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Feb. 3, 2021

When technical risk outweighs the market risk it's the true deep tech investing. By Ryan Li.

When technical risk outweighs the market risk it's the true deep tech investing. By Ryan Li.

Ryan Li, Co-Founder at Deep Ventures talks about the deep tech investing and how he sees it. We also spoke about how he managed to raise and run a syndicate while being a college student and how investors reacted to this. And we discussed what Deep Ventures' team looks at while evaluating a startup.


Ryan's LinkedIn: https://www.linkedin.com/in/ryan-d-li/

Deep Ventures: https://angel.co/deepventures/syndicate

Slack channels that Ryan recommends:
Altum (deep tech focused, started by Jai Malik of Countdown Capital)
Gen Z VC (name self-explanatory) - I'm personally part of this one too, great place!
Transcript

And today's a guest speaker, we have Ryan Lee Co, founder and general partner at deep Ventures. He create deep features while still go into college and he's actually in college right now.

So, today we'll talk about creating the same as it gets very early on being very young, and how that works and how is it going? And also what do Ventures invest? So right. Uh, let's kick it off by giving us some background on yourself and on deep Ventures.

Awesome Constantine. Well, thanks for having me offer speak a little bit about myself. So, like you said, I'm currently a college student, so I study computer science and philosophy at Stanford and in my background, I've done a lot of scientific research.

So, I've done some computation on clinical neuroscience work for few years and then recently I did some deep learning research with the school of medicine at Stanford. So I've always been pretty involved with the scientific world.

Both my parents are also in science as well. So, it's always been something. That was really interesting to me. I always thought that I would enter it, but as I began to do more and more scientific research, I became kind of disillusioned with academia.

There's this saying, and life sciences where research should go from bench to bedside. So, the idea is, after you do some sort of experiment, the result of that experiment will be able to help somebody who's sick or something like that.

But oftentimes, what I've found is a lot of the really cool research that's being done. Actually, just kind of goes from bench to bookshelf. So you do the research and then it gets filed into some archives of a scientific journal.

And obviously, that's not the case for all scientific research and academia but at least, for the type that I was doing, I really felt kind of disillusioned with how slow stuff was going. I was really interested in science and technology.

So so, the early stage, deep tech investing world, kind of stood out to me as a natural next step for where I wanted to go feedback cycles were shorter. And I was able to really get involved and learn stuff at a much quicker rate.

And then a little bit more about deep Ventures itself. So deep Ventures is in early stage detect syndicate that operates on AngelList. And I know the word deep tech can often be sort of using a bunch of different ways.

And so, Sherman and I shermans my partner. We kind of defined deep tech as really where companies to take a phrase from the costal Ventures team in which technical where it will outweigh market risks.

And I know that doesn't really cover everything but that's kind of generally how we think of it. And then we'll shape our definition, depending on the type of company that we're evaluating. So we're very founder focused, deep text syndicate. My partner.

Sherman is a deep tech founder himself, and we really kind of started with no expectation.

So, I think Sherman really wanted to sort of formalize angel investing process and support more founders and both of us, I think saw a gap in a nice to be carved out in deep tech on AngelList.

I don't really think there were a lot of syndicates that we're primarily focused on deep tech and so it was kind of a natural step for both of us to take and it's been going super well, ever since.

That is very cool and yes, I feel like you're right actually, I haven't seen many syndicates on that topic on Angeles. So good timing there. Nice work. So, 1st, question here is going to be.

About raising that money. So basically the only the thing that you just created a syndicate on angel list and.

That's it, how do you manage to read so much? I mean, how do you manage to attract so many people into your syndicate while you're still being a college student?

Yeah, so that's so, I guess if you if you told me in early 2020 about a deep tech syndicate, I wouldn't have believed you. I wouldn't have known what deep tech or syndicate was either of those terms.

It was really just something that I I kind of got into kind of for what I was just.

Um, for the reasons that I was just talking about, I was really just looking for an opportunity to get more involved with the deep tech world and a lot of it I have to credit to support from my partner. Sherman without him.

I wouldn't have been able to do this. It was his network and his inspiration that really got us started.

Um, and I guess to answer your question about how we raise the money, it sounded pretty daunting, I guess, to begin with to go from not having a syndicate at all to you doing 2 deals per month on a regular basis.

