How to Actually Price Deep Tech by Value
The choice that makes or breaks the return architecture.
The idea for this piece came to me as I was thinking back on a conversation I had with a Deep Tech founder.
He was dealing with a very difficult situation. He had to bear production costs, but the margins of his business were very slim.
However, his solution was highly innovative, with a clear competitive advantage and positioned in an extremely critical sector.
At that point, being forced to do something to change course, he decided to try raising the price by an order of 10x.
It surely would have done his margins a lot of good, but would he have kept the customer?
The result was that the customer did not even try to negotiate downward and accepted.
At that point, the entrepreneur realized, with some regret, that he probably should have asked for much more, given the value of his unique solution, and that he had underestimated the market opportunity for his own product.
It is a story that will certainly sound very familiar to anyone working either as an entrepreneur or as an investor supporting a Deep Tech startup in their portfolio.
Defining a value-based pricing strategy and the right business model is critical.
Not only because it has an impact on the business’s profitability and sustainability, but also because it defines the actual trajectory the startup will follow in terms of growth and returns.
In other words, it also defines whether or not the startup will become eligible for venture capital.
So I decided to put together a piece that is a little different from the usual, focusing on what I have learned after more than 100 episodes of Deep Tech Catalyst and countless conversations with some of the best investors, entrepreneurs, and operators in the world who work in Deep Tech every day.
I’ll explore some scenarios, models, and strategies with the aim of inspiring and providing new ideas for those who build or support Deep Tech companies in the delicate phase of pricing their solution at the highest possible value.
And, consequently, defining a credible venture case.
The New Bottleneck Economy
To make the case for the concept of “priced by value,” and to offer some points for reflection ahead of a negotiation, I will follow a deliberately provocative line of reasoning based on a simple thesis: