312. Meet this Re-Industrialisation Investor at a Fund That's Deployed £2.5BN w/ Amrit Sami | Mercia Ventures

0:00Amardeep Parmar:So great to have you here today Amrit. Can you tell us who you are and what do you invest in? Hi all, I'm Amrit Sami. I'm an investor at Mercia Ventures and also an active angel investor. So personally myself, I'm really quite bullish on the whole European dynamism and re-industrialization. So looking at sort of defense tech, industrial tech, deep tech generally as a whole, as well as really complex AI. And I'm also an active angel investor where I'm very much of the thesis of 30 minutes to have a, just make a decision with founders and really back founders that I can help and support on scale.

0:31And then Mercy Ventures, we're a UK-focused fund. We write checks up to£10 million. We cover life sciences, deep tech, consumer and software. We've got two broad buckets, VCT and EIS funds, as well as a bunch of regional funds that we manage on behalf of British Business Bank.

0:48Amardeep Parmar:So if you go to your VC side first and come back to the angels side, so the re-industrialisation piece, what does that mean for people looking at this from different angles? Because they know like over time the kind of segments have kind of changed in different ways right what kind of technologies are you looking at because what deep tech I think meant five years ago versus what it meant today has kind of changed and you said you're bullish on it so why are you bullish on those I'm sure in five years time I'll probably have a different answer so it fundamentally comes back a thesis I have is really I believe that even though we're getting better and better forecasting with using AI I believe the world and future is going to be more uncertain because of geopolitical risk.

1:27So we're seeing huge fractures across how the world order was once before. We used to be able to rely on Europe and the rest of the world and now we're caring more about national sovereignty and security. We're kind of seeing that with unfortunately all the wars that are happening across the world and unfortunately I believe there'll be more to come. And so given that view of national security, what are the important things that allow us to be safe but also have maintained society that we do have? So for me that is you know how can we design really interesting modern factories. So using a lot more AI, being able to carry out industrial IoT to looking at maybe new fab and chip design to looking at how can we move satellites up in space autonomously.

2:10Amardeep Parmar:That sovereignty piece is really interesting because I think it's really, like I said, because the current situation and things going on, it's coming more and more into focus. And as you think about that too, obviously, because so traditionally, let's say if you You invest in a company in the UK, a lot of those people, especially at venture scale, you think, how is it going to now enter America? How is it going to enter the rest of the world? Whereas when we're now looking at a sovereignty argument, then in some ways it's kind of making the market smaller too. And it's that balance of how do you think about that too?

2:38Amardeep Parmar:Okay, you want to become, let's say, the technology already exists in the US or exists in China. We need to have a UK-based company doing that. How do you then map that out in terms of the limited market size too? It's a really interesting question and I think a fairer bottle on the view on reindustrialization. But actually what's really quite interesting is people care so much more about national interests. We're actually seeing US, like the Department of War, I guess not normal defence, taking on UK companies. There's a company in the East Midlands, Skycutter UAS, that won drone dominance. And as we're looking to engage with the US military over there.

3:16And so the fact that people care about national interests and what they really focus on is actually driving about it. The other things to think about is, yes, we're seeing fracture, but there's probably aggregation of markets that are particularly relevant. So within the US, you have ITAR restrictions, which means that you can't get certain technologies can't be sold outside of the US. But actually within the UK, we're part of the NATO organization. So could we sell within the NATO countries to really be able to scale and build a big enough market within that space?

3:45Amardeep Parmar:And you're investing in the UK only, right? And how do you look at the UK's positioning right now in terms of the global markets and how we're doing? It's a really interesting question. And this is why I'm so so bullish on it is the UK has always and probably will always be a powerhouse for IP. We've got phenomenal engineering history and talent and resources in this space. and if you think about the kind of intersection of AI, I mean, we're only, what, 20 minutes away from King's Cross with a really, really incredible labs where I think that robotics, manufacturing and also a history of defense is really going to put us in a really great pace for finding early stage startup specs to really help them scale from, you know, pre-seed to Series A and then really support them, tackle them on a global scale.

