E705 | Martin Schilling, Deep Tech Momentum: Why Europe’s Deep Tech Problem Isn’t Funding

16:23Andreas Munk Holm:And then I'm like, well, what should he do the rest of the day? Well, it's a great conference. We've got a ton of startups. Like, I don't think that's going to cut it, my friend. Yeah, yeah, exactly.

16:33Martin Schilling:Andreas, you're very right. Hey, look, what we are building is not a conference business, okay? We don't think conference or events. We think innovation marketplace, okay? We think here in marketplaces. And there's a life by digital. And the key thing to understand is you need to go buyers first. Okay, this took us actually a couple of years to really understand this. But you need to have in a marketplace buyers on site, and then the sellers will come. Yeah, this is fundamentally important. So buyers in this case are corporates. Yeah, so what we just talked about, and Amovia is a perfect customer.

17:10Martin Schilling:Let's call them customers for deep tech startups. If you have these customers on site, the startups will come. And then the investors are more the cherry on the top. Investors totally love this because they want as well to talk to customers. It's good for their portfolio. And then they see very good startups. But it starts with buyers.

17:26Andreas Munk Holm:I do agree. And it's funny to see how we've seen every single tech conference move towards. I always describe it as they started as a startup conference. And that's where they put all their energy. Then it turned into being really the focus of the core staff is really on nailing the investor side. And then now it seems like we've gotten to the point where every conference has nailed, okay, how to get VCs. And now what they're focusing on is getting all the LPs. So you keep moving up the ladder, so to say, of the ecosystem. And I think that many are missing the corporate piece. And I think you're absolutely right that the way to solve for this is not by thinking of your product being the conference.

18:07Andreas Munk Holm:Rather, that's the convening time. but throughout the year you've got a ton of activities that all come together on this on this conference day am i right in saying that that's how you think about it a bit

18:18Martin Schilling:yeah and hello we try to think impact not process okay so when i think this from a startup perspective what does a founder need a deep tech founder two things money and customers okay that's the key thing you need you can let you if you have these two things you can work around literally almost everything else even talent right enough money you buy it the talent and what we are trying to cater to those needs. Yes, of course, when you come to DTM, you'll meet the best deep tech investors of the continent, and they're a piece, and as well those who can write 50 million plus tickets. Yes, of course.

18:49Martin Schilling:But in addition, you'll have one to two days where you can meet 20 potential customers and sign ideally five contracts. Right? That's how we think about it.

18:59Andreas Munk Holm:And that is exactly why. So when we decided to, now we want to move into corporate land, how do we approach that? It came not purely internally. It also came because I had a good friend who was working in this space, Jabe Heuer. And what we discussed in the beginning was, is this a standalone thing or is this together with EUVC? And it became so clear that the problem is not getting corporates to be more in their own jungle and talk about the corporate stuff. No, it's matching VCs, founders and corporates. And I think that that is exactly the point that you're making here.

19:34Martin Schilling:So there are some themes, macro themes, which matter for Europe on this. We need to build trust along industry value chains. Okay, so we have not one language, not one market still like the US. Europe is more fragmented. We need to put more effort in and building trust, in particular now in the age of AI, where authenticity and in-person becomes, again, premium. So building trust along industry value chains is a key thought. So what we are doing, what we're trying is there are, when you think about a quantum value chain, quantum computing value chain, there is a hardware, there is a software piece.

20:17Martin Schilling:And there are customers like banks or even railroad companies. We're trying to put on stage an industry value chain and on the conference and then digitally because building this trust layer is in Europe so important. And this is why this both onsite events, but as well the year round engagement in a specific community is so helpful for Europe.

20:35Andreas Munk Holm:Can you talk about the trust element from the corporate side? If a corporate wants to engage more with the startup space, do more corporate clienting, do more startup collaborations, maybe even launch a CVC at some point. How do they start building trust?

20:53Martin Schilling:Yeah, hey, I would say again, it starts from the top. So if you don't have a C-level who puts this on the agenda, it's very difficult for the organization to do this bottom up. The unfortunate development which we have seen in the last years is that many corporates reverted back to the core. You see this in particular in the automotive space, for example. It's no longer, hey, let's look for next to Horizon Technology external collaboration. No, no, we need to get the core competitive. While this is to a certain degree understandable, I would, as a CEO myself, always think this in ends. So yes, of course, we need to make the core more competitive.

