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Capital Raising

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

- April 7, 2022 3 MIN READ
Yahoo Serious as Young Einstein. Source: Warner Bros

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

Every fortnight Morle will share his wisdom and insights with Startup Daily readers and also discuss 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’s given during his time as a deep tech VC. 

In this essay, we are imagining a pitch from an early stage deep tech company, probably still working inside a university.

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

Why would it? They build up over years as signals of weakness and they are best avoided. Knowing what they are makes it possible to avoid them.

This is not about how to build a strong pitch. More about avoiding an accidental weak pitch.

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

It is too common that we leave a pitch without really understanding what a company is building. This is usually caused by mis-targeted language or by a poorly balanced structure to the story. Red flags include:

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

#2: You don’t demonstrate urgency

The rate that a company leaps towards impact is a strong indicator of future success. Companies which do not demonstrate urgency can wave a red flag including:

  • Not framing velocity. This is often a framing problem because an investor may not know what ‘normal’ looks like. Show the important streams of work in your company against some normal range to demonstrate that you are leaping faster.
  • Not doing what you said you would do. We meet founders and inventors many times before we finally invest. We always make a note of what they say they are going to do next and usually have a discussion about what feels important. Getting those things done before the next meeting is powerful.

#3: You are asking for research funding

Scientists are very experienced at applying for grant funding to pursue their research and sometimes we are mistaken for one of those funds. VCs are your partner to build a company.

We do fund research but in the context of a company that has completed its basic research sufficient to start commercialising. Red flags include:

  • Pitch is all about the science. We need to know your ideas for a company you want to build. We also need to be convinced that the science stream is complete enough to start working with customers to build. company.
  • IP is broad and shallow. In research, it is common to show that a platform innovation works across multiple contexts. For example, if developing a method to grow more oils into the biomass of a plant, it is common to show this working across multiple plants species and growing regions. The problem is, all of them are years away from commercialising. Better to go deep with one and show the characteristics I described in #2.

#4: Someone other than you is representing your company

VCs want to meet you. Because our work together begins at such an early stage, you are the only part of the company that exists today and will play a critical role in the years to come. It is common to have paid consultants or members of a university tech transfer office representing an academic team. This is a red flag for most VCs I know.

  • Don’t do it 🙂

  • This post first appeared on Phil Morle’s daily blog, where he writes about what he is learning in deep tech venture building. Read more here. Follow him on Twitter at @philmorle