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

Welcome to our new section by Main sequence companies partner Phil Morle.

Every fortnight, Morle will share his wisdom and insights with Startup Daily readers and will also discuss them on the Startup Daily show.

His first column is part of the Introduction to venture capital for scientists series, based on hundreds of workshops he gave during his time as a deep tech VC.

In this essay, we imagine a pitch from a young deep tech company, probably still working within a university.

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

Why would it be? They accumulate over the years like signs of weakness and it is better to avoid them. Knowing what they are helps to avoid them.

It’s not about building a solid argument. Learn more about how to avoid an accidental low pitch.

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

It’s all too common for us to leave a pitch without really understanding what a company is building. This is usually caused by poorly focused language or an unbalanced story structure. Red flags include:

  • Scientific words with no explanation of what they mean. Imagine you’re explaining the concept to a school class and you’ll probably avoid that. I never felt condescending in a pitch, so don’t worry about that.
  • 45 minutes of “Issue Slides”. It’s always good to have the problem hypothesized somewhere near the front, but it can be done quickly.
  • It seems too theoretical. Show a demo. It’s always the best way to bring something to life.

#2: You don’t show urgency

The speed at which a company jumps to impact is a strong indicator of its future success. Businesses that fail to demonstrate urgency may raise a red flag, including:

  • No framing velocity. This is often a framing issue as an investor may not know what “normal” looks like. Show the important workflows in your business compared to a normal range to demonstrate that you jump faster.
  • Not doing what you said you would do. We meet many times with founders and inventors before finally investing. We always take note of what they say they’re going to do next and usually have a chat about what we think is important. Doing these things before the next meeting is powerful.

#3: You are applying for research funding

Scientists are very experienced in applying for grants to continue their research and sometimes we get confused with one of these funds. VCs are your partner in building a business.

We fund research but as part of a company that has completed its basic research sufficient to begin commercialization. Red flags include:

  • The pitch is a matter of science. We need to know your ideas for a business you want to start. We also need to be confident that the science side is complete enough to start working with customers to build. the society.
  • IP is wide and shallow. In research, it is common to show 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’s common to show that it works across multiple plant species and growing regions. The problem is that they are all years away from commercialization. Better to go deep with one and show off the features I described in #2.

#4: Someone other than you represents your business

VCs want to meet you. Because our work together begins at such an early stage, you are the only part of the business 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 representing 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’s learning about building deep tech companies. Lily more here. Follow him on Twitter at @philmorle

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