The Exchanges

Q Speaking in front of those expertise, it leads me to think about Jeremy at Lemnos, one of your I'd love to hear then what you look for in those investors. Maybe if it's not necessarily all expertise, but, but expertise is required. What really entices you to, to one over another, as we discussed also the brilliance of Felicis earlier?

A Yeah. I mean, I think, uh, you have to have someone with some understanding of the, of the industry, right? The understanding, not necessarily of all the details, but someone who understands technology, people with engineering degrees or histories that they're in and really who know the limitations of their knowledge, right? So, There's always going to be an asymmetry of information between the entrepreneur and the investor, and that asymmetry is only larger when it extends to fairly technical aspects of the technology, right? So we actually look for investors who have that deep experience, and if you look at our investor base, you know, our Series B was led by Forrest Baskin and Greg Papadopoulos at NEA, and they're both former professors at Stanford and MIT and both former CTOs at large technology companies, so you find the right People who understand, even if they don't understand all the details enough, that they can help you make the right decisions.

AI assessment note: “we actually look for investors who have that deep experience”

Q Speaking in front of those expertise, it leads me to think about Jeremy at Lemnos, one of your I'd love to hear then what you look for in those investors. Maybe if it's not necessarily all expertise, but, but expertise is required. What really entices you to, to one over another, as we discussed also the brilliance of Felicis earlier?

A Yeah. I mean, I think, uh, you have to have someone with some understanding of the, of the industry, right? The understanding, not necessarily of all the details, but someone who understands technology, people with engineering degrees or histories that they're in and really who know the limitations of their knowledge, right? So, There's always going to be an asymmetry of information between the entrepreneur and the investor, and that asymmetry is only larger when it extends to fairly technical aspects of the technology, right? So we actually look for investors who have that deep experience, and if you look at our investor base, you know, our Series B was led by Forrest Baskin and Greg Papadopoulos at NEA, and they're both former professors at Stanford and MIT and both former CTOs at large technology companies, so you find the right People who understand, even if they don't understand all the details enough, that they can help you make the right decisions.

AI assessment note: “we actually look for investors who have that deep experience”

Q It absolutely does. I guess I'm kind of instantly thinking then of the frothy VC environment and the proliferation of startups. And is that not really what has to be done and has to be proclaimed to the growth hungry VC class just in order to attain the funding?

A Oh, entirely, right? I think that for some reason or another, markets still really value size or they do profitability. So as a result, what you get is, oh yeah, we think it's going to work eventually in the future, so let's grow as much as possible. And that's what you tell them because they want to see things with massive, massive growth, right? So a good example of this is kind of the Uber and Lyft wars and how they are playing out where you had, look, the unit economics of this business work. They prove that. And then they've Subsequently, broke the unit economics entirely. I mean, it used to be incredibly easy to get Uber credit. At one point, I had hundreds of dollars of Uber credit, and that was all for growth, the user acquisition, city acquisition, etc. The problem is, over time, your unit economics change on you. So as you move on, Lyft starts competing, or there's, you know, five other types of companies that are competing, or there's business model innovation or technology innovation that's now competing. So autonomous cars, Google's fleet of car sharing, or so on. So now, you're in a position where you've, you've, Forgone all of this, you know, profits for growth, and now you're in a position of defending your market. So at the end of the day, I think everyone's just going to keep accepting this big lie, because as long as markets still appreciate size over return,…

AI assessment note: “Oh, entirely, right? I think that for some reason or another, markets still really value size”

Q Can I ask, how do you analyze the attractiveness of a potential partnership? What makes one partner more attractive than the other for you?

