Why US battery startups fail – and how to fix it

Li-ion Batteries 18650 - Pouch Cell (Charged EVs)

Despite growing EV sales, battery startups in the US have largely failed, even when supported by major investors such as Bill Gates. Only 36 battery startups received more than $500,000 in funding since 2000, and of these, only two returned any profit, according to the tech industry analysis firm CB Insights.

According to a new study (via IEEE Spectrum and Green Car Reports), the pharmaceutical industry offers insights that could help solve this problem. In “Applying insights from the pharma innovation model to battery commercialization—pros, cons, and pitfalls,” published in the journal MRS Energy & Sustainability, Eve Hanson, a materials scientist at Northwestern University, and her colleagues, examine the challenges faced by startups in the battery field.

Battery startups need to close the R&D gap between university lab-scale experiments and technology that meets industry benchmarks. Research with prototypes typically requires months-long cycles of charging and discharging, requiring expensive labs, specialized workers and long timelines.

The battery market is also inherently difficult for small companies, because the biggest applications for batteries have highly competitive markets with operating margins around 5 percent. Reaching the large-scale production needed to make these slim margins profitable requires both time and capital.

The pharmaceutical industry faces similar hurdles, but unlike the battery industry, it has a healthy pipeline of startups developing new drugs. Venture capital firms invested over $10 billion in the medical, health and life sciences in 2015.

“By looking over to the pharmaceutical industry, we found fresh sources of ideas and inspiration,” Hanson says.

The researchers propose a number of recommendations for battery startups.

Instead of seeking to go it alone, startups should look for corporate partnerships and joint development agreements. For example, the researchers note that battery startup 24M partnered with electronics giant NEC to commercialize grid-scale storage systems.

Instead of attacking large-scale markets such as EVs, startups should first approach smaller higher-margin “beachhead” markets. For instance, startup Corvus Energy focuses on large batteries for marine applications, and has shown strong revenue growth.

Finally, rather than courting venture capitalists, which tend to demand large returns, companies should seek out government grants and research partnerships with large corporations.

 

Source: IEEE Spectrum via Green Car Reports