Picking an accelerator for your chemistry start-up

How do you turn a laboratory discovery into the backbone of a business? Over the past generation, the bench scientists and engineers who generate potentially world-changing innovations have increasingly had to shoulder the burden of entrepreneurship. Centralized research operations funded from the balance sheets of publicly traded corporations have given way to scrappy start-ups backed by private investors.

But chemistry entrepreneurs don’t have to go it alone. Science-oriented business accelerators have emerged to help scientific founders along the start-up route. Each has its own nuances and is driven by its own motivations. Researchers who find the right one can turn an impossible task into one that’s just extremely difficult.

Accelerators are like business school boot camps. They focus on giving founders the boardroom skills and investor connections they didn’t get from, say, a PhD in chemistry. Accelerators provide an intense educational program that lasts anywhere from 2–12 months.

Participants typically meet in person with their cohort for multiple-day workshops several times during the program and complete other activities asynchronously. Almost all programs end with a “demo day,” in which the accelerator invites venture capitalists to hear the participants describe why their start-up is worth investment—like a science geek episode of the TV show Shark Tank.

The financial models vary widely. Some accelerators collect payment, cash or equity in the fledgling company. Some are free and get their funding from governments, universities, or philanthropists. Others are paid for by investors who show up at the end to identify and cultivate investment opportunities.

An accelerator is not to be confused with an incubator, which is basically a WeWork for laboratories, with lab space to rent and shared access to instruments and facilities. But while it’s easy on paper to draw a line between accelerators and incubators, many are a hybrid of the two models. Shara Ticku, CEO of the palm oil replacement start-up C16 Biosciences, says it pays to dig deep into an accelerator’s structure, offerings, and financial backing before applying. “The important thing is to be very clear about what you’re looking to get out of the program and what you have to give in exchange for it,” she says.

C16 participated in Y Combinator, a famed San Francisco–based accelerator, in 2018. “The numbers change, but when we did it, in exchange for their investment, they got 7% of the company,” Ticku says. “A lot of people think that is really expensive, that it’s a lot of your company to give away.”

For C16, letting go of a 7% stake made sense. “We were looking for credibility and the ability to raise a lot of funds,” Ticku says. “Y Combinator has been one of the best communities I’ve been a part of. The spirit of giving back, and the peer-to-peer learning, has been invaluable,” she says. “That’s on top of the efficient seed round we were able to raise.”

Seed funding is an early investment that lets a start-up make the first few hires and go from proof of concept to a bench- or pilot-scale demonstration. Without an accelerator, that seed funding involves a lot of cold-calling investors, pleading for a few minutes to pitch the company, and hoping a few come back with offers, Ticku says. The investors have most of the power. “We would have gotten much worse terms if we had gone out in a process like that because we wouldn’t have very much leverage,” she says.

“One of the cool things about the accelerators is they flip the leverage so that it’s to the benefit of the start-up,” Ticku says. “They create a lot of FOMO”—fear of missing out. “They put all the investors in one place and just make the process much more efficient so that you, as a founding team, waste less time and end up with better deals.”

Investors, meanwhile, are willing to accept less-lucrative deals because backing or working with an accelerator means spending less time sifting through investment pitches from mediocre companies. “In one version, it is a scouting mechanism for larger venture capital funds,” says Jim Jen, an entrepreneurship professor at Carnegie Mellon University.

Government-backed accelerators have become a model for economic development that states and cities use to encourage fast-growing companies to set up shop in a certain location, Jen says. Corporate-funded accelerators, meanwhile, often serve to cultivate acquisition targets. “You have to look at the inherent business model for an accelerator to figure out ‘How do they make money?’ ” he says.

Start-ups working on sustainability have ample accelerator options because many governments, companies, and philanthropists want to fund technology that could help fight climate change, says Lucy Chatburn of the consulting firm Cleantech Group. For nonprofit accelerators, the return on investment is partly environmental impact rather than profit alone. And indeed, nonprofit accelerators are more active in cleantech than in other technology sectors, Chatburn says.

Instead of offering cash in exchange for equity in a start-up, many nonprofit accelerators will give grants, which can be better for scientists developing technology with a long commercialization timeline. “It’s not helpful to give away equity too soon,” Chatburn says.

Nonetheless, entrepreneurs need to be picky. Time is precious, especially when you’re burning through early-stage capital. Sasha Bukhari, also from Cleantech Group, advises founders to seek out specialized accelerators with a technical niche. “Duration, their geographic focus, the connections that they’ve got to market access afterwards all come into play,” she says.

