
30 000 firefighters) concluded that these dangers were statistically significant and
common. More frequently, firefighters were called upon to respond to a fire.
After Washington State’s Supreme Court ruled in favor of two firefighters who
were denied health coverage, states have begun to pass laws giving firefighters cancer
presumption rights. Firefighter presumption claims in the first eight weeks of 2017
surpassed all claims from 2016 combined.
These factors have created a situation where municipalities and states face grow-
ing healthcare costs for firefighters at an unsustainable rate for most capital-strapped
public health funds. In response, spending on respirators and decontaminating pro-
tective clothing, and decontaminating wipes has skyrocketed. However, because the
market is relatively new, there are no serious players besides groups offering baby
wipes, extra equipment, or more protective layers. It costs $3 million to provide a
single firefighter cancer coverage over a lifetime, and that $3 million is a cost our
product can save.
For the immediate future, there is very little direct competition offering similar
products with a similar purpose. What competition exists is fragmented and limited
in reach. Various small companies provide firefighting solutions, with most distrib-
utors with at least 10 small companies.
The closest comparison to our product is the bevy of groups selling “hero-wipes”
– which provide moist towelettes in an easily-transportable plastic package – under
a variety of different names, costs, and qualities. Outside of this, our competitors are
simply the groups that provide turnouts and similar items. (Dayton, Ohio, alone has
two companies making turnouts.)
Each locality, and even state, tends to have different purchasing behaviors. Some
metropolitan areas allocate a portion of the yearly budget for their firefighters. Oth-
ers make purchase decisions on a case-by-case basis through the city council. Still,
others allow the fire marshal or commissioner to carry some degree of budgetary
discretion or let local voters make the budget decisions yearly.
A differentiated approach is required to market to these groups. We have identi-
fied one sales hub: the variety of trade organizations utilized by first responders for
centralized decision-making. These will be our initial focus.
Key Takeaways
● Remember that interviewing is not a linear process. Whether you speak

with an inventor about how her technology works or listen to a customer
speak about his daily routine and responsibilities, your interviews should
be open-ended enough to extract information without a confirmation bias.
Be prepared to speak with these individuals more than once.
● Technologies do not solve commercial problems; products do. This means it is
your responsibility as an entrepreneur to bridge what a technology platform
can do with context from what the customer needs.
● Frameworks are great but trust your instinct. Use these tools to help shape
your strategy and approach, but trust your gut to fill in the gaps.
● Technology is not always a material thing. When speaking with inventors from
research institutions, their tacit knowledge is more valuable than any white
papers, patents, or other publications. Get to know your inventor team so that
the core technology can be adapted and understood as a viable solution as
you bring industry knowledge to them.
● Your stakeholders will be your allies. Do not be afraid to ask them for data,
reports, prototyping resources, and, of course, inside knowledge from their
domains. This will help you find the best mechanisms to not only capital-
ize your operation but effectively build lasting relationships throughout the
commercialization process.
Realized
entrepreneurial
opportunity
Technical
development
effort
Development and
refinement of new
technology platforms
in response to
customer challenges
Customer
development
effort
Understanding of
and technical
response to
customer problems
and needs
Suggested Reading and Resources
1 Aulet, B. (2015). Disciplined Entrepreneurship: 24 Steps to a Successful Startup.

Hoboken, NJ: Wiley.
2 Berger, W. (2016). A More Beautiful Question: The Power of Inquiry to Spark Break-
through Ideas. New York: Bloomsbury.
3 Govindarajan, V. and Trimble, C. (2010). The Other Side of Innovation: Solving the
Execution Challenge. Boston, MA, Harvard Business Review Press.
4 McGrath, R.G. and Gourlay, A.W. (2013). The End of Competitive Advantage:
How to Keep Your Strategy Moving as Fast as Your Business. Boston, MA: Harvard
Business Review Press.
5 Mlodinow, L. (2008). The Drunkard’s Walk: How Randomness Rules Our Lives.
New York City, NY: Vintage Books.
6 Sinek, S. (2013). Start with Why: How Great Leaders Inspire Everyone to Take
Action. London: Portfolio/Penguin.
7 Wessner, C.W. (ed.) (2003). Government-Industry Partnerships for the Development
of New Technologies. Washington, DC: National Academy Press.
8 Tradespace, Inc.. www.tradespace.io. (for Commercial, University, and
Government IP).
Author Biography
Alex Duchak is an entrepreneurial product strategist and
innovator who has developed and launched half a dozen
global product and service lines since 2007 and success-
fully exited from two startups in 2010 and 2012. He is a
co-creator of AFRL’s Commercialization Academy and cur-
riculum designer for new venture development programs
at the University of Illinois at Chicago and the University
of Dayton. He is a co-founder and technology strategist for Invent2026, an initia-
tive partnering with the most progressive incubation programs in the Midwest to
sculpt emerging technologies in an economically meaningful way, and the creator
of TNEBULA, a software platform designed to prioritize new inventions emerging
from research institutions algorithmically. He sits on the advisory board of TechLink,
the leading semi-public agency charged with licensing 60% of all DoD technologies
to industry, advises several educational institutions on technology commercializa-
tion, and actively invests time and capital into new technology-intensive ventures.
Mr. Duchak holds a BA in Environmental Studies and Economics from the Univer-
sity of Chicago and an MBA from the University of Illinois at Chicago.
103
Financing and Business Development for Hard Tech Startups

Bernard Lupien 1 and Andrew Dougherty 2
1
Rhapsody Venture Partners, Tanglewood Ln, Winchester, MA, USA
2
CrunchTime Information Systems, Princeton Ave, Andover, MA, USA
4.1 Introduction
This chapter provides practical advice on fundraising and business development in

early-stage hard tech startups. Here, unique challenges of raising money for hard
tech are discussed, and strategies for overcoming those challenges are provided. An
important theme of the chapter is that raising too much money can be a seductive
trap for many entrepreneurs and one that can greatly inhibit the financial success
of founders and investors. Before embarking on raising capital, founders need
a clear-eyed perspective on the relationship between their market potential and
their funding requirements – this relationship must be balanced and allow for
positive financial outcomes across a wide range of scenarios, not just the home run
scenario.
This chapter also makes the case that early-stage business development – often
deprioritized by young companies – is critical to long-term commercial success and
tightly linked to successful fundraising. More so than most industries, hard tech
startups require partnerships (e.g. manufacturing capacity, pilot facilities, comple-
mentary technology, sales channel) to get to market and prosper. Also, ways on how
to attract and identify potential partners and avoid potential pitfalls along the way
are discussed here.
The authors have chosen to use the term “hard tech” throughout this chapter to
describe a range of technologies based on chemistry, materials science, and innova-
tion stemming from scientific research, with similar risk profiles. For the purposes
of this chapter, the authors are assuming that these technologies will be applied in
energy, industrial, or manufacturing use cases.
104 4 Financing and Business Development for Hard Tech Startups
4.2 Challenges in Financing Hard Tech Startups

4.2.1 Balancing Ambition with Reality
The hard and sober truth is that even though the world needs more hard tech inno-
vation to improve the quality of life for billions of people in areas ranging from clean
water, food security, climate change, and natural resource efficiency, the monetary
value of those hard tech businesses are generally far less than the value of big soft-
ware and biotech companies. The result of this gap in value translates to fewer and
smaller returns for investors and founders of hard tech businesses.
If you approach fundraising in hard tech the same way your college roommate did
in tech, you are setting yourself up for hardship and potentially failure. Yes, your
“intellectual lightweight” college roommate was able to raise $2MM, all based on a
rough concept and snazzy PowerPoint for her ridiculous food delivery company for
pets. Yes, she is now fantastically wealthy and spends her time at the beach and the
spa while you survive on a postdoc salary. You have picked hard tech, and whether
you like it or not, your world is different: your ambition is the same but your reality
is not.
4.2.2 Hard Tech Sure Is Not Software

Engineering and science development involves many more unknowns than
software, as well as physical and natural limits. If only molecules behaved in the
same way as bits and lines of code! Unfortunately they do not.
Fuel cells have been around the corner for the last 30 years. A generation of fuel
cell entrepreneurs have come and gone, thinking that we were just five years away
from massive transformation of our energy infrastructure. That has not happened,
and investors and founders in fuel cell technology have had their dreams crushed
and their wallets emptied.
Engineering low-cost fuel cells is hard. Resolving technical challenges that might
just be “engineering” can take years. There are so many more unknowns and natural
limits in hard tech than in software. Not only do you have market acceptance and
execution risk, but you also have the risk that your product simply does not work at
all!
Software does not face those issues. You can put out a software product that still
has some “bugs” and then add features or make relatively rapid changes. In hard tech
startups, you do not get away with putting out a product that does not quite work.
Your snazzy battery needs to hold a charge and deliver electricity when it needs to
without exploding.
Software scales in a way that hard tech just cannot, with far bigger profit margins.
You might have developed a fantastic new cooling system that reduces supermarket
freezer refrigerator costs by 30%, but selling it profitably to the thousands of super-
markets is no easy task. It requires building manufacturing capacity, a sales force,
an installation group, service, distributors, warehouses, etc., and that takes time and
makes scaling more challenging.
We have heard a lot about minimum viable product (MVP) – an approach used
in software that involves launching a product quickly with just enough features to
satisfy early-adopter customers and then use that feedback to guide your product
development. Unfortunately, you cannot launch your new battery technology if it
does not work yet, and getting it to work might take years. Consequently, generating
early revenue and figuring out whether you are on the right path are just that much
more challenging in hard tech.
4.2.3 Hard Tech Investors Are a Skeptical Bunch

The vast majority of venture capital (VC) is raised in software and biotech/
therapeutics. This has been true since the start of VC as an industry. Those same
markets have also delivered most of the financial returns to the VC industry.
Hard tech, in contrast, has not been so kind to investors. The sector has earned
a reputation as a place with few great exits and many, many failures. Several once
prominent VCs have stumbled in hard tech, with some going entirely out of business
due to poor returns. The “Clean Tech” wave had so much promise but resulted in
awful financial returns for many VCs.
It is important that you accept this skepticism when trying to raise money and
carefully position your story as one that is different than the failures of the past.
Recently, hard tech startups have been adopting business models more similar to
software like Robot as a Service (RaaS), seeking to generate recurring revenues as
opposed to one time sales. Incorporating software in your hard tech platform pro-
vides the ability to charge a recurring fee for a “cloud-based” solution that locks in
customers. Most VCs do pattern matching to find winning investments. If you can
include the latest hot buzz words and concepts as part of your story, you will find
more excitement for what you are doing.
It is recommended to, in your presentation to potential investors, acknowledge the
failings of past ventures in your space and articulate how you are different right up
front. You can bet VCs are thinking about this even if they do not articulate it.
4.2.4 What Do You Mean I Will Not Exit for $1B?

The main purpose of a venture startup from an investor’s standpoint is to have a
liquidity event where cash flows back to the investors. Your investors are not signing
up for a lifetime ride-along in your business; they are looking for a return, and for
that to happen, there has to be what is called an “exit.”
Successful startups in hard tech typically do not exit at $1 billion valuations or
even $500 million. Sure, there is always exceptions. A123 Systems, a Li-ion startup
commercializing lithium iron phosphate as a novel cathode material IPO’ed in
2009 at more than $1B valuation (and then proceeded a slow tortuous decline into
bankruptcy). That was also a very special time in the market: a combination of
tremendous hype in electric vehicles and their potential to transform the automotive
market and some brilliant marketing by A123, leading to a perfect storm.
If you are fortunate one day to have an exit from your startup, it will almost
certainly come in the form of an acquisition (trade sale) by a large company. There
are very few initial public offerings (IPOs) in the hard tech space. The amount an
acquirer is willing to pay for your startup is driven by their own ability to pay and
the financial reality of the market they operate in.
As an example of the difference in the financial clout between tech and hard tech,
consider the difference between the world’s largest chemical company (by sales)
BASF and the largest software company (Microsoft):
BASF Microsoft
Annual revenue (2017) $73 billion $90 billion

Total employees 116 000 135 000
Market capitalization (Value) $66 billion $811 billion
Notice the difference? BASF has almost as much revenue and just as many employ-
ees as Microsoft, but BASF is worth less than 1/10 of what Microsoft is worth! The
world’s largest chemical company, which manufactures products you would be hard
pressed not to touch every day, is not worth anything near what a Tech Titan is worth.
What does this mean for you? Plainly, if the likely acquirer of your hard tech
startup is BASF, or any industrial company, they will not have the financial where-
withal to make $1 billion acquisitions like Microsoft can. It is simply not in their
DNA to pay a premium.
The lesson to remember is that you cannot build a hard tech startup based on an
unrealistic view of your likely exit. How much money you raise and how you spend
that money building your startup should be tempered by your exit potential. You
must balance your ambition with the reality of the hard tech market. Otherwise, the
math will not work for you or your potential investors.
It is recommended to, early on as you incubate your venture idea, make a list of
the companies that might buy your successful startup in the future. Then do a reality
check – are these companies large and acquisitive enough for there to be a realistic
chance of a profitable exit given the time and money it will take? If the answer is yes,
incorporate this data into your fundraising story.
4.2.5 Hard Tech Fundraising Dissonance

Financing a startup in hard tech can be a lonely journey. As an entrepreneur, you
are tasked with convincing everyone: investors, friends, family, spouses, potential
customers, university licensing officers, and the universe to believe in you and your
idea. Enthusiastically sharing the “game-changing” impact of your hard tech idea is
critical to getting people to believe in your prospects.
Who wants to invest or join a company where the founder does not communicate
with conviction that their company will fantastically succeed. As investors, nothing
dampens the mood more in a pitch meeting than an entrepreneur that is not
enthusiastic about what they are doing – investors sense it. If the founders are so
easily discouraged and do not fully buy into their startup, even to the point of
irrationality, how will the entrepreneur overcome the enormous challenges lying
ahead? Investors certainly do not want to put money in a company led by people
that are not 100% committed to the journey ahead.
When fundraising, it is important to communicate that you understand that there
are big challenges ahead, but that you are going to take the hill at all costs. You
believe, with unwavering conviction, that your company will succeed and that the
investors will be rewarded for their belief in you.
Entrepreneurs who communicate this to investors markedly increase their odds of
raising money from investors. Persistence pays off, and even in the face of repeated
rejections, the founders that keep pushing are the ones that succeed.
In hard tech, the situation is more complicated given the smaller exits discussed
above. You need to build excitement and confidence in the company, but you also
have to make sure your business plan and fundraising strategy are grounded in real-
istic assumptions on exit potential. Otherwise, you can easily fall into the trap of
raising so much money that you force yourself into a trajectory where you need a
fantastic unicorn exit to be successful.
This is where many hard tech startups fail. They raise money, convincing early
employees and investors of the amazing financial potential of the company. In
the process of trying to deliver that financial return, they raise too much money
and unwittingly place themselves on a trajectory that overshoots the exit available
to them. As we discussed before, there are essentially no Microsoft, Google, or
Facebook in hard tech that buy startups at unicorn valuations.
A pioneer in LED-based industrial lighting had an exit for more than $60MM,
more or less what they raised after an eight-year journey. The investors got their
money back, but the founders received comparatively little for their years of hard
work. By many measures, the company was a success – they raised significant VC,
the product worked, and they had thousands of installations. However, this success
did not translate to a good outcome for founders, employees, and investors. Because
of the amount of capital they raised, they needed a much bigger exit to fulfill the
expectations of the investors and employees.
You could also raise too little money and consequently place yourself on a trajec-
tory of unnecessary hardship. Raising money is resource intensive. The time you are
meeting with potential investors is time you are not working to grow your business.
Investors are most likely to move forward with you quickly when they sense that
other investors are also interested in your company. This dynamic – fear of missing
out (FOMO) – can work to your advantage if you have multiple investors interested
in your company. However, this dynamic can also work against you. If you are close
to running out of money and financing options, prospective investors may use this
as leverage to extract better terms. Running low on cash, or even running entirely
out of cash, will exact a toll on your health and wellbeing.
Key Takeaways
● Monetary value of hard tech businesses is generally far less than the value of
big software and biotech companies.
● Generating early revenue and figuring out whether you are on the right path
are much more challenging in hard tech.
● You cannot build a hard tech startup based on an unrealistic view of your
likely exit. You must balance your ambition with the reality of the hard tech
market.
● You need to build excitement and confidence in the company, but you also
have to make sure your business plan and fundraising strategy are grounded
in realistic assumptions on exit potential.
4.3 Fundraising the Right Way

A successful fundraising strategy for hard tech is one that leverages your conviction
for your startup and that deliberately incorporates the reality of your likely exit sce-
nario. Your fundraising strategy should create good financial outcomes for investors
and founders at modest levels of success (customers, revenue, etc.) and outstanding
financial outcomes if the company delivers on all of its potential. Do not make the
mistake of executing a fundraising plan that eliminates the modest success outcome,
which in hard tech is a very real outcome.
Here are some guiding principles on how much capital to raise:
● Always have six months of cash available to run operations.
● Raise enough to last at least 18 months at your projected spend “burn” rate.
● Forecasting expenses is 100 times easier than forecasting revenue, and this is espe-
cially true for startups. Base your cash burn projections solely on expenses exclud-
ing any revenue unless the revenue is under contract.
● Forecast what your future valuation inflection points are going to be. Often the
value of your startup increases dramatically when you acquire your first paying
customer, sign a partnership with a strategic company, demonstrate technology
feasibility at a pilot scale, or validate the economics of your solution. If you
align your fundraising with these key milestones in your startup’s lifecycle, you
maximize the step change increases in valuation all the while creating momentum
in your fundraising story.
4.3.1 What Kind of Investors Should You Raise from?

Raising money requires focusing your valuable time with potential funders that
have a real chance of investing in your startup. It is very common for first-time
entrepreneurs to waste time pursuing investors that have little chance of ever
investing. Not all investors are the same, and even if one will set up a meeting with
you, it does not mean that you are any closer to obtaining funding. You need to
understand the venture financing world in order to target the appropriate investors.
You need an anchor or lead investor. This is true for your later fundraising rounds
(not if you are seeking money from your friends and family). The anchor investor is
the one that does the most diligence, negotiates a term sheet with you, and reviews
the documents. Generally an anchor investor will invest at least 50% of the total
round. It is fairly common to have several groups interested in investing in a startup
but only if an anchor investor is willing to do the heavy lifting on the diligence.
Network and be twice as persistent as you think is reasonable. It takes a lot of
rejection, especially early on, to get to a yes. As an investor, I am always sympathetic
to those that show the most hustle to share their story. If someone does not respond,
keep trying. You will be rewarded because luck favors those that persist!
If you meet with an investor that is not interested or simply cannot invest in your
startup, do not waste your time trying to overcome the impossible. Ask for a referral
to someone who might be a better match. You will find that most people will mention
someone, even if they do not make a direct introduction.
Investors fall into these categories:
Friends and family Anyone you know with money that believes in you.
Angels Many are successful entrepreneurs who want to stay connected
in the startup world looking to be part of a great story.
Early-stage VCs Professionally organized group willing to accept a lot of risk
for the prospect of very high returns.
Late-stage VCs Willing to invest large sums when into a mature startup with
limited technology risk and customer traction.
Corporate VCs Groups captive within a large corporation whose mandate is to
invest in startups with strategic relevance.
4.3.1.1 Friends and Family

These are people that believe in you and want to help you. Their investment motiva-
tions are often not only the potential financial return but also their desire to support
you. It is typical for startups to raise $50–$200 K from friends and family and some-
times much more if one is fortunate to have a wealthy relative. Use this funding to
get to a subsequent milestone that will help you raise money from more experienced
investors with bigger pocketbooks.
The bottom line is to typically invest on favorable terms to the entrepreneur and
become your biggest fans.
4.3.1.2 Angels
Angels are different from friends and family. These investors are usually proactively
seeking startup investments. They are often former entrepreneurs with a financial
event that has generated some wealth. Software has generated thousands of
angels, and you can find groups of angels that have assembled to share leads and
expertise is most geographies. They rely on their social networks and local startup
events to find investment opportunities. The hard tech space has far fewer angels,
primarily because the intellectual property and market potential is much harder
to diligence than in software, and there are simply fewer former successful hard
tech entrepreneurs. Individual angels will often invest $25–$200 K. Consequently,
it is often necessary to group them together into a syndicate, which can be quite
challenging.
The bottom line is that angels make fantastic early-stage investors but are far and
few between in hard tech sciences. The best way to find them is to ask everyone you
know for introduction to a potential angel and to work your local startup scene to
get your story out there.
4.3.1.3 Early-Stage Institutional Venture Capitalists

These are professionally organized investment firms that have raised money from
their own investors to place into promising startups with the hope of making
a profit. Early-stage venture capitalists generally invest in Seed and Series A
investment rounds, planning to get back 10 times what they invested.
Professional venture capitalists almost always have to return the money to their
own investors within 10 years of the fund’s inception. Thus, they have a roughly
10-year investment horizon, at most, from investment to exit. This horizon can
drive decisions regarding follow-on investments and potential acquisitions and is
not always apparent to the founders.
Early-stage investors are typically willing to accept some technology risk (i.e. the
risk that the technology does not work as advertised). The trade-off for taking this
risk is that they expect far greater returns than later-stage investors, and of course
they wish to be compensated for this risk by paying a lower price for shares in your
startup.
You should make a list of all the early-stage investors that have funded hard tech
startups proximal to your space in the last decade. Use this as a prospect list to gen-
erate interest in your startup.
The bottom line is that taking institutional VC commits you to at most a 10-year
timeline for exit, as the venture capitalists must return capital to their own investors.
You will find yourself with less autonomy in leading your company and a loss of
control on the timing and terms of an exit.
4.3.1.4 Late-Stage Institutional Venture Capitalists

The majority, both in number of deals and dollars, of disbursed funds in VC origi-
nates from late-stage venture capitalists. These are firms with hundreds of millions+
under management and are seeking to invest in startups that already have a track
record of sales and where the technology risk has largely been eliminated (this is not
true in biotech and medical devices where regulatory approval leads to more binary
outcomes).
Late-stage venture capitalists invest in Rounds A and B and then deep into the
alphabet. Chasing later-stage investors for early-stage funding is a waste of time as
their mandate precludes them from investing at that stage, and they have a burning
desire to place large sums of money in startups quickly because the clock is ticking on
their 10-year fund lifetime. Most large funds will not do less than $5MM investments
because they believe they spend just as much time diligencing small investments as
large ones, and they will not have enough time to invest all their money if the check
sizes are not large enough.
The bottom line is that as a startup, it is generally much harder to raise early-stage
VC than late-stage, as there are more investors and greater competition in the later
stages. Getting to revenue quickly with your startup will increase the odds that
later-stage investors show interest in you.
4.3.1.5 Corporate Venture Capital

Many large corporations operate VC groups whose mandate is to invest in strategi-
cally aligned startups, such as startup that are working the same technology field or
markets as the parent corporation.
Corporate venture capitals (CVCs) skew toward later-stage investing, as they per-
ceive the investment risk to be far lower later in a startup’s life and thus more com-
patible with their own internal risk tolerances. Few CVCs will invest in seed stage
startups in hard tech, preferring to work with more mature companies that have
processes and staff that match up with their own corporate systems.
CVCs are desirable investors in hard tech. They have less sensitivity to financial
return (and consequently many are willing to invest on more favorable terms than
are financial investors), often justifying their investment on strategic considerations
as opposed to pure financial ones.
As an example, a multinational chemical company may be aware that a startup
is working on a new catalyst technology that could be beneficial to their own oper-
ations. The chemical company may investment in the startup to stay close to the
technology, to help shape the product development, and to guarantee themselves
access. The prospect of financial return is secondary to the promise of capturing a
new technology that could improve their existing business.
Here are some considerations with CVCs:
1. To further align their strategic interests with their startup investments, it is com-
mon for the CVC as a condition of investment to obtain an agreement such as joint
development, sales exclusivity, or right-to-manufacture. These should be consid-
ered carefully as they may devalue your company by making it a less attractive to
future investment or acquisition.
2. CVCs can make other large companies nervous about being partners or customers
of your startup. Companies are weary of having their operational secrets shared
with their competitors. If they see that their arch rival is an investor in you, then
they will worry that their information will leak to their competitors. This dynamic
worsens if the CVC sits on your board.
3. It might make it harder to raise additional capital if the CVC set the terms
(i.e. price) of the investment. Financial investors perceive that CVCs do not drive
as hard a bargain on valuation, due to their conflicting motivations for making
the investment. If you have to raise money again in a later round, be prepared
for a financial investor to push back on terms.
4. If you were planning on the large company becoming your customer, do not bet
on it. The decisions for adopting your product inside a company are driven by the
operating units, not the CVC group.
5. If the large company is respected in your market with a great brand, then your
customers will see this as a positive signal. Being able to use their credibility in
your marketing can be a tremendous help when you are seen as a risky startup.
The bottom line is that CVCs have deep pockets, generally invest with some strategic
reasoning tied to their own business, and can make fantastic investors.
It is recommended to make a list of all the investors that have previously invested
in your space. Crunchbase is a good place to start. Then group all these investors in
the categories listed above.
4.3.2 Venture Capital Uncovered

To maximize your prospects of finding a good investor for your startup, it helps
to understand how the venture industry works. Here are some key considerations
that are not obvious to most founders, but are critically important in understanding
investor behavior.
4.3.2.1 Fund Life

Almost all professionally run venture capital funds have fund lives of 10 years. That
means the VC has 10 years (and no more) to invest the money and return it – with a
healthy profit – to their own investors (who are called Limited Partners). This time-
line creates the dynamic where investors feel pressure to put the money they raised
to work quickly and early in the life of their fund. They need time for the invest-
ment to grow and the startup to exit, so that money may be returned to the Limited
Partner.
Fund life commonly follows this progression:
Years 1–3 Investing in startups and actively deploying the fund. VCs at this stage
are highly receptive to pitches and want to invest money quickly.
Years 4–7 Occasional additional new investments with a progression to follow-on
investments into startups already in their portfolio. By year five, it is hard
for a VC to make a new investment in a startup where they were not
already an investor.
Years 8–10 The harvest. Some of the investments will likely have failed. The VC
focuses on helping the surviving to achieve an exit (a company sale or IPO
that results in funds being returned to the VC) so that they may return
the money to their Limited Partners. There is no point in chasing a fund
for new investment at this stage as they are not making new investments.
4.3.2.2 Return the Fund

A common metric for venture capitalist to use before deciding to invest is whether
that single investment has the possibility to return their entire fund. This means that
in a win scenario in which your startup reaches an exit, it would be likely to return
enough to the VC so that they could in turn pay back all the money to the Limited
Partners.
Investors use this return-the-fund filter to decide on what startups they should
focus their time on. Consider the following scenarios:
Startup A Startup B Startup C Startup D
VC investment into startup $1MM $1MM $10MM $10MM

Startup post-money valuation $5MM $10MM $50MM $100MM
VC fund size $25MM $100MM $100MM $500MM
Startup exit valuation $125MM $1B $500MM $5B
required to return the fund
Notice that large VC funds need to invest more money to have any prospect of
returning their fund. This means that if you are targeting a large fund for a few mil-
lion dollar raise, there is little chance they will invest, as it is not worth their time.
No reasonable win scenarios result in them returning the fund.
It is recommended that if you have a meeting with a venture investor, try to get
an idea as to the size of their existing fund. Then you can tailor your pitch to an
investment that makes sense for the size and return expectation of that VC.
4.3.2.3 The Mythical 10× and Why It Is Important to You

Many investors use a 10× return threshold in evaluating whether to make an invest-
ment. This has significant implications in what valuation you receive for your shares,
but perhaps more importantly, it can determine at what price you will eventually be
allowed to sell your company in an acquisition.
It is common for professional investors to want to buy your stock at a price where
they believe there is a reasonable chance that they will make a 10× return. For every
dollar invested in you, they expect to get back $10.
The desire for 10× return has serious implications for you and your startup. Most
entrepreneurs believe that the higher the price they can sell their shares to an
investor, the better. Consider these two examples:
Startup A Startup B
Startup valuation $10 million $100MM

Desired investor return 10× 10×
Exit value required for investor to sell out $100MM $1B
Notice what exit value is required now for the VC to make a 10× return with
Startup B? Remember that in hard tech, the exit valuations are nowhere near as
inflated as they are software and biotech. Startup B gave away far less equity at
a much higher valuation but is now locked into a trajectory dictated by the dog-
matic 10× investor return threshold. Good luck getting a $1B valuation for your hard
tech startup. You have now kept more of your company but in the process made it
100× harder to exit – not a great trade-off!
Ah, but you say the investor will realize that your startup is not going to exit at $1B
a few years down the road and settle for a lesser exit. You believe you will end up far
ahead of Startup A because you will not have given away much of your company,
having raised at much higher valuation.
Unfortunately, the entrepreneurial landscape is awash in examples of entre-
preneurs who built their companies, achieved commercial success, received offers
for their companies, and achieved the potential for an exit that would have made
the founders wealthy, only for that exit to be blocked by an investor because it did
not reach the 10× threshold.
Many VCs will take the bet that if they wait longer, the return will be bigger, even
if they risk losing. Your startup is only one of many in their portfolio, and even if
their investment went to zero, they have more chances at bat to hit a home run.
For you however, turning down an exit opportunity that does not satisfy the mythical
10× threshold but would still meaningfully change your life is gut wrenching.
Of course, this was an exaggerated example, but the point is to remember that VCs
generally look for 10×, and the protective provisions in most venture investment
agreements allow them to block an exit. Calibrate the valuation at which you are
raising with and from whom and what the likely exit prospects of your startup are.
If you do not, well swing for the fences!
It is recommended to try to gauge if your potential investors are a good fit for the
exit realities in hard tech. Are they dogmatic about a 10×, or have they shown more
situational flexibility in agreeing to the sale of one of their investments at a lower
multiple?
4.3.3 How to Generate Interest from Investors?

Professional investors have well-defined investment criteria based on industry,
technology, and investment size and stage. When approaching investors, it is critical
to understand their investment criteria and how your startup aligns with that
criteria. Most investors clearly state their investment criteria on their website, and
this is a valuable starting point. A quick review of their portfolio companies will
also provide you with a feel for their investment approach, as will conversations
with other entrepreneurs with fundraising experience.
Corporate VCs typically have investment criteria similar to the above, as well as a
screen for strategic alignment with their business. Corporate VCs will want to invest
in companies that generate value for their business, regardless of the investment
outcome. How will your company add value to the corporate VC’s existing business?
Qualifying potential investors based on the criteria above is absolutely necessary to
avoid pursuing investors who are unlikely to invest in your company. Once you have
a list of qualified investors, your next challenge is generating interest. Early-stage
investors will engage with you if you can demonstrate that you have an amazing
team, differentiated technology, a large target market (preferably growing quickly),
and a compelling plan for how you will build a business. Investors will have different
views and weightings on these topics, but they are common to almost all venture
investors:
Team Founders but also key employees, board members, and advisors.
Value proposition Quantify in dollars as much as possible the economic value

your solution brings to customers.
Size of target market Markets in the hundreds of millions of US dollars are necessary
to excite investors.
Business plan How will you make money? Is your plan realistic, or does it rely
on inventing new ways of doing business to succeed?
Let us review each topic in detail.
4.3.3.1 Team
Investors value the team very highly because hard tech entrepreneurship is difficult,
the path to success is uncertain, and the company will likely need to change strategy
and tactics throughout its lifecycle.
Think of your team as the founders, early employees, independent board mem-
bers, and advisors. As a young company with a small initial team, investors expect
you to have holes on your team, but the people you do have need to be outstanding,
and you need to have a clear perspective on how you will fill the holes. At the first
meeting and in subsequent interactions, investors will be seeking to understand if
the team has the following:
– World-class technical ability (typically the founders and early hires and advisors).
– Domain expertise (experience in the industry).
– Executive-level access to early customers (typically through advisors).
– Passion and grit.
– Awareness of the gaps on the current team.
4.3.3.2 Differentiated Technology and Customer Value Proposition

Most hard tech startups have innovative differentiated technology. This is table
stakes for attracting investor interest, but only part of the story. Investors will need
to understand how that technology translates into a customer value proposition.
A breakthrough technology advancement is interesting, but what is compelling is
the value that advancement creates for a potential customer. Entrepreneurs should
quantify the customer value proposition and validate key assumptions with a broad
set of stakeholders, preferably including potential customers or people from the
industry.
To attract investors, explaining the value proposition relative to other options the
customer may have is key. Are you displacing another technology or process? If so,
your value proposition needs to be explained and quantified in that context.
4.3.3.3 Large Target Market

Investors typically do not like to invest in small niche markets. It is very difficult
to build a company that will be an attractive investment if the startup plans to
service a market that is, for instance, only $250 million in sales. If that same startup
is targeting a one billion+ market, there is a much more credible path to a successful
investment outcome.
Growth rates are also very important. If the market is growing slowly (less than
10%), almost all of your sales will require the startup to steal market share from an
entrenched competitor. That is difficult and will take a long time. A rapidly growing
market, however, allows startup to sell without stealing market share. The sales cycle
is much quicker.
When framing your target market for potential investors, the key question is this:
Can I build a $100 million revenue company in this market with making reasonable
assumptions about market share (i.e. <20%)? The implications of this math are that
most investors will want to see a market of at least $500 million with a reasonable
growth rate.
4.3.3.4 Compelling Plan to Build a Business

Many hard tech investors have invested in science projects that did not turn into suc-
cessful businesses. Their perspective on your startup will be colored by these prior
experiences. Technical founders are biased toward explaining the business through
a technical lens, as opposed to a business lens, which compounds the problem.
Hard tech entrepreneurs need to be able to communicate their sales model and
sales cycle, partnering strategy, unit economics, and their impact on hiring ramp
and burn rate. Of course, you do not have all of the answers now. However, you need
to be able to articulate a strategy, plan, and financial model that are credible with the
current information you have and be able to talk through various permutations on
the plan.
Checklist: How to Generate Interest from Investors

1. Recognize you are selling. You should think about fundraising as a sales funnel.
Focus on investor behavior and escalation of commitment. If a general partner
is willing to travel to spend a half day with the founders, that is a very positive
sign. If firms are unwilling to spend time with you, that is a sign you are further
down their priority list. Continue to nurture relationships with people who have
expressed interest, but spend your time with investors whose behavior indicates
they are serious.
2. Establish momentum. To establish momentum, you need to provide investors
with more than a static snapshot of the business. You should provide them a con-
tinuous stream of good news (milestone achievement, key hires, etc.) throughout
the fundraising process. Investors invest in lines, not dots! The momentum you
establish is critical because it is a proof point of the team’s ability to execute, and
the milestone achievement will help investors get comfortable with the market
and technical risk facing the company.
Investors are simultaneously managing their existing portfolio, likely raising
money for their next fund, and screening many new investment opportunities.
Momentum will help grab their attention and galvanize their commitment.
Establishing momentum needs to be a deliberate part of a fundraising strategy – it
cannot be left to chance. In some companies, the data and proof points are so
compelling that the momentum is obvious to outsiders (e.g. we just landed GE

as a customer). For most hard tech companies, however, all of the positive things
happening in your company are not obvious to outsiders, and therefore they need
to be tied together into a compelling trajectory. Part of this is sales – you should
architect a steady stream of good news for potential investors. However, the larger
part is simply packaging all of your daily successes into a narrative that is designed
to portray momentum.
It takes time to establish momentum. For hard tech startups, it is difficult to estab-
lish momentum in a few months. Therefore, you need to engage with investors
early and often, even if you are not engaged in an active fundraising process. This
is a serious investment of time and commitment from the founders but is key to
successful fundraising.
3. De-risk the investment. Investors will think deeply about the market risk and the
technical risk your startup faces. Will customers buy the solution at prices that
enable your financial model? Will the technology scale without loss of perfor-
mance and at a reasonable cost? Providing credible proof points to investors that
speak to market and technical risk is critical to raising money.
Market de-risking can be accomplished through early customer proof points, buy-
ing signals, and testimonials. This is the most important element in fundrais-
ing – customers that can validate your value proposition as a real pain point and
one they are willing to pay for. These customers need to be willing to speak with
a potential investor.
Market de-risking can be challenging for many hard tech startups as they often
prioritize technical de-risking. For fundraising and development of the business,
it should be done in parallel to technical de-risking.
Technical de-risking can be accomplished (in order of preference) through lab,
pilot, and commercial data proof points. Hard tech startups face a lot of technical
risk, so credible proof points will greatly assist the fundraising process.
Many entrepreneurs, especially those with a platform technology, will face an
early foundational decision: Do I focus exclusively on pursuing the largest poten-
tial application (or market opportunity), or do I pursue smaller applications that
have a higher likelihood of success and quicker path to market? Entrepreneurs
should focus on a quick-to-market proof point that validates the technology and
that customers are willing to buy your product. If the proof point is outside of the
broader market opportunity, the early proof points must be translatable to the
larger opportunity.
Early success with the low-hanging fruit market opportunity will build confi-
dence that the team can execute and establish momentum. Think of this as a
phase 1 (smaller opportunity) and phase 2 (huge market opportunity) strategy,
where both have to be credibly linked.
Part of your fundraising strategy should be lining up third parties (prospective
customers, partners, etc.) who can help investors validate your market and tech-
nical proof points. Referenceable, paying customers are the gold standard, but
most early-stage startups do not yet have paying customers. Short of paying cus-
tomers, your goal should be to advance relationships with prospective customers
and partners to the point where they are willing to share their perspective with
investors. For instance, statements along the following lines from prospective cus-
tomers, even if heavily caveated, will provide enormous value to investors:
● We would consider buying the product/solution if the performance is as the
company claims.
● If the lab results scale, this is a huge step forward for the industry.
● This technology presents an X% performance improvement over what we cur-
rently use.
● Our evaluation of this technology is one of our top three priorities.
● We have evaluated the technology and found it compelling.
4. Approaching investors. The best way to approach investors is through a personal
referral. Advisors, professors, and other entrepreneurs are all excellent sources
for referrals. As you think about advisors, you should deliberate recruit advisors
who have fundraising experience and a network into the investment community.
Entrepreneurs should expect to spend time networking to facilitate personal
referrals to investors. Networking may seem like a distraction, but if it is focused
on high-quality interactions with people who are one degree of separation from
target investors, the return on your time will be high.
Lastly, fundraising is a never-ending process that you need to embrace and master.
It is part of the craft of entrepreneurship. Founders/CEOs need to own it and not
delegate it to other more business-minded people on their teams.
It is recommended to practice your elevator pitch incessantly and share it with
everyone you meet. You should be able to communicate what you do and the quan-
tified value you provide to your prospective customers in less than 30 seconds.
Key Takeaways
● You will need an anchor or lead investor, who is the one that does the most
diligence, negotiates a term sheet with you, and reviews the documents.
● Investors fall into these categories: friends and family, angels, early-stage VCs,
late-stage VCs, and corporate VCs. Know the differences.
● Almost all professionally run VC funds have fund lives of 10 years.
● A common metric for venture capitalist to use before deciding to invest is
whether that single investment has the possibility to return their entire fund.
● Many investors use a 10X return threshold in evaluating whether to make an
investment and are willing to take the bet that if they wait longer, the return
will be bigger, even if they risk losing.
● When approaching investors, it is critical to understand their investment
criteria and how your startup aligns with that criteria.
● Investors value the team very highly. Think of your team as the founders, early
employees, independent board members, and advisors.
● Entrepreneurs should quantify the customer value proposition and validate

key assumptions with a broad set of stakeholders, preferably including poten-
tial customers or people from the industry.
● You need to be able to articulate a strategy, plan, and financial model that are
credible with the current information you have and be able to talk through
various permutations on the plan.
4.4 The Case for Early-Stage Business Development
Early-stage hard tech startups typically face long product development cycles and
slow customer adoption. Often, especially for university spinouts, there is still
research to be done, much less product development. Many entrepreneurs faced
with these dynamics focus on building equity value by de-risking the technology
through achievement of product development milestones. Once the product is devel-
oped, they will approach potential customers and partners with a saleable product.
Entrepreneurs are further biased toward this strategy because many come from
science, engineering, or academic backgrounds, as opposed to business back-
grounds. Moreover, entrepreneurs are rightfully cautious of the potential distraction
of engaging with partners and third parties, each of whom likely has a different set
of needs and issues that will need to need addressed.
Finally, entrepreneurs often fear the misappropriation of their IP. After all, who
in their right mind would not want to steal your idea or learn from you in order to
advance competing internal projects?
While there is a strong dose of truth in each of these concerns – and likely a startup
or two with the battle scars to prove it – the singular focus on technology develop-
ment is a missed opportunity for many startups. A thoughtful and properly executed
early-stage business development (BD) strategy will accelerate time to market and
pave the way for a successful fundraising process. Specifically, an early-stage BD strat-
egy can do the following:
– Improve product performance. Hard tech technologies often interface with exist-
ing systems, processes, and technologies in an enterprise. Understanding and opti-
mizing these interfaces is critical for product performance. It is very difficult – if
not impossible – for entrepreneurs to understand these interfaces with proper
nuance without deep engagement with industrial partners as much of this
information is not available in the public domain. Understanding this deeply will
ensure the technology is optimized for the application.
– Accelerate time to market. Many enterprises are seeking competitive advantage
through the adoption of new technologies and therefore are willing to partner
early to secure that advantage. Engaging with prospects in parallel with product
development allows startups to build valuable relationships with potential
early adopters and improve product performance, per the comments above.
Importantly, the sales cycle in hard tech is long – starting the process in parallel
to product development shortens the time to market. Also, prospects will feel
personally invested in the outcome once they spend time, money, and internal
political capital on the project.
– Harden the customer value proposition and sales pitch. Entrepreneurs need an
early understanding of their value proposition to customers. This cannot be devel-
oped in a vacuum – the market must be engaged. Otherwise, it will not be credible
and able to withstand the inherent skepticism you will face. Core to this is under-
standing the application, interfaces, existing technologies for solving for similar
problems, and the customer’s decision-making process. Understanding this and
validating it in the market will subsequently drive your pricing strategy, enhance
your credibility with potential investors, and improve your sales process.
– Provide access to resources like complimentary technology, channel, manufactur-
ing, and supply chain. To get to market, startups often need access to resources
well beyond their invention and what they are capable of developing on their
own. These resources can range from complementary technologies. At Rive, we
needed access to catalyst matrix technology for our novel zeolite and manufactur-
ing capacity. For manufacturing intensive startups, access to plant capacity and
raw materials is critical. Finally, a sales channel is important for many startups,
and this can take a long time to develop and get right.
– Provide direct fund raising. Early-stage business development partners are often
in a position to provide direct funding to a startup, either through an in-house
venture fund or a balance sheet investment. Engaging early allows you to build a
relationship in advance of fundraising discussions and allows you to demonstrate
progress and momentum, both critical to fundraising.
– Convey powerful information to potential investors and facilitate due diligence.
Hard tech startups commercialize technology across a very wide range of tech-
nologies and markets. It is unlikely that investors you are targeting are experts in
your particular technology or market, and therefore they need validation of your
business from knowledgeable sources. Early-stage BD partners help provide this.
Having a BD partner is a powerful signal to potential investors. At face value, the
BD partner sees enough merit in your company to spend time on the company,
rather than on an internal project. That is great validation and sets you apart from
other startups that do not have similar partners. Once the potential investor is
engaged in due diligence, the BD partner can be enormously helpful in assessing
technical risk, market adoption, and market potential. Even if their perspectives
are heavily caveated, they still carry great weight with investors.
These reasons provide a compelling rationale for focusing early on business devel-
opment activities, in addition to product development. The remaining focus of this
chapter provides a blueprint for how to execute a successful early-stage business
development strategy.
It is recommended not to leave BD until you feel the product is ready; start right away.
If you cannot generate interest from prospective customers early on, ask yourself if
your value proposition is compelling enough to continue what you are doing.
4.4.1.1 Playbook for Early-Stage Business Development

