Pi Capital Conversation with Mike Lynch

Mike Lynch has spoken to Pi Capital about his tech background, Darktrace and its recent London listing.

Here are some key excerpts.

On Mike’s tech background and the ideas behind Darktrace:

“The motivation question is an interesting one. See, I’m a techy, I’m an engineer at heart. And, especially in the UK, there’s often this idea [about] what motivates people, and I still have that engineering motivation of wanting to show the next engineer that I have a clever idea or that I’m right, they’re wrong… That doesn’t go away, the more technology there is to play with, the more interesting problems there are to solve.”

“This wasn’t people breaking in from outside, [the problem with cyber security before Darktrace] wasn’t people sort of scaling the castle walls, it was all the people inside the castle [that were] the problem. Back then that was a radical idea.”

“That’s how the body works. You know, you don’t assume that your skin is going to keep everything bad out, you’re going to assume it gets in. And once it’s in, you’ve got to have a system that’s walking around looking for this stuff and destroying it, and that’s the immune system.”

On investing in new AI firms:

“Nearly everything you read in terms of AI in companies, AI-enabled this, AI-enabled that, isn’t… As an investor, you have to be extremely sceptical. AI is not the magic word.”

“What tends to happen with an investor is they get shown an amazing demo, and it’s absolutely phenomenal because an AI will learn to do exactly what you ask it to do, so setting up a demo is […] very easy to do. The big question is whether, when you take it out in the real-world next Thursday, it works or whether it becomes mentally unstable or does something crazy. And it’s that bit that’s the valuable bit… The simple rule for investors [is] if it’s anything that’s simple to test - and if it isn’t, be deeply suspicious - then actually test it.”

On the future of tech in London post-Brexit:

“The regulatory framework is crucial. So at the moment we have inherited the European regulatory framework which is, as we saw with vaccines, very slow, it’s very consensus and based on old-fashioned ideas like cohorts, for example. We have a great opportunity to come up with a regulatory framework in AI, in autonomous vehicles, and pharma - which is still probably better at protecting users and consumers and people like that, but far more attuned to modern technology.”

“What we’ve got to do now is take those amazing startups that we have and scale-up businesses and make sure they become multibillion-dollar, world-class listed businesses in London.”

On universities becoming hubs for tech startups:

“We have a whole infrastructure [in the UK] which is geared to not producing a product. For example, if you are coming out of university, you go to Innovate UK and you get a grant, and because you’re an academic, you don’t really want to deal with salespeople because they drive flashy cars and make a lot of noise, and so what happens next? Well, you get another grant and you just keep doing it – you become a grant-obsessed company.  And what we actually need to do - there are actually very few technologies where along the way you can’t find something useful to sell – and we need to actually go the other way, which is fine, so you [should] have a rule in Innovate UK: two grants and you have to show me a product… It focusses the mind into [asking], what can I do that’s useful?”

On the difference between the UK and US tech, VC and IPO scene:

“One of the strange things about the London VC scene is how few technology people there are involved. You know, there are some shining counter-examples as we all know, but the vast majority of middle-level UK VCs, you go a long way to find a software engineering degree…And again, that comes back to our cultural history, you know a lot of this country is run by people who did PPE at Oxford. You know, if you’re in the US you will often find that in that same firm you’re talking to someone who did engineering at MIT or something like that.”

“The entrepreneurs all think the IPO is the end, the exit, if we’re talking about building proper companies – it’s not… you’ve hardly started.”