Early Validation Makes Concept Stage Companies Fundable: A Real World Example
Building a product and building a business are not the same thing. That’s a lesson every successful entrepreneur must learn and embrace.
It is easy and common for Pre-concept and Concept stage firms to celebrate the promise of groundbreaking technologies but lose sight of the ultimate requirement of successful commercialization. Promising technologies and breakthrough discoveries must become products that meet market needs.
Entrepreneurs may be reluctant to question the assumptions of the business potential. It is hard to be impartial knowing first-hand how much energy and tenacity went into discovery and invention. Perhaps the spinout technology and the company they are creating are so interrelated that it’s impossible to think about the business model and the technology independently. This is often the case when the startup founder has been the principle investigator or the engineer/inventor.
Investors are looking to invest in technology companies with the potential to solve largely identified problems for large identified markets. VCs and angel investors look for quantified and anecdotal evidence from companies in the markets that the startup plans to serve to assess potential.
Simple-Fill, a Case Study in Concept State Market Validation
Simple-Fill, an Ohio State University spinout, has developed a new class of industrial compressors initially focused on compressed natural gas (CNG) refueling for small to mid-sized fleets. Simple-Fill’s refueling system will provide fleet operators lower, more stable and predictable fuel costs compared to gasoline or diesel fuels.
The challenge for Simple-Fill, which is the same for any company transitioning from Concept to Seed Stage, is achieving meaningful, repeatable customer validation. Pre-prototype, the entrepreneur is talking with potential customers to gather necessary support to convince funding sources because he or she needs the money to build out a prototype. In Simple-Fill’s case, the requirement was to prove the that the compressor system functioned as planned by building a working prototype.
Since investors in businesses like Simple-Fill rarely have a product to see or paying customers to survey, they look for external validation—evidence that someone besides the entrepreneur—a customer, a manufacturer, a trade association or other group representing the industry, a technology or application expert—has some interest in the company’s ideas around product and business models.
With a confident vision for an alternative to gasoline for fleets, Simple-Fill set out to build strategic relationships with key automotive players and compression technology experts early in the company’s life cycle. Seeing the company actively engaging those partners made Concept Stage investors more interested, too.
This checklist is specific to Simple-Fill, but the roadmap could apply to any advanced technology startup that requires investment to build a market-validation prototype.
- Simple-Fill’s technology is spun out from The Ohio State University Center for Automotive Research (CAR), a pre-eminent interdisciplinary research center in sustainable and safe mobility.
- Honda provided a grant to Ohio State to further the compression technology.
- Worthington Cylinders provided non-dilutive funding to and in-kind services to assist Simple-Fill in developing its compressed natural gas system.
- Simple-Fill received a commitment to test and buy the first beta unit from Safelite AutoGlass before the unit had been built.
- The CEO of Simple-Fill is a serial entrepreneur with experience in the sector and has invested his own funds.
- The lead research scientist previously with CAR has joined the Simple-Fill management team full time
- Simple-Fill’s Advisory Board includes the director of CAR, and recognized technology and industry experts.
- Simple-Fill’s strategic relationships with Rev1 funding partners Worthington Industries and Safelite AutoGlass led to co-investment, the board of director seats, manufacturing partnerships, and customer agreements.
“I’m really excited about Simple-Fill’s technology because it enables small, medium, and large distributed fleets, such as mine, to adopt compressed natural gas (CNG) as an alternative fuel. The cost to install and maintain infrastructure is the barrier preventing widespread adoption of CNG. Simple-Fill’s solution may well smash that barrier.”
– Erin Gilchrist, Director, Fleet Operations, Safelite AutoGlass
Concept Stage entrepreneurs are passionate about the innovative ideas that they envision solving a perceived problem for a big market. But passion and good ideas aren’t enough by themselves to get investors to open the purse.
Entrepreneurs who seek early, quantified, verifiable market validation through demonstrated customer interest, investment, mentoring, and direct engagement from key industry players present market opportunities that are more likely to succeed—and that’s what attracts investors.