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The president of a new MIT-backed venture fund explains why it incubates capital- and time-intensive tech and how it picked its first crop of startups.

There’s often a disconnect between the pace at which professional investors want to recoup their money and the long lead time that technology companies in sectors like biotechnology and energy need to generate consistent revenue.

The Engine, a new venture capital fund based in Cambridge, Massachusetts, aims to bridge that gap by investing in breakthrough technologies that require extensive time and funding. Its first round of investments, which it announced on Tuesday, consists of seven startups in sectors including aerospace, advanced materials, genetic engineering, and renewable energy.

Katie Rae, the president, and managing partner says the fund will provide its startups with long-term capital, lab equipment, expert lectures, and a network of advisors. She talked to MIT Technology Review about the challenges of investing in the capital- and time-intensive technologies, why the Engine represents a unique venture capital model, and how she believes the strategy will pay off for investors.

How are you defining “tough tech,” and why don’t traditional VC firms invest in it?

We’re looking at semiconductors, advanced materials, energy, AI, biotech, and the Internet of Things. We’re also interested in “deep software,” which we define as software that takes multiple years to develop and features true algorithms. We won’t be funding consumer apps—we don’t view that as a tough tech.

Historically, VCs have invested in some areas of tough technology, such as pharmaceuticals. That’s a really hard area with very long time frames and many failures, but if you win, you have 12 years to monetize those investments. That’s how that system works, and it’s attracted a lot of capital. The Engine is focused on other tough tech areas where it’s less obvious how [the system] should work, but these areas are incredibly important to society.

Who came up with the idea to focus on those sectors?

It basically came from MIT. They noticed that a lot of investments were being made in things that take less time in the beginning while some of the greatest inventions were lying on the lab floor, so to speak. There was this sense of “Let’s roll up our sleeves and try to fix this problem since we see it.”

You could say the Engine was founded by MIT or built by MIT. We are a for-profit, public-benefit corporation and a fund that’s separate from MIT, but two of my eight board members are from MIT.

News Source:  Technology Review

Last modified on Monday, 25 September 2017