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PROFESSOR: So tonight,
the first part of tonight

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is the financing sources panel.

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And we have two of our
three members here.

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So I'll invite
them to take seats.

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Julianne, we're putting
you in the middle

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because you have to keep the
guys on the end, and Axel.

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And what I'm going to
do is, to give them

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some context about where we are
in the course, just do a recap,

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00:00:47,310 --> 00:00:47,950
so they know.

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And then I'll have them
introduce themselves

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00:00:51,080 --> 00:00:52,470
and we'll go from there.

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00:00:52,470 --> 00:00:56,160
It'll be a Q&A after a brief
description of what they do.

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00:00:56,160 --> 00:00:58,400
So where's the class so far?

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We started off two nights
ago with an introduction

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to business plans and planning.

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00:01:05,170 --> 00:01:09,000
We talked about the importance--
the basic tasks were

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to figure out how
to create value

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and how to capture value,
both for the entrepreneur

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and for investors.

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There are the three whys.

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Why this?

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Why is this an important
thing that you're

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doing that you're going
to spend your time on

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or you want people to
invest resources in.

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Why now?

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Why now is the
right time to do it.

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We've all been on the burning
leading edge of the wrong time.

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And then why this team?

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The investors are going to say,
well, is this the right team?

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And you need to be asking, do I
have the right team of people?

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And then if you get
those first three right,

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you should be asking
yourself the fourth why,

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which is why won't this work?

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What am I missing here?

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That was the first
part of Tuesday night.

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And then Steve Purse
came in and talked

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about how to give
a pitch-- taking

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all of that planning you're
going to do and put it

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in a way to communicate.

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He focused pretty much
on pitching to investors,

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but he did point out
the same concepts

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apply to pitching to
partnerships and other things.

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Last night we had Bob
Jones come in and talked

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about finding your customer.

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It's not sales.

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It's not marketing.

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It's finding your customer.

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What do they want?

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What will they pay for it?

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How do you find them?

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And he gave some really
personal examples of situations

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where he succeeded and
where he did not succeed.

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And it was very interesting.

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I got him to speak after
the break about something

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he's actually working on.

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So that's an important part
of what this class has been.

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It's not about abstract
thinking about things.

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The people that are
talking are actually

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doing the things
they talk about.

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And he's right in
the middle of that.

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And then we had
Rich Kibble come in

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and talk about business models.

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So I've got a customer.

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I think I have a
value, but what's

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the model that I'm going
to use to generate revenue.

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The second part of
tonight, Charlie Tillett,

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who will come in
after the break,

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is going to do
financial projections.

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How do I take all
of that, figure

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out what it means economically?

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And we talked about it
being not a static process

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but a dynamic process-- test,
redo, until you get it right.

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So once you've done
all that planning,

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you're going to
need some resources.

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And one of the
resources is funding.

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So that's what
the panel is about

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The people on the
panel represent

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sort of organized
forms of financing.

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But entrepreneurs get
financed in a variety of ways.

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So a lot of people talk
about just venture capital.

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But plenty of great
companies have

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been launched through angel,
friends and family type money.

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A traditional way
is using customers.

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You work for a customer.

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You see what they don't want.

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You then try to move
from a services business

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into a product
business, productize it.

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There are grants.

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National Science Foundation,
small business innovation

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research funding, SBIR.

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This money is
available from each

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of 11 or so federal agencies and
can be up to a million dollars.

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I'm working with
a company I think

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is at a million dollars
of SBIR funding.

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And we have more recent types of
funding, which crowd sourcing,

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where the following at
Kickstarter and others

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have been to fund products.

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And we're just beginning
under the JOBS Act that

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was passed a year or
so ago to have rules

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out that are going to get
finalized around crowd

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sourcing of investment.

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So in Kickstarter,
traditionally it's

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I want to find this product.

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In the crowd funding
of investment,

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it'll be I want to put money
into a company or a business.

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And they're probably
some other ways

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people have funded,
like credit cards.

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Business plan competitions
have launched companies.

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I was involved in
the company who

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got launched because they got
sued for trademark infringement

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and settled and sold the
name to another company

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and got $25,000 for that.

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So that's how they got launched.

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So lots of different
ways entrepreneurs

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got to be creative.

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But for the panel, we'll
start with the basic organize

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and maybe we'll
open it up to Q&A.

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So I've asked each
of the panel members

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to introduce
themselves-- a little bit

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about their background, what
you should know about them.

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They're entrepreneurs in the
sense that they raise money

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from people in
order to turn around

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and invest it in your project.

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So just as you're an
entrepreneur to them,

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they're an entrepreneur
to their investors.

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And asked them to talk two,
three, four minutes-- whatever

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you feel comfortable--
to set the stage.

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So Axel, we'll start with you.

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AXEL BICHARA: Sure.

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Happy to start.

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Good evening, everybody.

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I'll go through my background
a little bit first.

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I am from Germany originally.

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Came to MIT in the late '80s,
studied mechanical engineering,

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and sat in one of these
classes and ended up

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co-founding a software company,
mechanical design automation

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software company, out of--
at the time it was 15-375.

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And we raised venture money
relatively quickly $1.5 million

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to start with and then
some follow on rounds.

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I was VP engineering
in that company.

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We sold it after about
four or five years.

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I then became a
venture capitalist,

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was at Atlas Venture
for 19 years in total.

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Raised and invested about
$2 billion to $2.5 billion

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while I was there and
did mostly early stage,

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self slash early stage
technology startups.

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I left there about two years
ago to do deals on my own.

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And so I have helped start
a couple of companies

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and have made a number of
personal investments as well.

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And one of the
companies I helped start

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is actually an accelerator
for hardware startups.

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Called Bolt in downtown Boston.

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So that's another financing
model I got exposed to

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and really got involved with
where you don't provide just

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capital and some high level
expertise and strategy,

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but real hands-on
work on product,

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much more hands-on company
building, team building,

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than you do in a
venture capital.

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And we're doing that with very
early stage companies there.

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So I can I think in
the evening here talk

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about it angel financing.

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I'm an angel.

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I'm involved in
this accelerator.

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I've been in the VC
business for a long time.

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And I'm also involved
in a company called

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Dragon Innovation,
which is a crowdfunding

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company for hardware startups.

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So I think that's actually one
of the very interesting ways

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of getting companies off
the ground that may not

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show necessary the highest
potential from the beginning,

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but to launch an
initial product and then

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kind of see what happens.

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So in all this experience
I've accumulated,

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probably maybe the
most important lesson--

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the most important
lesson is probably always

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work with good people.

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Whoever your investors are,
you can't fire your investors.

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You need to select carefully
who you end up working with.

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But also a match between
the financing source

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and where you are as
a company in terms

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of the potential of the market,
the potential of the team

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and everything.

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And often people think,
you're only a great company

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if you raise VC eventually.

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That's just so not true.

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That's probably 1 in a
100 interesting startups

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is really suitable for
VC at the beginning.

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And it depends a
little on the stage,

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a little bit on the potential,
and also the potential

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may only discover over time.

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So I think that's the
great and also-- great

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other ways of getting
company off the ground.

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And one of the things every
good entrepreneur is focused on

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is dilutions.

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So you want to be
kept really-- you

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want to be capital
efficient, but also dilution

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efficient from the beginning.

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And I think that often
means-- mean crowdfunding is

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a great way to get pretty
much non-dilutive capital

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for a product.

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But whether it's friends
and family money,

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incubators, accelerators,
angels-- and then of course VCs

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have been going to
very early stage

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funding as well, where you
have a number of VCs writing

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00:09:40,350 --> 00:09:45,090
$100,000 to let's say a
$500,000 checks with very, very

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low barrier to getting a deal
done, which can be attractive.

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But it's attractive
in terms of you

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get capital relatively
easily and quickly.

216
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But the question then
is, is that actually

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00:09:57,150 --> 00:10:00,660
the right VC to help you build
the company in the long term.

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00:10:00,660 --> 00:10:05,150
Is VC the right sort
of financing to build

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00:10:05,150 --> 00:10:06,880
that company long term?

220
00:10:06,880 --> 00:10:10,190
So I guess we can
zoom in to all of that

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00:10:10,190 --> 00:10:12,020
as the evening progresses.

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00:10:12,020 --> 00:10:14,082
And I guess I'll stop here
with the introduction.

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00:10:14,082 --> 00:10:14,790
PROFESSOR: Right.

224
00:10:14,790 --> 00:10:17,710
Well, before I ask
Julianne to speak,

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00:10:17,710 --> 00:10:20,735
Axel has been here before
to talk about this.

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00:10:20,735 --> 00:10:23,540
And as I was putting together
the panel thinking, who's

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the right mix of
people, it struck me

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00:10:25,870 --> 00:10:29,980
that your recent venture Bolt
fit well with nuts and bolts.

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[LAUGHTER]

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00:10:30,520 --> 00:10:33,320
But I did ask you
to figure out who

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00:10:33,320 --> 00:10:35,000
I could get for the nut part.

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00:10:35,000 --> 00:10:37,586
So we haven't figured
that one out yet.

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00:10:37,586 --> 00:10:40,150
Welcome.

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00:10:40,150 --> 00:10:42,200
Julianne, you're not
the nut by any means.

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00:10:42,200 --> 00:10:44,420
JULIANNE ZIMMERMAN: Well,
I guess we'll leave that up

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00:10:44,420 --> 00:10:46,960
to the audience to decide.

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00:10:46,960 --> 00:10:53,007
So before launching into
my background and my focus

238
00:10:53,007 --> 00:10:55,090
and my reason for being
here on the panel tonight,

239
00:10:55,090 --> 00:10:59,400
let me just say that the
thing that I hope all of you

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00:10:59,400 --> 00:11:03,525
recognize by the end of tonight,
if you don't already know it,

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00:11:03,525 --> 00:11:09,240
is that every form of
capital has a use and a cost.

242
00:11:09,240 --> 00:11:13,050
And different forms of
capital are appropriate

243
00:11:13,050 --> 00:11:15,350
not only at different
stages, as Axel said,

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00:11:15,350 --> 00:11:17,570
but for different
kinds of businesses.

245
00:11:17,570 --> 00:11:19,740
So you've already
been challenged

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00:11:19,740 --> 00:11:21,090
in your first session in

247
00:11:21,090 --> 00:11:24,220
And to a lesser extent
again, in second session,

248
00:11:24,220 --> 00:11:27,380
to think about why
you're doing this

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and what you ultimately
aim to accomplish.

250
00:11:30,940 --> 00:11:33,590
The answer to that question
is really important

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00:11:33,590 --> 00:11:35,180
for a variety of
reasons, not least

252
00:11:35,180 --> 00:11:37,870
of which is to guide
you in making decisions

253
00:11:37,870 --> 00:11:41,070
about the appropriate
resources to call upon

254
00:11:41,070 --> 00:11:43,160
to achieve that goal.

255
00:11:43,160 --> 00:11:45,070
And one of those being capital.

256
00:11:45,070 --> 00:11:48,930
And there are very, very
different kinds of capital

257
00:11:48,930 --> 00:11:51,270
that have different
uses, different benefits,

258
00:11:51,270 --> 00:11:53,090
and different costs.

259
00:11:53,090 --> 00:11:55,680
And by the way, I can't
remember the number, Joe.

260
00:11:55,680 --> 00:11:56,460
You might know it.

261
00:11:56,460 --> 00:11:58,485
But it's a minority
fraction of companies

262
00:11:58,485 --> 00:12:02,050
that they go to IPO that
were ever venture funded.

263
00:12:02,050 --> 00:12:04,770
It's something less
than a quarter.

264
00:12:04,770 --> 00:12:07,650
It's like 16% or 17% percent.

265
00:12:07,650 --> 00:12:09,950
Do you remember, Axel.

266
00:12:09,950 --> 00:12:13,340
AXEL BICHARA: I bet it's
less than that, actually.

267
00:12:13,340 --> 00:12:18,510
And so many of the
great wealth creation

268
00:12:18,510 --> 00:12:21,870
stories I found who never
have raised money, or just

269
00:12:21,870 --> 00:12:24,370
raised tiny amounts of money
and kept it all for themselves.

270
00:12:24,370 --> 00:12:26,547
If you can pull it
off, it's a great way--

271
00:12:26,547 --> 00:12:28,880
JULIANNE ZIMMERMAN: So there
are lots of preconceptions,

272
00:12:28,880 --> 00:12:31,820
as Axel mentioned about, it's
only a really good company

273
00:12:31,820 --> 00:12:34,440
if it's venture backed
or you only really

274
00:12:34,440 --> 00:12:38,790
have steep growth potential, if
you can attract venture money.

275
00:12:38,790 --> 00:12:40,950
I really hope that by
the end of this evening,

276
00:12:40,950 --> 00:12:44,230
we've really completely
dispelled those preconceptions

277
00:12:44,230 --> 00:12:46,160
from your mind.

278
00:12:46,160 --> 00:12:49,530
So about me, I'm also an alumna.

279
00:12:49,530 --> 00:12:51,690
I came here in the mid '80s.

280
00:12:51,690 --> 00:12:56,180
I double majored in aerospace
engineering and literature,

281
00:12:56,180 --> 00:12:58,440
neither of which
would lead anybody

282
00:12:58,440 --> 00:13:02,880
to imagine that I'd be on
this panel here tonight.

283
00:13:02,880 --> 00:13:06,215
And my first career was in the
manned space flight business.

284
00:13:06,215 --> 00:13:08,640
It was a great first career.

285
00:13:08,640 --> 00:13:10,770
When I came to the end
of that first career,

286
00:13:10,770 --> 00:13:14,000
I was looking for
something that was equally

287
00:13:14,000 --> 00:13:17,050
challenging and very different.

288
00:13:17,050 --> 00:13:19,620
And I ended up co-founding
a company called

289
00:13:19,620 --> 00:13:21,700
Greenfuel Technologies
before there

290
00:13:21,700 --> 00:13:24,149
was such a thing as clean tech.

291
00:13:24,149 --> 00:13:25,940
As a matter of fact,
at that point in time,

292
00:13:25,940 --> 00:13:29,110
the greens and browns feared and
loathed each other, absolutely

293
00:13:29,110 --> 00:13:32,040
wanted nothing to
do with one another.

294
00:13:32,040 --> 00:13:33,730
And here we were
founding a company

295
00:13:33,730 --> 00:13:36,220
that was algae biofuels.

296
00:13:36,220 --> 00:13:42,130
And I'm very proud of the fact
that in the time that company

297
00:13:42,130 --> 00:13:45,360
was alive, we actually
managed to change

298
00:13:45,360 --> 00:13:48,970
the tenor of those exchanges.

299
00:13:48,970 --> 00:13:51,740
In fact, we ended up
being frequently featured

300
00:13:51,740 --> 00:13:56,230
in industry magazines like
Industrial Light and Power,

301
00:13:56,230 --> 00:13:58,930
which is about as far as
you can get from Mother

302
00:13:58,930 --> 00:14:02,600
Jones in the known universe.

303
00:14:02,600 --> 00:14:07,380
So I've been on the entrepreneur
side of the table, too.

304
00:14:07,380 --> 00:14:09,900
One of the things that
is important to notice

305
00:14:09,900 --> 00:14:17,230
about that is we raised about
$23 million in-- good evening.

306
00:14:17,230 --> 00:14:24,570
We raised about $23 million, had
a very interesting proposition,

307
00:14:24,570 --> 00:14:28,930
made some mistakes, encountered
significant obstacles,

308
00:14:28,930 --> 00:14:30,460
had a good team.

309
00:14:30,460 --> 00:14:35,820
And when the market cratered
and project finance went away,

310
00:14:35,820 --> 00:14:38,320
we defaulted on all
their contracts.

311
00:14:38,320 --> 00:14:40,520
And that was the
end of the company.

312
00:14:40,520 --> 00:14:45,870
So there are many
things that can trip you

313
00:14:45,870 --> 00:14:51,720
up that have nothing to do with
the things that you thought of

314
00:14:51,720 --> 00:14:54,280
or the things that
you planned on.

315
00:14:54,280 --> 00:14:57,290
Interestingly enough in
the entrepreneurial realm,

316
00:14:57,290 --> 00:14:59,890
having a company crater
is not necessarily

317
00:14:59,890 --> 00:15:03,660
the death knell of your
career as an entrepreneur.

318
00:15:03,660 --> 00:15:07,390
I went on to be involved in
a handful of other companies.

319
00:15:07,390 --> 00:15:09,460
By then, there was such
thing as clean tech.

320
00:15:09,460 --> 00:15:12,200
And having been
involved before there

321
00:15:12,200 --> 00:15:19,280
was even a commonly understood
wave or trend or segment,

322
00:15:19,280 --> 00:15:30,403
I was-- a venture mentoring
service, clean tech open,

323
00:15:30,403 --> 00:15:39,180
the 100K-- mentoring and judging
a bunch of really interesting

324
00:15:39,180 --> 00:15:43,250
startups, some of which never
actually went on to launch.

325
00:15:43,250 --> 00:15:45,330
Many, in fact, didn't.

