Source: today.ucf.edu
Cleantech is on its way to potentially become the next transformative wave of innovation. As often, anticipating what the future will hold is about understanding how the past unraveled. Indeed, there is much to learn both in terms of investors’ mental models and potential analogies from past waves like the Internet and Biotech.
The emergence of Information technologies marked the triumph of the VC-backed model. The business and mainstream media helped build the myth of the geeky tech entrepreneur and the all-powerful venture capitalist. The lesson we all learned was that an idea could quickly move from concept to a reality – potentially unleashing millions of dollars while doing so. Of course in the process, numerous shaky business plans were funded; people saw value where there was just wind. Yet, tech entrepreneur/VC tandem survived the bubble and still embodies in our subconscious the perfect combination to generate technology innovation.
As a consequence, people still believe that this is the model to go for the next technology innovation. That is why, you see cleantech entrepreneurs and VC striving to walk the cleantech “revolution” along the same path i.e. funding, IPO, etc. However, savvy investors and business pundits raise some valid concerns as to the validity of the analogy. The beauty of the IT revolution was, and still is, that the development costs to reach scale are very limited. On the contrary, most of the cleantech requires longer development lead time and thus funding up to 10 times what was necessary for the proof of concept in the IT world. How many firms can realistically raise 100 million of dollars through the VC world to develop a conclusive prototype? The analogy falls short and begs for another point of reference.
The biotech wave took longer to reach our shores. Decades passed between the first academic discoveries in the 1970s and the arrival on the market of biotech drugs. One of the reasons is that many start-ups with great ideas and sometimes tremendous academic brainpower learned the hard way that developing a drug was a long, risky and thus very expensive process. Despite the lure of blockbuster-like profits, few biotech start-ups made it to the final line on their own like Genentech or Amgen. Contrary to biotech enthusiasts’ predictions, Big Pharma stood strong and barely felt the pressure from the herd of hungry start-ups. Proud of its R&D pipeline that brought so many blockbusters, Big Pharma believed in its capacity to invent its way to growth. Knowing how precious a potential candidate drug out of the research pipeline is, Big Pharma focused on building the most optimal development and sales pipeline to get the maximum return on their research investment. Despite all their efforts, Big Pharma research pipeline soon became too institutionalized: optimal to find incremental gains but less for leap-frogging results. When the pipeline started to dry up, the deep-pocketed Big Pharma realized that it may be time to look at the biotech start-ups as a pool of out-of-the-box innovation rather than a pool of potential competitors. A recent article from Reuters revealed the extent to which Big Pharma evolved from a R&D powerhouse to some kind of Pharma PE/VC firm able to assemble portfolio of candidate drugs through partnerships with start-ups and academic research labs. Some mid-size companies like Shire or Forest Laboratories even brand themselves as “search & development” company. Pfizer, AstraZeneca and others seem to also believe that slashing your research department is also the way to go – Pfizer plans to cut its research budget by $2-3 billions by 2012.
Thus, success in cleantech will rely on the ability of investors and entrepreneurs to leverage the right analogy. Software-based cleantech solutions will still thrive through the usual VC-backed channels. On the other hand, any entrepreneur with a technology requiring hundreds of millions for development should look for partnerships with deep-pocketed industrial groups. As a matter of fact, the limited number of IPOs for hi-tech hardware solutions corroborate this assumption – A123 , Vestas and others being exceptions to the rules. However, industrial groups are sometimes miles away from having the right mental model for a “search and development” approach. Thus, a lot of education will need to happen in those groups to make cleantech a reality faster than it took for biotech. In the future, we should see more established groups embracing an ambivalent model with a R&D department working hand in hand with a VC-type of entity. Actual VC will then play an interesting role of referral – connecting the dots in the long-awaited networked future that Tom Malone painted in his book the Future of Work.
No comments:
Post a Comment