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By Steve Minnihan
The CIC has aggressive goals for its portfolio of ventures, seeking a 50% survival rate for all companies that achieve the proof-of-concept (POC) phase and a 75% survivability rate for companies that reach seed-funding stage within three years – a tall order for a fund that only has $129,000 to allocate to each venture. To add to these seemingly impossible goals, the CIC expects that after 10 years, 92% of the fund's investment costs will be covered by revenue from the loan principle and interest from the ventures in the fund.
These metrics seem impossible to achieve, given that the global cleantech venture landscape sees well-financed companies fail on a weekly basis. Furthermore, cleantech ventures routinely require between $100 million and $750 million in financing before they attain a level of sustainability, or eventually fail (look to A123 Systems, Solyndra and Amyris for examples).
Not only is the CIC's business plan overly optimistic, it directly opposes the open innovation model. The open innovation model encourages competition among a large pipeline of early-stage ventures and technologies that rapidly narrows to a short list of truly innovative front runners. The model is successful when a large number of ventures are weeded out in the POC and seed rounds, leaving select high-potential ventures to compete for series A through series D funding. However, by ensuring that the majority of ventures survive through seed funding, the CIC is guaranteeing that it will have a venture pipeline bloated with sub-optimal options. As a result, the nation will have a long list of ventures in dire need of series A funding, while no investors have been identified to take the reins after the CIC burns through its money.
While the CIC's plan may miss the mark, it is still an exciting initiative, as it is one of the first programs designed to foster market-specific innovation in the developing world. The results of the initiative will provide invaluable insight into the technological needs of the sub-Saharan African market and highlight the areas where clients can partner with local tech ventures to access underpenetrated markets.
Steve Minnihan is a Senior Research Analyst for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. For more information, visit the Lux Research site.
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