Developmental Risk – The Valley of Death

A recent BioFuels Digest article addresses this critical issue and focuses on New Energy Risk (http://www.newenergyrisk.com) who are offering insurance to cover investor risk.  It would be good to see this approach more widely used.

The BioFuels Digest article refers, as many do, to the ‘Valley of Death’ – hardly a phrase to imbue investors with confidence.  (http://www.biofuelsdigest.com/bdigest/2017/12/11/i-dont-like-losses-sport-the-invention-of-bioeconomy-risk-insurance-and-fulcrum-bioenergys-leap-to-scale/)

The Valley of Death is the costly and risky path that developers have to navigate as they turn a proposition, that has been shown to be technically viable, into a commercial reality – i.e. commercialisation.  Broadly it is called the Valley of Death because so many fail; and failure can be attributed to a great many reasons.

A very common one is underestimating the cost and time required: developers will predict exciting early returns to early investors and cut corners in trying to get to market.  They may be lucky but frequently aren’t.

Another unfortunate cause is that developers have an idea, quite probably based on sound research or test results, and raise funding (be that investors or grants) to develop a process.  However they then find that the process doesn’t perform as projected, and may diverge substantially, which undermines the business case.  There is a risk that all will bury heads in the sand and obfuscate the situation whilst continuing to raise funding. Ironically an objective review of the actual performance of the process may well lead to alternative opportunities, and there are enlightened developers that recognise this.

There are many other potential risks: poorly designed or proven sub-processes; political risk (especially where the business case depends on subsidies); reliance on key technical skills; competing solutions….. Understandably, therefore, any due diligence has to be detailed as these risks vary enormously.

With neither luck, adequate finance nor risk mitigation the sad and unfortunate outcome is that technologies and projects that genuinely have a future get lost and we all lose. Objective and effective risk assessment and mitigation is clearly a way to both reduce investment losses, but also to minimise the loss of potentially valuable technical developments.

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