Now for your first task, I want you to…

Hi, I’m Sheikh, RIG’s shiny, new intern. Here’s my story:

It all started with a late-night, prospective email from a sleepy undergrad, no doubt tired from all the procrastinating he did that day. Not 12 hours had passed and I was sitting across from David, still baffled he had caught the first train from London to come and interview me. Though if you ask him, he’ll have you believe he happened to have important business in my engineering department that day anyway. In any case, I did well to convince him, and Shields on a subsequent interview, of my many transferable skills. Perhaps too well…

 

On my first day, I was deployed to Canterbury. With only David and Sam (the Commercial Director) assisting me, I was tasked with exploring a partnership with an accomplished, Soviet scientist with a (potentially) dark matter detecting nanotechnology. It was decided that I would be in charge of the most important part: taking minutes. David and Sam handled the simpler things like talking the company through the variety of exciting things we could do together to commercialise the technology, showcasing parallels with successful, previous partners and exuding an aura of confident competence. After the meeting, Sam informed me of the corner office and pair of PAs that awaited my arrival back at the office. Two weeks in and still unable to find my office, I have settled for one of the hot-seating desks next to everyone else.

 

However, in all seriousness, my first two weeks have far exceeded my expectations. My first day was the perfect introduction to RIG. I got to see two very experienced Directors explain to a prospective partner company exactly how RIG adds value and accelerates the growth of innovative technology. I also had two train journeys worth of time to interrogate them on all the exciting things the firm is working on. On my second day, I was allocated a laptop and instructed to do a SWOT analysis on all the high-tech companies we’re working with. This quickly got me up to speed on how RIG was helping each partner and got me talking to all the people at RIG who were in charge of the various relationships. The remainder of my first week consisted of identifying state-side venture capital firms for an advanced materials company and trawling through research reports and elusive patents. Coincidentally, I had already done some work with this company through a student society a few summers ago. The week was rounded off with the chance to work with the CEO (and veteran chemical engineer) of one of our exciting partner companies on a corporate restructuring and brand narrative project.

 

I expressed an early desire to do more work on business development and Shields happily obliged. My second week involved pairing up with an intern two-weeks my senior to present approach proposals for two prospective partner organisations. The confidence and responsibility afforded to us by Shields was empowering and indicative of how encouraging the flat-hierarchy at RIG can be. Other symptoms of the meritocratic culture are the opportunities to work closely with the firm’s management on things like internal corporate strategy and colleagues keen to share their accumulated wisdom at any sign of struggle or curiosity.

 

A two-week dose of acronyms, World Cup speculation and metal-organic frameworks later and I’m still standing strong. Next week, to make space for a brand-new intern, I’ll be shipped off to Aberdeen!

 

Industrial waste, CEOs, and air-con politics: 2 weeks at RIG

RIG summer intern, Alex Crichton-Miller, tells us about his first 2 weeks with us:

Come Monday, I will no longer be the only intern in the office. I feel rather like an only child who, on finding out they will have a younger sibling, cannot help but feel a tinge of regret that it will no longer be simply me. The team at RIG is a very close-knit unit, reminiscing about antics on away days more than a decade ago as often as they argue about the most appropriate way to approach a client. I have been exhilaratingly swept up in it all from day one, meeting with clients and being asked to contribute right away. So these first weeks have flown by in a haze of acronyms, action registers and Gantt charts, cups of tea and arguments over the air-con (a divisive issue in the office to say the least).

As well as sitting in on meetings to get an insight into the breadth of work RIG does, I’ve been working on two things that couldn’t be more different: one, an ongoing piece of market validation for Ffion on industrial waste streams (which has promoted LinkedIn and EU legislation to the top of my ‘most visited’) and the other a piece of management structure work with a new client. In our two 4-hour kick-off meetings with the latter’s CEO, I managed to simultaneously type a Word doc longer than my thesis and catch an aircon-induced cold. It was certainly an experience, made still more intriguing by the chance to really let him talk about the organisation he runs, and then go away and brainstorm how we could solve his challenges.

