Alberto Cresto, General Partner at Lunar Ventures, is an experienced startup investor who led +30 DeepTech deals across different verticals.

With extensive experience in strategic advisory roles, focusing on M&A and new business development within the technology sector, Alberto transitioned to venture capital. In today’s discussion with Alberto, he emphasizes:

• Why is Lunar Ventures investing in DeepTech startups?
• How is the team selecting the best deals possible?
• The role of technical expertise in the fund investment strategy
• Lessons learned from +30 deals.
• How should founders keep healthy equity ownership?
• And more that we invite you to explore below.

Let’s dive right in!

Who is Alberto Cresto & Lunar Ventures?

Alberto’s journey in venture capital started when the advisory firm he previously worked for launched a venture practice built from scratch. In this environment, he handled pre-seed and Series A investments and later worked on setting up a fund from corporate LPs from the semiconductor and electronics industries.

In 2018, seeking a more entrepreneurial path, he joined his partners in setting up Lunar Ventures.

“I met my current partners, and their project immediately resonated. Their mission?

Support technical founders. We could not find many technical investors in the European ecosystem. There was a blue ocean for a new type of venture capital company.

It took a few months for me to finally decide to join them because I wanted to get to know them personally. It was a big bet, and I wanted to make a conscious and thoughtful decision. In March 2019, I finally decided to pull the trigger.

Since then, I have worked on all the aspects of building a VC firm: fund structuring, making investments, hiring team members, managing our portfolio, and more. It’s a wonderful 360° experience and a rewarding journey under management from 0 to 40M.”

Lunar Ventures & DeepTech Funding

Lunar Ventures' dedicated focus on DeepTech is rooted in a keen understanding of the market gap in the venture capital landscape.

“The Lunar journey started in 2017, well before the “deeptech hype” of recent months, and went through the pain of ‘preaching in the desert’ when most stakeholders had to be educated on the deeptech opportunity.

The opportunity in the early-stage deep technology sector remains open, and no definitive leader has emerged. Our team brings relevant experience that founders and co-investor praise as Europe's most knowledgeable deeptech investor.”

Investment Thesis

Many VCs need more specialized technical expertise to go beyond low-tech specialties like MarTech or consumer-oriented ventures. This disparity often leaves intricate, research-driven, and engineering-focused projects that require more visibility.

For example, this discrepancy is evident across Europe compared to regions like California and Tel Aviv, where a prevalent pathway to VC traverses through tech companies.

Lunar Ventures recognized that this VC-founder mismatch generates a substantial market opportunity, especially in the pre-seed and seed stages when founders are yet to translate their ideas into revenue or tangible products.

“As a forward-thinking fund, we strive to stay ahead of the curve and recognize the need to continuously identify new greenfield opportunities at the forefront of the next major value-creating technologies. We have structured this process and made it available in Lunar’s State of the Future website.

This platform is now openly available online, with over 100 emerging trends we are monitoring, nearly 1,000 startups active in these verticals tracked, and interviews from world experts on these topics."

Lunar Ventures’ Selecting Criteria

Alberto Cresto and Lunar Ventures have developed a meticulous approach to identifying promising startups for their portfolio, driven by comprehensive criteria. As Alberto emphasizes, their ideal companies are those operated by founders who have firsthand experience with the challenges they're addressing, often within a company that could potentially be a customer for their solution.

Here’s what their ideal company and founder profile look like in more detail:

Ideal Company:

• We look for early-stage startups operating for less than twelve months or pre-incorporation.
• Team of 2-3 founders with technical expertise and one charismatic leader for market engagement. The Founders have unique insights coming from working in technology-heavy environments. They include a diverse and balanced founder skillset with no critical expertise gaps and have a cultural fit with technical users, extending to a broader target market.
• They focus on solving significant problems with revolutionary solutions.
• The team is working on a clear demo or credible plan to revolutionize R&D, and has a clear and compelling narrative outlining the potential to become a decacorn.
• Their burning priorities for capital are going to software development and R&D.
• Thrives in spaces where large incumbent industries don't dominate distribution.
• It has a fast execution capability, leveraging aligned scientific and technological tools.
• Possesses know-how or IP free from claims, addresses a significant problem, and has a capital-efficient path to market.

Ideal Founder:

• Passionate about solving a specific problem and envisions a transformative future.
• Founders have strong technical expertise from positions in leading tech companies or research.
• They have a strong network with potential co-founders, hires, and community evangelists.
• Displays extreme dedication and resilience, overcoming challenges.
• They show full dedication to the company without side hustles.

Alberto and his team are particularly interested in founders whose ambitious visions resonate with Lunar Ventures' strategic outlook. It involves finding founders who possess the capability to foresee the future landscape and who can bridge their visionary foresight with Lunar Ventures' dedication to influencing that future via well-planned investments.

Success Stories From Lunar’s Portfolio

Deepset: Revolutionizing Enterprise LLM Applications

Deepset is a notable success story in Lunar Ventures' portfolio, heralding a transformative approach to enterprise natural language processing.

