I was in an interview recently when the interviewer asked me, “Can you tell me of a time when you had to make a decision with incomplete information? What did you do to get comfortable with the decision?”

Immediately, I thought of founding BlueDot Photonics. Lots of tech risk, lots of market risk, lots of personal sacrifice (known and unknown) — there were many reasons to not do it.

Ultimately, two things made me comfortable with

the risks. First, I did the homework: talking with customers and other entrepreneurs, and reading news stories and market reports. I stress-tested several of my hypotheses enough to know the risks and see the potential.

The second thing I did was much less analytical, and something that you are rarely given time to do. It was reflecting on who I was, what I wanted, what motivated me, and what I would regret. On long bus rides, on runs through the neighborhood, and while having coffee in the morning, I would have an inner monologue reflecting on all of this.

Eventually, I realized that BlueDot was a once-in-a-lifetime opportunity that I couldn’t pass on. There would be very few chances to have the potential impact on clean energy and climate change that BlueDot represented. I knew that if I decided not to found BlueDot, and if no other opportunity presented itself, I would regret that decision at the end of my life. That impact was more of a driving force than the potential financial benefit or desire to build a huge company.

Identifying your core motivation is an underappreciated part of being a founder. And it’s something that I’ve mentioned briefly before for PhDs deciding if they want to be entrepreneurs.

The intrinsic dreams, fears, and ambitions you bring to a company ultimately decide what type of company you can and will build. It sets the ceiling for what the startup can become while you are involved.

For some people, all that matters is creating the next decacorn. For others, it comes down to the societal impact. Some founders just love developing new tech. Sometimes, it’s about establishing financial security. In some cases, the founder seeks control over work and lifestyle. And others are building the next Fortune 500 company through a steady, disciplined approach without venture capital.

There is no right or wrong answer about what you want to achieve and why you want to achieve it. But if your core motivation doesn’t align with the business strategy you are proposing, there is little chance for success.

But we don’t talk enough about this side of entrepreneurship. In today’s post, I’m going to break down the 6 types of founders I have come across and discuss what the implications are for the type of startup these founders can realistically build.

These six types don’t fit nicely along a single-axis spectrum. Rather, three characteristics define these types: the desire for scale, the desire for control, and the desire to be the leader. Founders can straddle between the types, and can actually drift over time as their circumstances change.

The Decacorn Chaser: “If I’m not ringing the bell in five years, it’s a waste of my time”

“Some people only care about building $10B companies. They openly say things like, ‘If I’m not ringing the bell on a stock exchange in 5 years, it’s a waste of my time.’”

My friend’s mouth fell open with shock as I shared this perspective with her. “No, you’re not serious, are you?”

I was very serious. Some people are motivated almost entirely by the desire to be at the top. They don’t really care who the customer is or what the product is. Their mission is to take the rocket ship to the proverbial moon. Once they find a market big enough with an idea compelling enough, they bring a single-minded focus on scaling as quickly as possible. These are the types of founders that modern-day venture capital was built for. They want to scale at all costs, and venture capital is the rocket fuel they need.

The risk for these founders is letting their ambition lead to poor decision-making. This ranges from how they treat employees and customers to how much they overpromise in their pitches (in the worst case, committing fraud). Flame-outs happen.

The World Saver: Impact first even if it makes funding challenging

The World Saver looks beyond the money; if they aren’t helping to reduce carbon emissions, avoid famine, or ensure people have access to clean drinking water, they aren’t interested. These folks are stubborn. They are often willing to sacrifice years of their career in pursuit of their idea.

These founders need to secure grants, philanthropies, or impact investment to get things started. Venture capital investors prioritize financial returns over impact and will often pass if pitched.

The big risk for these founders is that their impact idea doesn’t translate into a profitable business. They sometimes confuse social impact with financial returns. They talk about the big societal problem and often assume customers are paying to solve it. Unfortunately, most customers think about their own well-being and bottom line before considering how to help society. If the customer’s value proposition isn’t big enough, it doesn’t matter how much societal impact is possible.

And I’m not saying that World Savers can’t be Decacorn Chasers; it’s possible, but I would argue that they have to have the Decacorn Chaser mentality first, and the World Saver mentality second. I would argue that successful nuclear fusion and next-gen nuclear fission companies exemplify this duality.

Share

The Tech Lover: The founder who'd rather stay at the bench

The Tech Lovers have often spent years toiling away at a lab bench, in a workshop, or even in a garage, working to discover something new or design a better device. These founders often see the commercial potential of their technology and want it to be used. But they would rather not spend too much time thinking about profitability and scaling. They want to keep developing new technology that they think is useful.

These types of founders have two paths to choose from. The first is becoming a technology development shop. Through for-hire development and grants, they create new technologies that can be sold or licensed. This path creates a steady revenue stream that lets them focus on what they love — developing new tech (see The Lifestyler below). The second path is to find a founder with a different mindset who can scale the business while they remain in a technical role. Neither path is better or worse than the other; it just depends on what you value more.

The biggest risk for the Tech Lover is they never get around to choosing either path. They continue to develop tech through grants and R&D contracts, but they never capture any value from it.

The FIRE Seeker: Building for millions, not billions

Some founders are looking for the FIRE life — Financial Independence, Retire Early. They are ambitious to a point, but the goal isn’t billions; it’s millions. In many cases, they also have strong passions outside of work that they protect.

They’ve come up with a good idea with real customers. They probably need some capital to get things up and running, but they aren’t interested in scaling it into a unicorn.

For these founders, bootstrapping, grants, friends and family, and maybe the right angel investor are sources of the startup capital required. Then, it’s a laser focus on customer development, creating a book of work and recurring revenue to interest either private equity or a strategic acquirer to make a deal for the company.

The risk for the FIRE Seekers is getting and keeping the support of investors and employees. Once the team knows your intentions for an early exit, they start worrying about what it means for their returns and their careers.

The Lifestyler: Steady cash flow and control over your life

Finally, there are the founders who are building a company that pays the bills, provides steady cash flows, and gives them career certainty.

Lots of service company founders fall into this bucket. Some people call these companies “lifestyle” companies.

These founders typically bootstrap their early years, maybe with some grants and loans to cover startup costs. They scale as customer revenue scales organically. These founders aren’t interested in a traditional exit; they are in it for the annual profit sharing, steady paycheck, and control over their work environment.

The challenge for Lifestylers is the early years, when they are bootstrapping and trying to transition quickly to profitability. Without access to outside capital, the founder is put under all the pressure and strain to make it work.

The Empire Builder: Bootstrapping to category-defining, one segment at a time

The Empire Builder is playing the long game; they believe that the best way to build a company is through a steady, focused effort. They understand the power of compound interest and are happy to let decades of 20% year-on-year growth create a blue-chip company. They are ambitious, but want to do it on their own terms, often eschewing outside investment to retain control of their company.

These founders often rely on bootstrapping, resorting to external capital in rare circumstances. They dominate niche after niche, sub-segment after sub-segment until they are category-defining.

Although they may not grab headlines like some of their venture-backed peers, these founders create immense value over the course of their careers. Companies like Epic Systems and Bloomberg come to mind.

The risk for these founders is that their methodical nature can make them easy targets for faster-moving disruptors.

What type of entrepreneur do you want to be?

I don’t think that any one of these types is better than the others. It’s up to you to decide what you are looking for in your career and personal life.

The most important thing is to decide and share! I have met so many entrepreneurs who can’t articulate what they want to build. This can cause problems recruiting co-founders or result in co-founder conflict when motivations are revealed during stressful situations. It can also lead to angry investors because you aren’t building the type of company they want. Then, everything you’ve been building is at risk of collapsing as investors look to change you out for a different CEO.

So, what type of entrepreneur do you want to be? Or, is there a different outcome that you are building toward that I missed?

If you’re a PhD or research scientist trying to figure out which of these you are, or you suspect you and your co-founder are two different types and haven’t talked about it, please subscribe and leave a comment. If you do, I’ll reach out to set up a 30-minute call. No strings attached.

If this article changed your perspective on entrepreneurship, please Like and Restack it, sharing what type of entrepreneur you are. Thanks.

Frequently Asked Questions

What are the six types of deep tech founders?
The Decacorn Chaser wants to build a $10B company and raises venture capital to do it; they risk burnout, flame-out, and overpromising. The World Saver wants to solve a societal problem and uses grants, philanthropies, and impact capital to fund it; they risk not having enough capital to realize their ambition. The Tech Lover wants to make useful technology and typically lives on grants and R&D contracts, but they can access venture capital when paired with a motivated co-founder; they risk developing tech that never makes it into the hands of customers. The FIRE Seeker wants financial independence and bootstraps their company along with selective grants, friends and family, angels, and customer revenue; their risk is that a short-term vision limits access to both investors and talent. The Lifestyler wants a fulfilling career on their own terms and funds it much the same way; their risk is carrying all of the stress and strain in the early stages. The Empire Builder wants a durable, valuable company built over decades and they’ll use limited external capital to do it; they risk being outrun by faster-moving disruptors.

Can a founder be more than one type?
Yes, the six types don’t have clear boundaries. There is a spectrum along each of the dimensions: scale, control, and leadership. But when there is a conflict, only one can be satisfied, and your strategy has to match it.

Can a World Saver raise venture capital?
Yes, but it typically requires having the Decacorn Chaser mentality first and the World Saver mentality second. Venture investors are looking for financial returns, not impact in most cases. Successful fusion and next-gen fission companies are the clearest examples of these types of founders.

What happens if my motivation doesn’t match my investors’?
This will inevitably result in conflict, and depending on how you have structured the governance of your company, you may keep or lose control of your company. Investors looking for a decacorn who got a lifestyle business will look to replace you with a CEO who wants what they want.

Jared Silvia, PhD, has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey & Company, Director of Product Management and Marketing at Doosan GridTech, and CEO and Co-founder of BlueDot Photonics. He is now a Partner at Gliding Ant Ventures, where he co-builds deep tech companies with technical founders from science and engineering backgrounds, and is the founder of Deep Tech Dirt, an online community for deep tech founders.

This post touches upon one idea from our series on “Dark Matter: Harnessing the lost innovation of deep tech wind-downs”, where we discuss how IP is lost during startup shutdowns and opportunities to rescue it. You can check out our earlier posts on Substack (part 1, part 2, and part 3) or read our complete white paper on our website.

Only 1 in 4 of the inventions developed at U.S. universities are ever licensed,1 and fewer still reach a market. We spend billions generating innovation — academic research expenditures topped $109 billion in 20242 — and then fail to move most of that science the last mile into a product.

The usual explanation is a lack of money or market fit. Another deeper problem is what we call dark matter—the tacit know-how, the failed experiments, the undocumented intuition that lives only in the inventor’s head. A patent is the visible tip; the dark matter is the invisible mass that makes the thing work. Strip it away, and you are left with a document nobody outside the original lab can operationalize.

The data backs this up. Across 50 years of spinouts at Stanford University, the top-earning patents were licensed by the inventor’s startup, and self-licenses were 3x more likely to generate >$1M in royalties3. Inventor-led startups have the greatest commercial success because the inventor is the nexus of the invention’s dark matter.

Capturing this dark matter was once thought to be like catching lightning in a bottle, but with accelerating AI, we are beginning to have the right tools. Imagine a digital twin of the inventor: an AI model built by combing through lab notebooks, experimental dead-ends, and structured interviews, then made queryable for the next team. Not a novelty chatbot — a working interface to the reasoning behind the invention. Why did you abandon that pathway? What did you do ‘that one time’ it worked? What would you try next? These answers are available in conversations around the water cooler and lab bench but vanish the moment a team disbands (or a student graduates).

Building a digital twin of an inventor differs considerably from the omnipresent ambitions of building an ‘AI scientist’. Peer review4 is a far lower threshold to cross than true tech commercialization. Breakthroughs often come directly from mistakes,5 unmeasured variables,6 and subtle unwritten choices.7 A classic example includes the Nobel-winning discovery of quantum dots, which could not be replicated from a new batch of reagents.8 Further investigation revealed a single bottle was responsible for all prior successes; it contained trace amounts of oxidized reagents that were essential for producing the successful reaction.9 Real innovation lives in the fringes of the wet lab, in the recesses of dark matter in a scientist’s mind – in the undergrad intern’s subconscious preference for a specific reagent bottle.

The opportunity is largest exactly where the loss is worst: in hard tech startup wind-downs, where we estimate 60% of informal IP simply evaporates. A digital twin captured before the lights go out could let the next founder pick up where the last one stopped — instead of repeating a decade of mistakes.

Somewhere right now, a PhD candidate who knows exactly which bottle to reach for is about to graduate — and no one is writing it down. Multiply that by every lab, every wind-down, every “that one time it worked,” and you’re looking at the largest untapped reservoir in deep tech. A digital twin of the inventor is how we finally bottle the lightning before it leaves the room.

We don’t need to wait for an AI that can do science to rescue the science we’ve already done.

Virginia Emery, PhD, has worked in the advanced biology and agriculture sector for over 10 years. Virginia was the founder and CEO of Beta Hatch, a first-of-a-kind, sustainable waste-to-value agtech company developing technology ranging from CRISPR to robotics. She is now a Partner at Gliding Ant Ventures, where she works with companies in biotech, marine energy, machine learning, and space technologies. She earned a PhD in Biology from UC Berkeley.

Jared Silvia, PhD, has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey & Company, Director of Product Management and Marketing at Doosan GridTech, and CEO and Co-founder of BlueDot Photonics. He is now a Partner at Gliding Ant Ventures, where he co-builds deep tech companies with technical founders from science and engineering backgrounds. He earned a PhD in Chemistry from MIT.

Last week, I was running a workshop on developing a funding strategy for startups. We were talking about sources of non-dilutive funding when one of the founders spoke up.

“Why isn’t there a website where you see all of the details about accelerator programs in one place? Like which ones have a fee, which ones take equity, which ones invest? And then something about whether the accelerator is worth it. I would pay $10-20 per month to get all that information in one place.”

“That’s a great idea,” I said. “And I’m working on something just like that.”

This post is going to be a little different than my usual posts. I’m going to share with you an experiment I’m launching: an experiment in building a community for deep tech founders, especially PhD founders, where they can find the right resources at the right time for their startup. Think Glassdoor for deep tech meets Reddit. And I’m asking for your input to make sure I’m on the right track.

Stop wasting your time hunting and pecking for the right accelerators and investors

One of the hardest parts of being an entrepreneur is not wasting your time.

And there are lots of ways to waste it: building a product no one wants, talking to investors who don’t have money to write checks, working on an accelerator curriculum you’ve done for the third time.

In my last post, I discussed the challenges of finding an accelerator that fits your needs. But the reality is that finding anything you need—investors, lawyers, accountants, grants—is a huge time suck for founders. This is especially true for first-time founders coming from technical backgrounds. I asserted that the best way to cut through the noise is to talk to the founders who’ve been through it.

Search engines can help you find the lists, and LLMs can help provide a synthesis of lists and Reddit forums, but neither can give you the unvarnished truth of someone who’s lived the experience.

But connecting with founders is its own challenge. Founders are extremely busy, hustling to achieve the next milestone to unlock a customer or investor. So, finding time to ask questions and get answers may seem impossible.

Finding a better way to connect with other deep tech founders

I asked myself: Is there a way to surface founder intel without having to have an individual conversation with a founder?

So, I started working on a new idea. What if there were a website just for deep tech founders where they could share their honest take on accelerators, investors, and other parts of the deep tech startup ecosystem? A Glassdoor for deep tech.

It would need to be just for founders to encourage openness and avoid spam. There would need to be a curated foundation of knowledge to ensure there was a source of truth for conversations. There would need to be transparency of who was posting, but also occasional anonymity to let people avoid retribution for unflattering stories. And it would need to be useful, helping solve problems that founders have all the time.

Fortunately, turning an idea into a reality suddenly became an order of magnitude easier less than a year ago, thanks to new artificial intelligence coding tools. I installed Claude Code and started building.

A place for deep tech founders to share honest intel

In fits and starts, I created Deep Tech Dirt, a website where deep tech founders can provide honest intel to other founders on accelerators, investors, grants, conferences, and pretty much anything else related to deep tech venture building.

I’ve got a couple of test features that I think have promise. There is a list with investors, accelerator/incubator programs, conferences, and grants, but what’s unique is that founders can share intel on any entity they’ve worked with. Have a good experience? Sing their praises. Have a bad experience? Warn other founders.

The database is integrated with a news section. Venture deals or fund announcements are tagged to investors or programs. I’ve put a little analysis at the top to get a quick snapshot of deep tech investment trends, but I’m not sure it’s surfacing the right information, so let me know what you think.

I also have an investor match feature where you can submit your pitch deck, and the system suggests up to 30 investors who are prime candidates for outreach. This is still in beta testing, so I’m not sure if it’s truly useful. Take a look and tell me what you think.

