Start-up your tech engines
After heavy investment in the sector 2016, the level of funds pouring into AI start-ups has been forecast to multiply this year as the technology becomes more widely used in sectors ranging from healthcare to cyber security, and functions such as human resources. But investors will also be hoping to identify promising companies in other emerging tech sectors.
Why was there a surge in AI-related VC investments in 2016; is this likely to continue in 2017?The surge was based on the advances in open-source software,
which powers a lot of AI. These building blocks are progressing massively due
to the efforts of companies like Google and Amazon, and the rest of the world
is able to build on top. It's been a breathtakingly fast year of progress that
shows no signs of slowing. I think absolutely the surge will continue to grow
in 2017. Like "mobile", every investment and company will need to have an AI
strategy and it's still very early days for older businesses who haven't even
begun to apply AI.
What new applications are developing in AI and are there any examples that you find especially exciting?There are so many broader ways to apply computer technology.
Particularly with AI and machine learning, there's a lot of sector-specific
applications, maybe in agriculture or health. We have one company, Babylon
Health, it's basically an AI doctor. It looks over historical data. It analyses
and can help with initial diagnosis. You cannot do this in a vacuum, but if
people need a quick idea if something is wrong, it's useful.
If you think about most industries, there's quite a lot of
[AI] technology that will be applied. It's still really early days for AI.
We're quite excited. We've only scratched the surface of which industries will
be affected by machine learning and artificial intelligence. I think it's very
similar to mobile -- now it's almost taken for granted that something is mobile.
It's early stage, but if you look at the trend, AI's going to be pervasive.
Over time, you're not going to think about AI -- these concepts will be threaded
into everything. It's going to be everywhere.
Apart from AI and machine learning, which other tech sectors are becoming popular with investors?On the hardware side, battery technology is interesting --
you can fit things in smaller and smaller batteries. Something that was the
size of a car battery, five or 10 years on is the size of a watch battery.
These are general trends -- miniaturisation and better software. Software
companies will be a pretty interesting sector, including software as a service
(SaaS). So many older businesses realise it doesn't make sense to have a server
room and guys managing your software in your office. Software is borderless.
We're seeing great companies building software to sell online.
Cyber security is a very active sector; there are so many
things happening. Companies that never needed to think about security, they
need to think about how to protect their computers in some way. Often they only
think about it after something bad happens.
Are there particular tech start-ups that you expect to attract large amounts of financing in 2017?As far as start-ups go, I think 2017 is going to be the year
of Snapchat with their impending IPO. They've captured a tremendous amount of
growth in a short time. They've been very good at creating a very interesting
brand and they've moved their company to being more of a photography, camera
company. Their IPO will be one of the biggest.
Darktrace is a very interesting [cyber] security company.
It's not a sexy space, but the company has done tremendously well. That will be
a British winner, people will take notice. In the last 12 months, when we go to
our friends in Silicon Valley, it's a brand and name they know. They're selling
to big Silicon Valley companies. It will be a British story of 2017 if not more
of a global story.
How do you assess tech start-ups? What should investors be looking for when considering where to put their money?For us it's a couple of things: we look at the team and the
product very closely. I'm originally American and I spent a lot of my time in
Silicon Valley. If you look at Silicon Valley winners, they tend to be focused
on building a fantastic user experience, something that makes users happy --
they come back and use it every day. Whatever the product is, if it's aiming at
consumer users, is it something that scratches their itch? Is it the right team
that thinks about building something delightful? A consistent fact in every
technology success story is that people think it's great, something they want
to us all the time. So it's a subjective industry in a way. It's something tens
of millions or hundreds of millions of people want to use.
You see people who want to be the next Mark Zuckerberg
coming out of London or Manchester or Berlin. Do they really want to take over
the world? These are the key things.
What should investors think about when deciding where to put their funds?We're pretty broad as an investor and we have a pretty wide
mandate. For us, we look at things that can be winners globally. Every bet we
make has to have the potential of having a massively big outcome. We have to go
into every deal asking, 'Can this be a 10 to 20 to 30 times multiple?' We have
to look for big outcomes. Is a new market emerging or an existing market
At what stage of development of a start-up should investments ideally be made?We usually hit right around Series A. Usually there's
something tangible produced -- a working version of the software, between four
and 10 people in the company, quite early. A lot needs to be done, but we can
see that spark. There's always a lot of miracles that have to happen: you have
to sell it, it has to be popular. If you can suspend disbelief, is this a good
product? If these things can happen, this could be a big company; you want to
be part of it now.
Which cities or regions in Europe are currently creating many of the most promising tech start-ups, and which places are becoming more interesting?London is the biggest -- probably three times the size of
Berlin. Berlin has always been number two. We spend quite a lot of time in
places like Barcelona, Lisbon and Stockholm. They don't get as much press as
Berlin but, per capita, they're probably hitting above their weight. It's a
trickle-down effect: are there specific engineering skills; are people hungry;
is the cost of communication reasonable? We go regularly to Zagreb in Croatia
and places like Tallinn.
In a lot of the former Soviet countries, I think they have
two advantages. The countries have a very strong engineering culture, a big
focus on math and science. They have at least one national-level university
that produces top-tier talent. These countries in general had a strong
education focus and often a lot more female representation in engineering,
which is a positive thing.
And because historically they didn't have a capitalist
culture, the young generation emulates the United States. They see Mark
Zuckerberg and watch movies about him. There's not so much negativity. In
Western Europe, in certain countries there's still a perception that being
entrepreneurial is risky or you should take a corporate job. Out there, people
are hungry, entrepreneurs can do really well.