Category Archives: Start-up

The Breakthrough Conundrum

The post-recession move away from traditional early stage investments by venture capital firms has been examined recently in life sciences publications and conferences. The 2014 National Venture Capital Association Yearbook reports that through 2013, VC investments in early stage life sciences companies fell from levels in previous years. VC investments in life science are on track in 2014 to exceed 2013, yet investment in early stages still lags.

This investment climate is particularly challenging for start-up companies with a breakthrough technology. At a recent entrepreneurial showcase event, discussions focused on how to get VC funding and how to partner with large companies pointed out that in spite of claims by VCs that funds are designated for investments in innovative technologies, it is difficult to get funding for a breakthrough technology.

Many groups, including angel investors, traditional VCs, and corporate VCs, say they want to invest in or acquire breakthrough technologies, but upon review of their recent investments indicate that they do not. So, the life sciences entrepreneur is left to decipher whether the VCs are risk averse or the fund managers do not understand a breakthrough technology when it is presented.

A breakthrough technology is typically a high risk investment that may be difficult to comprehend, even to the most scientific-literate investor. Many breakthrough technologies are disruptive technologies that may change an existing market or create an entirely new market, making them inherently difficult to value.

Participants at the recent showcase commented that if you don’t recognize the potential of an innovative technology, it is easier to just say no than to try to understand and evaluate it. With an incremental improvement in a product or technology, however, the immediate impact is easier to understand. The evaluation process is also faster and less complicated.

Getting funding for a breakthrough technology requires patience to keep presenting and explaining the technology, until you have a technical description that ignites the “ah ha” moment in the audience and lands your company an investor who gets it. You must have a compelling story that clearly describes the technology and how it will fit into the existing market space. Realistic total market values and market share projections within existing markets as well as projections for potential future markets demonstrate your company’s understanding of current market forces.

In addition, you have to build trust. Over the years, many investors have told me they invest in people, not specific products or technologies. A good track record in other ventures is beneficial, and a strong network can foster key relationships as well.

BIP can help you estimate the market potential for breakthrough technologies. Contact us today to discuss our process for evaluating a breakthrough technology.

Yes, you do have competition

I recently attended a meeting and heard presentations from several start-up companies about their technology, potential market, and near-term strategies. Most of the presenters either casually dismissed the competition or claimed their company has no competition. We hear this all the time from start-up companies and even from seasoned management teams who should know better.

Here is what I would like to say to everyone who insists their technology has no competition. You really do have competition – even if it is indirect. Saying you have no competition makes me think that you don’t understand the market. There may not be another company with exactly the same technology, but how is the problem being addressed in the market now?

So, how do you identify your competition? Searching with a web browser is one place to start, but BIP recommends using a number of additional approaches to find potential competitors. For example:

  • Talk with experts in the field and potential end users. They will know the current state of the art and may be aware of other new technologies.
  • Consider indirect competition – medical practice, for example, is slow to change. You may have a new surgical tool, but the current treatment will still compete.
  • Study competing academic research. Have any companies spun out? Has technology been licensed by another company?
  • Examine relevant intellectual property. Keyword searches of patent databases may be enough to identify competitors you did not know were working in your market space.

Of course, BIP can do any or all of these tasks for you. Existing companies and start-ups have competition; let us help you find it. Contact us today for more information on our competitor analysis projects.