As a Venture Capitalist, Strategic Investor, and Public and Private Funds
manager, one of the most critical factors one considers when evaluating
companies is their ability to stay ahead of market trends and remain relevant.
The relevant entities in any industry understand that increased market
participation, cost management benefits, advancements in marketing abilities,
and trend-matching are all reasons companies invest in Research and
R&D measurement service and custom sensing solution are one of the main
activities that we as RVmagetics do. Being a startup founded in 2015, we
have now had a very condensed experience with entities that aim to invest in
niche R&D efforts (specifically strategic investments), and now that we have
a certain overview – we find it relevant for the like-minded companies and
investors to see the environment from our perspective as well. This article can
be a short documentation of the current learnings we have had, which we will
look back to, and update in the future.
Generally, the Answer Seems Obvious:
But let’s still identify the common truths, that through R&D, companies can
gain innovative insights that can help them improve their products and
processes, reduce costs, and increase profits. These insights can help
companies identify and take advantage of new opportunities, overcome market
challenges, and maintain a competitive edge.
As a Strategic Investor or anyone managing a fund intended for R&D
investment, one already understands the valuable ROI from R&D. Companies
that invest in R&D can create a sustainable competitive advantage, drive
innovation, and stay ahead of market trends. These companies are more likely to
attract investment and have a greater chance of success in the
So in general an investor invests for a variety of reasons, but the primary
goal is usually to make a profit or to increase their wealth.
This applies to a firm or a fund as well – making sure the spent resource
serves the goal of getting a higher return from an initial lower investment.
Here are some of the most common reasons why investors invest:
Building their wealth: Investors may also invest in order
to build wealth over time. By putting their money into investments that have a
history of growth, they can accumulate more assets and increase their
Achieving certain financial goals: Investors may have
specific financial goals, such as saving for retirement, paying for their
children's education, or buying a home. Technically this is slightly
different from the above, as it doesn’t aim to make one rich, but to achieve a
specific financial goal over a specific period of time, while spending the least
amount of resources possible.
Diversifying existing portfolios: Some investors may invest
in order to diversify their portfolio, spreading their money across different
types of investments in order to minimize risk. Some VCs / Investors might treat
investing as a carefully calculated betting strategy – the more diverse and
high-in-volume are their portfolios, the less is the risk. This includes
securing Intelectual Property an Patent acquisitions as well, as it gives the
“petter” a higher position of power, thus better odds
Value-based (supporting a cause): Some investors may choose
to invest in companies or funds that align with their values or support causes
they care about, such as environmental sustainability or social justice. The
cause does not have to be all that altruistic – it might be a focused
investment to solve an own challenges – should the challenge be big enough,
and should the startup undersell the solution – the profitability of this
investment has the chance to get high as can be.
In Case of R&D
Investing in R&D can be challenging and costly, but the benefits are
significant as we have showcased in a variety of our previous notes, articles, and most importantly
through the work RVmagnetics does. Companies that invest in R&D can create
new and innovative products that meet consumer demand, increase efficiency and
streamline production processes.
Furthermore, R&D efforts can lead to deductions and credits that can
reduce a company's corporate income tax. This means
that not only do R&D investments help companies remain competitive and
relevant, but they also help them reduce their tax liabilities.
Investors often invest in Research and Development activities because they
offer the potential for high returns on investment specifically in a niche field
of creation of something new, or exponentially upgrading an existing solution.
Here are a few reasons why investors might choose to invest in these types of
R&D comparative growth potential: R&D companies and
startups are often at the forefront of innovation and have the potential to
develop new technologies or products that disrupt existing markets. This means
they may have a higher growth potential than more established companies.
Early-entry to market: Investing in a startup or R&D
company can offer an opportunity to get in on the ground floor and potentially
see higher returns as the company grows.
Diversification: Including investments in R&D companies
and startups can help investors diversify their portfolios and reduce overall
risk by investing in a range of different types of companies and
Intellectual property (IP) and patents: R&D companies
and startups may have valuable intellectual property or patents that can provide
a competitive advantage and potentially lead to significant returns for
Value-based approach: environmental sustainability, and
social, economic impact are other drivers for R&D investments, as the
motivation is a little more direct and clear both at the end of the R&D
investor and R&D provider.
Tactical reasons: – not caring about winning their own
advantage but preventing competition from winning their competitive advantage.
Or just getting more insight (see behind the curtain, with no intention to buy
at all). Or if a startup is somehow competing with their own technology –
either keep them busy for a while (to slow them down) or
Buy a missing puzzle (1+1 = 3)
A few notes to the above: no matter the industry, clearly
knowing the niche goal is the only way to have an R&D process as fast and
inexpensive as possible. R&D is known as expensive and slow, this is not
necessarily wrong, however in a lot of cases, the definition of the goals and
processes the R&D activity wants to achieve is a main factor contributing to
slowing down (and thus increasing the cost) of the R&D effort.
In our experience we have had the smoothest, fastest and most effective
solutions of MicroWire technology – where the
use case had a specific problem to be solved, or a clear added value to be
reached – this in fact does not only refer to the technical, but also the
economical definition of the use case, as where there is a valuation of
a problem there is a possibility to justify an investment.
