Startups need to hire people, file patents and buy equipment and material to build pilots. To do so founders need to raise external money. But if you are a first time founder you may not know about all the pitfalls. During our webinar "Clueless about: Raising the first round" First Momentum's Head of Research, Dr. Ana Koller, reflected with the three seasoned founders and one VC on the best practices to strategize on the first funding round. The panel consisted of Martin Weber, founder of one • fıve, Tobias Grab, founder of Kipu Quantum, Felix Pörnbacher, founder of Deep Drive and Daniel Reese, Investment Manager at UVC Partners.
Venture capital isn't always the best choice, especially in a startup's early days. Take a moment to assess what and who your startup needs and weigh the pros and cons of different funding options. If you decide to roll with VCs early on, here's the insider view: VCs secretly cherish three things the most – a stellar team, a killer Unique Selling Proposition (USP), and a promising growing market. When pitching, shine a spotlight on your USP, your deep market smarts, and your team's ability to solve problems in that market.
Fundraising isn't a wild shot in the dark; it's a strategic game. It starts with a clear long-term vision and an honest look at where you stand now. For deep tech startups, it's all about reducing risks. Before diving into fundraising, identify the big risks, like tech validation and hiring top talent, and figure out how to tackle them. When talking about complex tech, make it digestible with credentials, proof points, and crystal-clear validation methods. Transparency is the building block of trust here – share your wins and challenges, even with future investors. It keeps them in the loop and invested in your journey, and it helps them get comfortable with you in the driving seat.
Kickstart your fundraising efforts well in advance, since the process can really take a while. Concentrate on building and nurturing relationships with VC and other investors, all while actively seeking continuous feedback. Remember, personal introductions hold more sway than cold emails. Make sure you know what you are after. Establish a clear fundraising strategy that outlines the ideal involvement of VCs or angel investors in your venture. Angels can offer invaluable industry insights, mentorship, and introductions, whereas VCs can assist you in gearing up for subsequent funding rounds. VCs contribute more than just technical expertise; they bring valuable connections and scaling experience to the table. Strive to partner with VCs who share a genuine interest in your industry and are fully committed to supporting your company's journey to success.
Learn more about our Clueless No More community for (aspiring) scientist founders or follow First Momentum on LinkedIn to get notified when our next panel happens.
Read below the full AI-generated transcript of the recording. 👇
Ana Koller
Great. If you don't mind, I'm going to kick it off and then this will give enough time for others to join in. So, good evening everyone and welcome to Clueless About raising your first round. My name is Anna, I'm the Head of Research at First Momentum Ventures and your host for this evening. So before I jump to the introductions of who we are in this panel and what we are going to talk about, I would like to get to know you better. So this event we opened to the general audience. In the meantime, it was intended to be initially part of our full list, no more network. But now since we are open, I have no idea who you are. So how about you scan this QR code or go to Mentee.com and use the code that is at the top of the screen and just describe yourself.
00:58
Ana Koller
Are you a student? Are you a scientist? Are you a scientist? Founder? VC great here. Yeah. So let's build this word cloud, audience cloud, and help us to get to know you better. So in the meantime, while this is kind of rolling, I will go back to interest. So, as I mentioned, Hannah, good to meet you all and I'm here on behalf of the First Momentum Ventures. So we are a early stage VC firm that invests predominantly in software as a service, industrial tech and deep tech. So due to our early stage deep tech startup Affinity, we have been particularly curious about university and research spinoffs. So this is why we have created and are fostering the network for scientist founders and aspiring scientist founders called Clueless No More. If you're not familiar with the network and you are within the target audience, I left the links in the comments or in the chat.
02:02
Ana Koller
So please just go read about it, get informed, join us if you will. So this evening, so Clueless About panel is part of what we offer within this network in general. It's a reoccurring monthly event and it's going to happen every first Wednesday of the month. So happy to see you on a new topic with a new discussion next month. This evening we are co hosting this event with UVC partners so another deep tech investor on their behalf with us. Joining me today is Daniel, their investment manager who is going to give you a VC perspective on this topic in a minute. So then of course, we have assembled an amazing panel of very successful founders of very successful companies in tech space in Germany. So we are talking today with Martin from 1.51.5 is a Hamburg based startup that is revolutionizing the way that we discover and commercialize biomaterials for packaging.
03:13
Ana Koller
So they are actually making this world a better place one package at a time. Right then joining us as well is Tobias from Kippo Quantum. Kippo Quantum is a quantum computing or QC company that aims to bring quantum computing closer to industry applications by living in this exciting cross section between commercial use cases, advancements in QC hardware, and fine tailored algorithms for enterprise solutions. So, finally, we also have Felix from DeepDrive, a company that is literally advancing the electric vehicles by extending their reach by 20% using their revolutionary dual rotor tech that they build the company around. So, welcome, everyone. So I promise that the interests are going to be short. So if you guys want to learn more about our panelists and explore their amazing careers, as there is so much to talk about, each and every one of them, stalk them on LinkedIn and connect with them, I'm sure they will be happy to chat further about themselves.
04:29
Ana Koller
So, with that, I'm going to wrap it up here. We see basically a cloud of our audience. Quite an interesting crowd this evening. And with that, I give the floor to Daniel.
