Beyond the Breakthrough: Tom Vanhoutte

We talk to Tom Vanhoutte, partner at Imec.xpand about the Belgian venture fund and find out why his job is to put huge sums of money into early-stage nanotech spinouts.

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Transcript

Please note, the intro and outro have been omitted.

I’m here with Tom Vanhoutte. Thank you very much for joining us. Let’s start with a brief overview of what imec is and what imec.xpand does.

Yeah, so, imec is an R&D centre in Belgium that focuses on semiconductor innovation. And what they have done extremely well in the last 30 years is they always focused on business. While typically an R&D centre tends to look at research mainly, imec has always kept the link with the industry and built very large partnerships with the who’s who in the semiconductor world.

So, anyone who does anything with a chip in it has some kind of cooperation with imec running. And recently also people who are more in the data space also started realising that having some expertise or some seed on the ground in the hardware scene could also be interesting. So we’ve seen there’s also been a lot of movement there, new contracts and developments with anyone who does anything with data these days.

We realised about three years ago that there was a huge potential there. We also realised that venturing in a very early stage is not easy and that it’s an acquired taste and especially in early stage venturing in hardware which makes it twice as hard as traditional early-stage because there’s very few VCs who are interested in the hardware space today, or at least at that point, two or three years ago. It’s gotten better now. So we’re very happy about that.

But we saw the huge potential and we had the vision to start a fund, a fund that would leverage all the imec capabilities – the expertise, the knowledge, the people, the infrastructure. Imec has a big clean room which is the biggest non-commercial clean room in the world, and the possibility to do low volume production which in a manufacturing setting is extremely important for a startup and something that’s very difficult to get your hands on anywhere else.

You don’t go to the TSMCs or the Samsungs or the global foundries, they are not going to produce anything for you. So we wanted to leverage that and we wanted it to be big and ambitious enough to give the companies that we would support a chance for success.

So, we don’t want to give them a few €100,000 and hope for the best, I mean, we want to make sure that they have sufficient money to reach a milestone that would allow him to then convince the big boys to step in in the later rounds. So we typically invest anywhere between €2.5m and €3m at the very early stage and we try to bring together rounds of about, say €10m. We’re not always successful, but that’s our goal. In a few cases we’ve done very well, in some other cases we started with a little bit less. But our ambition level is to build global companies that can disrupt the domain that they’re active in.

And it’s not just imec that is an LP in the fund?

No. We definitely wanted to make sure that we stayed honest in the sense that this cannot be innovation for the sake of innovation or even worse, like development of technologies or innovation in search of a market. We wanted to make sure that the fund was for profit so that we had to obey to the laws of economics. And we’ve been very fortunate that next to imec, who’s of course our biggest stakeholder and also LP, we managed to attract a significant amount of money from banks and insurance companies, which is extremely unusual for them to step in that space because it’s high-risk and it’s a very long road to success if there’s any success at all, obviously.

So, we’re very happy that they decided to support us and we also extremely happy and proud that we have a number of reputed corporates who have really supported us in setting up the fund and moulding the fund to what it is now. Samsung is an investor in the fund. They’ve been an instrumental part of the setup of the fund from day one and having their support obviously made our lives a lot easier in the fundraising process. So, we’re extremely grateful for that. And we also partnered up with Hynix, Applied Materials, KPN Telecom and Philips — complementary corporate VCs, who are, let’s say, we don’t look at them in a typical way where a fund, a corporate VC would invest in a fund to get things from the fund.

We really consider them partners in the fund and they’re committed to contribute to the success as well. So we can ask them questions, they will give us insights. They will have an opinion on certain investments. We meet with them on a very regular basis, at least once a month and we sit together and that’s valuable not only for us but also for them, because they can talk to people in the group and learn from each other as well, because you can always learn something.

