Ultratech Capital Partners – At the Vanguard of Effective Investments in Dual-Use Emerging Technologies

We know that you invest in dual-use emerging technology to focus on contemporary demands facing national security, resource efficiency, and energy sustainability. Why these arenas? How’d you decide to focus on these particular sectors?

Damian Perl: Both Dale and I come from a national security background. In my case, a 30-year career to date in both the military and then in business very closely involved in national security.

So in that sense, it was an easy segue – stick to what we know and apply our significant sector related expertise.

And within that, on a personal level, there’s a sense of service, of duty, of making a difference.

National security is of critical importance – It provides the framework in which everything else operates. And in a number of ways, the definition of what constitutes national security has widened over the last decade – to now include better management and use of natural resources, energy and sustainability, infrastructure protection, de-risking supply chains – where previously it was perhaps more simply defined around geo-politics and defense.

And so when we set our investment focus, it was an easy decision that national security in this broad context is where we wanted to position ourselves. To invest within these big strategic themes that are of critical importance. Similarly, there is increased worldwide focus in this area now and, as a result, a tremendous amount of new funding being made available for ‘dual use’ emerging technologies, both governmental and commercial.

If our job as investors is to make returns for our partners, then we want to be where the money is, in that sense.

Dale Davis: To echo what Damian says – There is at the macro level so much capital being invested in the specific areas where we have interest, in certain types of technologies. Now, you could be an investor, you could apply capital, but we wanted to apply more than just capital.

If our job as investors is to make returns for our partners, then we want to be where the money is, in that sense.

We wanted to bring to bear our experience, our networks, and our operational backgrounds to support the companies that we invest in. And that’s where our national security background, our service background, allows us to create a bridge between those early-stage companies that are developing cutting-edge technologies in the technology types in which we have interest, connecting them to sources of non-dilutive funding that are available from the government; helping the founders of these companies understand how to navigate the bureaucracy of the government funding mechanisms, everywhere from appropriations on the Hill through programmatic funding flows inside specific agencies.

And so at a more of an operational or tactical level, we bring a real value-add to the companies in which we invest in that regard.

And so it was a very nice fit to recognize the much broader national security implications around the growing emphasis on deep tech and particularly in the United States, to either maintain its lead or regain its lead vis-a-vis these areas, wherein we already held significant interest.

Can we build on that in terms of longevity and investment strategy – Why does Ultratech focus primarily on early-stage companies?

Damian Perl: We recognize that there is an opportunity within critical technology at an early stage. We deliberately chose the six types of technology in which we invest as they are emerging technologies where the innovation and development is generally in earlier stage businesses.

Yes, most have a fairly long financing roadmap – so measuring risk versus reward is important – but we see the opportunity in getting in early in these highly innovative areas of technology, to fill a gap in the market, and a requirement for funding.

And also it’s because of the early-stage nature of these companies developing this technology, that we could make our capital go further; that we could deploy the capital in a more meaningful way.

We’re not a huge fund. At the moment, this is our own money. We’re about to go out and raise our next fund, but this is our capital at the moment, and so we felt that we could make a real difference to these companies with a relatively small amount of money.

We write up to $2 million checks per investment. That goes a long way with early-stage critical technology. And as a result, we found some fantastic highly innovative businesses and business founders who appreciate that money and appreciate what we can bring.

And we can add more than capital as well, when a company’s in an early stage but as importantly, the innovators, the founders are seeking advice and guidance and we wanted to offer that, too.

We’ve undertaken a lot of M&A in the past, which is fine, but it’s a very different practice that demands more money and there are still a lot of companies doing that. But we felt that getting in earlier was going to offer a better opportunity to deploy capital and make better returns, but there was also an opportunity also to help mentor and coach aspiring business leaders. And frankly, one can get a lot of enjoyment out of that.

We write up to $2 million checks per investment. That goes a long way with early-stage critical technology. And as a result, we found some fantastic highly innovative businesses and business founders who appreciate that money and appreciate what we can bring.

I would add that in the last six or so months, we’ve seen quite a number large venture capital firms move into the early stage, early as in a seed, pre-series A, Series A, where we are playing. We’ve seen the likes of Eclipse, Sequoia Ventures, A16Z, big firms either carving out hundreds of millions of dollars from existing funds or setting up new funds to invest in the types of technology that we are investing in. They see the opportunity and they recognize the flow of government money into these areas. They recognize the criticality of the technology and they recognize that if they want a return, this is where to play as well.

We don’t mind increased competition, because it helps validate our strategy and, with our experience and background, we can pick winners better and add a lot more than just capital to those companies into which we invest.

Dale Davis: In addition to the mentoring that we can provide to these early-stage founders, the early stage between seed, pre-series A, and series A, is also generally the guidance in advising companies that can most benefit from government funding. They’re in the most advantageous position to apply for and receive non-dilutive grants from the government, which we can help them access.

So again, it’s the best fit, not only from a financial return perspective but also from the ability of Ultratech Capital Partners to add more than just capital in terms of value.

