Today we’re taking a look at a new effort to fill a gap in the funding landscape for UK and European deep tech startups at their earliest stages.

It comes from Conception X, whose programme has supported a number of startups we’ve previously featured here at PreSeed Now. Read on for all the details about how they’re expanding their offering with this new syndicate…

– Martin

Conception X looks to angels to fill an early-stage deep tech funding gap

With a core focus on turning “today’s PhD research into tomorrow’s deeptech startups,” Conception X is a seven-year-old, non-profit organisation working to help researchers at UK and European universities spin out successful deep tech companies.

Some of its portfolio that we’ve previously covered include InvenireX, RemePhy, Ureaka, Pipeline Organics, and Myriad Wind Energy Systems.

The new £600,000 angel syndicate–with includes exited deep tech founders and alumni of Google and DeepMind–is designed back and mentor science-focused founders across Europe at the earliest stage. They don’t necessarily need to have PhDs, either.

Conception X says the syndicate was assembled in just a week, and it will put £40,000 into each of 15 startups, which will be selected beginning as soon as next month.

I spoke to Conception X CEO Riam Kanso to find out more about the organisation’s progress and their new angel syndicate.

Who is Riam Kanso?

A neuroscientist by background, Riam Kanso found herself frustrated by the speed of academia.

“I did a PhD in 2008 in neuroscience, and I thought the whole thing was a bit too slow. By the time you researched something and you published it, the data was already two or three years old,” she says.

Moving from Oxford to University College London in 2012, Kanso began working with computer science projects, and the idea for Conception X started to form.

The programme supports PhD researchers (“venture scientists” in the organisation’s parlance) to create startups from their work. Conception X takes zero equity, although it does work with VCs who offer investment to some teams.

Having begun seven years ago as a small pilot with 15 teams at UCL, Conception X has since scaled quickly. Kanso says it has so far recruited from 11 countries and 60 universities. 450 teams of PhDs have taken part in the programme, with the programme taking credit for the creation of 150 companies so far, two of which have exited, with “a third one on the way”.

Kanso describes Conception X as her life’s work, so we spoke to her about the new angel syndicate and how it expands the organisation’s activities…

MB = Martin SFP Bryant, RK = Riam Kanso

MB: Why have you launched an angel syndicate?

RK: We didn't start Conception X thinking that we wanted to build a fund, there are tonnes of other like funds out there. For us, the ecosystem and the infrastructure was more important.

For Conception X to work, you need to have the universities on board; the tech transfer offices on board; you need to have the supervisors of the students to be happy; you need to have some excellent mentors; you need to have coaches in place; you need to have industry players to start doing proof of concepts, and you need to have an infrastructure that's perfectly designed for Europe to start spinning out companies from this PhD research.

So we spent seven years getting that into place and foregoing any kind of idea of this being a fund, or a commercial aspect.

Adding the angel syndicate is the last piece of the puzzle for us, because there is a very big gap in early-stage capital. We work across all universities, and maybe some universities are more endowed than others to have pre-seed funding, but even then, the situation is pretty dire.

We wanted the mechanism to deploy early-stage capital in a way that's extremely founder friendly… and given by people who've done it before - scientists, engineers, exited founders who want to help the future generation. It's double opt-in [investors and founders must agree to it]… we don't force people to take like the funding, it needs to work for everyone.

We raised the money in less than a week. This is a tiny pilot, because I think people have been waiting for this. And the fun thing about it is that, because we have seven years of data and 450 data points, we start seeing patterns quite early in the companies that will do really well.

So these angels will get involved with their funding before companies look polished enough for a VC to deploy their capital. And arguably, that's when they actually need the money, to do things like file a patent.

MB: How will the syndicate work?

RK: The angels will invest in a cohort, rather than each angel taking one team. That actually works much better for everyone. So the angels will be on board to support the 15 that are chosen this year.

MB: XTX Ventures is your main VC partner for investing in Conception X companies. Does this syndicate replace that partnership?

RK: XTX were putting in £100,000 checks at a £2 million valuation. Some of the teams started going to Y Combinator and elsewhere, so XTX have improved their offer. They've pushed that up to £250,000.

