E263 | EUVC | 2023 in Review with Chris Wade, Founding partner of Isomer Capital

0:00Hello, everyone, and welcome to this very special UVC podcast episode. I'm David, one of the two co-founders of UVC who you've come to know and hopefully love over the last three years. Yes, three years. It's now more than three years since the first UVC podcast saw, the episode saw the light of day. So to all of you listening and in the spirit of the holidays, a heartfelt thank you for supporting us in building UVC as a force to be reckoned in European venture. Today, I am joined by our dear friend, Chris Wade. Chris Wade is one of the co-founders of Isomer Capital and a usual suspect at the OVC podcast.

0:38Chris, I'm certain most of our listeners know you already, but for those who haven't had the pleasure of meeting you yet or who are new to venture, would you give us a very brief introduction? Well, first of all, congratulations on three years. It only feels like 30. Thank you. That's wonderful. And being serious for a minute, you have brought a new dynamic to venture. You're an important part of the ecosystem. My name is Chris Wade. The very simple story is I started out in big companies, building telephone networks around the world, graduated to becoming an entrepreneur in the late 90s in Cambridge, and built mobile technology companies and essentially went through what most entrepreneurs go through is that everything that can go right with a company and everything that can go wrong with a company.

1:35We were never sued, by the way. So that's the one thing we're yet to have happen to us. And after successfully selling that company, I did a lot of angel investments, trying to understand this sort of repeatable pattern of success. I'll let you know when I get there. And then became a venture capitalist. And then in 2014, met the wonderful Joe Shorge, and we started Isomer Capital. Isomer Capital is about creating more funding and capital for Europe's finest and most brilliant entrepreneurs and those entrepreneurs can be VCs or they can be technology companies, business model companies, but they're all uniquely wonderful.

2:27Thank you for that, Chris. And I truly hope that you never get sued, but if it comes to that, I'm sure you're well-equipped to manage the intricacies of that. And to any listener, we've had Chris a few times on the pod. Feel free to check it out. If you love our show, you know what to do. drop us a review, follow the pod and subscribe at EU.VC.

3:14new beginnings. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Today, as we stand at the end of 2023, let's journey back to a moment not so distant in our memories. And that's December 30th, 2022. Let's all picture a typical winter's day. Streets lit up with festive decorations and the world on the cusp of a new year. It was a day marked by significant events that resonated across the globe. The news was abuzz with the passing of Brazilian football legend Pelé, whose skill and charisma had enchanted fans worldwide.

3:54In the world of cinema, Avatar, The Way of Water made headlines, reaching a monumental box office milestone. And in the fashion industry, the loss of British icon Vivienne Westwood was being felt deeply as she left behind a legacy of bold, pioneering designs and activism. But also on that very same day, December 30th, 2022, we at EUVC explored various topics that have since shaped our industry in a memorable episode with Chris and other great guests where we looked back at the year and reflected on the state of venture. Chris, in that episode, you talked about the resilience in technology and venture capital saying, and I quote here, when sentiment is positive, everything in our business becomes possible.

4:36I love that quote, by the way. And I think I speak for many when I say that the sentiment became a beacon for many of us as we navigated 2022. In that episode, we also discussed the breakthrough in fusion energy at Lawrence Livermore National Laboratory. You described it, Chris, as a step towards boundless and clean energy. Our conversation then took a bit more solemn turn when we reflected on the impact of the Ukraine war, the human cost, the economic repercussions, and you reminded us. It's a sobering reminder of our interconnected world. I believe it was a moment that grounded us in the reality of our global challenges.

5:12Yet, amidst these reflections, we also recognize the emergence of the incredible potential of AI and ChatGBT. And before we start this episode and go over a new review and attempt to wrap up 2023, Chris, I'd love to know what you think of when you hear this and reflect on what we said back in 30th December 2022? Well, largely, I believe everything that we said. I mean, in essence, it was a reflection on a year that passed. So it's a historical statement. What we now know 12 months later is that sentiment has remained with European venture and that entrepreneurs have done remarkable jobs keeping their companies alive, building their companies where the markets have changed.

