Crossing the Valley of Death

Research update here.  

In addition to chocolate and social entrepreneurship, I also study technology start-ups.  Recently, I have been examining how technology firms cross the valley of death with some pretty interesting results.  Without getting into the statistical model, this blog post shares some of the findings. 

So what is this “valley of death”?  Basically, it is the lack of funding between the invention of technology and launch of commercial product.  Government and private investments have emerged to help firms commercialize nascent technologies.  Government programs in the United States include Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. 

The SBIR and STTR programs are two of the latest and biggest programs that the U.S. government has enacted to support small business development (Bonvillian and Van Atta, 2011).  The SBIR program was implemented in 1982 to support innovation in small, often nascent organizations (Audretsch, Link, & Scott, 2002).  The STTR program was started in 1992 and focuses on supporting innovation collaborations between firms and public organizations such as universities and government labs. The primary objective of these programs is to support innovation in small business.  The secondary objective of these programs is to help organizations cross the valley of death. Through 2012, SBIR and STTR have cumulatively provided over $34 billion in funding (Small Business Administration, 2013). 

Nanotechnology is the control and manipulation of matter between one and 100 nanometers.  One nanometer is about three to six atoms across, so nanotechnology is incredibly small and difficult. And expensive.  A complicating factor is that matter at the nanoscale acts differently than the same matter at larger scales.  Nanotechnology is used across industries including cosmetics, packaging, optics, and semiconductors. 

So if any technology firm is going to risk the treacherous valley of death, it is a nanotechnology firms.  They must endure the trifecta of burdens: the firm's liability of newness, the industry's lack of legitimacy and cohesive structure, and the technology's inherent uncertainty (see Woolley article in Entrepreneurship Theory and Practice). 

I analyzed all nanotechnology firms started before the year 2002 and it turns out that 60% obtained SBIR or STTR grants and 25% were award at least one of each type.  In comparison, that is a lot.  Overall, the acceptance rate of the SBIR and STTR programs is about 20%.   More interestingly, firms that obtained SBIR or STTR funding were more likely to patent than those that did not received funding and were less likely to cease operations.  These firms were also more likely to receive VC funding.

Go nanotech!