Crossing the valley of death

Funding temerity creates a divide that can starve promising innovation – where it is important to realise that even failure can be salient. DORON BEN-MEIR

Doron Ben-Meir

By Doron Ben-Meir

I recently participated in a survey conducted by the Department of Innovation, Industry Science and Research directed at uncovering the core issues confronting early stage business funding in Australia.

Without pre-empting the findings of this survey, it should come as no surprise that investors will express concerns about the entrepreneurial talent and management maturity available for early stage business building and those looking for money will lament the conservative (often referred to as “risk averse”) nature of investors. Unfortunately there is truth to both sides of the argument.

The problem for early stage technology businesses is that not only do they present execution risk given their early stage, but they present technical risk given their inherently innovative genesis.

This double whammy generates a classic divide (the valley of death) between business propositions that are too early to convince an institutional investor but too cash hungry to be sustained by the founders, friends and family alone.

Governments have tried to fill this space with various programs including incubators, pre-seed funds, IIF funds, CRCs, COMET and Commercial Ready Grants etc. While each of these programs has varying degrees of merit, none presents a systematic solution to the “valley of death” because they focus on the issue from a funding perspective.

To the extent that they bring some expertise in the form of investment management talent (such as pre-seed and IIF), such resources are constrained by commercial fund metrics that are better suited to larger funds operating on more mature propositions.

To cross the valley of death requires more than just money; it requires skills and experience. Skills and experience to develop, test, pass and sometimes fail propositions. Yes… fail!

Not every piece of intellectual property – however interesting or apparently ingenious – has realistic commercial potential. To the extent that we deliver taxpayers’ funds to addressing the valley of death, I believe we need to invest in the creation of centralised points of expertise with the experience and skills necessary to systematically develop, test, pass and fail new technologies from a commercialisation perspective.

If one executes a systematic process and applies the right skills, then if a proposition is to fail it will fail efficiently, and lessons will be learnt. This is good failure – the result of quality commercialisation R&D.

Placing such early stage prospects at the mercy of pure commercial forces encourages behaviours that obfuscate good commercialisation R&D due to the oppressive imperative to secure funding and the consequential resort to prematurely overselling potential.

Propositions that succeed will enter the commercial world with sound foundations and will rise or fall on their merits. Success will breed success and more skills and experience will be attracted to participate – creating an entrepreneurial ecosystem that then feeds the higher level investment funds with more quality portfolio candidates.

With the appropriate Government support and a preparedness to concentrate early stage commercialisation resources on business building skills and experience (as well as funding when appropriate), I’m convinced that we have the R&D base in this country to achieve quality commercialisation results that punch above our weight – just as we do on the sporting field.


Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.

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