What’s a Venture Capitalist Look Like?
Makers have mixed opinions on venture capitalists (VCs) fueled by stories of entrepreneurs who lost control of the companies they built when they traded autonomy for capital. While projects are getting off the ground with crowd sourcing from Kickstarter and Indiegogo, many start ups still turn to VCs to get the funds they need to get off the ground. MAKE invited some of them to participate at the Hardware Innovation Workshop this week, so innovative makers could get the straight dope.
Eric Klein of Lemnos Labs led a well informed discussion with venture capitalists from five different firms. Who are the people behind the money?
Many of them have serious technical backgrounds and earned their design and engineering chops before becoming VCs. Almost every one of them on this panel holds a bachelor’s, master’s or Ph.D in engineering or science. Most have multiple technical degrees and an MBA on top of it. Their careers usually started at technology companies, where they were key innovators themselves.
There’s nothing like being there, but if you missed this panel at the Hardware Innovation Workshop, here are some highlights. Eric asked a series of questions and generally kept the conversation flowing. Most times each member of the panel had something to add.
How do you evaluate a start-up company’s ability to become a viable manufacturer?
Manu Kumar, founder and “chief firestarter” of K9 Ventures sees hardware as enabling software, not as an end to itself. He also pointed out that manufacturing is more challenging than many start ups realize. “You can’t spell hardware without the hard part,” he said. Having a prototype is just one step.
Manu speaks from experience. K9 is the third venture firm he has founded. He successfully grew and sold two previous firms. He was founder, president and CEO of SneakerLabs, Inc., vice president of Interactive Technologies of E.piphany, and chairman and CEO of iMeet, Inc. He also served on the board of directors of Netspoke after they acquired iMeet.
Manu has been involved with R&D and commercialization of a range of interactive technologies relating to speech, distributed systems, chat, web and audio conferencing, distance learning, and more. So OK, he probably knows what he’s talking about.
Trae Vassallo of Kleiner Perkinds Caulfied & Byers (KPCB) agreed. “Building the prototype is easy; 99 percent of the work is productizing it.” She also commented that a company can quickly bankrupt itself due to hardware costs.
Renata Streit Quintini is an investor at Felicis Ventures. She says she looks to see if there is a compelling demand for the product. She also says that having someone on the team who understands the reality of what it takes to bring a hardware product to market is a key differentiator.
Renata began her career working as a technology merger and acquisitions attorney in both Brazil and the United States. She moved on to JPMorgan’s Tech, Media and Telecom group. Then she worked for the Stanford Management Company, helping to manage their venture capital portfolio.
At Felicis, Renata is primarily focused on e-commerce and education investments. She has led investments in Baby.com.br, Bonobos, Dollar Shave Club, and Artspace.
Rob Coneybeer, a managing director at Shasta Ventures, tries to evaluate if the team he is considering really understands how hard it is to manufacture their product.
Ryan Kottenstett of Klosla Ventures advised innovators to leverage off-the-shelf solutions where it makes sense, and not to try to tackle every hard problem themselves. He also looks at the design life and consequence of failure of the product. For example, a consumer electronic product has a relatively short life and low impact if it fails, compared to a medical device.
Are there technology areas that are over-represented or flooded with start ups?
Ryan looks to see what is unique about the technology he is evaluating. His message to entrepreneurs is that entering the market early is not sufficient any longer. You have to have something it is not easy for someone else to do.
Ryan has several patents to his name related to thermal management and smart materials, as well as journal articles on materials science. He worked as a research engineer for BMW and the National Renewable Energy Laboratory (NREL).
He was one of the first team members at technology start-up Amprius, which developed next generation lithium ion batteries, so has his own start up experience to lean on.
Rob thought that 3D printing is currently overloaded with start-ups. He said we are still 3-4 years away from mass consumer adoption, and there are just too many players out there. He looks for someone with a unique cut at an idea.
Trae says, “there’s a lot of activity on Kickstarter, but few knock it out of the park.” She pointed to the Quantified Self movement as an example. A product that gathers data on your daily life is not enough. “You need something that shows you how to live a better life.”
What areas excite you as a VC, or are under-represented?
