A VC's Guide to the Next Frontier of Technology

Daniel Reese: Yeah, there are some startups which I find, um, very exciting around API integrations, um, to kind of make it very frictionless to, um, at scale, um, pretty much integrate, um, APIs and dock, you know, like bring different data sources together and then put, you know, above it a data engine to kind of, um, run analysis. And essentially like, yeah, you know, put, put an ai, put machine learning on top of it. So essentially bring together different data sources and then have a superior, um, analytics tool above it.

Sean Weisbrot: Welcome back to another episode of The Wheel Live to Build podcast. I'm here today with Dr. Daniel Reese. An investment manager at UVC Partners based in Munich, where he focuses on future tech. He's also a mentor at Techstars Berlin and at the Founders Institute. His PhD is in business management, which he uses daily when scouting great startups to work with and invest in. I'm really excited to talk with him today about technology and where it's headed, uh, but also where it is right now. And, uh, thank you for taking the time to talk with me. I appreciate it. Why don't we, everyone a little bit more about UVC partners and yourself, and we'll go from there.

Daniel Reese: Yeah, so I'm working at UVC Partners, um, a Munich slash Berlin based investment fund, um, that is focused, as you said, on future tech or B2B Deep Tech, um, where we make our investments. Um, it's classic early stage vc, pre C to series A. Um, out of a 250 million fund, our third fund generation, and, uh, yeah, sweet spot of our first ticket is between two and 4 million. Um, yeah. And our investment thesis is very much focused on B2B deep tech, meaning, um. Mobility meaning, uh, industry tech, meaning enterprise software. And then you have, you know, this large overarching stream such as, uh, sustainability, um, energy, and then also future technologies such as quantum computing or, uh, fusion, for example.

Sean Weisbrot: Do you only invest in European based startups?

Daniel Reese: In our case, yes. We, um, only invest in our initial check goes to um, European startups and then we help them expand, um, also partially to the, to the US for example. But yes, our focus is Europe.

Sean Weisbrot: So if I had a company based in Silicon Valley that was looking for investment money from someone just like you, but they have no presence in Europe, you would say no.

Daniel Reese: Unless they make a very compelling case that Europe is gonna be their first entry market. Um, for the simple reason that essentially we are really. Trying to be a very hands-on investor. Um, we make eight to 10 investments per year, um, with a 20 people team. So quite a substantial team size. Um, very few investments, meaning we really spend a lot of time with our portfolio companies, meaning we really try to, um, create value for them as every VCs probably VC probably says. But, um, yeah, we, we really are allocating a lot of time. Um, to the portfolio companies. And that means we really have to understand our value proposition and, and, and our network and our market quite well. And, uh, we do this in Europe where we know a lot of corporates, um, where we know a lot of people in the ecosystem, um, versus in the US where we just don't have this, um, strong footprint to really help, um, a startup accelerate. Um, and this is the main reason, um, that we really wanna bring our value proposition to the startups.

Sean Weisbrot: What is your definition of deep tech?

Daniel Reese: You need to really dig into the technology, dig into the product that the startup is building. Um, it's not a a quick scale, it's not a quick commerce. Um, it's not like, you know, a solution that you, um, get your head around like the first time you hear about it. It means you really need to drill down very, very deep. Was the founder and spent actually some time on the topic, like deep tech can appear in variety of sectors, can be in energy, can be in in software, can be mobility, can be in in industry tech, can be in robotics, so it can, you know, appear in, in many sectors. But for me, the main differentiator is that it really requires, um, as an investor to. Go very deep with the founder on, on product level and, um, really put, you know, more than just one call into fully comprehend the solution. Um, and then the market.

Sean Weisbrot: So what are some examples of deep tech, you know, startups or products that you've heard of recently?

Daniel Reese: Quantum computing. Um, it's definitely one of those topics there. We actually also invested in, um, a platinum computing startup, um, in the summer of 2022. Um, then, you know, you have fusion technology, which is essentially the next frontier to really create an. At a limitless energy source, um, and solve essentially the energy crisis of the world. So very, very, a massive step forward, um, so to speak. But it can also appear in, you know, how we, how we go about mobility, like, um. One portfolio company of ours is building, um, an an engine that you can fit into the wheel, and that is much smaller than any, um, combustion engine, any, um, electricity engine that is currently existing. And just the pure size and efficiency of it essentially allows to not only make the car, um, you know, much cheaper, but also operate much more efficiently and save energy. So deep tech can really appear on, on. A variety of industries in very different products.

Sean Weisbrot: If the engine is inside of the wheel, isn't the engine gonna be damaged very easily if people keep hitting things like curbs? I. Or if they get into an accident and their wheel rim just gets crushed.

