Investing in Deep Tech #1 — What is the impact of the pandemic on deep tech investment?
Figuring out how this pandemic is changing our society is not easy. Our way of living, including the things we consume and what we invest in, is adapting. It’s tempting to draw quick conclusions based on initial analysis carried out on the spot, but at Hello Tomorrow we felt like its impact was too big to be rushed.
We took a step back and gathered a brilliant line-up of deep tech investors ready to reflect on the situation and share their insights.
Are VCs currently investing? Will their strategy and focus change post-Covid? Will it be easier for some startups to access funding while more difficult for others?
Moderated by Benjamin Joffe, Partner at SOSV, joined by Irina Haivas, Partner at Atomico, Matthieu Repellin Investment Manager at Airbus Ventures and Alexandre Terrien, General Partner at Future Positive Capital.
Watch the replay of the webinar here.
As always, so many questions, so little time! Yes, our speakers went the extra mile and answered the leftover questions we had. Thank you, and see you next time!
1/ What suggestions would you like to give to deep tech startups to raise funds in such tough times due to Covid-19? What measures should they take to ride out of this tough situation and sustain themselves?
Ben Joffe (SOSV)
- Find as much non-dilutive financing sources as possible
- Don’t over-optimize valuation to be able to close faster, and look for larger rounds to extend runway
- Clarify value-creation milestones to avoid wasting time / resources. The CFO of SOSV had some more advice here.
Matthieu Repellin (Airbus Ventures)
Frugality is key. It may be hard to properly use funds in the current context: access to labs, access to infrastructure, customers etc. Be sure you can put the money at work efficiently to create sufficient value on top of the postmoney.
Raise enough runway, you do not want to have to raise again before the end of the crisis ( milestones may shift, it may be more difficult to sign POCs, etc ) .
2/ A lot of IP heavy deep tech startups that are university spin-outs have university and/or academics on their shareholding table. What’s your view on the ideal shareholding split?
Ben Joffe (SOSV)
- It’s not a clear-cut situation but 20% equity might be an upper limit for non-executive shareholders who contribute IP & expertise if you’re trying to go the classic venture way.
- It depends on the maturity and complexity of the tech & future roles and contributions
- Some VCs are specialized in looking for high-potential IP from universities, then assembling executive teams, finding corporate partners and financing the created startup.
Matthieu Repellin (Airbus Ventures)
Things will depend on how valuable the IP is and whether it is entirely transferred into the company. Beyond 20~25%, there will be questions about management/founders dilution.
Another option to explore is a time limited exclusive licensing agreement with reasonable royalties based on revenue with the option to buy the IP asset at a predefined price. People instrumental in successful use of the IP should be associated with the success of the company.
3/ Are VCs increasing reserves for investments if reaching milestones for follow-on rounds will take longer? Or will later stage investors adjust their perspective on milestones for follow-on?
Ben Joffe (SOSV)
Some VCs will invest larger amounts in a round, or provide extra financing at the latest or slightly increased valuation to some of their portfolio startups. It will depend on individual situations regarding financing needs, growth and potential.
Matthieu Repellin (Airbus Ventures)
It’s going to be on a case-by-case basis. Funds in the early phase of their lifecycle can make the option to have more reserves. The others may not have this luxury and will take into account how companies are performing vs the rest of their portfolio.
