I’m Sorry But Your Technology Isn’t Worth S**t.

I often meet first-time founders who want to raise money on the basis of a technology they’ve developed. Typically they’re engineers, but sometimes scientists or academics. They often have cool demos and sometimes even patents.

I usually have bad news for them. With very few exceptions, investors only care about revenue and traction.

It doesn’t matter that you pulled a dozen all-nighters to write your groundbreaking dating algorithm. Or you’re building the first blockchain-powered car rental service. Or you’re a Ph.D. in neuroscience with a patent for an awesome new massaging car seat.

Unless your technology is demonstrably driving either revenue or traction, investors will view it as table stakes. And they are correct. Because technology doesn’t prove that customers will buy your product. And sales are what investors care about.

OK, but I said there are exceptions. So what are they?

1. The investor has enough domain expertise to extrapolate the future value of your technology.

Suppose you’ve developed an algorithm that accurately predicts the likelihood of heart attacks based on a user’s age, diet, and lifestyle. You might hit the jackpot with healthcare investors who envision your product reducing claims for health insurers when used as a preventative health measure. But even then, they may want to see traction first with said insurers before making an investment.

2. Your technology improves price/performance for a known use case by orders of magnitude over existing products.

For example, it’s well known that batteries are the most expensive part of an electric car. They also take a long time to charge, and unless the car is packed full of them, don’t provide enough range for most drivers. Now, suppose you invent a battery that takes up half the space, and stores twice as much energy at half the cost. If everything else checks out, you’ll have investors beating down your door.

So what’s the lesson here?

1. Focus on identifying paying customers before you invest a lot of time and money developing your tech or applying for patents.
2. Try to convert those customers into tangible signs of traction. For example, can you get them to sign an LOI, prepay or even invest?

These steps will give you a big headstart on fundraising. Good luck!