Welcome to the 56th edition of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
This week, we are excited to host Leonardo Massa, Investment Director at MITO Technology to discuss the critical steps for transforming groundbreaking ideas into investable deep tech companies.
In this edition, you’ll learn how to transition a lab prototype into a VC-backable startup, why customer discovery is essential for aligning innovation with market demands, and how financial planning can lay the foundation for scaling.
We also explore the nuances of negotiating with Technology Transfer Offices (TTOs) and share strategies for creating an "unfair advantage" that sets your startup apart.
Key Themes Covered:
🔬 From a Lab Prototype to a VC-Backable Startup
🥇 The Importance of Building an Exceptional Startup Team
🎯 Customer Discovery 101: Does This Matter to the Market?
📈 How to Approach Financial Planning in Early-Stage Ventures
🤝 Navigating Negotiations with Technology Transfer Offices (TTOs)
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KEY INSIGHTS FROM THE EPISODE
🔬 From a Lab Prototype to a VC-Backable Startup
The first thing scientists often focus on is building the best possible technology. While this dedication to technical excellence is admirable, it’s only part of the equation when transitioning to entrepreneurship. To succeed, founders must also understand the perspective of venture capitalists (VCs) sitting on the other side of the table.
Strong intellectual property (IP) developed in the lab, often supported by Technology Transfer Offices (TTOs), is a great start. However, it’s not enough.
To build a successful startup, founders need to establish a critical foundation that includes:
financial planning,
a clear unique selling proposition (USP),
and a world-class team.
Founders must also understand why their company will grow and what factors drive that growth—beyond just the strength of the technology.
Understanding the Venture Capital Perspective: What Founders Need to Know from Day 1
In the early stages, funding typically comes from angel investors or VCs. To secure these funds, founders need a well-defined timeline and clarity on where resources will come from and how they will be used.
For VCs, funding decisions are often binary: either a startup is worth the investment, or it’s not. In fact, VCs are searching for rare, outsized successes that can compensate for the many investments that don’t yield returns.
This is where founders must consider why a fund would choose to invest in their startup. VCs evaluate potential not only on the basis of a good idea but also on whether the company can deliver significant returns for the entire fund.
For example, a $100 million fund investing $2–5 million in a startup requires that the company generate returns 20–50 times the investment to justify the allocation. This approach is rooted in the power law distribution, a principle that dominates venture capital strategy.
For this reason, founders must ensure their project targets a large, scalable market and demonstrates the capacity for rapid growth, aligning with the typical 10-year lifecycle of a VC fund.
Achieving these returns requires not only an excellent product but also the ability to scale quickly and address a large market.
Founders need to think big and move fast. Time is especially critical because most VC funds operate on a 10-year lifecycle. By the time a founder secures funding, the VC typically has only about 9 years left to realize returns before the fund’s close.
This compressed timeline demands that startups execute swiftly and efficiently.
So, key questions for founders to reflect on include:
Am I addressing a market large enough to deliver substantial returns?
Can I grow fast enough to meet investor expectations?
Am I ready to commit to years of building expertise and leading in this field?
Ultimately, founders must decide whether they want to dedicate themselves to becoming global experts in their chosen domain or pursue alternative paths, such as licensing their technology. Understanding these dynamics and aligning personal goals with market demands is critical to building a startup that not only secures investment but thrives in the competitive world of venture-backed businesses.
🥇 The Importance of Building an Exceptional Startup Team
Many founders, particularly in scientific fields, often underestimate the complexity of building a strong and defensible team when starting a company. Their initial focus tends to be on launching the business, without fully considering the importance of complementary skills and team dynamics.
However, creating a successful startup requires more than just innovative technology or strong intellectual property (IP). A company becomes exceptional and defensible not just through its IP but through the strength of its team.
The Transition from Researcher to Deep Tech Founder
Transitioning to entrepreneurship demands additional skills, including:
storytelling to attract investors,
managing people and resources,
overseeing finances, labs, and timelines.
