SaaS founders trying to figure out what it takes to raise their next round can turn to the popular Point Nine. SaaS Annual Funding Wipes(The term refers to plans or calculations “on the back of a napkin.”)
Now, European deep tech teams in the hardware space have a similar resource from First Momentum, a seed fund that invests in deep tech startups and B2B tech companies.
With L Deep Tech Hardware WipesThe German venture capital firm hopes to spread knowledge and standards related to funding, team, product and marketing, divided by stage. It focuses on Europe’s Booming Deep Tech Sectorgiving very different results than what one might see in global SaaS.
Benchmarks are especially useful for new founders or those who don’t have a large network in startups and venture capital. This is especially true in deep tech, where many entrepreneurs come from a research background. “They don’t know what’s a bad decision or a good decision because they don’t have the data on it; they’re not in entrepreneurial circles, they don’t have 10 to 15 friends who’ve started companies,” general partner David Myburg told TechCrunch.
To address this lack of knowledge and uncertainty, First Momentum surveyed 30 deep-tech venture capital firms from eight countries, Myburg said. The results were compiled not just in a “handkerchief,” but in a full report.
The company kept its notes in the report to a minimum, because it wanted to be objective. But Myburgh and Oakes agreed to discuss one interesting finding with TechCrunch: “At the seed and Series A stage, teams led by highly technical CEOs (without a business background) raise significantly more funding than teams led by CEOs with a business background.”
![First Momentum Ventures - Deep Tech Hardware Average Round Size Change](https://techcrunch.com/wp-content/uploads/2024/07/First-Momentum-Ventures-Deep-Tech-Hardware-Average-Change-in-Round-Size.png?w=680)
There is some bias in the sample: “The startups in our survey are relatively successful at some point because they have either raised venture capital money, or are close to doing so.” This means that the technical CEOs in the sample are not fully represented; if they do manage to raise funding, it is likely because they are also commercially skilled.
However, this shows that founders with technical skills can benefit greatly if they add business skills and knowledge to their toolkit. And with a strong pipeline of startups coming out of universities, there is a lot that Europe can achieve if founders can get it right.
First Momentum hopes to help these tech founders not only through this report but also through a community called There is no more ignoranceWhere “aspiring European scientist-entrepreneurs” can learn from each other. For example, they can discuss sore point “Capital tables matter,” Francesco Ricciotti, partner at Runa Capital, noted in his report. “Don’t let poor technology transfer reduce your chances of success.”
How Deep Tech Is Different: Bigger Rounds, Longer Road to Success
The report notes that deep tech hardware pre-series A and Series A funding rounds were larger in 2023 than in 2022, which First Momentum interprets as indicating a growing appetite from investors for the sector. The data verifies: Globally, deep tech claims 20% share of venture capital fundingIn 2015, deep tech investments were up from about 10% a decade earlier. Some of this is due to the nature of the sector: Because deep tech requires a large initial investment, rounds have typically been larger than average.
Intuitively, Myburgh already knew the data would look different than the average startup. “The thing about investing in deep tech is that you’re essentially taking on technical risk, but you’re offsetting it with less market or commercial risk,” he said. He gave the example of a startup that might find a cure for cancer: It’s hard to do, but it’s not hard to sell.
This explains the report’s finding that even at the Series A stage, only 29% of startups were able to generate recurring sales and meaningful revenue. Maximilian Ochs, a member of First Momentum’s investment team, didn’t find this surprising, but he saw it as confirmation that revenue generation takes time for deep tech startups.
This requires reverse engineering, Oakes said: Entrepreneurs need to identify milestones they can hit to attract investors to fund their next round. First Momentum also refers to the process as “de-risking,” with Oakes suggesting founders understand their costs, the gross margins they can realistically achieve, and how expensive their end goal is.
Julian Maquet and Clement van Driessen of Elaya, one of the VC firms that participated in the survey, also pointed to the Series A hurdle, telling TechCrunch: “Many hardware startups struggle because there is insufficient evidence of market fit.” According to the duo, this requires a strategic approach with significant capital—ideally from global investors.
“Engaging a global investor community from day one not only secures the funding needed for this capital intensive journey, but also provides critical support to achieve key business milestones,” they noted.