4:28Amardeep Parmar:And looking at that too, right? So you mentioned about your engineering background and, well, actually you didn't mention engineering background, but I know you mentioned that. So for the audience, so me and Emery went to university together. So he's a few years younger than me. So I think my final year was your first year or something like that. That was it. But we still look the same. Yeah, exactly. Apparently, people think I'm a lot younger than I am. So I quite like that. And with the engineering background, and it was coming from engineering, right? Yeah. How does that then make you good at what you do today in terms of how you look at investing?

4:55Amardeep Parmar:And how do that skills translate? I think what I've realized a lot more in venture is it's hugely a sales job. and I think like how do you win competitive deals with your background and understand it like I am a techie at heart I always will be a techie at heart and so when I'm able to meet these sort of deep tech companies I can relate about crying in the lab at like 2am when an experiment didn't work or being able to go really into the detail and understand it and then try and be that bridge between technical and commercial and so allowing me to be able to relate to them resonate them on a human level is usually what helps me to be able to win deals and build like founder kind of NPS schools in that space and so yes I have a technical background to really understand it but I think there's a lot more humane point to it which is really important when thinking about venture and ultimately the name of the game is to find the best deals and win them and I think a lot of people don't realize that too especially if you're an outsider at the beginning you think the whole game is how to impress VCs but the best founders usually they have a pick of different VCs to choose right and it's one of these weird things of like majority to the founders are chasing VCs, but the VCs themselves are chasing the best founders.

6:00Amardeep Parmar:And you said about the right to win there. So obviously there's one element of like your engineering background and being able to understand what's going on there too. But as part of Mercio as well, how do you guys tend to win deals? Like what makes you stand out and how do you try to add value? I tell this to all founders, like all capital is green at the end of the day. And when you're thinking about it, you need to find the right fit and think about personalization to you. I think we see a lot of funds with great marketing, but therefore not being able to hold their own way with follow on and support on that point of view.

6:26So from Mercia perspective, I would say what really differentiates us is probably a founder culture or empathy within the organization. So the CEO of Mercia was himself a founder, a lot of the execs within the organization of founders. When we think about like funds, most people only have what three to five employees. We have about 40 covering the UK and that's just on the investing side. And the reason is that we want to be able to give founders a lot of our time. So no more than none of us has like three, four, five portfolio. And we do that because look, we want to be on the end of the call on Friday night at nine o 'clock when a customer didn't land.

7:03We don't want it. We don't believe that Excel spreadsheets are the way to be able to run businesses to help us guide and think up framing from it. But it's all about people at the end of the day. And so, you know, we take a very much people focus first to be able to help and support. But I think, you know, counter to that is we take our time. We're not a fund who can write you a check in two weeks or go at that sort of pace. We can definitely move quickly, but we tend to build a relationship with that for us to have honest conversation because there is a power dynamic in venture. And it becomes really difficult in board conversations when you want to give feedback or whatnot if you've not spent time building that relationship and trust.

7:40Amardeep Parmar:And so, yeah, to kind of wrap up, Mercy was just a very much founder-focused approach on how do we help scale and support UK businesses. Obviously that's on the support side, where it's after you made the investments. Where does most of your sourcing come from as well? So I've been a venture for about five years, as probably highlighted by some of the greys that are starting to show now. So I've been doing it for a really long time. And to be quite honest, there's probably about three or four streams. I'm a bit of a deal origination aficionado as some of my colleagues like to highlight. And it's probably a couple of streams is one I've been in the network for a lot of industry.

8:15and so I've built up a strong reputation. Founders reach out to me, funds send me deal flow, which is sort of one bucket. It's a point that we kind of alluded to is like great founders have so many term sheets thrown at them at the point in time because I believe that markets, particularly in venture, is becoming more and more efficient. And so actually a lot of my time I spend like outbound. I research companies, understand them, send them a very relevant email and connect with them and then take them to dinner and lunch and all sorts of that relationship. third is you know working and supporting with accelerators as sort of a bucket and like people

8:49Amardeep Parmar:like BAE yeah BAE we're not BAE we're not a weapons defense thing yeah yeah it's chaps like Amadeep and like other platforms to really find interesting deal flow from that perspective and then I think fourth is where you know we typically pay or where I like to kind of feel comfortable is sort of seed series A though definitely can do pre-seed checks is building relationships early on with founders from the start and also using my angel network as deal flow to support with that. And then when it comes to the actual selecting part two, right, so you're building relationships with founders and obviously some of those relationships are not gonna go anywhere, right, especially on the VC side you've got, you can like them then you've got to then submit them to IC, you've got to work all these different areas, right?

