Deep Tech Venture Capital Investing

EMS:
Absolutely. So to kickoff today's conversation, James, could you tell us about Creative Ventures and how you got to where you are today?
JW:That's a pretty long story. The firm, at least, is more straightforward. So, Creative Ventures is an early stage deep tech venture fund. We invest in technologies like AI and robotics, synthetic biology, advanced materials, things like that. In terms of how I got here, my journey is probably a little bit more like bumper cars than it is a coherent narrative, but some of the sort of highlights of it, worked in microfinance out of West Africa to start with. Then had worked as part of the investment team in Bridgewater Associates, got an MBA, got a master's in computer science, did a stint Google X, co-founded a women's health tech startup. And then at the end of that long, again, bumper cars journey, I had introduced the original two partners of Creative Ventures to each other and then by hook or crook, they somehow got me to join, and I think they had designed that from the beginning. So I guess I was destined to be dragged into this, but nonetheless, yeah, that's the short take on the story.
EMS:James, indeed, it is a very interesting journey, to say the least. So I wanted to ask you, what is your outlook for your investment strategy currently and looking ahead?
JW:Yeah, I mean in terms of investment strategy, we're early stage deep tech. We tend to be the first investors in, and a big reason for that is because we have both the market expertise and the technical expertise. We have a lot of PhDs in everything on the team. But as for deep tech itself, we see it as the future. So that's a little bit of a grandiose statement, but if you think about what will define the shape of our lives and define the lives of our children and our children's children, what will it be? It's probably not another enterprise SaaS company or social network or app. The early 2000s, in terms of that, is kind of a historical anomaly, if you look at the broader history of venture capital.

The history of world-changing technologies from the first industrial revolution onwards to the beginning of Silicon Valley, with vacuum tubes to then semiconductors, it was all about fundamental, risky, and often capital intensive technology, much again, more so than a SaaS company or a app. In terms of some of the technologies we invest in, like AI, robotics, and synthetic biology and novel materials, all of it is actually maturing at the same time right now.

So if you actually look at AI trackers, in terms of their performance in computer vision, pretty much it was only in 2015 that they actually started to reach or exceed human performance. In terms of DNA sequencing, I think a lot of us remember the human genome project, what used to cost billions of dollars now costs hundreds of dollars, and it's still dropping. And when it reached that threshold for commercial viability, again, it was kind of around the 2014, 2015, 2016 timeframe. So we're actually on the cusp of very dramatic changes in technology where we will actually see a lot of changes in society and the opportunities out there that will probably make enough of a change in society that's going to be on the scale of the industrial revolution, versus what was the scale on the scale of the dot com boom.
EMS:James, that segues nicely into the follow-up question I had for you about what are some of the specific opportunities you see looking ahead and why?
JW:Yeah, so deep technologies are great and all, but you pretty much have to have the problems first. You have a lot of technologies out there that have been looking for solutions and in terms of problems, the way that we look at it is take a look at where society is breaking down and where some of our biggest challenges are. One that everyone talks about sort of in popular culture and everything at this point is climate change, which is true, and it's why we invest in things like low carbon cement using geo polymers, which we'll talk about another time, I'm sure, in terms of how that works. But basically, make rocks instead of limestones and mind limestones into cement, much lower carbon. And we also invest in things like fundamental battery technologies, because all that renewable energy, the sun doesn't always shine, wind doesn't always blow.

All of that needs storage in order to actually make it viable. We are looking for things that are commercially viable today and change the trajectory of society, again, today, based on a combination of regulation and new technology. But besides the climate change ones, which I think people are more familiar with, we have a more fundamental human challenge as well, and that's the changing demographics of our society. The main one that I'm talking about is that we're all aging. So this includes what you would consider developing countries, too. Societies are graying, and that's a problem because we're seeing a lot of healthcare costs skyrocket and it drains away our GDP, it takes away our ability to invest in stuff in the future, and it also takes away our ability to decrease inequality in the world. So that might sound weird from a group that invests in robotics, but if you think about labor shortages and having fewer young people, more old people, it creates strains in terms of societal spending.

