341.Insights From Years of Deep Tech Investing and Advising w/ Uzma Choudry

0:00I'm Uzma. I am a venture investor and operator currently helping deep tech companies with go-to-market, with early scaling and strategy.

0:09Amardeep Parmar:Awesome. So you've got a really mixed background, right? You obviously did your PhD first, you're investing. How was it having that PhD lens from before? How has that helped you in what you're doing today? I think I ended up in a PhD because I have a very curious mind. And that is probably why I ended up in venture, because venture gives you the opportunity for lifelong learning. No market is the same. No company is the same. No team is the same. And while there may be patterns, you're constantly learning as the market is evolving, as, you know, sort of the companies that you're investing in are growing and scaling.

0:46so it's a guaranteed lifelong learning piece so that's how I got into venture.

0:54Amardeep Parmar:And how has that PhD helped you do you think? I have spent my career in fact when I joined venture that was when Europe went through its sort of deep tech growth so I have seen and been part of the build-up of that ecosystem and having a technical background and being a scientist by training has really helped me a connect with those kind of founders often enough these are technical founders and so to be able to speak their language is means I'm able to connect with them uh be I'm able to understand what they're building I'm not asking them you know what their ARR is for next year I'm trying to understand what technical milestones they're trying to achieve and what key challenges that they have in the early sort of customer engagement and market scoping So I think the kind of questions that I ask and the lens through which I look at these companies that to a large extent are building some sort of technical asset is different because I come from a technical background and I understand the difference between my photon and my electron.

1:58that can, yeah, it's just a very different set of questions and a very different set of risks that you're trying to assess. And obviously, as these companies scale, then you start seeing sort of commercial risk and growth risk and revenue risk. That's when those questions become more important. But I think I've been quite lucky in that I was at a multi-stage fund. So I've seen companies from the very early stage negotiating licensing terms with universities to raising hundreds of million financing and actually signing commercial agreements and having sent their first units into the market. So I think that's where my background has been really interesting to look into venture through.

2:47Amardeep Parmar:With the company you're working right now, what kind of phase is there? So a lot of these companies are sort of series A seed stage companies, so still early in their journey. And a large part of what I do with them is sit down and actually focus more on the commercial, the go-to market, and scoping out, you know, from the big go-to market vision that they may have, scoping out where they need to gather those early proof points, those early validation points that they can then go to the investors with and be like, look, we have already, you know, spoken to X, Y, Z who have this problem, who would be a paying customer and here's their feedback, how they'll use a tool like this or a product like this or a service like this and what they'd need to see and what a commercial agreement would look like.

3:38So it kind of gives a bit of a proof point versus here are three markets that we're going to go after. And, you know, without yet enough data on actually how would those customers engage what would they need to see to engage and what do those agreements look like and what does the journey look like from you giving them you know a pilot to them being a paying customer what were some mistakes that people make in that space

4:06Amardeep Parmar:you said about the grand vision being able to make sure you're doing at the first step what mistakes the founders making who may be listening right now who are thinking like they go to market what could you tell them advise them so I think a few things I think first of all the kind of teams that I work with are and the companies that I work with in deep tech space are academic teams and I am a former scientist I love science I read science and so it is natural for them to be passionate about what they're building from a science perspective from an innovation perspective, what is super important for them at that early stage is that they balance that with an equally strong commercial lens and bringing on folks, whether that is as co-founders, whether that is as advisors who are very sort of commercially astute, either have a deep insight into the market that you're targeting or deep operator experience where they kind of understand And here are the sort of typical mistakes or growing pains most startups have.

5:16How do we ensure that we set this company up for success? And in fact, those are the kind of teams that I have seen do really well, where you have a really, you don't only have a strong academic breed, you also have a really strong commercial grounding on the team with it. And that, you know, sort of really covers all grounds and being aware of your blind spots, I think. So the second piece, I would say, is look beyond your next funding round. So a lot of the time when you're speaking to founders, they're sort of like, here's what we need to achieve and we're going to go and raise a 5 mil or 10 mil rank.