RIG’s business model means that we have to wear a lot of different hats, which can be confusing when you’re trying to pin down at least one of the tasks you’ve got to do. The best thing about being here so far has been that, even though it’s tough, everyone that works here treats the world like an opportunity for deeper learning: I’ve been given tips on organisation, presentation, recycling, and even punctuality (for my sins!) by partners, helping me better navigate the choppy waters of small company culture. Some of that was put to the test yesterday when I attended the Rushlight Summer Showcase – where a huge array of Cleantech companies put themselves on show – and was required to go out and try and make contacts, get business cards, and talk persuasively about RIG. The jury is still out on where I did a good job, but being plunged into the deeper end of things is what makes it such a pleasure to intern here.

Helping to commercialise early stage technologies means that you can be doing one thing on one day, and something completely different the next. That might make an intern feel unnerved, but luckily the people around me have the ability, experience and (crucially) warmth to make that a thoroughly enjoyable experience. Bring on the next 6 weeks!

Energy storage: generation’s forgotten twin

In recent years, the conversation around renewable energy sources has grown broader and louder. Although wind, solar, and their lesser-known cousins do not (yet) represent a majority of energy generation in the vast majority of countries, they form an increasingly significant part of the grid’s energy mix. Indeed, in 2017 – and for the first time in its history – Britain generated more of its electricity from renewable and nuclear sources than from gas and coal.

Great news. Onwards and upwards! But there’s a small hitch… Renewable energy is famously intermittent. The wind blows when it feels like it and, to the ire of many British beachgoers, the sun shines any time other than when you want it to. Ok, some renewable energy sources such as hydro are more predictable but let’s focus on the intermittent side of things for now.

Because of our historic dependence on ‘predictable’ conventional generation, we often overlook a critical component of energy provision in the next 10… 20… 100 years: storage. All too often, energy generation and storage are unhelpfully divorced from one another. Yet, we will never successfully achieve a renewable future without realising an equivalent investment in, and evolution of energy storage technologies. The yang to generation’s yin, if you will.

It is only really since the advent of Tesla that the world has started to think seriously about energy storage (good Tesla). We have been talking solar panels and wind turbines for several decades. Storage has some catching up to do. Indeed, it is the automotive industry which is really driving the flow of investment into energy storage technologies. This is also why many people are limited to thinking that ‘storage equals batteries’ (bad Tesla), predominantly lithium-ion. Yes, I know we use the same chemistry in the batteries that power our phones, laptops, etc. but this isn’t the coalface of chemical battery innovation.

The potential problem with this battery-focused view is that it will not be the best storage technology in all situations. Lithium-ion isn’t even that good: it doesn’t store that much energy, it’s expensive, and it’s not entirely safe. You can pick figurative holes in all batteries, all technology types, but my fundamental point is that this is not a ‘one size fits all situation’.

For example, a remote monitoring sensor requires short, large bursts of power that might be provided by a supercapacitor. Electric vehicles of the future might run on fuel cells, instead of batteries. And grid-scale renewable generation will need to be paired with grid-scale storage which could take the form of giant flywheels, compressed air energy storage in vast underground caves, or something we simply haven’t invented yet.

Successful innovation leaders will remain agnostic as to what future storage solutions will be required by each industry and application. My point is that, by focusing on batteries, we may limit the development potential of other technologies, some of which could be essential to our energy future.

Secondly, and to go back to where I started, we will need a myriad of solutions to support the energy transition to a cleaner, renewable grid. Unless we re-establish the critical link between storage and generation, innovation in the former will continue to lag behind. In practical terms, we will produce all the energy that we could possibly want from the sun and the wind, but it will have nowhere to go.

The allure of the ‘data is the new oil’ analogy

The commodities market is no stranger to data; a quick Google search will lead to streams of data showing price fluctuations and percentage deltas. Oil is back up to $70 a barrel and lithium is riding high on the projected growth of batteries and electric vehicles. One thing, however, that is not publicly traded on the commodities market, is data itself. A myriad of recent articles have hailed data as the new oil- the most valuable commodity over the last century. However, while the comparison of data and oil has some use, to label data as a commodity like oil is a misnomer.

The comparison is an attractive one. Data is seen as the fuel for our modern information economy. It is extracted in a raw and crude form and refined to produce something of real value. Yet, the analogy is overly simple and ignores some key differences. It is important that these distinctions are drawn to enable us to think about data and its value in the right way.

