Non-dilutive funding and how VCs perceive it

Deep tech is great.  Free money is great. Many of the best tech companies have gotten their start from a proprietary technology that was commercialized and where government funding helped it see the light of day.  Don’t get me wrong, if you can get extremely strong technology built with free money, VCs will love that.

But that’s exactly what it is – R&D capital provided to potentially game-changing technologies.  The purpose is to see technologies reach further development and potentially hit a key proof point.  It’s tech for tech’s sake.

VCs don’t invest in research projects.  VCs don’t do tech for tech’s sake. VCs want businesses.

Generally, there’s a “right” way and a “wrong” way to present your non-dilutive funding to VCs. One demonstrates an understanding that “what got you here won’t get you there,” the other shows a level of arrogance and a lack of vision in terms of what commercialization of your product takes.

Right:  We got a grant from XYZ.  It let us build a world class product. We didn’t have to bootstrap product development while working other jobs or take shortcuts.  Now we’re looking for the right partners to let us build a world class business.

Wrong: We got a grant from XYZ. That’s the same as a lead investor, and it validates that we’re the best.  So now we just need your money to finish off the round behind our grant.

Non-dilutive funding is great. It lets you get your tech to (or at least close to) prime time ready.  But it’s not venture funding, and it doesn’t mean that your business is going to succeed. It doesn’t even mean good investors believe in your business.  Simply that your tech is worth continuing to build. So take it for what it is: R&D capital that earns you the right to ask investors to partner with you on your next phase of growth.