5:54Look beyond the funding round. Think about your capital strategy in the long run, especially when you're pitching it to investors, right? So here's what it would take to take the business or the venture today from here to first customer, from first customer to, you know, 50 million or whatever, or whatever that point is, or whether that's a clinical approval or phase one approval, whatever, you know, your relevant milestone is. and here's what we'd need to achieve to get to xyz and here's other folks who have done it other companies and you can find these comparables and here's how much capital they've needed here's the type of capital partners required and actually having that full sight of this is what it takes to build the kind of business that we need to build so we need partners who are able to support on that journey.

6:50And so you bring the right investors from day one. I think sometimes I have seen founders kind of just thinking, right, I need to get the series A story straight. That's important, but you need to be able to sell your vision to investors, to future employees, to talent. You need to show what the big picture is and what proof points you have for that. Who else has done that? What have they achieved? What did they need to do to achieve that? What kind of capital that they need to achieve that.

7:21Amardeep Parmar:And you've also been in deep tech for quite a long time, right, in this space. And even at the space I've been in here, right, the time I've been here, you can see attitudes changing towards where people are a bit more interested in deep tech maybe than they were a few years ago. And it's like a little bit of defensibility, right? But how have you seen in your time, because obviously you've got a lot more experience in this space than I do. In deep tech, are you seeing attitudes changing within the market? Are you seeing attitudes being fairly stable? So when I first entered venture, deep tech was a very niche area that investment funds had, you know, sort of one or two people within the fund looking at.

7:56And, you know, we had at that point, I think the first one or two seed funds that were focused on squarely just on deep tech. And I remember so much of companies like 5AI, companies like Wave and meeting these guys and they would, so much of what they'd hear back is like, oh, this is very capital intensive. This is a very capital intensive play. And in fact, one of the big problems that I think exists even in the market today, what's happened on the back of that is we are now seeing a lot more seed funds in that space. We have seen funds develop appetite for deep tech. And we've seen the government sort of putting significant amount of backing into that.

8:36Because from a resilience perspective, from the fact that we're actually going to need this, this isn't going to go away. This is an issue of national security and having your own internal strength in this space. And we have some of the best universities in the world doing this stuff and spinning out companies in this space. While we have, you know, great deep science coming out of the UK, we really struggle on the funding side. And now, although I see the early stage funding being sorted, the bottleneck has now moved to growth stage. So while, you know, domestic funding for deep tech companies that precede is like 90 % of it is domestic, by series B that drops to under 40%.

9:26And these companies need patient long-term capital. They're not revenue generating. They're not generating profits by Series B. They need long-term patient capital. And so many founders have moved or then have to go to the US to raise, including portfolio companies from my own investment portfolio where the founders have had to, when they start raising more than 30 million, and they're looking to the US in deep tech space. So I think we need more capital that is growth stage focused. We have a lot of pre-seed seed funds in that space. We need specialist deep tech capital that is able to support these companies and support these founders through that journey all the way through growth.

10:17Amardeep Parmar:With that growth stage capital, right, and it's difficult because when you're looking at investments, So say looking at AI and it's going to 100 million revenue in the next six months time, right? Obviously, deep tech, more defensible when you think that if you make the right play, the revenue could be a lot longer lasting and a lot more defensible. But as an investor, how do you know which of those companies is going to get there? How do you, when you're looking at the kind of growth stage, how do you pick the winners there? I think that the things that help deep tech investors is right, you kind of see whether the breakthrough or the innovation really solves something that is a latent demand in the market or actually this is something that can create a whole new market or, you know, can allow us or a industry or a market to do something that they historically have never been able to do.

11:07actually then being able to recognize whether there is a technical moat underlying the science right science is one piece but actually can you from the science is there a way that this team can productize something and it be sellable and second piece is early proof points so the way you know this is you know who would their customers initial customers be could they do a pilot you know with them send a demo get some feedback and that data point and the number of the teams that I have invested in would have those early stage development partners or early customers who are looking at you know the demos and the pilots and it's the genuine conversation then with them, actually, what problem is this solving for you?