As I said earlier, this is all a work in progress. And you can have a major influence on what it becomes.

Your input can help decide where Deep Tech Dirt goes from here

So, I’ve built something, but I need your feedback. If you are a deep tech founder who’s either just starting out or who’s been toiling away for years, I want your reactions and thoughts to Deep Tech Dirt.

Love it? Awesome! What’s bringing you back for more?

Find it humdrum? Cool, but what problem do you have that it’s not solving for?

Visit Deep Tech Dirt

Please, visit the site and give me your hot take. Reply to this email or leave a comment on the post.

As I said, this is an experiment. Building an online community in 2026? That’s a truly epic challenge. But if it goes well, my hope is that we can make it a little easier for every future founder to start a deep tech startup.

If you enjoyed this article, please Like and Restack it. Thanks.

Jared Silvia, PhD, has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey & Company, Director of Product Management and Marketing at Doosan GridTech, and CEO and Co-founder of BlueDot Photonics. He is now a Partner at Gliding Ant Ventures, where he co-builds deep tech companies with technical founders from science and engineering backgrounds.

A few months ago, I wrote about how to get the most out of an accelerator program. And I discussed how important it was to make sure the accelerator is a good fit. But I didn’t do a good job of describing how to tell if an accelerator is a good fit.

This is especially problematic for first-time founders from science and engineering backgrounds; it’s unlikely that you have any experience or network to evaluate accelerators.

I also realized that there aren’t great resources for telling whether an accelerator is a good fit. This creates an accelerator-fit gap that every founder has to deal with.

What is the accelerator-fit gap? It’s the challenge every founder faces when deciding whether an accelerator is a good fit and worth the time and energy to apply to and participate in. And it exists because the internet is full of resources that are outdated, anonymous, and generic.

Today I want to look at this particular challenge and what you, as a founder, need to do to overcome it.

The three questions to know if an accelerator is a good fit

First, we need to determine what information you should look for to assess fit. I’ve broken this search down to answering three questions:

Do the mentors' backgrounds and experiences match my needs?

In almost every accelerator I have been a part of, the mentors were the make-or-break feature of the program. These are the people who will understand your company the most deeply. A mentor should challenge your assumptions, brainstorm at both the strategic (e.g., who is the right customer) and tactical (e.g., how can we get you an introduction to the CTO of Company X) levels, and not just parrot the curriculum.

Is the program’s network within the industry I work in deep and unique?

Accelerators that don’t expand your network are rarely worth it. You need to understand not just who is at the accelerator, but how readily the program organizers introduce participants to their network. If you can’t come out of an accelerator with dozens of meaningful new connections, it probably isn’t worth the time.

Did startups at stages similar to mine see noticeable success after participating in the accelerator?

If both of the previous attributes look positive, this last question should be a given. But it’s always good to know that an accelerator created value for several founders and changed the likelihood of their success.

If you get a “yes” for each of these questions, that’s a strong signal that the accelerator is a good fit. You still need to consider the monetary and cap table impact of participating, but that’s secondary to deciding whether the program will give you what you need.

Search tools and LLMs don’t have the insights you need to assess accelerator fit

OK, you’ve got the questions to answer, so how do you get the answers? You probably will turn to a search engine or an LLM. But getting to the nuanced, tailored answer using these tools is not straightforward.

Don’t believe me? Let’s look at what happens when you search for accelerators.

You can Google search “best accelerators for cleantech startups,” and you get the typical combination of AI summary and blue links:

The AI summary leads off with three cleantech standards: Cleantech Open, Greentown Labs, and Elemental Excelerator. Fine, except that these three programs are like comparing apples, oranges, and bananas.

• Cleantech Open is a classic accelerator, built on the Lean Startup and Business Model Canvas structures.

• Greentown Labs is a classic incubator. You pay to be part of the space and community. There is informal programming, and mentors are available.

• Elemental Excelerator no longer exists. The organization rebranded to Elemental Impact.1 They are a nonprofit investor that provides catalytic capital and coaching, great if you are ready for investment, but not helpful as an accelerator.

And in this AI summary, because I’m in the PNW, the Cascadia Cleantech Accelerator is called out. Unfortunately, this program hasn’t had a cohort in 2025 or 2026.

Great start, right?

Going down to the blue links, Failory’s list features prominently. Failory is a solid online resource for startups, and I appreciate their commitment to analyzing failed startups so people don’t repeat the same mistakes.

Their cleantech accelerator list, however, leaves me wanting more:

There’s a summary and seven facts about the program. You have to have faith that Failory has done its homework when it says Venture Kick is the best in 2026, or that it’s just sorting by the number of exits each program claims.

Is this useful? Half the battle is just finding relevant, active programs, so lists like these help with that. But there is really no way to gauge fit.

After the Failory list, the Reddit links appear. OK, now we have (hopefully) real people sharing their personal experiences about accelerators. But many posts are old, and anonymity doesn’t build trust or connections. And searching can be a nightmare.

OK, what does ChatGPT have to say about this?

ChatGPT does a better job of casting a wider net, but it still reports some outdated info. Fortunately, it offers to create a tailored list of 5-10 accelerators if the user provides the startup's focus, funding stage, and location. When I do this (New battery materials to improve battery durability, between idea and prototype, and Seattle, WA), I get a slightly more tailored version, but the Cascadia Cleantech Accelerator is still on top.

Even if these tools were up to date and more tailored, would they give you the information you need to assess if you are a good fit? Maybe, but again, they never participated in the program, so are they really going to be able to tell you about the program's mentors, network, and outcomes? I don’t think so.

How do you get answers to your questions about accelerators?

So where should you turn for answers to the three questions I described earlier? Founders who’ve been through it.

It’s obvious, I know, but it’s the truth. How is a search engine going to tell you about the quality of the mentors? How will an LLM assess the depth and uniqueness of the accelerator’s network?

Of course, this has its own challenge. Have you ever tried to schedule time between two startup founders? Two extremely busy people in a perpetual state of hustle? It’s like threading two needles at the same time, both constantly moving. Good luck.

Unfortunately, that firsthand knowledge from another founder is the information you need to make an informed decision.

Is there a way to surface founder intel without having to have an individual conversation with a founder?

In my next post, I will share how I have started building a tool to achieve this.

Have you ever been burned by an accelerator?

Was there a specific program that was game-changing for you?

Share your perspective in the comments.

If you enjoyed this article, please Like and Restack it. Thanks.

Jared Silvia, PhD, has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey & Company, Director of Product Management and Marketing at Doosan GridTech, and CEO and Co-founder of BlueDot Photonics. He is now a Partner at Gliding Ant Ventures, where he co-builds deep tech companies with technical founders from science and engineering backgrounds.

The Takeaway: Grants are a blessing because they provide critical, early, non-dilutive funding and credibility for founders, especially those with PhD backgrounds. But the time and paperwork are intense, and they can introduce competing priorities for startups short on time. Thinking strategically about why and how to use grants is key for success.

A founder pinged me out of the blue this week to ask for a catch-up. I was happy to schedule a call, but he left the agenda vague and open-ended.

After we exchanged the catch-up small talk, he asked me the question that was really on his mind.

“So, we’ve gotten lots of grants, which is great. Navy, Air Force, NIH. And I know that non-dilutive funding is the cheapest form of funding. But I’m worried.”

He paused, and I could see him searching for the right words.

“At some point, will our grants become a distraction? Will we spend too much time on them and not make progress on the technical development of a customer product? Should I be concerned about this?”

I nodded slowly, considering the question.

“Well, your intuition is right: you should be concerned.”

This article is part of a series about PhD founders and the entrepreneurial challenges they face. Make sure to check out our earlier posts: The Questions Every PhD Founder Should Answer Before Starting a Company and The 3 Mistakes that Derail PhD Founders (and How to Fix Them).

Why grants can be a double-edged sword

I love grants. I work with founders to secure Phase I SBIR grants through Gliding Ant’s SBIR Academy, and I wrote in April about changes to the SBIR program to help founders adapt to the new normal. My previous startup, BlueDot Photonics, received $1.5M in non-dilutive funding through three grants. Without that money, BlueDot would never have existed. I recommend that most PhD founders, especially those at the earliest stages or fresh out of university, apply for grants.1

But let me be real with you for a second: A grant is both a blessing and a curse.

Why are grants a blessing for deep tech founders?

• Non-dilutive - If you are wildly successful as a founder, your company can be worth billions of dollars. What’s 1% of $1B? It’s $10M. That’s real money. This is why people say equity financing is the most expensive capital you will ever raise. Selling too much equity now can cost you millions of dollars in the future. But a grant? No equity is exchanged. You can get the cash now without giving up equity and risking millions of dollars in the future.

• Credibility-building: Do you know the award rate for a Phase I SBIR grant? Only 14%.2 Winning one means you have convinced several experts in your field that your idea has merit. This is huge for an early-stage startup with no track record. In most cases, investors look favorably on startups that have secured grant funding, which helps address the science-project-versus-business concerns that can crop up.

Why are grants a curse for deep tech founders?

• Paperwork - We tell first-time applicants for a Phase I SBIR that they should be prepared to spend 40-80 hours on their application. Grant applications are often dozens of pages. And given the low award rates, you will often need to write a few applications before one comes through. This is time you can’t spend with the customer or working on the product.

• Competing priorities - Funding agencies have agendas. They want solutions to specific problems. Looking back at the example at the beginning, do you think the Navy, Air Force, and NIH all want the same product for the same purpose? My guess is no. This can incur significant non-recurring engineering costs and ultimately be a distraction for teams.

Get the most out of grants by thinking strategically

How can you avoid most of the curses while still getting most of the blessings from a grant?

The most important thing is to treat grants as a core part of your strategy, not just a way to pay your team. Your strategy isn’t to be a research-and-development service provider. The strategy is to build a solution to a customer’s specific problem and sell it to them at a profit.

So make sure you ask yourself the following questions before you start chasing more grant money:

Does the proposed project bring us closer to solving our current target customer’s problem?

Startups’ resources and time are limited. Successfully achieving product-market fit with a single customer is challenging. Introducing one or two more customers into the mix makes it impossible to reach product-market fit.

A company I was working with last year had two grant projects underway. In one project, the company was developing a product to identify and classify events for power plant operators using a static environmental observation system. The other project was developing a 3D scanning technology for environmental monitoring and mapping. Radically different products and customer segments.

This was causing all sorts of problems for the company. Given that the two products were orthogonal (continuous static observation vs. periodic scanning), their pitches to investors and customers, and their internal resource prioritization were all confusing. Although both projects were successful from a technology development standpoint, they struggled to gain the commercial traction needed to attract private capital or grow their customer base.

How does this grant help us build stronger relationships with potential partners, customers, or eventual acquirers?

One of the most powerful ways to use a grant is to build a relationship with a key stakeholder of your strategy. A grant-funded project lowers the barrier to customer or partner engagement by removing the negotiation over who pays for what during joint development or pilot projects.

I worked with a founder briefly, and they had secured several million dollars in grant funding over about five years. Unfortunately, during those five years, they never developed a paying customer. When their latest round of applications was rejected, they found themselves scrambling to build customer relationships and pitch to investors. The founder had taken a loan against their retirement savings to keep the company solvent while he pursued a late-stage pivot from grants to another funding source. We advised him to push for a sale of the company or a licensing deal for some non-core IP to recoup the cash he had put into the venture, but he thought this would be giving up too much value.

Is the money the only reason we are pursuing this grant?

A large part of strategy is about deciding what you aren’t going to do. Saying “no” to a project can be the right decision. As I discussed earlier, for the grant to be worth pursuing, it has to bring you or your product closer to your customer. That’s the only thing that matters. If the reason for pursuing the grant is more like, “We won’t be able to pay the team without it,” that's not enough of a reason by itself to pursue the grant.

But lots of PhD founders are comfortable applying for and winning grants. It feels like traction, and it keeps the team together by having a steady stream of funding. But this can be a trap. Eventually, the grant money dries up. Eventually, without commercial success to pair with the R&D success, funding agencies start looking less favorably on your applications. All it takes is a few misses on grant applications, and suddenly you're forced to furlough or lay off your R&D team.

The only path to a sustainable business is to find product-market fit and become profitable. Everything else is a bridge to get you there.

Whenever I start working with a startup on a grant application, I ask them, “How does this grant help your startup achieve its strategy?” Lots of times, the answer is, “I don’t know. I just think we can win this grant, and we need the money.” We then spend the next 15-30 minutes unpacking it and ensuring the grant is the right next step for the team.

It’s time well spent. Because there is nothing worse than spending 2-3 years on a research project to suddenly realize you’ve built something no one wants.

But what do you think? Am I being too harsh on grants? Have you ever regretted applying for a grant?

If you’re a founder who is trying to decide how to use grants to successfully fund your startup, I’d be happy to connect. Subscribe to this newsletter and leave a comment, and I’ll reach out to set up a 30-minute call.

And if you enjoyed this article, please Like and Restack it. Thanks.

Jared Silvia, PhD, has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey & Company, Director of Product Management and Marketing at Doosan GridTech, and CEO and Co-founder of BlueDot Photonics. He is now a Partner at Gliding Ant Ventures, where he co-builds deep tech companies with technical founders from science and engineering backgrounds.

“You PhDs…you love your words,” the McKinsey partner said with a smile.

I furrowed my brow, uncertain what that meant. We were in the middle of reviewing a slide deck for an upcoming presentation with the strategy team at a major fertilizer company. A slide I had created was up on the team room screen.

“It’s your bullet points over on the right-hand side. They’re bullet points. Not paragraphs,” he continued.

I was still confused as I looked at the text box he was referring to. They weren’t paragraphs. They were hardly sentences!

“It’s OK. You’ll learn,” he said as he started reworking all of my bullet points. “The content is great, but that’s way too many words. PhDs always struggle with it.”

The feedback stung because I had reworked those bullet points at least a dozen times! He should have seen the first draft…those were paragraphs.

But nowadays? The partner’s words echo in my mind every time I see a PowerPoint slide created by a first-time PhD-turned-entrepreneur, and I’m forced to give the same feedback I was once given.

As I have said before, I think that PhDs can make great entrepreneurs. But it’s not a given. While your PhD training brings many strengths to a startup, it also introduces potential liabilities that can lead to mistakes as you start building. Technospeak, analysis paralysis, and naivety about business — these are the habits that will follow you out of the lab, and the ones you will need to work hardest at to overcome.

And these habits can be the reason you don’t get investment. I was recently speaking with another venture builder and investor at the Flywheel Investment Conference, and he told me, point blank:

In my earlier post, I discussed how the lack of storytelling is the biggest challenge a PhD will face when transitioning to entrepreneurship. But it’s not the only issue. Today, I want to break down the major mistakes I’ve seen in PhD founders and the possible remedies.

Mistake #1: Technospeak Alienates Investors

After five years of thinking about incredibly complex ideas and communicating subtle nuance to other experts in your field, you have become very good at speaking in what I will call technospeak. This is the jargon-filled language you have used day to day without even knowing you are using it. Terms like “Fermi levels” and “nonradiative decay pathways” flow out of your mouth without even thinking about it.

Unfortunately, this technical dialect you honed over years is now a huge liability as the CEO of a startup. I’ve written about how one of the red flags investors look for when evaluating a deep tech startup is whether it’s a science project or a business. When you pitch to investors and start describing your technology using technical terms and jargon, you immediately put yourself, rightly or wrongly, in the science project column.

How can you avoid using technospeak and jargon when pitching?

• Write out what you want to say - Never read your pitch, but write it out and edit it a few times before you start practicing. This will help you see the jargon and technospeak and remove it.

• Record and listen to yourself - When you practice your pitch, you can’t really hear yourself in real time. Recording yourself and listening can help you identify where you slip into technospeak.

• Pitch to your family - If your mom or dad don’t understand what you are talking about, there is no way an investor will. Use your friends and family to help find where you are losing the audience.

• Leverage AI as a training tool - Recording your transcript and sharing it with an AI agent for feedback can be a great way to refine your pitch. Make sure you craft your prompt and instructions to give the agent the right persona so you get the feedback you want. There are also a growing number of apps that claim to be effective pitch coaches, but be wary of relying on them too much.

• Get a pitch coach - A great coach can make a world of difference for your pitch. My firm Gliding Ant Ventures has helped many founders refine their pitch, and folks like Dana Sather Robinson at Pitch4Impact are great resources if you are really struggling.

• Practice, practice, practice - Practice makes progress. You wouldn’t run a marathon without training for months, so why do you think you can suddenly wow investors without practicing? You can’t, so don’t try.

Mistake #2: Analysis Paralysis

PhDs Are Trained to Be Methodical, Startups Aren’t. Science and engineering PhDs typically involve projects spanning 4-7 years. Markets can be transformed in three years. Speed is of paramount importance for startups, and many PhDs have no experience moving fast. What was considered good progress in one week in the academic lab is glacial in the startup environment.

