This interview was conducted for ‘New Fusions in Advanced Materials Innovation and Corporate Venture Capital’, a new report from LEIF and Global Corporate Venturing. The report is sponsored by Airbus APWorks, the advanced materials and additive manufacturing subsidiary of Airbus, and Saudi Aramco Energy Ventures (SAEV), the corporate venture capital subsidiary of Saudi Aramco.
Pangaea Ventures is a Vancouver-based specialist advanced materials venture capital company. It is backed by several large corporations including Solvay, Evonik and Asahi Kasei. Keith Gillard, Pangaea’s General Partner, has been investing in cleantech and advanced materials start-up companies since 2001, initially with Mitsubishi Corporation, where he was responsible for technology-related investment and business development activities in Canada, with a specific focus on cleantech. From 2006-2010, Keith was President of BASF Venture Capital America Inc., establishing the Silicon Valley VC presence for the company.
LEIF: What is your investment strategy with regard to advanced materials?
Keith Gillard: Pangaea invests in start-up companies that use advanced materials to make our world better. Breakthroughs in advanced materials are becoming increasingly important for companies to excel in almost any market. Advanced materials are solving fundamental problems necessary to make products more efficient, sustainable, less expensive, and better performing, key attributes necessary for widespread adoption of any product. Pangaea’s current fund is focused on advanced materials within energy, electronics, health, and sustainability.
LEIF: Please provide two or three examples of advanced materials technology businesses you have invested in? In each case, please identify the advanced materials innovation.
KG: Redlen Technologies is a leading radiation imaging company enabling high performance detection and imaging in the medical and security industries. Their advanced materials innovation is a proprietary wide band gap semiconductor growth process resulting in superior CZT crystals, which can provide a superior image using only ¼ the amount of radiation.
Vestaron Corporation is commercializing a new generation of environmentally-benign insecticides derived from compounds discovered in spider venom. With high efficacy comparable to leading synthetic crop protection chemicals, Vestaron’s EPA-approved product show no toxic effects on mammals, birds, fish, or even bees. The company has three technology platforms: Biopesticides, synthetic mimics of biopesticides, and GMO crops which express the biopesticides directly.
Envia Systems develops innovative materials that enable high performance, lower cost lithium-ion batteries for the automotive, consumer electronics, and UAV markets. Its world record for energy density is enabled by proprietary, patented materials for both cathode and anode.
LEIF: What are the biggest factors driving innovation and growth in this area?
KG: We are focused on problems in search of solutions, rather than solutions in search of problems. The innovations which Pangaea finds most compelling are born out of market urgency, where a solution to a particular problem can enable expansion of an entire market.
LEIF: What are the challenges of investing in advanced materials?
KG: Long commercialization timelines, capital intensity, access to capital, attracting world-class management teams, business model (platform technology company syndrome)
LEIF: In the near future, what types of advanced materials technologies and business models are you hoping to invest in?
KG: We are keen to invest in companies further along the value chain. Even if they are the material producer, we would prefer the companies to also produce a finished product. Redlen and Vestaron are good examples of material producers who also handle each step of the value chain through to product. We are also keen on opportunities with quick pre-commercialization acquisition exit possibilities, such as 3D printing.
LEIF: Long term, what break-through innovation do foresee? What excites you?
KG: 3D printing of functional parts, wearable electronics, ubiquitous networked sensors.
LEIF: Advanced materials are used across all industries. What challenges does this present to their commercialisation? How should advanced materials technology businesses prioritise their business development?
KG: An aggressive IP strategy is required in order to effectively engage in business development across multiple industries. I generally recommend that our portfolio companies focus on commercialising a product where they actually can penetrate the market and/or hold the “juiciest peach” for themselves, while working through business development to license or partner for all other applications. This gets the company “into bed” with as many potential acquirers as possible. Meanwhile, the “juiciest peach” is held tightly, and can only be accessed by one of those partners if they acquire the company. It is also important that there be a real possibility for the company to survive as a profitable stand-alone company, ideally with a credible (or even initiated) path to IPO.
LEIF: Different types of venture capitalists are active in this field – financial and corporate venture capitalists with backgrounds and core strengths in energy, med-tech, clean-tech, ICT and others. Can co-investment among them be successful or will it lead to investee companies being pulled in too many directions?
KG: Co-investment can absolutely be successful, but it is essential that the interests of all parties be as closely aligned as possible. Aligning financial investors and the management is the easy part. CVCs are relatively easy to work with too, as most have a financial performance requirement. What can be more difficult is when the non-equity aspects come into play: Exclusives, ROFRs, etc. It takes creative planning, diplomacy, and negotiation to run the business with a view to a balanced alignment of all parties’ interests.