The Wave of Next-Generation Innovators

Medical Machines

While getting a new drug approved may take many years and several hundred million dollars, approval of a new medical device can be accomplished in as little as 18 months for correspondingly less money, says Canton. Yet many medical devices address the same vast and rapidly expanding demand for human health products as pharmaceuticals. "These are going to be huge markets, and they're perfect for entrepreneurs," Canton says.

Pinney conceived her company's automated kiosk while in line at a pharmacy. She knew from working for a pharmacy equipment company that no existing self-service kiosk had the security and flexibility to dispense several hundred unique prescriptions accurately enough to satisfy regulators. Assembling a team of engineers, she eventually solved the fiendish problem--"The word 'insane' was not used infrequently," she says--and has trials under-way at several major pharmacy chains. Asteres' highly flexible, secure vending machines may ultimately be found in a wide variety of places such as computer plants, where they could dispense costly microprocessors.

She believes that because of the difficulty of creating such a secure vending machine and the tight intellectual property protection in place, her company may be able to grow with little competition. "It'll be everywhere," Pinney says of the Asteres machine. "It'll be a standard."

Chip Check
Semiconductor entrepreneurs probably face a future of gradual innovation rather than revolutionary change. Consider BridgeLux, the Sunnyvale, California, company Liu founded in 2002 after working for several companies developing light-emitting diodes, or LEDs. These have long been used in indicator lights on automobile dashboards and elsewhere, and have more recently found their way into liquid crystal displays, reading lights and architectural lighting. Many of BridgeLux's chips go into camera-phone flashes.

LEDs use between one-tenth and one-third the energy of incandescent bulbs, making them attractive to businesses, consumers and government policymakers. They also last up to 10 years. And many people like the quality of the light emitted by LEDs as well as or better than incandescent and fluorescent lights.

As costs come down and LED efficiency rises, many business opportunities open for entrepreneurs with the right technology. "Everywhere there's an incandescent or fluorescent bulb," predicts Irwin, an early BridgeLux investor, "they'll be replaced by LEDs."

B2B 2.0, Mobile Messaging and Biotech
The top category for venture capital last year, software, includes investments in internet companies building businesses around Web 2.0, an approach relying largely on communities of users to build and provide information. "The beauty of a lot of these Web 2.0 models is [that] the customer base is creating a ton of value," says David Gardner, co-founder of Alexandria, Virginia-based The Motley Fool, an investment advisory service company. "And the company can be small and nimble as it creates a platform for [the customer base]."

Internet appeal is evident in the rich exits recently made by companies such as Skype, the internet telephony company eBay bought last year for $2.6 billion, and MySpace, the online community startup sold to News Corp. for $580 million. But Lefteroff feels many of the most promis-ing internet opportunities may lie outside the consumer space. "The internet has been a growth engine of products and services to the consumer, mainly," he says. "I don't think it's taken off on [B2B] applications like everybody thought it would a long time ago."

When it comes to telecommunications, the action is in wireless hardware. "It's all the mobile devices," Lefter-off says. "The [hardware] is where all the content [is] being delivered." Companies such as Cisco Systems, which grew from startup to goliath during the internet run-up, are being surpassed by innovators bringing broadband communications to highly portable devices. "The cycle repeats itself," Lefteroff says, "as the behemoths get out-hustled by the new generation of companies."

Nowhere have behemoths been more surprised than in biotechnology, where startups employing innovative technologies have produced new drugs and treatments that beat anything big pharmaceutical companies can offer. This is the begin-ning of biotech's real boom time, says Charly Travers, biotech analyst for The Motley Fool. "It's been a maturation over the past 25 years," says Travers. "The industry has come of age, and the decades of research and development are paying off."

The most promising biotech firms develop innovative treatments. "They've gone about drug development differently than the major pharmaceutical companies, using protein or cell-based [treatments] as opposed to traditional drugs," says Travers. "That allows them to develop something different."

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This article was originally published in the September 2006 print edition of Entrepreneur with the headline: Next-Gen Innovators.

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