At VentureLab’s third HardTech Summit, speakers discussed challenges and opportunities facing deep technology startups across the country and offered entrepreneurs advice on navigating them.
HardTech 2023, which was held on November 8 and 9 at the Toronto Marriott Markham and counted BetaKit as its official media partner, featured panels on topics ranging from the hardware that powers artificial intelligence (AI) to the state of medtech and what investors consider when weighing whether to back deep tech startups.
Deep tech startups, such as hardware companies building medtech, AI, and semiconductor-related solutions, face a slightly different path compared to their software counterparts.
“If you sell your shares to the wrong investor, you will lose your company.”
– Jim Laird, Roynat Capital
“It’s a little harder, it takes longer, it costs more money,” noted Kanata Ventures managing partner and VentureLab venture advisor Yuri Navarro during a panel discussion about what venture capital (VC) firms take into account when looking at deep tech startups. Navarro added that angels and VCs are not always as willing to take big risks on deep tech startups given the associated development timelines, costs, and regulatory challenges.
These circumstances make finding the right investors—and avoiding the wrong ones—particularly important, especially amid current economic conditions.
Panellist Cyrille Brando, director of technology partnerships at Bosch, advised hardware entrepreneurs to be wary of investors seeking quick returns. “If you end up getting money from someone who is asking for a cash return within a year or two, as a hardware startup, be very careful,” he said.
Fellow panellist Jim Laird, director of risk management at Scotiabank’s Roynat Capital, concurred with Brando. “I’ve seen plenty of companies die because they have the wrong [investor],” he added. “If you sell your shares to the wrong investor, you will lose your company.”
As Trillium Meditec CEO and medical device advisor Nima Khadem Mohtaram noted on a separate, medtech-focused panel, while the recent past has been tough on all entrepreneurs, this is especially true for folks in the medtech space.
There are a few reasons for this, from the difficult regulatory pathway required to commercialize new medical technologies to the broader tech downturn, which has led many VCs to seek liquidity and a faster turnaround on the money they are investing.
Panellist and Intensity Solutions founder and CEO Alicia Francis said that entrepreneurs fundraising amid these conditions should remember that “the no’s almost don’t matter—you only need one yes” to rally a round together.
“You can pitch to 50 different investors that each want to offer you between $10,000 and $250,000, but if you land one big fish, one lead investor that is going to contribute $5 million, $10 million, even $3 million … go back to all of those other investors and they’re going to topple like dominoes because they have a pretty severe case of FOMO.”
In terms of how to pitch prospective VC investors versus corporate partners or banks, Laird advised entrepreneurs to know their audience, tailor their pitches accordingly, demonstrate that they know their market, and provide a good answer to the question of ‘Why now?’
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“There’s a very definite sense of urgency to build to successfully close a financing,” said Laird, adding that this applies to hardware and software startups alike.
Fellow panellist Sabrina Sasaki, principal and country manager at Japanese hardware-focused early-stage VC firm Monozukuri Ventures, echoed Laird’s assertion. Sasaki noted that most founders lose her when they dive too deeply into the tech stack before explaining who they serve, what their business is, and what their vision and growth strategy looks like. “You need to adapt the message according to the audience.”
Lately, one particularly hot—and urgent—area of focus for VCs and companies has been AI, which requires a specific type of hardware. BetaKit editor-in-chief Douglas Soltys moderated a panel discussion at the HardTech Summit about the hardware that powers AI.
As companies have scrambled to adopt AI in the wake of OpenAI’s release of ChatGPT, demand for the hardware that powers it has also grown. This has created a bottleneck in the global supply of these semiconductors.
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As Vector Institute for AI CIO Ben Davies put it, “There’s a lack of diversity in terms of infrastructure that we can access. There’s also a gold rush in the AI space, which creates supply chain challenges.”
Davies noted that Canada has been an AI leader for decades, citing the strength of its research community, patents, and talent in the AI space. He also highlighted that Canada was one of the first countries to launch a national AI strategy, and is working to buttress that strategy by investing in AI infrastructure.
“We’ve been playing above our weight class, which is terrific,” he added. “But we’ve got to keep doing that. This is the key … ChatGPT changed everything. [Other countries] are going to try and catch up, and we have to protect that lead.”
“We’ve been playing above our weight class, which is terrific. But we’ve got to keep doing that.”
– Ben Davies, Vector
As Canada looks to do just that, HardTech panellist and Untether AI CEO Arun Iyengar noted that his Toronto-based AI chip company and other Canadian firms like it could use more support on a few fronts, including targeted government procurement, more infrastructure geared specifically towards building semiconductor firms, and additional sources of VC funding.
“One of the models that I built up basically says, if you have a chip company in this day and age, to get you to some form of cash-flow profitability, you will have had to raise over $400 million,” said Iyengar. “That’s a lot of money. There’s no VC infrastructure in Canada that will enable us to actually be able to raise that amount of money.”
While Untether counts Toronto-based Radical Ventures and the Canada Pension Plan Investment Board (CPPIB) among its investors, the company has also tapped United States-based firms like Intel and Tracker Capital for the funding it needs to develop its AI chips.
Iyengar credited CPPIB for moving out of its “normal investment” area to invest in Untether, but argued that more work needs to be done to strengthen Canada’s domestic semiconductor sector.
Feature image courtesy VentureLab.