Aside from the communication issues we have discussed, this is probably the biggest complaint I hear from other investors about PhD founders. That investor I mentioned earlier who won’t invest in PhDs? This was his primary complaint. There is too much analysis, too much research, and too much desire for the perfect solution rather than a good-enough one.

How can you learn to move faster and make quicker decisions in the startup CEO role?

• Find good mentors and advisers who can push you - Getting advice and feedback from experienced entrepreneurs is one of the best ways to develop the skills and intuition for making decisions quickly and effectively.

• Set aggressive objectives and milestones - Without clear SMART goals, it’s easy to fall back into the academic habits you’ve developed. With them, it’s easier to identify when you are wasting your time.

• Join a founder mastermind or peer group - Hearing other entrepreneurs share their problems can give you a broader perspective and help you develop the quick problem-solving skills you need.

• Hire an experienced CEO - In some cases, you might not be a good fit for the CEO role. That’s OK. Your job as founder is to build a successful business, and part of that is building the right team.

Mistake #3: Naive Business Assumptions

At a recent pitch competition I was attending, a PhD founder was in the middle of the Q&A when they were asked about their sales strategy. Their go-to-market had been missing from the deck, so it was a natural question for the investor to ask.

The founder quickly responded that they had already secured one customer (the customer was not secured; the LOI wasn’t signed yet) and, given that success, they didn’t think they would need dedicated salespeople. The investor was skeptical to say the least.

This is an example of something that happens far too often to PhD founders. They rely on untested business assumptions while developing their strategy. This can manifest itself in many ways, e.g., underdeveloped go-to-market strategies, unvalidated financial models, or unclear exit options.

After 10+ years of post-secondary education in a technical field, it’s not surprising if you aren’t familiar with sales and marketing or profit and loss statements. But you are trying to build a company, so it’s on you to close this gap. If you don’t, you don’t stand a chance.

How to learn the business fundamentals required for startup success?

• Read a book - There are lots of great books on being a startup founder. One of my favorites with lots of references is Dave Parker’s Trajectory: Startup. Although not deep tech specific, it’s a fun read that is very practical.

• Join an accelerator - I’ve talked about how accelerators can be a mixed bag, but I generally recommend new founders attend at least one highly rated accelerator to make sure they have covered the business basics. If you are looking for deep tech specific accelerators worth your time, check out Deep Tech Dirt.

• Get feedback on your assumptions before you start pitching - As mentioned before, mentors and peer support groups are great resources for getting feedback. Leverage those support networks here as well.

• Find a fractional CFO/COO or business cofounder - Ultimately, the fastest way to close this gap might be to add a new team member. It comes with risks, but if you need to move fast, this is the best option.

There are lots of things stacked against you as you make the move from PhD to founder. But none of these obstacles are insurmountable. Most of them just require dedication to learn new skills. You already learned how to probe the edge of human knowledge; learning to be an entrepreneur isn’t any harder.

I eventually learned how to make McKinsey-style PowerPoint slides, and before I knew it, clients couldn’t tell I didn’t have an MBA.

But what do you think? What flaws did I miss that founders should be aware of?

If you’re a PhD-turned-founder who is struggling with the transition and looking for help, I’d be happy to connect. Subscribe to this newsletter and leave a comment, and I’ll reach out to set up a 30-minute call.

And if you enjoyed this article, please Like and Restack it. Thanks.

Jared Silvia, PhD, has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey & Company, Director of Product Management and Marketing at Doosan GridTech, and CEO and Co-founder of BlueDot Photonics. He is now a Partner at Gliding Ant Ventures, where he co-builds climate tech, deep tech, and frontier tech companies with technical founders from science and engineering backgrounds.

Share

Most startups, especially early-stage ones with small teams, face a key-person risk, whether they know it or not.

You know that person who may not be a founder, but is the linchpin of the R&D team, the person everyone looks to for advice and has an uncanny, intuitive knowledge about everything related to the technology? That’s the key person. The tacit knowledge they have in their brain is invaluable. At BlueDot, Jared and his co-founder were terrified of losing anyone on the team, largely because of this reality.

And not only is it a risk for the startup when it is flush with cash and operational, but it’s also a problem when the company decides to pursue a merger or acquisition, or to wind down. How can you put a value on the know-how in one person’s mind?

As we discussed in Parts 1 and 2 of this series, the deep tech ecosystem is losing valuable informal IP like know-how and tacit knowledge of team members, aka “dark matter,” especially during startup transitions. The current dynamic isn’t just bad for the founders; it also creates a missed opportunity for the next generation of innovators to learn from past mistakes and build on existing work.

What can be done to tackle this problem and rescue the IP from disappearing?

To better understand how startups handle dark matter at wind-down, we researched startup failure. Our research draws on conversations with over 150 people across the innovation ecosystem, including founders, VCs, philanthropists, government programs, and university tech transfer offices. We also surveyed 25 founders and 5 investors who have collectively deployed over $3B in capital. We supplemented this with 20 in-depth interviews, eight founder case studies, and an analysis of CrunchBase and Pitchbook data.1

We don’t claim to have all the answers, but here are four ideas to improve dark matter capture and retention, along with ways founders, investors, philanthropists, and others in the innovation ecosystem can contribute.

1. Develop AI tools to capture tacit knowledge at all phases of R&D

Dark matter leaks out most during transitions, when staff turnover, tech is transferred, or at the end of a venture. AI is an exceptional tool for deriving insights from unstructured data. A properly designed tool could help annotate documented dark matter, serve as a catalog for locating key information, summarize detailed material for new hires, and function as a Q&A interface for deeper extraction of tacit knowledge.

Applications include improved exit interviews, better invention disclosures (especially for universities and corporate spinouts), faster M&A transfer, and the identification of gaps or next steps for derivative inventions. A dark matter tool should handle many file formats for biological, chemical, and engineering data; integrate with specialized software, e.g., genomic or chemical analysis; and prompt the creation of appropriate metadata. These tools should help innovators leverage existing work rather than create more work for them.

2. Develop and share data hygiene best practices across the deep tech ecosystem

In deep tech, you need a clear understanding of why something is broken to solve it. Unfortunately, venture expectations for speed and progress can push founders to “move fast and not write things down,” which results in poor capture of know-how. For knowledge to grow additively, a good foundation is essential.

The best teams commit to a knowledge management system early and build discipline around documentation: writing SOPs, investing in backup systems, using digital rather than physical notebooks, and developing a quarterly process to extract tacit knowledge from employees. Venture investors would do well to add “knowledge management” to their diligence checklists.

3. Standardize deep tech startup wind-downs and set up frameworks for open-sourcing

It is intimidating to speak openly about startup failure, especially when there are no apparent benefits. Uncertainty around confidentiality, legal liability, and reputation makes the process unappealing, if not downright scary. As Eleanor Roosevelt advised: “Learn from the mistakes of others. You can’t live long enough to make them all yourself.”

When a deep tech company fails, the obvious question is: was it the tech, the team, or the timing? A standard postmortem would give invaluable context. Non-profits, trade organizations, and special-interest groups could host startup post-mortems and their accompanying data. Catalytic capital will also be needed for more open-sourced endings. A wind-down fellowship that supports a founder while they turn their IP into an actionable open resource would solve the question of who pays for the work. We discussed how this worked for Makani in our previous post.

As counterintuitive as it may seem, entrepreneurs and investors need to agree on what a wind-down looks like before a crisis occurs. Ways to standardize wind-downs should be developed and adopted broadly across deep tech entrepreneurship. One idea is creating a “technical will” during formation or at the first major equity investment. That way, when the end is near, the team can focus on executing against a plan or preferred outcome rather than arguing what should happen to the IP.

4. Create a non-profit library to curate and preserve informal IP for future researchers

Venture investors must fulfill their fiduciary responsibility to limited partners by squeezing out any residual value. Creating an alternative to selling the IP, e.g., a tax incentive for donating unmonetized IP, could motivate new behaviors.

A non-profit repository of donated intellectual property could serve as a valuable resource for future innovators. Cascade Climate is one initiative that seeks to open-source the science behind enhanced rock weathering, a key carbon capture and storage technique. Similar entities could preserve more dark matter by assuming the responsibilities and costs of maintaining assets that serve as a public good.

Why aren’t we making these changes already?

Now you may be thinking, why aren’t these actions happening already? What’s holding us back from making these changes?

And the answer is it’s a classic collective action problem. Although each stakeholder in the ecosystem — researchers, founders, investors, lawyers, philanthropists — loses when informal IP disappears, no single player can fix this alone.

What does this collaboration look like? Each of our four ideas requires varying degrees of financial investment, cross-ecosystem coordination, and legal innovation.

For example, developing AI tools for deep tech innovation processes and dark-matter capture will require substantial financial investment from private investors, philanthropists, or government agencies.

Improving dark matter hygiene requires the concerted, coordinated effort of multiple stakeholders; for example, founders need to learn and share best practices for conducting R&D, and investors need to accept the upfront cost of establishing systems and processes rather than moving quickly.

Improving wind-downs requires rethinking and innovation in legal frameworks and governance for startups, necessitating partnerships among law firms, founders, and investors.

Developing a non-profit library to capture and retain rescued IP requires all three — funders to build and maintain the library (likely philanthropic), founders to design their R&D processes to enable easy sharing, and a legal framework to incentivize data sharing from a formerly for-profit entity.

Gliding Ant is excited to help drive these changes as venture builders. We are exploring ways to structure venture deals to leave open the possibility of open source endings. We are also excited to improve operations and knowledge management in the next generation of deep tech startups. Finally, we want to take care of the most important resource in the startup ecosystem — the founder.

The founder role is one of the toughest careers to pursue, and discussing a failed venture is especially challenging. But a seasoned entrepreneur can avoid lots of the early-stage mistakes that can derail a startup. Why let that person get dejected and leave entrepreneurship? Gliding Ant is ready to provide a connection to founders navigating this transition.

A future of faster innovation, powered by dark matter.

The ideas we propose are the foundation for a new era of deep tech innovation in which knowledge compounds rather than evaporates.

Imagine a future where intelligent tools not only preserve and transfer dark matter but also suggest the next steps in the innovation process. There is a digital twin of the R&D team, and those teams can open time capsules of know-how and easily access what has come before. Industry groups coordinate in open innovation through non-profits that reduce friction in collaboration between public and private research. More tech is commercialized by universities and national labs, and more academic work is informed by commercial advances, creating a better-prepared scientific workforce. Deep tech investors realize better returns with fewer mistakes, faster acceleration, and better exits. Founders can both fail faster and fail forward.

That future can be now, if we seize the opportunity. With the convergence of massive cloud computing resources, large language models for processing unstructured data, and advances in specialized machine learning and predictive algorithms, there is an opportunity to radically rethink how innovation and R&D occur in deep tech.

What other ideas do you have?

We’ve shared our ideas, but we would love to hear your ideas. If you’ve wound down your startup, what happened to your IP? What could have rescued it from destruction? Leave your thoughts in the comments, and we’ll connect with you to explore ways we can work together on this challenge.

We believe that preserving dark matter and bringing it into the light is possible. But it will take the work of many to overcome the inertia of today's systems. We are proud to be working on part of the solution.

Share

Do you have “The Box” in your office? Maybe it’s in your garage. If you are a startup founder who’s had to wind-down their company, you probably have The Box somewhere.

For our partner, Jared, the box is in his office. It contains a couple of file folders of important legal documents from his former startup, BlueDot Photonics. There are some “souvenirs” — lab samples and trinkets collected along the way. And there is a hard drive backup of every digital record from the company. It’s the final remains of many years of work.

But you know what’s not in The Box? It’s years of R&D experience and know-how that are fading from his former teammates' memories. The tacit knowledge about what works and what doesn’t, which is never written down. This informal IP is gone forever.

We call this informal IP the “dark matter” of every startup. It’s the unseen yet incredibly valuable combination of know-how, tacit knowledge, unstructured notes, and communications that accumulates over years of work.

Both of us at Gliding Ant have experienced this loss of dark matter firsthand. But we were curious if we were alone. Are other founders transferring IP more effectively? Are there systems available to stem the losses?

To better understand how startups handle dark matter at wind-down, we researched startup failure. Our research draws on conversations with over 150 people across the innovation ecosystem, including founders, VCs, philanthropists, government programs, and university tech transfer offices. We also surveyed 25 founders and 5 investors who have collectively deployed over $3B in capital. We supplemented this with 20 in-depth interviews, eight founder case studies, and analysis of CrunchBase and Pitchbook data.1

Here, we extract key takeaways, starting with our own companies: photovoltaics innovator BlueDot Photonics, co-founded by Jared Silvia, and insect protein pioneer Beta Hatch, founded by Virginia Emery. We also discuss insights from the carbon marketplace startup Nori, the open-ocean aquaculture trailblazer Forever Oceans, the battery storage startup Cuberg, the fusion energy spinout CT Fusion, the asteroid mining company Planetary Resources, and the wind energy moonshot Makani.

Most wind-downs lead to dark matter destruction

We identified eight typical wind-down paths for startups (see Table). We outline what happens to both formal and informal IP along each path and provide an estimated frequency for each outcome. We have organized the table from the paths where dark matter is preserved most completely to those where it is lost entirely. Our research confirms that informal assets are usually overlooked and sometimes lost entirely during shutdown.

There are many reasons why dark matter is destroyed so frequently. In most cases, the destruction is incidental, a victim of competing priorities and limited resources. In others, the best of intentions results in the slow atrophy of knowledge, preventing any future hope of resurrecting the technology. Here are some of the most common problems that contribute to the destruction of dark matter.

Problem 1: Chaos during startup wind-downs leads to informal IP losses

Even in the best cases, when a founder takes extra steps to preserve it, dark matter is lost. Part of the challenge we saw is that most entrepreneurs don’t know what to expect, so we are sharing our stories to help open the black box.

Beta Hatch, founded by Virginia, showcases the challenges in capturing dark matter and transferring it in a wind-down. The company's vision was to establish insects as a new biomanufacturing platform. The innovation efforts spanned multiple disciplines, from robotics and manufacturing automation to DARPA-funded work in genomics and CRISPR. The company was unable to secure Series B financing amid the post-COVID financing slump and closed in 2023. The 4 TB of IP assets were bundled by Virginia and sold by a receiver in an assignment to the benefit of creditors (ABC) process. The acquirer hired Virginia to help with the transfer. The original intent was to preserve enough for a possible reboot, but this seems unlikely due to the loss of genomic and digital dark matter.

Some lessons learned:

• Decisions often must be made quickly, especially for perishables or assets that incur maintenance expenses. Live animals and freezer-stored specimens were shipped to competitors and collaborators in the first weeks of the wind-down – the IP transaction took another 4 months to finalize.

• Genomic data, with DNA as a common language, was among the easiest to share. By contrast, engineering drawings, facility design considerations, and CRMs and supplier lists were difficult to make actionable, even with meeting notes and email records as context.

• Personally identifiable information contaminates many systems, including email, messaging platforms, and personal file systems, restricting sharing.

• Wiki systems like Confluence and Notion can be hard to navigate for newcomers. A human interpreter with tacit knowledge is an essential navigator. AI tools are starting to help here, but are still missing the context that a human can provide.

In the rush to wind-down and preserve cash, it is easy for an exit interview to be overlooked or a key computer password to be lost. For example, at Nori, a carbon trading platform company, an expired software subscription led to the loss of significant digital assets. Small mistakes like this are a major source of dark matter leakage.

If you are a founder who has gone through a shutdown, you’ve probably experienced something similar.

Problem 2: Tacit knowledge is the hardest IP to save and transfer

Tacit know-how — the undocumented and intuitive knowledge in people's heads — is lost when key team members depart. Acquiring companies acknowledge this by placing a premium on acqui-hires rather than a simple asset acquisition.

BlueDot Photonics, co-founded by Jared, serves as a notable example. BlueDot Photonics was a materials startup that created optically active thin films to enhance the efficiency of silicon solar panels. Its solar panel boosting technology had shown strong customer validation with multiple Tier 1 panel manufacturers engaged in material transfer agreements. During an attempted pivot, employees were laid off to preserve cash while the company navigated new commercial discussions. However, the product development timeline would take several years and many millions of dollars, so the company opted to pursue an acquisition. A sale was then negotiated with UbiQD of Los Alamos. Unfortunately, valuable knowledge and informal intellectual property from the employees had already been lost, leaving only lab notebooks.

For the most innovative tech, a failure to launch can decouple formal patent IP from hard-won commercialization know-how. For example, CT Fusion was a spin-out from the University of Washington focused on spheromak nuclear fusion technology. After licensing the technology in 2015, the company was unable to secure funding and subsequently ceased operations in 2023. The expertise developed by the 10-person team remains within the ecosystem, with key personnel moving to rival Zap Energy, but the loss of dark matter makes relicensing (and technology iteration) unlikely.

