Materials World: The R&D Opportunity Startups Can’t Afford To Miss
We live in a materials world. What we wear, walk on, sit on, sleep on, drive in, or build with are all based on synthetic materials. And this industry, although undoubtedly pervasive, is also stagnant, making it ripe for disruption by a new group of startups.
Most industries such as aerospace, automotive, chemical, materials, computing and networking go through 25-30 year cycles. The cycle starts with fundamental breakthroughs that create market opportunities, which in turn attract a flurry of startups. This is followed by a period of intense development and eventual separation of the winners from the losers. Thereafter, the market leaders grow; eventually as the market starts approaching saturation, consolidation starts. The final stage is market maturation, which is exemplified by cuts in R&D and fewer product introductions. The networking industry, for example, entered the maturation stage a few years ago and new product introductions have slowed dramatically.
R&D is quite often an accounting term where a lot of engineering is captured from a budgetary standpoint. True research in a corporate setting has been on a dramatic decrease since the heydays of IBM IBM +0.61% Research and Bell Labs. Most US corporations through the 80s, 90s and 2000s cut back on basic research, starting with the materials industry (Dow Chemical DOW +3.56% and DuPont), followed by the computing industry (HP, IBM, Compaq) and then communications companies (Lucent, Alcatel, Cisco). While these companies maintained a few true individual innovators, when a company loses the culture of innovation, it is much harder for individuals to deliver fundamental innovations.
True innovators thrive when there is a fast pace of features and products being released and when there are competitive pressures to maintain an edge or leapfrog an opponent. When a market is consolidated and new product introductions have slowed down dramatically, it is much harder to truly innovate, especially with no market drivers.
Within five to seven years of cutting back on true R&D, it is nearly impossible for a company to bring it back. Therein lies the opportunity for startups.
The State of Materials
Applying the cyclical rule described above, the materials industry went through the cycle and peaked in the 60s and 70s — many of the materials we rely on everyday such as composites and Velcro were developed as a result of the Cold War and the space race.
It went like this: Major initiatives in R&D and subsequent breakthroughs created many companies in the 60s. Thereafter, the industry went through a cycle of growth, slowdown, consolidation, and cost cutting. To compound this issue, US manufacturing moved offshore in the 80s and 90s forcing their suppliers to move many of their factories overseas. This seemed to consume the US chemical and materials companies to the detriment of fundamental innovation as the need of the day was “cost” and “supply chain.”
For a while, the aerospace and defense industries continued supporting innovations in materials. Unfortunately, the pace of adoption of innovation in those industries was so slow that most investors were unwilling to invest in startups supplying to the aerospace and defense sectors.
A brief materials resurgence occurred in the energy sector, particularly with batteries, solar and wind companies. But, a later bust in clean tech meant a lot of the venture dollars stopped flowing.
This sort of start-stop has defined much of the past decade in the materials startup world.
In the meantime, researchers at universities continued to work on “nano-stuff.” Unfortunately, as in most things, the hype cycle was far ahead of the reality cycle. Only now are we beginning to have a basic understanding of how “nanoparticles,” “nanosurfaces,” and “nanostructures” work.
Scientists are beginning to understand that there are different laws and properties governing “nanomaterials.” In fact, there is a growing realization that while there is a good understanding of atomic and molecular behavior, and of the micro and macrostructures, there is a gap in understanding of what happens with materials consisting of millions to billions of molecules.
The Environment for Disruption
There are several factors that need to converge in order for disruption to occur. They are (in no particular order):
- Stagnation in the existing industry
- New breakthroughs on the horizon
- Market need
- Reasonable adoption cycles
- Large addressable market
So applying these to the current state of the materials industry, there is stagnation in the industry with new breakthroughs on the horizon. The environment is ripe and it is now up to entrepreneurs to find market need, reasonable adoption cycles, and large addressable markets. The world is waiting.
Amit Shah focuses on early-stage investments, creating globally renowned businesses, where technology innovation and markets intersect. He targets large markets across all business sectors including materials related technologies where investments include Adama Materials and Niro; and construction with companies such as Aditazz.