Can we go in-depth about the commonalities across your investment portfolio to date, and what you look for, as you decide where to invest?

Damian Perl: In many ways, we assess the opportunities in the same way that other VC firms do.

The team and the potential that the team has for growing their business are fundamental.

We’ve rejected good technology with average teams during our diligence processes, because we just didn’t have the confidence that the team either would be coachable, would make the right decisions, or would be able to grow.

We don’t necessarily expect a business founder to grow to an IPO and take his company public, but we do need to see three or four years’ worth of leadership potential. He can then obviously build his team and surround himself with further individuals during that and beyond. So the team is fundamental.

Within the types of technology in which we invest, we look for it to be disruptive technology that is owned by the company – the IP should be owned by the company or at least they’ve got exclusive control of it if it’s been developed in conjunction with an academic institution, for example.

So the team and tech are the key items we thoroughly diligence. The commonalities we find, as you describe it, is that they’re strong teams, there’s a disruptive or unique nature to the technology, and that the IP, the intrinsic value in the business, is owned by the business itself and hence by the investors.

The typical mantra that you hear is, “Team, tech, product-market fit, market size, differentiation.”

And then around that, we also obviously do a lot of research around the market potential and the competition, the financial awareness and management of the company to date, their financial forecasts and planning, so again, no different from any other VC firm, although I think we probably look deeper at each of those factors or criteria than some of our VC competitors. We carry out a fairly exhaustive diligence process, I would say.

Dale Davis: Indeed – The typical mantra that you hear is, “Team, tech, product-market fit, market size, differentiation.”

We also place a lot of emphasis on the business model, unit economics in at least a theoretical pathway, and understanding the founder side of a theoretical pathway that makes sense; a theoretical pathway to positive or cash flow positivity and ultimately, profitability.

In many startups at the phase of, say seed or pre-series A, a lot of the emphasis is on the team and the tech, and some VCs will take a, “we’ll sort out the business model later” approach, one that can come later in the development of the company.

But based on our business backgrounds and our business experience, we’re much more interested in ensuring that the company has a plan from the beginning, a well-thought-out, reasonable common sense approach as to how they’ll build the business, how they’ll generate revenue and ultimately reach cashflow positivity and profitability.

So I think that’s a real differentiation between Ultratech and other deep tech investors investing at this stage. That’s an area where I think we’re just a bit more discerning.

Quite often we work with the founders to help them refine or in some cases, develop that business model and refine those unit economics. And that’s again a value-add that we bring to the table during the diligence process.

I know Dale participated in the Commercializing Quantum Summit of 2023 and I believe that the industry’s supposed to grow to be valued at $8 or $9 billion by, I believe, 2027.In terms of challenges, and opportunities, what are they when it comes to contemporary quantum investments in your view?

Dale Davis: When you think about quantum computing, most people think about the pursuit of quantum advantages, of quantum supremacy, which entails the development of mainframe-scale quantum computers with the ultimate goal of building a quantum computer that has 1 million qubits and can process algorithms that might take millions of years for a classical computer to complete.

From an investor perspective, those types of efforts require enormous amounts of capital and a very long or very distant time horizon.

Our fund is focused on a five to seven-year return and as such, we’re more interested in technologies that produce what we call ‘quantum utility’, where quantum technology writ large can, on its own or married with classical computing, deliver a step improvement, a significant step improvement over classical computing alone, but can be realized in the relatively near term.

We are interested in quantum software capability that allows developers to work on algorithms now and gives wider access to end-users to the currently available quantum computing capabilities.

Frankly, that’s the reason for the founding of Ultratech, to do what it does. We saw the opportunity in this – Neither of us need to do this – we chose to do this because it’s interesting and it’s important.

So, we invested in a company called Strange Works, which does just that – Where a quantum hardware can operate, say, at ambient temperature, either providing solutions in the position navigation and timing problem-set, where quantum sensors can surpass current classical sensors by many orders of magnitude. We invested in technologies like those being developed by Quantum Brilliance, which is leveraging the quantum properties of synthetic diamonds to build what they would call a small quantum processing unit, a QPU, or a quantum accelerator, one which would be used for a very specific task.

So you could take a Quantum Brilliance QPU that will ultimately have 30 to 50 qubits, marry it with an Nvidia GPU, put it on a satellite in orbit and it would be able to dramatically improve image processing or signal processing on orbit, solve some of the downlink problems that we currently face when you collect data on orbit, wherein you need to send that data down to ground-based processing stations.

That type of technology is much more well-developed. It has a much shorter time horizon and the capital required to fully develop it is much less. So that’s where we focus on, in the quantum area.

The challenge it creates is that those types of capabilities are more scarce. There are a lot of companies competing to build a mainframe-type quantum computer. Many have received hundreds of millions of dollars of investment. We’re looking for those peripheral opportunities, those technologies that operate on the periphery but can bring meaningful benefit in the near term.

In terms of Ultratech Capital Partners, where do you see it in the next five, six, or seven years?

