How VCs pick founders to back or not? With Pearse Coyle of Deepseed Fund VC

Summary

Want to know how VCs pick founders to back or not? Join us as Pearse Coyle of Deepseed Fund VC shares insights on deep tech startups, venture capital due diligence, and more. If you're a startup looking for funding, this video is a must-watch!

Takeaways

1. Market discovery is crucial for startups to identify potential customers and validate their product or service.
2. Cap table issues often arise in university spinouts, with tenured academics expecting a larger stake than full-time founders.
3. A standardized scorecard can help evaluate startups based on market traction and customer interest.
4. Investors should look for startups that have engaged customers and a clear path to market.Building a strong founding team is crucial for startups and spin-outs. It requires the commitment of the scientists or entrepreneurs involved and the involvement of individuals who are familiar with the technology.
5. Measuring traction in startups can be challenging, especially in deep tech ventures. It is important to define tangible stages in the sales process and track the progress of potential customers.
6. Becoming a VC in the deep tech space requires experience and understanding of the investment process. It is recommended to gain a track record through angel investing or successful entrepreneurship.
7. The deep tech sector is expected to shape the future of technology and innovation. With the potential decline in the software business, there will be a shift of capital towards deep tech ventures, leading to new opportunities and challenges for the VC industry.

Chapters

00:00 Trailer
01:12 Introduction / Venture Investing and Consulting
22:33 What kind of cap table screw up and importance of scorecard?
33:04 Building a Better Founding Team
41:03 What matrics are used to evaluate startups
47:45 Becoming a VC in the Deep Tech Space
46:14 Measuring Traction in Startups
53:55 Becoming a VC in the Deep Tech Space
55:35 Emerging Trends in the Deep Tech Sector
01:01:03 Ritual Time ( What's the worst decision he made )
01:02:31 Ending 

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Transcript

Mudassir (00:00.142)
fine. I review them, I review like all of them myself so no problem, you continue whatever you have in mind. Yeah.

Pearse Coyle (00:06.74)
Okay. So I'm going to say thank you very much for inviting me onto your podcast. And, you know, I mean, as we discussed in the prep for this, I'm happy to sort of open up with a little bit of my own background and describe how I got to how I got to doing what I'm doing right now, if that makes sense.

Mudassir (00:23.374)
Oh, I didn't even ask the question, but okay, no problem. All right, so let's start now, okay? Let's start now, okay. Rolling now. Please do a clap for me. A clap. Perfect, thank you. It helps us in syncing the audio and video because there's a small lag, so it does that. Okay, so starting now. Hey, Piyush, welcome to the show. How are you doing, sir, today?

Pearse Coyle (00:25.78)
Hahaha!

Fine, okay.

Pearse Coyle (00:40.788)
Good. Oh yeah.

Pearse Coyle (00:47.732)
Good, Monsieur, I'm good and very pleased to be on your show and thank you for the invitation.

Mudassir (00:52.536)
It's a pleasure to have you on the podcast. Every single time we have anybody on the podcast. One of my favorite go -to questions that I ask everybody is about asking them the context of their life. So what's the context you have of your life? Who is Piers? How did you end up here? So let's start there.

Pearse Coyle (01:09.14)
Sure. So...

I am an Irish guy, spent most of my career in Ireland and started out as a techie developing software for American multinational computer company called Wang Computer. And it was quite a sales oriented company and it didn't take long before they kind of pushed me into a sales role. They figured like presentable techies are usually, you know, desired in sales. So,

So I ended up working in sales quite early on in my career and I thought I really knew the business. I'd spent a lot of time on sales calls with sales guys before, you know, providing technical content and stuff. And I knew the business as I thought. And then I arrived in sales and I was given this kind of green field territory. We didn't have a lot of business there. And I thought, okay, great. I had a whole bunch of ideas for how to develop that business, you know. And I would...

I would get up in the morning and I would think of some idea and start some campaign, get really excited. And I remember a few times I would have a particular campaign, and this is too long ago, longer ago than I would care to admit. You did campaigns with things like mail shots, physical mailing mail shots. And I would send out, I would say, okay, we're sending out to several thousand or whatever, 5 ,000, 6 ,000 mailer to this very, I really had it all segmented, I had it all figured out. And I would.

the mail would go out and I'd go in early the next day, I'd go in early the next morning, buy my phone, waiting for the phone to ring and nothing would happen. And I would say, okay, maybe the post was slow today or maybe it takes a little bit of while. And after doing this a few times, I just realized that you just can't, you cannot reliably predict what is going to sell. It's a very, very empirical thing. You have an idea, you go out to a market with a particular proposition.

Pearse Coyle (03:06.836)
You cannot successfully theorize as to what's going to work or not. It's just trial and error. There's nothing else. And no matter how well thought out your thing is, it's all about actually who engages. So anyway, so I went on from there to work with an Irish company that was selling it. So I decided I wanted to get into international sales. Ireland is too small, too parochial, and I've worked abroad before. And so I said, okay, let's get in, let's...

I wanted to get involved in international sales and the only companies at that time who were doing international sales from Ireland were Irish companies that were doing their own technology, that they were developing their own technology and selling it internationally. So I ended up working for a company called Eurologic, which was a data storage company. They basically designed and built their own RAID system, RAID disk arrays, redundant array of independent disks or inexpensive disks. And...

I took the sort of same approach, but differently. It's very different when you're selling a unique piece of technology internationally. And you can pretty much go anywhere with it. You're not reliant on a couple of counties or half a country or something like that. You can say, OK, well, where in the world ought there to be a market for this? And I ran a whole bunch of campaigns successfully with that and had quite a bit of success in that company.

it got me thinking, okay, right, I know how this works. It's not like a lot of people when they're in a, a lot of young people when they're inexperienced and they go into sales and they're told for the first time, okay, you've got to sell this thing and it costs, each one costs half a million. You're thinking, oh my God, where am I going to find people that, where am I going to find people that have half a million to sell? But if you're on the right track, if your company has something that is relevant, there is a set of people somewhere in the world and they're just waiting for the right product to come along. It's not a case of,

going to random strangers in your county saying, hey, I think you really need one of these half a million things. It's a case of going to the guys who are in the market for the thing that costs half a million. And it's so much easier. And that's, so I kind of took the lessons from that first gig in Urologic. And I ended up working for a series of companies where I was the first guy in with, the first commercial guy in, and it was a new technology. And I had a good bit of success with a couple of companies. Made a little bit of money.

Pearse Coyle (05:32.82)
And so I said, okay, I have this figured out because everybody, the two things that everybody, you know, young people will say like, what's your, what's your superpower? I kind of figured out my superpower was two things. One is selling internationally. A lot of people think, wow, export sales, international. How do you do that? You know, and the other one was just, just selling per se, especially the early sales. So I figured out, I figured out I knew how to do that. And.

around the year 2000, in the sort of high of the .com boom when there was lots of money going into companies. I had a little bit of money and I started doing some consulting strokes, red equity work and some angel investing. And I invested in a small number of companies, but generally I was investing in a situation where I had been at the front, I had been at the cold face with the salespeople. So, you know, we'd sat down and said, what's the proposition? Where are you trying to go with this?

