The old model of venture capital-funded commercialisation needs to change

Jon Treanor, Conduit Partners

Due diligence carried out in advance of an investment in a technology company has traditionally focused on the intellectual property and patent position of a venture.  

Often, this has been at the expense of a thorough review and validation of the target market – including talking to and understanding the needs of potential customers.  Yet our experience in steering early-stage ventures to growth and profitability clearly shows that applying commercial intelligence much earlier in the process – in other words, engineering the product to market, as vigorously as engineering the IP – is the key to mitigating investment risk and delivering faster returns.   

As early-stage science ventures across Europe seek to exploit a fragile economic recovery, it’s time to challenge the old approach and embrace a new way of thinking.  In science and technology markets in particular, this means focusing a percentage of due diligence on properly validating the strategies for market entry.  

Money, markets and management are the key ingredients underpinning the successful commercialisation of sound technology.  In essence, this means a good team of people, aligned with the right money, and a really clear focus on – and clear routes to – the chosen markets. Getting this mix right is crucial, whether the aim is to get to initial revenues, create a commercial breakthrough, or develop the business internationally. For ventures seeking investment, the ability to attract “good money” – cash that is going to add value to the business – is absolutely critical, and inextricably linked to demonstrating prioritised markets and a path to reaching those markets.  

We are now seeing the beginnings of this new way of thinking at work, with VCs applying far more market and commercial intelligence in advance of making an initial investment.  VCs have cottoned on to the value of investing a small amount of money early on to ensure that the channels to market and paths to customer engagement are valid.  This is especially important when commercialising disruptive technologies that can take much longer to be accepted and adopted in the marketplace.  Beta programmes, alliances and partnerships all have to be thought through, and the benefits to the partners made obvious, in order to create a viable commercial venture.

Fundamentally, building a sustainable, high-performance business is about focus, alignment and agility. In a down market, you need to inspire investors, differentiate yourself and demonstrate there is a clear and compelling market need for your product or service.  This requires a deep understanding of the value chain, where your business sits and fits within it, and - perhaps most importantly - the ability to explain clearly the value of a product or service.  

Winning support from investors and securing working capital, is not just about the strength of the IP, but about being able to convince the investment community of the potential market, plus presenting a credible plan to get there. To compete in markets with long sales cycles, the overall focus has to be on sustainability and designing routes to connect to the marketplace.

In times of recession, the temptation is for businesses to become cautious and fall back into age-old, traditional ways of doing things, rather than being innovative in their thinking.

But, being risk-averse and innovative are not mutually exclusive.  

In challenging times, you need to be open to new approaches and fresh thinking.   For science ventures, not being afraid to scrutinise the commercial side of the venture – quite deeply and quite early on – will reap dividends in terms of future stability, accelerated growth and success.

Conduit Partners specialises in early stage business-building for technology-based companies. From its formation in 2002, the firm has delivered over 300 commercialisation workshops to university proof of concept projects, spin-outs and start-up businesses.  In addition, Conduit has provided a range of commercialisation consultancy and support services to organisations including QinetiQ, the Forensic Science Service, Consensus Business Group, Invest Northern Ireland, Finance Wales, BAE Systems, Merseyside investment fund, Scottish Enterprise and The Carbon Trust. Conduit has just been named as one of the six new Incubator Partners to the Carbon Trust, with a brief to help low carbon technologies developed in the UK find funding and drive growth.