SPEAKER_00 0:05

Welcome to the Future Ventures podcast, killing with Clarity. Today with us, we have Ankit Annan. He is the founding partner in Rice Burger Ventures, a global early stage venture firm focused on deep tech across space, cybersecurity, AI, and frontier industry. He started his career as a physicist at ETH Zurich and worked on the LIGO verbal gravitational wave project before becoming a founder and an investor. Today, he buys companies building hard, defensible technologies, often before the market fully understands them and works closely with founders to take ideas from science to scalable businesses. Welcome to the pot then, Kit. We're super excited to have you.

SPEAKER_01 0:50

Thank you very much for having it. I'm excited too.

SPEAKER_00 0:54

So and Kit, um why don't you just kind of walk us through uh um how did you come to venture? You started in physics and you moved into into venture. So, kind of like what was your journey? What did you learn? How did your training as a physicist actually train you for what you're doing now?

SPEAKER_01 1:15

Yeah, that's very interesting because you know, whenever people ask me that, did you always wanted to be in venture? I was like, probably five years or ten uh or at least 10 years back, you would have asked me. Yeah, this question. Maybe I didn't even know uh what uh what venture is done mean. Probably I didn't even heard heard of this this word itself. So definitely coming to this industry was uh pretty um like you know uh nothing nothing something that I planned. Um journey primarily started from you know my first exposure to the VC world because I started as a physics teacher actually uh back in India. So that's how my one of the early careers were before moving to Europe, like around 12 years back. So while I was a teacher, first time my exposure to the VC world happened because I was involved with an ed tech startup uh back in India, and uh they got me on board as a teacher because uh you know, back then of uh then they were trying to build AI-based personalized learning. So we were doing AI before it was cool. Um, so that was long back. And during that period, as you know, the pre classical AI was all based on knowledge graphs, so they got me as a teacher on board to primarily build the knowledge graph. Um, and that's how I was basically part of the you know early founding leadership team there and building all these graphs on the back. So that company was was funded by VC. Um, some of the Indian VCs were early investors there, and that's the first time when I realized, okay, people give you money to build business. So I didn't know that because before that I'm building businesses and I'm like 17-year-old, and I had to lend money sometime, but then I, you know, in India there are uh crazy ways to get business credits. Sometime your interest rate can go up to like 3% a month. Um, so so that's how so I was used to of that world and suddenly realizing, oh, I'm like first time, like, oh, they're giving money. I was like, how much and how much interest, right? And they're like, no interest. I was like, oh, that's crazy. It doesn't so it was pretty um strange world for me to start with. That company did pretty well. Um I moved on early from there, but later it went on uh growing and basically being acquired for 180 million. So that was my first exposure where I saw, oh, this thing actually works, you know, that you've gone through a cycle and you see that okay, this thing works. But that was a short, like you know, uh cameo in the let's say the startup or VC world, I will call it, right? That that I had back then. But then I came to Europe primarily focused on uh being on my scientific career and scientific journey, and that I was going through in different places. But uh after that, of course, you know, we spinned out from uh together with a friend. Um, a friend basically spinned out and I jumped on board with him, uh, a medical technology company. And that grew uh that we started to grow, and that again that was my return to let's say startup world. And during that period, of course, once you have some early successes, you know, the journey primarily started as you know, you have gone through the same pathway. Other founders who are a few years or before that in your journey, they come for an advice, and then once they started to come look for an advice, I basically, you know, you like it, then whatever small money we had as a couple of friends together, we started to put together in those um those companies, and that's how the investing journey started, which eventually evolved into rice work, right? So it was pretty organic, uh, no planned uh as such that I uh this is exactly what we need to do. Uh but very happy that with the way it turned out, right?

SPEAKER_00 4:48

Uh that's amazing. And so um, I mean, it's not uncommon, a lot of people um follow these particular like the the circumstances where life is leading them. The um, and in your case, I mean started off as an angel and moving into like, well, I can really make a career out of this. So, what are some of the things that um you parlay from being uh a founder and operator into an investor? Kind of like what are some of the mistakes that uh founders make when they're looking to uh to raise capital?

SPEAKER_01 5:19

So, yeah, I mean, of course, I try to put myself in the founder's shoe that uh I wish I I mean I at least try to, or we as a as an entire iceberg team, we try to because all of us are like primarily operators um before, right? Or uh operators and um basically coming from entrepreneurial journey, right? So that part we normally try to put ourselves in the shoe that hey, uh if when we were in that journey, A, would we appreciate this thing from our investor or would we not, right? What would we expect from an investor? And then we try to at least provide the basic ground, right? Like minimum. But of course, then every founder has different expectations, so we try to be very close to them uh on that to understand what's their expectation, which may not be aligned with what I was looking for when. But the bottom line is that you know, core is that um I we I mean, at least we try to be as transparent as possible in terms of uh transparency. I mean, you know, you have to take this word with a grow grain of salt. So I'm not saying that grow uh transparency is something all you need, but my main point is just to make the founder comfortable that hey, we are not two different people, you know, and that's I think that works out very well with us because A, that we have been in their shoe, and we have been in their shoe not long before as well, right? It's not like there are a lot of VCs who have run businesses before, and and and they normally uh I mean, you know, at least personally, I like them also quite a lot. Because once you have been in the shoe, right? You know, you try to, as you ask, what do you carry forward from there? There are a lot of things that you can actually try to read between the line, which a lot of time find or may not be comfortable sharing, but you can see in their face that they are going through some struggles, right? And you can at that moment say, Hey, it's okay, you know, we have all been there, you know, and it's not a problem, right? So, and that comfort, that empathy, if you can drive, I think with the you the level of trust you win, and we are in a business of trust, actually. Like, you know, the entire VC game, you know, you can say, like we are a finance business, no, we are in a trust business basically, because we need to win the trust of the founders, we need to trust win the trust of our LPs, we need to win the trust of our uh co-investors to be able to succeed in this industry. You know, now everybody has a different way of building that trust. Our being an entrepreneur, our way of uh building the trust is that to put in their own shoe, that even if when we are saying, okay, this is not our or we are not going ahead with the deal, we are still very respectful because at the very core, we respect a founder's journey that, hey, um, if you started already a business, um, it's is it's great, you know, you are trying something, right? So we we need to respect that because it takes a lot of risk or a lot of courage to be able to get to that journey, right? A lot of people in the world don't even get started. So at least that level of respect we try to maintain, and even if it, I mean, there are only a select number of things we can invest, but if we don't invest, we we try to be as respectful as possible. And that all things come because being on that side, when we realize that how hard it is, you know, irrespective, even if we are doing everything wrong as a founder, it still is hard, right? So, you I mean, that doesn't mean you need somebody to pump your ego, so you need also somebody to be transparent with you and tell that, hey, you're good going this thing wrong. Uh, but you also need uh don't need you can do it in a more respectful way.