9:30Amardeep Parmar:Yeah. For those companies which sometimes you like but then maybe don't progress through IC, what holds them back or what kind of factors can sometimes limit people where it's a good idea but it doesn't quite get through yeah it's a really good question and you know the really early stage it's all about people horsepower it's ultimately we're looking at a risk reward and do we feel the risks are somewhat you know pertinent particularly with you know software companies we want to see that the tech risk is often very low and therefore your gtm risk is much higher and so i want to see more traction in that space though with what's going on ai i think it is shifting SaaS multiples in a really interesting and I think unnerving space for a lot of investors from like deep tech and lifestyle perspective want to understand the IP business and thinking about that commercialization lens thinking and realizing that you hope to build the product and people will come it's just never really quite the way at this point in time and then consumer businesses again probably looking more towards the kind of later stage bit so it's often about commercialization do we think there is there's a skill gap from the team that needs addressing.

10:38Although in third, we just can't get on, to be quite honest,

10:40Amardeep Parmar:is often sometimes the way. And you've talked about this a bit as well with your angel side, right? And obviously you're wearing two different hats. When you're assessing someone from an angel versus a VC, how different is that to you? How much do you have to change your thinking? I actually think there's not a huge amount of difference in my perspective. I spend a lot of my waiting and thinking about opportunities based on team. I think the more time I spend in venture you can have all the great metrics and everything align up but if the team is just not there or that's the secret sauce on what helping companies to get through because there's so many uncertainties that go in the business um and so i actually still think about it from that same lens perspective but uh and so for me the people i really like are low ego high horsepower people people who are just like execution um and so when i kind of think about that with my angel lenses like how quickly is this company moving kind of going from x in a to b and often some of them are going kind of a to z in a real sort of perspective and then the second bit from an angel perspective is look i do not have a huge fund to give a load of carry and i'm not a millionaire yet fingers crossed um but i write really small angel tickets and i'm really transparent about that and so i fundamentally believe it's it's i have to give first before receiving and i need to earn my right to be able to support founders and so that's can i make introductions to funds who i will be able to raise.

12:01I think I've helped like my portfolio maybe raise five, six, seven million. And then to others, I've helped them to introduction customers, to banks, to employees, from that perspective. I can't do those things as much as I want to jump on the opportunity. I just have to say no. And so I sort of think about that lens as an investor as well. It's like, can I add value and support this? Who are people I can introduce you to? I think, unfortunately, well maybe fortunately as a VC I spend a lot more time on the financials and market and all this sort of stuff to be able to sell it internally but like venture is all about you know trusting your gut and believing in it and you know the easy bit is investing the hard bit

12:41Amardeep Parmar:is supporting and you've got to do that both for as an angel as well as a VC. On the angel side are you investing in the same sectors or are you more agnostic? Yeah I'm trying to shape it down and think a lot more about my thinking I am trying to spend more time in re-industrialization but you know I've met some really phenomenal people in my career who have like been really generous with their time and have been a great mentor to me and so when they've set up a company and I genuinely believe I can help them support them I just write them a check regardless of what the sector and space is so I've done a fair few consumer deals in that space but definitely trying to think about my career invention about spending more time in re-industrialization.

13:20Amardeep Parmar:So as you said as well so you've been like five years in venture now and I think always what happens to you is that the longer you're in the space, the higher the bar gets to impress you too, right? Because at the beginning, it's like, wow, this is amazing. Then you see like how many thousands of companies, it's done a lot harder. But at the beginning too, like when you're trying to break into industry, and this is because I know your story, you did in a very untraditional way, right? So tell us about that. Yeah, absolutely. So yeah, if you probably applied to any VC jobs, chemical engineering isn't like a prerequisite for a career.

13:52So I didn't grow up knowing anything about venture. I thought like things were like a job in the city. That's how you make money. I didn't know what city or what it was to do. Didn't have a grad job in engineering. Just didn't feel quite fulfilled for whatever it was. And I think it was what I really enjoyed about this bit was that innovation piece. I just did a lot of reading, discovered VC. And then I remember the next day, literally cold calling funds to like, can I work for you for free? can I take time off work to help out me?" And they were like, how'd you get this number? And like, stop calling us and like, please go away.

