David Mott, Founder Partner, Oxford Capital
As we start a new year, I’ve been reflecting on 2020 and all of the many challenges and opportunities that it brought. It struck me that just over a year ago we handled our first deep tech exit of the year, the sale of Latent Logic to Waymo (part of Google). This was our first of the year, swiftly followed by the sale of Ultrasoc to Siemens. We weren’t alone in delivering several exits, data from the Pitchbook-NVCA Venture Monitor illustrated that VC exit values achieved the second highest total ever in Q3 2020.
Working in VC, we all operate at such a pace that it’s easy to just move onto the next challenge without taking a step back to understand what we’ve learnt from everything we’ve achieved. Particularly when it comes to helping an early-stage company grow to an eventual exit.
So, what was our experience in working with Latent Logic, how did we partner with them to orchestrate their acquisition and what has it taught us as an investment team?
Investing in Latent Logic – some background
Latent Logic originated within Oxford University’s award-winning machine learning department and was founded in 2017 by leading academic, Professor Shimon Whiteson and robotics expert Dr. Joao Messias. The company is at the cutting edge of imitation learning and artificial intelligence (AI), building autonomous systems which understand humans, deep learned from real data, over millions of test cases which can then be applied to autonomous vehicles.
We initially invested in February 2018 at the point when the company had just spun out of the university. Prior to our investment, Latent Logic had only a very high-level proof of concept, and no commercial team or pipeline. With our funding, the company proceeded to build a viable version of their simulation including realistic driver behaviour.
Latent Logic’s solution is to use “Learning from Demonstration” (LFD) – a cutting edge machine learning technique, and one in which Latent Logic’s founders are leaders. It uses measures such as dash-cam; CCTV and drone footage to provide data to feed the algorithm and learn to drive like a human.
Using this technique, Latent Logic’s simulated drivers “learn” to behave like real road users, without having to manually understand and code what normal driving looks like (which many of the competition were doing). Latent Logic is the first, and so far, only company to demonstrate LFD effectively replicating real human behaviour. This huge achievement highlighted the technical expertise of the team and attracted considerable industry interest, ultimately leading to its exit to Waymo.
Timing it right – delivering the exit
There were a number of factors that led towards Latent’s eventual exit:
- The driverless car market is expected to be worth nearly $7 trillion by 2025. The monumental size of the opportunity is why some of the leading global tech brands (e.g. Apple, Uber, Google) and automotive brands (e.g. Mercedes, Tesla, GM), are all involved in the race to be first. It is this demand that led Latent Logic to be acquired very quickly.
- The biggest challenge the business faced was how to commercialise its offering and be applicable to a broad range of vehicles. It was these challenges that led towards the move to secure an exit – to capitalise on the interest in the sector and the expertise within the team
- We worked with the management team and Oxford Sciences Innovation (co-investor) to identify companies to approach for a potential acquisition.
- Waymo was seeking a partner to enter the European market and develop its first European engineering hub. It had made simulation one of the pillars of its autonomous vehicle development programme. Latent Logic’s form of machine learning would enable it to make its simulations more realistic and improve Waymo’s behaviour prediction and planning.
What have we learnt and what makes this story stand out?
It’s important not to underestimate the role a VC plays in creating situations where the chances of success are increased by partnering with founders and using our network and knowledge to help shape strategy. Through our board position, we were instrumental in supporting Latent Logic at key strategic points, in particular helping to recruit new CEO Kirsty Lloyd-Jukes, to develop the commercial proposition and strategic outlook for the company.
We were on hand at every stage of targeting an exit through to acquisition to guide them through the process from a legal and financial perspective.
From an investor perspective, it delivered high IRR returns extremely quickly. From our initial investment the company exited in less than two years, significantly less than the average investment (we aim to exit a company within 5-7 years). In addition, the EIS scheme is a major source of funding for UK start-ups and by investing through this route this helped to fuel Latent Logic’s growth and eventual exit.
This is a truly global story. Our investment strategy focuses on investing in technology companies that have the potential to grow rapidly and provide exposure to sectors in which the UK is a world leader. The UK is at the forefront of the machine learning and AI market and Latent Logic is now one of several leading companies, in addition to Deepmind (acquired by Google) and VocalIQ (acquired by Apple), that have been acquired by US tech giants in recent years.
Not only did Waymo acquire all of Latent Logic’s insight and technology, but it also took on its talent and expertise. The two founders, and key members of the technical team also joined Waymo (and remain in Oxford). Through this acquisition, Waymo made its first permanent footprint into Europe, in Oxford.
The exit also illustrates the importance of the university ecosystem in supporting the start-up network, something we’re passionate about. Graduate start-ups contributed over £822m to the UK economy in 2018, according to the Higher Education Statistics Agency. As an Oxford based company for over 20 years, we have long been a supporter of the Oxford Cluster and have invested in a number of companies that have emerged directly from the university.
Reflecting on the exit
Latent Logic’s journey is a powerful story both for the company, but also for EIS investing within the UK. Once it emerged from Oxford University it progressed very quickly to produce unique technology in the autonomous vehicles market. Fast forward to its acquisition by Waymo, part of Alphabet Inc. (which in January 2020 became only the fourth US company to reach $1 trillion market value) it is a remarkable trajectory. The acquisition very much echoes the message from Google/Alphabet founder, Larry Page in outlining the strategy for Alphabet Inc:
“Google is not a conventional company. We do not intend to become one.” As part of that, we also said that you could expect us to make “smaller bets in areas that might seem very speculative or even strange when compared to our current businesses.”
“We did a lot of things that seemed crazy at the time. Many of those crazy things now have over a billion users, like Google Maps, YouTube, Chrome, and Android. And we haven’t stopped there. We are still trying to do things other people think are crazy but we are super excited about.”