Fund-raising for anything can seem daunting and the process complicated. It’s even more challenging when it is for a big-science-based/deeptech venture and no investor can understand what it is that you are setting out to do.
In March 2021 Nick Richards and the (very) good people of Seed Legals asked me to speak about Common problems for deeptech founders and how to address them. In summary I brought it all back to the question of demand and finding solid evidence of demand for what it is that your propose to offer. If you do this well then your fund-raising is easy – especially from our fund.
00:00 Start and introductions
03:14 Introduction to Deeptech Seed Fund. We use evidence of demand from expert buyers to valdate the tech/IP and the market.
06:00 How to get customers before you have a fully fledged/developed product
09:38 How do you get your early-adopter customers to pay. Includes mention of the UK’s ICURe programme. Mentions this early adopter proposal template document.
20:12 The best way to structure your request for venture funding
25:05 The perils of asking for the €1,000,000 fridge or other big initial request for capital
29:44 The Chip Shop analogy – world première! Summary of the whole talk i.e. get reliable evidence of evidence of demand and ask for the lowest viable amount of investment.
38:25 Questions and answers
Additional material:
Original web page for the event: https://app.livestorm.co/seedlegals/common-problems-for-deeptech-founders-and-how-to-address-them
Original preparatory notes for the talk
- How to build/run your start-up if it seems like there is a lot demand for you invention
– Briefly cover how to determine if you are in this position e.g. via the UK ICURe programme
– IP market is global. If you have globally-leading IP you must connect with the leading channels to market
– The danger of being sucked into the orbit of your first customer.
— Custom solution, not product
— Strategic investment and pre-emptive rights on shares
— Ending up with no other exit option
How to get early-adopter paying customers
– Be clear as to the potential use-cases of your IP
– Be clear as to its benefits and the value of them
– Be clear as to how expensive and slow it will be to copy
– “Socialise” widely until it is resonating with a potential customer group and use-case
– Look at the Commercial Validation talk on https://www.deeptechseedfund.com/media
- How capital raising is different for deeptech start-ups
Some huge advantages:
– Someone else (HM Govt. usually) has already spent millions developing the tech.
– The technical founders are super-clever
– You have a well-verified unique IP position
What could possibly go wrong?
Track record of university spin-outs, in aggregate, is awful.
Bad history of:
– Using all investment money for further research only
– Failing to connect with market
– Failing to scale
Often deeptech ventures will eventually need a large amount of capital but none of the specialised providers of large capital are at all active at the seed stage for deeptech – so only ones available are small, “captive” and often seed-stage only e.g. angel investors or university-specific funds.
Net net the disadvantages prevail – it’s hard. The generalist investors won’t invest because they don’t understand your IP.
To tip this balance and justify investment you need to gather evidence of demand.
- What you should raise and how you justify that
Display Chip shop image https://img2.thejournal.ie/inline/4682872/original/?width=580&version=4682872
Let’s use an analogy. Picture a chip-shop owner who has a great offering. This offering is their deeptech, their background IP.
They have evidence of demand – long queues every night.
They want capital/investment to expand but they don’t want to get crippled with debt and they don’t want to ask for more than is credible so:
– They work out that at their “seed stage” of expansion, they operate a second shop on the cheap for just long enough to gather evidence to justify doing it properly.
— They rent a portakabin nearby their main shop.
— Staff will double-up somewhat
– So they have:
— Background IP already developed
— Evidence of demand/opportunity
– Now they have:
— A small financial ask for the seed stage
— A big financial ask, to open the 2nd shop properly (2nd seed stage or Series A round) subject the success of the seed stage.
It’s hard to get funds, especially if you’re deeptech. The formula for making easy is something like:
Quality of evidence * size of opportunity / size of seed-stage funding ask
Try to talk to investors who can do the seed round AND the A round. If they see a credible small initial funding ask it is easy to get them on board.
This post was originally posted on LinkedIn by Pearse Coyle. You can view the original post here and follow Pearse on LinkedIn here