Embarking on a business development strategy requires careful thought and con-
stant iteration. You will learn as you engage the market and advance the technology,
and your needs from a partner will change as well.
Entrepreneurs should recognize that the BD process is not a one-time event, but a
constant evolution as your business evolves and you learn from the market. Just like
you spend considerable time on technology development, recruiting, and fundrais-
ing, BD should also be a key founder/executive focus.
The following is the practical advice on how to get started with an early-stage BD
strategy in a hard tech startup.
4.4.1.2 Getting Started

– Understand what you need from a partner. Your needs should drive your part-
ner selection and strategy. For instance, are you seeking financing, first customer,
access to a plant, complementary technology, or sales channel? Or all of the above?
– Create a matrix of potential partners and rank them based on attractiveness. The
ranking criteria should include how well they potentially meet your needs, as well
as factors like size, weight in the marketplace, cultural factors, and ease of attract-
ing them.
– Approach potential partners. Personal introductions are best, but not always
feasible. Ask your board of directors, advisors, mentors, etc. for introductions as
needed. You will likely need to network your way into meetings. Trade shows and
conferences are also excellent sources of leads and connections.
Call high if possible. Vice presidents and c-level people have budget, organizational
weight, and the ability to commit the organization. If you cannot call high, engage
where you can, and recognize that you need to eventually develop those senior rela-
tionships.
From a practical standpoint, it is best to initially approach a limited number of
partners (e.g. five or less), as you can only support a handful of discussions at once.
Based on your success, you can regroup, understand your learnings, and refocus.
Think of this as a phased approach.
– Embrace market discovery. To fully understand MVP requirements, applications,
and interfaces and market test your value proposition, you will need to engage in
discovery meetings. Some of these meetings will result in viable partners, while
most will not. And that is fine as long you learn something important in each
discovery meeting.
Even without a clear partnership goal, discovery meetings are very valuable as long
as the information sharing is mutual. The temptation is to spend a lot of time talking
about your technology in the hopes of convincing potential partners to move for-
ward with you. With this approach, the entrepreneur can educate the prospect only
to get a “no” answer. This is not helpful. Instead, discovery needs to be a two-way
conversation and not a one-way pitch session.
You should be asking probing questions, such as the following:

● What is your process for evaluating such technology? Who is involved?
● How do you solve for this problem today? What are your current pain points and
unmet needs?
● What are practical issues in implementing this technology?
● How do you think about a ROI analysis?
● Is your company willing to be first? What do you need to see to adopt?
● Do you have competing technology efforts?
● Where does solving for this problem fall on the organization’s priority list?
4.4.1.3 Getting to the Finish Line

– Lean into promising partnerships. Lean into specific relationships that meet your
BD goals (financing, first customer, etc.). There is typically a lot of interests in
novel technologies from industry incumbents, but getting them to commit time
and money is difficult. There are many tire kickers out there who will want to
remain close to you and receive updates for fear of losing out, but simply are not
willing to commit. You want to minimize the time you spend with these prospects
and maximize the time you spend with more viable prospects. The key to doing
this is to focus on their behavior, not on their words. For instance, are they invest-
ing time and resources? Are they willing to visit your office? Are VP-level people
involved?
– Understand the motivations of your partners. Partners have diverse motivations,
cultures, and strategies. For instance, large industrial partners are likely to be
focused on protecting market share and seeking margin enhancements from exist-
ing markets. They will be risk averse. Smaller companies will be more focused on
acquiring market share. They will have a hunter’s mentality and be willing to take
risk. Each of these partner profiles could work for your company, but you need to
understand your partner’s motivations a to structure viable partnership.
Your partner’s financial metrics and compensation plans will drive their behavior.
Do they have revenue goals, goals tied to new product introductions, or margin
enhancement? Are they more sensitive to capex or opex spending? Aligning your
partnership with specific financial metrics will help you drive forward and acceler-
ate the timeline. Understanding your impact on an executive’s annual bonus is key.
– Build executive support. Executive sponsorship is key for almost any business
development relationship. You need the support of someone who can say yes and
write a check. That is typically a profit and loss (P&L) owner, rather than the tech-
nology gatekeepers within the organization. This is the person who can push on
the organization when the timeline is at risk and who can intervene when nego-
tiations get bogged down. You need to know where you stack in their priority list
at a given point in time. (It will change!)
– Build constructive tension into the relationship. Your prospective partners have
many competing priorities. You are one of many projects and investment options.
It is very easy for a prospect to delay your project into next quarter or for another
six months. They measure time in quarters; you measure time in days. Meanwhile,
you are managing a cash burn plan. The delay can kill you. This asymmetry in the
process – delays kill you but not them – needs to be tightly managed.
Further, if a prospective partner perceives you do not have other options, they will
act accordingly. They will delay, stall, and hold out for terms that are advantageous
to them, as they know you cannot delay forever.
To counteract this asymmetry, you need to build constructive tension into the rela-
tionship. The best way to introduce tension into a deal is to have a viable alternative
and signal this to prospects. Having alternatives allows you to manage the timelines
and negotiate better terms. It puts you in control of the process. Prospects will always
want to negotiate the best deal for their organizations, but they will be fearful of los-
ing the deal to competitors. With a credible alternative, this greed/fear dynamic can
work to entrepreneur’s advantage.
This will require you to nurture a few relationships simultaneously and carefully
manage your timing. You may need to slow play some prospects while moving others
along more quickly. If prospects are genuinely interested and know they are in a
competitive process, they will adjust their timelines to match yours.
4.4.1.4 Avoiding Common Pitfalls

There are risks in early-stage business development. Here is how to mitigate them:
(1) Exclusivity. Prospective partners often ask for exclusivity. It is not an unreason-
able ask. After all, they are investing time and money and taking some risk – why
would they want a competitor to benefit as well?
The key to managing the exclusivity discussion is to understand that there are
many forms of exclusivity and each should be priced differently. At one extreme,
a prospect may ask for global exclusivity across all applications in perpetuity.
Offering this type of exclusivity is tantamount to selling your company and
should be priced accordingly.
More reasonable forms of exclusivity are those that are bounded by geography,
application, specific customer accounts, and time. It is very different to offer
broad market exclusivity, versus exclusivity in a small region for two years, in
very specific applications.
If partners want exclusivity, they must sign up for performance requirements.
If these requirements are not, they lose exclusivity or their rights entirely. Perfor-
mance requirements are often expressed as minimum sales volumes but can be
almost any demonstration of your partner’s investment in your technology and
ability to bring you to market. If you do not mandate performance requirements,
your partner can effectively shut you out of the market.
Entrepreneurs routinely underprice exclusivity in all its forms. Exclusivity is
one of the most valuable assets a young company has, and it should be priced
accordingly.
(2) IP misappropriation. Entrepreneurs are rightfully cautious about IP misappro-
priation when engaging with partners. Please talk to an IP lawyer about risks in
engaging partners. Your core IP rights should be solid before engaging in non-
public technical disclosures.
Many entrepreneurs – especially after talking to their IP counsel – are very wor-
ried about IP misappropriation. Entrepreneurs should recognize that not engag-
ing the market is potentially a bigger risk than IP misappropriation, especially if
the partnership dynamic and disclosures are staged carefully. Most large US or
Western European enterprises are very concerned about IP contamination and

will take great steps to avoid entanglement with your IP.
From a BD standpoint, there is a lot of benefit in engaging partners without
sharing your secret IP – instead focus discussions on the market, performance
benefits, and properties, not the mechanism or secret sauce. As the relationship
develops, you can gradually disclose more.
(3) Approaching customers/partners too early and having technology fail. Providing
access to your technology to a third party for the first time is challenging. To get
the third party interested, you have had to sell the potential. Now, the third party
wants to verify benefits in their lab, and you are worried about your immature
technology performing well in a new environment that you do not control. This
is a very real risk but can be readily managed. It is all about setting expectations
and avoiding “throwing it over the fence” situations.
In terms of expectations, you need to set yourself up for success. Have prospects
start with tests that simply verify work you have already done in your own labs.
Have them focus on low-risk tests – such as physical or chemical property testing
in the case of a materials science innovations versus performance/application
testing. These early tests will build credibility and excitement with your partner
in a low-risk environment.
Once this common foundation is established, you can move on to perfor-
mance/application testing. Most companies have proprietary testing protocols.
Your technology is not optimized around these protocols, and you are unlikely
to understand the testing protocols well. Accordingly, you should advocate
for industry-standard performance/application testing, third-party testing at
neutral labs, or testing at both your lab and their lab. Your goal should be to
build a series of positive or confirmatory results prior to engaging in testing
with unknowns.
You will want to avoid “throw it over the fence testing” scenarios, where the
partner tests in a proprietary environment and is unwilling to share details on the
results and testing protocols. Testing and evaluation should be a collaborative
process, as opposed to a pass/fail grade at the partner’s discretion.
(4) Customer requests unique features. Entrepreneurs should be cautious when
their early partners ask for capabilities or product features that are not part
of the core offering. Entrepreneurs should develop products for markets, not
individual customers. Of course, this is easier said than done, especially when
customers offer to pay for unique capabilities. However, while they may be
willing to pay for engineering time, this is not nearly enough to compensate
you for the opportunity cost of the distraction from your core product offering.
It also sets the precedent that the customer controls your product roadmap.
The key to navigating these tricky situations is to have a very clear view on the
market requirements (and how those differ from the customer-specific request)
and the confidence to say “no” to a large strategic partner. Of course, you do not
actually have to say “no.” Instead, you might tell the partner that the desired
feature is not currently on the product roadmap, but it may be in the future. If
they would like input on the product roadmap, they first need to be a paying
customer and join your customer advisory board.
(5) Lack of alignment with partners. Poor alignment can destroy a once promis-
ing partnership. Many partnerships start with excellent alignment but drift over
4.5 Summary 125
time as each organization’s priorities change. For instance, at the outset of a

partnership, your corporate partner may be very focused on increasing market
share; a year later, the focus may change to cost containment. This type of shift
will have profound implications for their appetite for new technology and risk.
The best way to ensure alignment is to have frequent (at least quarterly) discus-
sions about the partnership that go well beyond the day-to-day work and include
the executive sponsor of the partner organization. During these meetings, it is
critical to have your partner share their view on their business and organization.
What are their goals? How have they changed? Where does the partnership rank
on their priority list?
Beyond formal meetings, entrepreneurs should spend time with their executive
sponsor on an individual basis. Executives will be more forthcoming in these
settings, and the one-on-one time is critical for relationship building.
(6) Hiring a BD executive too early. The BD work described in this chapter can and
should be accomplished by the founding team, provided the team embraces the
effort required. Founders/CEO and early technical employees will need to be
engaged and take ownership for early BD activities. Their credibility, passion,
and conviction outweigh the need for an experienced BD executive. Only once
the company has raised significant funds should it consider hiring a dedicated
BD executive.
Key Takeaways
• A thoughtful and properly executed early-stage business development strat-

egy will accelerate time to market and pave the way for a successful fundrais-
ing process.
• Business development process is not a one-time event, but a constant evolu-
tion as your business evolves and you learn from the market.
• Partners have diverse motivations, cultures, and strategies. Understand your
partner’s motivations to structure a viable partnership.
• Executive sponsorship is key for almost any business development relation-
ship.
• Build constructive tension into the relationship. Nurture a few relationships
simultaneously, and carefully manage your timing.
• Managing the exclusivity discussion is to understand that there are many
forms of exclusivity and each should be priced differently.
4.5 Summary
A key takeaway of this chapter is that raising too much money can greatly inhibit
the financial success of founders. Before raising capital, founders must develop an
understanding of the relationship between their market potential and their funding
requirements and plan accordingly. This relationship must be balanced and allow
for positive financial outcomes across a wide range of scenarios, not just the home
run scenario. Hard tech fundraising and exits are unique. They are very different
from other technology markets such as software, and founders need to internalize
this at the outset of their entrepreneurial journey.
More so than most industries, hard tech startups require partnerships to get to
market and scale, yet early-stage business development is often deprioritized by
young companies in favor of technology development. This chapter makes the case
that early-stage business development is critical to successful fundraising, customer
acquisition, product development, and commercialization. The earlier and more
focused the founding team is on business development, the better. This chapter also
discusses how to identify potential partners, maximize leverage, create alignment
with partners, and avoid common pitfalls.
With the proper perspective on fundraising and exits and an early focus on
business development, founders will be well positioned to succeed as hard tech
entrepreneurs.
4.5 Summary 127
Successful hard tech start-ups prioritize fund raising
and business development, early in their lifecycle
• Accelerate time to market
• Improve product performance
• Harden customer value proposition
• Access to technology, channel,
manufacturing, and supply chain
Business
development
Symbiotic
Early commercial
relationship
proof points
between fund
raising and
business Capital and
development credibility to fuel to
growth
Fund raising
• Team
• Technology and customer value proposition
• Large target market
• Plan to build a compelling business
Suggested Reading
Miller, R., Heiman, S., and Tuleja, T. Strategic Selling: The Unique Sales System Proven
Successful by America’s Best Companies. Grand Central Publishing, ISBN-10:
0446386278; ISBN-13: 978-0446386272.
Background on Venture Capital Financing and Term Sheets . This blog series is an
excellent resource, even if it’s dated. https://feld.com/archives/2005/08/term-sheet-
series-wrap-up.html.
Author Biographies
Bernard Lupien is a General Partner at Rhapsody Venture
Partners, an early-stage venture investor group based in
Cambridge, Massachusetts. Rhapsody invests in hard tech
startups based on innovation in the field of new materials,
engineering innovations, chemistries, food tech, and more
broadly circular economy. Prior, Bernard ran the commer-
cial group at LiquiGlide and also led business development
at TIAX and CAMX Power, developers of clean energy tech-
nologies, and Li-ion battery materials. Over his career, Bernard has sourced in excess
of $100MM in development funds for startups mostly thru joint development and
licensing agreements. He received an MBA from the Sloan School of Management
at MIT and a Bachelor’s degree in Chemistry from McGill University.
Andrew Dougherty is vice president of sales and marketing at
CrunchTime Information Systems, a private equity-backed
SaaS platform. Prior to CrunchTime, Andrew led the sales
team at TempAlert, a bootstrapped IoT startup from MIT
(acquired by Digi International), and subsequently ran sales
for Digi. Andrew was a cofounder of Rive Technology, a
materials science spun out from MIT focused on catalyst
technology for fuels processing. He served as chief commer-
cial officer for Rive prior to WR Grace acquiring the company. Earlier in his career,
Andrew was a management consultant for Arthur Andersen and held several roles
at Aspen Technology, a software provider to the energy industry. He has raised over
$80MM in venture capital in his career. Andrew is a graduate of the Colorado College
and the Sloan School of Management at MIT.
129
Battery Entrepreneurship: Gameboard from Lab to Market

Elena V. Timofeeva, John P. Katsoudas, Carlo U. Segre, Alex Duchak, and
Thomas Day
Influit Energy, 2312 W. Warren Blvd., Chicago, IL 60612, USA
5.1 Introduction
Efficient and reliable rechargeable battery technology could enable a future where
our homes and cars are powered by renewable energy sources, coal and oil remain in
the ground, and humanity sustains itself and avoids the catastrophic scenarios now
envisioned by climate scientists.
Energy storage sits at the intersection of all things that may seem impossible now
but may soon become a part of our everyday lives in the near future. Energy storage
is the key and enabler of future renewable and carbon-free economies. Thousands
of research groups worldwide are developing new battery materials, new separa-
tors, new electrolytes, or new battery chemistries, all driven by an urgent sense that
energy storage is the missing variable needed to realize a carbon-free future.
While academic battery technology breakthroughs are announced weekly, it
seems that these advances fail to translate into commercial batteries. The challenge
is not simply one of science but also of economics and business strategy. How do
these innovations get to the market?
Over the last decade, we have seen significant improvements in the battery indus-
try, but they have come largely from established companies steadily making small
advances. The groundbreaking “moonshot” technologies needed to realize new fron-
tiers in energy storage are still “in the works,” taking a lot longer to develop than
initially anticipated.
This chapter will unpack why energy storage research frequently remains in the
laboratory and maps out a new pathway for new transformational technologies to
reach the market.
Grants make research possible. The industry makes commercial products possi-
ble. Connecting both ends of the value-creation chain is a challenge that has long
flummoxed universities and federal labs.
When promising results emerge from research, most professors and scientists rely
on institutional “technology transfer” departments to file patents and solicit interest
from the industry. This was not always the process.
130 5 Battery Entrepreneurship: Gameboard from Lab to Market
In 1980, Congress passed the Bayh-Dole Act, named for Indiana Senator Birch
Bayh and Kansas Senator (and eventual Senate Majority Leader and Republican
Presidential nominee) Bob Dole. The act was passed and signed into law with very
little debate or fanfare – no signing ceremony in the Rose Garden – but marked
perhaps the most critical law signed into law during the Carter Administration. For
the first time, under the Bayh-Dole Act, universities, researchers, and industry were
encouraged to take and share ownership of inventions made possible by federal
funding.
Ad hoc efforts to support commercialization – a select few universities had estab-
lished nonprofit organizations to support technology transfer to that point – were
quickly standardized. Technology transfer offices opened up at universities across
the United States shortly after the Bayh-Dole Act was signed into law. We now see
that beginning to change out of necessity.
The authors of this chapter started as a team of scientists from a university and
a national laboratory, proposing a new nanoelectrofuel flow battery technology to
merge the high energy density of solid battery materials and the flexibility of flow
batteries. The proposal to fund this research was submitted to the Department of
Energy’s Advanced Research Projects Agency-Energy, or “ARPA-E”. Funding was
received only after the project manager was assured that the team has a tech transfer
expert and a solid commercialization plan, so the research would not be in vain.
Scientists are often discouraged from pursuing commercialization themselves.
Even with experienced entrepreneurs at the helm, it is well known that startups
fail; what do scientists know about business? Researchers are often told to find
someone who can take their work and develop it into a commercial product. Several
funding agencies (including the Department of Energy and Department of Defense)
have, over the last decade, introduced a requirement that researchers present a
commercialization plan for their work before receiving funding. To address these
requirements, the National Science Foundation rolled out a special entrepreneurial
training program in 2012 called Innovation Corps (I-Corps) that prepares scientists
and engineers to extend their focus beyond the university laboratory.
This strategy encourages researchers to look beyond the laboratory experiments,
consider the broader impacts of their technology, how the commercialization of their
technology could happen, and the role scientists themselves can play in it.
The authors received the award on a transformational path into technology
entrepreneurship, which continues to this day. Some critical steps and lessons
learned that we believe are worth sharing with the broader community of battery
researchers. Despite having amazing mentors and programs in which we could
participate in this journey, there have been multiple “aha” moments unique to the
energy storage industry.
As an important step in finding the path to market for our technology, we formed
a company and continued developing the technology outside academia. Five years
after the ARPA-E grant, we are now leading a startup, Influit Energy, that will soon
introduce a new battery design capable of fueling vehicles with liquid, carbon-free
rechargeable fuel. Influit is still very much a work in progress, and therefore in this
chapter, we will mostly use examples from other battery startups that have achieved
notability in the space.
5.2 Finding a Market Fit for Your Technology 131
5.2 Finding a Market Fit for Your Technology
For scientists launching a new venture, I-Corps and other similar entrepreneurial
training and startup accelerator programs built on Stanford University’s Lean
LaunchPad course provide instruction and mentoring in transitioning and
commercializing their academic research.
At the start of the I-Corps program, participants are asked a simple question: “Who
are your customers?” The answer to this question dictates the type of company one
can build. While on the surface, it is a simple question. The answer requires a deep
dive into understanding the related markets, market players, and market opportu-
nities. It will test the unique capabilities of your technology and team.
In the next question, participants are asked to identify the service or product
provided by the new venture. Battery startups take many forms. A scientist entering
into an I-Corps cohort can build a company that manufactures a new battery
material (anode, cathode, membranes) or component (sensor, packaging, power
electronics), or recycles and repurposes used battery materials, or provides research
and development assistance and consulting to other companies, such as manufac-
turing support, third-party validation of new battery technologies, or, as we have
done with Influit Energy, introduces an entirely new type of battery to the market.
For new ventures providing improvements in battery materials or components,
the customers are battery manufacturing companies. Customers for new ventures
providing cells and packs will be system integrators, equipment manufacturers, and
end users. In contrast, service and intellectual property (IP) providers are likely to
work with other battery and materials companies. In all cases, the first step for a
battery entrepreneur is to identify and contact specific customers, see where their
needs and interests lie, to solve their challenges. Only when customers have been
identified and understood can a business model begin to take form.1
Startup acceleration programs help understand the basics of identifying markets
to build a successful business. We have found that the generalized approach to
1 To get a better understanding of the battery industry, a recent report by the Shmuel De-Leon
Energy, LTD maps out leading Li-ion battery manufacturers, including:
● 106 manufacturers of raw materials

● 89 manufacturers of anodes
● 128 manufacturers of cathodes
● 68 manufacturers of electrolyte materials
● 77 manufacturers of separator materials
● 36 manufacturers of binder materials
● 21 manufacturers of electrode additives
● 38 manufacturers of electrolyte additives
● 21 manufacturers of electrolyte solvents
● 15 manufacturers of current collectors
● 47 manufacturers of cans, caps and other assembly hardware
● 6 manufacturers of insulator materials.
This list doesn’t include startups and early stage companies who are working towards bring-
ing their products to the market. Battery manufacturing is geographically concentrated in China
(62%), US (22%) and South Korea (13%), with future battery “gigafactories” announced all over
the world.
commercialization is not necessarily applicable to the energy storage space. It

sometimes brings aspiring battery entrepreneurs to a dead end, albeit successfully
executed by hundreds of information technology and service startups.
A startup acceleration program’s traditional premise is to understand the cus-
tomers, identify their pain points, and pursue the fastest path of technology to
market as a minimum-viable product, or “MVP”. The MVP provides a product or
service with only its essential features to allow the company to gain feedback from
potential customers. Once the product has been validated, and the market path is
clear, entrepreneurs will usually develop a “pitch deck” to explain their business
and product and venture capital (VC) investors alike.
That is how it should work.
The reality of the battery space is that it takes a long time and many resources to
convert a working laboratory cell into a market-ready prototype, even as an MVP.
A typical battery technology firm requires considerably more capital than would
traditionally be needed to build a new software platform or applet. Small invest-
ments of only a few thousand or even a hundred thousand dollars may be enough
to jumpstart an ambitious, college-student entrepreneur working on launching a
new mobile app. However, several million dollars in VC are often required to bring
a battery startup to MVP, with additional hundreds of millions needed to build a
manufacturing capability.
It is highly unlikely that a universal battery system will address all possible needs
for all industries. This leads to a variety of different battery technologies, each servic-
ing few market niches. The latter makes the battery space extremely aggressive and
competitive and requires each technology to have an exceptional product-market fit.
Understanding the strengths and weaknesses of the technology will guide the cus-
tomer’s choice to target, determine the first product to market, and make strategic
launch points.
Identifying the right customer and market is critical. The energy needs of portable
electronic devices are different from electric vehicles (EVs), stationary storage, air-
craft, and equipment for extreme environments. The general rule is to start with
the smallest commercially feasible battery format for the prototype, reducing the
need for initial capital while boosting the value of your company through prototype
demonstration.
Battery technologies are often hard to compare. They have multiple performance
metrics to consider, including energy and power density, cell voltages, discharge effi-
ciency, cycle life, cost, charge and discharge rates, operating temperatures, tolerance
to thermal runaway, safety considerations, etc. A useful visual tool for evaluating bat-
tery technology strengths is a spider (or radar) chart (Figure 5.1). The performance
goals and actual battery metrics can be presented on the same graph with as many
axes as needed.
Specific
energy
Shelf life Specific

power
Market needs
Battery 1
Thermal Battery 2
stability Cycle life
Battery 3
Cost per Cost per

kWh cycle
Figure 5.1 Example of using spider/radar charts for evaluation and comparison of
different battery technologies.
5.3 Energy Storage Markets
Electric cars were not introduced to the commercial market just in the last few years.
The first electric car was built over a century ago.
The first electrochemical energy storage markets began developing in the
late nineteenth century, a product of the invention of the dynamo machine for
conversion of mechanical energy to electricity and electric light. Large-scale
production of rechargeable (secondary) lead-acid batteries began in 1880, with the
first commercial electric carriage produced in 1884.
After enjoying success at the beginning of the twentieth century, the electric car
began to lose its position in the automobile market to gasoline-powered vehicles.
EVs were slower (maximum speeds of no more than 15–20 miles an hour) and had
a shorter range (30–40 miles a charge) than vehicles with an internal combustion
engine while providing no added value.
In the late twentieth century, batteries and capacitors improved significantly, and
the development of rechargeable battery technologies enabled the portable elec-
tronics revolution. In less than 50 years, the lithium-ion (Li-ion) and nickel-metal
hydride (Ni-MH) battery technologies have taken over the electronics industry. Now
energy storage is a critical component of the service industry, portable electronics,
medical devices, and the manufacturing industry, and it enables the future of the
renewable energy industry. Without Li-ion batteries, smartphones, tablets, and

laptop computers essential to modern life would never have been possible.
The increase in the capacity and sophistication of batteries will continue acceler-
ating in the coming years, with energy density, cost, and safety being the three major
factors affecting the adoption of new battery technologies.
Energy storage capabilities are expected to see a massive leap forward over the next
25 years, setting the industry on a trajectory of rapid growth and many opportuni-
ties. The Bloomberg 2018 New Energy Outlook report projects that between 2018
and 2050, a 13-fold increase in the global battery storage capacity from ∼100 GWh
to 1290 GWh. A breakdown of market size and specific market requirements are dis-
cussed below and summarized in Figure 5.2.
5.3.1 Portable Electronics, Drones, and Medical Devices

Increasingly popular portable electronic devices (smartphones, tablets, laptop
computers, media, wireless devices, wearable accessories, drones, small appliances,
hearing aids, fitness bands, and diagnostic monitoring patches) have become crucial
in influencing the growth of the portable battery market.
The evolution of portable battery technologies is directly coupled to consumer
electronics miniaturization such as tablets, laptops, and mobile phones. Hence, the
more energy you can store in a battery, the smaller and lighter you can make the
appliance that carries the battery. Technologies that would significantly improve the
gravimetric and volumetric energy density, safety, charging rate, and costs compared
to the current market leader – Li-ion batteries – will have an advantage in this space.
Portable Li-ion batteries are also being developed as detachable packs, which can
be used in cars, motorcycles, and robots. The portable battery markets are projected
to grow at a compound annual growth rate (CAGR) of 17%, reaching $18 billion by
2023.
5.3.2 Grid Energy Storage and Renewable Energy

The interest in grid-level energy storage is growing among world utilities as they
could dramatically alter how electricity is delivered. From impoverished villages in
developing nations to brownout-prone big cities, the global market, the grid storage
market is now estimated to be more than $20 billion.
One of the major challenges of using renewable energy sources like wind or solar is
the overproduction when the sun is shining, and the wind is blowing. Solar and wind
power is produced mostly during the day, then drops off at night when people use
the most power. Grid-scale batteries can help smooth out those peaks and valleys in
energy demand and protect against blackouts, brownouts, and surges, but high cost
limits a broader adoption. That is beginning to change.
Since the beginning of the decade, energy storage has been considered “the next
big thing” to revolutionize how the grid operates. Adoption of energy storage by
utilities was initially slow, with only several government-sponsored demonstration
projects. Once electric utilities and end customers have become more familiar
Potable Light Utility
Batteries Vehicles
• TAM $18 billion TAM $6.2 billion
by 2023 by 2024
CAGR 17% CAGR of 9%
Stationary Batteries for

Battery Passenger EVs
Storage • TAM $94 billion
• TAM $35 billion by 2026
by 2030 CAGR of 19%
CAGR 17% Battery Energy
Storage
Residential Heavy and
Battery Storage $620 billion Medium Duty
• TAM $750 million by 2040 Utility Vehicles
by 2023 • TAM $30 billion
CAGR 17% by 2026
CAGR of 20%
Industrial Electric Aircraft

Battery Storage
• TAM $122 million
• TAM $11 billion by 2023
by 2021 CAGR 4.5%
CAGR 6.5%
Figure 5.2 Summary of battery energy storage market projections for total addressable market (TAM) and compound annual growth rate (CAGR).
with the technology, the price of batteries has dropped sufficiently. The increase in
interest from various market participants, such as residential homeowners, large
electric utilities, and commercial players, has grown exponentially.
Many electric utilities add battery storage to their resource mix, combining it with
renewable energy rather than building new and costly natural gas peaking power
plants. Recently, experts project that energy storage costs are likely to drop from
about 14 cents per kWh in 2015 to about two cents by 2020.
The three major trends are changing the market for renewable energy and battery
storage:
1. Cost reduction in solar panels and batteries;
2. Regulations directing utility companies toward a cleaner renewable grid;
3. Customer demand driven by climate change concerns.
Stationary storage batteries require low cost, increased safety, a long life cycle, and
a fast cycling rate. The specific energy density of their cells is less important since
space is usually not an issue for these applications. Currently deployed stationary
energy storage systems use Li-ion, sodium–sulfur, advanced lead-acid, hybrid, and
flow batteries.
In 2012–2013, there were 0.34 gigawatts (GW) energy storage installed worldwide.
In 2017, the annual installation size increased to 6 GW and was projected to be
over 40 GW by 2022. A different market report projects that the battery market for
stationary/grid storage will grow at 17% CAGR reaching $35 billion by 2030.
5.3.3 Industrial Batteries and Back-up Power

High-tech manufacturing, data centers, and essential service industries, such as
telecommunication companies, rely on large batteries for back-up power and
a continuous power source of constant frequency critical for operations. The
increasing demand for back-up power, growth in the renewable energy sector, and
increased cycling efficiency of lead-acid and Li-ion industrial batteries are some
key factors expected to drive the growth of the industrial battery market (lead-acid,
nickel-based, Li-ion), which is projected to reach $10.84 billion by 2021, growing at
a CAGR of 6.5%.
Telecom and data communication was the largest segment of the industrial battery
market in 2015 and is projected to be the fastest-growing segment from 2016 to 2021.
While lead-acid batteries were the largest segment of this market segment in 2015,
Li-ion batteries are expected to be the fastest-growing market segment during the
forecast period. As for industrial applications, their increased life, cyclability, smaller
volume, weight, and low maintenance are more crucial than the battery’s initial cost.
5.3.4 Home Energy Storage

Home energy storage is expected to become increasingly common given the
growing importance of distributed generation of renewable energy (especially
photovoltaics) and the important share of energy consumption in buildings. Energy
storage is needed to exceed the power delivery of 40% in a household equipped with
photovoltaics. Multiple manufacturers produce rechargeable battery systems for
storing energy, generally to hold surplus energy from home solar/wind generation.
Today, Li-ion batteries prefer home energy storage over lead-acid batteries, given
their rapidly dropping costs, better performance, cycle life, and smaller footprint.
With the increased interest in off-grid self-reliance, annual residential deploy-
ments in the United States are expected to accelerate rapidly over the next few
years, growing from an estimated 156 MWh in 2018 to more than 3000 MWh in
2023, which at the cost of $250 per kWh represents an estimated $750 million US
market. This market segment also has broad implications for rural electrification
worldwide.
5.3.5 Electric Vehicles

5.3.5.1 Passenger Cars
At the end of 2016, there were about two million EVs worldwide, double the number
in 2015. Recent developments in the EV industry are driven by two factors: progress
in battery manufacturing and pollution-related regulations implemented by govern-
ments worldwide, accelerated by the 2016 Paris Agreement.
Global action to combat climate change coupled with increased pollution levels
in major cities has created significant demand for electric vehicles and has driven
the growth of the EV battery market globally. Encouraged by government incentives
and growing worldwide consumer demand for zero-emission vehicles, almost every
major automaker is currently working on the launch of EV models, in addition to
dozens of electric car startups.
Large automobile companies tend to focus on the in-house production of advanced
EV battery systems, driven by reducing costs. The global EV battery market was val-
ued at $23 million in 2017 and is projected to reach $84 billion by 2025, growing at a
17% annual rate from 2018 to 2025.
Bloomberg Energy Finance forecasts that by 2025 EVs will be as cheap to buy and
run as gasoline vehicles and that by 2040 their numbers will increase to 530 million
(or 54% of new car sales, a third of the total vehicles on the road). The growth of
the EV battery market is driven by the rise in demand for zero-emission vehicles, a
decrease in the cost of the EV battery system, and an increase in global awareness
regarding climate change.
5.3.5.2 Light Electric Utility Vehicles

Light electric utility vehicles (LEV, such as forklifts, golf carts, people movers,
etc.), an often overlooked market, is larger than all other electromobility sectors
combined, has fewer decision makers, and relies on lower performance lead-acid
batteries. Global LEV sales have generated $9.3 billion in revenue in 2017 and are
expected to more than double to a $23.9 billion market by 2026. This segment’s
battery market is projected to grow to $6.3 billion by 2023, at an annual rate of 9%.
More than half of all light utility vehicles currently sold are electric because pur-
chases are being driven by air quality regulations and simpler maintenance sched-
ules than their propane-powered peers.
In addition to traditional light utility vehicles, new types of light EVs are emerging
to address urban congestion, poor air quality, and lack of mobility options. Electric
bikes (e-bikes), electric motorcycles (e-motorcycles), electric scooters (e-scooters),
and neighborhood EVs are now becoming ubiquitous in major American cities. In
contrast to private cars, LEVs occupy much less physical space, contributing less
to traffic congestion and providing more flexibility in where they can travel and
be parked. Additionally, these vehicles are generally more affordable than full-sized
vehicles.
5.3.5.3 Heavy-duty Utility Vehicles, Trucks, and Buses

The market for electric trucks and buses commonly used in logistic services and
municipal settings is still young. However, rapid developments in the industry and
increasing market interest set a strong foundation for truck electrification to become
the new norm. Electric trucks are a highly preferred alternative to fuel-based com-
mercial vehicles. They are more cost-effective (4–8 times smaller annual mainte-
nance fees) and less polluting.
With support and pressure from governments worldwide, manufacturers are mak-
ing major efforts to bring commercially viable electric trucks to market. Fleet man-
agers have shown interest in the benefits of electrified trucks because of the potential
for lower operational costs and noise reduction benefits.
There are challenges to the electrification of this market, particularly the
heavy-duty truck market. The current battery capacity for heavy-duty trucks falls
short of the requirements for long-haul trucking applications, which prevents the
use of electric trucks outside of fixed regional routes.
Nonetheless, the global electric truck market is expected to grow at a steady pace
of 20% annually from 2018 to 2026, with battery market size reaching $30 billion in
2026.
5.3.6 Other Nascent Energy Storage Markets
5.3.7 Airplanes
Electrification of planes is in a nascent stage, but the industry is extremely bullish
on this market’s future. From the urban air taxi vision of the Uber Elevate project to
the National Aeronautics and Space Administration’s (NASA) X-57 electric demon-
stration airplane, Zunum Aero, other aviation startups, and major aircraft manufac-
turers like Airbus and Boeing, all are looking for battery technology for air transport
electrification.
Thus far, aerospace is the most demanding energy storage market. Li-ion batteries
do not have sufficient energy density to meet the industry’s projected transportation
needs, as well as the well-known and documented Li-ion issues of thermal runaway
and fires. You do not have an option of pulling over to the side of the road at 40 000
feet in the air in the event of battery self-ignition. Along with requiring entirely new
“electric” plane designs to meet future market demands, the industry also requires
the support and development of a new generation of batteries, which address their
industry’s specific needs.
All-solid-state batteries with metal anodes are the next best candidates for electric
aviation at the moment. However, for all-electric long haul planes, the pack level
energy density needs to be close to 700 Wh/kg, an ambitious goal at the moment.
Priorities for aviation batteries are the gravimetric energy density, safety, charge
time, cycle life, and the cost, in decreasing importance. Nonetheless, the battery and
electric motor markets for aircraft are expected to grow at 4% annually, reaching
$121.8 million by 2023.
5.3.8 Ships and Boats

Increasing investments by shipbuilders in hybrid and electric boats, coupled with
technological advancements in battery technology, drives the hybrid and electric
boat market globally. Electric boats are currently limited to the United States and
Europe, and the sales in these regions are also very low.
The number of players in the market is currently less than 100, although it is
expected to grow. The market for electric boats and ships is expected to register 13%
between 2018 and 2023. Although electric boats offer many advantages over con-
ventional boats and ships, the market for electric boats and ships is not expected to
take off in the near future as the shortcomings of these products far outnumber the
advantages they offer.
Range anxiety is one of the significant restraining factors hampering the growth
of the market. The energy density of batteries is very low compared to conventional
fuels, and hence, battery-powered boats cannot be used for traversing large dis-
tances. Besides range anxiety, the weight of the batteries also imposes limitations
on the load that can be carried by the boats, making pure electric boats viable only
for short distances and lighter loads.
The market for hybrid boats is expected to grow faster as they ensure high fuel
economy and low operational costs. Hybrid electric boats offer many advantages,
such as energy storage, longer range, increased fuel efficiency, and reduced oper-
ational costs. Stringent regulations on the maritime transportation sector, coupled
with lighter and more powerful batteries, are expected to encourage the shipping
industry to develop these products.
5.4 Battery Startup Case Studies

Startups that promise world-changing energy storage innovation have struggled. Of
36 representative battery startups receiving more than the US $500 000 in invest-
ment between 1995–2015, only two have returned their capital to investors. Stories
of initial company success – raising capital, recognition from the industry, advancing
technology, building and selling real products, often fade and fail.
Success for a startup is generally defined as an exit event, a merger or an acqui-

sition, or returning capital to the initial investors. Not all the companies discussed
below have reached their exit yet. Commenting on their success is subjective but a
worthwhile endeavor to better understand the energy storage space and the obsta-
cles. A closer look at their stories, presented below, will help illuminate the good vs.
bad strategies and decisions and access the battery space’s general dynamics.
5.4.1 Boston Power

Boston Power manufactures and markets Li-ion batteries for transportation, utility
energy storage, portable power, and government market applications in the United
States and internationally.
This is perhaps the biggest and the most successful energy storage startup in recent
years. Founded in 2005 in Westborough, MA, Boston Power raised $8 million in
Series A funding in 2006 to develop the next-generation Li-ion battery. Boston Power
has raised over $370 million in funding and fully moved its operations to China.
Boston Power’s sources of capital are instructive. They were denied a $100 million
grant applied for under the American Recovery and Reinvestment Act to build a
US factory. However, shortly after, in 2011, the Chinese government and investors
stepped in and offered a combined investment package of $125 million of VC,
low-interest loans, and grants.
The connection to China was previously established and predated its 2011 invest-
ment. Boston Power’s prototypes were manufactured there, in small batches in
existing production facilities because a United States effort would have cost the com-
pany $1 million per batch, compared to $5000 per batch in China. During this period,
Dr. Christina Lampe-Onnerud, the founder of Boston Power, was a hands-on man-
ufacturing manager and put in her own time at the Chinese factory. Since then,
she continues to stress the importance for researchers to be close to manufacturing:
“The fact that you can do it with PhDs in a lab is great, but unless you can transfer
that fairly effortlessly to production, you run out of cash. You cannot fly in and out
of the factory. You have to live at the factory, have to learn to speak factory, you have
to see what they need help with, and you have to learn to anticipate some of the
issues on the line because production is so expensive.”
The founders stepped down from the company management in 2012 and now are
building a new battery company, Cadenza Innovation, which is discussed below.
Key Takeaways
Boston Power’s philosophy was to follow the markets as the first priority, fol-
lowed by ensuring local governments were supportive of their venture, and
finally the availability of money.
A second insight shared by Boston Power is that to succeed in a market with

established battery manufacturers such as Sony, Sanyo, Panasonic, LG, and Sam-
sung, a startup needs very large partners. To those ends, Boston Power has part-
nered with huge Chinese automotive companies (Shenzhen GreenWheel EV), HP,
and ASUS and established a technology center in Beijing and two manufacturing
operations in Asia.
The third take-away is the importance of seamlessly transferring laboratory
innovation to manufacturing lines, as errors at this stage cost companies much
money.
5.4.2 A123 Systems

