E689 | Simon Thomas, Founder of Paragraf: Graphene Chips, AI Energy, and the Hard-Tech Road from Lab to Fab

0:00Welcome, everyone, back to the European VC podcast. Today, we're joined by Simon Thomas, founder of Paragraph. Paragraph is a rare European hard tech company taking graph. from fundamental science into industrial-scale electronic products. We'll cover the technology, the product suite, and what it really takes to fund and build a venture-backed hardware company with a founder who has raised a whopping$150 million and is on his way to make a real dent in the universe. Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EVC, we only work with sponsors we truly believe should be part of your tech stack.

0:34Please do take a moment to hear about them. And if you do, reach out, mention your VC. It's the best way you can support what we do. Thank you so much. Starting off, HSBC Innovation Banking. If you're a founder, a scale-up, or a VC, you need a bank that actually understands your world. HSBC Innovation Banking backs innovation globally from seed to IPO. And if you ask me, a strong banking partner like HSBC belongs in your stack. If your portfolio companies are scaling, they need infrastructure that won't slow them down. Google Cloud Startup Program offers$2 ,000 to$350 ,000 in credits plus technical support to build better and faster.

1:12It's a key boost every fund should bring into their ecosystem and oh my god are we thankful to be partnering with them. Now legal is a space you cannot lag on. Legal needs to move at the speed of venture. Goodwin's team has decades of experience with startups and funds. They're trusted at every stage from formation to exit. Goodwin definitely is a legal partner every serious manager should have in their stack. For Luxembourg-based VC, PE and Fund of Fund managers, modern funds means going digital. Fundcraft gives you a full service, digital native platform built for today's European managers. It's a must-have if you're scaling smart.

1:48So we all hear about the Middle East. How about you go there? From AI to deep tech to summer fund SkyTechs in Dubai is where global future of tech gets negotiated. It's not just a conference, it's where East meets West, capital meets innovation and the both set the agenda. If you're playing on the global stage, join us going to GaiaTex this year. If you're gearing up for your next fundraise and want a placement agent who truly understands emerging managers, reach out to CFunds, their boutique placement agency that has helped GPs across here brace capital from top tier LPs. We've been on the other side of the table here.

2:19They are actually good ones to work with. So I do urge you to go to CFunds.io to go and check them out. And hey, before you go, if you're looking to discover startups, raise capital, connect with innovation leaders, do check out dealflow.eu, the EU-backed platform, bridging founders, VCs, and corporates. There's no better place to find the startups that have received significant funding from the European innovation ecosystem.

2:55Let's start acting, acting, acting, acting, acting. This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. Welcome to the podcast, Simon. Thank you for welcoming me here. Looking forward to it. So, Simon, it's an incredible feat that you have already made, and you're going to do so much more in the future. But tell everyone, where are you today? What are you exactly building with Paragraph? and maybe keep it a bit in simple terms because not everyone will be able to drive directly into deep tech materials. Yes, sure. I'm happy to give you a bit of background.

3:32So Paragraph is a company that works in the world of a material called graphene, probably heard by most of your listeners, invented in Manchester back in 2004. Graphene has been known as the wonder material because it has this collection of properties that make it very much more advanced than materials that existed in the world at that point in time. And a lot of people did a lot of work in the lab showing how graphene could create fantastic new electronics with much, much higher performance at much, much lower power. And for the past 20 years, people have been showing just what graphene can do at a large scale.

4:12At Paragraph, we wanted to take those inventions, that material, and bring it into the real world where people could exploit and use the material graphene across the electronics industry and therefore get these performance characteristics into all types of electronics. So the goal for us and what we invented, if you like, as our main IP was creating graphene direct on substrates that the semiconductor industry that creates electronics uses today. And that was the massive breakthrough. So in front of me right here, we have a silicon substrate which is coated in graphene. That substrate goes straight into a processing line and you can create electronics out of it.