For XTX and for all of the VCs, having the angels getting involved before they do actually works much better, because you can get that £40,000 to put the company in a nice package, sort out any IP issues, etc.

And then when they get the XTX money, they can fly with it. Because usually they were giving them the ASAs [advance subscription agreements] just as they were incorporating, this will make things much faster. So Conception X are delighted that other people are coming in early to give them this initial validation. Then they can come on top of that, and then other VCs can see them when the demo day ends.

MB: Why should startups take this dilutive funding when non-dilutive grants are often available for deep tech startups?

RK: Our job at Conception X is to make sure that the companies survive and thrive. The truth is that not all universities have access to non-dilutive funding. Some of it is much more bureaucratic than others.

Arguably, for some of these €50,000 cheques, you need to do so many things that kind of detract you from the actual process of building a company, plus it's not available for everyone. If it was available, we wouldn't put our heads together to get to do this. We're doing it because there is a gap.

And there is a gap because once we announced it to the teams on our programme, everybody wanted to apply. The advantage of this £40,000 is that it’s uncapped [valuation], which means if they raise a future round, it's relatively very little equity given away.

It's also deployed quickly with someone who can be your mentor, purely for the purpose of growing your startup. There's no reporting and all of the stuff that comes with grants. But of course, for our teams that need a lot of money, if there's non-dilutive grant funding available, they should definitely go for it. We don't see this as replacing that.

MB: What kinds of startups are you particularly looking for?

RK: We have our own Conception X algorithm now. There are few things that we look for early, that would indicate that this is a company that will make it big in the future.

There are early signs we look for before they have a very polished deck and a very polished story, generally speaking, like if two or three PhDs are working together in the same team. That's a very strong indicator of success.

From our top 10 teams that have raised, they have been two to three PhDs working together. This is not about having co-founders, we don't see the same effect… Something about PhDs working together, it means that they get along, that they've solved problems in the trenches, and that they get along.

Then there’s having an MVP that works, and what they usually do in Conception X is to find exactly who their reach-out customer is, and start scaling it. A scalable technology led by a founding team of very brilliant PhD students who will lead on the company at least in its first five or six years is what we look for.

We call them ‘venture scientists’ at Conception X. We don’t want these people to be CTOs in companies, they're the ones leading on the growth of it; PhD-led companies.

There are a few things we look for, and obviously, some technologies that become interesting every year. Our top three this year are AI and future of compute, biotech and health, and then clean energy, with AI intersecting across all of them.

MB: Beyond this syndicate, what else needs to be done in the UK to help nurture a more thriving deep tech ecosystem?

RK: Everybody writes reports, and invests, and does things at later stages. Conception X is the only entity that's dealing with this super-early, risky stuff.

Our position is that there's huge potential in Europe to do this. The research already exists. The labs are there, the infrastructure is there. And I'm tired of hearing that we're not ambitious enough. This is the bit that we do.

No-one wants to deal with the early stage because it's too risky. We're the ones who are sending companies on to Y Combinator, to Creative Destruction Lab, to the other funds. There are series A funds, there are seed funds. And deal flow is an issue. We're the ones who are creating deal flow.

So I think the work that we're doing now will have compounding effects on the deep tech ecosystem in three, five, 10 years, because it takes time. And because they're so subsidised by their PhD, initially, these startups don't need to raise capital as quickly. I suspect that we'll be throwing out a cohort of companies with cleaner cap tables that actually have a chance to exit, and maybe IPO. I know it's Europe, so most of them will be M&As.

Sometimes, this £40,000 is what is needed to make a decision between someone just moving on and leaving that IP on the shelf, versus actually trying to do something with it.

As for the things that can happen later on, risk appetite here is not the same as in the US. I think more encouragement and support for later-stage companies is needed. But what we work with is this little super-early stage, which I think is super-important.

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Deep tech teams at pre-incorporation and pre-seed stage who are interested in funding from the Conception X angel syndicate can apply here until 27 May.

Back on Thursday

We’ll be back in your inbox with another fresh startup this Thursday morning. See you there and then.