The Valley of Death and how to traverse it

June 10, 2022

Do you have ambitions to create or develop a novel, groundbreaking technology? If so, it is highly likely you will need significant investment and encounter the Valley of Death. The Valley of Death is the phase between starting the business and generating the first revenue or return, a gap that requires investment to bridge. To attract investors, however, you need to demonstrate that you’re a good investment.  

Raising investment is a competition

In the early stages of attracting venture capital, there is a lot of competition. Attempting to procure financing takes a lot of time and energy. To maximize your chances of success, it is important that you have a good plan of action, sufficient data to present, and a strong executive team. To deliver the right proposition to the right investor, it is important to understand the dynamics of venture capital.

Sufficient growth potential

Being an interesting investment opportunity also requires the company to have sufficient growth potential of at least a 10x investment multiple. The phase and the proposition must match the fund criteria, such as the company having good Intellectual Property, a strong management team, and an investment demand which falls within the investment range and timing of the targeted investor. Hence, the attractive companies are usually at a somewhat later stage and thus have more to show the investor. To get there as a start-up, however, you obviously need funding and so there might be a misalignment between the ideal moment for the investor or for you as a start-up.

Preparation is key

Unfortunately, at F.INSTITUTE we regularly see companies enter into discussions with parties for the investment or negotiation of licenses without being properly prepared. So how do you prepare? Here are some tips and tricks:

  1. It can be difficult to be dependent on external financing. I would therefore recommend thinking about a mix of different dilutive and non-dilutive financial sources – to avoid becoming dependent on just one.
  2. Be flexible and stay open-minded. Bring in the right expertise to avoid possible delays. That also means being open to alternative strategies (Plan B) that you might not have anticipated.
  3. Use all possible means to create the longest runway, during which you need to focus on achieving important milestones such as proof of concept, first in human, and CE marking in the case of MedTech companies.
  4. It’s important to monitor your cash flow at all times. Make sure you have the proper tools to provide you with real-time insight so you are not taken by surprise and run out of money too soon. Proper cash flow management also helps to prepare you for the next round of capital investment on time.
  5. Last but not least, seek professional counsel as early as possible. It is a tough journey and you may encounter some unexpected challenges along the way. With the proper advice, you will create a more in-depth view of your chances of success, lead times, and other important aspects when raising funds. This will make you better prepared to face the Valley of Death and survive it!
Lars Ottevanger

Do you recognize these issues and would you like some help in traversing the Valley of Death?
Reach out to me or contact us via the contact form below!

– Lars Ottevanger

Subscribe for updates

Scroll to Top