Future Fundamentals

Quantifiable Disruption and Unit Economics as the Basis for Venture Investing in Operationally and Capital Intensive Businesses

Future Fundamentals

Venture investing in operationally and/or capital-intensive businesses requires a different foundation than traditional software or consumer models. At Logos, we use a simple, two-pillar framework for scalable disruption called Future Fundamentals. These pillars are: Quantifiable Value and Unit Economics. Together, they inform our evaluation of opportunities and our work with portfolio companies.

Quantifiable Value

Disruption starts with the delivery of superior value. We view Value = Quality / Cost, measured against incumbents and alternatives.

• Cost – Is the solution outright cheaper, or does it lower the total cost of ownership (upfront investment, ongoing spend, working capital, etc.)?

• Quality – Domain and product specific attributes such as throughput, efficiency, speed, yield, durability, uptime, precision, repeatability, resolution, ease of use, and/or safety. Identifying the most important product quality element(s) is an essential part of the analysis.

We group quality-over-cost advantages into three bands:

SpaceX’s drop in launch cost, Illumina’s reduction in genome sequencing cost, and NVIDIA’s GPU order-of-magnitude better performance per dollar than CPUs all reset industry baselines and ignited markets. Step-change gains, like Tesla’s three-fold reduction in EV sticker price or Astranis’ five-fold cheaper satellites, drive market capture. Incremental gains such as Wolfspeed’s modest EV range bump, Redwood Materials’ estimated 30 percent materials cost reduction, and Desktop Metal’s savings on niche parts have struggled to achieve material market penetration.

To achieve venture-scale growth, a business must deliver value that clearly outweighs the frictions of adoption. While value compared to alternatives is critical, the solution must also target a critical point in the customer’s business, either a primary economic lever or an operational bottleneck – a principle we call process centrality. When strong value is applied at critical choke points, it creates the urgency required for rapid adoption and scale.

Unit Economics

The excitement around capital-intensive businesses has obscured the fact that only those with exceptional capital efficiency can generate venture returns. When each dollar deployed drives disproportionate incremental growth, promising technologies become enduring businesses.

To assess capital efficiency, we look at the fully loaded unit economics of a solution which includes:

• Defining the unit of production (e.g. device, job, customer, site, geography, etc.)

• Determining the revenue per unit

• Attributing all costs to delivering a unit

  • Direct variable costs

  • Amortized fixed asset costs

  • Allocated fixed operational overhead

Strong unit economics drive attractive returns to equity, both in unlevered and levered contexts. They need not exist at inception, but must be reasonably attainable as the business grows. Ideally, fully loaded unit economics should be predictable and demonstrate a path towards 50%+ margins. This enables rapid (<2 years) capital recycling and supports non-linear scaling. Predictable economics also unlocks the potential for financing that further accelerates the cycle times of equity capital. Margins above 30% can still be viable, but often require more equity and lead to greater early-investor dilution.

Understanding both the path and the destination of an economic model is essential. The journey from early unit costs to at-scale economics often follows Wright’s Law, with costs falling and quality improving as cumulative production grows.[1]

Three questions frame scalability: Where is the company on its development curve? How far and how quickly can it move along the curve? Which levers, such as innovation or process advantage, will drive that progress?

Other Considerations

Quantifiable Value and Unit Economics do not live in isolation. Greater value creation accelerates adoption, shortens the sales cycle, lowers CAC, and increases the share of value captured.

Even when a company appears disruptive, there are additional dynamics that separate mediocre businesses from great ones.

Understanding the True Benchmark

A common mistake is benchmarking solutions against the replacement cost of existing systems. The correct comparison is often the marginal cost of the installed base, not the replacement cost. Ignoring this can create the illusion of cost advantage when the solution is uncompetitive. Asset replacement cycles, the useful life of existing systems, and the switching costs or residual value will define the adoption window and inform how the product should be priced relative to incumbent options.

Commodities and the Supply Curve

When a company produces a commodity, long-term defensibility and margin potential rest on being the lowest-cost producer. Competing purely on price typically requires durable cost advantages driven by scale, supply chain efficiency, process innovation, or access to advantaged resources. A strong cost position relative to peers allows a company to stay profitable even in down cycles. On the wrong side of the supply curve, the market sets the price, not the company.

If durable cost leadership is unattainable, the only viable alternative is defensible differentiation. This can come from product features that customers care about, such as superior reliability, lower maintenance needs, faster delivery times, or better integration with existing systems. At Logos, this is a critical part of our assessment of energy investments.

Vertical Integration and the Jobs to be Done

A common failure is to mistake a novel technology for a business model. A breakthrough creates outsized value only when applied to a meaningful profit pool, the point in the value chain where the majority of margin is captured. Branded products, critical components, manufacturers with limited supply, or specialized capabilities often extract outsized margins. We assess:

- Where profit pools live in an industry and how they might shift with the introduction of disruptive technology

- What jobs need to be done to deliver and capture value, and decide where the business must integrate or outsource

The goal is to maximize profitability. Sometimes that means taking on more operational responsibility to ensure performance, utilization, or customer ownership. Other times it means resisting the urge to over-build. This is an ROI question where the incremental investment and effort must be compared to the incremental economics captured by integrating another job/part of the value chain.

Future Fundamentals

Future Fundamentals is not a rigid formula but an operating lens. At Logos, we rely on it twice: first, to assess opportunities during diligence; and again, to engage the founders we back. The framework surfaces the economic and technical levers that determine whether a company can scale in capital‑intensive, real‑world sectors. Hardwiring these fundamentals early helps founders avoid costly course corrections as growth accelerates.

Logos

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[1] Nagy, B., Farmer, J. D., Bui, Q. M., & Trancik, J. E. (2013). Statistical Basis for Predicting Technological Progress. PLoS ONE, 8(2), e52669. https://doi.org/10.1371/journal.pone.0052669

h/t Roxanne Tully Baine and Claire Goldsmith