7percent Ventures: A Manifesto
The future will be different to today - 7percent Ventures invests in the startups that will make it so.
In the past, everything was worse. The industrial revolution and subsequent globalisation of trade has driven quality of life improvements across the world, but it is technology that made it all possible. It has enabled the blind to see, and taken us beyond the edge of our solar system. Along with history's most famous names - Martin Luther King, Marie Curie, and Leonardo da Vinci - it is the most ambitious entrepreneurs, with moonshot ideas, that have been most effective in making the world a better place.
Yet our current world is not a utopia. Films like ‘Back to the Future’ may have correctly foreseen drones and video calls, but we’re still a long way from self-tying shoes and the skies are not filled with flying cars. The pursuit for immortality continues.
It is the role of Venture Capital to support a new generation of ambitious entrepreneurs, and enable them to tackle the inherent risks involved with changing the world. Instead of backing incremental improvements and fancy features, they must seek the 200x winners. A future valuation of $1bn should not just be feasible, but probable.
This was the mindset as the first VCs set out in the US throughout the mid 20th century - funding the future through companies like Intel, Apple, and Microsoft. However, by the time Europe joined the party near the turn of the millennium, strategies had largely flipped towards generating rapid shareholder returns, rather than creating long-term societal value.
This approach does work during market bubbles, when there is enough capital floating around for anyone with a pitch deck to raise a funding round. But as investment bubbles become more frequent and more concentrated, the company-flipping VC model falls down. The bottom 25% of VC funds over the past 10 years have generated negative returns to shareholders, compared to just 3% of private equity funds.
The Americans understand it’s about dominating the market of the future rather than playing safe today. It is European VCs that are more likely to say “there’s not enough proof of concept” than “sounds cool, tell me more!” Failing to back truly transformative companies, European VC’s risk averse attitude is shown by its worse performance. The average US VC fund returned 10.3% on average over a 10 year period, while UK funds returned 4.6%. And it’s a self-perpetuating cycle. Founders, particularly in Europe, often try to pitch what investors want to hear, fearing that investors will be scared off by big ideas.
This is evident in the rapidly expanding VC landscape in Europe. The number of European unicorns (start-ups with a valuation of $1bn or more) has risen 20-fold in the past 10 years, with the amount of venture capital funding grew 6x over the last decade - outpacing growth in the USA by 50%. However, over the same period, the number of deeptech investors, investing in pre-seed stages, has fallen. EU/UK startups raise 2-times less at seed than their US counterparts. In deep-tech - pushing the boundaries of science and engineering - they raise 4x less. This slows their growth, reduces their chance of dominance, and prevents many of these world-changing ideas from ever reaching the market.
The world needs bigger ideas
We view world-beating ideas through two lenses: frontier and transformative. Frontier technologies address a challenge that is primarily technical, but if it works and is commercialised there is a big nascent market it can own. OculusVR is a good example of this, building one of the first functional VR headsets to market. Universal Quantum is building a scalable quantum computer, which when successful will transform society in ways we have yet to fully comprehend. Finally, SpaceX is a third great example, creating 100x cheaper rocket launches, ushering in a new space economy.
Frontiers change. In aviation the pursuit for speed ended in 2003 with the retirement of Concorde. Today’s planes don’t fly much faster than a Boeing 707 (circa 600 miles per hour) from 1957, Instead, today’s planes are 70% more efficient at transporting people over a given distance, but it has taken the arrival of new materials and advanced computer simulation to create a new frontier for faster, even supersonic flight, which will be more efficient and accessible. Companies like Boom, Beyond Aero and Sea Flight lead the way.
Transformative technologies may not always overcome a huge technical hurdle. Instead, they fundamentally change the dynamics of a market. Often this means removing someone from the value chain, or disrupting the market structure. Uber, for example, removed the need for taxicab office staff. Flexport has removed a whole host of roles from the maritime logistics value chain. It's about capitalising on an existing need of a laggard market, using a combination of current/known solutions, albeit in an innovative way, to achieve a solution that is 10x better than anything currently on the market. The line between "transformation" and "iteration" must be unambiguous.
Change is the prerequisite to disruption. To monopolise a market globally, you must fundamentally disrupt it. You must have a product which solves a painful problem in a significantly better way (10x better ideally) than existing solutions, or serves a need which today is not being satisfied in another way.