04:49
Daniel Reese
Thank you so much, Anna. I will share my screen as well. All right. I hope everybody can hear and see my screen. First of all, thank you so much for having me, Anna, and the first Momentum team. Really awesome to be here. Amazing to see so many people dialed in. I think we also have somebody from Stockholm if I saw the chat notes. That's amazing. And I'm excited to give you a very quick, very brief intro into the topic of fundraising that you could obviously go on for hours and hours, but I'm trying to make it short and sweet. I'm from UBC Partners, an early stage investor out of Munich, and before joining UBC about a year ago, I was working in consulting for a long time, hence I couldn't resist to bring a couple of slides. All right, so to start us off, I actually want to start with a very devastating message first, right?
05:48
Daniel Reese
So getting fundraising is not easy, is the truth and artifact. So if we look at the slide, essentially we see from Andres and Horowitz, they get around 3000 pitches a year and they fund 20 startups, so less than 1%, which is essentially resulting in this emoticon. It's not good news. But this is why we are here, right? We are here. So you don't worry just yet because there are other ways to ensure you get initial funding. You don't have to worry because a good fundraising strategy can go a very long way. And I'm excited to hear our founders later share their views and their strategies. And last but not least, you don't have to worry because there are some real tips and tricks and life hacks to charm a VC and essentially get a head start in your fundraising journey. Alternative sources of funding. Venture capital is just one, right?
06:50
Daniel Reese
We have angel investors, we have crowdfunding, we have grants, and obviously we have bootstrapping. And most of the startups that we invest in had a history where they either had a set of angels or we now just closed the funding round a series B with a startup that actually also used crowdfunding in their initial days. So venture capital is obviously a nice vehicle at some point in time, but as it's not the only vehicle, and especially potentially at the beginning, it is not the best suited. And I think we're going to hear one or two founders talk about how to build a very strong angel round, for example, later on, then, what does a VC, if you decide to go for venture capital, want to see? The first thing is never ask a VC what they hope to find or what they want you to be to invest in because they're going to give you a long list.
07:50
Daniel Reese
They're going to be like excellent team, proven business bundle, fast sales cycles, exit doable in three to seven years. So the whole charade right? So let's focus essentially on what secretly VCs or what from my personal opinion I'm kind of really want to see and what I'm fine to compromise on. I think the three strongest predictors essentially of early stage startups is the team. The earlier the more the team is a centerpiece, then a USP that is strong and then a growing market. Usually you find two out of these three. If you have those three as an investor you kind of are extremely lucky. I have not really seen that usually get two out of three and what you can do as a founder you focus on really convincing or conveying the points of hey, this is our USP. I can explain it from all different angles.
08:45
Daniel Reese
I understand the market perfectly. So essentially the bottom line is you guys are the best people in the world to solve this problem for this growing market. Also, let's not just get hung up on the actual pitch because that's what everybody thinks of the ten minutes or the 15 minutes when you pitch initially to a VC before the pitch. We have a long journey before. I also believe that we're going touch upon this in a little bit because you need to ramp up your fundraising months and months in advance by having a long list starting to get warm, introduction to VCs, kind of nurturing the contacts. So you have a very strong foundation and personal relationship in the best case with the VC that you're then going to pitch to. So it doesn't feel like a pitch anymore, it actually feels like a very friendly discussion.
09:42
Daniel Reese
And last but not least, I want to leave you with those ten points that I just want to quickly go over. So a couple of tips and tricks I want to pick out. Number three include both a long term vision and a realistic assessment of the status quo. Interestingly enough, my experience German and European VCs are very much focused on the realistic assessment of the status quo versus American VCs are more focused on the long term vision. They are more like bold and want to see what's on the horizon versus German VCs are more like let's have another deep dive into your tech back end. I really want to understand that. Then again, number seven, try to get a personal intro to an associate or partner in advance of sending a pitch deck. I think I cannot emphasize that enough. To have a great relationship with the founder before you even start pitching is crucial, and half the battle is won if you already know each other and what you are building and how you click on a person level before you're even looking for funding.
10:51
Daniel Reese
And then last but not least, number ten, ask for feedback if not given automatically and integrate it as a learning or find convincing counterarguments. So ideally, you have 1020 pitches where you're saying, hey, I like the VC, but I'm not in love with the VC, so it's okay if I get a rejection. But you're making sure that you're getting better with each pitch, each discussion session. So you essentially save the strongest pitches for last. Yeah, and with that said, I don't know if the founders can confirm. You guys still look still very young. Fundraising is hopefully not always stressful and can be fun as well. And with that, I want to hand it back over to Anna and yeah, open up the panel.
11:38
Ana Koller
Thank you, Daniel. That was great. And hopefully it didn't scare people off too much. I know that was for sure not the intention. So all right, let's kick into the panel discussion and let's start off with hardware. So Felix, when you started fundraising for DeepDrive, what was the specific setup you were after and why? So what factors did you take in when deciding who to approach?
12:08
Felix Pörnbacher
So for us, I think you mentioned it in the intro. We're a hardware company. We're operating in the automotive space. We basically invented a new type of electric motor for EVs. It was obviously quite difficult to raise funds because, you know, hardware, automotive, that's not your average startup. That's not very what investors are normally used to, especially not VCs. So we knew that we had to run a pretty broad process and had exactly what Dan said in the beginning had know, kind of like build relationships up from very early on in the know. We've been quite successful in fundraising and I think the reason for that is exactly those two points. By having a very clear strategy on how you want to raise and by building up these relationships early on. For us, it was super important in the beginning to kind of get one or two VCs on board in the first round that really understand what we're doing to some extent.
