Eight words to startup success

Going back to basics in the deep technology startup ecosystem

Manish Kothari
Sep 20, 2019 · 4 min read

If you’re thinking of launching a startup or joining an early-stage team, it’s easy to become overwhelmed with the advice that’s on the web. When you ask for advice, people will tell you a thousand different ways to pitch, present, and so on.

Over the last five years as the head of SRI Ventures, I’ve had the opportunity to interview over 50 VCs and ask them: Describe, as briefly as possible, the reasoning behind a “go” decision on investment. I’ve also had the opportunity to apply that reasoning to over 30 companies we have started here over the last few years. I’ve found that success for deep technology startups comes down to eight words.

Large, accessible market.

Sustainable, massive differentiation.

Stellar team.

Eight words might not seem like much, but as you read on, you’ll see how they come together to form the essence of a successful deep technology venture.

A large and accessible market

One of the simplest and most obvious mistakes founding teams make is beginning product development without confirming that there’s a large enough addressable market. This tends to happen more in deep technology companies for a number of reasons: (a) the founders are usually very passionate about the technology, and (b) given that it is a new technology, often the market is harder to estimate.

The VC space is high-risk, high reward. They need big exits to get their business model to work — this has been written about extensively elsewhere. Your exit valuation is unlikely to be greater than 0.3x – 0.5x of the total addressable market. Do the math…

At the very least, the target market for a deep technology venture needs to be worth at least $1 billion USD, however, greater than $2 billion USD segment is ideal. Otherwise, the return potential for the VC (& the entrepreneurs!) will be limited.

After identifying a sizable market, you then need to ensure that it’s accessible, meaning that there are many potential customers, and those customers are accessible. Your business plan has to have a clear plan of how to access those customers, and your team has to have the requisite skills to address that market. If you are selling to small businesses yet have an enterprise sales model — that is an accessibility mismatch. If you are doing B2C and selling via apps or online sales platforms, you have an accessibility match.

It has been drilled into founding teams to come up with Product-Market Fit. But accessibility is more concerned with Go-to-Market Fit. The size and type of your target market dictates your approach to selling. It determines how you model your finances, assemble marketing and sales staff, types of contracts and more.

In reviewing numerous pitches from deep technology entrepreneurs one of the most common mistakes I’ve witnessed are errors in thinking through the market accessibility — which ultimately lead to a rejection.

Massive and sustainable differentiation

Because investors look at 400+ pitches per year — you have to articulate a bold vision that clearly differentiates you from the rest of the pack. It also gives confidence that when an established entity with a strong sales team offers a solution with 30% of the features you promise — you can still win.

Technology ventures take time and money to build — you need to create a competitive moat that can protect the investment during the company development and increase the exit valuation at the company acquisition/IPO phase.

Investors are looking for startups that can grow rapidly and keep the momentum going after the initial launch. Showing investors that your startup can meet those criteria is your key to success.

This is particularly important in deep technology-based companies, where the investment requirements to get to the market are typically very high — the competitive moat provides some collateral to justify the decision.

There are different ways you can build this sustainable differentiation: through the use of IP, proprietary data agreements, and even by assembling a unique team (although this is weaker form of sustainability — because the team composition can change over time).

Since every deep technology startup is different, it’s impossible to say which approach you should take. When identifying the differentiators to highlight to investors, you need to develop a hypothesis on how to achieve that advantage.

A stellar team

This fact is very well recognized throughout the investment community.

When early stage investors put money into a company, they’re not betting on the technology itself, but rather whether the team can make those ambitions a reality. When an early stage investor rejects an entrepreneur, who makes it past the initial screening rounds, it’s almost always due to a weakness in the team rather than the technology itself.

Rather than being direct, the investors often say the rejection is due to the go-to market strategy not being great, or problems with the market analysis. Don’t expect them to tell you if you should reevaluate your team.

Putting this into practice

If you decide to set out and develop your own deep technology venture or join an early stage team working in that space, it’s important to not only look at the technology, but whether the team is setup for success.

There’s plenty of ways professionals evaluate ventures and predict success. While there’s no shortage of metrics and terms they’ll cite, the analysis always begins with the three segments discussed earlier.

Before you start pushing to develop your business, consider the eight words discussed in this article. If you find that your venture doesn’t effectively meet the principles them all, then it’s time to hit pause, take a step back, and refine your plan.

The Dish

For people who want to make the world a safer, healthier and more productive place through innovation. Created and curated by the team at SRI International.

Manish Kothari

Written by

Manish Kothari, Ph.D. is the president of SRI International. He oversees SRI Ventures, Global Partnerships, Marketing and Communications, and SRI’s Japan Office

The Dish

The Dish

For people who want to make the world a safer, healthier and more productive place through innovation. Created and curated by the team at SRI International.

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