Fund fact sheet:
Size and horizon: $304m with a 10 year horizon (7 year average time to liquidity)
Focus: Disruptive Technology Innovation (deep tech, software, AI/ML, blockchain, web3) and Business Model Innovation (consumer, health, fintech)
Geography: Primarily US with up to 25% of European companies in scope
Maturity/stage: Seed to Series B
Ticket size: $5 – 10M
Potential lead: Yes, 80% of the time
Follow on: Yes, usually doubling down on their investments
Previous Investments: IonQ (Quantum Computing), Uhnder (IoT/Autonomous Vehicles), Nordsense (Waste Management), Braintrust (Blockchain/HR), Forte (Blockchain/eSports), Symbio Robotics (Robotics/Advanced Manufacturing)
How would you describe ACME and your investment thesis/guiding principles in one sentence?
As off-Broadway as possible. If there’s a sector that’s hot in VC we tend to shy away from it and look for whatever is going to be hot next. For example, when we look at our investments in quantum computing and semiconductor chips, they were done way before other VCs got interested in those topics.
Can you tell us a bit about yourself and the main partners in the team?
ACME has a team of six partners.
I co-founded ACME in 2018. Prior to ACME I was co-founder and managing partner at GGV. I have worked in venture capital for the past 22 years, sat on 50+ boards, at least two dozen IPOs, as well as exits. I bring significant experience to the team and have seen the venture capital landscape experience several cycles of ups and downs. Currently, we’re experiencing a down cycle, but that can’t phase me – I know these cycles all repeat and they all work in the same way. Within ACME, I focus on deep tech and a little bit on my passion: Gaming.
-Scott Stanford co-founded ACME together with Hany. He has been in the VC world for 10 years now. Previously, he co-headed Goldman Sachs’s Global Internet Investment Banking business in San Francisco for 12 years.
-Christian Tang-Jaspersen is a partner with ACME based in Copenhagen and brings significant management, industry as well as entrepreneurial experience. Like Hany, he focuses on deep tech.
-Brian Yee is a partner with ACME and focuses on investment opportunities in consumer, digital healthcare, fin-tech and vertical software. He has a background in investment banking.
The team of partners was recently joined by:
-Aike Ho is a partner with ACME and focuses on digital health, women’s health as well as fintech, consumer, and web3 investments. Prior to joining ACME she was working at J.P. Morgan Chase in entrepreneurial roles.
-Alex Fayette is a partner with ACME. Together with Hany and Christian he focuses on deep tech investments. Prior to joining ACME he was working in investment banking at J.P. Morgan.
Why do you think now is the right moment to invest in deep tech?
You want to be greedy when others are fearful and vice versa. Right now, there is a lot of fear in the market. deep tech had a quiet renaissance about a year ago, when consumer VCs got scared of the consumer market and changed their hats to deep tech. But many of them don’t understand the technology. They were struggling and went to their LPs and said Deep Tech is difficult to invest in, it takes a lot of money and takes a long time and so they switched back.
We want to make sure we observe what happens in the marketplace and focus on the best companies, best technologies and make sure we invest at the right valuations and at the right time.
What is your unfair advantage? What do you bring besides money?
Experience. We have been doing this for 22 years, most of my peers are either retired or running growth funds by now. And so the experience sitting around tables is very anemic. Case in point: many of the companies are facing quite bad advice focused on the wrong things from their investors and board members right now as for many of them this is the first downcycle and they are trying to navigate this uncertain market. We try to be a soothing voice around the board and make sure they focus on their business, their customers and their product. Right now, it is a great time to be focused on and invest in products because when consumers come back to buy again, their products will be far more superior to any of the competitors’. And that’s just one example of what experience does.
What do you look for in entrepreneurs? / What will convince you to invest in a startup?
Alignment of passion + product + market of an entrepreneur = Gold
When you have an entrepreneur who’s passionate about solving a particular problem, and you have a well-built product to solve that problem and a massive market, that’s when you hit a goldmine. That’s when you have $10B+ outcomes.
If entrepreneurs are doing something just to be rich and they’re not really passionate about the problem they are trying to solve or the product, usually those will result in mediocre outcomes.
Oftentimes, what I see in deep tech companies is they have a clever technology solution that’s going for a niche market rather than a gigantic market. One of the things we do usually, especially with Deep Tech companies, is try to sit down with them and think about what other markets are applicable to this technology? How can you leverage your technology into other markets that are substantially bigger than the one you’re going for? That’s usually where most of the conversations go.
What is the best way for founders to approach you and what will convince you to have a first meeting?