13:13
Felix Pörnbacher
And now, especially speaking to tech founders, they will obviously never understand it as well as you do, and that's not their job, right? But to really understand what's the dynamics of the market, what's the business model, how important is the tech? What's the differentiators? These kind of topics just help you a lot, first of all to convince them, but then second of all to kind of have them on board and grow the company together with them. So kind of look for VCs that did something in the space that understand the business model, that understand what you're building as a founder and then try to get angels on board as well. That give you on the one hand, the signaling and on the other hand the hard skills that you lack. In our case, we raised a seed round with two investors, UVC partners, actually, and then Bion Capital, who are both VCs that have, for an early stage, we see quite deep pockets, which is helpful because it just derisks the business a lot, which did a lot in the space.
14:11
Felix Pörnbacher
Also invested a lot together, which helps as well. Building a consortium that works well together and then getting two angel investors in. So we had one angel investor from the industry side, peter Mertens, who was the CTO of Audi and then one from the startup side, Jonathrike, who's COO and one of the founders of Personio. So this really was the ideal setup for us because it allowed us to have strong VCs that professionalized us, that had pockets but also understood what we're doing. And two angel investors that could have support us on our growth track, one from the industry side and the other one from the startup side and that had this big signaling effect of the big dogs also believing in us.
14:54
Ana Koller
Thank you. Thank you very much for that answer. Tobias, you were also quite sharply structured in your approach. So how did you choose who to go after and what was your preference?
15:10
Tobias Grab
Yeah, I can just skip all the right parts that Felix already mentioned. So my co founder Daniel was a former McKinsey guy. So we did the approach of starting with all VCs and an Excel spreadsheet of 860 files and then we did an erasing game till it was like about 200. Then we did the same like Felix, like it was said before by Daniel, we started with the ones that were like we tried to practice first and moved up the ladder to the ones that we really were expecting to follow us. In the meantime, we really changed the storyline a little bit, so we had to have a quantum compression technology. One of our most skilled quantum engineer is here, heinendra and so in the beginning were not sure about the business model, were not sure about how to launch it. So when I see the first pitches compared to the last pitches, there was quite a development.
16:14
Tobias Grab
In general, what I think is that the investor should just fit the size and the round. I totally agree that they should fit together and maybe bring orthogonal experiences and styles into the team that at the end, it results in a functioning board where most decisions will be made. And if you have a lot of competencies in that group of people, it just raises the probability of good decisions and of success. And in our special case, we realized that there is one European, but maybe globally, the quantum investors, quantum nation out of France. And we got approached by a couple of guys who said, but what is Christophe thinking about you? So we asked Christophe, the general partner, and he said, yeah, I love it, I want to be your lead investor. And that was the moment where we knew that this could maybe be the right start.
17:08
Tobias Grab
And afterwards we added to these investors early contacts that we directly have. One of them was first momentum as obviously because we knew the fund, the people for quite some time, also the founders, the first generation of general partners. So I wanted to have these local and very close relationship to an investor and we wanted also to have a US based investor as well to get better context for the follow up rounds, which in our case will at least partly or mainly happen in the west coast of the US. So we try to build a bunch of investors together that everybody is in their sweet spot, get a good deal, really believes in the story and has the right expectation and the right goals for the company. And that is how we did it. Maybe a little bit too broad at the beginning, but yeah, to have a good short list of investors is I think, a good first step.
18:14
Ana Koller
Thank you. Thank you for that rundown. Martin, you built quite a momentum during your fundraising in around 1.5. So can you tell us about your strategy there and the famous third founder community that you.
18:33
Martin Weber
I mean for us fundraising started before even setting up the business. It was really building up the connections in our previous business. Claire, my co founder, and I, we have been fortunate enough to be part of a business out of Berlin called Infarm, which helped us build the right connections to the investors that we wanted to work with. Also later. Down the line and sometimes they were not really necessary in that early pre seed round and are only going to be relevant for us in the following rounds to come. But what we actually saw in ourselves is that we as two co founders, we are actually much more focused on a few topics and have lacked blind spots in other areas. So we actually went out and we built a relationship with also a lot of angels that happen to put smaller tickets and for us, and many companies don't do that because they want to keep the cap table clean.
19:36
Martin Weber
But for us it was actually quite interesting to see that there was a lot of interest from angels that would put as little as €10,000 into the business. But that sort of small ticket would then unlock introductions to larger investors. So sometimes a ten k investment, which many startups I know have turned down, have really unlocked a much larger fundraising opportunity than afterwards, simply because angels then tend to have skin in the game. These previous connections obviously also helped us to understand that especially when you work with angels, sometimes they can actually have quite some strategic value. It's not always about the investor connections that these might have, but also obviously connections into the industry because we wanted to also make our investors kind of a part of our go to market and opening up pipeline opportunities. We ended up actually raising from probably over 60 investors, really ticket sizes ranging from 10,000 to €250,000.
20:51
Martin Weber
We had a bunch of micro VCs which opened up amazing connections to us on the hiring side, on the customer side, but also on other investors side. So first momentum for example, was one of those early stage investors that really had to bank on Claire and I when we didn't have much but perhaps a deck. Right. It was really nice to see that for us, this community then became something that we call the third co founder, or like 63rd co founders if you will, because once we got there, we actually never stopped raising. We just continued raising because there were more and more introductions coming in and we didn't have a hard deadline where we had to close. So we just continued talking to investors that wanted to meet us. And then we ended up actually raising two or three closings as part of the same round and ended up raising more than three and a half million euros as a precede, which obviously is very unusual when you start that early.