And I said, okay, well, let's do a couple of sales calls and see how they react. So I was investing in a situation where I had firsthand seen what the sort of sales dynamic is. And based on that, based on that experience, I'm saying, wow, these guys are really onto something or they're not. So anyway, so I made a small number of angel investments and then dotcom crash happened and the whole tech thing looked terrible. And I thought that was a really bad idea. And I found a company in another area.

and did a couple of other things. And meanwhile, in the subsequent few years, with my sort of, I was like the kid who'd gone out and spent the money on the magic beans, you know, next thing I look at, there was a great big beanstalk out there. Most of the things I'd invested did really well. And I ended up taking back six times the money I put in on my little small angel investments. So, oh, actually, that really was a good idea. Investing based on that criteria really is a good idea.

So I didn't have money at that stage and I didn't think about raising a fund. So I set up a thing called corporatespinouts .com. My big idea was I would sort of do sweat equity plays on spin -outs and new ventures which were taking something that was already developed out into a company. Because one of the ventures I've been quite successful with did something like that. So long story short, corporate spin -outs are a bad idea. It's really hard to get spin -outs out of existing companies. They do happen, but they're really rare. And I ended up...

Pearse Coyle (07:53.076)
doing more work on university spit -outs because the universities had money and they were happy to sort of pay me consulting money and there was a couple of things going on. And in the middle of that I ended up doing a piece of work for a company. These guys applied to an incubator and the incubator knew that I had worked in data storage and urology before and they said hey what do you think of this? And it was a couple of guys from two small universities in the west of Ireland, University of Limerick and Limerick Institute of Technology. And

they were taking to market a piece of intellectual property, essentially a technique to make flash memory last 10 times longer. And I remember flash memory drives from my time at Eurologic and I kind of got up to date with them. The first thing I read in Wikipedia was the biggest problem with flash memory is that it wears out, it doesn't last very long. And so I said, wow, so these guys are basically apparently addressing the top number one problem for flash memory. So I had reasonable connections here and there and I got talking to

an investor who had invested in Everspin, which was a memory spin out from, or it's not a memory spin out, it actually was a spin out, I can't remember where they spun out from, but anyway, it was a memory venture. And he put me onto a guy called Tom Bernice in California and said, look, if you're trying to check out this venture, get Tom to take a look at it. So Tom basically walked us in, walked the venture in the front door of all the memory companies. Tom was really well connected, he lives in San Jose, he's a very well experienced senior tech guy.

And so we basically before we had even spun the thing out of the university, we had sort of three 30 grand paid for pilots from the major semiconductor companies for this little venture that was like in the middle of nowhere in Ireland as far as anyone was concerned. So I thought I was really excited. I thought this is great. I'll actually get involved. You know, I was sort of a little bit outside on the consulting side or, you know, I was being paid by the incubator to take a look. And I said, I'd actually like to get involved in this one.

So I went in as interim chief executive just to get the spin out done. And I went around to the local venture capital companies, of which there's a bunch, Ireland is pretty good on VC generally. I said, hey guys, you know me, we're here, but this one, it's amazing. We've got like Sandisk paying a 30 grand, we've got IBM paying a 30 grand, we've got Western Digital paying a 30 grand. And we're also talking to SK Hynix and Toshiba, everybody wants in on this. You've got to invest, this is amazing. And they all said, well, you know, you're at the spin out stage.

Pearse Coyle (10:22.548)
We hate stuff at the spin out stage in universities. Like they're all crap basically. Muddister said I could swear that might be as far as it goes. And the other thing that killed us from a fundraising point of view was we don't really understand the technology. It's that sort of deep tech stuff. I don't really have time to figure out what flash memory is and what the problems are. So I'm sorry, we won't invest. So we ended up going back to actually to my original US investor. And so very unusually, we actually did the spin out from this, you know,

Mudassir (10:31.608)
Okay.

Pearse Coyle (10:52.884)
to university nobody had heard of directly with a US investor from the get -go. And we went on, I ended up in there for five years, it was a fantastic experience. And we ended up selling it to one of the semiconductor companies and it was not a super exit, it wasn't sort of life -changing stuff, but it was a great experience. And it opened my eyes hugely on, I suppose, how the world works from when you've got a piece of intellectual property that is truly global in impact or where the claim is really compelling.

from at a world level where, you know, whatever you've done in the lab, you're able to go out to top companies and they say, oh my God, you know, wow, that's amazing. I want in on that. And that's what we had. And that is not the kind of commercialization process that is done anywhere pretty much like the most. If you have world leading technology in, you know, an obscure university somewhere, it just dies. It never gets successfully commercialized. You know, so much of the commercialization process is poor.

Mudassir (11:44.332)
Mm -hmm.

Pearse Coyle (11:49.78)
or you're advised, stay local now Sonny, don't be getting ahead of your skis there. Talk to a couple of local companies, you and so you can't get the local investors, you don't get the traction with the sort of the type of companies that you should be getting traction with. And consequently, even though you had a world leading position in terms of intellectual property, you don't do justice to that and somebody else gets the gig. So anyway.

Mudassir (11:53.986)
Yeah.

Mudassir (12:16.002)
Yeah.

Pearse Coyle (12:16.628)
So coming out, that venture was called NVM Durance, non -volatile memory endurance, if you must know. And so coming out of that, and I spent a lot of time in Silicon Valley with that, and Tom and I, Tom Bernice ended up being our head of business development, and Tom and I referred closely to it. So after that we said, okay, there was really something there, you know, and the key characteristics that we saw as unique were that there was a claim that was compelling, a claim that from the get -go,

You know, even with no marketing, just a very simple claim, which if communicated to the right people, could get you that kind of engagement that we got. That was one thing. And the second thing that we observed was that there's a gap in the venture capital market, that there was nobody willing to fund those kind of ventures, that even though the commercial prospects were really compelling, because it was at the spin out stage and because it was in a sort of an obscure deep tech sector, the supply of venture capital was very, very limited.

So we decided, Tom and I decided, okay, before we, our first idea wasn't to create the fund. Our first idea was we would go sourcing similar ventures. We would go trawling around Europe. We decided to start in Europe because, you know, access to capital in Europe is not as good as the United States and certain sectors in certain cities in the US would consider themselves.

perfectly well as regards VC. Obviously the Bay Area, the areas on Boston, New York and so on. And whereas in Europe, access to capital is not as good and there is a, you know, people really value the idea of getting American venture capital in because it's considered companies are valued higher in the US. So our idea was to kind of arbitrage that difference to go and find really cool stuff in Europe and then get US VC funding into it from the beginning.

And we did that for a while and we went trolling and we did find a number of interesting things and we had quite a good network of VCs and we socialized this with a lot of VCs before we got started just basically saying, hey, look, we're gonna go looking, would you take a look at this stuff? And we got pretty much all the big name VCs were and are involved with us on this. So, but the problem that we encountered in trying to do it was one of the problems that we'd encountered before, which was the spin -out stage. So we would rock up with something and it would...

Pearse Coyle (14:40.724)
sound amazing and the team would be plausible and so on and they might have reasonable traction or good traction and what we got sometimes the stuff was not of interest but the stuff that was of interest what we consistently got was look this is really good this looks really cool stuff but we will not do the seed round so we figured okay right so we're on to something here but the gap is actually providing the seed funding so we decided okay right screw that we'll create our own seed fund and we did.