A It's all about incentives. It's really all about what are the incentives of their business. Typically, when you're dealing with these large corporate entities, Whatever their main business is, it's more important to them than you are. That's just a fact. So if you go to a company, a large company in telecom or silicone or automotive, and their main product line is doing fifty billion dollars a year in revenue, and you come to them and you say, look, I have a great idea. You can make a hundred million dollars in four years. You know what? You can make more than that. You can make five hundred million dollars in four years. Yeah, they may find that attractive, or they make it, they may take a step back and look at that and say, well, you know, that's one percent growth. And what is the investment that we should really put in to go after that one percent growth over five years? These companies need to deliver higher than that anyway, so their incentives are not aligned, so that what you need out of a partner is some value that you can offer them on their main product line, is what I personally believe, because a lot of them have these innovation departments, and they want to explore lots of other things, but politically, they just cannot get real momentum behind other bits of business, because their main business is so good already.

AI assessment note: “what you need out of a partner is some value that you can offer them”

Q Kill me for my simplistic thinking here, but, uh, unit economics, obviously very important in consumer growth businesses. Deep tech, where often, believe it or not, the deep tech is the kind of core IP, not the users themselves. Is the billion dollar deep tech acquisition by GM not the play instead of kind of building a sustainable growth business in many minds of VCs, do you think?

A I think that's right. I think in many VCs minds, that's the play. Can we throw a bunch of money at something and then, uh, and then hope that someone will buy it for the technology or for the ability to build technology? You know, the problem with that thinking is that's really more of a lottery ticket and that that's hugely, it can be hugely capital intensive, right? And you really have to hit the market with perfect timing. Now, if you can build a business that is sustainable from a revenue standpoint, and then grows from a revenue standpoint in deep tech the same way that you would in any other business, you can still build that deep technology, but you have to fill it, figure it out in such a way that there are, there are discrete saleable parts along the way.

AI assessment note: “I think that's right. I think in many VCs minds, that's the play.”

Q You said about larger players there. How does one look to win as a deep tech company with such formidable competition that you do in the space, who are quite frankly so well-funded?

A Yeah. I mean, well, I'm not particularly worried about the other startups in our space. I think we're head and shoulders of them, but I, I really take seriously the, uh, the corporate innovation departments and the different larger, um, I wouldn't call them startups, but technology companies out there, they're very smart people and they work very hard and they have pretty good forethought on what, what to build. You hear this question all the time as entrepreneurs, well, how do you, how do you win if Google decides to go do this, right? Someone with more time, more people, more money, By people, I mean smarts, right? More smarts, time, and people, money, than you. The honest answer is you can't, if that's totally the case, right? You have what I call Silicon Valley arrogance going around where people are just like, look, because our people are better, or, you know, we're smarter, or our plan is better. In reality, you can only really win by picking a new direction, and then accelerating towards it faster than anyone else. So everyone else is running in another direction at a very high speed, and what you want to do is pick a new point on the horizon and Accelerate as fast as you can, so by the time they turn ship and get after you, you're already ahead of them in the market.

AI assessment note: “you can only really win by picking a new direction, and then accelerating towards it”

Q and he said that the deep tech investing craze in, in some ways going on in the Valley now that's kind of been reborn reminds him of the green tech and clean tech investing periods of 2001 to 2003, where investors are really diving into spaces they have really no idea about and, and kind of bad things will happen as a result. Do you think that's fair to say?

A I agree with that, and I disagree with that. I agree with that insofar as, you know, when I was pitching people and getting turned down, people told me, hey, I just don't invest in space because I don't understand it. And I always respected that answer. But at the same time, if you don't understand something, that doesn't necessarily mean it's not a good play, right? And I think what you'll see is there are massive opportunities in deep tech, massive opportunities, right? Autonomous driving, AI, I mean, what we're doing, there's lots of different opportunities that are going to pay off huge. And I think that people, the right people need to be able to go after those opportunities. You know, where it's overinflated is where one area gets very sexy, and then everyone moves into it. So I think a good example of this is LIDAR. There are so many LIDAR companies, and there's, more importantly, there's so many investors who don't really have the competency to understand which LIDAR innovations are meaningful, and really what it even takes to make a LIDAR company successful, right? What actually it means, and, you know, not all of it is technology innovation. A lot of it is actually manufacturing innovation, or manufacturing consistency and operational expertise.