SPEAKER_00 8:33

For sure, for sure. And and and and kids, I mean, they there's no better definition than than what you've done here in terms of the the venture capital or the financial industry, really, really uh a lot if the the fuel that it's running on is trust. And because I mean, particularly in early stage companies, um you may not have the commercial produce you're looking for. So with that in mind, what should founders or companies do to build trust with with investors? Like if do you have shortcuts? Do you like kind of like what would you advise the scalar fund to do in terms of building trust or continuously build and foster trust with investors?

SPEAKER_01 9:14

So that part again depends um on the company to company, but so there is a generic answer to that, right? That okay, what what you need to do is basically, you know, you build a story, right? And see, we all know that every story that you are trying to build may not be the most accurate version of this reality, right? Because eventually I mean, as a founder, you are delusional a bit, right? And you need to be delusional at time, right? Because uh, because otherwise you will never do anything, right? So we need to be all of us are on that living in that world, right? So uh in keeping that in mind, of course, you are building a story and you are iterating on that story to basically correct uh correct itself, but on that particular note, the consistency is something that I think is is the showing consistency with consistency consistency and a very thoughtful approach always helps building the trust, you know. That is like you know, like for example, you built a story, you have a transparent by showing that, hey, what does it take me to build a story, why I'm doing what I'm doing, right? Like, you know, without going intoo much nitty gritty, but at least given a high-level picture that okay, why I think this is the right way. And then basically try it out. And then, of course, once you try it out, if it works, then say that hey, this is working, and that's why I'm going deeper into that. And if it doesn't work, also check out and be transparent that hey, tried, I failed, but I'm doing this intration, and this is the part, right? So when you do that, uh, that gives a comfort that okay, there is a thoughtfulness in the entire approach, whatever they are doing, right? So that's the first important part, right? To building the trust. Then, of course, the second part is that uh why you are doing this, because you know, like you know, startup became a very cool word normally, suddenly, all of a sudden, right? Yeah, um, I mean, I grew up in a society or let's say uh or in the environment back then where uh it wasn't cool actually, right, to build a startup, right? Because coming coming from India, like you know, if you have a job, then that's the better thing. And for a very long time, your startup founder don't even get married, right? Or like or get married in the sense you don't even get a girl, right? So no, no parents will allow in India to their daughter to get married to a startup founder because they can get broke anytime, right? So for a very long time, uh it was actually left for the people who were wanted to go all in, they were ready to risk everything in their life, right? Um, and which which was, I mean, of course, it's I would don't want to go back to that scenario, but um, but at least it had a pre-filter that it already took too much courage to be a startup founder, right? Now, with this word propagating, it has a positive because we are seeing more larger impact, more companies coming in. But the negative side of it is that a lot of time people become a startup founder because cool, you know, and this is something that they are not doing justice to themselves because it's it's anything but cool to be a startup founder if you are not really passionate about what you are doing, right? And if you really don't want to solve the problem that you're solving, and that problem could be like your own thing that okay, I want to become very rich and I want to become very successful, I want to sell my business, whatever is that. You have to have your own reason, right? I'm nobody to judge what's the reason is right or not, but whatever is that reason, it it should be something that you are ready to go all in for that reason, and then only you should become a founder because otherwise, if you're a half, half-hearted there, then it doesn't really um cut it, and you will actually lose a lot, right? So you don't need to do it, and then it's okay not to be a founder, right? I mean, there are bunch um, there are only few people in the founder in the world, and they are fine, you know. And there are other people who who also end up making big bigger contributions in the society, right? That doesn't mean that only founders make a contribution, right? There are we need other people in the society as well, and they're also making contributions. So that's what my main part, right? So be consistent and um and on the top of that, be very clear that what you're doing, that is a hard journey. It's gonna be a hard journey, and you are doing it um because of some really, really reason that you have. And if you don't have one, it's okay, and you can come back again, right? It's not like that you you need to be you. I didn't know in when I was uh that I want to do a startup when I was in a scientific career, but the reason came by itself, right? So there is no one time that I have to do it now, and just because I have to do because my friends are doing it. So that's one thing we try to basically avoid pretty much. Uh, and it's hard to judge that if this person is doing really because they want to do, or um, they are just doing it because it's it's good.

SPEAKER_00 13:49

So so so how do you test the or how do you evaluate for conviction? So, how do you know? Uh, I mean, obviously, the more companies you see, the more founders you meet, you kind of develop pattern recognition. But uh, what are some of the telltale signs that you're looking for to size up of if an in if uh if a founder has the right motivation, if they have this like, I'm gonna walk through walls and I'm gonna um drive through fires to achieve my mission?

