Deeptech investment has a lot of mystique attached to it. It’s built into the phrase ‘deeptech’ itself: it implies an arcane and immensely complex sector, and one that deals with technologies that push at the frontier of human possibility. By implication, investors in this space must spend their time planning and fostering the development of technologies that verge on science fiction.
I hate to deprive people of this mystique (since it’s good for our reputation), but it doesn’t reflect the reality. While our deeptech team does get to engage with new and sometimes staggeringly complex technologies, we spend just as much — if not more — time looking at the business fundamentals of investment prospects.
This misunderstanding about what deeptech teams do can even surface among founders that pitch us for investment. To that end, here are some common mistakes we see in these approaches.
1. Just talking about the technology
I love science and technology. That’s a requirement to be in this space, as deeptech companies are often developing something genuinely new and ground-breaking, and we love spending time with founders understanding their tech in as much detail as needed.
While technological novelty is necessary in this space, however, it’s not sufficient. My heart sinks when a new founder pitching us just talks about technology. That’s because my job, as an investor, is not to invest in technological novelty for its own sake — it’s to pick teams and businesses that can become very large and produce an outsized return. And to that end, it’s just as important for me to know what business problems a founder is trying to solve, the issues their technology fixes for customers, potential markets they can create and how they plan to monetise their new technology.
“My heart sinks when a new founder pitching us just talks about technology.”
Internally, we at the Speedinvest team have a go-to question for this problem: “Are we being pitched a feature, or a business?” If it’s just a feature, then the founders haven’t thought about turning this into a business, and unless there’s an incredibly obvious way to do so that’s staring the founders and investors in the face, we’re going to have a problem.
The fact that some founders haven’t perfectly nailed their business plan in our first few conversations doesn’t mean that opportunity isn’t there. However, there does have to be a willingness and clear interest in making sure that their plan sits firmly on the ‘business’ track.
2. Obsessing over credentials
On its own, a top-tier education at the likes of Oxbridge or the Ivy League tells me next to nothing about a founder’s technology or business expertise — all that might mean is that a founder has been remarkably lucky or privileged. Elite credentials serve as signalling mechanisms for a baseline level of competence. However, in deeptech, we are dealing with novel technical and business problems, so a baseline isn’t going to cut it, as even the smartest and savviest academics could find themselves flummoxed without vital practical knowledge and expertise.
“I need to know that a founder knows the technology they’re working on inside out.”
I need to know that a founder knows the technology they’re working on inside out, and knows the issues they’re confronting in developing and scaling it. Alternatively for non-technical founders, I need to know that they understand their market inside out, and that they have a business plan that targets the right sort of customers and knows how to engage with them.
The sort of background I like to see is someone who can change, who is clearly comfortable with change and has shown an ability to be successful in a new environment outside of their comfort zone. For example, I’d be interested in someone who came from a technical background who then transitioned to a corporate environment, or someone with a humanities/business background that managed to thrive in a technical setting. That sort of background reflects someone who doesn’t get complacent, and thus will be keeping their practical knowledge consistently sharp.
3. Failing to constructively engage with criticism
A theme I’ve been hitting on consistently is flexibility, which I think is the major quality that deeptech investors put at a premium. We want founders that have the flexibility to pivot away from just talking about their technology, and have the flexibility to keep their practical knowledge on the cutting-edge. All of this leads into a third failure we see from startups — not being flexible enough to respond to criticism.
If there’s one thing that can instantly turn me off a promising startup, it’s when it’s hard to have a constructive dialogue with the founding team. Founders necessarily have to have a certain degree of stubbornness and a ton of grit, but that can go too far. I am very comfortable with disagreement — it’s sometimes a good way to get to the heart of things. However, if you cannot see a way for founders to genuinely consider observations and suggestions regarding their business, then that shows a particular deficit in flexibility — and that’s a big no for deeptech investors that are exploring whether you want to spend the next decade working together.
Marcel van der Heijden is the deeptech lead partner at VC firm Speedinvest.