Welcome back to Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
Today we are excited to welcome Eugenio Cantuarias Partner at AceleraLatam!
Most Deep Tech founders face similar challenges, such as planning the transition from lab to industrial-scale production. This shift is crucial, marking a significant move from R&D to global manufacturing without volume limitations.
Thus, the critical step is to design a strategy to transition from lab conditions to industrial production.
This is precisely the topic of our great chat!
In this episode, you’ll learn:
🎯 Defining Company Vision and Strategic Direction
🔬 Transition from Prototype to Production
🏭 Strategic Manufacturing Choices
🤝🏻 Navigating Sales and Distribution
📈 Financing and Investment Options
🤔 How to Measure and Value Your Impact
🎧 Prefer to Listen?
KEY INSIGHTS FROM THE EPISODE
🎯 Defining Company Vision and Initial Strategy
The primary thing founders need to address is their ambition and how clearly they communicate it. They must decide what type of company they want to build.
Are they aiming to be an R&D platform, or do they want to transition into the manufacturing side of technology?
This includes transferring from R&D to manufacturing and then to sales and distribution. Founders need to envision whether they want to participate in all these areas and be vertically integrated, or if they prefer to focus solely on R&D.
Understanding and envisioning the company's direction is crucial, and essentially, it's one of the first jobs for founders.
🏭 From Prototype to Production
It's important to understand the trajectory of your company and whether it will scale to TRL 9. At TRL 3, you are establishing your R&D platform.
This involves defining:
the type of science you are focusing on,
the potential uses of the technology,
which commercial verticals you aim to penetrate,
and how you plan to transfer your research to the market.
Essentially, this stage is about scaling the process from the lab to industrial production.
Scaling Vision
Most Deep Tech founders face similar challenges, which include moving out of the lab and scaling up production to industrial facilities. This shift represents a critical transition from R&D to manufacturing on a global scale without limitations on volume.
As your company scales, you must also consider the corporate model it will adopt.
Will you have a holding company, R&D platforms, manufacturing assets, and sales and distribution networks? You'll need to decide in which parts of these units you want to participate.
For instance, as a manufacturer:
In which regions of the world do you want to operate?
Will you focus solely on licensing your technology or actively engage in sales and distribution in specific markets like Asia or Africa?
These are strategic decisions that define how your company will operate and grow. They are essential considerations that will shape the direction and success of your Deep Tech startup.
What are the crucial steps for a company to transition from prototype development to full-scale manufacturing?
For instance, imagine you are a biotech company creating materials for the fashion or automotive industry, perhaps replacing traditional leather, or a nanotech company producing nano-additives for the chemical industry.
Initially, as an R&D platform, you investigate the science and potential applications.
However, producing everything in the lab is not economically viable due to high costs and limited scale.
Thus, the critical step is to transition from lab conditions to industrial production.
Whether it's a factory, or any industrial facility, moving out of the lab is essential because it's too costly to commercially produce and sell products under lab conditions. This transition involves numerous challenges and requires a well-thought-out strategy.
In-House Manufacturing vs. Outsourcing
Not everyone may want to be directly involved in the manufacturing side. If a founder decides not to manage these assets, the company will not engage in manufacturing directly.
Instead, the challenges they need to address will involve identifying the right partners who can handle the manufacturing aspects. These partners would manage the assets needed to transition the production of products from an R&D platform to a manufacturing setting.
This choice depends significantly on the founder's vision for the company.
Anyway, Deep Tech founders, at some point, must understand the manufacturing side to grow globally and successfully. Even if they do not plan to be directly involved in manufacturing, they must at least be knowledgeable enough to negotiate favorable licensing agreements.
Sales and Distribution
Furthermore, addressing sales and distribution is crucial. Even if initially you only plan to license your technology, understanding the dynamics of sales and distribution is necessary to ensure that the products are well-received and purchased by the market. At some stage, you might need to closely collaborate with a consumer packaged goods company to develop products that meet market needs effectively.
🤝🏻 Sales and Funding
When is the right moment to seek your first customer or B2B partnership to sell your first product, particularly once you have a product and can manufacture it? It largely depends on the type of company the founders are building, and it can affect their funding opportunities.
So, let’s consider when these companies transition from self-funding through equity to exploring other financing options.
For those planning to engage in manufacturing and distribution, different investment opportunities arise. Once you have acquired assets and machinery, you're not limited to venture capital alone.
Traditional lenders and private debt become viable because these assets represent tangible collateral, differing greatly from early-stage financing which is typically more reliant on equity.
This shift in financing is markedly different from what you might see in a software company, where the investment thesis is more uniform—primarily backed by a single type of investor throughout various stages.
In contrast, a Deep Tech company has the flexibility to attract a diverse mix of investment theses as it scales. You have distinct stages, such as R&D, manufacturing, and distribution, each appealing to different types of investors based on the company’s current needs and assets.
So, when considering the right time to approach potential partners or large corporates for your first major B2B sale, it’s essential to evaluate where you are in transitioning your technology. This will help determine the appropriate investors and the type of financing that best supports this phase of your business.
Approaching B2B Sales in Deep Tech
Initially, it's possible to start selling your technology directly from the lab in bulk. This might not be the most elegant solution, as it’s not consumer-packaged, but it allows you to manage small sales of your technology.
This stage happens early and involves pilot programs with companies to validate whether your technology solves a significant market problem. This part of the process is fairly straightforward because it’s about proving your technology's utility in the market.
The scenario changes significantly once you confirm that the market needs and wants your technology. At this point, you should be preparing to scale up. You might need to establish a factory or create a consumer product that is aesthetically pleasing, complete with a strong brand identity. This preparation helps you attract a business partner who can assist in these areas.
In summary, there are two distinct stages in the sales process. Initially, you are validating your technology’s market fit through pilot sales directly from your lab. Once the market’s interest is confirmed, you then move towards scaling production and enhancing your product's presentation for larger B2B engagements.
🤔 How Can You Measure and Value Your Impact?
For instance, say your company is producing energy while reducing carbon dioxide emissions—how do you valorize your impact on the planet? Does it influence your pricing strategy, enhance partnerships, or involve government interactions? How do you measure and efficiently sell this impact?
I can share the current market perspective. If your climate tech company is making a significant environmental impact, this can indeed add real value to your company’s valuation, potentially increasing the millions of dollars you can raise.
In the early stages, such as TRL 3 or 4, it's crucial to fully understand and articulate your environmental impact. Begin by developing a clear impact hypothesis and try to estimate your potential impact using various available frameworks. This foundational work is essential for setting the stage for future value and recognition.
As your company scales and begins to face real-world challenges like supply chain issues, which you might not be able to control entirely, the complexity of measuring and validating your impact increases. At this stage, partnering with entities that share your vision for environmental change becomes vital.
There are also many tools and frameworks available, such as Life Cycle Assessments (LCAs), that can help you measure, manage, and substantiate your claims about your environmental impact. These tools are crucial for demonstrating that your company’s actions align with its stated environmental goals.
Before you go, don’t miss our latest Deep Tech Briefing!
💡 Insights on crucial facts from the week shaping the Global Deep Tech landscape at the intersection of technology, policy, and markets.
Get practical insights from cutting-edge tech innovations to the most significant startups and capital moves to stay ahead, and seize new market opportunities.
