Recently, we had the chance to talk to Pearse Coyle of Deeptech Seed Fund out of Dublin.
Pearse has been the founding CEO, first investor or first head of sales in 11 tech ventures, 6 of which have gone on to scale and/or successful exit. Deeptech Seed Fund invests early in new ventures that have achieved a significant breakthrough in technology/science and now wish to exploit a global commercial opportunity.
Deeptech made its first investment in Qoitech AB – “after a great start as part of Sony Mobile Communications – it spun out to become an independent company with a €500,000 investment from Deeptech Seed Fund, who led the round, and Mikael Ahlström, Swedish entrepreneur and investor.”
How did you get involved Investing?
In 1999 a couple of guys in University College Dublin asked my advice as to whether or not they should do a spin-out company. I asked them how much interest there was in what they were doing and I accompanied them to meetings with some of their commercial research partners – Marconi and Ericsson. When I saw how interested those companies were I urged them to spin-out, which they did. I invested and it became Intune Networks, which went on to raise $100 million more. As an angel investor, I did a few more investments – with the same market-led due diligence – and overall I 6-folded my cash before going all-in on my own next venture and losing it!
How does your experience as a former founder, drive your investment philosophy?
Primarily it gives me respect and empathy for founders. I really hope I can retain that as time passes. This is a long-game and I want all founders who deal with me to go away with something of value – even it is a well-thought-out and explained rejection. I get angry when I remember some of the disrespect with which some VCs dealt with me in the past and I never want anyone to feel that way towards me or Deeptech Seed Fund.
What areas does Deeptech Seed Fund focus on?
Firstly understand that by deeptech we mean Intellectual Property(IP)-led ventures as opposed to execution-led ones. By this we mean that the founder has some really special IP begin with – they are setting off to a knife-fight with a gun. Then stage-wise we are very early, pre-product but with early signs of revenue i.e. customer at least willing to pay for a trial/prototype or something like that. Sector-wise we are somewhat contrarian and are avoiding over-valued areas that others will list off readily – AR/VR, blockchain, etc. Instead, we are seeking out unglamorous B2B non-life-sciences areas where there is tangible commercial interest. Our big “trick” is that we are enabling ourselves to invest in IP that we do not understand by measuring the level of financial commitment that potential customers are willing to make.
What do you look for in a founder?
We’re unusual in this regard in that we are willing to fund a seed-round even though the venture may not yet have a full-time commercial leader. We’re focused on the ability of the founder to lead the period that we are funding – which is often mostly about further technical development. So, what we must have is:
- Full-time commitment. I’ve seen too many thinly-stretched academics fail to make progress.
- Credibility with peer-experts. At the early stage, it is about establishing that you do have global IP-leadership and this is typically done by interacting with the experts in the potential client companies.
What are the differences between seed funding and other rounds?
Seed funding gets ventures started and is something of a leap of faith. It’s the first money in. Every subsequent round is progressing the venture to some degree. By the A round, there should be some solid evidence that the business is actually viable and merits scaling.
If you could change one thing in venture capital, what would it be?
Probably make it all ex-founder-run, as opposed to financier-run – but I would say that wouldn’t I?
What do you think is the most over-hyped technology?
Blockchain/crypto – by a country mile.
How important is an EU wide startup community?
It’s important and largely absent. In particular, founders living in smaller cities and in countries without good access to venture capital are at a big disadvantage.
What advice would you offer startups about approaching investors?
Three main things:
- Do your homework – most firms state fairly clearly what stage (e.g. Seed, Series A, Series B, etc.) they invest in and what sectors they like. They will sometimes look at other sectors but they will rarely invest in stages other than those that they have stated.
- Focus on the evidence, particularly in regard to evidence of demand for your offering. It’s easy to come up with evidence of market size for anything. What’s harder to show is that people have indicated that they are (or will be) willing to buy from you.
- Describe how your first, second and third sales will be made. Lot’s of people present evidence of the size of their potential market and then show Year 2 and Year 3 revenue estimates which look credible because they are tiny percentages of some huge market. Where they fall down is that they do not show how they begin to get any revenue and often thus reveal that they do not know how to.
How do startups create FOMO (Fear of Missing Out) urgency in their pitches?
By saying that this is going to happen anyway, regardless of investment – even if that is only barely possible – “We can live in poverty and bootstrap this from early revenue but we can go a lot faster with some investment capital”.
- That there is a real opportunity
Check us out on the web and get in touch if your venture meets the criteria, if you’re a potential LP in a future fund or if you’re a later-stage deeptech VC looking for deal flow.