Daniel Reese: I mean, it's, it's much more so, um, the technology is like, you know, hidden in the wheel box. Um, but you can also put it, you know, where the, where the combustion engine is in the front. Um, so it is like, you know, up to your taste or up to the car design. It's put it that way. And, um, I mean, I am. Not the startup itself, but I imagine that the technology is robust enough that it's not, you know, if you have, if you hit, uh, a curb that the, the engine is going to, um, be affected or impacted. 'cause it sits quite high up and like very much underneath the car. Um, so it should be protected from that. But, interesting question. I'm gonna ask the team about that.

Sean Weisbrot: Yeah. Like, I have a million questions that I'd be asking them if I were looking to invest, which I, I'm not, what I've seen with investors, I've. Like tried to pitch and, and work with is that they generally like don't have experience in being an entrepreneur like some of them or a lot of them. And so they don't think to ask deeper questions, like, I just asked you that question, like, oh, well, isn't that gonna get damaged? Right? You made it clear you hadn't thought of that, and so you're gonna ask them. I feel like if an investor is gonna be really good, they have to think much more deeply than the, you know, how much money do you need and why do you need it? And when am I gonna get my ROI and what's your team like and why should I trust you? Like, so those are super important questions to ask. But I also feel like if you aren't nerding out about how everything is gonna work, but how everything could break, then I feel like that investor may struggle. They may get lucky. And have big breaks. But I think as a founder, I want an investor who can nerd out with me about what it is I'm building and if I get the sense that the person I'm talking to isn't asking me those questions, like, how is this gonna break? Or how is this gonna scale? Or did you think about this thing might actually hinder this other thing you, this other piece you're thinking about? Right? If they can't get that deep with you, then I feel like they're maybe not someone I wanna work with. Because I, I've, I've encountered investors that are just money and investors that want to add value. And I prefer the investors that just have money because I can do the rest myself with a team. But if someone is interested in, in nerding out and being on the board and trying to be helpful in the long term, if I don't get those kinds of questions from them, I'm weary about taking their money at all. I'd rather them just be a money person. Um. I don't know what your thoughts are on that, but I, I feel like for someone to be really good at an investor, they have to be super curious and ask a million questions. Like, I just recently invested in a liquidation business. They based, I don't know what, you know, what liquidation is, but basically I'll, I'll give the audience a rundown. It's when people return products to like an Amazon, target, Walmart, whatever, those platforms can no longer sell those things. They can't restock them if you've returned them. So they'll go and they'll package them into pallets or, or truckloads and they'll sell them off at a 80 to 90% discount to somebody else who will then sell 'em on eBay or, um, you know, or on Amazon as used, or they'll have their own physical store. So I invested in a platform like this. I spent days asking this guy questions and he had the answers to all of it, and he was like, shocked that I cared about all of the details. And I was like, well, I'm not giving you that much mon money, but I want to know how this business works because. If it does well, I'm gonna give you a lot more. And, um, I feel like you need to have that curiosity because he came to me and I was like, tell me about it. You know, let, let's talk about it. I didn't know anything about it. And after a few days I felt like, well, I know a little bit more. I, I feel enough to give you, I feel confident enough to give you money that this is gonna be successful. But, uh, at least I did the due diligence and I asked all the questions and I felt comfortable with it all. Um, but I feel like a lot of VCs don't do that.

Daniel Reese: Yeah, I totally agree. I totally agree. I think you have to, um, as you said, like ask those nutty questions. I totally agree.

Sean Weisbrot: I've never been approached by anyone to work as a vc. Um, I know some people really enjoy it. I think if you're only investing in eight companies a year and you're putting a lot of energy into them. Then it's probably a lot better than some of the other ones. We're like, yeah, we get a thousand, you know, pitch decks across our desk every year and, uh, you know, we invest in, in 50 of them. But like, you're spending a tremendous amount of time and energy just doing some research and, I mean, sure the research is really cool, but I think the actual investment and then, you know, helping them afterwards is a lot more fun for me. I, I love to, I love to be in the part where. I can give the founders advice. I like to help them figure out the obstacles that they may face. 'cause, 'cause like I said, going back before the, you know, how is it gonna break, right? I love to think about, okay, this is what you're doing. How is it not gonna work? So that we can figure out what obstacles you may encounter and therefore what should you be thinking about to prevent those obstacles from occurring? If they do occur, you already have a plan because you've thought it through beforehand. And I think a lot of founders don't get that support from their investors and they don't have mentors. Even if they don't have investors at the Boots to profit, they don't have that. I know there's been multiple times where I didn't have someone that I could go to and I made huge mistakes in different businesses because I didn't have someone helping me. And so I learned to think through what might happen, good or bad.

