Technical Diligence

Understanding deeply the deep tech offered by our Prime Movers

Prime Movers are founders with the potential to impact billions by reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture. Choosing good investments requires understanding their underlying scientific breakthrough and resulting technology enough to identify the risks and help founders manage those risks. We are able to do this, across many industries and disciplines, through a technical diligence process run by a diverse team of accomplished scientists and engineers. This post aims to help investors understand our technical diligence process that aids in good investment decisions as well as good investment management.

Tech is only part of the picture. It is important to recognize that Prime Movers Lab’s overall diligence process has four pillars: Team, Tech, Biz, and Deal. Here are the high-level themes of our pillars:

• Team — We look to partner with teams that value love/connection, growth, contribution, and have a good track record.
• Tech — There is a breakthrough and defensible intellectual property.
• Biz — There is a sizable market, their business model makes sense, and their future funding needs are achievable.
• Deal — It aligns with our fund strategies.

The technical diligence portion of the process of course focuses on the Tech pillar but may also contribute to the Team, Biz, and Deal pillars. Is the investment amount appropriate to achieve the advertised technical milestones? Are those technical milestones the right milestones and in the right order? What are the competing technical options in the market? And is the team technically credible to execute? Thus, as a hard or deep tech investment firm, we don’t only focus on the physical hardware and whether it works but also can it scale? Is the team positioned to solve the unknown unknowns and execute? Does the market really want this thing?!

Well-Positioned. The first step in achieving good technical diligence is being in a position to perform the diligence in the first place. At Prime Movers Lab, we have strategically grown a technical team to cover the many industries we target. They are informed by a range of experiences including leading cutting-edge research, founding startups of their own, and performing technical management. They bring expertise, networks, and passion for our mission of identifying credible breakthrough science that can solve the world’s toughest problems.

In the Know. Like any team that aims to remain competitive, these scientists and engineers keep in intellectual shape by performing research and continuously building upon their knowledge. You will learn here that the technical diligence process enables them to stay informed of the state of the art during active deal flow. Outside of reacting to investment opportunities, they also proactively perform research aligned with their passions, publishing technical blogs, conducting webinar panels with other leading experts across industry, government, and academia, and writing thought papers. They learn of developing innovations by speaking at conferences and volunteering at accelerators. To broaden their technical prowess, we are tremendously fortunate to arm them with a large committed network of equally passionate and extraordinary advisors.

Our diligence experience with PML was quite positive. We were impressed by the fact that PML had a laser expert with ~40 years of experience that did the deep dive into the nuances of our technology. In our opinion, relevant domain knowledge is critical to the diligence process.

-Andrei Iancu, PhD, Founder and CEO at Halo Industries, Inc. (a portfolio company)

Recognize the Stage of the Company. Before we dive into the process, let’s first talk about how the stage of the company impacts the amount of technical diligence performed. Early startups in the “seed” stage are typically raising funds to develop their first product. They may not even have a prototype or patents, so the data available for technical diligence are limited. Contrast that with a company in its “growth” stage where they may have generated tens of products and are looking to scale to thousands, or they may be generating revenues but not yet profitable. Obviously, a company in the growth stage has much more technical data — and requires significantly more funding to scale. Thus we generally perform more technical diligence on a growth stage company with a plethora of data and larger required investment to protect.

A Process Respectful of Founders’ Time. Diving deep to validate founders’ scientific breakthroughs and their applications can be time-consuming. We don’t go there unless we are starting to build conviction around the founders themselves and their mission. We use a funnel-type approach, starting with big important themes, and moving more specific as we gain more understanding and conviction, all the while being sensitive to the founder’s time. That process can be generally described as a first conversation, followed by a second conversation and then a deep dive.

The First Conversation. In our initial conversation, we assess if the investment opportunity is a fit with Prime Movers Lab. We look for founders that share our values and mission to impact billions, and whose investment needs align with our fund strategies. We try to pack in a lot of questions and have founders get to know us in the process! This includes helping the founder understand our entire process and answering their questions about Prime Movers Lab, each step of the way.

