What is Enterprise / Deep Tech?
What we mean when we talk about enterprise tech
Angular Ventures is an early-stage enterprise and deep tech fund. But what exactly does that mean?
Perhaps unsurprisingly, we get asked this question often.
The way we see it, these two terms, “enterprise” and “deep tech,” are overlapping but definitely not synonymous — and each captures something in which we at Angular are very eager to invest.
Did someone say Venn Diagram?
The diagram above tries to illustrate how we think of this, and provides a few examples of companies from our portfolio at Angular, from my past investments, and from the broader market that illustrate what we mean by these terms.
Let’s start with the motivation here and then go into terminology. Ultimately, when we think about categories that interest us, we are focused on two things: barriers to entry and sophisticated buyers.
- Barriers to entry refers to anything that makes it difficult for others to compete with your offering. As we’ve written before, network effects are often the ultimate barrier to entry, but “deep tech” or even sheer product complexity/completeness can also be perfectly viable barriers to entry. Often, domain expertise in a founding team is highly correlated with barriers to entry. When we say “deep tech” we typically mean either (1) true technical barriers to entry (such as groundbreaking algorithms or semiconductors) or (2) some other non-technical barriers to entry that serve a similar function: making it harder for others to compete, differentiating your product for customers, and maintaining pricing power over time. The value to a startup of having true barriers to entry should be apparent.
- Sophisticated buyers refers the idea that the individuals ultimately making the purchase decision on your product are professionals, i.e. it is their job to make that decision in a sophisticated way. This sometimes means it’s a truly technical purchase (a CISO evaluating a security tool or a VP Engineering evaluating an IT product). Sometimes, however, it means a rational purchase decision made by a professional person such as the decision to adopt a tool like Zoom, Slack, or Carta.
For Angular Ventures, “barriers to entry” and “sophisticated buyers” are the two key drivers in deciding if we want to try to back a given category. We try to avoid investing in companies that have no ability to erect any sustainable barriers to entry (technical or otherwise), and we don’t invest in companies that are targeting (pardon the phrase) “unsophisticated” buyers (i.e. consumers). To be sure, most of the largest VC outcomes in history target consumers (AirBnB, Uber, Facebook, Whatsapp, etc.). Angular’s focus, however, is on what we know and what we’re good at — and identifying great consumer-oriented teams at the early-stage is just a different skill set. We’re happy to leave that to others who are far better at it.
It’s about risk. The sophisticated buyer criteria is important to us because it’s a key factor in de-risking a company at the seed stage — especially a non-US company. We try to invest in early-stage companies either before they have any customers or just as they are beginning to engage with major customers who can serve as references for others down the line. We believe that nailing the first few enterprise accounts (and doing it the right way!) can be critical in de-risking a company as it moves from pre-seed to seed and from seed to Series A. After all, when a company from Haifa or Helsinki can claim a major US corporate as an early customer — despite no real sales force and no other traction — that can be a powerful indicator that there is something very valuable under the hood. It can also serve as a great leveler of the playing field. American Series A VCs (which are still the vast majority of the experienced enterprise tech VCs on the planet) just respond better when you tell them you are selling to Bank of America as opposed to Nykredit. It’s not fair, perhaps, but it’s true. Another benefit of selling to the sophisticated buyer is that you are more likely to run into buyers who will be actively comparing your offering to that of your best competitors. There is no better way to learn what really going on in your market than trying to sell to customers who probably know more than you about it.
So what do we mean by “Enterprise?”
In light of the above, it’s worth considering that people use the word “enterprise” in two fundamental ways:
- The loose meaning of “Enterprise.” Some people, including us at Angular Ventures, use the word essentially as a shorthand for “sophisticated buyers.” We needed to find a shorthand that expressed what we do in a single word — and “enterprise” comes pretty close. But it can be confusing because… (see next bullet)
- The strict meaning of “Enterprise.” Most people, however, use the word “enterprise” to mean a specific type of buying process — that of selling software to fortune 500 companies. This is a very well-defined and well-understood process and it does effectively define a very large and very coherent set of companies. This leads to phrases like “enterprise sales cycle,” “enterprise-grade software,” and “enterprise salesperson.” All of these phrases are referring to the idea of building and selling software into a specific kind of company. The vast majority of Angular’s portfolio (as well as the vast majority of my personal track record) would fit this description, so even for us it’s not a bad use of the term — but it doesn’t fully capture what we do.
Our universe is bigger than “enterprise” but limited to “sophisticated buyers.” Angular will invest in companies that sell to OEMs, to governments and militaries, to the healthcare industry, and — importantly — to small and medium enterprises (SMEs) and even to prosumers. These are not strictly “enterprise” sales cycles and so would be excluded by the strict definition of term. These end markets do, however, meet the sophisticated buyer definition.
Back to the Venn Diagram
At Angular, we ultimately settled on using the phrase “enterprise and deep tech” to define the universe in which we invest. We have invested in companies like Dust Identity that definitely have deep technology but arguably do not have a “traditional” enterprise sales motion. We have invested in companies like Planable (and Front in a past life) which sell to sophisticated buyers, use a self-service sales motion alongside an enterprise sales motion, and — arguably — don’t really claim to have ground-breaking technology. And we have also invested in companies like Aquant and, (again in a past life, SiSense) which combine a fairly “traditional” enterprise sales cycle alongside some very deep technological claims that could absolutely be described as breakthrough innovations.
So wherever you are on the spectrum between “enterprise” and “deep tech”, we’d love to hear from you!