A spin-out from a Massachusetts Institute of Technology research lab, A123, was
founded in 2001 to commercialize nanoscale lithium iron phosphate technology.
The company got started with $5 million in Series A investment in 2002 and man-
ufactured its first cylindrical cells in 2004 and their first pouch cells in 2007. A123
raised $132 million in additional venture investment, which came in four rounds of
follow-up investments between 2005 and 2007.
In 2006, the company also received $15 million in development contracts,
followed by a $12.5 million grant in 2008 from the Advanced Battery Consortium
(USABC) and the US Department of Energy (DOE), optimizing A123 Systems’
battery technology for hybrid EV applications. In 2008, A123 Systems began
securing commercial supply agreements with BAE Systems for hybrid-electric
buses, General Electric for Think, and Chrysler Corp. for their ENVI (Environment
and New Vehicles) EV vehicles.
In August 2009, the company received a $249 million grant from the US DOE’s
Advanced Technology Vehicles Manufacturing Loan Program to build production
facilities in Romulus and Livonia, Michigan, along with $125 million tax credits
and incentives from the Michigan Economic Development Corporation. The State
of Michigan granted A123 another $10 million grant.
In September 2009, the company raised an additional $380 million in an initial
public offering (IPO). It formed a joint venture with Shanghai Automotive Indus-
try Corporation (SAIC), the largest automaker in China, called Advanced Traction
Battery Systems (ATBS).
The following year, the company opened the largest Li-ion battery manufactur-
ing facility in North America, capable of meeting the production demand of 30 000
electric cars per year – with the expectations that EV markets were poised to expand
exponentially.
Those expectations, however, would soon meet a far less rosy reality. A decade
later, electric vehicles still struggle to achieve wide-scale adoption. High prices and
lack of supporting infrastructure forced Chrysler to end their ENVI program in 2009
after just two years in operation.
In 2010 A123 also entered into a contract with Fisker Automotive to supply bat-
teries for the Fisker Karma, a plug-in electric luxury sedan. As part of the deal, A123
Systems invested $13 million in cash and $10 million in Fisker stock. However, by
2011, Fisker had recalled 239 Karmas because of a faulty electric battery compo-
nent – internal cooling system hose clamps were misaligned and positioned in a
way that could potentially cause a coolant leak, leading to an electrical short and
fire. The recall cost A123 about $55 million.
Hedging through portfolio diversification, A123 entered into the electric grid
market through AES Corporation, providing batteries for various stationary energy
storage projects in Southern California (2008), the Atacama Desert in Chile (2009),
Johnson City, New York (2010), and Laurel Mountain Wind Farm in West Virginia
(2011). However, the demand never matched A123’s ambitions and manufacturing
capabilities.
Despite the significant success of its technology and over $1 billion of funding
raised, A123 Systems filed for Chapter 11 bankruptcy in October 2012. In January
2013, the company was acquired by Chinese automotive components manufacturer
Wanxiang Group for $256.6 million in a bankruptcy auction. Because of the objec-
tions of some US politicians concerned about the transfer of federally supported
intellectual capital, the government-specific arm was sold to Navitas Systems for
$2.25 million.
Key Takeaways
Analysis of A123 Systems’ failure points to several factors. Despite having signed
dozens of production contracts and supply agreements, A123 relied heavily on
just one customer, Fisker, for a large part of its revenue. Fisker initially delayed
the Karma production to market, then rushed A123 Systems to scale-up, which
resulted in defective battery packs, leading to a massive recall and replacement
program. Even though it appears the safety issue was addressed early, the recall
did not bode well for Fisker or A123 Systems. Additional negative attention and
criticism were levied because both companies had received substantial support
from the federal government.
A123 Systems’ problems reflect the challenges facing many startups in the
highly competitive energy markets. It expensive to scale-up and commercialize
new technologies and manufacture energy-related products. To become prof-
itable, A123 Systems said it needed to quickly get to the volumes that took
advantage of economies of scale and spent well over $300 million on equipment
and other capital expenses alone over the last three years before bankruptcy in
anticipation of market take-off. Despite all the contracts with original equip-
ment manufacturers, the slow roll-out of electric vehicles and cash limitations
led A123 Systems into Chapter 11.
Like other battery makers, A123 Systems struggled with low-profit margins.
It could not charge enough for its batteries, a situation that was not helped by
an oversupply of manufacturing capacity. As a result, it was estimated that A123

spend $1.57 for every $1 in revenue it got from sales to Fisker.
Currently, the situation has changed, with the energy storage market finally
picking up. A123 Systems has risen from the ashes and today is one of the Li-ion
battery space leaders.
5.4.3 Aquion Energy

Founded in 2008, Aquion Energy is a spin-out from Carnegie Mellon University. The
company’s innovation improved on 200-year-old sodium-ion saltwater battery tech-
nology. Aquion Energy’s patented Aqueous Hybrid Ion (AHITM ) chemistry provides
a relatively inexpensive grid battery that promised to provide simpler and lower-cost
integration of wind and solar renewable power generation for multi-hour applica-
tions.
According to the company, its batteries deliver a round-trip efficiency of 85% and
perform over 5000 cycles. The company’s cost target was $250 per kWh, to get to
$160 per kWh.
Aquion Energy’s technology drew significant early attention, with $7.5 million in
Series A funding. By 2008, Aquion raised a total of $190 million in VC and loans.
Aquion Energy began low volume production in the summer of 2011 and, after an
additional $30 million investment round, broke ground on a full-scale manufactur-
ing facility in Pennsylvania.
Several years after its launch, Aquion Energy appeared to be on a sustainable track.
Aquion began shipping battery packs commercially in mid-2014 and captured many
industry awards, including Massachusetts Institute of Technology’s (MIT) Top 100
Smartest Companies (2015, 2016), the EES Award for Energy Storage (2015), Platts
Energy – Rising Star Award (2016), and Global Cleantech North American Company
of the Year (2017).
Aquion Energy was steadily growing its revenue, reached agreements with small
grid operators, and its batteries worked as promised. Although it was furthest along
among the emerging storage technology cohort, with proven technological capabili-
ties, in a shock to industry observers, the firm filed for bankruptcy in March of 2017.
A rapid drop in Li-ion prices (over 50% in three years) below $300 per kWh made
it impossible for Aquion Energy to raise additional capital needed to continue oper-
ating and scaling up. Before filing for bankruptcy, Aquion’s management team had
spent several months restructuring and eliminating debt, then searched for multi-
national companies that might acquire them.
Only after Aquion Energy emerged from Chapter 11 was it acquired by
Chinese-American joint venture Juline-Titans for a $9.2 million paltry. Aquion has
continued operating as an independent entity, with research and development
remaining in the United States while manufacturing moved to China. With its
acquisition and restructuring, the technology has steady financial backing and
an entrée to large customers, which can bend cost curves faster than Li-ion price
reductions in the years ahead.
Key Takeaways
Both Aquion Energy and A123 Systems were acquired after bankruptcy by Chi-
nese manufacturers. Chinese companies are willing to provide the significant
growth capital necessary to bring new battery technologies successfully to mar-
ket, unlike in the United States, where initial enthusiasm and funding seems to
fade when faced with the requirements of such a capital intensive industry. This
raises concerns about the long-term industry leadership of the United States.
5.4.4 Tesla
With more than 45 000 employees and four announced “gigafactories,” Tesla Motors
is no longer a startup, but at some point, it was. Tesla was founded in 2003, and its pri-
mary goal was to commercialize electric vehicles, and battery manufacturing turned
out to be central to its greater portfolio. Vertical integration of the battery supply and
demand, building in partnership with world battery technology leader Panasonic
and improving well-established Li-ion battery chemistries have strongly positioned
Tesla in energy storage markets. While their auto business still dominates the rev-
enue, by adding powerwall residential energy storage, solar panels, and worldwide
stationary energy storage installation to their product line, Tesla has begun to scale
its energy storage business.
Tesla’s first round of venture financing provided $7.5 million in Series A funding in
2004, followed by $312 million of private investments over several successive rounds.
The company also received a $465 million low-interest loan from the US DOE in
2010, just before Tesla’s IPO (the loan was repaid in full in 2013).
Key Takeaways
Tesla’s success story was not from a breakthrough battery technology but a close
partnership with Panasonic by changing the chemistry of existing battery mate-
rials according to their cars’ precise needs. Tesla did not attempt to radically
change the chemistry or materials in Li-ion batteries from the beginning. Rather,
it made incremental engineering and manufacturing improvements. In 10 years,
the storage capacity increased by about 60%, while the cost of Tesla’s battery
packs has been cut approximately in half. With this strategy of perfecting the
basic battery manufacturing first, introducing new materials and processes into
the established manufacturing line in the future becomes significantly de-risked
for the company.
After an initial attempt to manufacture their battery packs in Thailand,
Tesla faced challenges with local workforce training, access to materials and
specialists, IP protection, costs, and long shipping delays. In 2013, they were
convinced to pivot to local US manufacturing, providing the ability to observe,
alter, and perfect designs in a more responsive process. This insight resonates
with the one from the Boston Power story. Instead of moving close to the
factory, Tesla moved the factory close to the talent and production automation.
5.4.5 Fluidic Energy

Fluidic Energy was founded in 2007 as a spin-out from Arizona State University
(ASU) for the commercialization of zinc-air rechargeable batteries for stationary
energy storage markets. Zinc-air batteries have been around since the 1920s and are
now found commonly in the form of non-rechargeable hearing aid batteries. The
company came up with an innovative way to make zinc-air batteries rechargeable
and retain the ultra-low-cost basis while also enabling extremely long cycle life. Flu-
idic Energy’s zinc-air battery technology was designed to store energy at a lower cost
while improving reliability, sustainability, and safety relative to lead-acid batteries
or diesel generators.
In 2009, ASU and Fluidic Energy jointly secured a $5.1 million grant from
ARPA-E. Two years later, Fluidic was granted a second ARPA-E project grant, this
time for $3.75 million, to focus on aspects of making the batteries grid-capable.
In 2011, the company raised $33.4 million of private capital. In 2013, the firm
closed another $34.5 million round of private investment, then added another
$7 million investment from the International Finance Corporation. Most recently,
the company raised an additional $20 million from the Asia Climate Partners.
Fluidic Energy is focused on introducing their product to stationary energy storage
markets, including rural electrification, critical backup power, load-shifting appli-
cations with demonstration projects installed throughout the United States, Latin
America, Asia, and Africa.
In 2018, Fluidic Energy was acquired by NantEnergy, based in Scottsdale, Arizona.
Key Takeaways
Fluidic’s story of growth is instructive. The company initially used government

funding to de-risk the technology and resolve major challenges. Once that
was accomplished, the key to commercialization success rested in identifying
those niche markets that fit the technology strengths. The longer time between
recharges, lower cost, and a lack of the toxicity associated with diesel gener-
ators and lead. Access to capital and strategic partnerships with Caterpillar
Inc. and PT Perusahaan Listrik Negara (PLN), Indonesia’s state-owned electric
company, also strengthened its commercialization positions.
5.4.6 Envia Systems

Envia Systems, founded in 2007, was thought to be one of the first success stories
of ARPA-E funding. Envia’s innovation involved combining experimental high
energy density, nanoscale-coated lithium nickel manganese cobalt cathodes, and
silicon-carbon nanocomposite anodes. The technologies had proven promising in
the lab. Envia seemed to have figured out how to make both these experimental
materials work.
In 2012, after five years of research and development efforts, $27.4 million of ven-
ture investments and $5 million in grants from ARPA-E and the California Energy
Commission, Envia announced a 400 Wh/kg battery cell that could store twice as
much energy as a conventional one at half the cost. The Envia battery cell would
enable electric vehicles to travel 300 miles on one charge for $20 000.
Shortly after that, General Motors (GM) signed a $17 million deal with Envia Sys-
tems for the rights to use the resulting batteries. While, in principle combining,
the two materials could deliver 400 Wh/kg cells, GM engineers could not reproduce
Envia’s results and pulled out of the deal a year later.
By 2013, Envia Systems had become embroiled in a bitter and revealing set of law-
suits, one filed by a startup called NanoeXa related to the cathode material, which
is lost, and another filed by former Envia management, which was later dropped.
Eventually, it was established that the record-setting Envia battery cell presented at
the ARPA-E summit in 2012 worked because of a contaminant in a batch of material
from one of its suppliers. In another version of the story laid out in court filings, the
demonstration battery achieved its milestone using anode technology that had been
confidentially purchased from a Japanese chemical company Shin-Etsu.
Key Takeaways
The take-away from Envia’s story is that the implementation of new technology
always takes much longer than anticipated. Any new type of battery will require
extensive testing for technology and materials to be fully understood. By com-
bining two experimental materials into the new cell, Envia doubled the risks.
Poor understanding of the basic chemistry and physics of experimental cathode
and anode materials was not enough to precisely determine what was going
wrong, let alone fix it.
5.4.7 Alevo
Alevo USA, a Swiss-based Alevo International Group subsidiary was incorporated
in 2009 to manufacture industrial-scale storage Li-ion batteries and intelligent grid
data analytics for grid-scale battery projects. Alevo (the name comes from the first
and last names of eighteenth century electricity pioneer Alessandro Volta) intended
to build a vertically integrated manufacturing and deployment organization to work
with the world’s largest energy companies.
Alevo’s battery technology was based on a non-flammable, non-combustible
sulfur-based inorganic Li-ion electrolyte chemistry. This approach has demon-
strated up to 10 times the cycle life of competing technologies (50 000 cycles) while
retaining the battery’s power capacity.
Alevo’s key product was a shipping container-sized “GridBank”, with 2-megawatt/
1-megawatt-hour battery, able to power 1300 homes for an hour or more during peak
demand periods, outages, or when renewable sources are not available.
Alevo raised more than $1 billion investment, mostly from overseas investors, to
build a Charlotte, North Carolina factory, employing more than 2500 people produc-
ing 16 000 GridBank units a year by 2020. In mid-2016, Russian billionaire Dmitry
Rybolovlev invested $126 million into the company, purchasing shares at different
times through various entities. Shortly after that, it forced the company to change its
senior management team, pushing the founder out.
The new management team deployed aggressive sales tactics selling all future fac-
tory production for 2017. However, securing the sales of the future systems proved
easier than actually manufacturing the systems. Each GridBank was designed to
house 14 000 cylindrical battery cells, but the parts would not fit on the manufac-
turing floor, and the pieces did not align. Alevo frequently miscommunicated with
their vendors and contractors, and production of the GridBanks began to sputter.
Alevo shipped only one GridBank unit in 2017.
Unable to overcome the production challenges, Alevo struggled to maintain suf-
ficient revenue. By the end of 2017, Alevo was forced into Chapter 11 bankruptcy,
owing to its creditors $127 million and only having $92.5 million in assets per court
filings.
The manufacturing assets were bought up by a battery development consortium
called Imperium3 in New York, which paid $5 million for equipment whose value
would be worth more than $200 million.
Presently Alevo’s founders and former executives have launched a new company
Innolith, registered in Switzerland. Innolith focuses on research and development
rather than battery manufacturing. Hoping to avoid previous mistakes, Innolith
will look to license its battery technology to third-party manufacturers. Innolith
acquired Alevo’s remaining laboratory facility, its staff, and Alevo’s only operational
GridBank battery system.
Key Takeaways
Per its former management’s assessment, Alevo ran into financial trouble after
overbetting manufacturing capacity, leasing a huge factory space that was only
3% utilized before securing reliable manufacturing procedures and a pipeline of
projects. The cost of the plant upended Alevo’s finances and brought down the
parent company in Switzerland. Alevo’s story is somewhat similar to A123 pro-
duction overcapacity. However, they were not dependent on the partnerships
but failed to deliver the technology due to resources and the process of mis-
management. The manufacturing details should have been figured out before
scale-up spending and sales commitments.
Alevo’s story also highlights the role of the investors in the success of a com-
pany. Was the major management change in 2016, forced by an investor, what
derailed the company’s trajectory? Was the collapse the result of miscalculations
of the difficulty of manufacturing an untested product and competing globally
or, as some suggest, given the technology’s apparent promise and its owner’s
deep pockets, was Alevo’s downfall the result of shady deals transacted on the
international stage?
5.4.8 SiNode/Nanograf
SiNode Systems, founded in 2012, is a spin-out from Northwestern University. The
startup’s battery technology utilized a composite silicon and graphene anode mate-
rial in a layered structure, creating a higher cell level energy density and faster charg-
ing in Li-ion batteries. According to the company, SiNode’s products enhance Li-ion
battery energy and power density by up to 50%.
SiNode started by raising a small amount of seed funding by placing local and
national business plan competitions and securing Small Business Innovation
Research (SBIR) grants in 2013–2014, before being awarded more than $4 million
in grants from the DOE in 2015.
Using those mostly non-dilutive funds, SiNode secured pilot customers in the
niche consumer electronics markets. The company then launched multiple strategic
partnerships with top-tier materials companies, battery manufacturers, and device
manufacturers, allowing the company to accelerate its battery anode technology
commercialization.
In 2018 SiNode reached an agreement with Japanese JNC Chemicals, creating a
joint venture and rebranding itself as NanoGraf Inc. As part of the new deal with
JNC, NanoGraf will set up production facilities in Japan, positioning themselves for
accelerated growth. The new, ton-scale facility will deliver larger volumes of material
to a growing customer base for various applications, from consumer electronics to
electric vehicles. The strategic partnership with JNC Chemicals allowed NanoGraf
to expand its distribution channels and global footprint without a massive capital
raise.
Key Takeaways
The SiNode story outlines a very conservative fundraising strategy compared

to most other energy storage startups. They have utilized non-dilutive fund-
ing for the initial stages of technology development, specifically, business plan
competitions which further positioned them for securing government grants.
On the other hand, since the company’s innovative anode material is one of
the battery components, they have focused on building strong relationships with
battery manufacturers instead of producing their batteries. This opened the door
to new funding sources and supply chain partnerships, significantly reducing
SiNode’s technical and scale-up risk.
5.4.9 Sakti3
Sakhti3 spun out from the University of Michigan in 2007, developing a scalable
all-solid-state battery, using thin-film deposition guided by numerical simulations
and optimization.
The company raised $2 million Series A investment in 2009, followed by
$11.2 million in their Series B round the next year, an additional $14 million in 2012,
and another $20 million in 2015. Along the way, Sakti3’s team picked up multiple
industry awards: MIT Technology Review’s Top 50 Most Disruptive Companies in
2012, named by Crain’s Detroit Business as one of the Most Innovative Companies
in 2014, honored again by MIT Technology Review as one of the 50 Smartest
Companies in 2015, and participated in the White House Demo Day hosted by
President Barack Obama.
Their go-to-market strategy was first to validate the technology on mobile devices
and portable, cordless electronics, then attempt to build a battery for the automotive
industry.
In 2014, Sakti3 claimed to achieve 1143 Wh/L in volumetric energy density with its
prototype solid-state lithium battery cells. If this is true, it will represent a massive
step forward from existing technology. An independent review of Sakti3’s battery
could not verify the claim, testing Sakti3’s prototype’s and finding only a capacity
of 2.4 mAh for 1 cm2 cell. Sakti3 has been very secretive regarding their company
and data. They have focused on growing their IP portfolio to 94 patents and patents
pending.
Dyson Ltd. acquired Sakti3 in 2015. Dyson paid an initial investment of $15 million
for an undisclosed stake. Later that year, Dyson paid an additional $90 million for the
rest of the company and promised to invest $1.4 billion in battery technology over the
coming years. Sakti3 is an essential and core part of that program.
Key Takeaways
Sakti3’s bet on huge technological improvement claims, the extensive IP protec-

tion, and secrecy seemingly paid off. Even though four years after the acquisition
by Dyson, the technology is yet to be implemented commercially. In 2017, the
company abandoned its early University of Michigan patent licenses, which also
coincided with the Sakti3’s founder, Dr. Ann Marie Sastry, leaving the company.
5.4.10 Cadenza Innovation

Cadenza Innovation was founded in 2012 by former CEO of Boston Power, Dr.
Christina Lampe-Onnerud. Cadenza introduced a more compact and less expensive
design for Li-ion battery packs. The Cadenza’s Li-ion battery pack improved
safeguards against possible fires with their proprietary non-combustible ceramic
fiber imbued with fire-retardant materials.
The team received a $4 million grant from ARPA-E in 2014, followed by a
$500 000 grant from the New York State Energy Research and Development Author-
ity (NYSERDA) in 2015. Cadenza raised an additional investment of $5 million in
2016 and $10.8 million in 2018. They have also received a $2 million phase II grant
from NYSERDA in 2018 for a 50 kW, 200 kWh behind-the-meter battery storage
system demonstration.
Unlike Boston Power’s focus on battery manufacturing, Cadenza’s business model
focuses on R&D and licensing their technology to other battery manufacturers,
specifically for use in electric vehicles and the power grid. Cadenza’s staff members
serve as hands-on advisors that work closely with their customers’ R&D and
manufacturing teams.
The company’s current focus is on building its partnerships with Fiat Chrysler,
ABB, and others.
Key Takeaways
Cadenza’s R&D and licensing business model does not require the company to
raise huge amounts of VC to build up a manufacturing and supply chain opera-
tion while providing a steady income in the form of royalties re-invest into the
R&D effort.
On the other hand, working with multiple industrial partners allows the com-
pany to demonstrate its innovations in different markets. The latter also enables
faster progress in designing and making Li-ion batteries for their customers.
5.4.11 24M Technologies

24M Technologies emerged in 2010 from MIT to commercialize semi-solid energy
storage systems for grid and transportation applications. The company’s co-founder,
MIT professor Yet-Ming Chiang, was also a founder of A123 Systems.
Funding for the company was steady and abundant. Out of the gate, 24M raised
$10 million in Series A funding, adding $6 million in grants from ARPA-E. After a
major technology pivot and focus on the cost and battery performance, the com-
pany raised around $35 million in Series B funding between 2013 and 2014 and
added around $25 million in Series C funding in 2017. In 2016, the company was
also awarded another $3.5 million grant from ARPA-E and a $7 million development
contract from the US Advanced Battery Consortium.
24M’s technology was initially envisioned as a flow battery, in which the active
particles are suspended in a liquid electrolyte (so-called “Cambridge crude”) to
refuel EV batteries. However, high viscosity in 24M’s formulations could not feasibly
support the pumping of the fuel. Thus the company pivoted to using dough-like,
semi-solid cathodes and anodes to make thicker, soft, and deformable electrodes.
This approach decreased the number of packaging materials, providing up to 25%
greater energy density and a 25% lower cost than conventional Li-ion batteries.
The company claimed they could reduce the time needed to make a battery by
80% and the cost by 30–50%. Their simplified process, which used electrolytes as
the processing solvent, eliminated capital- and energy-intensive steps like drying,
solvent recovery, calendaring, and electrolyte filling. 24M eliminated the need for a
significant amount of inactive material (copper, aluminum, and separator), resulting
in both a structural bill of materials advantage and a lower cost to manufacture. This
allowed the company to build the supply as demand for the product grew.
Traditional Li-ion plants require a capacity of hundreds of megawatt-hours and
a corresponding investment of hundreds of millions of dollars to be economically
viable. 24M estimated that it could achieve similar economies of scale in manufac-
turing with an 85 MWh facility costing $11.5 million. The company has leveraged its
semi-automated pilot facility to advance both cell design and production readiness
substantially.
In 2015, the company partnered with NEC Energy Solutions to supply 24M Li-ion
cells for testing in NEC ES integrated storage systems.
At the time of this writing, 24M remains sustainable and continues to receive ven-
ture investments. In 2018, the company raised a $22 million Series D to accelerate to
scale its manufacturing efforts globally.
Key Takeaways
Taking lessons learned from A123 production overcapacity mistakes, 24M

Technologies focused their manufacturing efforts on a simple, capital-efficient,
low-cost manufacturing process at small-scale manufacturing facilities.
24M’s story also demonstrates the importance of technology pivot for the best
and the most economical product-market fit.
5.5 Lessons Learned from the Case Studies
Commercializing a new energy storage technology is not for the faint-hearted or the
impatient. Often researchers spend a decade inventing a new hardware technology,
and a startup will spend another decade commercializing the invention and putting
it in the hands of consumers.
New energy storage technologies are notoriously labor- and money-intensive
to bring into the commercial market. Companies developing new types of battery
chemistries have faced difficult markets, major technical hurdles, and long sales
cycles. Let us look at some of the major reasons for battery startup failures.
5.5.1 Market Challenges

Battery markets are dynamic. Relying solely on forecasts when building a business
can set you up for failure. A123 expected rapid EV adoption rates as predicted by
forecasts, but the actual roll-out by manufacturers was a lot slower. Another example
is the dramatic drop in the price of Li-ion batteries. Most analysts did not expect
that prices would plummet so quickly, making the outlook for alternative battery
chemistries a lot more difficult.
The battery market is a low-margin commoditized industry, making competition
for smaller companies with limited capital a lot harder until economies of scale can
be reached.
For small companies to succeed, smaller, niche, high-margin “stepping stone”
markets must be found to establish their technology and credibility.
Batteries are components of more complex products. Therefore, price and reliabil-
ity are more important for customers than performance.
Price is king when it comes to the mainstream battery market. Low-cost Li-ion
batteries are spawning major growth in electric cars, batteries for buildings, and the
power grid. It is not so much about new or alternative applications anymore, but
rather a sheer cost per kWh. Alternative-chemistry battery makers have to be able to
achieve a lower price to compete with Li-ion batteries. There is no point in having
the best methodology, approach, or best technical solution if your price is too high.
5.5 Lessons Learned from the Case Studies 153
It does not help the alternative-chemistry battery makers that huge companies like
Samsung, LG Chem, and Panasonic have big balance sheets that allow them to sell
batteries for slim (or even negative) margins to gain larger market share.
Key Takeaways
To compete with Li-ion batteries, alternative-chemistry battery makers have to

be able to achieve a lower price.
5.5.2 Technical Challenges

Creating a new electrochemistry and an associated battery platform at a commercial
scale is extremely complex, time-consuming, and capital-intensive.
We often do not know what is happening in the battery. Batteries are multivariable
systems that do not behave as a simple sum of components.
Battery technology has long iteration cycles. Technical performance indicators,
such as cycle life, must be measured for months at a time to be considered meaning-
ful.
The quality of electrode materials, electrolytes, and other battery components
must be consistent for reliable performance.
Battery chemistry can be extremely sensitive to contaminants and impurities,
especially in large-scale production. This is one reason many battery breakthroughs
are accidental or unexplainable and why they fall flat when their inventors can-
not reproduce the same effects in a controlled way. Contamination is a massive
challenge and the biggest obstacle to battery innovation.
Miscommunication between customers and battery suppliers often arises due to
incomplete and conflicting technical criteria (material vs. cell vs. pack energy den-
sity, electrode loading, and cycle life).
Engineering and manufacturing expertise must be closely integrated. The key is
to combine research that illuminates details about the chemistry and physics of bat-
teries with the expertise that battery manufacturers have gained in making practical
products.
Underestimating the development timeline leads to companies struggling to get
technology into production on schedule, resulting in extra expenses before revenue,
disappointing investors, and lowering confidence in its technology. This makes it
hard to raise additional capital. Thus conservative development and investment
strategies are more likely to result in technology commercialization.
The vertically integrated manufacturing approach saves the trouble of convinc-
ing established developers to take a chance on new technology and control market
demand. It also forces the company to excel at two very different and challenging
roles simultaneously. Tesla Motors was able to pull this off likely due to the matu-
rity of Li-ion battery technology and strong partnership with Panasonic. In contrast,
Alevo demonstrated the opposite outcome of the vertical integration attempt.
Key Takeaways
In battery technology development engineering and manufacturing expertise

must be closely integrated.
Conservative technology development and investment strategies are more
likely to result in battery technology commercialization.
5.5.3 Financial Challenges

Investors push companies to focus on large-scale markets, which require larger
investments before the technology is validated.
Startups try to speed-up scientific progress through increased spending, often
resulting in investor disappointment, making it harder to raise follow-up funding.
In some instances, startups are crushed by so-called “toxic VCs,” interfering with
development strategies, or forced to raise too much VC for organic company growth.
This is known as the “foie gras effect”.
Some companies invested in a large manufacturing facility before technology
validation and customer orders, using up major capital, which ultimately leads to
bankruptcy due to manufacturing over-capacity. Timing fundraising according to
the development milestones helps to balance expenses with anticipated profits.
5.5.4 Team Challenges

Strategic partnerships are critical to the success of small businesses. Energy storage
has proven to be an industry where it is challenging for a startup company to “do it
alone,” however enticing a technology may be. Big players do much better at han-
dling the developmental uncertainty as there are so many things that can go wrong
in a battery.
The wrong investor can interfere with the course of company development, team
dynamics, and management structure. The team must carefully vet investors.
Suppliers must be carefully vetted on product quality, reliability, and scale-up
capacity. It is never a good idea to rely on a single supplier.
5.6 Strategies for Startups and Academic Inventors
Major progress in batteries is extremely hard to achieve. The history of battery star-
tups over the last decade has not been very inspiring. The importance of technol-
ogy maturation is often overlooked in commercialization attempts. It took nearly
20 years of intense worldwide research before Li-ion batteries became a mainstream
energy storage option.
Commercializing battery technology can be viewed as a series of engineering

challenges that need to be tackled one-by-one to an outsider. However, experienced
battery engineers know that changing one part of a battery – introducing a new elec-
trode or membrane, for example – can produce unforeseen problems, some of which
cannot be detected without years of testing. Transformational battery technologies
inherently involve multiple innovations, thereby multiplying commercialization
risks.
All these factors require battery startups to be careful and creative with their com-
mercialization strategies.
5.6.1 Funding Strategy

Funding is the key enabler for developing new technologies, but world funding
comes in several flavors and different types of strings attached to the startup. There
are several funding sources available for startups besides the founders’ capital:
loans, investor funding, grants, and business plan competitions. Understanding
the nuances of each funding category will help to identify an appropriate funding
strategy for your business.
Two questions need to be answered first: How long will it take to get to the product,
and what resources (how much) would it take to get there?
The case studies we have examined show that the average time span for a battery
startup to get to the market is between five and seven years. During this period, the
company needs to pay rent, bills, and salaries to employees. Strategic planning of
funding sources could make the journey much smoother.
Much of the modern tech industry relies on the traditional VC business model.
Startups raise money from investors and then use the cash to grow aggres-
sively – faster than the competition, faster than regulators, faster than most normal
businesses would consider sane. The end goal is to sell the company or go public,
producing astonishing returns for early investors.
At the very early stages of the company, the company’s value is rather small, thus
raising VC funding at early stages may result in quick dilution of the founders out
of the company. The value of the company grows as the company achieves technical
milestones and de-risks further investments. Thus dilutive investor capital should
be considered at the stage when a large injection of capital is necessary for the com-
pany’s organic growth.
Key Takeaways
In the early stages of company development, founders should consider many

non-dilutive capital sources possible.
Check with your local Small Business Administration office or Business Devel-
opment Center to see what free resources are available to your company.
Di l
uti
ve
Venture capital
investments
s
gie
te
tra
gs
Alternative revenue
din
streams: consulting,
un
R&D contracting, sales

pf
of other products
rtu
sta
No
ry
n-d
tte
SBIRs, federal, state, local grants
ilu
Ba
ti
ve
Business plan competitions
Non-monetary assistance: grant writing, mentoring,

business strategy, access to free software/resources
Figure 5.3 Funding sources for startups in the order of their abundance and accessibility.
In the early stages of company development, founders should consider

as many non-dilutive capital sources possible (Figure 5.3). State and local
government-sponsored non-profits offer free support to small businesses to plan
and write business plans, proposals, and access to other free resources. Some
large software companies offer support to innovative small businesses in cost-free
software licenses, so check with them before buying expensive software. Startup
incubators also could provide access to the high-cost software packages and
equipment for a reasonable monthly membership fee.
Business plan competitions, in which aspiring startups compete for prize funding
by presenting their business idea and strategy to judges, are also great opportuni-
ties for early-stage startups to get feedback on the business plan, and get exposure
to the right audience, even get quick funding for the company. Business plan com-
petitions are also smart to expand your network and acquire new talent, partners,
and clients. Although some business plan competitions take a minority stake in win-
ning companies in return for the prize money, there are plenty of local, national, and
international business plan competitions that offer non-dilutive prizes, ranging from
a couple of thousands to a million dollars. The downside to business plan competi-
tions is the time and resources put towards participation with highly unpredictable
outcomes.
Federal and state government grants are non-dilutive funding sources available for
small businesses through SBIR programs and other grant programs from the DOE,
Department of Defense, and ARPA-E.
Academic researchers generally are familiar with the grant proposal process and,
with some guidance, can become quite successful in this fundraising route. The
downside to this funding strategy is that it is highly competitive, and it has a long
processing time (between 6 and 9 months). Sometimes it takes several submissions
before the proposal is funded, which can be frustrating. However, if approached with
the proper perspective, it is an excellent addition to its funding strategy.
SBIR grant awards range from $125 000 to $225 000 for phase I projects and up to
$1.5 million for phase II. This is a significant amount of non-dilutive capital to grow
your company and de-risk the technology. Grant recipients are expected to submit
progress reports to the agency and comply with government accepted accounting
practices.
Early-stage startups could also consider alternative revenue streams, such as pro-
viding consulting services, R&D contracting, or a sale of battery materials instead
of a functional battery product. This could be a distraction from the development
of the main technology, but it is a way to bootstrap technology development in the
early stages. Furthermore, having an independent revenue stream, regardless of how
small or large, looks good for grant proposal applications and investors, as it shows
your seriousness and commitment to building your company.
Another way to support your company before VC rounds are through development
contracts with the government and industry. Often to de-risk the investment into
the novel technology, development contracts can be secured to demonstrate your
technology in your customer’s settings. This takes some networking and searches for
potentially interested parties. However, it is a great opportunity to scale-up and pilots
your technology, setting up a great precedent for future fundraising and technology
marketing.
Most entrepreneurship courses suggest considering angel investor funding for
early-stage startups. However, angel investments are not feasible for battery startups
due to the risk and amount of capital needed for success. In a typical angel deal,
investors are comfortable with offers of $50 000 to $500 000 investments in exchange
for 25–50% of the company’s stake – a completely unreasonable arrangement for
companies that will need tens of millions of dollars to build a functional prototype.
Of course, there are exceptions and “super-angels” out there, but it is advised to
exercise caution when considering this funding route as a battery startup.
VC can be dangerous and has to be taken at the proper time and amount, specifi-
cally when it is ready for rapid growth and expansion. Such a stage could be after a
successful demonstration of a prototype and readiness for its manufacturing scale-up
for a battery company. With this milestone achieved, the company’s valuation goes
up an order of magnitude, making investment more palatable for both investor and
the startup. Our case studies show that the average Series A round in the battery
space is $5–$10 million.
Key Takeaways
Venture capital has to be taken at the proper time and amount, specifically when
the company is ready for rapid growth and expansion.
5.6.2 Strategic Partnerships

Strategic partnerships seem to be a common critical component in the success sto-
ries. In strategic partnerships, the relationship between two companies can take
various forms: handshake agreements, contractual cooperation, or equity alliances
such as forming a joint venture or cross-holdings in each other’s stock.
Strategic partnerships can develop from outsourcing relationships where the
parties desire to achieve long-term “win–win” benefits and innovation based on
mutually desired outcomes. In a strategic partnership, both parties possess one or
more business assets or have the expertise that will help the other by enhancing their
businesses. Particularly for battery startups, which usually possess the knowledge
and IP for new battery technology, strategic partnerships can be with a customer or
a raw material supplier.
A critical component of strategic partnerships is a trust-based relationship
between the partners, regardless of whether a business contract was signed or not.
When looking for strategic partners, consider a company with complementary, not
overlapping expertise, markets, and business models.
Key Takeaways
When looking for strategic partners, consider a company with complementary,

not overlapping expertise, markets and business models.
A typical relationship begins with a demonstration project in which the startup’s

battery product is tested in the partner’s product. A battery pack for a drone or
an electric vehicle, or new electrode material, for example, in the partner’s battery
assembly line. Such a partnership advances both businesses by providing marketing
and market expansion for a startup while also improving the partner’s product by
introducing a novel energy storage technology.
One common strategic partnership scenario involves providing engineering,
manufacturing, or product development services and partnering with a smaller,
entrepreneurial firm or inventor to create a specialized new product. Typically, the
larger firm supplies capital and the necessary product development, marketing,
manufacturing, and distribution capabilities, while the smaller firm supplies
specialized technical or creative expertise.
Another common strategic partnership involves a manufacturer and supplier
partnering with a distributor or wholesale consumer. Rather than approach the
companies’ transactions as a simple link in the product or service supply chain,

the two companies form a closer relationship in advertising, marketing, branding,
product development, and other business functions. As an example, an automotive
manufacturer may form strategic partnerships with its parts suppliers.
The activities of a strategic partnership can also include a shared research and
development department between the partners. This requires a higher level of
knowledge sharing and sharing of technological capabilities. In forging this kind of
partnership, the costs and risks of innovation can be spread between the partners.
Despite many advantages, strategic partnerships also raise questions concerning
co-inventorship and other IP ownership, technology transfer, exclusivity, competi-
tion, hiring away of employees, rights to business opportunities created in the course
of the partnership, splitting of profits and expenses, duration and termination of the
relationship, and many other business issues, that need to be addressed in the pro-
cess of establishing the relationships.
5.6.3 Intellectual Property (IP) Management Strategy

Patents are a prerequisite to protecting some of the most valuable aspects of that
intellectual capital and are thus a key to competitive survival. Every startup should
assert strong IP protection from the very beginning, but IP protection costs money.
The average American patent is running around $100 000 over a patent’s lifetime.
Filing and maintenance fees alone often run between $30 000 and $40 000, with
international patent costing as much as $400 000 over a patent’s lifetime depending
on the countries of coverage. This is a very costly proposition for a battery startup
looking towards bootstrapping and government funding during the initial develop-
ment phases.
If academic inventors decide to form a company after their academic institution
has filed for a patent, licensing the technology from the university can be an addi-
tional challenge. While some institutions are extremely supportive of their spin-outs,
offering good licensing terms, the general attitude of university technology trans-
fer departments is focused on potential revenue in light of the successes of IT and
BioTech startups. They do not often consider the commercialization challenges that
battery startups have to go through. In negotiating the licensing contracts with uni-
versities, the battery industry’s low-profit margins must be considered.
Key Takeaways
In negotiating the licensing contracts with universities, the low profit margins
common in the battery industry must be considered.
Due to the high cost of patent protection, battery startups have to be inven-
tive about their IP strategy. Consider maintaining trade secrets combined with
strategic public disclosures and publications as a part of your IP strategy.
Does the invention represent core or platform technology?
Yes No Is the core technology protected by a patent?
No Yes
Does the invention have high degree of complexity with low

probability of independent invention?
No Yes
Can the novel aspects of the invention be reverse engineered?
Yes No
Does the company have measures instituted to protect the

invention from unauthorized disclosures?
No Yes
Defensive
Patents Copyrights Trademarks Trade secrets
publications
Civil prosecution Criminal prosecution
Figure 5.4 Example of strategic management of new inventions within a startup company.
It should also be kept in mind that the IP landscape is very dynamic, with tens
of thousands of battery patents being filed, issued, and abandoned each year. Fur-
thermore, the patent does not guarantee protection unless it has been challenged in
court. Therefore, just as with business strategy, battery startup founders have to be
inventive about their IP strategy because having the freedom to operate is critical for
any business.
Besides the formal and traditional patents, copyright, trademark filings, com-
panies have found another IP strategy: maintaining trade secrets combined with
strategic public disclosures (Figure 5.4). Trade secrets are confidential information
that helps the company to maintain a competitive edge. Trade secrets may include
manufacturing processes and equipment, sales and distribution methods, consumer
profiles, advertising strategies, lists of suppliers and clients.
Unauthorized use of information by persons other than the holder is an unfair
practice and a violation of the trade secret. While trade secrets protect against mis-
appropriation of inventions kept secret by former employees or espionage, they do
not protect against independent discovery or reverse engineering. An invention is a
good candidate for trade-secret protection when:
1. The invention embodies a high degree of complexity and novelty that would make
independent invention by a competitor unlikely;
2. The novel aspects of the invention are not embodied in a form that would permit
the invention to be reverse engineered;
3. The invention is securely protected and not likely to walk out the door with a
customer or an ex-employee.
The classic example of a good candidate for trade-secret protection is a break-
through manufacturing process that cannot be deduced from the product
manufactured. For example, a discovery that a previously patented drug can be syn-
thesized more efficiently using an unusual set of reagents and reaction conditions
is a good candidate for trade-secret protection. Patenting of such a process would
require disclosure of the invention to the public. The risk of infringement might not
provide a sufficient deterrent to prevent others from secretly using the process.
An invention should be maintained as a trade secret only if the company is com-
mitted to taking the stringent security measures necessary to maintain the secrecy
of the invention.
The main risk of relying solely only on trade secrets is that someone may file a
patent that will block the company’s freedom to operate. Therefore, defensive use of
public disclosures (also known as “poisoning the well”) should be used in combina-
tion with trade secrets.
A successfully executed defensive publication strategy can, without the need for
expensive patent prosecution, help secure freedom to operate by preventing others
from patenting in the technology space described in the publication. Suppose the
defensive publication predates the filing of the inventor’s patent application. In that
case, the patent applicant has nothing new to disclose publicly because the inven-
tion has already been disclosed. Thus it is already possessed by the public. In this
scenario, defensive publications can invalidate patent submissions and awards. It is
suggested that defensive publication should be considered when the cost of patent-
ing outweighs the benefit of the patent monopoly. The invention cannot be protected
in a sufficiently secure manner to support trade-secret protection.
That said, patent protection is generally preferable to defensive publication, espe-
cially for the following categories of inventions:
1. Core or platform technologies with multiple applications;
2. Improvements to core technologies where a patent does not already protect the
core technology;
3. Improvements to patented inventions where the patent term is important.
The form and content of the defensive publication should also be carefully consid-
ered. To strengthen the impact of the publication, consider including alternatives to
the invention. Broadening the defensive publication in this manner will reduce the
risk that others will patent-related inventions. However, surprising improvements
or alternatives may still be patentable.
Sometimes, in situations with very tight budgets, contractual IP protection is
the only way to move forward when disclosures to third parties are imminent. If
drafted properly, assignment of invention agreements, confidentiality agreements,
non-disclosure agreements, and confidential- disclosure agreements can be effective
under the right circumstances. However, such agreements are by no means the
preferred IP protection strategy.
Another consideration is the judicial enforcement when a breach occurs. In a
patent breach, the recourse is enforced as a civil matter, but with trade secrets, copy-
rights, and trademarks, enforcement is a criminal matter. The caveat is that the IP
holder can show that appropriate steps were in place to secure the trade secrets from
public scrutiny at the time of the breach.
5.6.4 Technology Licensing

