Your deeptech company does not have one capital problem

When looking at a deeptech company’s use-of-proceeds slide, one number typically dominates: the size of the next round of funding. However, this number can mask the diverse ways the money is being utilized. For fundraising purposes, these uses may be grouped together, but for understanding the actual capital needs, they can be misleading.

Different uses of money come with different levels of uncertainty. Funding an unproven product poses a different risk than financing already deployed equipment. Building a new customer network is distinct from purchasing inventory based on signed demand. A company can have a single balance sheet, yet still have multiple underwriting problems.

The crucial question is not just how much capital the company needs, but what the next dollar of underwriting will be used for. Initially, the answer might be that nearly all the capital is required to absorb risk, given factors like unproven technology, uncertain customer demand, inability to separate assets, and hard-to-observe cash flows.

Over time, this can change. Once a purchase order is secured or equipment moves from prototype to repeatable deployment, certain types of uncertainty may become more bounded and potentially underwriteable by external entities. For instance, lenders or lessors can assess an asset or cash flow independently of the company’s overall risk profile.

Even within the same company, the same asset can receive financing in different ways depending on its deployment location. For example, TBS secured a US$15 million financing package in Indonesia, combining a US$5 million ADB loan, US$5 million in concessional financing, and a US$5 million parallel loan from DBS Indonesia. This financing was used for TBS’s investment in Electrum’s electric motorcycles and battery-swapping infrastructure.

The underwritability of such financing often depends on the availability of local financial institutions willing to provide specific types of risk mitigation. While the technology, asset, customer relationship, and operating risk may be tightly connected within the company, moving an asset outside the company can shift certain risks away, allowing external financiers to underwrite them separately.

Boards should therefore consider what risks have become observable enough to be underwritten independently, what risks remain inseparable, and what protections another financier might require before approving financing. As deeptech companies mature, it is essential to regularly reassess which risks each new dollar of financing is actually being asked to absorb.