20VC What Is The Big Lie To Silicon Valley, Why Silicon Valley Is No Longer Optimised For Deep Tech Investing & Why AI Will Lead To More Business Model Innovation Than Technology Innovation with Tim Harris, Founder & CEO @ Swift Navigation

In this episode of Founders Friday on the 20 minutes VC, host Harry Stebbings interviews Tim Harris, CEO of Swift Navigation, a startup developing GPS technology for autonomous vehicles, which has raised over $45 million in VC funding. They discuss the challenges and strategies for deep tech startups, including the importance of understanding unit economics and the "big lie" of Silicon Valley that growth can compensate for lack of immediate profitability. Harris emphasizes the need for deep tech companies to have knowledgeable investors and the benefits of partnerships over direct competition with large incumbents. The conversation also touches on the impact of infrastructure advancements such as universal cell coverage on Swift's future and the broader industry.

• Harry Stebbings introduces the Founders Friday episode on the 20 minutes VC podcast.
• Tim Harris, the founder and CEO of Swift Navigation, is the guest.
• Swift Navigation is a startup focusing on next-generation GPS for robots and autonomous vehicles.
• The company has raised over $45 million in VC funding from firms like First Round, Felicis, Lemnos Labs, and NEA.
• Tim Harris has a diverse background, including supply chain consulting and corporate finance.
• Thanks are given to Jonathan Downey and Renato Quintini for introducing Tim Harris to the show.
• A brief mention of Pendo, a platform for product teams, and Treehouse, an online coding school.

It's Friday, and we're back with another episode of Founders Friday here on the 20 minutes VC with me, Harry Stebbings at H Stebbings 90 96 on Instagram.

Harry Stebbings introduces the episode and himself, highlighting the focus on deep tech and the introduction of Tim Harris.

The startup focused on building a worldclass organization that will power the next generation of gps enabled robots and auto autonomous vehicles.

This quote outlines Swift Navigation's mission and the industry they are operating in, which is significant for understanding the context of the company's goals and challenges.

• Swift Navigation originated from an airborne wind turbine project.
• The project involved large kites generating electricity at high altitudes.
• Swift was spun out before the company merged and was sold to Google.
• Tim Harris's co-founders, Colin and Fergus, were on the navigations and controls team.
• Tim Harris has a background in finance and law and joined the company post-spinout.

Swift came out of an airborne wind turbine project. These are essentially large, rigid wing kites that fly up a mile above the earth, generating electricity in the sky and pushing it back down over a tether.

Tim Harris explains the origins of Swift Navigation, which is rooted in renewable energy and high-altitude power generation, showing the company's innovative background.

• Tim Harris believes Silicon Valley has shifted from deep tech to business model innovations.
• Historically, Silicon Valley focused on semiconductor and R&D projects.
• Venture capitalists have seen more success with business model innovations, like Uber, rather than technology innovations.
• This shift has affected the type of companies that receive investment.

Unfortunately, like when you look at what's happened over the last several years, or fortunately, depending on what you invest in, those really haven't been the winners for the vcs.

The quote reflects on the change in investment trends in Silicon Valley, emphasizing the shift from deep tech to business models as the primary driver for VC investments.

• Deep tech is seen as harder for VCs due to longer fund cycles and liquidity return times.
• Business model innovations tend to have shorter life cycles and quicker exits.
• Tim Harris acknowledges the VC perspective but also notes that deep tech is underinvested in certain areas.

Oh, yeah. No, actually I entirely agree with that. I can see why they do it.

Tim Harris agrees with the notion that deep tech poses challenges for VCs in terms of fund cycles and investment returns, which influences their investment decisions.

• Tim Harris doesn't necessarily think the VC structure needs to change for deep tech.
• Deep tech will have its place in Silicon Valley, but it doesn't always align with VC funding cycles.
• There's a need for people who understand deep tech, which is diminishing as more individuals come from finance and business model backgrounds.

I'm not really sure that it needs to be changed. I think it's going to have its place in the valley, deep tech.

This quote suggests that while there are issues with the current VC model regarding deep tech, Tim Harris believes it will still find its place without needing major structural changes.

• Elad Gil compared the current deep tech investing to the green tech/clean tech craze of the early 2000s.
• Investors are diving into areas they don't understand, which can lead to negative outcomes.
• Tim Harris respects investors who decline opportunities in spaces they don't understand.
• Not understanding a space doesn't necessarily mean it's a bad investment.

I agree with that and I disagree with that. I agree with that insofar as when I was pitching people and getting turned down, people told me, hey, I just don't invest in the space because I don't understand it.

Tim Harris expresses a balanced view, agreeing that lack of understanding can be problematic for investors, but also recognizing that unfamiliarity does not inherently make an investment opportunity poor.## Deep Tech Opportunities

• There are abundant opportunities in deep tech sectors such as autonomous driving and AI.
• The challenge arises when certain areas become trendy, leading to overcrowding, like with lidar companies.
• Investors often lack the necessary competence to discern meaningful innovations in these crowded sectors.
• Success in deep tech is not solely about technology innovation but also manufacturing and operational expertise.

