Beyond the Breakthrough: Mike Zimmerman

We talk to Mike Zimmerman, partner at Main Sequence Ventures, about improving commercialisation activities in Australia, the importance of deep tech over the next few decades and developing a plant-based burger in partnership with Hungry Jack’s at breakneck speed.

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Transcript

Thierry Heles: Mike, thank you very much for joining us on the podcast today.

Mike Zimmerman: It is great to be here. Thank you very much for having me.

Heles: To kick things off maybe you can give us a brief overview of Main Sequence Ventures, maybe some key figures. And just because I love astronomy, can you also explain why you are called Main Sequence?

Zimmerman: Sure. Main Sequence is a bit of an unusual beast. We are a sponsored fund with the backing of the national science agency here, CSIRO and the Australian government. We were set up in 2017, but along with that sponsorship we have capital from independent LPs – institutions, corporations and family offices. We have got the best of both worlds in terms of a sponsored sort of captive fund, but then also have a lot of the independence and rigorousness and focus on returns from an independent venture capital fund.

And in terms of the name, we are a deep tech fund and the main sequence, as you probably know from your astronomy, is basically the scenario where the stars burn brightest and live the longest and so the idea we thought was very fitting with a deep tech fund where we are trying to create successful global companies that will impact the world. We thought Main Sequence was very fitting for that.

We are, as I mentioned, a deep tech fund. We managed A$240m and that is across two vehicles. We have an early-stage fund that is A$160m and then an A$80m growth fund, and we are about 75% of the way through that. We have 27 portfolio companies and next month in November, we do a first close on our second fund.

Heles: You are not wasting any time there.

Zimmerman: Yes, the pace has been pretty strong, we have backed eight or so companies a year, so a fairly strong pace. But there is a lot of opportunity in the areas we are focused on, so we are moving quickly.

Heles: I was not actually really going to touch on the second fund, or ask too many questions, but you have mentioned it now so I’m guessing it is public knowledge anyway.

Zimmerman: Sure.

Heles: Amongst the LPs in your first one, you had University of Melbourne and Lockheed Martin. Are you hoping to attract more universities and corporates for your next fund?

Zimmerman: Yes, certainly the corporates have been good partners for us because we are basically a fund that writes first checks into companies and we help in many cases with the commercialisation of research coming out of universities and research agencies. I can go into our  strategy a bit more on and our areas of investment, but as a result of that we are doing a lot of seed and pre-seed and series A deals, and so the corporate partners we have are quite interested in the deal flow, as well as the insights from the companies we are backing.

When you look at someone like Lockheed Martin, it was actually their venture arm that invested and we work with them quite closely. Every six weeks or so, we are on the phone sharing pipeline information and insights into companies in the landscape, and then of course co-investing when that makes sense as well.

In the second fund, we expect to have more corporates as well as it seems a good fit for corporate venture funds that cannot necessarily cover the whole world but are interested, in their sector, they are interested in seeing the leading things going on.

Heles: On a personal note, what convinced you to join Main Sequence Ventures? What has the experience been like so far?

Zimmerman: Well, my background, you can probably hear from my accent I am not Australian, I am originally from the US but I did move here about 25 years ago and shifted into the startup sector just over 20 years ago. Starting Main Sequence with my four partners in CSIRO is really the culmination of the startup experience in that I have probably spent about half the time in venture capital and half the time operating as a founder executive in venture-backed companies.

The work we are doing is with early-stage companies that are commercialising research primarily, there is a bit of heavy lifting on the operating side, either in structuring companies and hiring folks and a strategy and so I draw my operating experience for that. Then the investing side can be complex as well, especially negotiating with institutions to get access to IP on funding and things like that and so I draw on that there. This brings those experiences together. Also, at one point in my career I started a company based on research out of the CSIRO and part of my inspiration for joining Main Sequence was the technology I commercialised was basically an AI system for energy use in buildings, we turned it into a company called BuildingIQ which still exists and is operating globally.

