What To Do When the Market Catches You Unprepared

This opinion piece was first published Sept. 19, 2018, by Michael Helmstetter, Ph.D., on Forbes: "What do Do When the Market Catches You Unprepared." 

As the CEO of a company specializing in agriculture, animal health and food technologies (full disclosure: I’m the CEO of TechAccel), I was a bit shaken and apprehensive to learn the news: the “Big Six” multinationals of ag — Bayer, Monsanto, Dupont, Dow Chemical, Syngenta and BASF — were going to consolidate into the “Big Three.” Similar M&A activity was also occurring with several of the larger animal health companies (e.g., Elanco and Novartis, Boehringer Ingelheim and Merial).

Consolidation doesn’t happen easily or automatically. Companies tend to take about three years to merge operations, an inward-facing process that often casts aside partnering companies like ours.

It didn’t take me long to realize the consolidation would force me to adapt our business model, and fast.

The core concept of our company was still valid — use advancement capital and research capabilities to de-risk stranded, stalled and otherwise available agriculture, animal health and food technologies. However, our primary source of technologies was tied up in the portfolios of the consolidating, large multinational “strategics” that have substantially more novel technologies in their IP landscape than their R&D budgets can support.

The consolidation impact hit home quickly. We were in the middle of our first science advancement project when news of industry consolidation rippled through the Midwest. We had licensed a technology from a land grant university and were running experiments and trials to further de-risk the asset. We were focused on a research plan developed in collaboration with one of the large multinational agtech companies. But upon announcement of a planned acquisition, the strategic progressively turned its focus inward, retreating from external collaborations like ours, which, in their innovative capacity, also presented risk that the merging entities likely could no longer entertain — at least for the near term. It rapidly became harder and harder to get the attention of the multinationals to talk about advancing their higher risk technologies, and many of our points of contact were displaced during the mergers.

Just three months post-launch, we found ourselves revisiting our entire marketplace. Fundamentally, we were still committed to and passionate about one focus: de-risking and advancing available innovation.

The consolidation disruption forced me to ask: where else do such technologies exist? It wasn’t a problem with our skill set or market demand, but of a lack of access to a target source. How could we create a bigger bullseye of opportunity to source and advance technologies of high interest to big industry?

We adapted. We found new targets.

The first target was an obvious one — a proactive and focused look at universities and research institutes where strategics had demonstrated interest in a technology or platform, but the basic research funds now are exhausted, leaving the innovation too early in the risk mitigation continuum. In other words, the strategics have interest in novel discoveries at universities (typically funded via federal grants) but the discoveries require further de-risking research to meet the strategics’ R & D pipeline risk threshold.

In academia, the time between an innovation exhausting federal funding and being mature enough for large multinational corporations is often referred to as the “Valley of (Technology) Death.” Universities simply lack the money to take discoveries through rigorous advancement and applied development to the point where the discoveries will garner the attention of potential go-to-market corporate partners.

Our second added source for innovation is not so much about stranded or stalled technologies, but rather targets the opportunity to apply a technology or platform in an adjacent “swim lane” from the central thesis. These technologies and platforms reside in young, emerging companies, typically funded through venture capital and operating with a laser-focused business plan associated with that VC-funded investment.

[caption id="attachment_1256" align="alignleft" width="300"] Look into adjacent swim lanes for opportunity[/caption]

Agtech is gaining attention as a huge revolutionary force in technology advancement, and the wave is just beginning. (See AgFunder’s 2017 investment roundup: “AgriFood Tech Investment Surges to $10.1bn Bringing in a New Normal.”) As a general rule, startups are looking for more capital, and they are more likely to grab investment dollars if they expand the application of their own technology or platform into adjacent “swim lanes.”

This is the core of our thesis with emerging companies: To be a strategic investor bringing capital to the equity round, and more importantly, bringing additional capital to advance the innovation in promising adjacencies. For example, a startup with a VC-funded business plan to focus on poultry and swine immunizations could partner with TechAccel’s science advancement capital and expertise to expand the platform into cattle. If successful, the startup would have diversified its product offerings, grown stronger as a business and ultimately, strengthened its viability for future rounds of investment.

This is especially important given the Series A crunch in agtech. Many startups today find themselves trapped in an early-stage funding gap, building viable products but lacking dedicated agtech investors to prove out their technology.

To test out the emerging company ring of our adapted bullseye, I brought in consultants, each with VC expertise and an active agtech/animal health Rolodex. In their conversations with startups, VCs and other investors, we quickly discovered a huge opportunity to help startups grow their lines of business. Everyone, it seemed, was interested in adjacency. As specialists, we were immediately drawn into the core of the agtech ecosystem, which is venture investment. Our company, TechAccel, was an ideal partner to shepherd innovations through the “Valley of Death,” as well as to apply startup innovations in new applications and adjacent markets.

Before long, we gained visibility and credibility as innovation adjacency specialists, with leads pouring in. If we hadn’t expanded our bullseye, we likely would not have built the credibility and reputation we have. And we can always revisit the multinationals after the consolidations are complete. We’ll offer to reinvigorate collaboration around their IP portfolios — and bring our own portfolio of de-risked technologies as well.

In the meantime, agtech, animal health and food tech are such huge and burgeoning spaces — gene editing and microbiomes are just the beginning — that our business will be plenty active for the foreseeable future.

What if your own startup is similarly stuck? Here are a few tips:

  • Set a bigger bullseye early on. Let’s say your startup sells a nutrition app aimed at college students on dining hall plans. You could expand your bullseye by aiming for adjacent markets: a nutrition app for high schoolers, one for commuters or business travelers, one for people with certain dietary restrictions. Expand your target, and your business will grow in resilience. But do it thoughtfully and logically to avoid getting too horizontally diverse and spread too thin.
  • Constantly test your model in the marketplace. As you adapt and evolve the model, go out there and test it, don’t just assume it’s going to work. In our business, this means going out into the fields to find ground truth, getting our boots muddy.
  • Bring your investors in tow. I recruited eight investors based on TechAccel’s original model. Two to three months in, we were already looking at doing things differently. You’ve got to bring your investors along with you as you evolve. If they don’t buy into the bigger bull's-eye, you’ll suffer from a capital standpoint. Be strategic, transparent and creative. Adaptations on all fronts take time and effort.
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