In 2023, global investments are dealing with a significant drop of 15%, as reported Crunchbase, creating a challenging context for startups in their early stages. Naturally, the uphill battle is even tougher for deep tech startups developing novel and innovative solutions for upcoming markets.
Logically, their efforts require a significant investment and the risk involved further complicates the financing equation. According Deal room, funding for such companies from Europe saw a notable increase in 2021, likely driven by a sudden surge in interest in AI. However, they subsequently experienced a significant decline in 2022, and this downward trend continues into 2023.
There are four techniques that play a key role in securing financing for our company.
Tell a story
One of the essential components to attract investors potentials is a well-known set of documents prepared for presentations. Among them, the pitch deck takes center stage as it serves as the primary tool to articulate the essence of the idea and offer a view of the market dynamics.
Crafting a concise and compelling presentation is a crucial but well-known task, and there are many sources ready to inspire. But in many cases, the complexity of the product can only be partially transmitted through it.
Unless you're Elon Musk, proving that only you can create something technically sophisticated can be an uphill battle.
It is common to repeatedly face the same questions about the product, so an additional narrative format called a “product book” may be interesting. While a presentation is a concise document, a product book delves into the intricacies of the product and offers a more elaborate explanation. The questions you will be asked will likely be different from person to person, so the main valid structuring points of this immersive guide should be:
- Problem Statement: Clearly articulate the problem and why this revolutionary product is needed.
- Possible solution: A drawing of what the solution could look like without delving into technical details.
- Because right now: Why it was impossible to achieve the same goal before and what has changed to make this happen at this particular time.
- Competitors: Highlight why existing solutions on the market fall short, emphasizing the unique value proposition of the product presented.
- Ecosystem: Demonstrate foresight by describing the ecosystem necessary for product functionality. For example, if you imagine a computer of tomorrow, address the required operating system and supported applications.
- Use cases: Explore the various spheres where the product can be applied.
- Images: Present each application sequentially and vividly, using all applications.
- Components: Explain how the solution is feasible by addressing the key components that make it possible.
- Models and metrics: Support the narrative with data, including market size, user projections, revenue forecasts, and detailed market analysis for each segment.
- Partnerships: Describe strategic partnership initiatives and collaborations.
This approach can produce a substantial volume of material. However, it is crucial to recognize that only some readers will delve into every detail in one go. Think of it as a toolkit that answers several questions that can be explored selectively. Overall, your materials should function as a builder where every detail helps develop as a cohesive and engaging story, ensuring that each piece contributes to the overall narrative of your innovative company.
Balance execution and science
The age-old debate between “solo entrepreneurship versus having a co-founder” continues to resonate in startup circles. Although “more than half of the startups that came out did so with a single founder,” the panorama changes in deep technology companies.
Numerous articles argue that if you have enough business experience, going solo can be a viable option. However, in the deep tech space, it is clear that business 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 only you 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 business skills.
Consequently, the most viable team configuration typically has two founders: an entrepreneur with a track record of successful exits and a technical co-founder, preferably a globally recognized scientist. This setup suggests a clear delineation of responsibilities, with each co-founder focusing on his or her area of expertise. Therefore, another critical criterion is the equality of participants: it is not only essential that co-founders have complementary skills; They must also have equal opportunities to apply those skills. This can be reflected in capital allocation, a tangible indicator of each co-founder's involvement and influence in the company.
Show something "real"
Ideally, something that adds significant weight to your presentation is a prototype. However, the reality is that creating a working device, no matter how far from the final product, without the necessary investments is a challenging and sometimes unsolvable task.
If this is not currently feasible, the second thing that matters is a comprehensive roadmap. Avoid the temptation to present vague timelines such as “one prototype in 2024, another in 2025, and fully operational in 2026 or, at the latest, 2027.” Instead, drill down into a detailed plan that breaks down your gargantuan 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. Make sure your roadmap considers both successful implementation and contingency plans for when things don't go as expected.
Additionally, any demonstration of your commitment will be greatly appreciated. For example, one ace up the sleeve was to hire an accountant before securing investments or building a full team. If investors ask why he needs such a person when there is "not much to calculate," he enthusiastically explains that he wants everything to work correctly from the beginning. This shows that he wants to handle the investments obtained with the necessary care.
Remember: it's a product company
While it has been implied until now, I will leave it as a separate point because it is often overlooked. In my experience, this applies more to companies founded by scientists, but it's still the problem we all encounter when answering the large number of questions about "What exactly are you doing?" It's easy to start standing out by showcasing the technology behind inventions, describing the components needed to bring them to life, and detailing their intrinsic properties. However, more is needed to convey the value of the product to investors.
The peculiarity of deep technology lies in creating something for a market that does not exist yet and if developed successfully, this market would be huge. Consequently, there are numerous risks and people want to invest in something that has substantial value.
In addition to being more understandable and presented more eloquently, this directly taps into investor motivation. These individuals, potentially risking substantial capital, are forced to contribute to a monumental story. Otherwise, why invest tens of millions in one startup when you could fund a dozen potentially profitable companies? Therefore, it is imperative to demonstrate that your money will go towards a product that truly has the power to change the world and vividly describe what the world will be like once implemented.