6:05VCs have adapted significantly because they understand that they are building something for the future. What essentially venture capital is, at its core, is a bet on the future. And so how we think about the future, will there one day be boundless amounts of energy from nuclear fusion? Will we understand the fabric of time and space with telescopes like the James Webb? Will medical breakthroughs continue apace? And what we talked about was this fact that entrepreneurship had come into the medical world because they had to, And this age-old statement that mother is the invention, and I've got that wrong again, I did it wrong last time, is necessity is the mother of invention.

7:02And that is absolutely critical. Now, many may have lost their jobs during the last 12 months, and I hope you have all found new jobs. This is a difficult time. I don't want to underestimate the difficulty. But as we'll talk about a little bit later on, what is so interesting is we are now closer to the day where startups are no longer something that is in a hidden economic valley of its own. It's fundamental to our society. It's fundamental to the survival of the planet. And it is fundamental to our financial well-being. startups are becoming our economy. So Chris, I want to come back to this beautiful quote of when sentiment is really positive, everything in our business becomes possible.

8:00With this in mind, and before asking you to reflect on 23, why do you personally believe that this exercise of going through the past year and reflecting on the sentiment of the market and industry, why do you think it's so important? And how does that inform you personally on investor behavior, market dynamics, the state of venture? Well, as I just mentioned, venture capital is about betting on the future. And sentiment is about a belief system of the future. That might be a future stock price. It might be a future company. It might be the direction of travel of a certain industry. But if you have a belief system that something good is going to come out of that, then anything is possible.

8:54I recently said that if you find an impossible mission and you would like to invest, but you don't know quite what to do with it, then find a possible founder and then invest. because this is what the remarkable things that people are doing, and we'll talk about some of them in our notes. There is no industry that is not being affected in a positive way by startups. I mean, the most wonderful thing which we'll talk about is space. Who on earth thought that new rocket engines would be created by startups, that removing space debris by going up and synchronizing with stuff that's hurling at hundreds of thousands of miles an hour and grabbing it and taking it to a lower orbit so it burns up would be done by a startup.

9:53But they are, and that is the most remarkable thing. And it's why I say, if you have positive sentiment, then anything is possible. So if we are to start with a very macro question here, Chris, I won't ask you what's your sentiment like because you are a VCA and you are kind of by default optimistic. But what are the main factors that you're seeing today that are kind of affecting your view of the future, your view of 2024? Well, let's just say a few things about the market, the capital markets. there are many people far more experienced and expert than I to talk about this. But how do we see it?

10:41We see the IPO market gradually becoming open again. But the quality bar is extremely high. We will, unfortunately, go back to 2021 levels, which was the same as 22 ,000 levels. Whether that's in 10 years or 20 years, we will find out. But right now, having a sensible set of metrics and quality of company going to IPO is a good thing. The one thing that I'm quite bullish on is that as we start to see the interest rates starting to turn the corner downwards, I believe corporates are going to be really ramping up their new products, their new businesses, which just means lots of more M &A for startups in our portfolio VCs.

11:39And I'm quite optimistic that that will happen. And there's some reasons for that, which we'll talk about a little bit later on. Yeah, very exciting. And so I guess it's fair to say that's one of the major highlights from Chris Wainter 2024. at least one of the main expectations and things you're excited about. Anything else you want to mention, Chris, before we deep dive? No, I think I'm good. So I think I want to kick this off by revisiting a powerful statement you made last year again. So when reflecting on the Ukraine conflict, you said, it's a sobering reminder of our interconnected world.

12:19and this sentiment I think is especially relevant when considering the geopolitical landscape of 2023. Tensions in regions like Ukraine and the Middle East particularly the Israeli-Palestinian situation not only shape global politics but they also actually really influence the VC ecosystem. These conflicts in my view underscore the need for a nuanced approach in how VCs operate in their investment strategies and acknowledging the far-reaching implications of geopolitical events. So building on your own observation, how have you seen these geopolitical challenges impact 23? Well, I can't help but reiterate what I said last time.