One of the de-risking strategies employed by energy storage entrepreneurs is to
avoid building one’s manufacturing facility and the required large scale investment
but instead focus the company on R&D while licensing their technology to other
battery manufacturers. This is the path chosen by both the founders of Cadenza
Innovation after their success at Boston Power and by the founders of Innolith
after Alevo’s bankruptcy. This business model requires strong IP protection and
technology marketing strategies.
The benefits of licensing the IP is the potential for widespread practice. Licensing
does not require large financial, physical, or workforce resources to commercialize
IP. The startup founders can maintain a small company status without taking on
large investments or losing control and innovating in the space without the risk of
spreading itself too thin.
Even if an entrepreneur’s strategic development requires building a manufactur-
ing facility, intellectual asset management can generate additional revenue through
licensing idle IP to others. Specifically, licensing an invention for different territories
or diverse fields of use should not be an overlooked component within a business
strategy.
Key Takeaways
To secure additional revenue stream consider licensing your company’s IP for

different territories or diverse fields of use.
5.6.5 Press Relations (PR) and Marketing Strategies

Getting noticed is a big part of running a startup. You will not get anywhere without
being noticed! On the one hand, too much attention can generate unwanted hype,
and distract the team from actual technology development, and distort its message.
On the other, the strategic release of information and marketing material can help
focus the attention of the press, public, and investors. PR is a powerful way to help
you get noticed, but only if done about strategic deliverables.
Consider local public outreach and networking opportunities, such as local
pitch competitions, TEDx talks, conferences, entrepreneurial events, and social
media. Collaboration with university outreach and marketing offices can provide
an additional boost for your PR strategies, as well as hiring student interns from
local business schools.
Key Takeaways
To provide an additional boost for your PR strategies, utilize outreach and mar-
keting offices at university.
5.7 Summary 163
Hiring business and marketing students as interns for your company can help
you develop a comprehensive marketing and PR strategy.
5.7 Summary
This chapter has reviewed the specifics and nuances of the commercialization of
new battery technologies from the academic startup perspective. Although there
is no universal recipe for building a successful battery business, analysis of others’
successes, strategies, and failures can clarify the “dos” and “don’ts” of possible tech-
nology commercialization paths. Here are some “dos”:
Find the right path-to-market for your technology: The commercialization and
marketing strategies differ for startups that develop individual battery components
(cathode, anode, membrane, or electrolyte) vs. companies that produce complete
battery chemistries, systems, and packs. The specific commercialization strategy also
dictates the different needs and appropriate sources of capital for your venture.
Understand the funding landscape and select only the right opportunities: The
funding environment changes the energy storage industry landscape. We found mul-
tiple cases of initially successful battery startups that failed to get off the runway
because they received the wrong type of funding support.
Most of all, understand the process, but do not be overcome with fear: The hope is
this chapter can bring some clarity and inspire future battery entrepreneurs. In the
end, if scientists want to take their research into the commercial market, they will
need to invest some of their own time and energy outside the laboratory. The process
will not happen on its own.
Case Studies Lessons Learned
Battery Startup
Success
Market Analysis Strategies
Business-
Funding
model
Partners IP
Further Reading
Recommended Reading
Barrett, B. (2003). Defensive use of publications in an intellectual property strategy.
Bioentrepreneur 20: 191–193. https://doi.org/10.1038/nbt0202-191.
Bauer, A., Song, J., Vail, S. et al. (2018). The scale-up and commercialization of
nonaqueous Na-ion battery technologies. Advanced Energy Materials 8: 1702869.
https://doi.org/10.1002/aenm.201702869.
Brabazon, D., Pellicer, E., and Zivic, F. (2018). Commercialization of
Nanotechnologies–A Case Study Approach. Springer International Publishing
ISBN: 9783319569789.
Deng, J., Luo, W.-B., Chou, S.-L. et al. (2018). Sodium-ion batteries: from academic
research to practical commercialization. Advanced Energy Materials 8: 1701428.
https://doi.org/10.1002/aenm.201701428.
Hanson, E.D., Mayekar, S., and Dravid, V.P. (2017). Applying insights from the
pharma innovation model to battery commercialization - pros, cons, and pitfalls.
MRS Energy & Sustainability: A Review Journal 4: 1–10. https://doi.org/10.1557/
mre.2017.12.
Jones, K.B., Jervey, B.B., Roche, M., and Barnowski, S. (2017). The Electric Battery:
Charging Forward to a Low-Carbon Future. Praeger ISBN-10: 1440849013.
Sochan, M. (2018). The Art of Strategic Partnering: Dancing with Elephants. NAK
Publishing ISBN-10: 1732399808.
Author Biographies
Elena Timofeeva is co-founder, COO, and Director of R&D at

Influit Energy, LLC and Research Associate Professor at Illi-
nois Institute of Technology. She received her MS degree in
Chemistry (2002) and PhD in Physical Chemistry and Elec-
trochemistry (2006) from Moscow State University, Russia.
Prior to founding a company, she followed an academic
career path from Postdoctoral Researcher to Principal
Chemist at Argonne National Laboratory. She is a leading
expert in functional nanofluids, batteries, material science, and nanotech engineer-
ing, with more than 15 years of hands-on R&D and project management experience.
As a principal investigator, she secured $5.4 million in competitive research funding
from the DOE, National Science Foundation, and NASA, participated in I-Corps and
CleanTech Open startup acceleration programs. In 2015, she was recognized by “40
under 40” award by Midwest Energy News. Inventor on five patents, co-authored
45 technical papers, four book chapters, and over 100 presentations at international
conferences.
John Katsoudas is co-founder and CEO at Influit Energy,

LLC and Senior Beamline Scientist at the Materials Research
Collaborative Access Team at Illinois Institute of Technol-
ogy. He received his Bachelor of Science (1996) and Master
of Science (2003) degrees in Physics from the Illinois Insti-
tute of Technology. Prior to his scientific career, he had a
broad range of entrepreneurial experiences managing busi-
nesses in hospitality, manufacturing, and the music indus-
try. In 1999, he was a management team member for a large
west coast recording studio and later worked as an audio
engineer. After returning to graduate school in 2002, he focused on R&D in energy
conversion materials and synchrotron beamline systems and hardware develop-
ment. His expertise is in energy generation and storage, engineering, automation,
and system integration. He holds two patents in energy storage and X-ray optics,
co-authored 21 technical papers, over 40 conference presentations, a TEDx speaker
and an alumnus of I-Corps and CleanTech Open startup acceleration programs.
Carlo Segre is the Duchossois Leadership Professor of
Physics at Illinois Institute of Technology (IIT), Director of
IIT’s Center for Synchrotron Radiation Research and Instru-
mentation, and co-founder and CTO of Influit Energy, LLC.
He holds dual BS degrees in physics and chemistry from
the University of Illinois at Urbana-Champaign (1976) and a
PhD in physics from the University of California, San Diego
(1981). He has over 40 years of research experience in mate-
rials science and X-ray physics, including, most recently,
materials for energy conversion and storage with over 140 publications in archival
journals. Dr. Segre has managed the Materials Research Collaborative Access Team’s
construction and operation for over 25 years with continuous funding and is an
I-Corps alumnus. He has held administrative positions as Interim Department Chair
and Associate Dean at IIT. Segre is a Fellow of the American Association for the
Advancement of Science and the International Center for Diffraction Data and is
currently a National Board Member of Sigma Xi, the Scientific Research Society.
Alex Duchak is an entrepreneurial product strategist and
innovator who has developed and launched half a dozen
global product and service lines since 2007 and success-
fully exited from two startups in 2010 and 2012. He is a
co-creator of AFRL’s Commercialization Academy and cur-
riculum designer for new venture development programs
at the University of Illinois at Chicago and the University
of Dayton. He is a co-founder and technology strategist for
Invent 2026, an initiative partnering with the most progres-
sive incubation programs in the Midwest to sculpt emerging technologies in an

economically meaningful way, and the creator of TNEBULA, a software platform
designed to prioritize new inventions emerging from research institutions algorith-
mically. He sits on the advisory board of TechLink, the leading semi-public agency
charged with licensing 60% of all DoD technologies to industry, advises several edu-
cational institutions on technology commercialization, and actively invests time and
capital into new technology-intensive ventures. Mr. Duchak holds a BA in Environ-
mental Studies and Economics from the University of Chicago and an MBA from
the University of Illinois at Chicago.
Thomas Day is the co-founder of Invent2026, a non-
profit serving the Chicago and Midwest regions through
research and commercialization. Previously he helped build
The Bunker (now Bunker Labs) into a national nonprofit
organization supporting military veteran entrepreneurs. Mr.
Day is an Army and Iraq war veteran and a former combat
correspondent in Afghanistan for McClatchy Newspapers.
He holds degrees from Penn State, the Medill School of
Journalism at Northwestern University, and the University
of Chicago’s Harris School of Public Policy.
169
Growing a Business in the Chemical Industry

Michael Lefenfeld
SiGNa Chemistry, Inc, 400 Madison Avenue, 22nd Floor, New York, NY 10017, USA
6.1 Introduction
The allure, as well as the challenge, of starting a business in the chemical sector lies
in the market’s overall size and scope. In 2017, chemicals were a $3.5 trillion global
industry that affected more than 95% of everyday consumer and industrial prod-
ucts, from fashion and health to food and recreation to energy and infrastructure.
The chemical industry is also complex and diverse. Chemicals make up a disparate
landscape comprising four main categories:
● Basic chemicals, such as polymers.

● Life sciences, such as pharmaceuticals.
● Specialty chemicals, such as catalysts and industrial gases.
● Consumer chemicals, which are a part of products sold directly to the public, such
as cosmetics and soaps.
In addition, there are chemical processors that reprocess chemicals into other
products or chemicals.
However, despite its size and diversity, the chemical industry is dominated by a
defined set of large corporations. So, compared with other markets like information
technology and biotech, there are only a limited number of entrepreneurial ventures
in the chemical segment. In the United States, for example, just 170 major compa-
nies account for more than $767 billion in annual sales, in a sector that generates
approximately $4.4 trillion a year in sales worldwide. As this chapter explains, while
the vast size and scope of the industry presents many opportunities, it can also be
challenging for new entrants, hoping to scale up to serve a particular market need.
For starters, the chemical sector has historically had a small appetite for big
entrepreneurial ideas. This is largely because legacy players have traditionally
enjoyed high returns from commodity chemicals discovered decades ago. For
example, polypropylene – used to make everything from rope and paper to carpet-
ing and plastics – was first commercialized in the 1950s. As such, over the past
three decades, the growth in the chemical industry has resulted primarily from the
170 6 Growing a Business in the Chemical Industry
evolution of existing product platforms that enable higher margins and expansion
into emerging markets.
Outside of iterative platform improvements, brand-new innovation is not common
in the chemical industry, and when it does occur, it is often through acquisitions.
However, entrepreneurial startups and acquisition targets are also rare due to the
complexity of building and scaling in the chemical industry. Moreover, for large
chemical companies to even be interested in acquiring new innovation, it has to
be a significant opportunity – with clear earning potential and a quick enough path
to market to validate the investment.
Today, however, the dynamics of the chemical industry are changing. This new
perspective is being driven, in part, by new market realities, such as global warm-
ing, ocean pollution, and chemical toxicity. This has reinvigorated the quest for new
chemicals and manufacturing methods to solve global problems. As a result, the
industry is now primed for new large-scale innovations. Scientific entrepreneurs
have an exciting opportunity to reshape the future of the chemical industry.
It takes a special mindset to venture into the entrepreneurial waters of the chem-
ical industry. Starting a business of any kind is always risky, but the realities of the
chemical sector make this industry even more challenging for startups to scale and
succeed. In fact, less than 2% of chemists will ever start their own businesses.1
For entrepreneurs scaling a business within the chemical sector, it is important
to define how success will be measured from the beginning (Figure 6.1). Of course,
Significant sales with new launch
Revenue drops Rebound of

Steady growth significantly after demand due
while under patent expiration to cycle
patent exclusivity Lull after initial upswing and
surge due to platform
demand cycles extension
0 2 4 6 8 10 12 14 16 18 0 2 4 6 8 10 12 14 16 18
Years Years
Major revenue benefits take

many years to mature
Slow growth as
material finds
applications and
acceptance
0 2 4 6 8 10 12 14 16 18
Years
Figure 6.1 Scaling a business in the chemical industry. Source: Based on McKinsey Report,
2020.
1 According to the American Chemical Society.

building a cash flow-positive organization is an important metric for every company.

However, in addition to profitability and creating returns for investors, sustainabil-
ity and social impact can also be important drivers in the chemical sector. Defining
a company’s financial and social vision early on can help set the company on the
right path and ensure that investors and other key stakeholders share a common
vision.
This early definition of success also will be important in plotting out how an
entrepreneurial startup will navigate a competitive landscape that includes existing
companies with large product portfolios and competitive cost structures fueled by
economies of scale and volume manufacturing efficiencies. Whether competing
against or partnering with these companies, market entrants will be faced with
established research and development (R&D) pipelines and a proclivity for in-house
“not invented here” problem solving. Long product adoption times are the norm for
chemicals – in some cases it may take 10 or 20 years before new materials generate
substantial revenue streams in a given market.
New entrants to the chemical sector also will be challenged by the tremendous
amount of capital needed to scale to a size that enables them to enter and compete in
the marketplace. Venture capital investors are often unwilling to wait for decades to
achieve a return on their investment. The pressure for profitability can, for example,
increase when investors need, or expect, a relatively fast return on investment (ROI)
from large expenditures on capital equipment. While it is not always an option,
chemical companies with a long-time horizon for development need investors with
more patience than the five or so years typically expected by many venture investors.
While entering the market is not easy, there are unsolved problems in every corner
of the chemical sector that could translate into valuable opportunities for a scientific
entrepreneur with the right technology and the ability to convert that technology
into a scaled product. Achieving success as a scientific entrepreneur demands a
balance between technical expertise and a deep understanding of the business side of
science. It means being able to understand the value proposition of your innovation
in the context of a real market problem. It also requires building a great team and test-
ing the market to determine who is willing to pay for your solution and how much.
Ultimately, it is important to remember that not every chemical business is des-
tined to be the next Dow Chemical or BASF. In fact, many companies grow and
flourish by solving problems for the big players or by selling or licensing their new
technology to these larger firms. While the game plan is unique for every business,
there are many best practices that can help put a new chemical company on the path
to success.
This chapter discusses three fundamentals for scaling a new chemical enterprise
and, hopefully, for minimizing failures along the way. In it, we will consider market
segmentation, building economies of scale, and growing to commercial scale.
Additionally, you will learn about a case example representing a successfully
launched startup in the chemical sector.
Key Takeaways
1. The size and scope of the industry presents both opportunities and chal-
lenges for new entrants, hoping to scale up to serve a particular market need.
2. The chemical sector has historically had a small appetite for big entre-
preneurial ideas, but the dynamics are changing, and scientific entrepreneurs
have an exciting opportunity to reshape the future of the chemical industry.
3. For entrepreneurs scaling a business within the chemical sector, it is impor-
tant to define how success will be measured from the beginning.
4. New entrants to the chemical sector require a tremendous amount of capital
in order to scale to a size that enables them to enter and compete in the
marketplace.
5. While entering the market is not easy, there are unsolved problems that could
translate into valuable opportunities for a scientific entrepreneur with the
ability to convert the right technology into a scaled product.
6.2 Strategic Market Segmentation
Understanding who your customers are and how to deliver a product that meets
their needs is essential for any business. Strategic market segmentation requires ana-
lyzing and assessing potential customers based on demographic characteristics that
are consistent with whatever you are selling. Understanding your market will enable
you to focus your resources on product development and marketing with the highest
potential to reap rewards – which are ultimately going to come in the form of new
sales and repeat business.
Scientific entrepreneurs are often motivated by an unrelenting urge to drive inno-
vation. However, it is not uncommon for scientific entrepreneurs to also become
captivated by their own technologies and inventions. After all, they have created
something new to the world! Entrepreneurs have a vision for what a new discovery
can become and have invested time, energy, and money into making their vision a
reality. From a human perspective, this captivation is understandable. From a busi-
ness perspective, it is often called “drinking your own Kool-Aid.” This biased mind-
set can result in science-based startups being less focused on developing a strong
market strategy than they are on their scientific work.
Scientific startups and academic entrepreneurs in particular can be naive about
fundamental business concepts and structures. The most important thing for a scien-
tific entrepreneur to understand at the outset is that businesses do not commercialize
innovations, but they commercialize products.
The process of commercializing a new chemical innovation consists of many
steps, including the product development work – discovery, product development,
and initial customer traction – and the nontechnical aspects of the business, such
as staffing, funding, market analysis, and sales. Also, successfully scaling a business
hinges on the imagination and passion of individuals at every level of the business.
While the question “Can this innovation be transformed into a potential busi-
ness?” may sound basic and silly, it is an important question that must be asked
repeatedly as your business grows. Considering this question candidly and early in
your business life cycle may prevent an entrepreneur from investing years of time
and valuable finite resources into a product that does not have a viable market. Suc-
cessful entrepreneurs learn to quickly decide whether the business they are scaling
should be modeled closely after another business or customized to meet specific
market needs.
This section is designed to help a scientific entrepreneur assess whether he or she
has a viable product and to help them determine the best strategy to bring that solu-
tion to market.
Key Takeaways
Always remember, businesses do not commercialize innovations, but they com-

mercialize products. It is crucial for entrepreneurs to understand the problem
their innovation will solve and understand whether customers are willing to pay
for it.
6.2.1 Do I Have a Solution to an Existing Problem or a Solution

Looking for a Problem?
Innovation, by definition, puts an entrepreneur on an unpredictable path toward
an unknown outcome. Innovators can simplify their commercialization path if they
begin by clearly understanding their potential customers and the potential uses for
a product.
A fundamental starting point for companies hoping to scale a new innovation is
determining whether they have a solution for an existing problem or a solution that
is looking for a problem. Innovators will be most successful when they are sure that
the problems they claim to address are truly problems worth solving and that their
development efforts are focused on the most valuable ways to apply and use their
innovation.
Entrepreneurs have to understand their core value proposition, which could range
from operational cost savings and increased process workflow to reduced redun-
dancy and better efficiency. An entrepreneur also must be convinced that he or she
has a discovery that will make it worth pushing through all the hardship and set-
backs, leading up to commercial launch. Success ultimately requires perseverance
and the ability to convince customers to make one small change after another as they
make buying decisions.
Academic programs, corporations, and consulting companies often have

well-developed processes to evaluate new ideas and products before they take them
forward. Every company starting down a new path toward its target market needs a
strategic analysis process to help it determine whether an idea has the potential for
market viability.
6.2.2 A Solution Looking for a Problem

Scientists and entrepreneurs often discover a technology solution and then begin
searching for the problem it will solve. In academia, in particular, scientists often
discover new substances or methods for synthesizing an industrial chemical more
quickly. However, academic laboratories often work in ideal conditions and with
materials and conditions that do not necessarily translate into the real world at scale.
For entrepreneurs with a solution looking for a problem, the road can be very
hard and very long. There are many cases in the chemical industry where innovators
have invented new chemicals, materials, or processes, but they then struggle with
creating value from their innovation. The algae biofuel market is one example of
how companies can disappear down the rabbit hole of ideas.
In the early 2000s, hundreds of millions of dollars in venture capital was invested
in companies with developing technologies to extract fuel oil from algae. While the
idea of commercializing algae fuels resonated with investors, this was a solution
looking for a problem. No one thought about the downstream applicability in an
industry dominated by an infrastructure built to support the process of converting
oil to energy. While algae biofuel technology may still find a niche in the specialty
chemical marketplace, it was not the energy panacea investors had hoped for.
The lesson here for entrepreneurs is that it is essential to understand how a new
product or service connects with the existing value and supply chains. Oil, of course,
comes out of the ground, and there is a vast infrastructure in place to help convert
it into a wide range of commercial products, the quintessential example being gaso-
line. Algae, on the other hand, is cultivated in a pond and contains the oil within its
cell walls. The oil must be extracted from the algae and processed. While algae offers
potential as an alternative to oil, it requires a completely different market infrastruc-
ture than the one supporting the vast conventional oil industry.
It is important to determine if a new end product will ultimately offer higher
value than existing solutions that are created through established processes and
using traditional materials. If an innovative new synthesis platform, for example,
enables companies to manufacture better, cleaner, or faster, it is also imperative to
understand how industry will ultimately use the new platform to improve the value
of the final product. Higher-energy lithium–ion battery cathodes are a common
example. In addition to proving that the cathode materials made by a unique new
process are superior to cathodes made by conventional processes, a new-to-market
company must show that the value is superior to all other ways to address the
problem – usually measured by performance and cost. To scale the solution, the
new company must also consider what the potential time, cost, and risk are to
customers for switching from their current methodology to the new alternative.
Every chemical and every new innovation will have different challenges in the
context of commercial potential. Moreover, as the algae biofuel market underscores,
even really promising new developments do not always translate to scale. That is
why an important common denominator for success is a company’s ability to map
all the steps necessary to scale from the idea phase into production.
Solutions looking for a problem require companies to assess market opportunities
in multiple niches within the chemical sector and, often, in other industry sectors as
well. Entrepreneurs who develop a technology or product with the potential for mul-
tiple applications must start by determining where they think the best opportunity
is positioned. Having a solution for a problem can help expedite the market segmen-
tation process by defining what market sectors in the chemical industry focus on as
the company scales its commercial development.
6.2.3 A Problem Looking for a Solution

There are lots of problems that are in need of a technical solution. Some of these
problems are well known and, often, well contemplated. Take hydrogen fuel cell
storage for automobiles as an example. Automotive companies are searching for the
best way to eliminate greenhouse gas emissions without shortening the range of dis-
tance a vehicle can travel. One of the many challenges to implement this solution is
solving the problem of how to compress hydrogen for storage in a passenger vehicle
or produce it on demand. However, using a steel pressure cylinder in the trunk of
a car is both heavy and expensive. This limits the viability of the solution for a new
automotive segment and for range extension for electric cars.
There have been significant efforts in academia and industry to solve the prob-
lem of creating a new solution for hydrogen storage. Nevertheless, the hydrogen
fuel cell market has proven to be difficult for both startups and large corporations.
Duracell, Energizer, BIC, and Apple have all unsuccessfully tried to solve the materi-
als and systems challenges related to commercial fuel cell development for portable
electronics recharging. A lack of industry standards and collaboration led to the
development of “siloed” strategies that were unable to scale.
Fuel cells are great at producing a constant current, but cars are anything but con-
stant. Trying to scale fuel cells to meet the needs of the automotive market has, to
date, been a complete failure. In hindsight, it would have been smarter to hybridize
fuel cells with electric cars for range extension. This would have allowed fuel cell
scalability and performance to evolve over time.
So, even when you have a problem looking for a solution – and your pathway to
market is comparatively straightforward – entrepreneurs must remain nimble and
ready to adjust as market dynamics reveal themselves.
Sometimes, an entire market application is subject to evolution, such as with
SiGNa Chemistry. In 2007, SiGNa was created to commercialize a new class
of industrial chemicals, called stabilized alkali metals. Michael Lefenfeld and
Michigan State University Prof. James Dye discovered these materials while trying
to develop a discreet bathroom deodorizer that could be simply dropped into a toilet
bowl. The earliest concept was that sodium would react with the oils on the water’s
surface to eliminate odors.
Nevertheless, like a lot of new discoveries, the first potential application was
just a starting point for more R&D. Moving past the original intent of a consumer/
household goods application, SiGNa focused on the development of silicide-based
hydrogen for the development of portable fuel cells (Figure 6.2). The value propo-
sition was to produce clean hydrogen gas in real time, as needed by the fuel cell,
and at pressures lower than those found in a common soda can. The goal was to
commercialize a hydrogen-generation process that was safe, clean, and scalable.
After several years of development work and semi-successful product launches,
the company realized that, among other obstacles, the industry lacked the standard-
ization necessary to scale. Using the lessons learned in the fuel cell market helped
SiGNa create a development roadmap that ultimately led to applying its technology
to a different problem in the oil recovery industry. Finding the “right” problem for
its solution ultimately took SiGNa more time and more money than most compa-
nies can sustain. So, while we started as a problem looking for a solution, we ended
up being a solution looking for a problem. Fortunately, for SiGNa, its technology
was uniquely suited to solve a problem in the Cold Heavy Oil Production with Sand
(CHOPS) recovery niche of the oil and gas sector, which provided the company with
a new market opportunity (see related case study on ActiveEOR).
Figure 6.2 A SiGNa hydrogen-

generation cartridge.
As the challenges associated with fuel cell development show, even with realis-
tic assessments of the marketplace, many companies have made big bets on a new
technology that have yet to pay off. To scale a business in the chemical sector, inno-
vators must deeply understand the existing supply chain, the needs of customers
and potential customers, and the true value the new product or service will deliver.
This enables decisions about how to best allocate resources – and when it is time
to pivot in a new direction. Some solutions may lend themselves to relatively fast
market entry, while others may take years to develop. Moreover, as failed endeavors
in the fuel cell market highlight, there are always going to be obstacles to overcome
with any new product or service. Sometimes, those challenges can be met, and other
times they can be insurmountable.
6.2.4 The Opportunity Matrix: A Roadmap for Scaling a Chemical

Business
With new chemicals, there are often many routes to market and many potential uses
for the same product. Several of the world’s most commonly used chemicals demon-
strate this concept (Figure 6.3). Sulfuric acid (H2 SO4 ), for example, is one of the most
commonly used chemicals in the world, with production reaching over 260 million
tons in 2018. It is primarily used to produce phosphate fertilizers but is also used in
Figure 6.3 Chemicals are often stored in totes for various production uses.
making compounds for pigments and detergents, as a major component in lead acid
batteries, and for removing impurities in petroleum refining. Ethylene (C2 H4 ) – with
over 150 million tons produced annually – is very versatile and can be used to pro-
duce antifreeze, styrene, or polyethylene plastic. Propylene (C3 H6 ) is an important
compound in the petrochemical industry and a raw material for rubber and plastics.
Similarly, with new chemicals or reagents/catalysts, there is often the potential
for success in numerous commercial applications or, sometimes, one perfect appli-
cation. Ultimately, a decision needs to be made about what use, or application, will
maximize the long-term value of the material, while minimizing the product com-
mercialization costs, and timeline. If sulfuric acid or propylene was conceived of
today, the innovator would have to try to assess the best initial path to market.
Key Takeaways
The most successful entrepreneurs have the unique skill to accomplish short-
term goals flawlessly while never losing sight of the greater opportunities ahead
of them.
In the early stages of development, there are countless examples of valuable

problem-solving innovations arising from research efforts that began as ideas for
solving a completely unrelated problem. The challenge for innovators is to be
cautiously optimistic about using their first ideas on how and where to commer-
cially apply an innovation while trying to identify a higher value application or
problem along the way. The most successful entrepreneurs have the unique skill
to accomplish short-term goals flawlessly while never losing sight of the greater
opportunities ahead of them.
When it comes to identifying potential opportunities, entrepreneurs should start
by understanding the landscape of how people might use a particular technology
solution. Start at a screening level, and map out where the product might be useful.
In market terms, think of the product’s features, functions, and benefits.
Assessing market potential is a useful exercise that can help entrepreneurs
understand if they have a technology or product that can be licensed or form the
basis for growing a successful business. Assessing the market opportunity includes
consideration of the level of investment needed to maximize its value. Capital
requirements make it very difficult to scale a business in the chemical sector. For
that reason, licensing or selling early-stage technology is often the best bet for
entrepreneurs.
A starting point for this process is to create a visual matrix that looks at the prob-
ability and impact of various opportunities. For example, SiGNa started with an
effort to commercialize sodium silicide (Na4 Si4 ). Originally, this material was dis-
covered as part of a process to develop a discreet bathroom deodorizer. However,
after understanding the fundamental benefits of this product, the original notion
soon morphed into the foundation for a much more substantial endeavor. Over time,
the opportunity matrix was expanded to include the oil and gas industry, potentially
the largest market application for sodium silicide. Today, SiGNa is commercializing
its technology in the CHOPS heavy oil recovery market (see related case study on
ActiveEOR included with this chapter).
SiGNa’s development of sodium silicide is a good example for visualizing an oppor-
tunity matrix (Figure 6.4). The product is a free-flowing solid that retains the desired
reactivity of the parent metal, but without its dangerous properties. As sodium’s
pyrophoric properties and oxidation challenges are controlled with this new chemi-
cal, it allows sodium to be used in scalable industrial applications – which was pre-
viously considered impossible. In the earliest stages of product development, SiGNa
knew that it had a valuable material that had potential for many industrial applica-
tions. The key question was: Which applications were most valuable?
In essence, sodium silicide can transform sodium into a free-flowing powder
that is safe in many industrial applications. At the most fundamental level, this
product releases heat, high-pressure hydrogen gas, and alkali silicate. While it
is possible that sodium silicide could have been commercialized as a bathroom
deodorizer, the inventors recognized that its reaction products – significant amounts
of heat, hydrogen, and alkali silicate – would have more value in an array of other
applications. Ultimately, that led them to a focus on the heavy oil recovery segment
of the exploration and production (E&P) market.
Heat Alkali
Water treatment
Military Cement
Corrosion inhibitor
Drilling fluids
Consumer products
Detergent
Oil and gas
Grouting
Fracking
Hydrogenation Catalysts
Hydrogen
Reducing agent
Cracking
Fuel cells
Figure 6.4 Opportunity matrix for sodium silicide.

6.2.5 Find the Right Niche

Once a company determines the most viable applications for commercial develop-
ment, the next step is to isolate the best path to market. Science startups (all startups
really) must find the right niche. Scientific innovators are trained to think about
the intellectual or philosophical challenge of the problem they are trying to address,
which leads to thinking about what the best solution may be. Most scientists do not
naturally think about what would be the fastest and best application for the market
right now or what the easiest path is to get customers to buy the product.
In fact, startups often focus on competing with industry giants and developing an
idea that will capture a large piece of an established market. However, the reality is
that a new technology that is truly superior to what exists in the market will have
a better chance at capturing a small piece of the market, which can be substantial
in a billion-dollar marketplace. The fact is that a science-based startup simply can-
not compete with multinational chemical manufacturers, such as Dow Chemical or
BASF, and expect to win.
A new company may, for example, have developed the best (technically speak-
ing) thermodynamic product that is available. Nevertheless, the chemical business
is ruled by big players at the top of the pyramid: players that have the resources,
money, and capital to protect their market position. A startup simply should not
waste its limited time and resources trying to reinvent the wheel. The key is to find a
niche that complements, or improves, existing products or services and/or provides
a faster, better, or cheaper way to solve a specific pain point for a customer.
A niche market strategy can enable a growing company to benefit from less com-
petition, smaller customer bases, and, often, non-entrenched users. Solving a niche
market problem can lead to an acquisition by a larger company – which is often a
desirable exit strategy for a chemical industry startup, which seldom has access to
the public markets.
The best strategy for a company in the chemical sector with a new scientific inno-
vation is to identify the right niche in the market. For example, BASF has a business
division focused entirely on lithium–ion batteries. However, BASF was not even in
the battery business 10 years ago. Why not? Because lithium–ion batteries were not
a $4 billion business a decade ago. Even so, BASF focused on solving the problem of
developing a technology for better battery storage and focused its efforts on growth
within a well-defined niche in the market.
Three fundamental best practices that startups can learn from the success of big
companies, like BASF, include the following:
● Focus on developing products to meet growing market demand.
● Understand that a “niche” market in the chemical sector can translate into mil-
lions of dollars in sales.
● Develop technology that delivers a more innovative or less expensive solution for
customers.
Key Takeaways
A startup should not waste limited time and resources trying to reinvent the
wheel. Find a niche that complements, or improves, existing products or services
and/or that provides a faster, better, or cheaper way to solve a specific pain point
for a customer.
As a chemical company begins to grow, an ideal strategy is to identify one or two

niche markets that allow it to generate early revenue and demonstrate that its new
products can have positive margins. That will put the company in a stronger position,
even if it is targeting the big billion-dollar win. In a niche market, a growing company
is much better positioned to learn about its product, redefine its understanding of
customers, and ship products. If a company ships early-generation products every
day, cash flow will be negative because the company is investing in R&D. However,
the company will still have a much more powerful foundation than if it aimed its
first product at a billion-dollar market. Often the first generation of the product is
not the product composition that makes the biggest differentiation in the market.
Investors will often balk at the idea of a niche market unless that niche is itself
sizeable. Venture capitalists prefer to invest their money in a billion-dollar market
because they do not want to spend 5 or 10 years waiting for revenue in a market
that may never generate hundreds of millions of dollars annually. This often leads
to entrepreneurs building a business plan with impossible goals, which eventually
leads to venture capitalist investors becoming disenfranchised.
SiGNa itself spent years focused on growing a business in the hydrogen fuel
cell market. Scaling a business in that market sector turned out to be much more
challenging than SiGNa anticipated. As a result, after investing years and millions
of dollars in R&D, the company found itself reevaluating its fuel cell business.
Fortunately, SiGNa’s initial strategy was strong enough, and had created enough
value, for its technology to become the acquisition target of a pre-initial public
offering (IPO) fuel cell company. SiGNa was able to recoup its initial investment
but had lost years of development in an application from which it would eventually
pivot – pursuing another market opportunity that proved to be much more suc-
cessful and profitable. For many chemical startups, there is no such second chance.
Going down the wrong path ultimately leads to bankruptcy.
Companies that have a proven solution to a problem and have cultivated a niche
in the marketplace should be able to cross the breakeven point as they scale. Even so,
companies that struggle toward profitability may find themselves without a financial
lifeline. Sometimes, those companies can sell their technology and/or operations
and cash out. However, the sobering reality is that many of those companies will
simply vanish without a trace.
SiGNa’s experience underscores how challenging it can be to determine the

right path to market. This is particularly true in the chemical sector, which usually
requires long lead times and years of capital-intensive R&D before a product is
market ready. SiGNa’s years spent focusing on the hydrogen fuel cell market were
hampered by the lack of standardization within the market, whereby every fuel
cell required a different connection to the hydrogen fuel source. What the industry
needed, but lacked, was something like a USB standard for fuel cells. Instead,
to achieve market scale, SiGNa would have had to develop custom solutions for
dozens of different fuel cell configurations. This precluded the ability to benefit from
economies of scale. When the determination was made that the fuel cell application
could not scale easily or quickly, the company was able to pivot to the CHOPS oil
production market: a small but very lucrative segment of the oil recovery market.
6.2.6 Sometimes a Pivot Strategy Can Work

While SiGNa was in search of the “right” problem to solve, the company had
the advantage of having a well-patented platform technology with unique
characteristics. This gave it the ability to pivot its core strategy with the backing of
its investors.
Pivoting away from fuel cells, SiGNa decided to refocus its resources to help oil
producers dramatically improve their recovery yield from abandoned or underuti-
lized oil wells (Figure 6.5). This pivot turned out to be an important turning point
for the company.
Figure 6.5 An illustration showing SiGNa’s CHOPS technology in an actual application in

the field.
Any company looking to commercialize its products needs to focus on niche mar-
kets with a controllable and manageable commercial adoption progress, as well as
upstream and downstream opportunities for revenue growth. That assessment has
to be informed by a detailed understanding of what potential customers need, as well
as a clear view of direct and indirect competitors offering alternative solutions.
Existing and potential threats to market growth also need to be considered. This
can range from macroeconomic factors, such as the rapidly changing price of a
barrel of oil, to microeconomic considerations, such as potential threats from new
technology.
When SiGNa pivoted to the CHOPS market, for example, the company made the
strategic decision to focus on a niche in the oil market – more than a $1 trillion-dollar
market worldwide. The CHOPS market is primarily located in Western Canada, with
four major producers owning approximately 40 000 wells between them. The average
oil recovery factor of these wells is less than 15% of the total oil in place (see related
case study).
As the ActiveEOR case study notes, while SiGNa has expanded beyond CHOPS
recovery, the company originally focused on an initial market that had the poten-
tial to grow into a $10 billion enterprise. The oil and gas industry is dominated by
deeply entrenched service companies – with their own R&D and technology port-
folios – that provide recovery services to the big oil companies. Trying to grow a
business in that market without a laser focus can lead to bankruptcy. Startups in the
chemical sector, or any large industry sector, do not scale into billion-dollar enter-
prises overnight. It takes time to understand the market need, its fundamentals, and
the best and easiest paths to market.
Big oil companies do not usually develop recovery technologies themselves. They
focus on asset identification and characterization. The reason the CHOPS niche was
successful for SiGNa is because the oil producing industry is used to finding innova-
tions outside its own hallways.
6.2.7 Select the Best Path to Market

Regardless of whether a company has a solution for a problem or a solution looking
for a problem, an assessment has to be made about what the best path to market is,
how long it will take, how much it will cost, and whether the potential revenue is
there to warrant the investment. Particularly for companies that need a significant
amount of financing, it is important to understand the required investment needed
to fully scale the product for market delivery.
New products and solutions in the chemical industry almost always arise from
three types of innovations:
● Discovery of a new class of chemicals or materials with previously unknown func-
tional properties.
● Invention of a new synthesis method that enables the manufacture of chemicals
or materials with previously unattainable functional properties or cost structure.
● Invention of a better process to manufacture chemicals or materials – faster,
cheaper, or cleaner and at a lower cost.
The paths to market are different for each type of innovation, and each requires
a keen understanding of both the product’s benefits and its potential in the
marketplace. For example, developing a new hydrogen delivery system for portable
fuel cell applications requires a focus on how to develop and package a commodity
product for the consumer market. By contrast, developing a product to improve oil
well production requires an understanding of a large and complex industrial and
service process.
For an established chemical manufacturer, defining a go-to-market strategy is
not critical at the early stages of product development. These manufacturers – and
the R&D labs they often fund – tend to innovate around problems that are well
understood and where they already have a foothold in the market with similar or
supporting products. This innovation is often designed to be evolutionary product
development, not revolutionary. For instance, perhaps the cost of a process must be
reduced in order to grow the market. One example of this is in the pharmaceutical
industry where active ingredients typically go through transformative alterations
in manufacturing from laboratory development to commercial scale production.
A typical scenario, for example, requires that the number of steps in the synthesis
process be streamlined to reduce manufacturing costs. Maybe the performance in an
end-use application must become closer to what is theoretically achievable. Every
situation is different, but, in each case, the manufacturer will have a well-framed
problem with clearly stated improvement objectives.
The right go-to-market strategy is crucial for success for an innovator or
science-based startup. If an innovation clearly solves a truly valuable, intractable
problem that many customers care about, then the path to market will be far easier,
and the rewards will justify the time and investment in product development. With
a compelling value proposition, a company’s go-to-market process will be easier.
If the customer looks at the problem differently than the company does, or if the
product is only one of several competing ways to solve a problem, then the value
proposition may hinge primarily on a single point of differentiation, such as cost,
and the path to market is likely to be much more difficult and uncertain.
For example, in the 2000s, startups quickly learned – during the “Cleantech
Boom” – that organizations would not pay a premium for an innovation that simply
provided a more environmentally friendly product. There had to be a contributing
reduction in costs too. In this instance, an innovation-driven company would need
to assess whether its solution has real market value or if the adoption costs are too
extreme to catalyze design modifications to an already scaled, high-volume process.
Choosing the right market strategy certainly will help reduce time to market and
improve the chance of aligning new products and technology to customer needs.
Not investing the time and resources to develop this strategy will lead to higher
commercialization costs and, quite possibly, the risk of failed product launches.
It is important to constantly seek and implement better ways of thinking and acting
across both old and new parts of the process or system.
6.2.8 Licensing vs. Manufacturing

If a company’s value proposition is not aligned with market needs, the innovator will
invariably face higher risks and a longer and more costly product adoption cycle.
While it may be difficult early in the R&D phase to clearly separate research activi-
ties into neatly defined categories, the paths to market for each type of product are
usually quite different. An innovator of a new class of materials, for example, might
feel he or she has a high value idea but determines that a licensing strategy would be
the fastest path to revenue and the most likely to yield the highest ROI. This is also
a risk mitigation strategy, because it passes the risks inherent in determining how to
use a new material to multiple licensees.
An inventor of a new synthesis method, for instance, might decide to license its
technology to an incumbent manufacturer if it enabled a manufacturing cost reduc-
tion. On the other hand, a commodity chemical feedstock might choose this path
rather than attempting to compete on cost structure with incumbents who have
established sales channels and integrated materials procurement. However, if the
new synthesis method enabled higher performance in a high-value specialty market,
the innovator might decide the risk/reward prospect of developing and launching its
own line of superior products was a viable business strategy.
UOP is an example of a company that developed a hybrid model, in which it
licensed its patented processes and sold the chemicals used in those processes
to large customers in the petrochemical industry. Its strategy was akin to the
razor/blade strategy in the consumer market: sell the razors at cost and make
money on the blades. UOP, now part of Honeywell, developed the first biodegrad-
able detergents, unleaded gas, and the catalytic converter. The company has more
than 3 000 active patents, and its processes are designed to maximize the value from
every drop of oil, every cubic foot of natural gas, and every ton of coal.
A company’s go-to-market strategy will be its blueprint for how to commercial-
ize its sales growth strategy, including product development, target markets, value
proposition, and pricing strategy (Figure 6.6). This should, of course, be part of a
Figure 6.6 A company’s go-to-market strategy will be its blueprint for how to
commercialize and focus its growth in the massive chemical industry.
more comprehensive business plan considering all of factors required for scaling,
from funding and R&D to staffing and sales.
6.2.9 Strategic Market Assessment

As a business begins to scale, another important tool is its technology roadmap –
which is a key to helping a company map and assess its short-term and long-term
product and commercial development goals. The roadmap has to be flexible enough
to account for changing market conditions and detailed enough to identify potential
obstacles to growth.
Developing a roadmap provides a way to ensure balance and focus (Figure 6.7).
Companies that are generating limited revenue have to be particularly cognizant
of how they deploy and utilize their resources as they grow and scale. The right
decisions need to be made on where to spend R&D dollars, how much to invest in
manufacturing infrastructure, and what the requirements are to run a business, from
accounting to sales.
A roadmap is more than just a planning exercise. It has to reflect ongoing interac-
tions with industry partners and the daily experiences of everyone within a company,
which means constantly reassessing and adjusting strategies based on new informa-
tion and lessons learned. If something does not work, it is important to figure that
out as soon as possible and to identify the reasons. The next step is to develop an
alternative strategy and shift directions.
SiGNa’s sodium silicide, for example, represented a potentially uncontested oppor-
tunity because it was a new class of chemical that offered a unique way to solve
problems in multiple industries – industrial chemistry, oil and gas, and portable
power applications. Its primary benefits include being a portable source of high heat,
high-pressure pure hydrogen gas, and buffered alkali by-product. The uniqueness of
the innovation is what has given both the company’s technical team and its investors
the confidence to build a business infrastructure around the company.
Figure 6.7 Developing a technology

roadmap can guide a young company’s
path to market.
The company has built a formidable portfolio of patents and has invested millions
of dollars protecting its intellectual property (IP). It is important to point out that
the most important consideration for protecting innovative technology is working
with an experienced IP attorney who is also actively involved in helping the com-
pany innovate. SiGNa’s patent portfolio enabled faster pathways to collaboration
with larger chemical firms due to the removal of some of the risk from potential
competitive innovation.
Sodium silicide initially seemed like a perfect fit for hydrogen fuel cell develop-
ment (Figure 6.8). Even so, as SiGNa discovered, having a powerful technology plat-
form is not enough. There needs to be market demand and industry infrastructure.
While the company was able to generate revenue from its hydrogen fuel cell appli-
cation, it became clear after several years that SiGNa could not scale the business
based on the model it had initially projected. It was not in control of its own destiny
as it depended on numerous other business partners and vertical market channels
to commercialize even the simplest products.
Keep in mind that SiGNa was a well-financed, early-revenue startup. A lot of new
companies simply do not have the capital, the people resources, and/or the lead-
ership to survive a false start. Scaling a business in the chemical industry usually
takes lots of time and money. However, SiGNa’s management team and investors
were convinced that they could solve multiple industry problems with a product that
was uniquely able to safely deliver the reactive properties of alkali metals and their
derivatives to react with water to generate heat, a pure stream of hydrogen, and pro-
duce an alkali by-product – all without the associated hazards associated with past
attempts at similar solutions.
The inflection point for SiGNa was the decision to apply its technology to heavy
oil recovery. The company began exploring opportunities in the CHOPS market
(see related case example) and quickly realized that there was a billion-dollar
market opportunity with the chance to scale. SiGNa had a solution to a big problem:
70–90% of heavy oil in CHOPS oil wells cannot be recovered using conventional
technology, and the industry was searching for low-cost methods to reenergize each
Figure 6.8 A schematic showing a

generic fuel cell with hydrogen and
oxygen inputs.
well. SiGNa’s solution provides a way to alter the confined oil’s properties to enable
higher recovery yields.
Once SiGNa conducted a new opportunity/risk assessment, the decision was made
to shift a large portion of its resources to pursuing the CHOPS strategy in the oil
and gas industry. By this time, SiGNa was no longer a startup, but shifting its focus
required all of the market research and due diligence that a new company entering
a market has to conduct. It also required reevaluating the best paths to market and
the most effective strategies for scaling.
Developing a customer base in the chemical sector requires more than just a good
idea and unique product. Ultimately, it is products that sell, not ideas. Startups in the
chemical sector have to determine how their solution can be turned into a product
that can be successfully scaled. As discussed earlier in this chapter, market segmen-
tation and business planning are tools for developing an opportunity matrix that will
serve as the roadmap for a startup company.
It is important to test your assumptions and your data as quickly as possible to
determine if you are on the right track. That is, can you produce a product that deliv-
ers results at a price customers are willing to pay? Your strategic roadmap will help
keep you on course toward the right market niche or niches. If you head down the
wrong path, you need to alter your plans accordingly – before you run out of time
and money.
Ultimately, your strategic market segmentation will form the foundation for a
comprehensive business plan that will need to be malleable enough to evolve as
you learn more about customer demand and market forces that may impact your
product.
Key Takeaways
1. Strategic market segmentation requires that entrepreneurs analyze and

assess their potential customers based on demographic characteristics that
are consistent with whatever you are selling.
2. A fundamental starting point for companies hoping to scale a new innovation
is determining whether they have a solution for an existing problem or a
solution that is looking for a problem.
3. When it comes to identifying potential opportunities, entrepreneurs should
start by understanding the landscape of how people might use a particular
technology solution.
4. Once a company determines the most viable applications for commercial
development, the next decision is to choose the best path to market.
5. As a business begins to scale, it needs a technology roadmap – which is a key
tool for helping a company to map and assess its short-term and long-term
product and commercial development goals.
6.3 Building Economies of Scale

The term “economies of scale” is a market fundamental that will ultimately dictate
everything from a company’s price points to its margins (Figure 6.9). As a company
grows, it should start to see advantages that translate into unit costs decreasing as
volume increases. This reflects, for example, factors such as relatively fixed costs for
administrative functions and higher costs for developing a manufacturing facility
than for incremental increases in ongoing production.
Any company hoping to scale and grow in the chemical sector has to begin with
a fundamental understanding of where its technology fits in the overall ecosystem.
Scaling is essential for growing companies in the chemical sector that hope to carve
out a profitable niche in the market. This is the foundation on which the company
will make mission-critical decisions.
It is important to understand that growing and scaling are not the same thing.
Growth may include increasing sales and revenue, hiring new personnel, and
ramping up production. However, growth often comes at the expense of efficiency.
Sometimes a company will make decisions, such as outsourcing production, based
on the need to meet short-term demand. Even so, that kind of growth can lead to the
development of an enterprise that ultimately does not have the right infrastructure
to scale. Scaling organizations need to remain diligent in their goal to deliver
the best product and services to their customers. They need to employ the best
people, tools, and procedures – without becoming overwhelmed with excess that
leads to shrinking profits and bloated organizational structure.
Efficient
production
Spread
risk
Buy in
bulk
Economies
of scale
Reduction in
promotion
/cost
Reduction
in logistics
cost
Cheaper
capital
Figure 6.9 Factors essential in developing economies of scale.

