You will not struggle to find advice from venture funders and advisors on investing in business, but as a “deep technology” developer you may be surpised that your idea of what investors like to invest is frequently very different to yours..
The attributes most venture capital managers are looking for are optimised to manage overall portfolio risks and (outside of silicon valley) this has some unfortunate consequences for deep-tech founders, especially since the advent of unicorn SaaS and social-media platforms. Technology-heavy start-ups are at a significant disadvantage to these types of businesses, which are abundant, cheap to start and quick to evaluate traction potential.
Larger investers favour business with these attributes for good reason: It allows them to measure progress early and conserve funds for the fastest moving business. For deep-tech founders the only thing worse than being ignored by investors is receiving an investment from investors who don’t understand your business roadmap. If you are in a deep-tech business in a portfolio of SaaS businesses then your chances of survival can be very slim. For founders with disposable businesses, who can endlessly pivot or go again, the risks are fairly mutual, but for a techie with IP, time and pre-sunk expenses in the business playing the racing game may ot be an appealing proposition.
The long term commercial risks of tech-heavy-businesses can be substantially lower than low-tech businesses because there are more economic moat options, however during the seed-stages of investment these beneifts often don’t offset the risks of nobody caring about your product, and the attrition approach invariably wins.
The general concept of minimising development costs with frugal MVPs during product-market-fit (PMF) optimisation is one all start-ups should follow, but investors often have very little domain knowledge to know if you are actually achieving this for more complex technologies. An MVP that is sufficient to prove PMF and signal longer term scalability varies hugely in deep-tech compared to subscriber-driven web-sites and SaaS.
Technology companies with non-trivial technology development (e.g. >$10M) are most common in silicon valley where the geek-2-wealth quotient in Angel and fund managers allows commercial and technical risks to be understood in the same brain. Otherwise the generalists’ quest to commit to 1-3% of their portfolio through to unicorn status will most likely penalize slower moving technology business.
Navigating Bear Traps
There are quite a few options available to tech entrepreneurs that have or need to invest more heavily in their MVPs before effectively progressing Product Market Fit (PMF).
These may include:
- Consultancy-based bootstrapping
- Short-term SaaS revenue in parallel with real MVP development.
- Blended University resources and business-oriented R&D funding.
- Sector-specific VCs and Private Equity (PE)
- Early trade investors.
- High-net-worth sector savvy angels (EIS)
Bootstrapping is a blunt instrument for tech-development. It is hard to measure how many business started by bootstrapping before receiving funding, but few go the whole journey. It is hard-work and may take many times longer to develop a business, when sales and product development are not well aligned. When sales and product development are well aligned the additional time could be time well spent in terms of validating ultimate and intermediate PMF. Bootstrapping can also work for academics beginning to spin out R&D funded projects while remaining academics. Technologists able to routinely win high-value consultancy projects can raise seed-level funds quite rapidly, but this is perhaps the most distracting approach unless quality time can be put aside for product development. It may take 3-10x longer to get to market compared to a committed investment route, but this is becoming more achievable for software projects where AI and no-code can accelerate MVP development.
Sector-specific VCs and PE companies are well established in some sectors such as bio-tech and fin-tech and provide a great way to develop at full speed where technical costs and market opportunities are understood and accounted for. Specialized Investment funds associated with university and research institutions is seeing a rebirth in popularity, though outside of the US, they are not always able to provide follow funding or market positioning support that more commercial VCs can potentially offer.