14:30But I think there's a beautiful nature in being naive. I just did a really unconventional approach and just kept on harassing people. And I think a lot of, you kind of get what you want in life, you're very tenacious for it. I think there are unfortunately circumstances that make it harder for individuals, but that tenacity is what drove me to it it you know it pivoted me towards the work for accelerators in my free time and then I don't know if my boss knows at the time but I had like four jobs when I was in supply and trading which was like my main job which was doing nine to five got into the office did help with accelerators weekends helping with as a venture scout for eight adventures and then a fourth job

15:07Amardeep Parmar:like evenings spending time with another accelerator program and it was just like during lockdown and it was building that experience just like I want to do this full-time and so I did the future VC program which forever indebted for joined a pre-seed fund called Simban and exactly like as you described everything was like the next unicorn I saw like trust me I know it bro which definitely wasn't the case but like venture is an apprentice game like everyone sucks as much as their background or whatever it doesn't no job really teaches you for this as much as you think it can do and on everyday's learning and that's why I love this job hello hello i hope you're enjoying the show so far i'm amadit palmer co-founder of bay hq and the host of this show for those of you who don't know bay hq is the community for high growth asian heritage founders and investors in the uk over 7 500 people have attended our events 200 people have been for our impact programs and obviously there's been over 250 episodes of this podcast if you want to join us and take part in the programs and come to the events go to bahiehq.com forward slash join we also just released our first ever book called startups for outsiders which you can get on amazon now and the link is in the bio hope to see you soon at event hope you enjoy the rest of the episode so just the audience too just because he said that doesn't mean start ringing me now to get something like i would just ignore it and obviously from background you came from right and i know something you're passionate about too about it's the idea that sometimes a lot of really good deals are overlooked because of the background of the founder and that's in different elements whether it's race ethnicity it's the state school that kind of stuff too do you think because you're not from that traditional background in some way that that's enabled you to find some really good deals that maybe other people just underestimated Yeah, I agree.

17:03But I also think like, there is this typical like venture playbook that people talk about, which is like, team market traction product, you know, what is PMF. And like, I've come from an outside perspective. And I've just like questioned everything of like, what does this really mean? Does this actually apply? And a lot of time, it's based on really loose data. Like, every week, someone has come up with a new, you know, perspective on a founder that makes them a billion dollar or a unicorn business, which is like childhood trauma, or like, They became an entrepreneur when they were 15 or they were selling like sweets and coke and secondary school.

17:38But to the point we've briefly been discussing for a long time, me and you is like, these are all correlated points and not causation from a point of view. And so, yeah, I've really kind of gone into venture with the mindset of like, I don't really understand the foundations and trying to take both from a first principle perspective, which I think has helped me to be able to understand and look at overlooked opportunities. I've realized like you know venture is very mimetic in how we think about things and about positioning the right way and how that influence can help hugely but like you know give a good example of that it's a company we just recently invested in called like Shield Space which is an autonomous system for small satellites founders were based in Lincoln I don't know if you've ever

18:18Amardeep Parmar:been to Lincoln I've heard of it at least it is in ends jokingly but it's up in the Midlands like it's just potato farming fields and like as a founder we kind of met there and it was really uncontrarian he didn't have the polished pitch deck he did not have there's so many reasons why investors would say no to him at that point in time but the thing I saw from him is like he understood how to procure and to sell in defense he had this soft charisma about him and so like I just ignored the noise around me eventually invested in him and yeah he's getting surreal interest within NSIF and other things that I can't disclose because of FOT and like so many funds are now reaching out to him on the back end and it's to that point is like yeah I think that's a perfect example of your kind of question.