21:30Martin Schilling:And we need to look at the next horizon technologies and look external. Because the key argument for doing this is innovation speed. The clock cycle of innovation is just too slow in Europe. We just clearly see this compared to China or the US. And speeding up this innovation cycle, is it can only be a CEO topic. Yeah. And then there is a bridge to trust. There's an interesting initiative coming. Gregor Gimmi, he is the father of the venture clienting, you know, movement, I would say, in Europe. He's currently building a foundation for certificates as a nonprofit thing. So where you literally, as a startup, get some proof points and a corporate, you can see, hey, look, they have been certified.

22:14Martin Schilling:That might be a bit German thinking, I have to admit, But this idea of that literally let's build some more closed door networks or some certification, some literally trust signaling ways is one way of building trust with corporates.

22:28Andreas Munk Holm:I have two observations on trust. One is it's funny if you look at A16SAT and what do they talk about when they are talking about what is A16SAT, what is the purpose of a VC? What they tend to say or one of their talking points is at least we are lending trust, we're lending brand to our founders. That's one of our core items, one of the core value points that we bring. And that can only be done. And here's the kicker because everyone knows the first part. That can only be done if you have trust with the other side. And I think that that's where a lot of VCs in Europe have not built the necessary relationships to the corporate side to be able to lend trust into the corporates.

23:12Andreas Munk Holm:And I think that, if I'm being very honest, I think that that's also where there's a bit of a difference between the native deep tech funds versus a generalist fund that's moving into deep tech. It's one thing to build up investment capacity in deep tech. It's another thing to also build up the relationships to be able to do trusted introductions and so on.

23:32Martin Schilling:Yeah, what you're saying is that the VCs can play another role, right? So what you're saying is if you're building up a portfolio of companies that really work as well, build products with P &L impact, so you choose the right ones, this alone can signal trust to corporates.

23:48Andreas Munk Holm:My next point was, and this is a bit of a psychology 101, but trust starts with yourself. It doesn't start with you and someone else necessarily. Of course, if the other side has violated trust, okay, then there's something between you. But there's definitely something internally as well. And that goes for any company as well, that there are processes and ways that we do things that can actually either build trust or allow you to trust or hinder it. It's worthwhile thinking that building trust with the startup ecosystem is not just about meeting them more and being out there more and starting building relationships.

24:26Andreas Munk Holm:It's just as much looking inward and saying, what are we doing or what processes, what requirements do we have that is hindering us from building trust and trusting on the other side.

24:36Martin Schilling:Yes, exactly. Hey, and the one key metric a founder would look is speed from first conversation to cash in the bank. So that's always, from a corporate side, you always need to understand this. Speed and time matter so much for startups and founders. These people think in days and weeks, not months and years. But of course, you need to literally from both sides, literally have some understanding. I wish that indeed many more corporates bring systems in place, and we're coming probably again to the CEO agenda, that allow them to be fast. Okay, so we're just hearing this again. I've met a very good materials founder who will very likely build a unicorn in the next two years.

25:24Martin Schilling:He just, when he talks with US corporates, they just have a system in place that allows them to be fast. So a relatively junior colleague at Google has a budget to just deploy and the decision power to just launch POCs and collaborations. If you're putting a system in place where you need to do several approval layers, committees, etc., it just delays. So this idea of being fast and as well fail fast and then learn on this is just something which is also helpful for founders.

25:56Andreas Munk Holm:And another point here is, of course, that you're also very quickly becoming a very important stakeholder to that founder, which means that most founders building deep tech know that it's a difficult journey. And for that reason, someone who is really moving fast with you can end up being a quite meaningful influence on where you develop. Not to say that it's good advice to a founder to be too beholden to one customer. But from the corporate perspective, there's a lot of positives to derive from being a very important customer to a store. Yeah, totally.

26:28Martin Schilling:And again, there is always this message as well to us in the builder's world. So you need to prove as well fast that you can deliver P &L impact. That's the counter flow of trust. So the trust increases if you deliver the impact to the corporate so that they become more competitive. I would always talk to corporates as founders. I'll help you boost your competitiveness.

