360 views on tech #41: VCs will need deeper technical due diligence capabilities
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🍕 Food for thought
VCs will need deeper technical due diligence capabilities
By Dakin Sloss — Fast Company
In 2011, A16Z cofounder and general partner Marc Andreesen famously said, “Software is eating the world.” He was right; 11 years later, it has completely devoured it.
With advances in computing power and global crises accelerating the need for innovative new technologies, startups commercializing scientific breakthroughs in energy, transportation, infrastructure, agriculture, manufacturing, and human augmentation are poised to be the next wave of companies that “eat the world.”
To prepare for this new era, venture capital firms are going to need to develop new skill sets and analysis processes to determine which of these startups and founders deserve capital. VCs entering the deeptech world must be able to fully understand an underlying scientific breakthrough and resulting technology enough to identify the risks and help founders manage those risks.
First, venture capital firms have to develop better landscaping and pattern recognition capacities across these new industries. Moreover, they will need to adopt new technical due diligence processes driven by a diverse team of scientists and engineers.
While looking at cap tables and financials will remain critical, the technical review is becoming more important than ever. There are four critical aspects that need to be taken into consideration when evaluating a company with high technical complexity:
1. VALIDITY
It is important to undertake a systematic targeting and due diligence process to assess technical risk by looking at specific industries that we think need a breakthrough or are on the verge of one. You need to target companies that have retired as much science risk as possible and have a clear engineering plan.
2. REQUIREMENTS
A critical step to be taken is meeting critical members of the technical team to learn about their expertise and experiences and individuate eventual technical expertise gaps. Venture capital firms can’t focus on just the physical hardware and whether it works. They also need to look at the strength of the technical team to make sure they have the right people to reach the milestones that they have outlined.
3. MATURITY
A startup’s engineering, planning, and manufacturing standards need to be maturing at an appropriate rate. You need to understand if they are ahead of the competition and if the investment amount is appropriate to achieve the next round of technical milestones. Most importantly, the timing needs to be right. Most things that we think of as science fiction will become reality someday, but investors cannot wait forever.
4. DEFENSIBILITY
Firms need to identify the defensible intellectual property that startups possess and how their technology is differentiated from competitors. It needs to be hard for competitors to copy their achievements, IP/trade secrets, and business strategy. Startups should be forthcoming and ready to share technical data.
Venture capital firms will need to strategically grow their teams to include people who have a strong understanding of the scientific landscape across multiple industries, and be prepared to walk away from deals when founders are not forthcoming. The problems that society is facing are too important, and capital needs to be appropriately allocated to the startups that are actually going to change the way we live.
🔴🟠🟡 In the last years at 360 Capital, we have entered the world of deeptech investing and we currently have two funds active, A+ 360 and Poli360, for investments in sectors that space from energy transition to new materials, AI, ML and technology for industries 4.0. In this new path we are sided by partners like Politecnico di Milano and LPs such as the Italian energy provider A2A. This allows us to leverage their technical expertise and be able to conduct in depth technological due diligence analysis.
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💸 Money matters
- Factorial, the fastest growing HR tech startup, raised €120M, the round was led by Atomico, with participation from GIC and all previous investors including Tiger Global, CRV, K-Fund and Creandum.
- Zunder, a sturtup providing ultra-fast EV charging stations,raised €100M, from Mirova and White summit Capital.
- Climatiq, a climate intelligence platform, raised €6M, from Singular joined by existing investors Cherry Ventures as well as business angels.
- Jua, AI-powered platform that gives the meteorological industry customized weather models, raised €2.5M, pre-seed round led by Promus Ventures.
😂 Meme of the week
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