Saturday, May 21, 2022

4 red flags for VCs when assessing pitches from deep tech startups

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Welcome to our new column by Main Sequence Enterprises partner Phil Morle.

Every two weeks, Morle shares his wisdom and insights with the readers of Startup Daily and also discusses it on the Startup Daily show.

His first column is part of the Venture capital primer for scientists series, based on hundreds of workshops he taught during his time as a deep tech VC.

In this essay, we imagine a pitch from an early-stage deep tech company, probably still working within a university.

An investor red flag may not be obvious to a founder.

Why would it? They build up over the years as signals of weakness and they are best avoided. If you know what they are, you can avoid them.

This is not about building a strong pitch. More on avoiding an unintentional weak pitch.

#1: After an hour we don’t understand what you are building

It’s all too often that we leave a pitch without really understanding what a company is building. This is usually caused by misdirected language or an ill-balanced structure of the story. Red flags include:

  • Scientific words without an explanation for what they mean. Imagine you are explaining the concept to a school class and you will probably avoid it. I’ve never felt patronized in a pitch, so don’t worry about that.
  • 45 minutes of ‘Problem Slides’. It’s always good to have the problem hypothesis up front somewhere, but it can be done quickly.
  • It feels too theoretical. Show a demo. It’s always the best way to bring something to life.

#2: You don’t show urgency

The extent to which a company makes a leap to impact is a strong indicator of future success. Companies that don’t show urgency may be waving a red flag, including:

  • No frame rate. This is often a framing problem because an investor may not know what “normal” looks like. Show the important workflows in your company against a normal range to show that you jump faster.
  • Don’t do what you said you would do. We meet founders and inventors many times before finally investing. We always write down what they say they are going to do next and usually have a discussion about what seems important. Getting those things done before the next meeting is powerful.

#3: You are asking for research funding

Scientists have a lot of experience in applying for grants to continue their research and sometimes we are mistaken for one of those funds. VCs are your partner to build a business.

We fund research but in the context of a company that has completed its basic research enough to commercialize. Red flags include:

  • Pitch is all about science. We need to know your ideas for a business you want to build. We also have to be convinced that the science stream is complete enough to start building together with customers. business.
  • IP is broad and shallow. In research, it is common to demonstrate that a platform innovation works in multiple contexts. For example, if you develop a method to grow more oils in a plant’s biomass, it is common to show that it works for multiple plant species and growing regions. The problem is that they are all years away from commercialization. Better to go deep with it and show the features I described in #2.

#4: Someone Other Than You Represents Your Company

Want to meet VCs you† Because our partnership starts at such an early stage, you are the only part of the company that exists today and will play a vital role in the years to come. It is common to have paid consultants or members of a university technology transfer office to represent an academic team. This is a red flag for most VCs I know.

  • This post first appeared on Phil Morle’s daily blog, where he writes about what he learns in building deep engineering ventures. Read more here† Follow him on Twitter @philmorle


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