Recognising Milestones on the Road

Last week I introduced this 3-part blog series sharing some of our experiences from investing in deep-tech start-ups over the last 5 years. I discussed some of the common mistakes we have seen companies and investors make (including us!). A second area of lessons-learned I’d like to discuss comes at it from the perspective of tracking success – and identifying that we are making progress. Understanding some of the journey you as a founder or investor are going on – and recognising the milestones along the way – is just as important as avoiding common errors.

• The Vision – PMF Dance – you’ll know vision – it’s why you started the company or alternatively invested in it. And you’ll recognise PMF because the phone will start ringing. But the dance in between is hard and iterative. A frontier tech company will get rewarded for having vision by later-stage investors who like big ideas, so it’s important to grow yours and learn how to effectively communicate it. But vision is nothing without the first key step in the journey – a real solution to a real customer problem that is worth money, worth breaking procurement processes for and worth accelerating IT production schedules to take live. In between is the very essence of why founders have to lead early sales – only a founder knows what can be done without compromise and only a founder can move fast enough to merge the need of the practical with the art of the possible.

• Team – team is always important in any company of course, your first few hires are key, set the tone for the culture and will become your first layer of management. However, team in a deep tech start-up is a foundational asset – their resumes and experience matter. If you want to be world class, if you want to compete on a global stage, you need skills that reflect that – the first thing a potential acquirer (or later stage investor) is going to do is assess the quality of that team. Investment returns to talent are probably tiny – AI practice is now going mainstream e.g. – and investing in a team without real customer traction is dangerous. But building out the team, finding the true innovators and thought leaders is a value milestone.

• Technology – what’s your moat? What are you building that is truly proprietary defensible and differentiating? Everything is open source, academic research may be slowing down, so what have you and the team built in a couple of man years of experimenting that Google couldn’t replicate in a weekend? The answer might be a focus on an unrecognised, valuable and discrete problem, or combining sector domain knowledge with the latest software techniques. It might be access to deep and proprietary data-sets. It might be the accumulation of lots of small incremental techniques into a proven problem that is only now responding to digital economics. Or perhaps it occasionally really is something breakthrough in the science that there is a race to implement. But you need to have an answer.

• Volume – Everybody has a plan until they hit the battlefield. All AI models work in theory for example. Some still work at PoC or pilot stage. But when a model has had millions of transactions pumped through it containing the evolving DNA of the wild and is still producing breakthrough results you have built a machine that generates money. Attached to the right customer use-case you can create value while you sleep.

• Value and ROI – which brings us to landing the airplane. You will know when you have product market fit, because the phone will ring. I like saying that so I said it again. It’s also very much been my experience over many, many years in tech – what does it mean? Customers will be going around procurement to get contracts signed. ROI will be clear and expressed by the customer. Your sponsor will see ways they can meet or exceed their goals using the technology. They will tell their friends. Other teams in the company will want to talk to you. You meet people at conferences who give you their cards when you explain the use case. You now have real value – don’t forget to negotiate knowing that.

This last point is very important – too many deep tech companies essentially are walking around with technology looking for problems to solve. They are offering incremental rather than transformative solutions, speaking to nice to haves on the technology road map, and even the best of them often fall short of addressing real current customer pain in a way that makes a difference to something that person gets measured on. This is the dance – and when you feel you are coming toward the end of it then it’s time to think about the topic of the next blog – building the commercial team.