326
00:15:45,330 --> 00:15:49,610
But the teams would join
and break part and reform.

327
00:15:49,610 --> 00:15:51,560
And that's probably
something that you also

328
00:15:51,560 --> 00:15:55,530
talk about in terms of the way
that you form teams together.

329
00:15:55,530 --> 00:15:59,390
As Axel mentioned, really
above all, the most important

330
00:15:59,390 --> 00:16:03,305
decision you make
every day is who

331
00:16:03,305 --> 00:16:05,945
to work with-- who to work
with on your team, who

332
00:16:05,945 --> 00:16:11,630
to work with as investors,
who to work with as partners,

333
00:16:11,630 --> 00:16:14,030
who to work with as vendors.

334
00:16:14,030 --> 00:16:17,736
Ultimately that is far and away
the most important decision

335
00:16:17,736 --> 00:16:19,360
you make.

336
00:16:19,360 --> 00:16:22,410
So having done all this
mentoring and judging

337
00:16:22,410 --> 00:16:26,380
and blah blah blah, of
course I found myself

338
00:16:26,380 --> 00:16:29,550
drifting perilously
close to pretending I

339
00:16:29,550 --> 00:16:31,210
knew something useful.

340
00:16:31,210 --> 00:16:35,670
And a friend and
colleague and I had

341
00:16:35,670 --> 00:16:38,530
been discussing
for about two years

342
00:16:38,530 --> 00:16:41,545
some trends we saw going
on-- not exclusively

343
00:16:41,545 --> 00:16:44,234
here in the Boston area,
but especially here

344
00:16:44,234 --> 00:16:45,970
in the entrepreneurial
community.

345
00:16:45,970 --> 00:16:48,870
And it's slowly
dawned on us that we

346
00:16:48,870 --> 00:16:52,120
had what sounded an awful lot
like an investment thesis.

347
00:16:52,120 --> 00:16:55,250
So in a very
entrepreneurial way,

348
00:16:55,250 --> 00:17:02,840
we wrote that down, started
showing it to people.

349
00:17:02,840 --> 00:17:05,947
Keeping things secret is
not a great way to start.

350
00:17:05,947 --> 00:17:07,280
We started showing it to people.

351
00:17:07,280 --> 00:17:08,849
We showed it to
everybody we thought

352
00:17:08,849 --> 00:17:11,220
would be able to
give us a candid

353
00:17:11,220 --> 00:17:14,940
response to the question,
is this completely wrong?

354
00:17:14,940 --> 00:17:17,300
What have we gotten wrong
and what have we missed?

355
00:17:17,300 --> 00:17:18,780
What have we imagined?

356
00:17:18,780 --> 00:17:21,170
What have we left out?

357
00:17:21,170 --> 00:17:23,680
Why will this not work?

358
00:17:23,680 --> 00:17:27,869
And we did that for
about five months.

359
00:17:27,869 --> 00:17:30,920
And we got some great
feedback and we ended up

360
00:17:30,920 --> 00:17:34,190
founding and new seed
stage venture firm

361
00:17:34,190 --> 00:17:37,250
here in Boston area
called Vodia Ventures.

362
00:17:37,250 --> 00:17:42,290
That firm is now a year
old and we are still

363
00:17:42,290 --> 00:17:45,980
raising our first
fund, so we are also,

364
00:17:45,980 --> 00:17:51,540
as Joe alluded, we also raise
capital for our investors.

365
00:17:51,540 --> 00:17:54,140
And we've done
four deals so far.

366
00:17:54,140 --> 00:17:56,630
So we've made four
investments in companies

367
00:17:56,630 --> 00:17:58,220
here in the Boston area.

368
00:17:58,220 --> 00:18:01,030
And we don't focus on
clean tech, per se.

369
00:18:01,030 --> 00:18:03,680
We invest in segments
that people often

370
00:18:03,680 --> 00:18:06,570
associate with
clean tech-- energy,

371
00:18:06,570 --> 00:18:09,290
air, water, food
security, public health,

372
00:18:09,290 --> 00:18:12,654
are the two that kind of
don't fit the clean tech set.

373
00:18:12,654 --> 00:18:14,320
And I'd be happy to
talk with any of you

374
00:18:14,320 --> 00:18:16,770
afterwards about why
those sectors are--

375
00:18:16,770 --> 00:18:19,220
why are we doing that.

376
00:18:19,220 --> 00:18:21,150
But the thing that
I'd really like

377
00:18:21,150 --> 00:18:25,120
to finish up this sort of
background monologue on

378
00:18:25,120 --> 00:18:28,860
is, when you are
thinking that you

379
00:18:28,860 --> 00:18:36,570
might want to go to an outside
investor to fund your company,

380
00:18:36,570 --> 00:18:39,660
as Joe alluded and as
Axel did as well, it's

381
00:18:39,660 --> 00:18:43,725
really important not only
to know what kind of money

382
00:18:43,725 --> 00:18:47,630
you want and how much and
how much dilution you're

383
00:18:47,630 --> 00:18:50,640
willing to accept and what
an appropriate model is

384
00:18:50,640 --> 00:18:55,560
for your stage and all the
rest, but are your interests

385
00:18:55,560 --> 00:18:58,790
and investor's interests
actually aligned?

386
00:18:58,790 --> 00:19:01,220
Do you share the same interests?

387
00:19:01,220 --> 00:19:06,010
You're going to be working with
this person, an actual person,

388
00:19:06,010 --> 00:19:11,610
very intimately for an
extended period of time.

389
00:19:11,610 --> 00:19:16,260
And so you really do want
to be very, very careful.

390
00:19:16,260 --> 00:19:19,520
You don't want to
send your elevator

391
00:19:19,520 --> 00:19:22,420
pitch or your
presentation to everybody

392
00:19:22,420 --> 00:19:24,440
you think might
possibly be interested.

393
00:19:24,440 --> 00:19:26,390
You really want to
be very selective, as

394
00:19:26,390 --> 00:19:28,700
selective as you are
about your team members,

395
00:19:28,700 --> 00:19:32,760
in picking the people
you think you probably

396
00:19:32,760 --> 00:19:35,690
are going to share a good
working relationship with.

397
00:19:39,426 --> 00:19:40,660
PROFESSOR: Amir, thank you.

398
00:19:40,660 --> 00:19:42,040
I know it's hard getting in.

399
00:19:42,040 --> 00:19:44,550
But I just wanted
to fill you in.

400
00:19:44,550 --> 00:19:45,930
Same format as before.

401
00:19:45,930 --> 00:19:50,997
We're introducing the class
to financing sources--

402
00:19:50,997 --> 00:19:53,080
where do you get your
money, what do you look for,

403
00:19:53,080 --> 00:19:55,621
and then we're going to have a
discussion about the financing

404
00:19:55,621 --> 00:19:57,800
environment and all of
those sort of things.

405
00:19:57,800 --> 00:19:58,980
So Amir, go ahead.

406
00:19:58,980 --> 00:20:02,580
AMIR NASHAT: I'm extremely
sorry for being late.

407
00:20:02,580 --> 00:20:04,620
Getting lost on
campus, I suppose.

408
00:20:04,620 --> 00:20:07,770
So my background
is that I actually

409
00:20:07,770 --> 00:20:09,590
was lucky enough
to do my PhD here

410
00:20:09,590 --> 00:20:14,290
on campus in a lab in chemical
engineering, Bob Winger's lab.

411
00:20:14,290 --> 00:20:18,560
I currently am a managing
partner at Polaris.

412
00:20:18,560 --> 00:20:22,870
We've had probably about 25
years of investing in Boston.

413
00:20:22,870 --> 00:20:25,930
As Polaris, we're going
on about 18 years now.

414
00:20:25,930 --> 00:20:28,960
My partners had worked
in another firm.

415
00:20:28,960 --> 00:20:30,530
We invest in all kinds of stuff.

416
00:20:30,530 --> 00:20:32,795
We're a pretty traditional
venture capital firm,

417
00:20:32,795 --> 00:20:34,990
I would say.

418
00:20:34,990 --> 00:20:36,740
And we kind of stick
to the old model

419
00:20:36,740 --> 00:20:40,481
from the '80s and the
'90s of how to invest.

420
00:20:40,481 --> 00:20:42,480
Again, my background, I
was a chemical engineer.

421
00:20:42,480 --> 00:20:44,396
I actually wanted to go
work at a startup that

422
00:20:44,396 --> 00:20:47,570
was being spun out
of Bob's lab, and I

423
00:20:47,570 --> 00:20:52,387
had a very simple logical train
of thought which was my adviser

424
00:20:52,387 --> 00:20:53,970
and another guy on
my thesis committee

425
00:20:53,970 --> 00:20:56,290
were both starting a company.

426
00:20:56,290 --> 00:20:59,511
And I figured that if I took
a job at their new startup

427
00:20:59,511 --> 00:21:01,760
since they were desperate
to find employee number one,

428
00:21:01,760 --> 00:21:04,610
the chances they would let
me stand well for my thesis

429
00:21:04,610 --> 00:21:06,900
and not ask tough
questions was very high.

430
00:21:06,900 --> 00:21:09,170
So I said sure, I'll go
work at your startup.

431
00:21:09,170 --> 00:21:11,320
And then what ended up
happening was just randomly

432
00:21:11,320 --> 00:21:14,770
I ended up interviewing
with-- so it was being seed

433
00:21:14,770 --> 00:21:16,790
funded by a series of
venture capitalists

434
00:21:16,790 --> 00:21:19,300
at a company called Polaris
I've never heard of before.

435
00:21:19,300 --> 00:21:22,040
I had actually briefly worked
at Goldman Sachs-- can people

436
00:21:22,040 --> 00:21:25,400
hear me OK or-- I briefly
worked at Goldman Sachs

437
00:21:25,400 --> 00:21:28,630
in fixed income
trading stuff briefly.

438
00:21:28,630 --> 00:21:30,530
And I had never heard
of venture capital.

439
00:21:30,530 --> 00:21:32,810
And venture capital
is the freckle

440
00:21:32,810 --> 00:21:34,880
of the freckle in the
financial markets.

441
00:21:34,880 --> 00:21:38,014
It's such a small
industry financially.

442
00:21:38,014 --> 00:21:39,180
So I no idea what to expect.

443
00:21:39,180 --> 00:21:41,130
I had no idea who
these guys were.

444
00:21:41,130 --> 00:21:44,610
But kind of interview after
interview, I was smart enough

445
00:21:44,610 --> 00:21:46,860
to realize they were probably
actually interviewing me

446
00:21:46,860 --> 00:21:48,276
for Polaris, because
I don't think

447
00:21:48,276 --> 00:21:51,430
I need to meet the guy that
founded 3Com and created

448
00:21:51,430 --> 00:21:53,250
ethernet to get a lab job.

449
00:21:53,250 --> 00:21:56,470
And so little by little
I started to ask around

450
00:21:56,470 --> 00:21:59,690
and they seemed like people that
would be really good teachers.

451
00:21:59,690 --> 00:22:02,740
And that's kind of what
I've done most of my life,

452
00:22:02,740 --> 00:22:04,700
including as a
venture capitalist.

453
00:22:04,700 --> 00:22:07,020
I just kind of associate
myself with people

454
00:22:07,020 --> 00:22:11,210
that have something to teach me
and some really good mentors--

455
00:22:11,210 --> 00:22:12,930
whether that's
people I work with

456
00:22:12,930 --> 00:22:16,910
or whether that's the
entrepreneurs in our companies

457
00:22:16,910 --> 00:22:19,790
and people we surround
ourselves on boards with.

458
00:22:19,790 --> 00:22:21,930
And so that's kind of what I do.

459
00:22:21,930 --> 00:22:24,275
Within that context, we've
started several companies

460
00:22:24,275 --> 00:22:28,090
that I've been CEO of that
we've spun out of MIT.

461
00:22:28,090 --> 00:22:32,216
Sun Catalytics is one
in the energy space.

462
00:22:32,216 --> 00:22:33,590
A consumer product
company called

463
00:22:33,590 --> 00:22:36,685
Living Proof is another one
that's more kind of materials

464
00:22:36,685 --> 00:22:38,710
and consumer products.

465
00:22:38,710 --> 00:22:41,770
Provasis Therapeutics was
a cell therapy company

466
00:22:41,770 --> 00:22:44,550
that we spun out of
the lab here at MIT.

467
00:22:44,550 --> 00:22:46,729
So there's been a
series of companies.

468
00:22:46,729 --> 00:22:48,020
Again, I'm not an entrepreneur.

469
00:22:48,020 --> 00:22:50,240
I'm not very entrepreneurial.

470
00:22:50,240 --> 00:22:51,880
I did those projects
just because it

471
00:22:51,880 --> 00:22:54,707
seemed like it was really
logical technology that

472
00:22:54,707 --> 00:22:56,873
was going to help change
the world and nobody wanted

473
00:22:56,873 --> 00:22:58,406
to be CEO but me.

474
00:22:58,406 --> 00:23:03,150
But as venture capitalists, we
follow other people's leads.

475
00:23:03,150 --> 00:23:07,080
We're actually quite
conservative in some sense.

476
00:23:07,080 --> 00:23:09,590
And that's kind of
maybe what we try to do.

477
00:23:09,590 --> 00:23:11,010
With that said,
obviously we take

478
00:23:11,010 --> 00:23:14,210
much, much greater risk than any
other investors tend to take.

479
00:23:14,210 --> 00:23:16,940
But we view ourselves as
kind of chicken shits,

480
00:23:16,940 --> 00:23:19,090
for lack of a better term.

481
00:23:19,090 --> 00:23:20,950
And say anyway,
that's kind of us.

482
00:23:20,950 --> 00:23:23,875
That's me, and I don't
know what else I can say.

483
00:23:29,320 --> 00:23:31,620
PROFESSOR: So I think this
would be a good point just

484
00:23:31,620 --> 00:23:34,120
to maybe start some Q&A if
people have some questions.

485
00:23:34,120 --> 00:23:35,910
Otherwise I have some
things I can T up.

486
00:23:35,910 --> 00:23:40,050
But is there any pressing issues
that anybody in the audience

487
00:23:40,050 --> 00:23:41,180
has?

488
00:23:41,180 --> 00:23:41,990
There we go.

489
00:23:41,990 --> 00:23:42,970
AUDIENCE: [INAUDIBLE].

490
00:23:59,140 --> 00:24:05,200
AXEL BICHARA: So it's
like any deal you do.

491
00:24:05,200 --> 00:24:06,450
You give up a bunch of equity.

492
00:24:06,450 --> 00:24:07,360
You get some capital.

493
00:24:07,360 --> 00:24:10,070
And kind of what
you get in return.

494
00:24:10,070 --> 00:24:15,990
And there are many incubators,
which are typically

495
00:24:15,990 --> 00:24:18,150
sort of-- if you desk a
little bit of mentoring

496
00:24:18,150 --> 00:24:20,640
and an internet connection.

497
00:24:20,640 --> 00:24:24,845
In accelerators,
you often have sort

498
00:24:24,845 --> 00:24:28,980
of a multi-focused program,
just more value added

499
00:24:28,980 --> 00:24:31,060
and one dimensional another.

500
00:24:31,060 --> 00:24:33,709
So I think the short answer
is, do your homework.

501
00:24:33,709 --> 00:24:34,500
Who are the people?

502
00:24:34,500 --> 00:24:35,624
What have they done before?

503
00:24:35,624 --> 00:24:39,910
What kind of real work
are they going to do?

504
00:24:39,910 --> 00:24:47,580
And how committed are the
people you're working with?

505
00:24:47,580 --> 00:24:50,970
Is it sort of a loosely
connected network

506
00:24:50,970 --> 00:24:52,160
of people helping out?

507
00:24:52,160 --> 00:24:55,230
Are there people involved
who have full time

508
00:24:55,230 --> 00:24:56,825
dedicated to making
the companies they

509
00:24:56,825 --> 00:24:57,700
work with successful?

510
00:25:01,180 --> 00:25:04,310
And obviously there needs to
be a fit with your objective.

511
00:25:04,310 --> 00:25:06,580
Is your objective too--
I got some introductions.

512
00:25:06,580 --> 00:25:09,530
I'm networking,
financing sources,

513
00:25:09,530 --> 00:25:13,480
or are you looking for some
help to really build a product,

514
00:25:13,480 --> 00:25:16,140
help you build the team?

515
00:25:16,140 --> 00:25:19,970
Step back and figure out,
what financing sources

516
00:25:19,970 --> 00:25:21,960
should I go after and
who are these guys?

517
00:25:21,960 --> 00:25:26,150
How can they help me figure
out what the best path is.

518
00:25:26,150 --> 00:25:29,765
So when we started
Bolt, we saw the need

519
00:25:29,765 --> 00:25:33,180
for entrepreneurs who
have a piece of hardware

520
00:25:33,180 --> 00:25:36,880
as part of their offering
basically totally grinding

521
00:25:36,880 --> 00:25:40,740
to a halt in traditional sort
of software accelerator settings

522
00:25:40,740 --> 00:25:43,550
where the expertise
simply isn't there.