Overall, it is never lost on us that investing in R&D companies and
startups can be a high-risk, high-reward strategy, however if our clients and
partners do not succeed, neither will we (especially as a supplier of our own
sensors). Investors who are willing to take on more risk may be attracted to
these types of investments because of their potential for significant returns,
and we at our end are attracted to the potential of the technology by the value
MicroWire can add, especially in a long term cooperation.
Why Investors Keep Investing in Your Solution?
Let’s first clear out what are the main dealbreakers in R&D
investing that might stop the investment coming in.
The investor landscape is constantly evolving, and in recent years, there has
been a shift towards seeking out solutions that have already been validated by
clients, partners, revenues, awards, transparency, and founders. This marks a
departure from the previous focus on promising ideas in the IT sector, as even
industry giants like Microsoft and Meta are no longer on the rise. The combination of war, inflation, and
uncertainties in global supply chains, coupled with the collapse of Silicon Valley Bank, has
made investors more cautious and conservative.
As a result, startups looking to secure funding need to demonstrate a track
record of success and prove that their solutions have been tested and proven in
So finally, when embarking on /especially/ an R&D-heavy approach,
there are several challenges that an experienced investor should be
prepared for, to keep the portfolios afloat.
Firstly, obtaining funding can be difficult, particularly
for service businesses without collateral. This can take up a lot of time from
the founders, reducing contact time with the operations, team, and clients.
Secondly, commitment and focus are essential for R&D
efforts to pay off, and it's important to properly incentivize the people
involved. R&D talent is neither, cheap, nor fast to find – thus creating
the relevant team, and being able to trust the R&D leads in their
responsibilities as well as organizing the work of R&D limited staff to be
able to handle the right amount of projects simultaneously – is a task of
utmost difficulty, high responsibility and clear feedback from the success of
projects. Is it the investors’ job to put together the team – No, however,
the team factor has one of the most direct influences on the
investor’s decision to keep the investments up – again, bet the jockey,
not the horse.
Thirdly, clear KPIs should be established, and projects
should be given enough time to develop naturally, but not allowed to drag on for
too long. Cash flow management is also important when growing a business, and
hiring needs should be anticipated ahead of time. Despite these challenges,
investing in R&D is a smart choice. For some businesses, R&D is part of
their DNA, and they see opportunities where others see problems. Pursuing
R&D projects can refine processes and fix broken workflows, ultimately allowing
companies to do things cheaper and better. R&D keeps businesses fresh
and dynamic and is a game-changer that tests assumptions and interrogates new
ideas. Whether it's building something brand new or simply evolving to survive,
R&D is always worth considering.
Investment is however not only in the form of Investors interested in R&D
startups are financial, but also strategic inputs and the time spent on a
startup, especially an R&D startup with high-potential, and need for
strategic guidance. The general flexibility in this sphere is relatively low on
pro-rata investment rights, liquidation preferences. There is often the needs
and expectations on anti-dilution rights, as well as on the vesting of the
founders’ equity, the company’s valuation, and board control.
Pro rata rights are often considered supreme, because they allow investors to
acquire an additional stake in a company, which is often seen as the biggest
source of returns. Investors are more flexible on the option pool, participation
rights, investment amount, redemption rights, and dividends, which have a
smaller effect on potential returns and hence are more likely to be
Translating the day-to-day work on the ground, into the
general overview: an IR department (or in many cases the responsibility for IR)
shall be able to communicate the day-to-day activities of engineers,
manufacturers, designers, etc. into the language understandable for a non
necessarily technical audience. Call it an IR responsible or an Investors’
Communications Manager – the idea remains the same – there needs to be
trusted contact point having a firm trust, not only from the investors but also
from all the stakeholders and internal personnel across departments .
Communicating strategies and strategic changes is crucial,
and transparency and consistency are essential to building credibility. An
Investor Relation responsible must have clear, straightforward answers to
investors’ questions and explain metrics and signposts investors should use to
monitor progress against the plan. Especially in R&D strategies tend to
change based on important findings regarding the technology, parts,
environmental conditions, and so on – naturally, the potential outcome,
necessary investment volumes, and engagement from different stakeholders might
need to be adjusted – which an investing body must present to with their
important input (this in fact goes both ways, should an investing body need to
apply strategic changes to a project).
Accummulative focus on the Success of the Company, The Tech and the
Client If the management board of a startup is pushing the internal
notion of the prioritization of the client’s needs, the improvements of the
own solutions (the tech, the R&D service, etc.), as well as achieving the
general growth potential of the startup – it can be considered a big green
flag, which should be nurtured and encouraged at each stage of the company
development further down the line. The most important thing is for all
employees, departments, stakeholders, from each level to fully grasp the
company's overall plan and how their individual roles fit into it. This
understanding allows them to make informed decisions that benefit their specific
work environment. As a result, employees become knowledgeable workers whose
success is measured by the quality of their output, rather than how much they
Conclusive part after the identification of aforementioned main
challenges to look out for, and the relative feedback from the startups
is that Investors interested in R&D startups look for companies with the
potential for big exits, which can generate a 100-fold return on their
investment. As such, they focus on finding companies that have the potential for
big exits rather than on estimating near-term cash flows. Investors interested
in R&D startups are most concerned about the management team and how it can
contribute to the success or failure of their portfolio companies. To ensure
that the entrepreneur hits specific milestones and reaps monetary rewards, deals
are structured in a way that allows entrepreneurs who hit specific milestones to
retain control. However, if they miss those milestones, investors may bring in
new management and change direction.
