Jessica Li
Fundraising is challenging, especially for deep tech founders who need to get investors excited about a complex technology, a complex sales cycle and a complex risk profile.
As a former investor and current angel investor, I have met thousands of founders, many in the deep tech space.
Based on my experience, here’s how to avoid making the most common mistakes deep tech founders make when pitching investors:
Work on your storytelling
Highlight your big vision
Early-stage investors are in the business of funding dreams. They chose to be early-stage investors because they love hearing about new ideas and enthralling futures. They deliberately are not investment bankers or accountants because they do not want to constantly pour over endless spreadsheets or dive deep into financial models. Similarly, they are not operators because they do not want to spend time figuring out the intricacies of a supply chain or a marketing campaign or the configuration of a product component.
So make your pitch tailored to what excites venture capital investors and avoid what does not. Keep the financial model details and the warehouse system logistics information to your Appendix. You have it in case anyone wants to dive in deeper, but your core presentation should be focused on your biggest, most bullish hopes for the company seven to 10 years from now. Dedicate multiple slides to painting the picture of what society would look like should you meet all your intended milestones as a company.
Underscore the impact
As a deep tech company, your differentiation is in your intellectual property. However, investors care less about the “what” and much more about the “so what.” Investors are less interested in the intricacies of your technology and more interested in what impact it can create.
Formulate your slides to focus on answering questions like, “What can people or companies do as a result of your technology?” and “How will people save time, money and lives with your product?”
Put your presentation to the “grandma” test. Would your grandmother be able to understand and be excited about everything you share? Investor pitch meetings are not dissertation defenses. You are being evaluated on your potential for impact rather than the intricate details of your research. The best way to succeed in this evaluation framework is to ensure that everything you share is relevant and exciting to a diverse audience of even nontechnical folks.
Try to reach hearts and minds
Five million people are a statistic, but one person is a story. When people read data on massive populations of people, they conceptually understand the implications but only on a logical level, not an emotional one. When pitching, you want to reach the hearts of investors.
Certainly highlight your market size and the scale you can reach, but add a slide painting the story of an individual that would benefit from your technology. Give this person a name, a photo and a backstory. Articulate how their life was before your technology, highlighting their pain and challenges. Then, explain how their life is transformed after using your product. People fundamentally connect with other people, not statistics. Incorporate the story of a real person in articulating your impact.
Put your team front and center
Talk up your team
In the early stage, investors are ultimately making bets on people, not on companies. They know that you may change your product and consequently your market in the future as many startups do. For them, the only constant in their investment is the team.
Explain why you are the perfect people to solve your chosen problem. What unique insights and experiences do you have that no one else in the world has? How have you worked with your founding team before and shown that you are complementary collaborators? When have you shown stunning perseverance in the past?
Boast about your go-to-market talent
Deep tech teams have tons of technical talent. However, go to market can often make or break a deep tech company almost as much as their intellectual property differentiation can. Without the right partnerships, sales and marketing people, even the best technology cannot realize its intended impact. In fact, given the sheer amount of technical talent in deep tech companies, the bigger question in investors’ minds around company success is the caliber of go-to-market talent.
In your team slide, note and talk about what prior commercialization experience your team has. Did someone lead sales at a big pharma company or help to scale another deep tech startup? Do your advisors have a rolodex of connections in ecosystems you are selling to?
Return on investment
Don’t point to the exit
Investors want to fund not just great businesses but more specifically great businesses that can return capital to them a hundred-fold. You can discuss your market opportunity and what your company may be valued at but none of that matters if you cannot IPO or be acquired.
List the companies in your space or adjacent ones that have either been acquired or gone public recently. For acquisitions, get more granular: Who would acquire you? Why would they want to acquire you? How would you value you in this acquisition?
Answer the question of “why now?”
Being right but too early or too late is the same as being wrong in the investing world. Early-stage venture capital investors operate on seven to 10 year time horizons with their investments because that is the timeline they have for each fund to return capital to themselves and their limited partners (those who invest in venture capital funds). If your company can only be a huge success 15 or 20 or 50 years from now, venture capitalists would still not invest because this return would not be realized on their target timeline.
As a result, it is crucial to discuss not only why your idea is great but also answer the “why now.” Deep tech companies have more of a why now than companies in most other sectors. There are technological inflection points and regulatory tailwinds that make the timing perfect for deep tech companies.
Dedicate a slide to explaining how macro and industry level tailwinds make now the ideal time to start your company. Articulate why your innovation could not have been achieved before today and why tomorrow would be too late.
Articulate your business model
Investors are focused on capturing value, not just creating it. If asked to choose between the two options, they would choose the former. Even if you have the most impactful technology in the world, if you cannot monetize it, you cannot create a business investors would fund.
Dedicate a slide to explaining your business model. How will you generate sustainable revenue? What research have you done to ensure there is a prospect willingness to pay at your intended price point? What are your projected margins at your price point? How can you extract more value from each customer over time?
One caveat: Some deep tech companies may not be revenue-generating prior to an acquisition (as is the case in biotech). For these companies, founders should articulate how they will sustain the company monetarily before then (such as short-term commercial partnerships) and spend additional time underscoring the possibility of a meaningful exit pre-revenue.
Tips for fundraising
Pitch deep tech-friendly investors
Investors may be open to having a conversation with you but may not actually be open to investing in deep tech given the unique risk profile of deep tech. Investors have FOMO (fear of missing out), so when in doubt, they will err on the side of taking a meeting rather than not just in case they see something that excites them and that they want to pursue.
To ensure you are channeling your time and energy into higher-potential investors, look for deep tech-focused funds, deep tech-focused partners at generalist funds and funds that have invested in deep tech companies before. Make a list of deep tech companies in adjacent spaces and identify their angels and institutional investors. Find warm introductions to these investors first and prioritize these conversations.
Build long-term relationships
While building your company should be your main focus outside of your fundraise periods, you should build just-in-case, not just-in-time relationships. A relationship with your investor is a very long-term one. You want to get to know them before you jump into the term sheet negotiation stage.
Instead of only meeting investors weeks before you need to close your round, go to happy hours and other events where you can meet investors in more casual settings. Don’t talk about money or fundraising to start. Rather, get to know them as people. Then, when it comes time to raise your next round, you will have a very warm intro to them and there will be greater trust in any conversation you have.
To recap, when pitching investors, deep tech founders should:
- Highlight the impact and the big vision in an emotionally resonant way.
- Underscore why their team is unbeatable.
- Articulate how their company can produce the returns VCs look for.
- Build long-term relationships with deep tech-friendly VCs.
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