523
00:25:43,550 --> 00:25:45,230
And it's much harder
to build hardware

524
00:25:45,230 --> 00:25:47,960
than it is to build
an iPhone app.

525
00:25:47,960 --> 00:25:50,950
And so we built-- we have
a big machine shop where

526
00:25:50,950 --> 00:25:52,020
you can build anything.

527
00:25:52,020 --> 00:25:56,480
We have a full time
staff, engineering staff,

528
00:25:56,480 --> 00:25:59,020
that helps you products done.

529
00:25:59,020 --> 00:26:03,700
And then people like me on the
financing, company building,

530
00:26:03,700 --> 00:26:08,014
team building, strategy side.

531
00:26:08,014 --> 00:26:09,680
But there's a full
spectrum, from things

532
00:26:09,680 --> 00:26:11,221
that are really
lightweight to things

533
00:26:11,221 --> 00:26:12,480
that are fairly involved.

534
00:26:12,480 --> 00:26:15,960
We're probably more
on the involved side.

535
00:26:15,960 --> 00:26:18,000
But there's no good or bad.

536
00:26:18,000 --> 00:26:22,976
It's really what's a fit
with what you're looking for.

537
00:26:22,976 --> 00:26:26,800
PROFESSOR: Axel, Y
Combinator kind of program

538
00:26:26,800 --> 00:26:29,110
where you get accepted,
there's sort of a set formula

539
00:26:29,110 --> 00:26:32,700
about we'll give you x dollars
for y percent of your company--

540
00:26:32,700 --> 00:26:35,010
is that how you work
or is it a set formula?

541
00:26:35,010 --> 00:26:39,170
AXEL BICHARA: We have, I
would say, a default formula,

542
00:26:39,170 --> 00:26:42,900
and then there are exceptions
to the rule depending

543
00:26:42,900 --> 00:26:44,410
on specific circumstances.

544
00:26:44,410 --> 00:26:48,340
For instance, if a company has
raised a bunch of venture money

545
00:26:48,340 --> 00:26:48,840
already.

546
00:26:48,840 --> 00:26:50,680
So we're not just
working with companies

547
00:26:50,680 --> 00:26:54,950
that are-- three guys out
of MIT and the slide deck.

548
00:26:54,950 --> 00:26:56,249
Some offers are long.

549
00:26:56,249 --> 00:26:57,790
Some have been
software entrepreneurs

550
00:26:57,790 --> 00:27:01,560
before, are looking for
the expertise to getting

551
00:27:01,560 --> 00:27:03,960
a piece of hardware to market.

552
00:27:03,960 --> 00:27:05,950
So if the company has,
for instance, raised

553
00:27:05,950 --> 00:27:08,680
a bunch of venture capital,
sort of the totally formulaic

554
00:27:08,680 --> 00:27:11,190
approach of a Y
Combinator wouldn't work.

555
00:27:11,190 --> 00:27:14,644
So we have the formula
and then the rule,

556
00:27:14,644 --> 00:27:16,560
and then the exception
to the rule, basically.

557
00:27:16,560 --> 00:27:19,110
And my philosophy
and our philosophy

558
00:27:19,110 --> 00:27:22,580
is, if there's a good company
and a good entrepreneur

559
00:27:22,580 --> 00:27:25,330
that we want to
work with, there's

560
00:27:25,330 --> 00:27:27,714
a way to get a deal done that
makes sense for everybody.

561
00:27:27,714 --> 00:27:30,130
PROFESSOR: Are you willing to
tell us the default formula?

562
00:27:30,130 --> 00:27:30,921
AXEL BICHARA: Yeah.

563
00:27:30,921 --> 00:27:35,320
The default formula is, we
take 10% of common stock.

564
00:27:35,320 --> 00:27:38,180
We put in 50K.

565
00:27:38,180 --> 00:27:42,100
But the main thing you get
is you work with us for six

566
00:27:42,100 --> 00:27:45,470
to nine months basically
around the clock helping

567
00:27:45,470 --> 00:27:48,360
build product,
helping build team,

568
00:27:48,360 --> 00:27:50,880
get the company set
up for financing.

569
00:27:50,880 --> 00:27:53,980
And there's often
the discussion, well,

570
00:27:53,980 --> 00:27:56,450
it's only 50K.

571
00:27:56,450 --> 00:27:57,320
What's evaluation?

572
00:27:57,320 --> 00:27:58,320
You kind of do the math.

573
00:27:58,320 --> 00:28:02,060
And the answer I normally
give is, let's take the 50K.

574
00:28:02,060 --> 00:28:03,444
Give it to a charity.

575
00:28:03,444 --> 00:28:05,860
The reason for coming here is
everything else we're doing.

576
00:28:05,860 --> 00:28:07,200
It's not the 50K.

577
00:28:07,200 --> 00:28:12,710
So it's very much
a company building

578
00:28:12,710 --> 00:28:16,440
is a value we provide in
this particular case, which

579
00:28:16,440 --> 00:28:18,250
is really diametrically
opposed from what

580
00:28:18,250 --> 00:28:21,330
I did in the past, which was
big VC firm where it's really

581
00:28:21,330 --> 00:28:23,190
all about the capital.

582
00:28:23,190 --> 00:28:27,770
But that goes back to
what stage are you at

583
00:28:27,770 --> 00:28:29,170
and what do you need help with?

584
00:28:29,170 --> 00:28:31,460
And maybe one more comment
on the hardware thing--

585
00:28:31,460 --> 00:28:36,520
in the amount of money
and time companies

586
00:28:36,520 --> 00:28:40,480
I invested at Atlas that was
wasted because we made kind

587
00:28:40,480 --> 00:28:42,230
of beginner's mistakes
in getting hardware

588
00:28:42,230 --> 00:28:45,920
products to market
would have been

589
00:28:45,920 --> 00:28:48,645
significant value added if
something like Bolt had exited,

590
00:28:48,645 --> 00:28:50,925
even for a VC
company at the time.

591
00:28:50,925 --> 00:28:54,030
AMIR NASHAT: Can I make one
comment about incubators?

592
00:28:54,030 --> 00:28:57,710
And as Axel put, now come in
different shapes and sizes.

593
00:28:57,710 --> 00:29:00,640
One thing I noticed as a
voyeur at Dogpatch Labs.

594
00:29:00,640 --> 00:29:03,540
We had set up Dogpatch
Labs some years ago.

595
00:29:03,540 --> 00:29:06,570
It's now exists within
Cambridge Innovation Center.

596
00:29:06,570 --> 00:29:10,666
It's more the value of being
around other people when

597
00:29:10,666 --> 00:29:12,290
you're trying to
evaluate these places.

598
00:29:12,290 --> 00:29:13,730
One is the services
they provide.

599
00:29:13,730 --> 00:29:16,270
The other is actually
the value of being

600
00:29:16,270 --> 00:29:19,370
around sitting next to someone
who's doing better than you,

601
00:29:19,370 --> 00:29:21,940
and how that motivates
you, and there's

602
00:29:21,940 --> 00:29:24,190
this competitive
dynamic that kicks in.

603
00:29:24,190 --> 00:29:25,540
And you could watch it actually.

604
00:29:25,540 --> 00:29:27,760
Whenever I would
over there, someone

605
00:29:27,760 --> 00:29:29,790
would get off the
phone with Pepsi

606
00:29:29,790 --> 00:29:32,100
and they were talking to
some VD person over there.

607
00:29:32,100 --> 00:29:34,290
And you could see the other
teams around them really kind

608
00:29:34,290 --> 00:29:35,456
of-- what have I done today?

609
00:29:35,456 --> 00:29:38,377
Maybe I'm a biotech or maybe I'm
a software company or something

610
00:29:38,377 --> 00:29:39,960
and I've got nothing
to do with Pepsi.

611
00:29:39,960 --> 00:29:42,084
But it just gets you
thinking, what did I do today?

612
00:29:42,084 --> 00:29:44,600
And you could feel
the energy that grew.

613
00:29:44,600 --> 00:29:47,580
So I think surrounding yourself
in an environment where

614
00:29:47,580 --> 00:29:49,240
it feels like people
are quite intense

615
00:29:49,240 --> 00:29:51,190
is actually
surprisingly valuable.

616
00:29:51,190 --> 00:29:54,150
And I think for a lot
of people that benefit

617
00:29:54,150 --> 00:29:55,660
from going into
these environments,

618
00:29:55,660 --> 00:29:57,830
whether it's an incubator
or accelerator or anything

619
00:29:57,830 --> 00:30:00,920
else-- sitting at home alone
and having to motivate yourself

620
00:30:00,920 --> 00:30:02,830
is actually quite
difficult a lot.

621
00:30:02,830 --> 00:30:04,000
It's like going to the gym.

622
00:30:04,000 --> 00:30:06,001
Some days you're great
and some days you're not.

623
00:30:06,001 --> 00:30:07,750
It just kind of helps
if you're at the gym

624
00:30:07,750 --> 00:30:09,200
with a bunch of
other people that

625
00:30:09,200 --> 00:30:11,420
are kind of running
around acting like they're

626
00:30:11,420 --> 00:30:12,710
lifting a lot of weight.

627
00:30:12,710 --> 00:30:14,461
So I just think
that's one part I

628
00:30:14,461 --> 00:30:15,710
would look at when I evaluate.

629
00:30:15,710 --> 00:30:16,900
It is a soft factors.

630
00:30:16,900 --> 00:30:18,390
It's obviously
not a hard factor.

631
00:30:21,856 --> 00:30:23,522
PROFESSOR: We have
some other questions?

632
00:30:23,522 --> 00:30:24,438
AUDIENCE: [INAUDIBLE].

633
00:30:33,570 --> 00:30:35,820
PROFESSOR: Yeah, we haven't
covered that in the class,

634
00:30:35,820 --> 00:30:37,320
so if you want to
just take a moment

635
00:30:37,320 --> 00:30:39,216
and explain it to the
people that don't know.

636
00:30:39,216 --> 00:30:40,340
AXEL BICHARA: Oh, explain?

637
00:30:40,340 --> 00:30:41,940
JULIANNE ZIMMERMAN: Sure.

638
00:30:41,940 --> 00:30:42,440
Go ahead.

639
00:30:42,440 --> 00:30:44,770
AXEL BICHARA: So explain
convertible note?

640
00:30:44,770 --> 00:30:51,345
So an equity deal is
not a convertible note.

641
00:30:51,345 --> 00:30:52,220
I'll start with that.

642
00:30:52,220 --> 00:30:55,190
Equity deal is you basically
sell shares in your company.

643
00:30:55,190 --> 00:30:58,700
You give away a percentage for
the capital that gets invested.

644
00:30:58,700 --> 00:31:03,270
Convertible note is basically
you basically borrow money

645
00:31:03,270 --> 00:31:06,610
and you owe that money
back to the investors

646
00:31:06,610 --> 00:31:09,650
unless there's an event
under which the note converts

647
00:31:09,650 --> 00:31:10,900
into equity.

648
00:31:10,900 --> 00:31:13,607
So may or may not
convert into equity

649
00:31:13,607 --> 00:31:15,440
depending on what the
terms of the note are.

650
00:31:15,440 --> 00:31:18,380
Often somebody
does, as an example,

651
00:31:18,380 --> 00:31:22,420
let's say, $500,000
convertible note

652
00:31:22,420 --> 00:31:25,310
that has a term that says it
converts into the next equity

653
00:31:25,310 --> 00:31:29,070
round of financing off a
million dollars or more.

654
00:31:29,070 --> 00:31:32,830
And so if there's such
an equity financing,

655
00:31:32,830 --> 00:31:34,690
it converts and there's
some other terms

656
00:31:34,690 --> 00:31:37,030
like a discount interest rate.

657
00:31:37,030 --> 00:31:39,420
Or it may not convert
if the company,

658
00:31:39,420 --> 00:31:41,880
for instance-- well, if it goes
bankrupt, the money's gone.

659
00:31:41,880 --> 00:31:44,180
If the company is
acquired, there's

660
00:31:44,180 --> 00:31:49,270
typically a term where you get
1 and 1/2 to 3 times your money

661
00:31:49,270 --> 00:31:52,030
back of the note.

662
00:31:52,030 --> 00:31:54,855
So that's kind of the basics.

663
00:31:58,460 --> 00:32:01,270
So why did convertible
notes become so popular?

664
00:32:01,270 --> 00:32:03,470
It's very easy and
quick to get done.

665
00:32:03,470 --> 00:32:06,050
It's a one to two page document.

666
00:32:06,050 --> 00:32:08,480
And as an entrepreneur,
you get the money quickly

667
00:32:08,480 --> 00:32:13,530
and there's no more
complicated legal documents

668
00:32:13,530 --> 00:32:15,710
to do an actual equity deal.

669
00:32:15,710 --> 00:32:18,380
On the flip side is,
you owe the money.

670
00:32:18,380 --> 00:32:20,570
It's debt until it converts.

671
00:32:20,570 --> 00:32:25,220
And normally the rule with
debt is that if things go well,

672
00:32:25,220 --> 00:32:26,930
it's a good thing to have taken.

673
00:32:26,930 --> 00:32:30,510
If things don't go so well,
you may end up regretting it.

674
00:32:30,510 --> 00:32:32,450
Now in many startups,
things don't go so well.

675
00:32:32,450 --> 00:32:35,221
So you just need to kind of
think the different scenarios

676
00:32:35,221 --> 00:32:35,720
through.

677
00:32:39,130 --> 00:32:43,420
We actually had a discussion
earlier today with a VC

678
00:32:43,420 --> 00:32:45,100
in one of the Bolt companies.

679
00:32:45,100 --> 00:32:48,610
So do we do a convertible
note deal or an equity deal?

680
00:32:48,610 --> 00:32:50,120
I could argue either side.

681
00:32:50,120 --> 00:32:54,840
But maybe as a rule, if you're
talking about raising $250,000,

682
00:32:54,840 --> 00:32:58,980
$500,000 and you're likely
to raise more money,

683
00:32:58,980 --> 00:33:01,840
like whatever, another
million plus a year

684
00:33:01,840 --> 00:33:04,590
later, it's not a
bad thing to do.

685
00:33:04,590 --> 00:33:08,390
It's a quick way to get started,
low legal fees and everything.

686
00:33:08,390 --> 00:33:14,510
By the time you reach $2 million
or more in convertible note,

687
00:33:14,510 --> 00:33:17,250
it's just odd.

688
00:33:17,250 --> 00:33:21,300
There's this amount of money you
have spent that's converting,

689
00:33:21,300 --> 00:33:22,910
that's going to be dilutive.

690
00:33:22,910 --> 00:33:24,660
It's starting to be
a biggish amount.

691
00:33:24,660 --> 00:33:28,890
What if the pre money is
$4 million, let's say.

692
00:33:28,890 --> 00:33:32,390
Well, already $2 million
converting at $4 million pre,

693
00:33:32,390 --> 00:33:35,080
a third of the company
is already gone.

694
00:33:35,080 --> 00:33:39,370
So I would say up to $500,000,
a million, $1.5 million maximum.

695
00:33:39,370 --> 00:33:41,965
If I see a convertible
note at more than that,

696
00:33:41,965 --> 00:33:44,090
it's probably starting to
get pretty uncomfortable.

697
00:33:44,090 --> 00:33:45,078
AUDIENCE: [INAUDIBLE].

698
00:33:52,912 --> 00:33:53,780
AXEL BICHARA: Right.

699
00:33:53,780 --> 00:33:56,870
Where they would not do it.

700
00:33:56,870 --> 00:33:59,820
One way to think about
it is, it really depends

701
00:33:59,820 --> 00:34:01,060
upon the terms of the note.

702
00:34:01,060 --> 00:34:03,630
If you go in and
there's something

703
00:34:03,630 --> 00:34:05,800
called a cap or no cap.

704
00:34:05,800 --> 00:34:07,530
Basically a valuation
cap or note.

705
00:34:07,530 --> 00:34:11,659
So let's say I give you
a note for like 500K

706
00:34:11,659 --> 00:34:14,239
and it has no cap on
it, so it converts

707
00:34:14,239 --> 00:34:15,739
in some future financing.

708
00:34:15,739 --> 00:34:17,300
So you're actually
using my money

709
00:34:17,300 --> 00:34:20,480
to increase the value of
the company, which I then

710
00:34:20,480 --> 00:34:21,530
buy shares at.

711
00:34:21,530 --> 00:34:25,456
So some VCs actually do
that and it's all about

712
00:34:25,456 --> 00:34:27,580
competing with the next
guy, get a foot in the door

713
00:34:27,580 --> 00:34:29,699
with some interesting
entrepreneur.

714
00:34:29,699 --> 00:34:32,790
But from a purely
financial standpoint,

715
00:34:32,790 --> 00:34:35,199
it's actually kind of
crazy to loan somebody

716
00:34:35,199 --> 00:34:36,909
the money-- it's
typically 2% interest

717
00:34:36,909 --> 00:34:41,420
rate to increase evaluation,
in which you then invest.