Most founders recognize that their greatest asset is their team, so it makes sense that dark matter can be lost when the team disbands.

Problem 3: Informal IP is inadequately captured by current tools

The instinct to preserve data is common among deep tech founders, perhaps best exemplified by Suren Sehgal's preservation of rapamycin. Involving the founding team in an IP sale increases the thoroughness of dark matter preservation and the likelihood of a sale or future reboot. However, most startups lack the resources, processes, systems, and financial incentives to transfer dark matter during a wind-down. Timing is particularly important: memories fade, employees leave, and competitive relevance diminishes the longer a transaction takes.

We asked founders to rank their interest in the types of information and IP available from a failed competitor. While sales information and patents ranked predictably at the top, there was also significant interest in the dark matter. However, only about 25% of survey respondents were interested in R&D notebooks and company wikis. Founders felt that, though this material had value and contained much of their company's internal dark matter, the effort required to extract information from these resources was too high.

One of our interviewees transacted dozens of IP acquisitions from distressed companies. In negotiations, the asset price itself was rarely the deciding factor; instead, the cost of incorporating the new technology and making it functional was a significant barrier. If there were high patent costs, burdensome IP license terms, or poorly documented R&D, otherwise valuable IP was passed over.

With the current tools available to digest and analyze these materials, the cost-benefit analysis didn't pay off. New tools are needed to better capture dark matter and make it more actionable.

Problem 4: The perceived financial value and current incentives often prevent saving informal IP

Technology that is lost in a freezer, sits in a closet, or drains talented people's time serves no one. And yet mothballing is the outcome for roughly a third of startup wind-downs, with 5-15% as a primary outcome and 10-20% of other failure paths ultimately ending up there secondarily.

One reason is the sunk cost fallacy, and the other is a distorted view of IP value, especially acute in first-time founders and emerging managers. Our surveys show that 65% of founders overestimate the value of IP transactions, often by up to 10 times the average actual transaction size. For deep tech founders, this distorted view saps energy and resources from the innovation ecosystem. The tech perfectionist embodied here thinks, 'If I build it, they will come,' and can waste years working on technology that struggles to gain traction or funding. Likewise, investors hang on to the assets despite a low likelihood of a return. As one surveyed investor puts it, “You can just sit on the IP until you find a way to sell it.”

Unfortunately, the value realized in these deals is minuscule. Based on our interviews and surveys, in 60% of wind-downs that found a home for the formal IP, the typical transaction represents less than 2% of the financial value invested in the company. For one of our case studies, total funds invested were approximately $30 million, but after nine years of operation, the IP sold for only 0.1% of that value.

Problem 5: There are no roadmaps or frameworks for the open-source release of informal IP

An alternative ending to the 'fractions of pennies on the dollar' asset sale would be for the IP to be made open source. But this is a very rare outcome, happening less than 5% of the time.

The most comprehensive example we've found is Makani Technologies, an airborne wind energy startup spun out of Alphabet's moonshot factory X that closed in 2020. A patent non-assertion pledge was made for the formal IP, including 127 patents. The 13 years of learning captured as informal IP were posted online. This dark matter includes several hundred pages of reports, flight log datasets, technical videos, and open-source code. The project is now a time capsule, preserved for future innovators. It is too early to definitively measure the impact of this open-source gift, but with over 1,200 stars and over 100 forks, the GitHub repository is remarkably well-engaged.

Sometimes, open sourcing is a secondary outcome. The asteroid mining company Planetary Resources negotiated an acquisition deal with ConsenSys, expecting ConsenSys to continue its satellite development work. However, with the deal taking almost a year to execute, staff atrophied, and the original budget allocation shrank. The IP ended up being mothballed. Fortunately, the tech remains alive through a secondary transition to open source, with a non-assertion pledge on the IP negotiated by a technical co-founder.

The few examples we found share a few things in common: simple ownership structures and deep pockets were coupled with an open-source ethos at founding; passionate technologists remained engaged in the wind-down process and beyond; and the technology was promising, but the business model was well ahead of its time.

To make open sourcing a more common outcome, we need to develop standard practices for how to do it and how to incorporate it into startups' governance structures. Founders and investors will both need to be engaged and understand how it can be a preferable alternative to abandonment.

Problem 6: Without an acquirer, there is nowhere else for the informal IP to end up

Many of the innovators we interviewed expressed frustration at wanting to share their know-how but having no clear paths to do so.

For Planetary Resources, the second chance of open sourcing has been complicated for their satellite technology. As export-controlled material, much of the IP cannot be shared openly. However, non-assertion has allowed former employees to use their work products in new roles, in stark contrast to the uncertainty many technical teams face after leaving a failed company.

At Forever Oceans, an open-ocean aquaculture pioneer, former employees expressed uncertainty about IP ownership and how best to share lessons learned with other operators. Indeed, remaining confidentiality confusion can limit the mobility and efficacy of subject matter experts who remain in the field.

You may ask yourself, why isn’t there a library that can serve as a repository for IP when there is no acquirer? Ultimately, it’s a cost issue. Over time, the IP asset's value erodes, but storage or maintenance costs remain constant or rise. It is rarely clear who would welcome, benefit from, and be able to maintain the cost of preserving donated IP. As a result, destruction is often the easiest and, hence, the most common outcome.

As you can probably see by now, many of these problems share common root causes: uncertainty, misaligned incentives, and technical challenges. But we believe that now is the time to tackle these challenges head-on.

We highlight six problems here, but it’s possible there are others we haven’t uncovered. If you have gone through a startup wind-down and seen the destruction of dark matter, we would love to hear from you. What happened to the dark matter before, during, and after the shutdown? Where is it now? Why wasn’t a better transfer possible?

By understanding all possible ways dark matter can be destroyed, we hope to build startups that avoid these problems. Although the problems we highlight are complex, there is no reason to think they are insurmountable.

In part three of this series, we will share our ideas for how to save this precious asset from destruction and accelerate future innovation in the process.

Need to catch up? Read Part 1

Coming soon:

Part 3: How to harvest dark matter to accelerate innovation

We spent most of the time talking about what it will take to raise money from venture capitalists, a common topic of conversation.

But then one of the PhD entrepreneurs asked me a question I rarely hear: How do I know if I should start a company?

I wrote a couple of weeks ago about why I think PhDs can make great founders and entrepreneurs. And I stand by that belief. But what I didn’t talk about in that article is whether or not a PhD should become an entrepreneur.

What does this mean? Some people dismiss PhDs as not being fit for entrepreneurship. They’re wrong. But only few PhDs are cut out to be a founder, and even fewer find themselves at the right place and right time to be a founder.

In this post, I’ll cover:

• How to think about preparing mentally for the founder role.

• How to evaluate if you are solving a problem that’s a good fit for a startup.

• How to find ways to pay yourself as you start a company.

So, if you are a PhD considering moving into the founder role, let’s talk about whether that’s the right move given who you are and where you are at.

Question 1: Are you mentally prepared to be an entrepreneur?

Entrepreneurship is a challenging path, one with super highs and rock bottom lows.

When I was CEO of BlueDot Photonics, I rode that roller coaster. We started off, and it was fun and exciting. I travelled to conferences and connected with people across the solar industry. We started winning grants and awards, culminating in a $1M award from the Department of Energy.

Then 2020 rolled around and the pandemic hit. Suddenly, my co-founders couldn’t work in the lab, our fundraising effort collapsed, and I didn’t have the working capital or cost share to execute on our remibursement-based DOE contract.

But I kept grinding. Mid-way through the year, I had secured a secondary grant for the DOE project from Sustainable Grant Making Partners along with a working capital line of credit from Craft3. I found my first institutional investors, Ideaship and the Washington Research Fund, who helped us secure our tech license from the University of Washington and pay for legal fees.

We were able to restart pitching to investors and secure our pre-seed round to provide the two years of runway we needed to execute on our development plan. 18-months later, we were pivoting hard as technical challenges slowed our progress, and I had to let go of several team members.

This is the up and down of being a founder, and you have to embrace it.

Along the way, you’ll need to make sacrifices — professionally and personally. You are going to invest five or more years of the prime of your life and fail in achieving your goals. You’ll be trading a stable salary for the uncertainty of a big startup exit. You’ll miss out on events with friends and family. You’ll feel lonely lots of the time, working mostly on your own for months during the earliest stages.

It’s a grind, with more than half of founders self-report feelings of burnout. This part of the reason why my business partner talks about how startup founders need to train like Olympians.

So, “Are you prepared to be an entrepreneur?”

There is no right or wrong answer. It’s highly personal.

But if you don’t have the personal motivation and drive to weather the tough times and relish the good times, there is little chance of success and little chance of it being a rewarding experience.

So be honest with yourself and really make sure it is for you.

Questions to ask yourself to see if entrepreneurship is for you:

• How do situations with high levels of uncertainty make you feel?

• How comfortable are you with making decisions with little to no data?

• How easy is it for you to admit you are wrong and make a change to what you are doing?

• How well can you prioritize and multi-task?

• How well do you handle setbacks and “failure”?

Share

Question 2: Are you solving a problem that someone will pay you to solve?

Have you ever noticed how introductions in research papers in a given field sound the same?

Many of them are some variation of “This is a really big problem. Here is why it hasn’t been solved. Here is how our results are a huge step forward in solving the problem.”

And yes, the problems are big: climate change, cancer, pandemics, etc.

But these aren’t problems that directly lend themselves to entrepreneurship. Let’s take climate change as an example. I have seen multiple founders begin their pitch saying, “The world is facing an existential crisis because of climate change. Our company is going to solve climate change by electrifying transportation.”

Companies need to make money, and this problem-solution statement makes no mention of how the company is going to make money.

When I ask, “Are you solving a problem that someone will pay you to solve?” you need to decide whether this is a problem that real people with money will pay you to solve. I’ve talked about how to think about market analysis in a previous post and how to make sure you have a business and not a science project, so I won’t go into detail here, but go back and read those if you need a refresher.

If people who will pay for you to solve their problem don’t exist, then you can’t have a sustainable business, which means starting a company is a bad idea.

Questions to ask to see if you have a real problem?

• How many potential customers have you talked to who confirm this is a “hair-on-fire” problem? (should be dozens)

• How much money is the problem currently costing someone? (the more the better)

• How big are the barriers for customers to switch to new products or services? (hopefully, not so large that they won’t, but not so small that they won’t stick around)

Question 3: Can you afford to be an entrepreneur?

Let’s be real: you need money. You need to pay for food, shelter, healthcare, etc.

Unfortunately, one reality of entrepreneurship is that founders won’t always get paid, especially at the beginning.

For a PhD right out of graduate school, not getting paid is a deal-breaker. You probably have limited savings, maybe even student loan debt. At that speed networking event I mentioned at the beginning of the post, one of the founders was direct: “I need to get paid in four months. Where can I get money?”

So, “bootstrapping” with no pay is not in the cards.

Fortunately, there is a growing number of resources available to help address this issue.

Many universities now offer commercialization fellowships for graduates. One example is the University of Washington Postdoctoral Entrepreneurship Program. There are also several fellowships offered through the DOE national labs (e.g., Chain Reaction Innovations), other private investors (e.g., Breakthrough Energy Fellows), and non-profits (e.g., Activate).

The goal of these programs is to give the PhD graduate 1-2 years of runway to validate the startup's core concept and then secure additional funding.

You can also secure grants from federal and state governments to continue R&D as a collaboration between the university and the startup. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are the most well known grants designed with this in mind. These grants can help smooth the transition from academia into the startup.

If these aren’t an option or don’t move fast enough, securing investment from friends and family is a great option. It’s used frequently by first-time entrepreneurs to get started.

The critical thing is you have to have a plan to get paid.

Questions to ask if you can afford to be an entrepreneur?

• What resources are available at your university to extend your runway in academia?

• Do you have time to go through the application process for a fellowship or a grant?

• Do you have friends and family who can be your first investors?

• What can you do to reduce your personal expenses to give you more time?

The PhD student/founder I met at the speed networking event demonstrated the type of self-awareness more would-be-founders need to show. I shared these three questions with them during our short time together, and their eyes went wide and they took a long, deep breath. “Oh wow, I never thought about all of this,” they said.”

“That’s OK,” I replied. “Just find some time to think about it, talk with your friends and family, and then make a decision.”

Being a founder is amazing, but it comes with a unique set of challenges and risks that entrepreneurially curious PhDs should know about and reflect on before embarking on the path.

You might find yourself getting swept up in the idea of being a founder. But if you don’t look in the mirror now, in a couple of years you might realize you chose the wrong path.

If you’re a PhD student trying to make the decision, I’d love to hear your situation. Subscribe to this newsletter and leave a comment, and I’ll set up a 30-minute call, no strings attached.

Jared Silvia, PhD has worked in the energy and materials sector for over 15 years, as a consultant at McKinsey and Co., Director of Product Management and Marketing at Doosan GridTech, and as CEO and Co-founder of BlueDot Photonics. He is now Partner at Gliding Ant Ventures, where he co-builds climate tech, deep tech, and frontier tech companies with technical founders from science and engineering backgrounds.

This, I believe.

Am I biased? Probably.

I have a PhD. My business partner, Virginia, has a PhD. I founded a solar startup with another PhD.

But there is data to back it up.

In 2023, 35 billionaires in the US had PhDs. And the founders of unicorn companies are 6x more likely to hold a PhD compared with the population at large.

But unfortunately, PhD participation in startup formation fell by 38% between 1997 and 2023. The reasons for this decline are unclear.

But it should be seen as an existential crisis for society. The only way we can continue accelerating innovation across society is by increasing the participation of PhDs in startups. The problems are getting bigger and more complex — mitigating and adapting to climate change, transitioning to an electricity-driven economy, feeding another 2 billion people — and will require expertise and rigor to solve them. PhDs have the expertise and skills to tease apart these problems into solvable chunks, and startups are more nimble and can move faster than existing corporations.

So, today I’ll share the reasons why I believe PhDs can be excellent entrepreneurs and the biggest thing that derails them.

Then, over the next few weeks, we’ll dig into why their participation is declining and ways to reverse the trend. This is a core part of our goal here at Building for 2075 and Gliding Ant Ventures, which we have shared previously:

How PhDs are like Entrepreneurs

When I was in my PhD, I never saw myself as an entrepreneur. I was a scientist, a chemist to be precise. An expert in chemistry. Not a deep tech founder.

It wasn’t until I went into the business world and eventually became an entrepreneur that I realized how similar PhDs and entrepreneurs are.

Here is my definition of a PhD graduate:

And here is my definition of an entrepreneur:

As you can see, the only fundamental difference between a PhD and an entrepreneur is the specific problem they are trying to solve.

Throughout my career, I have been continually surprised by how helpful my PhD training has been in the business world. As a management consultant, product manager, and deep tech founder, I was able to adapt what I learned in the research lab to the business setting.

Share

How PhD skills transfer to Entrepreneurship

Naturally, if the core goals of PhDs and entrepreneurs are similar, the two groups should have similar skillsets, and they do:

The core skill set of both PhDs and entrepreneurs focuses on answering questions through inquiry and data collection.

How does this skill translate from the lab to the startup?

During my PhD, I developed a molecule that could reversibly bind carbon dioxide. I developed a hypothesis that I could tune the binding strength by changing the external environment. I designed a series of empirical and computational experiments to test my hypothesis, eventually confirming my intuition.

When I was the CEO of BlueDot Photonics, I hypothesized that we could coat solar cells with our new optically active materials. I then created an interview guide and conducted a series of interviews with industry veterans to test this hypothesis. Through the interviews, I learned that coating the cells would be a manufacturing nightmare, and we would need to pivot.

Different questions, same basic method: come up with a hypothesis, design an experiment, collect and analyze data, and interpret the results.

This is just one example, but over and over again, I have found myself and other PhD founders tapping into the skills they first developed during their PhD.

Of course, no one can do it alone, so it’s important to build the right team for your venture:

What makes PhD Founders unique: grit

If you have a PhD, you know what I mean when I talk about grit and determination.

When I was working on my PhD, I had to measure the volume of a very small amount of carbon monoxide produced by a reaction that was central to my thesis. I tried dozens of different experiments and techniques over months of work. It was one failure after another. But I wouldn’t accept the failure. I kept reading articles and asking questions. Eventually, I found a molecule to use as a trap for my product, and the final piece of the project fell into place.

It’s moments like these that prepared me for the grind of my startup, BlueDot Photonics. In early 2020, we had secured our first grant from the DOE and were pitching to investors. Then, in March, we were locked out of our labs, and investors froze all investment activities as COVID-19 spread. I had to renegotiate our contract with the DOE, secure working capital for our research activities, pay legal fees to secure our IP, and secure private investment to grow the team. As daunting and stressful as this was, I was able to lean on the mental grit I developed while chasing CO in the lab.