Building economies of scale is all about making strategic decisions that consider
everything from how to add efficiency in a manufacturing process to how to deliver
a product to market in the most cost-effective and logistically efficient way. One of
the basic tenets of scaling is a constant focus on efficiency. Rapid growth can lead to
everything from overstaffing to investing too much, or too little, in scaling require-
ments, like production capacity. Scaling also requires entrepreneurs to become mas-
ters of resource utilization and to understand and right-size the organization’s mix
of people and resources. Scaling occurs more easily, and with less conflict, when
the team moving it forward has a shared mindset on which initiatives to focus on
and on which are worth ignoring. As a company scales, it has to assemble an agile
team, with the ability to work together in areas that may not be their core expertise.
Successful scaling requires high levels of accountability and an unwavering com-
mitment to excellence. Perhaps the most challenging is developing an infrastructure
that can grow and adapt to change – without the need for fundamental changes to a
company’s organizational structure.
There is also a balancing act inherent in scaling. The entire focus on growing
a company needs to be on developing and delivering great products and services.
However, from the beginning, there needs to be a system of financial accountability
that provides checks and balances on spending. As a company scales, it must watch
every penny. It is important to be frugal to avoid overbuilding and to manage over-
head costs. Judicious management from the beginning sets a baseline that can help
to create value as a company grows. The most prudent way to keep a laser focus on
company cash spend, or burn, is to manage a daily cash sheet that accounts for and
reconciles the corporate bank account. This includes ensuring that daily purchases
by either cash, check, or credit are balanced against any account receivables. Small
companies are constantly focused on delivering great products and services to the
customer. Nevertheless, as they scale, organizations can become bloated as they
implement rules, processes, and organizational structures to protect the bottom line.
Growing companies also need to guard against too much organizational complexity.
6.3.1 Gaining Customer Traction

Scaling is also about gaining customer traction, which starts by understanding what
the target market needs and how a new solution is going to help to solve a spe-
cific problem. In the chemical industry, prospective customers will want proof that
a product works in the field and on the manufacturing floor – sometimes in a non-
ideal environment – not just in the lab. Entrepreneurs who are armed with a product
roadmap and a well-defined target market need to always have one eye on sales
as their business scales. A good idea has no market value unless buyers are will-
ing to pay for it. This has, for example, been a challenge for the sustainability of
green-chemical movement in chemical startups.
Building customer relationships is a scaling process of its own and should start
long before there is a product ready for sale. Startups in the chemical sector need
to start talking to prospective customers early in the development process. Meeting
with prospective customers will help with a wide range of planning steps. These
connections can also help young companies identify a corporate champion that can
help open a commercialization pathway through the sales pipeline. First and fore-
most, those meetings will help quantify the market demand for a product or service.
Understanding customer pain points is also essential. Many startups make it
a point of focusing on informational meetings before even thinking about sales.
SiGNa, for example, spent a lot of time cultivating relationships in the CHOPS
market by attending industry conferences and meeting with both managers and
technical experts at potential customer companies. Just as a company needs to scale
internally, it needs to scale its relationships with key external stakeholders (see
related case study).
Partnering with prospective customers also provides a way for growing chemical
industry companies to test new innovations under real-world field conditions.
Industrial and research partnerships can help a growing company with R&D and
often with cash flow. In some cases, leveraging partner resources also can help
reduce costs and lead times associated with a proof of concept.
Finding “early adopters” and “champions” for a new product is critical as a com-
pany scales. Buyers at big chemical companies are unlikely to be interested in a
product without a track record, but going into a pitch meeting with an order from a
leading player in a target niche provides credibility and often reduces friction in the
early part of the sales cycle.
6.3.2 Customer Testimonials

One best practice for bolstering early sales is customer testimonials. Once a customer
has success with a product, it is often worth offering a discount for a limited time-
frame as an incentive for being able to document how well the product worked for
that customer. For example, going into a meeting with a testimonial from a buyer at
a Fortune 500 organization, such as ExxonMobil or Clariant, provides instant credi-
bility for the seller.
Companies with a viable solution to an industry problem usually will not have a
hard time getting a meeting with buyers. The key is approaching every meeting with
a keen focus on how the product or technology will benefit the buyer’s company.
Scaling requires incremental growth that often starts with customers who represent
the “low-hanging fruit.”
6.3.3 Pricing Models

Those early information-gathering sessions with customers can help a company
determine product price points and potential margins. Pricing requires a company
to understand where its sweet spot is between what it needs in order to make a
profit and what the market will bear.
To the extent possible, companies should start selling their product at a price they
anticipate will work when they reach scale. This often means selling at a lower mar-
gin as the company ramps up and builds the infrastructure needed to support its
optimal pricing model. Startups in the chemical industry often set initial pricing that
factors in the goal of working with a customer for proof of concept, reputation build-
ing, and technical feedback. Providing pricing discounts in exchange for building
market credibility is often a good way to establish a foothold in the marketplace.
Still, it is important to establish a realistic pricing model from the start – one that
reinforces the value proposition for customers. Establishing a clear pricing model
will limit the constant back- and-forth negotiations with potential customers about
discounts.
One example of a successful pricing strategy is for a new market entrant to sell at
lower margins to niche market buyers in order to establish itself. Once the company
has a track record of success, it can more easily sell to larger companies – at higher
margins.
6.3.4 Market Entry and Initial Sales

When a company is scaling, early revenue is better than no revenue because it
demonstrates that there is interest in the marketplace. Generating sales also will
help an early-stage company manage cash flow and will reassure investors about
the viability of the company’s product in its target markets.
Companies in the chemical industry often sell different “grades” of product
depending on their specific applications. Pricing models can also be influenced by
regulatory requirements and market demand. Sometimes, for example, the same
product might command a higher price in one market than another.
The classic challenge as a company scales is to find a niche in the market and
to start selling as soon as possible. This is especially true for companies with lim-
ited capital resources and/or investors anxious for an ROI. It is important to get to
breakeven as quickly as possible. That means adhering to an important rule when it
comes to scaling: keep costs down as volume increases.
Sometimes a company’s first development for a market will not be its biggest one.
However, establishing an initial revenue stream and proof of concept often helps a
company cover its burn rate, assemble a bigger team, and scale up production pro-
cesses. If a pivot is necessary, a company that has prudently scaled its growth might
have a better chance at changing direction than another business that has simply
run out of cash.
The sooner a company can start selling, the better. Until those first sales are made
and product is shipped, a company’s innovation is still more a concept than reality.
Those first sales also mark a critical juncture at which all of the infrastructure a
company needs to scale is in place. Once that market demand starts, it is essential to
be able to deliver on the promised commercial plan. Failure to be ready could mean
losing an essential springboard to scaling to the next level. The chemical industry
can be a relatively small universe, and reputations can be tarnished quickly.
This industry is also unique because it can take years before a product is ready for
market. This means companies are sometimes in scale-up mode for up to a decade.
One of the big dangers in the chemical industry, and one that makes investors wary, is
spending $100 million to build a $10 million company. Investors bank on companies
they think have the potential to scale big enough to compete in the chemical sector.
Still, because of the combination of the long ramp for scaling and what can be sig-
nificant barriers to entry, many new innovations originate inside of large companies
that have the financial resources and infrastructure to support long R&D lead times.
Finding a niche for market entry can help a company refine and test its technology
as it scales. Existing players in subsectors of the market also might be potential R&D
partners and/or early customers. In the chemical sector, bigger companies are much
more likely to allocate their research and investment dollars into their own R&D
programs rather than invest in a high-risk startup. For chemical entrepreneurs, this
makes it more challenging to find industry partners as their technology develops.
6.3.5 Focus on Measured Growth

As a company scales, entrepreneurs need to be laser-focused on growing the busi-
ness. This focus requires patient investors who understand and embrace the com-
pany’s strategy for growing sales. Young companies often fail because they try to do
too much themselves or because they attack a market that is too difficult to penetrate
at their scale and ability. Whether in its initial incarnation, or in pivot mode, growth
requires companies to focus on product and customer development as in-house pri-
orities. This may necessitate outsourcing as much of the organizational and financial
management as possible.
Initial sales will be driven by a company’s R&D and its ability to produce at scale.
Sales have to be backed up by an infrastructure that can meet growing market
demand. Industry partners can be important champions in helping a company
with both initial sales and growth. In the chemical industry, sales often come from
cultivating champions throughout a buyer’s organization. Those champions, who
understand and want to use a particular solution, are often the ones who sway
skeptical colleagues. However, it is important to build champions at multiple levels
within the customer organization. Larger companies tend to shift employees every
12–18 months, which challenges consistency and progress.
Identifying prospects should be relatively easy for companies that have already
conducted extensive market due diligence and have worked to establish strong con-
nections within the industry. Lead generation is also not generally an issue for a
company that has established connections with its target market, and that is selling
an innovative solution.
In building a business, an entrepreneur also should carefully consider how every
new board member and every new customer can ultimately help drive sales growth.
Companies should utilize carrots, such as potential stock options, to help incentivize
experienced people to join the company’s operational team. Every early-stage com-
pany should also have both technical and business advisory boards that can help
champion its cause, solve problems, sell the value proposition, and open doors to
potential customers.
6.3.6 Direct Sales vs. Distributors

Another important decision as a company scales is whether to build its own sales
team or to rely on distributors. Of course, every entrepreneur has to be able to sell
all stakeholders on his or her company, technology, products, and value proposi-
tion. However, some companies may ultimately use distributors to get products to
their end users. In the chemical industry, distributors can help open up new market
channels and handle the burden of servicing smaller orders.
Nevertheless, it can be difficult to manage distributors. What is more is that distrib-
utors often sell comparable, or competing, products that address a similar customer
pain point. These distributors can never singularly focus on just one product or
one supplier. Moreover, with new proprietary products, entrepreneurs have to trust
distributors to educate their sales force on the unique value proposition of a new
solution and, often, on the technology itself.
As a company scales, having a direct sales team enables the company to always
have personal touch to its customers. The value of direct contact is constant techni-
cal and market feedback from the end user. Where a distributor might just forward
superficial feedback, a company’s own sales team can get granular details on how
well a product is working and what else can be done to meet and exceed customer
expectations. For companies interested in scaling an innovative solution, direct rela-
tionships lead more directly to big sales.
Regardless of the sales strategy a company chooses, everyone in an early-state com-
pany needs to be selling at all times. Anyone who has seen David Mamet’s classic
Glengarry Glen Ross – on Broadway or on screen – is familiar with the edict to follow
on a fundamental “ABC” sales rule: “Always Be Closing.”
This means that top management needs to engage in building and maintaining
relationships with important customers. Company founders, in particular, are the
best sales representatives for their company. Every meeting with every customer has
to further the goal of selling the company’s value proposition and solving a problem
for the customer.
Every sales strategy must also be supported by an infrastructure that can scale in
order to deliver as promised. Nothing is potentially more damaging than not deliv-
ering a product that performs as promised.
Another factor entrepreneurial companies must consider early on is their exit
strategy. Successful IPOs are challenging in the chemical sector as the industry does
not produce organizations that have the same appeal and allure to investors as com-
panies in sectors such as biotech and IT. No matter how sustainable and green a
chemical business claims itself to be, there is an overall perception of the industry
associated with some of its dirtier, pollution-generating segments. Also, chemical
products are typically harder for the layperson to understand. Because an IPO is
unlikely, the most likely exit strategy for startups looking down the road is a merger
or acquisition. Selling for a premium means the company has to reinforce its value
proposition every step along the way.
6.3.7 Testing and Pivoting

Scaling often means growing pains, which sometimes includes going down the
wrong path. The key is to test, fail fast, learn, and keep moving forward (Figure 6.10).
Every failure is a lesson. Companies that learn from their mistakes often use that
knowledge to improve. Those improvements could relate to everything from
Figure 6.10 A company’s path

forward requires flexibility at every
challenging inflection point along the
way.
product packaging and delivery strategies to target markets and product mix.
SiGNa, for example, learned important lessons from its foray into the hydrogen fuel
cell market that helped it move more successfully into the oil sector.
When SiGNa made the decision to pivot from focusing on the hydrogen fuel cell
market to focusing on the oil and gas industry, it was an informed decision. The
company understood the limitations it faced in the fuel cell market and saw a much
clearer path forward as an oil service company. One lesson SiGNa learned was that
the company needed more control over its market to grow. The company had been at
the mercy of a slowly evolving and nonstandardized fuel cell market. However, the
CHOPS recovery sector of the oil market promised to put the company on a much
faster and more controlled growth trajectory (see related case study).
In many ways, companies considering a pivot must rethink their core value propo-
sition and their technology roadmap. From there, the question is often whether the
company can survive at scale and be reborn as a startup while it pursues its new
market strategy.
Remember, growing and scaling are not the same thing. Growth is reflected in
factors such as hiring new employees and increasing production. Even so, scaling
is about a company’s ability to build a flexible organization that balances costs and
revenues to ensure profitability and long-term growth.
To achieve economies of scale, startups need to cultivate a growing customer base
by developing and testing production and pricing models that lead to sustained
growth and profitability. Scaling requires a focus on “measured” growth. As a
company grows, it needs to protect its profit margins while, at the same time,
delivering on price and quality for its customers.
Finally, entrepreneurs have to test, test, and test. Successful scaling may require
a startup to make adjustments in its strategy, adjust its roadmap, and, sometimes,
pivot in a completely different direction.
Key Takeaways
1. Scaling is essential for growing companies in the chemical sector that hope
to carve out a profitable niche in the market.
2. Building economies of scale is all about making strategic decisions that con-
sider everything from how to add efficiency in a manufacturing process to
how to deliver a product to market in the most cost-effective and logistically
efficient way.
3. Scaling is also about gaining customer traction, which starts by understand-
ing what the target market needs and how a new solution is going to help to
solve a specific problem.
4. When a company is scaling, early revenue is better than no revenue because
it demonstrates that there is interest in the marketplace.
5. Whether in its initial incarnation, or in pivot mode, growth requires compa-
nies to focus on product and customer development as in-house priorities.
6.4 Growing to Commercial Scale

Strategic planning and execution, which includes everything from market segmen-
tation to infrastructure development, are the building blocks in a company’s growth
to commercial scale.
Going from concept to commercial scale is the holy grail in the chemical sector.
It is a long and expensive process that requires selling investors on an idea to transfer
technology from the lab to the market and on the ability to iterate on product pro-
duction. Growing to commercial scale is a process that can take a decade or longer,
depending on the product and the market niche.
Achieving commercial scale requires throttling a company’s burn rate and mak-
ing sure that unforeseen issues do not derail the company before the product ever
gets to market adoption. This means understanding market conditions, managing
costs, and being very cautious about betting big on one solution that solves a single
problem.
6.4.1 Best Practices

While there is no handbook for scaling a chemical industry startup, there are some
fundamental best practices. Most important is gathering empirical evidence that the
technology being commercialized is really going to solve one or more problems in
the marketplace. A new product has to ultimately help customers improve their
bottom line.
Growing to scale in the specialty chemical industry is especially challenging

because of the long time-to-market and capital constraints. However, viable solu-
tions can translate into high volumes, with gross margins of 30% or more. For
investors, the inflection point for ROI often correlates directly with a company’s
ability to reach full-scale production capacity.
Investors need to understand that specialty chemical margins are usually higher
than those for commodity chemicals. Because the commodity chemical market is a
lower margin business, it can be difficult for a company to compete in. For example,
Genomatica, which specializes in sustainable bioengineering products, struggled
to establish a foothold in the marketplace. The company had to overcome signif-
icant barriers to entry, including a lengthy and expensive development timeline.
It also had to overcome negative public perception of the biotechnology sector and
an inherently risk-averse culture within the chemical industry.
Yet now, according to a Polyestertime report, Genomatica has made strides in its
quest to develop commercial bio-based chemicals used in the production of sustain-
able everyday products, from plastics and cosmetics to nylon and tires. The com-
pany’s BrontideTM bio-butylene glycol, which won the ICIS Innovation Award, has
been rated number one in delivering sustainability technology by the mainstream
chemical industry.
Initially, a company needs to scale to the point where it can ship product every day
to generate positive gross margins. That revenue not only will support operations
and growth but also will prove to the market that the company has a viable solu-
tion. This will set a solid foundation for achieving positive cash flow as the company
continues to grow.
Scaling also requires the ability to make prudent strategic decisions. SiGNa, for
example, had to decide whether to outsource production or build a pilot plant of its
own. Once the decision was made to handle production in-house, the company had
to balance its initial investment in a pilot facility, at a cost of less than $5 million, with
the potential need to invest six times that amount to achieve full-scale production
capacity.
Many manufacturers prefer to outsource production in order to reduce their ini-
tial capital-intensive investment requirements. These companies are willing to trade
off a degree of control over both their technology and the production process in
exchange for off-loading some variable overhead costs. However, there is the risk
of not meeting promised sales volumes yet still being required to pay for a minimum
produced by third-party tollers. Outsourcing also will result in higher per unit pro-
duction costs and lower margins. However, for some companies, the trade-offs make
sense.
6.4.2 Financing
Successful companies in the chemical sector must find ways to finance their
growth over what can be a long time to market (Figure 6.11). Often that funding
comes from a combination of outside investors, government or university research
contracts, and/or partnerships with existing or potential customers.
Figure 6.11 Growing a business in

the chemical sector often requires
patient investors during a long time to
market.
Financing is the lifeblood for any company trying to scale its growth. For
example, federal and state governments represent potential customers and can
sometimes support a company’s development and growth with contracts, grants,
loan guarantees, and funding. The US Department of Defense (DOD) spends more
on procurement contracts than all of the other federal agencies combined. In 2017,
DOD spent $320 billion on contracted products and personnel based on a list of
categories including chemicals and chemical products. Another federal funding
source is the US Department of Agriculture (USDA). The USDA’s Section 9003
Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance
Program provides loan guarantees of up to $250 million for construction, develop-
ment, and retrofitting for new and emerging technologies for fuels, chemicals, and
other products produced using renewable biomass.
Scaling a business in the chemical industry, like in any market sector, requires a
strong financial base. Once a company enters a rapid growth cycle, it should have a
good handle on all of its fixed and variable costs, from administration and production
to logistics and customer support. Making projections related to growth depends on
how well a company understands its market. Once there is a proven market demand
and quantifiable target market, sales goals can be adjusted based on the company’s
data during its ramp-up phase.
Financing growth should become easier as a company scales. First, the company’s
own cash flow may be a source for financing growth. Beyond that, a proven sales
track record should enable the company to utilize conventional financing, such as
bank loans and bonds, to help finance its operations. Venture capital investors will
come in with an exit strategy in mind, so growing companies that choose that route
need to be on the same page with investors in terms of projected growth and scale.
Even startups that scale big are almost by definition going to remain niche players
in a trillion-dollar chemical industry dominated by large multinational corporations.
SiGNa, for example, decided to pursue what is a relatively obscure part of the oil and
gas sector, the CHOPS market. Even with hundreds of millions of dollars in revenue
each year, SiGNa is still a niche player (see related case study).
Chemical companies that can scale over time may operate for years as part of the
larger ecosystem or may ultimately be sold to one of the big players. Investors are
most likely to support whatever growth strategy provides the best return on their
investment. Since IPOs are rare in the chemicals sector, many startups grow with an
eye toward ultimately selling to one of the industry giants.
6.4.3 Growth Constraints

Managers of growth companies always have to be aware of potential constraints. One
constraint as a company scales is its sales capacity. Companies selling their products
themselves are likely to have a limited number of dedicated sales representatives in
the field.
Another potential constraint is production capacity, which the ability of a com-
pany to meet customer demand as it scales.
Finally, a third potential constraint is the market itself. The oil and gas sector, for
example, has historically been subject to boom and bust cycles. For an oil services
company, a market downturn could adversely affect its financial projections but, if
properly capitalized, can also present significant possibilities for growth, expansion,
and vertical integration. SiGNa, for example, took the opportunity to vertically inte-
grate downstream when oil prices collapsed in 2015–2016, from over $100 per barrel
to about $30 per barrel. The company acquired its own CHOPS oil wells and used its
chemical product to increase the daily production rate in those wells. This provided
both a new profit center and a test bed for its products.
Companies that are manufacturing a product themselves also need to consider
constraints that could range from the inability to source raw materials to problems
in the supply chain that impede product delivery. Cash flow is, of course, an ongo-
ing constraint. Entrepreneurs must be especially careful about balancing costs with
investor expectations and financial projections.
6.4.4 Primary and Secondary Markets

Typically, companies that are scaling within the chemical sector will focus all of their
resources on a primary target market. For companies with an innovative platform
technology, the ability to compete in uncontested market spaces is a huge competi-
tive advantage but can be hard to find. For companies such as SiGNa, the core market
niche represented the potential for the company to reach a billion dollars a year in
sales.
While primary markets have to be a young company’s focus, secondary markets
can provide a hedge against market turndowns or the emergence of new competi-
tion. The amount of time and money that should be diverted to exploring secondary
markets depends on the unique situation of each company. Some companies may not
have the financial wherewithal to invest in noncore activities. For other companies,
secondary markets may be too difficult or time-consuming to penetrate.
However, for companies like SiGNa, secondary markets that dovetail with a pri-
mary market can enable a company to leverage its existing resources in order to
diversify. For instance, both the hydraulic fracturing and shale oil extraction mar-
kets have similarities to the CHOPS market. This means SiGNa has been able to use
its success in the CHOPS niche to help it move into these secondary markets. Ulti-
mately, these secondary markets have presented an even bigger market opportunity
for the company than its initial target market (see related case study).
Growth companies with good economies of scale can often leverage existing
infrastructure to help with diversification into new markets. Once a company has
started to scale, it has the advantage of largely fixed overhead costs. Moreover,
production startup costs may be covered, and historical unit costs can be used to
accurately determine costs for labor, raw materials, manufacturing, and logistics
when entering into a new adjacency.
Those same metrics are also valuable for helping a company make realistic finan-
cial projections. Once costs and potential sales can be accurately predicted, a com-
pany should be able to determine what its day-to-day cash flow needs are, what its
breakeven point is, and what it needs to do in order to boost margins.
The burdens of scaling can be disastrous when bad assumptions are made about
new markets, employees, or customers. As a company scales, it must develop its own
proven models and best practices. Scaling is not just a challenge when it comes to
growth, but also a question of balance. Sometimes reducing investments and scal-
ing back is the right strategy for optimizing a particular process. Scaling requires
the ability to shift gears quickly while allowing for multiple perspectives to guide
mission-critical decisions.
Entrepreneurs also must understand that what enabled a company’s proof-of-
concept phase of growth might not be the right solution for realizing commercial
scale. Management must constantly address a company’s short-term needs while
simultaneously refining its big picture goals as new information comes in and
market conditions change. To scale well, entrepreneurs should be wary of the path
of least resistance and work to build a culture where collaboration and creative
thinking helps the company develop and implement innovative solutions.
6.4.5 Insource vs. Outsource

As a company scales, it needs a strong core scientific, application development, and
production team. For manufacturing companies, the challenge is to leverage the ini-
tial core team to get to the point that the pilot plant is operational and the company
is shipping reliable product. Once commercial production reaches critical mass, the
company will begin maximizing its value.
Thanks to the proliferation of Internet technology, much of the administrative and
network infrastructure to support a company’s initial operations can be outsourced
relatively inexpensively. However, as a company scales, decisions have to be made
regarding when in-house expertise becomes more cost-effective than outsourcing.
Executives also cannot be afraid to surround themselves with people that are
smarter than they are. A company that is scaling in the chemical sector needs to
be managed by an experienced team of long-term thinkers who understand what it
takes for the company to reach its goals. The best practice for change management
is an “open” environment. Persuading people to take positive actions that can be

seen by everyone can provide a framework for excellence. It is much harder to break
a commitment once it is stated publicly. Management needs to lead by example,
but excellence has to be part of a company’s DNA – starting and spreading from
anywhere and anyone in an organization.
Some scientists-turned-entrepreneurs may have the passion, the patience, and the
skillset to manage a company through a decade-long scaling process, but often com-
panies will grow to the point where they need an experienced CEO and/or COO to
handle the day-to-day operations. As a company scales, the most important person
in the company changes every day. Sometimes, it is the person that can figure out
strategy, sometimes it is the top salesperson, and sometimes it is the logistics guru
that can figure out how to get a product through customs halfway around the world.
Over time, as a company grows, the importance of various functions should begin
to even out.
Growing to scale usually requires adding managers with expertise in sales, produc-
tion, logistics, and operations. Establishing the framework needed to scale should be
part of a company’s initial startup plan. By the time a company begins to scale, it is
important to already have a foundation on which to build and an understanding of
the costs and benefits related to various job functions.
6.4.6 Growing Too Fast

Sales growth is priority one for companies that are trying to scale (Figure 6.12).
The most common problem for young companies is not growing fast enough. Even
so, it is also possible to grow too fast. Among the most common dangers of growing
too fast are not being able to fill customer orders on time and not having the corpo-
rate structure in place to manage growth. Uber, for example, hit some speed bumps
as its rapid growth led to problems ranging from the treatment of its drivers to how
women were treated within its corporate culture.
Figure 6.12 The ability to generate

revenue growth is essential for
companies that are trying to scale.
Figure 6.13 Maximizing the production of wells requires a combination of the right
technology and right skills.
Companies that fail to meet customer expectations can quickly turn the benefit of
increasing sales into a liability. First impressions are important for young companies.
This means promises need to be kept. Customers need to receive products on time
and in perfect condition. Although a company may offer a novel product, there is
always a competitive technology lurking, even indirectly, in the shadows. This is par-
ticularly true for companies in mature industry sectors with lots of well-established
competitors.
Companies that are scaling also need rigorous quality assurance standards. Noth-
ing will undermine a company’s growth trajectory faster than gaining a reputation
for delivering substandard products. As companies scale, they have to invest in the
people, the technology, and the processes needed to ensure that when a product
ships, it will perform exactly the way the customer expects it to.
Growing companies also have to put infrastructure in place to support customers
from pre-sales through post-sale. In the chemical industry, it also is essential to
prioritize safety, from the manufacturing production line all the way through to
product performance in the field. When SiGNa launched, for example, it received
an immediate order from one of the world’s largest pharmaceutical manufacturers.
Nevertheless, after using the product, the site operator saw no reaction with the
substrate, and the SiGNa product “vanished” in the reaction vessel. Because it had
a customer service follow-up strategy in place, SiGNa learned that the operator
changed the solvent tetrahydrofuran (THF) to water. The operator believed that
water was appropriate because the product was advertised as “non-pyrophoric,”
meaning it does not ignite in the presence of water. While SiGNa’s chemical does
not ignite with water, the customer did not realize that it still reacts with water. Once
they understood they had to use the recommended solvent, the problem was solved.
Scaling also requires the ability to meet new market demand, including the ability
to diversify geographically. For many companies, this means building the infrastruc-
ture required to support exporting. Product diversification can also help a company
scale. This can be especially beneficial if a company can leverage its initial market
entry to introduce new products to existing customers.
6.4.7 Hidden Landmines

Growth companies can control much of their destiny through careful planning and
good management. However, some things, such as changes in the marketplace, can
undermine even the most disciplined companies. Companies that are vulnerable
to changing market conditions may be able to insulate themselves by diversifying
into secondary markets. Others may ride out market changes by adjusting oper-
ational costs to meet demand. SiGNa, for example, has exposure to a market in
which customer demand can be significantly impacted by the price of oil. The com-
pany’s diversification into owning oil wells helps it hedge against losses. The wells
remained profitable, even at lower oil prices, because SiGNa uses its own technology
to increase yields and maintain profitability with lower margins.
One of the biggest risks for growing companies is that they become overleveraged
as they scale. Operating without a fallback strategy can put a company out of busi-
ness overnight. To guard against market downturns, for example, SiGNa has been
careful to grow its overhead in line with its cash flow. The company has the ability
to reduce production and overhead costs if demand declines. It also has secondary
revenue streams in the fine chemical and petrochemical markets, with more stable
pricing and margins to help it maintain positive cash flow.
Another hidden landmine as a company scales is overreliance on a single cus-
tomer. This is a common pitfall in the chemical sector. With a relatively small uni-
verse of buyers, companies often become dependent on a single customer for the vast
majority of revenue. The danger is that if that customer stops buying or readjusts
volumes in a negative direction, it can undermine a company’s cash flow.
Companies like SiGNa reduce their risk by focusing on multiple customers within
their target market. For SiGNa, this initially meant selling to all four of the lead-
ing companies in the Canadian CHOPS market, with a combined 40 000 wells in
its inventory. While SiGNa is still vulnerable to an overall market turndown, it is
insulated to some extent from reliance on a single customer (see related case study).
6.4.8 Overcoming Competitive Threats

Competitive threats are always lurking in the shadows. A company may start out
with a solution to a problem that gives it uncontested market space. However,
during the time it takes to get the product to market, a new technology may emerge
that solves the same problem better, cheaper, or faster. A company with a strong IP
portfolio, like SiGNa, is often better positioned to protect its market position than a
company with a solution that can be easily replicated or replaced.
Even companies with proprietary technology must be aware of potential competi-
tive threats from new companies or new solutions. Particularly in the context of what
can be a decade-long evolution to scale, the potential exists for a new competitor to
emerge from a basement, a university lab, or the R&D lab of an existing industry
giant. While a company may well have an innovative product, it will never have a
monopoly on knowing what the biggest pain points are needed to be solved within a
particular market niche. Chances are someone else is working to solve for any prob-
lem in which a solution might pay big dividends. Also, for companies that believe
they have found a product for a market with no competition, it might be because
the market is not as large as they think it might be or the pain point might not be as
simple to address as it seems.
It is not uncommon for growing companies to make decisions based on financial
projections that are based on market assumptions, which turn out to be significantly
different from market reality. A common mistake is for companies to make financial
projections based solely on their value proposition. Companies that are truly
prepared to scale need to ensure that their due diligence includes realistic variable
cost analysis. In the chemical sector, for example, a new company might think it
has a technology solution that is 10% less expensive than any competitor’s product.
However, they may not realize that the competitor is part of a bigger company that
is using the by-product of some other process to offer a competing solution that is
20% less expensive.
Perhaps the biggest mistake to avoid in the chemical sector is underestimating the
complexities of the marketplace. Particularly for companies that are competing in a
manufacturing environment, there are a wide range of potential hidden variables,
from problems sourcing raw material to surprise competitors. Companies that can
adjust to surprises and setbacks usually find their way forward, while companies
that get blindsided may never be able to recover.
To summarize, growing to commercial scale requires patience, capital, and keen
understanding of your markets and competition. First and foremost, you need to
ensure that your product is solving a real problem and that customers will pay for
your solution.
In the chemical sector, you will need patient investors willing to wait years for
a potential return on their investment. As you grow, you will need to establish a
foundation that will support positive cash flow and profitability.
Achieving commercial scale requires overcoming growth constraints, such as pro-
duction capacity or the number of trained sales representatives you have in the field.
You also need to cultivate secondary markets in the event of a change or downturn
in your primary market.
Finally, you have to be very clear on the size, scope, and complexity of the chemical
sector. There are a lot of hidden landmines for any growing company. In the chemical
industry, the market forces can be overwhelming, and success requires leadership,
financial acumen, and, yes, a really great solution to a problem.
Key Takeaways
1. Growing to commercial scale is a process that can take a decade or longer,

depending on the product and the market niche.
2. Initially, a company needs to scale to the point where it can ship product
every day to generate positive gross margins.
3. Successful companies in the chemical sector must find ways to finance their
growth over what can be a long time to market.
4. Companies that are manufacturing a product themselves also need to con-
sider constraints that could range from the inability to source raw materials
to problems in the supply chain that impede product delivery.
5. While primary markets have to be a young company’s focus, secondary mar-
kets can provide a hedge against market turndowns or the emergence of new
competition.
6.4.9 Case Study

6.4.9.1 ActiveEOR for the CHOPS Oil Sector
SiGNa Chemistry is a case study on how to identify a market niche after pivoting
through maintained optionality to achieve the commercial scale necessary for the
success in the chemical sector.
SiGNa, which developed a new class of industrial chemicals called stabilized alkali
metals, has been working for the past decade on scaling up an innovative solution to
help oil producers tap heavy oil from largely inaccessible wells. They managed this
success through achieving cash flow from other niche markets in fine and specialty
chemicals as well as fuel cell power generation.
More than two thirds of the world’s known oil reserves – more than 3 trillion bar-
rels of crude – are in the form of either heavy crude or bitumen.2 Heavy oil is more
difficult and costlier to recover than lighter grades due to its higher viscosity, lower
API, and limited mobility. Heavy crudes also typically bring lower refining yields
through processing. Together, these factors have traditionally made the economics
of heavy crude recovery unattractive for oil producers.
Nevertheless, increasing oil demand, limited inventory of lighter crudes, and ris-
ing oil prices over the past two decades have made heavy oil a more economical
and cost-effective option. The industry has also developed a number of techniques
to profitably recover heavy crude. Yet, even with these techniques, which include
flooding wells with water, chemicals, or gases, the heavy crude recovery factor is
much lower than those for lighter crudes.
Where recovery for a well with light crude might be 40–60% of the original oil
in place (OOIP), heavy oil wells typically recover only 5–15% of the OOIP, leaving
2 The term “heavy oil” is used to describe any oil with a gravity <20∘ API. API measures how
heavy or light petroleum is compared with water.
a tremendous energy resource trapped underground. Demand is growing for

technologies that can improve yield at an acceptable cost and that has presented a
valuable opportunity for SiGNa’s ActiveEOR technology.
SiGNa’s ActiveEOR was a new chemical technology with the potential to be a game
changer for the oil and gas industry. Additionally, as SiGNa’s team evaluated the
best path to market, it realized that this material’s applicability in the oil and gas
recovery segment was very broad. ActiveEOR can be used for oil recovery improve-
ment, hydraulic fracturing for gel breaking and enhanced microfracture creation,
downstream refining process improvement, and pipeline maintenance to remove
the waxes and asphaltenes that block oil flow. Each application must meet a differ-
ent set of customer requirements and product development processes, and, of course,
each will have different market values.
6.4.9.2 New Market Strategy

As SiGNa’s team learned more about heavy oil production, one niche market began
to stand out as the most promising entry market: CHOPS. Heavy oil reservoirs are
characterized by high oil viscosity and low reservoir temperatures that make recov-
ery difficult. CHOPS recovery utilizes downhole pressure cavitation pumps that help
facilitate the flow of oil by producing the reservoir containing sand along with the oil.
In the late 1970s, CHOPS technology was developed in Canada as a way to recover
oil from thin reservoirs. Over time, this technology has become the standard in heavy
oil fields in Canada, Venezuela, China, and Kazakhstan. The CHOPS sector is a
multibillion-dollar market.
While the CHOPS industry is a billion-dollar subset of the oil industry, producers
are only able to recover a very small percentage of the heavy oil in any given well.
In dollar terms, a CHOPS well might yield hundreds of millions of dollars over its
lifetime using conventional technology. If even half of the currently trapped oil could
be recovered, it would more than triple the yield from every well.
When SiGNa’s ActiveEOR product is injected into a well, it creates a chemical reac-
tion with the water already present in the formation to generate heat, pressure, and
alkali, which allows the oil to flow more freely. ActiveEOR is much less expensive
than other solutions, and more importantly, it is much more effective. ActiveEOR
increases yield in a CHOPS well by up to 400%.
6.4.9.3 Introducing a New Chemical to the Oil Market

