Blog
In this series, we are discussing the role of investors, technology developers (startups as well as established companies), accelerator programmes, end-users (e.g., water and wastewater utilities) and industry-experts in the battle against climate change with targeted reduction and mitigation technologies in the water industry. In the previous post, I explained why the early-stage diagnostics of climate or water technologies needs to be improved. In this second episode, we will take a closer look at the discussions between investors and technology developers (often startups) regarding the technology to be developed.
Focus on tech talk
On his website, Jacob Tompkins states that startups should avoid talking about their technology too much when discussing their business ideas with an investor. He argues that the startup team should focus on selling the story and vision, because when they talk about the technology too much, the investors’ ”eyes glaze over”. As an example of a very successful pitch, he highlights one where the presenters did not actually have anything substantial yet, just enthusiasm and self-belief. The whole pitch culture around tech startups and investors seems to be built around this idea. And to a certain extent, I do understand this. As Tom Ferguson put it at the 2023 BlueTech Forum in Edinburgh: “I invest in people, not in technologies.” However, Tompkins’ approach relies on the highly questionable assumption that courage, enthusiasm and self-belief are enough for a successful company to materialise. My experience is different. These character traits are indeed very important for any entrepreneur to remain motivated throughout the difficult phase of building a company from scratch, but without any real substance, i.e. a viable product, failure is inevitable.
Ask questions
Investors would do well to focus on the technology from the very start. Even if you do not have a technical background of any kind, it is still possible to ask sensible questions about the technology being presented. In order to improve early diagnostics of successful companies, I consider it an essential task of every investor to look for real substance at the earliest possible stage. So don’t switch off during the tech talk, and don’t be misled by enthusiasm and self-confidence which is not based on anything substantial.
A few years ago, a VC investor asked for an evaluation of a startup which was developing a tap-water testing device for the private consumer market. We performed a technology and competitive landscape review as well as a market analysis, and concluded that the technology as developed would not be able to deliver on its major claim: detecting a selection of pollutants in tap water at drinking water-relevant concentrations. The technology simply was not sensitive enough. Unfortunately, the investor had already fallen for the enthusiasm and self-belief of the developing team, and signed a deal with the startup. Our assessment had only been intended to confirm that they had made a good choice. Oops…
The thing is, all it would have taken to check their claim was one question about the legal limit values for specific water quality parameters in the local water legislation. In order to monitor an exceedance of drinking water limit values, the detection limit for such parameters should be at least 2-5 times below that limit value, preferably up to 10 times. If this cannot be accomplished, the technology may not be suitable to ensure that the drinking water is safe. This kind of check does not require much technical knowledge, nor a lot of time, so why wasn’t it done here? When it comes to water, any type of water really, one thing is for certain: it is one of the most heavily regulated substances on this planet, and therefore, any water monitoring technology developer should know how their device performs in relation to water regulations. So, for all non-technical investors in water monitoring technology, I have prepared a Q&A schematic to help you navigate the basics of regulatory requirements related to sensor technology developments for water monitoring. And if you are a (startup) sensor developer for the water industry, I would encourage you to prepare answers to these questions before delivering your pitch.
Climate impact?
As for sustainable technologies, the additional factor of being helpful in tackling climate change issues needs to be assessed as well. Yet, often only minimal attention is given to the merits of the technology at this early stage. Thankfully, I am not the only person who thinks this is odd, given the large sums of money involved. A few years ago, I met design engineer Bram van der Grinten of Delft Technical University, just after he had established his own company called Climate Impact Forecast (CIF). He had noticed that many climate tech startups were claiming all kinds of climate impacts for their technologies, whereas in fact, many of these were questionable at best.
