Founder & VC Aaron Michel of 1984 Ventures on portfolio companies, Reggora, Faimarkit and Relevize and how they exemplify the firm’s approach to seed-stage investing. Aaron also gives Sal a mind-expanding suggestion on angel-scale biotech. Compelling & jargon-free!
Highlights:
Sal Daher, CFA Introduces Aaron Michel, Venture Capitalist at 1984.VC
Reggora: “...they're just enabling the lenders to do an appraisal almost in an Uberized fashion, in a much faster and much more efficient way than it used to be.”
Brian & Will of Reggora Sold $5 Million of Real Estate in their Senior Year at Boston University
A Dorm Room Business Helped the Founders of Reggora Discover a Scalable Business Opportunity
Fairmarkit Is Automating the Enterprise Procurement Process
Relevize – Helps Companies Sell Better via Channel Partners
Relevize Gives Channel Partners Digital Advertising Content and Then Monitors Performance
Aaron Michels Founded PathSource to Help People Find the Right Career
Sal’s Partner Bob Smith Was Not Cut Out for the Law But was a Natural Entrepreneur
“Both my parents are professors. They were both professors at Boston University. Both had started companies.”
CareerPath’s Pivot
How Aaron Michel Crossed Over from Being an Operator to Being a VC
“Ideally, you can choose your competitor set.”
“For B2B actually, we are open to investing pre-launch, as long as there's a product.”
Aaron Michel’s Mind-Expanding Suggestion for How Better to Address the Opportunities of Angel-Scale Biotech
“VCs tend to overvalue their advice and undervalue their introductions.”
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of, “1984 Ventures”
Guest: VC and Founder, Aaron Michel
Sal Daher: I'm really proud to say that the Angel Invest Boston podcast is sponsored by Purdue University entrepreneurship and Peter Fasse, patent attorney at Fish & Richardson.
Purdue is exceptional in its support of its faculty, the faculty of its top five engineering school in helping them get their technology from the lab out to the market, out to industry, out to the clinic.
Peter Fasse is also a great support to entrepreneurs. He is a patent attorney specializing in microfluidics and has been tremendously helpful. Some of the startups which I'm involved, including a startup that came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast.
Sal Daher, CFA Introduces Aaron Michel, Venture Capitalist at 1984.VC
Welcome to Angel Invest Boston, conversations with Boston's most interesting founders and angels, and sometimes venture capitalists. Today, we are privileged to have with us, coming from Silicon Valley, Aaron Michel, venture capitalist.
Aaron Michel: Thanks so much for having me.
Sal Daher: Well, Aaron is no stranger to Boston. He attended Boston University and Harvard, but he's even invested a Boston company that has been on this podcast. We'll talk about that later on. Aaron, tell us about interesting companies that 1984 Ventures is seeing, that you've been working on?
Aaron Michel: Sure, well, maybe a good place to start would be the very first company that I invested in was here in Boston, a company called Reggora, which is automating residential real estate appraisals, came out of my alma mater, Boston University. The head of entrepreneurship there has only sent me, I think, two companies.
This was the first that he sent and he said, "The founders are these two very young guys, but you talk to them, and it feels as though they're starting their third company instead of really their first." He was right. They were phenomenally impressive, Brian and Will who founded Reggora were just awesome founders. We led their pre-seed and they've gone on to do great things.
Sal Daher: That's tremendous. Explain to me the problem that they're solving in terms of the appraisal industry. We've all had appraisals on properties that we financed through mortgages. What problem are they solving there that is driving customers to them?
Aaron Michel: Back in 2008, you had the real estate crash, and you had some laws go into place following that. One of those laws basically put a wall in between lenders and appraisers. Because what used to happen was that a lender would want to appraise a house, and would say to the appraiser, "Go tell me how much this house is worth." The appraiser would come back and say, "I think the house is worth $800,000."
The lender would want to increase the value of the assets on the books. They'd say, "Why don't we call that a million?" The appraiser wanted to keep getting their business, and so they say, "Okay."
Obviously, that was bad. This wall between the lenders and the appraisers was basically created. As a result of that, the lenders couldn't talk to the appraisers, and the appraisers couldn't talk to the lenders. In between the two came these middlemen called AMCs, appraisal management companies. Everybody hated the middlemen. Everyone always hates middlemen.
Sal Daher: I spent a long time in finance. Everybody hates the middleman, but that's what I was. I was a middleman, but of course, how is it that they disintermediate the middleman?
Reggora: “...they're just enabling the lenders to do an appraisal almost in an Uberized fashion, in a much faster and much more efficient way than it used to be.”