And that's a whole other story in itself, which includes a lot of expletives which I won't go into, but some fun along the way. But we did get the seed fund together quite quickly, surprisingly quickly, because a number of tech entrepreneurs that had a good chunk of money really liked the proposition, really liked what we were trying to do and said, OK, great, there's enough money, go and do it. And so that was fantastic, actually. So within three months, actually, of starting to raise the fund, we had a fund which was

highly unusual as anyone will tell you. So all good so far and then we really hit the skits and the problem that we hit was where do you find the deals? So our investment thesis was and is that we are looking for ventures that are just at the spin out stage, no money in yet, so nobody's kind of come in and screwed up the cap table and all that stuff. It's clean and we're able to go in at the initial funding round.

And it is potentially world leading technology and its claim as to being world leading is validated by traction. In other words, they have reached out to a bunch of key companies in the world or potential customers in the world who are able to say, wow, you know, it's only in the lab. It's only at TRL three or four or whatever this technology really is level three or four. But what these guys have is way ahead of everybody else and we need it. And therefore, even though it's quite early stage, we're willing to engage. And so that's the kind of scenario.

we went looking for. And there's no shortage of research in Europe, there's no shortage of things trying to spin out. But trying to filter those such that you can find the ones with that criteria is mostly impossible. And so we got very frustrated, like we go around and most of the incubator programs that are servicing the needs of spin -outs,

Pearse Coyle (17:05.716)
just don't do a market discovery exercise. They're all about, you know, they do desk research on the market. They do, they help the guys with the pitch presentation. They give them sort of education about various aspects of doing a startup, but they don't say, okay, Sonny, we're gonna take you out. Let's figure out who you should be selling to. Let's set up a lot of meetings where you actually are connected with those. And which is the model that is, which is the model that the National Science Foundation in the US,

promotes with its I -Core program. I'll come back to that in a minute. So after a bunch of trolling and frustration, just to go back a step, the standard Deep Tech pitch, the standard pitch from a team coming out of university goes something like this. It's essentially four elements to it. It's here's this big problem in the world.

here's this amazing science we've done, here is this team, so -called team, most of whom are tenured academics, and please give us a million dollars. So that's it. It's like, hey, we're great scientists, really, really clever people, give us a million dollars, more or less. And so, and the problem for a VC is that there are not enough hours in the day to sit each of those down and say, okay, guys, look, you might be onto something, but I really, really need you to...

Mudassir (18:13.774)
Okay.

Pearse Coyle (18:31.764)
go out and troll the market exhaustively so that you can come back to me and say, yes, actually all these companies concur that we are really onto something here and hold their hand as they do that. You simply can't do that. So along the way we discovered in Europe, there are a number of programs that actually do a really good job on this. And the one that we particularly like is the UK's iCure program, which is run nationally in the UK by UKRI, which I think is UK Research and Innovation.

and specifically a subsidiary of that, or a department like that Innovate UK. So Innovate UK do a great job with their program called iCure, which is closely modeled on the US iCore program. And the essential element of the iCure program is that, like iCore, you've got to speak to 100 people, which is absolutely horrifying for the academics typically at the beginning. But the way it pans out when they go and do that,

and I've seen a lot of demo days where people talk through their experience of it. What always happens is they start out, like me and Oang years ago, with a certain supposition as to where the market is. They go and speak to three, four, five people and after conversation number five, they realize they're on the wrong track. And very often numbers two, three, and four sort of say, maybe you should speak to these guys over here. And so they kind of pivot around a bit in the course of their traversing the 100 conversations. And eventually, by the time they've got to 100, they're usually fairly clear.

either that there is a market, so either that there's no market and they should hang up their boots and forget about it, or they're clear as to where the opportunity is. And so by the time they've finished, they're usually able to stand up and pitch with one extra slide, one crucial extra slide. So it's still the big problem, big science, here's the sort of supposed team, but they're saying, and we've gone out and spoken to 100 people and we've determined that there is a particular need in the structural steel market.

and our material is particularly of interest to the major steel companies, three of whom are really keen to do something with us. And that is, in terms of filtration, in terms of it being useful to speak to them, that is vastly, vastly better than this sort of non -IQ or non -IQOR situation. And do you sound like, were you about to ask me a question, but it's there.

Mudassir (20:50.766)
Yeah, yeah, yeah, absolutely. But yeah, I just, you know, don't want to interrupt you in any of the things that you're saying, so totally fine. Whenever you'll stop, I'll ask you a question, but.

Pearse Coyle (20:58.324)
Yeah, okay, sorry. No, I just, your body language missed out on me. Okay, so we thought as a fund, this is great. You know, problem solved. We have a program here that directly feeds into our investment thesis. And we got a little bit overexcited. We got to sort of term sheet stage with a number of ventures coming through the iCure program. But we...

Mudassir (21:02.094)
Okay.

Pearse Coyle (21:25.428)
hit a problem once we began our due diligence and there were a couple of problems that we consistently met when we got into, you know, when we got into sort of really checking out these companies. And the major ones, the major two categories of problem, one, when we would get to the customer due diligence stage and actually seek to validate the level of interest on the part of the supposedly interested customers, we would find that there was little or nothing there.

that there was just maybe a conversation some months ago, the person was kind of, yeah, that seems interesting. Yeah, yeah, yeah. But nothing, no commitment, nothing real. And the second problem we consistently found was appalling cap tables where the tenured academic expects to own more than the person who's going full time out into the venture, for example. That's a classic one. And tenured academics having unrealistic expectations as to what they should hold when they're reluctant to take full time positions.

That's a consistent problem. Now there's problems with some universities as well, but less so. It was more on the sort of the inter -team cap table than with universities. So we went back to Innovate UK and said, okay guys, look, you've got a great program. It's actually the best program in Europe. We've been looking all around the place, but you've got a problem. You want to get early stage investors into this, to actually invest. You want people to invest earlier.

Mudassir (22:24.078)
Hmm.

Pearse Coyle (22:50.708)
And we really, really tried, honest we have. And we were pretty much the only one, we were typically the only institutional investor at any of their demo days. Those would be angel investors or maybe one or two university seed funds, for example. So we said, okay, here's what you need to fix. And the specific thing that we asked them to fix, which has ended up being our scorecard, which I'll come onto, was...

So go back to this sort of four slide presentation and we now have our extra useful, or maybe it's fifth, anyway, we have our extra slide which is about market traction, our level of interest in the market. We said you need to kind of go a level beyond the sort of interest and not just say you've got sort of 10 or 15 companies really interested. You've got to actually plot those 15 on some sort of a couple of axes around what is the level of commitment, what is the level of interest? And we sort of created two axes, one of which is,

Like they're interested to engage with you now or they're interested in getting with you after you finish with your animal trials or your human trials or whatever or you know, are they interested to engage with you at a do something for free level, pay for pilot level, maybe invest in kind level or will they actually invest now? You know, so there's kind of two axes in terms of like how soon will they engage and the other is at what level will they engage and by plotting the 15 or so supposedly interested customers on that or interested prospects on that table like that.

at a glance as an investor you say, wow, this one's good, that one is not good. As opposed to a of a bullshit slide with a bunch of logos where 10 of them are in a little circuit that's really interesting. So, yeah.

Mudassir (24:31.566)
Quick question on that, a small question on that. So.

Totally agree that most of these startups coming out of universities and they have a messed up cap table, sorry, not a cap table, even though in many cases it's a cap table, but anyhow. Yeah, so a couple of things that I wanna ask you. So why do you think there's a cap table screw up thing going on? Like why exactly is it? And why exactly is it? And also what kind of a cap table screw up do you think it's a mess of a cap table?

Pearse Coyle (24:47.956)
I like that. That's a Freudian slip there, but so.