Aerospace
When we think of space travel, it is the US and Russia that spring to mind. But it was a German V-2 rocket that was the first man-made object to reach outer space in 1944. Such endeavours have been dwarfed by stories (and the funding) of Yuri Gagarin and Niel Armstron. The US puts around 6-times more funding into its space programs than Europe does. Thanks to NASA’s new Artemis lunar exploration program and the overwhelming success of Elon Musk’s SpaceX, the gap is only widening.
Conversely, the UK being the only nation ever to give up a sovereign launch capability. It, along with Europe, must now embrace the new frontiers in spacetech. The number of astronauts/cosmonauts launched into space each year has fallen by over 80% since the late 1990s. In the same period, the number of objects launched into space has risen 10-fold. Next generation communications and observation need a new generation of satellites - some operating at orbits - high or low - that have been historically unfeasible. New approaches will also be needed to slash the cost of getting material into orbit, which has barely fallen from the $19,000 per kilogram figure of the 1960s. When this price falls, the economic value of space can be exploited much further.
A new era of private and commercial space operations and exploration will bring with it new requirements. From reusable rockets and decarbonized propulsion systems, to asteroid mining and interplanetary crop cultivation, Europe must harness its wealth of academic talent to build pioneering companies in innovative areas. Initiatives from the EU that will provide startups with free access to satellites and launchers to stimulate innovation are encouraging. It will also need to strengthen its standing in spaceports; Europe currently has just one launch site - located in French Guiana. The US has 10.
Humantech
Companies like Interstellar Lab and Lunasa Space push us to new extremities. But as we zoom in on ourselves, new frontiers are also being explored. Biotech has long been plagued with the issues of Eroom’s law - that the cost of developing a new drug roughly doubles every nine years. But new approaches to predictive and preventative healthcare are reshaping how we think about physical and mental function.
Any biologist worth their salt will tell you of how limited our understanding of the human body is. Low cost wearable devices are democratising the real-time analysis of up to 8,000 biometrics - your blood sugar, alcohol and hydration, as well as various markers of inflammation, kidney and liver function - all of which have historically been measured by a clinician.
Machine learning can filter a torrent of data to reveal a continuous, quantified picture of you and your health. Oura’s smart ring has managed to use body temperature to accurately detect pregnancy up to 9 days before conventional pregnancy tests. Subtle changes in other metrics have also been used to identify early signs of disease or age-related deterioration. Finland recently became the first country to allow its citizens to link their wearables and other personal health devices with their national health records.
Through biotech, humanity has become defined by how it interacts with technology. In the future, the lines between the two will become blurred, extending far beyond the healthcare setting. New, virtual worlds - such as those being developed by Oculus - will revolutionise how we learn, work, and play in a borderless society. Human-Machine Interfaces (HMI) will transition to brain computer interfaces - restoring function to the disabled, and adding a whole new layer of functionality to the human experience.
Future compute
With all of the data that is being produced - and just a minority of it coming from humantech - our reliance on computing will grow ever stronger. The amount of stored data is currently doubling every 3 years. As smartphone and internet adoption rates move towards 100% (up from 44% and 59%, respectively), edge and IoT devices will drive us to a world with over 50,000 Zettabytes of stored data - more than 1,000 times the amount stored today. By this time the vast majority of data will be recorded in real time, and will be behavioural or transactional (triggered by events).
The scalability of data, and of computing, has historically been facilitated by Moore’s law; the concept that the number of transistors on a microchip - and computing power more generally - doubles every two years. Since Gordon Moore made this hypothesis in 1965, his prediction has defined the trajectory of technology. The growth of underlying technologies like data storage, data generation, and the cost of edge devices, has all depended on this law - as well as those that govern storage capacity (Kryder’s law) and data transmission (e.g., Butters’ law).
Moore’s law has been driven by the decreasing size of transistors. But as they reach atomic-scale, transistors are nearing their minimum feasible size; IBM’s current experimental transistors are only around one order of magnitude larger than the silicon atoms that are used to make them.
Fundamentally different approaches to computing - including analog, reversible, neuromorphic, and quantum - will drive disruption here, facilitating faster and more energy efficient data systems. Other research into materials such as graphene and silicon carbide, which have unique properties, could enable the creation of smaller and more efficient transistors.The goalposts may also be shifting. The sheer volume of data we collect hugely outstrips our ability to make use of it. Open AI’s DALL-E-2 and ChatGPT are providing tangible steps towards true general artificial intelligence - machines that can replicate components of human intelligence.