AI assessment note: “I agree with that, and I disagree with that.”

Q It absolutely does. I guess I'm kind of instantly thinking then of the frothy VC environment and the proliferation of startups. And is that not really what has to be done and has to be proclaimed to the growth hungry VC class just in order to attain the funding?

A Oh, entirely, right? I think that for some reason or another, markets still really value size or they do profitability. So as a result, what you get is, oh yeah, we think it's going to work eventually in the future, so let's grow as much as possible. And that's what you tell them because they want to see things with massive, massive growth, right? So a good example of this is kind of the Uber and Lyft wars and how they are playing out where you had, look, the unit economics of this business work. They prove that. And then they've Subsequently, broke the unit economics entirely. I mean, it used to be incredibly easy to get Uber credit. At one point, I had hundreds of dollars of Uber credit, and that was all for growth, the user acquisition, city acquisition, etc. The problem is, over time, your unit economics change on you. So as you move on, Lyft starts competing, or there's, you know, five other types of companies that are competing, or there's business model innovation or technology innovation that's now competing. So autonomous cars, Google's fleet of car sharing, or so on. So now, you're in a position where you've, you've, Forgone all of this, you know, profits for growth, and now you're in a position of defending your market. So at the end of the day, I think everyone's just going to keep accepting this big lie, because as long as markets still appreciate size over return,…

AI assessment note: “Oh, entirely, right? I think that for some reason or another, markets still really value size”

Q Kill me for my simplistic thinking here, but, uh, unit economics, obviously very important in consumer growth businesses. Deep tech, where often, believe it or not, the deep tech is the kind of core IP, not the users themselves. Is the billion dollar deep tech acquisition by GM not the play instead of kind of building a sustainable growth business in many minds of VCs, do you think?

A I think that's right. I think in many VCs minds, that's the play. Can we throw a bunch of money at something and then, uh, and then hope that someone will buy it for the technology or for the ability to build technology? You know, the problem with that thinking is that's really more of a lottery ticket and that that's hugely, it can be hugely capital intensive, right? And you really have to hit the market with perfect timing. Now, if you can build a business that is sustainable from a revenue standpoint, and then grows from a revenue standpoint in deep tech the same way that you would in any other business, you can still build that deep technology, but you have to fill it, figure it out in such a way that there are, there are discrete saleable parts along the way.

AI assessment note: “I think that's right. I think in many VCs minds, that's the play.”

Q You said about larger players there. How does one look to win as a deep tech company with such formidable competition that you do in the space, who are quite frankly so well-funded?

A Yeah. I mean, well, I'm not particularly worried about the other startups in our space. I think we're head and shoulders of them, but I, I really take seriously the, uh, the corporate innovation departments and the different larger, um, I wouldn't call them startups, but technology companies out there, they're very smart people and they work very hard and they have pretty good forethought on what, what to build. You hear this question all the time as entrepreneurs, well, how do you, how do you win if Google decides to go do this, right? Someone with more time, more people, more money, By people, I mean smarts, right? More smarts, time, and people, money, than you. The honest answer is you can't, if that's totally the case, right? You have what I call Silicon Valley arrogance going around where people are just like, look, because our people are better, or, you know, we're smarter, or our plan is better. In reality, you can only really win by picking a new direction, and then accelerating towards it faster than anyone else. So everyone else is running in another direction at a very high speed, and what you want to do is pick a new point on the horizon and Accelerate as fast as you can, so by the time they turn ship and get after you, you're already ahead of them in the market.

AI assessment note: “you can only really win by picking a new direction, and then accelerating towards it”

Q Can I ask, how do you analyze the attractiveness of a potential partnership? What makes one partner more attractive than the other for you?

