The Value of the Unknown
how start-ups in the Emerging Technologies are working on valuations
Value. It’s a small word with a big meaning. For a start-up, it’s the very soul. And the very reason they exist – to bring value to their customers. And that is exactly how an investor will look at it, too. But when an entrepreneur wades into the deep and little-known waters of new technologies never tried before or less known, the value issue gets complicated, to say the least.
In this week’s issue, we speak to three of our members who share their perspectives on how their companies that are working in the deep technology field will or have been valued.
Sarang Kamalakar, founder & CEO, Parentheses Systems, India
Humans and machines now talk. But Sarang has taken that talk a step further. He at Parentheses is building an Augmented intelligence, a human-centered model where both artificial intelligence and people Intelligence are working in a harmonious environment through its Industrial IOT (DeepTech) platform HuMaC, to heighten new experiences as well as their cognitive performance like decision-making and learning from the business insights
“A start-up founder will look at new technology as an opportunity. Whereas an investor wants to know how soon it can become big, how soon it can grow and reach far and wide – scalability.
Like all other emerging deep tech technologies, we are problem-oriented, and our product solves problems for manufacturers while helping them to achieve Man-Machine-Margin Maximization. Now solving problems through deep tech, at least in the manufacturing sector, takes time because it has to tackle many hurdles while being focused on building a solution to the problem statement. As a result, scaling up might be slower when as compared with B2C or D2C products.
So, from an ‘invest-ability’ point of view, Emerging and Deep tech start-ups in B2B segments do go through a tougher time since the objective is not only to find the solution but also to make the solution feasible, viable and scalable.
We have crossed these milestones with our initial customers – India’s leading Heat Treatment company, the country’s biggest PP/ HDPE product manufacturer and even a medium-size machine tools company.
Now we aim to explore initial dialogues with some of the investors. Investors I feel will look at three critical aspects:
- Early traction with a promise of scale and business model validation.
- Being focused and concentrated on the solution trajectory (without too many deviations, as they can be very expensive and hurt the company in the long run)
- And lastly whether the innovation can be protected (we already are Patent Pending). So, fundraising, valuation for a deep tech company is not impossible, but you have to move with caution and meticulous efforts.
Naresh Jain, co-founder, Snapper Future Tech
Our company provides products and solutions to customers based on blockchain technology. We bootstrapped our company when we started in 2017 and started looking for funds. But the awareness of the potential of blockchain was low in those days and for a start-up like ours that had no revenues at seed round, it is a rather hard decision to make for any investor. It took us a year to get our first seed round from Enemtech Capital, a US-based family fund. In the early days, you have to depend on discussions, the potential of your solution, your capability in the area and your team strength.
We began with our services and started offering them to customers. We started our journey by doing a POC on Land Records with AP Govt. We did this free of cost, but it helped us in building our capability and credentials. Then we started serving customers by developing various blockchain-based POCs and solutions across industries. We also developed two blockchain-based products, one on credential verification (to let customers know if say a degree is genuine or not) and the other one on the supply chain (for asset traceability and provenance). In 2018 Enemtech Capital gave us our first round of Rs. 1.7 Cr and then our second round of funding we got Rs 2.1 Cr in 2020. We are now planning on a third round.
For a new tech company like ours when awareness about the technology is low in general when there are no revenues, no pipeline of customers it can get difficult for an investor to take a call. If a new blockchain start-up starts today, the chances of getting funds are much better as there is some awareness in the industry. So, I think for start-ups in this field what helps is the founders’ credentials, how much they know about the technology, what they have put at stake to start this business (we had both given up high paying jobs) and the trust you can build as a team. Since the technology is new or not known it is trust, your credentials that can help.
Sameer Anja, co-founder, ARRKA
Arrka is in the business of consulting and has developed a product that helps companies cut the chaff from the grain to reach a conclusion, specifically in the areas of security and privacy. Their product has built-in intelligence that simplifies privacy compliance at the click of a button.
“The consulting business is generally based on man-hours, which according to us is often overstated. A consulting firm will put three to four people, take about three months to reach a conclusion. But in our experience, you can do this much faster and with about 40-50% of data to reach a conclusion. At least in the area of privacy and security compliance.
So, we simulated an in-person interaction to build a product that is intuitive. At the click of a button, it can tell our client if his company is compliant with the security and data protection laws. If the laws change, as they often do, we can make those changes in our product. Though we have built a product, we are offering it to our customers as a service – SaaS.
The issue for any new product is to see if it will work with a certain number of clients. So, we tested our viability by offering it to 50 clients across the globe. That has worked, but an investor will want to know if this can work in multiple scenarios and over a large number of customers? Is it scalable? In our case, which is a SaaS scenario, it is possible that you build for a small number of customers, but the product may break at scale.Can it incorporate more people using it? Changed scenarios? If such things are not planned for, your product may crash. I think if we had gone to investors at the ideation stage, the situation may have been different. But now they will want to know about scalability – will the customers pay for it as is, or will they want changes in our product.
If they use as is, then our calculation will work. Will our product need updating, and lastly how will the profits come? Will there be a competitor who will crush our price? Too many aspects to our valuation. What we plan to do is expand our customers to 10,000 immediately and then much more. After it works on these numbers, then we may seek investment. Until then, it’s the scalability that we are focusing on.