"There are massive opportunities at deep tech. Massive opportunities, right. Autonomous driving, AI, what we're doing, there's lots of different opportunities that are going to pay off huge."

This quote emphasizes the potential for significant returns on investment in the deep tech industry, highlighting areas like autonomous driving and AI as key examples.

"What actually it means, and not all of it, is technology innovation. A lot of it is actually manufacturing innovation or manufacturing consistency and operational expertise."

The quote clarifies that while technological advancements are important, the ability to innovate in manufacturing and maintain operational excellence is equally critical for success in deep tech.

• When seeking investors, it's important to find those with some industry understanding, even if not in detail.
• Investors should be aware of their knowledge limitations, as there's always an information asymmetry between entrepreneurs and investors.
• The speaker's Series B was led by individuals with deep experience, including former professors and CTOs, suggesting the value of knowledgeable investors.

"You have to have someone with some understanding of the industry, right? Understanding not necessarily of all the details, but someone who understands technology, people with engineering degrees or histories that they're in, and really who know the limitations of their knowledge, right?"

This quote highlights the importance of having investors with a foundational understanding of the industry and an awareness of their knowledge boundaries.

• Educating VCs without being patronizing is a challenge, especially in deep tech.
• The approach involves simplification and analogies to convey basic principles without needing to delve into intricate details.
• The speaker prefers to get more technical in pitches than most, despite not having a technical background themselves.

"I think you can simplify without and caveats such that people understand the kind of basic principles without needing to understand all of the details."

The quote suggests that it is possible to educate potential investors by focusing on core principles and avoiding excessive complexity.

• The "big lie" in Silicon Valley relates to the misrepresentation of unit economics as static when, in reality, they often change with growth.
• Entrepreneurs may present unit economics that appear profitable but then sacrifice them for growth.
• The market values company size over profitability, leading to the acceptance of the "big lie" for the sake of growth.

"The big lie is fundamentally around unit economics."

This quote introduces the concept of the "big lie," which centers on the misconception that unit economics are fixed and will not change over time.

"The lie can be summed up as, it's okay that we're losing money because we'll make it up in volume."

The quote summarizes the essence of the "big lie," which justifies losses with the expectation of future volume-driven profits.

• The "big lie" about unit economics is relevant in deep tech, where profitability is often projected based on future reductions in costs, such as the bill of materials (BOM).
• The landscape of competition and technology is dynamic, which can render initial assumptions about unit economics obsolete.

"So the one that you see a lot in deep tech is, oh, don't worry, once the bomb cost comes down, this is going to be totally profitable."

This quote illustrates how the "big lie" manifests in deep tech, with promises of future profitability based on anticipated cost reductions that may not materialize as expected.

• When evaluating claims about changing unit economics and decreasing BOM costs, it's important to ask probing questions to determine their sustainability and truth.
• The speaker did not complete their thought on what specific questions they would ask, but the context implies a need for critical evaluation of economic projections.

"This is where you need kno"

The incomplete quote suggests the speaker was about to discuss the knowledge or questions required to critically assess claims about unit economics and BOM costs in deep tech ventures.## Deep Technology Investment Considerations

• Deep tech investments require understanding specific aspects of the technology and market growth value.
• External factors and startup dependency can influence the pace and success of deep tech innovation.
• The sustainability of the technology and its market growth potential are critical for investors.

"For deep technology, you need to understand what aspects of the bomb they're looking to come down, right?"

This quote emphasizes the importance of understanding the specific technological challenges and goals within deep tech investments.

"There is value to being first, and this is the market growth value."

The quote implies that being the first mover in a market can have significant value, which can justify investment despite potential sustainability concerns.

• Unit economics is crucial in consumer growth businesses, but deep tech focuses more on core intellectual property (IP).
• Strategic acquisitions by large companies can be a goal for deep tech startups, often considered by venture capitalists (VCs).

"Deep tech, where often, believe it or not, the deep tech is the kind of core IP, not the users themselves."

This quote highlights that in deep tech companies, the primary asset is the technology itself, not the user base, which is a departure from consumer-focused businesses.

"Is the billion dollar deep tech acquisition by GM not the play, instead of kind of building a sustainable growth business in many minds of vcs, do you think?"

The speaker is questioning whether aiming for a major acquisition is a more common strategy among VCs than building a sustainable business in deep tech.

• Building a sustainable revenue-generating business in deep tech can be more advantageous than relying on a potential acquisition.
• Deep tech businesses need to plan for longer development timelines due to the nature of the technology and research required.

"Can we throw a bunch of money at something and then hope that someone will buy it for the technology or for the ability to build technology?"

This quote reflects a common but risky VC strategy of heavily investing in deep tech with the hope of a lucrative buyout, which may not always succeed.

"You can still build that deep technology, but you have to figure it out in such a way that there are discrete, saleable parts along the way."