Damian Perl: I think we’ve touched on some of the themes already, but very specifically on that question, the United States and its allies, including the United Kingdom and others, face a generational challenge. And it’s a challenge to national security in the broadest sense as we outlined earlier but it’s more than that, with climate change and huge geopolitical volatility etc.

The threats today have been caused by a somewhat complacent approach within the last 20 to 30 years. Globalization, if you will, has created issues around the supply chain, which are coming to the surface. take semiconductors, for example. There is a realization now in America that it needs to onshore its semiconductor fabrication capability. If you look at energy and energy supplies, Europe, with the Russian invasion of Ukraine – Europe realized it was almost entirely dependent upon Russia for energy. And it’s remarkable that within the last 12 to 18 months, Europe has been able to wean itself off Russian energy fairly effectively.

So you’ve got big themes like that which are creating immense generational challenges for the West. And these are very complex challenges and those challenges will demand innovative, technology-driven, and very sophisticated solutions. And so my motivation is being able to contribute in a small way to those solutions.

Frankly, that’s the reason for the founding of Ultratech, to do what it does. We saw the opportunity in this – Neither of us need to do this – we chose to do this because it’s interesting and it’s important.

As we grow this business, we are intent on growing it because that helps everything and everyone if we can grow it, we can make more impact, more difference, and help more great technology founders and innovators make a difference, too.

So there is an altruistic reason as well as a commercial reason for doing this. But on the commercial side, certainly, we feel this is the right time and right place and that the types of technology we are investing in will become very successful.

So Ultratech, over the next five to seven years, we are about to go out and launch our second fund and this fund will be available for outside capital and we’ll be doing much of the same in fund two as we have in fund one; the same types of technology, same early stage businesses, same types of critical capability being developed with the same applications.  And then obviously after that will be fund three, four, five, and so on.

We very much intend to grow a venture capital business here that is enabling fantastic, highly innovative, and critical technology to themselves grow. And as a result, we’re growing that business to be able to support those innovators not just in the United States, but also more broadly and help be part of providing a solution to these rather complex challenges being faced at the moment.

Dale Davis:  At a personal level, and Damian chuckles when I say this – I like to do interesting things and I like to learn about new opportunities, and new technologies. I don’t like repetitive activity and I don’t want to be bored.

And this particular opportunity presents all of the challenges that I like to embrace without any of the mundane, repetitive challenges that come with running a defense integrator and having to deal with the less interesting, less challenging subject matter.

So we’re always looking at new technologies, we’re meeting new and young and dynamic founders. It’s like being a coach, you can relive your youth because you’re passing on your skills and you can see them succeed.

Every day is different. Every day is challenging. But the rewards have been tremendous so far; they’re personal rewards, because of the relationships we’ve engaged in, and the new knowledge that we accrue.

Every time we look at these deep tech opportunities, we spend hours searching online, reading Phd-level theses so I can just achieve a modicum of understanding about this technology and what the opportunities might be, where the risks lie, and at least be able to communicate with the founders with some very basic level of understanding.

So it’s a growth experience for us as well, which I think ultimately is very rewarding.

Every day is different. Every day is challenging. But the rewards have been tremendous so far; they’re personal rewards, because of the relationships we’ve engaged in, and the new knowledge that we accrue.

Damian Perl: Exactly. Continuous improvement or ‘never stop learning’. And for Dale and I, this is the 17th year we’ve worked together. We both want to remain intellectually challenged but it’s fun as well. These 20-something or 30-something business leaders, especially guys coming out of PhDs that are from Stanford or MIT – they want to take on the world and launch their technology and see it in every household or every business. And when you see the potential for it and it does have that, that’s pretty cool and exciting. Being able to help them, at least in the early stages of that journey – it is energizing and means more to us than just capital. It is a big part of why we do what we do; it’s one of the things we stand for, certainly.

Executive Profile

Dale DavisAs Principal at Ultratech Capital Partners, Dale Davis heads investment operations and portfolio performance. He is also a member of the Investment Committee. Dale is the Ultratech representative on a number of portfolio company boards where he utilizes his significant experience to mentor portfolio company leaders and guide business growth and change. He also holds a similar role on behalf of Ultratech in a DoD funded innovation accelerator, supporting entrepreneurs working to commercialize deep tech emerging from government funded research centers. Dale, a former Marine Counterintelligence Officer, earned an undergraduate degree in Electrical Engineering from VMI and a Masters in National Security Affairs from the Naval Postgraduate School.

Damian Perl is the founder and GP of Ultratech Capital Partners. He directs overall investment strategy, manages key investor and stakeholder relationships and is Chairman of the Investment Committee. Damian was amongst the first to enter Afghanistan after 9/11 and, similarly, Iraq in March 2003 where, in each country, he designed and led a series of landmark civil-military programs for the US, UK and allied governments as well as aid programs for the United Nations. He completed the final sale of his defense business in 2017. Damian launched Ultratech Capital Partners in 2020, with the aim of investing in the types of technology that will make the world a better and safer place. He holds a degree in Physiology and Biomechanics and formerly served in the UK military.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.