What Uniseed looks for in a physical science start-up
By Paul Butler and Sam Harley
Uniseed reviews a large number of start-up investment opportunities each year. Unfortunately, the majority of these are not ready for investment. To help start-ups be investment ready, in this article we explain the characteristics of an attractive start-up opportunity in the physical science space, noting that most investments don’t tick all of the boxes.
Characteristics of an attractive start-up:
Customer need and competitive advantage
The product being offered must address a clear identifiable customer need, be differentiated and have an advantage over existing competitor offerings. Without these, the risk is that few customers will buy the product and market share won’t be captured from competitors. At Uniseed, we often talk about the customer’s “pain point”. In other words, what problem are we solving? Is it a “must-have” or a “nice to have”?
Market Size
The market needs to be large and growing as ultimately the start-up will be sold based on its revenue and profitability.
Development Plan
Uniseed invests in early-stage start-ups whose products typically require further development. The development plan needs to be achievable and identify value inflection points. Start-ups that don’t achieve their planned objectives risk their valuation not increasing with subsequent capital raising rounds.
Team
The management team needs to have market knowledge, and the skillset and experience to deliver a minimum viable product (MVP). Alternatively, they need to be willing to add to the team if any gaps exist. Without this, the risk is that the MVP will not meet the market need.
Characteristics of an attractive physical science start-up:
Scaling Up
A common challenge for physical science start-ups is scaling up a product. This can be due to the technical complexity of a product or its novelty. Consequently, we look for start-ups that have a prototype because they are useful in identifying the future challenges of scaling up the product.
Capital Requirement for Development
Scaling up products in the physical science space can be particularly expensive. A start-up needs to have minimal capital requirement for tooling or equipment in its early stages and, if needed, the ability to use third party assets or infrastructure to progress product development. As scale up often requires a significant future capital injection, this is factored into the risk analysis regarding the ability to raise sufficient capital in the future.
Intellectual Property
A risk for any start-up is that after taking market share, competitors will re-capture market share via copying the product or service. A start-up needs to have barriers to entry in place to prevent this occurring. Hence, we look for opportunities that have a clear intellectual property position that excludes competitors.
Distribution and Marketing
A recognisable marketing channel through partners is valuable to avoid having to build and develop the entire channel from scratch. Moreover, a strong value proposition needs to be evident to secure distribution partners. If this is not present, a start-up may find themselves with a great product but limited options to sell it to customers.
If you are a researcher at one of our research partners (Universities of Sydney, NSW, Melbourne and Queensland or CSIRO) and are interested in translating your physical science research into impact through start-ups, visit uniseed.com to contact us directly.