Aaron Michel: Well, Reggora basically created a piece of software that connects the lenders and the appraisers and makes life much easier for the lenders, speeds up their processes immensely, makes it much, much more efficient, and makes life easier for the appraisers as well. It gives them the ability to actually do their jobs significantly faster. That's where they started. If you sort of fast forward, they're now really moving into a world where they're just enabling the lenders to do an appraisal almost in an Uberized fashion, in a much faster and much more efficient way than it used to be.
I recently bought a house and waiting for the appraiser. It just took forever. There's actually just not enough appraisers out there, relative to the amount of work that needs to be done. Reggora is really helping that process along in a very good meaningful way.
Sal Daher: Excellent. Excellent. For the transcriber, Reggora R-E-G-G-O-R-A, a platform for real estate appraisal. Tell me a little bit about the founders. How did they come by this opportunity?
Brian & Will of Reggora Sold $5 Million of Real Estate in their Senior Year at Boston University
Aaron Michel: Brian and Will were roommates throughout college at Boston University, and throughout that process, they were trying to iterate on and come up with business ideas. Their senior year of college, they started sort of a tech-enabled real estate brokerage, and they sold $5 million of properties which is really impressive for seniors in college. They realized that this is good business, but it's not a multi-billion-dollar business, but while they were doing that, they came to recognize that the appraisers were really unhappy in this industry.
They sort of started to investigate why, and that led them to this much broader problem around residential real estate appraisals, as well as the recognition that residential real estate appraisals valuation essentially really sits at the center of the real estate ecosystem and it's one of the few areas in real estate where there's just not been very much innovation. They very quickly kind of centered in on that and started to solve that problem.
A Dorm Room Business Helped the Founders of Reggora Discover a Scalable Business Opportunity
Sal Daher: This is a great story. College students getting to this level of maturity of understanding a problem by just being real estate brokers. A job of real estate broker basically, is to show a lot of houses and to be discriminating who they are showing the house to. It requires very strong work ethic and organization showing up on time and being presentable and all that stuff. They were doing that which is remarkable for a college student. On top of it, they're realizing that that's not where the juice in the business is. It's with the appraisal, that's the bottleneck in the business. Fantastic, amazing team.
Aaron Michel: That's right. Brian Zitin is the CEO. When we first spoke with him, he had such a deep knowledge of the idiosyncrasies of residential real estate appraisal. I mean, this was back in early 2018. Everyone else who was knocking on our door was trying to start some form of a crypto hedge fund, and here are these two young guys who are saying, "No, no, no, we're going to go and disrupt residential real estate appraisals." We said, "Oh yes." This is dead center of the type of company that we love to invest.
Sal Daher: That is tremendous. There was another company that you wanted to mention, that's also local.
Fairmarkit Is Automating the Enterprise Procurement Process
Aaron Michel: Sure. So Fairmarkit is another one that we invested in and love the vision, love the team. Kevin and Tarek, the founders and Victor have just done a phenomenal job of building a company that's kind of tackling a much older legacy industry. They're automating enterprise procurement processes, which again is one of these things that it sounds kind of dull, but it's actually an enormous industry, and one that affects everybody.
Every major enterprise buys stuff and the way that they buy stuff right now is just kind of slow, fairly painful, and Fairmarkit has kind of come up with a really meaningful, powerful way to address that, drive down price and both make these companies and organizations more efficient and save them a huge amount of money.
Sal Daher: This is really fascinating, because I, right now preparing to launch a podcast interview with a friend. We're fellow investors in several companies as an angel investor here in Boston. He is also an investor in a procurement company called Focal Point. Have you run across them?
Aaron Michel: It sounds familiar, but I don't know anything about them.
Sal Daher: He also mentioned Ariba and Coupa. Fairmarkit, what is it that it's doing? Which aspect of the problem procurement is it solving?
Aaron Michel: Ariba and Coupa are the two largest players in this space. Coupa, I haven't checked their market cap in a while, but they are the number two player. Last I checked, they had a $16 billion market cap, right. This is a massive problem of how do we buy better. What Fairmarkit is effectively doing is, let's say that just for an example, I don't think Ford's one of their customers, but it gives a good example of what they're doing. Let's say Ford is selling 10,000 or is buying 10,000 wrenches. Well, what Fairmarkit really focuses in on is what's called tail spend procurement which is the least strategic element of procurement.
If you think about wrenches, that's not particularly strategic. Let's say Ford is buying 10,000 wrenches. What Fairmarkit will do is they will take in Ford's last three years of procurement data, and they'll see that Ford might have sole-sourced that, or maybe they sent out RFQs to three or so providers.
Fairmarkit will take in that procurement data and they'll say, "All right, we see that you did that in the past but what we're going to do is we've got a universe of 10,000 different suppliers. Out of that, we see that our ML is going to select 10 suppliers that we think can provide this at potentially a better price and with equal quality, better turnaround time, and so on." We're going to say instead of you doing emails back and forth with your saved three providers, we're just going to automate this.
You just hit a button and the RFQ is going to go out to these 10 providers who we've selected, including your original three. You'll get bids back and then we can choose the best ones. We can handle all of this on an automated basis. Ford, it means less time in terms of actually having a handle this process means faster turnaround times and it means a lower price because they’re gaining more competitive bidding. For Ford, this is a win across the board. Fairmarkit has now proven each element of that value prop with a range of very large customers, so that's the idea behind what they're doing.
Relevize – Helps Companies Sell Better via Channel Partners
Sal Daher: That is very interesting. Two really interesting startups. There is a third Boston connected startup that you have backed, which we have ties to. An alumnus of the program, Mike Nardella (Link to Mike Nardella's Episode), is the founder of Relevize. Tell us what Relevize does and why you guys were interested in them.
Aaron Michel: Sure. Relevize helps companies handle channel sales better and automate channel sales processes. Let's take an example. Let's take IBM, it's not one of their customers but everybody knows IBM. IBM, has about say, 70% of its sales coming through channel partners. The way that this universe works today is that IBM will probably have some small subset of its channel partners that perform really, really well.
They don't really necessarily have much visibility into why they perform well, but they want them to keep performing well and perform better. They throw money at them, they throw money at those top performers and they don't really have visibility into how that money gets spent but they want them to spend it and get more sales. What they end up doing is that money usually gets spent on events because most of these channel partners are not necessarily all of that tech-savvy. Some are but most of them are not. When you go to a conference and you see these big booths and so on, a lot of what you're seeing is actually channel money at work.
What Mike and Relevize does is, it will go to an IBM and they'll say, "Well, let's take all of your digital, approved marketing materials and we're going to put all of that in one place. We're going to turn that into ads customized for you and for each of your channel partners, so that when your channel partners go and log in, they'll be able to see for LinkedIn, for AdWords, for Facebook. All of these ads, they're just ready to go.
Relevize Gives Channel Partners Digital Advertising Content and Then Monitors Performance
If they just basically click “go ahead” with each of these they'll be able to start advertising with ads that they didn't have to spend time creating, using money from IBM. For them, they're able to tap into as a channel partner an entirely new revenue stream that they weren't able to access before. For the channel partner, that's fantastic but for IBM it's even better because IBM now has visibility into how their money is being spent.
They have visibility into the pipeline that's been created so that they can now collaborate with those channel partners on closing those sales, so that they can forecast based off of that and is driving new revenue. For both sides, this is a huge win.
Sal Daher: Amazing. Basically, just providing the advertising content, so that the channel partners can utilize that and... The brands are sophisticated, they know what message they want to get across and all that. The channel partners are more focused on their consumer business.
An example might be a drinks brand or something. The 50 different Irish pubs that are selling drinks from a brewery or something like that. The brewery has very sophisticated imagery for campaign materials and so forth. The pub is very good at knowing its local market and so forth. It's not good at digital advertising. It's facilitating this digital dimension for channel partners that are not as strong in digital as the brand is, making it more agile for the channel partner.
Aaron Michel: That's right. One caveat to that is that today, they're really focused in on tech companies. Over the longer term, it is applicable to a very wide range of channel partners. Your example is, I think, spot on.
Sal Daher: I'm just looking back at the interview with Mike, he said, there's a quote in there says that "The value prop for them is so high to be included into those brand dollars of these campaigns, we once had 50 Irish pubs on board in 48 hours." [laughs]
Aaron Michel: They started in that space and ultimately really realized that tech companies were a great place to build and grow a massive business. They've for now, really focused in on that piece. It's been going gangbusters for them. Over the longer term, I think that type of example, wholesale distribution, both on food, alcohol, et cetera, is a phenomenal place for something like this to work as well.
Sal Daher: There's so much room. I was an investor in a company called Apifia Mavrck. They were recently acquired by a private equity player. All the investors did very well. They basically created the category of influencer marketing, and they were helping brands identify influencers, and to activate those influencers. Influencers who might have 100,000, 200,000 followers, in some specialty in the multiples that they had.
There's very, very minimal spend on these influencers created massive sales and in the multiples were staggering, in terms of dollars. It was like 10,000 to 1. [chuckles] It was unbelievable because it was just new. I don't know if it's still like that. I suspect it's probably gone down but the fact that a private equity firm is acquiring them probably means there's a lot more juice in that.
We all did very nicely but I suspect we've left when-- I think the founders are deservedly going to get very, very rich. Tremendous founder, Lyle Stevens of Mavrck. Tremendous team. Very interesting. Very, very interesting.
Aaron Michels Founded PathSource to Help People Find the Right Career
Aaron, maybe we could switch gears a little bit, let's talk about your own startup that you founded and exited. Tell us the story. I'm very curious how you came about founding PathSource and what problem were you solving?
Aaron Michel: I came to founding PathSource by trying to solve a problem that I had which is that, when I was going through college, I was absolutely certain that I was going to go into law school. Deadset certain. I took some pre-law classes and environmental law class and so on. I applied to some law schools and I got in. Then just before I was actually going to go, I decided, before I spend three years of my life and 150,000 plus dollars, I should actually try this out and see whether I enjoy being a lawyer.
It was the best decision I ever made. Because I interned with this law firm, and man, it was miserable. I hated the job. I would have been terrible at the job. In every which way this would have been just an abominable decision on my part. Ultimately, I ended up going a different direction. I went to Harvard Business School and the Kennedy School of Government and went on this path of entrepreneurship, but I came so close to making a decision that would have been really, really bad for me. I figured if this could happen to me, despite having a lot of smart folks advising me, it could probably happen to anybody. I started this company PathSource to enable people to figure out what career they wanted to go into and show them the school or educational path to get there. It just turned out that it was much larger problem than I realized. It was something that at a very broad range of ages, people struggle with the question of what they want to do with their lives. What do I do from a career perspective? What comes next?
That is true for people who have both strong educational backgrounds, less strong educational backgrounds, from a really broad range of careers. Everybody in one way, shape or form or another struggles with this. That was really what we were trying to sell.
Sal’s Partner Bob Smith Was Not Cut Out for the Law But was a Natural Entrepreneur
Sal Daher: That is really fascinating. Being stuck in the wrong profession can be extremely painful. It's funny that you mentioned the law, because my business partner of 24 years, Bob Smith, a tremendous guy, he was just a natural entrepreneur. His father was a lawyer and expected him to be a lawyer. The Depression-era and he came of age in 1960s. He was a little bit rebellious towards his dad but the father wanted him to come and join his collection law practice. It was just a terrible struggle.
He told a funny story. He was at Boston University. He went to BU Law School and he was graduating a particularly terrible time for the law. He said that the person who was coordinating recruitment for lawyers coming out of Boston University, BU Law School, took one of the few job offers, and disappeared, and left all the young lawyers to their own devices. It was a terrible time. He ended up working for his father's law firm and hated it!
Then by accident, his father had a collection from a company here in the Boston area, which sold gaming machines to a Turkish Casino. Now it gets interesting. Young Bobby Smith figures out a way to fly to Turkey and to threaten, "Bally Gaming is going to sue your casino for non-payment of its sales to you." The casino said, "Well, Bally could sue us all they want because we have paid Turkish Lira into the Central Bank of Turkey. We have, under Turkish law, fulfilled all obligations we have. You want to sue the Central Bank of Turkey. Go right ahead."
Smitty was like oh, geez, and then immediately he sees an opportunity. He becomes one of the five people who's-- When you hear emerging markets, Bobby Smith, and his cheap suit from Filene’s Basement, his cheap toupé was one of the founding members of the whole emerging market business. He started-- This is in the '70s when Turkey had debt problems.
He figured out a way. He took the Turkish Lira and converted to dollars and so forth to create liquidity for people who had that problem. He made himself a honking fortune on this. The guy was an entrepreneurial genius, but a disaster as a lawyer.
[laughter]
If he had had PathSource, maybe he would have gone directly into entrepreneurship.
Aaron Michel: Maybe so, although it sounds like he figured it out.
Sal Daher: He would have figured it out anyway, That's the thing. Semyon Dukach, he is a venture capitalist from Boston. Entrepreneur, you can't help it. It's like a disease they have, which, by the way, leads me to ask. Aaron Michel, when you had this problem, you thought you wanted to be a lawyer. Then to your good fortune, you discovered that it wasn't for you after you did your internship.
What prompted you to start a company? The normal reaction is to go off and find another profession, go into acting or something. What gave you the idea of starting a company? Was there entrepreneurship in your family?
“Both my parents are professors. They were both professors at Boston University. Both had started companies.”
Aaron Michel: There was entrepreneurship in my family. Both my parents are professors. They were both professors at Boston University. Both had started companies. I certainly had that background on my family side, as well as fairly early on in life, I went through a process to try and figure out what mattered to me, and what I was passionate about, but those things included starting companies.