SPEAKER_01 14:19

I mean, one of the easier hacks that we have, I don't know if I should be telling that in public, but it's okay. The easier hack that we have, we just take long time. And that's why we don't have as the iceberg has a reputation to be like one of the fastest moving funds, you know? Yeah, like so we hardly do a deal where it's like, okay, the deal is closing next week, and irrespective of how FOMO it is, uh, we do some exception at a time, but generally, if we just got to know the founder and deal is closing next week, we rather take a step back and say, hey, this is, and that's nothing to judge with the founder, it's more about our own capability because we don't know how to judge somebody within a week, right? Or uh with that particular um uh conversations, right? How to get that because the way we try to do it, that we engage with the founder and we observe their journey for a while, right? Like, you know, a couple of months that we are basically observing. And what we start to do that, we already start adding value to them, right? Like we already ask, okay, what do you want, right? I mean, there's oh, I want a customer introduction, I want to hire somebody. Um, I already make those intros, right? And then see how they are reacting to those intros, right? Like if I make, let's say, an intro worth of a dollar, and if a founder makes a 10 out of it, that means this guy is really got his thing together very well, right? Or girl got his thing together. But if I'm like, you know, putting a dollar there and then he's not able to maximize that entire thing, then there is something or so you basically put them in a practical situation in a very subtle um way, and then you see how it works, right? And it's an observation, um observational way, which I think a lot of people can fake it now with while I spoke in public about it, right? But it's very hard, right? Because if you're faking it, then it doesn't matter, right? Because the point is uh you're doing too much work for just a small check that we're gonna put in eventually, right? So it doesn't matter, right? So you should not be doing that. But that that's roughly like you know, putting themselves in a practical situation um ends up giving us a bit of an idea. Um, and that's why we may end up becoming a bit slow. The it's a price has a price to it because of course that sometimes you may miss a very good deal. Um now we need to find the balance. I'm not saying it's okay to miss the deal because of course we want to be the working with the best founder in the world, right? Then if I miss something, I I don't feel good about it. Um, so in that case, the only way we can hack it is that we try to get engaged with the founder way before they are even raising, right? So if we like a founder, even if before they are founder, you know, like there have been companies that we have invested in when the founders are still using their Gmail ID, you know, or um and we got the company formed to ask them, okay, now go and register the company, right? And it worked out for us, right? So for us, we normally try to start engaging with the talent pool already early on, such that we know these people even before they become a founder. Uh and that gives us that automatically that timeline, you know, because we are normally the first chick in the company, right? Especially with Rice Bug. So you want to be able to spend enough time, you want to be the first chick, you don't want to also miss on an opportunity as well. Uh, only way to hack it is that try to be get engaged as early as possible. Not always uh is practical, but we try to maximize our chance through that.

SPEAKER_00 17:28

Yeah, I mean that that's uh that's a fantastic advice. Um relationships are built over time. Um they there isn't really uh, I mean, there's some accelerum, but for the most part, you cannot get a relationship from one to a hundred in a short period of time. And so your advice around engaging early with with investors, driving the clarity, driving transparency, ensuring that you're consistent, um, maximizing the advice or the the the recommendations you're given, but it's a great way to to build rapport, relationship. And even if let's say if even if Riceberg or whoever the investor doesn't come in now, that doesn't mean they're not gonna come in in the next round, but you're building that rapport with with the company. Um I just wanted to kind of shift that.

SPEAKER_01 18:21

And also just to add quickly, you know, like and there are very smart founders, they I mean they know this very well and they end up uh engaging with us. You know, there are founders who actually come to me like before even they start something, they're like, Hey, do you need any help? A lot of founders they are, and because most of the things that we work with is very sector sectoral stuff, and a lot of founders that come along the way are like deep expert in their sector itself. A lot of them end up doing free DD for us, right? They'll keep asking, oh, if you're looking in, like, for example, there is a biotech founder who is even thinking that oh, maybe I'll start something daily that is still in their jobs, they will always come by and say, Hey, do you need any help with the DD with any company? Let me know, right? Uh, I send some deals to them randomly just to also test the ground. Um, you know, I I know their intentions that eventually they it looks like they're entrepreneurial, they will found something and they start building relationships in a very different way, right? A lot of founders they end up making some intros for us, right? Hey, you should meet ex-founder or y founder, and or like meet this LP. So all these kinds of stuff they try to get engaged with, and it's great, right? Because it's also um uh you know, of course, feels like they value the relationship and it's bi-directional, right? It's not one-directional relationship, right?

SPEAKER_00 19:30

So it creates a virtual cycle and it creates a good karma. So by being helpful, um, you can get the help that you want. So that that I I couldn't agree more now. What if we shift gears a little bit with you and and and get your perspective on? I mean, you come across a lot of founders and a lot of founder stories or equity stories, kind of like what makes for a defensible business? Like, like what are the modes that are left from your perspective? So when you're looking to invest, kind of like what's top of the list for you in terms of investment criteria?

