As a specialist deep tech venture capital firm, more often than not, we make the decision to co-invest alongside other VCs. This is not just a strategic choice; it's a realisation that the future of innovation depends on collaboration, a shared vision, and access to the right capital.
In this article, we explore our rationale behind co-investing, highlighting the unique opportunities and challenges they present not only to us but also to our portfolio companies.
Food preservation, waste reduction, climate change, ageing populations, and rising healthcare costs are just a few of the many complex and urgent challenges that will impact (positive or negative) our future. Many of the solutions to these problems originate in a garage or a lab, but to have an impact they require human and financial capital and an ecosystem of stakeholders who are committed to realising the potential that cutting-edge scientific and engineering innovations will have on our ‘tomorrow’.
But, unlike traditional tech startups that tend to build on existing technology, deep tech ventures develop entirely new technologies and markets, which means there is a high degree of technology risk intrinsic to investing in these companies.
While mobile apps and software companies take market risk when developing their tech, the opposite could be said for deep tech. We’re fairly confident there will be a market for clean energy, healthcare innovations and technology that addresses food insecurity, but the inherent risk lies in the capacity and capability to develop the technology. IP plays a huge role in deep tech which demonstrates the novel nature of what’s being developed.
So back to the rationale for our co-investment strategy.
Risk Mitigation:
Deep tech investments can be inherently risky due to the uncertainty of technological development. Co-investing allows the sharing of both financial risk and expertise among multiple investors, which in turn reduces individual exposure.
Access to Expertise:
Co-investors bring diverse skills and experiences to the table. This collective expertise can be invaluable in guiding the company's strategy, connecting it to industry leaders, and overcoming technical challenges.
Increased Deal Flow:
Collaborating with other venture capital firms can expand our deal flow. We bring them in on our opportunities and they do the same which means we get insight into potential investments that we might not have discovered otherwise, increasing the chances of finding the next game-changing technology.
Leveraged Resources:
Deep tech companies need more than financial capital – they need entrepreneurial and scientific expertise, introductions and skills required to commercialise. By co-investing, we can pool our resources and provide portfolio companies with the human and financial capital and support they need.
Enhanced Due Diligence:
Co-investors can collectively conduct more comprehensive due diligence, reducing the likelihood of missing critical factors that could affect the investment's success.
First Investor advantage:
Co-investing provides venture capital companies the opportunity to get in first at preferred terms and valuation. This access can often prove advantageous as it allows us to understand and potentially leverage the technology before it becomes too widely known or adopted.
But as always, there are a few challenges and considerations – particularly:
Alignment of Interests:
Ensuring all co-investors share the same vision and objectives can be challenging. Clear communication and well-defined agreements are vital to prevent conflicts down the road.
Exit Strategy:
Agreeing on an exit strategy can be more challenging in deep tech investments, given the longer development cycles. Co-investors must align on their expectations for exit timelines and potential outcomes.
A final word – as a deep tech venture capital firm, the unique advantages of deep tech investments, combined with the collaborative power of co-investing, can lead to outsized returns and transformative societal impact.
For us, this strategy is about investing in a better future for everyone.
If you're interested earlier this year, we announced a strategic partnership with Singapore-based venture capital company TRIREC: PACIFIC CHANNEL & TRIREC FORM STRATEGIC PARTNERSHIP