Here in a small town in Australia, Newcastle, were these world-leading researchers parading this very advanced technology and no one really knew about it. I was lucky enough to be introduced to the team, found the technology and realised it had global application. As a result, I was able to build this business from this technology that probably otherwise might have sat on the shelf. Fast forward to Main Sequence, what we are trying to do is uncover the gems in the research sector, and either attach them to existing startups or create new startups from that research and ensure that the government gets a better ROI on the research dollars they are investing, and our investors get a great return as well.

Heles: Amazing. We will get to a couple of examples of companies that you have created and invested in a minute. But CSIRO has been responsible for some of the world’s most impactful technologies, wifi, royalties of which helped launch Main Sequence…

Zimmerman: Correct.

Heles: … reusable contact lenses, polymer bank notes, which have finally arrived in the UK now as well. Can you tell me why Main Sequence Ventures focuses on deep tech and how important this is for the Australian ecosystem?

Zimmerman: As I mentioned, we were created as a result of a government initiative around how to best prepare Australia for the future. There is recognition in industry, but also in government and research, that while we have pockets of world leading research and our research agencies, like the CSIRO, are some of the top rated in the world, we do not have a good track record of commercialising research. The government originally creating the fund was, as I mentioned before, to really try and have an impact on that at a systematic level. Equally the fund team strongly believes that the best returns for the next decade or two are going to come from solutions that are powered by fundamental engineering and science, and I think we can see some of the impact of that today in our current troubling environment, how important technology, engineering and science is to the world.

With that investment strategy, it is critical to have the CSIRO as a partner to go after the deep tech opportunity, and we are leveraging them. They have 3,500 scientists. They have billions of dollars of infrastructure. They have lots of facilities to do prototyping and certification and even early scaling, which have helped some of our companies, and as a result we have been able to get access to those resources without having to raise capital for them.

Obviously, there is still value transferred to whether it is equity, or royalties, or even contracts, but the point is there is incredible resources that give us and our companies what we think is a bit of an unfair advantage to do deep tech.

Heles: When someone says deep tech, I usually think of AI, photonics, quantum computing, biotech and so on, and of course you have some fascinating portfolio companies there with Myriota or Q-CTRL, for example. I do not usually think of burgers, it also includes a Clara Foods, a cultured meat startup and a first one I would like to talk about more in detail is V2Food, because it is slightly different in that you did not simply invest in the company, you helped create it, partially with Hungry Jack’s, which is the Burger King franchise in Australia of course. Can you tell me a bit more about that journey?

Zimmerman: It is probably worth saying just a little bit more about the investment themes. I mentioned that we are trying to tackle major problems that the world is facing and that is instructive about our themes and why burgers have made it into our list. We are a thematic investor and we actually call our different themes ‘sequences’. They are all framed around the large challenges facing the world.

For example, humanity-scale health care is all about democratising access to quality health care. Feeding 10 billion people is all about the challenge of, as the world grows to a population of 10 billion people, how do we double the output of our food system? Basically creating a whole other planet’s worth of food. We have a sequence around space and new transport. You mentioned Myriota, and we have got a launch vehicle company as well, Gilmour Space. We have another theme around the new society, and that is really about the future of work, future of education and future threats.

And then lastly, we have another sequence around exponential machines, which is about augmenting the human experience with advanced computation and communications platforms. So, quantum computing, next generation wifi and wireless, things like that. Those are the challenges, or the sequences, that we have laid out and then our portfolio is equally distributed across those sequences.

With that background, food and ag is a huge focus for us, that feeding 10 billion people theme. One of the reasons is Australia is super strong in that area. I mean, CSIRO was originally set up to focus on applied research in the ag and food sector and we have a strong track record of invention there from biology to crop models, remote sensing, things like that.

In the case of V2, that is one of the different types of investments we make. High-level, we make three types of investments. The first is an independent company that can be turbocharged with research that we will pull out of a university or a research agency. Number two is we will do a spinout, which would be very common to your listeners, a scientist as founder and entrepreneur. And then the last is the category for V2, we do something called venture science and there we will create a company from scratch based on very strong market pull and a big opportunity and we will do that in conjunction with a corporate partner. In this case you mentioned Hungry Jack’s or Burger King. The owner in Australia is Jack Cowen, he is an LP in our fund. Jack and our fund are having a conversation about the plant-based meat phenomenon. You have Impossible and Beyond Meat in the US but no real leader in Australia and really no leader in Asia.

