Venture capitalists and other private market investors are hesitant in the face of the uncertainty that the COVID-19 pandemic is bringing – but startup companies are no less in need of funding to keep making progress against their milestones. Corporate innovation leaders should look at this situation as a historic opportunity to fund potentially transformative technologies, on relatively favorable terms, by stepping in where VCs fear to tread.
We're not advocating for exploiting desperate founders – but by backing valuable technologies that might otherwise may be at risk of failing for lack of capital, companies with the nerve and the balance sheet to place bets can help usher in the next wave of innovation and earn a favorable return. The last major economic crisis and recession led to the founding (and funding) of multiple iconic companies, from Slack to Uber, and unusual though it is, the coronavirus-driven downturn will present strong opportunities as well.
We tapped into our data science tools and Lux expert analyst evaluations to create a database of 120 companies that have received a "Positive” or "Strong Positive" rating from Lux analysts and are likely to be in need of funds during the coming months of the crisis (expanding to include companies that were rated "Wait and See" increases the set to 320). Specifically, we highlighted companies that have received an institutional funding round in the past four years (i.e., aren't simply relying on grants or organic growth), have not seen reported funding in the past 18 months, and are estimated to not yet be profitable and to have less than $10 million in annual revenue (i.e., are likely not funding growth off profits).
Here are a few highlights from this data set:
- Houston Mechatronics raised funds almost exactly two years ago and has significant business in oil and gas that will hurt its revenues as well. However, its robotics platform for maintenance of assets in harsh environments applies to areas like telecom, defense, and offshore renewables as well and could be worth backstopping.
- Lactips offers biodegradable resins, validated by partnerships with BASF and Itochu, but last topped up funding some 21 months ago – those with interest in biodegradable materials should consider helping to support its expansion.
- Saturas has a unique stem water potential (SWP) sensor for precision agriculture. While it received at €1.5 million EU grant in mid-2019, its last funding round was in early 2018, and it's hard at work on geographic expansion.
- Li-Cycle is a promising player in battery recycling, with its most recent announced raise back in late 2018. Recycling will become even more prominent as the lithium value chain is disrupted, making it a particularly apt player to engage with now.
- LiquiGlide has a promising liquid-infused coating for repellency but has struggled to gain commercial traction due to a too-narrow focus on one application. With its last funding round in 2017, it could likely benefit from backing from a strong commercialization partner to turn the corner now.
- Elaphe Propulsion Technologies creates in-wheel electric motors that improve the overall drivetrain efficiency for electric vehicles. Three-and-a-half years on from its last equity raise, it's confirmed that it's now seeking a Series B.
Of course, any or all of these specific examples could fail to pan out in further due diligence – but innovation leaders should be looking now for opportunities to invest in valuable tech, both because it's needed and because they will be positioned to earn strong returns. This type of structured approach that combines analysis of financial data to create a pool of candidates and leverages expert-driven assessment to quickly push the most promising options to the top can position your organization to act decisively.
Please contact us if you're interested in reviewing the list in more detail.