SPEAKER_01 20:04

So we base ourselves on uh because see, core of our thesis, we look for breakthrough technology, right? Now it's very hard to define because every founder that comes in and says, Hey, we invest in breakthrough technology, they will say this is it, it is a breakthrough, right? And it's good, right? Is there maybe there may be always every there maybe is a breakthrough, right? So we have a very a bit um more clearer definition. We openly share with our founders as well, uh, that what do we mean by that, right? So there are four pillars on which we basically um create that um that evaluation framework, right? Uh and we say that in public that a lot of founders before even reaching out to us can actually filter themselves out that do they fit or not, that they can save their time uh by themselves, right? So the first and foremost is that what we call about like you know uh value chain optimization for this particular technology, right? So whenever a founder comes our way and asks, okay, uh, like you know, tell us tells us, okay, I'm doing this and that, right? Um, you know, of course, classical NEVC will ask, like, we will also ask, okay, what problem you are solving, right? Um, which is obvious uh question to start with. But we normally ask them to draw a whole value chain that, okay, how this problem is currently solved. You know, let's say if you're trying to solve, I mean, even if you're trying to build a rocket, right? Or you basically the problem you are trying to solve is basically getting access to space, right? For X and Y frequency of time or X and Y cost of the time, whatever, right? I mean, if you know building a nuclear fusion, basically you're trying to solve the energy problem, right? Whatever is that, right? So we basically, whatever is that problem, this can be sometimes very obvious and sometimes non-obvious problems as well, right? So we normally ask, okay, how this problem is currently solved. And you know, a lot of time we get an answer by saying, no, this problem is never solved. And that's a wrong answer. Because if a problem is never solved, I personally believe that humans are such a species that if the problem they genuinely care about, they're gonna solve it one way or another. Are they solving? In the most efficient way, that may not be possible, right? But if there is a problem which they deeply care about, they will be solving it, right? And you can put that, no, but what about category creators like social media when it happens in early 2000s, right? No, social media was not a solving a problem, social media as such, because we'll say this thing didn't exist. No, it did exist. Because the real problem was that we are trying to solve how do we connect with people and how do we keep in touch with our friends? Yeah. So the computer of social media was the clubs, you know, like all the physical clubs that we went in our colleges, right, our universities, the cafeterias, the cafes, the events that we did, or like birthday party we celebrated to invite all our friends, right? The festivals we celebrated. These were the ways that we were basically connecting with people, right? That was the point, right? And um, you know, like sometime we were sending greeting cards and a lot of all these things, right? So the core problem that how do you build your community of friends and how you are keeping in touch with them, right? That was the core idea. And the people are already solving in that way. So, firstly, we ask, okay, what's the way the problem is already being solved, right? But how is solved? So, let's say, for example, in this case was the cafe, in other case will be something different depending on whatever technology we are working upon. And then we ask them, okay, whatever technology you are bringing in a bit, the picture, how that technology makes that solution either cheaper, faster, or safer. Specifically with the industry we operate in, these three pillars are good, right? Uh, that either cheaper, I mean, if you're working in um social media or these kind of spaces, you can say, okay, it's also may not be cheaper, faster, safer, but it's more convenient, convenient or it's more happy feeling, good feeling. That's but normally the kind of industry we operate in cheaper, faster, or safer, because we work in life science, right? So it's even it can be the same cost or more costly than the existing solution. But if it's had more efficacy, we'll go for that, right? And then we basically try to quantify that is it minimum 5x improvement in the current solution, either 5x cheaper or 5x or mix of all, but at least that four or 5x of improvement because then that means it's a breakthrough. You know, so that's the first pillar we try to optimize. And you know, once you try to really put a quantification to that, you can actually put up a fair price to that solution. A lot of time people struggle in deep tech by saying that, hey, but how do I price my solution? This thing never existed. No, you have to drive a value-based pricing. And if you say this is something that amount of time or money people have been spending to get this problem solved, and I can do five at Twitter, you can put up a good price to that whole thing. That was the real price that um that actually people will be willing to pay for that solution, right? And once you do the pricing, that then becomes your market sizing because you know, one of the things that we see with the most of the early stage founders that come along anywhere, right? Not only our way, that the time SAM sum is calculated is like all over the place, right? Because you'll be able to say, I'm solving one trillion space industry. And what are you building? Yeah, I'm building, let's say, uh uh an antenna for the satellite. I don't even know that basically, sorry for my French, but basically, uh, yeah, it doesn't matter that uh a space industry is one trillion if your thing is cost two dollars, you know. So it doesn't matter. So basically, based on that, we basically try to ask, or like we know, we normally see that can we do bottom-up market size? Because then once you know that you can make this technology much cheaper and much faster, much safer, so you're sure that if you give it to the people who have this problem, they're gonna adopt it because they would like it, because the value is extremely delta, is very high with what they are getting now versus what they will be getting through, and that's a breakthrough. And of course, in the context of deep tech, we basically say that is it solved through technology, not by making the I mean, you can solve it through operational optimization or you can solve through technology, right? So it's solved through technology, that's where the deep tech comes in a picture. And then we ask, okay, how many people have actually this problem? And if you can put a fair price to the problem, then you have microsize and back of infill of calculation. And you say, okay, fine, people are paying 5,000 for it. I'm I'm gonna make it at thousand. There are 1 million people who need it, boom, it's like a um 1 billion worth of a market, right? And we normally see that if the market is big enough, right? Because typically as a VC, like any VC will look for the any market which is north of 10 billion, right? So if uh market is big enough, so second pillar is the market size, but that market size is the bottom-up market size, it's not about whatever McKenzie says about uh it's about the market size, right? Um, so uh so that's the second pillar. And then we see key is it whatever you are doing is defensible or not.

SPEAKER_02 26:50

Yeah.