The Second Conversation. The second conversation can touch on all pillars but usually has a focus on the tech. Again, being cognizant of founders’ time, we are looking to see if our core beliefs align with the founders.

• Strength of the technical team — We meet critical members of the technical team to learn of their expertise and experiences. We evaluate how that enables the application of the scientific breakthrough, and how committed they can be to the mission (e.g. are they full time or are they only advising).
• Appreciable market opportunity — We aim to understand the market size better and identify what it is we need to believe to address that market. The technical team can inform the state of the art and the metrics upon which the market will judge the innovation. They ask, “How does a breakthrough scientific invention enable this startup?”
• Ahead of the competition — We identify what defensible intellectual property exists or is in the process of being created, and how their technology is differentiated from competitors.
• Timing is right — We explore the founder’s reason for “Why now?” (Why is this going to work now vs 3 years ago or 3 years from now? Is it the technical insight and ability that now exists that didn’t before, or is it a change in costs and/or environment?)
• No significant scientific risk — We learn what major technical risks have been conquered and what the founders think are the biggest engineering risks remaining.

Obviously, this second conversation is driven by the beliefs of the founders. Having a team of engineers and scientists allows us to quickly fact-check the information received and identify any significant misalignments.

The team knew their stuff going into the diligence, which was great because it meant I didn’t need to spend hours getting them up to speed — we talked about what was important from the get-go.

-Matthew R Angle, PhD, Founder and CEO Paradromics Inc. (a portfolio company)

The Deep Dive. We constantly ask ourselves if we are excited about spending more time getting to know a company and its team across all dimensions. If so, we move to what we call a “deep dive.” The deep dive starts with a documented plan, building out our decision-making framework around the pillars. From a technical perspective we are looking to validate the following:

• Validity — Both scientific and engineering plans respect the laws of science
• Requirements — What needs to be built is clearly understood
• Maturity — Their engineering, documentation, planning, and manufacturing standards are appropriately maturing
• Defensibility — It’s hard to copy their achievements, IP/trade secrets strategy, and execution

We request as much information as possible from the founders in order to prepare our questions for follow-on meetings with them and their teams. My partner Suzanne Fletcher wrote an informative blog describing a list of helpful information we request they include in their data room. Technical data may include:

• Patents or Documented Trade Secrets
• Schematics Explaining Key Intellectual property
• Technical Marketing Collateral
• Case Studies and/or Proof of Concept (POC) results
• Product roadmap (be clear on beta units, production, mass production, etc.)
• Any additional descriptions, research papers, or deck appendices on how their innovation works or other deep dive on the technology

By reviewing this material in-depth, we are able to ask concise, to-the-point questions and best use founders’ time. For example, depending on the stage of the company we may assess performance specifications, manufacturing and scale-up plans, options for and terms of licensing, roadmap timeline to revenue, what expertise or key hires are missing from their technical team, etc.

Many follow-up questions are identified that require us to solicit input from external advisors, potential customers, government entities (e.g. regulatory and funding agencies), published journals, or other research materials. When available, we solicit live demonstrations of the technology or product, review test data, and perform site visits.

We also strive to identify opportunities to provide value-added advice during the deep-dive sessions so that our diligence process not only serves our needs but also results in significant progress for the potential investment regardless of whether we invest.

From a founder’s perspective, it [the technical diligence process] is very thorough. There’s something about knowing that Prime Movers Lab has deeply thought about our tech that creates a stable foundation for the ongoing relationship. So if we are starting from a super honest, clear-eyed understanding of each other, we can have straightforward conversations about the good and the bad.

-Samuel Reeves, Founder and CEO at FORT Robotics (a portfolio company)

A successful deep dive results in both the founders and us aligning on whether this is a fit for a partnership. The focus is to get to know each other deeply as people and how we would work together to support the founders in achieving their vision and mission.

What results is a partnership based on our service as much as our funding. We work hard to build trust, pick the winners, and continue supporting their mission to transform billions of lives!

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.

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