12:00How much, you know, what are you using today? How much would you pay for that? What does a commercial agreement here look like? Why would you switch over from your current solution? Actually, could this be adoptable? And what is the adoption, you know, sort of friction for this? And so it's those two parts. It's first to understanding, does this innovation truly unlock something which is a big problem today, right and then b is there a underlying business model that really you know works right can you make money on this can you actually you know there's no point and you know one of the one example would be uh ori biotech right so they they are building cell therapy uh manufacturing platform that automates and scales that so cell therapies life-saving treatments uh we have seen the first wave of cancer patients declared treated with these therapies.

12:59Yet, a lot of them cost a million per pop, right? So it's not accessible. Great science. You're curing people, right? Brilliant science. But there's this huge bottleneck here because how do you finance this? How do people afford this? And even for the first few therapies that came on the market that were manufactured at scale, there was a limit of how much volume they could produce because it was so hands on. You need technical people, cell biologists. And so this business was looking at actually how do you scale and autonomise a lot of that using engineering principles to solve a hard problem within a life sciences cell therapy space?

13:44So that's the kind of lens that most deep tech investors would look at. Well, actually, what are you solving? What is the size of the problem? Who would pay for it?

13:53Amardeep Parmar:And what would that look like? It's in Laurie Biotech, because they're Jason Foster, right? Yes, that's Jason Foster. So I interviewed him on my original podcast when I had the US, well, more the global one. So he also kindred, I think, invested in him. So Gov was kindred at the time. So that's the first introduction that my co-founder made for me as well. Yes. Yeah, Jason is amazing. He is such a brilliant operator. And again, to that point of, you know, having a robust technical grounding and a strong operator and commercial pair, you know, that is a strong example of that, right? Farlan, an academic from UCL, you know, brilliant.

14:32But the fact that he very early was able to bring someone like Jason, who has, you know, a strong operator experience and has led the business through, you know, several funding rounds and, you know, the launch of their product is amazing. So I think that's what we need to see more of in the ecosystem was these, you know, superpower pairings, power couples of academics and commercial talent. And I think historically the issue we've had in Europe was a bit of a chicken and egg problem, right? Where there is a lack of execution talent. So a lot of founders were having to go to US to find that talent.

15:09We're now starting to see the first batch of founders kind of scale the companies to series B, series C, and now recycling and going back to their second companies and third companies. And we're now starting to also see execution talent being attracted to Europe for several reasons, right? And relocating here for just the caliber of companies that we're able to spin out. So I'd want to see more of that as we move forward. I think some of the issues that I see maybe in more regional areas, right? So London, Oxford, Cambridge are slightly further ahead in their journey on this stuff in deep tech then for example some of the other regions and the other regions are you know this just a phase of where they are in their curve of growth a lot of these technical founders sometimes feel like it's oh well I've got to build this all if I you know it I have and it's no it's who you can bring alongside if you're able to bring on the best you know sort of head of BDE that can help you with those getting your foot into those early conversations or even an advisor who can open those doors for early conversations with your potential customers that's much better than trying to do it yourself and that's another piece that I'd say to founders is don't just sort of feel like you have to do it yourself the best founders know how to hire the best people and often enough they'll hire people who are better at what they're doing than the founder is at what they're doing.

16:41Amardeep Parmar:So you talk about how the research in the UK is like very strong at the moment, the talent's getting better. How would you kind of assess that UK position in deep tech right now? Because obviously we know there's an area that the government is focusing a lot on and there's not more seed funds. Do you think the UK is a good place right now with deep tech or how do you think about that? I think we're in a really, really strong place. We have been for a long time. I think obviously we're not like the US, but the US is a more evolved ecosystem. The US also works with a very different caliber of capital, right?

