Hard Green Tech Company Factory: A Recipe?
23 Nov 2019They rented a warehouse, adopted the slogan “We’re not a think tank, we’re a do tank,” and acquired much of their laboratory equipment for little or nothing, through Craigslist [source].
This was the start of Squidlabs in 2004. It ran for 3 years and wikipedia lists 7 spin-off companies. That’s impressive and the start sounds inexpensive enough to inspire confidence. Of course the founders were all absurdly talented but it shows what may be done.
One of the founders, Saul Griffith, is now leading another inspiring Research and Development company. Otherlab.
Over the past 10 years, we’ve raised over $70M in research and design contracts, amassed $100M in follow-on capital and spun-out 12 companies.
Currently, we help government agencies and Fortune 500 companies understand energy infrastructure and build transformational technologies that bring us closer to 100% decarbonization [source].
As I want more (or at least some) companies like this in Europe, I like to look at their business models. How does such a magical factory actually work? Starting with an overview of their funding:
I can imagine things today that VCs won’t fund for 6 to 8 years, and I can easily compartmentalize those in my head as things that I need to tickle the underbelly of the Department of Energy, convince them that this is worth funding. Have the patience to wait two or three years for them to put in the first dollar. Three to four years to do the research to turn that into a technology. Another couple years to turn that from a technology, into a product. Then raise venture capital. Then go out into the market.
And honestly if you want to do full ticket, from conception to commercialization, you need to be able to think on those timelines…. If you don’t think like that, you have to take technology off the shelf and try and shoehorn it into a new market [source].
In more detail, Otherlab lists many partners on its website, but Saul Griffith explains their early funding is self-financing + the government:
In reality you always have to bake something from zero before you can convince the government to run a research program to fund it. So the first quarter million dollars of anything we do is spent internally, kind of proving the math and the physics [source].
While developing this technology they’re convincing the government its worth investing in:
The reality is that the government is full of very smart people who kind of have a general idea, but they are smart enough to know that they don’t know everything… so they sort of solicit ideas for things called requests for information, where you say, “oh you might not know this, but this is totally possible because of … And then these government agencies take in that input, and then they start programs that look like the thing you told them was possible
Given that venture capitalists are conservative, and they have capital return timelines that look like seven years. They won’t typically play early enough in the R&D process to fund you. So the reality is, that the government is our best seed investor [source].
In his article describing his vision for energy R&D financing he goes further into how important government financing is:
From first-hand experience on all of our projects, venture wouldn’t invest before we had ARPA-e money. The ideas sounded too far out there, and there weren’t prototypes capable of convincing other people, only prototypes capable of convincing ourselves. Even post ARPA-e funding (most awards are $1,000,000 to $4,000,000), the technologies were not market ready. They might have now had working prototypes, but they didn’t necessarily have customers beyond a pilot. The real kicker for energy technologies is bankability — when your technology is probably reliable enough to be considered in installations that are meant to last for 10, 20, or even more years. This is hard to prove and is where the lion’s share of work and capital goes in developing these technologies. Reliability, reliability, reliability. I believe ARPA-e has a role in helping technologies get to this bankable point, or at least closer to it, where they will be able to attract venture. Without it, lots of good technologies will die on the vine.
Now we know how to fund our magic lab. What does a magic lab choose to work on:
Typically we will not work on a project unless we can point to an equation that we understand better than everyone else, that suggests that we have a fundamental advantage based in physics. And if we do, we will then work on making that into a technology.
We try not to do a lot of incremental things, because incremental things are done really well by big companies with large balance sheets. They can beat you at that. We to compete have to do things that are disruptive [source].
We’ve now got a promising idea and the last step is to get the magic lab product into the market.
Since you work in a bunch of different areas, is direct domain experience in each area required?
…If you know the physics world, you can figure it out. But I think we don’t have to have “domain experience” to start on something. But we immediately try to hire domain experience to help us in product market fit [source].
Otherlab has a history of creating spin-outs that target a minimum 1% reductions in emissions. Unfortunately I’ve not found anything similar in Europe, but I have joined a company where I hope to help create such a place. Big news for another time.
Thank goodness I found these instructions that I can implement. A hard green tech magic factory (HGTMF) should appear on our side of the ocean soon. Ha.