The data/oil/commodity analogy

For those of you who haven’t seen Billy Rey Valentine being condescendingly explained the commodities market in Trading Places, it’s probably good to start with a quick definition. Commodities are basic goods and raw materials that are extracted, exchanged and refined. They are agricultural products, coffee beans, gold, oil and of course frozen orange juice. As the alluring narrative goes, data too is mined and refined.

But, data lacks what economists call fungibility: the property of a good or a commodity whose individual units are essentially interchangeable. If I buy electricity from E.ON or EDF, I still expect both sets of kWhs to keep the lights on. In this case, crude oil is extracted, refined and barrelled for use in power generation and the value is the generation of power which is uniform in its output. That barrel of oil had the same teleological journey as the next one.

Data, on the other hand, is differentiated by type and quality. More importantly, the value of data comes from the insight and information one can extract from its raw form; these insights are highly subjective, largely influenced by methodology of analysis and therefore differ wildly through interpretation. Cambridge Analytica had access to a similar ‘barrel’ of data as everyone else. What they did with that barrel, the insights they drew, and their capitalisation of its value set it apart from others.

Another difference in the analogy is that once commodities are used, they often can’t be used again.  Data on the other hand is not a finite resource. It can be generated, used, reused and reinterpreted. Data can be stored and the accumulation of it is highly sought after in the modern information economy. Even when companies go bankrupt and assets get stripped, databases are often considered the most valuable assets. For example, when Caesar’s Entertainment- a gambling giant that pioneered its “Total Rewards” loyalty program- filed for bankruptcy, its most valuable asset was deemed to be this customer service database valued at $1 billion. No wonder companies are keen to get you to reply their GDPR consent emails!

So, as we have explored above, there are real limitations to the data/oil/commodity analogy. But why does it persevere to be alluring? The strength of the data/oil/commodity analogy lies in the fact that data is a valuable asset that is revolutionising business models and driving technological innovation. The ability to collect data and valorise its raw form into insight and information is the fuel of lucrative new businesses and innovative new models—much like oil was at the turn of the last century.

 

Data’s use

Of course, when people think about data it is the tech giants of the modern world such as Facebook, Google and Amazon that come up first. Although Facebook was slightly dented by recent events following the Cambridge Analytica revelations, data still reigns supreme. Google’s recent demonstration of their AI Assistant had people simultaneously in awe and shock at the pace of development of natural language processing and artificial intelligence.

It is not just in Silicon Valley and with internet companies where data is revered; industrial giants and deep-tech early stage companies alike are waking up to the strategic value of data and information. The two largest industrial giants, Siemens and GE are both preparing for the future of industry, where data and the services it can enable will form a key part of corporate strategy. Industrial behemoths like these are increasingly moving towards collecting data and utilising it to improve their ongoing customer relationships and open up new value-added services. This transition will lead to changing business models- a process already under way. Rather than industrial customers buying machinery (products) and maintenance contracts, the likes of Siemens and GE utilise data to provide a continued and long-term service to their customers. Contracts are no longer about just selling products, but delivering ongoing solutions that rely on data. It is an extension of Rolls Royce’s “Power by the Hour” concept developed- well, trademarked in fact- in the 1960s.

Data is spawning innovative technologies from the obvious smart algorithms to engineered hard technologies such as hydro-powered turbines to power smart water networks, novel approaches to asset monitoring and innovative ways to harvest energy to power the sensors that underpin these. Technologies span from smart approaches to data collection and methods to power sensors through to intelligent methods of analysis. The ability, appetite and vision to adopt these new technologies and develop models that the resultant data/information can enable, will lead to winners and losers across different industries. Data isn’t only the fuel of companies like Amazon and Google; it is a lucrative asset that will prove increasingly valuable industries such as energy, manufacturing and farming (to name just a few).