26:53Andreas Munk Holm:One of the things you mentioned was also the third one, capabilities beat technology. Could you just expand on that one?

26:59Martin Schilling:That's exactly what we're just talking about. So essentially, is there a budget in place for a venture clienting unit to deploy POCs within two weeks? That is a capability. Speed to POC is one. Second, is there a process in place or in particular the mindset, if I'm running a POC as a corporate, I want then to turn this into adaption. So I want to give the founders of the startups a multi-annual contract and I want my business unit to really take this and integrate this in the core. one step even back is there at all a team in place that is dedicated to external innovation we have seen a couple of innovation units spun up in the last years but as well we see a lot of dismantling and then as well we worked with a couple of them there is a bit of innovation theater we all have to admit to yeah so they're literally people from corporates running around doing talking a bit doing some smaller stuff but without real impact these days are completely over You need to talk fast with the business units.

28:01Martin Schilling:You need to integrate the deep tech products in the core of the corporates, not to some innovation ideas and theaters. So there's a whole suite of capabilities.

28:13Andreas Munk Holm:And if Jaber, my dear corporate co-founder, was here on the podcast, what he would say is the average lifetime offer CVC is 3.7 years. which means that you really have a lot to solve there. So imagine it takes you two years to set up the CVC unit and then once it's set up, you only have 3.7 years to live.

28:33Martin Schilling:Yeah, exactly.

28:34Andreas Munk Holm:It of course coincides perfectly also with an average tenure of a CEO which brings us back to your very first point which is exactly that this needs to be on the CEO agenda. Otherwise, it's going to get killed at some point.

28:48Martin Schilling:Totally, totally. And look, there are various ways of building this commercial and the competitiveness impact for corporate. You can invest. Sometimes it's really the right way to do, but you don't have to. You can become customer, work with a startup and then acquire a startup. It's totally fine without investing. So I think there are various paths of doing this. There's a whole suite of tools you can use. I would say as well, having a corporate on your cap table, if it works and they give you strategic access to their customer base can be an advantage but there have been times where this was not at all recommended to do having a cvc and a capital table i as well would say that the days are over one needs to do this carefully and it depends case by case but i know for example in the fintech world that if a large bank invests in you other banks often see this as a sign, a signal of trust.

29:41Martin Schilling:So as well, I would be as a founder open to CVC investments. Again, it's a case by case decision.

29:47Andreas Munk Holm:But if I should say a really quick note there, so it's never based on the startup case that you cannot do it. It is based on the CVC. Most CVCs, at least any that has high repute, will know that they need to navigate that role as an investor versus a customer and partner. very carefully and also, of course, as a potential acquirer. And that is something that any CVC knows exactly how to talk about. They have processes in place. All the VCs that should come in as co-investors or follow-on investors will be looking at that and saying, what's going on here? Do we have any? Are we beholden to a corporate that's come in early and so on?

30:29And for that reason, I'd say that it's never a no-go to go CVC.

30:36Andreas Munk Holm:but it's very much definitely make sure that you're talking to people that know what they're

30:41Martin Schilling:doing a hundred percent yeah and i would always the having a tier one vc in your cap table kind of the the sparking the best of of europe and the world is of course great and you should always try to get them but as you say if there is a fitting cvc with a good team and access to customer base it can be a very good addition.

31:03Andreas Munk Holm:I would, if any founders are thinking about this, I would say do go and check out our UVC corporate series as well. There's a lot of learnings there. We are targeting primarily the corporate side. So there is a bit of jargon that you've got to jump over and some of it might not apply as well. But for founders, there is definitely, if you listen with the right perspective, there are a lot of learnings to tease out. Let me ask you now about the startup perspective. So Martin, you've written a book that is inspired in title by a good companion of mine on many journeys. And that is, of course, Douglas Adams, because your guide is called The Builder's Guide to the Tech Galaxy.

31:41Andreas Munk Holm:Can you talk a bit about how startups win enterprise customers?

