The Contrarian Deep Tech Bet with Celesta Capital’s Nicholas Brathwaite
Nicholas Brathwaite is a founding partner at Celesta Capital, a deep tech venture capital firm that has invested in over 110 companies since 2013.
Nicholas Brathwaite is a founding partner at Celesta Capital, a deep tech venture capital firm that has invested in over 110 companies since 2013.
What led you to founding Celesta Capital?
I started my career at Intel right out of graduate school, spending about six and a half years there, mostly in technology development. Intel was the number one semiconductor company in those days, and the technology development group was considered the crown jewel. I started on the operations side as an engineer implementing and optimizing technologies for production in factories, then moved into technology development after a few years. That unique experience of both implementing new technologies and also developing them helped me become a better technology product developer throughout my career.
I left Intel to become a founding member of a startup called nChip, which turned out successful with investors making around five times their money in about five years. When Flextronics acquired us, I initially ran the nChip operations, then Flextronics CEO Michael Marks asked me to become the company’s CTO. I spent 12 years at Flextronics altogether, about 10 as Chief Technology Officer. During my time as CTO, Flextronics grew from $300 million to $30 billion, a 100x growth in 10 years.
After Flextronics, I started a private equity firm called Riverwood Capital with Michael and others, and also ran a semiconductor company called Aptina, which became Riverwood’s first investment. We started what became Celesta in 2013 as a way to invest in early stage technology companies, and in 2019, I moved to focus completely on Celesta.
How do you define Celesta Capital’s investment thesis in deep tech?
Celesta was founded on our belief that most major technological innovation is driven by advancements in deep tech. Over the last several decades, the deep tech space has been largely abandoned by many VC investors. If you go back 10 or 20 years ago, less than 10 percent of VC capital was going into deep tech. Many investors were saying the only thing that matters is software, that software would eat hardware. We believed differently.
While we agree software deserves attention, we believed that not investing in hardware was limiting future advancements. Deep tech is our background and we wanted to demonstrate there were opportunities here and money to be made.
We’ve been investing in the same things from the beginning, today the industry has largely come toward us. Our investments primarily target three themes: semiconductors and intelligent systems, next-gen infrastructure software, and bio-convergence. We also identify large existing industries that wouldn’t adequately meet the needs of the new world and needed transformation. Fintech, for example, is just technology’s response to the inadequacies of today’s financial services industry.
What explains the shift away from and then back to deep tech investing?
There are many reasons people focused more on software versus deep tech. Generalist investors found it easier to understand and invest in software. In software, the amount of capital needed before you have a product is less, though it’s a misconception that software companies take less capital overall because they have to spend heavily on go-to-market.
Pre-money valuations between deep tech and software companies weren’t that different historically. But I believe the main factor was that generalist investors found software and SaaS easier to understand. The upfront capital expenditure is often less in order to get a product to market, and market conditions allow people to make money flipping these companies.
Today it’s not easier to start or scale a deep tech company, but it’s more attractive. The opportunities in recent times are primarily driven by AI, which is driving wholesale rearchitecting of the entire technology landscape. Almost every product category is being rearchitected to leverage AI, leading to large transformations across all industries. This has probably led to the greatest window of opportunities since the advent of the microprocessor.
How do you approach diligence differently for deep tech investments?
My curiosity drives me more than anything. I tend to be curious about almost every idea that comes in. I’m not likely to look at something and immediately dismiss it. I investigate and determine based on data whether I like it. I want to understand why entrepreneurs think their idea is good, both as a learning opportunity and because I’ve been involved in developing things throughout my career where there were many doubters.
I typically start by focusing on the technology and ask two questions. Is this a problem worth solving and big enough to be worth our time? Is this technological approach likely to be successful? I don’t get excited just because someone is first to do something, because in the tech world, first movers don’t often win.
We spend extensive time on the technical approach. We dig deeply into patents and IP, evaluating how valuable and differentiated they might be. We focus on these things before looking at management. For teams, I look more for domain expertise and credibility that they can develop the technology differentiation they claim, rather than just management experience. We think we can augment some lack of business experience through our network, or bring in people to help.
How does your manufacturing background influence your investment approach?
There is a calm that operating experience can bring to investments. As tech executives, we’ve seen it all. At Intel, I understood what it meant to develop something and implement it in a factory. At Flextronics during my time as CTO, we were building and ramping new factories at an incredible rate. I was responsible for developing the manufacturing technologies that went into these factories. We never had a factory problem, recall, yield disaster, or situation where things didn’t work in the 10 years I was there.
When Microsoft made the first Xbox, for example, that product had to launch in three factories in three regions simultaneously: Mexico, Hungary, and China. We had to develop the product and the process technologies, implement them in all factories, develop all the collateral with regionalization and language requirements, and launch simultaneously without any hiccups.
At Celesta, we’ve collectively started over 40 businesses ourselves. We have over 600 patents within our firm. Several of us have run companies and built big businesses. This brings a certain level of calmness in the boardroom. When founders make mistakes, we’re not likely to panic because we’ve probably made that mistake and many others ourselves. We can often see the mistake coming and help them prevent it. When we can’t, we try to help them get back on track quickly. Companies don’t fail because they run out of money. They fail because of why they run out of money. Running out of money is a symptom, not the root cause. Minimizing the ups and downs that waste time and money on a company’s trajectory of growth is hugely important.
When should deep tech founders think about manufacturing and scale?
It depends on strategic intent. You need to understand exactly what you’re trying to achieve and your key wedge opportunities for differentiation and success. You have to understand where you can make trade-offs and where you can’t. For example, if you have a time-based competitive advantage of a year or two before anyone else has the technology capability you have, you could potentially develop a product that isn’t cost-optimized initially and optimize it over time. But if you’re developing a product that must win on cost effectiveness, you can’t trade off on that. You can’t develop a more expensive product and hope to reduce it later because you’ll never get that opportunity if you can’t sustain the business.
The important thing is understanding your key differentiation in product development. What are the things that will allow you to be successful upfront? Make sure you don’t compromise on those. Other things that are secondary, you can compromise on and catch up over time. Prioritize ruthlessly.
How do you define deep tech?
Companies that are leveraging either new scientific discoveries or advancements in technology and creating businesses based on intellectual property differentiation. That’s how I would define it simply. A lot of that is going to be hardware related, but you do have some areas of software that apply.
HAUS is the leading public relations and creative services agency for deep tech startups and scaleups.