4:57So that was the step forward that we made. And today we have a foundry here, the world's first graphene electronics foundry here in the UK, that is starting to put through volume electronics. So we're really trying, as our vision, to bring new materials into the world of electronics, to try and solve these problems of high energy use that's coming into things like AI chips, as well as create new performance characteristics that allows people to push on with new inventions out of electronics, make new electronic devices, make new electronic products. Yeah. And to make it super concrete to people, if I hold up my phone here, which is currently being charged, I believe that with graphene, instead of charging every day, it would be something like every seven days or so that a similar phone, so to say, would be able to be charged.

5:48Am I correct in that type of application? Absolutely correct. So if you could change your silicon chips inside that phone to graphene chips, the power requirement is about 90 % less. So with the same battery, you obviously can get a lot more running time out of your phone. Given this and given the urgency of us solving for the energy needs with AI, I think the very most pertinent question, of course, is to ask you, why are we not using graphene yet when we're building these big data centers? That's probably the greatest question. Graphene is, of course, one layer of carbon atoms thick. So instead of being a bulk material like silicon, there's many, many layers of atoms, which you can very easily work with.

6:39Imagine trying to create a single layer of atoms across that whole substrate. It's very, very difficult to do. And then after you've created it, it's also very difficult to handle. So graphene isn't like conventional materials where the way in which you handle it and process it is well understood. It's a new material with new properties with quantum and very, very small nanometer scale properties. And it has to be understood and brought into, if you like, the thought process of the real world as opposed to the lab world. And that's a real challenge, and that's the challenge that the paragraph are overcoming right now.

7:17If you were to put a, like, are we on a trajectory that will audit, like, it's definite and for sure, we're going to bring everything that's currently made with silicon into the world of graphene, at least where it's financially viable. Is that the trajectory we're on or is it specific use cases where the business case will make sense? That's a really, really interesting point. Graphene is the world's first two-dimensional material, and there are other two-dimensional materials coming after it. Thanks to the breakthrough of being able to create graphene, people have started thinking about what else could we make in 2D4?

7:57Could we use other elements like silicon in 2D4? Could we use combined elements to make new types of very, very thin layer semiconductors? so graphene will definitely play a part across a whole range of electronics but it may well be that some of those other new 2D materials will come in alongside graphene as well and you actually end up with what I would term as a 2D electronics world so to answer your question in kind of an esoteric way I hope yes that graphene can go into most things but also there's this great world of other 2D materials coming behind it because graphene is now proving what can be done.

8:37Today, it's more of a business case approach. Does a customer want to use graphene in their electronics? If so, let's have a conversation. Let's use our foundry and build that device for you. But we also have a strategic roadmap looking at how do we get graphene and other two-dimensional materials into compute chips, for example. Let's try and look at how we can lower the energy in data centers such that AI doesn't become this fearful thing of using so much energy in the world. You just described, Simon, the foundry that you have. Is this the core product, the foundry that enables you to build, so to say, or are you building actual devices as well and plug all the way into the end products?

9:21I say if you like deep tech spin out one of the things you have to prove is that you can make something you know you have to have something tangible so spinning out a foundry isn't really a model that exists unless you you know if you ignore TSMC which probably was more of a government spin out than the university spin out but so yeah we do make products we always started the company on the back of can we make graphene and then can we make products out of that graphene to prove to the world, one, that you can make the wafer scale graphene, and two, that you can actually do something with it because that's really important.

9:56Now, getting over that hump of proof that you can actually physically use the material itself. So, for example, I have a wafer here that's got devices on it. And they're devices that we've specified and we've made, we've brought out into the world to show, if you like, what I call Vanguard's technology, proving to the world that something can be done. we're now migrating towards having other people bring their ideas to us simply because I don't want a business development overhead. You know, it's much more easier if people come to us and say we'd really like this as opposed to us pushing products onto other companies.

10:34So yeah, there has been product that's been made. And in fact, I would invite you to go to our website right now and buy some. Well, I would love a phone that wouldn't require charging every day. I would also love a watch that wouldn't. I am using a Withings watch, which at least mimics that. So let me ask you, you have a long – like you described the invention of graphene in 2014, I believe. And now we fast forward, we're 10 years in. Could you talk a bit about the timelines of graphene development, so to say, from when does it first appear in the research papers? and we could see there's something here to you being able to then say, okay, here's a spin out that we should create.