A It's all about incentives. It's really all about what are the incentives of their business. Typically, when you're dealing with these large corporate entities, Whatever their main business is, it's more important to them than you are. That's just a fact. So if you go to a company, a large company in telecom or silicone or automotive, and their main product line is doing fifty billion dollars a year in revenue, and you come to them and you say, look, I have a great idea. You can make a hundred million dollars in four years. You know what? You can make more than that. You can make five hundred million dollars in four years. Yeah, they may find that attractive, or they make it, they may take a step back and look at that and say, well, you know, that's one percent growth. And what is the investment that we should really put in to go after that one percent growth over five years? These companies need to deliver higher than that anyway, so their incentives are not aligned, so that what you need out of a partner is some value that you can offer them on their main product line, is what I personally believe, because a lot of them have these innovation departments, and they want to explore lots of other things, but politically, they just cannot get real momentum behind other bits of business, because their main business is so good already.

AI assessment note: “It's all about incentives. It's really all about what are the incentives of their business.”

Q and he said that the deep tech investing craze in, in some ways going on in the Valley now that's kind of been reborn reminds him of the green tech and clean tech investing periods of 2001 to 2003, where investors are really diving into spaces they have really no idea about and, and kind of bad things will happen as a result. Do you think that's fair to say?

A I agree with that, and I disagree with that. I agree with that insofar as, you know, when I was pitching people and getting turned down, people told me, hey, I just don't invest in space because I don't understand it. And I always respected that answer. But at the same time, if you don't understand something, that doesn't necessarily mean it's not a good play, right? And I think what you'll see is there are massive opportunities in deep tech, massive opportunities, right? Autonomous driving, AI, I mean, what we're doing, there's lots of different opportunities that are going to pay off huge. And I think that people, the right people need to be able to go after those opportunities. You know, where it's overinflated is where one area gets very sexy, and then everyone moves into it. So I think a good example of this is LIDAR. There are so many LIDAR companies, and there's, more importantly, there's so many investors who don't really have the competency to understand which LIDAR innovations are meaningful, and really what it even takes to make a LIDAR company successful, right? What actually it means, and, you know, not all of it is technology innovation. A lot of it is actually manufacturing innovation, or manufacturing consistency and operational expertise.

AI assessment note: “I agree with that, and I disagree with that.”

Q With such deep tech and pitching to VCs, how do you educate a VC without being patronizing and almost condescending?

A Yeah, this is always the, uh, the tough one, right? There's, you know, there's a lot of advice around there. Look, you need to put everything down to the seventh grade level. I think that's true depending on your audience. I think you can simplify without, and caveat such that people understand the kind of basic principles of Without needing to understand all of the details. So I, I use a lot of analogy. I use a lot of simplification essentially, but I, you know, I like to get more technical than most people do in the pitches and I'm not, I don't even have a technical background myself, but I can stand up there and I can explain GPS and the subtleties of high precision.

AI assessment note: “I use a lot of analogy. I use a lot of simplification essentially”

Q said we've never seen incumbents as strong as those today. They're natural disruptors, whereas those before them were kind of market creators, and so didn't have that disruption element. I'm intrigued then, does that naturally lead to a partnership ecosystem where the upcoming startups with the deep tech IP partner with the Audi's, BMW's of the world, or is it a case of actual full-on disruption on another generational shift?

A I think you see a lot more partnership as a result. I think entirely replacing what's out there is, you know, it's not terribly feasible. If you look at what's happening, and this is not entirely the case, but if you look at what happened, let's say the automotive market, which is particularly difficult to disrupt because of just the amount of regulation standards and practices, right, you know, what I call the automotive bureaucracy. There are a lot of startups, but they're, most of their plan is to partner with automotive companies. Very few of them are competing directly alongside the large automotives. I mean, obviously Tesla, but you don't consider them a startup once their valuation passes. General Motors. But by and large, I think, yes, I think a partnership model is actually more appropriate, because you can't win at everything now. It used to be, the rules have changed, things are harder, so you want to figure out what is the thing that you can do better, and just that thing, and then partner with people for the other bits.

