Deep tech (or frontier tech, as it is sometimes called) will be a mainstream venture category in the near future. There is still plenty of SaaS investing to be done, but I think we’ve passed the peak of digitising real-world workflow, media, and commerce. Alpha lies elsewhere.
SaaS investors must look at deep tech
The next waves of tech — the waves that will build growth industries of the next few decades — are biological; they are in space, they use quantum physics, sequester carbon in millions of hectares of land, and they make physical things in sustainable ways.
Deep tech, in other words.
So, SaaS investors will look at deep tech. They must look to get the growth benefits of this new wave. The question is, how do you get them to invest?
The job of financing and building a deep tech company is different to SaaS and wrought with cliches that give SaaS investors pause.
The 4 cliches of deep tech that can lead to a ‘No’ and some ideas for your response
- #1 — Deep tech companies cost a lot more to build: This can be true, but the sales process is less contested than SaaS due to the uniqueness of most deep tech solutions. Focus on: How to articulate a financing plan and how that will play out over time. Do investors believe you enough to back you? Is it a big enough outcome to take the risk? Consider: What are the different sources of revenue? Is there more non-dilutive funding like government grants? How will you use consulting revenue to monetise your business development? How quickly can you get a modular version of your company to something that can use loans to fund infrastructure and hardware builds?
- #2 — Deep tech companies take longer to build: Sometimes this is still true, but it is also true that several platform technologies are now reaching a maturity that allows for a deep tech speed we have not seen before. Focus on: Designing your process for ‘visible velocity’ by breaking down the work into units of proof and stepping along that plan as fast as possible. Consider: Can you get out of the lab sooner to work directly with customers? What can you sell sooner while you grow towards the main vision? Regularly show investors that you are moving along as planned.
- #3 — Deep tech founders are not entrepreneurial: Some scientists are also gifted entrepreneurs, so this cliche is overly broad. But if your team is only scientists communicating as scientists, this is a risk to address. Focus on: Creating an interface for your company that demonstrates that you have the other parts of business building on the team. Consider: Can you tell a story people understand and get excited by? Is there an approach to business development that is well thought through? Does the org chart have the right people in the right seats for the stage of the company? Are you presenting in a way that non-tech people understand?
- #4 — “This could be Theranos”: When deep tech founders show up with a cure for cancer or an emissions-free way to make fertiliser, investors are worried they won’t understand the science enough to back the company. Focus on: Providing access to people and resources that remove this uncertainty. Consider: Who could you add to a list of independent experts investors can call to validate? What information could the investor send them to review? Do you have published scientific papers that you can send in a pack to investors? Do you have ‘Dummies Guide’ versions that explain them without needing a PhD?
SaaS investing is a mature category. There is data that SaaS investors refer to, which they map to stages in your lifecycle to arrive at a reasonably clear assessment of risk.
You need to work harder to show them how to think about your deep tech company.
And, whatever you do, don’t let them rest inside one of the cliches. They probably won’t make it out of there!