SiGNa’s management team determined that the path to market in the CHOPS sector
would allow for the fastest market adoption and also set the foundation to launch the
product across the broader oil and gas industry by showing successful field applica-
tions and safe handling procedures. Making this decision proved to be critical in
SiGNa’s commercialization strategy, and the company has focused on scaling its
growth to serve this relatively unknown niche in the heavy oil market for nearly
a decade.
To successfully sell ActiveEOR into the oil market, SiGNa knew it first had to
understand the industry. SiGNa’s product development team spent more than a
year meeting with customers across the oil and gas industries. It worked with
industry experts, completed copious amounts of research, and performed lots of
lab simulations to test how well ActiveEOR performed. SiGNa received positive
responses from every oil producer it met with. While potential customers were
interested, they wanted to see more than just lab test results. This meant SiGNa had
to conduct field tests to prove that ActiveEOR would work.
The more SiGNa learned about CHOPS, the better it understood how it could solve
the market’s problems. For instance, when oil is extracted from an unconsolidated
sand formation, it creates void regions that resemble, and are called, wormholes.
These channels in the well are a deterrent to conventional chemical approaches for
decreasing the viscosity of heavy oil due to the limited contact made with the trapped
oil in the formation. However, those same channels turn out to be perfect conduits
for ActiveEOR to travel deeply into a well to then react to generate energy and pres-
sure to mobilize the formation’s remaining oil reserves.
6.4.9.4 Proof of Concept

In the CHOPS industry, the path to market was linear and well-defined. It ultimately
required SiGNa to demonstrate the technology’s effectiveness in real wells. This
meant either finding a contract partner to produce ActiveEOR for the company or
developing a pilot program to manufacture it themselves.
SiGNa’s tech team had to understand the application side of the business. They
had to learn everything about how their product would be used in the field. It took
about 18 months to ramp up the pilot manufacturing facility and put the supporting
infrastructure in place. Nevertheless, field testing with partners turned out to be a
slow process.
So, SiGNa purchased wells of its own that it could use as a test bed. SiGNa was
able to acquire wells that were no longer wanted by oil companies due to their low
oil production and high water production levels during their late life. Those wells,
along with results from active customer applications, demonstrated that ActiveEOR
increased recovery yields by three times or more in conventional CHOPS wells. An
unexpected finding during these trials was that the ActiveEOR chemical treatment
produced a higher quality oil through a secondary reaction of its silicate by-product
with the acid groups in the oil, which allowed the additional oil recovered to be sold
at a premium to the market.
The company also opted to develop its own manufacturing facility to have full
control over the process. They chose its first site in Rochester, NY, part of a former
Eastman Kodak facility, because it already had the required permits necessary to
ramp up SiGNa’s pilot facility and begin larger volume production. In the heavily
regulated chemical industry, choosing an existing industrial site helped reduce the
cost and potential regulatory scrutiny that would have been associated with opening
a green field production facility elsewhere.
SiGNa invested millions of dollars into its facility. Initially, the company began pro-
ducing just enough material to support its field trials. As operations started to scale
into larger quantities, additional funding was invested to expand and meet customer
demand and expectations.
Once the product was in widespread use, production scaled rapidly. ActiveEOR
is a consumable that has to be injected into a well every three or four months to
optimize its effectiveness.
Five Important Product Development Steps

● Complete a critical analysis of how to solve the big problems for the addressable
market.
● Bring in experts with industry perspective and experience in order to avoid rookie
mistakes.
● Build a full opportunity matrix and focus on the best go-to-market strategy.
● Beta test products to support early sales.
● Identify the best channel partners, and decide whether to build an in-house sales
team or outsource.
New heavy oil recovery technologies that are capital-efficient and economical are
urgently needed to help operators optimize yields from their oil fields. In situ reactive
chemicals, such as the one developed by SiGNa, offer significant promise to meet
the challenges of the heavy oil industry. SiGNa has demonstrated that its technology
solves for the limitations that have historically prevented the heavy oil sector from
maximizing production.
With billions of barrels of oil trapped in CHOPS wells, the opportunity for SiGNa
is huge. The company took a big risk, but that risk is now translating into an equally
big reward.
Key Takeaways
1. SiGNa’s ActiveEOR is a new chemical technology with the potential to be a

game changer for the oil and gas industry.
2. As SiGNa’s team learned more about heavy oil production, one niche market
began to stand out as the most promising entry market: CHOPS.
3. SiGNa’s management team determined that the path to market in the CHOPS
sector would allow for the fastest market adoption and also set the founda-
tion to launch the product across the broader industry.
4. To successfully sell ActiveEOR into the oil market, SiGNa knew it first had to
understand the industry.
5. SiGNa’s tech team had to understand the application side of the business and
had to learn everything about how their product would be used in the field.
6.5 Summary
Scaling a business in the chemical sector is the Mount Everest of business chal-
lenges for scientific entrepreneurs. First, it takes a true innovation to even have a
chance at carving out a niche in a $3.5 trillion global industry dominated by some
of the largest companies in the world. However, a good idea is just the beginning.
6.5 Summary 209
A scientist-turned-entrepreneur needs to be able to raise large amounts of capital

and be able to assemble the right team to help turn an innovative idea into a com-
mercial reality. Finally, scaling takes time, sometimes a decade or longer, and often
requires a constant process of refinements.
The market opportunity is enormous, and the potential payoff is substantial. Yet,
overcoming the challenges to scaling requires patient investors, innovative thinkers,
and, most importantly, a proven market demand for the new product or service. New
problems need new solutions, and there are plenty of opportunities for scientific
entrepreneurs in the chemical industry.
However, it is always good to have a solid understanding of market dynamics
before starting a business. As baseball legend Yogi Berra once said: “In theory, there
is no difference between theory and practice. In practice, there is.”
Growing a chemical business

A formula for success
The Growth
The Customer Competitive constraints Financing
Idea KPIs right solution traction pricing
niche
Entrepreneur- Strategic market Economies Commercial

Identify a ship The segmentation The of scale
Measured success
Start-up Testing Competitive Patience
problem strategy market growth threats
Seed The
capital opportunity Pivoting Hidden
matrix landmines
Suggested Reading
1 Penttila, C. 2006. Hiring executives with experience: independent companies seek

experienced execs to foster new growth, Entrepreneur, February 2006. Retrieved
from www.entrepreneur.com.
2 Boudway, I. (2011). Innovator Michael Lefenfeld’s offbeat power play. Bloomberg
Businessweek (March). Retrieved from www.bloomberg.com.
3 Kanellos, M. (2016). Will one grandfather’s bathroom break transform the oil
industry?. Forbes (1 August). Retrieved from Forbes.com.
4 Krumrine, P., Lefenfeld, M., and Romney, G. (2014). Alkali metal silicides: a new
material for heavy oil production processes. SiGNa Chemistry, Inc., Fifty Mile, Inc.
Society of Petroleum Engineers. Retrieved from https://doi.org/10.2118/169490-
MS.
5 Krumrine, P., Lefenfeld, M., and Romney, G. (2014). Investigation of Post CHOPS
Enhanced Oil Recovery of alkali metal silicide technology. SiGNa Chemistry, Inc.,
Fifty Mile, Inc. Society of Petroleum Engineers. Retrieved from https://doi.org/10
.2118/170141-MS.
6 Baum, R. (2012). Chemical Entrepreneurs. Chemical & Engineering News
(20 August). Retrieved from https://cen.acs.org.
7 Stastny, R.P. (2017). Cold heavy oil production gets a boost from CO2 -free in situ
heating tech. JWN (28 February). Retrieved from www.jwnenergy.com.
8 Ritter, S.(2012). Going commercial: Michael Lefenfeld. Chemical and Engineering
News (20 August). Retrieved from https://cen.acs.org.
9 Shih, W.and Zhou, Y.(2013). Cabot Corporation: The fuel cell decision (A) (B).
Harvard Business School, 8 January. Retrieved from Harvardbusiness.org.
Author Biography
Michael Lefenfeld is a serial entrepreneur, as well as a
seasoned executive in the chemical industry, having built
innovative chemical technology and services for the oil
and gas and industrial chemicals markets. Since 2018, he
has served as chief executive officer of Cyanco, the world’s
leading manufacturer and supplier of sodium cyanide to
the gold and silver mining market. Prior to joining Cyanco,
he was the cofounder and chief executive officer of SiGNa
Chemistry, Inc. Mr. Lefenfeld has also successfully built
companies to commercialize medical devices and systems in
drug delivery. He has a Master of Philosophy in Chemistry
(2007) and a Master of Science in Chemistry (2005) from Columbia University in
New York and a BS in Chemical Engineering (2002) from Washington University
in St. Louis. He has been awarded numerous accolades, including the Technology
Pioneer Award and Young Global Leader from the World Economic Forum and the
ICIS Top Chemical Power Player to Watch.
213
New Models to Foster Big Pharma and Chemistry

Entrepreneurship
Antonio Gómez
Discovery Sciences, Janssen Spain. C/Jarama 75A, 45007 Toledo, Spain
7.1 Introduction
Collaboration with large companies is one of the most interesting ways for would-be
entrepreneurs to succeed. It can come in a huge variety of approaches, from having
the large firms as the customers in a business-to-business model to licensing assets
developed by the small company or outright acquisition as an exit strategy. In this
section, we will talk about the interaction between established pharmaceutical com-
panies (Big Pharma) and the startup ecosystem. The current Big Pharma model is
based on collaborations and reliant on external providers, thus creating an extraordi-
nary opportunity for those willing to take this route. The possible approaches range
from fee-for-service where cost and flexibility are key added values to development
of novel assets or technologies. In fact, the possibilities are only limited by the imag-
ination of the entrepreneur to create and provide solutions to the drug discovery and
development challenges faced by Big Pharmas.
This is not an easy avenue and requires an important amount of skill and invest-
ment from the start, but rewards are very high for those who make it. As we will see,
many now large companies, mentioned as examples in this section, began their life
as small startups that were smart enough to identify the gap, which allowed them to
succeed. Also, if this is not rewarding enough, you cannot forget that you are work-
ing in the healthcare sector, with your goal being to develop new medicines that will
help people when they need it the most.
In this chapter, we will focus on the interaction between research-based Big
Pharma and chemistry-based startups. After introducing the pharma industry, we
will first look at how the Open Innovation model is now operating in this field to
then get more practical with an overview of the approaches (the how), the areas
of collaboration (the what), and meeting places (the where) relevant for would-be
entrepreneurs in this field.
214 7 New Models to Foster Big Pharma and Chemistry Entrepreneurship
7.2 Setting the Stage
The first thing that probably comes to mind when talking about Big Pharma is large
corporations trying to bring new drugs to the market. The concept of chemistry
entrepreneurship, which is the subject of this book, does not seem to be obviously
related to the goals and the tactics of the big pharmaceutical companies. In this
chapter, we will show that, in fact, the opposite is true and that there is a very rich
ecosystem of chemically based companies providing support and services to the
pharma giants. This follows a trend that is only increasing with the new models
being implemented in the industry.
It is true that one of the facts of Big Pharma is, as its name clearly implies, its size.
Pharmaceutical companies are huge. If we look at the statista.com list of largest com-
panies by market value in 2020, the first positions, not surprisingly, contain many big
technology firms such as Apple, Amazon, Microsoft, Facebook, or Alibaba. But we
find also companies dealing with finance, oil, such as Saudi Aramco, which occupies
the number 1 in the list, finance and, indeed, pharma. Johnson & Johnson takes the
10th position in the list with a total market value of 395.3 billion dollars. In the top
50, we also find Roche (14th , 297.4 billion US dollars), Pfizer (27th, 212.8 billion US
dollars), Novartis (35th, 193 billion US dollars), and Eli Lilly (50th , 148 billion US
dollars) with other companies active in the pharma business taking lower positions
in the list.
There must be something about pharmaceutical companies that makes them so
big. If we think about the common feature shared by all the pharma companies men-
tioned so far, it is the fact that they discover and develop new drugs, as opposed to
being providers of generics. This means that they are based on innovation. This is a
very long process that requires, as a first step, the discovery of a potential new drug,
either a chemical compound (a small molecule) or a biologic, and then the also com-
plicated stage of demonstrating that this candidate is suitable as a drug for humans,
which is carried out through clinical trials. With the goal being to make sure that
whatever is put in the market is not only effective but also safe, this whole proce-
dure is highly regulated and requires a lot of expertise and commitment to be able
to navigate it.
But probably the most important fact that makes Big Pharma so big is the sheer
cost of the whole process. According to the latest estimates, the amount of money
required to bring a new product to the market has risen to above 2.3 billion US
dollars, including both the discovery and development stages. Moreover, we must
not forget that this is a high-risk business. Attrition rates in late stages are very high,
meaning that in the case of failure, all the funds invested in a specific project are
completely lost.
These two characteristics, innovation and cost, mean that only corporations with a
great degree of expertise in the field and, probably more important, with the financial
muscle to properly fund the projects along the different stages and to sustain the
losses incurred when projects fail can prevail in this world.
7.2 Setting the Stage 215
Where does chemistry entrepreneurship get into this picture then? Being based on
innovation means that Big Pharmas rely on science. Furthermore, this is a moment
where the rate of scientific advance is higher than it has ever been. If they want to
be successful, and to be able to bring new products to the market, they must, on the
one hand, keep pace with advances in science and technology. On the other hand,
they also need to be smart enough to shape the innovation environment in order to
increase the chances of transforming basic science into new drugs.
The actual size of Big Pharma makes this task daunting. If it is true that the cost of
developing a new drug requires large companies, it is no less true that this comes
at a cost in agility and capability to make the most of the highly evolving world
of innovation. It is in this apparent contradiction that an ecosystem of supporting
chemical-based companies finds the perfect culture medium to thrive.
Let us now try to better understand what research-based pharmaceutical com-
panies are about. The discovery of new drugs is based on the hypothesis that
there is a correlation between an effect at the biomolecular level and its impact
at the phenotypic or clinical level. This means that, for a given disease, a specific
molecular mechanism inside the body has been demonstrated to malfunction. This
defect, through a cascade of events along the molecular, cellular, organ, and system
levels, gives then rise to the clinical manifestation of the disease. According to this
picture, the job of the pharma company is to discover a molecule that, by interacting
with the responsible biomolecules, fixes the problem and, thus, by going through
the same pathway, cures or alleviates the symptoms of the disease. On top of this,
in order to work as a drug, the compound will need to be able to be stable enough,
reach the site of action, and stay in the body for the right amount of time. This
behavior of the drug in the body is called pharmacokinetics.
The task seems difficult indeed, but over decades or work, the pharma compa-
nies have become very good at dealing with all these tasks, learning how to modify
the chemical structures of the small molecules so that they overcome the different
biological barriers while at the same time maintaining the primary activity of the
compound.
Not to say that small molecules are the only therapeutics around. Biologics, that
is, large biomolecules also developed by the pharma industry, joined humankind
therapeutic arsenal in the last decades of the twentieth century with the arrival of
the monoclonal antibodies (approval of IgG2a CD3 antibody muromonab in 1986),
and, ever since, new types of large molecules have been investigated as an alternative
or a complement to small molecules. Together with newer approaches such as gene
or cell therapy, they hold a big promise to deal with the unmet medical needs of the
twenty-first century.
For Big Pharma, the role of chemistry in general and of collaboration with small
chemical companies is mostly restricted to the field of small molecules. Even
though biologics are here to stay, synthetic technologies have also become much
more sophisticated and now allow for the preparation of novel types of molecules
that have widened the chemical space available for the identification of new
small-molecule drugs.
FDA-approved drugs
60
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NMEs Biologics
Figure 7.1 Number of FDA approvals of small molecules of biologics. (With data from
Nature Reviews Drug Discovery)
7.3 Big Pharma and the Open Innovation Model
Increase in life expectancy has been one of humankind’s greatest achievements.

Focusing in the United States, in 1920, it was 53.6 for a male and 54.6 for a female.
At the end of the century, it had reached 73.8 and 79.5 years. Although in the earli-
est stages it was mostly due to improvements in hygiene and sanitation, changes in
lifestyle and availability of new drugs for the deadliest diseases have then taken the
lead in the last decades, with the success of pharma companies along the twentieth
century taking part of the credit for this.
This model, however, at some point started to show signs of fatigue, and, in fact,
it is one of the key factors that have resulted in the current small company-friendly
environment. In the first years of the century, the decline in productivity of the phar-
maceutical industry was especially clear. This trend is clearly visible in Figure 7.1,
which shows the new drugs approved yearly by the US Food and Drug Administra-
tion (FDA), including both small molecules and biologicals.
There are many reasons to explain this decline in productivity, which basically
reflects the difficulty of bringing new drugs to the market. One of them is the fact
that most of the low-hanging fruit had already been harvested and that we are now
dealing with more difficult diseases, which have shown to be especially resistant
to the classical therapeutical approaches. On top of this, the fact that intellectual
property (IP) is the key asset for a pharma company had fostered a culture in which
most activities were carried out internally. External collaborations were kept to a
minimum, and, when they did go forward, it was in a way that made sure no risks
were taken for the confidential information of the company.
In fact, we can make no mistake; IP is still as important as it has always been.
Companies still need to recover the funds before the 20-year patent-expiration
period. Furthermore, competition from generics is very strong, as cash-strapped

governments worldwide try to reign in their pharmaceutical expenses. The situation
on external collaborations has, however, changed dramatically in the latest years
with Open Innovation being embraced as one of the new paradigms to reverse the
negative trend shown in the graph above.
Henry Chesbrough, the Open Innovation guru, defined it as “the use of purposive
inflows and outflows of knowledge to accelerate internal innovation, and expand the
markets for external use of innovation, respectively.” An alternative, simpler, defini-
tion that perhaps better explains its application to the pharmaceutical environment
is that it is no more than “innovating with others, sharing risks and rewards.” Even
though finding new drugs has always been a risky business, in the past, the chances
of success in bringing a new drug to the market were high enough to ensure that
the funds invested in the initial stages were recovered and that an attractive profit
was obtained. In the previous definition, the risk was not that high, so there was
no incentive to share the reward. In the new world, however, the chances of get-
ting a reward have diminished dramatically. The logical move has been to share the
risk. This applies to collaborations between Big Pharmas, which are becoming much
more common than in the past, and, more importantly for the topic of this book, to
reliance on external sources for many tasks that were formerly carried out exclu-
sively in-house.
In the biomedicine world, the Open Innovation paradigm is already firmly estab-
lished. One of the reasons is that it actually makes a lot of sense. In fact, we can
understand it as a way of distributing activities so that each stakeholder specifically
performs the ones he is more productive at. In the early nineteenth century, British
economist David Ricardo developed the theory of comparative advantages. Accord-
ing to his works, the productivity of an economical system improves if each country
or region specializes in those tasks that it can perform better. The principle is strik-
ingly similar to the one outlined for Open Innovation. In economics this theory can
actually result in perpetuating the differences in wealth between those areas special-
ized in the most value-added tasks and those assigned as source of raw materials or
nonspecialized labor force, all for the sake of economics productivity. In the field of
drug discovery, however, risks are neglectable compared to the promise of finding
solutions for unmet medical needs.
As a result of this shift, there has been an explosion in new ways of interaction
between pharmaceutical companies and other stakeholders. We have witnessed the
development of new models where there is a close contact between the scientists
in the two parties, resulting in a real collaboration where the input of the external
party, and not only the goods or assets that they provide, is one of the key features
of the deal.
In the new paradigm, Big Pharma still plays a central role, coordinating the work
carried out by all other stakeholders in the discovery phase, assuming a funding and
advisory role, and carrying out, also with the support of external companies, the bulk
of the clinical stage work. On top of that, we have the other actors, each focusing on
the areas where they are stronger (Figure 7.2).
Let us now review the role of each of these stakeholders in more detail.
Basic science
translationality
Acedemia
Innovation Alliances
Biotech CRO (FSP)
flexibility
Big
Pharma
Motivation Drive
resources Patient
Institutions resources
groups
Figure 7.2 Open Innovation scheme showing the different stakeholders and Big Pharma as
the central connecting node.
7.3.1 Universities/Research Institutions

When we think on the research that makes up the basics of the scientific world, it is
academia that first comes to mind. Academic research has always provided the sci-
ence that is at the base of pharmaceutical development. Moreover, this is not an easy
endeavor. Biology has proven to be more and more complex as we know more and
more about it. As first stated by the Greek philosopher Socrates, it looks as though
the knowledge that we acquire only allows us to be more aware of the complexity
that is still out of our reach. In fact, one of the main reasons of the failures to address
some of the still intractable diseases lies in the lack of understanding of the basic
biology of our body.
Also, this applies not only to biology. Developments in chemistry also rely on
advances carried out in the academic world. New synthetic organic chemistry
methodologies that open the way to preparation of chemical structures, novel
analytical techniques, or developments in the world of X-ray diffraction, just to
name a few, mostly belong to the realm or universities and research institutions.
Academia is the place where basic research is carried out, but it has always played
a role in applied research as well. This opens a very interesting possibility for collab-
orations focused in the gap between the early stages typically carried out in research
centers and the more advanced, asset-related ones that were formerly performed
exclusively by the Big Pharmas.
Finally, in a clinical setting, clinical academic groups from private or public hos-
pitals are also a source of expertise, in many cases providing advice to the pharma-
ceutical industry as key opinion leaders on different fields. On top of this, they are
also the source of patient data that is essential to provide translationality, that is,
making the link form the lab-based research that focuses on the molecular level to
the phenotypic or clinical level.
Academia is, thus, the place of choice for finding disruptive research, with the
nature of its investigation also allowing them the flexibility to deal with more chal-
lenging, risky avenues that would be out of the question for the pharma industry.
7.3.2 Biotech Companies

Biotech companies are the second key stakeholder in the drug discovery process.
Many of them are spinouts of academic groups, and, as such, for Big Pharma, they
provide the same advantages as academia, namely, flexibility and disruptive inno-
vation. Furthermore, the fact that a specific research project has crystallized in the
creation of a startup is a clear indication of the potential applicability of the tech-
nologies or assets that are being developed. This gives biotechs a degree of maturity
that very often makes them the preferred partners for industry.
Pharma companies are huge, which means that decision making often depends on
different levels of approval and ends up being a time-consuming process. Changing
priorities also requires shifting the agendas of different departments and staff, which
might not have the level of expertise necessary for newly identified priority areas.
Biotechs, on the other hand, are small, approval processes are straightforward and
fast, and they can easily adapt to changing circumstances. This lean structure also
results in an advantage at the time of negotiating and signing a deal, which can also
result in an advantage when compared with public institutions.
Biotechs can be seen as the way to move forward disruptive innovation resulting
from academic research. In the world of pharma, where later stages require large
amounts of money, the typical goal of biotechs is either to license their assets to larger
players or to be acquired altogether by one of the Big Pharmas. This means that they
are naturally open, and eager, to collaborate and are in fact the major partners of Big
Pharma for deals in the more advanced stages of the drug discovery and development
process.
7.3.3 Venture Capital

The yet unmentioned key resource necessary for the ecosystem to work is, not sur-
prisingly, money, and this is where venture capital (VC) gets into the picture. This
field is no different to any other, and new startups require funding to be able to
grow and finalize the development of the technologies they bring from academia
into more mature assets. Even though in many cases the initial funding is provided
by the so-called three F’s, that is, friends, family, and founders (or fools, according to
other versions), at some point in time the sheer needs of the projects require injection
of larger amounts of money from other sources.
Funding for pharma has two special features compared with other fields: risk
and infrastructure needs. We have already talked briefly about risk. With most early
projects ending in failure, you need to be very robust financially, like Big Pharmas
are, and to be prepared to play this game by having an intimate knowledge of the
field, with the need for a balanced portfolio being especially important. On the other
hand, risk is high, but rewards are also very high for those who make it. This has
resulted in an environment with no shortage of VCs willing to invest in biopharma.
Regarding the second key feature, if we compare the world of biotech with other
areas, such as information technology, infrastructure requirements are a key differ-
ence. Even though it might no longer be so common to start an IT company in a
garage, it is still much easier than for companies doing business in biotechnology.
The need for very specific equipment, be it sequencing machines, high performance
liquid chromatography coupled to mass spectrometry (HPLC-MS), or nuclear mag-
netic resonance (NMR) spectrometers, means that you need a huge upfront invest-
ment for a company to work. Although there are ways to leverage resources such as
science parks or incubators, the fact is that VC firms are crucial to make the whole
system functional.
Pharmaceutical companies, on the other hand, often also have a VC branch. In
this case, investments tend to be strategic, that is, in companies or areas of research
that are within the company’s priorities and with the market as the final goal.
Non-Big Pharma-related VCs, on the other hand, will normally put their money in
a startup with an exit strategy in mind. This means that they will de-invest when
they consider it is the best moment to maximize their ROI (return of investment).
This de-investment very often takes the shape of selling of the whole company or
out-licensing their assets to Big Pharmas.
In the current collaborative environment, with risk being so high, syndicated
investments are also very often taking place. This means that different VCs, both
standalone and those belonging to Big Pharmas, join together to fund a particular
initiative. This is a very nice example of the way Open Innovation is being applied
to the field of drug discovery and development, with each of the syndicate members
having its own specific interests, but all finding the common ground in a specific
project.
Public funds are also becoming partners in these syndicated investments. We can-
not forget that research in healthcare is a high-tech area that can bring in both
high-quality jobs and investment to a country or region. Thus, administrations at
both the regional, national, and supranational levels can be an important source of
funding for startups that, at the end of the day, might result in the difference between
success and failure.
7.3.4 Patient Associations and Charities

Patient associations and charities also play an important role in this scheme. These
groups provide not only funding but also the drive to promote the advance of sci-
ence for their respective diseases and, more to the point, to transform science into
new solutions. Patient associations are active in many different fields. They play an
important educational role in patients and in society as a whole raising awareness
on the specific therapeutic conditions. They also make up a very powerful lobby
influencing healthcare decisions taken by politicians.
More to the point, they are also increasingly being very active in research. They
have always been strong advocates of involving the patients as early as possible in
the pharmaceutical research and development (R&D) process. This is no more than
the translational medicine paradigm that has today become one of the key principles
of modern drug discovery and development.
The amount of funding provided by these groups cannot be underestimated. To
name a few, the Michael J. Fox Foundation is the largest private fund provider for
Parkinson’s Disease Research, and the Wellcome Trust in the United Kingdom funds
the work of 14 000 people in more than 70 countries worldwide. Moreover, in line
with the current trends, they do not only work alone. They also partner with other
stakeholders in order to maximize the chances of success. The UK Dementia Dis-
covery Fund, a partnership between charities, the government, and industry in the
area of neurodegenerative diseases, is a good example of this.
Patient associations and charities are, thus, a sizable source of both funding and
power to drive the direction of research and have become very important stakehold-
ers in the process of biomedical research.
7.3.5 Public Administrations

Research carried out in public research institutions and universities has always been
funded mostly with money from the different administrations. To name a few, in
the United States, the National Institutes of Health, based in Bethesda, Maryland,
is the government agency in charge of biomedical and public health research. In
addition to its internal programs (Intramural Research Programs), it also funds exter-
nal programs (Extramural Research). In 2003, with US $26.4 spent, it is the largest
biomedical research organization in the world and funds more than 25% of the inves-
tigation carried out in the field in the United States. On top of this, the Biomedical
Advanced Research and Development Authority (BARDA) deals with chemical, bio-
logical, biological, and nuclear threats in the United States and is also in charge of
preventing infectious pandemics, providing funding for programs devoted to these
areas. As such, it has played a key role in the efforts to develop Covid-19 vaccines. In
Europe and other parts of the world, the different national governments have similar
initiatives to fund research carried out in public centers in each country.
In addition to this funding role, administrations are also important players when
setting up mechanisms that can foster translation of academic results. For instance,
in Europe, the European Commission, through programs such as Horizon 2020
(H2020), provides funding for, among others, research in the biomedical field.
One interesting feature of the European Initiative is that it favors multinational
consortia that include both public and private members. Also worth mentioning is
the Innovation Medicines Initiative (IMI), a public–private partnership between the
European Commission and the European Federation of Pharmaceutical Industries
and Associations (EFPIA) that includes the major pharma companies. The recently
finalized IMI2 program, spent €3276 billion between 2014 and 2020.
7.3.6 Contract Research Organizations (CROs)

Last, but not least, we need to mention the Contract Research Organizations (CROs).
This term encompasses all companies providing support to the pharma companies
in a fee-for-service environment. CROs are outsourced different activities that Big

Pharmas consider to be more efficient carried out externally. These tasks stretch
from support in clinical trials to delivering new chemical compounds. The differ-
ent types of companies that can provide chemical support to the Big Pharmas will
be covered in more detail in the second part of this chapter. Suffice to say here that,
in line with the general trend in the industry, the collaborative approach has also
been gaining ground in this area, with an increasing number of value-added tasks
being outsourced and some CROs becoming full-service providers (FSP) for the Big
Pharmas.
7.4 Considerations for Would-Be Entrepreneurs
Let us briefly go over some of the main features that startups willing to collaborate
with Pharma need to take into account. We will start talking about general topics
(the how), followed by a review of the areas where these collaborations are now
taking shape (the what) and finalizing with a few lines on the ways to contact your
potential customers in order to start up the collaboration (the where). The goal of
the entire section is to provide information to would-be entrepreneurs, with some
tips highlighted in order to facilitate this goal.
7.4.1 General Reflections on Collaborations with Big Pharma (the How)

Arguably the most important point is your company’s added value. This means that
you must be able to perform something better not only than Big Pharma but also than
other players in the field. This added value can be cost and flexibility or novel assets
or technologies that Big Pharma would be willing to have access to. If you are to
create a new startup, it is crucial that the added value is clear from the start and that
you have made a thorough analysis (a business plan) showing that it is something
that the market really needs.
Key Takeaways
Your added value is your main asset. Make sure that it will stand out in the
market.
This business plan needs to be as realistic as possible. You will need to make sure
that you have sufficient funding specially for the early difficult times. In order to
reach this goal, public funding schemes are a very good option, but they do not last
forever. Therefore, from the start, you will need to look at other possibilities such as
VC firms to keep your company afloat until it can stay on its own.
Key Takeaways
Public funding schemes are a great complement for your budget needs, but suc-
cess will not be achieved by relying exclusively in this sort of funding.
Chemistry companies in general need very specific and expensive infrastructure

from the start. Look at options such as incubators or agreements with public centers
that give you access to this equipment without needing to purchase it until your
company is mature enough. This is also true for lab space, which can be a significant
investment that should be considered in a very careful way.
Key Takeaways
Infrastructure and space requirements are expensive. Look for alternatives, such
as incubators or deals with academia, which can bring these costs down.
If your company will be providing services and operating in a fee-for-service

model, your key to success will be to become the partner of choice for the Big
Pharmas, and you will only get there by having a track record of reliability and
robust service, something that comes only with time. On the other hand, if your
goal is to develop an internal asset, your exit strategy needs to be clear from the
start because it will have a huge impact on your business plan. For startups, clinical
trials are normally a much too expensive pill to swallow, so in most cases the goal
is to set a realistic milestone that can be achieved with the internal funding and
expertise and then consider out-licensing the asset or directly having the company
acquired by a larger player.
Key Takeaways
Prepare an exit strategy: Will you out-license or sell your company when a given
milestone is achieved?
So far, we have discussed technical issues, but you must always keep in mind that
people are a crucial asset. The remainder of this section will focus on people. Quoting
Pixar cofounder Ed Catmull: “If you give a good idea to a mediocre team, they will
screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or
throw it away and come up with something better.”
This surely applies to your team’s technical skills and experience, which you
should always highlight when presenting your company. However, there is much
more than that. You cannot forget that your goal is to collaborate. If you succeed
in signing a deal with Big Pharma, you will need to regularly meet with their
representatives and/or participate in joint project teams. Furthermore, in order to
move forward, team skills are as important as technical expertise. Even if everything
is perfect from a technical point of view, your project will just stagnate if people
cannot get on well with each other.
Key Takeaways
People collaborate with people. Team skills and willingness to collaborate are
essential for success.
One of the main features that will facilitate team working is trust. This is some-
thing that you need to build from the start. People work with people they can rely
on. Trust is essential if you want to become the partner of choice. Being credible and
honest in your relationships with your potential partners will pay off in the medium
and long term. There is no point in trying to oversell if you then cannot keep your
promises. This can bring you short gains but ruin the future prospects of your com-
pany.
Key Takeaways
Try to be realistic and not overestimate market predictions or scientific effects.

That could jeopardize trust, which is a fundamental element in a partnership.
As your team grows you will be able to have people with different skill sets. It is fine
to have someone with a great technical profile but no social skills as long as they are
not in charge of interacting with your partners. You also need to take into account
that, within your startup, you will need a team that takes care of all the different
areas. Normally your added value will be related to science. If this is the case, you
will have to complement your company’s skills with expertise in other fields such as
legal, financing, regulatory, IP, or any other that might be relevant to your specific
case.
Key Takeaways
A successful company needs skilled people in different positions. If you start

from science, you will need to acquire and hire expertise in other relevant fields.
7.4.2 Areas of Collaboration Between Chemical Companies and Big

Pharma (the What)
Let us now review the different chemistry-based companies that nowadays collabo-
rate with the big pharmaceutical companies. The following sections are not meant
as a comprehensive list. They are just the most notorious examples of areas where
entrepreneurship is now thriving. As a rule of thumb, we can say that, in the new
model, every activity where chemistry is applied can be and is actually frequently
outsourced.
Key Takeaways
Do not be afraid to be creative. This will be necessary if your goal is disruptive,

but always make sure that there is a need for your solution.
7.4.2.1 Compound Providers: Custom Synthesis

At first sight, the preparation of new molecules using the techniques of organic
chemistry is the most straightforward connection between the worlds of pharma and
chemistry. Here, we will focus mainly on the early stages of the discovery process
and will not enter into the field of manufacturing of drugs for the market once they
are approved (Chemical Manufacturing and Control [CMC]) that requires large and
good manufacturing practice (GMP)-complying facilities. This means that in this
section we are dealing mostly with the preparation of small quantities of the final
products, which range from a few milligrams to a few grams.
The process of developing new small-molecule drugs involves the preparation of a
large number of molecules. The key concept is that of the structure–activity relation-
ship (SAR), which states that there is a correlation between the chemical structure
of the compound and its effects in the human body. In fact, we can say that the goal
of a medicinal chemistry program is to build the SAR, which means acquiring the
knowledge on the effects of modifications in the different parts of the chemical struc-
ture that will allow for the design and preparation of compounds having optimal
Structural
design
Biological
assay
Synthesis
Hit to lead Lead optimization
Figure 7.3 Schematic view of the typical iterative optimization process carried out in
medicinal chemistry.
properties. The synthesized compounds are tested in different biological assays, and
then the information from these assays, together with insights from molecular mod-
eling tools, are applied to the design of new compounds to be prepared. This spiral
goes on until the properties are sufficiently optimized for the selection of the com-
pound as a new molecular entity (NME), that is, a candidate for the clinical phases
in humans (Figure 7.3).
Along this process of optimization, it is necessary to prepare a large number
of chemical derivatives. According to some estimates, more than 10 000 organic
molecules are synthesized for every compound that proceeds to clinical trials. In
the old model, all the chemistry work was carried out in-house. This took advantage
of an experienced workforce that applied their expertise to both the design and the
preparation of the compounds. It also made sure that the IP was always kept inside
the company, thus limiting any potential risks.
Medicinal chemistry groups are still a must in pharmaceutical companies. They
are in charge of the structure design process, which requires an intimate knowl-
edge of the whole project including the specifics of the molecular target, something
critical to the IP of the company. They also design the synthetic routes, and, key to
the new model, they have the expertise required to manage any collaborations that
might be taking place.
On top of the internal work, nowadays, Big Pharmas routinely acquire specific
chemicals designed to enter into the chemical optimization process within their
internal projects, to entities carrying out what has come to be known as custom syn-
thesis. In fact, purchasing chemical products is not new. Pharmaceutical companies
have been making this sort of deals with academic groups for decades mostly with
the goal of having access to new, normally complex chemistry. In the new model,
chemistry is normally outsourced to chemical CROs. In fact, many of these compa-
nies are spinouts of the organic chemistry departments of universities.
The main advantages for Big Pharma are price and flexibility. Initially, the goal
was simply to have access to easy chemistry in a cheaper way. Thus, the compounds
of choice were synthetic intermediates with known synthetic procedures that had to
be prepared in large amounts together with preparation of derivatives starting from
a common scaffold and with known conditions. This is still true today, although the
CRO role is evolving toward more complex tasks and increased levels of participa-
tion in the design of the synthetic procedures. The whole work is now carried out
under confidential disclosure agreements (CDAs), thus protecting the IP of the Big
Pharmas.
Custom synthesis CROs have been blossoming since the turn of the century. One
interesting aspect, related to the whole process of globalization, is the role played
by companies originating in countries such as China and India. Some of them
have become corporate giants themselves, having profited from the availability of a
skilled, often Western-educated workforce and of lower wages, which allow them
to produce at lower prices than similar CROs in Europe of North America.
As examples of this trend, we can mention Chinese companies such as Pharmaron
and Wuxi. Wuxi AppTech, based in Shanghai, China, which was founded in 2000
by an organic chemist, has now expanded to other areas such as manufacturing,
biology, and chemical devices and claims to have 3 000 collaborations in more than
30 countries, with 18 locations and more than 14 000 employees in 2017.
In this case, the added value offered by custom synthesis groups is flexibility and
cost in the production of the compounds. It is a fee-for-service model, and you will
need to make sure that you will be competitive in this market and that you have the
relationships that will allow you to get orders and survive the first difficult years,
until you have managed to establish your company as a reliable partner.
A closely related area is that of reagent providers. Compared with the CROs
described so far, these companies prepare simpler chemical compounds typically
used either as starting points for the synthesis process or as building blocks to be
appended to the scaffolds being worked on from the start. This field is dominated by
large companies, such as Sigma-Aldrich, but, as in the case of the CROs, nowadays
a constellation of small providers is accompanying and complementing the big
players. In order to find a gap in the market, these new kids in the block assume
they will not be able to offer as comprehensive a catalogue as the big firms. Thus,
they must focus on either price, with access to alternative sources for the materials,
or on knowledge of preparation processes of complex or uncommon reagents. The
creation of startups can thus become an attractive goal for academic groups that
have developed either new reagents or new synthetic routes to valuable ones.
We also need to mention the chemical upscaling work. Late-stage preclinical tests
require larger amounts of compounds than the milligrams to grams normally pro-
duced in the discovery stage. Reactions are not always directly scalable, so this is
something that must be taken care of by specialized departments within the phar-
maceutical companies or, as is the case with other tasks, be also outsourced. In this
final case, upscaling-specialized CROs are also very attractive for the Big Pharmas,
providing external resources in a flexible way.
Medicinal chemistry programs from the Big Pharmas have thus now been
enriched with a number of external players, all contributing to increase the
efficiency of the whole process.
7.4.2.2 Medicinal Chemistry-Based Biotechs

Still in the field of medicinal chemistry, there is another very important role
to play for chemical entrepreneurs, the creation of medicinal chemistry-based
startups trying to develop new chemical compounds as new drugs. As opposed to
custom synthesis CROs, which were the subject of the previous section, the goal
of these companies is not to support the work of larger ones, but to carry out the
development themselves. This is no more, and no less, than trying to replicate the
job of small-molecule-based pharmaceutical companies.
If bringing a new drug to the market is not an easy task for the larger firms, it seems
that this would be an impossible endeavor for a small company. As with many other
startups, the key here is the added value that they have as a starting point. This might
originate from biology, that is, a biological target with the associated molecules that
interact with it, or from chemistry itself, having a compound series with a specific
advantage over what everybody else has. In any case, ownership of IP results is a
must for any biotech operating in this field.
Very often, the original discovery will take place in an academic group, which
then becomes a biotech by in-licensing the patents developed by the institution. The
originating academic group, which has the knowledge and know-how, is normally
still involved in the new company although, taking the new needs into account,
other partners will usually be necessary to provide the initial funding. These new
companies normally target only the initial stages of the research work, up to reg-
ulatory preclinical or to Clinical Phase I, their goal being either to out-license the
compounds or to be acquired by a pharmaceutical company.
Together with biotechs that are direct spinoffs from academia, we also need
to mention medicinal chemistry-based companies originating from Big Pharmas
themselves. People with expertise in the area, normally acquired in Big Pharma,
sometimes decide to create their own startups. Again, the key here is the added
value, which in this case might be compound series identified from modeling
work or left behind by the originating Big Pharma or, in some examples, directly
out-licensed from academia.
7.4.2.3 Cheminformatics-Based Startups

We live in a world where new technologies are developing incredibly fast. New tech-
niques are developed constantly, and increases in computer power are also allowing
the use of more powerful algorithms, all devoted to increasing the productivity of
drug discovery and development.
For many chemists around the world, the first contact with cheminformatics takes
place with the organic chemistry drawing packages, such as ChemDraw. Nowadays,
large conglomerates such as Perkin-Elmer, which owns ChemDraw since 2011, or
Accelrys, dominate the molecular drawing market. However, as exemplified by the
software packages accompanying ChemDraw in the ChemOffice Suite, there is still
plenty of room for new developments in this space.
On top of this, in silico technologies can be applied to different tasks in drug discov-
ery. They can predict the structure of the compounds that will interact with a specific
target, the so-called de novo design, which helps in the design of the new compounds
to be synthesized in a typical medicinal chemistry project. They can also be used

for in silico screening, both for the main activity and for secondary effects, pharma-
cokinetics, and toxicity of the compounds. In addition to that, new fields such as
Chemogenomics are also applying Big Data techniques to try to extract conclusions
that facilitate the drug discovery process.
With so many different tasks requiring in silico support, there is a huge window
of opportunity for cheminformatics startups. These companies can work like CROs,
carrying out in silico support for Big Pharmas as a fee-for-service. In most cases,
though, they also try to provide an added value compared with what is already avail-
able in the market. We cannot forget that the final product is code, normally in the
form of a software package, which can be marketed on itself. We thus now have com-
panies developing novel solutions that can improve on the prediction capabilities of
existing tools or, in the best-case scenario, bring new solutions altogether.
In fact, as is the case with many startups in other sectors, different business models
are not exclusive. Many companies carry out fee-for-service work for Big Pharmas
while at the same time developing new software tools that either will be part of the
company portfolio in the future, will become standalone commercial products, or
could be purchased by a company willing to have exclusive access to a specific tech-
nology.
Most pharma companies have cheminformatics departments with different bal-
ances of internal vs. external work. What are the key features that pharmaceutical
companies are looking for in these collaborations? Together with flexibility, they
want access to new algorithms with an added value over what is commercially avail-
able, which will improve their company’s chances of bringing a new product to the
market.
Probably the key feature to take into account when considering to enter this field is
that you will need to have a combined expertise. On top of the coding skills, intimate
knowledge of the processes that you want to optimize will also be essential. Do not
forget to incorporate both profiles to your team.
7.4.2.4 Getting Information from X-ray Diffraction Studies

