RM: Patrick, please explain SPRIND, as it’s not something many people are familiar with.
PR: SPRIND is a German limited liability company (GmbH) that is owned by the German government. It’s a really interesting business model that they’ve run a couple times now with some success. This model was used with the It is similar to the High Tech Grönderfonds (HTGF), but our investment strategy is different to HTGF, so we’re not emulating them. Our investment thesis is to, but it’s really to invest into technologies or companies that have what appears at first glance to be in the a crazy or high-risk proof of concept with a high likelihood of failure, and potentially no obvious market viability things and then push them forward.
We can take such enormous risks because we’re not focused on financial gain; instead, we’re focused on driving societal impact. So the company is 100 per cent financed by the German government, specifically the Ministry of Science and Education and Climate Action and Economic affairs, who maintain oversight by sitting on the board of the company, along with representatives from industry and academia. And they sit on our board.
But that’s the extent of their involvement in the company. The founding director, Rafael Laguna, was recruited out of industry to build SPRIND and turn it into what it has become today. He surrounded himself with an impressive group of people who manage the investment portfolio for SPRIND comes from the open-source computing space. Of those Innovation Managers, In fact, I’m probably the least exciting of the innovation managers in terms of what the others have achieved and created. Everything; everything from Apple Pay to many other things in alternative computing architecture. While the others have come from industry and the R&D community, I come from having worked in the US DoD innovation ecosystem.
Our model uses two methods to invest in novel concepts: (1) And what we can do is we run competitions, which we call Challenges. These are very much like any of the ARPAS programs. We’ll put out a call, set milestones and objectives, and then we’ll finance them over three years in a competitive process, where every year at least two teams are eliminated from the competition. Our focus is always company creation. We’re not in the early TRLs like DARPA, so we’re really trying to figure out how we can we bring new products to the market, create new companies around this technology, even if the market’s not ready for it, but the potential for disrupting markets is large. In the end it is about disrupting the way we do things today in all disciplines and all markets.
RM: Can you give me an example of this?
PR: Yes, we had a Challenge on developing competition around broad spectrum antivirals. After the pandemic that is, the international community concluded that after the pandemic has said in the future we want a capable response within 100 days after designating an infectious disease outbreak as a the call out of a pandemic. We said, that’s not good enough because millions of lives will be lost: you should be ready on day one. And so we created a competition invested in a competition where several teams created potential medical countermeasures that will be available on day one, regardless of what virus strain is actually the agent for a pandemic. Because we seek unconventional approaches and empower all kinds of innovators to step up, we enable individuals who are not considered experts to apply. In this specific Challenge, And what you found is that the people that applied for the funding weren’t the teams weren’t virologists, physicians, or infectious disease experts, they were actually people who came with different technical backgrounds, from different areas who had really cool ideas.
For example, one team used its extensive knowledge on DNA origami to create, such as one using DNA like origami and creating cages that can capture the virus. And so instead of having to vaccinate yourself, you can imagine just having to just inhale these DNA cages before you get on the plane and you’re protected for the next 72 hours. And it doesn’t matter if it’s X variant X, Y or Z, with this or that mutation or it’s a mutant version, you’re still protected; all of a sudden you have a completely different approach to protection.
So that’s how we run our challenges: we create new opportunities that markets or other funding programs would never get to see because of the aversion to risk, and we seek to build companies based on these technology foundations which would otherwise never see the light of day to try to spin up companies. Separate from our Challenge competitions, we can act as an opportunistic investor. Without putting out a call, our Innovation Managers scout for novel technologies and potential startups. If we find the technology compelling in terms of the risk and disruptive nature of the tech, we can directly finance them to develop their products. We do that by contracting the teams to do a small project that we support, and the way that we do that is unlike a traditional investor, we will give teams up to €220,000 for a validation project. This is our version of due diligence. We’ll give them the money, we’ll say break your technology, fail and fail fast, learn from the breaking points as much as you can with it and see where the true potential of it is.
And we will reward those who have the courage to fail as often as possible and learn out of that because they push the boundaries of current convention. Sometimes, even accepting the fail fast attitude allows them to create serendipitous discoveries – and then come out and say, oh, you know, here’s a new application of their technology platforms. Following our version of due diligence, we can then strategically invest in the innovators, the startup, or the existing company using three distinct approaches: And then what we can do, and this is really unique, is three things. One, a traditional approach which is less unique is we can provide them a grant. Two, acting like a traditional investor, less unique is we can provide them anything from pre-seed to series C funding. The third thing, which is globally unique, is that we can create subsidiaries of ourselves.
RM: How do these subsidiaries work in practice?