22:06
Martin Weber
But it was extremely helpful to have these many people inside. Now obviously 60 people on your cap table is indeed a little bit messy, could become a little bit messy. So that's why we actually pooled them in a very neat way that helped us to really get the cap table clean in the end, but yet get all of them behind the cause.
22:34
Ana Koller
Thank you. That is really interesting.
22:37
Felix Pörnbacher
Can I ask a question, Martin? Did you guys pull all of them in the pool or do you have specific angels or investors within that round that had kind of like a special role that were directly on the cap table?
22:52
Martin Weber
Yeah, we have investors like speed invest, for example, that managed to get on the cap table, on the actual cap table of the GmbH simply because the ticket size was large enough. So we made a cap at €250,000. Everybody below would go into the pool. And in our case, the pool is not just a contractual pool. It is actually that we have set up a general partner, UG, like a separate entity. And we made all of the investors limited partners as part of a separate investment vehicle. So therefore that particular angel investment vehicle is part of the cap table and basically is comprised of over 60 people. But we had some that made that invested ticket sizes above €250,000, for example, €700,000 from 750 or something like this from Speed Invest and like a 500,000 euro ticket as well. And those were actually then coming straight on the cap table.
24:02
Ana Koller
Thank you. By the way, guys, you can always go to Mentee and leave questions. So we will have a Q and A session in the end as well from the audience. By the way, Daniel, what do you think about this? Would this make you comfortable in the round?
24:24
Daniel Reese
Do you mean if you come in with 60 angels? Yeah, I mean, I would definitely say that there is not any syndicate or construct that is unattractive if you are a successful business. I think in the first, as a seed company, as a precede company, you need to be scrappy to get funding. It's not easy at all. So it's super impressive either way. If you say, hey, I Bootstrapped and I did it with friends and family or you were able to get some crowd financing or you build a huge angel syndicate, I think these are all very impressive stories on their own and just show the grit and the prevalence of the founders. And that's also what I love about venture capital, that every company has a different story, a different history, a different setup. So, yeah, I would definitely say that there's not any construct that is becoming unfundable at all.
25:25
Daniel Reese
I think it adds to the story, to the setup of the company and just makes also every company unique. So for everyone in the round, there is not any best practice where you say, hey, I need to get on two angels first. Exactly two. Not one and a half, not two and a half, but two. And then I need one lead investor and like one follow investor, but there's any kind of variety, any diversity. And if you're doing a great job as a company, you're always going to get funding from a VC, from angel, from a crowdfunding platform. I think that's also something that is important that people try to say, hey, this is the ideal way to set up your syndicate, your cap table. But the reality is that there are a million ways to set it up super successfully. And I think the guys here on the panel are proving that with all very successful companies and none of the cap table looks alike.
26:24
Ana Koller
Yeah, great. Thank you for that wrap up. And since we kind of had a good overview of what you guys did, let's get a little bit practical now. So Martin, I would actually go back to you now because in our discussions before, you mentioned something that was really cool. So you broke down the thinking for fundraising in the past, the present and the future. You called it the most important, yet often underestimated thing when fundraising. So could you help us bring us towards that?
27:02
Martin Weber
Yeah, sure. And I think it goes also a little bit in line with what Daniel presented earlier on. Right, so there are differences in types of investors and obviously every round is different. Right. So I assume that most of the people here are more earlier stage, are about to build a business or are about to spin off or have maybe done the first angel round or something like this. But what took us actually to the next level was really breaking it down into exactly the past, the present and the future. And the thing is that most of the people think that the things that they've done, like historically, the present is something that investors are investing in, but it is only making you a fundable or investment worthy business. But none of the valuation or none of the sort of outward looking opportunity is actually grounded on what you've been doing up until here, because that's truly, really your deliverable.
28:07
Martin Weber
And it is important to have having done all of those things and have delivered those milestones. But if you're looking at a funding round, then what we've seen is you're really raising money for the present. This is today and maybe 18 months outward looking, because that's the runway that you hopefully get with the money that you raise. And you need to really be clear on what you're using that money for. Right, but also that particular present is not really a reflection of any of the valuations, because if somebody would walk into the door today and offered you like whatever people are raising now at valuations of three, four, 5 million or something like this, the business is not really worth four or 5 million. What it is that investors are really building valuations on, for example, is the future is really the terminal value of that business is sort of the understanding of what role do we play as part of the future universe, meaning the investors are looking quite accurately on also, as Daniel has mentioned, like where's the market going to be in ten years time?
29:22
Martin Weber
And is that the team that is going to lead that transition and that disruption when they are going to be bigger in ten or 15 years time? And what role do they play as part of that growing market? Most of the times, that is where valuations come from and this is where this future is driving valuations. The present is defining how much you are raising and what your runway is and what you're supposed to achieve with that money in order to get you to the next round, which, by the way, is also meant to then obviously take place at a two or three times the previous valuation that you're currently raising on. And the past is really all of the things that you have delivered, which are amazing and they're important. And what we then also see is that we need to keep track of those.