11:18And then from when you were founded up until today, how have you kind of tackled that journey? Yeah, so absolutely. The first research papers were actually released from Manchester University in 2004. And there's a very famous story about how the now Nobel Prize winners used a roll of scotch tape and a block of graphite and put them both together and peeled layers off the top of this block of graphite to get the first layers of graphene in it. I'd urge your listeners to go back and look at that story. It's quite a really nice story of base engineering turning into something fantastic. So the research papers started to appear back in 2004.

12:05people started to think about manufacturing graphene without sellotape around about 2007, 2008. And that's when companies like Samsung started to look at, well, this material's got real advantages. Can we start to manufacture it? And then there's a kind of period from 2007 to 2013 where people struggled to make graphene that was pure enough, that was of high quality enough to get good electronics out of it. So there was lots of research going on in the background, making different chips, the world's fastest transistor, the world's most energy-efficient devices, all happening in labs. So a huge amount of papers being produced, a huge amount of patents being filed.

12:52And I think if you add those two things up together, graphene has now got the record of having the most number of papers and patents filed at any invention in the period of time between 2007 and 2015. And an equally impressive track record when it comes to then real-world applications that drive value in the end? I believe so. Or are we still waiting for that? I believe so. Definitely. The things that have been produced in the lab have been shown to be fantastic. It's always, you know, with these really deep tech inventions, how do you go from lab to real world and in our world in the semi-com world it's that saying is how do you go from lab to fab and that's the kind of where we came in in 2015 i joined the university of cambridge and worked with a professor there professor sir colin humphries and we took a look at the devices that were being produced and thought well how do we get this to this to this way for scale where where it becomes useful and so in 2015 we started experimenting and then we made the breakthrough And then really it was about how do we make the world get access to this?

14:03How do we get value out of what we've just done beyond the papers that were being published at a huge rate at that point in time? Tell me, Simon, when did venture investors start to show interest in what you were doing? So that was end of 2016, going into 2017. we decided to engage with some external investors to test what we had in terms of the prospect. Does this look like it's investable? And that's where this kind of realization that we can't just give you a wafer of graphene, you're not going to invest in that because we have to prove that there is actually really something you can make from it.

14:45And it was speaking with investors that we reached this point of, okay, if we're going to bring this out of the lab, we're going to have to have the graphene, but we're also going to have to have this thing that people can test and pick up in their hand and feel. When we created a few prototypes, or let's call it proof of concepts, modern prototypes really, we could take that to investors, and they started to look at it as a real investable thing. So 2017, we started to get real traction with investors that actually we've got the material and we've got something people can potentially use as customers.

15:20We have a bunch of people in the audience that some are on the investor side, some are on the founder side, but what they're definitely all experiencing is this. They're all constantly meeting this situation of trying to figure out how do I go, as you said, from lab to fab or how do you get it out of the university? Could you talk a bit about that first initial period talking to investors? what did you meet and i know that this is now five seven years ago but who were thoughtful what were you missing from the investors what would read what where do you think that our venture ecosystem could maybe get a bit more educated when it comes to think about hardware tech that's truly deep tech the deep tech landscape because it's diverse is quite fragmented so to find investors that understand what you're actually pitching to them can be quite difficult.

16:16Particularly if it's a novel technology that you've invented, there's no real experts in the world because you're the expert taking it to the investor. It's critical to have that thing you can put into somebody's hand to say, look, it is something, it is real, it is tangible. I was very fortunate, and the other two founders of the company with me were very fortunate, that we managed to be in a place where there were educated people that could look at what we were doing and at least think about what the concept meant. So we had a group of investors in the Cambridge ecosystem that even though they didn't really understand the technology, they could theorise about where the technology would go.

16:56They were able to do it themselves and have to go out and be educated enough to try and find some background. And I think that's the critical thing. I think the deep tech investment ecosystem needs to have those experts within the investment firms. And that's developed a lot since we were trying to get investment. There are a lot of firms now that do have these really, really good deep tech experts. But I go back to my point at the start. It doesn't matter whether you have the most educated deep tech expert. If you're the first one to bring something to them that they've never seen before, They might be intelligent and able to work it out, but they've never seen it before.