The speaker suggests that deep tech companies should focus on creating revenue streams throughout their development process to build a sustainable business.

• Deep tech startups often require more capital due to the research and development (R&D) involved.
• Raising significant funding can lead to high valuations and potential market frothiness.

"A lot of things just take time."

The quote acknowledges the inherent time-consuming nature of deep tech development, which impacts capital requirements and fundraising strategies.

"It's absolutely frothy, and I think it's because the companies are being somewhat realistic in what it's going to take them to perform."

The speaker is commenting on the high valuations in the market, suggesting they are partly due to realistic assessments of the capital needed for deep tech companies to succeed.

• The mobile phone ecosystem has made building deep tech hardware easier by allowing the use of commodity components.
• Software updates and programmable chipsets provide flexibility in deep tech hardware development.

"We build as little hardware as possible."

This quote reveals a strategy to minimize hardware complexity by leveraging existing technologies and focusing on software.

"That really lets us run software development cycles on what is essentially a hardware product."

The speaker illustrates how using programmable chipsets allows for a software-centric approach to hardware development, streamlining the process.

• Deep tech companies must consider competition from both startups and established technology firms.
• To succeed, startups need to find new market directions and move quickly to establish a lead.

"You can only really win by picking a new direction and then accelerating towards it faster than anyone else."

This quote advises that the key to outpacing competition, including major tech companies, is to innovate in a new direction and progress rapidly.

"By the time they turn ship and get after you, you're already ahead of them in the market."

The speaker suggests that by the time larger competitors notice and try to catch up, a well-positioned deep tech startup can already have a significant market advantage.## Partnership Ecosystem in Startups and Corporates

• There is a trend towards partnerships between startups with deep tech intellectual property and established companies like Audi and BMW.
• Direct competition with large automotive companies is rare, with Tesla being an exception.
• Startups tend to partner with established companies due to regulatory, standard, and practice challenges, referred to as "automotive bureaucracy."
• The partnership model is deemed more appropriate as companies cannot excel at everything; specialization and collaboration are key.

I think you see a lot more partnership as a result. I think entirely replacing what's out there is not terribly feasible.

This quote emphasizes the practicality of partnerships over attempting to replace established companies, especially in industries with significant barriers to entry.

• Assessing the attractiveness of a partnership involves understanding the incentives of the potential corporate partner.
• Large corporations prioritize their main product lines, which may generate significantly more revenue than a startup can offer.
• Startups need to offer value to the corporates' primary product lines to gain traction and support.
• Innovation departments in large companies often struggle to focus on new ventures due to the success of their existing businesses.

For you, it's all about incentives. It's really all about what are the incentives of their business.

This quote highlights the importance of aligning a startup's offering with the core incentives and revenue drivers of a potential corporate partner.

• Leadership fundamentals have not changed over time, and historical texts still provide valuable insights.
• Marcus Aurelius' "Meditations" is recommended for understanding basic human leadership aspects.

The reason is because I think a lot of fundamental lessons of leadership have already been litigated and relitigated many times, and they haven't changed.

This quote suggests that historical texts like "Meditations" are timeless sources of leadership wisdom.

• Critical self-reflection is necessary to challenge assumptions and improve decision-making in business.
• Being skeptical of one's own beliefs and business ideas is essential for growth.

What I believe the most people around me disbelieve is your own bullshit.

This quote advises that one should critically evaluate their own ideas and beliefs, rather than accepting them at face value.

• Developing deep technology requires patience as it often takes longer than expected.
• The complexity and scale of problems in deep tech necessitate a methodical approach.

Patience. I'm an inherently impatient guy, and especially deep technology takes so much longer than you originally know.

This quote reflects on the personal challenge of remaining patient during the slow and intricate process of deep tech development.

• Universal cell coverage would significantly benefit Swift and other industries by providing infrastructure for growth.
• Infrastructure investments are challenging but can create substantial opportunities for technological advancement.

Universal cell coverage is just incredibly important, something it's pretty difficult to do because it's actually more of an infrastructure investment more than anything else.

This quote identifies universal cell coverage as a critical but challenging infrastructure need that would have a positive impact on Swift's business.

• Personal newsletters, such as family newsletters, are valued for personal updates.
• Industry insights are gained from resources like the First Round Review.

Once again, another cop out? This is just my family newsletter.

This quote shows a personal preference for staying connected with family news, while also acknowledging the value of industry-specific newsletters.

• Swift is focused on developing products to enable the future of autonomous vehicles.
• The next few years will involve bringing new, advanced products to market.

There's just an enormous amount to build for us.

This quote outlines Swift's ambitious plans for product development in the autonomous vehicle space.

• The host, Harry Stebbings, encourages listeners to follow behind-the-scenes content on Instagram.
• The podcast appreciates listener support and looks forward to future episodes.

As I'm sure you could tell, I absolutely love that conversation, geeking out about the financing elements of deep tech.

This quote expresses the host's enthusiasm for the discussion topics and engagement with the podcast community.