12:57The true human tragedy is those that are no longer with us in all wars around the world. And it is extremely sad that that has happened. That is such a waste of human life. There is no possible explanation for it. And, you know, I've been actually taking a slightly different view to think about this. And that is that not all, but some of our startups or startups in general rely on some fundamental research being done somewhere. and international scientific cooperation is important and it is something that certainly when I was growing up, you took for granted. If you think about the scientific teams that built the Apollo program and various significant leaps of scientific knowledge and technology, they were very international teams.

14:03Now, the good news is pre-COVID is that European countries, the UK, Germany, France, etc., and the US were increasing their international cooperation. One fact I found interesting was that 25 % of all scientific papers had an author from more than two countries. However, China much less so. And Tsinghua University, which is in Beijing, had more high citation papers than any other university. So China is less engaged than the rest of the world. However, they're really important. And just to underscore why China is so important is that in 2021, 46 % of all scientific publications were written in China.

14:59So, you know, here we have nearly half of the scientific knowledge of the world being created in a place that actually is a little bit careful about what it might share. Now, this might sound slightly abstract, but what some of us talk about is the weaponization of science and technology into regional divides. And this is clearly not a good thing. But, you know, it's not one for the venture community to try and sort of change that, you know, and just to bring this to life. You know, some might say that Nvidia buying ARM would have been a good thing. There are others that did not. But the reason that deal didn't happen was because the US regulatory authorities didn't allow it because of geopolitical concerns.

15:53concerns. Now, there was a very famous BBC journalist who wrote each week and broadcast each week a thing called Letter from America. His name was Alistair Cook. And for those of you who don't know him, it's worth listening to some of those. They're old now. But they were remarkable essays of what happened in the US the previous sort of weeks. Now, I'm always, I think about him because he said the following. In summation, when he was retiring, when he was 82, as a broadcaster, he said, the net of everything I've reported on is the slightly more good than bad. And I think that's an interesting thing to keep in perspective when we're talking about sentiment.

16:46So, you know, With that in mind, there is progress in the Korean and Japanese venture ecosystems, which are benefiting from a slight thaw in political dynamic between the countries. Close to my heart is dear old England rejoins the 95 billion horizon program. Fantastic news. We should never, ever have left it. We should have never left Europe. I don't mind making this a political broadcast just for five seconds. And why is that important? Well, it's important for startups, for funding, for joining sort of projects and accelerators. In further sort of good news, there is something called the Breakthrough Prizes, and there was the 2023 Breakthrough Prizes, which are awarded by the founders of Google and Facebook.

17:44and they're awarded to Americans, to British people, to French people, to Japanese people. And I end this little sort of commentary on the geopolitical side from a perspective of science. Then NATO launches in 2023 the NATO Innovation Fund, a$1 billion fund run by very seasoned venture capital investors, they're supercharging science, technology, engineering, and math. And that will be beneficial to many, many startups, which may not even know that they have a dual-use technology, and they may choose not to have a dual-use technology, but it's another source of capital that will be useful in the European venture ecosystem.

18:38So I don't want to take us to a topic that we will discuss in further detail down below, but I cannot help but think, especially within this concept of weaponization, science and technology, R &D, or how to put it, like ensuring the sovereignty of the regions or of the countries, whatever. I cannot help but think about AI, right? And a big part of, as an example, Mistral, which is a very interesting investment case, to say the least, part of it from the European investor perspective is also connected to that, like the future of AI being European or having Europe being part of that and not being kind of just a bystander.

19:24So what I'm getting at is in the spirit of sentiment and the topic of weaponization of science and technology, what are you feeling in terms of sentiment of where Europe is and the game that Europe's playing? Because you mentioned the NATO fund. NATO goes beyond Europe, right? What about Europe? Well, I mean, Europe has this incredible dynamic of plus 50 tech cities that are developing amazing technologies. And I think Europe, of all the regions around the world, has probably more understanding than any other that there has to be a sense of a global citizen. Now, I say that because Europe startups are all born into relatively small countries compared with the US or China, and therefore need to be international pretty much from day one if they want to build a very significant company.

