#frontier tech

Update: I dove into this topic further in a follow-up post on where tech markets are going.

Over the past 6 months we’ve seen a ton of completed/rumored SPACs, as well as heard conversations at the board level for companies that are currently in discussions to get liquidity via a SPAC. It’s reached a point where If there was a prediction market on VC-backed companies that will get taken out by a SPAC in the next 12 months, there would be a few unanimous favorites if you polled the broader VC ecosystem.

This phenomenon is far reaching, but it specifically is interesting to me on the deep tech end of the market.

Over the past 6 months the financial markets have become incredibly narrative driven as investors face an unparalleled fiscal policy by the government to keep markets moving, while struggling to parse the next wave of valuation metrics, new business models, and technologies that emerge with a strong narrative surrounding massive growth potential.

I’ve long been a believer that narratives rule everything in private markets, but I’d argue only a few companies historically have been able to flip this at the public market levels as well for an enduring period of time (most notably, Amazon, with a clear prioritization of expansion at all costs effectively giving the company carte blanche to do whatever it wants without material scrutiny from public market investors).

Deep or Frontier Tech is perhaps an even more narrative driven subset of the broader tech sector than most others. Over the years, private market investors have gotten excited about various verticals due to the perceived technical moats, the massive greenfield TAMs that this innovation can access, and the clear narrative of “this is the future we were promised.” 

Josh Wolfe describes this phenomenon tangentially as “science fiction to science fact” which only further hat tips narrative importance and ease of proliferation.

Across each category of deep tech, we go through a hype cycle that leaves scars at the firm and market level, almost killing entire categories for VCs (try raising a VR series B+ over the past few years, for example).

Often these deep tech companies require patience as commercialization metrics lag traditional companies, with upside that is arguably not as asymmetric across all categories. This creates a valley of despair for many companies that were able to raise seed and A capital, but where series B firms struggle to gain $25M+ check size conviction without material social proof and company comparable metrics. If a company is able to break through that barrier (often with great narrative and early signs of commercialization) then there is a secondary exhaust when it comes time to raise growth capital, as growth stage investors are even less primed to dream big without consistent revenue figures or scalable, decent-margin revenue, with a diversified customer base. 

As Deep Tech has become a category, the universe of investors and well-funded companies has grown materially over the past decade. This has led to a large number of companies that are growth-ish stage, looking for liquidity.

Enter SPACs.

A few years back we saw companies like NIO go public with almost anemic traction but a narrative anchored to one of the most polarizing companies on Wall St, Tesla. The stock popped upon IPO, investors showed excitement, then reality came crashing down, cratering the stock from ~$10/share to just below $2/share in a matter of months.

Over the past few months, many have documented the increasing narrative driven nature of stocks, profiling things like r/wallstreetbets, Davey Day Trader, and Robinhood traders. We can debate how much retail investors are truly moving markets, but what’s clear is that narratives are impacting public markets, and deep tech companies that match to pop-culture, science fiction driven narratives are a likely beneficiary, as they are far easier to grasp at a high-level than the hottest cloud infrastructure IPO.

Investors have wanted exposure to futuristic technologies via public markets for some time now and often are left playing tangential stocks (Nvidia as a proxy for ML or crypto, for example), or hoping that an R&D group accrues enough value to a larger company to make it material (Cruise/GM and Waymo/Alphabet at one point).

We got an early look at this phenomenon with the Virgin Galactic reverse merger (which 3x’d in a few months early on), then alongside the explosion of Tesla we saw Nikola Motors (2x in 5 days) and Hyllion both hit the markets. Now in just the past week we’ve seen Luminar (a LiDAR company that could be seen as exposure to self-driving technology) and Desktop Metal (the only real additive manufacturing play on the market) both getting taken out by SPACs after having raised $100M+ in private markets and with less than scaled revenue metrics.

There are similarly rumors that we could see acquisitions of Lucid, Fisker (EV) and Proterra (EV bus) as well in the near future drafting off of Tesla success. I wouldn’t be surprised either if well-funded and long-private companies in the space sector (like a Planet Labs or Rocket Lab), Autonomous Vehicles, or Robotics/Drones, were to entertain SPACs as a liquidity option.

Deep tech companies thrive on narrative, and as narrative has shown outsized ability to carry a stock lately, I believe we’ll see multiple attempts at using SPACs to fund companies that today rely more on narrative than business metrics for a longer period of time than previously seen in public markets. While this could be considered passing the buck, I’m excited to see another financing and liquidity option arise for companies and investors solving some of the world’s hardest problems.

