Investment Reflections – #14 Advemto and #15 Liquium

By Andrew Chen
Over the last eight months we have been working on closing two investments into spin-outs from Te Herenga Waka – Victoria University of Wellington (VUW). Advemto develops ultrafast spectroscopy instrumentation (think lab coats, materials science, semiconductors), Liquium has a catalyst that could revolutionise the production of ammonia (think clean fuels and fertilisers – the world’s largest commodities). They are two very different companies, and it has been fascinating to learn more about both technologies and their target applications and markets. These two opportunities are also the first time that we have placed first money into a company being spun-out of VUW, and it has been a great learning experience for me to work more closely with Wellington UniVentures (WUV – I haven’t found out yet if the mirrored acronym was intentional or not). There will be plenty written about why these two companies are going to go on to do great things, so instead here’s some late-night reflections on the investment processes.

Capital Pathways

The two companies have very different capital pathways – one may never need to raise capital again, the other may need to develop and scale for ten years before it sees any revenue. Something I found interesting was the conversations with investors who decided not to participate. The most common reason for not wanting to take the journey in either company was not seeing where the exit was going to be, or that the exit was too far away.

Deep tech companies sometimes simply need a long time to bear fruit. We talk about SaaS companies getting to exit in single-digit years, but when it comes to New Zealand’s recent deep tech success stories – PowerByProxi, Aroa BioSurgery, RocketLab, LanzaTech – they all took a decade or longer from incorporation to incredible exit. That won’t be suitable for all investors, their mandates, and their risk profiles, and that’s okay! What’s important is that we, as investors and future founders, don’t automatically write off these opportunities. Having an open fund like ours helps, and it’s probably no coincidence that most of the other investors participating in these first rounds also have no hard timeline bound on their investment returns. For investors like us that put first money into these opportunities, we accept long cycles on the back of our conviction of their relative scale. In our eyes, to insist on certainty and formulaic timelines is to potentially reject an otherwise great opportunity.

A carryover from overseas SaaS investing is expectations around cap tables and how much equity founders or investors should have. It appears that many investors try to apply SaaS rules of thumb to deep tech companies, which pretty much means they never invest in deep tech and makes them perennially unhappy with the NZ ecosystem. It’s not to say that we always get it right, but using a one-size-fits-all approach gets it wrong most of the time. We should acknowledge that heuristics we use are just that – approximations and shortcuts. Our experience is that if we build a long-term model of the capital strategy with the company and other stakeholders we understand the story and the journey of the company much better, even though we know that the assumptions behind those models have a lot of uncertainty attached. This changes the way we talk about the starting positions so that it is more contextualised in the company itself and better represents the future potential for founders and investors alike. Of course, investors have a responsibility to ensure that the longer term capital strategy is supportable, which means being aware of what the international expectations might be later down the track.

Academic Founders

It’s pretty tiring to hear the trope that academics make for bad founders because they don’t know anything about the commercial world. In Justin Hodgkiss (Advemto) and Franck Natali (Liquium), we have found academics who have actually done a lot of homework already and are as well prepared for commercialisation as any first time founders we’ve come across. Their start-up journeys didn’t start on the day of company incorporation – they started years earlier when they were getting commercial interest in the work being done in the lab. Justin and Franck both went through entrepreneurship development programs, including OnBoard for governance development, and started to immerse themselves in start-up jargon. They sought mentors and began conversations with potential customers and investors early. With support from their TTO, they played a significant role in presenting a compelling story to investors and getting through due diligence.

The academic founders have a lot to learn – but what first time founders know it all? What investors know it all? We would all do well to acknowledge that despite all the theory that can be taught in business schools, despite all the thinkpieces and blog articles online, despite all the “war stories” that veterans can tell us, the only way to actually become a good start-up founder is to be a start-up founder. If we stop giving people the opportunity to learn and develop, especially if we stop because of stereotypes and snap judgement calls, we will never build the start-up ecosystem we need. Academics are just as deserving of those opportunities as any other founder that we can support and mentor.

Syndication and Co-investment

Part of Matū’s investment mandate requires that we co-invest alongside other investors. This helps mitigate downside risk, but also means the founders get a wider collection of networks and support. And it’s not just good for the company – every time we invest with others, there is shared learning about different ways of investing (different expectations, priorities, and approaches), making us better investors too. When available, having a variety of expertise and background makes the due diligence process stronger and more efficient – we really appreciated having Jez Weston from Climate VC Fund and his expertise (PhD in chemistry and climate emissions focus) contributing significantly to the Liquium DD report.

It also gets easier each time we co-invest within our syndicate network – this is our second time co-investing with Quidnet Ventures, and the Nth time we’ve co-invested with K1W1 and Booster. We’re happy to be working with Exponential Founders Fund, Suzhou Innovation Park, Climate VC Fund, and AngelHQ for the first time, continuing to build our networks and broaden the pool of folks we can call on for future opportunities.

Thank you to the team at Wellington UniVentures for engaging with us and trusting us to lead on these opportunities, and helping bring these investments to a close. The MacDiarmid Institute has also played a significant role in supporting both of these companies! Thanks also to the lawyers at Avid.Legal, Crengle Shreves & Ratner, and Buddle Findlay, as well as our insurance magician Luca Biuso at Rothbury, for helping us get everything set up correctly from day one. And a huge thank you to Kiri Lenagh-Glue (lead analyst on due diligence for Advemto) and Will McKay (lead analyst on due diligence for Liquium) for stepping up and producing high-quality reports, ably supported by Olivia Ogilvie and Liam Rollo from our research team.