30:17
Martin Weber
Right. So what we have started to do now is to do some sort of a corporate inventory because you don't always have already through revenues that you can build a valuation on, which is the easiest to use when it comes to valuations. Of course. Right. Working with multiples, et cetera, that's not a thing that is true to most of the precede or seed companies. So the money that you're utilizing over the next 18 months is meant to get you to a two or three times higher valuation. But to actually be worthy of an investment, you're looking at the past and you have to then show what are the alternative to revenues, what are the alternative currencies? All the things that have been delivered that we call corporate inventory, like really understanding what are the things and they can sometimes be as little as like, how many NDAs have we signed?
31:21
Martin Weber
It seems trivial and maybe far fetched, but it is a reflection of moving towards product market fit, which most of the times, especially in the seed stage, should already be somewhere there. Right. Product market fit being one of the things that you really want to chase. And the reflection of your past is just exactly defining if product market fit has been found. So that's how past, present and future are basically the guiding factors whenever we're going into around what have we done until now? What are we going to do with the next two years, the money that we have for the next two years? And how can we define our role as part of the future universe?
32:05
Ana Koller
Thank you. And I know that for founders in different ecosystems or in different verticals, it will be different. So exactly like building up on the question that Martin mentioned, investors often have this famous question how far will this money take you? So how do you define these milestones? And especially from the perspective of the deepest depths of the deep tech as quantum computer computing certainly is. So how should a founder practically think about these milestones, especially when talking with investors?
32:49
Tobias Grab
Maybe that's also a question for you and Daniel, Sebastian andreas. But the way I try to approach this is what would de risk the venture the most? Because in early stage and in deep tech, I think that is the most important step to take the fundamental risk out of the system. And very often, does the technology work? Does the technology work in different applications? Does it function even if the technical co founder is not in the same room? All these questions need to be addressed. What kind of talents do we need to hire? So we came up with a very rough business plan of what we need to do. What would be the. Steps in order to achieve this first derisking step. In our case that was not yet something like product market fit because the technology is too early, the quantum computers that are available today are not good enough yet to really bring value.
33:41
Tobias Grab
So a real product market fit was not the goal of the precede investment that we took from you guys. So in general it's like getting a feeling of how much money do I need plus some reserve for unexpected pass to show to the investors that what was said before by Martin that evaluation with the factor three is likely. And so that was how we came up in our case with 3 million that seems suitable. I think everybody knows in early stage there's a high level of uncertainty and can happen that it take you two weeks and you realize damn, I now know that I need this. Additionally to that cost me four weeks of runway. So to try to communicate the risks very openly. And I think that is the best trust building that when the question about the imminent risk of your venture comes up to have a solid answer that is sought out.
34:38
Tobias Grab
And try to explain the steps that you try to derisk because at the end it's my lifetime for you it's a nice bet, but I want also to know if I'm not riding a dead horse was always the guideline for us. How much money do we need to get the next check mark in our box?
34:58
Ana Koller
And I mean explaining quantum computing is not necessarily easy. So what was your experience when explaining this to the founders and your milestones and derisking in general?
35:14
Tobias Grab
You mean for the technical co founders?
35:16
Ana Koller
I mean to the VCs.
35:23
Tobias Grab
So we spoke to a lot of VCs who had deep tech experience and have that as their focus of investment. And so from their perspective if you invest in fusion or in advanced computing or anything else that is a couple of years away from unleashing the full potential to the society. I think the people were well aware of the complexity. In our case the story was quite easy because I think there was a couple of hype in the last years. So there were a lot of good public articles already written explaining what Quantum will do. And we picked a lot of good storylining, tested it with different people, and then we came up to a story that was convincing in a couple of minutes. And I think that works for most even difficult technical ventures to bring it down. In my case I always joke and say if my mother gets it then it's well explained.
36:32
Tobias Grab
And in that regard to communicate then for us our example is if the hardware doesn't advanced we can't solve problems with the best algorithms because you need some hardware requirements to run a suitable algorithm on. If you don't have them, it's nothing we can solve so went out with that part of uncertainty directly from the beginning. People understand that you get your problems and your dependencies and your limiting factors, right? And so they can trust that, yes, that is a high risk, but they can take the risk because, you know, it I think the most difficult part is not knowing the risk and being like blind and naive. I think it's also a good caricap trait for founders, but it should be backed by some deeper understanding of the technology as well as the development towards a functioning corporation.
37:31
Ana Koller
Yeah. Thank you. Felix, are you with us? Yeah. Great. Oh, you got smaller. So I wanted to ask you, as Martin mentioned, the past is good to have, but in that sense not necessarily the most important part of the vision. What would you say to that? As like a very hardware, high tech founder of a startup. You were talking a lot about warming up the investors. So how did the past help?
38:15
Felix Pörnbacher
Yeah, so for us, I think was just super important in that regard is, as has been mentioned by before, we really need to kind of convince the investors that there's something behind the team and behind the tech. So what helped us a lot is just the experience in the market. My technical co founders, one of them was lead engineer for electric motors at Bosch. So it's just credentials that always help, right? It makes a difference, especially an early stage team where you don't have that much to prove within the company. So credentials are super helpful. And then because it's very hard for investors themselves to really evaluate themselves, if you have an edge compared to other technologies in the market, for example, you need to get the proof points in another way. And for us, one of the main points, and that has been mentioned before as well, are angel investors.
