EXCLUSIVE: Foresight WAE Technology is to invest up to £20m into 10 to 15 deep tech start-ups in 2023, a director has confirmed.
The London-based VC firm invests between £500,000 and £3m at seed to Series A stage, with the sweet spot being £1m to £2m. It can also co-invest with its other, later stage funds.
The fresh capital will be injected into new investments and existing portfolio companies.
“We’re backing primarily UK science and advanced engineering companies and that often means hardware technology and industrial software,” director Andy Bloxam tells Growth Business. “There are very few UK and international investors that will invest at an early stage into hardware technology companies – most will invest primarily into software.
“There are a bunch of challenges in the world and you can’t solve them all with software on its own. You need hardware technology.”
A 2022 report published in the US found hardware climate tech start-ups were finding it harder to fundraise than software companies.
“It’s more of an opportunity than a challenge,” Bloxam says. “There’s that well-known phrase: ‘hardware is hard’, and it puts off investors because the risks are harder to understand – it might take longer to get off the ground although it’s a different world today than it was 20 or 30 years ago. There are technologies available to make it easier to launch a hardware technology business.”
There’s a reason why Foresight WAE Technology invests in hardware and engineering tech. Its origins stem from a partnership between Williams Advanced Engineering – a group born out of Formula 1 that wanted apply all their knowledge and expertise in engineering to the outside world – and investment firm Foresight.
“With the technical expertise of WAE, we’ve got a better understanding of what it takes to commercialise hardware technologies, products and services and bring them to market,” the former J.P. Morgan banker said. “A better understanding of how much money it’s going to take, how much time, what the likely pitfalls are and that allows us to place bets and make investments in those areas of what the most successful technologies are going to be. It’s an opportunity for us.
“That collaboration is something we have not seen from our competitors. That combination of technical expertise and the investment experience that Foresight is bringing.”
Not that they need to look far for engineering inspiration. Foresight WAE is stationed on the 23rd floor of The Shard. From the firm’s reception area inside the UK’s tallest building, you can see an encyclopaedic panorama of engineering history spanning City of London’s financial district with its spate of skyscrapers under construction, to the Tower of London and London Bridge.
But Foresight WAE has its sights set on making things smaller rather than making large, triumphant engineering achievements, Bloxam says – more specifically, “important innovations that are based on scientific discovery or step changes in engineering.”
“Deep tech often is about making things smaller, faster, cheaper. We’re looking for things that will be 10-times smaller, faster and cheaper,” he explains. “We’ve seen investments in semi-conductor based technologies where historically sensor technologies have been the size of a table and only had military applications and now they’ve been shrunk to the size of a semi-conductor chip.
“Things like flow sensors, which had industrial applications in heating ventilation but shrunk down to the size of a semi-conductor which could be put into hair dryers, vacuum cleaners or car ventilation systems.”
The VC often looks for companies that offer technologies that could apply in both consumer and industrial settings. One company in their portfolio, Audioscenic, makes speakers that detect where your ears are, pumping out 3D sound with headphone quality. It could have an application in cars whereby music is played to the passenger and sat nav to the driver. “We backed it because it has a lot of applications – Metaverse but also real world,” Bloxam enthused.
Bloxam states that the standard timeframe the investors stick with a company is five to eight years, with some exceptions. One of which was AI start-up Codeplay – a four-year investment that made a 16-time return.
“We’re backing companies with a strong IP and solving a very worthwhile problem… We’re targeting trade sales more than IPOs,” he says.
“We’ve seen things slowing down over the last couple of years – mostly in our aspirations for exiting. Now we’re looking at those companies and thinking we have to hang on to them for a couple more years. There’s a bigger emphasis on cashflow generation profitability rather than just growth.”
What Foresight WAE Technology looks for in founders:
Drive and persistence: “They’re going to be told no a lot and they need a tough skin and crack on. It’s not just about a founder but building a team of three or four. No individual has everything.”
Hussle: “Entrepreneurial quality. Must have a bias to action to get stuff done. Better to make a wrong decision and learn from it very quickly than it is to just sit there and not do anything. The quicker you can process information and respond to it is competitive advantage.”
Growth mindset: “To be able to learn. In the long term, they’ve got to grow. For a founder to succeed over long term, they must be able to adapt and have a willingness to improve themselves.”