718
00:34:41,420 --> 00:34:44,134
The other effects-- if
you are a note holder,

719
00:34:44,134 --> 00:34:45,550
you're actually
not a shareholder.

720
00:34:45,550 --> 00:34:47,310
So you won't get a board seat.

721
00:34:47,310 --> 00:34:51,310
So that's one.

722
00:34:51,310 --> 00:34:57,430
But for many investors--
understanding thee objective

723
00:34:57,430 --> 00:35:00,350
of the investors is
actually important.

724
00:35:00,350 --> 00:35:02,550
Like for many venture
firms especially,

725
00:35:02,550 --> 00:35:04,425
it's a foot in the door.

726
00:35:04,425 --> 00:35:08,160
You care about the option
value of doing a deal later.

727
00:35:08,160 --> 00:35:13,150
So if that's the valuation,
the main objective,

728
00:35:13,150 --> 00:35:14,370
that's kind of one thing.

729
00:35:14,370 --> 00:35:20,160
Now if all the money
the company will need

730
00:35:20,160 --> 00:35:23,130
is let's say $1 million--
it's a bunch of angels

731
00:35:23,130 --> 00:35:30,550
and they really help you to
work on the deal-- understanding

732
00:35:30,550 --> 00:35:32,760
the objective is actually
very, very important.

733
00:35:32,760 --> 00:35:35,060
Do you have alignment of
interests or actually conflict

734
00:35:35,060 --> 00:35:36,600
of interests?

735
00:35:36,600 --> 00:35:38,430
Is the objective
of the investors

736
00:35:38,430 --> 00:35:40,970
to increase your
evaluation or not?

737
00:35:40,970 --> 00:35:45,740
So there's actually
no simple answer.

738
00:35:45,740 --> 00:35:48,965
There's something beautiful
about an equity deal.

739
00:35:48,965 --> 00:35:50,090
You have aligned interests.

740
00:35:50,090 --> 00:35:53,120
You own more or less--
preferred versus common--

741
00:35:53,120 --> 00:35:55,840
but it's more or less the
same shares in the company.

742
00:35:55,840 --> 00:35:59,447
So on the margin, I actually
tend to prefer equity deals.

743
00:35:59,447 --> 00:36:01,030
JULIANNE ZIMMERMAN:
So if I could just

744
00:36:01,030 --> 00:36:03,100
expand on Axel's comments.

745
00:36:03,100 --> 00:36:07,320
Remember I said at the beginning
that every form of equity

746
00:36:07,320 --> 00:36:11,630
has its intended use, it's
benefits and it's costs, right?

747
00:36:11,630 --> 00:36:15,960
So as Axel said, a note tends
to be a really good instrument

748
00:36:15,960 --> 00:36:19,370
when you are expecting
there to be fairly

749
00:36:19,370 --> 00:36:21,690
rapid succession of events.

750
00:36:21,690 --> 00:36:23,550
So you're going to
hit some milestones.

751
00:36:23,550 --> 00:36:25,990
You expect to
raise more capital.

752
00:36:25,990 --> 00:36:28,550
It's an opportunity for
you and the investors,

753
00:36:28,550 --> 00:36:31,240
when your interests
are aligned, to do

754
00:36:31,240 --> 00:36:32,950
a relatively lightweight deal.

755
00:36:32,950 --> 00:36:34,490
It's relatively
inexpensive to do.

756
00:36:34,490 --> 00:36:35,430
It's relatively quick.

757
00:36:35,430 --> 00:36:37,810
You don't have to
agree on evaluation

758
00:36:37,810 --> 00:36:40,250
when things are in
flux, which is also

759
00:36:40,250 --> 00:36:42,190
easier for both parties.

760
00:36:42,190 --> 00:36:46,180
And the advantage for
you as the founder is you

761
00:36:46,180 --> 00:36:50,570
haven't already committed a
portion of the company away.

762
00:36:50,570 --> 00:36:53,210
You have the opportunity
to hit those milestones

763
00:36:53,210 --> 00:36:56,300
and justify evaluation.

764
00:36:56,300 --> 00:36:58,060
The advantage for
the investor, again,

765
00:36:58,060 --> 00:37:00,020
might be the optionality.

766
00:37:00,020 --> 00:37:02,820
So the option itself
have value to them.

767
00:37:02,820 --> 00:37:06,600
It might be that they like
the idea that their note will

768
00:37:06,600 --> 00:37:10,030
convert at advantageous
terms in the next round,

769
00:37:10,030 --> 00:37:14,080
and that's when the cap and
the other terms come in.

770
00:37:14,080 --> 00:37:17,880
But again, the purpose
of a note is really

771
00:37:17,880 --> 00:37:21,600
kind of a temporary instrument.

772
00:37:21,600 --> 00:37:24,425
It's not designed to
be long term instrument

773
00:37:24,425 --> 00:37:27,090
and it's not intended
to be a kind of one

774
00:37:27,090 --> 00:37:29,130
off or permanent instrument.

775
00:37:29,130 --> 00:37:30,780
It comes due.

776
00:37:30,780 --> 00:37:33,400
It has a termination date.

777
00:37:33,400 --> 00:37:38,410
So on the date when it matures,
you either have to go back

778
00:37:38,410 --> 00:37:41,370
and say we need an extension or
you have to pay back that money

779
00:37:41,370 --> 00:37:44,260
or you have to have a subsequent
funding round in order

780
00:37:44,260 --> 00:37:46,150
for the note to convert.

781
00:37:46,150 --> 00:37:48,360
So what you want
to keep in mind is

782
00:37:48,360 --> 00:37:49,800
that's what it's designed to be.

783
00:37:49,800 --> 00:37:53,600
It's designed to be
an interim instrument.

784
00:37:53,600 --> 00:37:56,106
Does that make sense?

785
00:37:56,106 --> 00:37:58,660
AMIR NASHAT: If I can make
one cautionary statement

786
00:37:58,660 --> 00:38:00,749
with notes-- in
general, I think if I

787
00:38:00,749 --> 00:38:02,540
was an entrepreneur
I'd tried to take notes

788
00:38:02,540 --> 00:38:05,265
if I could, because
I'm paying you Tuesday

789
00:38:05,265 --> 00:38:07,560
which is in stock for
a hamburger today,

790
00:38:07,560 --> 00:38:09,126
which is the cash you give me.

791
00:38:09,126 --> 00:38:10,750
The one thing you
have to watch out for

792
00:38:10,750 --> 00:38:13,220
is if I gave you
$100,000 in equity

793
00:38:13,220 --> 00:38:17,600
and I own 5% of your company,
things go sideways whatnot,

794
00:38:17,600 --> 00:38:18,990
I own 5% of your company.

795
00:38:18,990 --> 00:38:20,410
So you may not like me.

796
00:38:20,410 --> 00:38:23,260
We may be in an argument,
but I'm a minor shareholder.

797
00:38:23,260 --> 00:38:25,070
And most of the controls
is in your hands.

798
00:38:25,070 --> 00:38:28,610
If the company goes belly
up with it's $100,000 note,

799
00:38:28,610 --> 00:38:30,430
I'm a creditor
actually, which means

800
00:38:30,430 --> 00:38:33,110
your intellectual property and
a whole host of other things

801
00:38:33,110 --> 00:38:36,680
show up in court and I'm first
in line probably, unless you've

802
00:38:36,680 --> 00:38:38,270
taken other loans.

803
00:38:38,270 --> 00:38:43,000
So my power becomes extremely
strong for the same $100,000.

804
00:38:43,000 --> 00:38:44,750
So you really don't
want to screw up

805
00:38:44,750 --> 00:38:47,860
a note you never
want to borrow money

806
00:38:47,860 --> 00:38:49,774
when you're close to the edge.

807
00:38:49,774 --> 00:38:51,940
If you feel really good
about how things are, or you

808
00:38:51,940 --> 00:38:54,920
do what are called auto
converts, where at your option,

809
00:38:54,920 --> 00:38:58,315
the note converts to equity, if
investors will give you that.

810
00:38:58,315 --> 00:38:59,120
A lot of them wont.

811
00:38:59,120 --> 00:39:02,830
But if they allow you to auto
convert at some evaluation,

812
00:39:02,830 --> 00:39:04,540
then you never really
owe them the money.

813
00:39:04,540 --> 00:39:06,445
It will get converted to equity.

814
00:39:06,445 --> 00:39:08,137
But be careful about
owing people money,

815
00:39:08,137 --> 00:39:09,595
because they become
the controllers

816
00:39:09,595 --> 00:39:11,595
and it's a court process,
which nobody controls.

817
00:39:16,706 --> 00:39:17,698
AUDIENCE: [INAUDIBLE].

818
00:39:48,946 --> 00:39:50,890
AMIR NASHAT: How do you
define structural fit

819
00:39:50,890 --> 00:39:51,520
versus strategic?

820
00:39:51,520 --> 00:39:52,436
AUDIENCE: [INAUDIBLE].

821
00:40:14,135 --> 00:40:16,280
AMIR NASHAT: Let me
start with the first part

822
00:40:16,280 --> 00:40:19,610
of your question, which
was the presumption that

823
00:40:19,610 --> 00:40:21,790
kind of alignment
might be different.

824
00:40:21,790 --> 00:40:24,020
I think you should be
really careful taking money

825
00:40:24,020 --> 00:40:28,870
from people where you don't feel
like there's 100% alignment.

826
00:40:28,870 --> 00:40:31,430
Every one of my
entrepreneurs and I, I hope,

827
00:40:31,430 --> 00:40:33,980
have the same exact goal.

828
00:40:33,980 --> 00:40:35,650
If you don't, it can
get quite tricky.

829
00:40:35,650 --> 00:40:37,650
And then in later rounds,
strategics come in,

830
00:40:37,650 --> 00:40:39,790
people come in.

831
00:40:39,790 --> 00:40:42,830
Maybe objectives
shift a little bit.

832
00:40:42,830 --> 00:40:44,810
My price point maybe
lower for my stock

833
00:40:44,810 --> 00:40:47,040
than somebody that led a
very later stage round,

834
00:40:47,040 --> 00:40:50,965
so our sensitivities to certain
events may be different.

835
00:40:50,965 --> 00:40:52,590
But in general I
think everybody better

836
00:40:52,590 --> 00:40:54,715
be rooting for the same
thing, which is the company

837
00:40:54,715 --> 00:40:56,100
to be successful.

838
00:40:56,100 --> 00:40:58,040
And that's one of the
reasons I would always

839
00:40:58,040 --> 00:41:02,340
worry about people with too
much of a strategic interest.

840
00:41:02,340 --> 00:41:03,840
Because a lot of
our bio-techs bring

841
00:41:03,840 --> 00:41:07,870
money from corporate partners,
pharmaceutical companies.

842
00:41:07,870 --> 00:41:11,070
A lot of times they're kind
of interested in the company,

843
00:41:11,070 --> 00:41:13,900
but they're really interested
in a particular asset.

844
00:41:13,900 --> 00:41:16,600
And we have to excuse
them from the room

845
00:41:16,600 --> 00:41:18,490
when we have
strategic discussions,

846
00:41:18,490 --> 00:41:21,605
because we're trying to play
them against other pharma.

847
00:41:21,605 --> 00:41:23,480
It makes it somewhat of
an awkward situation.

848
00:41:23,480 --> 00:41:24,940
It's very workable.

849
00:41:24,940 --> 00:41:27,820
But it's not the same
as having someone

850
00:41:27,820 --> 00:41:30,250
you really trust that you can
just be totally open with.

851
00:41:30,250 --> 00:41:35,760
So every VC obviously has a
Rolodex, a series of people,

852
00:41:35,760 --> 00:41:38,390
a network, that they
bring to the table.

853
00:41:38,390 --> 00:41:41,100
But if you've got a group
that's very, very specifically

854
00:41:41,100 --> 00:41:43,650
interested in a particular
piece of intellectual property

855
00:41:43,650 --> 00:41:45,840
or a strategic fit or
something like that,

856
00:41:45,840 --> 00:41:48,450
you have to be careful that
your company doesn't drift away

857
00:41:48,450 --> 00:41:50,750
from that or that there aren't
moments where you really

858
00:41:50,750 --> 00:41:53,006
can't be as frank with
them as you'd like to be.

859
00:41:55,922 --> 00:41:59,060
JULIANNE ZIMMERMAN: I think
that's a really lucid answer.

860
00:41:59,060 --> 00:42:03,640
What I would say is that
people throw around the word

861
00:42:03,640 --> 00:42:07,230
strategic, and as
you heard just now,

862
00:42:07,230 --> 00:42:11,380
strategic meant two different
things in the same sentence.

863
00:42:11,380 --> 00:42:16,720
So the way that I like
to think about it is,

864
00:42:16,720 --> 00:42:19,790
do we all agree what success is?

865
00:42:19,790 --> 00:42:22,450
Does success mean the
same thing to all of us?

866
00:42:22,450 --> 00:42:25,960
How will we know
that we've succeeded?

867
00:42:25,960 --> 00:42:27,970
And if the answer is
we've gotten $100 million

868
00:42:27,970 --> 00:42:31,280
or whatever figure it is,
that's not a useful answer,

869
00:42:31,280 --> 00:42:33,590
because there's a semi-infinite
number of trajectories

870
00:42:33,590 --> 00:42:36,060
that pass through that point.

871
00:42:36,060 --> 00:42:40,600
So what are the things that we
all care about accomplishing,

872
00:42:40,600 --> 00:42:47,700
and do we share compatible
ideas about what it will take

873
00:42:47,700 --> 00:42:50,590
to accomplish that success?

874
00:42:50,590 --> 00:42:57,000
So in the course of starting
and growing any company,

875
00:42:57,000 --> 00:42:59,740
you're putting yourself
in, by definition,

876
00:42:59,740 --> 00:43:03,200
a high conflict environment.

877
00:43:03,200 --> 00:43:06,090
You always have more things
to do than you can do.

878
00:43:06,090 --> 00:43:08,220
You always have
decisions to make

879
00:43:08,220 --> 00:43:10,130
in an absence of
complete knowledge,

880
00:43:10,130 --> 00:43:12,880
so you never have complete
intelligence ever,

881
00:43:12,880 --> 00:43:15,080
even when you really good
situational awareness,

882
00:43:15,080 --> 00:43:18,010
you never have
complete intelligence.

883
00:43:18,010 --> 00:43:22,675
So even when everybody
is really tightly aligned

884
00:43:22,675 --> 00:43:26,170
and everybody shares the same
objectives, the same goals,

885
00:43:26,170 --> 00:43:28,150
the same motivations,
you're going

886
00:43:28,150 --> 00:43:31,370
to have honest
differences of opinion.

887
00:43:31,370 --> 00:43:34,930
If you have divergent
notions of what success is

888
00:43:34,930 --> 00:43:39,180
or what we care about,
you have a problem.

889
00:43:39,180 --> 00:43:41,480
You don't just have legitimate
differences of opinion

890
00:43:41,480 --> 00:43:45,080
about how to solve an
agreed upon problem,

891
00:43:45,080 --> 00:43:48,180
you have different
definitions of the problem.

892
00:43:48,180 --> 00:43:51,140
That can get very
ugly very quickly,

893
00:43:51,140 --> 00:43:54,240
and it can just be disaster.

894
00:43:54,240 --> 00:43:57,640
So ultimately what
you really want

895
00:43:57,640 --> 00:44:00,240
to be sure of is that everybody
on your team, everybody

896
00:44:00,240 --> 00:44:03,420
internally, your
investors, everybody,

897
00:44:03,420 --> 00:44:05,480
agrees on what success means.

898
00:44:05,480 --> 00:44:07,850
What do we aim to accomplish?

899
00:44:07,850 --> 00:44:11,060
How do we win collectively,
all of us together.

900
00:44:11,060 --> 00:44:12,640
How do we win?

901
00:44:12,640 --> 00:44:15,610
And then you have
the recipe to be

902
00:44:15,610 --> 00:44:18,930
able to deal with all
of those uncertainties

903
00:44:18,930 --> 00:44:21,315
and all those decision
points in a productive way.

904
00:44:25,680 --> 00:44:26,650
AUDIENCE: [INAUDIBLE].

905
00:44:31,500 --> 00:44:35,692
some sense of what
scale of money

906
00:44:35,692 --> 00:44:38,989
is involved in your experience
in making investments

907
00:44:38,989 --> 00:45:04,172
in [INAUDIBLE] could be as big
as [INAUDIBLE] or as much money

908
00:45:04,172 --> 00:45:07,930
as [INAUDIBLE] a
sense of perspective.

909
00:45:07,930 --> 00:45:10,122
[LAUGHTER]

910
00:45:10,122 --> 00:45:12,760
AXEL BICHARA: I can try that.

911
00:45:12,760 --> 00:45:20,070
I mean, a typical seed
financing, angel financings,

912
00:45:20,070 --> 00:45:22,490
250K would be really small.

913
00:45:22,490 --> 00:45:26,490
$500 million, I would say up to
$2 million, $3 million of angel

914
00:45:26,490 --> 00:45:30,800
is pretty doable these days.

