This summer, I participated in a thought-provoking panel discussion at our newly relocated Analog Garage in downtown Boston with members of our local startup and VC communities. Moderated by Matt Duffy, head of marketing for weather technology company ClimaCell, panelists also included Jason Whaley, general partner at applied sciences VC firm Rhapsody Venture Partners; Leila Pirhaji, CEO and founder of biotech startup ReviveMed; and Natanel Barookhian, an early-stage investor with TechU Ventures.
This discussion tackled several important topics geared toward the startup community, including factors that influence investors’ decisions when investing in startups; how far deep tech buzzwords get startups in the door with investors; the importance of corporate innovation labs to fuel startup innovation; and important considerations startups should consider when aligning with larger corporations to push their respective technologies to market.
For me, this marked an important occasion, especially given Analog Garage’s new home in Boston. At Analog Devices, our job is to figure out what we’re going to do next, and we work with external startups to accomplish that goal. We are also in a unique position with a corporate innovation lab like Analog Garage in that any ADI employee can submit ideas to the lab and we will consider them for funding. This is proving to be a very rewarding process.
The following is a closer recap at some of the questions provided by attendees and our collective viewpoints surrounding the deep tech, VC and startup landscapes.
How do investors look at companies and ensure they have something that is provable?
Citing a Caltech example, Jason said his firm looks for two things – will anyone care, and if a technology serves a specific niche, startups should outline the performance characteristics it needs to have to be successful in the marketplace.
How do startups talk about their technology in ways investors understand its value?
Here, Leila described that for ReviveMed, what worked best when meeting with investors was having a backlog of external validation handy from potential customers, including leading pharmaceutical companies. As she says, “If you have customers out there that pay to use your product, that’s the best value.”
When looking to invest, how do investors negotiate how valuable they think startup technology/deep tech is going to be?
As Natanel described, most technology he and other investors see has been incubated and funded largely within centers of education over a period of several years. What that does is give investors a clear message that universities believe there is enough value for them to invest the necessary funds to take out patents in the technology every year. In investors’ minds, this demonstrates companies are coming to them much more baked and have strong validation from backers who believe in their respective products and technologies.
One essential piece of information Natanel also relayed is that he always asks entrepreneurs to “talk to me like I’m a fourth grader.” The best entrepreneurs are ones who can clarify what they do at a very simple level based on whomever they speak with.
Echoing this sentiment, at ADI we feel the best people in our company can describe what they’re doing effortlessly and efficiently no matter how complex the product or technology itself is. In other words, they can bring it down to the level of their audience. Red flags occur when this can’t be done. Startups specifically should use simplicity to demonstrate how smart they are. I also believe the best startups are the ones that contain technologists who are also business-savvy people.
Pictured left to right…Patrick O’Doherty, ADI’s VP of Emerging Business; Natanel Barookhiam, founder of TechU Angels; Leila Pirhaji, founder and CEO of RevivMed, Jason Whaley, general partner at Rhapsody Venture Partners; and Matt Duffy, CMO at ClimaCell.
How does Analog Garage (and other corporate innovation labs) inform different relationships with companies needing help?
We look for technologies that are disruptive, unique, well-protected, well understood and engaged with customers or at least a market. In the case of a large company like ADI engaging with startups, we can provide capabilities and advantages to their product they would never be able to develop by themselves. It would be an extremely heavy lift for an early stage startup to be able to enhance their products, make it rigorous and robust, engage with customers, and develop a go-to market strategy and a salesforce. Additionally, we don't focus on the return that we're going to see financially. We're much more interested in the capability.
How do startups seek out investors?
Here, Leila emphasized the importance of investors needing to support startup visions as entrepreneurs. It is also crucial for startups to seek out investors that are already well-versed and immersed in the technology fields. This is because they understand the challenges deep tech companies face.
Jason adds the most important thing investors can do is take on new customers, but then help them navigate and determine deal terms that make sense to preserve value for that company.
Do startups take the advice investors provide?
As Leila describes, entrepreneurs need to hear and consider all advice given to them by investors. From that you can make informed decisions specific to the future of your business.
Natanel also brings up another vital point – it’s crucial to know the difference between advice and orders. They are not interchangeable. Ultimately, investors invest in people they trust, especially at the seed stage level. If they don't trust entrepreneurs to ultimately make the right decisions, that results in red flags and they won’t invest in those types of companies. But once investors enter the picture, they fully expect startups to make decisions best appropriate for their respective organizations.
How can early-stage entrepreneurs overcome their fear of working with large corporations?
I feel startups need to be careful when working with a corporation, just like they need to be careful when working with investors. At the same time, there's no point in us taking a position with a startup and taking something that's going to impede their progress, because that's of no use to either of us. We want them to progress. I believe the best partners are smart partners and informed people, and if you look at the capabilities that a company like ADI can bring and you recognize that value, that makes the whole process a lot easier. Because for us, money and funding are not the main elements startups look for when they come to work with us. So, in some cases, an equity investment is made, but it's more as a statement of confidence in the startup. What startups really value from us is our technical capabilities, and the potential we can bring to what they're doing to either revolutionize it in some way or get them over the hump of trying to commercialize and develop their technology. That's what's of value here.
How do investors navigate buzzwords tied to deep tech/technology?
Investors have summed it up best – markets always shift, and with that trends rise to the forefront of interest. As Natanel described, there was a time when “AI” was the big buzzword; then “machine learning;” then “augmented reality.” As a result, investors receive a multitude of pitch decks with entrepreneurs believing that if they simply insert a buzzword in it, automatic success is guaranteed. This is not true.
Instead, it all comes down to a concept of “secret sauce,” as Natanel describes (i.e. what can you do that no one else in the world can do?). If startups can’t answer this question, investors will move on, regardless of what buzzword the technology may be attached to. Jason adds that if a startup has a technology that’s valuable, there will always be a market for it. That’s what investors are paying attention to. Otherwise they will align themselves with constant risk.