Noticeable Red Flags in the Industry
In our experience, as well as from the reference of similar startups, strategic
investors in various industries and sectors of high-demand R&D
(Aviation, Automotive, Healthcare, Civil Engineering, etc.) – we have managed
to gather insights on what are some of the main notions and practices to stay
away from – both as a firm, startup, investor or governmental body – in
order to have a successful R&D activity .
Ignoring the „primum non nocere“ – first, do no
harm. This classic medical definition smoothly slides in here too.
For the party providing the R&D service – it is
utterly important to not overdo, overcharge, focus on the specific part of the
solution while forgetting the bigger picture, or to accidentally create an
“ego of the idea” when the success of the idea becomes a higher priority
then the success of the project or a product.
For the investor, doing harm might be in the form of
micromanagement, a spreadsheet-based invasive approach, not distrust or
miscommunication with the engineers and scientists responsible for the R&D
project, pushing a solution over its limits, etc.
Here, we have an experience of the Customer Flow being longer and more
complex with especially big corporations, working with different processes, set
up business cultures, different time zones – makes our Startup ability for
fast delivery of difficult solutions – konger than anticipated. This often
contradicts the notion that time/resources battle are going to be agile when
working with a startup.
There are surely more examples of doing unnecessary harm, none of them have a
motive of harming the project, but the opposite – thus all the parties
involved should have expectation setting and checking to make sure they at
lease, are doing no harm to each other’s operations
The „Fast, the Cheap, and the Good“ concept is often
touted as the ideal way to approach any project. However, when it comes to
research and development (R&D), this concept is not applicable. This is
because R&D is a complex and multi-faceted process that requires a
significant investment of time, resources, and money.
In R&D activities, can hardly ever be the most critical factor. Instead,
it is essential to focus on accuracy and thoroughness to ensure that the
research is conducted properly and produces reliable results. Rushing through
the R&D process to achieve faster results can lead to a waste of resources
and potentially damage the involved parties’ reputations.
Similarly, R&D cannot be undertaken cheaply either. It requires
specialized equipment, and skilled personnel, and often involves extensive
testing and validation. Attempting to cut corners or skimp on resources can lead
to subpar results, which can hinder the success of the project in the
Lastly, R&D cannot always produce immediate results or guarantee that
the end product will be good. This is because the R&D process is often
iterative, requiring multiple rounds of testing, modifications, and
improvements. It takes time, effort, and resources to develop high-quality,
innovative products that meet the needs of customers
Complete and utter clarity of outcome: because R&D is
not usually Cheap or Fast the investing entity wants to know that the investment
will be successful, rightfully so of course, however, an investing entity should
also be mindful if a complex R&D provider gives complete guarantees over
outcomes of the Research and Development effort. The single conceptual
definition of research is the activity of finding an unknown, thus guaranteeing
an R&D outcome would have to come with a redefinition of the term Research
& Development, to the term Documentation & Development.
Our experience shows that cooperation in R&D is most successful with
clear definition of the goals, and often checking (and if necessary,
re-definition) of these goals – to make sure no resource is wasted, or often,
to make sure no resource is wasted any longer. The proper
expectation checking gives the opportunity to clarify or adapt the outcome on
To conclude, Investor relations (IR) initiatives play a significant role in
bridging the gap between management, R&D leadership, and shareholders, and
must continually strive to serve the interests of their organizations, as well
as shareholders. Effective IR requires transparency, consistency, and dialogue
that focuses on identifying gaps in perspectives and discussing them directly,
in a fact-based, well-supported manner.
No need to think of this in a framing of a strict, corporate,
milestone/spreadsheet-based approach, as the concept of Investor Relations
easily translates to a Startup with a team of 2, as well as to a scaleup with a
team of 50+ full-time employees. A n investor, especially one focused on
R&D is a ready for action one – coming in with high expectations not from
short-term low rewards, but for long-term big exits.
An R&D service provider, especially a startup – is looking for
strategically aware stakeholder, both internally and externally. A successful
one considered the needs of clients, the development of quality of their
services and the overall company growth (Investment Validation) into one
platform of high priority.
In our experience, this kind of transparency in strategies, and effective
solutions to their challenges is what motivates our strategic investors to
initiate their talks, further interest and eventually the secured
Vladimir holds position of Vice-Chairman of the Board of Directors at RVmagnetics. In his current role he’s responsible for Strategy, Business Development and Marketing activities of the company. During 18+ years of experience he held executive, strategy and business development roles in various B2B industries, led international sales teams and lived in Spain and Australia. With the background in finance, Vladimir’s interest is in deeptech, international startups, and industrial IOT.