By John Dmohowski, Director of Client Services, PortTech Los Angeles
According to the Cleantech Group of San Francisco: “Clean technology represents a diverse range of products and services and processes, all intended to provide superior performance at lower costs, while reducing or eliminating negative ecological impacts, and at the same time improving the productive and responsible use of natural resources.”
Although the economic, environmental and sustainability benefits of clean technologies are accepted and appreciated; key success factors necessary to commercialize these technologies are not as well understood. Clean tech entrepreneurs must overcome a unique set of challenges and constraints in order to develop a marketable physical product and viable business.
The difficulties and length of time to adopt new technologies in legacy infrastructure and traditional markets is a long, complicated process due to extended sale cycles and a preference for incremental changes instead of true innovation. Entrepreneurs also do business with industries that often require large-scale infrastructure upgrades while meeting strict regulatory demands. These market challenges are compounded by the fact that engineer founders are focused more on product and technology and not enough on business models, customer development and understanding their potential markets. They lack the institutional knowledge an existing company already has about the marketplace.
Within the current investing environment, businesses with clean tech products are not as attractive as businesses with pharmaceutical and information technologies. The business models, rapid scaling potential, effects of low marginal costs, revenue trajectories, capital efficiency and risk profiles of biotech and IT industry sectors are understood. Investing in clean tech is relatively young with approximately 85% made in the last eight years.
In 2013 almost $30 billion of venture capital was invested in approximately 4,000 deals. A little over $7 billion of that was in internet specific deals according to the PwC Shaking the MoneyTree Report. For the last decade, venture capital investors have put almost 25% of their capital into software and slightly more than 17% into biotechnology.
Clean technology entrepreneurs are in the business of building things. Actual products require raw materials, mechanical drawing packages, make/buy decisions, parts lists, testing, bills of materials and access to manufacturing facilities that are limited and potentially expensive. In the best cases, the first prototype is good enough to test. In many cases, flaws in design or lack of an engineered part or difficulty manufacturing the product or part as designed cause a return to the lab and drafting table. A prototype needs to be produced for proof of concept and often causes a return to pre-prototype state to be redesigned and tested again. A significant milestone is reached when a startup is ready to produce the first products for pilot projects.
Even when designs are solid and prototypes provide the anticipated results, there is no guarantee of startup success. Clean technology entrepreneurs invariably find themselves needing the last and most crucial element – an additional influx of funding after developing a successful pilot process. Access to capital through traditional means isn’t readily available. As clean technology entrepreneurs take on thousands of dollars in debt to reach marketability, attracting angel investors and venture capitalists becomes problematic as the path to profitability extends further into the future. At this point entrepreneurs have exhausted all of their resources.
This prolonged stage from proof of concept to production and market acceptance is commonly referred to as the Valley of Death. While the progression of events from design to marketability is arduous, it’s crucial to creating a clean technology with product-market fit. Clean technology entrepreneurs take on great financial burdens and must overcome investor hesitation to bring technologies to market. That’s where PortTech Los Angeles steps in to help.
PortTech’s Competitive Advantage
PortTech is a commercialization center and incubation program dedicated to creating sustainable technologies that enable ports and maritime-related businesses to meet their environmental, energy, security and transportation goals. Our non-profit organization brings together entrepreneurs, strategic partners and investors to accelerate innovation, advance clean technologies and create economic opportunities.
PortTech provides standard incubator services including management guidance, technical assistance and consulting tailored to emerging-growth companies. PortTech also gives clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services and assistance in obtaining the financing necessary for company growth.
After five years, businesses that were nurtured in a business incubator have a survival rate of 87% compared to a 44% survival rate for start-ups without incubator support. Furthermore, 84% of companies that graduate from an incubator stay in the communities where they were incubated. — National Business Incubator Association estimates
However, PortTech goes beyond traditional incubator services to address the Valley of Death clean technology entrepreneurs face, which starts with connecting entrepreneurs to the marketplace and potential customers during early stages of development. Instead of going through ideation and research in isolation, PortTech clients have access to port representatives, maritime executives, industry experts, academics and government leaders through trainings, events and one-on-one meetings.
PortTech hosts workshops on Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) grants that feature government representatives who share insider knowledge on how to navigate the federal application process. Bi-monthly forums bring entrepreneurs in direct contact and conversation with service providers, port representatives and investors to discuss technology advancements, business opportunities and needs in the maritime markets.
Entrepreneurs showcase their clean technologies each year during the PortTechEXPO, an event that draws more than 600 people to explore emerging technologies and network with business prospects at Southern California’s ports. In conjunction with the EXPO, PortTech holds an Entrepreneur Pitch Competition. Participants receive free coaching from a panel of judges that includes investors, business consultants and representatives from both the Port of Los Angeles and the Port of Long Beach. Past finalists have received greater exposure for their products, won California Energy Commission grants and developed business relationships that led to new opportunities.
In addition, PortTech provides entrepreneurs with access to experts at some of the world’s great research universities, including the University of Southern California, the University of California Los Angeles and the California Institute of Technology. PortTech works closely with the Port of Los Angeles’ and Port of Long Beach’s Technology Advancement Program, which is tasked with the responsibility of evaluating and helping fund technologies that support the Ports’ Clean Air and Clean Truck Action Plans. PortTech serves as a conduit between the ports and maritime industries helping entrepreneurs become a part of a much greater and interconnected business ecosystem.
Many PortTech clients are at the prototyping phase of development, an expensive time-consuming process with limited access to manufacturing facilities. To accelerate the rate at which the market accepts new clean technologies—and thereby accelerate economic development and job growth—this year PortTech expects to launch a collaborative manufacturing and rapid prototyping facility adjacent to the Port of Los Angeles to support entrepreneurs as they move toward product commercialization.
According to a study by the University of Michigan, incubator services designed to assist clients with production processes were statistically significant as related to 14 measures of improved client performance. At the top of this list are manufacturing assistance and access to specialized equipment.
The prototyping and manufacturing center will reduce the amount of time and money it takes for clients to transition from prototyping to pilot projects where they gain crucial market validation and receive feedback and acquire onsite sales. This will in turn allow entrepreneurs to reduce debt, de-risk product development and help them traverse the Valley of Death.
By 2020, PortTech plans to be the nexus of a thriving technology and advanced manufacturing-based business cluster focused on addressing the global challenges and opportunities of Port and maritime-related industries worldwide while providing an economic development engine in the Los Angeles region surrounding the Port complex of Los Angeles and Long Beach.
PortTech’s secret sauce is a set of tailored practices, partnerships, events and connections to investors, customers and industry leaders with a vested interest in clean tech startup success. These methods, relationships and activities enable PortTech clients to accelerate product development, product launch and market acceptance in maritime oriented enterprises—as difficult a market space as most startups will encounter. It is driven by the recognition that these types of startups need to generate revenue as soon as practical and do so as effectively as possible. It is by design that entrepreneurs and companies graduating from PortTech emerge on the upslope of the Valley of Death intact, generating revenue and growing smartly.
John Dmohowski is a serial entrepreneur, early stage executive, leader, designer, developer and start-up guru in technology-based businesses. He has over 20+ years of founding, developing and managing technology-based enterprises. His expertise in founding and consulting extends from concept through fundraising to launch for a dozen start-up organizations and advisor to dozens of start-ups and emerging growth companies. Through these companies, he has raised $40M+ in institutional investment and participated in two liquidity events. He currently sits on the Board of Directors of the Los Angeles Venture Association (LAVA). Among his many associations, John co-chairs the Green LAVA special interest group.
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