Most entrepreneurs would be thrilled if their startup was acquired for $90 million after seven years.
From that perspective, you can view the following announcement as a triumph: Dyson, the renowned home appliance manufacturer, has acquired Sakti3, a Michigan-based startup hoping to commercialize a solid-state battery technology, for $90 million in cash.
The deal, reported yesterday by Steve LeVine in Quartz, can be celebrated as a triumphant exit for a startup lauded earlier this year as one of the smartest 50 companies in the world by MIT Technology Review.
To be sure, you also could view the deal skeptically. You could point out that $90 million, massive though it is to 99 percent of the universe, is not exactly an astronomical sum for a startup that had raised $30 million as of 2014, according to Fortune. On top of that $30 million, Sakti3 raised another $15 million earlier this year from Dyson, in advance of the acquisition, according to the Wall Street Journal.
But here's the real reason the deal is a triumph: As Fortune's Brian Dumaine points out, Sakti3, under the leadership of CEO Ann Marie Sastry, remained afloat on funding while other ballyhooed battery startups of the present era--namely A123 and Ener1--"ended up bankrupt and sold off to the Chinese and Russians, respectively."
In most industries, you don't earn respect by merely staying alive on capital. Your innovations aren't innovations until they're real products that attract customers. But when it comes to game-changing hardware, these things seldom happen overnight.
"It takes a decade to invent a new hardware technology," says Vladimir Bulović, MIT's Dean of Innovation. Bulović is also a serial entrepreneur with more than 85 patents. "In some cases it takes even longer." He points to examples as diverse as the zipper, velcro, high-powered microscopes, and the OLED screen displays on Samsung Galaxy phones.
In each case, the hardware innovation reached the hands of customers or users more than 10 years after the initial technology was invented. The Ziploc bag is another example.
Why do paradigm-shifting hardware innovations take such a long time to reach the marketplace? For one thing, hardware requires the making of actual objects. And if the objects are game-changers, then the manufacturer isn't only making the object: Usually the manufacturer also has to make the machines that make the object.
By contrast, you can build, test, launch, and sell a new software app in a six-month span. With hardware, the initial building and testing are a significant, cash-draining challenge.
And when it comes to selling, hardware makers face the same challenges anyone with a never-seen-before product faces: They are often subverting or reinventing traditional categories. Even after you've identified potential customers, you have to explain why the technology is worth their investment, implementation, and even--in some cases--a cultural change.
This is why Sakti3 deserves a great deal of credit not only for staying afloat, but also for doing so with investors who grasped its capabilities. The best evidence of this is Dyson itself. Founder James Dyson is, avowedly, no stranger to the lengthy trials of hardware startups. It took him 15 years and 5,127 attempts to perfect his flagship vacuum.
That fact alone makes him an ideal acquirer. More importantly, his company's potential use of the batteries validates the technology as a useful innovation, rather than just a cool high-tech device with no market. Shortly after his company's $15-million investment in Sakti3 earlier this year, Dyson told the Wall Street Journal that the battery technology would appear in forthcoming Dyson products.
And it's not as if Dyson is alone in thinking solid-state batteries could be useful in products. As Levine points out in Quartz, Dyson's acquisition comes only weeks after Bosch, the German maker of kitchen appliances, acquired Seeo, another solid-state battery startup.
Sastry has always been smart about positioning Sakti3's capabilities with investors who grasped the innovation potential of the batteries. Long before Dyson came along, Sastry--a former engineering professor at the University of Michigan with more than 70 patents--was cannily courting automakers. In fact, one of the company's first investments was $2.5 million from the Michigan Economic Development Counsel. At the time, the MEDC framed the move as an investment in a startup working on a lithium-ion battery manufacturing process for the automotive industry.
"Companies like us need to work extremely fast," Sastry told MLive at the time. "We're marching very fast toward production and what's clear to us is that those contracts will come if we're able to meet automotive standards."
In 2009, General Motors invested $3.2 million in Sakti3. "The technology that Sakti3 is working on is very innovative," Jon Lauckner, president of G.M. Ventures, told the New York Times back then. "It has the potential of being a real game changer going forward."
The point here is not whether Sakti3's batteries will eventually be used in cars or vacuums or in other products. It's that Sastry smartly worked with investors who understood, as only potential customers could, the long-term potential of her technology.
By doing so, she kept a hardware startup afloat for more than seven years, until it reached liquidity through a strategic acquisition by an ideal partner.
That has never been--and never will be--an easy feat for a founder.