Innovations in fields like energy and transportation often take time - and extra support - to develop. The Engine at MIT is helping them make the leap from the lab to the marketplace. For example, liquid separation wouldn't top most people's lists of world-changing technologies. Yet every day, US companies tease apart chemicals in billions of reactions to make food and beverages, drugs, and fuel. This process is so common in industrial settings that it uses as much energy as all US cars and trucks combined. "It represents 12 percent of all US energy consumption," says Shreya Dave, cofounder of the year-old startup Via Separations. "It's 80 percent of the cost of making a chemical, 75 percent of the cost of making a pharmaceutical."

That's largely because separation technology has relied upon a wasteful and time-consuming procedure that's hardly changed in 100 years: using heat to boil and condense chemicals into a pure form. Filtering liquids with a membrane is more efficient, but it's difficult to find one stable enough to avoid reacting with the chemicals it's supposed to filter, and fine enough to filter nanoparticles. While doing her doctoral research on water desalination in Jeffrey Grossman's lab at MIT, Dave helped develop a membrane that's both pliable and chemically stable. By precisely tailoring the structure, Dave and her colleagues have optimized the membrane to filter chemicals in the sweet spot between one and 100 nanometers, as many industrial processes require. Dave hopes that their membranes can transform a large sector of our economy and our environment -and potentially provide a bonanza for investors as well.

That's the kind of idea MIT had in mind in 2016 when it launched The Engine, a new venture fund-slash-accelerator-slash-laboratory to help early-stage startups negotiate the chasm between a promising technology in the lab and a world-changing business. "We go after things that we think can have huge impact in the world, and help them shorten their path to market," says CEO and managing partner Katie Rae. The Engine invests in what it calls "tough tech" startups - those that require expensive specialized equipment or longer time frames than is targeted by most venture capital funds (pay off in 10 years or less). While it pursues big ideas that might take more time, Rae adds, "the trade-off is that the markets have to be enormous."

Located behind an unassuming storefront in Cambridge's Central Square, The Engine's 26,000-square-foot headquarters is home to seven startups. The Engine provides resources to help these startups develop their technologies, with investments to date of between $500,000 and $2 million, and use of dedicated office space and shared lab and fabrication space for as long as they need it. Rae and her team also offer business advice and connections to help them find customers.

With this support, Dave has figured out how to make their membranes 25 times larger over the past year. But the bigger challenge is to create something reliable enough to use in a chemical plant or petroleum refinery. In the meantime, Rae and her team have helped Via Separations approach customers in the world of food production. "We are getting our prototypes in the hands of customers so we don't spend the next two years developing the perfect membrane that doesn't solve any of their problems," says Dave.

Investors who fund these kinds of technologies might have to wait longer to see a return, but that doesn't mean they're performing acts of charity. Joe Lassiter, a Harvard Business School senior fellow who has studied alternative models of venture capital, thinks the payoffs could be sizeable. Because many of these ventures have had trouble getting funding in the past, they represent "untapped reservoirs of solutions," as he puts it. "Many of them are to some extent undervalued."

Engine CEO Rae got interested in developing early-stage ventures while working at Microsoft Startup Labs in Kendall Square. "In late-stage investments, you are looking at numbers and scaling," she says. In early-stage investments, by contrast, your money goes to developing the product itself. She left Microsoft in 2010 to run the Boston office of Techstars, an accelerator program that gives startups $120,000 and three months of mentorship. Later, she raised her own early-stage fund, Project 11 Ventures, with colleagues. Then MIT called. The Institute put up $25 million to seed the fund, and Rae helped raise $200 million overall with contributions from private investors and large family funds.

The trick to investing in unproven technologies, Rae says, is to methodically remove as much risk as possible. First, she says, "there has to be an entrepreneurial team that believes this is their life mission." Second, she looks for an idea that has the potential to create a huge impact. And third, she looks for evidence the company has a clear plan. "They say, we can do any of these eight things, and we chose the third one, and here's why. They can tell the logical story of why and how it gets them systematically from A to B," Rae says. "If it's the right team, the right plan, and it seems to be on the right path, then we start to get super excited."