Trae sees the proliferation of smartphones as an enabling technology. The economies of scale have made electronics that can help create the Internet of Things cheap and easily available. She thinks wearables may be an undervalued technology.
She speaks with both authority and with an inherent appreciation for the human side of things. Her focus is on how these technologies can positively change our lives at home and particularly for parents.
Trae has some serious cred as a designer and engineer. She graduated with a degree in mechanical engineering and an MBA from Stanford. Trae began her career at IDEO, developing innovative products that were used by Palm and Dell. She was co-founder of Good Technology and holds 13 patents in multiple technologies.
Many of Manu’s investment bets have been with innovative camera technology. Cameras that add depth and change their focus after the picture have been taken are exciting prospects. He has seen innovative add-on devices that extend today’s cameras as well as entirely new camera designs.
Rob feels that the cross section of robotics with the Internet of Things is a good play. He thinks the next step after connecting all these smart devices is to provide actuation for them, so they can affect the real world.
Renata sees the expansion of 3D printing and imaging into the online world. She thinks building plans will be replaced by high quality 3D scanning, revolutionizing construction, and design.
Ryan’s interest is in integrated systems or solutions, not just the individual technology pieces. He feels there will be some interesting solutions around 3D vision systems in the future.
What is the value of fundraising sites like Kickstarter and Indiegogo to a VC?
Rob had some practical advice for people trying to launch on a crowd sourcing platform. It is hard to build a great campaign and quality videos and communications to support it. Plan VERY well and execute well. Your performance on Kickstarter will be there as evidence, good or bad, for potential investors. A bad Kickstarter campaign can affect your reputation. Permanently.
Rob began his career at Martin Marietta, where he helped build the first EchoStar spacecraft. So, basically he’s a rocket scientist. He worked for venture capital firm New Enterprise Associates, where he led 15 early-stage investments in semiconductor, software, and networking technologies. Rob co-founded Shasta Ventures in 2004, and he focuses on mobile and wireless start-ups.
Manu explained that some start up companies are using Kickstarter for marketing, communication and distribution, and then seeking VC funding. Crowd sourcing platforms have become an effective way to build a network of backers and customers, but don’t always deliver the financial backing needed.
Renata values the data from crowd sourcing platforms. The volume of interest in a project is significant. She also echoed how these sites are great as a distribution channel and communications channel.
What happens when you get a major “hit” with a hardware product?
Manu related a story about how he saw the value of a product through his child’s attraction to it. When his 3-year-old would rather play a prototype game device than with his favorite games on the iPad, he knew he had a hit. Sometimes it only takes one or two positive data points to help make an investment decision. However, Manu wants to be sure he’s not looking at a one-hit wonder. He wants to know that the team followed an engineering process, and didn’t just throw a dart at the wall.
Ryan looks for a product with a sustaining capability. Trae agrees. You don’t sell a product, you sell something that solves a problem. Then… how do you extend it? VCs are looking for industry transformational technologies and ideas that are long-lasting.
How do you consider the design aesthetic in the ideas you back?
Rob explains that people develop a close relationship with things they touch. If they love how it feels and how they interact with it, they will promote it in social media and recommend it to friends.
Manu stresses the importance of overall design, not just the technical design of the product. You have to consider packaging, the user manual, the un-boxing experience, and support. To help innovators envision their total design, he asks, “What would your product look like on the shelf of the Apple Store?”
Do you steer away from and idea that already have an established “800 lbs gorilla” focusing on it?
Everyone laughed when Rob advised, “Don’t take a banana out of the gorilla’s hands.” However, you can watch the gorilla and consider where you think the gorilla might go.
Manu steers away from products that are filling a hole that a big guy will eventually fill. It’s not a good bet. However, a small start-up may move faster and gain a place in the market that the big guys are ignoring.
Trae related the story of FitBit, and how their focus on improving people’s lives was very different from Nike, who used similar technology in their products. Nike was focused on the shoe, FitBit focused the end user.
The VC panel was a fascinating and lively conversation, and a great introduction to many at the workshop into the world of venture capital. It’s a perspective that you don’t usually get exposed to in the maker community. Good luck to all the makers out there who want to bring their great ideas to market.