Startup Tech Call Assessments: A Tech-Intensive VC’s Perspective
By Marc Rougier & Dimitri. Edited by Anya Brochier & Louisa Mesnard.
At Elaia, we do our best to help founders at all steps of their journey. As we invest across tech-intensive and deep tech startups, this implies to also get to the heart of their tech expertise. In this article we’re diving into how we at Elaia approach tech assessments with founders, as part of our due diligence process.
We’re addressing tech founders of early-stage (Pre-Seed to Series A/B) startups who are entering the fundraising stage, and is intended to serve as a focused reference for tech-intensive software startups. Stay tuned for our deep tech focused iteration!
Let’s get started!
The first encounter
Before we even look at the tech, when it comes to the initial meeting between an investor and founders, three key things stick out: first up, the ‘why’.
As you know, the journey of a startup begins with the ‘Why’. For a startup, articulating a clear and compelling ‘why’ — its foundational mission (as seminally defined by Simon Sinek in his book “Start With Why” and outlined in easy steps in our CPO article) and purpose — is crucial for establishing its identity and guiding its strategic decisions. This mission serves as more than a business objective; it acts as a beacon that inspires employees, attracts customers, and fosters a culture of innovation and loyalty, which are essential for sustainable growth and success in the competitive tech x business landscape. Not to mention it’s the heart of your fundraising pitch!
Second, we need to fall in love. Not just with the idea, but with the founders, the team. As much as VC is a financial investment, we’re first investing in people, especially at the early-stage. When we meet founders, we ask — do we trust them? Do they inspire us? Could we work together? This personality-fit is a key driver in bringing us to the final part of the initial assessment: the market opportunity. And to fall in love with a new venture, we also need to be seduced by the underlying market opportunity — is it asking for this product? Is the market growing? Is it acquisitive, regulated, accessible, competitive, etc.?
Only after being convinced of these pieces, does the ‘how’ kick in. In the dynamic landscape of early-stage, tech-intensive startups, understanding the ‘how’ of your venture is crucial. This is the phase where the mechanics of your innovation are most intensely scrutinized, a focus that tends to be less of a priority as you move towards Series B/C and growth stages. Our mission is to explore far beyond the conventional realms of business models and market forecasts, delving into the very technological core of your startup.
Thanks to our 20+ year journey as a tech-intensive investor and our partnership with world leading academics, we’ve been lucky to encounter numerous ultra talented researchers, engineers, geeks, coders and CTOs; an invaluable network of experts with whom, in addition to our own very technical team, we can exchange during our tech evaluation, giving us the tools to approach our investment landscape with a 360° understanding.
With this in mind, we pay special attention to how a founder explains the “how”. There is no “one-size fits all” approach to assessing the tech of a startup; however, several criteria will inevitably be assessed. We need to understand:
- How unique your tech is; and to which extent this uniqueness is defensible
- How your product is built, how ready for action is it
- How your tech team is staffed and organized
1. What do we mean when we talk about… uniqueness and defensibility?
Not every successful venture requires unique tech. Stellar GTM based on a “properly developed” product leads to success: it’s about market, team and execution, more than about tech. But this article concerns startups whose unfair advantage, whose DNA is a unique product based on a unique tech — our so-called tech-intensive category. When assessing a startup in this category, we really need to understand how unique and defensible this tech is. Because we do believe in market disruption led by breakthrough technology.
The purpose of a unique tech is two-fold:
- To create value that previous tech could not deliver. Think about LLMs.
- To build a moat that protects this value as your private asset.
We will assess both aspects in your startup.
And you can establish this tech-superiority in two ways:
- By solving very difficult problems (for example when you develop a unique algorithm based on years of research and private first-hand data);
- or by developing complex engineering that requires years of experience and unique knowledge of the ecosystem into which your product will evolve.
And often, obviously, it’s both.
When it comes to core technology and algorithms, in 2024, it’s most likely to do with AI. Even though AI, in one of its many flavors, is pervasive, there is nonetheless more to tech than AI (cryptography, network protocols, robotics, quantum, biotech, VR, math, etc.).
In the case of AI-powered startups, we would look into how the engineering balances using proprietary and public data and/or synthetic and classical data. The selection and development of AI models are critical in determining a product’s intelligence and capabilities.
Factors such as the volume of data, the costs and computing power involved in training these models are pivotal considerations, as they directly impact the product’s development and operational efficiency.
When assessing tech, we do not focus on core algorithms or data set as “intrinsic” assets: we do it in the context of the claimed value of your product: we assess how solid your core tech is, in the specific context of your product mission. Your core tech does not need to be simply “advanced”; it needs first and foremost to be relevant and to deliver a unique value.
We closely examine if the barriers to entry in a startup’s domain can be fortified through Intellectual Property rights like patents, definitive benchmarks, or credible third-party assessments; and what the startup’s attack and defense strategy is regarding IP. This analysis isn’t just about the current market position but is also a projection of a startup’s ability to maintain a competitive edge in a fast moving competitive environment.
Finally, we will assess the right to operate, as IP and data are often a delicate topic from a property, privacy and regulatory perspective.
AI-driven startups face a yet unresolved challenge both for closed-source and open-source models concerning how a company manages IP in data inputs. This issue isn’t going away, as evidenced by a recent lawsuit filed by The New York Times against OpenAI. These questions will continue to evolve as technology becomes more widely used and integrated.
When developing a tech product, compliance with various regulatory mandates is essential, particularly concerning data components, such as Europe’s GDPR. Consider: how have you constructed the tech stack to safeguard users against data theft? Legal aspects are truly important. Code is indeed law.