Suono Bio cofounder Carl Schoellhammer says that at MIT's Engine, his employees can build the metal shell and electronic guts for the devices that use ultrasound to deliver medicines to targeted tissues. The researchers can take their creations next door to a wet laboratory, where they can test them on pig intestines to judge how well they work. Down the hall is a machine shop full of every tool and piece of hardware imaginable, as well as machines for 3-D printing. Having those facilities readily available has accelerated the development process, says Schoellhammer. Without them, he would have had to sign a contract with a manufacturer to work on the device, potentially waiting weeks for each small change, or paid thousands of dollars to rent and furnish a lab that fit the startup's needs. "To have all of this under one roof is just incredible," he says. Thanks to that rapid prototyping and testing, the company is planning to submit the technology for regulatory approval by the end of 2018. "That wouldn't have been possible outside of this space," he says.

Other business incubators provide elements of what The Engine offers, says Lassiter. Accelerator programs like Y Combinator and Techstars have funds to provide capital, as well as mentoring, but they are time-limited and don't have specialized facilities for research and development. "When you are working with hardware, $100,000 in funding and three months of time are not sufficient," Lassiter says. On the other end of the scale, Harvard's Innovation Lab has a wet lab but no fund. Breakthrough Energy Ventures, an effort led by Bill Gates to develop new energy technologies, has a huge fund and works with various labs to provide facilities to startups, but it puts less emphasis on profitability.

While six of the seven companies funded so far have a connection to MIT, the eventual plan is to draw startups from Boston University, Harvard, Northeastern, UMass, and other area universities as well, with a goal for the first fund of supporting 50 to 60 companies in various stages at any one time. The Engine won't put an official time limit on how long it will allow each venture to stay in its Cambridge facilities, but Rae guesses that companies will typically stay for a year or two before transitioning to larger spaces. At the same time, The Engine is already starting to think about how to expand its space in and around Kendall Square as more companies come on board.

Question 1

Your textbook suggests that incubators can provide important services to early-stage entrepreneurial start-ups experiencing the "Valley of Death." Those services may include

Funding

Physical space, including laboratories

Business Services

Mentoring and networking

All of the above

Question 2

Upon what segments and special needs does the MIT Engine focus?

Huge impact projects

Projects that usually require specialized equipment

Projects that usually require longer time frames to develop

Innovations in fields requiring extra support like transportation and energy

All of the above

Question 3

Why has MIT chosen a focused approach such as an incubator over other focused approaches (e.g., new venture group) or other dispersed approaches to Corporate Entrepreneurship?

MIT has had good luck with a dispersed approach, using review boards to fund entrepreneurial ideas

MIT offers employees a dispersed approach that permits them to spend 10% of their time on ideas that improve internal processes of address customer problems

Within MIT, project champions have been successful identifying support and funding

The chosen segment appears to require the extra support offered by an incubator.

None of the above

Question 4

One example of how MIT's Engine customizes it value chain to the chosen segment is

Utilizing real options theory to manage risk

Having a new venture committee report to the CEO

Providing various shared lab and fabrication facilities which allow for rapid prototyping and variable (by the hour) development costs

Relying upon entrepreneurial orientation to deliver new projects

Pursuing incremental rather than radical innovation

Question 5

Advantages over other incubators that the MIT Engine has might include

Because projects in their chosen segment take a longer period of time to generate returns, they have trouble finding investors and, therefore, may be undervalued.

Start-ups at the Engine have access to virtually every lab at MIT, a prestigious institution.

Start-ups may pull graduate students from labs at MIT, a prestigious institution.

Because of the high density of universities in the Boston area, the Engine is counting upon pulling start-ups from other local universities.

All of the above

Question 6

Finally, the article implies that MIT's Engine has an advantage over incumbent competitors such as Y Combinator, Tech Stars, Harvard's Innovation Lab, and Breakthrough Energy Ventures by

Combining a venture fund, accelerator, and laboratory in one organization and at one location

Forming alliances with prominent tech corporations (e.g., Google, Microsoft)

Forming alliances with Y Combinator and TechStars

Recruiting prominent faculty to function as CEOs for member firms.

MIT's Engine has no advantage.