17:12The capital we have here is nothing like the capital in the US. A large population of LPs in Europe are software-facing LPs. So for them, this is a new kind of, you know, area where, you know, you kind of go, well, there aren't going to be any revenues. How do you know if the company is doing well or not? And when sometimes the risks are very binary, it's really hard to sell that, right? Because sometimes the company takes a very long period before you get signals of there's something here. and so I think there's definitely you know if you look at some of the funding grounds that we've had in this space you know you look at Fractile you look at Olex you look at you know a number of other companies historically look at Wave AI great caliber of companies being birthed out of the universities it's just sort of the early stage capital now I believe is there the seed, pre-seed capital.

18:12We're seeing specialist funds. We're seeing funds who have dedicated capital for deep tech. But I think it's the growth piece where I increasingly hear companies worry about, you know, well, we've got to, and a big part of that is develop those relationships early. So a huge part of what I also did while I was, you know, doing in my venture journey was build a US growth deep tech investor network for my portfolio because it's like right you've got to pass the bat on right who's the next set of investors and I ran this showcase where we'd have some of the growth funds and deep tech dedicated funds like Lux like Obvious like Foresight Capital from the US essentially attend and see 12 European companies that I had sort of sourced that I thought were actually these are going to have some really exciting funding rounds and are really you know sort of great companies um and they'd basically do like a fire side pitch like five minutes pitch and then i'd follow up with introductions and a number of them raised successful like funding rounds went on to like raise strong series b companies series b funding rounds so i think we do need more of more of that but i think we're in a really good position from the science perspective Talent's getting better.

19:36Early stage capital is now largely there. Growth stage, we are in trouble. And that's where it's like actually, you know, seeing these new fund announcements and, you know, focus from the government on actually we need to start looking at pension funds deployment into these areas as encouraging.

19:59Amardeep Parmar:Hello, hello. I hope you've enjoyed the show so far. I'm Amadeek Parma, co-founder of BayHQ and the host of this show. For those of you who don't know, BayHQ 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 www.beahehq.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.

20:40Amardeep Parmar:Hope to see you soon at our event. Hope you enjoy the rest of the episode. You mentioned how it can be binary, right? So if science works or it doesn't work, or there's obviously more news to that. When companies aren't, like the science isn't going the way they hoped it would be going right so I've had some of your comments in your portfolio on that side have you advised them or what can they do where you're pumped in loads of money and maybe get some results that aren't quite going your way how do you deal with that as a founder or how do you try to advise people on that side so I think it's a very scientist way to approach that right of like okay is this problem solvable how do we solve this do we solve this is this a biology problem is this an engineering problem uh is this a science so I I think it's then figuring out and troubleshooting that and understanding how you go about solving that problem.

21:26And sometimes, obviously, a larger part of these companies are super high risk, right? When I first started in venture and, you know, we were getting the first waves of quantum computing companies. And it's like, well, actually, which of these different approaches will work, if any? And at that point, there isn't even a market. So then you're sort of also thinking, A, is this going to work or not? B, is there going to be a market? And C, is the market going to be timed at the same time as these guys cracking this, right? So there'll be a lot of companies that will build great stuff, but they're either too early to the market or, you know, sort of too late.

22:05I think there's less of an excuse to too late, but you can easily get be too early in a market. So I think that is a risk that you take in these companies. It's inherently the kind of risk built into deep tech.

22:20Amardeep Parmar:Which kind of sector is interesting you the most right now, like within deep tech? So the way that I think about and how my investment thesis has evolved over time is essentially, you know, applying engineering to, you know, sort of hard substrate, whether that's compute, biology, robotics. And so for me, the way that I articulate that is that, you know, biology, physical sciences and compute were running on their own sort of clock and timeline. And in the last decade, we have seen, you know, these clocks sync up and the interesting companies are at the intersections of these clocks. and it's where you can you know apply engineering to biology or to physical sciences is where I find the interesting interesting layer of company so I don't think you know the most interesting company in the next sort of 10 20 years going to be the next foundational model or a model it will be sort of the substrate underneath it whether that's the chips whether those are the sensors and so that's how I look at investment opportunities and sort of stuff that excites me.