But, I guess how I thought about it was just like, looking at exactly what was in front of us. So, the 1st step was to get an initial network of limited partners that we could go to. Those would be the initial backers. That would support our deals.

And so how we did, that was, we would just called message, hundreds of people on AngelList and linked in and share what we were doing. And that was a really tedious process. But we were able to get an initial network going of, maybe 10200 or so lp's.

And step 2 is obviously get deal flow so at the start, we very much leveraged shermans, existing founder and investor network and then I also just started plugging myself into as many startup communities as possible as a Stanford student.

I'd definitely thought it was quite easy. I recognize that that isn't true for everybody, but there's just so much support at Stanford for the startup world. So it was relatively easy to just really get involved with the startup world when I actively try to.

And then I would just called E, mail founders working on stuff that I was interested in and hopefully get them to talk to me and as well as their friends and colleagues too. So, it was really just about focusing on the stuff in front of me.

And then hoping for the best, but, like I mentioned earlier, I don't think either really had expectations for where it was going to go. We both just wanted to support deep tech founders and tried to find the best way to do that.

Nice. That's really cool. And it seems like it's working so great work. Great work, man. So,
next question is about standard VC path is either being the students,
and then going into the venture,

and then starting their own fund or starting their company than having some sort of exit or some kind of success,

and then starting to fund.

So, you went straight from college student in university, and you still started your syndicate. So, how do you feel like keeping that step effected you?

So, did dolby's have questions, like, are still in college, or wasn't completely fine with them? Yeah, so I guess 1 thing is I never really.

Obviously advertised my age and it's definitely come up sometimes, but I think it's really just about starting and I never really thought too much about what was the right path. I think venture. So interesting because everyone's path is so different.

So some people are career investors and they started right out of college and work their way up at a variety of firms. So I'm like you said, our successful founders turned investors and somehow, even less, typical path.

For example, Harry stabbings, Super inspiring journey from podcast or to investor. I find them particularly inspiring because he's also quite young. So, for me, I recognize that. I'm young.

So 1 thing I make a really active effort to do is to surround myself with people who know a lot more than me and believe me,

there's a lot of those people I'll talk to some of our to know more about me more than me about certain spaces also,

I really love talking to investors who've been in the industry longer than me as well.

And then I think it's just about being transparent about who I am. I don't hide from the fact that I'm a student.

I might emphasize, though that I'm, I'm really curious and I will always take a lot of time to understand the interest industries that I'm investing in primarily because I just think they're really interesting.

And I also think that the curiosity aspect that I think is a common characteristic that drives a lot of successful esrs is that it's quite easy for me right now,

because I'm,

at the point in my life where learning,

and being curious are when I'm technically quote,

unquote supposed to do so that's been really cool.

True. That's that's the best part about VC world or just like General investing, start world. Sometimes you do your work and then you're like, wait.

That's actually my work I thought it was just relax and stuff. No, exactly. I I think I think it's really cool to have this sort of job where it really is just about talking to a bunch of people and learning new things.

And if you were to tell me that, that would have been a possible career when I was younger, I wouldn't have believed you because it just, I mean, it's, it's definitely been really, really amazing.

Okay, just to clarify most of our listeners, our founders of startups. So just to clarify for those people it's actually the job is not that easy as it might sound. It's just a lot of it is good.

So, it's not just, I mean, there's no perfect job. Of course. Absolutely. I think it's just about finding the thing that you most in July.

Right. That's very accurate. So, 1 thing that you mentioned, that kind of caught my eye is surrounding yourself with smart people. That's the thing I've been trying to do for a while and has been working. I mean, number and this podcast, like, 99.99% of my speakers are smarter than me.

So I think I've done a good job there, but not. Everyone has a great podcast like me. So, for you personally, what kind of communities would you recommend? People to join?

Do you have any particular recommendations maybe some particular slide groups or places to search for those smart people.

Yeah, for sure. I would say, you know, I think it depends on your age. So if you're younger, no matter what university you go to. There's probably some sort of network of people who are interested in, like, early stage businesses and start ups.

I think that network is really interesting because.

You have people who are kind of at the same stage in your careers you and so you really get to kind of go through this shared experience of learning about venture and just the startup broken general.

And I think you mentioned the slack communities there's been a bunch that have popped up recently. I'll just mention a couple that I'm a part of that. I found quite valuable so far.

So, there's 1 called altm, which is a deep tech focused community and there's been a lot of founders and investors there. And it was just started a few weeks ago by 1 of my colleagues who just started a deep tech, find himself.