They’re multidisciplinary in the sense that they’re not competing with each other in the domain so there’s always an open and constructive discussion and we have actually, looking back, we’ve been doing that for two and a half years now, I can say that we have made, thanks to that, better investment decisions in the sense that better focused on domains that have high potential. But also better that we have done our homework, let’s say, more diligently, then we could have ever done if we had to do it on our own, because we get questions, we get remarks, angles that we hadn’t thought about and by getting their and put their feedback, it helps us to assess all an opportunity from every angle.

We are currently just south of Silicon Valley, obviously the hotspot of startups and investors. Were there any particular challenges doing this in Belgium, which is not traditionally seen as the hotspot of technology.

Yeah, many, many challenges, absolutely. I think the biggest challenge in Europe is that Europe is not like the US — one country. It’s a conglomerate of different countries with different cultures and different goals and whether there’s a European Union, that doesn’t make a huge difference with the exception of the European Investment Fund — that is the overreaching organisation for fund investment in Europe — but the culture in the different countries is very different and what makes it worse is that there’s a lot of effort done at the geographical level, at the country level, to support and to stimulate innovation. But it always stops at the border.

I mean, governments always want their money to be invested, to be, let’s say that the greater benefit goes to their population and they don’t really wonder if that’s the best strategy because I’m convinced that by having an international reach and investing all over Europe or all over the world… I mean, you’ll in the long run, you’ll benefit as a country more than limiting €50m €100m worth of investments dedicated to your region. You can never generate a deal flow that you need to be successful, I mean to really build up a large amount of successful companies but also you don’t incentivise your fund managers, your early stage funds, to look outside of the borders because there’s no deals to be done.

And you see this, I mean, we’re here in Monterey today, if you look at the number of, for instance, European funds that are here there are not that many and the ones that are here represented are the ones who take it seriously because they really believe that they need to be active worldwide to be successful. But most European VCs just stay within their own comfort zone, their own country. To companies, that’s a challenge because for the next round of financing, you will need to go outside.

And then the best value that VC can add is network, I mean, knowing people, making warm introductions to people who know that you’re credible and you try to do a good job and the companies you invest in are good companies, or at least companies that have potential. And by not having that power to introduce, I mean, oftentimes you see that they have to stay local and it makes it much harder to grow.

If your opportunity is small, then that’s not a problem at all. But if you’re in hardware and you need to raise €50m that’s a huge challenge.

I obviously don’t just want to focus on challenges, so have there been any successes so far that you’ve been really proud of?

Well, I think what we’re very proud of is that our efforts to be active internationally and to be known internationally is working. I think we’ve put in a lot of effort to connect within the corporate venturing community for several reasons. First of all, because we’ve learned from our partners in the fund that a lot of value can come from listening to corporate VCs. But also because they’re the ones who are, let’s say most open to take some additional risk in an early stage. They are… they don’t shy away from some technology risk. Oftentimes, and I’m not saying this is a good thing, it’s just an observation, financial return is not their number one concern, so they’re a little bit less sensitive towards, “oh well this is very early stage and it will deserve a return 10x multiple in the market”. They’re convinced that the technology has its merits and that they see from their perspective that it has market potential. It’s somewhat easier to get them on board in an early stage opportunity, compared to the traditional VCs who very easily will say, “well this is too early and we’re not going to touch it because this is too early” and whether that’s true or not, I mean, it’s a whole different discussion because it’s not when you start investing, it’s how quickly you will develop a company.

I mean, the point where you start is not relevant if you can develop it much faster. What does it mean? It’s always frustrating to hear, well this is too early but it could have been two years later and has achieved less than what it already has now and it will have less two years from now because we have a way of, in the sector that we’re active in, we have a way of supporting companies and to really help them to become better.

So, I’m not too focused on the starting point. I’m more focused on where can you be two years from now if we help you. And it make my life a lot easier if others would also look at it that way. That’s a whole different discussion.

I don’t think we have time to do that.

No, probably not. I’ll go off on a tangent.

You’ve been coming to our events since almost the very beginning, even before you were with imec.xpand. What keeps bringing you back?

Well, I think they’re, first of all, they’re extremely well-organised events that are very well attended. I always appreciated the good balance between content and networking opportunity. The people who are there are always relevant one way or another even if they’re not active in our specific domain. I mean there are people who are working on innovation and there’s always things you can learn from talking to them, from meeting with them, and we’re strong believers in paying it forward.

I mean, it’s not a matter of going somewhere and trying to get immediate value out of it. It’s a matter of networking, getting to know people, coming back to the same events, meeting the same people, catching up, updating each other, and at one point in time, you know, maybe two years from now, maybe five years from now, maybe never, but something probably will come from it. And I’ve seen that having that network and having the ability to reach out to many people and not always talking about investment opportunity but also what’s your take on it.

The people who are here for instance in Monterey, a lot of people working from the automotive industry for instance, well, if we’re working on a battery venture, or we would be considering investing in a battery venture, it’s great to know that there’s people you can reach out to and say, what’s your initial thoughts? I mean, that’s not talking about due diligence or NDAs, that’s just, you know, an open and and a quick conversation on ”is there, is this something?” And we’ve had a lot of value from that. And it’s also, I mean, it’s fun to see people back after a few times and to catch up and to have a drink and connect again.

The social aspect is definitely important.

Absolutely, but also the quality of the people. You can look at the speakers on the agenda. These are not just, you know, someone who goes in, who got designated by a corporate VC to spend a few minutes. These are the decision makers, these are the people who have been instrumental in building the industry and who have played an important role in making corporate venturing what it is today, so those are the people you want to learn from.

Perhaps more of an open-ended question then, we are at the start of a new decade here, what does the future hold for imec.xpand and perhaps VC or CVCs in general?

Well, I was, when I saw the… when I was listening to the presentations. The one thing that always strikes me is I don’t think there’s an industry in the world that’s so diverse as corporate venturing. I mean, there’s not one entity that acts identical as the next one. I mean, some of them — Intel Capital, Samsung Ventures — act like a pure VC. There is, they’re linked to a large corporate, but their mentality is VC. I mean, the people who work there are VCs. I mean, they have the same drive and the same incentive. as any other traditional VC would have. They happen to be connected to an organisation with a strategic focus.

But there’s also a lot of corporate VCs who move, who are so very much at the strategic side of and who are very strongly looking at opportunities that are directly strategically relevant to them. And in the extreme they’re only looking at opportunities that are not only strategically relevant, but that are also opening the potential for some kind of a cooperation in the very early stage. And it’s a very difficult way to navigate that for an independent VC because dealing with the Intel’s, the Samsung’s, the Applied Ventures’ is dealing with a VC. You don’t have to worry too much about the strings attached, they don’t ask for many strings attached anyways.

But if you look at it on the other side of the spectrum, and there’s still quite a few there, maybe even the majority. It’s tougher because you’re not always guaranteed that the rules of the game will be the same as you play it.

Just before I came here, I saw the striking statistic that 75% of the entrepreneurs believed that the corporate VC will still be there to support the company down the road. I think that’s a stunning statistic because I’m convinced that for a number of the VCs that may not necessarily be the case for corporate VCs. I mean, if they have had… you cannot offer them more strategic value with an additional investment. If you’re in a company, you have the strategic advantage. And that’s a challenge, also from our perspective.

Is it a challenge that can be solved?

I don’t think so because everyone… I mean everyone as long as you’re open and honest about your intention which most of them are, I mean, without any doubt, I mean, you’ll feel free to go to a company and set your terms and conditions and if they’re open and willing to work with that, I mean, that’s the decision that the company has to make.

I mean, they have to make up their mind and decide for themselves. If that is the best way forward. But I think people should be aware of the fact that there is not one way of doing corporate venturing. And that if you, I mean, put everyone in the same category, in the CVC category, you’re probably misrepresenting a lot of them.

That is quite something to think about, but with that we are out of time. Good finishing words. Thank you, Tom, for joining us.

I’m very happy to be here. Thank you very much for the chat.