Traders warn Deep Tech founders about these 12 pitfalls

Firstly, what’s Deep Tech versus Tech or expertise enabled? Typically Deep Tech is thought to be a science primarily based startup, generally it’s thought to be disruptive to the established order, generally it’s regarded simply as sluggish and exhausting, capital intensive, with a protracted ROI horizon. Or as one thing that buyers aren’t prepared for but. However the amount of cash going into Deep Tech investing is growing, and the pool of Deep Tech buyers is growing. One of many key factors I made in a latest GIST Tech Join Deep Tech panel is that almost all buyers, together with essentially the most profitable Tech buyers will not be in a position to make investments significantly in Deep Tech startups as a result of they lack the technical consciousness and depth of commercialization expertise particular to a Deep Tech startup. GIST or the International Innovation in Science and Know-how Community is the US State Division program to encourage and assist world entrepreneurship.

In actual fact, should you do the analysis into the failure charges of some excessive profile Deep Tech startups, plainly sure massive funds have a a lot greater failure charge than others, so at greatest, their progress pathway is just not suitable with Deep Tech startups. At worst, they’re merely cherry selecting some Deep Tech startups for his or her publicity worth. Startups ought to all the time do their due diligence on buyers and the way they deal with founders, significantly founders with comparable startups.

Universities play an enormous position in derisking, funding and commercializing Deep Tech startups however there may be nonetheless a ‘Valley of Dying’ within the switch phases. And a Deep Tech startup can come out of any college however not all universities have actual commercialization expertise and a supportive startup ecosystem. Silicon Valley Robotics and Circuit Launch have offered a ‘midway home’ for lots of Deep Tech startups by offering inexpensive workspace with prototyping amenities and a startup ecosystem. However the first query I all the time ask entrepreneurs is that if they’ve leveraged each benefit that their college connections can present. Universities can present enormously discounted lab area and testing amenities, additionally connections to scientific consultants in most any subject who will be leveraged as consultants and advisors.

The SBIR program, or the American Seed Fund, which is a few $4 billion non dilutive funding from the federal authorities within the type of R&D {dollars}, contracts and grants to small companies and startups offers you the chance to derisk plenty of the expertise very early on. You’ll be able to actually do an in depth scope and scan, after which couple that with the iCorps program and also you get the chance to do deeper dives into buyer discovery, to essentially perceive if that is one thing that’s only a good to have, or is it an actual will need to have. Though the SBIR program is American primarily based program, plenty of the international locations all over the world have been creating comparable ones. An excellent instance of that’s EU Horizon 2020 grants.

Grants catalyze and do a specific amount to de-risk expertise, extending the runway by way of non-dilutive funding and by making a expertise roadmap which validates the science as vital. Company enterprise funds or strategic buyers additionally play an vital position, alongside non-dilutive grant funding. Not solely can they be a test, they could be a buyer, they are often an advisor and a associate within the early prototype to fabricate phases. The very best strategic buyers play an enormous position in serving to Deep Tech startups succeed, as a result of they want the expertise you’re creating.

Right here’s a set of ideas for Deep Tech founders gathered from the GIST TechConnect Panel on Deep Tech with Nakia Melecio from Georgia Tech, Nhi Lê from WARF, Andra Keay from SVR and The Robotics Hub, G. Nagesh Rao from US Dept of State. Additionally ideas from Six crimson flags that ship buyers working the opposite approach by Sara Bloomberg, San Francisco Enterprise Instances. Quotes not attributed to different buyers are my ideas or recollections from the occasion.

Accelerator hopping

“If you begin going from accelerator to accelerator in search of funding, you then’re doing it unsuitable. Accelerators solely fund you to take part of their program. Their program and mentors are the true worth.” Nhi Lê, WARF Accelerator

You additionally dilute your fairness and develop into uninvestable.

Taking the primary test, giving freely an excessive amount of fairness in early rounds

At all times negotiate phrases. However don’t focus solely on the financials and on the threat of throwing away the much less apparent worth {that a} good investor can deliver to you.

“Deep Tech startups might take longer to get to income than a standard tech startup, so it’s good to take into consideration grant funding as a income, and any contracts that aid you develop a part of your expertise.” Nhi Lê, WARF Accelerator

Not budgeting for IP protection

“Corporations usually say that they’re investable as a result of they’ve a patent, however they haven’t budgeted something to defend it. Your IP is just nearly as good as your potential to defend it. Universities play an awesome position in defending and defending IP that they’ve licensed.” Nhi Lê, WARF Accelerator

Not having a plan for the entire journey

“If you go into your first funding assembly, you have to be fascinated with the long run journey, all the best way to exit. It’s by no means going to be only one test, you’re rising an organization.” G. Nagesh Rao, US Dept of Commerce

Not doing diligence on buyers or accelerators

“Deep tech, particularly at the vanguard, is normally costly, so it’s important to search out the precise path to commercialization at scale. Good buyers velocity up the method and decrease your burn charge.” Michael Harries, The Robotics Hub

Have your potential buyers introduced comparable startups to market? Having that have could make the commercialization course of a lot sooner, and it’s important to handle your assets successfully. Fixed fundraising takes founders away from product improvement. Additionally, do your buyers have affected person capital? Or are they needing a speedy return on funding for his or her present fund? Don’t assume {that a} well-known investor or accelerator ensures you success, and even discovering an excellent match with their course of.

Ignorance of fundamental financials

Overreaching on stock, being unable to fulfill money owed in a well timed vogue, structuring the corporate poorly, all these items are cited by founders who’ve struggled.

Buyer discovery by no means stops

“Deal with the shopper and fall in love with the shopper’s downside and also you’ll by no means go unsuitable.” Nakia Melecio, Georgia Tech

Do it from the beginning, and by no means cease going to market. You’ll be able to’t simply outsource what you are promoting improvement to individuals with higher gross sales expertise, not till you understand that ache factors you’re fixing on your prospects and you’ll write the scripts for them.

Not doing the analysis, or utilizing self-importance metrics as an alternative of technique

“If a founder is estimating their market within the trillions of {dollars} they’ve both not completed the analysis or they’re simply delusional.” Swati Chaturvedi, Co-Founding father of PropelX

“Founders who’re centered solely on self-importance metrics (progress charge and valuation) and never attuned to growing sound enterprise fashions are a crimson flag.” Anurag Chandra, Fort Ross Ventures

Attempting to skip steps

“One other crimson flag is attempting to FOMO you into transferring shortly. Not solely is it unhealthy for arriving at a sound funding resolution, it’s a sign of how they do enterprise with prospects and companions (ie. not invested in constructing long run relationships). Anurag Chandra, Fort Ross Ventures

Misrepresentation or withholding information

“Traders can inform when you find yourself avoiding particulars like precise product or buyer improvement standing and it could imply you’re misrepresenting what you are promoting.” Caroline Winnett, Govt Director of Berkeley SkyDeck

Cofounder points, not having a transparent chief or not being open to suggestions

“There must be settlement on who’s appearing as CEO, and everybody must be aligned on that. One other crimson flag is just not being open to recommendation from consultants.” Caroline Winnett, Govt Director of Berkeley SkyDeck

Being disorganized

“Founders needs to be aware of requests for extra info. It reveals if they’re organized and within the mindset to do a deal versus spin cycles.” Shruti Gandhi of Array Ventures

tags: c-Enterprise-Finance