At Main Sequence, we back deep tech founders solving some of the world’s biggest challenges - from quantum sensing and biomanufacturing  to decarbonising heavy industry or bridging the gap to space. Most start in labs. Many are first-time founders. And all of them are learning as they go,  about customers, capital, and what it really takes to turn groundbreaking research into a business. 

Starting a company and raising capital is exciting, but it can also feel overwhelming. For most founders spinning out of a University, it’s a whole new discipline, with new language, concepts, and expectations to navigate. You’re transitioning from the lab and stepping into an entirely new role as a founder.

While there’s no perfect playbook, we want to make the learning curve a little less steep, especially when it comes to talking to VCs and raising capital. This article, part of our spinout series, is a practical guide to help you decode the lingo you might hear in the early days of your startup journey.

What is Venture Capital?

Venture capital (VC) is a type of investment that supports startups and early-stage companies with the potential for significant growth. VC firms invest on behalf of their own investors - known as limited partners or LPs - in private companies that often carry higher risk but also the potential for outsized returns. In return for funding, the VC takes a share in the business, with the goal of that share increasing in value over time.

There are many different types of VC firms too, some invest at the earliest stages, some later stage, some in specific types of technology. 

And venture capital investors often don't just come with money.

For instance, at Main Sequence, we see ourselves as long-term partners. That means we’ll be there alongside you when you need us, to soundboard  critical early decisions, find your first customers, build a team, shape your go-to-market strategy, and navigate the journey from lab to launch.

We often start working with companies in their earliest stages (including when they are thinking about spinning out!). They’re typically pre-revenue, and in many cases, we may not yet know exactly who the target customer is. We’re backing the potential; the strength of the team, the significance of the problem, and early signals that science or technology could be transformative.

Here are a few tips to consider when you start approaching VCs:

• First and foremost - we want to hear from you! Don’t let our buzzwords throw you off. We love hearing and learning from founders and aspiring founders looking to take their research from the lab to market. 
• Check the mandate. Before reaching out to a VC, make sure you understand what they actually invest in. As Callum Benson from Monash University’s New Ventures and Investment team puts it: “Most VC firms have a defined investment mandate. You’ll usually find it on their website. It outlines the sectors, stages, and geographies they invest in. It’s worth taking a look to see if your startup aligns with what they’re looking for (and who they may have invested in previously) before you try to engage.”
  
  • For example, at Main Sequence we’ve published detailed theses on areas we’re deeply committed to - like our Humanity Scale Healthcare and Quantum investment theses. 
• Have supporting materials ready: Most VC investors will want to see a pitch deck. It doesn’t have to be perfect, but it should clearly explain your value proposition (what’s special about what you are building and the customers that its for), the size of the opportunity (help us understand the scale of the problem you’re solving), and why you and your team are the ones to do it.
• How much money do you need, and will it help you achieve specific milestones? What will this capital help you prove or unlock? That’s the story investors want to hear. We use a tool called Slam Dunk Finance with all of our portfolio companies, you can check it out here [https://medium.com/main-sequence-ventures/tool-the-slam-dunk-financing-ab2dfbb51926]

Venture-Scale Returns: What Are VCs Really Looking For?

When you start speaking with investors, you'll quickly find that not all capital is the same, different funds look for different things. But most venture capitalists share one key goal: backing companies that can deliver outsized returns.

The VC business model relies on a few standout companies growing big enough to return the entire fund (and then some). That’s what we mean by venture-scale returns.

To make it real:  We're generally talking about businesses with the potential to generate hundreds of millions in annual revenue over time.

So what does this mean for you as a founder?
You don’t need to be there yet - but you do need to tell a story that shows the path to that kind of scale. Show us why the problem you’re solving truly matters, and just how big the opportunity could be.

Because, just like you have customers, so do we. Our investors (LPs) expect us to back companies that can change the world. That’s why we invest like each one could shoot the lights out.

