Venturing into the landscape of deep tech start-ups is like embarking on a thrilling expedition to discover the ‘next big thing’. With groundbreaking research and inventive business models, these start-ups are setting foot on new technological frontiers. However, their quest is far from simple. Over 80% of deep tech start-ups flag funding as a chief challenge, even when innovation is their banner.
Santhosh Reddy, the driving force behind ShakeDeal, shares his perspective: “The growth of the deep-tech ecosystem hinges critically on funding. VCs have a role to play here. They should back these audacious start-ups, which are harnessing emerging technologies to tackle novel challenges”.
Nonetheless, the path to raising funds is steep for deep tech start-ups. They need more than just a robust, patentable idea to woo investors. They need a compelling value proposition that makes them irresistible.
So, what does it take for a deep tech start-up to magnetize potential investors? Let’s dig in, shall we?
As Alan Goh, CEO at NDR Medical Technology, puts it: “VCs prefer the later stages when the risks are more manageable. The path from the seed stage to Series B or C is a tightrope walk for deep tech start-ups due to the inherent difficulties. Often, the technology is unproven and there’s no clear product-market fit, making it speculative and risky”.
Pioneering ideas in deep tech start-ups often require a gestation period, a time of exploration and refinement before reaching maturity. This inherently long journey to product marketability tends to be at odds with the expectations of VCs, who are frequently more comfortable backing enterprises with shorter paths to profitability. Therefore, deep tech start-ups may be confronted with the following challenges:
Unlike software start-ups, deep tech companies often need substantial time to develop, test, and validate their technologies. This extended timeline can make it difficult to secure early-stage funding, as many investors prefer quicker returns on their investments.
The nature of deep tech often requires significant upfront investment in research and development, specialized equipment, and highly skilled personnel. This poses a higher risk for investors, which can be a deterrent
Deep tech involves advanced and intricate disruptive technologies, which can be challenging for investors to fully grasp. It can be difficult to convince potential investors of the potential profitability of something they don’t entirely understand.
Make sure your financial model reflects the desired ambition a venture capitalist (VC) is looking for. Investors are looking for a growth plan that yields them specific cash-on-cash multiples and/or an internal rate of return (IRR). If this is not a realistic outcome of your model, it is vital to understand what is lacking in your business case.
Given that deep tech often seeks to create new markets, there can be significant uncertainty about market size, customer base, and potential profitability. This level of uncertainty can make investors hesitant.
So, how can deep tech start-ups capture investor attention? Start by demonstrating your worth by outlining the problem you are solving. Furthermore, reveal the potential of your target audience and indicate your disruptive capacity. Additionally, show evidence of meaningful progress along with future milestones.
Success in the world of deep tech start-ups hinges on a fivefold structure: a potent value proposition, a convincing pitch deck, a compelling team narrative, a detailed financial strategy and prove of business control to engage with investors.
Creating a value proposition for a deep tech start-up is more than just the presentation of an innovative idea. It is a unique, quantifiable statement offering a competitive business advantage, thereby positioning your start-up as a leader and solution provider. A persuasive value proposition is crucial in providing reasons for customers and investors to take action.
An effective pitch deck isn’t merely a business summary. It entails a visual narrative that gives investors a taste of your company’s potential. Furthermore, it should be simple, generate FOMO, create trust, demonstrate traction, and most importantly, narrate an engaging story about your deep tech start-up.
The technology that is being leveraged, will only bring you so far. Therefore, it is critical to present a solid team of experts to your potential investors. Making sure you have a balanced team with scientific and product-development, as well as business and financial credential, is what drives investors towards backing your start-up. Looking at how to build and communicate your winning team is of utmost importance.
As a deep tech start-up, an essential but often overlooked aspect is a detailed financial strategy. In the complex and capital-intensive landscape of deep tech, intensive R&D work often forms the core of operations. Because your financial strategy functions as the roadmap to market entry, it is essential to dedicate a great amount of work to financial modeling. Additionally, a solid financial model enables deep tech start-ups to quantify potential metrics such as Total Addressable Market (TAM) and projected revenue. Setting out a financial model helps to predict financial risks and outcomes. Moreover, combined with a compelling value proposition and an assessment of the market size, the real value of a start-up becomes tangible. This will make it easier to attract investors and persuade them to investing sooner rather than waiting for the venture to be completely de-risked.
Directly connected to the financial strategy is the portrayal of business control as it ensures the continuous monitoring and management of business performance. Furthermore, it shows how your start-up will stay on track, sustain profitable, and how it will interpret pricing and margins at later stages.
Together, these elements provide a comprehensive financial strategy, setting deep tech start-ups apart in the eyes of potential investors.
To resonate with potential investors is to align your value proposition, pitch deck, team, financial strategy and business control. Putting together all this indispensable information will lead to a compelling case for your funding needs. Additionally, navigating the fundraising process also requires the leveraging of insights into investor behavior to optimize your fundraising efforts, ensuring that every opportunity is maximized.
In essence, this journey is about amplifying your potential for success in the deep tech ecosystem making your groundbreaking ideas stand out, and securing the funding they deserve. Nonetheless, it remains a complex path to walk.
If you would like to explore this topics further and understand what they can mean for you, don’t hesitate to reach out to us. We are always happy to discuss your goals, so feel free to reach out to us.