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Text |Appropriate.In an era, we must first be clear about the historical coordinate system in which we live.
In the past decade, entrepreneurs have sprinkled their blood on the hot land of mobile Internet, and a number of unicorns have been born that have never been seen before.
With the sharp reduction in capital efficiency, some unicorns have shrunk into "little rhinoceros", and the mobile Internet era is waving goodbye to us. At the same time, marked by the emergence of ChatGPT, deep technology represented by AI is leading the arrival of a "new round of technological revolution".
Although it has the great significance of subverting the future and promoting the exponential growth of the industryHowever, in the process of raising funds for deep-tech enterprises, the question of "chicken or egg" is quite common
Without a market close at hand, it is quite difficult for businesses to raise funds; But without sufficient financial support, it is even more difficult to access the market.
The contradiction of "neither nor none" plagues deep technology entrepreneurs around the world.
In the Industrial Revolution 10 originated in Europe, and the current leading entrepreneurial scene is still deep technology enterprises. Data shows that European deep technology companies receive about 10 billion euros of venture capital every year, accounting for about a quarter of the total venture capital in Europe.
Even so, for European deep tech entrepreneurs, especially in areas such as medical technology, the time to market is often more than four years, which means that the most common response from VC is: Come to me when you are close to the market.
How can deepin technology entrepreneurs alleviate financial pressure, from "living longer" to "living better". Recently, Sifted, a leader in the European startup community, published an article "How to Raise Money for Your DeepTech Startup". The first author, Sven Jungmann, is the founder and CEO of Halitus, a medical technology company that develops products that detect diseases through breath and won the Digital Health Award in 2022; The second author, Ándy Reschke, is the CEO of TC1Cap and a part-time advisor and investor.
The article argues that deep technology startups should take advantage of potential small financing opportunities in the early stage as much as possible and minimize costs to achieve sustainable operation of the company.
The article has been briefly translated and supplemented for the reference of all deepin technology entrepreneurs.
Some founders may find that VCs often use the logic of investing in consumer technology to invest in deep technology.
This is actually not to blame VC. After all, the situation of deep technology entrepreneurship is complex, takes too long, and is always in "uncertainty". Both investors and even entrepreneurs cross the river blindfolded.
VC's preference for "certain" short-term returns stems from its ** structure and LP expectations.
Generally speaking, the life cycle of ** is seven to ten years. This time constraint makes VCs naturally inclined to companies that can get to market faster and generate revenue, accounting for LPs with visible returns.
However, the project of some deep technology companies to "put a long line to catch big fish" not only disrupts the timeline of VC, but may not even know what is caught in the end.
The article points out that instead of sticking to VC, deep-tech start-ups should find another way to find investors who can support innovation in the long run.
The authors propose the following three channels:
1. Evergreen Fund
That is, perpetual capital fund, venture capital or private equity set up by a private equity manager for an indefinite period.
It usually refers to a PE with a long duration, and sometimes it refers to a PE (long-dated PE fund) with a duration of more than 10 years and a long-term investment philosophy. It only ends when the last investor redeems their interest or the manager disposes of each investment and decides to liquidate.
At present, based on the capital attributes of domestic LPs, domestic evergreen ** is most likely to find a breakthrough from family offices and ultra-high-net-worth individuals.
2. Patient capital
In the primary market, "patient capital" mostly refers to private equity in the medium to long term**.
Combined with practical facts, in October last year, the first financial work conference pointed out: to provide science and technology enterprises with the whole chain, the whole life cycle services; In December last year, the first economic work conference emphasized: vigorously promote the reform of the investment side, and promote the improvement of the policy environment conducive to the entry of medium and long-term funds into the marketGuide investment institutions to strengthen counter-cyclical layout and expand "patient capital".
It can be seen that the problem of "lack of money" of science and technology start-ups has been named by the state. In the future, some high-quality projects that are in line with the national strategy and market demand will be supported by funds first.
But for investors, it is necessary to distinguish between the confused ones. After all, the most patient "capital" at the moment may come from the ** of A-shares.
3. Sector-specific fund
This kind of ** has more opportunities to dig into "underwater projects", that is, projects that have not been widely recognized by the market, but have great potential and innovation capabilities, and overlap with deep technology start-ups.
Shidao previously concluded that below 2Among the $500 million, the single-minded IRR wins; above 2Of the $500 million**, the IRR of the latest batch of comprehensive ** (2015-2020) is about 5% higher than that of the single-purpose type.
At the same time, this category** requires investors to become industry experts as much as possible to reduce the inaccuracy of investment decisions.
In addition, the author Sven shared his own financing experience: don't just look at the ** copywriting of investment institutions, you should look at the projects they have invested in in the past, and search for members of the team with STEM backgrounds to ensure that the other party can ask professional questions.