915
00:45:30,800 --> 00:45:33,360
Valuations, again,
talking about a vacuum

916
00:45:33,360 --> 00:45:34,700
is always, always tricky.

917
00:45:34,700 --> 00:45:39,070
But there are a few deals
that get done at less than $3

918
00:45:39,070 --> 00:45:40,640
million pre, I would say.

919
00:45:40,640 --> 00:45:44,555
And $5 million or $6 million pre
is a lot for a million dollar

920
00:45:44,555 --> 00:45:46,500
angel round.

921
00:45:46,500 --> 00:45:50,810
No VCs start at 100K with a foot
in the door kind of strategy

922
00:45:50,810 --> 00:45:56,870
and typically A
rounds are these days

923
00:45:56,870 --> 00:45:59,845
whatever-- three, two,
$6 million, $7 million

924
00:45:59,845 --> 00:46:01,270
in the tech world.

925
00:46:01,270 --> 00:46:05,930
Bio tech obviously is
much bigger numbers.

926
00:46:05,930 --> 00:46:10,840
There are definitely VCs and
also, depending a little bit

927
00:46:10,840 --> 00:46:14,140
on the backgrounds of
founders, plays where you

928
00:46:14,140 --> 00:46:16,120
raise a lot of money quickly.

929
00:46:16,120 --> 00:46:19,430
One company that I
helped get off the ground

930
00:46:19,430 --> 00:46:24,260
called On Shape we raised
an A round of $9 million

931
00:46:24,260 --> 00:46:29,970
in November of 2012 and we
raised a B round of $25 million

932
00:46:29,970 --> 00:46:31,460
in April of this year.

933
00:46:31,460 --> 00:46:34,480
It was the all-star team
going after big opportunity

934
00:46:34,480 --> 00:46:39,280
and some VCs was very like
multi-billion fund saying,

935
00:46:39,280 --> 00:46:40,157
this is a big play.

936
00:46:40,157 --> 00:46:41,990
I want to be in there,
and kind of paying up

937
00:46:41,990 --> 00:46:42,781
to do a deal early.

938
00:46:45,290 --> 00:46:48,330
And that happens up
two $100 million rounds

939
00:46:48,330 --> 00:46:54,630
to if a VC firm is convinced
that there's an emerging market

940
00:46:54,630 --> 00:46:57,700
segment or some really
interesting disruption going

941
00:46:57,700 --> 00:47:03,140
on, by piling a lot
of money you obviously

942
00:47:03,140 --> 00:47:05,360
acquire a meaningful
ownership as a VC,

943
00:47:05,360 --> 00:47:10,910
but you also help establish--
if you're executing well--

944
00:47:10,910 --> 00:47:12,830
help establish the
success of the company.

945
00:47:12,830 --> 00:47:14,870
It would be very
hard for competitors

946
00:47:14,870 --> 00:47:18,740
to raise money if you have
$100 million into bank already.

947
00:47:18,740 --> 00:47:22,390
So there's all kinds of--
especially sort of in emerging

948
00:47:22,390 --> 00:47:24,695
winners, you look at, oh,
these are crazy evaluations,

949
00:47:24,695 --> 00:47:25,770
They're crazy deals.

950
00:47:25,770 --> 00:47:28,380
If you really look
at it, they may not

951
00:47:28,380 --> 00:47:30,710
be the crazy if
it is an emerging

952
00:47:30,710 --> 00:47:34,148
winner in a multi-billion
market disruption, for instance.

953
00:47:37,892 --> 00:47:43,480
JULIANNE ZIMMERMAN: So
again, I would say-- sorry.

954
00:47:43,480 --> 00:47:45,805
Again I would say, there
are so many different kinds

955
00:47:45,805 --> 00:47:46,900
of companies.

956
00:47:46,900 --> 00:47:49,900
And remember that
we've all commented

957
00:47:49,900 --> 00:47:53,770
that venture money,
professional money,

958
00:47:53,770 --> 00:47:59,810
is a very small segment
of company finance.

959
00:47:59,810 --> 00:48:05,540
So I would say the way I would
answer that is starting from 0,

960
00:48:05,540 --> 00:48:06,850
the lower end is zero.

961
00:48:06,850 --> 00:48:09,810
You take no outside money.

962
00:48:09,810 --> 00:48:11,610
And there have
been companies that

963
00:48:11,610 --> 00:48:15,600
have famously gone bust after
taking in more than $100

964
00:48:15,600 --> 00:48:17,856
million.

965
00:48:17,856 --> 00:48:21,780
So there's an
extremely wide range.

966
00:48:25,180 --> 00:48:31,420
The appeal that I think
tends to get overblown

967
00:48:31,420 --> 00:48:34,350
in a lot of the press
coverage of big deals

968
00:48:34,350 --> 00:48:35,870
is it sounds very sexy.

969
00:48:35,870 --> 00:48:36,730
It's very exciting.

970
00:48:36,730 --> 00:48:38,710
It sounds like a
lot of momentum.

971
00:48:38,710 --> 00:48:42,880
And that's the intention
of a big round certainly.

972
00:48:42,880 --> 00:48:47,205
But there's also, again, there
are always costs and always

973
00:48:47,205 --> 00:48:47,705
downsides.

974
00:48:47,705 --> 00:48:50,690
The downside is, if you take
a huge amount of capital--

975
00:48:50,690 --> 00:48:53,450
whether that's hundreds of
millions for $10 million

976
00:48:53,450 --> 00:48:56,324
depending on your
stage of development--

977
00:48:56,324 --> 00:48:57,865
if you take a huge
amount of capital,

978
00:48:57,865 --> 00:49:00,360
it also puts a tremendous
amount of pressure on you

979
00:49:00,360 --> 00:49:05,240
to use that capital
very aggressively.

980
00:49:05,240 --> 00:49:08,590
And so companies have
also been blown up

981
00:49:08,590 --> 00:49:11,380
by taking too much capital.

982
00:49:11,380 --> 00:49:15,370
So really what you
want to be doing

983
00:49:15,370 --> 00:49:19,130
is focusing, again,
on Joe's questions.

984
00:49:19,130 --> 00:49:19,830
Whys?

985
00:49:19,830 --> 00:49:21,610
What are all of the whys?

986
00:49:21,610 --> 00:49:23,000
Why are you doing this?

987
00:49:23,000 --> 00:49:23,680
Why now?

988
00:49:23,680 --> 00:49:24,960
Why this team?

989
00:49:24,960 --> 00:49:28,870
Why this amount of money?

990
00:49:28,870 --> 00:49:31,240
Why this timing?

991
00:49:31,240 --> 00:49:32,860
Why this instrument?

992
00:49:32,860 --> 00:49:34,240
Why this firm?

993
00:49:34,240 --> 00:49:35,320
Whatever.

994
00:49:35,320 --> 00:49:37,710
Because you really
want to be focused on

995
00:49:37,710 --> 00:49:41,910
is this the right amount
of money for my company

996
00:49:41,910 --> 00:49:45,950
to do what it is intended
to do at this point in time?

997
00:49:49,050 --> 00:49:54,878
It's really easy to get
wildly out of balance there.

998
00:49:54,878 --> 00:49:55,790
AMIR NASHAT: Yeah.

999
00:49:55,790 --> 00:50:01,090
I mean, again, we write checks
as small as $50,000, $100,000

1000
00:50:01,090 --> 00:50:02,540
to get started.

1001
00:50:02,540 --> 00:50:05,716
Our goal is probably $5
million to say $20 million

1002
00:50:05,716 --> 00:50:07,340
in an investment.

1003
00:50:07,340 --> 00:50:08,090
It's a wide range.

1004
00:50:08,090 --> 00:50:09,798
If the company only
ever needs $1 million

1005
00:50:09,798 --> 00:50:12,890
and we all know
that going into it,

1006
00:50:12,890 --> 00:50:14,810
it's probably not a
fit for us, because we

1007
00:50:14,810 --> 00:50:16,518
have a reasonably
large fund so we'd have

1008
00:50:16,518 --> 00:50:17,890
to make so many small bets.

1009
00:50:17,890 --> 00:50:20,320
It's perfectly fine if a
company only takes $1 million

1010
00:50:20,320 --> 00:50:23,380
and is either successful
or unsuccessful.

1011
00:50:23,380 --> 00:50:25,230
Because we all learned
in a very quick way

1012
00:50:25,230 --> 00:50:27,110
that it was really great.

1013
00:50:27,110 --> 00:50:30,090
You're never going to complain
if you took $1 million

1014
00:50:30,090 --> 00:50:32,480
and turn it into a big win.

1015
00:50:32,480 --> 00:50:35,580
I have had a lot of co-investors
who complain about that.

1016
00:50:35,580 --> 00:50:37,290
But my view is, come on.

1017
00:50:37,290 --> 00:50:39,070
You've got to be kidding me.

1018
00:50:39,070 --> 00:50:40,890
And then of course
we kind of sometimes

1019
00:50:40,890 --> 00:50:42,890
have to plan to put 20,
30 million hours through

1020
00:50:42,890 --> 00:50:44,750
to support our company.

1021
00:50:44,750 --> 00:50:48,130
I think the fundamental
question is exactly the why.

1022
00:50:48,130 --> 00:50:53,960
And for us, we are so focused
on backing entrepreneurs,

1023
00:50:53,960 --> 00:50:56,950
every single deal we've
been in pretty much,

1024
00:50:56,950 --> 00:50:59,450
the intellectual
property shifted.

1025
00:50:59,450 --> 00:51:01,990
Almost everything
about the deal changed.

1026
00:51:01,990 --> 00:51:04,500
Very rarely does it work
exactly the way you want.

1027
00:51:04,500 --> 00:51:06,130
The people are what
make it happen.

1028
00:51:06,130 --> 00:51:08,930
And if a person doesn't
own a lot of it,

1029
00:51:08,930 --> 00:51:11,210
then why are they coming
to work every day?

1030
00:51:11,210 --> 00:51:14,840
So I think whenever we own a
venture entrepreneurial type

1031
00:51:14,840 --> 00:51:18,050
deal, whenever we
own a lot of company,

1032
00:51:18,050 --> 00:51:20,090
something went horribly wrong.

1033
00:51:20,090 --> 00:51:23,912
And when we don't own a lot of
it and it's a great company,

1034
00:51:23,912 --> 00:51:26,120
something's going great
because they're raising money

1035
00:51:26,120 --> 00:51:27,120
at great valuations.

1036
00:51:27,120 --> 00:51:29,036
They don't need the money
to bring capital in.

1037
00:51:29,036 --> 00:51:30,610
They give a shit about stock.

1038
00:51:30,610 --> 00:51:32,120
They don't want
to give it to me.

1039
00:51:32,120 --> 00:51:33,740
They don't want to
give it to anybody.

1040
00:51:33,740 --> 00:51:36,500
They're going to charge a lot of
money for that share of stock.

1041
00:51:36,500 --> 00:51:38,360
That's the best kinds
of deals we're in.

1042
00:51:38,360 --> 00:51:40,880
Whenever we own
75% of a startup,

1043
00:51:40,880 --> 00:51:42,761
of a venture backed
company, it's

1044
00:51:42,761 --> 00:51:44,510
because we had to
bridge them three times,

1045
00:51:44,510 --> 00:51:46,630
they had terrible financings.

1046
00:51:46,630 --> 00:51:50,835
So I love it when entrepreneurs
say, I don't need your money.

1047
00:51:50,835 --> 00:51:52,400
I'll do it some other way.

1048
00:51:52,400 --> 00:51:54,520
I'll just take a little bit.

1049
00:51:54,520 --> 00:51:56,410
Again, it puts you in
a precarious position.

1050
00:51:56,410 --> 00:51:57,910
But it's exactly
what Julianne said,

1051
00:51:57,910 --> 00:52:00,241
which is once you raise
$100 million dollars,

1052
00:52:00,241 --> 00:52:02,240
you need to generate $200
million, $300 million,

1053
00:52:02,240 --> 00:52:04,490
$400 million dollars
worth of exit

1054
00:52:04,490 --> 00:52:06,227
to keep your investors happy.

1055
00:52:06,227 --> 00:52:07,310
They're all on your board.

1056
00:52:07,310 --> 00:52:10,220
They're not going to let you
go down a path that's small.

1057
00:52:10,220 --> 00:52:12,730
So your flexibility just
went out the window.

1058
00:52:12,730 --> 00:52:15,270
They're going to push
you down a path that's

1059
00:52:15,270 --> 00:52:19,682
big return, big win, and that
may not be what you want to do.

1060
00:52:19,682 --> 00:52:22,050
PROFESSOR: Let me--
in the materials,

1061
00:52:22,050 --> 00:52:25,404
there's a PowerPoint
on beginner's guide

1062
00:52:25,404 --> 00:52:26,195
to venture capital.

1063
00:52:26,195 --> 00:52:29,480
And if you haven't read it, you
should have before the class.

1064
00:52:29,480 --> 00:52:31,360
But these guys
compete for capital

1065
00:52:31,360 --> 00:52:33,210
to invest in their funds.

1066
00:52:33,210 --> 00:52:36,780
And they have to show a return
history to the people that

1067
00:52:36,780 --> 00:52:38,330
are going to invest in them.

1068
00:52:38,330 --> 00:52:43,550
And one of the issues is that
when these guys put money

1069
00:52:43,550 --> 00:52:46,670
in your company, that's
when the stopwatch starts

1070
00:52:46,670 --> 00:52:49,110
on how fast are they
generating return.

1071
00:52:49,110 --> 00:52:51,770
So you've got to
be prepared to have

1072
00:52:51,770 --> 00:52:54,110
everything running
as fast as you can

1073
00:52:54,110 --> 00:52:55,510
once that money comes in.

1074
00:52:55,510 --> 00:52:57,676
And they're going to push
you to it, because they've

1075
00:52:57,676 --> 00:53:00,780
got to turn around and say, to
their investors, you gave us X

1076
00:53:00,780 --> 00:53:05,940
and we returned so
much time X. So even

1077
00:53:05,940 --> 00:53:08,750
if you can convince them
to invest in your company,

1078
00:53:08,750 --> 00:53:10,450
if you're not ready
to run like crazy,

1079
00:53:10,450 --> 00:53:13,110
if you don't have a model
that you think could work,

1080
00:53:13,110 --> 00:53:15,150
pedal to the floor,
it's going to be

1081
00:53:15,150 --> 00:53:17,440
a tension filled environment.

1082
00:53:17,440 --> 00:53:18,420
Would you disagree?

1083
00:53:18,420 --> 00:53:20,480
AXEL BICHARA: I
would probably agree.

1084
00:53:20,480 --> 00:53:23,581
PROFESSOR: Was there a question?

1085
00:53:23,581 --> 00:53:24,330
Then I'll ask one.

1086
00:53:24,330 --> 00:53:27,062
AXEL BICHARA:
There's one up there.

1087
00:53:27,062 --> 00:53:28,020
All the way in the top.

1088
00:53:28,020 --> 00:53:29,478
PROFESSOR: All the
way in the back.

1089
00:53:29,478 --> 00:53:30,161
All right.

1090
00:53:30,161 --> 00:53:31,155
AUDIENCE: [INAUDIBLE].

1091
00:54:30,298 --> 00:54:32,099
JULIANNE ZIMMERMAN:
Well, so first of all--

1092
00:54:32,099 --> 00:54:34,390
PROFESSOR: Maybe generalize
it so you could work it in.

1093
00:54:34,390 --> 00:54:36,264
I was going to ask a
variation of that, which

1094
00:54:36,264 --> 00:54:39,050
is what are the biggest problems
you see for people trying

1095
00:54:39,050 --> 00:54:41,466
to raise money, because that's
sort of what you're saying.

1096
00:54:41,466 --> 00:54:43,152
I don't really
understand how they're--

1097
00:54:43,152 --> 00:54:44,136
AUDIENCE: [INAUDIBLE].

1098
00:55:05,224 --> 00:55:07,140
JULIANNE ZIMMERMAN: So
here's the first thing.

1099
00:55:07,140 --> 00:55:09,176
Or actually here's
the zero thing.

1100
00:55:09,176 --> 00:55:16,600
The zero thing is you really
need to have not just exchanges

1101
00:55:16,600 --> 00:55:18,870
like this, but you need to
have meaningful exchanges

1102
00:55:18,870 --> 00:55:20,865
with someone who's
a mentor to you who

1103
00:55:20,865 --> 00:55:26,520
can give you ongoing
sanity checks and guidance.

1104
00:55:26,520 --> 00:55:29,130
This is my plug for the MIT
venture mentoring service.

1105
00:55:29,130 --> 00:55:30,560
It is the most amazing thing.

1106
00:55:30,560 --> 00:55:31,760
It is free to you.

1107
00:55:31,760 --> 00:55:33,420
Go sign up right now.

1108
00:55:33,420 --> 00:55:34,590
I mean, seriously.

1109
00:55:34,590 --> 00:55:36,120
Do not wait.

1110
00:55:36,120 --> 00:55:36,810
Immediately.

1111
00:55:36,810 --> 00:55:39,750
Go immediately.