And there's been a lot of cool stuff happening in that group. Another 1 that I think a lot of listeners of this podcast might have heard of. If they're younger is the gencsi VC group that I think started sometime around November, December. But it really blew up.

And now has thousands of people not just people from Jersey, but people who are in general interested in startups and venture.

I think those groups are really, really interesting way to meet people, especially because everybody who's in those groups has already kind of made it known that. They're very interested in meeting other people.

So if you called somebody who's in 1 of these groups, it's very likely that they'll respond and you'll be able to have a conversation with them. And the last thing I'll say about that is just cold.

Emailing or messaging, people who are doing stuff that you're interested in obviously, you know, not everybody's going to respond but I think enough people will and that's how it kind of started for. Me too.

I would see people that I thought were doing really interesting things and I would just message them. I found, like, Twitter usually works better than LinkedIn, for example, because it's more personal. And a lot of people don't check their LinkedIn messages, but really?

Whatever way you can get in contact with somebody I think is valuable and the worst that can happen is they say,

no sorry I don't have the time and it's still really interesting because every, once in a while,

somebody will say that they're interested in talking and maybe share an opportunity with you so I think the biggest thing is just putting yourself out there and I know sometimes it can be pretty uncomfortable,

but once you get past the cold messaging side of things, it can be really,
really valuable.

100% and the thing that you said about those start committees or communities of mind, people, that's 100% accurate. I don't think it ever happened to me that I've actually called DM person on 1 of those slide groups, and they did not respond. So.

Basically, the response rate is there 100%? Yeah Yeah. Not know the person. So is just great, but. Cold outreach works as well. I mean, I got in touch with Ryan.
I'm like, 99% sure I got through.

Message on LinkedIn, right right. Yeah, that's exactly. Yeah. I mean, sometimes people say, like, hey, man, sorry, I'm just too big that we're I'm not doing podcast and that's fine. That's fine. You know, that's the words I can happen. I mean, not the worst, but more stores.

So here, let's go into the deep tag discussion. So, 1st of all can you, you already mentioned a little bit about how you describe deep tech, but I have an extremely poor memory.

So, could you repeat that and tell us a little bit more about what kind of stuff you invest in.

Sure thing so I kind of said that I I really think of deep tech, like, pretty broadly generally happens to be the type of stuff that Sherman and I are interested in.

But, if I were to put a definition to it, or at least a broad kind of category, it would be. And I think I heard this from somebody on the costs of Ventures team in podcast or an interview.

It's companies where technical risk outweighs market risk and so it's really just stuff where the primary focus is the technology itself. And, like I said, that can really mean a lot of different things, depending on who you're talking to.

But that's pretty much been a really nice umbrella to cover all of the different industries that we've been investing and biotech or alternative protein, aerospace or crypto.

Right, yeah, that was the phrase I was looking for technical risk outweighs the market risk. I love that phrase how it sounds so.

Can you give us a few examples of those companies, you know, where it's just like, heavily technological and it's actually working well, or, you know, it looks cool or it sounded maybe like a couple years ago. It sounded like something unrealistic but right now it's.

Become a reality yeah, no, definitely.

I mean, there are so many examples of deep tech companies nowadays, especially, you know, if you look on Twitter, like, you know, 1, I think big 1 that a lot of people heard of recently as.

Space, which is working on in space manufacturing, they just raised a monster round from from Founders Fund in Las capital and, you know, there's there's been stuff happening in alternative

protein.

We're investors and a couple of alternative coaching companies like giuliana, which is working on plant bcy food and also new, which is working on cultivated or cell based.

And there's a lot of really interesting stuff happening. Like I said that the, I think deep tech as a quote, unquote investment space is so broad. It really just depends on how you kind of look at it.

It's not going to be stuff like consumer social, but there's a lot of stuff that I think you can kind of fit in and it really just depends on what your thesis is and what you're interested in investing.

Right so let's talk specifics here. What about the most interesting idea that you've seen in deep tech? That seems like, you know, you're looking at and you're like, okay, that's just a great, great tech solution. Very impressive. R, and D process and they've actually done it.

Yeah, that's that's a really, really interesting question. You know, it's pretty difficult because.

Like, you know, there's, there's so many companies working on interesting stuff. I guess if I had to answer that, like, in terms of a general vertical, it would be a lot of the stuff that's happening in in space. And I think it's also.