We get literally thousands of business plans every week, so we use our network as a filter. If you can figure out a way to get to me through my network, I will look at that. But cold emails – especially in a sector I don’t know – there’s a zero likelihood I’ll look at it. In some way, it’s also a test, it’s a skill you need to hone as a CEO and founder. If you cold call a customer what are your chances of success compared to a referral? A referral has a much higher chance of success. So if you can’t get a hold of me, you can’t get a hold of your customer, you can’t get a hold of your business partners.
What is one advice you would give deep tech founders?
I think the hardest part of deep tech companies is the go to market strategy. Typically, they’re inventing something new and they need to educate the market. So the best deep tech founders in my opinion can communicate that message very clearly.
One of the common mistakes I see is: they start selling their products before it’s ready.
I’m old school and I like to use the analogy of Windows. Microsoft wasn’t successful and the product didn’t sell until Windows 3.1. Windows 1.0 was a great prototype, 2.0 was meh, Windows 3.1 was when the customer really started using it, when it was a self-deployed product. So I always ask the entrepreneur: Where are you in your product cycle? Oftentimes they think they’re further ahead in their product-cycle than they really are. When it takes 2-3 weeks to get a product deployed, rather than turning a switch and getting a product ready in 1-2 days, to me that means prototype. And that’s perfectly fine, but do not sell a product when it’s in the prototype phase. Sell a product that’s ready to be self-deployed, self-sufficient from the customer’s point of view. There’s obviously lots of nuances to this, but this is the simplest metaphor I can use.
Do you recommend working on prototypes with potential customers and do POCs with them?
Absolutely! If you come to me and say ‘Listen, I have my prototype in a customers hands, the customer likes it, there are some things that we need to continue to work on, but I believe this initial indication from customers gives us credibility and confidence that this is the right go-to-market strategy and product’ – that’s enough for me as an early stage investor to invest in. It’s just about being clear about where you are and what you’re doing.
Who are your LPs and how did you convince them to invest their money in deep tech?
We have a pretty standard mix of LPs: foundations, pension plans, family offices and fund of funds. It’s quite an equal split.
We had a heritage of LPs prior to me joining. As we formed ACME, Scott brought in a long list of family offices and I had a long list of traditional institutional investors. They trust us given our experiences and successes to invest in sectors that we think are appropriate for them to earn a long return.
They all believe that there is potential in deep tech, that the chances of hitting lightning are there. What they wanted to know was: Is our fund right sized to do deep tech? What’s the time to liquidity? Is it more a 10 year or 15 year horizon? At what stage are you investing in these companies, are you investing in science experiments or prototypes? Having the success of ionQ (IPO through SPAC in 2021) so early in our most recent fund, gave us the credibility that we are not investing in science experiments, but in companies that are ready to commercialize.
I think it’s really interesting what’s happening right now: LPs have been under tremendous pressure over the last five years to double down on current relationships. They are usually focused on about a dozen relationships that have been working for them. To add another relationship, it has to be spectacular. It won’t be enough to come to them and offer a 3x-4x return. I think a lot of the emerging funds will have a difficult time to raise funds in the next 6-18 months and the LP environment is going to be quite treacherous. We are fortunate to have just raised and closed a fund.
What do you think will be the next big thing in deep tech?
The generic term we use is automation, and this could be because of hyper connectedness, because of AI… I think automation in manufacturing is going to be really, really important given what’s happening in the world. Relying on cheap labor in China, India or South America is going to become less attractive for a lot of companies, so they are looking for ways to automate. And given what’s happening in wage inflation I think it’s going to become even more important for a lot of people.
What trends are you seeing in the deep tech investment landscape?
Deep tech might have a hard time raising follow on and growth capital. I think a lot of the growth capital investors are somewhat shocked to see what’s happening in their portfolio, and I’m talking across the board, not only in deep tech. Therefore their willingness to write cheques is going to be muted at best. Valuations are being slashed by 50 – 60% in a lot of the growth companies. That’s going to have a pretty heavy impact on the partner’s psyche and reduce the likelihood of them wanting to write a new cheque. And frankly, deep tech companies often need very, very big cheques, so they need the growth investors to come in, which will be very difficult. This is something we take into consideration when we look at an investment.
Do you think the repercussions of the war in Ukraine will have a long term impact? Perhaps more opportunities for startups in the energy and renewable sector?
It’s funny you ask, we are just about to announce a new deal in the nuclear energy space. This is not something we just started looking into given recent developments though, we have been thinking about it for some time. Nuclear energy is one of the cleanest forms of energies and so we have been looking at companies within microreactors, SMRs, etc. Many of those are based in Europe. However, the regulatory issues around this sector are quite tough.Europe is becoming much more a part of the conversation than it has been historically. We’re seeing a lot of VC firms setting up offices in Europe and I think it is going to be easier to invest in Europe. US VCs with a foot in Europe will have a little bit more forgiving perspective on what’s happening in Europe than what’s happening in the US.Head to ACME website for more info.