Though software investing is a low-margin game, that has not stopped the increasing trend of VCs and other institutional investors getting in on the action. This year, The Information proclaimed that the software investing playbook, once exclusive toVCs, has become common knowledge amongst all investors. Cheap money, along with an influx of newcomers into the field have turned software investing into a low-margin finance game where almost anyone can participate. However, due to its high potential for return and flexible nature when it comes to timing and product execution1 , this type of investment is still attracting top talent regardless of capital expense.
One reason that traditional venture capitalists are hesitant to invest in deep tech is the lowmargins these businesses carry. These companies typically require a higher risk due to their high potential for success, but with traditional VCs stuck in their now low-margin businesses, they are unable to take on this type of investment. Deep tech companies may need to develop alternative models or find other ways to bring down their cost of operation in order to attract interest from larger investors.
Innovator dilemma refers to the difficulty that software investors face in funding innovative companies. This dilemma has been around for a while, but it seems to be becoming more pronounced as the industry evolves. While some investors may benefit from trying to encourage innovative company behavior, others may instead be better off sticking with companies that are already well-known and proven.
Developers who are betting on the software playbook mentality must relearn some essential things before investing in deep tech. First and foremost, they need to remember that this approach will not always work – it is not infallible. Secondly, they should focus more on creating something new and innovative, rather than copying what others have done before them. Finally, developers should be prepared to take risks in order to discover new technologies and platforms that could lead to big successes down the road.
Counting on one or two companies to return the entire fund is not only foolish, it’s a good indication of an investment team that shouldn’t be investing in deep tech.
One possible reason why a deep tech investment team should not rely on just a few companies to return the entire fund is that this suggests an incomplete understanding of the industry. If too much focus is placed on a few select players, it can lead to missed opportunities and potential poor returns for investors. This is especially true in markets such as deep tech, where new technological breakthroughs are happening at an unprecedented rate. In these types of markets, it’s important for all investors – from large institutional money managers to everyday individual investors – to be diverse in their holdings and stay up-to-date on the latest developments in order to make smart
The market is king. Your founder has no power here
There is a big difference between building a successful software company and founding one. Founders need to be able to do more than just develop innovative software; they also need the creative mindset, the business acumen, and the understanding of customer needs that are unique to their industry. Sadly, many early stage startups rely too heavily on founder-first strategies instead of relying on proven marketing and sales methods from prior companies. This leads to wasted resources, slow growth, and ultimately failure. Most deep tech companies are not built around one talented founder; they are built around teams of experts who work together towards common goals. Limiting
Governments around the world are working to improve their economies by tapping into deep technology and its vast potential. However, it is important to remember that deep technology takes decades to bear fruit and is virtually impossible for deep tech companies to do a hard pivot. This means that investors should not expect founders of these companies to overcome physical and technological constraints in an era where cheap money tends to evaporate. Instead, they should focus on the potential of the underlying assets and technologies.
Many software investments are based purely on the potential for the product or service. While this is still an important factor, it’s not always enough when it comes to picking a winner in the deep tech space. You also need to consider whether there is a market for what your company is offering, and whether you can actually create value for customers.That’s why it’s so important to do your homework before investing in any new company: you want to make sure that you’re getting good odds of success. And don’t forget: even if a deep tech startup doesn’t succeed right away, it can still have long-term value if its technology is truly breakthrough
Deep tech companies have an intense focus on product-market fit and go-to-market strategy. A half-baked, superficial hypothesis about product-market fit and go-to market strategy would be child’s play for a deep tech company; instead, these companies must drill down to ascertain exactly what their customer wants and needs. This requires extensive research, so deep tech companies take the time to perfect their assumptions and hypotheses before launching into market strategies.