A PhD thesis is a mental and emotional marathon. There can be months of frustration when instruments break or experiments fail repeatedly. There is often no external validation or motivation to keep going; it’s up to the individual to put their head down and grind through the struggle.

This is the same struggle every entrepreneur faces at one time or another. A PhD has a leg up on other founders because they have experienced this frustration firsthand.

The One Skill PhD Founders Need to Learn: Storytelling

If it is so obvious why PhDs can make great deep tech entrepreneurs, why don’t more pursue it, and why aren’t they winning at even higher rates?

A few aspects of entrepreneurship deter PhDs from following this path: seeking the most elegant rather than the most practical solution, making decisions quickly with incomplete data, being OK with an 80% answer, and needing to self-promote.

But the biggest challenge area for PhDs that can derail their entrepreneurial dreams is storytelling.

And I was no different. I thought I was a pretty good communicator by the end of the PhD. But I didn’t realize that I had been trained to only communicate in one way — as a careful, methodical scientist.

When I was in my first year at McKinsey & Co., I had to unlearn almost everything I had learned about communication in my PhD. Get rid of the jargon. Use fewer words. Don’t bury the lede. Make sure you can tell the client the story in 30 seconds while walking down the hall to the next meeting. It was trial by fire for me.

Scientific communication is almost the complete opposite of the communication style required for entrepreneurship.

Scientists typically tell stories as a series of steps: first I did this, then I did this, and then I did this, and at that point I realized I had learned this. This is classic inductive reasoning.

And it’s intentionally dry. Emotions should be left at the door. Facts should carry the day.

Entrepreneurs flip the script, talking about their vision first and then explaining why they believe it is real. Classic deductive reasoning.

And it’s critical to invoke feelings, emotions, and passions. We’re talking about people, and people are messy.

Time and time again, this is where I have seen PhDs stumble on their entrepreneurial journey.

Their pitch decks are too heavy on tech and jargon, fail to address the customer, and, to be frank, they’re boring. I’ve covered the pitfalls of coming across as a scientist when you pitch here:

Fortunately, these are skills that can be learned, and those PhDs who commit to practicing and soliciting feedback from others can quickly overcome this deficiency.

By the time I was making my first pitches, I had refined my communication style. An investor at the Cascadia Cleantech Accelerator came up to me after my final pitch and asked, “How many other startups have you had?” I answered that this was my first one, and her eyes widened. “We should talk,” she said, handing me her card. Clearly, I had told a good story.

I wish that someone had told me earlier that my PhD was preparing me not just for scientific research, but a whole swath of careers, including entrepreneurship. The underlying skills — hypothesis-driven inquiry, problem-solving, collaboration with partners, and perseverance through challenging situations — were all there. But it wasn’t until I was outside the lab, looking back on my career, that I appreciated this.

The PhD-to-entrepreneur journey isn’t easy. It takes an open mind, hard work, and practice. But the gap between a scientist and an entrepreneur is narrower than it looks from inside the lab. Most of what you need, you’ve already built.

Over the coming weeks, I’ll be exploring this topic further — helping PhDs who are curious about entrepreneurship learn what it takes, how to harness their skills, and how to find team members to complement them.

If you are a PhD student interested in becoming an entrepreneur or have recently started your journey, I’d love to hear from you. Subscribe and leave a comment, and I’ll set up a 30-minute meeting to talk through your situation and what could come next in your career.

Share

This week, CB Insights released its periodic analysis of the Top Reasons for startup failure. They analyzed 395 startups that shut down since 2023, looking for the reasons the startups shut down.

The number one reason?

They ran out of capital.

Seems intuitive, right? But once you let it sink in, you realize, “Well, yeah, you ran out of capital. If you still had capital, you would still be in business.”

Running out of capital is the symptom. It’s not the root cause.

It’s kind of like a coroner saying the cause of death is that the person’s heart stopped beating. Technically, true. But why did the heart stop beating? That’s the real question.

For founders, saying your startup failed because you ran out of capital ignores the root cause.

You ran out of money because you didn’t achieve a business goal.

But telling yourself that it was because you ran out of money? You’re just lying to yourself.

What does CB Insights say?

CB Insights comes to a similar conclusion, but is more polite than I am:

The more telling causes — poor product-market fit (43%), bad timing (29%), and unsustainable unit economics (19%) — reveal why the capital dried up in the first place.

— CB Insights

The three root causes they call out:

• Poor product-market fit: This is always an issue. They even highlight that 20+ post-Series B companies failed to find it! You have to know your market and customers.

• Bad timing: This could be several things. The examples CB Insights cites include alternative protein companies, which are a market that is really struggling. Is it bad timing, or is it a failure to reach price parity with traditional proteins? Timing is often a code word for 'we couldn't get the costs down fast enough to shift the market.
  Beyond Meat is a case in point, where costs have remained stubbornly high, stalling widespread adoption, and leading to a cratering in their stock price:

• Unsustainable unit economics. Becoming profitable is critical for long-term success. You can only live on venture capital funding for so long. Very few companies can replicate the Amazon model. Most end up like Movie Pass.

  • For deep tech founders, you have to build the model and stress test every assumption about your unit economics. Customers need to save money, create more revenue, or do both. This is a challenge for many climate tech companies competing against decades-old technology that has benefited from extensive learning and cost compression.

I credit CB Insights for pushing their analysis to the next level. But I wonder why they even list running out of capital as an option.

Share Building for 2075

Blaming money isn’t going to help you learn from your mistakes

I am not a psychologist, and the literature on failure is extensive, so I can only share a few personal reflections.

The Cognitive Triangle

In cognitive behavioral therapy, there is a concept of the cognitive triangle. Thoughts, feelings, and behaviors are interrelated.

The dynamic interactions are powerful in how you navigate the world day to day. They also have a role to play in learning from failure.

As a toddler, after you pinch your finger in a door, you learn quickly not to stick your fingers in a door jamb. The brain is saying, “We stuck our fingers in the door and got hurt. Let’s not do that again.”

If our brains told us instead, “Our fingers got pinched because mommy shut the door on our fingers,” we would learn a very different lesson. This might be, “We should yell at mommy every time we are near a door to not shut it on us.”

Dig deep for the root cause

Just like the toddler blaming mommy, we can tell ourselves, “We had to shut down because we ran out of money.” But what lesson can we take away from that? It might make us feel better, since it puts the cause outside our control, but we miss the chance to avoid the core mistake that led to the shutdown.

There are lots of ways to get to the root cause. One of the simplest is Five Whys. Ask why at least five times to reveal the deep causes of an event.

1. Why did we fail? Because we ran out of money.

2. Why did we run out of money? Because we couldn’t raise more money from investors?

3. Why couldn’t we raise more money? Because we didn’t hit our revenue targets?

4. Why didn’t we hit our revenue targets? Because our customers weren’t happy with our product, they didn’t renew the contracts.

5. Why wasn’t the customer happy with the product? Because we only delivered half of the cost savings in their back-office operations that we had originally promised.

It is much more productive to acknowledge, “We really misread what our customers really cared about. We should have done more customer discovery early on.” Only when you do this can you increase your chances of success in your next startup.

Take that long, hard look in the mirror and be honest with yourself.

Why is this an issue?

The focus on money can be corrosive to founder success, manifesting in many ways:

• Validation Gap: Founders are trying to raise money with limited customer validation.

• Pitch Deck Tunnel Vision: Founders focus so much on the pitch deck that they forget to focus on the product.

• Penny-wise, pound-foolish: Founders are monitoring every penny spent but are not asking whether that spending is delivering on the milestones.

The constant fear of not raising money or running out of money can distract you from focusing on finding a repeatable business. Remember, that’s the real goal.

Agree or disagree?

Should CB Insights even include this as an option in their survey?

When have you lost sight of the real purpose of your startup in the pursuit of funding?

Would love to discuss this more with other founders.

Share Building for 2075

On Tuesday, the Senate unanimously passed S. 3971, the Small Business Innovation and Economic Security Act. After months of arguing and negotiating, it looks like the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs will be reauthorized.

I cannot overstate how critical these programs are for the deep tech startup community. I know personally that without the SBIR program, BlueDot Photonics would have never existed.

But this wasn’t just a simple reauthorization; there were some notable changes to the programs that every founder needs to know. Let’s dive in to learn what’s changed and what you should be doing as a result.

A six-year extension

The Act will extend the SBIR/STTR program through the end of fiscal year 2031. That’s a six-year extension. Given the proposed changes, this is a practical amount of time to assess their impact.

But it also means we could see this reauthorization tangle play out all over again in 5.5 years. Fingers crossed that doesn’t happen.

The extension also clarifies one of the most concerning questions from the authorization lapse: will agencies have to spend all of FY 26 funding by the end of September?

No. The bill will allow unused FY 26 funds to carry over into FY 27.

National security front and center

The biggest changes are all about vetting small businesses for security risks for both SBIR and STTR awards.

Agencies are now required to “evaluate whether a small business concern presents a security risk for any reason” through the standard due diligence process, disclosures the companies make, and coordination with the intelligence community. The head of the agency then has discretion not to make an award using a simpler set of criteria.

Things that can warrant denial:

• Owners or individuals with connections to foreign talent recruitment programs;

• Affiliated businesses located in China or other foreign countries of concern;

• Owners or individuals with affiliation with a research institute in China or a foreign country of concern;

• (NEW) Connections to any individuals on the following watch lists: UFLPA, Chinese Military-Industrial Complex, Section 889, DoD Chinese Military Companies, Military End User List, Commerce Entity List, FCC Equipment List, CBP Withhold Release Orders;

• (NEW) Security risk identified through classified sources;

• Any security risk that the Agency determines warrants denial.

Similar language was present in the prior law, but this adds a level of specificity not present in the prior law (watch lists) and grants the agency broader discretion.

Fortunately, the new bill requires agencies to notify businesses about the denial and the basis for it. Businesses can apply in future cycles (after addressing the security concerns).

The bill then expands what risks the due diligence process should interrogate. Additions include:

• Foreign affiliations of covered individuals, owners, or other key personnel;

• Investment relationships with an individual or entity in a foreign country of concern;

• Technology licensing agreements or joint ventures with an individual or entity in a foreign country of concern;

• Business relationships with an individual or entity in a foreign country of concern.

Share

A $30M Strategic Breakthrough in funding (maybe)

Imagine getting an award of $30,000,000.

Historically, the SBIR program didn’t have the capacity to do this. Phase I awards ranged from $100k to $ 315k, and Phase II awards had a cap of $2M.

This is a considerable investment in early-stage R&D, but it has its limits, especially for scale-up development.

The reauthorization Act seeks to address this issue by allowing agencies to award up to $30M to small business concerns called the Strategic Breakthrough Allocation (SB-Allocation).

Before you get too excited, there are a couple of caveats:

• It’s optional: Agency directors have the option to allocate up to 0.5% of their R&D budget to the SB-Allocation. It isn’t mandated, so we will see what agencies decide to use the allocation.

• It’s not as much money as you might think: The NSF spends about $174,000,000 on SBIR/STTR projects every year, which should be 3.65% of their annual R&D budget. If you do the math, their SB-Allocation would only be $24,000,000. A solid 15% increase in total funds available, but the NSF will not be issuing multiple $30M awards. Instead, we might see smaller awards to augment the traditional Phase II funding.

• Cost match required: Awardees must provide a 1:1 cash match for an SB-Allocation award. Fortunately, this can come from either new private capital or new government funding; the only prohibition is that you can’t use other SBIR/STTR funds.

  

The reality: this program will be much more impactful for DoD/DoW awardees. The DoD/DoW spends $2.3 billion on SBIR projects every year. Now, they have an additional $315 million to award to Phase II recipients.

Agencies that do participate will select projects for SB-Allocation funding if they meet the following criteria:

• National Security Impact: Potential of the small business concern to advance the national security capabilities of the United States;

• Novelty: Potential of the small business concern to provide new technologies or processes, or new applications of existing technologies, that will enable new alternatives to existing programs;

• Federal Government Demand: Whether a customer in a Federal agency has expressed an intent to purchase and integrate technology from the small business concern into its operations;

• Undercapitalized: Whether a particular technology area is undercapitalized by private investment.

These criteria are ideal for DoD/DoW projects, so it will be interesting to see if other agencies take advantage of the program.

Another nice feature of this new SB-Allocation funding is the focus on a streamlined process; agencies must complete contract awards within 90 days of receiving a proposal from a business.

Trying to curb the SBIR mills

Another change requires agency heads to set limits on the number of applications businesses can submit. This was a major point of contention during negotiations, as Sen. Ernst sought to shut down “SBIR mills,” i.e., companies that repeatedly secure SBIR awards, partly because of their aggressive application strategy.

The heads of agencies can set the limits:

• On a fiscal year basis;

• On a solicitation basis;

• On a topic basis.

Agencies can request a waiver for these limits, but there are notable restrictions in place to prevent abuse.

Choose your own TABA adventure

Technical and Business Assistance (TABA) remains, with the funding levels unchanged ($6,500 for Phase I, $50,000 for Phase II).

The bill gives businesses more control over who they work with and expands the uses to which they can put TABA funds. The bill removes language that allowed agencies to pre-select eligible vendors. Businesses now pick who they want to work with to carry out eligible uses of funds. This includes paying their own staff.

And there are new eligible uses:

• Cybersecurity assistance

• Intellectual property protections

• Screening for potential foreign involvement in technology development or commercialization activities

In addition, the changes to TABA include expanding access to I-Corps programs. Agencies are now required to offer participation in an I-Corps program. And TABA funds can be used by the business to pay for this participation.

Improving Phase III

Phase III of SBIR/STTR awards has always been a bit murky. As defined by the law, Phase III is broad, encompassing commercial development, additional research, and federal procurement of the technology.

The spirit is to encourage successful Phase II projects to secure additional non-SBIR funding from federal agencies for either further development or procurement. And what’s great for the small business is that these Phase III awards can be sole-sourced without further justification.

So, what’s new?

The bill requires agencies to train procurement and acquisition employees on the details of Phase III. This should help increase the number of Phase III awards made.

It also empowers the Administrator of the Small Business Administration to advocate for the Phase III program and update policies appropriately.

Finally, it also compels agencies to adopt “simplified and standardized procedures and model contracts for Phase I, Phase II, and Phase III SBIR awards,” and for agencies to clarify what small businesses are “expected to provide as part of market research or as part of a proposal by those small business concerns to establish eligibility for Phase III awards.’

Overall, small tweaks, but ones that should help make Phase III a more likely outcome for more awardees.

A few other small updates

The bill expands the data collection requirements for agencies to help gauge the effectiveness of the SBIR and STTR programs, e.g., tracking Phase II and Phase II awards more comprehensively.

The bill gives the DOE and NASA the ability to provide direct Phase II awards (previously limited to NIH, DoD/DoW, and the Dept of Education).

Whew. That was a lot. So, let’s boil it down to a few takeaways:

Share

What are your thoughts?

Do the new security requirements worry you?

How do you think agencies will deploy the strategic breakthrough allocation? Do you think the 1:1 match is a fair requirement? Is this actually going to help early-stage startups?

Do you think the new limits to stop SBIR mills are fair?

We should start seeing new solicitations appear from agencies once this bill is signed into law, so now’s a good time to update your notifications from grants.gov.

The SBIR/STTR rules just changed. Are you ready?

Gliding Ant Ventures is here to help. Our SBIR Academy program is designed to help you prepare a competitive Phase I application using an 8-week structure. Our role: your co-pilot, helping you stay on track and giving you a fresh perspective.

Let’s make sure you meet all of the new requirements. Apply for the SBIR Academy today.

I encourage most first-time founders to do at least one reputable accelerator program. It will force you to take a comprehensive look at your idea and help you see the gaps that will trip you up in the future if you aren’t careful.

However, accelerators are meant to be a means to an end, not the end itself.

Unfortunately, I have seen this situation play out too many times.

A startup participates in an accelerator program. They engage with the program leads, complete the homework, talk to the mentors, and deliver a decent final pitch. They talk about how great the experience was on LinkedIn.

And they do it all over again next year in a different program.

Founders: The goal of accelerators is to get unstuck. If you don’t make progress on your company goals, the accelerator is a waste of time.

In the next few sections, we will explore ways to avoid this pitfall.

Not all accelerators are created equal. So, it’s up to you as a founder to maximize the benefit. And it starts with knowing what you need, understanding what’s in it for the accelerator, ensuring the cost-benefit ratio is in your favor, and not mistaking accelerator participation for progress.

Figure out what you need

Before you jump into an accelerator, you need to figure out what you need. Are you looking for a crash course on entrepreneurship and startups? Are you looking for help with business model development? Are you looking to connect with investors and need help with pitching? Do you need some funding?