Kind of because of my personal interest in it. So, if there's, I guess if there's anything that keeps me up at night, it would be thinking about space. The idea that there are entirely different worlds out there with.

Potentially types of life that we can even conceive, and just the sheer scale of it all is, is so profound to me. And it's really cool now that I'm able to be alive at a time when there's so many interesting innovations happening in space.

The clear glaring example is space X and what they've done by drastically reducing the cost of of launch,

which is such a critical factor and making space,

more accessible to industries like manufacturing and communications.

The other thing I would say is that's all cool. But we also have to take care of our world. 1st. So, by that, I mean, stuff related to the climate and so a lot of really interesting ideas that I've seen in the climate space.

Like, I mentioned, have been an alternative protein.

I think now it's kind of becomes part of the popular discourse talking about cell based meat, but is really just a few years ago, starting with, with companies like Memphis meets, and most of meet, where these ideas were coming into the mainstream.

But the idea that you could literally grow your made, that's such an interesting idea to me. And it's such a clever solution to what is a massive problem.

I just recently wrote about the alternative protein industry for a newsletter that we run for deep Ventures.

And I think 1 statistic that shocks a lot of people is that if you take the cumulative amount of emissions, that animal agriculture causes, it's higher than all of transportation.

So, that includes driving, flying, trains, boats, everything, animal, agriculture accounts for more. And so I think when you realize the statistics, you realize how important something cell based cultivated

made is.

100% that's very true. And yes, I've been hearing more and more stories about this particular vertical in the past year so I'm pretty sure it's going to be big thing very soon. So how bout ideas that.

Sound absolutely insane. I've heard multiple stories of people gain pages like teleportation. 1 was.

I think teleportation is the most common 1. but do you have any, do you have, have you had any pictures that sound like? Absolutely insane. Um.

Not really yet I haven't been pitched on teleportation, but that sounds pretty interesting. I would definitely have any questions there. I guess I can kind of.

That kind of, I guess, is a good segue into, I guess me talking about maybe some of the factors that I look at, when evaluating a startup yeah. What you just said.

Related to 1 of the ways that I kind of look at look at this space. So I think 1 thing that I that I've realized is that I'm never really gonna be able to understand a very niche problem space as well as a founder.

This founder's been working on this for years, potentially, to be part of their pH. D thesis. And, for me to say that I know this space as well as you would just be insane because I've maybe evaluated the space for a few months.

But I would never claim that I'm an expert in it. But.

And stuff is going to stuff in detail is always going to sound inherently cool. Like, teleportation sounds really cool. We think about it is how feasible is it? So how I kind of walk through that is I try to use 1st principles to piece together.

What chain of technological innovation has to happen to bring whatever early stage detect idea somebody is pitching me on, from idea to reality. So I try to paint a mental map. Okay.

So this is where this company's right now, they have some sort of prototype, or they have a product that's not exactly there, but it's going to get there. And then I try to.

Have the founder walk me through. Okay. So what exactly is it going to take to get from what you have now to a commercially viable idea? And as they walk through that process, I'll try to really think about.

You know, any steps along that process that confuse me or seem particularly challenging and get an understanding of how the founder, these, those steps.

I think it's because as long as something doesn't sound crazy,
like you said,
where there's just no scientific basis or path from prototype to commercially viable, commercially viable business,
oftentimes,
there's just a,

a spectrum of how feasible a solution is going to be and what level of risk is gonna be involved at each step of the process but it's really like I said,

it kind of goes back to me,
just being curious and wanting to learn and asking questions and seeing what.

Founders have to say about the questions that I have, and then evaluating using judgment to decide whether it's a level of risk that we're comfortable with, whether we believe that they're going to be able to work through those challenging steps.

And I really think that's that's it. I'm still learning and I don't know, maybe if you asked me this question a year from now, or maybe have a different sort of process, but that's just kind of how I've been thinking about it. At least for the past year.

So, we'll covered how you evaluate ideas technologies, how bout to start down here. So, for, for me, personally, when we're considering a company for investments, we're basically considering the team for investment. That's slightly 80% of the process we're looking at.

They're linked in some social media, doing some questionnaires with them etc. Etc. What about deep tech? Is it like, how important is a founding team? How much time do you spend on? Actually understanding who the founders are.

Yeah, I mean I mean, so much, like you said, like, for early stage investing, the team is really everything.