31:45Martin Schilling:Yeah, exactly. This was very fun to write. I did this a couple of years ago. Literally, these are my learnings from my N26 journey, where I wish I had this exact book before I started. So I've just written the book after the journey. And there's a chapter on B2B sales. So there's a couple of things which as founders you should do or not. So literally maybe we can go through a couple of traps if you want and how to avoid that. I love it.

32:07Andreas Munk Holm:I love traps.

32:08Martin Schilling:Okay. So the first, when we're talking now B2B sales, so it's mostly enterprise sales. The first trap is literally just not tracking the right sales KPIs. And there's one really important lesson which I learned while building the last company. again, it's relatively easy on the KPI level to define outputs. So in the sales world, this is revenue booked per person. It's pipeline you build, pipeline coverage. These are typical output KPIs. What's fundamentally important is to understand the input KPIs to get to this output. Often in the startup world, we do not understand enough the inputs to get to the outputs, and then you need to measure the inputs.

32:52Martin Schilling:It's a surprisingly simple yet often under leveraged idea. In the sales world, one of these input KPIs is proposals sent per person per week. So if you're building a sales team, you want to see how many proposals you send out per person per week. And then more top of funnel outreaches. You need a certain number of outreaches and calls to get to proposals. So this is the input logic and then you come to revenue book per person and pipeline coverage. Pipeline coverage is a KPI where it just says if you have a sales target of a million next quarter, you need to have 3x or 4x of pipeline this quarter to get there next quarter.

33:34Martin Schilling:So if you have a sales target of a million next quarter, you should ideally have 3 to 4 million in your pipeline. And measuring this ratio, this so-called pipeline coverage, is a key output KPI.

33:46Andreas Munk Holm:I could talk forever about sales. I think sales is so interesting. Tell me a bit about, because we will have a lot of founders tuning into this as well, and deep tech is a newer space, and it's different from B2B SaaS, where all of our good playbooks have been written by famed VCs and founders. Now, founders are trying to navigate, what can I apply? What can I not apply? Do you have any guidance there in terms of both resources you can go to? We're, of course, trying to build it up on EUVC because we're seeing that this is so incredibly needed. Rockets from the Contrarian team are doing a lot when it comes to the climate space.

34:30Andreas Munk Holm:Where do you go to? Where do you advise founders to turn to when it comes to trying to figure all this out? Because what you just described worked super well at N26. It's definitely also similar to what I've heard in the traditional VC space. but does it carry over perfectly to a deep tech space?

34:47Martin Schilling:Yeah, interesting, Andres. Actually, it's a very good question. Maybe we together need to write the next book on this one. So you're literally asking, where are resources for deep tech's B2B sales rights expertise? We haven't discovered yet, but we will search for it and maybe put something in the show notes because as well, the space is relatively new. And so I would say there are certain B2B sales practices and we can go through them now, which totally apply for deep tech too. There are some definitely basics which you need to cover, but then there are some additional points. So deep tech is not deep tech.

35:19Martin Schilling:This depends on your vertical space, defense, robotics, quantum, tech bio, all different areas with some nuances to this. But what is clear if the state is your customer, and this often is this at least 50 % in deep tech, that's the case. then you need to invest more time in branding and engaging the political sphere. This is often new for founders. And this means, I know, for example, the space founders who sell as well to defense, you just need to walk to embassies and talk with military attaches about your product. You need to go to as well to conferences and events and connect with these people.

36:06Martin Schilling:You need to associate yourself with some associations and literally you shape the discussion on the capabilities needed so that the public sector then buys your product. So, for example, in defense, in defense, there are at least three layers you need to play. So you need to engage the political sphere. So there is committees, defense and security committees in every national parliament. So you need to go to some evening events, kind of meet these people so that they understand what you're doing. That's one level. Second level is the MOD and the armed forces together. So the Ministry of Defense and the armed forces, they specifically shape the capabilities that they want to procure.

36:46Martin Schilling:So you need to engage the armed forces, talk to them about their products. Literally, this is what we are doing. We are setting up events where you can do this. And then the third thing is the procurement agency. So you need to as well understand the technicalities when proposals need to be sent. So there is a whole customer development and sales muscle you need to build, which starts from almost a year before a procurement contract is being written, where you engage and then let you know how you write the proposal.