39:16
Felix Pörnbacher
So when the Audi CTO joined us, who obviously has seen loads of electric motors in his life, it was a very strong proof point that there's really something there. Similar. We had a very strong focus before we raced our first round to spend a couple of months of validating our tech on the test bench. So we built first prototypes of the motor and put them on a test bench and validated that we're really much more efficient and really much cheaper than current solutions out there. And these are proof points. These are hard facts which help the investor to understand it. It makes my job easier because I stand in front of the investor and I tell them, hey, of course we do a deep dive in the tech, but it's hard for you to judge if it's better or not. But just look at this piece of paper where it's validated.
40:05
Felix Pörnbacher
Right where went to the Franhofer Institute, an independent third party, to really validate that what we claim is actually achievable, at least in a prototype and that we complemented through kind of like credentials one side and then support from angel, for example, on the other side. And I think for many deep tech founders, the challenge will always be to kind of, like, raise your first round, show your initial traction, because people obviously have to love the team and love the vision behind it, but then they also really need to believe that you're the one. You're the team that can actually make it, and your tech makes a difference.
40:45
Ana Koller
Thank you. And I have to, again, go back to Martin and you have a very interesting way of inviting people to trust you and that is not necessarily, oh, touch my wounds, look at our prototype. And that is very keeping your books quite open, even one can say public. And you use it, as you mentioned, your alternative currency. So can you tell us a little bit about how did you get comfortable doing that? That's not as easy.
41:28
Martin Weber
Yeah, I think, again here, transparency is key, right. And investors love to know that you're not hiding anything. Right. And sharing actively and early and often, even with investors. And that's essentially what you're referring to, even with investors that have not even invested yet, is something that we've been practicing for the past few years. So each reporting that we do for our current investors is actually being shared also with potential future investors. So even the future investors are basically taking on that journey as if they are already part of that community. And it basically enables us, whenever we're actually going into fundraising, to not pick up the conversation from two years ago, but to pick up from last quarter. And those investors actually having been at least even if they just took a sneak peek into our reporting, they're not going to spend a lot of time, of course, right.
42:35
Martin Weber
Sometimes they're literally just spending two minutes going through it, understanding that the company is on track, that we're on track, and that things are moving in the right direction enough for them to keep us on the back burner for whenever we're raising and whenever we're ready, actually for around with them. And that is where that level of transparency is really. Also, in relation to what I mentioned earlier, the past is obviously very important, right, but the past is not. You've done everything that you achieved in your past for yourself, right, just to get you to this point of now having the audacity to ask for a large investment ticket that can get you to the future. Right. So whenever we're taking basically investors on that journey and we're sharing openly what we have achieved and what we have failed on, that's something that they appreciate a lot.
43:38
Martin Weber
Now. The interesting thing is having that in mind. It changes the way you actually write your reporting. Because you are now not reporting, only looking backwards. Because you actually want investors of the future to continue to see that the market is growing, that the pipeline is growing, that certain things are moving into the right direction that already trigger a belief towards what is yet to come. So reporting for us is actually quite a lot forward looking rather than only backward looking.
44:15
Ana Koller
That's really interesting. Thank you all for this. I'm going to pull in the audience once more. So to wake you up a bit, guys. No, sorry. I almost loved the meeting. So here we are again at Mentee. So scan a QR code or go to Mentee.com and enter the numbers at the top of the screen. So let's see, how would we as a coolest network build our strategy. So what would we prioritize here? Please vote. And all of these are arguably more or less important topics. Daniel, how would you comment all of this?
45:03
Daniel Reese
So, from my perspective, I think the first point to start early, build relational with investors and have the complete team on board are probably the most essential for the group here in the call as like pre seed stage. People who just kick off their fundraising. Essentially, you as an investor want to have a view about the entire team. It's totally okay to pivot. It's totally okay to not have product market fit. It's totally okay to have not full traction being pre revenue, totally fine. If you are able to present an Loi and if you are able to kind of show that there is some customer support, that's fantastic. But I would say also with regard to the transparency point at the very bottom, what investors want to do is they don't want to invest knowing that everything is perfect. Venture capital is a high risk asset class.
46:08
Daniel Reese
Obviously nobody knows what is going to happen. But as Martin and the rest of the group said, is the more transparent you are as a founder and the more you work together with the investor to kind of lay out those risks, to be transparent about, hey, this is something where we still have to validate our go to market, but we still have to validate product market fit. That's totally okay because what we are totally fine with is to take a risk that we have known of and we are saying, look, we believe in this hypothesis, there's still a risk. Let's obviously work on evading this risk and building a successful company. What's a big failure from our perspective is if a lending partner, an LLP is approaching us in two years time, is saying why did you invest in this company? There was this market risk or this risk around the product and we have to admit we didn't see it so totally fine to take risk.
47:01
Daniel Reese
The more you can bring this together to the surface, the more collaborative you can work on it, the sooner you have your team together and the better and the stronger relationships you build with a founder. These are the areas exactly as highlighted here that I would also prioritize in terms of raising a first round.
47:24
Ana Koller
Great. Thank you all. I would like to ask if any one of you has anything briefly to add before we jump to the Q A from the audience.
47:37
Felix Pörnbacher
Yeah, I just want to say a little bit on exactly point. So I think transparency definitely is key, but the first one a clear vision, especially in deep tech, I think you need to be very open and pragmatic and not idealistic, which is the problem of many deep tech founders who kind of like fall in love with that tech or with their technology, with the idea. Because in the end it's a process, right. You get feedback from early investor conversations and you should adapt to it. And having a clear vision is good, right? But you should be pragmatic and open to changing that.
