By Bryan Tracy
Delaware has created much of the modern chemical world, but a new era is upon us that has shifted production to local markets and pressured chemical companies toward a high-tech focus, or as I prefer to say, a ChemTech future. Delaware is ground zero for this transition, with nearly all the components to maintain a global leadership position except one: well-informed venture capital.
The legacy chemical industry is becoming more beholden to a public shareholder hunt for greater profitability at the lowest capital costs. Subsequently, the industry is shifting to high-tech innovation in hopes to commercialize higher-value products and services on shortened timelines with decreased risk.
Sound familiar? The DowDuPont merger-de-merger is an active example where two giants merged, spun out commodities (i.e., Chemours), combined competitive businesses, and continue to spin out several, leaner companies with greater market share with less competition. This is a watershed event for Delaware, but a strategy that started a few decades ago.
Delaware has witnessed a few giants (DuPont, Hercules, Rohm&Hass, and ICI) morph into many honed companies (Chemours, “new” DuPont, Invista, Ashland, Solenis, Croda, Axalta and Corteva), while attracting, growing and rebooting complementary companies (Air Liquide, WL Gore, FMC, Agilent, PBF Energy, Linde, Fuji Films, BASF and Solvay).
As a result, Delaware is home to significant operations of upwards of 50 percent of the United States’s non-refining chemical industry.
The race is on for profitable innovation to bring forth the new frontier of chemical technology. There is ample corporate investment toward this end. I tally over $1 billion in our region alone over the past five years. A shining “star” is Chemours’ $150 million, 312,000-square-foot Innovation Center at the University of Delaware’s STAR Campus. You may also recall Warren Buffett’s 2017 investment of $560 million into Axalta, some of which went to support the construction of a 175,000-square-foot innovation center at Navy Yard. And FMC’s innovation is growing at its new corporate R&D headquarters on a portion of the old DuPont Stine-Haskell facility.
However, bricks and mortar can also have a negative impact by creating silos that lead to duplicated failures. What ChemTech desperately needs is for more and better-informed Venture Capital (VC) to de-risk early stages of innovation to a point of big company acquisition or joint development.
VC investment into U.S. firms alone topped $100 billion in 2018 but drops off significantly for ChemTech. Is the value not there, or are markets not big enough? ChemTech is core to durable and non-durable manufacturing, agriculture, and waste services, and provides many of the material inputs to health/social care and information, all of which collectively accounts for 28 percent of U.S. GDP.
VC commonly aims to “disrupt” industries, often usurping value and supply chains to redefine consumer experiences (e.g., Uber, Amazon). Yet, ChemTech advances are commonly incremental improvements to global resource efficiencies, such as genetically engineered seeds that reduce water, fertilizer and pesticide consumption. Or inventing new chemistries to deliver greater elasticity and strength for renewably sourced fibers that improve clothing durability and environmental footprint.
ChemTech innovation is not an island, rather an endeavor of entrepreneurs informed by rational skepticism of robust, sage industry advice. Furthermore, it is accelerated by resources and relationships with mature industry once proof of concept is de-risked.
The best VC fund managers live in Silicon Valley and Boston — regions known for exceptional high-tech and health-care entrepreneurship, as local big corporations in those industries support them with intel, infrastructure, C-suite talent, and most of all, fabulous exits. Boston and Silicon Valley VC investments into ChemTech have been limited and tenuous. Cleantech as an example had its biggest year of venture investment in 2008 at $4.1 billion.
The startups were overwhelmingly situated near the money, performed mediocre, and experienced several high-profile blunders. In contrast, there are plenty of quieter, yet sizable successes that started and grew near the corporate giants in places that include Wilmington.
What if VC funds established satellite offices in Wilmington? Instead of limited interactions of fund managers with paid consultants, what if junior partners lived here, taking frequent casual meetings over coffee with current and retired senior executives and influencers. Last year, I had the fortune to share coffee with two business presidents, one past CEO, an EVP, five innovation managers and a dozen other global decision makers from five local companies with combined market cap of over $180 billion, and all seeking to feed their ChemTech pipeline.
I would guess that nearly $10 billion of venture was secured last year from such casual meetings in a handful of coffee shops in downtown San Francisco.
Now is the time for venture to get smarter on ChemTech through a Delaware presence. My message is for funds to set up satellite offices in Wilmington. Get rich through portfolio exits that make Delaware Valley the ChemTech Valley, and as a bonus, enjoy some excellent BrewHaha! coffee.
Bryan Tracy is CEO of New Castle-based White Dog Labs, a biotechnology company founded upon synthetic biology and bio-process development, and the chairman of the Delaware Sustainable Chemistry Alliance. This article is based on an idea that was judged among the best at the Pete DuPont Freedom Foundation’s Reinventing Delaware 2018 competition in early December. Tracy can be reached a email@example.com