SPEAKER_01 26:51

Uh because then the it can, but normally it becomes automatically defensible because if you could challenge the status quo by 5x and nobody else has done it, that primarily means that you have something secret source that um no other people thought of, right? And you have some insight because otherwise people would have done it by themselves, right? So typically it ends up becoming defensible, but we try to find whatever is the defensibility. And again, we there is no fixed playbook that okay, you need to have a patent. A lot of deep tech startups should not have patent actually. A lot of them work on uh basically trade secrets because I mean, if you're an algorithm and you patent the algorithm, I mean it's very easy to get around that patent, right? Because patent will be mostly in public, right? So you need to have the right, what is the right defensibility strategy that you are building on the top, right? And it should be convincing enough, depends on case to case. And once these three pillars are clear, then we are clear, okay. This technology is a breakthrough and it has a massive market because that's the two things that we look for in the technology. That is it has to be a breakthrough technology and it has a massive market. Um, but that's more for our thesis, right? So by justifying that, founder ends up educating us, you know, that where is the opportunity? But the real decisions are taken on the fourth pillar, which is is the founder the right person to go after that opportunity, right? Or um, like you know, is the founding group is the right team is the right one to go after that opportunity, and then the again you go after that, okay. The problem and solution make sense, but what sacred source this team has found, or this team already possesses that other people don't have, which will end up um them winning, you know. Now it can be that is very subjective, and that can have that's where you need to spend the most time upon, right? To be able to figure out what's their, you know, that can go from their personal motivation to technical understanding, mix of all so many other things, right? How they build a team, how they build what kind of people they are they doing it just to satisfy their ego, will they be able to build a great team around them or not, right? Because most of the time uh in Deep Tech, one of the biggest challenges, like you know, because a lot of problems you are working, or basically, whichever country you go, very limited set of people you can actually hire. And you want the smartest people to work for you, and these people don't come and work for you because you can pay whatever salary to them. And as a startup founder, you will never pay the best salary to them and in the market anyway, right? But these people come because they look for something else, and it could be just simply your leadership skill, right? That they feel competent with you, they feel uh in enough independence with you, or they are passionate about the problem. How you are building that, how you're attracting the best talent, because that would that would end up help you winning in the long run, right? So, what you are today and what you can become tomorrow, if we can have some outlook around that, and based on that, we try to best as a team, but it's a bit more subjective, so can't answer within let's say this uh could take a bit and very very much different on person to person, but that's the fourth pillar where the actual decision happened. But the first pillar is also very important to us. So we are not like, I mean, there are a bunch of funds and they are very successful as well, who are basically like, okay, if the founding team is great, irrespective of whatever we are building, they're gonna back anyway, right? Which is which is a good thesis. I'm nothing against that. Only issue is that we don't have, as a small team, we don't have bandwidth to be able to either uh to be able to interact with so many founders who are just great and we don't know how to assess their greatness. Yeah, because once I have that framework built, and then I'm asking more questions around that framework, and founder comes with some answer that gives me an idea that how this person thinks. He may not be having all the right answers, but his thought process gives me the conviction how I'm assessing it, right? So that's one way of basically me looking at it. But if I'm in like totally Wild West, where like okay, the founder is passionate, great, great story, but I have no idea what he's building and what he may become, then it's it can be a great investment, right? But it's just our bandwidth doesn't allow because we are already spending a lot of time, and if if we spend more than that, then founder will get very annoyed. So we it doesn't allow too much time for us to be able to do. So for us, it's easier to do the part, and we really, really always are focused that uh that founder is the most important part, but they should be building for the greatest market because a founder, a great founder not building for the great market, can be a great founder to start keeping in touch with, but I would back his next startup, yeah. Yeah, just and nothing wrong with that approach by backing is this startup, but it's just more about um uh we don't have the bandwidth to be able to really uh for sure. For sure.

SPEAKER_00 31:29

It's all about are you working on the right problem? Is the the problem big enough that we're solving in both ways, like all of these things it makes sense. Now, you're you you were talking about pricing, and so um and when you were talking about the first principle in terms of what you what you focus on. No DS is probably one of the most dynamic space at the moment in terms of how do we price? Um, and so moving from like what we've known in the past in terms of licenses or seeds to value-based or outcome-based pricing. How should founders think about determining what is the right pricing strategy for the outcomes that they're delivering? Is it like a fraction, like one-tenth of the uh of the value that they delivering? Kind of like how would you coach a founder in terms of coming up with the right pricing strategy?

SPEAKER_01 32:22

Oh, we because we're not also an accelerator, like you know, uh SpaceX accelerator kick sky. So we have actually a whole session dedicated to pricing where we uh built a whole pricing framework, which is based on you know how much discount you should make on like you know, that cost-based. So there are two ways to make the pricing work, right? One is a cost-based pricing and one is a value-based pricing, right? Because eventually you also want profitability. So uh, and this is also to find a fit that if this solution even makes sense or not, right? So, what approach we try to do is a value-based pricing, where I said, okay, you know, like we say typically, I mean again, 10x cheaper or whatever. We normally have a rule of thumb making 5x cheaper, right? So we start with okay, what is the what people are paying, and then we put 5x cheaper to that, but then we start adding premium, and that premium is like, okay, if you are making it, you made it 5x cheaper, but your solution is more safer than other, what is the safety premium you want to pay on that? Yeah, right. Then if if your solution is more uh this X and Y, then what premium you'll wanna pay down that? So so on and so forth, and then you may arrive at some number which may not be 5x, it may be even the same price, right? But firstly, you drop the price 5x and then you add premium. And this let's like more of a rule of thumb. You can you can pick up any any number, like you know, depending on industry, sometime 5x, sometime 2x, sometimes this is what how what's your mode, right? What's your defensibility, how many competition you have, right? Based on that. But the point is on cost, you cut it down pretty much, and then you start adding premium based on additional value that you are adding, right? How much time you are saving, how much safety you are saving. You know, a lot of things can be quantified. I mean, people say, How would you quantify safety? I mean, it depends on the industry, but you can quantify insurance company has a very good framework of quantifying safety, right? They know what's the price of the failure. Like if you're launching a satellite, and if the satellite basically fails, then how much money that insurance company pays, you can say that if you are more safer and your like your success rate is 10 and uh 20% better than the incumbent, you can get that pricing inspiration from insurance company, what they will pay for that 20% extra. Yeah, you know, so you can put that, and that's how you end up being what is the value-based pricing, right? Um, so fair uh price, what we call it, like you know, fair value price or something. And the other direction is the cost-based price, where simply like you calculate the cost unit economics that whatever you're taking to build the solution, and then you add like a good profit margin. In deep tech, you need to move a good margin, like you know, at least 60% margin. Um you need to have on the top, and you add a margin and you say, Okay, this is my cost-based pricing. And if your fair market value pricing is a bit greater than your cost-based pricing, you're in a good spot. Um if it is less, that means you gotta change something, you know. That your value you are providing is less than your cost that it takes to build it. That means you're building an unsustainable business, right? Yeah, and you need to change something either to reduce cost or increase value, you know. So we do these two direction and we try to see where we meet, and then based on that. So this is like a full, full exercise we run. And it's very fun actually to do that because it's a lot on paper, it's a lot on and they're very theoretical. So people may question, ah, this theoretical it doesn't work like that. True. But that gives a lot of talking point to these founders, because most of these founders are B2B guys, right? Like, you know, most of the industry you work with, like space, life science, all things are B2B. And it gives a lot of talking point to their uh corporate customers, you know, because that corporate customer gets excited. Oh, now I can go to my bosses and explain why this pricing, you know. So why it makes sense.