Every accelerator is unique in what it delivers. Some are really strong on corporate partnerships (e.g., Third Derivative). Others have strong investor connections (e.g., CleanTech Open). Others are uniquely suited for tech development (e.g., GCxN).

As a founder, you need to think strategically about accelerators.

In the very early days of BlueDot Photonics, we needed some money for additional R&D, and since we were all first-time founders, we needed to learn more about entrepreneurship.

Our first accelerator-like experience was applying for the CoMotion Innovation Gap Fund at the University of Washington. It was the perfect program given our needs.

We had to fill out a Lean Canvas and create a 10-minute pitch. Along the way, we had great mentorship from Ken Myer. In a few weeks, we went from a promising techno-economic analysis to a fleshed-out business model that we could validate with potential customers and partners. And we were fortunate enough to be selected as a recipient for the Gap Fund award of $50k.

Here is our very first pitch:

So, before you join an accelerator, ask yourself:

• What stage are we at?

• What are our biggest challenges?

• What gaps do we have in our business model or team?

• What is the next milestone we really need to hit?

Share

Make sure you know what’s in it for them

Very few accelerators are purely altruistic. They exist to achieve a higher goal for the parent organization.

Some are all about economic development. These are frequently publicly funded, regionally focused accelerators hosted by non-profits. They tend to be free for the participants. An example is For ClimateTech.

Others are for-profit entities. Sometimes, these programs will require participants to pay a fee ranging from a few hundred to a few thousand dollars. In other cases, startups will need to give the accelerator an ownership stake (often in the single-digit percentage range). Corporations sponsor many of these. An example is Plug and Play.

Some are all about building an investment portfolio. Venture capital firms often host these accelerators. These programs offer a combination of programming and financing for the startup in exchange for an ownership stake in the company. These can include SAFEs, convertible notes, or equity warrants. An example is Black Flag.

Others are about creating an innovation pipeline for strategic purposes. These programs are typically organized and funded by a for-profit company or a consortium of for-profit companies. They may or may not take an equity stake. An example is the IN2 program.

Why is it important that you, as a founder, understand the motivations of the accelerator organizers? Because you will get the most benefit from the program when your interests are aligned.

A Solar Startup in a Tech Accelerator

At BlueDot, I participated in the WTIA Founder Cohort Accelerator. WTIA is an industry association for tech companies. Their mission is to grow the tech sector in Washington State.

BlueDot was a solar company.

How much additional value do you think I got out of the program beyond the core curriculum?

Although I really liked the program structure and curriculum, the program offered limited benefits given BlueDot’s needs. Most of the investors only invested in tech. The mentors could help me sell enterprise SaaS products, but not scale up manufacturing of a solar panel. The lack of fit really impacted how much I could get out of the program.

Nothing in life is free

OK, so you know what you need, and you’ve found a few accelerators that offer programming that will help you achieve your goals. Now, you have to pick which one to join, if any. At this point, it’s important to consider the cost-benefit ratio of any program.

All accelerators have a cost. These can include:

• Your time (both preparing the application and participating in the program)

• Your cash

• Your equity

All accelerators have benefits. These can include:

• Cash

• Education

• Mentorship

• Networking opportunities

It’s your job as a founder to figure out if the costs are less than the benefits.

How do you do that?

• Read the fine print carefully. The equity agreements are especially important to review. Many of them include “Most Favored Nation” clauses, which can result in unexpected dilution. When in doubt, have a lawyer review it.2

• Ask previous participants for their opinion. Spending a couple of hours emailing and talking with other founders who have gone through an accelerator program is time well spent before you spend 12+ weeks in a program.

• Talk to your existing mentors and advisors. Double-check with people who know you and your company to see if participating makes sense. Their arms-length perspective helps ensure that you have asked all the right questions.

• Trust your gut. At the end of the day, you often get out what you put into an accelerator. If you are excited about participating for concrete reasons, you will probably get good results. If you have doubts, it’s probably best to move on.

Remember, accelerators are a means to an end, not the end itself.

If you’re currently in an accelerator and haven’t talked to a customer in two weeks because you’re too busy prepping a pitch deck for a mentor who doesn’t buy your product, quit the session and go make a sales call!

For those of you who have been through an accelerator: Have you ever found yourself stuck on the accelerator merry-go-round? What led you there? Were you able to get out? What unblocked you?

Share

“My partner is worried about our finances. I might need to go get a ‘real’ job and shut down my startup.”

“We just bought a house, and now it looks like our Seed raise isn’t going to close. I don’t know what to do.”

“I’ve taken money out of my 401(k) to finance my startup. My wife is really upset with me about it.”

We don’t talk enough about the stress and strain that startups put on us as founders, our partners, and our spouses. Over and over, founders have shared with me stories about doing what they think is best for the startup, while acknowledging the pain it is causing in their relationships.

In honor of Valentine’s Day this weekend, I want to share how founders can demonstrate their passion and love for their partners and spouses by engaging in thoughtful open dialogue.

You know those tough conversations you had with your cofounder about equity splits, roles and responsibilities, and big-picture goals? You need to have a similar conversation with your partner, as they will be a key source of support.

This may seem cold and too business-like, but it’s actually an act of compassion and love. Your partner will feel the stress and strain through you, so it’s only right that you be open and honest with them.

Here is what you need to talk about.

How much financial risk are we willing to take?

Are we willing to mortgage the house?

Take money out of your retirement accounts?

Rack up huge credit card debts?

There are stories of founders taking out large loans against their mortgages or retirement savings, leading to highly successful startups. But there are also stories of people going bankrupt.

You need to set clear boundaries for acceptable financial behavior.

If you have a financial planner, review your goals with them to understand how joining a startup will impact them.

Then, create a contract with your spouse outlining what is 100% off-limits from a financial standpoint.

DO NOT DEVIATE FROM THIS AGREEMENT WITHOUT RENEGOTIATING.

How will we divide roles and responsibilities?

Founders often need to make personal sacrifices — less sleep, less exercise, less time with friends.

Eventually, household duties will be impacted. This could include chores, home improvements, and attending school events. One way to help prevent this from becoming a major issue is to have a thoughtful discussion upfront:

• Make the List - Meet with your partner and make a list of all the jobs currently being done around the house. (I encourage you to be more detailed here rather than less; small details can have a big emotional impact over time.) Include who currently does it, how much time it takes, and how frequently it happens.

• Triage the List - Now, create the “Bare Minimum List” of household activities. This is the list of tasks that must be done, along with the lowest acceptable frequency for both you and your partner to be happy. Neglected little things over time can breed animosity. For example, how often should the bathroom be cleaned? You might think every other week, but your partner might think every week.

• Agree on the Time - Define how much time you will allocate to household activities while in founder mode. It’s better to be realistic and stick to it rather than overpromise and underdeliver.

• Commit - Review the shortlist of household duties and commit to completing your share consistently.

How will we check in about how things are going?

People hate surprises. And since startups are ever-changing, it’s easy for surprises to pop up.

You and your partner should schedule regular time to explicitly check in on the startup. I recommend at least quarterly (which could coincide with your board meetings).

In these discussions, share with your partner a few key points:

• Major changes - If you have had any major operational changes (e.g., new hires, new customers, lost contracts), make sure to celebrate these wins and share the losses.

• Runway - This can be stressful, especially as the number approaches zero, but it is important to share the company's outlook.

• Progress and milestones - Translate your business objectives and milestones into goals your partner can understand. Be honest about the challenges and risks of reaching these goals.

• Contingency plans - Share your plan B in case things don’t work out. This isn’t about giving up; it's about ensuring you have a safety net for your family.

Tailor this to meet your needs

Your relationship with your partner is unique. Adapt these suggestions to your partner’s personality and your personality.

However you do it, it is critical to align expectations and conduct periodic check-ins with your partner throughout your startup journey.

You may want to shield your partner from the stress and uncertainty. But in my experience, that sets you up for greater conflict down the line. When someone doesn’t have insight into a situation, they typically assume the worst.

Being a founder is stressful. Maybe the only thing more stressful is being the spouse of a founder. This Valentine’s Day, show your partner or spouse how much you care by acknowledging their stress and working to minimize it.

And now a question for you: What have you done that’s helped reduce the stress in your relationships?

Share your story in the comments.

I was sitting in the audience of a panel session at Carbon Unbound, a carbon removal conference held in Vancouver, BC, last month. Thomas Goetz from Air Canada had asked the question from the stage. The discussion focused on decarbonizing the airline and shipping industries.

I looked around. With surprising timidity, about half the hands in the audience of 150 people raised.

“OK, great. That’s what I thought. How many policy makers are in the audience?” he asked.

I craned my neck left and right. I saw a single hand.

“Exactly,” Thomas concluded.

Most deep-tech founders believe they are competing with other startups. In reality, they often compete with outdated regulations designed for a different century.

Policy and regulation play a critical role in determining which products thrive and which die. Unfortunately, most founders and investors take a passive approach to policy and regulation.

The story above highlighted to me how large the disconnect can be between entrepreneurs and policymakers, both conceptually and physically.

This post examines how founders and investors can mitigate risk in this critical component of any startup strategy.

First things first: What do you need?

Before going out and talking with legislators or other policymakers, make sure you know what you want or need. Ask yourself: What new policy or policy change could provide a tailwind for your business?

Is it a faster permitting process for a pilot plant?

Is it an update to a 30-year-old safety standard that doesn’t account for your new chemistry?

Is it a new source of funding for a key gap in the funding pipeline?

Be specific. Big sweeping policy changes take years of education and discussion. But small changes can happen within a year if you talk to the right people.

Brainstorm with your team, investors, and advisors about what actions would be most beneficial for your startup. Talk with your competitors as well to find points of mutual agreement.

Make your ask clear and actionable.

Get to know the representatives and their staff where you operate

Even if you don’t have a specific ask or dedicated lobbying effort, it makes sense to connect with the representatives and legislative staff where you operate. These people are very well-connected. And part of their job is to make sure their district is well-taken care of.

How to do this?

Start at your rep’s website. Many offer ways to meet and connect with the rep and their staff.

Email introducing your company and asking for time to share your concerns and needs as a small business owner. This is an easy way to get on the office's radar.

Try to connect with your rep’s local office. Staff here can often be a great resource for making connections and getting questions answered.

Attend meetings and town halls. Meetings focused on economic development are a great place to find reps and staff. Leave them your contact info, make sure to get their info, and follow up with an email afterward.

The 24-year-old staffer whom you will probably meet with can be your best friend. They are the ones who draft the language that makes into the bills and rules that are turned into law. Treat them well, make it easy for them to advocate for you, and good things will happen.

Join (or form) an industry trade group

There are many trade groups that advocate for entire industries at various levels of government. These groups can be effective at raising awareness of your industry’s needs and can be more influential than your voice alone. You can join these groups often for a modest fee (some have free membership), and they provide legislative updates and occasionally ask for your voice to support or oppose legislation.

At BlueDot, we were part of a perovskite-specific group called US-MAP. This was a consortium of academics, national labs, and corporate partners who would engage the DOE and Congressional Offices to educate about and advocate for perovskite technology. I also participated in the Clean Energy Business Network (CEBN), which lobbies for support of clean energy businesses across the US.

Virginia was a founding member of the North American Coalition for Insect Agriculture (NACIA). NACIA’s role is to educate and raise awareness and acceptance of insects as a way to upcycle nutrients back into the food chain. It had dozens of members ranging from Fortune 500 companies to pre-seed startups.

Virginia and I were also board members of the Cleantech Alliance in the Pacific Northwest, an organization that promotes the benefits and potential of cleantech to drive the region's economic development.

Plus, these organizations are also great places to network and make connections that can help grow your startup.

Put some money into your lobbying efforts

I’m shocked that more VCs don’t require their startups to pay for professional lobbyists.

Some of you may frown on the idea of lobbying. But in most cases, lobbying is simply educating. Legislators are busy people, with thousands or millions of constituents. They aren’t deep tech experts. They can’t help you if they don’t know you or what you do. Lobbying is the process of closing that gap.

Let me share with you a story about how lobbying works in practice:

When I was at BlueDot, Joel Jean from Swift Solar reached out one day. Joel had just closed a funding round, and he was using part of the funds to work with Boundary Stone Partners to advocate for funding to support scale-up R&D for perovskite solar technology.

This was a key gap in the funding pipeline for new solar technologies. Joel’s a smart guy, and he knew that his voice alone wouldn’t carry as much weight as having several startups make the ask. So, he was building a coalition of other perovskite startups.

This was a brilliant move by Joel and his investors. The lobbyist Steve would schedule calls with Congressional staffers and then invite CEOs like me to attend, and share our stories. We met with staff from the offices of Senators Cantwell and Murray because BlueDot was in Washington State. I also met with folks from California since there were several startups based there.

The focus was on educating people about the technology's potential and how it would improve economic growth, energy security, and job creation across the US.

After a few months of discussions, language was included in the appropriations bill authorizing the DOE to dedicate tens of millions of dollars for solar technology scale-up R&D.

Think about that. For tens of thousands of dollars, educating congressional staff members about this exciting new technology led to tens of millions of dollars in non-dilutive funding. There are very few actions a startup founder can take that offer such a high return on investment.

If you have a clear, actionable ask, consider allocating funds for lobbying in your Series Seed or Series A round. If you are a venture capitalist, consider requiring your startups to set aside a portion of invested capital for lobbying. And encourage other startups in your industry to do the same. Then, pool your resources to work with a firm like Boundary Stone Partners to advocate for the policies and regulations you need.

So, what’s your policy strategy? I challenge every founder to take an hour this week to brainstorm three policy changes that could help accelerate your business’s growth. Then, go to one of your representatives' websites, find their energy or technology staffer, send them a one-paragraph introduction, and ask for 15 minutes to discuss your top policy priority. I’ve added a template in the next section to help you get started.

And if you have stories about policy and lobbying, please share them in the comments. Examples of where effective lobbying and education resulted in positive change for your startup? Stories of policy changes derailing your startup? Share your stories in the comments so others can learn from your expertise and experience.

Share Building for 2075

Policy Outreach Toolkit

Here are simple email outreach and policy-briefing templates to help you take the first step in implementing your policy strategy.

Email Template

Subject: Meeting Request: [Startup Name] / [Relevant Topic, e.g., Updates to Safety Regulation for Energy Storage]

Hi [Staffer Name],

I’m the CEO of [Startup Name], a startup based in [District], building [one-sentence tech description, e.g., “long-duration energy storage systems designed to stabilize the grid and lower energy costs.”]. We’ve recently run into a regulatory hurdle regarding [Issue] that is slowing our ability to deploy pilot projects with customers.

I’ve attached a one-pager on our work and the issue at hand. Do you have 15 minutes next week for a brief intro call so I can learn more about the Representative’s priorities in this space?

Cheers, 
[Name]

[Company Website]

The Startup Policy One-Pager

Instructions for founders: Keep this to a single page or slide, including your company logo. Use high-quality, compelling visuals of your tech whenever possible. The goal is to make the staffer’s job easy when they have to explain your company to their boss.

[Company Name] – [Brief Title of the Issue, e.g., Modernizing Safety Standards for Advanced Battery Tech]

Our Mission (State clearly what your startup does and the major problem you are solving.)

• Example: “We are building long-duration energy storage systems designed to stabilize the grid and lower energy costs for [District/State] residents.”

The Regulatory Barrier (Define the outdated regulation or policy gap that is holding you back.)

• Example: “Current safety regulations (Standard XYZ) were written for 20th-century technologies and do not account for the unique safety profiles of [New Tech]. This is creating an 18-month delay for pilot projects that have already secured private funding.”

Economic & Local Impact (State the impact on the policymaker’s district.)

• Job Creation: “We currently employ [Number] engineers and technicians in [City/District] and plan to double that by 2027.”

• Private Investment: “We have successfully raised $[Amount] in venture capital to scale our operations here.”

• Strategic Leadership: “[District/State] has the opportunity to be the national hub for [Industry] if the regulatory environment keeps pace with innovation.”

The “Ask” (Actionable Request) (What do you want the staffer to do? Be specific.)

• Example 1: “We ask for your support for recently introduced legislation [Bill Number] to update safety regulations for new technologies, including long-duration energy storage like ours.”

• Example 2: “We request an introductory meeting with [Representative] to share our perspective on how [Regulation X] impacts local innovation.”

Contact Information

• Primary Contact: [Founder/CEO Name]

• Email: [Email Address]

• Website: [Company Link]

Our materials weren’t reaching the requisite performance targets. After testing dozens of variables and making thousands of samples, we were stuck. It was a dark time for the team.

Fortunately, I had kept the investors in the loop at every step. None of my board members and observers were surprised. We created a plan to pivot away from our solar application to other niche applications for our materials.

However, that experience left a lasting impact and taught me an invaluable lesson. We launched too early and should have further de-risked the technology in the academic setting. I was always transparent with investors about the risks and the state of the technology, and I am grateful for their confidence and support. But in hindsight, we got ahead of ourselves.

