DOE OSTI2017
The technologies required to advance society into a cleaner, better future will come from a broad range of scientific disciplines including materials science, chemistry, physics, and biology. The innovations will rely on scientific breakthroughs rather than software innovation and can be referred to as “hardtech.” These new technology developments will have vast implications across most industrial sectors: energy, materials, manufacturing, electronics, life sciences, etc. The majority of these scientific breakthroughs will be produced and developed by startup companies, which are best suited for high-risk, early-stage development work. However, a large funding gap exists between lab-scale scientific research of the startup world and industrial-scale commercialization. Activate Global, Inc (Activate), a 501(c)3 nonprofit, fills one part of this gap with the Activate Fellowship program1.To fully bridge the gap between lab and market, additional and aligned capital sources are needed. Through this project, Activate’s goals were: Research the recent history (2005-2015) of hardtech investing to discover the driving forces behind positive and negative outcomes from the viewpoint of investors.; Create a database of “technology pathways” categorized by specific technology areas and showing what technology milestones would be needed to be attractive to a partner or acquirer and what resources were available to achieve those goals.; Build a financial model supported by the data acquired that would show attractive returns were possible in early-stage hardtech investing.; Create an investment thesis around the financial model to show how attractive returns could be achieved in an early-stage hardtech-focused fund.; Publish a paper with a qualitative comparative analysis to help investors better understand driving factors of outcomes.; Share these findings with asset managers not currently investing in early-stage hardtech to attract partners to execute the investment strategy.; Implement the investment strategy and begin investing in early-stage hardtech companies through a new vehicle: First Look Fund. Through this research, Activate created a database of nearly 200 hardtech companies that exited via an M&A transaction between 2005 and 2015. Much of the data Activate obtained was nonpublic information and therefore, the database was anonymized. Activate also created the technology pathways database to help new early-stage hardtech companies define milestones, technology objectives and potential resources. Activate created a financial model with a legal structure showing that market-rate returns were possible, created an investment thesis around that model, and then shared these findings with potential partners. Finally, Activate’s research was used to publish a paper with Stanford on driving factors behind financial outcomes that will help investors better guide their portfolios. While Activate was not able to launch the First Look Fund during the project timeline, mostly due to the fallout from COVID-19 (global economic shocks decreasing interest in first time funds, inability to meet potential investors in person), the research has created enough interest for Activate to continue pursuing the goals of the project, showing the potential feasibility of the endeavor. Regardless of Activate’s ability to execute on the investment strategy, the resulting research has been downloaded, viewed, and referenced by investors and becomes another tool to encourage investment in the early-stage hardtech space.