Democratizing Knowledge and Benchmarks in Europe’s Deep Tech Sector
European hardware deep tech teams now have a valuable resource at their disposal thanks to First Momentum Ventures. The German pre-seed fund has created the Deep Tech Hardware Napkin, a comprehensive guide to funding, team building, product development, and commercialization in the deep tech industry. This resource aims to provide founders with benchmarks and knowledge specific to Europe’s deep tech sector, which often yields different results than the global SaaS market.
Benchmarks are particularly useful for first-time founders or those lacking a strong network in the startup and venture capital (VC) space. This is especially true in deep tech, where many entrepreneurs come from a research background and have limited entrepreneurial experience. First Momentum Ventures conducted a survey of 30 deep tech VCs from eight countries to address this lack of knowledge. The results were compiled into a detailed report as well as the Deep Tech Hardware Napkin.
One interesting finding from the survey is that teams led by highly technical CEOs with no business background tend to raise significantly more funding at the seed and Series A stages than teams with business-oriented CEOs. While this sample may not be fully representative, as successful startups are more likely to participate in the survey, it does highlight the potential benefits of technical founders adding business skills to their repertoire.
To further support technical founders, First Momentum Ventures has also created a community called Clueless No More. This platform allows aspiring “European scientist entrepreneurs” to learn from one another and discuss important topics related to starting and scaling deep tech startups. Cap tables, for example, were highlighted as a crucial consideration to avoid reducing the chances of success due to poor technology transfer.
Deep Tech: Bigger Rounds and Longer Road to Success
The report also sheds light on the unique characteristics of deep tech startups compared to the average startup. Pre-seed and Series A rounds in the deep tech hardware sector were larger in 2023 compared to 2022, indicating a growing investor appetite for the sector. This aligns with the global trend of deep tech claiming a larger share of venture capital funding, increasing from 10% a decade ago to 20% today. The upfront investment required in deep tech often leads to larger funding rounds.
Deep tech investing primarily involves taking on technical risk, which is compensated by less market or commercialization risk. For example, a startup that discovers a cure for cancer may face technical challenges but will likely find it easier to sell their product. However, the report highlights that even at the Series A stage, only 29% of deep tech startups have reached a repeatable sales motion and meaningful revenue. This indicates that it takes time for deep tech startups to generate revenue.
To navigate this challenge, founders need to reverse engineer their milestones and understand the costs, achievable gross margins, and expenses associated with their end goal. First Momentum Ventures refers to this process as “derisking.” Julien Macquet and Clement Van Driessen from VC firm Elaia also underscore the importance of a strategic approach and substantial capital at the Series A stage, as many hardware startups struggle to demonstrate proof of market fit. Engaging global investors from the beginning can provide the necessary funding and support to achieve key business milestones.
In conclusion, First Momentum Ventures’ Deep Tech Hardware Napkin and accompanying report are valuable resources for European deep tech founders seeking to raise funds and navigate the unique challenges of the industry. By providing benchmarks, knowledge, and a supportive community, First Momentum Ventures aims to empower technical founders and drive innovation in Europe’s deep tech sector.