Conclusion

Data, then, can’t be called a commodity and it differs in comparison to sticky, black crude. It is an asset whereby it’s value stems from the interpretation and transformation of data into information. This information is an important component of our modern economy and will drive strategic diversification in some industries and kill of players who don’t move fast enough with it. Like oil was at the turn of the 20th century, data is a valuable asset that is changing the way our economy operates. It is no wonder that the reformist Saudi Prince, Muhammad bin Salman, pledged $45 billion to SoftBank’s Vision Fund whose focus is on the internet of things, robotics, AI and ride hailing.

Schrödinger’s Mongrel (and pricing equity in early-stage deep-tech)

I’m one of those annoying people that thinks Schrodinger’s Cat is an apt substrate for pretty much any old mixed metaphor that I can drag in. Apologies in advance.

It’s an age old question – how do you support valuation, at the point of seeking investment in a tech company that has zero, or very little, revenue, but shows exceptional promise. The reason it’s an old question is because it’s hard to answer, but here’s a clunky stab. The exceptional promise/ the pot of gold/ the cat is either alive or dead – which of these states it is in has simply yet to have been observed. It hasn’t been observed yet because we perceive time in a linear manner, but to a super-dimensional observer, the cat is, right here and now in spacetime – either alive or dead.

The mission for the entrepreneur looking for a strong valuation is to ensure that the likelihood is that it is alive. To put it another way, the business leader destined to chaperone the cat into the future, must be able to demonstrate to investors that the path through the fog-shrouded woods towards the goal, is well understood; that all the threats along the way have been considered, strategized and mitigated long before they jump out; and that the cat’s future wellbeing is a natural product of the work that has already been done to plan and manage risk. Risk in this context can be conceived of as existing on a series of spectrums such as technology, scaling, market, economic, investment, counterparty etc. An investor looking to push back on a valuation will generally be doing so by applying risk multipliers. Sound strategic commercialisation seeks to manage future risk through today’s action by pushing these spectrums ever closer to proven.

Good commercialisation therefore drives valuation, because it drives down risk. Bad or non-existent commercialisation is akin to leaving the future to chance. To put it another way, curiosity may actually save the cat…

Regardless of the state of the cat, I fully acknowledge that the metaphor is now as dead as a parrot.

Doing the right deal

Throughout the history of deal-making, folks have conceived of successful negotiations as being the ones where they “won.” Now, of course there is a place for adversarial negotiations, and of course there are times when it’s critical that you look out solely for your own company, but the types of deal that typically constitute the foundations for an early stage tech company, will usually function best when they function as a win-win long into the future.

 

For any early stage technology company, establishing the right structure and commercial basis for collaboration with key partners is critical. Attempting to use an imbalance of leverage, power, or information in closing a deal that favours you and cements a long-term partnership, is akin to building shaky foundations under a high-rise in the pacific ring of fire. It might look beautiful on the warm sunny day when it’s finished, but it’s unlikely to weather the storms. This is as true for a corporate as it is for a start-up, although both parties can be equally guilty of not always seeing this.

 

A long-term win-win is not always easy to structure, and there’s no simple solution for how to achieve it, but openness, honesty, and frank communication are a good place to start (I remember that from my wedding). If both parties genuinely understand the other’s hierarchy of intended outcomes, structuring is made considerably more simple, as is running a conceptual stress-test to see how it will handle any future tectonic shifts.

How early is too early: knowing when to engage your customer

“But we need to develop 3 phases of prototypes, go through accelerated life testing, and get 10 patents granted”. Or so go the usual protestations against early market engagement. The value of bringing partners and customers into the conversation at an early stage is often trumped by fear. “They’ll steal my technology”. “It isn’t advanced enough”. “They won’t understand it”.

There is only one thing that you need in order to commercially engage with companies; a proposition. Something to spark their interest. Let’s say you live in a very rainy country and I’ve invented the umbrella (which for some reason, no one else has figured out). If I approach you and tell you that I’ve got a solution to the downpours that blight your every day, do you think you’d be interested in talking to me? You bet you would.

What happens next? I find out what size umbrella you would like, what colour, and how much you are willing to pay. Because there’s no point in me spending 6 months and spending all my savings on an umbrella that is pink, made of wood, and costs £100 when what you wanted was red, plastic, and costs £50. No, the smartest thing I can do is make sure that I am developing the desired solution to a real problem, before I invest a significant amount of resource in doing so. Moreover, customers may be more open about the value of a solution when they’re encouraging you to create one (as opposed to negotiating over price).

