Investors

Our idea in three sentences:

We will help investors to rethink their approach to the chemical industry as a source of innovation and disruption. Existing paradigms and beliefs must be changed from both the side of startups and investors, but doing so will open both up to each other. This will directly enable tighter cooperation and understanding, making it easier for investors to find worthy investment opportunities, for startups to become worthy, and for both to form successful partnerships.

Executive Summary

Green chemistry is growing in importance not only because of environmental and ecological factors, but also as a direct result of slowly diminishing natural resources, along with regulatory pressures that are shifting. Over the next few decades, sustainability will become a key consideration for broad swaths of the industry, and investors have the chance to start entering these markets ahead of this boom. A new format and approach for investors and venture capitalists looking for opportunities in the sustainable chemical industry has been formulated. This strategy revolves around a few key points. First, the investor must approach the situation with an open mind, and accept that as with many industries, chemical startups have their own paradigms, challenges, and unique selling points. Further, the specialized tendencies of the field lend a higher value and importance to encouraging and fostering an entrepreneurial society and culture. Finally, active engagement and networking, supported and even initiated by investors, can provide synergistic benefits that can decrease aggregate risks and increase the return on investment by opening multiple pathways for both horizontal and vertical integration and interaction between startups.

Chemical startups often face several problems that may not be common or well understood in the VC world. The nature of the industry typically requires entry to market with high production capacities after extensive research and development. This tends to incur extremely high up-front infrastructure costs, as compared to many investment areas. Further, the field fosters narrow-focused specialists who may lack certain key skills that would be of extreme benefit for themselves, other startups, and investors. While there has been a great effort in recent years to improve soft skills amongst the sciences, these impacts have still not been fully realized, and will continue to increase if the interest and investment is maintained. Another key challenge is that many investors lack the background to properly analyze or consider the field. This is not unique to chemistry, but it can provide extreme examples of this problem. Above all, the time-to-market for many chemical startups is much longer than in other high-interest fields. This necessitates a very open-minded approach to the chemical industry. Rather than looking for large gains and immediate growth, a more long-term strategy must be adopted, similarly to investing in index funds. With patience, investors can realize very large gains. It is exceptionally important for investors to then use this increased understanding of the green chemistry space, to establish more transparent dialogue regarding the needs of chemical startups, and the expectations of both those startups and potential investors. Currently, decisions by investors seem to many scientists to be obscure and arbitrary, hindering their ability to adjust and target investor needs more comprehensively.

The entrepreneurial environment in chemical fields is comparatively underdeveloped, stemming from a combination of factors and pressures. Many of these are external, and cannot be directly addressed in any short-term manner. However, one crucial step that could be taken immediately is the fostering and support for joint entrepreneurial ventures. It can be as simple as increasing the contact between chemical entrepreneurs and other chemists who are either uncertain or have never considered such an alternative career path in the field. For many, it can be as simple as having never been told or shown that this route exists, and can be reasonably achieved. Amongst those who do follow the path towards a startup, nurturing their connections and tangential skills – both of which are needed to successfully translate an idea from academic research to a commercially viable startup – should be by investors as being a form of investment in and of itself. Funding, and more importantly making knowledge and experience available to such formats, can lead to the creation of many more new startups, as well as increasing the competence and ability of these startups to perform. Providing startups, and equally important, students working on translational projects, with more input at an earlier stage, will have a clear and direct impact on the number and quality of startups that later emerge. This can be achieved by a combination of seminars and events with investors, previous entrepreneurs, industry contacts, and other experts with relevant knowledge, as well as direct feedback to their unique problems and questions.

Further, a paradigm shift away from investment in individual startups, and rather in startup clusters, could exponentially improve the results of said startups. For instance, connecting startups that could utilize interdependent processes or products to foster each other, potentially even leading to integrated business models or even merger. This would go beyond simple knowledge sharing, into the sort of collaborative learning that is so beneficial within both academic and industrial settings. While incubators and multiplicators attempt to fill these roles in the startup community, there is a value proposition for all involved, if investors would form curated portfolios where individual startups have the chance to leverage each other for mutual gain.

The world of green chemistry is coming, and it is up to both investors and researchers to seize the opportunities that are already starting to emerge. Doing so will not come without effort and compromise, but the potential rewards should incentivize these changes. Investors who are willing to participate sooner, may find that it becomes easier to continue to both identify and even create further opportunities throughout the rising wave of sustainable industry, even beyond the sphere of chemistry.


Guy Guday (FU Berlin), Tino Mundt (TU Berlin/DexLeChem), Marvin Kant (TU Berlin), Carlos Ocampo López (Titular Professor, Universidad Pontificia Bolivariana, Colombia), Philipp Veit (Universität Mainz)