19:10Amardeep Parmar:It's interesting too because I think so much comes down to like VCs using proxies so if you can do a pitch deck properly it makes it's a proxy for okay you can learn how to do it's like a skill that you're basically proving I can learn how to do this so that shows I can learn how to do stuff and people say universities as well right went to good university it must mean you're somewhat intelligent it's trying to speed up it's like heuristics trying to speed up the process right but I just said like it's not a perfect game in terms of someone on our accelerator right so she lost her co-founder last year because he died randomly out of nowhere right wow but the fact that she's been able to pick herself up and keep going that's not in any vc's thesis of like oh yeah like what but that kind of when you talk to her as a person what she's been able to do and how to be able to rebuild herself and like regain her confidence and do what she's doing that's like something like cool i'm gonna invest in you but it's interesting because like you have to talk to her to learn that yeah there's no shortcuts in venture is what i realized to your point is like we're using more and more like ai tools to speed up the process but I think that's the point it's going to miss out a lot on this opportunities it will scan your deck and kind of go yes no and in some ways that's actually kind of great for me because that's how I capture alpha is I'll just do the hard yards and spend time with founders from that perspective and yeah it's a people business always is a people business and I've not thought about a way in how you can scale it and you said this was you're investing at obviously pre-seed probably for angel techs and then also doing seed in series a with mercy right yeah and obviously that's it's different amongst that journey whereas at series a you're going to have to be a lot more data driven i'm assuming right it can't be as much based on the founder but well i guess yeah the data that people yeah it's very loose term but yeah how how does that change as like the leisure on somebody is right because at the beginning pre-seed you don't really have any traction numbers and there's almost a weakness in some case that people at series a like it's all based on the numbers when often series are actually still pretty early yeah i i agree and i i think the problem with is like the elusive you found product market fit to degree but it's my point is like venture you've got to take risks um there was actually a famous specimen partner i mean i won't use the phrase but like venture is all about having um cojones uh and in some ways i agree with that is like there's people are hoping for a series A deal to be perfect with all the right SaaS metrics, you know, scalable GTM strategy, market is huge, they know what they're doing.

21:49But like, this is never the case. And if there is that case, probably every fund is offering them a term sheet and valuation is through the roof. So how do you capture alpha? And so you've got to think about what risks you're really, really willing to underwrite and take about it. But I would say like, even at sort of series A, the mindset I think the important question to think about from a team perspective is like is this the right team to help scale it because the role of the CEO and the founding team is very different you're all about kind of delegating being able to prioritize and being able to execute your playbook and being able to hire the right people and so your job as CEO is still it's probably more HR-y and like public facing whereas you know the early stage your CEO your role as CEO is being a product salesperson and kind of just fixing stuff and they are very two different like personality traits for individuals and so understanding if that ceo will be the right ceo for series a and onwards is a really hard question there's very few founders who have gone from that early stage all

22:48Amardeep Parmar:the way to the end and the problem is i guess as well is that the most famous founders are the exceptions which is the mark zuckerbergs and the jeff bezos but yeah that's not the story of most unicorns right i'd say i don't know if you know the data on that but no i think you're right like there's very very few founders and there are exceptions to the rule than the rule itself um and it's also just a tiring journey like mentally as well like you get to series b you've kind of put your life on hold for a really long time and you're kind of questioning like do i want to do this for the rest of my career and that's absolutely fine we should have those honest conversations about it but it's um yeah it's not easy and it's just life's too short you've got to do what you enjoy and what you find fun really and with that pms side you mentioned as well so product market fit i hate that term sorry do you think it even do how much do you think it still exists in the general vc industry compared to say deep tech where there is a bit more defensibility with like patents and things like that yeah is pms still something you can really actually target for most companies now i'm sure if you asked every guest who's been on this what is PMF, they'll give you a different definition.

23:54And in which case, it's not really a useful heuristic if we're all measuring it slightly differently.

23:58Amardeep Parmar:So I copy the YC one, which is where you've got too much demand for paying customers and you can handle. But then sometimes it might be you need to build better systems. Yeah, well, some people say it's like a repeatable sales motion. I kind of like another YC one, which is like you're wheelbaring money to the bank because you have so much demand from that perspective. But the point, it makes it really difficult because we all have different notions of it. Where you think about PMF came from, I would argue, is probably like pre-cloud or around cloud area where the term blitzscaling came about.

24:31It's like you keep on working on something that's unscalable. Once you find it to be scalable, you then chuck a load of money in and allow it to scale. Well, cloud costs are going to go up because of interest rates going up. Cloud computing is more and more expensive. And you just can't blitzscale because GTM motions are slowing down. CFOs are putting more tight squeezes on budgets. I think you can probably do that within small SME, kind of the AI platforms we're seeing, kind of that early small employee perspective. But it's really hard to sort of blitz scale in this sort of market economy. So I think the view of PMF, in my opinion, was something around like 2010, 2020.

