VC Red Flags - New tool
Curious: what red flags have people found trigger VCs to say no? The one I hear the most in deep tech is, "You're too early." But there are scores of others.
I've put together a tool to help founders identify some of the big ones I've come across. You can check it out here: https://www.deeptechdirt.com/assessments/red-flag
What am I missing? What have I called a red flag that you think isn't that big of a deal for a founder?
@Nca2116 @agagnon @Monica Curious what you've seen over your journeys.
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Sign InThe founders are not sufficiently incentivesed. I couldn't give a flying... I want to see the product get to market and succeed, money doesn't motivate me, the buzz of seeing our tech everywhere, does. Sure I have other motivators - knowledge being the biggest by far, and that is something I gather throughout the startup journey anyway. If investors want proof of how much I don't care about money incentivisation, they can look at what Lambda had to go through to get to where it is now. We were 1.5 weeks away from going into administration, the CEO title was swapped over to me and whilst pregnant with exhaustion being my main symptom plus an energetic 2 year old, I went through a bloodshed of a fundraise (shares fire sale) at half salary, 6 simultaneous accelerators (some yielded capital), winning competitions around the UK and the world (yielded capital), working all hours until we raised the full amount and overfunded by £100k on top. If honour and curiosity are at the top of a founders' value system, you can forget capital, that's not the motivator.
Oh, yeah, that's a classic. Deep tech founders especially can get a bad rap for not being motivated to maximize shareholder value (i.e., being too in love with the tech). I once had an investor ask, "Do you want to ring the bell at the stock market, or not?" insinuating that if that wasn't my primary motivator, I wasn't worthy of investment. Thanks for sharing your story, and glad you stuck it out!
Agh! It's incredibly frustrating, people are different, they have different value preferences and motivators. My former supervisor knew this well. He used to give a sweet to everyone who completed a task, except for me. When I asked him why he didn't give me any, he chuckled and said "Monica, sweets don't motivate you, knowledge does!" - he was right, I couldn't care less about the sweets, I wanted to know his method, why he was doing it. He was a great leader. Often "money people" hold the keys / the final say - if so, they must know how to lead, and knowing how to lead means being more like my former supervisor.
I've had VCs and other investors say "no" for lots of different reasons, though often times they give no reason at all. One common red flag is team related, specifically around marketing. Hard tech requires technical people, so the roadmaps I've shared with investors usually have several technical hires and not a lot of marketing and sales, at least in the near-term. VCs want a senior marketing hire early to jumpstart revenue. While I think VCs are usually flagging my bias as a technical person not understanding the business side of things, they should be flagging the technical risk of the market solution that's prompting my proposed technical hires.
Another common "no" I've heard is a go-to-market narrative that is too reliant on government regulation to generate revenue. I probably hear this because I've worked on solar energy and batteries that have this aura of needing to be subsidized to compete with legacy energy generation. Lots of products, perhaps most products, have some sort of regulation assisting or hindering their deployment. Some VCs have tasted a little too much free-market Kool-Aid (while enjoying a tax code that subsidizes capital investment), and so shy away from investing in ventures they see as regulated. That said, I have had good advice from VCs about bringing on talent to deal with regulatory landscapes.
Your point about regulatory support is a good one. Most VCs I've talked to are talking about tailwinds rather than relying on regulation for the business model to work.
The one about marketing and business development is interesting. It does feel like putting the cart before the horse. Of course, lots of companies struggle to get that first paying customer, so the VCs' concerns aren't entirely crazy.
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