Venture View: Dimitrios Stoimenou from Mercia on deep tech challenges

“It doesn’t matter how good your idea is,” says Dimitrios Stoimenou, investment director at UK-based capital ventures company Mercia, “you need some finance to get off the ground. So, we’re a necessary part of the puzzle.”

Stoimenou, who initially trained as an electronic engineer but cut his teeth in the telecoms industry, is talking about deep tech investing and how the challenge to get it right can be a double-sided problem. There are pluses and minuses, whether you are an investor or a business looking for investment, and that seems to be particularly acute within deep tech.

“Deep tech is not an easy area to invest in,” says Stoimenou. “We’ve done investments in the earlier stages but investing into companies when they grow is more difficult. It seems to become more of a challenge to find investors to go into the deep tech space when it comes to further investment rounds.”

There’s certainly capital that’s available for deep tech, at least for early-stage investments. Last November, Boston Consulting Group claimed that deep tech accounted for around 20% of VC funding, while recent reports suggest in Europe the figure is now closer to 44%. Stoimenou agrees, saying that deep tech is “becoming fashionable”, and he knows that managing risk is part of the game, but it really comes down to some basic principles of what does and doesn’t work.

“It becomes more difficult to invest in a business as it moves from slideware into product,” says Stoimenou, “but there is a gradual acceptance that companies in this space cannot be viewed purely on their revenues. You have to look at the technology and the IP. Every investment is different, to a degree. I don’t think there’s one rule that cuts across all deep tech business, and maybe that’s part of the complexity. I guess the whole reason for investing in a start-up is to get something new to the market and working out how you’re going to get your money back in the future.”

Multiple leaps of investment faith

Certainly, the signs are promising for deep tech businesses looking for early-stage investment. Stoimenou highlighted the growing number of specialists in this space, which combined with the increasing constellations of angel networks create a favourable environment. And bigger VCs are increasing their participation in the space, Mercia Ventures being just one of many names, spurred by successful exits like Faradion. After that it comes down to fit.

For Stoimenou that must be a two-way thing. He stresses the importance of partnership and entrepreneurs being “crystal clear about what the north star of their business actually is,” understanding that there is never going to be one leap but a series of leaps to try and get there.

On that front it may sound a little obvious, but anyone looking for investors has to understand each leap. Who are the investors that invest in early stage and who are the investors that invest in the growth stage? What are they looking for? What does the business need to do to be able to attract these investors and what does it look like from the VC side?

“If a business is just looking for the capital, it is missing out on a lot of the value that VCs can bring”

Stoimenou says that any business that has an understanding of its trajectory and what each growth stage will look like is a good thing. He also points out that money is only part of the deal. Businesses have an opportunity to find expertise that will help them achieve their targets within each growth stage.

“If a business is just looking for the capital, it is missing out on a lot of the value that VCs can bring,” he says. “There are specialist VCs that understand industries, which have invested in those industries in the past and therefore have a network that can support a start-up, which can enable it.”

As an engineer, Stoimenou understands the importance of adding knowledge value to any deal. His strength is in the telecoms market, where he worked for about 20 years, many of them for Vodafone. Here he eventually joined the corporate venturing unit and “kind of fell in love with it.”

He had what he describes as “a typical CVC [corporate venture capital] experience,” and says that there are “pluses and minuses” to the CVC model. One plus is the way in which particular brands, such as Vodafone, can add strategic and market value to a deal – but Stoimenou adds that this is often slow-paced due to the need for broad stakeholder buy-in. But this ability to add market and network support is fundamental, he believes, and a key facet of Mercia’s own approach to its investments.

Knowledge is clearly key. Mercia, he says, is always open about new opportunities, admitting that “Mercia Ventures is a generalist investor with a specialism in some key sectors.” A look at Mercia’s portfolio of businesses reflects this, and while Stoimenou talks about the growing value of life sciences, he is very aware of the potential rewards of embracing deep tech investments further.

Managing investment expectations

Understanding timelines and managing expectations is key here. Stoimenou mentions the hype around quantum computing as an example.

“If I had made a quantum investment when I first saw some good quantum companies, say five years ago, I’d probably still be holding my breath for being able to raise the next proper value accretive round. Five years is a long time to hold your breath, even in deep tech.”

For Stoimenou, quantum computing is reminiscent of computing in the ’50s and ’60s, the era of room-sized mainframes when companies like IBM were paid to build computers to solve specific problems for customers.

“I think quantum will follow that trajectory,” he says. “It’s going to be… here’s a problem that I can solve better than my competition. The money will be there for those vertically integrated solutions that go from problem to algorithm to software, which will run on a version of [a] quantum computer that can run that software. I think that’s the way that market will go. There are opportunities across that kind of vertical integration. There are opportunities for the people that are translating the problems, there are opportunities for the people that write the software that translate those problems, and there are opportunities for the people that actually produce the hardware.”

Cross-sector innovation can lead to success

Where Stoimenou is seeing interest is where innovations straddle different sectors and technology areas. He talks about a recent investment, Culture AI – “which bridges human and technology needs, moving from the typical cybersecurity focus on discrete tooling, and addressing the human component” – where innovations are solving emerging problems. Materials is also a good example here, where materials innovation is driving change, along with AI, in the climate tech and manufacturing sectors.

He also cites the materials work being done with batteries, energy storage and carbon capture as good examples of well-targeted innovation within energy. But unsurprisingly, given his background, Stoimenou also sees opportunities in future telecoms, even 6G.

“I think early-stage investors should be looking at 6G,” he says. “Obviously the standards are not there yet, but what definitely struck a chord with me is the move away from looking at energy efficiency on a bit per hertz type of level, to now looking at the absolute energy consumption of a network.”

Stoimenou recognises telecoms potential when he sees it, but he still has a lot of questions.

“What will be the new radio technologies? How will that translate the spectrum, and does that mean more infrastructure? And what does more infrastructure mean for the operators and their willingness to deploy it?”

But perhaps Stoimenou’s biggest question, the one he applies to not just 6G but all emerging technologies and trends, is “why?” You could add, “what’s the point of it?” and it would be a fair question applied to any potential investment.