Now, I don’t mean to downplay the importance of solid IP protection or reliable performance data. My point is that these are not prerequisites for starting a conversation with the company which will eventually use or distribute your technology.

These early conversations can significantly reduce market risk for emerging companies and their investors. They validate that a valuable problem is being solved. They help to shape the technology development path so that solutions are compatible with supply chains. They demonstrate demand for what you will ultimately be selling or licensing. All of this helps to avoid uncommercial development, something critical for young companies with short runways looking to maintain a competitive advantage.

Life is beautiful: in memory of JP

JP had all of the energy and passion of the entrepreneur.
He was also a lovely man. Full of good cheer and resilient enthusiasm.

Being an entrepreneur and trying  to grow a business is a fight.  There is fun in it but at times the going is hard and the struggle all consuming. JP was up for it all and I admired him for that.

In his passing there is reflection. It makes me think how much is sacrificed in the building of a business. Without that struggle it would be hardly worth the effort. It is the struggle that defines and makes us. But in those quieter moments that can be so hard to find, we remember that there is so much more to  life: so much to wonder at, to discover, to experience, and to love. As JP’s skype profile put it: Life is beautiful.

Start Small

A CEO we are working with asked me today about how large a deal she should look to do with an agricultural foundation that could become a big partner. As her company’s technology solves a major problem for them, she was aware that there was the potential to do a big initial deal but her instinct was to start small.

 

I think she was very right.  We had a situation with another company for which we had opened a discussion with one of the largest surface materials companies in the world. We started by talking to one division, but other divisions within the company got wind of the technology and wanted to broaden the scope and raise the budget of the initial engagement.

 

Potentially very encouraging news, but as the scope widened, more stakeholders would be needed to approve the project and it would need to be synchronized with the work plans of more departments. What had been lined up as something relatively clean and straightforward was getting unwieldy and looking less and less likely to actually happen.

 

In the end, we were able to get back to the scope we had originally wanted ­– a modest project that could be both readily signed off and quickly executed. With the data generated from that first project, the internal champion we had nurtured within the company was in a much stronger position to set up larger projects for our client.

Creating International Currencies

Currencies enable commerce, acting as a recognised standard unit of exchange; they are closely associated with nation states – usually being either created or controlled by governments, within their (geographic) spheres of economic and legal influence.  What is interesting about the early cryptocurrencies is they have been able to address very large communities –  crossing many national boundaries in the process – and although we have seen certain countries seeking to dissuade the use of cryptocurrencies (for example China and Korea) – the growth of the populations ‘using’ (in the widest possible sense of the word) continues.  In this respect cryptocurrencies are functioning much like the multinational currencies of the past, for example the Spanish Real de a Ocho or the Bohemian Thaler, transcending national boundaries in their use as a medium of exchange.  What is also thought-provoking in this comparison is the Real and Thaler were made of gold and silver respectively – which many would recognise as having tangible value during their period of dominance – versus cryptocurrencies which would be considered ‘intangible’ under most classical definitions.

I conform to the view that, having moved away from being based on a tangible commodity, the value of modern currencies is defined by their ability to enable exchange – and thus those with the most developed usage networks or economies behind them are the strongest currencies (not necessarily from an exchange rate perspective, but from a longevity perspective).   In order to maintain the value of a currency, a government must ensure it is linked to a strong economy and is well used (both domestically and internationally).

Adam Smith and Tokenisation

This brings me to Adam Smith, who put forward the following roles of government:

  • Defence
  • Justice
  • Public works and institutions

Why? Because like national currencies, cryptocurrencies are also governed – and there is a compelling argument to view the relative value of cryptocurrencies and cryptotokens on the basis of the governance regimes that manage their use creation and use. These mediums of transaction can be apportioned value in line with their relative merits, when compared to Smith’s framework.

