Many Deep Technology Ventures Fail For One Basic Reason

I often think about the deep technology ventures that I helped launch, especially the ones that began with great expectations and yet ultimately failed. Why?

It is often said that failure teaches more than success. This post is the story of one such venture I still regret, since it seemed there was so much potential.

Many of the ventures I helped start began with an immediate advantage—a genuine technological breakthrough. When you're surrounded by brilliant technology researchers, as I was, it’s almost irresistible to explore how to turn their innovations into successful ventures. These breakthroughs often promised a range of revolutionary product opportunities across diverse markets.

Take, for example, the venture AMI (short for Artificial Muscle Incorporated), which our team at SRI started in 2003. It was based on the technology called “electroactive polymer (EPAM).”

Here’s how SRI described it:

“The patented, rubbery polymers powerfully contract and expand when subjected to electricity. It, for example, enables robots to mimic the dexterity and mobility of humans and offers performance characteristics similar to those of natural muscle such as high strain, high peak power, and high compliance. In addition to acting as a muscle-like actuator, EPAM can also operate in reverse and generate power from being stretched and contracted.”

It was such an amazing technology that it appeared on the cover of Scientific American in October 2003.

Scientific American: “The electroactive polymer has the potential to fundamentally shift the way many types of industrial, medical, consumer, automotive, and aerospace products are powered and operated. It offers significant advantages over typical electromagnetic-based technologies: it is much lighter, smaller, quieter, and cheaper. EPAM also offers more controllable and flexible configurations.”

The Overwhelming Opportunities

Faced with such a groundbreaking technology, the first challenge was determining where to start. What was the "unmet need that is screaming to be solved in a large, rapidly growing market"? The possibilities were endless:

• More efficient power generators, motors, and pumps

• Robots with human-like movement

• Exo-skeletons for human assistance

• Stereo speakers powered by EPAM

• Ocean wave energy generation using EPAM buoys

• …

In 2004, SRI created the AMI venture, invested the intellectual property, recruited some founders, and gave them resources to further develop the technology and introduce new products. Our team considered many possible uses of the polymer and didn’t pick one alone.

We began talking with potential customers of AMI in many different industries. Several customers were excited by the idea and wanted to see prototype examples of products. But we didn’t settle on any one product. Instead, our hope was to license the patents to a partner that would develop the product, and deploy it into the market.

And that was the seed of our downfall.

Speaking more generally, launching a venture based on a patent licensing strategy is often the fundamental mistake of many technology startups.

Why?

To be a successful startup licensing its technology patents to a potential customer, the customer will need to satisfy these highly difficult criteria:

1. They must believe in the value of your technology and your patents and deeply understand its capabilities and limitations.

2. They must conceive of a product that will be a success in their market.

3. They must commit to major financial resources and teams to develop the product and sell it in the market.

4. They must adapt and modify the technology for the new product.

5. They must manufacture and deploy the new product.

6. They must be willing to pay ongoing royalties for the technology.

7. They must agree to use the technology within the field of use that might be specified.

This approach can work sometimes and can become a reasonable source of royalty revenue. But for a startup that hopes to grow rapidly, the “selling” process is extremely intense, uncertain, and time consuming for all the reasons above.

Many of you may argue that licensing can be a success for a startup if you can establish your IP as a platform for many customers. Yes, an iconic example of this is the ARM company, which is valued at over $100B today and which licenses its designs. It is a critical player in the semiconductor ecosystem, and its designs are in virtually all smartphones.

But let’s be clear: ARM doesn’t just license patents, as we discuss above. Its products are the “technology building blocks, software, and tools to develop silicon chips and specialized computing platforms that power billions of devices, applications, and services across diverse global markets. Based on each company’s needs, ARM technology licensing provides access to a broad range of IPs.”

The Crucial Lesson

In hindsight, in our AMI example, we should not have considered our patents as our product. Instead, we should have chosen to build our venture around one specific product based on electro-active artificial muscle polymers. Later, as we grew, we could have expanded into additional products and market areas.

Ultimately, we succeeded in selling AMI to Bayer Material Science LLC, which now owns the patents and provides the artificial muscle material to various manufacturers. While we earned reasonable royalties, I have no doubt that we didn’t realize the technology's full potential value for ourselves.

My advice to founders who are launching a deep technology venture: avoid the temptation to license the patent broadly. Instead, identify a screaming unmet need in a specific market, develop a product to meet that need, and build your venture around that product. Then, as you grow, you can expand into new products and new market areas. This focused approach can unlock the true value of your technological breakthrough and lead to real success.

Your venture coach,

Norman