Mudassir (25:06.83)
Like, why do you think so? Like, for example, like how the cap table is structured, who is owning what, like, what exactly is at the back of your mind. So that is part one. And part two that I want to ask you on top of that also is that the scorecard that you're mentioning, which is pretty powerful, like, you know, people can actually ski. Can you just, you know, explain that in a little bit more telling us like, okay, why the scorecard is important? And two, how do you like standardize throughout?

Pearse Coyle (25:12.2)
Yeah.

Mudassir (25:34.222)
the world or like throughout the Europe, like how do you standardize that scorecard? So yeah.

Pearse Coyle (25:38.356)
Okay, three questions. So let me write them down before I start answering. So, cap table, standardised core card, what was the middle one?

Mudassir (25:49.454)
Yeah, so yeah, what sort of a crap table do you actually think that that's a crap table? Like that's a screw up? And why do you think that that's a screw up? And the second one is how do you standardize this code card like where everybody feels like, yeah, that's a good data to have?

Pearse Coyle (25:54.548)
Yeah.

Pearse Coyle (26:01.62)
Yeah, okay. Yeah, okay. Okay, so that's easy. So first of all, I mean, just to go back and to be fair, I like I have great respect for the people we're dealing with, you know. I mean, like at university, I was a terrible student. I barely got a degree and I saw the really clever people and I kind of, and I saw how many of them went on into the sort of...

masters, doctorate, post -doctorate stuff. So I kind of know the caliber of people who are typically in the sort of PhD level stuff and I really wasn't one of them. So a huge respect for them. But when it comes to there's going to be a spin out, the scenario often is that there is, there's an academic who's been working in a field for maybe 20 years and they have a bunch of intellectual property that they've identified. They've been sort of.

building on this for quite some time. And then they get a PhD student or a postdoc in to do a particular project with them. And that postdoc or a PhD student builds on their IP somewhat and they come up with something that is marketable, that could be turned into a company. And they are in some ways standing on the wings of, or standing on the shoulders of giants as they do that.

And so they said about creating, so the postdoc then, the senior academic, the person with 20 years work, they're a tenured academic. They're in the university, extended period, they have a full -time salary, guaranteed income, good pension thing. And most of them would argue their salaries are not very good, which is fair enough, especially in Europe, a lot of university salaries, you certainly wouldn't get rich on them. And so there's often a kind of discontent.

about the pay level. And in fact, I would almost say there's always a discontent about the pay level. And then this upstart postdoc person says, hey, you know, professor, I'd actually I think I'd like to create a company based on this. I think there's a commercial opportunity here. And normally there's a very deferential relationship, this sort of the PhD or the postdoc person to the professor who might have supervised their PhD, for example.

Pearse Coyle (28:23.284)
And the professor says, OK, that's fantastic. You know, you know, surely I'd love to help you do this. You know, let's let's do this together. Let's work on this together. It's great. You know, fantastic. I'd really value your experience in doing this. And then there comes this sort of moment of truth where they say, well, we're going to create a company now. What's the how should we what should be the cap table? And left to their own devices. And it's it's often you know, it's not it's not it's not it's not the sort of.

professor's fault, let's say, because of the differential relationship, because of the sort of power dynamics in terms of access to funding and so on, it often ends up that it'll be a 50 -50 split or the professor will have 75 -25. And the professor knows no better, the postdoc knows no better often. They think that's fair, based on how long they've been working on it and so on. So it's rational.

Mudassir (29:15.566)
Okay.

Pearse Coyle (29:21.012)
and it's honest and it's not a question of connivance or whatever that they end up that way. The part they don't recognise, and I do recognise, I have seen it and people who are longer BC than me have seen it even more, is that it's like...

It's like a birthing process, you know, it's almost like you're saying, okay, we're going to whoever delivers the baby, we're going to give them sort of half our income for life. It's something like that. Because if they haven't been there to deliver the baby, the baby would never have come to being, you know, so surely that's reasonable. So it's that kind of logic. But in fact, what happens is the baby is born, the spinner comes into being.

Mudassir (29:53.26)
Hmm.

Pearse Coyle (30:07.156)
And very often the tenured academics quite involved at the early stage, still an R &D heavy project. And there may be even, there's often a very specific time commitment made, as much as 25 % of time during the first year. But thereafter, the tenured academic goes back into their work and their level of involvement in the spin out diminishes as the spin out grows and gets its own in -house R &D. And there's a certain, you know,

who's that guy still hanging around here? So they're very often not wanted after a while. And very often the spin out will go through all kinds of trauma with fundraising and there'll be difficulties. So three or four years out after the spin out, it looks absolutely in Congress if the tenured academic after dilution actually owns almost as much stock as all the rest of the founders together. Whereas in fact, it's really a case of,

It's really and that kills the kills the morale in the startup and it makes it uninvestable. There's a rule of thumb that a lot of VCs will tell you, which is that by the Series A stage, you want a situation where the founding team or certainly the executives running the company still own more than 50 % of the company. And so if you consider that the university is going to have sort of 10 or 20 % at the beginning, if the founder's place is wrong,

Mudassir (31:14.126)
Hmm.

Mudassir (31:26.07)
Yep.

Pearse Coyle (31:34.868)
then you quickly fail that test quite early on, too early on. So, and like I say, it's not, it's not, it's just, it takes a lot of explaining to people as to why, like, hold on a second, this person's been working on it, okay, they did their PhD, they've been working on this for the last three years, I've been working on this for 20 years, why are you telling me that I should have such a small stake? And it's because if the relatively passive tenured academic,

or the tenured academics collectively, there's often more than one, don't take quite a small stake, then the things simply will die and they'll get nothing. And that's the considered experience in relation to this. So that's how it comes about. And I've also answered why it's a It becomes a problem later on. That's why it's a problem. Now, are you happy with that answer before I go on to the scorecard?

Mudassir (32:13.548)
Yeah.

Mudassir (32:21.774)
Yeah, yeah.

Mudassir (32:26.158)
Continue please.

Pearse Coyle (32:27.028)
Okay, so the scorecard is, so we've adapted it. So I mean, just, I'll answer your question. I'll just finish the history and then I'll answer your question in so doing. So Innovate UK said, okay, okay, Pierce, let's try this out. And so Innovate UK, like iCore is run in hubs, it's run in three hubs at the UK. iCore is run in about sort of about 10 or 12 around the United States.

So one of the hubs basically took it on as a pilot. We ran a couple of cohorts through it and we adapted it slightly as we went along. And we came up with a model that is very standard and is adaptable. And it's standard because...

There's a sort of a, there's a, you know, I use the example of animal trials and human trials there a minute ago, but there's an analogous situation for every piece of deep tech. Every deep tech, and when I say deep tech, I mean a venture that is starting based on some background IP, something that's been developed before. So they all have the same, they all fit onto the same matrix with slightly different names for the rows and columns.

So for example, if a lot of ventures, they're starting off, if it's a materials -based startup, sorry, let me just kill those, it doesn't interrupt us.