17:38So they've still got to get their head around it. So you've still got to help them. You've still got to get them through those feats, if you like. And can I ask you, because you have a bit of a normal venture landscape, you could maybe call this a somewhat interesting syndicate behind you or investors on your journey. Because you were seed funded by Cambridge Enterprise and Angels. and then you did your Series A together with Parkwork Advisors, IQ Capital, Amadeus Capital Partners that many, of course, will know in our ecosystem as revered deep tech investors, especially in the Cambridge ecosystem.

18:14The next one was with New Science Ventures, Molten Ventures, and then British Patient Capital came in as well. And I would love to ask you about British Patient Capital because you also did a 2022 round where you had the UK Treasury slash, again, British Patient Capital involved. And I'd love to ask you about this in a sovereignty agenda that we have in the context of a sovereignty agenda that's so powerful today. And I imagine it's also what's driving the investment journey that you've been on. Yeah, really interesting journey we've been on, actually. And actually, it was IQ Capital were the first to believe in what we were doing.

18:54first to be pitched to, and they kind of got the story really well. They are a very, very knowledgeable deep tech investor, and they've supported us all the way through, which has been fantastic. But yes, going into those different rounds and having those different leads, if you like, who have different ideas about where the company should be heading, it's an interesting journey, let's put it that way. But on your point of sovereign investment, British Patient Capital have been very, very supportive. And I think having somebody from, if you like, the nation where you are located invest in you acts as a catalyst for other people to believe that there is a trust in the technology and a trust in the industry that you're trying to build.

19:43So having that, if you like, that national investment behind you acts as a catalyst for inbound investment from different areas. Because if the policymakers and if the people that run the country believe that there's value in having you there and invest in it, it's a nice indicator to be able to talk to other investors and say, look, we've got this confidence in us. We're growing in this ecosystem. The ecosystem believes that we can grow here. So, yeah, it's really good to have British Basin Capital come on board. And, yeah, they've supported us since, which has been great. Right. We've had a mix of investors.

20:22We've now had to, in our Series B, we had a US lead, which is New Science Ventures, who are very semi-con focused, which is great because then you get some expertise and understanding of the amount of time, if you like, that needs to go into growing this business, the patient capital and the understanding of what it takes to push products into that world that are brand new and semi-con of the world. And then in our latest round, of course, we've had some great support from the UAE with Mubadala. Tell me just if I go back to the sovereignty point and the role of British patient capital, could you talk a bit about how you're thinking as someone building truly novel technology and it's going to be revolutionizing?

21:08There's a reason why Silicon Valley is called Silicon Valley. We can imagine a Graphene Valley if we really get everything right around Cambridge. Could you talk a bit about the role of a company like you for the nearby ecosystem and the support you're enjoying? And maybe also put this in the context of when you as the founder or one of the founders of Paragraph are reading all the news about the importance of sovereignty and resilience, how you're thinking as a founder about your own journey and how you fit in that. Maybe not Graphene Valley. Given that the kind of accepted thing is that graphene has had the deepest trough of disillusionment, i.e.

21:53death, valley of death of any material. Yeah, the deepest death valley of any. Maybe call it graphene mountain or something. Absolutely. Having a novel technology, a novel material, at least what I would call the platform that you build things on, is a really important thing to consider because an ecosystem will be generated from what we do. We're already seeing that happen. A lot of our customers are using our base technology to create their technologies. And a lot of the requirements we have as inputs into our supply chain, those suppliers are having to come up with new things on that side to bring into Paragraph.

22:37So you're absolutely right. I always try to look at it from the perspective that Paradox isn't really bringing a new technology. We're actually bringing a new industry because materials can change everything. And having that underlying, if you like, building block to build on means that there's so many opportunities, whether it's in the application space, the customer space, or whether it's in the working with us as a partner to create the inputs to the supply chain. then there's a huge amount of potential for the for the inventions that we have here and the IP that we have I have to think around how are we going to exploit the materials how are we going we explode products that we have how are we going to get customers to come in and work with the boundary it's a complicated model it's quite a challenge that you can never switch off from and spend a lot of time thinking about but but actually the potential the the the real potential of what we do is is absolutely massive if you think about it and then that plays back into the sovereignty perspective that you were talking about our materials have the capability to make technologies that are of national security importance.