37:19Andreas Munk Holm:Yeah, it is a daunting task. I have a very close friend of mine who is co-founder and CSO for a defense startup. And luckily, he comes from the defense space himself. So he was former military. But otherwise, like, it would be impossible to get him to that.

37:37Martin Schilling:Yeah, exactly. Exactly. This is very good. You're tolerant. So you need for this, as soon as you have a bit of more money, you need to hire people who come from the space. But these are often former generals, great ways, or former ministry of parliament who have been in the defense space. These people are extremely, extremely relevant. There are some agencies that can help. But you need to create a peer-to-peer discussion. And if you were not as a founder, not from the space, you need to employ people who are from this. Yeah.

38:07Andreas Munk Holm:We've put out an episode quite a while ago by now, I think, with the ARCH Robotics team. And the learning is the same. The founders are from the military. And he says very clearly, Stefan, I think it was, said very clearly that there's no way you're going to get any sales through this machine if you're not military.

38:26Martin Schilling:Yeah, exactly. There is, however, there are some shortcuts, however. So you don't always have to sell to the public sector directly. You can as well sell to a prime, then sell to public sector. Okay, so as a founder, I think this is very important to think about different routes now for getting to the next step. And then you can always literally expand your product offering. But from a defense perspective, when you think about sales, you would possibly target a prime too. And as well, you will use the civil sector, right? So there is a bottom of the strategic course where your customers are.

38:59Andreas Munk Holm:I'm just bringing a service message to anyone who has felt that this episode has been a bit of Martin and Andreas talking about how we're trying to approach all of this. And it was truly not mentioned. It was not thought of as such, but we are both so passionate about this and trying to solve this chasm that there is between corporates and startups and VCs. And for that reason, we've kind of ended up talking a lot about our own book. And sorry for that, for those that may have felt that this is a bit self-congratulatory and diving deep on how we're doing things.

39:30Martin Schilling:Yeah, but that's what I mean, we're mission driven, right? We're solving a problem with what we're doing, right? So that's why it comes naturally. And there's one more aspect to this. You need to shape publicly the discussion around your product. So as a founder of a certain defense technology or space technology, you want to be in the press or on any kind of public platforms like, as well, again, the UVC, for example, to talk about this because you want to shape the discussion so that people have your product and even better the underlying need capability in mind when then they shape their procurement processes.

40:06Andreas Munk Holm:Yeah, I think again if you go back to the A16 set point that I made earlier, if you ask, I heard Marc Andreessen say this six months ago or so on a podcast, it was a bit of a side mentioned but he said our biggest team is now policy. I think that really should make people caution and think when they're thinking about building their teams. The biggest VC in the world, their biggest team is now not hiring, it's not talent, it's not marketing, it's not any of this. It's all about affecting policy and I think that that is something that we need to wake up to in Europe. I think it's something that every founder needs to have top of mind and I think it's something that every VC needs to have top of mind as well.

40:48Andreas Munk Holm:That said, we can also get bored with VCs having an opinion on everything. Let me ask you about, and I was about to preface this with my point about us talking about ourselves all the time, but I want to ask you about the DTM Guardian program and your work to get to those 10 ,000 contracts that you want to help founders sign. Tell me about that just so that everyone understands how that operates, how they might be able to get involved.

41:10Martin Schilling:Again, mission driven. How can we get to at least 10 ,000 more commercial contracts for deep tech founders in Europe? You need networks and places where you meet these customers in a highly efficient way. So our approach to this was to say, and is, we are building a network of 300 of the leading deep tech customers in Europe. These are heads of R &D, heads of business units as well as CVCs, CXOs of customers. So think about the Airbus, Ranks, Rimetals, but as well Porsche and all these large enterprise customers who procure external deep tech solutions. So what we just said is, hey, we bring 300 of these in one network and you can access them at Deep Tech Momentum and then literally accelerate your sales.

42:03Martin Schilling:It's very important to have senior people with budgets and problems on site. Yeah, it's kind of, you cannot imagine how effortful this is to get these people. It's such a pain. So we have set up multiple call centers, half of my team is doing cold call. We've sent thousands of letters. We're reaching out via LinkedIn. It's extremely painful. But what we are doing there is literally, we are creating shortcuts for founders. So you don't have to do this as your own. You just come and then meet them on site and meet 10 of them in a day. This is what we are doing. There are many others who do something similar, you know, for example, Hello Tomorrow as well.