You have fewer young people to throw at manual labor problems. That actually creates a endemic in terms of an economic problem, having low productivity, low ability to pay higher wages, and also just lowering standards of living, just because when you think about the wealth distribution and everything, it creates problems. Anyway, so we've talked about this for quite a few years in terms of a labor market and a healthcare train wreck. At least on the labor side, a lot of people didn't really believe us, and I think I had actually had one economist laugh at me at one time, but no one's really laughing at this point. I think it's pretty apparent to everyone that there are problems in terms of that market, and I can tell you that none of these problems are going away anytime soon.
EMS:James, on the other hand, what are some of the greatest challenges you face within your investment strategy?
JW:So I think probably the biggest one is deep tech, these different areas I'm talking about, are not enterprise SaaS. So if you're trying to invest in the same way that you invest in enterprise SaaS, you're basically going to be courting disaster. And the reason is for SaaS, or software, you can basically not get your market right or your thesis right to start with, and then basically change your code, change your Google AdWords target, and be in a different market tomorrow. Pivot. Now that's a little bit of an oversimplification, but it's a reason why so many investors focus so much on teams. So it's team, team, team is sort of your criteria. That does not work in this market. You can't just target the right team. If the right team is there, the technology is wrong or the market is wrong.
Basically, even for AI, which you might consider the lightest out of all the technologies that we invest in, definitely lighter than Symbio or things like advanced materials or whatnot, even for that, you need pretty specialized data for AI to be useful in, say, healthcare, which means you can't pivot overnight. If you got your target wrong, the company dies. That means that as an investor, you can't actually be a generalist. You can't actually just focus on teams. If we sort of wash our hands of looking at the deeper market, really understanding the thing and really having a view, especially when a lot of the founders in our space are not serial founders, they're actually PhDs who spent a decade developing their technology, not learning growth hacking, not learning startup culture and things like that, you need to not only have the technical expertise, but the deep market expertise to help guide them to the right targets and markets. So that's why for us, we actually need to end up spending thousands of hours, literally, before ever meeting firms in the particular areas that we're interested in investing in.
EMS:James, I wanted shift gears a little bit and discuss DEI and being a minority-owned firm, clearly Creative Ventures embraces it. So I wanted you to discuss what you're doing at the firm as a whole and through your investments to incorporate it.
JW:Yeah, totally. I mean, just empirically speaking, we have pretty impressive stats for the industry. Nearly half of our portfolio companies have founders who are underrepresented, and about a third of our portfolio has women founders. I think we could improve in that, too. It's sad that that's actually a far higher jump than most of the folks in the industry, but still, empirically speaking, it's quite good. But to do this, we end up doing something quite different than traditional VC. I just said that it's not all about the team for us. Same way here, you can't just rely on warm intros in your own narrow networks if you actually want to have a diverse portfolio. If you do that, that tends to have people who just look like you, which as a minority-owned firm, we're starting in a better place than a lot of the firms out there.

But even so, we know that there's a wealth of incredible talent out there that we want to be able to give a chance to, and that's why we have a open process for us for founders to reach out to us. That's why we cast a pretty wide net in terms of academic labs. It's why we publicize very exactly and explicitly what startups and what criteria we're looking for. Again, made possible because we spend thousands of hours of research sometimes to actually try to narrow down on what we want to invest in.

But all of those steps mean that these great ideas can come from anywhere. We publish it, we make it public, we make it possible to reach out to us, and then atypical founders, and founders who don't look like us, can then find us and basically propose, hey, I have something that actually addresses those things that you were talking about. We find that pretty critically important, not just for DEI, even though it's a critical step, we think, in terms of actually being open to being able to bring in those diverse voices, but also for us to have it as wide of a net possible to find the pivotal technologies that will truly change the world.
EMS:James, we've covered a lot of ground today, and I wanted to see if you have any final thoughts you'd like to share with us.
JW:Yeah, I mean, this has been a great conversation. Excited to be able to talk to you today. I think at this point, we've pretty well proven out our hypothesis in terms of what we can do in deep tech, and Covid's only really accelerated many of these trends. For us, as a firm, we're probably looking to grow as we go forward, because we're finding ourselves as smaller and smaller check size, even though we lead rounds, where the total round may be 10 times what we end up putting in.

So we actually see a ton of opportunity in this space, and still see it as pretty massively under invested, especially at the early stage, just because so many investors are deterred by the barriers and challenges I mentioned, in the sense that you actually need to have pretty deep expertise and a pretty strong view in terms of where these companies will go. So we're looking to definitely grow our firm, keep pushing forward, and take advantage of these opportunities, and again, a massive opportunity, but massively under invested still space in terms of deep tech.
EMS:Well, James, I wanted to thank you so much for sharing your perspective with our listeners, and thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast, when we get down to business.

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