I had a call last week with someone who is passionate about Space and thinking about working at a variety of startups in the commercial space/space 2.0/whatever the hell we’re calling it these days. It just so happens that Space Angels had also put out their quarterly report that same day so for the first time in awhile, space startups were top of mind.

I think Space is in an odd market state right now. As a seed investor, it’s especially tough because it’s really freaking expensive and you won’t have many proof points until post-series A, if you’re lucky. Outside of that though, if you look at the realistic areas today where companies are being built you basically have launch, satellites (+ enabling tech), telecom, and other services.

Launch:

I’ve previously talked about launch and why I’m not bullish on that area of the market. Not only has the space moved *much* slower than everyone thought it would, but it also has had a few very large failures since I wrote that post.

Satellites:

Most of the commercial satellite use-cases today are focused on earth observation. Planet dominated + commoditized optical imagery pretty quickly. More recently, multiple startups like Ursa (disclosure: previous investor), Capella, Iceye, Umbra, and others have looked at the deficiencies of optical (can’t see at night + through clouds) and targeted SAR (synthetic aperture radar). And then there are various other startups with different payloads for different use-cases, all built on some sort of microsat or small sat hardware.

But when I look at satellite startups today I see a few things that worry me:

Launch is still not nearly as frequent as we thought it would be and because of this satellite startups are second citizens to everyone else in commercial and government space in terms of launch priority.

The platforms themselves aren’t seeing any innovation, so you’re stuck innovating on payload. What this means is that existing (well-funded) companies with launch infrastructure/contracts + constellations of satellites (think SpaceX, Planet) have a scary competitive advantage.

…Unless you can go full-stack and provide data + make sense of it. But even then, the commercial market around satellite information hasn’t developed at the scale we all thought a few years prior. We still have governments, corporations, and hedge funds that want to buy, but the mass proliferation of the imagery hasn’t happened because interpreting a lot of this data and then mixing it into other datasets is tough. And in a lot of instances, the data isn’t as good as the dream we were promised.

So based on the fact that “agile space” hasn’t really happened and costs haven’t fallen to enable a pace of development that exists in other emerging tech areas, it’s really hard to be a venture-scale satellite data company today.

With that said, investors are still excited by the enabling-tech side of things like propulsion systems for microsats + data transfer. Both of those areas seem to make sense as investable, but continue to rely on a large uptick in fragmented satellite proliferation, which is scary.

Telecom:

A lot of VCs talk about telecom as a massive opportunity, which it is. However it’s also super expensive and large companies are investing billions of dollars to figure out how to tackle better and wider spread connectivity.

I’m not sure as a seed fund there’s room to play in this space.

Other:

This is where things get exciting. Ask the question “so what happens once we’re in space” and then start thinking about all of the things that are unlocked. This includes manufacutring, drug development, tourism, etc. 

Read Brandon’s piece for more detail. 

It seems the first domino that must fall here is a private commercial space station, which is on its way. This stuff is super exciting and fascinates me, however as a lame investor with people I want to return money to I think, “ok a 2020 launch, add 2 years because space is hard, then start thinking about when a seed stage “space-first” company should be built.” Today doesn’t seem like the right answer.

So I guess the point of this note is to:

1) Write down my current, November 2017, probably incorrect thoughts on space 

Brain computing interfaces (BCIs) and the future concepts of implantable technologies such as Elon Musk’s Neuralink are increasingly being discussed amongst my peers.

Rob May made a good point on the paradox that our desire to match future AI superintelligence could be the very thing that destroys us in his latest newsletter:

Now Elon is building Neuralink, which is an awesome idea.  But again, it's a tradeoff.  Yes, our best chance against an super A.I. is to augment ourselves so we too are superintelligent.  But, if you believe the odds are high that a super A.I. will arise, and will want to control or destroy, then it will be very convenient for such an A.I. that we all have electronic devices implanted in our heads and wired directly into our brains.  Hacking humans may be easier in a Neuralink world than it would have been otherwise.

...I sometimes worry that Elon, in his hypervigilience to protect us from a dangerous A.I. future, is setting himself up to be Oedipus Elon - the guy who caused the very problem he was trying to avoid.

I discussed this with a close friend who called the idea of an implantable piece of hardware being hackable a “non-starter”. While many would agree on the surface, the main thing that breaks this mental thinking is our inability to truly imagine that world of tomorrow and when our version of “organic” life isn’t good enough.

Today, we are willing to allow hackable machines into our bodies because they keep us alive, and non-hackable implants for cosmetic reasons, reproductive health, or physical activity. I open myself up to the security risks of a pacemaker because I can't really live without it, and others do similar for other critical implantable devices on a daily basis. Our lives would be significantly worse and more constrained (if existent at all) otherwise.