42:39Martin Schilling:This is a competitive part of ours. They're the same place, same idea, or many other places where you can do this. But the idea of creating these networks to form boosting commercial sales for deep tech partners is just a strong one, I think.

42:57Andreas Munk Holm:Martin, before we started the podcast, I asked you, are you EU funded? Something like that. As much as I love the EU trying to help us create a more powerful innovation ecosystem in Europe, I think there are also some formats and some processes and rules that are not necessarily helping move us forward as rapidly as we could. Can you talk a bit about the decision to not be EU funded, to build this as a core machine of your own that doesn't tap into some of the larger scale programs that are being run by the public?

43:36Martin Schilling:Yeah. Hey, look, so first, I believe in the power of the private sector, okay? In entrepreneurship in Europe, I do believe that entrepreneurship is one of the strongest force to move our continent forward. You are an entrepreneur, I'm an entrepreneur, there are many others. You do a podcast for entrepreneurs. us, we are a force, but we need to join up more. And I think as well, be more heard and be a bit more loud. I had a really interesting conversation with a leader of a supervisory board of one of the leading German corporates. And he told me, hey, Martin, when I was CEO, we just for 20 years just did our business and we didn't care about politics.

44:22Martin Schilling:We looked down on the policymakers and the politics, didn't really take it seriously. and we just made our business. And I think we can't afford this anymore. Now, we as entrepreneurs and founders and operators, we need to engage more in the broader conversation because we're not heard enough. And I do think as well, we are now coming from several decades of regulation. We put layer on layer on top with good intent. You know, there's worker protection, there is data protection, and there is environmental protection, all good intents. But we put layer on layer of regulation top that makes entrepreneurship in Europe very, very difficult.

44:59Martin Schilling:I had last year Eric Schmidt on stage, former CEO of Google. He said, Europe has chosen not to grow. And I think he's right. And then to double down on a point here, we need to not just ask for support.

45:16Andreas Munk Holm:Because what we need is not more public initiatives. We don't need more public money into the ecosystem. We need to get obstacles removed. The policymakers listen to founders to understand what it is that we need so that we can get the road paved rather than we can get another place where we can apply for 50K or 200K or even a million. As much as I love a million for something, I would wish that it would be driven towards the private sector, less heavy-handedly controlled by a corporate program that has its own agenda. Sorry, not corporate program, by a public program that has some agenda and just rather be let the private markets run wild and then we will probably see more innovation.

46:00Martin Schilling:Yeah, Andreas, I think interestingly, we need in some parts of our ecosystem less state, as you say. In other parts, we need more state. Less state, of course, in regulation. And just please give us our freedom back. We will earn the money, which we then together can all spend on infrastructure, education, defense and more. But at the same time, the state can and should act as a customer. And you're saying very rightly, this is not about giving grants. This is about becoming customers. the US Department of Defense bought close to 70 % of the semiconductors in the 60s in the US and with this literally created a market the state has to act as well to create markets in particular in deep tech think about space and defense this is unthinkable without the state so that's as well a challenge for policymakers on the one hand you need to do less on the other hand you need to do more

46:52Andreas Munk Holm:yes but please do more of the customers side, less of the grants and regulation side. Martin, thank you so much for joining me on the podcast. I'm so thankful for what you're building. I'm so thankful that someone who has done what you have in the past have dedicated yourself to this space. Thank you so much.

47:10Martin Schilling:Andreas, there's a final thought which I would love to leave us with. We talked a bit about trust and to get more trust in Europe, we need more courage. This is a very important element. I do believe in the last decades, we have one quality that some of us have lost, and this is courage. It's courage to take personal risks. And we talked about VCs, about CVCs, about corporates, about founders. This is the one quality we need to rediscover to build more trust and take the European deep tech ecosystem to a whole new level. So let's be courageous.

47:44Andreas Munk Holm:Yes, absolutely. European confidence is coming back in full speed. So thank you so much, Martin, for joining me on the podcast.

47:52Martin Schilling:Thank you, Andreas. Big pleasure.