The good people at Start The F Up in Paris have been using our Deeptech Seed Fund Scorecard and have asked us to answer the above question ahead of us meeting the 35 scientists and future deeptech founders of the French i-PhD cohort.
Here’s the answer.
We are interested in ventures at the spinout/formation stage that are based on a body of defensible (hard to copy) research (deeptech) when:
- It’s not just the scientists telling us that they are brilliant; there are some potential early-adopter customers who can corroborate this when we speak to them. This means that the scientists have gone out and spoken to a bunch of people, ideally about 100 people. Yes, that’s hard to do, but so is starting a venture, no matter how good the science.
- One of the scientists is able to lead the venture or be a key full-time founder, at least at the early stage, if not longer. You can’t have some non-identified “CEO – to be hired” person on the team. Worse still, there is a tenured academic intending to make little % time-commitment to the venture, expecting to own most of it and seeking to have some fool-VC pay a bunch of people to run the venture and make them rich.
- To get to the next stage with this very early-stage venture i.e. the stage that the early-adopter customers want to see you get to before they will increase their commitment, requires an amount of (dilutive) money from investors that can be credibly asked for. This normally needs to be a lot less than 1 million ($/£/€). If significantly more is required then it needs to feasible to get this from grants and/or from early-adopter customers e.g. by way of paid-for pilot projects.
- There is a large market opportunity and ideally there are prior examples of science-based startups turning into large companies to exploit similar opportunities.
- The unit economics of the business are attractive e.g. at one end of this scale is software and at the other end are certain hardware or services businesses.
Without pretty-much all of the above, or a plan to put in place all of the above, then there is no point in talking to us. Without the first item – the interested early-adopters – we won’t talk to you at all, we just don’t have time.
Additionally (yes, there’s more)…
- Ideally you’ve come through a programme that has a good customer-discovery activity – to help you have those 100 conversations
- We know the programme, so that the people running the programme can vouch for you – or you come to us with an introduction. This is tough if you don’t have it but it is prohibitively time consuming for us to vet strangers that come to us without introduction.
- If there are other scientists or a university that has a claim over your Intellectual Property, you’ve had a serious discussion with them that means that you will be able to conclude an agreement leaving the venture at least 70% owned by the full-time founding team.
- You need to be incorporated in and operating in a stable country within the EU, UK, EEA or North America. Again this is tough but we owe it to our own investors (AKA Limited Partners) not to take on the legal and political risk of investing outside of these territories.
- You need to have a realistic expectation as to the valuation at which you will raise money. Very few investors invest at the spinout stage – as we do – because it is seen as being very risky. We expect a fair reward for taking this risk.
- You’ve not raised much dilutive (e.g. equity) investment cash before, ideally you’ve raised none.
This post was originally posted on LinkedIn by Pearse Coyle. You can view the original post here and follow Pearse on LinkedIn here.