Pearse Coyle (33:47.604)
So for example, if it was a materials -based startup, very often in the lab they will have proven the material at gram scale perhaps, and only at gram scale. And they will speak to a whole bunch of people that say, look, that's really interesting and those properties look amazing, but I really can't take you seriously until you've shown or continue to demonstrate at kilogram scale. Or other people might say, I won't really engage with you. So that's your now stage is the gram scale. The next stage is whatever the early doctors have told you that,

they want to see next, be it, you know, Kilogram Scale, another example, or another group might say, well, I won't really engage with you until you're in volume production of it, but I am really interested. So you can kind of, you can adapt. So we came up with this sort of a modifiable structure that is completely standardized now, but it's adaptable according to the, like what are the phases corresponding to the development of your particular, you know, taking your...

lab based idea from where it is today through to the TRL9 where it's like fully out there being sold as a product. And then similarly, the levels of commitment will vary depending on what you're doing. I mean, it's, you know, in some, for some types of business, there is some sort of pilot or free trial or trial you could do. In other cases, it's quite different. For life sciences ones, it's quite different. So we've managed to standardize it. We've managed to standardize it.

Like fully, I would say. We make little tweaks to it every six months or so based on feedback from different cohorts. But it's pretty standard and the universal idea.

Pearse Coyle (35:27.124)
the central concept is that from an investor point of view.

Like the filter, it acts as a reliable filter. In other words, when you see a venture putting up the scorecard and you see a whole bunch of things that are sort of to the right and a low down, it means, wow, you know, these guys have passed the test. They passed the kind of market validation test really, really well. And some, I mean, one of the ones we saw lately, it had thousands of, it was a software play, but they actually had thousands of early adopter users of the software. So like it was striking with the numbers that they had.

Mudassir (36:03.214)
Mm -hmm. Yeah.

Pearse Coyle (36:03.348)
and they had surveyed them all and their willingness to pay and all this kind of stuff. So what it's been hugely effective for has been filtering a cohort. So in every cohort that we've put through it, what immediately becomes apparent is that they all fall into three buckets really easily with the scorecard. One is the negative one, the hopeless ones, they're just nothing. And it becomes really clear to them as well, because they can see how their colleagues are getting on.

Mudassir (36:18.594)
Mm -hmm.

Pearse Coyle (36:31.86)
That's the negative group. And then the top end group is these ones that have before they even as soon as they describe to the thing that people are biting their arm off, they're really tangible offers of payment of all sorts. So and then there's a middle group that is viable with a bit of work, but maybe not investor, not investor worthy. And so that categorization, that's what Innovate UK actually liked about it because what Innovate UK

Mudassir (36:55.202)
Hmm.

Pearse Coyle (36:58.644)
did after our trials with a couple of cohorts, they've now standardized it. They've said, OK, everyone going through our program has to use it. And before you can apply for our grant after the program, which is like it's a 300K grant called the exploit funding, which is analogous to the SPI or grant in the US. You can't apply for that grant now without completing this work nationally. So that was pretty cool for us. So that's where it's gone.

Mudassir (37:14.638)
Yeah.

Mudassir (37:20.75)
Amazing. Yeah.

Pearse Coyle (37:25.076)
That's how I ended up here, which is true.

Mudassir (37:25.294)
Awesome. So.

Mudassir (37:32.334)
It's good to have you here. Great story on this entire thing. So a lot of questions that I want to ask you, they're founder focused, so to call them. And the reason why I want to ask you is most of the people we're going to listen to, they're still facing primarily the same kind of problems, primarily the same kind of challenge. So the first thing is,

Most of these startups, not even startups, like these great ideas, I would call them great ideas, they're coming out of the university, they're in a spin out state or whatever they are in, how can they make a better founding team? So let's start there. And the follow up question that I wanna ask you on top of that, which I'm happy to share right now is, how can they create a better founding team and how can VCs or institutions,

can teach these individuals who are unbelievably talented in terms of academic abilities, the ability to sell and the ability to commercialize. Like how can they actually train them, educate them, I don't know, maybe add in their founding team member, work with VCs. So how can they address that particular gap?

Pearse Coyle (38:44.212)
Okay, so on the first one, on the founding team...

Pearse Coyle (38:50.804)
So there is a killer chicken and egg problem around the founding team. And I quite like the way the Innovate UK have approached this and it's one that I agree with. So.

Pearse Coyle (39:07.092)
at the spin out stage.

You typically have, so first, let me give you a range of scenarios here. Worst case, the spin out team doesn't exist. And it goes back to my sort of, my opening comment about the fictional team that sometimes gets presented. So if you're a tenured academic who's got an idea about possibly spinning out stuff that they've been working on, but they're not willing to go out into the venture themselves. And when they present the team, they'll present,

three or four kind of advisory level people and they'll have a couple of vacant, they'll have a couple of unidentified, like CEO, head of engineering or something like that. Like not like people who have not yet been hired yet. So that's disastrous. That just absolutely doesn't work. So first of all, the final thing starts with you. If you are the scientist, potential entrepreneur, you've got to recognize that it only works if you go out into the venture.

or if one of your trusted post -docs or PhD students who knows the stuff as well as you do or almost as well as you do is willing to go out into it. So you need, you know, if you're trying to commercialize a great piece of science, then somebody who is very familiar with that science has to go out into the venture full -time. And if that doesn't happen, you're more or less screwed. Now, the second scenario is that the founding team consists of...

pretty much just that postdoc person who was saying, okay, well, actually, you know, I really want to go out into this. And, you know, they're motivated and they've got a bit of get up and go and they're able to sort of do enough work to make that sort of market validation thing happen. So they've shown that they've got a little bit of commercial capability, but not a top.

Pearse Coyle (41:01.972)
And they're saying, well, I'm not really a commercial person. All the investors tell me I need to bring in a new CEO person or a commercially oriented CEO. But A, they don't have money to pay them. B, the venture is quite unproven. And C, if they did manage to find some poor SAP who was willing to take on that role, it's probably not a very good quality candidate.

Like the kind of people who are available for that scenario are unfortunately not very desirable. Now, the big exception to that is what you sometimes get quite successfully is former founders from the same sector who will say, okay, I'm going to go again. I'd like to do this again. I've got a bit of money. I don't need to be paid or don't need to be paid much. And they're willing to go, but they are really, really hard to find. So if you find a sort of an ex -founder from the same sector,

who's willing to come in on unacceptable terms, that totally, that solves every problem for you really, because usually they can completely tell you how things work. However, that rarely happens now. So my approach to this, we like to invest in the lead technical founder. If you do, another sort of problem with bringing in an outside CEO person is very often they want a quick flip. They're saying, okay, we'll just dress this thing off sufficiently.

get a quick trade sale and I'm out in a year or two. Because you know, I'm middle aged now, I've done a of ventures before and I'm not sort of committing to this for life. Whereas the founding CEO person, very often this is their life. They've been working on this for years and they're really excited about it. And so our vision as to how to build a founding team in that situation is, number one, as I've said, one of the core technical team has to win full time into it.