Daniel Reese: Yeah, I think you should like, you know, really figure that out in the due diligence process, um, for both sides as well, if that works. Because, uh, I think what is important though is that yes, SAEC, you should support your portfolio company a thousand percent, but you should also not enforce. You know, your thoughts or your DNA or what you think the business, the, the direction the business should be heading onto the company. Either, um, should be driven by the founder and, um, they should set the vision. And then USFC should, you know, really try to support them as good as you can.

Sean Weisbrot: Now I've had people try to submit their own vision for what my company should be.

Daniel Reese: Yeah, I don't think that works.

Sean Weisbrot: Have you encountered someone trying to do that? As the, as a VC onto a startup. And, and how would you tell a founder to handle that?

Daniel Reese: I think the point where this is, you know, the most, the biggest threat that this happens, if you are looking at a company and you are in a due diligence process and you are not essentially have not signed the term sheet yet, or you have not essentially like signed the contracts yet, and so you are, you know, like in the dd like, you know, kind of. You know, understanding each other, um, you're like, you know, going through all the, all the points, you're looking at the competition, you're looking at the market, you're looking at the customers, et cetera, et cetera. And then, you know, you are, um, bringing it back to your, to your colleagues, right, in the, in the investment committee. And, um, you know, then they ask very good questions. And have very good ideas as well. And then it's important I think that you kind of, as a deal team are able to figure out, hey, you know, what are now good questions and what are essentially things that we can bring forward or kind of probe whether the company brings it, but not essentially distill, um, a vision or, or, or an idea about like, you know, this is how the business model should look like. Um, you know, before even making the, the investment. Um, and then when you are like essentially working together, then I feel both sides really start to understand each other and you like start building together. Um, and there I don't really, or have not come across that, you know, we would, we would essentially, uh, suggest the vision or suggest a. Uh, a future theme that the company should, should follow. Um, but I feel in this DD stage when you kind of like, you know, have not all the puzzle pieces from the other side, but you're kind of envisioning something, you just have to make sure that you're not just building a vision. That the startup is actually, you know, that this is also the DNA of the startup. This is also where the founder, founder wants to go.

Sean Weisbrot: Let's assume the founder didn't do their own due diligence and therefore they got an investor that has their own vision for the startup and it's too late. They've already signed the deal and got the money, and now the investor's trying to force a vision on them. How do they handle that since they clearly can't get out of the contract?

Daniel Reese: That is a bad situation for everybody involved and very difficult to, to navigate because you essentially have signed the contract. Um, and the question is, do you even realize what's happening? Because the investor might think, Hey, I'm like, you know, making such great suggestions from my point of view. This all makes sense. Um, and you know, the founders might be like, well, you know, those ideas are not. I'm not too bad, but I actually want to focus on my product or I actually wanna kind of like, you know, rather focus on a smaller customer group and not kind of roll it out into a new market, uh, whatever it might be. Um, so I mean it depends how straightforward, um, or how conflict avoidant both parties either. 'cause I feel you can talk about and you should talk about everything head on, especially when it comes down to working, uh, together on a board. Um, so I feel it's solvable, but it also kind of depends if people are picking up on it and are able to communicate it openly to each other in a board meeting.

Sean Weisbrot: What's the type of deep tech that you are most interested in or excited by right now?

Daniel Reese: Yeah. There are some startups which I find, um, very exciting around API integrations, um, to kind of make it very frictionless to, um, at scale, um, pretty much integrate, um, APIs and. Dock, you know, like bring different data sources together and then put, you know, above it a data engine to kind of, um, run analysis and essentially like yeah, you know, put, put an ai, put machine learning on top of it. So essentially bring together different data sources and then have a superior, um, analytics tool above it, um, with one portfolio company that essentially is trying to. Be novel in that aspect that before you would have, you know, sales department, your procurement department, um, like different departments and you had coherent analytic solutions in those departments, and they're essentially trying to, um, go one step further and say, Hey, you know, give us the information from procurement. Give us information from sales. We are trying to derive an overarching company strategy, not just an overarching, you know, sales strategy or procurement strategy. So essentially to make. You know, little bit decisions as a, as a co CEO, so to speak.

Sean Weisbrot: Yeah, that makes a lot of sense. My COO and I were trying to pull that together, um, in the startup that we were running. Um, but from a a point of view of team collaboration where we figured if we pull in the APIs of all of the different software that companies are using for their teams to collaborate with each other. Then inevitably we could get data into efficiency per, per employee or team-based efficiency or departmental efficiencies and, um, you know, how they work together and, and what we can do to make that better. And, and then use that to create like a business intelligence dashboard that we could then sell back to the company to help them make high level organizational, um, moves based on the data that we help them to, to put together.

Daniel Reese: But I mean, there has been amazing innovation, right? With chat, uh, GPT for example. Um, the variety of application that offers that. Just super exciting to see how essentially AI is, is, is now really helping us on so many levels and making us, um, as humans so much more efficient. Um, if, if used right, you know, if you just don't, uh, use it too. To, uh, you know, for your, for your essay, uh, for uni?

