The goal of this chapter is to translate the macro-thesis into some practical principles and guidance.

Strategic Heuristics for Vertical Integrators

The following heuristics capture the operating principles that have so far separated scalable VIs from the rest - no principle is universal, but most fit most cases.

1/ Build fast, learn fast

• Output over method: Integrate proven, state-of-the-art technologies first to identify the true rate-limiting bottleneck, then build foundational IP where it matters. Building a compounding technology moat is critical to ensure long-term market dominance and higher valuation premiums. Building a technical moat doesn't necessarily mean patentable IP, but similar to vertical SaaS, it lies in rapidly productising unique insight in a complex domain. Execution speed is ultimately the key differentiator. Deep tech IP from day 1 is not required - often hailed as building defensibility, usually just becomes a bottleneck and creates sunk cost fallacies.

• Time to market/revenue as the master variable: A second order effect of output over method is shortened time to market. Shorter time to market means faster feedback loops with customers, more revenue at an early stage, less dilution, more funding availability (both debt & equity). The ‘worst case’ scenario is building a VI with deeptech IP with 4-5+ years time to market, only to find out after 100s of $m burned that the need is not there or the technology has become obsolete. When designing the VI strategy, every decision can be run over the razor of “how will this affect my time to market and ability to scale?” - depth of value chain, customer profile, growth strategy (e.g. organic vs roll-up vs franchise), etc.

• Stay lean until PMF: It usually takes less than 15 talented engineers to prove the model (tech, unit economics, demand, etc.), value aggregation should be obvious relatively quickly after entering the market. Pivot fast, continue to stay lean until you find it and don’t scale prematurely. Disciplined management of runway and follow-on investment. Once the model is proven, set up hybrid financing and scale. Most of the typical VI risks can be mitigated by this mantra.

2/ Design for Leverage

• Balancing defensibility vs complexity: The elegance lies in taking on enough technical and operational depth to build defensibility, but not so much that you drown in it and lose momentum. The best teams have an insane level of urgency/output, can deal with higher complexity, and can productise that operational complexity faster and more effectively - in short, “ingest pain, output product.” That’s why forward deployed engineer profiles are so popular among Vertical Integrators.

• Design physical infra for maximum AI leverage: Design the factory, power plant or drone around software and AI. Incumbents are constrained in their designs - they just layer SaaS onto existing processes. VIs have the opportunity to rebuild from first principles - where data, automation, and control loops are embedded from day one, built for scalability.

• Capture bottleneck, learning curve, and spec: Integrate where it matters. Building defensibility and having the VI compound in the long run requires: 1/ capture the true bottleneck in the value chain, 2/ capture the learning curve (cost, speed, and data compound to provide a UX that is hard to match for new entrants), 3/ leverage market power to own the spec/interface in the long-run (leverage the ownership of the link in the value chain so others have to build around you).

3/ Scale through Layering & Standardisation

• Thoughtful & path-dependent layering: The strongest Vertical Integrators don’t grow by doing everything at once. They sequence capabilities so that each layer unlocks the next. They choose markets large enough to absorb billions in annual output, but defend them with advantages that compound as they scale: cost curves that drop with volume, proprietary data loops, or infrastructure nobody else can afford to replicate. SpaceX could only build Starlink because it first became the world’s cheapest launcher. It’s about building irreversible dependency chains that make every new layer stronger than the last.

• Standardize physical infrastructure: Heterogeneity kills at scale, especially heterogeneity with high inertia, such as physical infrastructure. The design of the real-world environment in which the software is deployed (sites, machinery, layouts, processes, etc.) is under the control of the Vertical Integrator - one of the key advantages. New facilities should be highly standardized with clear standard operating procedures (SOPs) to copy-paste factories in the 10s and 100s. Every new facility should reinforce the operating model, not reinvent it.

4/ Finance Intelligently

• Align capital structure to stage: Don’t burn venture $$ to buy CapEx. Understand the difference between capital-intensive and equity-intensive. Use a 2-Act framework to invest VC-provided equity $$ for the initial team and technology build out, then leverage hybrid financing model to scale.

• Hybrid capital structures: Use debt, leasing, project finance, SPV structures, or franchising for tangible and financeable CapEx assets. This may make Vertical Integrators capital-intensive but not necessarily equity-hungry or dilutive to shareholders.

5/ Opportunity Benchmarking

The most attractive opportunities could be benchmarked by: market size * urgency & strategic relevance * productivity and gross margin uplift vs status quo * ability to scale vs capital need * time to market.

We ultimately want to address a large industry that is in urgent need of reinvention, where state of the art technology across software and hardware can generate a significant uplift in unit economics and throughput, that can scale rapidly and relatively capital efficiently while reaching meaningful output within 3-5 years of inception.

The Asks

To Financial Institutions: Develop dedicated debt/equity hybrid financial products for Techno-Industrial Vertical Integrators (until they get moving, give Brett Bivens or Oliver Beavers a call).

To Policy Makers: Accelerate industrial deployment timelines through faster site permitting and clearer legislation. Fast-track skills and visas to priority clusters. More favorable incentive schemes that scale for equipment financing and infrastructure build-out. Copy what works from China’s playbook - localised autonomy, agency, speed, and long-horizon programs with continuity across cycles.

To VCs: Stay curious about Vertical Integrators - they might surprise you. The fear should not be capital intensity or scaling issues of VIs, but missing the next supercycle. Remember that sins in venture are rarely sins of commission, but rather sins of omission. The edge lies in conviction before consensus.

To everyone: I’m looking for ground truth. This paper is a starting point. If you see blind spots, counterexamples, or nuances I’ve missed - challenge them. Share data, stories, and corrections. The goal isn’t to defend a thesis, but to refine it together. I’d love to hear from you!

The Arbitrage Opportunity in Europe

Europe offers a clear arbitrage opportunity for building and investing in Vertical Integrators. The ecosystem is still in its infancy: fewer founders are tackling capital-intensive industrial problems with scalable solutions, and even fewer investors have the expertise or conviction to back them. As a result, competition among builders and investors is limited, valuations are lower, and many high-quality industrial assets remain overlooked or mispriced.

Europe also has the deepest industrial heritage in the world - dense supplier networks, engineering talent, and decades of accumulated know-how across manufacturing, energy, aerospace, and defense. The opportunity is not just to import the VI playbook from the US, but to rebuild on top of Europe’s existing industrial strengths and ecosystems with modern software, automation, and capital structures.

This asymmetry creates opportunity on both sides of the table. Founders can dominate entire verticals faster, while investors gain access at more reasonable entry valuations. Once these VIs raise, scale or establish footholds in the US, where industrial and defense markets command higher multiples, the valuation gap can close rapidly, generating outsized returns.

Bottom line: Europe’s slower adoption of the VI model is not a weakness but a window - it allows disciplined founders and investors to build strategic assets, compound know-how, and build defensible industrial platforms before the rest of the market catches up. 

Kudos

A few exceptional first-check and incubation-style investors in Europe are already paving the way for Vertical Integrators - e.g. Charlie March, Junaid Hussain, Andreas Klinger, Andrej Henkler - but we need more. Most Series A and growth capital for European VIs still comes from US funds, which is a shame. Some folks in stealth are quietly working on closing the growth capital gap - you know who you are.

A deep, heartfelt thank you to the 100+ founders, investors, operators, experts, and friends who have shared their time and insight with me to explore, challenge, and shape this category together. I can’t begin to list them all.