48:20
Ana Koller
Thank you. So let's kick off the audience Q A. The first question, the most upvoted is actually this one. So what's your perspective on taking money from incubators? Martin, you had like a full array of everything. What's your take on this?
48:47
Martin Weber
Yeah, mixed. I think it depends very much on the incubator. I've been in my previous life, part of one company, a builder out of like a real spin off support incubator out of the Tel Aviv University, also a regular accelerator. So the things that you have to when it comes really to an incubator have to look out for is oftentimes founders are diluted way too much already with the first round. It doesn't help you raising follow on rounds if an incubator owns too much on the cap table. And oftentimes they're taking 30, 40%, and that's just going to make you uninvestable in the future. So that's something that I would really be careful with. Obviously, the structured approach that they have, I don't know, sometimes six or eight month period that they guide you through. The early stages of product, market fit, et cetera, are extremely valuable.
49:57
Martin Weber
The connections, if you don't have them yourself, that come through incubators are certainly very helpful. So it really depends how much are they actually putting in terms of money. There's incubators out there that are taking shares for support. I would always shy away from that. I think that's too fishy. People have to have proper risk taking investments. So therefore don't give shares for free just because somebody is going to give you a desk and maybe some introductions. That's not going to work. In terms of ownership, I think especially in the very early stages, the founders have to hold 95% of the business, 90% of the business. It doesn't work any other way. Now, there are obviously different incubators. There's the Y combinators of the world, for example, that are obviously extremely different. And if you can get in one of those, then always do it right.
50:59
Martin Weber
I mean, it is probably the best jumping board you can have, but that's a bit different to a classic incubator, I would say.
51:09
Ana Koller
Thank you, panelists. Anything else to add? Okay, cool. What mistakes did you make during fundraising that other founders can learn from? Who do I pick for this? Does anyone of you particularly want to answer this question?
51:29
Martin Weber
I can do a quick one if you want. Sorry, Toby, you want to go?
51:34
Tobias Grab
No, no, you go first, please.
51:36
Martin Weber
Yeah. So I think one important one, don't celebrate too early. Until money is in the bank, funding is not closed. That's a huge mistake. So don't celebrate too early. And also don't fall in love with an investor. Sometimes it seems like an investor is dragging your time and you really want that investor and then turns out that for whatever reason, they can't invest or don't want to invest right now, and you have wasted your time. So don't spend too much time falling in love with a fundraising process in the first place, but with a particular investor, obviously, as well. Those are really two big ones. And don't celebrate too early. That's a really bad one.
52:26
Tobias Grab
I think for me, always, timing is the most difficult. It feeds a little bit into what Martin already said. There's a very good gut feeling, there's some verbal commitment, there seems to be everything on track, and then people come in later, you try to bring it all to this one point in timing and that usually gets rough in between. And so I think to have a good strategy and to do it always with backups, that were mistakes, that I sometimes were in the position where I had then an offer that I was not sure if I should take it or not. And so to adopt the timing is, from my point of view, really important. And, yeah, fun story. I want to share that because it made me afraid and pissed off a lot. There was even now a corporate venture capitalist from a known company who signed a term sheet, went to the notary and stepped out from resigning the contract the day later because they couldn't make it.
53:28
Tobias Grab
So a done deal, a committed deal was then canceled. So, yeah, don't celebrate too early and try to get the decision makers and avoid CVCs as long as you can.
53:40
Ana Koller
We used to have one team member that kind of prick when you mentioned CBC dataverse. Felix, do you want to chime in and add your story?
53:55
Felix Pörnbacher
Yeah, I think those points are probably the most important ones that have been mentioned. Also, there's the obvious ones, just because Tobias mentioned timing, thinking about summer break, thinking about Christmas break, these kind of things. Just kind of like really have a think about timing when you structure your process. Also another one, which I think is an important one, is exactly the opposite of what Martin said as well. Also, don't give up too early. There's going to be loads of downtimes in any fundraise process, in the most successful fundraise processes, there's going to be a moment where you think it's all going to fall apart.
54:39
Ana Koller
Right?
54:41
Felix Pörnbacher
It's just part of the game. You talk to 80 investors, you'll receive 78 no or 75 whatever. So that's just how it is. That's just how fundraising works and that's completely normal and it's going to take turns. It's never going to go exactly as you planned it. So you just got to push through with a positive mindset and still kind of like staying hungry. Don't become too desperate. That normally doesn't result in the best approach as well.
55:11
Ana Koller
Thank you.
55:12
Daniel Reese
Maybe one last thing to add from my side.
55:14
Ana Koller
Yeah, go ahead.
55:15
Daniel Reese
I can give founders, and obviously that's a little bit contradicting to what we like as VCs. Don't give away the driving seat of your fundraising process. Don't hand it over to the VC firm because they will always try to take more time. They will always try to see if somebody else jumps first. Right. So you have to kind of be like, look, we have two weeks for the first call. That's it. Weeks three to four, all VCs you want to proceed, get access to the data room. That's it. Like, no excuses, no outliers. Because if you're saying to VC, hey, where do you stand in your process? Are they going to be like, oh, in two weeks we would like to talk to your head of sales and in three weeks maybe we can talk to your intern? So they're always going to try to delay it because obviously the more time they have and the more signals they get also from other VCs acting and moving because VCs talk a lot to each other, the more it will slow down your process.