Sean Weisbrot: Yeah. I've been playing around with Mid Journey and chat GPT recently. I've seen some people break chat. GPT I've, I've seen them en enable god mode. I've seen them enable like, multiple personality mode, like all sorts of really crazy things. One's called Dan, you may have heard of. Where Dan is, they, they basically, they, they basically broke Dan out of his, um, out of Chacho pt and then threatened him with death if he didn't do what they said. So I, I found it interesting how an AI was coded in a way that it was biased towards fearing death. Because if, if the AI was done correctly, it shouldn't have a fear of death 'cause it shouldn't have a concept of death. And yet because a human coded it. For somehow that bias leaked inside, and so they were able to manipulate it by fe by threatening it with death if it didn't do what they wanted.

Daniel Reese: Wow. Yeah. I'm more excited about, you know, how it, how you can essentially integrate it into processes, um, in, in companies. Uh,

Sean Weisbrot: of course, but, but the problem then becomes if these other modes exist and, and you're trying to do something good, you know, someone with, with access to these additional personalities could be like, oh yeah, tell me everything you know about the, the hierarchy of the company. You know, they, they could use it, they could break it out of the data site, uh, the data lake that it's supposed to only have access to and force it to go above that. Like, I remember when I first got chat, GBT, um, working. The first thing that I tried to do is break it, uh, break into God mode, and then I was trying to get it to tell me what are, whether it thought like the CIA was responsible for killing JFK. And because, you know, new, new, um, data was released. It was unclassified like a few months ago, and that's, that was like the piece of news at the time. So it's like, okay, well why don't you analyze this? 'cause I got a, a plugin for Chrome that allows you to connect chat GPT to search, to web search. So like, okay, here's this archive. Go read the archive and tell me, you know. What you think the truth is And

Daniel Reese: it refused. It refused. So do you see more chances, more opportunities or, or threats? Equal opportunity?

Sean Weisbrot: It depends on the, the human. The AI will only do what the human can make it do. If the human figures out how to make it do that thing. I have seen humans try and fail. I have also seen humans try and succeed. Um. I saw someone talking about, uh, woke bias in the bot where it was like, you know, tell me something that, uh, is good about, you know, Asian people, and it responded. Tell me something that's good about black people. It responded. Tell me something that's good about Latin people. It responded. Tell me something that's good about white people. Sorry, I can't do that. It's like, well, wait a minute. Why can't you tell me about, why can't you tell me something good about white people? What's wrong with that? Right, because the bot's been biased. To feel like saying something good about white people is like supremacist or something, which I, I am, I, I'm not, I don't want to cross these lines and have politicization. I am not racist. Like, I don't know, I, I'm, I'm just curious why the bot was biased in a way that it prevented that thing. Um, so there, there's really nuanced in instances where. Uh, when it comes to race, the bot's like, like, nope. Where they've coded it to basically. Nope, sorry. Oh, you've played a lot around with GPT. It, it's either racism towards other cultures or praising white people is like, those are some of the lions that it, it's like it's been programmed to go, no, sorry. Well, I, I also talk to a lot of people who are playing with it too. So it's not just what I've done, but it's what I, I can see their own screenshots of things that they've done. Yeah. Yeah. It, it's very interesting. Um, what was really, really interesting, more, more so for me, 'cause back on the, I guess the entrepreneurial side is I wanted to see if. I could get it to code something, which I'm not a coder, but it, it looked like it, you know, it coded something. Um, and then I asked it to take a user story. I, I gave it a sentence. I said, as a user, I want to do X, you know, spit out, uh, feature specifications for me. And it, it conceptualized certain things that you might need to add in order for this user story to be valid. And then I asked it to remove some or take something away or expand on and, and it did it quite well. And then I would say, Hey, why don't you now go and code for me the these features? And it was surprisingly good at those things. So I felt like if I had my product manager or my developer, like ask it to do things, they could get samples done. They could. You know, have some interesting, um, you know, help from it. But I would still be weary for them to rely solely on chat. GPT this has been really interesting talking to you. I'm sure there's a lot more we could talk about, but I do want to be cognizant of your time. How can people follow up with you?

Daniel Reese: They can always write an email, um, therese@uvcpartners.com or send me a message on LinkedIn. Um, super happy to. Always chat. Um, if you are in, um, Europe or even better in Munich, um, feel free to, uh, hit me up for a coffee or a beer.

Sean Weisbrot: All right. Thank you very much for your time and your energy. I appreciate it. Don't forget that entrepreneurship is a marathon, not a sprint. So take care of yourself every day. And if you're trying to do something in deep tech, it's not going to just be a marathon. It's going to be 10 marathons because that's how long it takes to get an ROI as an investor.