X-ray diffraction studies are a very important tool in the early stages of drug discov-
ery. X-rays provide structural information on the active pocket of the biomolecule,
usually a protein or peptide, being used as biological target. This information is then
used for the design of the small molecules meant to interact with it.
The whole story, though, is not as simple as it seems. First of all, you need a crys-
talline solid to be able to carry out an X-ray diffraction study. This is not the normal
state of the biomolecules that perform the varied functions in the human body. Some
of them can be crystallized as such, but most of the ones being chosen as biological
targets nowadays are very difficult to obtain as a crystal. Several tricks are commonly
employed to be able to have their X-ray diffraction studies carried out. One of them is
to crystallize them together with their ligands (a co-crystallization; see an example
in Figure 7.4). This has the additional advantage of clearly identifying the pocket
where the small molecules bind. Very often, however, this is not enough, and what
is actually crystallized is just a subunit, that is, a fraction, of the biomolecule.
Figure 7.4 Typical rendering of small molecule in protein pocket, such as those obtained
with X-ray diffraction studies. Image obtained from Wikimedia Commons.
Besides coming at a price in predicting power, all this means that managing to get
these crystals and their X-ray diffraction studies is not straightforward, is very spe-
cific for each particular protein, and is, thus, very often outsourced. As said before,
this is a technology-based field that requires a very expensive equipment, something
that you will need to take into account if you want to create an X-ray company.
On top of all this, it is also crucial to follow-up closely and take advantage of
the new technologies popping up in this area. One example is the development if
cryogenic Electron Microscopy (cryo-EM) which in the latest years has become an
alternative way of getting information of the active pockets of the proteins interact-
ing with the small molecules. As an example of companies active in this area, which
have now become pretty large taking advantage of the market needs, we can men-
tion Proteros, founded in 1999 by a Nobel Prize winner, an added value on itself, and
claiming to be solving 400 chemical structures each year.
7.4.2.5 Other Areas

As stated, IP is the key asset for Big Pharmas developing new drugs. Thus, when
designing new molecules, it is fundamental to make sure that the candidates that are
to be promoted to clinical trials will be patentable, that is, will be new and not fall
in the scope of previous patents. As with other activities, large pharmas normally
have internal departments with patent attorneys in charge of preparing and filing
the patents and with the capabilities to search for novelty on specialized databases.
These searches require knowledge of the patent world but also high skills in chem-
istry to be able to understand the Markush formulas and its relation to the chemical
structures of the published examples. Smaller companies always had to rely on exter-
nal firms to perform patent-related work, so these firms were already available when
bigger companies started to outsource some of these activities. As with cheminfor-
matics, you will need to have both skills here, normally starting from chemistry
expertise and then acquiring the legal skills. The fact that there were already firms
doing this job before means that you need to make sure that there is room in the
market for a new company in this field.
A related area is that of the business intelligence tools, normally databases

searchable by fields such as therapeutic condition, stage of development, origi-
nating company, or chemical structure. These databases are fed with data coming
from analysts reviewing business and patent literature. The field is also now
dominated by large companies like Thomson Reuters or Clarivate Analytics, which
have become this big by, in some cases, purchasing smaller firms that had taken
advantage of some type of added value to become successful startups.
Finally, though not exactly within the scope of the pharmaceutical companies,
the field of medical devices is also devoted to finding solutions to unmet medical
needs. In this case, the goal is not a drug, but a device that can be used in a health
care setting. These devices can range from an insulin pump to a prosthetic material,
and they represent a huge market, expected to reach around 409.5 billion dollars
by 2023.
As with drugs, medical devices also need to follow a set of regulations, which can
be very rigid if the device is to be used within the human body, such as a pacemaker
(a class III device) and much lighter in other cases. One special feature compared
with pharmaceuticals is that this innovation often starts from the clinical practice
in hospitals. It is, thus, a very translational sector, with the starting point being very
close to the patients. Another important aspect is that, in many cases, it is very close
to the world of IT, making up what has come to be known as eHealth. This is the
field where big players in IT, such as Google or Apple, are starting to get involved
into the healthcare sector.
For our purpose, one very interesting area is that of new materials, which can be
used as prosthetics or as new textiles to improve wound healing. These new materi-
als can be developed in research centers or universities. The key factor in this area,
together with the added value that is common to all new companies, is the need to
partner early on with clinicians to overcome any particular problem that might arise
in the development phase.
7.4.3 Getting in Touch (the Where)

What mechanisms do these players have to get in touch with each other and find
the common ground in a specific project? Informal contacts and people’s networks
are still very effective, but, on top of this, a series of established events have been
set up with the goal of bringing together the key players in the world of drug dis-
covery and development. Some of the most important encounters are generically
known as Bios. The largest ones, organized by the Biotechnology Innovation Orga-
nization, take place regularly in the US and EU. These are complemented by smaller,
country-specific events. They can be considered a mixture of scientific congress,
with different presentations taking place, and tradeshows, with biotechs and ser-
vice companies having booths in the exhibition area. The most important feature
is the face-to-face meetings, so-called partnering, scheduled by the Bio organizers
upon request and acceptance by the different attendees. One additional key event is
the JP Morgan Health Care Investor Conference, which has been taking place since
1983 in San Francisco and every year brings together the top players in the field.
Key Takeaways
Prepare thoroughly your meetings with potential customers. You need to capture
their attention in a short time.
Most of the time you will only have a single shot at presenting your ideas to a big
company. Make sure that you make the best of it. Gather as much information as
possible on the company you are meeting with. Focus and emphasize your added
value, your business plan, and the expertise within your team.
Key Takeaways
If your project is confidential, make sure that you find a way to provide key data
without disclosing your internal knowledge.
If you manage to capture the attention of your partner, you will start the process of
preparation to a deal, which might include signing a CDA or non-disclosure agree-
ment (NDA), a term sheet, and then the actual contract. You need to protect your
interests but bear in mind that the goal is to start a collaboration, and, in the nego-
tiation process, you are offering a glimpse of what this collaboration might be like.
Being unnecessarily difficult in this stage risks scaring off potential partners. Defend
your interest but at the same time try to be as constructive as possible.
7.5 Novel Business Models

In previous pages, we have first reviewed how the environment in Big Pharma has
evolved from a siloed approach to the current porous and collaboration-friendly
model (Figure 7.5). Then, we have gone over some of the possibilities for would-be
chemical-based entrepreneurs willing to build their business model around the
pharma industry. We will end this chapter looking at how all the players in the field
are experimenting with new ideas and constructs to facilitate the common goal of
creating new solutions for unmet medical needs. Again, the intention is far from
getting a comprehensive review, but just to highlight some of the models that are
now being explored.
Incubators are one of the tools that are being used to strengthen the biomedical
research environment in different regions. The defining element of an incubator is
common space complete with shared infrastructures. This makes them especially
attractive to startups because they make expensive technologies available for a
fraction of the price.
7.5 Novel Business Models 233
Insourcing
Alternative
Outsourcing condition
Internal
research
Target
condition
External
R&D
Drug development process

Figure 7.5 Big Pharma’s novel porous model.
A second key component is training by experts in different areas. The key concept
here is that, typically, startups that spin out of the scientific world lack the sufficient
knowledge in business-related matters. Thus, subjects for the training are, among
other, business development in pharma, preparation of a business model, marketing,
and IP in the pharmaceutical sector. It is also important to have some courses on
how to make presentations to would-be customers, the so-called pitches, focused on
capturing the attention of the listener in a very small period of time, as exemplified by
the concept of elevator pitch, meaning the time to convince your potential customer
while sharing an elevator ride. Together with this, the fact that related companies
are concentrated in a common space also facilitates a cross-fertilization of ideas that
contributes to the success of the resident companies.
Incubators have now become very common in many countries. For research insti-
tutions they are a way of translating the results of their internal research to the
market, so many of them are willing to provide the space. Sharing the equipment
that is already available in the institution also brings in fees that are normally very
welcome in the public sector.
Incubators also exist as private–public partnerships, where pharmas participate in
the setup. The presence of a pharmaceutical company in the construct normally pro-
vides not only additional funding but also a certain level of commitment to provide
advice and project follow-up, which can be also very helpful in guiding the devel-
opment of early projects. There are even examples of purely private, pharma-owned
incubators such as the Johnson & Johnson JLabs.
Related to the concept of incubator is that of the accelerators, which have as a
defining factor the existence of strict timelines. The goal is to help startups achieve a
level of maturity by participating in a program with very clearly defined phases from
the start. If we compare them to incubators, the common space element is not a nec-
essary requirement, and there is a larger focus in the training component. A critical
factor for success is having the final potential customers, that is, pharmaceutical
companies or VC firms, involved from the start in the process as mentors.
Accelerators are designed to take place in a matter of a few months, and, as

opposed to incubators where a fee is normally charged to the resident companies,
the program organizers normally acquire equity in the participant companies
instead of charging a fee for entering the program.
Hackathons, a concept imported from the IT world, can be considered as an
extreme version of accelerators. Different groups, sometimes made up of previously
unconnected experts in different areas, are presented with a specific problem for
which they need to come up with a solution in a matter of days.
As we saw in an earlier section of this chapter, public administrations can also
play an important role in this process. In general, they are very much aware of the
drawbacks of the old model and are trying to foster collaboration between the pub-
lic and private sectors. We need to take into account that they have been the main
providers of funds for public research, which traditionally have been mostly devoted
to basic science. In the current paradigm, basic research still gets the lion’s share of
the budgets, which makes sense as it makes up the background any other devel-
opments will be based on. In addition to it, we are now seeing initiatives aiming at
improving the rate of translation. The European Union has been especially active on
this field through programs such as the Framework Program 7 or H2020. The IMI
goes one step further in the generation of private–public partnerships in Europe,
with the Europe Union, partnering with the EFPIA that brings together the main
pharma companies active in the continent.
One IMI program worth mentioning in this context is the European Lead Fac-
tory (ELF). It brings together academic research, big pharma companies through
EFPIA, and Small and Medium-size Enterprises (SMEs). Its first main pillar is the
European Compound Library, which was initially established with 300 000 chemical
compounds from the chemical libraries of the seven EFPIA companies participating
in the initiative and is being enlarged with products from ELF’s own synthetic pro-
grams. The second key component is the European Screening Center, which carries
out ultrahigh throughput screening (uHTS) for targets proposed by external groups.
The final goal is to find hits for novel, disruptive targets such as those that typically
result from academic research. These projects very often failed to find a therapeutic
application because of the lack of chemistry and equipment to carry out the screen-
ing of massive collections of compounds.
Finally, pharmaceutical companies themselves are busy devising new ways to have
access to the most disruptive research. As an example, Eli Lilly set up the Open Inno-
vation in Drug Discovery (OIDD) program where it made their internal tools avail-
able for external researchers. This includes internal screening and their molecule
collection and their cheminformatics tools. Although now stopped, it represents an
attempt to leverage internal capabilities to bring in external innovation from the
outside world. Most other pharmaceutical companies are trying different strategies
from their Open Innovation departments. They are making their internal libraries,
of subsets thereof specially designed to cover as much chemistry diversity as possi-
ble, available to external groups for collaborations. They are also entering into other
different types of partnerships with public centers and also setting up competitions
7.6 Case Study: JJI and the I2D2 Initiative 235
for projects in different areas with awards to the winners, often taking the form of
privileged access to the company.
One of the main problems for research coming out of public centers is the so-called
valley of death. This means that the work normally ends in a publication, which is
the usual goal in academia, but then does not proceed forward toward the market.
The reason for this is that pharmaceutical companies normally consider these
projects too unmatured to get involved in. If pharmas do not engage, though, with
funds but also with their internal expertise, building the bridge to cross this valley
becomes an impossible task. This results in a catch-22 situation where a lot of
promising research does not reach its full potential. All key stakeholders are now
aware of the problem, and some initiatives are being proposed to try to fix it.
One of them is the case of Apollo Therapeutics in the United Kingdom. This ini-
tiative involves Johnson & Johnson, AstraZeneca and GSK, and three Academic
Centers: the University of Cambridge, the Imperial College London, and the Uni-
versity College London (UCL). With a total of £40 million to be invested in projects
coming out of the participant academic groups, it is a very interesting example of
Open Innovation in action.
Novel models are also being applied to collaborations between companies. One
such innovation is insourcing. Unlike outsourcing, where the activities by the con-
tract company are carried out externally, in an insourcing model, the CRO employees
work in the facilities of the Big Pharma. The advantage is that some resources and
infrastructure already available at the Big Pharma site are also used by the CRO, thus
going one step further in optimizing the resources.
7.6 Case Study: JJI and the I2D2 Initiative

As an example of the new model of partnerships that are now blooming in the field of
Open Innovation in pharma, we will discuss the I2D2 program in Spain. I2D2, which
stands for Incubating Innovation in Drug Discovery, is a public–private partner-
ship between Janssen-Cilag Spain, one of the Pharmeceutical Companies of John-
son & Johnson, the Galician Innovation Agency (GAIN), a branch of the local gov-
ernment of Galicia in northwestern Spain, and the Kaertor Foundation, a private,
not-for-profit foundation created from the University of Santiago de Compostela.
The goal of the program is to help projects with promising science, coming either
from academia or from biotechs, which are still in a stage that is normally consid-
ered too early for pharmaceutical companies and VC funds to invest in. As explained
in the main text, many countries are now facing the valley of death problem, where
projects with robust science fail to deliver practical results. This program is specif-
ically designed to address this issue, which results in the loss of opportunities for
developing new drugs, but also for the economic development of the countries them-
selves (Figure 7.6).
I2D2 epitomizes many of the concepts around Open Innovation that have been
described in this chapter. First of all, it is all about collaboration between different
stakeholders in the drug discovery process. The scheme is partially funded by the
Venture capital
Spinoff
Basic science Applied science
Figure 7.6 The valley of death and ways to circumvent it.
public administrations, with the objective of developing the region as an innovation

hub. Then, the Kaertor Foundation is in charge of the logistics and the day-to-day
management of the projects, which are selected after a call in the areas of inter-
est of Janssen. And, finally, there is collaboration also within Big Pharma itself,
Janssen-Cilag Spain providing funds, and the Johnson & Johnson Innovation Center
in London and Janssen research and development groups in Belgium and Spain sup-
porting with advice on how to move the projects forward so they reach the maturity
stages normally required by VCs and pharmaceutical companies.
On top of that, the main selection criterion, besides the fact that they had to fit
into the areas of interest of Janssen, was their added value. That is, some key features
that provided them with the potential to become unique assets after they had gone
through the incubation phase. We cannot forget that, in the current globalized world,
being the best locally is no longer sufficient and that, to succeed, the projects must
be able to compete globally.
We also talked about the high infrastructure needs that startups need to face
upfront. In this case we took advantage of the state-of-the-art in vitro screening
infrastructure existing in the labs of the University of Santiago de Compostela and
available for subcontracting by Kaertor. Other tasks, such as in vivo testing where
outsourced to external companies. As far as medicinal chemistry is concerned, it
either was carried out by the academic groups that submitted the proposal or was
also outsourced. It is worth mentioning that the external company that carried
the medicinal chemistry as a service has a dual business model and that, on top of
this custom synthesis, it is also developing its own drug discovery projects in the
small-molecule field.
As a pioneering initiative, the road to I2D2 was not always straightforward. No
templates for this sort of construct were available; so many things had to be created
from scratch, to be then reviewed and approved by the respective legal teams. The
key to reaching the agreement was a shared belief in the goals of the program and
trust and willingness to go ahead by the three parties. We can say that the program
would not have gone forward without the trust between the stakeholders that had
made each of them the partner of choice for the others. An initial high-level agree-
ment was reached in late 2016, and then it took until July 2017 to sort out all the
7.7 Summary 237
details and be able to sign the final deal. The call was then launched in the summer
of 2017, with more than 150 expressions of interest received until the end of October.
After an initial review by a scientific committee put together from Kaertor, the
selection of the projects took place in early 2018, which led to the beginning of the
incubation stage.
I2D2 is just a small initiative. However, it is also a starting point to showcase the
capabilities of the model to bridge the gap between early and more mature research.
In that sense, it can be considered as a pilot that can be further optimized and become
a model for larger programs with the vision of achieving a quantitative improvement
in the process of drug discovery.
7.7 Summary
Let us finish this chapter with a few paragraphs summarizing the most important
points discussed so far. The key concept is that, in the current world, pharmaceutical
companies are eager to outsource many of the tasks that were carried out internally
in the past. This creates a fertile ground for the creation of an ecosystem of startups
that have Big Pharma as their final customer.
The scope of activities available for this new chemistry-based companies is as
broad as the spectrum of chemical activities required for the drug discovery process.
Not any company will, however, be successful. Lacking a crystal ball, there is no
magic way to predict whether a startup will prevail. However, something is clear; to
be successful, the key for any startup is to have an added value that makes it attractive
for Big Pharma.
This added value can be cost of production. A Big Pharma can outsource some
activities if it can find an external company capable of carrying it out with good qual-
ity and a cheaper price. Outsourcing can also provide more flexibility with resources
that are required for a limited period of time only. This is the fee-for-service business
model typical in CROs.
From the Big Pharma point of view, fee-for-service agreements require supervi-
sion by skilled internal employees. They are common for activities considered not
so critical or complex. We cannot forget that, in this model, the CROs work in the
internal projects of the Big Pharma, so confidentiality is a key requirement. This
fee-for-service model is not that risky for the CRO, and, once the initial trust and
reliability have been established, the company can achieve substantial growth. Good
examples of this model are the custom synthesis companies.
The second business model implies having a scientific added value. The best
example is that of the chemistry-based biotechs developing a compound as a
candidate to enter clinical trials. These startups are normally highly science focused
and close to academia, the main source of disruptive innovation. As such, they are
usually very strong from a scientific point of view but require the acquisition of
business talent to move forward. Big Pharmas will normally contact them through
their Open Innovation departments with the key driver for the collaboration being
the scientific added value itself. This must be supported by robust data and IP. The
main goal is to deliver a new drug to the market; the risk in this model is very high,
but in the case of success, rewards are very high as well. Success in this case is
normally defined as out-licensing the project or being purchased by a large pharma
company.
In an intermediate position, we find the companies with a scientific added value,
but which commercialize in fee-for-service models. We can find this, for instance,
in startups working in the field of cheminformatics. Although outsourcing might
also become cheaper in some cases, these companies are not competing mainly on
price but on quality, providing new tools that can perform tasks in a much better way
than those available to the company. This results in an improvement of the efficiency
of the whole drug discovery process and, for the Big Pharma, also in a competitive
advantage over other players in the field.
In fact, you can now find all sort of intermediate models with some companies
active in fee-for-service agreements to get cash that will allow them to fund their
internal research up to the point where they will have the data required to lure Big
Pharma of VC companies. In any case, as with other models, the key here is the
added value offered by the startups.
Besides the added value itself, the other key asset for making a deal is people. This
is important as far as the technical and scientific skills are concerned, but also for the
nonscientific ones. Willingness to collaborate and the capacity for teamwork are also
crucial in any company with a business model based in collaboration. Collaborations
take place between people, and multiparty teams need to work as one if they are to
succeed.
The examples mentioned in this chapter deal mostly with companies that are now
very large. This does not mean that you need to be that large in order to succeed. The
opposite is normally true, and these companies did start as small startups created
by chemical entrepreneurs. As we have already said before, success in chemistry
entrepreneurship is not easy, but rewards are high for those lucky and smart enough
to make it.
Moreover, when you are working in the pharmaceutical sector, you cannot forget
that your goal is bringing a new product to the market. This is no more, and no
less, than finding solutions for unmet medical needs to help patients worldwide.
Succeeding in pharma is doing well by doing good.
7.7 Summary 239
CUSTOM SYNTHESIS CRO
MED-CHEM BASED BIOTECHS
CHEMINFORMATICS BIOTECHS
X-RAYS BASED BIOTECHS

BIG PHARMA
BIG PHARMA
OTHER
+$
USE PUBLIC
FUNDING AS A PREPARE EXIT BE REALISTIC.
COMPLEMENT STRATEGY BUILD TRUST.
MAKE SURE LOOK FOR MAKE SURE CREATE A

YOU HAVE AN WAYS TO SHARE YOU WORK STRONG TEAM
ADDED VALUE COSTS WITH PARTNERS
AS A TEAM
Author Biography
Antonio Gómez has almost 20 years of experience in
the pharma ceutical industry. In 1996, just before earn-
ing a PhD in Synthetic Organic Chemistry from the
University of Salamanca, he joined Janssen Research &
Development in Toledo, Spain as a medicinal chemist.
In 2000, Antonio moved to the Research Support
group of Janssen Pharmaceutica in Beerse, Belgium, where he managed small
molecule-based research projects. Upon returning to Toledo, Antonio held a variety
of different positions, first coordinating the internal projects and then the scientific
IT including a special role in scientific information technology to develop the
Janssen R&D Electronic Lab Notebook. He then managed external collaborations
and since 2013 serves as New Ventures Lead in Spain for Johnson & Johnson Inno-
vation’s London Innovation Center. In this role, Antonio is in charge of scouting the
Spanish scientific landscape for possible collaborations and creating and managing
new private–public partnership models such as the Incubating Innovation in Drug
Discovery (I2D2) program.
241
The Economic Need for Chemically Based Start-Up

Companies
Daniel Daly
The University of Alabama, Alabama Innovation and Monitoring of Entrepreneurs, 105 AIME Bldg,
Tuscaloosa, AL 34587, USA
8.1 Introduction
This chapter seeks to illuminate all of the rewards and challenges in the area of
being an entrepreneur in the study of chemistry. Why does the area of chemical
entrepreneurship struggle with the risk taking nature of most entrepreneurs? I think
the obvious answer is that the chemical profession is concerned that a chemist might
be tempted to overlook safety and environmental issues in exploring the limits and
different applications of their chemical reactions. However, I believe a chemist can
be both risk taking in exploring the applications of their technology without being
imprudent in the area of safety and environmental impact. The questions I would
like to explore are the following: Does the rigor of the training most chemist received
inadvertently develop a mindset that is opposed to risk taking? Is the quest to com-
mercialize through application of the innovation non-appealing since it is no longer
explorative? Being both an entrepreneur and a chemist, I think we sometimes throw
out the baby with the bathwater. I have seen good ideas ignored just because they
were out of the box and involved some risk taking.
In the following chapter, some of the problems most chemists face in develop-
ing a chemical innovation that reaches commercialization will be undertaken. The
chemists in a start-up company, with insight into the exciting world of molecular
interactions that could lead to great innovative products, face many challenges. They
are asked to prove the cause and effect relationship that exists between product and
performance before it can have a chance of societal impact, and they are usually
ask to do this alone. I hope to show that the world and our country depend on
our chemists being trained to communicate their discoveries to the rest of society
to enable their creative inventions to reach fruition. Without this ability, I see a dan-
ger looming in the future that threatens to decrease the amount of future students
wanting to specialize in the field of chemistry.
There exists a growing need for chemists to learn how to advance their ideas into
commerce. The changing job market and the economic pressures placed on indus-
tries that have traditionally hired chemist have brought to the forefront the question
242 8 The Economic Need for Chemically Based Start-Up Companies
of what value does a chemist bring to industry and society? The ability to demon-
strate the value of a chemist and chemical inventions is explored in the following
chapter.
How many times do we need to read in the news that an organization in the
chemical industry realigned by reducing the amount of positions in their research
department? Researchers in the chemical industry are viewed as a cost center not as
a value creation center. Why?
Due to the increasing pressures to keep product cost at a minimum due to global
competition, large corporations are relocating manufacturing plants to countries
where land, environmental, and labor costs are lower than in the United States. This
impacts all chances of employment and severely affects the job market in the tech-
nical fields. Most technically trained workers in the past have found employment in
corporations that had manufacturing facilities in the United States.
The situation only intensifies for the loss of chemical jobs with the changing world
economy, which has accelerated the time a product can be profitable in the mar-
ketplace before being replaced by faster, cheaper, and better competitive products.
These pressures resulted in chemical corporations to focus on providing products
quickly to the market and away from long-term research and development (R&D)
work that deals with creating new products. This shift to simply improving tradi-
tional product quality has decreased the need for innovation in the chemical indus-
try and subsequently for advanced degrees in chemistry.
There are several causes that lend to this current situation, but I believe it origi-
nates in the fact that most corporate managers have no idea what chemists do and/or
are what value they bring.
Thus the need to demonstrate the value of chemists falls on the chemists. The
inability to bring to the attention of industrial leaders the value of someone who has a
firm grasp on the compositions of the products that are made and how to adjust these
compositions if improvements are to be made and more importantly new products
are to be invented has led to job loss in the chemical industry, where short-term
successes are replacing longer-term gains.
Recently, the American Chemical Society (ACS) and chemistry industry faced ris-
ing unemployment. An example of this is due to the trends within the pharmaceuti-
cal industry closing research facilities and moving manufacturing offshore and the
shift from new product development.
In 2014 ACS’s President Donna Nelson examined the US job market for chemists, a
growing concern for chemical professionals. Nelson sent emails to members asking
which issues mattered most to them. The 1500 responses she received confirmed
that jobs are the biggest concern for ACS members.
Nelson, an organic chemistry professor at the University of Oklahoma, set up an
employment task force, which presented its findings at an ACS meeting in San Diego,
California.
Bryan Balazs, an ACS member who sat on the task force, stated that employment
was a big concern.
Balazs said the latest data from the US Bureau of Labor Statistics estimates that
jobs in the physical sciences, engineering, and life sciences sectors will rise by 13.5%
from 2012 to 2022. For biochemists and biophysicists, the figure over that same
period is predicted to be 18.6% while jobs for chemists are only projected to rise by
5.6%. However, the outlook is worse for chemistry-related fields in manufacturing.
Balazs said chemical equipment operator jobs are projected to fall by 8.3% over
the next decade. In addition, an 11.5% decline in chemical plant system operators is
anticipated while basic chemical manufacturing jobs are projected to drop by almost
12%. Balazs added that, if you weigh up job creation in the chemistry sector over the
next decade, then the United States is creating almost 10 times more chemists than
it has jobs and that salaries in the chemistry sector are also stagnant or falling across
all three degree levels, as well as for new graduates and senior chemists.
All in all, this paints a bleak picture for chemist and the need to get a degree in
chemistry for future chemists, and unfortunately in my opinion it paints a bleak
picture for our country.
From my own experience in the industry, projects I have been involved saved
my company several hundreds of million dollars on process improvements and the
design of new products. The ability to accomplish the above was due to the train-
ing the team members received in undergraduate and graduate schools. This coun-
try cannot afford to lose the ability to understand the cause and effect relationship
between the products we make and the effect they have both on performance and
environmental impact.
Job creation through chemical innovation needs to become an increasingly impor-
tant subject for the creation of new employment opportunities for chemist in the US
economy.
The ACS tried to respond to the above trend by the formation of an Entrepreneur
Resource Center (ERC) and Training Center. The ERC was a virtual accelerator,
which provided resources and services to chemical start-ups to accelerate the time it
takes to move an invention to commercialization. It hosted business pitches in front
of angel investors. However, many difficulties of launching a start-up company in
this industry have led the ACS to question the support of this program.
Key Takeaways
The ACS is concerned about the evolving career opportunities for its members
and will look at programs that will assist the chemist in finding employment. As
discussed above, it is a two-way street. The chemist will need to learn new skills
in communicating to the general public the promising products and services
they can create, and also the ACS is willing to help in lowering the barriers of
creating the opportunities to develop these new product and services.
8.2 Promising Programs

So how does one go about this task of proving to the society that a chemist’s under-
standing of the cause and effect relationships between the products that are made
and their resultant performance is a great value?
Fortunately, the National Science Foundation (NSF) started asking a very similar
questions as above to the scientific community: What is the return of investment to
all of the dollars spent from taxpayer money on research? What societal impact has
surfaced from all of this work?
NSF has invested billions into fundamental research at almost every university in
the United States only to find out that the research they funded never made it out of
the laboratories. What is the root cause of this?
NSF has concluded that it is due to an overlooked area in the training of a scientist.
Most scientists do not know how to commercialize their inventions. That scientists
lack the ability/training to communicate the potential value of their invention to the
common man or even their corporate bosses. Most scientists as students only learn
how to communicate their ideas to fellow colleagues. The explanation of the signif-
icance of their work is embroiled in scientific jargon only scientists can understand.
For example, who does not know that 2,2,4-trimethyl pentane due to the dimeriza-
tion of isobutylene is called iso-octane in gasoline?
8.2.1 NSF’s I-Corps (Innovation Corps) Program

The NSF I-Corps program prepares scientists and engineers to expand their focus
from pure research goals of discovering and proving the technical benefits of new
products to include products that have an economic and societal benefit. This shift
in focus is significant. To get funding form the NSF for a scientific project, the scien-
tist not only must target the proof of the technical accomplishment to convince his
colleagues that the technical goals were achieved but also needs to make something
that will be a potential benefit to society. This expands the breath of the research
work to include reducing the technology to an application that has been shown to be
of value to some customer segment. For example, it was not enough to find a poly-
mer to form a homogeneous blend with chitin, but to make the blend into a soap
formulation that could be used in thin sheets for an antimicrobial wipe for travelers.
Through I-Corps, NSF grantees learn to identify valuable product opportunities
that can emerge from academic research and gain skills in entrepreneurship through
training in customer discovery and guidance from established entrepreneurs. The
appeal of this approach to the scientists, called the Lean Launchpad, is that it is
based on the scientific method. The team in this I-Corps training develops a hypoth-
esis about the customer segment they believe is most interested in their product or
service’s value proposition. The value proposition address a customer’s wants or a
needs. The experiment the team performs is to interview customers from a particular
segment and to discover if the customer agrees with the hypothesis. The challeng-
ing part for a scientist is that they are not to talk about their invention, but to ask
open-ended question to explore the customer’s pains or gains. Each team reports
back on the results of their experiment. At the national cohort, which takes place
at a Node, the teams is strongly encouraged to conduct 120 face-to-face interviews.
After presenting their finding, the teachers comment and direct the team to suffi-
ciently vet the customer segment and ensure that the team is making the correct
assessment of the customer’s interest level.
Several hidden gems in this method is that during the experiment, the team gains
skill and confidence in talking to potential customers, develops the interviewing
skills to explore customer problems, and learns how to communicate with nonsci-
entifically trained people. The coaching the team receives and encouragements to
dig deeper in each customer interviews allow the team member to engage in future
conversations with the same potential customer about product design. The customer
explains what they like and dislike about current products that they are using, and
their feedback may help the teams to add features to their designs that they did not
have in their original design. It helps the team to lose the focus on their product and
refocus on addressing the wants and needs of a customer.
Sarah E. Zappe, PhD, Senior Research Associate and Director of Assessment and
Instructional Support for the Leonhard Center for the Enhancement of Engineering
Education at Pennsylvania State University, points out that the scientific student’s
entrepreneurial mindset needs to be developed in their learning customer discov-
ery. A different conceptualization called growth mindset. Growth mindset and fixed
mindset are terms coined by Carol Dweck, a developmental psychologist and pro-
fessor at Stanford University.
The teachers of the I-Corps training believe the scientist’s personal characteristics
can be changed with training and practice and hopefully improved to such a condi-
tion that the scientist could become the CEO of the start-up during this initial phase.
Research has shown that creativity can be further developed with practice and
training. Yet some may need confidence from successful practice to view themselves
as creative. The I-Corps instructors seek to promote a mindset that encourages scien-
tists to develop the growth mindset. Successful completion of the customer discovery
with supportive teachers will help in the development of the growth mindset.
Also an important component of the I-Corps training is that failure is to be an
expected part of this course. The ability for the entrepreneur to do a pivot requires
that the instructors focus on the process rather than a failed outcome. Instructors
can emphasize what was learned and gained through failure, provide feedback for
improvement, and highlight that successful entrepreneurs also fail and learn to over-
come these failures. Helping students to realize that failure at this juncture is not
necessarily a bad thing to happen since it is much better to fail early than later in
the company’s development. Failure can occur for a variety of reasons, emphasizing
that failure is not a result of an innate characteristic of the entrepreneur but can help
to promote a growth mindset.
I-Corps instructors purposefully have a positive impact on students’ mindset. They
seek to develop the attributes of the entrepreneurial mindset of the Entrepreneurial
Lead (EL). EL can learn that being a successful entrepreneur requires hard work and
effort. Science students are taught what is required to be a successful entrepreneur
and the personalities of those who have been successful.
Another aspect that NSF strongly reinforces in these entrepreneurial start-up

training is to overcome the lacking in diversity both in terms of gender and race.
One of the reasons that individuals from underrepresented groups may not pursue
entrepreneurship is the lack of role models. If an individual does not see someone
that they can identify with in a successful entrepreneur role, that individual could
potentially develop a fixed mindset for not becoming an entrepreneur.
Instructors are encouraged to consider who they feature when discussing suc-
cesses and to consider diversity. NSF has included a program called I-Corps Diversity
to encourage and highlight successful entrepreneurs who are not in the majority of a
socioeconomic group and can help students identify with them and increase the like-
lihood of the development of an entrepreneurial mindset. Other strategies relating
to teaching for inclusion, such as creating a positive and welcoming classroom and
monitoring students’ roles in team projects, could also potentially impact students’
mindset toward entrepreneurship.
The consideration of growth/fixed mindset in entrepreneurship education has
potential implications for both teaching and research. While growth mindset and
entrepreneurial mindset are distinct concepts, some interesting research avenues
could be formed to discover connections between the two and further help students
on the pathways to becoming entrepreneurs.
Most I-Corps teachers focus on the entrepreneurial spirit and the ability to
increase their awareness of the customer interactions, meeting the objectives for
the I-Corps course, and identify the attributes of the entrepreneurial mindset that
are important for these meetings.
Key Takeaways
The chemical entrepreneurs can learn how to create his/her own company by
employing the scientific method of hypothesis creation, testing via customer
engagement, and then interpreting the results. The above findings of Dr. Sarah
E. Zappe should serve as an encouragement to all chemist wishing to start their
company in that all it takes is a little practice and a lot of hard work but can
result in the most satisfying career.
Components of the NSF I-Corps National Innovation Network work together to

grow and sustain the national innovation ecosystem. The I-Corps Sites and Nodes
shown in Figure 8.1 work together to develop the teams through NSF activities and
collaboration with other government agencies. NSF helps foster innovation among
faculty and students, promote regional coordination and linkages, and develop
networks.
8.2.2 I-Corps Teams or National Cohorts

I-Corps Teams participate in the seven-week I-Corps curriculum at one of the nine
Nodes throughout the country. Each I-Corps Team is composed of a mentor, an
Figure 8.1 The map above shows all of the locations of I-Corps Sites and Nodes (https://
venturewell.org/wp-content/uploads/map1118-1.pdf). Source: Directory of i-corps nodes
and sites, VentureWell.
inventor, and an EL. The team learns what it will take to achieve a commercial
impact with their innovation. The I-Corps curriculum and the training they receive
enable teams to systematically identify and address knowledge gaps to understand
the most appropriate path forward for their technology concept. I-Corps Team Travel
Awards support the team’s participation in the curriculum and their customer dis-
covery work in face-to-face interviews.
The purpose of the I-Corps Teams program is to identify researchers who need
additional support in the form of entrepreneurial education, mentoring, and fund-
ing to accelerate the translation of knowledge derived from fundamental research
into emerging products and services that can attract subsequent third-party fund-
ing. The outcomes of I-Corps Team projects will be threefold: (i) a clear go/no-go
decision based on an assessment of the viability of the overall business model,
(ii) a substantial firsthand evidence for or against product/market fit, with a pithy
definition of the customer segments and corresponding value propositions, and
(iii) a narrative of a compelling technology demonstration for potential partners.
This program is an integral part of our efforts to transfer scientific knowledge
from the laboratory bench to the factory floor. The program’s three goals to spur
translational research, to spur industry collaboration, and to provide students with
leadership and entrepreneurship training are going to help utilize new technologies
that will enable start-up companies to successfully compete in today’s fierce global
economic environment.
The diagram in Figure 8.2 depicts the progression of the entire I-Corps process
and the impact of forming an I-Corps Team. In this process, the Site and Node
teams graduate to become I-Corps Teams once they proven they understand the
NSF Innovation-Corps Teams Flow Diagram
d projects:
ible Pls an This
Pool of elig ts (N SF) could
oj ec
~50,000 pr be y
ou!
“Go”
Strategic
Decision Partnership
Customer (Teams)
Discovery
(Teams/Nodes)
Recruiting Team Node Private

processes selection assignment Capitalization
(NSF) (NSF) (NSF)
Pool of eligible
Teams (from NSF):
• Entrepreneurial Lead
• PI
• Mentor
Public Funding
Curriculum Business (e.g., SBIR, STIR, ...)
Awarded Delivery and Model
I-Corps Refinement Canvasses
Teams (Nodes) (Teams)
(NSF)
Pool of “No-Go”
eligible
Teams orps Decision
(from I-C (Teams)
Sites)
5–6 Weeks 7 Intensive Weeks
6 Months
Figure 8.2 NSF Innovation-Corps Teams Flow Diagram.
process and can form the three person team that is dedicated in reaching some form
of sustainability by getting the funding trek established. This usually begins with
SBIR/STTR funding.
I-Corps curriculum is the following:
● Based on hypothesis-driven business model discovery:
– pioneered by Stanford and Steve Blank
● Focuses on addressing market risk.
● Requires getting out of the lab:
– At least 15 hours of prep per week
● Each team composed of a mentor, EL, and inventor.
Even though the EL is the main focus of this program and is responsible to conduct
all of the interviews, the role of the inventor or principle investigator (PI) and the
mentor impacts the team’s performance. The PI’s role is to support the EL during this
time with advice about the product and assist in the interpretations of the customer
interviews.
The mentors are advisors that have two primary roles. First, by being a third-party
resource for the team, the mentor can help the team recognize and reduce confirma-
tion bias during the customer discovery process. In this role, the I-Corps Mentor is
in some ways an extension of the I-Corps Teaching Team in helping the team absorb
and apply the relevant lessons. Second, the I-Corps Mentor should be someone that
has industry contacts and knows the ecosystem of the target market area. I-Corps
Teams will be interviewing more than 100 potential customers and potential part-
ners in person. A good mentor can help the team find the right people to interview.
The establishment of the Senior Chemists Committee (SCC) was approved as a

Joint Board-Council Committee effective 1 January 2013. The age demographic of
the ACS powerfully illustrated the need for an SCC. Of its more than 150 000 mem-
bers, more than 35% are over the age of 50, one of the fastest growing segments of
the Society. This committee has the knowledge base to help chemical start-ups in the
I-Corps program given their vision of “Improve lives using the knowledge and expe-
rience of senior chemists.” This seems like a perfect match. Currently, 62 universities
are I-Corps Sites; thus hooking up with one would be easy.
It would seems that with all of its resources and members looking for US employ-
ment, the ACS should investigate the advantages of having a partnership with the
I-Corps program.
8.2.3 I-Corps Sites

I-Corps Sites, usually located on a university campus, nurtures and supports mul-
tiple local teams to transition their technology concepts into the marketplace. The
Sites provide infrastructure, advice, resources, networking opportunities, training,
and modest funding to enable groups to transition their work into the marketplace
or into becoming I-Corps Team applicants. Sites are single-institution efforts to sup-
port innovation locally. As mentioned above, the teachers of the I-Corps Site work
hard to promote the scientific student’s entrepreneurial mindset so that they will
perform well as an I-Corps Team.
The I-Corps Site is a very fertile area for the union of academia and industry.
The teams coming out of the Site are encouraged and trained to interview experts
in particular business sector according to a hypothesis they formed between their
value proposition and a customer segment. During these customer interviews, uni-
versity students usually engage with an industrial customer and through a series of
open-ended question discover what problems the industrial customer is having with
a product or technology.
8.2.4 I-Corps Nodes

I-Corps Nodes support regional needs for innovation education, infrastructure,
and research. The I-Corps Nodes work cooperatively to build, utilize, and sus-
tain a national innovation ecosystem that further enhances the development of
technologies, products, and processes that benefit society. Nodes are single- or
multi-institution efforts to support innovation regionally.
As mentioned above, the Node is the main regional hub of training and is respon-
sible for the teaching of the national teams. Their teachers are well-trained, and the
national program solidifies the team’s next steps in bringing their venture to the
market.
8.2.5 Case Study

Referring back to the example of the antimicrobial thin film soap sheet, the team
went through customer discovery part of the I-Corps program and originally thought
that the customer whom would value their product the most would have been
student or gym enthusiasts that wanted to minimize the risk of infection on gym
equipment. However, they soon realized after several interview, the students would
not purchase the sheet prior to going to the gym and were reliant on the gym owner
to protect their equipment. Thus the gym owners become the customer of their
product. However, they felt that if their customers were concerned with infection,
then they could use the spray and wipe materials already in place. Thus the team
had to pivot to find a new customer segment, which they did when interviewing
frequent travelers.
What they found was that most frequent traveler are highly concerned with infec-
tions from previous travelers or current travelers.
Now how to get the product into the customer hands now that they know which
customer values their business proposition? The team went to a trade show and
interviewed companies in search of a partner that would be willing to help in
scale-up and other issues like regulatory approvals.
Unfortunately, they find what most chemically based start-ups find; the larger
chemical companies want them to take the risks in scale-up and regulatory approval.
To accomplish this, the start-up company will seek funding (shown below), but I do
want to point out that this juncture in the life of a start-up is where attrition really
begins to happen. The start-up suddenly finds themselves in an ocean full of fish,
and they are the smallest fish. As will be explored below, what if the chemical indus-
try treated the start-up differently? Instead of asking the start-up company to further
de-risk the innovation through expensive testing, the industry assisted the start-up in
testing their innovation against known benchmarks and testing results from indus-
trial relevant tests.
Key Takeaways
The program NSFs have created using Steven Blank’s Lean Launchpad method
is a path that every chemist should consider. The ever-changing job market has
somewhat exposed the fact that the general public has less knowledge about
the benefits that chemist can bring to the society. These programs from I-Corps
Site to I-Corps Team, SBIR funding, investor funding, and the skills learn in nav-
igating these programs can help the chemist in proclaiming the benefits they
bring to the society.
8.2.6 Non-dilutive Funding Opportunities