1112
00:55:39,750 --> 00:55:42,340
The premise of the venture
mentoring service is that these

1113
00:55:42,340 --> 00:55:48,640
amazing people, Joe included,
will spend time with you

1114
00:55:48,640 --> 00:55:54,790
to advise you and, under
the terms of the program,

1115
00:55:54,790 --> 00:55:58,820
cannot take any interest
in your business.

1116
00:55:58,820 --> 00:56:01,800
And so it's purely
objective advice.

1117
00:56:01,800 --> 00:56:05,535
It's in your interest, not even
in the business's interests,

1118
00:56:05,535 --> 00:56:08,550
it's advising you
personally as founder.

1119
00:56:08,550 --> 00:56:11,360
So go get that.

1120
00:56:11,360 --> 00:56:15,580
The first thing then
after that is, forgive me

1121
00:56:15,580 --> 00:56:17,580
if I'm reading too much
into your question,

1122
00:56:17,580 --> 00:56:20,480
but it sounds like you've
already have some tensions that

1123
00:56:20,480 --> 00:56:23,400
have already started.

1124
00:56:23,400 --> 00:56:24,770
That's a warning sign.

1125
00:56:24,770 --> 00:56:26,245
Klaxon's are going off.

1126
00:56:29,280 --> 00:56:32,470
If you already have significant
frictions with someone

1127
00:56:32,470 --> 00:56:37,515
and you haven't even made a
financial transaction yet,

1128
00:56:37,515 --> 00:56:39,140
I think you want to
step back and think

1129
00:56:39,140 --> 00:56:41,450
about where those
frictions are coming from.

1130
00:56:41,450 --> 00:56:47,610
Are they coming from legitimate
discussion points, things

1131
00:56:47,610 --> 00:56:49,770
that you're being challenged
to think about that

1132
00:56:49,770 --> 00:56:53,630
are in the interest of the
company you're founding,

1133
00:56:53,630 --> 00:56:55,750
or are they personal frictions?

1134
00:56:55,750 --> 00:56:59,070
Are they differences,
again, in objectives?

1135
00:56:59,070 --> 00:57:01,720
What's behind those frictions?

1136
00:57:01,720 --> 00:57:04,250
And are those
productive frictions?

1137
00:57:04,250 --> 00:57:08,770
So both of my fellow
panelists have

1138
00:57:08,770 --> 00:57:12,557
spoken about the
beneficial frictions

1139
00:57:12,557 --> 00:57:14,015
that you can
encounter, whether its

1140
00:57:14,015 --> 00:57:22,400
from peers or from advisers and
investors and incubator staff

1141
00:57:22,400 --> 00:57:24,260
pushing, pulling, tugging.

1142
00:57:24,260 --> 00:57:26,880
Those can be
productive frictions.

1143
00:57:26,880 --> 00:57:28,640
But if you're
actually experiencing

1144
00:57:28,640 --> 00:57:31,820
a lot of discomfort, I think
you should listen to that.

1145
00:57:34,550 --> 00:57:35,532
AUDIENCE: [INAUDIBLE].

1146
00:57:50,262 --> 00:57:54,055
AXEL BICHARA: I have--
it really depends

1147
00:57:54,055 --> 00:57:55,180
on who you're working with.

1148
00:57:55,180 --> 00:57:59,400
But I'll answer your question
in a slightly different way.

1149
00:57:59,400 --> 00:58:02,200
When an investor funds
you, they probably

1150
00:58:02,200 --> 00:58:03,590
make a whole bunch of calls.

1151
00:58:03,590 --> 00:58:04,637
Who are you?

1152
00:58:04,637 --> 00:58:05,720
What have you done before?

1153
00:58:05,720 --> 00:58:07,053
What's it like to work with you?

1154
00:58:07,053 --> 00:58:10,480
I'm often amazed how few
entrepreneurs actually

1155
00:58:10,480 --> 00:58:11,850
check out the investors.

1156
00:58:11,850 --> 00:58:16,020
So if you take somebody on
your board as a lead investor,

1157
00:58:16,020 --> 00:58:20,090
call up three, four CEOs
they worked with before.

1158
00:58:20,090 --> 00:58:24,140
I mean, I would say it's almost
irresponsible not to do it.

1159
00:58:24,140 --> 00:58:27,210
And it's not just,
oh, they're nice guys.

1160
00:58:27,210 --> 00:58:28,210
Do they have a Rolodex?

1161
00:58:28,210 --> 00:58:30,990
It's what happens when things
get difficult. Because they

1162
00:58:30,990 --> 00:58:37,460
will get difficult. How
have they behaved in follow

1163
00:58:37,460 --> 00:58:41,410
on financings, in work
with strategic investors,

1164
00:58:41,410 --> 00:58:44,566
at exit, management
team building.

1165
00:58:44,566 --> 00:58:47,080
If there's a problem
with a founder/CEO,

1166
00:58:47,080 --> 00:58:50,990
how do they behave under
those circumstances.

1167
00:58:50,990 --> 00:58:54,810
So just do the reference checks.

1168
00:58:54,810 --> 00:58:57,930
Because as I said earlier,
they can fire you,

1169
00:58:57,930 --> 00:58:59,160
but you can't fire them.

1170
00:59:02,856 --> 00:59:05,430
JULIANNE ZIMMERMAN: Did
that answer your question?

1171
00:59:05,430 --> 00:59:06,402
AUDIENCE: [INAUDIBLE].

1172
00:59:15,116 --> 00:59:16,740
JULIANNE ZIMMERMAN:
Mechanically, there

1173
00:59:16,740 --> 00:59:18,950
are only three ways
that anybody gets deals.

1174
00:59:18,950 --> 00:59:21,960
You go out and get them,
you get referred to them

1175
00:59:21,960 --> 00:59:25,900
by peers and folks
in your network,

1176
00:59:25,900 --> 00:59:29,171
or you get cold submissions.

1177
00:59:29,171 --> 00:59:29,670
That's it.

1178
00:59:29,670 --> 00:59:31,730
There are three mechanisms.

1179
00:59:31,730 --> 00:59:33,290
Different firms
have different ways

1180
00:59:33,290 --> 00:59:36,870
of going out and getting them.

1181
00:59:36,870 --> 00:59:40,400
And by and large,
the return on effort

1182
00:59:40,400 --> 00:59:46,150
for an entrepreneur for a
cold submission is pretty low.

1183
00:59:46,150 --> 00:59:50,040
So if you're
someone thinking you

1184
00:59:50,040 --> 00:59:53,660
want to raise venture
funds at any scale,

1185
00:59:53,660 --> 00:59:59,780
it's in your interest to go see
who looks like the most likely

1186
00:59:59,780 --> 01:00:02,860
best fit for you and go
find a way to meet them.

1187
01:00:05,430 --> 01:00:08,760
But really ultimately it's
important recognize that those

1188
01:00:08,760 --> 01:00:10,460
are the only three channels.

1189
01:00:10,460 --> 01:00:12,210
There aren't any other channels.

1190
01:00:12,210 --> 01:00:15,455
Does that make sense?

1191
01:00:15,455 --> 01:00:18,750
PROFESSOR: What role
do introductions have?

1192
01:00:18,750 --> 01:00:21,070
Referrals?

1193
01:00:21,070 --> 01:00:23,435
Entrepreneurs should be
building a full team of people.

1194
01:00:23,435 --> 01:00:28,829
Is that an important part
of who surrounds them

1195
01:00:28,829 --> 01:00:29,620
in your experience?

1196
01:00:29,620 --> 01:00:31,703
AXEL BICHARA: Wait, this
seems to be to questions.

1197
01:00:31,703 --> 01:00:33,182
Is a referral or the--

1198
01:00:33,182 --> 01:00:36,040
PROFESSOR: In other words,
having a deal referred to you,

1199
01:00:36,040 --> 01:00:40,040
is that elevated higher in the
stack if you know the person

1200
01:00:40,040 --> 01:00:43,890
and how does an entrepreneur
who doesn't-- get into that

1201
01:00:43,890 --> 01:00:44,390
network?

1202
01:00:44,390 --> 01:00:45,510
Any advice on that?

1203
01:00:45,510 --> 01:00:48,670
AXEL BICHARA: Well, I would say
certainly anybody in this room

1204
01:00:48,670 --> 01:00:51,580
should be able to get an
introduction to any of us

1205
01:00:51,580 --> 01:00:53,080
with-- I mean, it
should be trivial.

1206
01:00:53,080 --> 01:00:55,910
It's really not that hard at
all to get good introductions

1207
01:00:55,910 --> 01:00:58,334
and they absolutely do matter.

1208
01:00:58,334 --> 01:01:00,500
And there's some that are
good, some that are great,

1209
01:01:00,500 --> 01:01:01,930
some that are not so good.

1210
01:01:01,930 --> 01:01:05,180
But a lot of it is through
networking, who do you know,

1211
01:01:05,180 --> 01:01:09,240
and you absolutely want
to pursue investors

1212
01:01:09,240 --> 01:01:10,550
through strong introductions.

1213
01:01:10,550 --> 01:01:11,650
It's a no-brainer.

1214
01:01:11,650 --> 01:01:12,620
AUDIENCE: [INAUDIBLE].

1215
01:01:34,899 --> 01:01:36,670
AMIR NASHAT: I'll
take that, I guess.

1216
01:01:36,670 --> 01:01:41,090
It just really depends
on-- in the Langor Lab,

1217
01:01:41,090 --> 01:01:46,300
we used to have a formula
which was science--

1218
01:01:46,300 --> 01:01:48,780
you publish the paper in
science, you file the IP,

1219
01:01:48,780 --> 01:01:49,890
and you have animal data.

1220
01:01:49,890 --> 01:01:51,940
You're ready to roll.

1221
01:01:51,940 --> 01:01:53,420
That works in general.

1222
01:01:53,420 --> 01:02:02,900
But I think I think that there's
a point at which the technology

1223
01:02:02,900 --> 01:02:05,870
and innovation stops being
a series of questions

1224
01:02:05,870 --> 01:02:08,340
and it starts being
a series of answers.

1225
01:02:08,340 --> 01:02:10,060
And I think what you
find is that that's

1226
01:02:10,060 --> 01:02:13,130
a good transition wherever
people who in academia like

1227
01:02:13,130 --> 01:02:16,580
to ask questions are no longer
really interested in pursuing

1228
01:02:16,580 --> 01:02:17,380
that.

1229
01:02:17,380 --> 01:02:19,280
And what companies
like to do is create

1230
01:02:19,280 --> 01:02:23,730
answers-- a technical
translation of concept

1231
01:02:23,730 --> 01:02:25,130
into a product.

1232
01:02:25,130 --> 01:02:27,570
And the rigorous-ness
of the precision

1233
01:02:27,570 --> 01:02:29,200
of the answers and
all those things

1234
01:02:29,200 --> 01:02:30,526
becomes really important.

1235
01:02:30,526 --> 01:02:31,650
And it just becomes boring.

1236
01:02:31,650 --> 01:02:33,566
It's very hard to get a
grad student to do it,

1237
01:02:33,566 --> 01:02:34,570
for a postdoc to do it.

1238
01:02:34,570 --> 01:02:37,940
So I think that tends to be the
point at which it kind of hits

1239
01:02:37,940 --> 01:02:39,570
a stalling point
in whether it then

1240
01:02:39,570 --> 01:02:42,380
finds a home on the other
side where a group of people

1241
01:02:42,380 --> 01:02:44,130
say, yeah, this could
easily be a product.

1242
01:02:44,130 --> 01:02:44,950
Let's go for it.

1243
01:02:44,950 --> 01:02:46,500
It's worth being a product.

1244
01:02:46,500 --> 01:02:47,750
It'll either sink or swim.

1245
01:02:47,750 --> 01:02:50,430
But I think I've always--
at least in the lab,

1246
01:02:50,430 --> 01:02:53,549
you could see a
trajectory of a project

1247
01:02:53,549 --> 01:02:55,090
just stop being
interesting to people

1248
01:02:55,090 --> 01:02:58,130
because the next steps
were kind of doing it

1249
01:02:58,130 --> 01:03:01,040
100 times to get the
quality control levels right

1250
01:03:01,040 --> 01:03:01,832
or what not.

1251
01:03:01,832 --> 01:03:04,210
To do a lot of animal
work just wasn't

1252
01:03:04,210 --> 01:03:05,290
that interesting anymore.

1253
01:03:05,290 --> 01:03:09,591
So that's when we typically
tried to kick it out.

1254
01:03:09,591 --> 01:03:10,090
Yeah.

1255
01:03:10,090 --> 01:03:17,760
When the questions become--
I think that curious people

1256
01:03:17,760 --> 01:03:20,050
love unpredictability.

1257
01:03:20,050 --> 01:03:24,200
And I think that scientists love
unpredictability in the data.

1258
01:03:24,200 --> 01:03:25,620
Every experiment
you do, you find

1259
01:03:25,620 --> 01:03:27,250
something you thought
was going to do X

1260
01:03:27,250 --> 01:03:28,500
and it's not going to do that.

1261
01:03:28,500 --> 01:03:30,720
I think that's a very hard
way to make a product.

1262
01:03:30,720 --> 01:03:32,990
I think that's kind of a
good scientific discovery.

1263
01:03:32,990 --> 01:03:35,030
I think at some point
then it becomes a series

1264
01:03:35,030 --> 01:03:36,590
of business unpredictabilities.

1265
01:03:36,590 --> 01:03:38,440
Can we raise the money?

1266
01:03:38,440 --> 01:03:40,330
And so I think
when it transitions

1267
01:03:40,330 --> 01:03:43,010
from being a science
experiment to being technology

1268
01:03:43,010 --> 01:03:45,195
is kind of when you
go from questions

1269
01:03:45,195 --> 01:03:47,321
to answers in my mind.

1270
01:03:47,321 --> 01:03:49,085
I don't know how others--

1271
01:03:49,085 --> 01:03:53,540
AXEL BICHARA: I would answer
it slightly differently

1272
01:03:53,540 --> 01:04:00,600
in that there's so many
potential investors out there.

1273
01:04:00,600 --> 01:04:04,167
And I guess my view is more
from a software, hardware tech

1274
01:04:04,167 --> 01:04:05,625
company, not so
much life sciences.

1275
01:04:08,270 --> 01:04:13,120
By networking with potential
investors from early on,

1276
01:04:13,120 --> 01:04:16,230
you're likely to create
value in what you're doing

1277
01:04:16,230 --> 01:04:20,160
and that could be helping
validate technology or not,

1278
01:04:20,160 --> 01:04:22,404
finding competition.

1279
01:04:22,404 --> 01:04:23,320
It's just interesting.

1280
01:04:23,320 --> 01:04:24,306
What's a body language?

1281
01:04:24,306 --> 01:04:25,680
Do you have really
short meetings

1282
01:04:25,680 --> 01:04:29,050
or are there people
leaning forward and wanting

1283
01:04:29,050 --> 01:04:31,864
to spend more time with you?

1284
01:04:31,864 --> 01:04:33,530
Every entrepreneur
needs to build a team

1285
01:04:33,530 --> 01:04:34,430
from the beginning.

1286
01:04:34,430 --> 01:04:38,810
I think value added
investors have great networks

1287
01:04:38,810 --> 01:04:43,310
and may give you feedback
on where there at the holes

1288
01:04:43,310 --> 01:04:46,127
in your team and maybe
make introductions.

1289
01:04:46,127 --> 01:04:47,585
Some of the best
deals I've done is

1290
01:04:47,585 --> 01:04:49,668
I ended up introducing the
founders to each other.

1291
01:04:52,056 --> 01:04:53,680
That doesn't happen
to you if you don't

1292
01:04:53,680 --> 01:04:54,860
go out and talk to people.

1293
01:04:54,860 --> 01:04:59,730
So I would say, if in doubt, I
would start turning financing

1294
01:04:59,730 --> 01:05:00,750
sources earlier.

1295
01:05:00,750 --> 01:05:02,880
That doesn't mean
you do a big pitch

1296
01:05:02,880 --> 01:05:04,330
and set up a meeting
at a VC firm.

1297
01:05:04,330 --> 01:05:06,639
That's let's grab a
coffee at a Starbucks

1298
01:05:06,639 --> 01:05:08,430
with somebody who has
some domain knowledge

1299
01:05:08,430 --> 01:05:09,812
and get some feedback.

1300
01:05:09,812 --> 01:05:10,804
AUDIENCE: [INAUDIBLE].

1301
01:05:26,676 --> 01:05:29,300
AMIR NASHAT: What's
the triple one?

1302
01:05:29,300 --> 01:05:30,785
What's the double?

1303
01:05:30,785 --> 01:05:31,775
AUDIENCE: [INAUDIBLE].

1304
01:05:54,730 --> 01:05:58,280
JULIANNE ZIMMERMAN:
So this is again

1305
01:05:58,280 --> 01:06:00,295
one of those it depends
kind of answers.

1306
01:06:03,290 --> 01:06:06,800
The first thing that I
think you have to recognize

1307
01:06:06,800 --> 01:06:11,940
is that by declaring that
you have multiple objectives,

1308
01:06:11,940 --> 01:06:15,060
you've set yourself
a much harder task.