Jack and ourselves came up with an idea of, can we create a global competitor out of Australia with the expertise of the CSIRO? We went to CSIRO and organised a one-day seminar with all their various experts that would be needed to create a better burger, and of the back of that we set a challenge for ourselves to start a company: in a fraction of the time and money that Beyond or Impossible spent, could we create a competitive product? In nine months, with less than A$2m, we were able to create a product that launched across 450 Burger Kings in Australia and through independent taste tests tastes equivalent or on par to Impossible and actually beat Beyond Meat. Since then, the company raised off the back of that a A$35m, and we are just closing a very large round now as well to grow into Asia, and the company’s going very well, worth several hundred million dollars now and only started 18 months ago.

Even though you do not think of burgers as deep tech, we are very happy that we do think of burgers as deep tech and we have now got a pipeline of other venture science opportunities where we are working with corporate partners. The key thing the corporate partner does is they define the requirements and provide market access. Hungry Jack’s in this case was saying from day one, if you want to serve a burger at Hungry Jack’s it has got to look like this, it has got to cost this amount, it has got to go through this equipment. They are very tightly defining what is required as opposed to the typical, spinout or technology creation in research where it is much more about kind of experimenting and creating a technology that we hope fits a need. This was a very tight window to get through that allowed us to reduce the amount of capital required and get something to market very quickly.

Heles: It is a phenomenal story that goes from nothing to a product in nine months.

Zimmerman:  In this space if you look at Beyond and Impossible, both spent I think more than $500m each to get their product in the market. They were cutting the path, so we learned a lot from them as well. We think the model is a good one and we are going to be replicating that in Fund 2. We just approved our first two investments for Fund 2, and they are both these venture science-type opportunities.

Heles: Another one that would fit in that is Presien which is spun out of a corporate. What do they do and how did that come about?

Zimmerman: Prescien make AI powered safety systems for work sites. It is very much an industrial technology to help stop collisions of equipment and injuries on construction work sites and mining work sites, things like that.

I think what is unusual about it is that it is a different methodology again for deal creation. This was a spinout from Laing O’Rourke who had incubated this technology inside its R&D group. They believed it had that much potential that they wanted to see it go beyond being deployed at Laing O’Rourke sites and through their customers and they believed that there was real applicability of it to the global market. We work with them to structure the company appropriately. The original two founders were there, and we helped them recruit some other folks. Then we brought together a syndicate to invest in the company.

Laing O’Rourke has been essential in the creation of the technology. They are a partner with us going forward but they also have been very ambitious in understanding what kind of structure is required to have an independent flourishing company. They have relaxed some of the controls that you might expect from a corporate spinout and will do very well out of it if the company succeeds, but mostly what they want to do is move the whole industry forward. What is unusual about on the technology side is in the incubation, the company got access to about a hundred thousand hours of video streams from various construction and other work sites that Laing O’Rourke and their customers operate. So, they have been able to create what we think is the most advanced model in the world to do object detection and image recognition, which powers their AI and as a result of that you minimise false positives.

The product which they have already got out in the market is super effective. Again, bigger picture, this is working with corporates to leverage and make more out of their R&D spend and get it outside of the corporate and allow it to flourish and move a whole industry forward.

Heles: On a somewhat related note, what is your favourite portfolio company? Who is your favourite child?

Zimmerman: Yes, that is hard. Mine is, one of my companies of course, a company called Emesent and I call it scifi with an ROI.  What Emesent does is they have autonomous data collection and analytics technology for very challenging environments. It is also an industrial technology. At a practical level that means they make technology that allows drones to fly autonomously inside tunnels and caves and mines and in urban environments where there is no GPS signal and still fly very intelligently, avoid collisions, fly through dust and darkness and capture and then create very, very detailed 3D maps of the environment, which then allows their customers – who are mining companies, construction companies or infrastructure companies – to inspect and understand what is going on in those environments. In certain places in mines either people cannot go, or it is pretty dangerous for people to go. Being able to fly a drone autonomously into some of these areas can add a huge amount of value.

