Building Success in Industrial Biotech (Synthetic Biology): Market and Business Model Strategies

One of the most exciting parts of our job is getting questions from people who are just starting the building process. In industrial biotech (i.e. synthetic biology), many questions are about unit economics and scale, but another key question is around the commercial side: "What chemical or material market should we pursue?" This is a tough and crucial question because getting it right can set up a company for success. Here are a few thoughts:

1. Focus on the problem first: Identify a significant problem in the chemicals and materials world (or any other area) worth solving.
2. Listen to the customer: Engage with potential customers to understand their needs, wants, and the problems they are willing to pay to solve. Understand what they value and what they won't necessarily pay for.
3. Recognize the challenges: Building an industrial biotech company is difficult due to both technical risk (similar to biotech companies) and commercial risk (i.e., even if you overcome technical challenges, will there be market excitement?).
4. Competitive factors: The trifecta of industrial biotech is price, performance, and sustainability. It's challenging to ask for a “green premium” without higher performance, meaning you usually need to compete on cost, which can be difficult given the high price of biomanufacturing compared to petroleum-derived inputs.
5. Synthetic biology isn’t always the answer: Synthetic biology may not be the answer for every problem, product, or market – and that’s ok! However, it can solve many high-value problems, and we should focus on those.

When addressing the question, "What chemical or material market should we pursue?" from an investor’s perspective, consider the following key questions:

• Market existence: Is there already a market with buyers? Or do you need to create that market?
• Identifying buyers: Who are these buyers? Do they have urgency and deep pockets?
• Product replacement: Can the product directly replace something already in use? If so, is it identical on a molecular level or just functionally equivalent?

As we explore these questions, the next natural step is to consider the business model: "What business model should we use to commercialize?" As a firm dedicated to building a future powered by science, we think about this a lot. Companies biomanufacturing chemicals and materials show considerable diversity in their structure and operations, shaped by their unique business models, strategic approaches, and market focus. To cut through the noise, here’s a framework that I use to simplify products/markets in the industrial biotech world:

Category I: “Established Markets, Established Products” - The fastest strategy for most early-stage chemical companies involves starting with products that have molecular identities identical to established counterparts. This ensures scalability, technology validation, and streamlined processes. Bio-based drop-in chemicals in Category I offer compatibility with existing industrial processes, facilitating a transition to sustainable practices without significant disruptions. Examples of this are Geno ’s (formerly known as Genomatica) bio-based 1,4-butanediol and, in Breakout Ventures ' portfolio, Checkerspot ’s bio-based polyurethane.

Category II: “Innovating in Set Supply Chains” - These are chemicals and materials that are not molecularly identical to incumbents but are functionally equivalent. While these products face challenges such as market adoption, they also provide opportunities to capture market share from incumbents in established markets. I call this category "Act II" because it's a good secondary market for companies to enter after finding success in the first category. These materials can offer novel characteristics, enhancing end-of-life/circularity and performance options. For example, ZymoChem , another company in Breakout Ventures’ portfolio, is developing a bio-based SAP (super absorbent polymer) for use in diapers, feminine care products, and agricultural applications. Another example is NatureWorks ' bio-based polylactic acid (PLA), which replaces petroleum-based plastics like PET.

Category III: “High Risk, High Reward” - This category involves creating new chemicals and materials and launching them into new markets. Success here can lead to market domination. Zymergen , now part of Ginkgo Bioworks, Inc. , pursued this path by creating a biobased polymer film for electronics. However, this approach comes with significant challenges and setbacks due to the complexities of operating in uncharted territory. A major challenge is the absence of a set supply chain, making its creation a difficult task.

Category IV: “Price and Sustainability Opening Doors” - This category involves biomanufacturing previously known, molecularly identical products to enter new and emerging markets. Since the product already exists in different markets, arguing for superior performance is difficult, and there is a high risk of commoditization. The bar is very high here, and being "just green" is usually not enough – you must compete on price. For example, a company biomanufacturing fat from animals for a cultivated meat product faces a clear sustainability angle but must match or undercut the typical cost of animal fat to succeed. If the biomanufactured fat can be sold for the same or less than animal-based fat, there is a clearer path to revenue.

There isn't a single business model that works for all synthetic biology companies because, although they are grouped as "synbio companies" due to their use of synthetic biology tools, they create a wide range of products. Their focus is on selling the products they make, not the synthetic biology itself. For instance, a company using synthetic biology to produce citric acid or acetone operates in the chemicals industry, while a company making bioplastics falls under the materials or plastics industry. Despite both utilizing synthetic biology, they serve completely different end markets.

Although this additional layer of non-standard playbook or business model (versus the synbio therapeutics world) adds to the difficulty and risk of building a successful company, it’s also what makes it fun and exciting. There is more opportunity for creativity, both in terms of business model and execution, to push towards a bio-based economy and revolutionize the world.