As briefly mention above, the I-Corps Teams that are encouraged to go to the
national cohort training are given a $50 K travel grant to complete their customer
discovery and develop a sound product/market fit. This program will help the
start-up in many ways with key industrial contacts and mentoring from the coaches
and instructors.
Additionally, NSF allows the EL to use $10–15 K for personal funding that is
extremely important to keep the start-up on the tracks and the entrepreneurial fully
engaged on growing the business.
The next potential source of non-dilutive funding comes from the Small Busi-
ness Innovation Awards (SBIR). Most government agencies offer this program even
though it is fairly competitive. Teams that have received the national cohort training
are in an excellent position to receive one of these rewards.
The SBIR program is congressionally mandated and intended to support scientific
excellence and technological innovation through the investment of federal research
funds to build a strong national economy. The purpose is to increase the commer-
cial application of federally supported research by stimulating technological inno-
vation in the private sector. The program looks to involve small business in meeting
federal R&D needs. Also, as mentioned above one of the goals of the I-Corps pro-
gram is to encourage participation by socially and economically disadvantaged and
women-owned small businesses.
The SBIR program solicits proposals from the small business sector consistent
with NSF’s mission to promote the progress of science; to advance the national
health, prosperity, and welfare; and to secure the national defense.
An SBIR Phase I proposal must describe the research effort needed to establish
the feasibility of the proposed scientific or technical innovation. The objective of
the Phase I effort is to further assess the commercial feasibility of the proposed
innovation – thus the close relationship between the I-Corps program and the SBIR
program. The company must demonstrate that the innovation has sufficient techni-
cal and commercial impact to merit proceeding into a Phase II project.
This award will give the company time to further develop their product prototype,
but as will be expounded upon below, it is vital the start-up finds a partner that knows
the market the start-up hopes to penetrate and what testing the majority customer
in that segment wants prior to purchasing. For the example case of the start-up with
the chitin soap sheets, what are the most important testing needed?
After the Phase I SBIR award, the company may seek follow-on funding for an
SBIR Phase II award, which will allow the company to scale the invention to meet
these objectives and provide a work plan defining specific tasks, performance sched-
ules, milestones, and deliverables.
The Commercialization Plan is a critical section of the proposal. It is extremely
important for the start-up to develop a strategy to generate revenue from their
innovation. It should demonstrate the need for continued support from Phase II
funding. The compelling vision that describes a business model and value propo-
sition is enabled by the innovation. The ability to provide a proposed milestones
of accomplishments for each stage of the company’s development is vital, as well
as the anticipated commercial landscape and the resources required to address the
opportunity enabled by your innovation.
For the example company, they would be able to mass-produce their sheets for a
larger-scale regulatory study and begin beta testing of their product. Another ben-
efit of the Phase II award is that some governmental agencies will provide match-
ing funds for any investment offer on a 2-for-1 match. Thus if the sheet company
raised $1 M from investors, the agency will match those funds with a $500 K award.
Obviously this is a great chance at sustainability and will have helped the start-up
company reach a partner to help commercialize their product.
8.2.7 Angel Funding: Dilutive Funding

Business angels are high-net-worth individuals who invest their own money in
start-up and emerging companies. They represent the primary source of seed and
start-up capital for entrepreneurial ventures in most advanced economies. Angel
groups span the spectrum from informal collections of individual angels to the
more structured hybrid angel funds that in some ways resemble a classic venture
capital fund.
From the Angel Capital Association in 2017, ACA angels invested $102 million in
432 deals with $524 million total amount raised by syndicated offerings. It is easy
to see the importance of angels in the equity financing of high-growth ventures and
the important role of angels in economic development and job creation.
The ability to attract angel funds should be on every start-up game plan. As men-
tioned above some funding agencies will join in the funding of a start-up. The prob-
lem with an investment funding for a start-up company is valuation or how much
money the start-up is worth if the investment groups need to sell the company. Most
companies at the pre-SBIR stage have a low valuation since all they actually have is
a patent on their idea, an early-stage prototype. This is about $200 K worth, and if
they need $500 K as most chemically based start-up for testing, and thus if they were
ever to attracted the $500 K from investors, then the investment group would own
5/7 of the company.
8.2.8 Accelerators
Most accelerators provide a stipend or small seed investment, mentoring, and
workspace and professional services in exchange for an equity stake in the com-
pany. Typically the equity investment is around $25 000, and the equity stake is
roughly 6%, according to Hochberg’s research.
To get your accelerator ranked, one needs to have graduated at least one cohort
and be based in the United States and have at least 10 graduates in their class.
Hochberg measured the accelerators based on the valuations their portfolio com-
panies achieved in the years after graduation, the number of exits an accelerator has
had, the ability of companies to receive additional financing after they left an acceler-
ator program, the percentage of an accelerator’s portfolio that was still in operation,
the opinion venture investors have of the accelerator program, and finally the opin-
ion that graduating entrepreneurs had of their experience.
Two years out from graduation, the valuation of all portfolio companies was about
$5 million, and the average valuation of a priced round or exit was $11 million. Both
of those numbers are significantly lower than the average valuation across all port-
folio companies in accelerators – $17 million. Moreover, the average valuation of all
portfolio companies on a priced round or exit was $29 million.
Another key metric is follow-on financing. Roughly 59.3% of all companies in

accelerator programs have gone on to raise follow-on financing. Across portfolios,
the average raise was $1.8 million through both internal or external rounds and $2.8
million for companies that just raised outside funding.
As for exits, it is far too soon to tell. Historically, a venture investment takes around
seven to nine years to exit, and the oldest accelerator program – Y combinator – is
only nine years old itself. The average accelerator program is only 3.1 years old and
has only graduated nearly seven groups of companies. Across all start-ups invested
by accelerators, only 2.1% have had a meaningful exit, according to the report.
No matter what the results are, entrepreneurs are almost universally happy with
the accelerator experience. Roughly 90% of the ones Hochberg and Cohen surveyed
said they would repeat the experience, and 95% said it was worth it to give up the
equity.
The ERC of the ACS did not invest in any company nor did it take an equity posi-
tion. The Center only ran for two years, and even though it helped a few companies,
it appears that the time period was too short to see any follow-on funding to occur.
The idea of being a virtual accelerator is sound giving a start-up early funding situa-
tion; it appears that the short runway that was provided to some start-ups was able to
reach sustainability. However, a closer investigation reveals that the type of start-up
that reaches sustainability was not high-tech companies. Of the 1900 companies in
the Y combinator, only about 3% could be considered high tech, and none of them
were chemically based companies.
8.3 Other Potential Programs

The needs of start-up companies in the chemical market are great. The start-up
companies in the chemical industry face many of the similar problems as biotech
start-ups in that product approvals take many years and testing and regulatory
approvals are expensive.
Additionally, the team is going to need an earlyvangelist to assist them in the devel-
opment into a prototype that they can show to customer in the majority market.
More detail will be given on this last point further in the text.
In Geoffrey Moore’s book Crossing the Chasm, he emphasizes for an innovation to
make it successfully into commerce, the product has to be accepted by the majority
of the customers. To accomplice this feat for a chemical start-up, it needs to position
its product in a form that the majority of the customers will accept. For example, a
start-up company has recently developed a new soap formulation in the form of a
thin sheet of cloth composed of cellulose, chitin, surfactants, and deodorant. This
sheet will be of a form similar to a Handiwipe. The differentiating properties is
that the sheet will dissolve in your hand with a little moisture but leaves behind
a thin film of a bio-based antimicrobial polymer. From customer discovery, the film
is highly desirable by frequent travelers. How does the start-up get this product into
the hands of the majority of frequent travelers?
This section will highlight some specific difficulties chemical entrepreneurs face
in the above example and some of the promising trends and routes to circumvent
the difficulties in moving an invention from the research lab into commerce.
The diamond-in-the-rough idea behind the ERC of the ACS was that ACS mem-
bers would assist the start-up companies reach sustainability. Why do this? It is for
the survival of the ACS. If US employment for students continues to decline, no one
will want to go to universities for four years for a BS in Chemistry and certainly not
eight years for a PhD. I believe as a chemist we can prevent this from happening. I
think we can prevent this catastrophe, but receiving help from fellow ACS members
in industry would definitely help.
The I-Corps process discussed above not only teaches a scientist on how to dis-
cover the customer segment that place a high level of importance on the value propo-
sition but also teaches other elements of developing a business model. It helps the
start-up focus on the nine key elements of a business model called the business
model canvas.
More importantly it teaches the chemist business skills and how to use customer
discovery to gain insight about their business. Moreover, it teaches the start-up on
how to engage the customer in an open-ended conversation in which the customers
discuss the problems they face in the market. Receiving market information from a
customer discussing their wants and needs is extremely valuable. However, I think
the highest valuable information a start-up needs is to find out what the criteria are
that a prototype needs to meet to get a majority customer acceptance.
By majority customer, I am using the phraseology used by Geoffrey Moore in his
book, Crossing the Chasm. In his book, Moore explains that there are five different
classes of customers: early adopters, innovators, early majority, late majority, and
laggards (Figure 8.3).
The most important characteristic for a start-up to understand is the motivation for
each of these classes of customers to make a purchasing decision. The first two, early
adopters and innovators, make their buying decisions based on how cool they think
the technology is or how it makes them feel are the people who want something new.
They are motivated by the technology and will put up with a few short comings of
the product or service.
In the next two, the early and late majorities, customers make their buying deci-
sions on what other customers think or feel about a product. These customers are in
the majority, and they are prudent buyers. They make decisions based on feedback
from other customers who have used or bought the product. This is the chasm Moore
refers to in his book. It can be a real hurdle for the start-up that usually cannot afford
to include all of the “bells and whistle” that a majority customers wants to see in a
product or to supply the “whole product solution.”
This is where an earlyvangelist is most needed. An earlyvangelist is a person in
the same industry as the start-up and is in a position to not only recognize the value
of the invention but know in what condition the prototype needs to be to satisfy
the majority customer. Also the earlyvangelist has the influence to direct company
resources to fully develop the start-up’s product to a point that will be acceptable to
the majority customer.
The chasm
Early market Mainstream market
Whole product
solution
Minimum
feature set
Innovators Early adopters Early majority Late majority Laggards

2.5% 13.5% 34% 34% 16%
People who want newest things People who want complete solutions and convenience
Figure 8.3 Five different customers defined by Geoffrey Moore in his book Crossing the
Chasm.
An example of a program that would help chemical start-up cross the chasm is
that the ACS could reward chemical companies for helping the start-up get across
the chasm and their products in the hands of the majority customer. Then we might
see a light at the end of the tunnel for chemically based start-ups.
If larger corporations would form partnerships with their ACS fellow members
and help with the testing and knowledge of spanning the regulator barriers, it would
lessen the hurdles many of the chemical start-up companies face.
Most large corporations in the chemical industry have the testing equipment and
the personnel to run the tests that are preventing the start-up from getting their prod-
ucts in the hands of the majority of the customers.
All that is required is that the larger corporations take a risk, think like investors,
and take 10 risks, and one might pay off. If like the accelerators they invested
$25–50 000 in testing for 5–10% equity in 10 start-ups, one to two or maybe even
3 might make it and return more than 10-fold. I realize this will make every
corporate lawyer extremely nervous, but they are a nervous bunch anyway.
So as I was writing this section, I was delighted to read an article in C&E News
about the plight of pharmaceutical companies in Europe and the course of action
some have made to adjust to the changing marketplace.
In much the same way as the US pharmaceutical industry, with soring research
cost and manufacturing moving offshore, the Europe’s drug industry is going
through an efficiency drive to cut costs, raise productivity, and focus on more prof-
itable therapeutic areas. Research chemists and other scientists are losing their jobs
as staff numbers are reduced. Whole research units are being closed or transferred to
new owners that want to economize with fewer employees. As already mentioned,
research units in a time of cost efficiency are closed due to the misperception of
being viewed as a cost center.
However, researchers have a reasonable prospect of finding work in an R&D
sector that is no longer dominated by pharmaceutical multinationals. In addition
to drug discovery start-ups, new jobs can be found in the growing collection of
contract research organizations (CROs) serving the discovery and preclinical stages
of research. This is not far from an investor or a larger chemical taking an equity
position in a start-up for the exchange of testing results.
These CROs earn their revenue by providing a range of support services to both
big, small, and start-up companies at the leading edge of drug technology. Many CRO
research staffers are former employees of big pharma companies where the priority
is no longer the in-house discovery of new molecules. In some cases, they even work
in facilities spun off by their former employers.
Life in CROs is not always as cushy as it was in big pharma, but it is never dull.
Even if CRO scientists work in familiar surroundings, they must constantly adapt
to new technologies. They cover areas like process development, compound synthe-
sis, assay development, target validation, screening services, lead optimization, and
computational support.
Having sufficient – and sufficiently versatile – scientific expertise to maintain
diverse revenue streams is a major reason many CROs in Europe have healthy
balance sheets. They can earn high fees from technological guidance while also
creating value from their own proprietary drug discoveries or from a partnership
with a pharmaceutical start-up company.
8.3.1 Case Studies

8.3.1.1 Evotec
Evotec, a large German CRO founded by a group of academics in the early 1990s,
recorded a 46% rise in revenue last year in part by building an infectious disease
project for new “open innovation” initiatives with other drug and biotech compa-
nies, academia, and government agencies.
8.3.1.2 CatSci
Another example of leveraging their technical competency to create revenue that
would be beneficial to start-up companies is CatSci that was spun off by AstraZeneca
in 2010. By widening its competencies in the areas of chemical reaction optimization
and scalable process development broaden their offering on process R&D rather than
just focusing on catalysis development.
These above examples are means in which companies in the chemical industry
leverages their existing equipment and testing knowledge to create revenue. I believe
if the chemical industrial managers would consider all of the positive impacts they
could have on the chemical industry by broadening their view of start-up compa-
nies as a means to generate another revenue source, it would release innovation and
create national employment opportunities.
8.3.2 Agile Innovation Teams

Another potential solution in which the chemical industry could prevent the loss of
jobs is in a hybrid approach to agile innovation teams. These agile innovation teams
work differently than teams from larger organizational since they are designed to
stay close to the customer and adapt quickly to customer needs. They usually result
in higher productivity since they are faster to market and are very similar to start-up
companies in these qualities.
In this potential solution, the chemical industry would make strategic acquisitions
of start-up companies and align them with their existing agile teams or those in the
process of creating agile teams.
Managers in the chemical industry have heard about agile teams and may consider
how to launch agile teams throughout the organization. Could whole segments of
the business learn to operate in this manner? Would scaling up agile improve corpo-
rate performance as much as agile methods improve individual team performance?
Companies that successfully scale up agile see major changes in their business.
Scaling up shifts the mix of work so that the business is doing more innovation
relative to routine operations. The business is better able to read changing condi-
tions and priorities, develop adaptive solutions, and avoid the constant crises that so
frequently hit traditional hierarchies. Disruptive innovations will come to feel less
disruptive and more like adaptive business as usual. The scaling up also brings agile
values and principles to business operations and support functions, even if many
routine activities remain. It leads to greater efficiency and productivity in some of
the businesses’ big cost centers. It improves operating architectures and organiza-
tional models to enhance coordination between agile teams and routine operations.
Changes come on line faster and are more responsive to customer needs. Finally, the
business delivers measurable improvements in outcomes – not only better financial
results but also greater customer loyalty and employee engagement.
In companies with many agile teams, funding procedures are different. Funders
recognize that for two-thirds of successful innovations, the original concept will
change significantly during the development process. They expect that teams will
drop some features and launch others without waiting for the next annual cycle,
but based on customer feedback. As a result, funding procedures evolve to resemble
those of a start-up only using funds to increase the opportunity to grow.
In this hybrid approach, the larger chemical companies would buy the start-up
company and blend them with teams from the mainstream business or from their
exiting agile teams. These hybrid teams would function as an agile team and try to
grow the business as the start-up owners.
8.3.3 Case Studies

8.3.3.1 525 Solutions, Inc.
Universities in the United States are great resources of raw talent, and as mentioned
above all that is needed is a pathway to train chemist how to communicate the value
of their invention to the majority customers. One case of where students and profes-
sors took their inventions a step further is by exploring the opportunity to move their
intellectual property to the marketplace. Their success stories to prove the formula
works.
It started with one extremely creative and entrepreneurial research professor
Dr. Robin Rodgers.
From his work in ionic liquids, Rogers became fascinated with green industry
and the concept of sustainability. Robin noticed that the ionic liquids had the ability
to dissolve cellulose. Cellulose is the material that give trees their mechanical
properties but is notoriously difficult to dissolve. In fact the paper and pulping mills
go to great extent and harsh chemicals to get the cellulose into solutions. These
harsh chemicals not only are bad for the environment but also damage the cellulose
polymer.
Through hard work, Robin and his student were able to not only dissolve the
cellulose but also add a variety of performance enhancement to the cellulose and
then extract the cellulose for the ionic liquid. This allowed them to make cellulose
(cotton) fibers that cause drug delivery in wound care to conductive fibers for inter-
facing with mobile devices.
President, owner, and founder of 525 Solutions, Inc. Robin D. Rogers has been
a faculty member at the University of Alabama (UA) since 1982. The name 525
Solutions was derived from the 525-nm wavelength for green light. In 2004, Rogers,
along with a graduate student and other partners, came up with 525 Solutions to
take results beyond what had been done in the academic lab to the market.
As the company began developing bio-renewable products from shrimp shells to
form the extraction of chitin fibers, it formed a joint venture with Mari Signum Lim-
ited (MSL) and Global Blue Technologies, a zero-waste shrimp farm. MSL raised
$25 million and built the first chitin production facility in North America, based on
a technology developed by Rogers.
Two postdoctoral students from Rodger’s group, Gabriela Gurau and Julia
Shamshina, joined this venture and learned how to get technology from a university
setting to a corporate setting. Julia and Gabby are both responsible for doing the
work on the scale-up of chitin to an industrial level.
Mari Signum utilizes a proprietary extraction process to produce premium-quality
chitin and chitin derivatives, which have the potential to impact the world in numer-
ous beneficial ways. The 525 team has the products, including bandages that can be
used by the military for fast wound healing. Also 525 is working on bandages with
the capacity to heal diabetic wounds.
525 Solutions is continuing to innovate new chitin-based products. The industrial
applications for chitin are overwhelming. Chitin is used in animal feed as a dietary
supplement to promote animal growth, improve adsorption of nutrients, and inhibit
the effect of harmful microorganisms and as an ideal material for use in agriculture
as a fertilizer, fungicide, and pesticide, as an agent to improve seed quality, and as a
plant growth stimulator.
8.3.3.2 ThruPore Technologies

In 2015, UA formed an I-Corps Site to foster entrepreneurship that will lead to the
commercialization of technology. The methodology helped with customer discovery.
When the patent is disclosed, the program helps make sure a customer base exists for
the invention, providing infrastructure, advice, resources, networking opportunities,
and training.
ThruPore Technologies, with its tag line of “make more, use less,” illustrates how
the program should and did work for Franchessa Sayler, PhD, President and CEO,
and, her partner, Professor Martin Bakker.
ThruPore enter the National I-Corps Team training as most typical university
team with Sayler as graduate student being the entrepreneur and Martin Bakker as
a professor and PI of the I-Corps grant along with Chris Melton the mentor from
White Oak investments. Their technology uses highly porous synthetic carbon
pellets, combined with precious metals, to create faster reactions in the refinery
processes. The more efficient process creates less waste and uses fewer precious
metals and has the potential to revolutionize industry by reducing the refiner’s
carbon footprint while also significantly reducing the cost of the process. These
value propositions were perceived by potential customers as have a high importance
for switching catalyst suppliers.
After the I-Corps training, when ThruPore came back in Tuscaloosa, Alabama,
they faced a real problem of scale. Their customer discovery led them to customers
whom typically receive sample in ton quantities not grams.
Fortunately, through a partnership with Inventure Renewables, a company incu-
bating in the Bama Technology Incubator at the UA, they were able to develop a
process that could be scaled up to the ton quantity. Now ThruPore could meet their
customer expectation of the amount of material they need to test and verify Thru-
Pores catalyst.
Thanks to Inventure Renewables and NSF’s Small Business Innovation Research
(SBIR) grants, this research was funded by a totaled $1.2 million from 2014 through
2017.
During the second year of their Phase II SBIR, ThruPore sought private investment
and received a total of $856 500. They also have applied for another grant to match
that funding, for another $250 000 from a phase IB supplement grant.
ThruPore projects exponential growth for their company in the next five years,
with the pellets shipping direct to customers from Tuscaloosa.
This success story is a great example of how a partner in the chemical industry
can help a start-up company meet customer expectation by providing the necessary
knowledge to bring a technology from an academic setting in which a 5-g sample
is converted into a real-world production sample of five tons that is the necessary
prototype for this industrial testing.
Key Takeaways
Both companies took about five years to reach a level of sustainability before
the investment community seriously regard them as investment worthy. The
lesson learned is that it takes time and hard work to reach their current level
of funding. Both leading entrepreneurs were PhD chemists. Franchessa Sayler
went through the I-Corps program and was able to successfully transition from
working in a laboratory to a CEO. Gabrielle Gurau demonstrated the high level
of resiliency it takes to develop a company from a start-up based on an idea but
relied on the leadership from her mentors.
8.4 Summary
I hope I was able to highlight a few challenges in the training of a chemists and
the need for the professionals in the chemical industry to be more supportive of
chemical entrepreneurs. The threat of losing the interest of the future generations
of students in getting chemistry degrees would weaken the United States in its abil-
ity to create the products we use and would lose touch on how to fix issues with the
chemicals we are using. I hope in the future that mangers in the chemical indus-
try would take notice of the decrease in innovations in their industry and would
begin to question if they are the source of the relationship between risk taking and
decreased innovation. The decisions of not funding risky long term for short-term
fixes may have a short-term gain but result in longer-term losses. The barrier for
start-ups to enter into the chemical industry needs to be lowered without lowering
standards. The chemical entrepreneur could greatly facilitate this change in risk tak-
ing by corporate managers whom can see the value the start-ups bring. The chemical
entrepreneurs can help reduce the risk by learning how to position their products or
services that are likely to attract the majority customer. They can do this by learn-
ing how to talk to customers and discover what attracts the majority customer. The
suggestions made above are only a few but could increase the number of chemi-
cal start-up companies that make crossing the chasm to the majority customer and
serve to convince the corporate chemical managers that they are worth support-
ing and forming business partnerships with. Also, I do believe that if the chem-
istry industry as a whole put an effort to help chemical-based start-up companies, it
would serve as a source of encouragement to many university students looking for
employment in the United States and would result in the creation of many innovative
products.
8.4 Summary 261
Teams Sites Nodes Mentors
NSF I-CorpsTM
Strategic Private Public No Go

Partnership Capitalization Funding Decision
Recommended Reading
Moore, G. (1991). Crossing the Chasm. Harper Business, A Division of HarperCollins

Publishers.
Blank, S. and Dorf, B. (2012). The Startup Owner’s Manual. K @S Ranch Publishing
Division.
Cooper, B. and Vlaskovits, P. (2010). The Entrepreneur’s Guide to Customer Development.
Cooper-Vlaskovits Pages.
Osterwalder, A. and Piqneur, Y. (2010). Business Model Generation. Wiley.
Author Biography
Dan Daly is the founder of Daly Business consultants,
which assist technology start-ups to develop their
non-dilutive funding trek. Dan previously was the
Director of the Alabama Innovation and Mentoring of
Entrepreneurs (AIME) Center and is responsible for
the overall operations of the Bama Technology Incuba-
tor (BTI) located on campus for 16 years. He received
a BS in Chemistry and Psychology from Florida State
University and a PhD in Physical-Organic Chemistry from the University of Florida.
Dan also did four years of postdoctoral studies in computer-assisted drug design at
University of South Florida and Oregon State University. He has over 20 years’ expe-
rience in the petroleum and oil market where he worked for Texaco and Lubrizol.
He is dedicated to enhancing the culture of high-technology R&D through innova-
tion, mentoring, and entrepreneurship. AIME, an I-Corps Site, assists in identify-
ing and facilitating value-added innovation and making minimum viable products
(MVP). Leveraging assistance of industrial partners, test prototypes in statistically
controlled and industrial relevant tests.
263
Index
23andme 5 press relations (PR) and marketing

24M Technologies 151, 152 strategies 162
525 Solutions, Inc. 255–256 startups acceleration programs 132
battery industry 129, 131, 159
a battery markets
A123 Systems 105, 141–144, 151 challenges 152–153
academic battery technology 129 financial challenges 154
academic entrepreneurs 33, 34, 45, 52, technical challenges 153–154
54, 170 battery materials 129–131, 144, 157
academic founders 34, 44, 45, 50, 52, battery startups 130–132, 139–152, 154,
53 155, 157–160, 163
academic inventors 154–159 Bayh-Dole Act 130
academic programs 172 BD goals 122
accelerators 9–10, 18, 131, 231, 232, 241, big pharma(s) 211–238, 254
250–251, 253 big pharma and open innovation model
activated charcoal 90, 92 biotech companies 217
Advanced Inhalation Research 34, 35, cheminformatics-based startups 226
44, 45 compound providers 223
agile innovation teams 255 contract research organizations (CROs)
air filtration 61, 92–97 221–222
airplanes 138–139 defined 217
air purification approaches 90 FDA approvals 216
Alevo USA 147 intellectual property (IP) 216
algae biofuel market 172, 173 medicinal chemistry-based biotechs
American Chemical Society (ACS) 14, 226
59, 168, 240 novel business model 230–233
angel funding 250 patient associations and charities
angel investors 18, 47, 51, 53, 157, 241 220–221
Aquion energy 143, 144 public administrations 221
attrition rates 214 universities/research institutions
automotive companies 141, 173 216–217
venture capital 217–218
b X-ray diffraction studies 227–228
BASF 23, 106, 169, 178 biologics 215, 216
battery entrepreneurship biomedical field 33–56
licensing 162 biomedical sector 33, 34, 47–49, 51, 53,
minimum-viable product (MVP) 132 54
264 Index
biomedical ventures 51 commercialization plan 68, 130, 249

bioreactors 2 commercial market 64, 67, 91, 133, 152,
biotech and pharma companies 217 163
Crispr Therapeutics 4 commercial products 12, 26, 45, 63–65,
Editas Medicine 4 68, 129, 130, 172, 198, 227
Intellia Therapeutics 4 commercial scale
Moderna Therapeutics 4 best practices 194–195
Unity Biotechnology 4 company’s growth trajectory 200
biotech startups 113, 159, 251 competitive threats 201, 202
Blackrock 19 financing 195–197
Boston Power 140, 141, 145, 150, 162 growth constraints 197
BrontideTM bio-butylene glycol 195 hidden landmine 201
business model design 88 insource vs. outsource 198–199
business-to-business (B2B) 23, 62, 87, primary and secondary markets
211 197–198
business-to-consumer (B2C) 23, 62, 87 commodity chemical market 195
business-to-government (B2G) 87 Consumer Brand Company VCs 19
consumer chemicals 167
c contract research organizations (CROs)
Cadenza Innovation 140, 150, 162 221–222, 254
capital requirements 176 corporate-sponsored academic research
capital-strapped public health funds 46
98 corporate venture capitals (CVCs)
carbon-based sorbents 92 111–112
career opportunities 8, 241 customer discovery and development
The Carlyle Group 19 commercialization process 83
catalysts 111, 120, 128, 167, 176, 257 market demand and unmet needs
CatSci 254 76–77
cell voltages 132 stakeholders in value chain 78–82
charge and discharge rates 132 target industry’s value chain 78
chemical industry 167–207, 209, 240, technology’s uses 77
248, 251, 253–255, 257, 258 validation activities 83
chemical innovation 170, 239, 241 validation model 83–85
chemical sector 167–170, 173, 175, 176, customer feedback 72, 89, 255
178, 180, 181, 186–188, 190–192, customer interviews 88, 243, 246, 247
194–198, 201–203, 206 custom synthesis 223–226, 234, 235, 237
chemical spills 96 cycle life 132, 137, 139, 145, 147, 153
chemical startups 179, 188, 241, 247,
251, 253, 258 d
chemical toxicity 168 defensive publication 161
chemistry curriculums 8 diagnostics 1, 4–5, 8, 33, 58, 134
ChromaDex 8, 20, 21, 25–28, 30 direct funding 120
co-inventorship 159 discharge efficiency 132
Cold Heavy Oil Production with Sand disruptive innovations 1–2, 217, 235, 255
(CHOPS) 174, 181, 185, 189, 196, DNA synthesis 3
198, 201, 204 drones 134, 158
commercial batteries 129 drug development process 42, 45, 231
commercialization 21, 130
business-to-business (B2B) 23 e
business-to-consumer (B2C) 23 economies of scale
licensing deal 22 customer testimonials 189
Index 265
defined 187 f
direct sales vs distributors 191–192 FDA approval 35, 47–49, 51, 55, 216
factors 187 fee-for-service model 211, 221, 225, 227,
gaining customer traction 188–189 235, 236
market entry and initial sales 190–191 flow batteries 130, 136, 151
measured growth 191 Fluidic Energy 145
pricing models 189–190 foie gras effect 154
strategic decisions 188 food and nutrition
testing and pivoting 192–194 animal-free dairy products 2
Edwards, David 34, 50, 53 Endless West 3
electric vehicles Impossible Foods 2
heavy duty utility vehicles, trucks, and Just Mayo 2
buses 138 Food Company VCs 19
light electric utility vehicles (LEV) fuel cell development 173, 175, 185
137–138 fuel cell entrepreneurs 104
passenger cars 137 funding procedures 255
Endless West 3 funding strategy
end users 63, 70–73, 77, 80–82, 90, abundance and accessibility 156
192 angel investments 157
energy and power density 132
business plan competitions 156
energy storage markets 129, 154
funding sources 155
airplanes 138–139
revenue streams 157
electric vehicles 137
traditional VC business model 155
grid energy storage and renewable
venture capital 158
energy 134–136
fund raising
home energy storage 136–137
accelerators and incubators 18
industrial batteries and back-up power
angel investors 18
136
debt 18–19
portable electronics, drones and
investment banks 20–21
medical devices 134
private equity 19
ships and boats 139
self-funding 18
Entrepreneurial Lead (EL) 243
strategic investment 19
entrepreneurial startups 168, 169, 244
venture capital 19
entrepreneurial training 130, 131
entrepreneurial ventures 167, 250
entrepreneurs 2, 6–10, 16–18, 28, 30, 34, g
38, 43, 50, 52, 53, 55, 61, 63, 65, 66, gene editing 3, 4, 15
73, 75, 77, 82, 83, 89, 103, 104, 109, Genomatica 3, 195
110, 113–121, 123–126, 130, 132, Ginkgo Bioworks 3, 9
162, 163, 167, 168, 170–173, 176, Global Blue Technologies 256
179, 186, 188, 191–193, 198, 199, global warming 168
206, 207, 209, 211, 222, 226, 230, Grail Diagnostics 5
236, 239, 242–244, 250–252, 258, grid energy storage 134–136
262 grid-scale batteries 134, 147
entrepreneurship education 244 Group-Purchase Organizations (GPOs)
Envia Systems 146 97
equipment manufacturers 142
European Lead Factory (ELF) 232 h
Evotec 254 Hanes, Justin 36, 47, 50, 52
exploration and production (E&P) market hard tech startups
177 business models 105
266 Index
hard tech startups (contd.) I-Corps Sites 244–248, 262

early-stage business development I-Corps Teams or National Cohorts
119–120 244–247
financial clout 106 I2D2 233–235, 238
fundraising strategy Impossible Foods 2, 23
corporate venture capitals (CVCs) incubators 9–10, 18, 156, 218, 221,
111–112 230–232, 257, 262
early-stage investors 110 industrial gases 91, 167
early-stage venture capitalists 110 Influit Energy 130, 131, 165, 166
employees and investors 107 in-licensed technology 44
financial outcomes 108 innovation-driven company 182
friends and family 109 innovation process 1, 2
fund life 112 intellectual property (IP) 216
investment opportunities 110 management strategy 159–161
investors 108–109 ownership 159
late-stage venture capitalists 110 providers 131
professional venture capitalists 110 misappropriation 123
return the fund 112–113 Invention CEO
10X return 118 founder vs inventor 16
investors investment banks 20–21
establish momentum 116, 117 investors 9, 18–21, 37, 47–55, 80–82,
and founders 104 103–120, 128, 132, 139, 140, 147,
large target market 115–116 148, 153–163, 169, 172, 179, 180,
market de-risking 117 184, 185, 190–192, 194–197, 202,
partnering strategy 116 207, 229, 241, 248, 250, 253, 254
sales model and sales cycle 116
team value 115 j
technical de-risking 117 Just Mayo 2
technology and customer value
proposition 115 k
unit economics 116 Kala Pharmaceuticals 34, 36–37, 44, 47,
partnerships 103 58
software scales 104 Kohlberg Kravis Roberts (KKR) 19
venture capital (VC) 105
healthcare fields 97 l
high-efficiency particulate air (HEPA) lead-acid batteries 133, 136, 137, 145,
filters 92, 94 176
higher-energy lithium-ion battery Lean Launchpad 131, 242, 248
cathodes 172 licensing deal 22–23
high-performance liquid chromatography light electric utility vehicles (LEV)
(HPLC) 8, 218 137–138
high throughput screening model 2
home energy storage 136–137 m
hydrogen delivery system 182 Mari Signum Limited (MSL) 256
hydrogen fuel cell storage 173 market conditions 184, 194, 198, 201
hydrogen-generation process 174 market delivery 181
hydrogen storage 173 market de-risking 117
market opportunity 117, 174, 176, 179,
i 185, 198, 207
I-Corps Diversity 244 market potential 103, 110, 120, 176
I-Corps Nodes 245, 247 market segmentation 169–186, 194
Index 267
market strategy 162, 163, 170, 178, 182, search and prior art 13
193, 204 structuring patent claims 13
Medicaid 97 patent protection 48, 159, 161
medical devices 33, 110, 133, 134, 209, patient associations and charities
229 220–221
Medicare 97 Penicillin 10–11
metalloporphyrin moieties 91–92 Perfect Day 2
metal-modified carbons 90, 92 platform technology 40, 44–45, 53, 54,
micro-breakthrough experiments 91 117, 180, 197
minimum viable product (MVP) 87, 105, plug-and-play consumer ready product
132, 262 22
Moderna 4, 34, 37, 38, 44, 45, 47, 50 polymers 12, 91, 167, 242, 251, 256
Modern Meadow 3 polypropylene 167
molecular modeling tools 224 portable electronics 132–134, 173
Moore, Geoffrey 252, 253 portable Li-ion batteries 134
multiple performance metrics 132 Post-It 7, 11, 22
press relations (PR) 162
n pricing models 189–190, 193
nanoelectrofuel flow battery technology principle investigator (PI) 246
130 private equity 19, 128
nanofiber production method 94 product development 8, 11, 17, 76, 77,
National Science Foundation (NSF) 242 105, 111, 119, 120, 126, 158, 159,
I-Corps program 242 170, 177, 182, 183, 204, 206, 240
National Innovation Network 244 product process flow 88
Nelson, Donna 240 propylene 167, 176
new molecular entity (NME) 224 provisional patent process 13
new products and solutions 181
nicotinamide riboside (NR) 26, 30 q
non-dilutive funding 149, 157, 248–250, quality control 7, 8, 25, 94
262
r
o renewable energy 6, 129, 134–136
ocean pollution 168 research and development 8, 16, 37, 53,
oil market 193, 204–206, 262 68, 88, 131, 143, 146, 147, 150, 159,
Open Innovation in Drug Discovery 169, 221, 240
(OIDD) program 232 reverse engineering 160
Open Innovation model 211, 216–222 Ricardo, David 217
organosilicate scaffolds 91 right go-to-market strategy 182
Robot as a Service (RaaS) 105
p Rossi, Derrick 37, 44, 50
passenger cars 137
patent breach 161 s
patent process saccharin 11
application 13 Sakhti3 149
CRISPR patent wars 15 sales growth 183, 191, 199
patent value 14 scaling 104, 143, 168–171, 175–177, 179,
PCT international patent 14 184–201, 203, 204, 206, 207, 255
pitfalls and traps 14 Schoellhammer, Carl 40, 50, 52
prosecution 13 scientific entrepreneurs 43, 168, 170,
provisional patent process 13 206, 207
publication 14 scientific startups 170
268 Index
self-decontaminating material 89–100 technology opportunities 73

self-funding 18 technology transfer communication
Senior Chemists Committee (SCC) 247 models 70
ships and boats 139 technology process flow 75, 88, 94
Sigilon 34, 38–40, 44, 45, 47, 50, 52 Technology Readiness Levels (TRLs) 75,
SiNode Systems 148 87
Small Business Innovation Research technology transfer
(SBIR) 148, 249, 257 commercial product/service
sodium silicide 176, 177, 184, 185 opportunities 63–65
Solazyme (TerraVia) 6 communication models 70
startup company 44, 239 entrepreneurship 63–68
academic founder 52 research institutions 68
biomedical ventures 51 technology users 63, 69, 70
business plan 53 Teflon 11–12, 22
FDA approval process 51 theory of comparative advantages 217
founding CEO 52 Theranos 5
high-impact journal, publishing of 50 ThruPore Technologies 257–258
in vivo validation 47–48 trade-secret protection 160, 161
patent filed 48–49 two-way communication pathway 69
seasoned co-founder 52 typical battery technology firm 132
stationary storage batteries 136
strategic investment 19 u
strategic market segmentation Uber 138, 199
academic entrepreneurs 170 Unity Biotechnology 4
chemical business 175–177 universal battery system 132
demographic characteristics 170 user/customer routine 88, 95
existing problem/solutions 171–172 US pharmaceutical industry 253
licensing vs. manufacturing 182–184
market assessment 184–186
market delivery 181
v
niche market strategy 178 value proposition 115, 117, 119–121,
pivot strategy 180–181 127, 169, 171, 174, 182, 183,
right go-to-market strategy 182 190–193, 202, 242, 245, 247, 249,
scientific entrepreneurs 170 252, 257
strategic partnerships 145, 148, 149, 154, Vegas, Arturo 38–39, 44, 45, 47, 50
158, 159 venture capital (VC) 4, 19, 47, 105,
structure–activity relationship (SAR) 223 111–112, 132, 158, 169, 172, 196,
sulfuric acid 175, 176 217–218, 250
Suono Bio 34, 40, 41, 45, 52, 53 firms 19, 36–38, 51, 52, 218, 222, 231
sustainable/renewable chemistry 3 investors 169, 196
synthetic biology 3, 37 venture capitalists 18, 73, 110–112, 118,
synthetic technologies 215 179
system integrators 131 Viagra 12
Viome 5
Vivtex 34, 41, 42, 45, 50, 53
t von Erlach, Thomas 41, 42, 45, 50, 53
technical de-risking 117
technology discovery and development
commercial maturity 72 y
impact on technical concept 72 yeast fermentation process 3
industry acceptance 73–76
origins of technology 69 z
performance characteristics 71 Zymergen 3
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Chemistry Entrepreneurship

Edited by Javier García-Martínez and Kunhao Li

© 2022 WILEY-VCH GmbH, Boschstr. 12,

All rights reserved (including those of

Print ISBN: 978-3-527-34544-1

Cover Design Formgeber, Mannheim,

Typesetting Straive, Chennai, India

Printing and Binding

Printed on acid-free paper

1 We Need An Entrepreneurial Culture in Chemistry: Do You

1.3.2 Chemistry Accelerators, Incubators, and Academic Spin-offs 9

2 Taking Ideas Out of the Lab: Why and When to Start

2.2.1.1 Core Technology 34

2.3.3 Is Licensing an Alternative? 45

3 In Pursuit of New Product Opportunities: Transferring

3.4 Case Study: The Naval Research Laboratory’s Self-Decontaminating

4 Financing and Business Development for Hard Tech

4.4.1.1 Playbook for Early-Stage Business Development 121

5 Battery Entrepreneurship: Gameboard from Lab

5.6.2 Strategic Partnerships 158

6 Growing a Business in the Chemical Industry 169

6.5 Summary 208

7 New Models to Foster Big Pharma and Chemistry

8 The Economic Need for Chemically Based Start-Up

8.3.1 Case Studies 256

Professor Robert S. Langer, MIT

When someone decides to embark on the adventure of publishing a new book, a

We Need An Entrepreneurial Culture in Chemistry: Do You

Many scientists intrinsically understand that their discoveries might translate

1.1 Introduction: Disruptive Innovation in Chemistry

As a scientist entrepreneur, your time should be spent exclusively on how your

1.2 Examples of Innovation in Chemistry Catching

1.2.1 Food and Nutrition

1.2.1.1 Just (formerly Hampton Creek)

1.2.1.2 Impossible Foods

1.2.1.3 Perfect Day

1.2.1.4 Endless West (formerly Ava Winery)

1.2.2 Sustainable/Renewable Chemistry

1.2.2.1 Ginkgo Bioworks

1.2.2.2 Modern Meadow

1.2.3.1 Moderna Therapeutics

1.2.3.2 Unity Biotechnology

1.2.3.3 CRISPR Therapeutics, Intellia Therapeutics, and Editas Medicine

1.2.4.2 Grail Diagnostics

1.2.5 Cautionary Tales

1.2.5.2 Solazyme (TerraVia)

Tips for Readers

1.3 Unique Challenges for Chemistry Entrepreneurs

1.3.1 The Most Important Trait of Every Chemical Entrepreneur

Educating and Preparing Chemists to be Entrepreneurs

Another unique challenge presented to the chemistry entrepreneur is education.

Economics used to be referred to as the “dismal science,” but chemistry

1.3.2 Chemistry Accelerators, Incubators, and Academic Spin-offs

This is a simple yet brilliant approach to evaluating these types of early-stage

1.3.3 Do Something, do Anything, even if it is Wrong

Tips for Readers

Tips for Readers

Tips for Readers

Tips for Readers