25:09Who knows what's going to happen in the AI world in that perspective of what PMF is. And we should really think about that definition, particularly in how the market's moving. do we need to find pmf multiple times for these sort of ai businesses um i think from a deep debt perspective it's really interesting you've talked about like patents and i actually kind of question in an ai world or i'm thinking about is patents the right way to think about companies and you even if you're a really small company and you're you know google's infringing on your patent are you really going to win that lawsuit and so the thing i kind of quite like about deep tech is who are the incumbents?

25:47They're often quite slow. There are other sort of risks to think about from a perspective as you have government contracts, which make it really hard because once you're embedded, it's really difficult to dislodge. You have sort of supply chain modes to think about it from that perspective. And they're really niche, but really important and high value technical skill sets that's not really available. Like if you think about AI, like there are very few AI engineers, and now there's just so many computer science grants because they see it as a respect. And so I think the fact that there's a really niche skill set, the fact that I think you can build really interesting businesses from different modes perspective is what really excites me about deep tech than just patents in and of itself, which is my contrarian view.

26:28Amardeep Parmar:I guess it's interesting too because there was the term sheets report last week. I don't know if you went into that, but it was where a lot of VCs were putting a lot of terms into their term sheets of business. this is like no VC is actually going to sue a portfolio company if they want to have any reputation of any other founders in the future. And it's the interesting thing about that almost like false protection, right? It's like, okay, you can put a bunch of claws into this contract. If nobody actually enforces it, is it worth the paper it's printed on? And I guess with the patents too, it's about the protection in some ways, if you get, if it's not big enough a market yet so you can use that pattern to stop other startups to then get to a certain scale then when you get to a certain scale then google the my day something okay now this is an issue you want to go for but at the same time like how big do you have to get to really protect yourself against one of the big tech companies coming for you yeah it's a it's a really good question i don't have the answer for it but i think you know the one thing i'm thinking about with my deep tech companies is like capital moats so here's the thing is like if you were able to raise from all the funds in this space they therefore by definition cannot invest in a competitor and so therefore you kind of stop any incumbents entering into it that's kind of why you see these mega rounds happening in the us is it makes it really impossible for companies to enter into space because they can kind of a gobble you up through m a or b you just have so much more capital you can afford to be much more inefficient and win the market that way.

27:57Amardeep Parmar:And are you guys leading rounds most of the time? We do lead rounds. We can follow as well. It's really updriven by the founder but we're happy to lead or follow. And how do you think about that too of who you're willing to win the cap table with? How much does the existing cap table dynamics affect your thinking? It's important. At that really early stage where I think we come in at Seed Series A, particularly your ability to fundraise and your fundraising is a skill and to be able to do that really well is like super important you know being able to reduce syndicate risk is is hugely valuable particularly with deep tech companies having a CVC can really help because they can help with GTM they can help with sales or even M &A landscape and exit and the the other thing to be really mindful of is that the angel VC dynamic as well is really challenging at times but But I think, for me, it demonstrates Candice found to raise money because things will never go to plan.

28:55And you probably need about 500 quid, 500 quid, 500 K behind the back of a sofa that you need to find. And that can be really difficult at times. And so demonstrating you can be able to fundraise, allowing you to be able to keep on going and taking the next fight the next day, the day after that, is hugely important. The best companies are like cockroaches, which is, I need to find a better analogy. But it's the fact that they can keep on surviving and keep on continuing. And so, you know, having a good cap table of people who can support and follow around gives us a lot of reassurance.

29:25Amardeep Parmar:So just to go to the wrap-up question, you mentioned earlier about how you make a decision in 30 minutes for angel checks. So I'm guessing a lot of people are now going to message you about that. So what are you looking for with that? What are you trying to decide in that 30 minutes? Yeah, I trust my gut a lot of the time. And I think sometimes your gut, unfortunately, I think generally has unconscious bias, but I think it's probably a decision that your brain's already made but you're not being able to articulate it. But generally low ego, high horsepower people, people who, you know, a lot of my angel companies, I'll message them at 9 o 'clock at night on a Friday, they'll respond back to me at 9.20.