They are a spinout of CSIRO. They have been going for about 18 months and we helped set up the company and they have more cash in the bank today than when we invested. They are working with most of the major mining companies around the world and have customers in over 20 countries, struggling to keep up with demand a little bit, but it is a very cool technology that adds a lot of value. So that is why I love it.

Heles: That is pretty cool. I know Australia had a strong mining industry, so having a startup that can still tap into that sector is cool.

Zimmerman: Yes, it helped. Again, you are hearing from the Laing O’Rourke story, with Presien, V2 and Hungry Jack’s, Emesent. Being able to start with a very sophisticated local customer has been critical to the success of these ventures. Being able to operate leanly and in a focused way, as opposed to the typical kind of experimenting around and spending lots of capital to find a solution. We really like that model.

Heles: I can see why. Some of Australia has been very hard hit by the pandemic of course with a state lockdown in Victoria. How has the crisis impacted your work? Are there any long-term consequences you can see for how you operate?

Zimmerman: In many ways we are similar to a lot of countries in terms of the various level of lockdowns and the change to working and home environments. At the same time, I think the government has done well to have kind of a top-down view of this crisis and coordinate each of the seven state premiers and how they are behaving. I think we have been relatively lucky compared to the rest of the world. At the startup level, in terms of our portfolio and how we are working, it has forced quite a bit of creativity for folks. We back a lot of companies that are making and selling hardware.

If you have a SaaS software product that anybody can buy from anywhere in the world, we do have a number of those companies. It is easy to keep selling no matter where you are, and people can work remotely. If you are assembling a hardware that goes onto a drone and then shipping it off to somebody and trying to train folks, then that has been challenging, and it has just forced a level of creativity.

Emesent figured out early that they could basically put together some trial packages and just have those ship and land in prospects’ offices, and just have them when they are finished doing their trial ship it onto the next prospect, and that prospect does the trial, et cetera. That was one thing

The second thing was they figured out how to demonstrate the product remotely, which is strange, but last month they did a trial in Scandinavia where they were controlling the drone to get it launched and show some of the features from a keyboard in Queensland, literally from around the other side of the world.

It has forced this creativity so when you ask what is not going to change going forward, I think when they have innovations like that, that just makes them a lot more efficient, as opposed to having to show up into somebody’s offices. Even when things get closer to normal again, I think they will have the benefits of that.

For us, like a lot of venture firms, we do a lot of things remotely anyway. We might be together in a group, but we do a lot of Zoom meetings. We all value being in the same room, but we are okay to keep operating remotely ourselves. I think it is more impactful on our companies that are building products and selling.

Heles: That makes sense. I really like the idea of controlling a drone on the other side of the planet. Why would you get on a plane even if you can, if you are just wasting 20 hours flying to Norway or Sweden or wherever.

Zimmerman: Of course, customers now are much more willing to look at solutions or situations like that because they are constrained as well. And in many cases, especially in these heavy industries, those are the things – government spending on infrastructure and I know it is the same in the UK – that is going to lead our economic recovery. Construction, mining and other infrastructure work has got to continue. As a result of that, solutions that help with automation or improve safety, customers need those, so they are willing to look at creative solutions for things like trialling and demonstrations.

Heles: My last question, an open-ended one for you. Is there anything that we have not covered that you want our listeners to know about?

Zimmerman: Possibly the main thing would be a call to action for any of the corporates that are listening to the podcast who would be interested in working with us to reach out. We are making investments. We can make investments outside of Australia, there are some requirements attached to it, but if people are interested in the emerging technologies that are coming out of Australia, please reach out.

We love to share lessons learned from the various spinouts and venture science and other deals we have done. If there are other venture firms that want to swap stories and learnings, then we are very happy to do so. They can reach us at Main Sequence. Our website is mseq.vc, and I am just mike@mseq.vc so easy to reach.

Heles: And if people struggle to find you, they can always reach out to me as well and I will forward them on to you.

Mike, thank you very much for taking time out of what… I do not actually know if it is a busy day for you, it is very early in the morning. Thank you very much for joining us on the podcast.

Zimmerman: It has been a pleasure and I appreciate the questions and the chance to talk to your audience. Thank you.