NACIE Helping Bridge the Startup Funding Gap

On December 3rd and 4th, the National Advisory Council on Innovation and Entrepreneurship (NACIE) will kick off its second year of a two-year term, advising the Department of Commerce on important issues related to our nation’s entrepreneurs, inventors and tomorrow’s workforce. One such issue NACIE sees as an opportunity is the “Valley of Death” in technology-based industries – a unique hurdle firms face when transitioning from public research funding to private investment. This is especially true in the industry I am most passionate about; medical devices and medical technology, and I’ve seen firsthand how building a supportive ecosystem can help reduce this funding chasm.

Today, investment in technology innovation and commercialization is critical to the competitive position of the United States and the economic growth of regional clusters. In the medical device industry, it is also critical to the health and well-being of the patient population. This is why the public sector has been a strong source of funding for early stage innovation, but the path toward successful commercialization only begins there. Federal programs such as Small Business Innovation Research grants and NSF i-Corps are instrumental in helping researchers transition technologies out of the lab. Yet, the “Valley of Death” has grown larger, often leaving technology startups struggling to make the transition from grant dollars to early stage investments. Why is this, and what can we be doing in our own communities to help?

Generally speaking, innovators and startups need to address a broad range of factors in order to attract private capital:

• Market and customer validation
• Technology validation and clean intellectual property
• A viable business model (i.e., can this make money?)
• A talented team with experienced leadership
• A clear financial plan with capital requirements, use of funds, and likely returns
• A viable execution plan to transition from innovation into a venture

NACIE members have examined this topic from the very start of our term, and it appears that an overwhelming majority of early stage startups, especially research-based firms, are not always focused on accomplishing these tasks. Instead, many spend too much time focused on research, versus investing in crucial de-risking milestones that private investors require before committing to invest. In order to close the funding gap, researches, entrepreneurs and community leaders must find novel ways to de-risk technologies and present their businesses in a way that private investors want to see. I see a great deal of early-stage technology startups led by researchers without the help of experienced business leaders that result in either 1) technologies never leaving the lab, 2) innovations not being developed according to best practices or relevant regulations, or 3) too many short cuts taken that ultimately waste precious time and investment dollars.

The good news is, help is out there. The optimal path forward is for technology startups to tap into their local ecosystems of experts who can help or partner with them to successfully make the leap from research to market. The Economic Development Administration’s Regional Innovation Strategies program is funding these innovation capacity-building activities across the country, supporting new venture funds and innovation centers that will help tomorrow’s entrepreneurs. Thoughtful planning with the right network of experienced early stage investors and entrepreneurs can help startups navigate commercially relevant milestones that decrease risk, increase value, and position startups for early stage private financing.