How do VCs vet early stage startups?

Deep Dive

This month ZeroAvia announced a breakthrough development when it revealed successful initial tests of an oxygen compressor which forms an “integral part” of its hydrogen-electric propulsion system.

Founded in 2017, ZeroAvia has positioned itself as a leader in the H2 aviation sector with market entry planned for its ZA600 system planned for 2025/26.

But such a breakthrough may not have been realised had ZeroAvia not been identified and supported at a very early stage by Starburst Accelerator. The venture capital (VC) outfit has helped over 120 early-stage startups including Ampaire, Odys Aviation and Destinus. Benjamin Zeitoun, its former programme director and now investing partner at Starburst Ventures, their seed fund, tells us: “When investing at an early stage you are looking at usually two or three founders, that have a pitch deck, a breadth of experience and a lot of optimism.

“We look at who these people are, what have they achieved in their career or personal lives, what motivates them. It is mainly an evaluation of the people because the fact is there is not much of a company yet when we invest,” says Zeitoun.

“On the technical side, some of these startups already are able with limited funding, self-funding or no funding to build a prototype or attract very high calibre advisers too. It is very rare for us to invest in a group of founders with business-only backgrounds. There is generally a chief technical officer on the founding team,” he tells Revolution.Aero.

Startup angles 

Startups take different trajectories. Some start focused on being part of the value chain, like ZeroAvia, and when these companies find success they tend to grow. “The early goal of [ZeroAvia] was proving they could do aviation-grade powertrains from innovation that was realised in the automotive H2 fuel cell stack. Then as they matured, the business they got involved in was infrastructure. Not owning it but partnering and building IP over infrastructure. They also further verticalised, owning more of the H2 stack with the acquisition of HyPoint last year,” explains Zeitoun.

Then on the other side, you have companies that want to develop the whole show in-house. This is an angle, says Zeitoun. But it is far from the cheapest and simplest route. “The founders who manage to raise the funds to support such a riskier plan, potentially have more of a voice in the overall configuration of their technology and bigger control over the value creation.”

What is attracting investment?

Zeitoun says startups looking at hybrid-electric solutions are also attractive to investors. He believes companies such as Ampaire, a firm that realised developing a hybrid-electric system minimises investment needed in infrastructure. “This is probably the straightest path to market,” says Zeitoun. “A lot of commentators focus on how hard it is to certify a new aircraft and I think they’re right. But I think the biggest difficulty will be in how you find a network of partners and customers willing to invest in a completely new infrastructure for either charging or refuelling.” That is a very difficult problem that requires a lot of money and stakeholders to solve, he explains.

“That is why within this decade it is more probable that operators of the airframes Ampaire is targeting will adopt a hybrid-electric powertrain first. It is much less risk for a significant operating expenditure and carbon improvement” says Zeitoun. Firms like Ampaire propose a less capital intensive business to investors interested in backing the decarbonisation of aviation. “Most often, investors fund size and vintage will dictate the market size, timelines and amount of risk they undertake. While hybrid electric is the most immediate opportunity, there is also a lot of excitement behind hydrogen electric in the long term. 

“Maybe not as much as we see in the presentations of the Jobys of the world who want to create a whole new category of urban mobility. But I think it is a very good first step on the electrification of flight,” he adds.


The biggest problem generally in technology investing is timing, according to Zeitoun. “Do you believe the sky will be filled with drones in 10 years? The answer we often receive is ‘yes, probably’. But 10 years ago in 2013 when we asked that same question, people said: ‘Oh yes, it could be possible in 10 years.’ That was investors mistiming when regulations would allow these operations. Now this is finally coming to pass, a lot of the businesses models we saw in 2015 and 2016 are starting to pop back up again, carried by the few who survived. Informed with some of the good and bad decisions that have been made in terms of technology stack, business and how to bring that to the regulators.”

Zeitoun thinks we are going to see another wave of companies probably over the next two or three years as regulation on that subject matures. “It was the same for electric vehicles, it was the same for clean tech in the early ‘00s and I think it will be the same for electric (un)crewed aircraft,” Zeitoun concludes. “Who are the companies and investors who time it right? is really the only question that anyone should be asking.”

Venture capitalism, and tech investment especially, is a game of outliers. Getting timing, product and angle right is key to finding them. As  Marc Andreessen, general partner at venture capital firm Andreessen Horowitz says: “Raising venture capital is the easiest thing a startup founder is ever going to do.” Making it the investor’s job to work out which founders have the nouse to see it through.

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