SPEAKER_00 35:57

Uh in essence, you're not just only helping them with the with a pricing, you're helping them with unique selling propositions, unique value proposition, how you position the product or service that you're offering, because you're clarifying what it is. And in I mean, like the the adjustment is that you don't sell uh features, you sell the outcomes, you tell the value. So by you going through the exercise to quantify what is the value, um it becomes a lot easier for you to then convince the the person sitting across from you to to go and buy the solution because hey, if we do A, B, and C, this is the value that you unlock. And I mean, I love your uh principles because you start off with kind of apples to apples comparison. We want to be five times cheaper. Great. This is if if the product, if two products are the same, we want to be five times cheaper. But now we're comparing apples to oranges. So this is where we are starting to add premium for this, premium for that, premium for this, and just gonna stack it up. So, to your point, even if you end up with the same price as a competing product, you're not the same product, you are five times better because you've added all these additional features. So, what do those deep tech founders underestimate when they're when they're embarking on this journey?

SPEAKER_01 37:16

I think um so deep tech founders, like you know, of course, the most common word that you will hear that here, deep tech founders are great scientists, but they are not uh great business person, right? Uh they don't know how to build a good business, this and that, blah blah, they don't know how to sell. And this is the most common narrative on the story, but and this may be true, right? So I'm not saying uh for us, it's a different problem because normally we on a ground truth when we start very hardly made an exception where we are like, or of course, that's why we run an accelerator to see if this person can evolve or not, but we look for extremely smart scientists who really know their domain very well, but they are crazily entrepreneurial, you know. Entrepreneurial means all these things, right? How much and and now the point is how do you assess that entrepreneurial spirit, right? Because very early stage, you're not even selling anything. So, how can you say that can you sell or not, right? But then these thought processes, if they go through, like you know, as a founder, first customer that you have is your investor. Like you know, my co-founder of my previous startup always, so I can quote him, somebody always made this statement that anybody who pays money is a customer, you know. So investors are the first one who is basically paying money, right? So, so investors are your first customer, and how you are able to sell your and you're selling your vision to the investors, right? That already gives a sign of a good salesman. Yeah, no, so if there is an extremely good scientist, but it can captivate me with his vision and basically gets my checkbook, that is already a good sign that he is a good salesman, right? Salesman or she is a good salesman, right? In that sense, right? So then another your customer is basically your employees that you build, the team you that you build, right? All these are super underpaid people that you will bring on board, and they are again extremely talented people, but super underpaid. How you are selling your vision to them as well. So you can get a lot of these early signs of entrepreneurial spirit in the people, even if they are so we try to base a lot based on that that are they entrepreneurial scientists or not, because if their core passion is to uh just do the science, which is a great, I mean it does a great job, but then there are different modes of financing for that. That's why the universities are built for, right? So the the business is not the ecosystem for that, right? So we normally go with those founders who are already entrepreneurial, right? So that's that part is already clear. So within that, now what they start underestimating is um it's like you know, the the typically the time it takes, you know, and there are certain things that they can estimate, there are certain things they cannot simply factor in because if your vendor just delays certain stuff, you can't move anything, right? And uh second thing they underestimate is that the it is never too early to start conversation with anybody, whether it's investors, future investor, whether it's a customer, whether it's vendor, right? So the whole um you know, the underestimating as a deep tech founder, the whole power of building a trusted network around you, basically, which will today or tomorrow will be helpful. And it cannot be, you know, all these relationships take a long, long time to build. So it's never too early to start. Because if you say, okay, I'm doing building a great product, and then third month I have a launch, and then after I'll go, and of course, you need to keep it with a grain of salt that you're not going too uh distracted throughout, right? Be finding balance, but building start as early as possible on whatever you are planning is the only way you will find a hack because things are gonna take time anyway, irrespective of how hard you try. Things will take take its own time, right? So that's what I think people underestimate quite a lot because they say no, we are currently focusing on this whole thing. Uh and focus is great, right? But um hardly worked for me because focus, I mean, of course, that doesn't mean that you need to become a whole full wild west, whatever you are doing. Um, but you need to experiment around with the things, right? Uh, you need to talk because you in your head you are probably driving a lot of value, and then you go and talk to the customer and you realize their problem is like so far off, they're so different. They're like, I don't give, you know, currently I'm solving a very different problem. And uh you are bringing me something else that I have no, I mean, you know, even if it's cool, I don't give a I don't care.

SPEAKER_00 41:47

It's it's we have the same observations when we're when we're working with companies and when we're investing in companies. Um the the one telltale sound that that uh gives us uh a clear signal that that the company is going to be successful is how how much do they understand the problem they're solving. And of course, like the things you mentioned around like you know, is the market big enough and things like that, but like we want to see that subject matter expertise either on the team, right? On the team, or some either to our customer base, community, uh advisor, the company needs to understand the problem that they're solving to make sure that they're focusing on the right things. Um but speaking of this, um, with Rice work, you invest across the United States, Europe, India. Do you see any kind of patterns and differences in based on the opportunities, the founders, the companies that kind of are geographically uh uh blocked or or differ between the uh between those three geographies?