We fell into what I call the “TRL 3 Trap.”

TRL Basics

Technology Readiness Level (TRL) is a concept that NASA, DOD, and DOE have defined and adopted to help “in identifying those elements and processes of technology development required to reach proven maturity levels to ensure project success.” Technology development typically proceeds through a series of steps from idea to commercial deployment.

For the DOE, there are three core components of TRL: Scale, System Fidelity, and Environment.

Components progress toward the envisioned commercial deployment through a series of incremental steps across these core pillars before reaching TRL 9.

What TRL do investors want?

If you want to found a deep tech startup, you have to understand that venture capital is a tool for scaling proven concepts. It’s not for basic R&D. High levels of technical risk terrify prospective investors for good reason. This type of risk is open-ended, requiring an indefinite amount of money to solve. Investors want to take risks on the business model and scale-up where money has a higher chance of solving the startup’s problems.

In our Investor Fit Red Flag Assessment, we ask a simple question:

Has the company achieved TRL 5 with its core technology?

Why do we pick TRL 5 as the right stage for investors? Let’s look at how the DOE defines TRL 5:

Basically, you have a scaled-down version of the envisioned deployment, tested in real-world conditions with sufficient fidelity to enable comparison with the final product. It answers all foundational technology questions that underpin the unit economics (e.g., efficiency, operating conditions, repeatability, durability). All of the physics, chemistry, and biology is worked out. The only questions that remain are how to scale up the technology and how to operate it in real-world conditions.

This is the perfect time for venture capital to get involved. The team needs to scale up to pilot scale, which will require substantial capital. Money solves this problem.

The danger of the TRL 3 Trap

Unfortunately, reaching TRL 5 can be challenging due to how R&D funding works in the US.1

Shortly after World War II, the US established a publicly funded R&D system, inspired by Vannevar Bush and his report, Science: The Endless Frontier. The basic idea is that the government should fund basic research at institutions like universities, and industry should focus on scale-up and commercialization. It can be argued that this has been one of the most successful innovation systems ever created.

Unfortunately, one side effect of this division is that a gap can form between the universities and industry:

As you can see, government funding begins to decline at the Proof of Concept phase (TRL 3). The basic research is complete, and the funding agencies aren’t interested in supporting the applied research that follows. But industry and private investors are wary of investing in what they see as unproven technology. Hence, the gap forms. This is often referred to as the “Valley of Death.”

At the same time, the technology's commercial potential is beginning to emerge. No longer just an idea, there is enough data to say, “If we can improve performance by another 50%, this can be revolutionary.”

But these are big ifs. And that is the trap. Just because it’s possible to tell a story about game-changing innovation, it doesn’t mean that it’s time to spinout a company and take venture capital. Substantial R&D remains to reach the commercially relevant performance targets. But it is possible to spin out and convince investors of the technology's potential, even while remaining 100% transparent about the risks.

And once the investment funds are wired into the startup’s bank account, the clock starts ticking. The founders are now in a race to solve what might be unsolvable problems.

In most cases, this results in a disappointing outcome.

Not at TRL 5, here is what you should do

If you find yourself in the situation where you have developed promising technology, but it’s not at TRL 5, there are a few things you should do:

• Secure internal commercialization funding at your research university: Many universities now offer commercialization grants to help bridge the gap. One example is the University of Washington's tech transfer office, CoMotion, which offers an Innovation Gap Fund grant of up to $75,000. These funds help move from a proof of concept to a lab-scale prototype. Find out if you are eligible for this funding ASAP.

• Secure SBIR/STTR funding or similar: The US government recognized in the 80s that the TRL 3-5 gap was a problem for innovation. It created the Small Business Innovation Research and Small Business Technology Transfer Research grants to support the transition from proof of concept to prototype.2 Some states offer complementary programs. If you are at TRL 3, apply for this funding now.

• Align your technical development with commercial goals for investors. If neither funding option is available, you may need to seek private investor funding. In these situations, it’s essential to be transparent about the current state of the technology and its risks. Then present a credible plan to reduce the technology’s risks, with specific objectives and results that move you closer to customer-defined goals. For example, don’t just say, “Improve material application yield by 10%.” Instead, focus on the commercial target with something like, “Reach a manufacturing yield of 95%, lowering our $/kWh price to below market prices.” Show them how your R&D plan increases the company's value. Do this effectively, and you'll improve your chances of attracting private capital.

I often think about what I could have done differently at BlueDot. We secured additional funding at the University of Washington before spinning out. We secured an SBIR award from the NSF and an applied research agreement with the DOE. I was fully transparent with investors throughout the process.

Most days, I decide we did the best we could with the hand we were dealt. And all I can do now is share my story with founders like you and hope we can build a more effective deep-tech innovation system.

If you have a story about falling into the TRL 3 Trap, I would love to hear from you. Leave a comment and let’s compare notes. Maybe if we all work together, we can find ways to avoid the TRL 3 Trap.

Share

I hope that none of you end up in this poor entrepreneur’s position. I’ve dramatized the scene, but the questions the investor asks are the ones that come up all the time.

The founder’s answers to these questions were immediate red flags for the investor. Even if you have nailed the market, the team, and the business model, a few legal red flags can derail your first venture capital fundraise.

This is the next installment in our Red Flags series of posts. If you are a deeptech founder looking to raise money in the near future, make sure to take our red flags assessment to see if you are a good fit for venture capital investors:

Take our assessment here

Alright, let’s dive in and take a look at the biggest financial and legal red flags for many venture capital investors.

The KISS rule for legal structure: keep it simple and standard

Is the company structured as a C-Corp registered in Delaware or Nevada?

Investors love some types of uncertainty and hate others. One form of uncertainty they loathe is legal uncertainty.

Setting your company up as a Delaware C-Corp is a safe bet. Investors understand it and have invested in many Delaware C-Corps.

Some VCs have grown unhappy with Delaware and are considering Nevada as a viable alternative. I don’t know if that trend will continue, but Delaware remains the preferred jurisdiction.

If you are anything but a Delaware C-Corp, don’t be surprised if investors give you grief about it. I think it’s best to avoid any issues and reincorporate if you can afford it.

Been running your startup for more than three years? That’s more of a liability than an asset

Has the company been operating for less than 3 years?

One of the toughest realities for deep tech founders is that investors tend to be biased against founders who have been working on an idea for more than three years without taking on venture capital. The median age of Seed-stage startups was 1.8 years in 2024.

Why is that? It’s mostly a perception issue. VCs want rapid growth. A startup that hasn’t been successful at engaging customers and growing rapidly after three years doesn’t fit their model. Investors will assume the startup doesn’t have, and will never have, product-market fit.

This isn’t a death sentence, but it will make it harder to raise investment. If you are in this situation and struggling to overcome this bias, it may be worth rebooting the company as a new startup. Spin the technology out to a new entity and build a new team around it. It may seem silly, but story matters, and telling a story of refocusing and rebirth can be more compelling than a story of toiling for years.

Investors don’t have time to understand a complicated cap table

Does the company have no more than 5 existing issuances of convertible equity or preferred shares?

The dream cap table for an early-stage investor is one in which the founders have an equitable split of 90% of common stock, with 10% reserved for an option pool. Stacking more than five equity vehicles is a problem, but more startups are stumbling into this trap:

Even when life gets messy, you should refrain from stacking too many agreements. My early days at BlueDot Photonics are a prime example.

We began fundraising in February 2020. The COVID-19 pandemic derailed our efforts. By August 2020, I was in survival mode. And even in this once-in-a-generation event, I kept the number of SAFEs and notes to less than five.

I negotiated a convertible note with the Washington Research Foundation to help cover IP costs and license fees for our technology from the University of Washington. I took a SAFE from Ideaship to help us negotiate our license from the University of Washington. I secured a convertible grant from Sustainable Grant Making Partners to help provide our cost share for a DOE contract we had. We were also invited to join the inaugural cohort of the Third Derivative program, which included a $150k convertible note investment. As I said, life gets messy.

Then, in 2021, we went to raise our $1M pre-seed round. Were my SAFEs and notes a problem for investors? Fortunately, my lead investor, VoLo Earth, had the patience to go through the cap table and understand the dilution mechanisms at play. But, there was a lot more work and lawyer fees than I expected as a result. And we made sure to convert everything to preferred equity at the close to clean up the cap table.

Not all investors will be that patient, and many will walk away from a potential deal if things are too complicated.

Even the hint of a lawsuit can scare away investors

Is the company free of legal risks or complications?

Again, investors are already taking a major risk on an early-stage startup without having to worry about legal risks, too. Any legal entanglement can be a no-go for investors.

I saw this recently. A startup had lined up a pre-Seed round with a lead investor in less than three months. They had completed due diligence, negotiated terms, and were in the final stages of executing the deal.

Then the startup received a cease-and-desist notice from one of the founders’ previous employers. The employer claimed the technology was rightfully theirs. It was a frivolous claim, but the investors got spooked.

After months of work, the lead investor walked away from the deal a few days before closing. This left the startup scrambling to find a new lead and threatened its continued existence.

Unfortunately, these four issues occur frequently among first-time deep tech founders. You don’t know what you don’t know. And often, you have to make a quick decision to survive for the next three months. However, avoiding these situations can make sure your excellent pitch gets the attention it deserves from investors.

Have you run into one of these issues in your own startup? Or did you hit a different legal obstacle? What happened, and how did you overcome it? Share your story in the comments so future founders don’t make the same mistake.

We have been out for the holiday break, and as we get up to speed in 2026, I wanted to share a few end-of-year thoughts and reflections from the last couple of weeks. I hope this can help you jump-start 2026 and accelerate your building activities.

TL;DR

1. Make this the year of the customer. Show investors REAL traction to unlock checks.

2. Get ready to pounce on grants. We’re optimistic that the US government will start releasing new funding opportunities in 2026.

3. Channel your inner prepper. Between the potential for an AI bubble and conflicting economic signals about the health of the US economy, every founder should be ready for a downturn.

Give investors what they want: traction

In 2025, we learned that hopes and dreams are no longer enough (unless you are an AI startup). Deep tech startups seeking private investment must demonstrate REAL customer traction. I’ve heard from multiple founders in the energy and cleantech sectors that early-stage investors want to see customers committing to a company before investing. Examples include a joint development agreement or a pre-purchase agreement.

So…

• Ramp up customer outreach to kick off 2026 strong - Set a goal of having 25+ conversations with potential customers in January. Find a new conference to attend in Q1 2026 where your ideal customer will be.

• Fill the gaps in your business plan with customer-validated data - Set aside 10+ hours to review your business plan, your financial models, and your unit economic or technoeconomic analyses. Review the major assumptions and determine whether they remain valid. Identify the most critical ones and prioritize them for validation in customer conversations (see above).

• Go into sales mode overdrive - Review and update your sales pipeline. If you have a product ready for customers, re-engage qualified leads from last year and see if they are prepared to buy. If they aren’t, ask questions to understand what is holding them back. For your existing customers, schedule a feedback session to understand what your product is doing well, what it could do better, and what is frustrating them. If your product isn’t in the market, review your potential customer list and consider one-off projects or pilot programs that could help validate your future product. Again, investors want to see REAL traction.

Be ready to pounce on grant funding

2025 was a horrible year for federal grant funding. Trump administration priorities caused funding pauses or cancellations. And the SBIR program is in limbo since its authorization lapsed at the end of September.

However, let’s hope that 2026 sees things settle into a new normal. Congress did pass a defense spending bill with new provisions to make it easier to do business with the DoD. Check out Commercial Solutions Openings and the DIU program.1 The Trump administration has been talking a good game about unleashing innovation. If a full budget is approved by the end of January, we might see agencies resume awarding. I have already seen some DOE awards that were in limbo get approved, and money is flowing again.

So…

• Set up alerts and feeds to get updates from funding agencies about funding opportunities: Don’t miss the opportunities when they are released. Sign up for the newsletters of appropriate funding agencies. Look for state-level resources to help you identify grant opportunities. Set up Google Alerts or similar tools to monitor changes on funding agency websites.

• Identify research objectives you would fund with grant funding to quickly prepare applications: Review your product roadmap with your CTO. If a grant were available, what parts of the roadmap would be a good fit for a project proposal? Outline a few key research objectives and milestones that could be the basis for an application, so you are ready when opportunities are released.

• Identify and discuss collaboration ideas with partners in advance: Once you know what you want to work on, make sure you have the right team ready. Confirm the availability of partners and contractors for the coming year.

Channel your inner prepper

If you haven’t heard, people are worried that a bubble is forming in AI investment. And there are mixed signals about the health of the US economy. If these two things collide or some other crisis arises, we could be headed for a recession.

If the economy stumbles and stock prices enter bear territory, investors will take action. The initial response will be to freeze investment activities in “risky” investments. There will be a flight to safety, which probably means less money for startups in the immediate aftermath. I saw this personally in the early days of the COVID-19 pandemic when I was pitching BlueDot Photonics. However, once the dust settles, investors will start looking for new growth opportunities.

What does this mean? It depends on the stage of your startup.

Starting a company in the middle of a downturn can be a great idea. Talent is more affordable. Companies are looking to improve productivity to shore up their bottom lines. If you can position your company to capture the growth rebound, you can significantly increase the likelihood of a successful exit. So, if you’ve been thinking of starting a company but haven’t yet, the depths of a recession might be a good time to execute on your idea.

However, if you have a startup, and it’s raising growth capital when a downturn hits, you might need an additional 6 months of runway to close the next equity round. So, develop a contingency plan with your management team and board members, do the scenario planning, and agree on the plan so you can execute quickly if needed.

So…

• Create an emergency plan: If you haven’t already, create a monthly budget for the year and figure out how much runway you have. Then, ask yourself, what would it take to extend that runway by six months? What costs get reduced, which people get furloughed, and what are the triggers for executing the plan? It’s better to be prepared than have to make rash decisions in the middle of a crisis.

• Think strategically about hiring and firing: So, your business plan had you hiring 10 people this year. What milestones were they helping you achieve? Is there a way to get started on the milestones with a smaller team? Can you leverage contractors instead of full-time employees? Prioritize results over previous plans. Ruthless prioritization will be key in a downturn, so make sure you are prepared to both hire and fire quickly to stay on track.

• Ensure your value proposition is recession-proof: Discretionary spending is the first thing to go in a downturn. If you are a premium product or a nice-to-have, things could get rocky. However, if you are a core part of customer operations or a key driver of productivity, you’ll probably be in a good position not just to survive but to potentially thrive as customers look to save money. Be indispensable!

Which of these steps are going to be the biggest challenge for you and your team? Drop a note in the comments, and we can brainstorm solutions.

Every time a deep tech founder opens their mouth in front of an investor, they are being judged. The investor is trying to decide if you are building a business or conducting a really expensive science project. Once they decide you're doing the latter, it’s game over. No money for you.

We’ve been talking about Red Flags for Venture Capital Funds for early-stage deep tech startups over the last few weeks. We covered the importance of the team. We talked about how understanding the market is more important than the market's size.

This week, we continue going through the 18 questions from our Red Flag Assessment and turn to the business model.

Take our Red Flag Assessment

“Show me the money!”

How do you make money? It is surprising how often founders forget this key piece of the puzzle. But it happens all the time. Most of the time, founders seem to think great tech should speak for itself. But investors don’t really care about the tech if it can’t generate enough revenue to turn a profit.

So, founders, you have to convince them that you can make money. Lots of money.

Hmmm…how to do that? How can you show an investor you can get customers to pay lots of money for your product?

You could spend a lot of time putting a lot of marketing and sales buzzwords onto a slide.

OR, hear me out on this…

You could get customers to pay you for your product!

Having a paying customer is the gold standard for demonstrating a successful business model. And right now, investors are reluctant to let that standard slip when making investment decisions. Especially for climate tech companies.

In today’s post, we’ll look at the three questions you, as a founder, need to answer convincingly to give investors confidence about your ability to make money.

The three questions every founder needs to answer about their business model

Does the company’s product offer a clear and quantitative value proposition to its customers?

We talked last week about the importance of understanding the customer’s pain. But understanding is only half the battle. If you want to be a successful startup entrepreneur, you need to have a solution to eliminate their pain. You need to be their aspirin.

In startup speak, this is known as your value proposition. How much value are you delivering to the customer? It can be in the form of cost savings. It can be in the form of productivity improvement. It can be in the form of social status. Whatever it is, it has to be clearly valued by the customer.

For investors, it also has to be quantifiable. Saying you've reduced a customer's cost isn’t enough. How much are you reducing costs? 5% or 50%? How much are you improving productivity? 10% or 200%? If you don’t know how to quantify the value proposition, it is going to be very hard for an investor to back you.