These are often skills honed through the iterative and resilient process of a PhD, where failures in experiments, article submissions, or setups build persistence and adaptability.
This entrepreneurial spirit can be a powerful foundation for startup leadership, but it requires a strategic approach to team building.
Team and Execution
At the early stages, particularly in the pre-seed phase, founders should focus on addressing immediate needs rather than attempting to build a fully formed executive team.
For instance, hiring a VP of sales or a CEO with industry experience might not be necessary right away. Instead, founders should identify the critical complementary skills required to mitigate risks. If the product's technical aspects are the biggest challenge, the initial team should address those issues while beginning to bring in expertise in business strategy or market development.
In the ideal scenario, a startup might start with an excellent, well-rounded team that immediately attracts investment.
For example, a founder with prior successes might inspire confidence simply by presenting their new idea. However, this is rare. Statistically, 90% of startups fail, and only a small fraction achieve significant returns.
Founders must focus on creating an unfair advantage that sets their startups apart. This could mean becoming the world-leading expert in their niche or developing a team with unparalleled execution capabilities.
At this stage, the goal is to assemble a group of people who share a commitment to excellence. Great technology alone is not enough; it's the team’s ability to execute and adapt that ultimately drives success.
Founders should constantly ask themselves how to attract and retain exceptional talent and how to align their vision with the team’s mission. While perfect teams are rare, building one with complementary skills, resilience, and shared purpose is what makes a startup truly exceptional.
SEE ALSO:
🎯 Customer Discovery 101: Does this Matter to the Market?
The first critical question of an entrepreneurial journey is: Does this matter to the market? To answer this question, 2 essentials must work together from the very beginning: the product roadmap and customer discovery.
A clear product roadmap outlines the path to validating key aspects of your technology in a way that aligns with what your customers truly need and value.
Customer discovery involves reaching out to potential users, industry experts, or stakeholders in your field to test whether your hypothesis holds value. It’s about building your ecosystem—attending conferences, networking with experts, and collecting feedback. This process not only tests the relevance of your hypothesis but also provides critical insights to refine your approach over time.
Technical Feasibility and Competitive Advantage
In the lab, we often create prototypes at a very small scale, far from a minimum viable product (MVP). Yet, the MVP is essential for demonstrating progress and feasibility, especially during fundraising. Founders must map out a timeline that connects the creation of their MVP with subsequent funding rounds, ensuring that each milestone builds on the last.
Prioritization is key here—identify which aspects of development deserve the most attention and allocate resources accordingly.
The MVP should be tested to see its real-world impact. Here are 3 helpful questions to guide the development of your product and business strategy:
If this works at this stage, will it still matter in terms of capability and efficiency
Does it solve a significant problem or offer a competitive edge?
Does the MVP provide the foundation to transition from a small-scale prototype to an industrial-scale process?
By combining a robust product roadmap with ongoing customer discovery and technical validation, you create a foundation for aligning your scientific innovation with market demands.
📈 How to Approach Financial Planning in Early-Stage Ventures
Let’s consider a hypothetical case study of a hydrogen plant concept with robust intellectual property (IP) already in place. With the IP work completed, the next step is to explore how to transition from a lab-scale prototype to a scalable business, particularly from a financial perspective.
Understanding the Basics: Running the Numbers
Whether at the industrial or seed stage, running the numbers is essential to assess feasibility and determine the funding needed for your startup.
Investors, especially VCs, will expect you to clearly articulate:
How funds will be used: Map out milestones and expenses.
A timeline of deliverables: For instance, starting with the production of grams of hydrogen and progressing to kilograms, outlining the steps required to achieve these goals.
The main purpose of this financial model is to identify cost drivers, steer R&D efforts, and communicate results effectively to stakeholders, including customers and investors. This level of clarity helps investors, from early-stage backers to growth-stage funders, track your progress and understand the scalability of your concept.