Shidao believes that for deep technology start-ups, striking iron still needs its own hardness, and "first-out results" is far more impressive than "clear principles".
For example, Sam Altman recalls that the team gave Bill Gates a "confident" demonstration without training the model or understanding how it works. Although Bill Gates was very skeptical, he still bet right.
Altman's "confidence" is the major result of the "click-and-click" when building GPT-1, even if no one understood the working principle at the time, and did not know how the "breakthrough" came about, but the importance of "result first" was once again confirmed.
In King of the Jungle, Tarzan swings from vine to vine and then farther and farther until he reaches his destination.
The author, Sven, said that in the process of founding Halitus, he made good use of the "Tarzan model".
That is, if you can't raise a large amount of money at once, you may want to consider raising funds in stages.
The advantage is that the company can maintain the momentum of continuous progress through small and frequent investments in the absence of large amounts of capital. Not only does this demonstrate the company's resilience and financial discipline, but it also attracts significant investors early and communicates the founder's and the company's resilience to future investors.
But its limitations are also obvious. First, the company itself must have a certain financial base; Second, the founders are overwhelmed by where the next money will come from.
There's a saying that startups die from indigestion, not starvation, but that doesn't apply to most "underfed" deep tech startups.
In the initial R&D stage, deepin technology enterprises should complete the long chain of "creative ideas, proof of concept, product design, small test, pilot test, market introduction, and mass production".
As a result, the vast majority of the money is invested in R&D, leaving a bunch of intellectual property as a core asset.
Therefore, founders can break the principle of "focus" and land on an intermediate platform that is easier to commercialize, bridging the funding gap, so as to avoid the collapse of the middle way before the start-up.
Author Sven points out that strategic partnerships and licensing agreements are "invaluable" to pay special attention to early monetization opportunities.
For example, its company, Halitus, licensed its own intellectual property to an industry leader and partnered with an established startup to sell their products.
Through such cooperation, the company obtains a part of the necessary income on the premise of not proliferating the "focus" of entrepreneurship and not overextending resources. Not only does this approach help companies get through the early stages, but it also allows for valuable customer feedback through multiple collaborations.
According to Sven, the key is not to chase every opportunity, but to identify which opportunities are most in line with the company's core competencies and long-term vision.
The article also proves that for deep technology start-ups, building a "moat" with top technology and intellectual property rights is the top priority. The latest reports from the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) show that:Deep-tech start-ups with patents and trademarks have a tenfold higher success rate in fundraising.
In addition, the competition of deep technology start-ups is not a "winner-takes-all", and different subdivisions have the opportunity to run out of "champions". From this point of view, "cooperation" with other enterprises may become the mainstream of "a new round of scientific and technological revolution".
For investors, there are various risks such as R&D risks, regulatory risks, financing risks, manufacturing risks, and market acceptance risks.
The relationship between these risks is not "additive", but "multiplied", and together constitute the "valley of death" for the transformation of scientific and technological achievements - scientific and technological achievements from the laboratory to commercial application.
Research by the National Institute of Standards and Technology found that 90% of scientific and technological achievements will disappear at this stage.
But if we look at the "Valley of Death" as a 4x100 relay race of innovation:
Phase 1 – Laboratory Studies;
The second stage is to enter the real world and look for potential revenue models and early customer groups;
The third stage is to work on adapting the product to the market;
Phase 4 – Expand your business to a wider customer base.
It is not difficult to find that as soon as you arrive at the first.
Third, in the fourth stage, with "mature technology", you can win the favor of investors, that is, "closer to the market".
However, for most deep technology start-ups, it is likely that they will not survive the second stage because of "lack of money". Therefore, it is particularly important to find the "early customer group" of the second stage.
The article points out that securing paying customers is a watershed moment that is far more important than direct financial gains.
First of all, early customers serve as a "litmus test", which can reflect the market's recognition of innovative technologies, and directly prove the potential and market viability of start-ups.
Secondly, with the "verification" of early customers, the founders are more confident in facing investors, and investors are also more receptive to "market-proven technologies".
More critically, early customers are able to provide critical feedback – product benefits, areas for improvement, potential applications.
This virtuous cycle prompts companies to refine their products, align with market demand, and guide companies through the early stages of growth to shape their future trajectory.
A well-known institutional investor said: For technology start-ups, technical capabilities are the core. In most cases, it is often the company with the most technical core advantages that can go to the end. In addition, the team's ability to land is also important. Some companies have core technologies, but they will be in a difficult situation in the process of commercialization.
At any time, the "high barriers" built by patents and technologies are a favorable starting point for attracting capital; In addition, attaching importance to early customers and using proven business models to develop the market is the only way for Deepin Technology to succeed.
Today's deep technology is not necessarily tomorrow's deep technology. At present, with the advent of a "new round of scientific and technological revolution", Shidao will continue to observe the growth process of a new batch of deep technology enterprises.