How should deep tech startups show their value? Software startups rely on customer acquisition costs and lifetime value, but deep tech startups should depend on a technoeconomic analysis (TEA). The best way to think about a TEA is that it turns physical assumptions about a technology into dollars and cents. A TEA is often an Excel model that includes the cost of each input to the product, a calculator that determines the unit costs to produce the product at various scales, and, finally, the value the product delivers to the customer. This lets you, the founder, and the investor see if your technology is economically viable under different assumptions.

The power of the TEA lies in identifying the major drivers of your product's cost and value. Each assumption can be interrogated. It clarifies what you, as the founder, need to deliver in your product for it to be competitive.

In some cases, a TEA might be overkill. But you still need to show the investor you have a quantified value proposition that resonates with your target customer.

If you don’t have a clear value proposition, do this now:

• Validate your value proposition with customers - What price is a customer paying right now to solve their problem? What criteria do they have for switching suppliers or using new technology? Making sure that you can deliver on their requirements is key.

• Create a TEA model - There isn’t a good replacement for a TEA. So, sit down and make it. It doesn’t have to be super complex. You can make it more detailed over time. The most important thing is that you make your assumptions and calculations clear for an investor.

Does the company have a defined strategy to reach the target customer audience and close deals?

Let’s say you’ve done your homework and have a clear, compelling value proposition. What’s next?

Well, you still need to figure out how to get your product into customers' hands. You need to know how to build customer awareness. You need to find a way to get the customer to agree to pay you for the product. And you need to deliver the product to the customer.

This is often referred to as the go-to-market strategy. For early-stage deep tech companies, this may not seem relevant; in most cases, you don’t even know if the product will work. However, if the investor believes you can build the product, they also need to believe you can sell it. Again, the goal is to make money, not just create a cool prototype.

If you don’t have a go-to-market strategy nailed down, do this now:

• Ask your potential customers about where they get their market info - Figuring out where your customers are looking for information is key to a successful marketing strategy. What conferences do they attend? What industry news outlets do they read?

• Find companies you can use as examples - If it ain’t broke, don’t fix it. If another startup in your sector has been successful, what was their go-to-market strategy? Can you replicate it? Investors like to see precedent for go-to-market strategies.

• Engage a strategic advisor - If you don’t have an industry advisor with sales and marketing experience, find one. They are often the best people to help you shape your go-to-market strategy since they understand the way the sector operates.

Has the company secured signed LOIs or customer contracts for recurring revenue?

Alright, you’ve convinced the investor that your go-to-market strategy is sound. Deal closed?

Not quite. At this stage, the value proposition and go-to-market are just ideas. How do you know that customers will actually pay for your product if you build it? How much traction do you have with customers? I have no idea where the term traction came from, but VCs love it. Basically, traction is the level of engagement and customer sales you have.

If you don’t have sufficient traction, you’ll probably end up hearing something like this:

• We love what you are working on. Come back when you have more traction.

• You are just too early for us.

• Let’s talk when you have at least $100k in customer revenue.

At some point, it will feel like you are banging your head against a brick wall. And honestly, you might be.

Right now, the bar is high for startups to demonstrate traction. Especially for deep tech startups. There are a couple of reasons this is happening:

• Investors need liquidity events - Startup exits are stalling across sectors. The IPO market was quiet for several years, and M&A was stagnant. This means that the limited partners in many funds haven’t gotten back capital to reinvest in new companies. This trend hits climate tech companies especially hard, which have seen their fortunes change dramatically with the election of the Trump administration.

• AI is warping the market - The highest cost for venture investing is the opportunity cost. If I invest in Company A, I can’t invest in Company B. This means that every startup is competing against every other startup for limited capital. Right now, AI startups are the hottest ticket, leaving little capital for other sectors.

The upshot of these two trends is that investors are incredibly reluctant to invest in startups without customer sales or a firm commitment from potential customers. What this means for you is that you can’t compete on hype or potential.

If you are a startup without strong customer traction, do this now:

• Double down on customer discovery - If there are potential customers that you haven’t talked to yet, make it a priority to contact them. Casting a wide net is key at the earliest stages. Most potential customers are going to be pragmatic, happy to follow once others have taken the risk on your product. Finding the visionaries who see what you see in the product and technology is critical.

• Ask for LOIs or MOUs from your existing customer contacts - Lots of founders I talk to seem to think it’s unseemly or annoying to ask their customers for LOIs or MOUs. But, if you can’t ask them for an LOI, how are you going to ask them to buy the product from you? They might say no, sure. But that can be very telling.

• Ask about previous startup experiences - Most potential customers are afraid to say something they’ll regret later. So, asking them what it would take for them to pay for your product is often a fool’s errand. Instead of asking directly what they need to see, ask about previous examples where they worked with a startup. How did the engagement begin? What did the startup demonstrate that built conviction within the customer’s organization? Who had to sign off on the deal? Use this previous experience to inform your customer engagement plan.

Trouble coming up with the right words to ask a customer for an LOI? Try this to get started:

Hi [Name],

Thanks again for spending time with the [Company Name] team over the last few months.

We are moving into our next phase of development and are prioritizing partners who are serious about deploying our solution once it's ready.

Would you be willing to sign a non-binding LOI stating an intent to test our prototype once we hit our technical specs?

This would be incredibly helpful for us to accelerate our development timeline and secure the necessary financing to build the product you need.

If a signed LOI isn't possible at this stage, could you let me know exactly what specific technical milestones or data points you would need to see from us to consider one?

Best,

[Founder Name]

Final Thoughts

Don’t let your life’s work remain a science project.

Unfortunately, deep tech founders often believe that tech will speak for itself. But that’s a fatal assumption, especially in today’s market. You have to show that your new tech can be turned into an investable business by:

• Quantifying and validating your value proposition - Don’t simply claim you’re better; prove it. Validate your proposition with customers. Show indisputable value potential with a thorough technoeconomic analysis.

• Stress test your go-to-market early and often - Having a great product is only half the battle. You have to get it into your customer's hands. Find out how customers buy, where they look for information, and who they trust. Use a combination of customer interviews and strategic advisors.

• Get traction! - Cast your net wide for visionary customers who will pay now. If you can’t find them, secure LOIs or MOUs tied to specific milestones.

Remember, you aren’t selling a technology. You are selling a business that delivers high returns to investors. Show them the money, and they’ll provide you with the fuel to build it.

If you are a deep tech founder just getting started, take our Red Flag Assessment, 18 yes-no questions that will tell you if you are a good fit for venture capital. You can take the assessment on our website:

Take the Assessment

It’s a classic in a pitch deck: concentric circles labeled TAM (total addressable market), SAM (serviceable available market), and SOM (serviceable obtainable market), sometimes including LAM (launch addressable market). These circles are often decorated with dollar figures in the billions.

And the slide is mostly worthless. This isn’t a hot take; several folks have called it pointless or useless.

It’s not that the market size isn’t important. During the earliest stages of a startup, the market is second only to the quality of the Team in most investors’ evaluations. But it’s about more than market size. Investors need to believe the startup will break into the market and grow rapidly.

Investors need to believe the startup will break into the market and grow rapidly.

All too often, I see founders get fixated on showcasing a large market size, forgetting to show why now is the right time to enter, why the customer pain point is large enough to drive sales, and who their initial customers will be.

Next to having the wrong team to execute the strategy (which we talked about here), not demonstrating deep market understanding is the biggest mistake founders make. They haven’t spent enough time speaking with and understanding customers to gain unique insights. Instead, they rely on market reports, personal anecdotes, or, more recently, AI-generated summaries as validation. (And these poorly researched ‘market reports’ are notoriously inaccurate, often by orders of magnitude.)

This lack of understanding is a major red flag for investors, often more so than a small market size.

Founders need to get out of the building, talk to LOTS of customers, study competitors and alternative technologies, and then quickly demonstrate this knowledge to investors if they want to secure investment.

In our Investor Red Flag Assessment, we ask founders 18 questions to see if they are a good fit for venture capital.

Take the Assessment

Today, I’ll talk about the three market questions investors care about that show if a founder has done the necessary groundwork to truly understand the market.

Let’s dive in.

Three market questions investors actually care about

Is the company solving a problem that target customers are currently paying for or losing money on?

Some people call this the pain metric. How much are people currently paying someone else to solve this problem? Or how much lost productivity or revenue is the problem causing? The greater the pain, the more likely a customer is to pay for a new solution. Reed Hastings highlighted this nicely:

Let’s look at an example from the solar industry. Circa 2019, smaller solar panel manufacturers were stuck. The industry had just completed a decade-long technical transition to high-efficiency mono-PERC cell technology, pushing panel efficiency to about 22%. Unfortunately, further efficiency gains would require significant capex for new production tools. At the same time, solar panel gross margins were often below 10%. Only the largest companies would have access to the capital needed to make the next technological leap; small players faced an existential threat. These smaller companies were looking for new technology that could extend the life of their existing production systems and boost their gross margins. This is the pain point BlueDot targeted with our drop-in-ready quantum-cutting technology. Our solution was an order of magnitude more efficient in terms of capex than the alternatives. By correctly identifying this pain point, we successfully engaged several CTOs at solar panel manufacturers about joint testing and material development, which helped investors see the market potential for our startup.

Venture capitalists need to see the customer’s pain; otherwise, they won’t invest.

Identifying an existing pain point is a best practice, but venture capitalists also invest in category-defining products. However, I would argue that even category-defining products start by solving an existing problem. The iPhone recognized that people were spending a large amount of time just checking email and doing quick Google searches on their laptops. Why not have that functionality in your pocket? SpaceX recognized that they could reach space for a fraction of NASA’s cost, and people were struggling with low-speed internet in large swaths of the world because of the expense of fiber cable build-out. In almost all cases, the customer is either paying someone for a solution or suffering a loss.

Venture capitalists need to see the customer's pain; otherwise, they won’t invest.

Has the company validated its product-market fit through 50+ customer/stakeholder interviews (for a B2B company) or 200+ customer interviews (for a B2C company)?

So, how should a founder confirm the pain point is real? There is only one proven way to do this – the founder needs to talk to the customer.

Startup founders need to know their customers better than they know themselves. This deep understanding cannot possibly come through reading websites and market reports. As Steve Blank recognized years ago, founders need to “get out of the building” and meet and talk with customers.

Repeatedly, I meet founders who can’t articulate who their customer is. They haven’t gone out and met them. They are building their company on unproven assumptions, a recipe for failure.

Unfortunately, customer discovery is often the hardest challenge a first-time founder will face. But there is no replacement for deep conversations with your customer.

For a B2B business, conduct at least 50 interviews with potential customers and relevant stakeholders. This must happen before starting on the pitch deck! I’m not going to lie; this will be one of the most challenging things a founder needs to do. B2B customers are hard to reach. Find in-person meeting places, such as trade shows, conferences, and industry networking events. Also, look for people who are already engaging with the community, e.g., those who are prolific on LinkedIn or writing opinion pieces for trade publications. At BlueDot, I attended Solar Power International and Intersolar and spoke with hundreds of people in the solar industry. It proved invaluable even though I had to pay for the trips out of my own savings.

For B2C startups, you need to have over 200 interviews with your launch customer. And get specific! For example, a startup may be selling an app for diagnosing ear infections. It would be tempting to say that the customer is any parent in the US. But what’s better is getting specific. The launch customer could be primary caregivers aged 35-45 with children under five who live in the top 50 US cities by income. Then, go to where these customers congregate. For the ear infection example, this could include pediatric clinics, playgrounds, or parenting support groups. You might also look at online parent forums for active contributors.

I would never invest in a startup that couldn’t show me the receipts of their customer discovery efforts.

Then, keep detailed notes of these conversations. Best practice is to have two people attend the interviews: one asks questions, and the other takes notes. Having two people listen to the interviewee and observe their body language is super important. And ask whether you can use an AI transcriber, which will provide the details for later reference. I would never invest in a startup that couldn’t show me the receipts of their customer discovery efforts.

Is the potential market for the company’s product/service larger than $500 million?

Big markets are where startups need to focus to attract venture capital. We say $500M, but this is the bare minimum for the total market size. Realistically, the market size needs to be closer to $10B to really attract a venture capital fund’s interest.

Why? It all comes down to how venture capital funds make money. This is probably its own post, but let’s walk through some back-of-the-envelope math to illustrate the point.

Funds earn money by generating outsized returns for their limited partners (LPs). Funds receive only a percentage of the returns on an investment, called carried interest (aka “carry”). The typical fee is 20%.

This means that the ratio of invested capital to the startup’s exit valuation is a key driver of fund returns. For example, let’s consider two startups with $100M in invested capital. Company A sells for $200M. Company B sells for $1B. The LPs get their $100M of invested capital back in both cases. The venture fund could earn up to $20M for Company A and up to $180M for Company B.1

Clearly, the fund would prefer investing in Company B! That’s why many venture funds invest only in companies that can reach exit valuations in the billions (i.e., unicorns).

What does it take for a startup to reach unicorn status? The company must grow rapidly, ideally reaching over $100M in ARR within five years (sometimes referred to as T2D3), and future investors must be confident that continued growth is possible.

These criteria are easiest to meet when a startup targets a vast market. $100M in sales in a $10B market is a 1% market share. $100M in the $1B market is a 10% market share. The first scenario is much easier, and there’s still room for future growth. This makes it easier to justify a billion-dollar valuation.

There are a few exceptions to this market sizing threshold:

• Fast-growing markets – Nascent markets that are growing rapidly can be interesting to venture funds. If a market is growing at 20% per year, it will be hard for incumbent players to grow that quickly, leaving room for new startups. This belief has underpinned lots of investment in climate tech over the past couple of decades. The existing markets were small but growing fast, making it attractive for investment.

• Category-defining products – Sometimes, the market for a new product doesn’t exist. For example, virtual reality technology is not universal today; it is, at best, a niche. However, a startup that develops a VR product that attracts mainstream customers could suddenly find itself with near-infinite demand. Obviously, these are riskier investments, so it is up to the founder to demonstrate that their product is truly game-changing.

• Strategic investors or specialized funds – Strategic investors (e.g., corporate VCs) or specialized funds (e.g., carbon impact funds) will look past a small market if they believe the startup has additional intangible value. This could be a strategic fit for a corporate VC, or it could be the potential societal impact for an impact investor.

What to do if your startup has these red flags

When a startup has a market red flag, founders can take a few actions to either validate their current target market and its size or pivot to a more exciting market.

Here are a few ideas for founders:

• Double down on customer discovery – A founder will need to dig deep and keep looking for customers with a real problem and who are willing to pay someone to solve it. Until you have the customer and problem well-defined, there is little chance of raising venture capital. Founders need to block at least 10 hours per week for customer discovery until they hit their interview target and validate their market. This is way more important than building the MVP.

• Reevaluate the technology roadmap – Founders should look not just at today’s product but also at future products that can address a deeper market. If a founder can put together a credible path to serve a larger market over time, it can give the investors confidence to invest. Founders should have a multi-stage roadmap ready to explain to investors how they envision their product’s reach expanding over time.

• Hard pivot – This is a classic situation in which founders could pivot. What other markets can the startup apply its core competencies to? What other business models could capture more value? Founders need to identify the three distinctive competencies of their startup and brainstorm 10 alternative markets they could enter. Prioritizing these markets by customer pain and market size is a great way to order things.

• Look for alternative financing strategies – Venture capital isn’t for everyone. What would a non-venture capital growth strategy look like? Founders should consider bootstrapping, debt financing, and grant funding to achieve their growth goals. Also, look to friends and family for seed capital. If you are entering a small market, look for non-dilutive grants (e.g., SBIR), investment from strategic partners, or bootstrapping by securing revenue from customer contracts for services or custom development (this is the best way to fund your business!).

Final Thoughts

To summarize:

• Market Understanding Trumps Market Size: Investors prioritize founders who deeply understand their market, customer pain points, and timing—not just those who can quote a large total addressable market.

• Customer Discovery is Essential: Successful deep tech startups validate their product-market fit through extensive, real-world customer interviews and insights, not just secondary research or AI-generated summaries.

• Big Markets Attract Capital, but Exceptions Exist: While a market size of $500M–$10B+ is often necessary to attract venture capital, fast-growing or category-defining markets can also be compelling, non-traditional venture funds could be an option, and alternative growth strategies may be appropriate for some deep tech ventures.

Some of this is out of the founder’s control, but lots of it really depends on the founder’s ability to dive into the market and customer research.

So, if you are a founder, which of these three questions is the hardest for you to answer ‘yes’ to right now? What are you going to do to go from ‘no’ to ‘yes’? I would love to hear your thoughts in the comments.

Also, we are recruiting founders for a video series we are working on that focuses on building a deeptech pitch deck. If you want some free pitch coaching, reach out and let’s talk.

This post is part of a series on Investor Red Flags. Next up: the Business Model.

Subscribe now to make sure you don’t miss it. Thanks for reading!

Subscribe now