November 21, 2023: How to raise pre-product

Learn from Deep Sky on how to raise pre-product

What's the latest news?

Deep Sky made headlines last week by securing a hefty $57.5 million in funding from Brightspark Ventures, Whitecap Venture Partners, Investment Quebec, BDC Capital, and OMERS.

An interesting point to take note of as well… Deep Sky is a pre-product startup focused on climate technology.

How did they manage to raise such a substantial amount, especially being ‘pre-product’?

Several factors contributed to this:

- Fred Lalonde, the founder of unicorn Hopper, co-founded Deep Sky. His track record of success with investors likely played a significant role.

- Damien Steel, the former VC head at OMERS, left his role to become Deep Sky's CEO—an influential endorsement.

- There's tremendous potential in carbon capture, presenting a lucrative market opportunity with strong momentum.

- Given the scale required, substantial capital is crucial for this endeavor.

What's Deep Sky's core operation?

Deep Sky specializes in capturing carbon from the atmosphere and oceans using reactors developed by other firms. They store the carbon underground and generate revenue by selling carbon credits on exchanges.

Building each site costs between $500 million and $800 million.

How will Deep Sky acquire the necessary capital for its facilities?

Deep Sky aims to secure funds from government agencies. They're also utilizing their current funds to construct a small-scale demo facility, demonstrating the technology's viability and providing a preview of a full-scale location.

What are the critical success factors?

Several things need to align here:

- Stable and long-term demand in the carbon credit markets.

- The scalability and functionality of the underlying technology.

- Leveraging economies of scale as a competitive advantage, despite not owning the technology.

What's the key takeaway?

This deal epitomizes what critics argue venture capital should invest in but often doesn't. Deep Sky carries real risks of failure, yet success could yield immense global value and returns for investors.

It also demonstrates an appetite for capital-intensive startups, provided there's a substantial market, a proven leadership team, and regulatory support.

However, this isn't a recommended playbook for most startups. The success of Hopper played a pivotal role, allowing investors to take risks with a degree of security, trusting Fred's capability to make this venture work.

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