Roman Axelrod
In 2023, global investments are grappling with a substantial 15% downturn, as reported by Crunchbase, creating a challenging backdrop for early-stage startups. The uphill battle is naturally even more severe for deep tech startups developing novel, innovative solutions for upcoming markets.
Logically, their endeavors demand significant investment, and the accompanying risk further complicates the funding equation. According to Dealroom, funding of such companies from Europe saw a notable increase in 2021, likely spurred by a sudden surge in interest in AI. However, they subsequently experienced a significant decline in 2022, and this downward trend continues into 2023.
My international deep tech recently secured a $40 million seed round from various negotiations with venture funds, business angels, and diverse investment entities. Four techniques played a pivotal role in securing this funding for our venture.
Tell a story
One of the essential components in attracting potential investors is a well-known set of documents prepared for presentations. Among them, the pitch deck takes center stage, serving as the primary tool to articulate the essence of your idea and provide a glimpse into market dynamics.
Crafting a concise and compelling pitch deck is a crucial but well-known task, and plenty of sources are ready to inspire. But in many cases, the complexity of your product may be partially conveyed through it alone.
After repeatedly facing the same questions about our product, we introduced an additional narrative format called a “product book.” While a pitch deck is a concise document, a product book dives deeper into the intricacies of your product, offering a more elaborate explanation. The questions you will be asked will likely be different from ours, but the main points of structuring this immersive guide still apply:
- Problem statement: Clearly articulate the problem and why your revolutionary product is needed.
- Possible solution: Draw a picture of how the solution may look without delving into technical details.
- Why now: Explain why it was impossible to reach the same goal before and what has changed to make it happen at this particular moment.
- Competitors: Highlight why existing solutions in the market fall short, emphasizing the unique value proposition of your product.
- Ecosystem: Demonstrate foresight by outlining the ecosystem necessary for your product’s functionality. For example, if envisioning a computer of tomorrow, address the requisite operating system and compatible applications.
- Use cases: Explore the diverse spheres where your product can be applied.
- Visuals: Present each application sequentially and vividly, utilizing all the applications.
- Components: Explain how the solution is feasible by addressing the key components that make it all possible.
- Models and metrics: Support your narrative with data, including market size, user projections, revenue forecasts, and detailed market analyses for each segment.
- Partnership: Outline strategic partnership initiatives and collaborations.
This approach may yield a substantial volume of material. However, it’s crucial to acknowledge that only some readers will delve into every detail in one sitting. Think of it as a toolkit that answers various questions that can be explored selectively. Overall, your materials should work as a constructor where each detail helps to unfold as a cohesive and engaging story, ensuring that each piece contributes to the overarching narrative of your innovative venture.
Balance executive power and science
The age-old debate of “solo entrepreneurship versus having a co-founder” continues to echo in startup circles. While “more than half of startups with an exit did so with just a single founder,” the landscape shifts in deep tech ventures.
Numerous articles argue that if you possess sufficient entrepreneurial experience, going solo can be a viable option. However, in deep tech, it becomes evident that entrepreneurial acumen alone may not be enough to answer the crucial question, “Why are you the one who can make your innovation a reality?” Unless you’re Elon Musk, proving that you alone can create something technically sophisticated can be an uphill battle. Conversely, even if you are a scientist who developed a critical technology, investors may doubt your entrepreneurial skills.
Consequently, the most viable team configuration often has two founders: an entrepreneur with a track record of successful exits and a technical co-founder, preferably a scientist with global recognition. This setup suggests a clear delineation of responsibilities, with each co-founder focusing on their area of expertise. Therefore, another critical criterion is the equality of participants — it’s not just essential for co-founders to have complementary skills; they must also have an equal opportunity to apply those skills. This can be reflected in the allocation of equity, a tangible indicator of each co-founder’s stake and influence in the venture.
Show something “real”
Ideally, something that adds significant weight to your pitch presentation is a prototype. Yet, the reality is that creating a functioning device, no matter how far from the final product, without the necessary investments is a challenging and sometimes unsolvable task.
If this isn’t currently feasible, a comprehensive roadmap is the second thing that matters. Avoid the temptation of presenting vague timelines like “a prototype in 2024, another in 2025, and fully operational by 2026, or at the latest, 2027.” Instead, delve into a detailed plan that breaks down your colossal task into manageable subtasks, each with measurable milestones. These milestones should produce tangible results, such as testing hypotheses related to specific approaches or developing a particular component at some point. Ensure your roadmap considers both successful implementation and contingency plans for when things don’t go as expected.
Moreover, any demonstration of your commitment is highly appreciated. For instance, one ace up my sleeve was hiring an accountant before securing investments or assembling a complete team. Each time, investors asked why we even need such a person when we don’t have much to calculate, and I eagerly explained that we want to keep everything functioning properly from the beginning. This proved that we would deal with the obtained investments with needed care.
Remember: You’re a product company
While it has been implicit in the discussion so far, I’m pulling this into a separate point because it often gets overlooked. In my experience, this applies most to companies founded by scientists, but it’s still the problem we all meet when answering the plethora of questions on “What exactly are you doing?” It’s easy to start excelling at showcasing the tech behind the inventions, outlining the necessary components to bring them to life, and detailing their intrinsic properties. However, more is needed to convey the product’s value to investors.
The peculiarity of deep tech lies in creating something for a market that doesn’t exist yet, and if successfully developed, this market would be vast. Consequently, numerous risks are involved, and people want to invest in something that holds substantial value.
Apart from being more understandable and eloquently presented, this directly taps into the motivation of investors. Potentially risking substantial capital, these individuals are driven to contribute to a monumental story. Otherwise, why invest tens of millions in one startup when they could fund in a dozen potentially rapidly profitable ventures? Thus, it is imperative to show that their money will go into a product that genuinely has the power to change the world and vividly describe how the world will look with it in place.
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