The Pitfalls of Moonshot Culture: How Successful Deep Tech Startups Unlock the Power of ‘Roof Shots’ Instead
In December 2022, the fusion industry experienced their version of a “Kitty Hawk” moment.
After a decade of frustration and effort, scientists at the US National Ignition Facility (NIF) in California announced that they had achieved an historical first: a nuclear fusion reaction that released more energy than it consumed.
While widespread commercialization is still years away, this breakthrough represents an exciting step towards fulfilling the promise of nuclear fusion as an abundant source of clean energy.
This is quintessential deep tech innovation: Pushing the boundaries of science to develop solutions to the planet’s most pressing challenges.
And the deep tech ecosystem continues to grow. In 2023, global funding for deep tech totaled $79 billion and a recent report from The Boston Consulting Group shows emerging technologies now represent an established asset class, with 20% share of venture capital funding — up from about 10% a decade ago.
Deep tech, by its nature, revolves around “moonshots:” using disruptive technology to create radical solutions to huge problems.
But with the rise of “moonshot culture,” there’s been an increasingly prevalent trend of founders who believe they don’t have to operate in the existing system of staged capital and smart risk reduction. That because they’re thinking really big, they can raise all the capital up front and focus entirely on building.
This is a misguided approach and a set-up for failure.
Firstly, from a savvy investor’s point of view, the laws of “startup physics” still very much apply: It’s not enough to be addressing a monumental challenge.
Founders need to 1) find customers that are willing to pay for the solution, 2) understand the engineering risks and 3) prove their ability to scale and commercialize the technology.
And as Hany Nada, cofounder of ACME Capital which invests in early stage deep tech ventures, points out, the “free money” spigot of the last decade has been turned off and there is less appetite for risk.
“When I met with the founder of a hybrid airplane startup who wanted to build battery-powered airplanes for cargo delivery, we debated about power density of existing rechargeable batteries that were too power/weight inefficient for airplanes. I joked that the human body fat has a 3x better power density than current Lithium batteries.”
In other words, deep tech startups need to find the balance between having an ambitious vision while still being investable — they need to identify roof shots as well as moonshots.
A contrasting example, says Hany, is German-American startup, Focused Energy, one of only eight startups involved in the Fusion Development Program led by the US DOE.
Their moonshot vision is using lasers to compress pellets of deuterium and tritium to produce grid-scale fusion energy — building on the technique the NIF used to see the first-ever scientific energy gain from fusion.
And it’s going to take a decade and a billion dollars to commercialize the approach.
However, in moving towards their moonshot, the founders realized that their laser particle accelerators had the capability of seeing through metal walls. And with a particle detector on the other side of the laser, they could figure out the chemical composition of objects in the laser’s path.
So when they met with a German energy company that was seeking a solution for manual inspection and certification of their nuclear containment waste vessels they said, “Well, our lasers can see what’s inside these barrels without the risk of reopening them.” And now they have €28M to install the first system and an LOI for a multi-year deal worth hundreds of millions of dollars.
“Still,” says Hany, “it’s going to take two years to bring the first systems operational. So my challenge to the CEO is: ‘How will you attract another investor in 12 months on the $30 or $40 million that you raise right now?’ And they’re now realizing they can sell the lasers they’ve already developed to scientific labs and other fusion startups.
This is the long-term strategic approach deep tech startups need to take: They can’t just raise $3 million to start building the product and realize midway that they need to raise a series A without concrete progress to show viability.
Instead they need to ask the question: How will we bridge the gap between our Series A and the $100 to $200 million of growth capital we’ll need over the life of the company?”
Because typically, growth investors don’t like technology risk: They want to see traction in the form of revenue and customers.
“To attract that kind of capital,” Hany says, “founders need to lay out linear milestones and align them with their fundraising plan: If I raise $10 million for my Series A, that will get me to milestone X and Y. That’ll enable me to raise $50 million and get to milestone Z and milestone Z will allow me to raise $100 million.”
These milestones usually have something to do with a customer or commercial need — a Letter of Intent, a design win, a statement of project — or technical hurdles.
Think of it as pitching milestones. “You could call an investor,” says Hany, “and ask them, ‘If we solve the interference in our RF signal process, then Mercedes is going to put us in their cars. If I come to you in a year with this milestone, would you fund it? If investors say, ‘that’s an interesting milestone,’ you know there’s something there.”
This approach also ensures that founders are building along the critical path of their moonshot and not being distracted by peripheral milestones simply to satisfy investors.
Disruptive innovation, by definition, means breaking some rules. But it’s not license to ignore the fundamentals of a strategic, disciplined approach.
