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Skin in the Game: What It Really Takes to Build a Deep-Tech Business

  • Aug 17
  • 7 min read

There is a tendency in entrepreneurship to focus on the idea.


Is the technology novel? Is the science exciting? Is the intellectual property defensible? Could it disrupt an industry?


These are important questions. But after working with technology businesses, I have increasingly come to believe that they are not the first questions we should be asking.

The more important question is: does the entrepreneur have what it takes to carry the idea through the difficult years between invention and a sustainable business?


The entrepreneurship literature supports much of this. Research on technology start-ups consistently identifies resilience, adaptability, self-efficacy, problem-solving, strategic management, partnership development and continuous learning as important characteristics associated with entrepreneurial survival and performance. Research specifically examining biotechnology also highlights the importance of networks and the ability to identify, access and coordinate resources that the company does not possess internally.


But I would add something that is sometimes uncomfortable to discuss: conviction and skin in the game.


1              An idea is not a business

Entrepreneurs are understandably passionate about their ideas. They may have spent years developing a technology and may genuinely believe that it could change an industry.


But an idea, by itself, is rarely fundable.


At the idea stage, most of the risk still sits with whoever is being asked to provide the money. The technology may not work at scale. The customer may not want it. The regulatory pathway may prove more difficult than anticipated. The cost of production may make the product commercially uncompetitive. The intellectual property position may be weaker than expected.


The entrepreneur therefore has to move the opportunity from an idea towards something that can be demonstrated, tested and ultimately sold.

In many cases, that means finding a way to reach at least a minimum viable product, prototype, proof of concept or equivalent commercial validation before expecting serious external investment.


This is where entrepreneurship actually starts.


2              Conviction has a cost

If you believe strongly enough in an opportunity to ask somebody else to invest their money in it, there is a reasonable expectation that you are also prepared to take some risk.


That does not mean every entrepreneur needs to be wealthy. Nor does it mean that founders should take reckless personal financial risks. The amount an individual can reasonably contribute will obviously differ enormously.


Skin in the game is broader than simply writing a cheque.


It can mean investing personal savings. It can mean foregoing salary. It may involve raising money from friends and family, where appropriate. It can mean contributing intellectual property, equipment, time or professional expertise. It can mean persuading suppliers to provide favourable terms, negotiating access to laboratory or manufacturing infrastructure, finding development partners, or generating early revenues that can be reinvested into product development.


What matters is that the entrepreneur demonstrates an ability and willingness to mobilise resources rather than simply waiting for somebody else to fund the journey.

Research on biotechnology entrepreneurship supports this broader concept of resource mobilisation. Biotech founders operate in an environment where they rarely control all the resources required to commercialise their technology. Successful company formation therefore involves identifying what resources are missing and accessing them through transactions, collaborations, networks and partnerships.


That ability to leverage resources is itself an entrepreneurial capability.


3              It is not a free ride

This becomes particularly important in environments where grants and public innovation funding play a significant role.


Grants can be enormously valuable. Deep-tech development is expensive, risky and often takes far longer than conventional investors are willing to tolerate. Public funding can help bridge precisely these gaps.


But grant funding can also create the wrong behaviour if the entrepreneur begins to regard grants as the business model.


A company can become extremely good at writing grant applications without becoming particularly good at building a business.


The same applies to tenders. A business that survives only when a particular grant or tender arrives remains highly vulnerable.


The entrepreneur therefore has to keep asking: How else can we generate money?


That answer may initially have little to do with the ultimate technology.


A biotech company might undertake contract research or consulting. A medical-device entrepreneur might distribute complementary products. A diagnostics company could import and sell existing products while developing its own. A technology company might provide testing, analytical or technical services using capabilities it already possesses.

There can be another benefit to doing this. Selling adjacent products or services forces the entrepreneur into the market.


You learn what customers actually buy rather than what they say they might buy. You learn about pricing, procurement, distribution, margins and payment terms. You build relationships with customers and distributors. You begin understanding competitors. You discover what features matter and which ones do not.


That knowledge can be just as valuable as the revenue.


4              Investors are investing in the entrepreneur too

This is why I think entrepreneurs sometimes misunderstand what investors are assessing.

Of course they are assessing the technology, intellectual property, market opportunity, regulatory pathway and financial projections.


But they are also assessing the people sitting across the table.

When the founder says, “I need R20 million to make this work”, an investor is entitled to ask:


What have you done to make it work so far?


That question can reveal a great deal.


Did the founder find creative ways to develop the technology with limited resources? Have they spoken to customers? Have they generated any revenue? Have they brought credible people into the business? Have they built partnerships? Have they contributed something themselves? Have they managed previous funding carefully? When funding was unavailable, did progress simply stop, or did they find another route?

These behaviours demonstrate more than commitment. They demonstrate entrepreneurial capability.


5              Persistence is not the same as stubbornness

There is, however, an important qualification.


Conviction cannot mean blindly pursuing the original idea irrespective of the evidence.

Research on entrepreneurial resilience and technology start-ups consistently points towards adaptability and learning as important capabilities. The strongest entrepreneur is therefore not necessarily the person who refuses to give up on the original plan.

It is the person who refuses to give up on the objective while remaining willing to change the route.


The market may tell you that your original customer is wrong. Your manufacturing costs may require a different product. A regulator may force a different development pathway. Your first business model may simply not work.


The entrepreneur needs sufficient conviction to continue, but sufficient humility to listen.

That balance is difficult.


Too little conviction and the entrepreneur abandons the venture at the first serious obstacle.


Too much attachment to the original idea and persistence becomes stubbornness.

The better formula is:


Conviction + evidence + adaptability + execution.



6              Entrepreneurship is the ability to make something happen

Perhaps this is ultimately the characteristic I value most in an entrepreneur.

Entrepreneurship is not simply having an idea. Nor is it obtaining a grant to investigate an idea.


It is the ability to make progress despite not having all the resources you need.

A deep-tech entrepreneur may need scientists, engineers, regulatory specialists, manufacturing partners, investors, customers and government support. Very few founders possess those resources at the beginning.


The entrepreneurial skill lies in assembling them.


That means finding a way to move from idea to proof of concept, from proof of concept to minimum viable product, from product to first customer, and from first customer to a sustainable business.


External capital becomes increasingly important as that journey progresses, particularly in capital-intensive sectors such as biotechnology. But external capital should accelerate entrepreneurship rather than substitute for it.


And even after investment arrives, founders should remain prepared to co-invest in their vision, whether through capital, retained earnings, deferred remuneration, revenue from adjacent activities or other resources available to the business.

There is no free ride in deep tech.


If an entrepreneur expects a funder, government agency or investor to carry the financial and commercial burden from idea to market while the entrepreneur carries little risk, an experienced investor will recognise it quickly.


The entrepreneur who stands out is the one who says something different:

“I believe in this opportunity. Here is what I have already done with the resources available to me. Here is what I have invested. Here is what I have learned from the market. Here is how far I have taken it. And here is what your investment will allow us to do next.”


That is a very different investment proposition.


Because ultimately, investors do not only fund ideas. They fund people who have demonstrated that they can turn ideas into businesses.


Relevant references, but the blog is a personalised opinion piece:


 
 
 

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