Understanding Company Stages: Pre-Seed, Seed, Series A

These terms  describe where your company is in its journey, and what kind of capital you’re raising. They help investors understand how far along you are and how much risk is still in the business.

Each round of capital is tied to proving something new: 

• Pre-seed is the beginning. You may still be in the lab, forming the company, and building early evidence that your tech works (if you're just spinning out, you're probably about here!)
  
  
• Seed is about building momentum. You’ve made technical progress, started running pilots or customer experiments (even better if you have proof that someone is willing to pay, through paid pilots or trials), and are shaping your go-to-market strategy.
  
  
• Series A is when you’re ready to scale. You’ve hit key technical milestones, secured early customer validation (like paid pilots or strategic interest), and are raising to grow and reach more customers

What is an exit?

An exit is when a company is sold, goes public, or shares are sold privately, allowing the  founders, early team members and investors to realise some of the value they’ve helped create.

There are a few common ways this happens:

• Acquisition - another company buys your business
• IPO - your company lists on a public stock exchange
  
• Secondary sale - existing shares are sold privately to new investors (this may mean that some early investors exit)

You don’t need to map out the  exit path from day one. In fact, we’d prefer you stay focused on building something exceptional,  a product your customers truly value. A great company will have optionality. 

Nevertheless, understanding how exits return funds to investors will help you understand the VC perspective. We’re investing with the belief that, if things go well, there will come a point where both you and your investors can realise the value you’ve created - whether that’s through an acquisition, IPO, or a secondary sale. It’s how we return capital to our investors, and how you also share in the upside.

Valuation, pre-money, post-money 

The company’s valuation is essentially the estimated worth of your company at a specific point in time. In the context of fundraising, there are two key terms you’ll start to hear:

• Pre-money valuation: This is your company's valuation before receiving new investment.​
  
• Post-money valuation: This is the pre-money valuation plus the new investment that has come into the company. 

The difference between the two is the amount of new capital raised. The valuation allows us to determine the share price, which in turn dictates how ownership is divided between existing stakeholders and new investors. For example, if your company has a pre-money valuation of $4 million and raises $1 million, the post-money valuation becomes $5 million. 

Non-dilutive funding

Non-dilutive funding, like grants, provides capital to your company without requiring you to give up equity or ownership.

Product-Market Fit: Do Customers Actually Want This?

Product-market fit means you’ve built something people need and they’re showing it by using it, paying for it, or coming back for more.

In deep tech, this can take time. But from the start, it’s important to keep testing: Are you solving a real problem? Do customers care enough to pay for it?

You can learn this by talking to customers, gathering feedback, and watching how they respond.

Some early signs you’re on the right track:

• You’re hearing clear feedback on willingness to pay (perhaps you have orders or bookings!)
• Customers are telling you they want to buy your product when its ready (and they’ll pay!)
• Customers are paying for pilots, or better, signing long-term deals
• You’re getting repeat interest from similar types of customers
• A strategic partner wants to help bring your product to market because they can see the demand

These early signs are often called customer traction.

Wrapping Up

This article only touches on a few concepts,  but we hope it’s a useful reference! Starting a deep tech company is no small undertaking, and you don’t have to figure it all out alone. 

If there’s a topic you’d like us to unpack, let us know!

Other Resources 

Venture Deals by Brad Feld & Jason Mendelson‍

A great book for understanding how venture capital works, from engaging VCs, to understanding term sheets and developing a fundraising strategy.

Regular Reading - The Scenarionist

https://www.thescenarionist.com/

A weekly publication with insights and news about the deep tech venture capital and startup landscape

StartUp Podcast by Gimlet Media

This is not a deep tech story. But it is a raw and honest podcast series that follows entrepreneurs as they build their startups, starting with Gimlet’s own founding story. I really enjoyed it!   https://open.spotify.com/show/5CnDmMUG0S5bSSw612fs8C?utm_source=chatgpt.com

Main Sequence Newsletter‍

Stories, insights, and deep tech updates straight from the Main Sequence team. Subscribe here. https://www.mseq.vc/newsletter 

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