As humans continue to advance we’ll keep pushing this boundary further out. Medtronic’s closed loop artificial pancreas was recently approved by the FDA. In theory, one doesn’t need this device to manage their type 1 diabetes, but it makes life significantly better, and is being adopted despite the risk that the device is hacked and overdoses the user on insulin. 

An even closer example is Kayley Thorpe, who opted for an experimental brain implant to help treat her Tourette’s syndrome after years of struggling with life-ruining physical tics.

So again, the question isn’t whether we will continue to become increasingly "upgraded humans", but instead, will our scale of "is life good enough" move with these technological advancements? 

Today - I could live without my pacemaker, but my physical ability would be greatly diminished and I’d be at risk of eventual death. 

Tomorrow - I could live without my Neuralink, but my mental ability would be a small % vs. my neuralink-owning peers, and my quality of life (as well as career potential) would be greatly diminished. Despite the potential for a fatal hack, I choose not to live that life and get a Neuralink.

I’ll finish this note with a quote from the book Feed by MT Anderson, which tackles this exact issue of a world where everyone has a brain implant and two characters get theirs hacked.

A few people over time have reached out to get thoughts on ground delivery robots (a space that has multiple players including Starship Technologies, Dispatch, Marble, and more). This recently picked back up due to Starship’s latest $17M raise. In the spirit of keeping true to the “notes” ethos, thoughts + email excerpts below:*

I think the world will definitely be dominated by some kind of delivery robots (whether it's drones or on ground or just within AVs is less clear). Having said that I don't think the current form factor is the optimal approach + I expressed concerns around the business models + economics.

A few excerpts from emails I wrote in July 2016:

Doesn't make sense in terms of long-term economics.

In the short term this is a perfect band-aid solution because these companies are evading any sort of regulation and the autonomy doesn't have to be close to perfect since a little robot isn't going to kill anyone if it messes up (though it could cause a car accident), and the operators are keeping a close watch on each robot (this will scale down over time).

Even with last-mile delivery, the key to building a sustainable business is being able to efficiently route/allocate resources to do multiple deliveries at a time in a short period of time. If the ultimate product (which I'm sure it isn't for _____) is to build smaller robots that deliver a bag of groceries, the infrastructure headache + economics probably don't make nearly as much sense as a larger autonomous vehicle that is larger and can route to do 4-6+ deliveries per trip. This is why even with drone deliveries, every company is focused on high-value goods to start.

I'd bet ____ will probably talk about how their ultimate goal is build larger delivery robots or license to large players, but as-is this product has a lot of competition...

There was some pushback in terms of how the stated economics by the company scale over the next few years as well as variable business models.

My response:

Again, I just think this all seems like a band-aid solution. Which at the early-stages may make sense if they can show thinking about how they scale up the hardware over time.

I just don't see a future where slow ground robots are delivering goods 1 at a time. It makes almost no sense and even competitors such as _____ have built their bots to enable multiple deliveries.

Would play around with a financial model around <$1/delivery that also pairs with consumer willingness to spend on last-mile delivery of inexpensive goods + labor costs at 1:10 + infrastructure and service costs as these things inevitably will need charging infrastructure + fairly significant servicing.

Re: Hosting vs. Carrier branded, others have shown drones doing this which makes sense as they can make up lost ground as the truck moves on with its route, but ground-based bots face the same infrastructure issues and move slower than trucks so not sure how you efficiently deploy. 

Partner hosted hubs makes the most sense, as once you start moving into "company-owned hubs" (where the startup owns all of the hubs) the economics of the business change drastically from a HaaS (hardware-as-a-service) model to an extremely costly/asset-heavy model of tech + real estate. I wouldn’t want to compete with Amazon or Walmart in that game.

Where this model also gets more interesting is the dynamic logistics play of storing a bunch of starship bots in a truck and handling delivery/routing that way. It’d require less hard infrastructure (trucks could be stored in lower-cost areas) and would allow the distribution centers for many e-commerce/3PL providers to still act as a hub vs. putting a physical hub within a 2 mile radius of the customer. More on this here. 

Other catalysts for improvement:

- Automated loading/unloading. This comment brings up an interesting example for secure delivery.

- BOM cost of robots - Current price is too high causing a single robot payback period to be way too long (don’t want to get into proprietary details here but its in the 000s.

- Ownership - Large players licensing/owning robot infrastructure makes sense (think Walmart, amazon) but many others will require as part of existing logistics. Who services, owns, etc.?

- Scaling autonomy - This problem will be solved so a single operator can manage 50-100+ robots eventually. Helps improve overall economics.

A lot is asked of investors who want in on frontier tech. Larger rounds, longer time before customers / revenue, and less metrics until later. But: