VC10X - VENTURE CAPITAL PODCAST
Venture Capitalists (VCs) & Angel Investors share their investing thesis, screening process, value-add, exits, and more. Hosted by Prashant Choubey (@ChoubeySahab)
Matt Kozlov heads 3 of the most exciting accelerators run by Techstars. Namely the Los Angeles accelerator, Healthcare accelerator & Space accelerator.
We talk about:
What's the focus at Techstars LA, Healthcare & Space programs?
Right now I run Techstars LA. But I also run a recently announced program called Techstars Healthcare in partnership with Cedars-Sinai, UCI Health, Point32Health and UnitedHealthcare. And I also run the Techstars Space Accelerator, which we run in partnership with the US Space Force and NASA's Jet Propulsion Lab. These are each individually independent programs, although my team runs them all. So in that sense they're not independent, but they are distinct discrete programs, each with their own mentor pool, each with 12 companies per program.
So basically the focus is on healthcare, SpaceTech. And for Techstars LA, it's mostly agnostic, although there are certain industries we really like and focus on, with an emphasis on B2B SaaS, ecommerce and retail enablement, property tech, health and wellness, and deeptech, which can be included aerospace and defense.
What do you look for in the founders that apply?
For Techstars LA, we get a lot of applicants. LA is a very popular place to be and a very vibrant ecosystem. Just even in the last couple of years, LA has grown quite significantly, so we're quite popular. I'm not going to disclose the exact number, but it's in the multi hundreds. Less than 2% of applicants get selected. So we are looking for the space and healthcare programs. Obviously, we want it to be a company in that sector. But even more specifically, we want them to have a technology that is of interest and relevance to our partners, where our partners raise their hand and say, hey, this is actually a really compelling technology that we would use or our end users would use and we would love to explore working with them and potentially get a pilot or grant or contract in place with them in the 13 weeks.
Beyond that, we are looking for phenomenal exceptional teams first and foremost. I think that's pretty consistent. We're looking for deeply passionate, coachable founders who are humble, good at asking for help, good at accepting help, which is not something that every founder can do. A lot of people can be very stubborn. But one of the strengths of our program is that we surround our founders with hundreds of deeply experienced, deeply connected, deeply helpful people, and they can open up thousands and thousands of valuable doors for our founders. But if the founders aren't willing to ask for that help and walk through those doors, there's not much we can do for them.
So we are looking for founders with a lot of grit. One of the hardest things you can ever do in your life is to start a company. It takes enormous amount of blood, sweat, tears. You're putting your reputation on the line, you're taking no pay for a lot of time. If you've got a family, you've got risks and concerns there. It's just a very noble and difficult thing to do. And there are going to be all of these ups and downs and a lot more downs than ups, unfortunately. And so we're looking for founders that have the grit and stick to it to push through those. And so often that includes passion for the problem they're solving and just the unwillingness to let something go.
We're also looking for traction. So usually companies are coming into our program with some execution already under their belt. They're rarely coming in with just an idea. They're usually coming in with a product in market with some early customer traction. And then we can help them pour fuel on that fire quintuple, 10x, 20x, that traction get funding on the other end, but along the way we need them to have credibility, especially on the healthcare and aerospace side. If you're building a medical device company and you have no experience in biomedical engineering, that might be a challenge. So we are looking for the technical background that is necessary to solve the problem.
Techstars Healthcare & perspective on the healthtech sector
I didn't join Techstars 7 years ago to run the LA program. I actually joined Techstars seven years ago to build and run our healthcare program. So I've been investing in health tech for about seven years, which includes obviously a long period of time pre pandemic and a period of time mid and now I don't know if we can call ourselves mid or post pandemic. Will we ever be post pandemic? But it has been absolutely fascinating from a professional perspective. It's been devastating on a personal perspective, but fascinating on professional perspective to see how the pandemic has accelerated adoption of digital health technology.
People in the healthcare profession, especially the health tech profession, I think have been bemoaning for quite some time how behind healthcare generally is versus other sectors. Telehealth barely had any adoption prior to the pandemic. If you've ever been inside of an EHR, it looks like software that was built 20 years ago, and in most cases it was. And you know, the visual refresh and the technical refresh that you would expect to see in a Web 2.0 product level in a web 3, hasn't happened yet. And so there's still an enormous amount of innovation to be had in building applications that sit on health data on the EMR. It's also incredibly difficult to get access to that data and to do those integrations because most of these EHR platforms have no interest in interoperability or in giving up any functionality that they want the health systems to pay them for.
So navigating the Epic and Cerner environments are a consistent challenge. But what has been happening is that health systems have had a lot of strain on them and are in dire need of tools and technology that can reduce the burden on their staff. There's a nurse shortage, and so any technology that's going to make nurses more efficient, make physicians more efficient, help triage patients more effectively so that they're not going to the ED if they don't need to be pushing as much into the home as possible, which includes a lot of really innovative telehealth applications and connected devices.
We invested in one company called Tasso that allows you to draw your own blood at home without the need for phlebotomy that unlocks so many opportunities, whether it's clinical trials or the Olympics did all their antidope testing using this technology. Military can collect blood from far in the lines or from the ships or from their bases without deploying phlebotomists everywhere.
Patients who are in rural environments now don't need to necessarily go into the hospital and take that hour and a half, two hour drive to get the care they can get the telehealth and the device and the data from home now. And so I'm really excited about those technologies. And then we haven't even scratched the surface on where precision medicine is moving and the pace of biological discovery and computational biology. I mean, there is so much innovation happening across healthcare, but so much is still broken just on the everyday patient experience and the everyday operational side of healthcare, because it's really, really hard that I see a lot of opportunity there.
And I'm not smart enough to know where the future of genetics is moving and when we're going to cure cancer. And I certainly hope it's when we're going to cure cancer, not if we're going to cure cancer. But I think the horizon in health tech for the next foreseeable future is going to be fascinating. One of these companies that I actually invested in outside of Techstars is a company called Colossal that is bringing back the woolly mammoth. They are trying to end extinction. They are working on reviving species that we thought long dead. And along the way, they're generating hundreds of novel technologies that could, on their own, be breakthrough technologies, just as NASA has in our quest to the moon in the 60s, spurred the creation of new technologies that have become household products, like the handheld vacuum cleaner Velcro. I think we're going to see some really interesting breakthroughs in genetics over the next few years.
Where do you think is the next SpaceX coming from?
I think I've already invested in several that I think will be the next SpaceX. Although what do we mean by SpaceX? Do we mean a new enabling technology that changes the way access to the space economy works? Yes, I think we've invested in quite a few of those. One is a company called Orbit Fab, which is building in space refueling infrastructure today. And for the last 40 years, when we launch a satellite, we load it with all the propellant that it's ever going to have for the life of the satellite. And then when it runs out of fuel, actually, when it runs out of two thirds of its fuel, we use the remaining third to put that satellite into a de orbit.
That then means that we won't be able to get any value out of that satellite anymore. But it won't do any damage anymore either, because we have to be very mindful of space debris, which is a huge problem. That's ridiculous. Like, tens of billions of dollars of spacecraft are being jettisoned every year because they run out of gas. We don't do that with cars. We don't do that with airplanes. Why are we doing that with satellites? It's because there's no mechanism yet, or infrastructure yet to refuel them while they're up there. So Orbit Fab is building that infrastructure.
They've raised tens of millions of dollars. I can't disclose exactly how much, but they've received investment from Munich Re, which is the largest insurer of spacecraft, who have a lot to gain if spacecraft are now lasting 5-10 years longer than they originally did. Lockheed Martin and Northrop Grumman, two of the largest aerospace primes in the world, both backed this company and they've won lots of very meaningful DoD contracts. This is a core capability that will allow for new capabilities in space that we've barely dreamed of.
Similarly, you need to be able to move around in space and be moving around with quite a bit of agility and to not be able to have a lot more flexibility. And so one of the companies we invested in is a company called Morpheus that has developed an electric propulsion system that is the size of like half of my thumb joint and tiled. They can create a really dynamic mobility platform and they're going to enable all of these new small SaaS which have been emerging over the last few years to move around in ways that never could have been done before, which I think is going to be a core requirement.
We have a company called Xeno Power Systems that has developed a nuclear based source of energy for satellites and spacecraft that can also work in infrastructure on the moon or on Mars or under the sea, terrestrially or in uninhabited, very hard to get to areas where we don't have energy lines there. And so I think this company is going to usher in a new reign of energy access. And I think nuclear is a wildly strategic and important technology. It's very important to regulate it and do it correctly and safely in a way that is not allow weaponization. But Xenopower, I think is going to be a game changer both for space and terrestrial.
And we've got a whole bunch of great companies that we're going to be announcing next week that I also think are going to be transformational, especially around in space manufacturing, building things in space and bringing it back. Things that can't be built in normal gravity environments, things like pharmaceuticals, certain crystal structures. We're barely scratching the surface and you're seeing some really interesting trends in privatization of certain elements like the International Space Station. You've got now two private space stations under development which are going to enable all sorts of space research and commercialization that couldn't be done before. But you're going to need a lot of infrastructure and technologies to support that.
How are Techstars in-person programs different from virtual programs?
It's very similar to the Techstars Anywhere (virtual) program. The difference is all the founders are here in LA. In my office. Our facility in Culver City has twelve offices. Every founder, and every company gets their own office so that they can do virtual meetings. Because in a post-pandemic world, I think it is expected that people are going to, in some cases, zoom in to a meeting. But because the LA ecosystem is so strong, especially in healthcare, especially in aerospace, especially in property tech, e-commerce, retail, like these are the reasons why I focus on some of these sectors. We have exceptional mentors who live in LA. And want to come be helpful and meet with the founders.
We have a vibrant investor ecosystem in LA. They can come by, have breakfast, have lunch, we do happy hours and mixers. And there's something magical that happens when you get the founders in the same place day after day after day. They go to lunch together, they have dinner together, they take walks together. They form really deep, lasting, meaningful bonds. And I think coming out of the pandemic, people are really hungry for human relationships again, and being in person and having the group dinner where 25 of us all sit down and share a meal and then get goofy and talk about our deepest fears. Like there is something magical that happens when, for 13 weeks, 25 strangers, 35 strangers come together with very, very ambitious professional goals, but in a mutually collaborative, supportive, warm way. It becomes, in some ways, like summer school. These people are building. They're having the most fun that they've ever had in their life, but they're also working the hardest they've ever worked in their life.
Rapid fire round
What are the sectors and regions you invest in?
We're investing in companies around the world, but particularly companies who want to do business in the United States. We don't actually require companies be from LA, but we do want them to spend time in LA. During our program, the sectors we focus most heavily on are health care, health and wellness. So more consumer side of things as well. B2B SaaS, property tech, deep tech with a particular focus on aerospace and defense and ecommerce and retail enablement
What stage do you typically invest in?
Pre-seed to seed. For most of our companies, they've raised between 500K and 2 Million. They usually have four to eight people on their team. For the industry focused programs like Techstars Healthcare and Techstars Aerospace. We often do invest in later stage companies who have raised $5 to $15 million, where our program can accelerate certain strategic objectives that the company has, especially through the deep focus on that industry and the partnerships that we bring to the table from our government and corporate sponsors and nonprofit sponsors.
What's the typical check size in all these three accelerators?
Techstars invests up to $120,000in every company that does techstars, and we give companies 20 grand to cover living expenses as a stipend. And for that we take 6% common stock and then we offer $100,000 convertible note to every company as well. That's optional. Some companies take it, some don't. And the way that converts depends on the most recent valuation cap of the company. We match valuation caps up to 5 million.
Where can founder supply to these 3 accelerators?
Where can our listeners follow you?
LinkedIn is probably the best to find me, but I am pretty active on Twitter. I'm @Koz there.