Segment, don't source
Systematically understanding Quantum Tech for deal sourcing
We live in a complicated, uncertain world that only seems to be getting more complicated and uncertain by the day. With Quantum Tech being such a potentially disruptive technology, and national security implications, I wonder how valid a cloud first strategy is.
Germany and the EU, for instance, have announced a total of $4B in funding for Quantum Tech over the last month, and local vendors and institutions are pursuing purpose built hardware.
I have played the SaaS and cloud game for a decade, both as entrepreneur and OEM, and understand well why it is so appealing - advantages of scale, direct to developer access, easy on-boarding, up-sell and cross-sell, a highly profitable revenue model at scale - the reasons for why a vendor would pursue this approach are manifold and compelling.
However, unlike digital, A.I. or blockchain, Quantum is not an incremental technology but rather a disruptive one. If all goes as planned, one morning a couple/few years from now we all will wake up to the news that company XYZ had a quantum breakthrough and launch into full blown market domination.
For all of these reasons - national security, technical independence, breakthrough innovation - I believe that there is a lot of merit to an on-premise first approach within Quantum Tech. What do you think?
My mission is to help investors and executives in quantum tech to make better decisions. To that end my goal is to bring unbiased data and strong frameworks to our ecosystem.
In past editions of this newsletter I have talked about investment opportunities in quantum tech, how to score quantum tech deals, and how your quantum modality affects your revenue model. Today, I want to discuss how to segment the Quantum Tech landscape for highly qualified, pro-active deal flow.
Why? Because investors still mostly rely on passive deal flow from a number of the usual sources:
Networks: calling on their trusted advisors, entrepreneurs and other investors to get introductions to promising companies
Social media: both promoting themselves as great investors to attract inbound deal flow (which is great), as well as to engage with influencers online
Conferences: startups and investors on panels, pitch competitions or hackathons make an easy target
Inbound deals: based on your name reputation and online presence beyond social media
The best investors (and not all of them do this) then collect all this deal flow in a CRM system such as Salesforce and put it through their investment funnel (investment criteria, deck review, analyst call, partner call, DD) to qualify the best opportunities.
There are a lot of issues with this approach:
If you rely on this “let’s get as much as I can from what I know” approach you're usually too late already. Your odds of seeing the best deals at this point are pretty low as the most promising ventures typically have relationships with investors and strategics partners since before founding. Any company that you speak to “passively” is most likely not a hidden gem.
It rarely is a fit for your investment thesis for the simple reason that you get whatever your can. It’s like when you eat at a buffet rather than seeking out a restaurant of your choice - the food might still be good but it’s not necessarily what you were craving.
You will have to pay up and follow on terms because you don’t have the benefit of being early in the process when strategies are being formed. Other investors might already be in and you have less negotiating power - unless the venture is desperate for capital but that’s never a good bet. Again, you might still make a good investment but it will cost you precious basis points (and terms).
To see the best deals in terms of fit for your investment thesis and upside potential a strategic and pro-active approach works best. This is how I propose to go about it:
1 - Commit to a data driven approach to investing in quantum tech
Commitments are hard and most of us fail at them (happy New Years to you), which is what makes them so powerful.
Commitments, also, are very conveniently served up with warm, fuzzy words. Maybe even a press release.
Commitments are hard because they require tedious, boring work - daily - and don’t deliver results until much later. This goes against everything our human brains are enticed by, especially the highly educated ones.
But those that make a commitment and execute on it are already ahead of the game. A commitment to data, in any context or field, is nothing but an excellent decision in the year of 2020.
2 - Where there is no data create it
Obviously, a data driven approach requires data. Obviously, in an emerging field like Quantum Tech there is very little data. This is a fantastic opportunity for those willing to do the hard work (or hire us) to create this data.
This is the basis of a tremendous competitive differentiation for any investor (and executive) interested in Quantum Tech.
Here is how we segment the data for achieving the above:
This methodology also requires a consistent and exhaustive set of data sources, both soft and hard, which is the first step in your data collection process. Making sure to have a data management approach and resources in place from the very beginning is key to success.
3 - Segment the market and identify your pockets of interest
Data for data’s sake is meaningless, it needs to be made actionable. For the purpose of segmenting the Quantum Tech ecosystem for pro-active deal flow I propose a simple framework to categorize the market.
Surely not every company will fit squarely into a given box and surely there will be discrepancies. The goal is not to be perfect here. The goal is
To agree on a framework to look at the market intelligently
Use the data to fill in the information and create a baseline rather than isolated opinions
Adjust and assess as you learn more and (a) revise your data and (b) refine your framework
Now you are not just another person with an opinion but a smart investor.
4 - Build relationships with those ventures, don’t boil the ocean
Now you have not only defined the scope of your ideal deal sourcing network but also accumulated the knowledge to go about it intelligently - top down and pro-actively. Use this to build strong relationships with your potential targets and move them through your own investment funnel.
Like any framework, this is not a Bible but a North Star. Like any framework, this works best when applied rigorously and diligently, and, ultimately, complemented with your own personal judgment at the very end of the process.
For entrepreneurs in Quantum (click for free handbook) - this means you will benefit from “smart investors” more than from “just any investor” willing to write a check. Make it your business to be discoverable by those smart investors and help them understand not just your own venture but the ecosystem as it pertains to your vision.
For investors interested in Quantum (click for free handbook) - this means you have a once in a lifetime opportunity to drive outsized returns in the most exciting technology since electric power. Be smart, disciplined and pro-active about it if you don’t want to be left on the sidelines or with a basket full of foul apples.
Black Holes are one of the big mysteries of our universe. We can’t see them yet they are everywhere. They have no memory yet absorb everything. Black holes are two dimensional yet represent objects in three dimensions.
This is where the principals of quantum mechanics come to the rescue as a new study applies the core principles of this science to black holes. The result, which unifies the massive entropy of a black hole with its disappearing nature? A holographic black hole!
According to this new theory holographic black holes would, in fact, contain all the information of the universe, essentially making them an infinite hard drive of everything while at the same time being essentially non-existent… at least to our senses.
At Interference Advisors we bring together Quantum Tech and investors through data, insights and market research.
Companies looking for funding or investors looking for deal flow email me. 10,000+ a month rely on our data, insights and reports.
Learn about the ROI of working with us.
… and enjoy our Weekly Quantum World Detangled Episode 7 with Denise Ruffner, Tommaso Demarie and special guest Areeya Chantasri from the Quantum Technology Foundation Thailand www.qtft.org.