Lessons Learned from SOSV’s 400 Deep Tech Investments

SOSV Founder and Managing Partner Sean O’Sullivan started investing in what is now called Deep Tech soon after the 1994 IPO of MapInfo, the pioneer in street maps he co-founded. Over 25 years later, SOSV has backed over 400 deep tech startups, out of the 1000+ companies in portfolio. In December 2021, Sean shared some of the lessons learned in an extended fireside side and Q&A session in Paris during the?Hello Tomorrow?deep tech conference in Paris. Below is a slide deck he shared as well as video of his on-stage appearance.

The Background on SOSV

SOSV is among the world’s most active VCs, and a leader in program-based pre-seed and seed deep tech investing. The firm has over $1.1B under management and over 1000 startups in its portfolio. SOSV launched?HAX?in 2012 to focus on hardware oriented startups and?IndieBio?in 2014 to address biotech-based startups. Today, SOSV’s main themes are Human Health (>200 investments) and Planetary Health / Climate Tech (>140 investments). Pitchbook has ranked SOSV as the most active VC in Climate Tech, Life Sciences and Hard Tech for 2020–2021.

Currently, SOSV invests $250,000 to $500,000 at stage pre-seed in about 100 new deep tech companies each year through the HAX and IndieBio programs. SOSV continues to invest in those companies through series seed, A and beyond through its core fund and a new?Select Fund, which SOSV announced this year.

The purpose of the HAX and IndieBio programs, which are the best funded and best resourced globally in their category (including dozens of experts on staff), is to help startups reach the critical threshold in product and market development that positions them well to raise a qualified series seed or series A investment from established venture investors.

SOSV backs companies globally — in our most recent ranking of our Top 100 Climate Tech portfolio startups, over half were from outside the US. HAX has offices in Shenzhen, Tokyo, and San Francisco, and is opening a major new program in?Newark, NJ in 2022. IndieBio operates programs in San Francisco and New York City.

Questions Posed to Sean O’Sullivan

From Founders…

Q: What most often kills deep tech startups?

A: “Founder issues are number one, number two and number three. You really have to have huge alignment among founders in terms of what you’re in it for, what your timeframe is, why you care about this area. Otherwise things fall to pieces. It does kill so many teams, especially during the first two years. If you make it past 18 months you’re generally in a really good shape.”

Q: Most common mistake made by first-time founders

A: Being too controlling, not sharing the workload with the management team, not bringing on people that are better than them. Otherwise you can’t scale.

Q: What other advice do you have for founders?

A: What drives this is passion. Even though you’re struggling with external and internal issues, funding issues, it’s a hard battle to be in. I wouldn’t advise it unless you’re basically a maniac. But if you are a maniac, it’s the best job in the world.

We need people who are desperate to solve a problem. A lot of times, people who create medical device companies is because their parents died of that cancer, or because they are devastated by the forest fires that are taking down their state.

People have to be in it not for money. You have to be in it for the change in the world you want to believe in.

Q: How to raise initial funding?

A: At our stage, we take serious risk, but later investors at seed and beyond want to see as much customer traction as possible. Prove a market exists, have some buy-in from customers even if it’s 2 years off.

Q: How to find your first customers?

A: You need to be solving urgent and expensive problems for people.

From Investors…

Q: What matters most when investing in deep tech startups?

A: Team, technology, market all together. Unless you have all of it you have none of it.

Q: What can stop you from investing in a promising technology and team?

A: Inability to take advice and be open-minded. Over-representing and under-delivering.

Q: Did top companies look great from start?

A: Some of our unicorns did not look like unicorns and would have been at the bottom of the class. That doesn’t mean that they weren’t great founders but initial momentum wasn’t there, or had cloudy IP, etc.

Q: Is there a Valley of Death for deep tech startups?

A: There are multiple Valleys of Death. One of them is finding product/market fit but being unable to finance production.

Q: What other forms of capital other than equity can help deep tech?

A: In Climate Tech, getting project financing as soon as possible can help. They expect annual returns sometimes as low as 5%, which is very different from the VC model, which expects 30%-40% returns.

Q: Do you work with generalist VCs, CVCs?

A: We love everybody.

Q: How about ‘hardware as a service’

A: This is a great model, and might be eligible to revenue-based financing, which is a funding complementary to project financing and VC.

Other Topics…

Q: What do you think about Europe’s deep tech ecosystem?

A: About 15% of our portfolio is in Europe. It’s hard until companies reach a certain revenue level. Initial government funding helps a lot.

Q: What do you think about Climate Tech?

A: We love it. We have made over?140 investments, especially in alternative proteins, new materials and manufacturing/industrial solutions.

Q: How about local manufacturing?

A: We are very interested in it and have made several deals in this space, like?unSpun?(on-demand custom jeans). This is one of the key themes for our new?HAX center in New Jersey.

Q: Do you invest in robotics?

A: We have made dozens of investments in various applications, from industrial robots to service robots like?Simbe, which does autonomous inventory for retail. We made multiple deals in cleaning robots such as?Avidbots?(indoor commercial cleaning),?Viabot?(outdoor cleaning) and?Somatic?(bathroom cleaning.)

Q: What are the best communities for founders in deep tech?

A: We have our own community of founders and host events regularly. We are also happy to host groups for events at our facilities in SF, NY, Shanghai, Shenzhen and more. There are also various specialized slack groups, meetups, and organizations like?iGEM?(for synthetic biology) that helps founders connect.

We hope those answers will be useful to both founders and investors in deep tech. For the complete set of questions, please check the slides and video at the beginning of this article.