Solving investment roadblocks: How tech startups can be reliably assessed with the Venture Readiness Management System - Interview with Leonard Rinser
Germany occupies a top position in high-tech research and development, but currently lands only in the middle of the pack when it comes to high-tech start-ups and venture capital investments in young technology companies. Especially in the capital-intensive early phases of company development, investors and start-ups seem to have difficulties finding each other. One reason for the gap between technological potential and its commercial exploitation is the difficulty in obtaining reliable key figures on companies whose technology and products only become marketable after lengthy, complex developments. The so-called Venture Readiness Management System, a new method to evaluate startups, enables investors to reliably evaluate young tech companies even if they do not yet have valid market data. We spoke with Leonard Rinser, Innovation Manager in the Fraunhofer AHEAD program, who has evaluated methods to overcome the investment gap with the Venture Readiness Management System.
Leonard, in your thesis you dealt with the development of the "Venture Readiness Management System" for high-tech start-ups and were awarded the Innovation Award 2021 of the Fresenius University of Applied Sciences - Department of Design AMD for your work. What exactly is the Venture Readiness Management System?
The Venture Readiness Management System is a method to analyze the status and progress of a start-up or spin-off in a straightforward and relatively precise way at a very early stage of it’s development. The tool builds on NASA's Technology Readiness Levels (TRL), technology assessments that are now the standard in many technology assessments. In space, dealing with technologies that defy all conventional assessment criteria is completely normal. Pioneering technologies do not fit into the grids of the past, often not even the present. That's why NASA developed TRLs, a method that uses individualized, quantitative and qualitative assessment patterns instead of abstract metrics as a gauge of the potential and maturity of technologies. The so-called Venture Readiness Management System addresses the real situation of many tech startups and develops a dynamic assessment pattern that takes into account each development phase and enables reliable analyses
Can you explain this with an example?
With the Venture Readiness Management System, you look at the typical entrepreneurial characteristics, but adjust the focus and coordinate system of the assessment to the situation and maturity of the tech startup: In addition to technological maturity, for example, the market potential, the founding team and the integration of the technology into a product are of interest to investors.
Especially spin-offs from scientific organizations have a high level of technological maturity, but usually start from a low level in other factors such as team development, market validation and product integration. With the Venture Readiness Management System, the individual factors can be measured according to maturity and potential or necessary development steps can be identified. Instead of a snapshot based on rigid metrics, a spin-off is measured by progress on the individual roadmap. Development deficits are identified, but for an investment decision based on the venture readiness levels underlying the venture readiness management system, it is how they are dealt with that is decisive, not the current state.
What problem does the Venture Readiness Management System solve for investors and tech start-ups?
The Venture Readiness Management System addresses the central problem of tech investors and tech startups alike. Start-ups and spin-offs in the high-tech sector, unlike most other young companies, have a high demand for capital, especially in the early phases of their development - i.e. when technologies and applications have to be developed and classic market validation via prototype and testing is not yet possible. But it is precisely in this critical phase that potential investors can hardly measure the risks and potentials with classic company key figures and find it difficult to make investment decisions. Investors and tech startups are in a classic dilemma: Motivation is usually present on both sides, but transparency and calculability of opportunities and risks are lacking. Instead of a possible win-win situation through successful tech investments, investors and founding teams slip into an unwelcome situation.
How can Fraunhofer spin-offs benefit from the Venture Readiness Management System?
Fraunhofer spin-offs are architypes for the investment dilemma of tech start-ups. Their technological edge is outstanding, but so are the opportunities and risks for potential investors, and the valuation of future technologies with the knowledge of the present is always volatile. The Venture Readiness Management System also gives spin-off teams the opportunity to assess their own level of maturity, identify and address deficits, develop their own development roadmap and position themselves optimally for the search for investors. Researchers and institutes can also use this tool to better assess the potential of their technologies and evaluate the chances of success of a spin-off. For existing spin-off teams, the Venture Readiness Management System and the underlying venture readiness levels create a kind of bridge across the investment gap and facilitate understanding between investors and spin-offs in need of capital.
Fraunhofer spin-off teams were my personal motivation to develop tools for evaluating tech start-ups in my research. I am thrilled by the potential of many technologies to solve many business, societal and environmental challenges and wanted my research to help make it easier to turn these many conceivable opportunities into concrete opportunities.
Can tools like the Venture Readiness Management System improve technology transfer?
In Germany, the investment dilemma in tech investments reaches an economic dimension. The country has world-renowned cutting-edge research, but the willingness to invest and thus the fuel for transforming knowledge and skills into entrepreneurial success is still comparatively underdeveloped. Quite a few international analysts see this as a serious risk for the future of the location, as I have demonstrated in my work.
With the improvement of tools for tech investment, the transfer and commercialization of technologies can be accelerated and applied much more broadly. Tools like the Venture Readiness Management System reduce risk, even for complex technology areas, and create transparency in opportunities. Investments thus become more predictable, more lucrative and simpler. The more such tools succeed in closing the investment gap between tech startups and investors, the better the existing tech potential can be exploited economically, for example through Fraunhofer spin-offs.
My work has been developed in dialogue and with the support of many founders, start-ups, experts at Fraunhofer, from the high-tech and venture capital ecosystem. For me, the best way to say thank you would be if the results would now support the work at Technology Transfers, especially at AHEAD, the FTTF, Fraunhofer Venture and the many transfer professionals.
Leo, thank you for your time and insights and congrats again for such a valuable and enriching work.