Schrödinger’s Mongrel (and pricing equity in early-stage deep-tech)

I’m one of those annoying people that thinks Schrodinger’s Cat is an apt substrate for pretty much any old mixed metaphor that I can drag in. Apologies in advance.

It’s an age old question – how do you support valuation, at the point of seeking investment in a tech company that has zero, or very little, revenue, but shows exceptional promise. The reason it’s an old question is because it’s hard to answer, but here’s a clunky stab. The exceptional promise/ the pot of gold/ the cat is either alive or dead – which of these states it is in has simply yet to have been observed. It hasn’t been observed yet because we perceive time in a linear manner, but to a super-dimensional observer, the cat is, right here and now in spacetime – either alive or dead.

The mission for the entrepreneur looking for a strong valuation is to ensure that the likelihood is that it is alive. To put it another way, the business leader destined to chaperone the cat into the future, must be able to demonstrate to investors that the path through the fog-shrouded woods towards the goal, is well understood; that all the threats along the way have been considered, strategized and mitigated long before they jump out; and that the cat’s future wellbeing is a natural product of the work that has already been done to plan and manage risk. Risk in this context can be conceived of as existing on a series of spectrums such as technology, scaling, market, economic, investment, counterparty etc. An investor looking to push back on a valuation will generally be doing so by applying risk multipliers. Sound strategic commercialisation seeks to manage future risk through today’s action by pushing these spectrums ever closer to proven.

Good commercialisation therefore drives valuation, because it drives down risk. Bad or non-existent commercialisation is akin to leaving the future to chance. To put it another way, curiosity may actually save the cat…

Regardless of the state of the cat, I fully acknowledge that the metaphor is now as dead as a parrot.