Defence of a territory (within which a currency operates) is the first responsibility of the state – and equally it should be the first consideration of those seeking to develop new cryptotokens.  If the environment within which the token is used cannot be defended, the token will lose its value (both as a store of value and as a mechanism for enabling transactions).  But what are we defending from?  There are a number of things that immediately come to mind:

  • Better substitutes e.g. cryptocurrencies with lower transaction costs – something that Bitcoin is frequently exposed to
  • More ‘attractive’ environments for use e.g. Coinbase versus Mtgox (more attractive security, in this case)
  • (Public knowledge of) poor integrity e.g. on the fork date of Bitcoin Gold, it was well publicised that the codebase does not offer protection against replay attacks (amongst other issues)

For the developer of a cryptographic token, the first question that should be asked is ‘how do I ensure the use case for this token is defensible in the long term, as countless other tokens will likely be brought to market to address the same use case(s) I am addressing if I am successful?’

The second role of government is the delivery of justice.  In the days of yore, justice and defence were intrinsically linked – on the basis of manpower availability.  A community’s ability to defend itself was proportionate to:

  • total manpower
  • its approach to defence
  • its technological capacity

Manpower and science would grow in permissive environments – think of the first Persian Empire’s reputation for legal process, scientific advance, and military might.  Contrast that with the fall of the Ottoman Empire hundreds of years later, which was a divided state with clearly distinct (and often marginalised) groupings in the population – often conflicting with the state’s own laws, which were poorly enforced.

So how is this relevant to the development of a cryptotoken?  Bitcoin was not the first form of electronic currency (see Chaum’s ecash for the first successful implementation) – but it does have a strong, simple governance model which ties the ‘miners’ into the model and incentivises them to behave in line with the community’s needs.  For a token to be successful, I would suggest developers consider a number of points (in line with delivering ‘justice’):

  1. Incentive mechanisms – how does the governance model encourage adopters to move to using the token?
  2. Dissuading poor behaviour – for example rent-seeking – is there a methodology that prevents free-riding or market abuse?  The token developer should consider their own potential role here (see the change in Ripple’s value in May 2017 when 55 billion of retained XRP were placed in escrow with a defined plan for their use)

Both of these points are congruent with how ‘laws’ operate within a nation – they either incentivise or dissuade behaviors.

Smith’s final role is that of public works and institutions – Smith advocated these for the facilitation of commerce and trade.  The time has now gone where a token can be created as a standalone, without a defined use, and still be attributed value.  Token creators must think as much about facilitating the use, as the use itself – for example:

  • Is the token launched such that speculators can engage with it in a secondary market via engaged exchanges?
  • Does the token creator provide ‘the market’ for the use case? For example, the Bristol Pound has a use case because Bristol has onboarded its consumers and retailers – but David Coin has no use case – I have no consumers nor suppliers prepared to use it.

Cryptotokens are, to my mind, the best current example of Metcalfe’s (and Beckstrom’s, and Reed’s, and Sarnoff’s) law on the value of networks.

Taxation

This brings me onto the second part of this blog:

How does the state pay for its functions, and what does this tell us about how cryptotoken communities can pay for themselves?

The simple answer, to my mind, is: tax.

A nation state taxes its citizens and economic operators, and the purpose of this tax revenue is the delivery of the functions of state.  Of course, the state must be aware:

  • Of Frédéric Bastiat’s comments on the state
  • Of the impact of rent-seekers
  • That if a ‘tax’ model is implemented to provide revenue to enable its functions, this is not done in a way that alienates its users (/citizens).

There will always be a temptation in any token-enabled environment to implement a simple tax model – 1% of all transactions, for example.  However, history has already shown that a simple levy is not the most effective approach – and in fact any modern tax system is used to both encourage and dissuade activities which, whilst legal, are considered more or less attractive to the population.  They can also be extremely complex (the US Federal Internal Revenue Code has 9834 sections; there are over 100 HMRC tax manuals) – which represents the extent to which the modern nation seeks to bestow benefit for certain activities, and discourage others.

The creators of cryptotoken(s) should bear these points in mind – as the governance model applied at the establishment of a new community have, to date, been shown to be difficult to change without significant disruption to the underlying population.  Recall the warnings not to transact in bitcoin for a number of days either side of the Bitcoin Cash fork.  Whilst mechanisms have been built into many cryptotoken models, I do believe these will continue to evolve in the coming years.