If you can get some free co -founders from the university, you there's all kinds of, you can be really creative in your engagement with universities about, you know, engaging the service of other people who are mid -PhD, get the university to agree to give up 25 % of the time of some tenured academic who's also looking for shares in the company. So there's a bunch of kind of free people you can get. So you can kind of complete your early technical team somewhat. And then very often,

Pearse Coyle (43:25.116)
you know, through your tech transfer department or maybe through whatever incubator you've gone through, there may be some good business advisors that you can engage with part time. Because if you've gone through a good program, and sorry, everything I say is kind of predicated on you having gone through a good program where you've done something like IQ or I -Core. And at the stage of found, at the point of founding the company, what you have is you've got some great intellectual property, you have determined that there's a bunch of...

people who are willing to engage with you, like some early adopters who are quite excited about what you've got. And then it is possible to map out the first 18 months to two years of that venture as more or less like a technical project. You're saying, okay, you spend time with the early adopters saying, okay, what is it you need to see from us during this pilot phase that is going to allow you to make a bigger commitment to us? So, you know, what are your objectives? So, okay, so we've got this amazing material, proven it at gram scale.

you know, your application is in structural steel for buildings that need to be rust proof. You know, what is the particular use case that you want to see proven? And you get sort of three or four or five of these. And so you're very, you get a number of early adopters and it's very clear what you need to deliver technically to take your commercial engagement with them to the next level. So, so what I'm saying is that in that sort of spin out stage, the ventures usually are not at TRL nine. Their technology is not, they're at sort of, you know, three, well.

four or five or six maybe. And so defining what the, so if you have a situation where you have a set of early adopters who have confirmed that this is, we're excited because of what you've got now, sure, but here's where we need to see you get to. Then you get enough funding to get you to that point where they can make a bigger commitment. You have your technical team lined up as I've described, and you have maybe a business advisor or a project manager person.

can help you with the commercial relationship with those companies to make sure that those projects run smoothly and you get to that next level of commitment and essentially you postpone the hiring of the other full -time and more senior commercial people until that later stage when you will have access to much more money your venture will be much more proven and you'll be you know much better idea as to what you need from a commercial point of view. So essentially what I'm saying is postpone the founding postpone the

Pearse Coyle (45:50.548)
commercial hires somewhat and don't expect to be able to sort of have a complete team that will tick all the boxes for all investors early on. It's simply not possible and even if you do, you often end up with the wrong people. You end up with sort of giving people, committing equity to people who prove that they're just not up to the job or whatever. So that's my answer.

Mudassir (46:14.094)
Okay, awesome, awesome. So I wanna take one more question before I talk about the question from the audience.

So you did mention how do you evaluate all these startups through their scorecard, which is kind of a very objective way to evaluate. And it's not like, yeah, OK, so this is amazing, and that's amazing, and that's not. The question that I want to ask you is, how do you measure traction in these startups? What metrics you would track? So traditionally, in SAS, people would look for, OK, so how many people are just joining up? What's the trend rate? It looks like what blah, blah.

Pearse Coyle (46:45.428)
Yeah.

Mudassir (46:49.518)
How do you measure the track and what metrics do you, sorry, how do you measure the traction and what metrics do you track in these startups?

Pearse Coyle (46:56.024)
Okay, it's a great question. And so, so yes, you hit on, you refer to something there, which is explains the need for the scorecard, which is the lack of metrics. So in ventures like this, there is no historical revenue, you know, there's no number of inquiries per month or, you know, like all the kind of stuff that you might've seen for a company that has been around for a while. None of the historical stuff is there at all. So it's all kind of forward looking.

Mudassir (47:15.116)
Yep.

Pearse Coyle (47:26.036)
and the big...

Pearse Coyle (47:32.212)
So going back to my days in buying computers years ago, we had a, I used to, in my early days in sales, I used to show up to these sales meetings and I would be waxing lyrically about all these great prospects I thought I had. And I would have stuff in a forecast and I would over -optimistically forecast everything, you know, and took several meetings before. They said, poor little boy, he doesn't know what he's doing here. And then one day, one of the guys, Ivor Keelan, I'll give Ivor a shout out here,

told us about a metric they use in their previous job, which was to be quite objective about the stages of the sales process. So go back to this scenario. There is no metric, there is no historical sales. But in most of these companies, there is quite a long sales cycle. If you're dealing with a company where there is intellectual property and the product isn't ready yet, you've got...

sometimes years before you'll actually be able to sort of supply a finished product to the company. But you can break down that process between today and the actual sale to the company into kind of intermediate stages, you know, expressing interest now, willing to pay for a pilot, you know, willing to commit effort or lab space or something to it, has placed an advanced order.

is willing to invest in our company. There's a whole bunch of like tangible kind of metrics that you can use to gauge the level of interest. And so rather than despair and say, well, I can't show you any metrics because it's going to be two years before I can even sell anything. You can say, no, no, hold on a second. Let's plot all of your. So go out and talk to a lot of people and let's get them all plotted onto a scorecard based on where they sit in those kind of

intermediate stages of the buying process that they are willing to declare themselves to be at. And by the way, with a sneaky little thing on the side, you know, you see you've got eight of them populated somewhere in Skorkar. How many of them will be willing to confirm to an investor that that is the stage they're at, which is sort of a little sort of a little tool to prevent them from bullshitting completely with this, which is enormously important because just a slight aside, there is a problem.

Pearse Coyle (49:56.372)
And again, I'm trying to be very polite to the good people in the research community. Many people who have been a long time in research are seasoned at applying for grants. And they see raising money, venture capital money, as just applying for another grant. And the big, big thing they don't realize is that the VCs check everything. And you can't just, you bullshit because if you say something that's really important, say, wow, that's really significant. Can I talk to that guy? Or, you know,

show me the evidence, show me the correspondence of that guy. It's all gonna be checked because the grant people are, you know, say, oh yeah, that's fine, yeah, there's the grant, yeah, and they forget about it, it's fire and forget, you know, and you can often apply with the same bullshit to the same grant agency, you know, in six, 12 months time, but it does not work like that with VC. It's the different world. What's my point? So, yeah, so that's why they sort of will take a call from VC, that's why that's in there actually, is to sort of...

mitigate against that sort of grand tri - grand tri -reaction behavior. So, um...

Mudassir (50:57.996)
Hmm.

Pearse Coyle (51:02.484)
Yes, I think your question was, how do I measure it? Or was there a question?

Mudassir (51:08.238)
Yeah, the question was subtraction and matrix.

Pearse Coyle (51:12.978)
Yeah, so that's it. So, I've Rekeel at the thing, for example, going back to the forecasting, sort of those great sales meetings, and what he described about forecasting was this.

Pearse Coyle (51:31.86)
Inexperienced founders will do a sales forecast and they will say,

Pearse Coyle (51:39.764)
they will say, okay great, we're talking to all these people, so we'll probably do a couple, we'll put a million dollars in the first year, yeah great, no problem, two million next year, four million year after, two to the power of N being the year. And so...

But the killer thing then is, okay, so show me the million. So year one, whatever I was going, year one million, show me where the million comes from, name them. And they say, well, we haven't started the campaign yet. And I said, well, actually, I'm sorry, if you're not even talking to them yet, there is no way you're gonna get a million dollars in the first year, a million, whatever currency. And so the other key thing was, if you've named prospects on your, if you've named prospects on your forecast list, then you ascribe a score to them based on,

based on the tangible stage of the sales process. Have you issued a quote? Have they responded to the quote? Have they verbally told you they're going to do a deal? And if you hadn't issued a quote yet, they could not, they're just not on the thing at all. And if you've gone to the trouble of issuing a quote, you put them in at 5%. And otherwise it's 25, 50. It was very, very harsh. And actually that's correct. You have to be as harsh as that.

So it's not based on good feedback. I think that meeting went really well. You know, how we actually court them. So it's the thing quantified. And so, yeah, so I measure it by tangible progression through the sales cycle.