AI assessment note: “I think you see a lot more partnership as a result.”

Q said we've never seen incumbents as strong as those today. They're natural disruptors, whereas those before them were kind of market creators, and so didn't have that disruption element. I'm intrigued then, does that naturally lead to a partnership ecosystem where the upcoming startups with the deep tech IP partner with the Audi's, BMW's of the world, or is it a case of actual full-on disruption on another generational shift?

A I think you see a lot more partnership as a result. I think entirely replacing what's out there is, you know, it's not terribly feasible. If you look at what's happening, and this is not entirely the case, but if you look at what happened, let's say the automotive market, which is particularly difficult to disrupt because of just the amount of regulation standards and practices, right, you know, what I call the automotive bureaucracy. There are a lot of startups, but they're, most of their plan is to partner with automotive companies. Very few of them are competing directly alongside the large automotives. I mean, obviously Tesla, but you don't consider them a startup once their valuation passes. General Motors. But by and large, I think, yes, I think a partnership model is actually more appropriate, because you can't win at everything now. It used to be, the rules have changed, things are harder, so you want to figure out what is the thing that you can do better, and just that thing, and then partner with people for the other bits.

AI assessment note: “I think you see a lot more partnership as a result.”

Q So, so when raising for, for more capital intensive businesses and obviously requiring more capital, how do you think about that with regards to dilution and valuation? Does that not just inherently create frothy markets in terms of valuation from the outset? Because if you need to raise five million instantly, your pre money could be 20 on first round.

A Oh, entirely. Yeah. When we went out and raised a couple of years ago, our seed round, it was, you know, a little under three million, which at the time was large for a seed round. Now, the Cedar, I've seen seed rounds five, ten million dollars. It's absolutely frothy, and I think it's because the companies are being somewhat realistic in what it's going to take them to perform. Now, if I was an investor with equal competency in business model innovation companies and technology model innovation companies, I would put those two side by side and say, you know, is it really a good use of capital, the cost of capital being so high on the deep tech company? Now, that said, the deep tech companies, the reason why you see lots of investment in them is because the business model innovation companies themselves are not Not particularly, uh, only a few of them work as well. They're not particularly defensible, a lot of them. They're playing, they're, they're small opportunities, and they're easy to compete when the barriers are low on technology. So the barriers end up being quite high in deep tech, and that's one of the advantages.

AI assessment note: “It's absolutely frothy, and I think it's because the companies are being somewhat realistic”

Q So, so when raising for, for more capital intensive businesses and obviously requiring more capital, how do you think about that with regards to dilution and valuation? Does that not just inherently create frothy markets in terms of valuation from the outset? Because if you need to raise five million instantly, your pre money could be 20 on first round.

A Oh, entirely. Yeah. When we went out and raised a couple of years ago, our seed round, it was, you know, a little under three million, which at the time was large for a seed round. Now, the Cedar, I've seen seed rounds five, ten million dollars. It's absolutely frothy, and I think it's because the companies are being somewhat realistic in what it's going to take them to perform. Now, if I was an investor with equal competency in business model innovation companies and technology model innovation companies, I would put those two side by side and say, you know, is it really a good use of capital, the cost of capital being so high on the deep tech company? Now, that said, the deep tech companies, the reason why you see lots of investment in them is because the business model innovation companies themselves are not Not particularly, uh, only a few of them work as well. They're not particularly defensible, a lot of them. They're playing, they're, they're small opportunities, and they're easy to compete when the barriers are low on technology. So the barriers end up being quite high in deep tech, and that's one of the advantages.

AI assessment note: “Oh, entirely. Yeah. When we went out and raised a couple of years ago”

Q So, so we're going to set up Swift Ventures today and you are the GP. I'm coming in and I'm telling you that unit economics are going to change But, uh, the bottom cost is going to go down, and then we're going to be profitable. What questions do you ask me to really determine whether that is a true and sustainable fact?