Here’s an example. One developer presented a technology to charge a mobile phone battery while riding a bicycle. The system worked with a dynamo, converting the rotation of the bicycle wheel into enough power to charge the mobile phone. This sounded great, as in this way, cyclists would be able to charge their phones while riding, and not need to use electrical power from the grid, thus achieving a positive climate impact. However, when taking into account the electronics needed for the device, including the resources needed for their production, it turned out that the device would only have reached carbon neutrality (let alone a positive impact) if the cyclist had charged their phone exclusively in this way for ten years straight. Even for a cycling-loving country such as the Netherlands, that would be a tall order. So, in order to achieve a more objective indication of climate impact, Bram designed a self-assessment method for startups to help them estimate the real climate impact of the entire life-cycle of their product, using only a few basic parameters. I would advise all developers of climate technology to use this methodology, as it is incredibly insightful for the developer and very informative for the potential investor, especially ones without a technical background.
Don’t make any claims about your technology that you cannot deliver
Before I am accused of blaming everything on technical ignorance of the investor, I want to shift focus to the technology developer, as they should also be careful what to present about their technology and how. If you are developing a sensor for use in drinking water, make sure it can detect your parameter(s) at drinking water-relevant levels. I often see websites of startups with a lovely image of a glass of tap water and a sensor in it. Below the image, a list of parameters to be analysed follows, implying these can all simply be measured by sticking the device into that glass of water. The European limit value for E. coli bacteria in drinking water is less than 1 per 100 mL. So, if the glass contains 100 mL of water, the device should, at a minimum, be able to detect a single bacterial cell in it. Good luck with that. Although the image may be very powerful for a website, any water operator (i.e., your target customer) knows that this is simply not realistic.
If you are aiming to develop a sensor which can detect pollutants at drinking water-relevant levels, but you cannot currently achieve the necessary sensitivity, don’t deny it, but also: do not worry about it. There are many other possible applications for which such sensitivity is not essential, so while you are working to improve sensitivity, you may be able to sell your technology successfully in another market segment. It could just be a matter of rearranging your beachhead market and consecutive market segments to be addressed.
Make realistic comparisons
In addition to being clear about the sensor’s capabilities, it is also important to compare the technology to realistic existing alternatives. I see numerous slide decks of sensor developers, and more than 90% of these choose to compare their sensor technology to existing laboratory methods to analyse the target compound. Such comparisons always have the same outcome: the sensor technology is a lot faster than the laboratory method, as no samples need to be taken and transported to the lab, followed by a laborious sample preparation process and time-consuming analysis. The sensor is – of course – less expensive than the laboratory method, since the sensor can perform many consecutive measurements without human intervention, so the costs per analysis drop dramatically. Thus, the conclusion is that the sensor is a much better choice than the laboratory method. This is a bit like comparing the latest laptop model to a mechanical typewriter, and then claiming that the laptop represents a major advancement, while at the same time failing to mention the numerous other laptop models that are already available on the market. Sensor technologies for water monitoring have been around abundantly since roughly the nineteen seventies/eighties, so the comparison with laboratory methods as the only reasonable alternative is in most cases not realistic.
Therefore, when preparing your slide deck, please perform a basic search for competitive technologies, and compare your own sensor to other sensor technologies already on the market. If you are unsure where to look, try Sensileau’s Sensipedia, which contains thousands of sensor technologies for the water industry from more than 300 different manufacturers. And one more tip: find out what your customers are currently using for the problem that your new sensor technology is going to solve. You will find that competition sometimes comes from unexpected quarters, as it is your customer who decides who your competitor is; you do not get to choose your competitors yourself. Even if you know your product is infinitely better equipped to deal with your customer’s headache than the alternative they chose to implement, you need to take their choices seriously.
In summary
Both investors and sensor developers should not waste each other’s time by either postponing the tech talk only to find out later there is no basis for investment, or by claiming features that cannot be delivered and offering misleading technology comparisons. By following the key take-aways below, a better understanding of the technology’s merits and possible applications can be achieved, thus contributing to a better early diagnostics of successful water and climate change mitigation technologies.
Key take-aways for sensor technology developers
Key take-aways for sensor investors
In the next episode of this blog series, we will take a closer look at the startup team selection methodology.