Mudassir (53:07.246)
Great, great. So thank you for just explaining all these things. So here's what we do is we have a decent big open audience, very fortunate to whoever reads or listens to or whatever watches to the podcast and the newsletter. So what we do is every single time anybody's coming over, we just send out a questionnaire, hey, know, Pierce is coming tomorrow. Any questions you might have, please send it our way. So there are a few people very kind enough of them to just send it. So I just managed to, you know, so there were a bunch of questions, but just managed to pick a few of them, which is gonna be related.

with this conversation that we have. The first one is that was around building a team, but I think you have already answered that, like how to build a co -founding team and like all of that stuff. So I wanna start with the second two one. So for those who are interested in becoming a VC in the deep tech space, what advice would you offer or would you give them?

Pearse Coyle (53:55.796)
Well, it goes back to actually, yeah, your second question, I didn't answer your second question, which was how can VCs train them? And so let me answer that one first before I answer this other question. So the answer is VCs can't train them, okay? There aren't enough hours in the day. Understanding how to invest is, it's a reasonably rare scale. Like you have to be,

It's very hard to do unless you've come up to the founding route and sort of experienced all the trauma of starting companies before, as I have done, or if you start junior at a VC or somewhere and you manage to spend a lot of time actually seeing it from the VC side. There's no quick way to do it. So the people who end up actually making the decisions, the sort of partner level people in the VCs,

Mudassir (54:38.318)
Yeah.

Pearse Coyle (54:54.26)
are rare enough breed and there are not enough of them to take on the enormous task of trying to train all of the...

Pearse Coyle (55:07.628)
research oriented people who were considering doing spin outs. So my approach to that though has been, I I have kind of, I'm trying to think of an analogy of this before I come on the call. You make your own look, you're very lucky, some famous golfer has told you, oh you're very lucky at golf, this is why I make my own look, or the harder I try to the look here I get, that was the expression. And it's not quite analogous to that, but my approach has been to,

Mudassir (55:26.892)
Hmm.

Pearse Coyle (55:37.268)
There's another sort of analogous thing like that song, I'm going where the weather suits my clothes. So we started with an investment thesis and we were unusually dogged about our investment thesis in the sense that we didn't sort of say, well, actually that's impossible to meet. We'll just give up or we'll change our investment thesis. We kept the investment thesis, but we actually said, okay, let's change the game so that the stuff coming our way actually does meet our investment thesis.

And we are now doing that at scale, like in the UK, in Vinnova and Sweden are just about to trial a national level art scorecard. And there's a large program in France, Chief Tech Founders using it. There's a few others at a fairly large scale about to use the scorecard. So our approach has been to work with really good programs and try and make them better. And I think what VCs can do, not so much to train founders directly,

Mudassir (56:06.86)
Yeah.

Pearse Coyle (56:35.22)
but rather they can train the incubators, they can train the trainers and go to the, like for example, if you're running an incubator at a national level or if you've got a big program going at a national level, the best thing you can do is really find best practice and apply that and potentially work with early stage VCs and say, hey, why don't you invest in Spinel's? Why aren't you investing really early on? And the VCs would say, because they're awful. It's just,

Mudassir (56:39.918)
Hmm.

Pearse Coyle (57:04.912)
the failure rate is too high, they come to me with really unrealistic expectations. And it's a question of VCs guiding the people who are running those programs to say, okay, look, if you could just do the following things, then it would become much more investable. And in our case, we've created a scorecard, it's open sourced, and we're giving it out for anyone to use for free. So that's our solution. Now, to your end,

asking how they can get into VC. I'll go back to it. I told you there was a story about how I ended up coming to VC. There was a gap in it. And I will just share that story in the context of this person asking the question. So I told you that myself and Tom started off with trying to broker deals and presenting stuff to US VCs. And when that didn't work out, before we committed to creating the seed fund, I decided, OK, well, actually, that didn't work. Maybe I'll just go and get a job as a VC.

And here I am, guys, I'm sure you've been waiting for me. I'm this really experienced founder, and I've raised several rounds of venture capital. I know how the whole thing works. And I rocked up to various VC firms that I knew and some I didn't know and said, hey, look at me. Don't you want me to join your team? And I got a kind quick lesson in how VC works. And that is that the partner level people in the firm raised a fund.

And they raise the fund and there's enough money in the fund to pay the MOH and maybe a couple of junior people and some compliance people or whatever. And that's it. And another senior person rocking up, there is no money for them to pay them. So it only really works if you sort of are coming along to a fund with a whole bunch of LPs, limited partners who are going to invest in that fund as well. Say, hey, these guys say if I join the fund, they'll give you sort of an extra 10 or 20 or 30 million dollars, whatever it is.

Mudassir (58:50.508)
Hmm.

Pearse Coyle (58:57.588)
So I kind of got that message fairly politely and then, but by some of them, and then one of them that I spoke to really, really pissed me off. And I was introduced by another guy and I had a call scheduled with him. And you know, I thought I came well introduced here and I thought my background looked, you know, I thought, I mean, I'm prone to delusion, but I thought my own background was impressive enough. And anyway, so the guy started the call and he was in a coffee shop.

ordering coffee and he would variously talk to me or the person in the barista behind the counter and it was hard for me to know which one he was talking to and I was getting more and more annoyed like with this and then eventually the guy gets his coffee and I said yeah okay now what were you saying there yeah and so and so he he he more or less said well you know who the fuck are you and well if you're coming with money that'll be different you know end of call by and I put down the phone and it was just before Christmas 2018.

And I was so annoyed, I said, well, fuck you, I'm gonna raise my own fund. And that's actually, that is true story, that's actually what pushed me to do it. And so to your person who's asking, there's two routes essentially. One is you raise your own fund. And it's really, really hard to do. I mean, unless you get lucky, and I got particularly lucky, if you can find a bunch of people who believe in you,

And you're saying, okay, I'm gonna start small, I'm gonna make little small bets, let's do something together. So that's when you raise your own fund. And the other way is you rock up to a firm now. If you're gonna rock up to a firm and get work in VC, you have to expect to win at a fairly junior level unless you're bringing money, as was my experience. Now, that said, I there will be funds that are expanding.

Mudassir (01:00:27.086)
Hmm.

Mudassir (01:00:46.958)
Hmm. Yep.

Pearse Coyle (01:00:51.124)
and they're raising a big new fund and then they might need to take on some new partners. So if you get the timing right with some, but you need to be like, it's a fairly sought after position and it's a pretty sought after position. And I would say you either need, you either need, sorry, like an impressive track record from either having Angel Invested and an awful lot of people will tell you that. If you start by Angel Investing, which is a bit like what I said before.

If you can get access to some money to allow you to agent invest your own money or somebody else's money, and you can show a bit of track record, that is number one thing actually. And failing that, if you're a serial founder or a successful founder, you can show how you understand the process. Then you could talk your way into an existing firm at some level. But it's not easy and it's mostly a kind of a partnership model of self -employed, start your own firm kind of thing.

Mudassir (01:01:53.454)
Great, great, thank you, thank you so much for answering that. All so the next one is, what emerging trends in the deep tech sector do you believe will shape the future of the technology and innovation in the next decade or so? Should be the easy one.

Pearse Coyle (01:02:04.98)
Yeah, it's a few things.

Pearse Coyle (01:02:13.62)
One of the biggest ones is...

there is emerging a kind of a disenchantment with the software business. And what I mean is, you know, up to now, since I suppose, probably since the early 90s, the software business was absolutely the way, way more attractive for venture capital than everything else. Like the economics of it were, well, maybe software and drug discovery, I mean, almost the economics of that are similar, but.