56:09
Daniel Reese
And there's nothing stronger than a very tightly timed process that creates a lot of FOMO and VCs not being able to kind of share their views and experiences over a two month period because that can then very much cool off the momentum for the startup.
56:28
Ana Koller
Yeah, that's a good point. I mean, we often say, yeah, deep tech is just going to take long. We have to understand the tech, we have to take the references, we have to talk with the experts. But it's good to keep the whip a little bit. So next one is, are there any benefits in terms of funding network, et cetera, of starting a company directly after the time at the university? Example, after PhD versus starting it later, after getting more practical experience? Tobias has a great answer for this. I know it.
57:01
Tobias Grab
Yes, I can't remember. So I have to come up with a new one and you have to help me if my old one was better.
57:07
Daniel Reese
Yeah, I know.
57:08
Tobias Grab
I remember what I said. I think it's more difficult to start a company later on because usually so I did that for a couple of times for BASF, the founders were like 40 plus. They all had by their house, they had a car, they had a small family and it's just difficult to change your life when you are dependent on X thousand euros per month. And so the risk taking is just smaller and most of the people I talked to were really unhappy and I think that therefore if you have just finishing your PhD or your master's degree and you have a great idea and you want to go for the challenge, you are used to live with no money more or less and why not risk it then? I think it's easy. The learning curve in a startup if you want to join a startup early on or just start your own one if you have the drive, I think that's the best idea in life.
58:00
Tobias Grab
And now I try to make the joke again. Anna is like, I really fear that I would regret something that I've not done. And I talk to a lot of old people and more or less nobody regrets stuff he has done or she. And so I think to take the risk as early as possible but also like after an intermediate step and in consulting or even joining a VC and then seeing the opportunity and jump through, that's all good. But to have a really settled corporate career that gives you all this feeling of stability, I think that is counterproductive in risk taking and in following your own vision. So I think, why not? What is there to lose after a PhD could be the wrong postdoc with the wrong professor would be the same mistake so why not try it?
58:49
Ana Koller
And one thing that you said is like yeah, you're used to not having money anyway. Yeah, great. Since we have 1 minute left, I'm going to see if there is any other question. Okay, could this be interesting? When would you raise just from angels when to approach the VCs? Daniel, you want to take this?
59:23
Daniel Reese
I mean, if you are very early, if you are precede, I think there's nothing stronger than a very selected angel syndicate of people in your industry that kind of have gone through a similar journey, that have built products. In the space to kind of really help you on all fronts to provide sparing on the market, to provide sparing on the product, and to provide you with intros. I think this has the biggest bang for the buck on the cap table. And then essentially when you progress for the next funding round, I think then is a good point in time to bring in one or two. Institutional VCs that are very handpicked that you have built up the relations to and that the Angels are also supporting to make connections to. So I would definitely say that beginning to have a strong angel syndicate is extremely helpful.
01:00:16
Daniel Reese
As Felix also mentioned for Deep Drive with Peter Mertens. He was probably the door opener in the aftermath, many times to customers but also to other VCs.
01:00:30
Ana Koller
Great, thank you. Can I have one last and then I let you go. I think this one is super cool. So what advice would you give to founders who say that VCs don't understand what they do? So Felix, I think this one is great for you.
01:00:45
Tobias Grab
Yeah, I think that is a very focused opinion because there's way more to know and to understand than just your technology and there's so much else to learn and to optimize for. That an outside perspective from what we see to maybe do some mistakes because not the whole world is analog of the other one, but to get the support from people who have a very clear interest in return on invest. And that is basically the same that every people with Visop or shares in the company should have. So somebody to leverage you and bring you up to speed and helps you. I think from my perspective, VC is not the only opportunity. But if your business model requires some kind of super growth or some time till productivity, till scalability to find the right VCs I think is just a catalyst for the development. And if you early on realize together with you we see that there are some flaws that you can't overcome, some risks that are not b to derisk.
01:01:55
Tobias Grab
Yeah, fine, that's good for all. But of course, if you want to build your own company and become independent, do so. But if you want to scale and you want to bring your technology to the market yeah, nobody's waiting for you.
01:02:07
Ana Koller
Yeah, thank you. And Felix, let's wrap it up.
01:02:12
Martin Weber
Yeah.
01:02:14
Felix Pörnbacher
Don't have much to add. I think that's exactly the point, right? You hire ahead of sales because they know something you don't know. You hire ahead of procurement because they know something you don't know. And you work with obviously because they have money, but also because they can help you scaling. They've seen many different companies, they can help you professionalize, they can make you more introductions. So it depends on your business model, it depends on where you want to bring your company. But in most cases it's always a good idea to hire CS even though they don't fully get the technology of what you're doing.
01:02:47
Ana Koller
Great. Thank you so much. This has been incredibly insightful discussion with all of you. So to wrap it up basically for those who are in the Coolest No More network, feel free to forward me your questions if you have even more specific that are related to your startup and then we will have this one week of AMA post event generally. Thank you. Thank you all for sticking with us. Thank you all for this wonderful first ever clueless about event and thank you panelists for the insightful answers and Daniel for your support. See you guys in a month.
01:03:27
Martin Weber
Thank you. Thank you, everybody.
01:03:28
Tobias Grab
Bye bye. Bye. Have a nice thank you.
01:03:30
Felix Pörnbacher
It's good fun. Bye.
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