PR: If you would come to us and say, I have this technology, but there’s no market for it at the moment, but if I had the investment and I had the time to do this, then I could de-risk it and develop it and get the market to come around, what we would do is create a partnership with you. We take your human capital and your intellectual capital, put it into one of our subsidiaries, we can provide this subsidiary with a loan of up to €100m. And then we use our internal resources, marketing, hr etc. and staff the subsidiary. We, and then we let that subsidiary develop and come to a point where we can spin it back out and then take it to market. To date we have 13 subsidiaries covering a range of technologies. So we’re doing this, for example, we are building the world’s tallest wind turbine at 300 meters, and at the other end of the spectrum then at the other range, we’re investing in a laser induced fusion reactor.
RM: And when you spin it out, where does the founder sit in all of this? Do they get the equity?
PR: The relationship is built around the founder having the ability to realise their vision for the invention they created. We help them complete do a full market analysis to determine how to bring this technology to the market. It can be that we sell the technology with the founder on the open market, or we spin our subsidiary into a privately held company that may include the entire workforce we created within our subsidiary. In the end understanding where the market is going and how we can create value with our subsidiary is critical to the success of this process, and in the agreement when we spin [the team and IP] into our subsidiary, we make an arrangement with those founders and anybody they want to help build out the company, then they’ll get their shares back as we spin it back either into the startup, a new startup, or the startup that it came from.
RM: How does all this compare with DARPA and ARIA?
PR: How are we different? So we are our own resource sponsor and transition partner, which DARPA doesn’t have. And I don’t see ARIA developing that as far as I understand at the moment. With any approach of developing novel technology and products, you need to identify an end user. In most cases that end user has to bring capital to the table to continue the development of the product or technology; that is never a given. So while other organizations will run programs, they have to rely on others or the private sector to carry them forward in order to mature the technology and then scale it. SPRIND can do all of that on its own. We can then deliver a viable MVP to investors or the end user for immediate application. And what does that mean? Well, any of the ARPAs, they’ll invest into a program and then they’ll move fast, but the program usually has a three to four year life cycle and then it has to go out into the market or they have to find someone within the military to pay for the further development and get it into the acquisition plan.
That’s extremely difficult to do. I tried to do that for seven years when I was with the Office of Naval Research, in the US. Most people who would be your transition partners or your research sponsors, they have their own ideas of what technologies should be prioritised. And yet these programs have spent millions vetting the R&D ecosystem to identify the best viable technologies for those transition and resources sponsors. in their own minds. There ends up being a disparity between the intention and reality of the process which makes it extremely difficult to convince them, especially if there’s a lot of risk involved. Buyers don’t want to take risk and drive something new, and often prefer to stick with the old products or approaches. So that’s a challenge that anyone who doesn’t have their own resource funds or transition partner involved are going to have.
Whereas we can create a subsidiary to take the technology all the way to the point where it is de-risked and ready for the market. By funding the project all the way through commercial validation, clinical trials, or whatever is needed. We remove all the reasons a customer would have for not adopting a new product.
RM: Is SPRIND doing anything in and around defence and national security?
PR: Almost any technology will have a dual use to it. Militaries are no longer the biggest customers of technologies, so, if you want to provide for the military you have to be able to create technologies with dual purpose. In some cases that’s difficult, when we consider offensive weapons. In that case there needs to be an organisation behind the fence that drives that innovation with the defence industrial base. Meanwhile, SPRIND can support dual use technology development which might be exploited by militaries to provide the upper edge to their soldiers. We have been asked to specifically look at that use case and see how our process can help advance strategically important technologies. It helps that our processes are very lean and our execution power is quite effective, so that we can move quickly to provide value with demonstrator projects. Since we are our own resource sponsor and transition partner we can mature the technologies so that they are ready for testing and evaluation in order to provide meaningful value to the warfighter. The issue for us is to ensure that we identify technologies or products that currently could fill a gap.
Because our processes are so lean – we have 80 people, we have a five-page contract with anybody that we work with – we’re really effective in how we’re doing things. So there’s been a recognition within the government that there’s a need to push more dual use applications, and technologies moving forward. And they need someone to actually drive these technologies forward. Also, because we are our own resource sponsor and transition partner, we don’t necessarily have to go to any one of the warfare centres, we can develop the technology with the soldiers directly and then deliver it basically complete and fully vetted.
RM: And do you only work with German companies?
PR: Our remit is to understand the global technology landscape. With our validation projects, we’ll go anywhere to source new ideas and explore new opportunities. Our value proposition is that we want to be a trusted partner and a partner of choice for all innovators around the world to come to Europe. So we do require that if a larger investment is needed after our initial stake, you have to be within the European Union to be able to receive that, because Germany wants to be a good partner to the European Union.
