Don't Build a Better Wheat Farm: Why Defensibility Stakes Are Higher in Deep Tech
Eric Ver Ploeg from Tunitas Ventures' take on startup strategy and defensibility is one of the more thoughtful pieces on early-stage VC investing I've read recently.
Eric wrote:
“Startup Strategy: Please Don’t Grow Wheat
In my view, the second most important thing to get right in the creation of a startup’s strategy, after “make something people want,” is to have defensibility built into the business model itself. I believe this is particularly true in Vertical AI (or "Full Stack AI" or "Service as Software," or whatever you want to call it). But, founders generally don’t think about this in advance, or end up only paying lip service to the topic.
Commoditization More Obvious After the Fact
The high level pitch behind many startup businesses is largely indistinguishable from that of being a wheat farmer:
• Proven gigantic TAM
• Incumbents are old and slow moving
• Market will continue to grow into the future
• Our team has deep domain knowledge
When the proposed product is wheat, the concern regarding the making of a commodity makes it obviously unattractive from a venture-backed startup perspective. But, when the offering is a startup’s new software product rather than wheat, founders usually fail to consider the fact the future competitive landscape might look very different from what it does at the outset. Perhaps this is because a future commoditized industry is less obvious than a current commodity industry. Or, maybe the prime directive of meeting market need is so consuming that it pushes out secondary considerations like business model defensibility. In some cases, founders may be under the mistaken belief that defensibility can be added later on, after product-market fit is established.
Defensibility
Only a small fraction of startup founders have given meaningful thought to the long term defensibility of their startup’s business model. Rarer still is are the founders who have embraced what Clay Christensen called "targeting non-consumption." Often a founder will claim a strong moat via one mechanism or another, but when I ask about the mechanism(s) from a first principles perspective, the responses are usually superficial sound bites that don’t reflect any true understanding of, nor commitment to, the strategy underlying the defensibility mechanism.
An error that I have made as an investor, is to hear an entrepreneur articulate a source of defensibility that I fall in love with, but one the entrepreneur isn’t truly committed to. I think the mechanism should work, and that the founders have uncovered a truly great insight. But, that may only be in my head, not in the entrepreneurs' heads, and the entrepreneurs may or may not have any real commitment to that aspect of their business. The entrepreneurs may have come up with a good sound bite to help with the proximate goal of raising money, but it is critical that the founders have embraced the importance of taking the required steps to build/capitalize on that defensibility mechanism.
It is a rare combination to find a founding team who is building a truly category creating company and has figured out a business model that will defend their market position from future potential market entrants. Yes, the world consumes a lot of wheat, but that doesn't make being a wheat farmer an attractive business for venture backing.” - Eric Ver Ploeg, Tunitas Ventures
Looking from a Deep Tech Perspective:
Eric's insights resonate strongly from a deep tech perspective, though the dynamics can be even more nuanced. While Eric focuses primarily on software, his core thesis about category creators applies broadly. In deep tech, there's an additional wrinkle: sometimes the category creators pave the way for the true winners. Think about how early solar panel innovators established the market, but companies like First Solar ultimately dominated through manufacturing scale and cost advantages. The lesson on long-term defensibility remains critical.
The Deep Tech Angle
Eric's framework hits differently when viewed through a deep tech lens, where the stakes around defensibility are often higher and the decisions more irreversible.
The Short-Term Trap
Like Eric, I've met founders with brilliant defensibility insights who abandon them for quick wins. One alternative protein startup had a plan to lock down unique, hard-to-access suppliers - a genuine moat. Instead, they pivoted to retail branding. While this worked initially, building brands is expensive and time-consuming, and left those valuable suppliers open to exclusive deals with competitors.
Deep Tech's Defensibility Imperative
Eric's point about defensibility being hard to add later is especially true in deep tech. Unlike software startups that might find defensibility paths post-PMF, deep tech founders must commit early - their first funding rounds depend on it. Once key technologies are published in patents, strategic pivots become nearly impossible.
At Future Frontier Capital, we see this daily: the most crucial early decision isn't just technical risk or fundraising strategy, but crafting your IP defensibility strategy. Should core innovations be patented for 20-year exclusivity, or kept as trade secrets for potentially indefinite protection? The answer depends on reverse-engineering risk, manufacturing complexity, detectability of infringement, and competitive dynamics. Patent prematurely, and you've locked yourself into a specific strategic path while telegraphing your approach to competitors. Keep the wrong things secret, and competitors may independently develop and patent around you.
The Picks and Shovels Play
Eric's wheat analogy extends beautifully to deep tech. Many startups end up providing the "picks and shovels" - think robotic combine harvesters or batteries that electrify farming operations. These tools can generate enormous profits by making commodity production more efficient. But without defensibility, even the best shovel makers become commodities themselves.
The lesson remains: build your moat from day one, or risk becoming wheat.
No matter what you do, remember to ignore the confusion!
This post was written with support from Claude.ai and pictures were generated in MidJourney
Thank you to Eric Ver Ploeg from Tunitas Ventures for agreeing to let me build on his interesting thesis.