20:33So they have to be thinking about the US and they have to be thinking about Asia as well and being open to that. You know, my dear partner, Joe, I think coined the phrase that venture capital is not a national sport. And that's because we're not building French companies or British companies or German companies. We are building global companies because that's the thing we have to prove that Europe can do in the same way that the U.S. built Google and Apple and Facebook. Those are not U.S. companies. They're global. And that's the important point. So let me ask you a very different question from a very different perspective.

21:25So you wrapped up when talking about the NATO fund just now, you wrapped up on the topic of dual-use startups and maybe some startups don't even know they have dual-use technology, right? I find this an interesting topic for many, many reasons. One of them being that it's a tough space to invest in, I find as well. even from like when I just have it very clear in my memory, an emerging GP that we know very well who's fundraising. And he's really struggling because there's a lot of LPs that want to kind of, I don't want to touch that, right? That's a bit too dangerous for me. So how are you seeing this trend developing over next year?

22:04Well, who knows how it may develop. You know, again, necessity being the mother of invention, does the situation when Ukraine and other parts of the world get so bad that we all have to play our role in keeping our countries and citizens safe. Let's hope we never get to that position. But I think in discussions I've had with the NATO fund, this is a lot to do with all the technologies to do with communication. to do with cybersecurity, to do with things that are not directly what you might call lethal technologies, because then you come into a much more complex world because most venture funds, if not all venture funds, have LPAs that say you will not invest in companies that have weapons, etc.

23:03So I think we're in context here. We are talking about the digital infrastructure that is around the defense systems that we have. I think we shouldn't deep dive on the philosophical conversation around that, even though it would be a very interesting conversation to have. If you'll permit me, Chris, I'll take us to our next topic and also a little moment of self-reflection. Maybe I should call it shameless self-promotion. I actually said in last year's episode, specific sectors like climate tech and life sciences have shown resilience. They are a testament to the enduring power of deep tech and sustainability.

23:43And I really like reading myself there. I think I sound quite wise, which isn't normal. But in all seriousness, this statement does align very well with what we've been witnessing in the VC landscape. AI, ML, along with biotechnology have been leading the charge in attracting investment in emerging technologies. and I think we're way beyond the point of saying it's talk, it's actually a trend. And let's not forget, Chris, as you said, you pointed out in last year's episode, 2022 saw the pharmaceutical industry embrace a bit of risk, resulting in significant advances in healthcare through RNA technology.

24:20And this pivot towards risk-taking has really opened new frontiers, right? So with that in mind, I'd love to ask you, what are your reflections in terms of frontier technologies in European VC? What are you seeing? Yeah, I think we should be careful about life sciences and risk because we have to qualify that. We're talking of several decimal points of fractions of entrepreneurialism because the need is so great here. Well, look, I start with nuclear fusion. Essentially, the Lawrence Livermore Lab National Initiative have done it again. They did it in July this year. Now it's sort of slightly wondering how long this is going to take when they do one experiment in November 22 and the next one in July 23.

25:20But the yield was much greater. What do I mean? It means that for the same amount of input energy, they got more output energy. And just to remind people, why is this so important? This is essentially, once you have a nuclear fusion reaction operating as the sun operates, it's the same process as the sun, there is no pollution. There is a magnificent amount of energy. When this will happen, who knows? But here's the interesting thing in the connection with venture capital is that as a result of these sentiment boosting experiments in nuclear fusion, an additional$2 billion of investment has been made.

26:14And today, there are twice as many nuclear fusion companies as there were when we did this recording last year. And that just says to me that nuclear fusion is becoming a thing, an investable thing. And if there's more and more people, and particularly smart entrepreneurs working on this and not just governments, then breakthroughs will happen in probably the most unexpected, unorthodox way. Remember how Pellasinan was invented. So that's interesting. There's been advances in solar panels. I read somewhere recently that they've now developed an organic film that can make energy out of the light in your house.