SPEAKER_01 42:53

Oh yeah, and this is something again, we are it's a very fun exercise, and that's one of the biggest challenges of Priceburg as as fund because the other funds who are focused on a geography, the cultural underwriting is a bit easier, you know. One of the while we are underwriting the founder, we are also underwriting a culture, you know. Yeah and um is so different, which we are also already learning by ourselves. Of course, good part that our team, uh, and this is how we are building our team as well, that we started as a team, like you know, we are six, seven nationality, we speak like six, seven languages as a team, we are a small team, right? So it's not a big team, but within a small team, there is a bunch of diversity. We are all spread across like almost seven cities around the world, right? Um, from all the places. So having that food presence and all that helps. Um, but it still is something to because you know, like some pattern that might work in Europe may not work in India, right? For example, let's say if you're trying to underwrite um a deep take scientist founder, right? So a lot of time, um, you know, if you go in a well funded university culture, I'm not just judging the entire continent for that, but let's say Europe. Right. Where science is decently funded, and most of the scientists have great respect that they earn. They are earning a good salary. Right. So if they are trying to build something, uh building a company for money that may not be their most strongest motivation, right? And which is great, right? So normally we love these founders, right? That they are doing it for something else, right? Something beyond that, right? But sometimes also that they are not in a survival mode. So they can be relaxed into what they are building. So both sides of our part is there, right? That though they they are not on a survival mode, even if they leave a job, they have some safety net around them with the kind of credentials they have, right? So because that uh that reason, the way to understand them and underwrite them will be very different, right? That's what's in it for these guys, right? Why they are doing what they are doing. But if you go to India, that story is flipped different, right? Scientists are one of the super underpaid people, right? The the engineers in software companies make more money than scientists in general, right? And that's not only true for India, that's true for multiple countries around the world. But in India, like where we actively see that, right? And because of that reason, sometimes just making money can be motivation for these scientists, you know. And their level of hustle is different. And if they leave the job, they are they are indeed a problem because they don't have savings, right? So if they already taken the risk of leaving the job, you see that these guys are really uh taking that risk, right? And uh they are quite entrepreneurial, uh, because that risk is something that we always appreciate it. Because if it's the founder who takes the first risk before we take that risk, right? So if the founder is not under confident taking risk, then so normally, you know, if any scientist founder comes along and says, Okay, I don't want to leave my professorship and a job, uh normally that then we don't see it as a very positive light, right? Because okay, that doesn't make sense. If you you are not sure about it, it's gonna be a billion-dollar business that is worth living your professorship for life, then how the hell do you expect me to think that way, right? And then you say, Okay, I don't care about being a billion dollar, then it's also I'm in problem, right? Because if you don't care, then you're not gonna build it anyway, right? So exactly. So uh so we are not here to build help them build another family business, right? That their son can take over after, right? So that's very clear. Sorry for being very rough and raw about it, right? Um, so uh so yeah, so we are interested in if they are interested in building that billion dollar business or not, whatever is their motivation. Sometimes it's money, sometimes it's um is the scale or the impact they want to do. Um, sometimes they just want to prove themselves, right? But it differs quite a lot in different cultures, right? Because the background they come from is is very different, the motivation is very different, right? Um, that um, you know, for example, a lot of scientists in India, if they stayed in India to be keep their scientific career, because if they're really extremely smart, unfortunately, in past 20 years, a lot of scientists left the country, right? And uh, or but now they are a lot, a lot are staying, which is a good sign for the country. But let's say since past 50 years, a lot of them left the country and found because, of course, it's a simple reason it's a better well-paid job as a scientist outside of India than India was also the case, which was unfortunate. But now, if somebody stayed in India and is still doing a science there, is the guy who is very, very patriotic, right? Um, and they are doing it for the society, they are doing it for the country. So the way to understand them will be very different to understand um a person who is basically didn't leave the country just because that country is actually the most comfortable country in the world, right? So they don't have to leave the country, right? So so that's the so you that judgment call will be very different on these things, right? So we are still trying to figure out. Uh, of course, some I come, I'm coming from India, like you know, Pavel, our partner, he's from Eastern Europe, like he grew up in Bulgaria, lives in the Netherlands, Lino is Swiss Italian. So we already, as a partner, founding team is diverse in our uh culture as well, and then on the top of that, the other team members that we have. Uh, but we still have to always figure out, right? Because um, I mean, we had some founders coming in from um let's say Chinese origin, right? And of course, and they're great people and they're based in US, and then we we understand them very well. So there was no communicational language gap, right? But at some point I got stuck that hey, how do I underwrite that what's the most uh successful trait of a founder coming from X culture to be there, right? I can understand the context and the background and the journey from a person coming from India. Uh, I can understand because I spend a fair bit of time in Europe and in the Western world, I can understand that. But um in other culture I may not, right? But then to our luck, we have uh people in our team coming from the same background. We're like, okay, you go and you tell me what do you think? Yeah, yeah, yeah. You know, so that helps that that power basically helps being uh a bit cross uh domain. Um, but yeah, that uh hopefully that's uh that answered the question.

SPEAKER_00 48:57

No, that's uh that's perfect. And in terms of um the go forward direction for you, what are you looking for in terms of what what what uh what piques your interest and and so that's one question. The other question is what do you think it's going to what do you think the uh the investment space is gonna look like in five years? So I'm just gonna looking for your predictions.

SPEAKER_01 49:26

I mean, it's very hard to predict um on in terms of um then basically, but the most important part is that um of course the way things are moving in the software industry, right? Yeah, um, I'm not saying that okay, software is dead or something of that sort, but we will start focusing upon building because for a very long time software took a very huge part of attention for the entire VC industry, right? Now people are getting more into a diversified set, and uh and which is which is for good, right? Because though we think that software runs the world, which is true, but still there are a lot of businesses which are you know strength, software is uh yeah, which is software is a small component of it, but it's not the full full driver, right? And they are the they are the real. So basically, because of that whole thing, the attention is going in more in that direction, more and more capital is coming in that direction. So that's one part, right? And then even within the software industry, the compute is becoming a big topic and energy is becoming a big topic and all that, right? So, which is also fueling the same cycle again, right? So I'm personally excited about that now. When now when once we settle what is the value of the AI large language model is providing, you know, now we need to be basically um getting beyond that, that how to pick up on the top of it, right? Because now with this level of access of all large language models that we all have, what's next, right? What the next delta that we can do. And I think there are a lot of problems still to be solved in energy, in defense, right? Uh space is basically a tool to solve a lot of these problems, right? So space is not a sector in itself, but it's more of a solution for a lot of other problems in the on the ground, right? Like whether it's for compute when you're building data center or for energy, or you're building for communication, right? But space provides some of those values, right? A lot of them. So I have to I think that this will be the bigger topic, right? Energy and defense for sure, the way the world is moving. People have realized uh that we need more diversification in the way we depend on the energy in the world, right? So that's um that's something which is important, and then that translates to also, and then new discoveries, right? Which let's say the AI and the knowledge transfer that is happening is basically will enable whether it happens on material science or whether it happens on life science side as well, will fuel a lot of uh stuff as well.

