Building Better Bridges Over the Valley of Death—An Optimist’s View
Almost every presentation on incubating early stage technology companies includes some reference to the “Valley of Death” or the “Funding Gap”—meaning the difficulty entrepreneurs have finding initial small investments to get their startup companies going and to complete technical viability and proof-of-concept work.
Several research institutions and universities have been busy over the last five years creating internal programs to help bridge the Valley of Death and move technologies closer to commercialization. This year the Massachusetts Technology Transfer Center (which I run) will grant $800,000 in state funding to about 20 “proof of concept” projects at Commonwealth research institutions. The Deshpande Center supports MIT faculty in commercializing their technologies—and Boston University, UMass, and the University of Vermont have similar (but much smaller) projects. These programs usually include a lot of other business support—advising, coaching, marketing studies, introductions to potential investors or industry partners—which helps ensure that viable business propositions are developed alongside the technical work.
This early-stage support for technology development moves the discoveries from “we think it will do this” to “it isn’t pretty, and it isn’t optimized, but it works.” And the business support helps in pitching discoveries in a compelling way to venture and industry investors. The results of these projects are impressive: several new companies have been formed and funded, and based on these successes several other institutions are considering developing similar programs.
But building a bridge over the “Valley of Death” only works if you have enough resources to build it all the way over the valley—or if someone is building from the other side and you meet somewhere in the middle. It was initially thought that angel investors would help fill this gap. While angels can provide both funding and sound advice to early stage companies, they cannot handle the volume of deals and investment required—even in a state with as many angels as Massachusetts.
There are several very new initiatives that are bigger in scale, that have more resources, and that support early stage companies in more advanced development. Partners HealthCare has created a fund which invests in spin-offs based on inventions from Massachusetts General Hospital and Brigham and Women’s Hospital. UMass is now able to co-invest in its spin-off companies alongside venture capitalists. Brook Ventures is working on a new seed fund focusing on companies spinning out of New England research institutions. Biogen Idec, Pfizer, and Novartis all have new incubator programs. Is this the start of a trend, and is there going to be more funding available to support our very early stage companies over the funding gap—or am I just an optimist?