27:05You might ask, why on earth would you want to do that? Well, there's all sorts of sort of IoT type devices that are monitoring things that require very little energy, but it would be smart to have it. And what's interesting about energy is that European startups are contributing to new ways to make nuclear fission cleaner. There are nanotechnologies to generate water, excuse me, energy from water. And these are experiments. These are fast. These have all the hallmarks of startups. And therefore, there will be breakthroughs at a pace that is unheard of in the last several decades. if I could move on to the subject of space.

28:07Just before I was born, 150 years ago, there was the adage that said, go west, young man. Today, the adage would be, go up. In 2023, there are 77 countries that have space agencies. the space race which you know was all about Russia and the US now includes a race between India between China between the US between the European Space Agency and that is not a bad thing I mean there are all sorts of holes we could fall down here about sort of the militarization of space, but let's not do that. Let's go back to the good old James Webb telescope, which I was waxing lyrical about, because it's still a remarkable feat.

29:06It's a year old. And all the images and all the data it has collected has created 750 scientific publications. it's observing distant galaxies remember it's actually observing infrared frequencies which is a lot longer the wavelength and therefore it can see far back into distant time if you imagine that that the universe was one ball and it's been expanding for billions of years if you can look back but here's the thing here's the thing that's really interesting what they're seeing does not accord with the current theories of how the universe was created. And that is brilliant. And they discovered exoplanets.

29:58They weren't the first people to discover exoplanets. Exoplanets are planets that look like Earth and potentially could buy Earth. And there's one just 41 light years away. Now, what is 41 light years? Well, it's a lot of frequent fire miles. It's 1 ,000 trillion miles. So it's a long old way. And that's another discussion that perhaps all the startups in the world need to focus on is how do we get to warp speed? But that's my start-trekkiness coming back in there. Being serious a minute, European startups have just exploded into the space area, not literally, I hasten to add, in the sense that they're focused on new rocket engines for low Earth orbits.

30:46There are companies thinking about how to clean up space, particularly in the lower orbits where there are decayed satellites, detecting them, figuring out how to avoid collisions with them. These are all European sort of startups. The world was pretty amazed, if you take a big view out, that NASA ended up working with a rather large startup called SpaceX. But the European Space Agency is doing the same. And they're doing large contracts with startups to encourage them to build technology to solve some of the problems. So space is becoming really exciting. We have some portfolio of VCs that 20%, 30 % of the companies are related to space.

31:40Yeah, and I love how you ended that, Chris, with just double-clicking on. Europe is firmly on the map as a hub for cutting-edge technological advancements, and I love that. Look, I just want to say that this isn't the xenophobic European here, and that's not bad because I'm a Brit. So that's a positive thing. But there's so much talent here. There are so many great universities here. And it is only relatively recently that we've commercially been able to harness that. And that is amazing. And I think I can say it's just the beginning. We're only going to get better. That's the idea. Maybe a small comment I'd like to add here, more as my own personal reflection in the process of recording this episode and preparing this episode.

32:34I think, you know, we spoke about geopolitical. We spoke about the weaponization of science and technology. Now we're talking about frontier technologies. and we're revisiting something that we spoke with Chris a year ago, specifically the James Webb telescope. And as Chris said, the images and data collected have allowed to publish 750 publications. So we have no idea what's coming out of that. No one truly knows, but there is incredible potential there. And I think part of the value to anyone listening in, hopefully, is kind of also seeing how someone like Chris who's been around for some time thinks about this.

33:14And it's not a matter of making him accountable. That's really not the point. It's just the point of going and seeing, okay, last year we were, this was the sentiment. This is what we're talking about. How has that evolved today? And some interesting data points here, 750 scientific publications. Maybe one of those will help create a startup next year. Who knows? We don't know, right? So I think that's really, really, really exciting. We could not talk about emerging and frontier technologies without talking about AI. It's not a trend. It's a foundation for future technologies. To be honest, it's reshaping how UVC as a company operates, how we think about our own company.