Most deep-tech founders run into the same problem when fundraising: the paradox of proving the value of something that doesn’t exist yet.
First you have to prove the market.
If your idea isn’t as obvious as a machine that turns air into gold,
investors will often ask: “Why does this matter?” Your job is
to make the case that, if the breakthrough is achieved, the commercial
prize is enormous and inevitable. You have to paint the endgame so
clearly that the risk of the journey feels worth it. “It’s very hard
work, but if it’s works, everyone will want it”
Second you have to prove the path.
Even if the market is clear, investors then usually ask: “What’s
your commercial validation step? Can you make revenue earlier than your
10 years roadmap? Is there something that at least 3 enterprise
customers would agree to pay >$10K/year to $100K/year for.” And
this is where it gets difficult. The intermediate versions of your
technology are scientifically interesting but commercially useless.
Until the “air-to-gold machine” works, there is nothing to
sell. How can you show commercial value with your half baked
prototype?
Often companies fall back on consulting or selling services to survive. They go to companies in the industry and promise that they can help them solve a problem using their expertise and nimble startup vibes. You quote by the hour, $100K to $200k projects are average budgets for these. That pays the bills, but if this is all you do, it puts you straight in the consulting category which is very hard to scale and that venture capital doesn’t want to fund.
You end up caught between your long-term vision and short-term investor expectations.
There are a few approaches to take to get out of this trap:
Balance services with vision.
Use services to fund the lab, but keep showing that they’re a stepping
stone, not the endgame. This makes a lot of sense in theory but is just
very difficult in practice. You need enromous discipline to balance your
service offering and goals of breakthrough. You’ll end up having to make
many difficult decisions on resources management and focus. Early
startups arent really structured to accomodate adjacent R&D team.
You have to keep a steady cap towards building your long term goal.
Sacrificing short term lucrative deals over long term promises is
tough.
Find aligned, patient investors.
Some funds specialize in decade-long bets and care more about credible
milestones than quick revenue. That is your target when you go out there
pitching. I like to be upfront with investors and checking that these
type of high risk high reward bets fit their investment profile. Of
course, non dilutive funds are also good doors to knock at: Grants,
government programs, and research contracts exist for exactly this
problem (but can sometimes slow you down.)
Collect LOIs and partnerships.
Even if you can’t sell yet, you can show demand with letters of intent
or joint development agreements. This is usually a non-binding contract
which you can use to show that larger companies are showing interest in
something that doesn’t exist yet. An alternative is Strategic Corporate
Partnerships which may bankroll the work in exchange for early
access.
Spin out intermediate products.
Sometimes by-products of your journey (datasets, tools, algorithms) can
be monetized earlier. A couple of warnings with this approach 1. it can
get you real close to becoming a service company, (see point 1) 2. you
could sell IP which can devalue your future products. 3. make sure this
doesn’t derail your ambition to build something much bigger.