“OpenAI’s ChatGPT (10b+ in funding from Microsoft) and now Google’s Bard and others have demonstrated LLMs' tremendous value and potential for natural language processing.

Deepset has developed the industry standard platform for enterprise LLMs and ChatGPT-like use cases as a commercial open-source software framework. deepest empowers enterprises to build, deploy, and manage LLM applications trained on their proprietary data and customized to their enterprise processes.

The team has been developing the product since 2018 and has dozens of Fortune 500 enterprise clients in production. Google Ventures also supported the company by investing a large ticket, and deepset just raised a new $30M round from Balderton Capital."

Zama: Unlocking Data Privacy for Machine Learning

Zama has a new approach to preserving data privacy while enabling machine learning applications to analyze data. This innovation empowers companies to analyze encrypted data, eliminating privacy concerns that previously limited the use of cloud-based solutions and machine learning.

“The big data revolution has created an economy valued in the $Ts (with Google, Facebook, and Amazon leading the way for hundreds more). However, 99% of data remains unused due to privacy and confidentiality concerns.

Zama is the world pioneer in allowing Machine Learning to analyze data without compromising its confidentiality. With a team of 34 PhDs and cutting-edge progress in encrypted data analysis, Zama found its market and emerged as the global standard for this encryption.

It allows a company to hand over its data in encrypted form to a third party, run any analyses, and receive back an encrypted output (that can be decrypted with the same password used for the data).

Zama holds the potential to 10x the usage and adoption of cloud and machine learning.”

Molecule: Catalyzing Drug Discovery with Decentralization

Molecule's innovative approach to financing and coordinating drug discovery efforts has earned its place as a standout success in Lunar Ventures' portfolio. This forward-thinking approach to reshaping drug discovery funding aligns perfectly with Lunar Ventures' ethos of supporting transformative solutions.

“Drug discovery has taken massive strides over the past decades, but the structure of the pharma industry leaves many diseases and conditions severely underserved. Many highly detrimental conditions, such as Crohn's disease, Parkinson’s, and more, suffer from a lack of funding, hindering the development of treatments and cures.

Molecule uses decentralized approaches to build and grow communities and directs these communities' attention to financing projects to develop new cures. Community members invest in molecule IP using novel applications of cryptographic tokens and legal and regulatory frameworks.

The projects received endorsement and funding from global pharma companies and influential figures such as **Ethereum's founder — Vitalik Buterin.**”

Hathora: Elevating Multiplayer Gaming with Serverless Cloud Hosting

Hathora's success story within Lunar Ventures' portfolio showcases the fund's ability to identify game-changing innovations in the gaming industry. Hathora Cloud's serverless cloud hosting solution addresses the complex technical challenges of multiplayer game development.

“The gaming industry is massive, raking in nearly $400 billion in global revenues annually, and it's still on the rise. However, creating games is tough, especially regarding multiplayer experiences.

Players nowadays demand top-notch quality, and that's where the challenge lies. Developing multiplayer games that work seamlessly in real-time, handling delays and synchronization, is complex and time-consuming.

Think about it – many multiplayer games in the past faced big problems with how well they handled a surge of players, not just when they launched but even afterward. It directly impacts how well these games did financially and even the reputation of the companies that made them."

Understanding Your Company Structure & How to Give Equity

1. Don't give away too much too soon

“I often see founders making a crucial mistake in the early stages of their company by giving away too big a portion of their ownership for a small amount of money.

It’s because they underestimate the future capital needs of their company, assuming a continuous upward trajectory toward IPO. While optimism is essential, the reality is that the path to success is often not as straightforward.”

Alberto advises founders to maintain a cautious approach to equity distribution, ensuring they keep appropriate ownership at each funding round. So they can safeguard against potential pitfalls.

2. Always keep your equity in check

Alberto and his team also recommend that founders target to save as much equity as possible from their company, especially as it matures.

“A good rule of thumb is to ensure founders collectively hold at least 51% of the company post-Series A. It ensures they retain control and have a substantial stake as the company grows.

On average, historically, founders have held about 10-15% of their company pre-IPO, even after raising significant amounts of capital. So, starting from that 51% watermark post-Series A and planning to give up around 15-20% in each subsequent round can help maintain a healthy ownership structure."

3. Know what makes a fair deal for your investors.

The following important element Alberto highlighted is understanding what makes a fair deal and what this looks like in market-acceptable terms.

“Often, founders are at a disadvantage due to the information asymmetry – while investors like me are involved in numerous transactions annually, founders might only be engaged in a handful over the years.

This lack of experience can lead to less-than-optimal deals for them. Founders must proactively educate themselves about market standards and terms before making decisions impacting their ownership.

So, they can avoid giving away too much of their company early on and maintain the motivation and alignment of interest from meaningful ownership.”

Resources mentioned in the discussion:

Connect with Alberto:

• Linkedin
• Lunar Ventures

Others:

• Deepset
• Zama
• Molecule
• Hathora