A This is where you need knowledge, right, for the, for deep technology. You need to understand what aspects of the bomb they're looking to come down, right? I think a lot of it tends to be external and dependent on startups. I see this a lot. Oh, there's a lot of companies innovating around X, Y, or Z, and those just take a really, really long time. If you can peg it to something a little more steady, Moore's Law, or, you know, this is how Moore's Law is Perpetuated in solar panels or, you know, what have you, then it's a lot easier for me to believe. Or, you know, quite frankly, there is value to being first, and this is the market growth value. And if I believe that the company has enough market growth value, then maybe it's a worthwhile investment as an investor, even if you know that it's not going to be sustainable down the road.

AI assessment note: “You need to understand what aspects of the bomb they're looking to come down”

Q So, so we're going to set up Swift Ventures today and you are the GP. I'm coming in and I'm telling you that unit economics are going to change But, uh, the bottom cost is going to go down, and then we're going to be profitable. What questions do you ask me to really determine whether that is a true and sustainable fact?

A This is where you need knowledge, right, for the, for deep technology. You need to understand what aspects of the bomb they're looking to come down, right? I think a lot of it tends to be external and dependent on startups. I see this a lot. Oh, there's a lot of companies innovating around X, Y, or Z, and those just take a really, really long time. If you can peg it to something a little more steady, Moore's Law, or, you know, this is how Moore's Law is Perpetuated in solar panels or, you know, what have you, then it's a lot easier for me to believe. Or, you know, quite frankly, there is value to being first, and this is the market growth value. And if I believe that the company has enough market growth value, then maybe it's a worthwhile investment as an investor, even if you know that it's not going to be sustainable down the road.

AI assessment note: “You need to understand what aspects of the bomb they're looking to come down”

Q With such deep tech and pitching to VCs, how do you educate a VC without being patronizing and almost condescending?

A Yeah, this is always the, uh, the tough one, right? There's, you know, there's a lot of advice around there. Look, you need to put everything down to the seventh grade level. I think that's true depending on your audience. I think you can simplify without, and caveat such that people understand the kind of basic principles of Without needing to understand all of the details. So I, I use a lot of analogy. I use a lot of simplification essentially, but I, you know, I like to get more technical than most people do in the pitches and I'm not, I don't even have a technical background myself, but I can stand up there and I can explain GPS and the subtleties of high precision.

AI assessment note: “So I, I use a lot of analogy. I use a lot of simplification essentially”

Q Can I ask then, how would you change that with the recognition of kind of that VC thesis behind it? How would you like to, to change the structure and really kind of foster innovation in deep tech again?

A Yeah, you know, I'm not really sure I think it's going to have its place in the Valley deep tech, but I'm not one of these flag holders for deep tech. I think that there's certain areas where it makes a lot of sense and there's certain areas where really it doesn't actually match the funding life cycles that VCs are looking to do and, and the type of returns that they're looking to make. You know, what I would say is that what's important for this environment is people who really understand it. And I think there's increasingly less of those folks around as, as, you know, more people come from finance and more people come from business model innovation, as opposed to the old big technology innovators.

AI assessment note: “I'm not really sure I think it's going to have its place”

Q Can I ask then, how would you change that with the recognition of kind of that VC thesis behind it? How would you like to, to change the structure and really kind of foster innovation in deep tech again?

A Yeah, you know, I'm not really sure I think it's going to have its place in the Valley deep tech, but I'm not one of these flag holders for deep tech. I think that there's certain areas where it makes a lot of sense and there's certain areas where really it doesn't actually match the funding life cycles that VCs are looking to do and, and the type of returns that they're looking to make. You know, what I would say is that what's important for this environment is people who really understand it. And I think there's increasingly less of those folks around as, as, you know, more people come from finance and more people come from business model innovation, as opposed to the old big technology innovators.

AI assessment note: “I'm not one of these flag holders for deep tech.”