23:33Amardeep Parmar:And also you talk about how you want the scientific background and the team which has got commercial in there as well. What other things are you looking for maybe that's different to other investors when you look at people in deep tech? Yeah I mean early stage investing is team right to a large which is why this team piece has been a repeated theme in this conversation for me and specifically, you know, sort of patterns pertaining to deep tech of having that early commercial grounding within the team, whether that's in the form of advisors or, you know, sort of co-founders or head off X, Y, Z.

24:06But I think what's also important is understanding of, you know, where in the, what problem they're solving and where in the value chain that problem sits. And is that big enough? because sometimes founders can give really big, here's a, you know, I don't think I've ever met a founder that doesn't go, this is a billion dollar market. But when you actually kind of sit down and figure out, okay, where in the value chain is this? How much would a customer pay for this? And, you know, what would the gross margin be? That's when you actually get to the real numbers. So understanding the problem, the scale of the problem, and B, why, you know, what the moat is, why would it be hard for someone to not, you know, for someone to not use another solution?

24:51If someone else put hundreds of million into building a similar solution, why would they not switch over? So what is the defensibility there? So size of the problem, defensibility are two other things that I look for on top of sort of a strong team. But I think first of all, it's sort of the team. You can have great science, but if you don't have the right team, it just remains science. to turn it into a company, you need brilliant people and you need people who have operator DNA, who have builder DNA in them, who have a desire to, you know, build companies. So that is probably the most important thing.

25:31And then obviously the science itself, right? If you're doing deep tech companies, you've got to understand whether the tech, the innovation, the science has legs and And that's, you know, sort of how many, as another investor put it really beautifully, someone who I know through my network, who I used to share a board with. And he'd often say, do I need to, you know, do I need to believe in one miracle for this to be true?

25:56Amardeep Parmar:Or do I need to believe for three or four? Right. The latter gets into a category which is not something that you can, you know, kind of get comfortable with. But the former, you may be able to break through with science. And where's your focus then at Scope of Eish yourself? So I have been working very closely with founders, deep tech, tech bio founders, engineered biology founders, and essentially focusing more on that sort of early market scoping, early go to market and broader strategy stuff. So more like chief of staff kind of role as well of actually how should we think about, you know, hiring, bringing on board your first like head of BD.

26:42So those are the kind of things that I've been focused on in the last two years. I've also been an external guest IC member for funds that are looking at deep tech deals and are looking for, you know, sort of an expert opinion from someone who's operated in the space who knows space well. and just been staying really close to the ecosystem and the founders in the space. And I'm also actually running a roundtable series with Vincent Shang from Covington. We do these sort of 12 people, 10 to 12 people format dinners where the whole idea is small numbers. you bring on founders early growth you bring industry partners or potential customers whether that's pharma whether that's sort of like you know industry and then sort of regulators all under and investors on the same table and the idea is that to catalyze like a good conversation where everyone is able to kind of go well here's here's the thing that we're struggling with and someone to be able to go, right, actually, we can help you with this, or here's how we've done it.

27:59And I think we see a lot of events that are big numbers, where it's so hard to kind of drive outputs out of that. And the whole intention for this roundtable was actually to be really focused, to bring these groups of people with a set agenda, and essentially help catalyze. And we had actually in the back of that have you know sort of um connected a founder to another founder that had done a u.s sort of flip and they were like oh i'm thinking of doing it can you introduce me to that founder at the dinner so that i can kind of you know get his notes and what i need to focus on so i think we'll be continuing to do more of that and that's the other piece that i've been doing on the ecosystem side which which is the stuff that brings me joy is actually building ecosystems and getting involved in some of this early, you know, connecting people and figuring out how folks can help each other.

28:57Amardeep Parmar:So what we're doing is every episode 340 something now, right? Is every 200 episodes we're saying people can come back again. So it's like two years time. What would you love to say, like when you come back on and say two years time, what you've been up to in those two years? I think I would want to have sort of back two or three category defining companies in the deep tech space. I think this is, you know, definitely, you know, sort of the time for deep tech in Europe. And I'd love to have been part of that. I think I would love to have actually also taken a meaningful job at some of the problems that I told you about in the ecosystem, right?