Smart Planet and the 4th Industrial Revolution
Such intelligence will be crucial in solving the largest problems that humanity faces. The accelerating pace of climate change - and the devastation that it causes - mandates a reshaping of industries that have remained undisrupted for centuries.
The pillars required to sustainably achieve this can broadly be divided into interlinked three areas: Decarbonization, Decentralization, and Democratisation.
Decarbonization is self-explanatory - we must eliminate our dependency on fossil fuels, and ensure that carbon sinks across the world are restored and preserved (It will likely be necessary for us to create new ones). Incremental improvements have seen the cost of renewable power generation from wind and solar plummet to become the cheapest form of production - but because these advances have been percent-by-percent, unicorn-prospect startups in wind and solar are scarce. The biggest cleantech success story of the past decade is Tesla, which took the direct fossil fuel consumption of passenger vehicles by 100%. Electrification of other laggard industries like Steelmaking (Boston Metals), Aviation (Lilium), and Energy Storage (CATL), is increasing the impact that clean energy can have. Other industries, often those using significant amounts of heat energy or that have large power density requirements, may require other approaches. Hydrogen, nuclear fusion, and waste-to-energy approaches, are among many that are exciting.
Decentralisation. The success of wind and solar companies - compared to fossil fuel incumbents - has largely been a result of their ability to scale manufacturing, and distribute the deployment of their technologies. Economies of scale have seen the cost of solar power fall by 82% over the past 10 years. Distributed energy supplies are just one example of how decentralisation can eliminate the vast inefficiencies associated with centralised models. Making use of the vast number of electric vehicle batteries to act as energy storage to pair with wind and solar is another. Decentralised trading of crops and commodities can have huge benefits to growers and producers across the world, while reducing costs for buyers.
The common comparison that players in these sectors like to use is that of computing; that PC’s advanced so quickly that mainframe computers were made largely redundant, and that if Google had just focused on large-scale computing, then we wouldn’t have cloud networks today.
Democratisation. The best part of decentralisation is how the cost reduction of enabling technologies can give birth to global markets. 83% of the world's population owns a smartphone, which has provided billions with individual access to computing power that was unthinkable 20 years ago, and facilitated a $100bn industry for mobile applications. The next 20 years can expect to see VR headsets open up an abundance of opportunities in the metaverse, while distributed robotics and hardware - in agriculture and beyond - will completely redraw the trade-maps that have underpinned the global food system for so long.
Such approaches will be vital for the 4th industrial revolution. There are fewer than one million industrial robots in operation today - mostly in Japan - representing a vast underachievement of an industry that has consistently underpinned the vision of most for what the future entails. Some companies remain academically focused - focusing on vanity projects creating systems that can save any penalty kick. Those that will be successful will be focused on making versatile or commodity-like robots at low price points.
It’s also not just the final form that matters. Taking nanotechnology from an idea to reality means being able to make some very, very fine and small-scaled tools. Nanotools have to be assembled at the molecular level in order to be tiny enough to perform work at the nano level, and often, the work of nanotechnology is so specialised that the tools need to be modelled and made specifically for each job.
This list is not exhaustive. The best companies build their own sectors from scratch. This simply highlights areas where the UK has underperformed against its wealth of talent and innovation, and areas where we have found enthralling founders with visions to change these sectors for the better.
Our Experience and Value Add
Building a great startup - in any of these areas - is incredibly hard. As a team of ex-founders, with over 100 years of operational experience, we know this - and appreciate the frustrations of ambitious founders trying to raise in Europe’s conservative VC landscape. Anyone who has to see your seed stage startup's quarterly financial accounts in order to take a first meeting, should be nowhere near your captable.
For early stage start-ups, we care about the vision, opportunity size, initial traction, and ultimately, why you are 10x better than current solutions. For founders, we need to see determination, an open mind, and an ability to execute on their vision. Rather than telling the founders that we believe in how to run their own businesses, we are there for support. We do this through our 7EVN advisor network, and collective of great early stage investors, which provides an advantage to everyone.
Venture capital is a reputation game - the best deal flow yields the best results. We are committed to providing feedback and guidance to every founder we receive a deck from, regardless of our decision.