Um, most companies early stage companies fail because of either conflicts between Co, founders, or other people related problems.

And that isn't really surprising, because no matter how good an idea is, you know, the team that executes it will make or break whatever that idea is.

And particularly I'm particularly interested in understanding the team. Because I have to believe, for really bold ideas that a team has technical sophistication to accomplish whatever problem exists at hand.

And so if the other thing is along those lines, it's really nice when founders really able to articulate the problem they're working on. Because if I know that a founder can articulate the problem.

Well, then I know they, they understand the problem. Really well, too.

And if they can explain the problem and solution really well to a general audience, then they can also do that with other investors, particularly with the nature of detect with large amounts of capital required for.

It's really important to consider a startups, ability to raise additional capital. Because, frankly, as a syndicate, we're never going to be the biggest checking around.

I'll proceed and so we have to evaluate whether we think that other investors are going to listen to this and think, wow, this is really cool and we want to put in money too.

So, when a founder is able to articulate the problem really well, it kind of fits those 2 birds with 1 stone.

Right that's very accurate. And especially, you know, the part where you're trying to understand if the boundaries actually people to raise the full on capital, that is very important, and pretty much every single vertical where you start your company.

By the way you mentioned early stage, and I realized I've got to ask you what stages do like to invest

in. What's the average check size for your syndicate?

Yeah, so we will typically invest at the early stage. Like I mentioned. So, this is usually preceed to seed. We've also looked at some Series A deals and every once in a while if something really compelling late stage shows up.

I don't think that either Sherman, I would not take a look, particularly for some of those really interesting secondaries that are out there.

But I guess right now what we typically invest in is preceding to Series A, I would say, probably closer to seed, simply because deep tech is already hard enough to raise capital for.

And because of the nature of a syndicate, if it's a preceed deal for deep tech, where it's really just an idea it'd be quite hard to raise capital for. And that's 1 of the considerations that we have to have syndicate leads rather than as fund managers.

And along those lines, our average check size really ranges we've done deals for 100000 everything up to 350000 often. Well, it depends on a combination of factors.

So, 1, how much allocation founder is willing to give us around? It's particularly competitive. It might be harder to want to syndicate something like 300 or 4000 then also too.

How much interest there is from the syndicate and oftentimes, it's very difficult to know that until you actually publish a deal and see how many investors are interested.

So that's always something that we make very clear to the founders that we work with,
is that oftentimes,
we don't really know how much capital we're going to be able to raise whether it's 10200 or 300 grand, but it's just a matter of us putting it out there and just keeping them updated on how it's going.

Right. That's very accurate. And I like that description. Perfect. So now we're moving on to the last question for these episode. We choose a call to action. So, Ryan, what is the 1 thing that you want police here to do? As soon as the episode is over?

Sure, well, since I'm a deep tech investor, if you're if you're building something in deep tech, or you also invest in it, it doesn't have to be your primary vertical, but just something that you're interested in please feel free to reach out. To me.

I'm at Ryan Lee, 2008 on Twitter that's our way. And 2008 and, you know, I'd love to hear about whatever it is you're working on are investing in. Like I mentioned earlier.

1 of my favorite things about this is that I just get to talk to people all day about stuff that both of us are interested in.

And I guess the other thing is, if you're an accredited investor and you're interested in investing in some detect, feel free to check out our syndicate.

If you look us up on AngelList Ventures, you'll definitely be able to find us and just maybe come see what we're about feel free to me. If you have any questions.

But we're always looking to expand the circle of investors that are looking at our deals because ultimately, at the end of the day, this is a team sport. It's really cool to be able to work with as many people as possible.

Because ultimately, I think all investors and founders just want to see really cool ideas being funded and well executed so that we can hopefully make.

Better future I'm using whatever technology we have. Right that's very true. Secure approach. And I do like it. So, my call to action is going to be definitely checkout brian's Twitter.

I'll make sure to leave a link to also leave a link to the deep tech Ventures. And also, I leave 2 links to what Brian mentioned earlier, which is going to be 1 the podcast or 2 investor guy.

I already forgot his name, because I have a horrible memory and the 2nd, part is going to be Ryan sharing the communities that he's a part of that part can be for deep tech founders, foot steel or deep tech founder.

I highly highly recommend you checking out the description of this episode as usually have a good day that applies to everyone. Not just tech people.