So software business has been commanding the lion's share of VC. However, with the advent of the large language models in relatively recent times, and this is a situation that's changing quickly. If you listen to this in several months time, this will probably already seem out of date. But there is a serious threat now to the intellectual property of almost every big software company because it has been...

it is beginning to become clear that you can create quite complex software systems, mirroring the functionality of very big expensive current software products quite easily with large language models. So I think that there's going to be something of a race to the bottom in software pricing. And so the economics of the software business are going to be massively undermined. And what that leaves then is...

Mudassir (01:03:27.79)
Yep.

Mudassir (01:03:40.558)
Yeah.

Pearse Coyle (01:03:42.534)
situation, well where do we go, so where do we go then to find these amazing defensible highly valuable ventures and I think the whole sort of deep tech area, the whole idea of ventures that are based on you know really deep research that's hard to copy are going to become, they're going to become more valuable because there's going to be a shift of capital from software into the sort of broader deep tech areas.

Mudassir (01:04:09.742)
How does, yeah, yeah, quick question on that. While you're answering that, so totally agree to that, how do you think that switch or that, that switch is gonna change the entire venture capital industry? Because most of the VCs, and I think the VCs got popularized because of the SaaS industry, or the software industry, because the economics work so well, and it was such a sexy thing for everybody to invest in. How do you think that's gonna change the entire landscape of venture capital industry?

Pearse Coyle (01:04:42.932)
Um...

Pearse Coyle (01:04:50.004)
So I think it's going to change two things. So the change of the venture capital industry isn't going to be wild in the sense that, okay, well, there's a couple of things. So yes, you could simplistically say a lot of existing firms will simply change their focus and their fund N plus one will now be a sort of a deep tech fund or, you know, but.

It will also change the VC industry in that the expectations of the multiples will come down. It will have to come down because it's, you know, the unit economics of most deep tech ventures are not as attractive as software. The sort of zero to hero kind of journey is a lot slower. So the expectations as to multiples, maybe the firms will need to slim down a bit. Some of them are pretty bloated. You know,

Mudassir (01:05:28.174)
Okay.

Mudassir (01:05:34.582)
Yep.

Pearse Coyle (01:05:49.972)
And so that's one feature. The economics of it will change somewhat. The thing that will change on the industry side is that...

With the advent of more capital into deep tech, the nature of the deep tech venture development journey will change. So there's a huge, so for example, there's a stat, I'm not sure what this guy's name is, really good UK angel investor, and I'm sorry I can't credit him right now in saying this, but he's done quite a lot of investments and he's quite clear that the average exit value for UK deep tech ventures is about 25 million. Now that sounds kind of.

Paltry are uninteresting for you know, if you're based in the Bay Area and you know You're getting sort of almost C's and A valuations that are way higher than that But if you're investing if you're a C investor and you're investing prudently in ventures at low millions and you're doing it consistently Then that's a very nice return So low millions of valuation and that's quite a nice return Now one of the reasons why deep deck ventures tends to exit quite early is because a lot of them are quite capital intensive

Mudassir (01:06:41.166)
Yep.

Pearse Coyle (01:07:00.308)
And when they reach a point of, you know, they've done a seed round, maybe they've in total raised million, million and a half of money, then they're faced with a choice of, okay, well, if we're gonna scale up, we need to buy a whole lot of stuff, like hardware stuff to make our hardware. It's expensive to actually produce this stuff. And so we need to raise five million or 10 million, or we need to sell. And so an awful lot of...

big companies are active in deep tech, their corporate VCs are active in deep tech because they recognize that there is a very identifiable point early in the life cycle of those companies where they will say, well, there's no point in me raising five or 10 million in venture capital because my exit valuation is going to be in the sort of 10 to 50 million range. And if I raise too much venture capital, I'll go underwater as a founder and I'll get nothing. So they end up doing relatively modestly priced acquisition deals with big corporates.

If on the other hand, there was a shift of VC into Deep Tech and there was a lot more deep pocketed funds available for A and B rounds in Deep Tech, then you might get a lot more of the Deep Tech ventures going further, going longer independently. And I know that's a particular, like there's a number of, in a lot of countries, in a lot of European countries and on a European level, there's a lot of focus on that because they're saying they're recognizing that an awful lot of really well capitalized US firms,

Mudassir (01:08:15.182)
Yep.

Pearse Coyle (01:08:29.428)
tend to buy up European deep tech ventures cheaply and early. Whereas what Europe wants is to essentially throw money at these and turn them into really giant companies, giant European companies. And so I think that the de -prioritization of software will help that and will be ultimately good for the...

Mudassir (01:08:29.486)
Hmm.

Mudassir (01:08:33.934)
Startups.

Mudassir (01:08:46.454)
Hmm.

Pearse Coyle (01:08:57.972)
kind of macro picture for deep tech.

Mudassir (01:09:02.222)
Awesome, awesome. All right, thank you so much, Piyush, for the candor for every single thing that you shared. So we do have this one small ritual on the podcast, and what we do is we ask all our guests a question. So we ask a question for our next guest without telling who the next guest is gonna be. So I got a question for you, obviously gonna take a question from you for the next guest. So the question that the last guest left for you is, what's the worst decision you have made in your life? It could be personal, it could be professional. So yeah.

Pearse Coyle (01:09:16.308)
Hahaha!

Pearse Coyle (01:09:21.332)
Okay.

Pearse Coyle (01:09:35.508)
It's a good question.

Pearse Coyle (01:09:42.994)
You know, my colleagues in, my colleagues in Urologic might be amused by this. But the worst decision might've been to leave Urologic actually. Cause I was, I did a kind of bird in the hand, two in the bush thing. I went to, it was an amazing company. It was a spin out from my old university and all my old colleagues, it was like coming back into college. It was an amazing company, really fantastic company, fantastic founding team. But I joined and myself and my boss did not get on well. And after six months I said, I.

It was a really hard decision because it was really high profile job. It was seen as a big move and I was like, wow, Paris is a great job. And then six months later I'm leaving. And the urologic guys went on to, I left them, they were turning over about five or six million and they went on up to 250 million and I was the top sales guy. So that's probably my worst decision. But look, I'm still friendly with people in both companies, but there you go.

Mudassir (01:10:30.67)
Holy shit.

Pearse Coyle (01:10:38.27)
So you're not going to put me off. What's my question for the next guy? I would say, analogously, this is the kind of poison pill, you know, you could chuck that, would chuck this little grenade over. I'd say similarly, I would say, what's the most embarrassing question the interviewer, the Muddister could have asked you?

Mudassir (01:10:40.462)
Okay.

Mudassir (01:11:05.006)
Come on. Come on. OK. OK. OK. All right. Awesome. OK. OK. Awesome. So let's stop the recording in a minute or two. Let's say goodbye. But please stay after the call so we can do discuss a few things. OK? All right. Thank you so much, sir. I appreciate it. I appreciate the camera. I appreciate the knowledge. It's been a privilege to talk to you about.

Pearse Coyle (01:11:05.914)
Business -wise, business -wise, commercially. The dryer, yeah, same idea.

Pearse Coyle (01:11:22.1)
Okay, yep.

Mudassir (01:11:32.472)
very, very early stage startups and spin outs and especially this particular industry because I'm pretty much a big fan of these. So thank you so much for the time again. Appreciate it.

Pearse Coyle (01:11:40.308)
Thank you Minister, it's a great opportunity and thanks for the invitation.

Mudassir (01:11:46.798)
Awesome. It should be stopped.