1309
01:06:15,060 --> 01:06:17,090
That doesn't mean
it's not worth doing.

1310
01:06:17,090 --> 01:06:19,930
But the point is, from the
get go, you've set yourself

1311
01:06:19,930 --> 01:06:24,200
a very challenging proposition.

1312
01:06:24,200 --> 01:06:27,560
And there is a much
smaller segment

1313
01:06:27,560 --> 01:06:32,870
of investors who are interested
in that kind of proposition.

1314
01:06:32,870 --> 01:06:35,730
Most of them are not
here on the east coast.

1315
01:06:35,730 --> 01:06:40,220
It's not that there aren't
any, but most of them are not.

1316
01:06:40,220 --> 01:06:42,380
You will find
congregations of them

1317
01:06:42,380 --> 01:06:48,250
at places like SoCap, the
Social Capital Conference.

1318
01:06:48,250 --> 01:06:54,670
You'll find them at
places similar to that.

1319
01:06:54,670 --> 01:06:56,970
There are foundations
that are beginning

1320
01:06:56,970 --> 01:07:03,250
to do some investment because
they may want to see a return,

1321
01:07:03,250 --> 01:07:05,410
but they don't have to.

1322
01:07:05,410 --> 01:07:09,720
So Omidyar for example is one.

1323
01:07:09,720 --> 01:07:11,350
Domini is one.

1324
01:07:11,350 --> 01:07:14,790
There are several like that.

1325
01:07:14,790 --> 01:07:18,520
The Kahn foundation does some.

1326
01:07:18,520 --> 01:07:26,780
But again, you're
talking about seeking out

1327
01:07:26,780 --> 01:07:30,070
investors who are a very
tiny sliver of an already

1328
01:07:30,070 --> 01:07:31,190
small pool.

1329
01:07:31,190 --> 01:07:33,520
So it just makes
it incumbent on you

1330
01:07:33,520 --> 01:07:36,360
to be that much more focused
about really seeking out

1331
01:07:36,360 --> 01:07:40,350
investors who are interested
in your specific proposition.

1332
01:07:40,350 --> 01:07:43,910
Not double bottom line or
triple bottom line investors,

1333
01:07:43,910 --> 01:07:48,580
but people who have
declared publicly

1334
01:07:48,580 --> 01:07:53,040
that they are interested in
whatever it is you're doing.

1335
01:07:53,040 --> 01:07:57,940
Because it really is a
very, very narrow segment.

1336
01:07:57,940 --> 01:08:00,340
The good news I would
say is that there

1337
01:08:00,340 --> 01:08:03,500
is a lot more happening
in that segment of late.

1338
01:08:03,500 --> 01:08:05,630
It's very disorganized.

1339
01:08:05,630 --> 01:08:08,270
Extremely disorganized.

1340
01:08:08,270 --> 01:08:13,310
And you'll find that there are
even more, on a relative scale,

1341
01:08:13,310 --> 01:08:15,970
there are even more people
looking for that capital

1342
01:08:15,970 --> 01:08:20,917
than there are looking for
conventional venture money,

1343
01:08:20,917 --> 01:08:21,750
whatever that means.

1344
01:08:24,420 --> 01:08:26,660
So it's challenging.

1345
01:08:26,660 --> 01:08:30,359
It's not impossible, but
it's really incumbent on you.

1346
01:08:30,359 --> 01:08:33,569
You need to be very,
very focused in targeting

1347
01:08:33,569 --> 01:08:36,142
exactly the right folks.

1348
01:08:36,142 --> 01:08:37,850
That's the last thing
I'll say about that

1349
01:08:37,850 --> 01:08:42,760
is that there are some
really good groups to join

1350
01:08:42,760 --> 01:08:47,040
if you haven't already--
again, to share peer knowledge.

1351
01:08:47,040 --> 01:08:51,910
So the social entrepreneurship
groups, for example,

1352
01:08:51,910 --> 01:08:55,189
are really, really
worth being involved

1353
01:08:55,189 --> 01:08:58,904
in to share intelligence
with peer companies

1354
01:08:58,904 --> 01:09:02,510
so that you can
help each other out.

1355
01:09:02,510 --> 01:09:04,420
AMIR NASHAT: If I can
make a comment on it.

1356
01:09:04,420 --> 01:09:07,100
Again, I'm going
to color my comment

1357
01:09:07,100 --> 01:09:09,670
by saying that I invest in
biotech and health care stuff

1358
01:09:09,670 --> 01:09:12,149
primarily.

1359
01:09:12,149 --> 01:09:15,359
I find this whole concept of
double, triple, and quadruple,

1360
01:09:15,359 --> 01:09:17,330
and I'm sure people make
up more bottom lines

1361
01:09:17,330 --> 01:09:20,750
to be kind of
intellectually-- like it

1362
01:09:20,750 --> 01:09:24,069
lacks intellectual rigor.

1363
01:09:24,069 --> 01:09:26,729
Without question, every
single person I've backed,

1364
01:09:26,729 --> 01:09:28,779
especially in the
health care area,

1365
01:09:28,779 --> 01:09:32,319
is not doing what they're
doing to make money.

1366
01:09:32,319 --> 01:09:35,300
They're doing what they're
doing to make a huge impact.

1367
01:09:35,300 --> 01:09:39,000
If you want to make an
apology for not making

1368
01:09:39,000 --> 01:09:42,430
a huge impact by
saying, well, I'm

1369
01:09:42,430 --> 01:09:43,640
going to do some other stuff.

1370
01:09:43,640 --> 01:09:45,770
I've got these
multiple objectives.

1371
01:09:45,770 --> 01:09:48,880
They've got one objective,
which is to cure that disease.

1372
01:09:48,880 --> 01:09:52,020
The faster they can cure it
with the least amount of money,

1373
01:09:52,020 --> 01:09:56,150
with the fastest amount of time,
the most efficient way to do it

1374
01:09:56,150 --> 01:09:59,700
is in the benefit
of the patient.

1375
01:09:59,700 --> 01:10:02,280
And so what you find
is that if you then

1376
01:10:02,280 --> 01:10:04,800
want to treat the most
number of patients

1377
01:10:04,800 --> 01:10:07,460
with that medicine
or that approach,

1378
01:10:07,460 --> 01:10:09,170
the most efficient
business model

1379
01:10:09,170 --> 01:10:11,320
which creates the greatest
profitability, which

1380
01:10:11,320 --> 01:10:13,850
allows the maximum
amount of sharing

1381
01:10:13,850 --> 01:10:15,660
of value between the
person that gains

1382
01:10:15,660 --> 01:10:18,199
the benefit and the person
who provided the benefit

1383
01:10:18,199 --> 01:10:19,240
is the best way to do it.

1384
01:10:19,240 --> 01:10:22,437
And when you look
at even in places

1385
01:10:22,437 --> 01:10:24,270
where social entrepreneurship
is a big deal,

1386
01:10:24,270 --> 01:10:27,150
I think when you'll find
ideas that really take off,

1387
01:10:27,150 --> 01:10:29,200
it's because there's a
sustainability to them.

1388
01:10:29,200 --> 01:10:31,410
The person that
receives the benefit

1389
01:10:31,410 --> 01:10:33,630
is willing to share that
benefit with the person that

1390
01:10:33,630 --> 01:10:34,430
provides it.

1391
01:10:34,430 --> 01:10:38,540
And I think this idea that we're
going to skimp on all of that

1392
01:10:38,540 --> 01:10:40,900
and not come up with a
business model that's

1393
01:10:40,900 --> 01:10:43,880
the best alignment of
everyone's interests

1394
01:10:43,880 --> 01:10:46,990
is to me where I kind of
get lost in the whole thing.

1395
01:10:46,990 --> 01:10:51,320
I feel like usually when you
have these situations where

1396
01:10:51,320 --> 01:10:54,267
you're kind of compromising,
I suppose-- because every time

1397
01:10:54,267 --> 01:10:56,600
someone said double or triple
bottom line, which I'm not

1398
01:10:56,600 --> 01:10:59,030
implying is your
case, it feels to me

1399
01:10:59,030 --> 01:11:01,420
like a compromise versus
saying, let's align

1400
01:11:01,420 --> 01:11:05,944
the interests of the farmer in
the village who doesn't have

1401
01:11:05,944 --> 01:11:07,360
enough money for
the weather data,

1402
01:11:07,360 --> 01:11:09,110
but they've got interest
in other things--

1403
01:11:09,110 --> 01:11:11,180
let's find a way to
make it a win-win-win

1404
01:11:11,180 --> 01:11:13,910
and really line up
everybody's interest.

1405
01:11:13,910 --> 01:11:16,160
And then it becomes
actually only one objective,

1406
01:11:16,160 --> 01:11:19,390
which is maximum impact for
everybody in the equation.

1407
01:11:19,390 --> 01:11:22,025
So I don't like the idea
that it's compromise.

1408
01:11:22,025 --> 01:11:25,000
And so maybe it's
colored by health care

1409
01:11:25,000 --> 01:11:27,301
and maybe my tech partners
wouldn't necessarily

1410
01:11:27,301 --> 01:11:28,300
view the world that way.

1411
01:11:28,300 --> 01:11:30,420
But in every one of our
health care companies,

1412
01:11:30,420 --> 01:11:32,950
everyone's only got one
objective-- cure that kid

1413
01:11:32,950 --> 01:11:35,640
or make that impact.

1414
01:11:35,640 --> 01:11:37,740
And the money is just
part of the whole equation

1415
01:11:37,740 --> 01:11:40,460
to make it as efficient,
the Carnot efficiency

1416
01:11:40,460 --> 01:11:41,780
of the idea basically.

1417
01:11:41,780 --> 01:11:44,820
Just get it as perfect
as you can to line it up.

1418
01:11:44,820 --> 01:11:46,819
So that's kind of
the way I do it.

1419
01:11:46,819 --> 01:11:49,110
JULIANNE ZIMMERMAN: I think
you should get extra points

1420
01:11:49,110 --> 01:11:52,780
for saying Carnot efficiency
in a discussion about finance.

1421
01:11:52,780 --> 01:11:55,720
This is how we
know we're at MIT.

1422
01:11:55,720 --> 01:11:57,119
We're geeks.

1423
01:11:57,119 --> 01:11:58,660
AMIR NASHAT: Everybody
understood it.

1424
01:11:58,660 --> 01:12:00,620
No one was not understanding it.

1425
01:12:00,620 --> 01:12:03,280
PROFESSOR: It's on a
cheat sheet beforehand.

1426
01:12:03,280 --> 01:12:06,070
[LAUGHTER]

1427
01:12:06,070 --> 01:12:07,567
What about with
all the different--

1428
01:12:07,567 --> 01:12:09,108
AMIR NASHAT: They
don't use that word

1429
01:12:09,108 --> 01:12:10,471
at Harvard, that's for sure.

1430
01:12:10,471 --> 01:12:12,279
[LAUGHTER]

1431
01:12:12,279 --> 01:12:14,070
PROFESSOR: With all
the different financing

1432
01:12:14,070 --> 01:12:17,500
sources that are out now
with crowdfunding coming on

1433
01:12:17,500 --> 01:12:21,990
and the traditional friends
and family and everything,

1434
01:12:21,990 --> 01:12:26,090
can you talk a little bit about
mismatch of investor groups?

1435
01:12:26,090 --> 01:12:27,720
Have you seen deals
that were really

1436
01:12:27,720 --> 01:12:31,280
good deals but they got
the wrong initial investors

1437
01:12:31,280 --> 01:12:33,720
and you can't work
with them and you pass?

1438
01:12:33,720 --> 01:12:38,490
What kind of watch
words would you

1439
01:12:38,490 --> 01:12:41,390
have for people about
how they approach that?

1440
01:12:41,390 --> 01:12:43,100
Is that a common mistake?

1441
01:12:43,100 --> 01:12:45,820
Or anyway, just can
you comment on that?

1442
01:12:45,820 --> 01:12:46,465
Anybody?

1443
01:12:46,465 --> 01:12:48,910
AXEL BICHARA: I can
start with a few.

1444
01:12:48,910 --> 01:12:53,049
The most classic
is-- well, I guess

1445
01:12:53,049 --> 01:12:55,090
the two classic ones that
jump to mind right away

1446
01:12:55,090 --> 01:12:59,510
are amount of capital
relative to the opportunity,

1447
01:12:59,510 --> 01:13:06,310
where you're going after some
marketable opportunity which

1448
01:13:06,310 --> 01:13:09,870
turns out to be kind of narrow,
but you've raised so much money

1449
01:13:09,870 --> 01:13:13,220
that you kind of need to
assume a level of success

1450
01:13:13,220 --> 01:13:14,720
that the market
will just not yield.

1451
01:13:14,720 --> 01:13:17,000
These are the worst deals.

1452
01:13:17,000 --> 01:13:19,250
And the conflict may
not happen immediately,

1453
01:13:19,250 --> 01:13:21,560
but it happens over time.

1454
01:13:21,560 --> 01:13:24,740
So being realistic about the
potential of the market you're

1455
01:13:24,740 --> 01:13:26,280
going after and
raising the capital

1456
01:13:26,280 --> 01:13:29,924
to really pursue the upset
over time, but not all upfront

1457
01:13:29,924 --> 01:13:31,590
because you think the
stars will line up

1458
01:13:31,590 --> 01:13:34,810
in terms of what you pursue.

1459
01:13:34,810 --> 01:13:38,940
Some of the worst deals I've
done had exactly that problem.

1460
01:13:38,940 --> 01:13:41,170
The other one--
strategic investors.

1461
01:13:41,170 --> 01:13:42,980
Strategic investors,
by definition,

1462
01:13:42,980 --> 01:13:45,230
have a strategic
interests and not

1463
01:13:45,230 --> 01:13:47,740
primarily a financial interest.

1464
01:13:47,740 --> 01:13:51,610
And just think about how long
it takes to build a company.

1465
01:13:51,610 --> 01:13:55,090
I would say most
overnight successes

1466
01:13:55,090 --> 01:13:56,830
took 10 years to get there.

1467
01:13:56,830 --> 01:13:58,710
So let's say there's
a 10 year time frame

1468
01:13:58,710 --> 01:14:00,690
to build a great company.

1469
01:14:00,690 --> 01:14:02,770
During those 10 years,
whoever did the deal

1470
01:14:02,770 --> 01:14:04,210
from the strategic
investor, which

1471
01:14:04,210 --> 01:14:06,920
is often a biz deaf, culp
deaf person, whatever.

1472
01:14:06,920 --> 01:14:11,520
You've gone through two
or three board members.

1473
01:14:11,520 --> 01:14:13,950
They totally forgot why they
invested in the first time.

1474
01:14:13,950 --> 01:14:18,420
They're not professional
investors like VCs.

1475
01:14:18,420 --> 01:14:22,810
And you inevitably end
with-- not inevitably.

1476
01:14:22,810 --> 01:14:26,420
You very, very often
end with situations

1477
01:14:26,420 --> 01:14:30,040
where there's a lawyer for
some strategic investor sitting

1478
01:14:30,040 --> 01:14:33,080
there reading the fine print of
the legal agreement done eight

1479
01:14:33,080 --> 01:14:36,030
years ago looking at
all the rights they have

1480
01:14:36,030 --> 01:14:41,626
and really becoming a
nightmare to work with.

1481
01:14:41,626 --> 01:14:44,780
I've been in situations where
the strategic investors,

1482
01:14:44,780 --> 01:14:47,160
you're trying to go
public, strategic investor

1483
01:14:47,160 --> 01:14:48,810
has a board seat.

1484
01:14:48,810 --> 01:14:50,210
I'm not signing off on DS1.

1485
01:14:50,210 --> 01:14:51,880
We don't want this
company to go public.

1486
01:14:51,880 --> 01:14:53,460
People actually do that.

1487
01:14:53,460 --> 01:14:58,560
Professional investors like
VCs would never ever do that.

1488
01:14:58,560 --> 01:15:03,140
So I think having professional
investors on board first

1489
01:15:03,140 --> 01:15:05,710
before you take on strategics
is a very good idea,

1490
01:15:05,710 --> 01:15:09,390
because professional investors
help you get the terms and also

1491
01:15:09,390 --> 01:15:13,750
relative ownership and all of
that right with strategics.

1492
01:15:13,750 --> 01:15:16,370
And I've just seen
it so many times,

1493
01:15:16,370 --> 01:15:19,460
that it may even be
great for a few years.

1494
01:15:19,460 --> 01:15:21,550
But over the life of
a typical company,

1495
01:15:21,550 --> 01:15:26,072
you very frequently run
into significant issues.

1496
01:15:26,072 --> 01:15:27,530
JULIANNE ZIMMERMAN:
The other thing

1497
01:15:27,530 --> 01:15:29,920
that I've seen happen
again and again

1498
01:15:29,920 --> 01:15:37,670
is where there have been large
numbers of early investors,

1499
01:15:37,670 --> 01:15:40,870
whether they're friends and
family or loosely affiliated

1500
01:15:40,870 --> 01:15:45,190
angels or what have
you, and someone

1501
01:15:45,190 --> 01:15:50,020
has made the oversight of
making decisions unanimous.

