From working prototype to working business: the Series B challenge
A working prototype is a real achievement. It can also create a misleading sense of how much of the journey is complete. Series B planning should make the transition to repeatable commercial delivery explicit — and cost it honestly.
Written by Dr Gareth Mills, fractional COO and board adviser, GJM Consultants.
A working prototype is a significant achievement. It can represent years of research, difficult engineering decisions and considerable personal commitment. For a hardware or deep tech company approaching Series B, it can also create a misleading sense of how much of the journey is complete.
The team may have demonstrated the technology and delivered its first customer installations. Yet fulfilling the next wave of customer commitments can require a business that operates very differently from the one that proved the concept.
My view is that Series B planning should make that transition explicit. The investment case needs to explain how the company will turn technical progress into repeatable commercial delivery, and what it will cost to develop that capability.
There is no universal timetable. Some deep tech companies will use Series B to fund further technical development or pilots. Bessemer Venture Partners has highlighted how widely engineering challenges and commercialisation measures vary across deep tech sectors. The relevant test is whether the business can support the commitments attached to its raise, with a credible plan for closing the remaining gaps.
What business are we actually building?
That plan starts with a decision that deserves more attention than it sometimes receives: what business are we actually building? Selling a complete system, supplying a critical subsystem, licensing intellectual property and providing equipment as a service create different operational requirements. Each changes the capabilities the company needs, the customer relationship it must manage and the capital it must commit.
A business selling complete equipment may need installation, maintenance and field support. A company supplying technology through an established partner needs to define the integration work, responsibilities and commercial arrangements between them. Those decisions should shape the organisation and its investment priorities. Hiring a production team or taking on a facility before the model is clear can create expensive commitments that are difficult to unwind.
Manufacturing readiness needs its own evidence
The same clarity is needed when judging product maturity. A prototype may have been assembled by the people who designed it, using selected components and repeated adjustments. That can be entirely appropriate during development. It also means a successful demonstration tells us relatively little about whether another team can build the same product consistently from controlled information.
The US Government Accountability Office has examined the value of assessing manufacturing risks and process capability before production commitments. For a growing hardware company, I would translate that principle into practical questions about build repeatability, test results, supplier capability and the work still required to release a product for its intended market.
Early builds should produce useful learning. Assembly time, first pass test results, rework and component failures should influence the design, cost model and production plan. A build that eventually passes inspection after extensive engineering intervention has taught the business something important. The forecast needs to reflect that learning.
Pilots should test commercial assumptions, not just technology
Customer pilots deserve similar scrutiny. An early customer may accept additional support, frequent updates or a bespoke configuration because they value access to the technology. The next customer may expect a standard product, a firm delivery date and straightforward installation. A pilot should therefore test commercial assumptions as well as technical performance, including acceptance criteria, deployment effort and the customer's willingness to pay for the intended offer.
This matters particularly when the sales forecast assumes that each new order will become easier to deliver. If every installation needs substantial engineering work, the business must decide which requirements will become standard, which will be charged separately and which opportunities it should decline. Otherwise, apparently attractive sales can consume the capacity needed to develop a repeatable product.
Challenge the economics, line by line
The economics need the same level of challenge. A bill of materials is a useful starting point, but the cost of delivering a product also includes assembly, testing and losses through scrap or rework. Understanding the wider customer economics requires visibility of freight, installation, warranty and support. The accounting treatment may differ; the cash and resource demands still need to be understood.
I would challenge any forecast in which margins improve simply because volumes increase. What specifically causes the improvement? A redesign may reduce assembly time. Higher purchasing commitments may secure better prices. Better test coverage may reduce field failures. Each assumption needs an owner, a cost and a realistic date, with evidence showing whether the expected improvement is achievable.
An expensive pilot or an initial production loss can be a deliberate investment in learning. The board should understand what that spending is expected to prove and what would justify the next commitment. It should also be able to see what happens if the anticipated cost reduction arrives later than planned.
Good margins can still come with a large funding requirement
Even an attractive product margin can sit alongside a substantial funding requirement. As a simple illustration, procuring materials costing £50,000 for each of 30 systems requires £1.5 million if those materials must be paid for before customer receipts arrive. That excludes payroll, testing, facilities and other costs. Customer deposits, supplier credit and staged purchasing can change the requirement considerably.
This is why I want procurement, production and customer payment assumptions connected in the same plan. A delay in customer acceptance can extend the period for which the business must finance a system. Faster sales can also increase the amount of cash committed before customers pay. The funding case should show the timing of these demands, including a realistic delay scenario.
Outsourcing still requires a capable customer organisation
Outsourcing can provide access to capabilities and capacity that would take significant time and capital to establish internally. It still requires a capable customer organisation. Someone must define the product and acceptance requirements, control changes, understand the cost structure and manage supplier performance. Those responsibilities need named owners inside the business.
A partner's available floor space is only one input to a capacity plan. Test equipment, component availability or specialist engineering support may determine the actual delivery rate. The plan should show how many acceptable units the proposed process can deliver over a sustained period, and what must change to reach the next rate.
The decisions meet at the boundaries between functions
These issues meet at the boundaries between functions. A customer requirement agreed by sales affects the engineering design and the materials procurement must commit to. Operations has to schedule delivery against those decisions, while finance plans the cash and the support team prepares to maintain the installed product. A change at the beginning can affect every subsequent decision.
The company needs a reliable way to make those decisions together. That means clear authority over customer commitments and design changes, shared information about demand and capacity, and timely escalation when assumptions change. Enterprise resource planning systems can support this as complexity grows, provided the underlying processes, data and ownership are sound.
For me, this is a central part of the COO's contribution. It involves connecting the commercial ambition to the people, partners and operating capability required to deliver it. The founder and technical team should retain room to solve difficult problems, while routine delivery becomes progressively less dependent on their personal intervention.
Build the plan around the evidence the next decisions need
I would therefore build the operational element of a Series B plan around the evidence required for the next major decisions. Before increasing production, what must the pilot demonstrate? Before committing to a larger facility, what demand and capacity assumptions must be validated? Before entering another market, what delivery and support capability must be in place? The answers should drive hiring, spending and milestones.
The business does not need every future capability in place before it raises. It does need to know what it is buying with the capital, which dependencies could delay the plan and who is accountable for resolving them. A milestone such as appointing a manufacturing partner becomes more useful when it specifies the capability and delivery rate that partnership must establish.
Before signing off a Series B plan, I would ask the leadership team to describe the business it expects to be running at the end of the funding period. Which customers can it serve reliably? What can it deliver without exceptional intervention? How much cash does delivery require? The investment plan should make the route to those answers visible, alongside the technology that makes the opportunity possible.
Sources
Bessemer Venture Partners, State of Deep Tech, 14 June 2023.
US Government Accountability Office, Manufacturing readiness report GAO-10-439, 22 April 2010.
If this is a live problem in your business rather than a reading topic, start a confidential conversation.