2. What do we mean when we talk about… Product readiness?
To be a legitimate contender in your market, you need a product with a unique tech that delivers a unique promise. In the above section, we outlined how we would investigate this element.
But to turn this unique tech promise into a winning product, you need much more. You need a well mastered, comprehensive engineering process that encompasses everything from core algorithms to API to UX. We will assess these aspects too.
As early-stage investors, we understand that your product will mature through many stages, from your initial whiteboard ideation session to earning a world-wide reputation. When we first meet at the early stage, the product could be anywhere from a rough prototype to an MVP to a first GA release with a handful of clients. Hence, necessarily incomplete. We know that you have demonstrated the value of your core tech, but you have not yet developed a fully featured, fully scalable, production-ready product.
In our assessment, we need to understand your tech maturity regarding all these non-core, yet production-required aspects too: in your current product version, and in your road map ahead. When we mention “product readiness” for a tech-intensive startup, we do not only refer to the maturity of the current version in the product life cycle, but also to its structural quality, to its intrinsic engineering strengths.
We want to invest in unique tech that can realistically be delivered, used and supported in real-life, production environments, and at scale.
Here are a few examples of topics we’ll dive into:
For a client there is no good tech, there is only good product.
Scalability: Scalability is a key factor when assessing potential, as the investor looks at how well the system can handle increased loads and user growth. Performance is also critical and the efficiency of the system, response times, and resource optimization will be evaluated. The Service Level Agreement (SLA) is discussed to understand the promised service quality, particularly uptime and support responsiveness. The choice of infrastructure, be it cloud-based, on-premise, at the edge, or any possible hybrid configuration, is assessed to determine how it supports the business’s scalability and performance.
Containers, libraries, cloud, API and third-party components: We also look at your choice of Cloud services and your Cloud Architecture (such as Future Proof Architecture), what Containers and Libraries you’re using, what third-party APIs are integrated and why they were chosen, knowing that these shape the product’s functionality and efficiency both now and for the future.
Security: Robust security layers are key to any tech architecture — this is even more the case when working on sensitive data or regulated markets.
Integration: If your product is targeting Enterprise clients, it will probably require some level of integration (occasionally, custom) into your clients’ environment. How you can integrate, parameter, set-to-work and support your product efficiently from a tech / engineering standpoints is also key to your product success.
Maintainability: This aspect will be a result of your architecture, components, languages and other engineering choices. Digital tech evolves at the speed of light. Tech debt and refactoring are unavoidable in the long run. But they are costly. A well-thought through engineering strategy that enables easy, fast and modular evolution, be it for mere maintenance or planned roadmap, is an absolute must for long term success.
UX/UI: For a client there is no good tech, there is only good product. For large enterprises, the UX/UI must continuously evolve to align with the company’s existing workflow. In contrast, for SMBs, the UX/UI needs to be well-designed from the outset, requiring minimal adjustments thereafter. Good UX can only be designed if you know your user persona well.
Test and validation: Eventually, we need to understand the level of quality of your product. Both the current version (to assess the probable time to market, the readiness to be sold and used in product, at scale) and your overall strategy and organization to validate and benchmark your future versions will be evaluated. This helps prove that these versions can deliver your product’s unique value, while meeting the expected quality requirement of in-production usage.
Bonus track: offer the investor access to your product to test it after a product session/meeting (or even after an introductory call). If you are working on your future version of the product, explain the differences with the existing product and when it will be released.
3. What do we mean when we talk about… the tech team?
In tech as in any other aspect of business, it’s all about people. We will need to assess the strengths of your current team and tech leaders (being a tech-intensive startup, it’s likely one of your founders is CTO) and to understand your recruitment strategy and dev organization. We need to assess whether you are geared up to take on the challenge of growing your product fast (speed is the name of your game, as a startup), while staying at the cutting edge of tech innovation.
When it comes to recruitment, the tech team must be a blend of diverse yet complementary talents — each developer, whether a back-end expert, a front-end artist, or a DevOps wizard, plays a unique role. The company’s ability to attract top-tier talents, such as PhDs, could be a key consideration. Building pathways to recruit and retain in-house talent not only enriches the team but can also speed up progress along the technological roadmap, enhancing the company’s ability to outpace competitors. Additionally, the discussion will cover any strategies implemented to facilitate continuous learning within the tech team.
Team workflows: Workflow methodologies are crucial as VCs look to understand the rhythm of the tech team’s workflow; the best teams efficiently balance the very subtle requirements of speed, agility and quality.
VCs are looking to understand how the roles of the CTO (owner of both the product uniqueness, its vision, and the core tech), the CPO (owner of the product road map, aligning features and product versions with market needs and opportunities) and VP Engineering (orchestrator of the dev team and master of product delivery) work together and share responsibilities. Should the startup be too young to yet have different people for each of these three roles (this is perfectly OK), we’ll look at how the missions are shared across the existing team. Some questions we’ll ask: Are the objectives and responsibility properly and explicitly identified? Are they born by people with relevant skills, experience, motivation and incentives? What is the recruitment plan moving forward, to support the product-led success of the Company?
Bringing it all together
Our focus at Elaia lies in deeply understanding a startup’s technological backbone, from team dynamics to strategic decisions in technology deployment. Once our team understands the core why and connects with the founders, the ‘how’ is a crucial next step to lift up the hood and see the tangible elements of an idea. By paying attention to a product’s uniqueness, a product’s readiness and the composition of the startup’s tech team, we can begin to get a fuller image of not only what the company is, but what the company could be. This potential is key to every tech assessment we undergo.
