Previously, I touched on the rise of deep technology and why I believe business leaders should care about it. (Spoiler: Deep tech investments quadrupled from $15 billion to $60 billion between 2016 and 2020.) Still, not all of these companies are going to make it despite millions (if not billions) of dollars they’ve received in venture capital funding.
So, what does it take to be successful in deep tech? After investing in 40 of these companies — and sitting through well over 5,000 pitches — these are the three common pitfalls I’ve observed deep tech companies need to avoid.
1. Believing The Technology Will Speak For Itself
Some founders incorrectly assume the value of their deep tech company only lies in its ability to be technologically superior. But in my experience, having the best technology doesn’t always guarantee you’ll be the market leader.
For this reason, deep tech must companies acknowledge a few core truths:
• Deep tech rarely works in isolation and often requires integration with other tech stacks.
• Emerging technologies require extremely difficult engineering that can often only be accomplished by rare, hard-to-find, talent with specific skill sets.
• A deep-tech founder’s ability to communicate on a financial level with hedge fund managers is just as important as their ability to communicate about the technology itself and its advantages to customers and their heads of engineering alike.
2. Underestimating The Sales Cycle
On average, I’ve found deep tech sales cycles last about 12 months. Given that a funding round often provides an 18-month runway, deep tech companies have to plan to have a healthy customer pipeline well in advance of funding. And like all things, deep tech companies go through a series of pilots before they’re rolled out (if they’re ever rolled out at all).
Before pilots begin, deep tech companies often spend months of back-and-forth with their customer’s legal counsel to get a master service agreement signed. After the MSA is finalized, they’re likely to spend another few months figuring out the pilot plan and location.
This timeline often extends a few more months; perhaps the customer is waiting for resources to free up or for a pilot project to align with their internal timeline. Or, maybe the customer is just short-staffed, meaning they have to wait no matter how excited they are to implement the new technology. Waiting for the optimal time is just part of the game.
Once the pilot gets pushed through and completed, deep tech founders are often left to wonder when the rollout will begin. In my experience, pilots rarely ever have binding clauses that trigger an automatic rollout, which can leave the rollout process ambiguous at best. To make matters worse, some customers set aside an innovation budget to run pilots with startups to learn about novel technology while having no intention whatsoever to purchase the product.
Superior technology and problem-solving aside, keep in mind that deep tech customers often take longer than what is ideal.
3. Having An Insufficient Understanding Of The Market
Deep tech companies simply do not have the liberty to pivot, unlike internet and software-as-a-service companies that can build their minimum viable product relatively quickly, rapidly test customer demand and iterate until they find product-market fit.
For deep tech, it takes months to productize even the simplest version of a technology and upward of a year to sell the (albeit unfinished) product. Building it requires being absolutely certain the customers want it — and want it badly enough to try it while it’s still half-baked because almost all deep tech products don’t work perfectly at the start.
As a result, the initial customer experience can be a negative one. In fact, I’ve observed that many deep tech companies turn into tech-enabled companies because no customers are realistically able to operate their products. If the need is not desperate and the problem is not painful, the customer might be unwilling to throw themselves into a difficult solution.
Market structure is equally as important as the customer problem. Targeting fragmented markets with no efficient way to reach customers results in paying customer acquisition costs in longer sales cycles and burning valuable financial runway.
Without a highly valuable product coveted by both internal and external stakeholders, the product simply will not be adopted.
Deep tech is about the market, not only technology.
The value of deep tech lies in its blissful technological advancement. This makes it hard to imagine market understanding playing such an important role in the overall success of deep tech companies, but this is exactly where deep tech founders and executives need to focus.
Deeply understanding the customer, the market structure and the embedded incentive system positions deep tech companies for success. Startups can avoid spending millions of dollars and months — if not years — on product development that has no demand or economically viable way of gaining adoption. Customers are more likely to be motivated for pilots and adoption, thus reducing the sales cycle, and funding and interest from existing ecosystem partners are more likely to flow readily.
Sometimes the answer to a question held in one hand can be found by opening the other hand.