The Catalyst Review - March 2015 - 1

INDUSTRY RUMORS

The views expressed are those of the individual author and may not reflect those of The Catalyst Review or TCGR.

Why Start-ups Fail
By Joseph Porcelli, PhD
I spent my industrial career working for and eventually leading small companies (75 to 600 people) that were developers of novel
chemical processes and catalysts. When I retired at the end of 2000 and started my own consulting firm, I sought to focus my practice
on helping organizations (public companies, governmental research organizations and startups) who were seeking to develop and
commercialize new chemical catalysts and process technologies. This has been the cornerstone of my rather successful practice of
the last 14 years.
My first exposure to a startup company came when I was approached by a venture group with the assignment of reviewing the
business and research plans of a startup company that they were considering investing in. The startup company was based on a
concept of a university professor who claimed to have developed a novel way of making a series of heterogeneous catalysts that
could be utilized in the existing plants for a number of major chemical processes (so-called "drop-in" catalysts). The business plan,
developed with the CEO of the startup company, showed rapid growth of sales of the first catalyst, followed within a year or so by
commercialization of a second catalyst, and then shortly after by a third, etc. This would amount to a very large and rapidly growing
projected stream of earnings. As a result, the spreadsheet of cash flows and other financials showed a very high net present value,
and therefore the inventor's company was seeking tens of millions of dollars of investment to cover expenses for the first few years.
The first catalyst proposed to be commercialized was for a process that I was
very familiar with, and the early lab results of catalyst testing had yielded much
higher efficiencies than any commercial catalyst on the market. Moreover, the
invention, which would be applied to all of the new catalysts proposed by the
inventor, involved producing a novel catalyst support, with materials never
before used for these catalysts. While there were some results from small scale
testing of a powdered catalyst for the first application, no data were presented
to justify the improvements forecast for the other catalysts included in the
business plan.
From my direct experience, the catalysts used in the first application often
gave unusually good results in the laboratory, if tested as powdered catalyst
at atmospheric pressure. However, when tested at elevated pressures (required for the commercial process) and with particulate
catalysts, the performance was usually substantially poorer. I explained this to the venture people and the startup company, and said
that since the support was so unique, and that the lab results were so good, the work should continue, but with a high priority for
producing samples of particulate support and catalyst that could be tested at commercial operating conditions, including elevated
pressure. I recommended that the business plan should be modified to de-emphasize the performance forecasts for the other
catalyst applications, due to lack of data.
I do not know whether the business plan was modified, but after a short while the venture group decided to pass on the opportunity.
However, they asked me if I would speak to another venture group, and I agreed, with their and the startup company's approval, to
discuss confidential information with the next venture group. Unfortunately, this second venture group also decided to pass.
I kept communication with the startup's CEO, as I still felt there could be something to the professor's novel process for producing
the catalyst carrier and the catalyst. I had no contract with the startup company, but continued to answer their questions and
advise them on ways to get their catalyst tested once they had produced catalyst in particulate form. Unfortunately, they pursued
a number of avenues without my participation, since they did not have enough money to pay me, and to my knowledge they have
never succeeded in moving to the next stage. In the midst of this, the professor passed away and I still wonder whether there was
something to his invention. However, there was no way with the data they had and my specific knowledge in the area that I could
in good conscience give a more positive interpretation to their sales projections and advise either venture group to invest the
multimillion dollar valuation. I did urge them to consider making a very small (one hundred thousand dollar) investment to allow
scale up and testing of a particulate catalyst, but I was unsuccessful in persuading either one.
Continued on page 8

The Catalyst Review

March 2015

The Catalyst Review - March 2015

Table of Contents for the Digital Edition of The Catalyst Review - March 2015