The early years are the most dangerous for a startup. Known colloquially as the ‘Valley of Death’, this is when great ideas can falter on regulatory issues, lack of funding, or a lack of expertise.
Why does this happen? And what can biobased entrepreneurs do to give their startups the best start in life?
Why the Valley of Death?
Here are some of the biggest challenges that startups can face in the critical period between verifying an idea in the lab and scaling production.
1. Demonstration plants are costly, but vital
Startups often struggle to gather enough investment for the all-important industrial demonstration, an essential part of commercialising biobased products. This is where startups prove to potential investors their manufacturing process can be done cost-effectively at large, commercial capacities, not just in the lab or at smaller, pre-commercial scales.
The gap between lab-based and industrial production is huge. In the laboratory, researchers have the luxury of working with pure and expensive feedstock that fit their technical needs perfectly. They are also able to supervise every part of the process. These ideal conditions fall away at the industrial scale, where processes involve tens of thousands of liters.
Yet industrial demos are expensive, far exceeding the costs of doing very early-stage research and development. The cost gap is starkest when the R&D took place in academia, where material costs may be covered by a research institution. This expense can be particularly challenging for startups that are not yet generating revenue, let alone profit.
There is a major funding gap in the EU and in the US when it comes to helping projects move from pilot to industrial demonstration scales. At this stage, therefore, biobased startups are highly dependent on private investors to ensure they can remain on the road to commercialisation. Yet the early startup faces additional obstacles when it comes to convincing VCs to back them.
2. Investor caution
Compounding the problem of costly demos, there can be low investor confidence in new biobased technologies at their earliest stages.
The biobased industry comes with high risks from the investor perspective. Biomanufacturing sometimes features processes unproven at scale – for example, processes that use some new microorganism strain. Biological processes and organisms are notoriously difficult to standardise.
Frustratingly, this low investor confidence tends to present as a chicken-and-egg problem: investor scepticism leads to a lack of demo projects. Lack of demo projects leads to investor scepticism. Breaking the cycle is vital for getting biobased technologies out of the lab and onto the market.
The fact that VC firms want to see high returns quickly is another reason that biobased products can lose out at the early stages – even where they are clearly pitched towards growing markets for sustainable tech. Regulatory approvals for new products can take years. Getting good ideas to market often means putting profit expectations to one side in the short term.
3. Lack of local biomass availability
A startup has to prove that they have a reliable, local source of feedstock to attract investment. In addition to being abundant, the feedstock must be high enough quality for the manufacturing process without being too costly to hamper profitability.
Feedstock supply is a consideration that is often overlooked in the R&D phase. In the lab, only small volumes are needed and researchers can afford higher quality materials than would be viable at industrial scale to showcase technological possibilities.
However, an under-developed supply chain will heighten risk perception among investors. For VC firm At One Ventures, which has backed California startup Cruz Foam, supply chain security is a key criteria in how they evaluate candidates.
Proving feedstock and supply chain reliability can be a challenge for certain materials in the biobased space. This is especially compared to petrochemicals supply chains, which have simply been around for longer and enjoy high public subsidies.
4. Lack of expertise
If a startup wants to prove their idea works at the industrial scale, they need experts capable of evaluating demo results and suggesting adjustments to make the manufacturing process as efficient as possible.
Lab and industrial expertise don’t always overlap: the researchers responsible for an exciting innovation in the lab may not be the same ones able to evaluate industrial processes.
An understanding of biobased production is a niche specialty that startups must ensure they have access to from the start. Startups must also have a handle on where their expertise in business administration will be coming from when they embark on their commercialisation journey.
Overcoming the Valley of Death
The Valley of Death may seem insurmountable but there are clear ways of improving commercialisation rates for early startups and their innovations.
1. Collaboration between industry, academia, and policy
The surest way to avoid the Valley of Death is for industry to work closer with academic institutions and researchers.
Targeted collaborations between industry and research at an early stage can make it easier for startups to access experts capable of evaluating and improving industrial processes or handling the business day-to-day, such as marketing.
These academia-industry collaborations are most likely to succeed when their R&D aligns with existing or incoming environmental policy.
Developers focused squarely on solving particular problems and meeting particular policy goals will tend to have a clearer idea of the kind of resources they will need to successfully market.
This alignment between academic, industry, and policy is especially crucial for sustainability tech, such as biomaterials and biobased products – growth industries that remain high-risk and where environmental regulation remains a critical driver of demand growth.
2. Government support
Although there is a growing number of specialist VCs working with biobased innovations, this sector is still perceived as high risk for many investors.
Compared to VC firms, public finance entities are more willing to wait for a high-impact idea to reach market maturity.
All emerging industries depend on heavy public support to grow and biomaterials are no exceptions. Once they reach a state of maturity, risk is lower, natural momentum gathers and private investment is happy to crowd in: equity investments become more common as major offtakes agreements lock in guaranteed demand.
Public support for biobased industries is rising around the world. China and India are backing their biotech sectors with local government policies, resulting in biotech startups in the Asia-Pacific increasing their investment by 140% in the three years to 2024. The EU is also looking at ways to improve public financing instruments to give more support to worthy but cash-strapped biotech ventures.
3. Reflection and research
Policy plays a huge role in supporting biobased tech out of the lab and onto the market. Yet there are important things that startups themselves can do to maximise opportunities.
Early startups must engage in continual self-reflection to survive the post-lab phase. This involves evaluating both the state of the business and the state of the market that they are entering.
Developers must ask themselves regularly what problem their tech solves, its applications areas, the possible products that could come out of their fundamental tech, the skills they need to market, and what the role of each team member should be.
Reflecting honestly on these components of the business should lead to sharper focus, a more efficient allocation of cost and time resources, and greater teamwork.
4. Open-access demo facilities
Open access demo facilities are another way that governments can make it easier for biobased startups to prove scalability for potential investors at cheaper cost.
The Scottish Government has recently announced an £847,000 investment to support the purchase and installation of a 300-litre fermenter at the Industrial Biotechnology Innovation Centre’s (IBioIC) FlexBio scale-up facility based at Heriot-Watt University in Edinburgh.
However, a facility of this size is more suited for the earlier proof of concept stage than industrial scalability demos.
Between 20, 000 and 100, 000 litres capacity is needed to really prove large-scale production feasibility. Capex for such facilities can be between $5 to $50 million and build-time can range between 3 to 12 months.
The EU is mounting a bigger effort in open access demo facilities. Bio Base Europe Pilot Plant is a non-profit dedicated to making demo facilities more cost effective for the region’s biobased startups.
In November 2024 the project finished constructing its first 75, 000 litre demo fermenter in Ghent, Belgium where developers can validate their industrial fermentation processes.Half the building and facility cost came from competitive public funding.
Working together
Overcoming the Valley of Death is about fostering a whole regulatory and funding environment where good ideas meet less unnecessary resistance on their way to commercialisation. It is also about encouraging startups to plan carefully for the pitfalls that can arise outside the laboratory.
In short, avoiding the Valley of Death requires a collective effort: alignment between startups, regulators, policymakers, and venture capital firms to scale vital technologies that demand high capital expenditure in the short-term.