1502
01:15:50,020 --> 01:15:51,340
This is a nightmare.

1503
01:15:51,340 --> 01:15:54,550
Because what ends up happening
is you might have, who knows,

1504
01:15:54,550 --> 01:15:59,190
17 or 20 or God knows how many
individual parties who have

1505
01:15:59,190 --> 01:16:03,000
to sign off on every
subsequent thing that happens.

1506
01:16:03,000 --> 01:16:05,770
And I've seen this
happen many times.

1507
01:16:05,770 --> 01:16:07,430
It it's a terrible mistake.

1508
01:16:07,430 --> 01:16:12,230
It costs an incredible amount
of time to fix that and go back.

1509
01:16:12,230 --> 01:16:14,410
And I've seen
individual investors

1510
01:16:14,410 --> 01:16:18,710
who have put $10,000
into a company

1511
01:16:18,710 --> 01:16:23,720
just tie up deals for days or
weeks or even scotch deals.

1512
01:16:23,720 --> 01:16:26,740
So not just strategic,
not signing an S1,

1513
01:16:26,740 --> 01:16:34,230
but individual very, very tiny
investors preventing a deal

1514
01:16:34,230 --> 01:16:36,890
from happening.

1515
01:16:36,890 --> 01:16:38,860
So if you do the friends
and family route--

1516
01:16:38,860 --> 01:16:42,190
I would not advise you not to do
that-- just make sure that you

1517
01:16:42,190 --> 01:16:43,970
have good counsel.

1518
01:16:43,970 --> 01:16:47,080
You don't have the benefit
of a professional investor

1519
01:16:47,080 --> 01:16:47,750
to advise you.

1520
01:16:47,750 --> 01:16:52,620
Make sure you have good counsel
to structure that round so

1521
01:16:52,620 --> 01:16:57,110
that you're not bound to
having every single person

1522
01:16:57,110 --> 01:16:59,985
participating agree with
every future decision

1523
01:16:59,985 --> 01:17:03,138
you have to make

1524
01:17:03,138 --> 01:17:04,990
AMIR NASHAT: I'm going
to give a squishy--

1525
01:17:04,990 --> 01:17:06,540
like an early
biomarker or squishy

1526
01:17:06,540 --> 01:17:11,030
answer for how I kind
of have viewed people I

1527
01:17:11,030 --> 01:17:12,380
have found difficult work with.

1528
01:17:12,380 --> 01:17:14,920
Again, we're kind of in the
same boat most of entrepreneurs

1529
01:17:14,920 --> 01:17:15,710
are in.

1530
01:17:15,710 --> 01:17:16,442
We invest early.

1531
01:17:16,442 --> 01:17:18,650
We bring other VCs on the
board and we get frustrated

1532
01:17:18,650 --> 01:17:20,280
by our colleagues.

1533
01:17:20,280 --> 01:17:22,960
So we're like, pulling out
our hair, too, sometimes.

1534
01:17:22,960 --> 01:17:28,290
And so I've always found
that investors that actually

1535
01:17:28,290 --> 01:17:30,040
ask a lot of
questions-- and it's

1536
01:17:30,040 --> 01:17:31,840
very specific to
a particular deal.

1537
01:17:31,840 --> 01:17:36,730
Someone who's a good listener
asks questions and is just

1538
01:17:36,730 --> 01:17:39,110
listening and
questioning is usually

1539
01:17:39,110 --> 01:17:40,580
probably a better investor.

1540
01:17:40,580 --> 01:17:43,430
Whenever I've been in these
kind of nightmare situations,

1541
01:17:43,430 --> 01:17:45,180
you later kind of
remember that, you know,

1542
01:17:45,180 --> 01:17:46,930
they didn't really ask
a lot of questions.

1543
01:17:46,930 --> 01:17:48,230
They just told me a lot stuff.

1544
01:17:48,230 --> 01:17:51,380
They kept lecturing me
about my idea, my company.

1545
01:17:51,380 --> 01:17:54,110
I think usually that's
like my first alarm bell

1546
01:17:54,110 --> 01:17:56,030
whenever we're
involved in stuff.

1547
01:17:56,030 --> 01:17:58,510
And it can go wrong
1,000 different ways.

1548
01:17:58,510 --> 01:18:01,500
But if they're not asking
you interesting questions

1549
01:18:01,500 --> 01:18:05,560
and listening, you're probably
in for a bruising relationship,

1550
01:18:05,560 --> 01:18:06,566
in my opinion.

1551
01:18:06,566 --> 01:18:07,940
And the sooner
you get-- and then

1552
01:18:07,940 --> 01:18:10,680
reference checks, whoever
said that earlier-- Axel had

1553
01:18:10,680 --> 01:18:13,570
say reference the
hell out of investors.

1554
01:18:13,570 --> 01:18:15,825
We do.

1555
01:18:15,825 --> 01:18:19,680
PROFESSOR: We're coming
up close to break time.

1556
01:18:19,680 --> 01:18:21,390
Maybe one last
question and then I'll

1557
01:18:21,390 --> 01:18:23,777
ask the panel if you
have any last comments.

1558
01:18:23,777 --> 01:18:25,360
Don't feel you have
to, but if there's

1559
01:18:25,360 --> 01:18:27,010
something that's pressing.

1560
01:18:27,010 --> 01:18:28,412
Was there a question over there?

1561
01:18:28,412 --> 01:18:29,328
AUDIENCE: [INAUDIBLE].

1562
01:18:43,440 --> 01:18:45,511
Do you know they
are going to have

1563
01:18:45,511 --> 01:18:47,750
to be part of the
gang that's employed,

1564
01:18:47,750 --> 01:18:50,402
would you go talk
to them straightaway

1565
01:18:50,402 --> 01:18:52,250
if they were very [INAUDIBLE].

1566
01:19:05,380 --> 01:19:08,970
AMIR NASHAT: I'll give
you a general answer.

1567
01:19:08,970 --> 01:19:11,360
I think you should get
rid of your biggest

1568
01:19:11,360 --> 01:19:15,210
risk with the least amount
of money as fast as possible.

1569
01:19:15,210 --> 01:19:19,710
And the way you described the
situation maybe your friend

1570
01:19:19,710 --> 01:19:22,290
has-- it's like, my friend
has a rash, at the doctor--

1571
01:19:22,290 --> 01:19:25,199
[LAUGHTER]

1572
01:19:25,699 --> 01:19:30,160
I guess is basically
like, if there's

1573
01:19:30,160 --> 01:19:32,799
a point at which you are stuck,
then you should get unstuck.

1574
01:19:32,799 --> 01:19:33,840
I'll give you an example.

1575
01:19:33,840 --> 01:19:36,610
Sun Catalytics is a
really good example.

1576
01:19:36,610 --> 01:19:38,332
If I'd gone to my
partners-- we were

1577
01:19:38,332 --> 01:19:39,540
developing this energy stuff.

1578
01:19:39,540 --> 01:19:42,120
And one of the big
markets was India

1579
01:19:42,120 --> 01:19:43,720
initially for the company.

1580
01:19:43,720 --> 01:19:45,784
If I'd gone to my
partners and said,

1581
01:19:45,784 --> 01:19:47,450
hey, we need to put
in a bunch of money.

1582
01:19:47,450 --> 01:19:48,060
It's going to be great.

1583
01:19:48,060 --> 01:19:49,800
We're going to go commercialize
in India and all this.

1584
01:19:49,800 --> 01:19:50,795
Or any other VC people.

1585
01:19:50,795 --> 01:19:51,545
They'd say, India?

1586
01:19:51,545 --> 01:19:53,010
What are you going to do there?

1587
01:19:53,010 --> 01:19:55,230
So very, very early in
the life of the company,

1588
01:19:55,230 --> 01:19:58,200
I realized we needed to have
that fixed, because it's

1589
01:19:58,200 --> 01:20:00,390
a major risk that one
of our largest markets

1590
01:20:00,390 --> 01:20:01,302
was one nobody new.

1591
01:20:01,302 --> 01:20:02,510
So we went and we did a deal.

1592
01:20:02,510 --> 01:20:04,480
We got an investment
and partnership dollars

1593
01:20:04,480 --> 01:20:06,820
from the Totten Group.

1594
01:20:06,820 --> 01:20:09,470
I've never heard that
question in four or five

1595
01:20:09,470 --> 01:20:10,640
years about the company.

1596
01:20:10,640 --> 01:20:12,320
We can say anything about India.

1597
01:20:12,320 --> 01:20:14,362
Yeah, we're going to go
sell spaceships in India.

1598
01:20:14,362 --> 01:20:16,111
They're like, oh yeah,
you're with Totten?

1599
01:20:16,111 --> 01:20:16,940
No problem.

1600
01:20:16,940 --> 01:20:19,496
And we just basically got
rid of the biggest risk

1601
01:20:19,496 --> 01:20:20,995
which was this
perception that there

1602
01:20:20,995 --> 01:20:23,540
was no market by solving it.

1603
01:20:23,540 --> 01:20:27,600
Now could we have gotten
better terms later or whatever?

1604
01:20:27,600 --> 01:20:30,650
Maybe, but I got rid
of it at the earliest

1605
01:20:30,650 --> 01:20:32,560
point in the context of deal.

1606
01:20:32,560 --> 01:20:35,772
And so if you're really going
to be stuck with these guys,

1607
01:20:35,772 --> 01:20:37,480
I think you're going
to worry about that,

1608
01:20:37,480 --> 01:20:40,021
that you don't get rid of your
big-- whatever your risks are.

1609
01:20:40,021 --> 01:20:42,580
I always kind of list them and
I say the biggest one first.

1610
01:20:45,562 --> 01:20:47,880
JULIANNE ZIMMERMAN:
I absolutely agree.

1611
01:20:47,880 --> 01:20:51,780
The other thing that I think you
want to be really careful about

1612
01:20:51,780 --> 01:20:58,240
is if there's honest to God
only one major player you need

1613
01:20:58,240 --> 01:21:00,530
to cooperate with
you and whatever

1614
01:21:00,530 --> 01:21:03,020
that means-- first
of all, you want

1615
01:21:03,020 --> 01:21:05,520
to make sure you're not
going down a cul-de-sac.

1616
01:21:05,520 --> 01:21:07,672
Not only do you want
to retire the risk,

1617
01:21:07,672 --> 01:21:09,380
but you want to make
sure that you're not

1618
01:21:09,380 --> 01:21:12,320
aiming for something
that's not going to exist

1619
01:21:12,320 --> 01:21:14,310
when you're ready to get there.

1620
01:21:14,310 --> 01:21:18,190
So you really want to understand
what's in it for them,

1621
01:21:18,190 --> 01:21:23,370
not just now, but when
you're ready in whatever,

1622
01:21:23,370 --> 01:21:25,290
a year or five years.

1623
01:21:25,290 --> 01:21:30,166
Are you aiming for a place
where they will no longer be?

1624
01:21:30,166 --> 01:21:31,540
Because what you
don't want to do

1625
01:21:31,540 --> 01:21:38,430
is spend that next chunk of your
life going into a blind alley.

1626
01:21:38,430 --> 01:21:40,460
And I wasn't here last night.

1627
01:21:40,460 --> 01:21:41,575
I miss Bob's talk.

1628
01:21:41,575 --> 01:21:42,654
But I've seen it before.

1629
01:21:42,654 --> 01:21:44,570
And if I remember
correctly, one of the things

1630
01:21:44,570 --> 01:21:46,880
that he likes to say
is, go talk to people

1631
01:21:46,880 --> 01:21:48,200
and don't try to sell them.

1632
01:21:48,200 --> 01:21:50,380
Just have a hypothetical
conversation.

1633
01:21:50,380 --> 01:21:54,810
If I had this, would
that interest you?

1634
01:21:54,810 --> 01:21:58,240
I understand your interests
like this, do I have that right?

1635
01:21:58,240 --> 01:22:02,840
Do I understand what
you really want?

1636
01:22:02,840 --> 01:22:05,460
You can have those
conversations without having

1637
01:22:05,460 --> 01:22:08,760
to make big disclosures,
without having to formalize

1638
01:22:08,760 --> 01:22:11,630
any kind of relationship.

1639
01:22:11,630 --> 01:22:15,950
And just like you want your
investors to ask questions,

1640
01:22:15,950 --> 01:22:17,750
you want to be asking
a lot of questions

1641
01:22:17,750 --> 01:22:20,440
along the way of
any party you're

1642
01:22:20,440 --> 01:22:22,600
going to be working with.

1643
01:22:22,600 --> 01:22:24,530
And if it's really
true that you are

1644
01:22:24,530 --> 01:22:27,250
going to be dependent
on this one entity,

1645
01:22:27,250 --> 01:22:30,140
then you really
need to understand

1646
01:22:30,140 --> 01:22:34,260
how vital it is to
them that they're

1647
01:22:34,260 --> 01:22:38,230
going to get to have access
to whatever you're developing.

1648
01:22:38,230 --> 01:22:42,950
And you need to stay very
close to that vital interest

1649
01:22:42,950 --> 01:22:48,870
because even if you sign a deal
with them today, as Axel said,

1650
01:22:48,870 --> 01:22:50,510
people change roles.

1651
01:22:50,510 --> 01:22:53,180
They go on and work
for another company.

1652
01:22:53,180 --> 01:22:56,340
You lose a champion,
and if you don't already

1653
01:22:56,340 --> 01:23:00,370
have a deeper connection
with that organization,

1654
01:23:00,370 --> 01:23:02,120
you could be talking
to a lawyer, which

1655
01:23:02,120 --> 01:23:04,680
is not a really great feeling.

1656
01:23:04,680 --> 01:23:07,650
So yeah, you definitely want
to prioritize your risks.

1657
01:23:07,650 --> 01:23:08,650
You want to retire them.

1658
01:23:08,650 --> 01:23:12,630
You also really want to
understand if you're really

1659
01:23:12,630 --> 01:23:15,550
pinning your prospects
on this one company,

1660
01:23:15,550 --> 01:23:17,750
you better make sure
that they're going

1661
01:23:17,750 --> 01:23:20,205
to be there when you get there.

1662
01:23:20,205 --> 01:23:27,260
AXEL BICHARA: So I would
get the deal done early,

1663
01:23:27,260 --> 01:23:31,570
at least get started early,
but get people experienced

1664
01:23:31,570 --> 01:23:33,970
with deal making on
board, whether it's

1665
01:23:33,970 --> 01:23:37,350
an investor, advisory,
friend of the company.

1666
01:23:37,350 --> 01:23:39,750
Some of these big
strategic deals,

1667
01:23:39,750 --> 01:23:42,250
they may take more than
a year to get done.

1668
01:23:42,250 --> 01:23:47,520
And the way to think about them
is really like a chess game.

1669
01:23:47,520 --> 01:23:49,300
You need to think
a bunch of moves

1670
01:23:49,300 --> 01:23:52,330
ahead to really
achieve your objective.

1671
01:23:52,330 --> 01:23:59,380
And I'm a big believer
in skilled negotiation

1672
01:23:59,380 --> 01:24:01,700
actually creating
value fundamentally

1673
01:24:01,700 --> 01:24:04,190
because you find win-wins,
alignment of interests,

1674
01:24:04,190 --> 01:24:07,130
and you may only
discover that after five

1675
01:24:07,130 --> 01:24:09,710
or six moves in the chess game.

1676
01:24:09,710 --> 01:24:16,700
And people who have done that
many times in their lives,

1677
01:24:16,700 --> 01:24:19,504
just from experience, turns out
they can add a lot of value.

1678
01:24:19,504 --> 01:24:20,920
So that maybe
another perspective.

1679
01:24:24,750 --> 01:24:26,780
PROFESSOR: Are there
any final words

1680
01:24:26,780 --> 01:24:30,650
of wisdom you'd like to impart?

1681
01:24:30,650 --> 01:24:31,524
Well, we'd like to--

1682
01:24:31,524 --> 01:24:32,440
AXEL BICHARA: Not met.

1683
01:24:32,440 --> 01:24:37,900
PROFESSOR: I think have some
very valuable MIT-- [LAUGHTER]

1684
01:24:37,900 --> 01:24:41,130
no, wait, wait, wait.

1685
01:24:41,130 --> 01:24:43,640
These are MIT paper weights.

1686
01:24:43,640 --> 01:24:45,610
You can have them
if you promise not

1687
01:24:45,610 --> 01:24:47,842
to throw them at entrepreneurs.

1688
01:24:47,842 --> 01:24:50,050
I leave it to your discretion
of whether you use them

1689
01:24:50,050 --> 01:24:52,454
with your investors,
your fellow investors.

1690
01:24:52,454 --> 01:24:54,120
And we'd all like to
thank you very much

1691
01:24:54,120 --> 01:24:57,560
and hopefully you'll stay around
for a few minutes for a chat.

1692
01:24:57,560 --> 01:24:58,760
So thank you.

1693
01:24:58,760 --> 01:25:01,210
[APPLAUSE]