SPEAKER_00 51:56

So there is um yeah, we're seeing this across the portfolio of clients that we have. Um the companies that are doing the best in our portfolio are the ones that are are absolutely empowered, exponentially empowered by AI. Biotechnology is kind of like one of those industries where now with with AI, uh you can accelerate your your path to to uh to discover drugs or discover treatments or whatever it might be. Um and so where it we used to have maybe a limitation, now we have uh a huge unlock. And uh um, but that becomes hard, that also provides with some motor defensibility because um you you you spend a lot of time building something that's that's tangible at heart, uh whereas before with software. Um I'm not saying it was easy to build.

SPEAKER_01 52:53

No, trust me, even software was hard to build, you know, for a very long time, right? We always assume like we undermine software. Software is also like production gate software's were hard to build. Now it's becoming easier and easier, but it's still production gate software was hard to build back then as well. And that's why there was a mode, and that's why they succeeded, right? So it's just uh, you know, people just think uh because if you look closely, right? It depends, it goes in a cycle. Uh, all our parents and grand uh fathers they did hardware business. And if you tell them the software is easy, they will laugh at us. Like, no, hardware is easy, right? Because they knew how to run a factory, right? They didn't know how to code, you know. So it just depends which eco chamber you're talking to. If you're in the eco chamber of developers, you will of course say the software is hard to build, they have no idea how to build a hardware company. But if you go to those traditional guys, they will say no, hardware is easier, right? Because they know how to run a machine and where to print these things, right?

SPEAKER_00 53:45

I mean it's kind of interesting to just say it else because the stats are that uh there's more developers now than before, whereas like you would like you know, what a hypothesis why with cloth with cloud code or uh open AI codex, you you wouldn't need as many developers, but the reality is actually contrary to this. The other thing that kind of reminded me of this is that everything comes in cycles. So uh you were talking kind of like before social media that like we were living in an analog world and where we were going to clubs or whatever. We were physically meeting people.

SPEAKER_01 54:19

Now I think we're coming back into that same cycle where we went from analog to digital, and now we're moving back into analog where people are just so tired with the digital experiences that they're like, I just create human connection and want to be physically connected with humans, and which is great, you know, because it's you see, you normally expand, you try other things, and then you come back and you basically see what values more because eventually that's that's that's good because okay, it's like in a way you still progress as a society, you're not going back because you try the larger part, and then you narrow down because we as a human, like what we always underestimate that we as a human are the biggest bottleneck, right? We have limited time in the world, we have limited brain space in our real state of real state of our brain is very limited, right? And we have limited emotional availability for whatever we do, right? Whether connecting with people or something like that, right? So eventually we are the bottleneck. So when you give um access to everything, when people say, Okay, AI will give access to all the knowledge, but it's still it depends on my agency now what I want to use or why I don't want to use. For example, in most of the parts of the world, education is free for all, right? So everybody gets the good education. That still doesn't mean that everybody is a PhD, no, but still on the agency of the person, right? That okay, even if it's free, uh if the person really wants to go through that or not, right? So AI makes the access easier, but that doesn't mean that agency is going away because we as a human are the agency, right? And we'll keep having that agency, right? Um, and uh, unless we get into a dystopian world where we don't have any agency anymore, which is not happening. Um, so yeah, so we have to be um watchful and mindful of that by making only predictions, right?

SPEAKER_00 55:59

I I I um up until I was 14. I grew up in a communist country. I'm originally from Bulgaria and uh yeah, if even during communism, people have had high agency that uh found ways to to derive income, right? Because under a communist regime, the intent is that everyone is equal. Well, that kind of overrides the the human needs and desire, kind of like the master hierarchy, like for what is self-actualization or what is like uh something else. And so even back then you would see people accomplish different things, even though by design everyone's supposed to be equal. And so to me, it's like it's the same thing with ideas. Ideas are abundant when it comes down to execution, and execution is a byproduct of high agency. So, in order for you to be successful in building a company or skilling a company, you have to have this high agency in grid and resilience. Because as you said, the journey is long, the the journey is arduous, the journey is hard. We have made it very, very sexy and appealing to be an entrepreneur, but it's not for a pain of heart.

SPEAKER_01 57:10

Yeah, and but come on, and even uh animals have those agencies, right? A monkey is a given monkey can be more powerful than other, right? Or a given lion can be more powerful than other, right? Uh so it's very hard to get rid of that, right? When we say okay, because it's it's about the consciousness and all. So that's why you know when we say, Oh, this will get rid of that agency, no, this is how we are human, irrespective what system, like you implement humanism, you implement socialism, you keep capitalism, this will be always there, and there is a way that people want to dominate over other. It's good or bad, we don't know, but that's how the nature has built us, right? Uh, so rather fighting in with that, we have to make the best out of that thing that we are doing good for overall growth, you know, like it's the NAS basically uh saying that, right? That you have to do the best for yourself and best for the team. Team is the humanity in this case, right? So if we follow that that principle that we do best for ourselves and best for the humanity, I think we'll be fine.

SPEAKER_00 58:05

The win-win. Uh well, at the at this uh on this note and Kate, I just wanted to thank you for for your time and for well sharing a bit about who you are, what you would what your journey and venture was, and and kind of like your perspective on on the space. Really appreciate you coming on the pod and and uh uh giving us your wisdom. So thank you so much.

SPEAKER_01 58:27

No, thank you for having it. It was quite fun, fun conversation. Thank you very much. Bye.

SPEAKER_00 58:34

Bye.