Sifted | Ian Lane 16 Feb 2022
In the words of Jurassic Park’s iconic character Dr Ian Malcom: “Life finds a way”
My four-year-old son asked for an article about dinosaurs. Sifted asked for an article about deeptech investing. As always, I’m trying to please everyone. Here goes…
One of the most iconic lines in the Jurassic Park canon is uttered by Jeff Goldblum’s mathematician Dr Ian Malcom: “Life finds a way.” In the film, he’s talking about a man-eating Tyrannosaurus, but the phrase is equally valid for deeptech founders and CEOs. “Life finds a way” for those founders who can roll with the punches and take advantage of opportunities when they arrive.
But ultimately, the deeptech founders who thrive are also those who can fundraise successfully. From my experience working with founders, I have discovered four key things they need to demonstrate to get that cash and “find a way”.
Prove you can excite and delight with an authentic fundraising presentation
An integral part of raising money and/or building any large business is exciting and inspiring others to join you on your journey — be that as an early employee, investor, customer or business partner. This can be especially challenging for deeptech companies, where many founders and CEOs are technology-focused and natural introverts.
It is a misconception that introverted founders cannot succeed, but what all successful introverts have learnt to do is inspire people. It takes time to develop that skill, so practice. Why not try engaging with your team one-to-one in the first instance. Then build from there. You can also bring people with those skills onto your team and learn from them.
Getting the timing right for raising a large round is … in my experience more art than science.
In the meantime, avoid generic fundraising deck templates. Don’t fall into the trap of making slide two of your fundraising deck an over-the-top market size slide, telling investors your total addressable market (TAM) is huge. It’s far better to tell your own story and (quickly) explain how your specific technological innovation solves an acute pain point for your customers at scale.
Like all good stories, a fundraising presentation can go deep and slightly off-script at points, but make sure it demonstrates authenticity. Avoid too many distractions and make sure it covers your key messages.
VCs speak with many entrepreneurs each week, so you might not get another chance.
Demonstrate your fundraising flexibility
Fundraising can be especially volatile in deeptech, where the exact time and cash needed to pass technical milestones is challenging to estimate. The founders who are most likely to secure our backing demonstrate a flexible fundraising approach and treat their equity as something not to be diluted lightly.
Getting the timing right for raising a large round is particularly challenging in deeptech, and in my experience is more art than science. It can depend on what stage of funding you are looking for. For example, angel investors are typically more willing to take risks than professional investors. Series A investors in the deeptech and life science ecosystems might not necessarily expect entrepreneurs to share later-stage commercial metrics which founders probably don’t even have yet.
A founder once said to me: “When you’re creating a market or highlighting a problem that most people haven’t come across, it can be a bonus. It means you do not get pigeonholed on day one and you have some time to find the right use cases for your solutions.”
Ask yourself whether more money will really accelerate things. Work out how much cash you are burning per month, and when you are going to run out of cash. How would that impact the company? You hope you don’t have to go there, but it’s better to be prepared.
Then stress test when you are likely to need that extra capital. Raising a large funding round for a “go big” go-to-market strategy before you’re crystal clear on your product’s market fit can be fatal for a deeptech company.
The same goes for throwing more engineers or scientists at a gnarly tech problem. Make sure your team is working efficiently, then think about supporting them, rather than just assuming more cooks in the kitchen will solve the problem.
Demonstrate that you have customer feedback early
Regardless of whether you are a deeptech company or not, getting early feedback from customers is crucial. The difference for a deeptech founder or CEO is that you need to balance selling a vision of your technology post-development versus the more measured attributes offered by an early prototype.
Deeptech founders or CEOs need to demonstrate that they are prepared to hustle to find a way to engage and get feedback from their customers early, whether their product has been finalised or not. Some of the deeptech startups I’ve met in the past have been nervous about getting out there and meeting their potential customers too soon; either because they don’t feel the product is ready, or because they don’t think those customers are ready to be challenged and offered a different way of doing things.
Raising a large funding round for a ‘go big’ go-to-market strategy before you’re crystal clear on your product’s market fit can be fatal for a deeptech company.
Even if your technology is not “ready” it would be a mistake not to seek out and get valuable feedback from potential users.
Don’t over or undersell the true disruptive potential of your technology but find people who are likely to use your potential product and let them have a look. Feedback and testimonials, however anecdotal, are invaluable.
Corner those early adopters in the lift if you have to. They could end up being your champions and evangelists.
Show you have an unfair advantage for recruiting talent
In the early days, many deeptech startups are likely to struggle to compete for talent pound-for-pound in the open market, particularly on cash compensation. Now more than ever deeptech founders need to be able to communicate to investors their plan to hire, motivate and retain the best talent that is worth investing in.
Different approaches may suit a founder or CEO’s personal style or a business’s values, but one approach that has been proven to work is aggregating world-leading clusters of talent in one place, like Riverlane is doing in Cambridge for quantum computing software. By aggregating global specialist talent and encouraging cross-fertilisation of ideas, you create a flywheel, attracting even more talent, and so on.
To read the full article, subscribe to Sifted.