Prime Movers are entrepreneurs that have the capacity to change the lives of billions of people by revolutionising energy, transportation, infrastructure, manufacturing, human enhancement, and agriculture. Choosing smart investments necessitates a thorough understanding of the underlying scientific breakthrough and the ensuing technology in order to detect dangers and assist founders in mitigating them. Through a technical diligence process overseen by a broad team of skilled scientists and engineers, we are able to do so across a wide range of sectors and disciplines. This post intends to help investors better understand our technical diligence approach, which supports in making sound investment decisions and managing their portfolios.
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Technology is merely one aspect of the picture. Prime Movers Lab's whole diligence process is built on four pillars: team, technology, business, and deal. Our pillars' high-level themes are as follows:
Team — We prefer to work with organisations that emphasise love/connection, growth, and contribution, as well as have a proven track record.
Technology – A breakthrough has occurred, as well as defended intellectual property.
Business – There is a substantial market, their business strategy is sound, and their future financial requirements are realistic.
Deal – It's in line with our fund's objectives.
Of course, the technical diligence phase of the process focuses on the Tech pillar, but it can also help with the Team, Biz, and Deal pillars. Is the investment amount sufficient to meet the stated technical objectives? Are those technical milestones the correct ones, and are they in the correct order? What are the technical alternatives available on the market? Is the team technically capable of carrying out the task? As a result, as a hard or deep tech investment business, we don't just look at the physical gear to see if it works; we also look at whether it can grow. Is the team in a position to solve and execute the unknown unknowns? Is this something that the market actually wants?!
Well-Positioned. Being able to do technical diligence in the first place is the first step toward obtaining competent technical diligence. We have intentionally established a technical staff at Prime Movers Lab to cover the different sectors we target. They have a diverse background that includes leading cutting-edge research, creating their own startups, and performing technical management. They contribute their knowledge, networks, and enthusiasm to our aim of uncovering credible breakthrough science that can address the world's most pressing issues.
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Know-it-all. These scientists and engineers, like any team that wants to be competitive, stay in shape intellectually by conducting research and constantly expanding their expertise. The technical diligence process allows them to stay up to date on the state of the art during active transaction flow, as you'll see here. They also conduct proactive research aligned with their passions, posting technical blogs, hosting webinar panels with other renowned experts from industry, government, and academia, and authoring thinking papers, in addition to reacting to investment opportunities. Speaking at conferences and helping at accelerators exposes them to the process of developing new ideas. We are really fortunate to be able to provide them with a wide devoted network of similarly motivated and amazing mentors in order to broaden their technological prowess.
Our experience with PML in terms of due diligence was quite favourable. PML had a laser expert with 40 years of experience who conducted a thorough dive into the complexities of our technology, which amazed us. Relevant subject knowledge, in our opinion, is vital to the diligence process.
-Andrei Iancu, PhD, Halo Industries, Inc. Founder and CEO (a portfolio company)
Recognize the Company's Stage. Let's talk about how the stage of the firm affects the amount of technical diligence undertaken before we go into the process. Typically, early firms in the "seed" stage raise money to build their initial product. They may not even have a prototype or patents, thus technical due diligence data is restricted. In comparison, a firm in the "growth" stage may have produced tens of goods and is trying to scale to thousands, or it may be generating income but not yet profitable. A company at the growth stage obviously has a lot more technical data — and needs a lot more money to scale. As a result, we usually do more technical due diligence on a growth stage company with a lot of data and a lot of money to protect.
A Time-Honored Process for the Founders. It can take a long time to verify the scientific advances and applications of the founders. We don't go there unless we're already beginning to believe in the founders and their objective. We take a funnel approach, starting with the large ideas and getting more specific as we gain more knowledge and conviction, all while respecting the founder's time. A first discussion, followed by a second conversation, and finally a deep dive, is a broad description of the process.
The First Discourse. We determine whether the investment idea is a good fit for Prime Movers Lab during our initial conversation. We look for founders that share our beliefs and mission of affecting billions of people, as well as whose investment needs match our fund strategies. We attempt to ask a lot of questions and get to know the entrepreneurs in the process! This includes assisting the founder in comprehending our entire process and answering any concerns they may have about Prime Movers Lab along the route.
The Second Discussion. The second conversation can cover any of the pillars, but it frequently focuses on technology. We're looking to see if our core beliefs coincide with the founders, again, since we're conscious of the founders' time.
The technical team's strength — We meet key members of the technical team to learn about their knowledge and experiences. We assess how this facilitates the application of scientific breakthroughs and their commitment to the purpose (e.g. are they full time or are they only advising).
Appreciable market opportunity – We want to better comprehend the market size and figure out what we need to believe in order to address it. The technical team can provide information on the current state of the art as well as the parameters by which the market will evaluate the innovation. "How does a groundbreaking scientific invention enable this startup?" they wonder.
We determine what defensible intellectual property exists or is in the process of being generated, as well as how their technology differs from competitors, ahead of the competition.
The time is right - we delve into the founder's motivation for "Why now?" (What makes you think this will work today rather than three years ago or three years from now? Is it a change in costs and/or surroundings, or is it a change in technological insight and skill that didn't exist before?)
No significant scientific risk – We learn which major technical risks have been overcome and which engineering risks the founders believe remain.
Obviously, the founders' beliefs are driving this second dialogue. We can swiftly fact-check the information we get and discover any substantial misalignments because we have a team of engineers and scientists on hand.
The team understood what they were doing coming into the diligence, which was wonderful because it meant I didn't have to spend hours bringing them up to speed — we talked about the crucial issues right away.
Founder and CEO of Paradromics Inc., Matthew R Angle, PhD (a portfolio company)
The Dive into the Abyss. We regularly question ourselves if we are interested in spending more time learning about a firm and its people in all aspects. If that's the case, we'll proceed to a "deep dive." The deep dive begins with a written plan that outlines our decision-making framework based on the pillars. From a technical standpoint, we want to confirm the following:
Validity – Both scientific and engineering designs adhere to scientific laws.
Requirements — It's obvious what has to be built.
Maturity – Their engineering, documentation, planning, and manufacturing standards are all maturing in the right ways.
Defensibility – Their accomplishments, IP/trade secret approach, and execution are difficult to duplicate.
We ask the founders for as much information as possible so that we can prepare questions for follow-up visits with them and their staff. Suzanne Fletcher, one of my partners, posted an instructive blog about a list of useful information we ask them to add in their data room. The following are examples of technical data: