Newton Venture Program recently hosted a panel discussion featuring leading figures in the VC and STEM communities. Participants had some revealing insights on the relationship between STEM innovation and venture capital; we are delighted to share their distilled wisdom here.
How does a background in science or engineering help in the venture capital field?
Having a science, technology or engineering degree is a decided advantage for a VC professional, because of the complex technologies that VCs have to cope with today. This is one reason why engineers and scientists generally make very good VCs.
And, like venture capital, science and engineering have many branches and many aspects. The most important skill those disciplines can teach you for a career in VC is problem-solving. Scientific training tools are geared towards solving problems – bringing your curiosity to bear on the subject and solving the biggest problems that society faces. It’s about applying science and logic to a particular problem and solving it. But don’t expect it to be a one-to-one relationship in terms of what you learn at university and what you do professionally: it’s more about cultivating a particular way of thinking and a mindset.
What skills should I try to cultivate?
As a VC, you need analytical skills and numeracy skills, but they are not the only ones needed. Venture capital is very much a people business – it’s about deploying capital behind the entrepreneurs and the people working in the startup who are going to make the difference.
Anyone with a STEM degree who has an aspiration to become a venture capitalist should teach themselves basic finance (or find a mentor who can teach them). In other words, learn the fundamentals of the balance sheet and profit and loss, and understand how they play out in company operations.
Can I go straight from university to VC?
It is possible to go straight into the VC world from university but, rather than jump straight from science, engineering or technology into venture capital, it’s highly beneficial to have a stage in between. This might take the form of working for a startup, for example, to get some operating experience and to validate your assumptions about the subject areas you want to specialise in.
Should STEM graduates join a generalist VC fund?
If, as a graduate, you have access to joining a VC, then choose one that is generalist and one that gets you as close to the company or companies that you are going to back as possible. If you have a specific background and skills (for example, if your degree was biochemistry), then you are probably better positioned to add more value to a specialist healthcare VC than a tech specialist would be, and vice versa.
How can VC help tackle real-world problems?
VC can have a hugely transformative impact on the world through empowering businesses that provide the products or services we use in our daily lives and by providing access to the technologies that shape our world.
Beyond enabling individual business success, VC can help by encouraging better alignment of values and corporate incentives to amplify the positive social impacts that can flow from entrepreneurial innovations, especially in science, engineering and technology. This can accelerate the rate of progress in some of our most pressing shared challenges.
The UK in particular has a history of promising scientific research that has not been translated into real-world outcomes, largely because early-stage projects were not able to attract serious capital investment. Now, funds such as UK-based Start Codon, which leverages the unique resources of the Cambridge Cluster, focus on supporting disruptive, translational innovations and identify and fund startups. (Start Codon, for example, provides investment and coaching to early-stage healthcare startups and introduces them to commercial partners and leading VCs.)
What role does VC play in funding STEM academics and research programmes?
The UK is behind only the US and China when it comes to its R&D output, but in deeptech and biotech it lags 10 years behind when it comes to translating research into commercial success.
One way to tackle this is through an injection of entrepreneurial spirit. Traditionally, this has been evident on campuses in Oxford, Cambridge and London, but it is now spreading nationally, including to Bristol, where an incubator is helping academics spin out their research and translate it into a commercial opportunity.
VCs can also help by encouraging early-stage investors, particularly outside the ‘hubs’ of Oxford, Cambridge and London, and by moving from a generalist to a specialist mindset. This is happening as many VCs are building in-house specialist capabilities and dedicating resources to investing in the opportunities coming out of universities.
How can we improve the links and connectivity between spin-outs and venture capital?
Founders need to understand that investors are just like them. Many come from STEM backgrounds and they are all really interested in hearing about the wonderful ideas coming out of the labs and campuses. Would-be founders should also maximise their engagement with the many pitching events, competitions and prizes, where investors, associates, analysts and partners are out in force.
Many people from STEM backgrounds will be surprised to meet VC professionals in the flesh, because they tend to see investors on a corporate website, where they appear all suited and booted, giving the impression that they are unapproachable. In fact, investors will be delighted to hear about your ideas, give feedback and advice, and even connect you with others in their ecosystem who they think might be able to help.
Seeing founders interacting with investors from the top firms helps remove a perceived barrier that is not there in reality, and leads to greater and deeper engagement.
We are also going to see more support for early-stage opportunities, so investors who may once only have got interested at the Series A funding stage now want to engage at an earlier stage.
Gender parity decreases with length of PhDs and there is a lack of black PhDs in general. What can be done to improve diversity within engineering?
Engineering suffers from a pervasive and significant diversity deficit. There is a great opportunity here for VC to show leadership, because there is so much evidence now that shows that diversity and inclusive leadership mean better companies. The benefits for creativity, innovation, talent attraction and retention, motivation, productivity, and health and safety are numerous.
A company that embraces diversity is an excellent company; those two things are the same. An effective leader is an inclusive leader and we are seeing a huge drive from founders who are passionate about making sure that EDI considerations are woven into their company’s DNA from the outset.
In practical terms, the Royal Academy of Engineering is developing an EDI tool kit specifically targeted at startups and scale-ups. The Academy is working collaboratively with many organisations to develop a tool not just to empower founders, but also to enable investors to see that this is a way in which they can encourage the companies they work with to embed this in their set-up and governance from the outset.
What does the future of STEM and VC look like?
The future of STEM is very bright, because we are seeing great richness in multidisciplinary teams, including teams from diverse backgrounds. Everyone is coming at the problem from a different point of view and tackling it in different ways. Investors see this and attach great value to that diverse, multidisciplinary perspective.
With thanks to Robin Klein, Founding Partner at LocalGlobe; Julia Hawkins, General Partner at LocalGlobe; Dr Hayaatun Sillem CBE, CEO, Royal Academy of Engineering; Uzma Choudry, Venture Capital Investor, Octopus Ventures; Michael Salako, Investment Director at Start Codon; and Leonora Ross Skinner, Investor, Molten Ventures.
This article was written by Nick Mickshik