When it comes to diversifying your portfolio, investing in the deep tech industry can help. Deep tech as a sector is predicted to grow in the next few years, making good margins for any potential investor. Investing in a deep tech startup can be somewhat complicated, as there are different aspects to deep tech that can make the timelines or marketing process different. Deep tech startups may not have a specific market identified yet for their technology as it’s still being designed. The R&D process for deep tech startups can also take longer than other companies, and for labor, deep tech needs specific talent that only few individuals possess. However, this shouldn’t detract any investor, as deep tech startups can create handsome margins, with many companies already swelling to unicorn (over $1 million) status. In order to better understand investing within the deep tech sector, it’s important to ask the five questions below to any potential startup worth investing in.
- How fast is the technology advancing?
Knowing how fast the technology is advancing will help you to better understand how the capital markets are functioning in this subsector, and whether this particular startup can keep up and stay ahead of the curve.
- How does your company compete with similar foreign companies that may have lower costs?
This is an excellent question to ask because it gets to the risk-return tradeoffs. A successful startup will have designed a business model with their competition in mind and factored in potential lower costs from other companies.
- What does your market size look like?
Understanding the size of the target capital market can help you calculate margins from your investment. This can also help you determine the potential growth of the startup and what its marketing campaigns will entail.
- Do your founding team and administration have deep connections within the industry?
This question helps you to better understand the networking process of this company, which will contribute to determining growth as well as marketing strategies and potential partnerships. This question also lends guidance to how experienced the leadership team of this business is in developing this technology.
- What are your barriers to entry?
Asking this question can help uncover some of the timelines of the design and R&D process of the company. As an investor, you can calculate the time, roughly, of when the technology will be market-ready.
There are many other questions to ask regarding potential investment opportunities, but having these five basic questions can get the process started.
“65 Questions Venture Capitalists Will Ask Startups.” 2020. AllBusiness.com. June 18, 2020.
Chatruvedi, Swati. 2018. “How to Evaluate Deep Tech Startups.” 2018. Propel(X). April 24, 2018.
King, Simon. 2021. “The Five Questions Investors Need to Ask Deeptech Startups.” 2021. Sifted. May 10, 2021.
Wen, Fan. 2019. “Deep Tech Investment Cheatsheet.” Medium. September 7, 2019.
Image courtesy of Freepik.com