24:04And that then plays into the thought path of, well, where do we actually want to locate our capabilities? There's a lot of geopolitical things going on in the world at the moment, and they seem to change every night with a single tweet from a certain person. And so we have to be aware of what we can and can't do, or even future predict as to where we should and shouldn't be in order to make a successful, valuable business. Yeah. I'd love to take you back and ask you about your story of at a point realizing, okay, we need to actually have products that we can use to show that graphene works in the real world, to now being at this critical juncture of being able to bring customers in to work with your foundry before actually having a product to give them, so to say.

24:54Yeah. Yeah, it's a chicken and egg situation. You want to give something to a customer and then you want to make sure that the customer is actually getting the product that they want. And you have to go around this loop. So getting to a minimum viable product, and that doesn't mean the end product. It means something you can put into a customer's hands and they can do a bit of testing with, do a bit of playing with, is really critical for any hard tech company. one of the things you have to be very aware of is that most of the time when you create a product it's not what the customer wants you might believe it's what the customer wants but actually you can you can ask a customer about all the specs that they want and you can still stick it in their hands and they'll go i don't want it in black i want it in red and so you always you'll always miss something so it's really if you like that back and forth between you as a supplier you as an innovator, you as a manufacturer, and the customer, the user, the end applicator, it's really, really important to have that dialogue going as quick as you can.

26:01Even if you don't have a product that's working properly, the quicker you can get into the mindset of the customer so you don't have to go through as many design iterations, manufacturing iterations, the better. One of our product lines relies exactly on that. So this wafer here shows some devices that are known as molecular sensors. And we create a product that the customer can just use, a plug-and-play item that the customer can use. That molecular sensor allows you to detect either chemical or biological agents, depending on how it's configured. The customer generally uses that product for their application.

26:41and then they come back to us and say, actually, can you make it in this configuration? And so what we've done is built a platform such that we can put something in the customer's hands that they can use, but we know it's not what they're really going to want in the end. But we're encouraging them to come back and talk to us and say, actually, use our foundry. You're already hooked. You're already hooked on our tech. Now come and tell us exactly what you want. And I can imagine that there's also a capital flow issue here, which is, of course, that when you're developing the products yourself, before they even hit the market, you've taken a lot of capital investment before you can get there.

27:20Of course, when you work with a partner, you can offload some of that on the partner. Could you talk a bit about the importance of being able to manage this as this very intricate process compared to being a B2B SaaS founder, which Venture has always been very good at, and equity money is quite good to fund. But when you're building hardware, it starts to get very expensive to raise all your capital like that. I don't think there's a better example than a company like Paragraph for exactly that dichotomy. We are capital intensive. We have to buy machines. We have to buy a facility. And so the upfront capital is big.

28:02And you don't have much to sell other than equity at the start. and therefore you don't have anything to raise against and there's no assets to raise against either. So you do have this position where you have to put a lot of money in to start with. That's why you have to have a lot of belief from your original investors because they have to put quite a lot of financing into what you're doing. So you have to have a really strong understanding of how you're going to reach that revenue position and then how you're going to reach a margin that's going to start to give you the capital to start to grow the business independent of equity financing.

28:39For us, once you start to get the capital equipment, once you start to get an IP portfolio, a large IP portfolio, you start to get into the world of being able to raise that capital then, which is advantageous from a cost perspective, if you like, overall cost perspective, but also puts an extra load on the business of what you've got to think about, how you finance it going forward, how you service the debt and all that stuff. But yeah, it's always going through our minds how we plan the business, how do we make sure we're pushing towards that profitability point, which we're not at yet. And how do we make sure that everything we do has a strong ROI, return on invest, and how we then manage that against what we need to invest further as we go further down the line of expanding the foundry that we've got at the moment.