Building a Process Model: The Foundation of Financial Planning
Creating a process model for hydrogen production is much like preparing a scientific paper:
State of the Art/Methods: Begin with data collection—compile information on materials, energy inputs, and reaction kinetics.
Run Simulations: Use the data to create a simple flow diagram that outlines:
Inputs (e.g., water, electricity).
Outputs (e.g., hydrogen, oxygen).
Energy requirements for processes like electrolysis.
By incorporating technical parameters—mass balances, energy dynamics, efficiency, and capacity—you can translate this into financial terms, such as capital and operational expenditures.
Scaling and Defining Milestones
To move from grams to kilograms of hydrogen production, you must:
Define measurable milestones that reflect progress.
Allocate resources efficiently for each stage.
Consider the scalability of your process—how to transition from lab-scale to industrial-scale production.
For example, in green hydrogen production:
Energy from renewable sources (solar or wind) powers the process.
Water supply and electricity feed the electrolyzers.
Electrolysis splits water into hydrogen and oxygen, which are then compressed, stored, and distributed to end users.
The Importance of Speed and Iteration
Speed is critical, as time is money, especially in early-stage ventures. Your initial milestones are not just about reaching production goals but also about demonstrating the potential for scalability to investors.
Define a clear timeline for progress, iterating the process as needed to optimize costs and ensure sustainability.
By following this structured approach, you can transition your lab-scale prototype into a compelling business case that attracts investment while preparing for industrial-scale production. This method not only showcases technical feasibility but also demonstrates financial viability and the ability to scale effectively in the market.
🤝 Navigating Negotiations with Technology Transfer Offices (TTOs)
Negotiating with a university’s Technology Transfer Office (TTO) is a critical step for any startup looking to license intellectual property (IP). The office’s priority is to secure the best deal for the university, which often means focusing on licensing fees or royalties, rather than the long-term success of your startup.
Founders must approach these negotiations strategically and with a clear understanding of their needs and limits. Here are some tips to approach this path.
Before diving into it, a disclaimer: Legal Support Is Essential. A skilled lawyer is invaluable for navigating complex terms, ensuring compliance, and avoiding long-term pitfalls.
Start by Assessing the Need for Licensing
The first question to ask is whether the patent or IP is essential for your startup. If it’s not critical, consider avoiding the license altogether.
Form a Legal Entity
Before engaging in any negotiations, you must establish your company as a legal entity. This step includes determining the equity split among founders. Without an entity in place, the TTO cannot enter into meaningful discussions with you.
Build Positive Relationships
Maintaining good relations with the TTO is essential, especially as you may need ongoing collaboration in the future. For instance, you might hire talent from the university, engage in research partnerships, or seek further support. A strong relationship can smooth future interactions and benefit your startup in the long term.
Equity Stake
In Europe, universities typically take an equity stake in the range of 0–5%, with the median being around 6%. Founders should aim to keep this as low as possible to avoid dilution, especially since universities often do not contribute to the operational growth of the startup post-licensing.
Royalties
The ideal scenario for founders is zero royalties. If this isn’t feasible, royalties should be tied specifically to the licensed technology, not the company’s overall revenue.
Timelines and Process
Negotiating with TTOs is often a slow process. In Europe, it can take over 12 months, while top universities like MIT or Stanford might complete negotiations in 2–3 months. Be prepared for delays and manage your expectations accordingly. Whenever possible, prioritize face-to-face meetings, come prepared with an agenda, and focus discussions on equity, royalties, and licensing terms.
Practical Tools and Resources
Platforms like spinout.fyi can provide valuable data on typical equity stakes and licensing terms across universities, helping you benchmark your negotiations.
Final Thoughts
Negotiating with a TTO is not just about securing access to IP; it’s about setting the foundation for your startup’s future success. Approach these discussions with a clear understanding of your needs and limits, backed by thorough preparation and legal support. Remember, everything is negotiable, and many terms can be revisited even after signing.