Outcomes are another indicator of a good accelerator, Chatburn says. “The start-ups that are coming out of it, are they getting venture capital investment? Are they getting contracts or customer partnerships?” Those results are important to entrepreneurs and investors. “If there’s a lot of competition to get in, that’s a good sign,” she says. “Investors take that as a signal of quality as well.”

The mentors with business acumen that an accelerator offers should be a central draw for founders coming from technical backgrounds, Jen says. A lot of amazing technology never sees the light of day because the business plan for making it real wasn’t good enough or properly executed. “I don’t think a company should go through an accelerator just to access the funding,” he says.

A good accelerator might be able to compress a year’s worth of networking into a month, Jen says. “Accelerators tend to be immersive experiences. And from my experience, companies or founders who took full advantage of it—took every networking meeting, attended every event to meet people to build their network—got the most out of it.”

Founders should also be honest with themselves about whether they are right for the accelerator. “Ultimately, are they at a point where they are able to take full advantage of the resources that accelerator can offer?” Jen asks. “And could they have access to the same resources without going through an accelerator?”

Only about 20% of cleantech start-ups participate in accelerators, Bukhari says. Many chemistry-based businesses get funding from bank loans and small business grants without involving venture capital at all, at least in their early stages. For these firms, it may make more sense for the founder to focus on technology and hire someone with business experience to take the business reins.

“You’ve got to be self-aware of what your strengths and weaknesses are. Because when you’re brilliant, you can think you can solve any problem,” says John Foley, an executive who has made a career out of stepping into leadership roles at small chemistry businesses that have stalled or lost their way. Founders accustomed to being involved in every detail can struggle as the team and operations grow. Other times, he says, firms don’t find enough customers because they aren’t aware of applications outside their original niche.

Success in business requires skills in team leadership, delegation, cash and capital analysis, sales, and recruitment, Foley says. Technically minded people don’t always thrive in those activities. And even if they’re capable, he says, their time might be better spent on science and engineering.

“My industry friends who are more chemists, they love science projects; they love new things. And they will be willing to develop those projects . . . even if there’s no customer,” Foley says. “Over in engineering, they love building plants; they love running plants; they love volume,” he says. “The chemists and chemical engineers have to really be the core of our industry. But within that, how do we make money? If there’s no economic return, it’s not going to be sustainable.”

Another way for scientists to get business assistance is to transfer their research or budding company to an organization known as a venture studio. Scientists bring their innovation to a venture studio at a similar stage as they would to an accelerator, but for them, that’s the end of the entrepreneurial road.

The venture studio Early Charm Ventures, for example, is building a manufacturing conglomerate focused on materials, 3D printing, sensors, and aquaculture. It operates 35 wholly owned subsidiaries out of a repurposed warehouse in Baltimore’s Pigtown neighborhood. The venture studio has dissolved 5 companies, but it hasn’t sold any off, says Ken Malone, a polymer scientist who cofounded Early Charm in 2012 after 6 years in university technology transfer.

Four of the subsidiaries are mature enough that they could be independent, Malone says, but that’s not the plan. “The synergy of the subsidiaries with the larger organization far outweighs the value of a sale,” he says.

The Baltimore space has an office area, wet labs, cold rooms, a machine shop, and a sizable manufacturing floor. A central support staff takes the brunt of the administrative work, including grant management, human resources, and patents—tasks that entrepreneurs frequently complain about.

Companies also share some leadership and scientific staff. If one company is waiting for a grant to come through or a client to make a decision, its people can slide across the room to work for a sibling start-up.

The downside for inventors, of course, is that they don’t end up owning the intellectual property they created or controlling the company they started. At the same time, people and projects that don’t fit in the venture capital model are a fertile field for venture studios. The studios tend to be invitation only, though—Malone says Early Charm spends very little time listening to founder pitches.

Founding a chemistry start-up is a difficult and risky way to make money. Most entrepreneurs will tell you they do it because they want to make a difference in the world and see their ideas become a reality. Finding the right path to success takes homework because it varies with the people and technology involved.

“My perspective on that is most of us are in this because, sure, we all want to reap the benefits of it and make money from it, but also because we want to have impact,” C16’s Ticku says. “And because we want to do work that we find interesting and intellectually stimulating.”