I've had the opportunity to invest in both software and hard tech over the last two years, and one common thread I've noticed is that hard tech founders coming from academia haven't had as much exposure to what running a good fundraising process looks like. This is easier to get away with at the seed stage when investors focus on assessing the founding team and founder <> market fit, but Series A and later rounds are a different ball game that often involves more thorough diligence of the technology, market, traction, metrics, business models, regulatory pathways, etc.
There have been many wonderful guides published online about fundraising processes, including one by YC that is generalizable enough to also apply to hard tech startups. This post is an addendum of sorts to elaborate on an oft-overlooked part of creating investor materials where I think scientific founders can really benefit with more prep time: the data room. Why is this especially relevant for hard tech startups? Generally, there's more complexity with them compared to their software cousins. Hard tech startups often operate in heavily regulated environments. There's risk whether the technology will even work. Great investors that hard tech founders want on the cap table will take the time to dig into the nuts and bolts during diligence. Well-structured data rooms can convey complex and nuanced information more readily to grease the wheels for fundraising and help founders close quicker.
I am a huge advocate of using a fundraising memo as a foundational document of the data room to complement the pitch deck. Memos enable startups to start off on the right foot by telling the story their way, provide additional details that don't fit or belong in a deck, answer common questions, and prepare the investor for more substantive conversations during follow-up meetings. I am always left impressed when a startup shares a list of FAQs that addresses most of my upfront questions, which allows me to go more deeply into the areas that I still have questions about during the next meeting. The founders are probably also glad that they don't have to answer the same question for the 18th time!
I would encourage founders to think from an investor's viewpoint about the key aspects of the business and include the information that substantially backs up those points in the standard data room that's shared with investors after a first or second meeting. Too often I see a data dump of all the publications of the founding team, which makes it hard to suss out the key innovation at the core of the business, or I see a long list of potential customers without context as to which ones are qualified or closed. A Ph.D. student wouldn't include every piece of data generated during graduate school in their doctoral thesis for the committee to review, so help investors move fast with a concise, organized data room and provide additional information as they request it. This also controls information flow by ensuring that only the investors who are serious about diligence get access to more confidential information.
Better yet, link sections of the memo to the relevant information in the data room. Think of the memo as the trunk of the tree that provides context to guide investors to the branches (folders) containing details on the IP, market, business model, customer traction, etc. Continuing with the tree analogy, the leaves could be short decks/overviews on various topics, key patents and publications, projected financials, and previous financing documents. A linked memo goes above and beyond an index/table of contents because it lets founders craft the story and pull from the data room to back up their claims. It's the startup equivalent of a Nature Communications article with key figures up front and most of the data supporting the findings under Supplementary Information (though I'd point out that this isn't a perfect analogy because many Supplementary Information sections are still unorganized data dumps).
I've seen some hard tech startups start to use digital documents like Notion for job postings, but an even better application of no-code tools with links and backlinks would be for this kind of memo-driven data room.
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