It included education and it included environment. And so, I looked for opportunities to put things like this to work. You come up with your passions, and then you look for ways to make an impact and have fun. In that case, it was a great fit. I was able to start a company about something that I cared about, and had a really phenomenal time doing it. Just a great example of how much this resonated, one of our early employees was a woman named Rubina. She graduated from UC Berkeley Law School, was an attorney for Wikipedia. She was on a great trajectory. She left all of that to join us because she just hit on the conclusion that she hated being a lawyer. It was great early validation of that this really does resonate.
Really, what also meant a lot to me along the way was, we ultimately had a number of apps in the Apple App Store and reading the reviews on these apps, some of them would just bring tears to your eyes. People who were saying, "I was in the darkness and this helped me find the light." It was really great stuff to wake up to and read that and just get a burst of motivation to do what we were doing. All of those things, I think, obviously, I didn't know that we would get those types of reviews and so on. Certainly, my background, my interests, made it a great fit for me to go ahead and start something like this.
Sal Daher: Very good. Did you have a major pivot or did your business plans go according to plan?
CareerPath’s Pivot
Aaron Michel: Business plans never go according to plan. I started by selling into K-12 school systems, and it was miserable.
Sal Daher: Almost as bad as being a lawyer, very long sales cycle. Oh, my gosh.
Aaron Michel: That's right. We had some success. We got the San Francisco Unified School District on board and Chicago Public Schools and a number of others. Every step of the way, it was just pulling teeth, which is why I don't invest in EdTech now that I'm on the venture capital side of this. I really have shied away from it because once you know an industry a little bit too well, you see all the things that could go wrong.
We started there, and then over time expanded into selling to nonprofit colleges. We had a B2C offering that did pretty well. We definitely expanded and really pivoted away from the initial K-12 vision. If there was anything I regret about this experience, it was that we took too long to make that decision because, we were getting large school districts, but it just was not a path to really building a large company. I wish we had just come to that conclusion faster.
Sal Daher: Ultimately, you figured it out, you said a B2C going directly to the consumer. No competition at all in that space. That's a very noisy space.
Aaron Michel: There's always competition in some form or another. Basically, since we exited...the company got acquired by AcademixDirect back in early 2017 and since that time, the space has actually become much, much hotter than it was then. We were one of the very, very early players in that space. At that point, most of the companies that were trying to figure this out really were selling into K-12 schools.
There's a company called Naviance, that was fairly broadly used in the K-12, school systems and so on. There wasn't a lot that was really directly available to consumers, whereas, you fast forward to today, and there are tools like Career Karma, which basically is a great aggregator of boot camps, and has figured that piece out. There's a bunch of companies that are tackling different pieces of this puzzle. The level of competition back then, fortunately, wasn't nearly as robust as it is today. We got out at the right time.
Sal Daher: Excellent. Let's talk a little bit now about your transition from being an operator to being an investor. How did that come about?
How Aaron Michel Crossed Over from Being an Operator to Being a VC
Aaron Michel: It really came about by luck. I had come on board with the acquirer with Academix and didn't really want to spend the rest of my career in ed-tech. I was trying to figure out what I wanted to do next. Ramy Adeeb, who was both a long-time friend and who had informally advised me on the exit of PathSource. We had both professional connections as well as a friendship connection. He and I were having a drink and he was starting 1984 ventures, had spent the last year and a half putting the legwork in to get that up and running.
He was about to do the first close and offered me the chance to come on board right at the first close and do this with them. I had not really thought too much about becoming a VC. Frankly, if I had gone out and proactively tried to become a VC at that point, probably would've been fairly challenging but it turned out to be a phenomenal fit.
It's still early in terms of venture capital firms, we started at the end of 2017, beginning of 2018. Things have gone pretty well since then and it's been far more fulfilling personally than I would've expected. I've just been having a terrific time doing this and working with our portfolio companies and finding and investing in great companies. That's just turned out to be a great decision in retrospect.
Sal Daher: That is tremendous. Would you care to talk about what 1984 is looking for in a company that they might back?
Aaron Michel: Sure.
Sal Daher: What ventures, what founders?
Aaron Michel: We are looking for companies according to a fairly straightforward filter. At the highest level we think about in terms of team, market, and product, really in that order. We're looking for extraordinary teams. Ideally, it's a team where you have one founder who has really strong market insight, understands a given market and a given problem really well, and a[n] engineering leader who brings technical excellence from outside of that industry.
That DNA for a founding team is ideal. We look for just really great founders who can persuade us that their vision of what an industry could be and what their vision of how an industry should work, that's actually going to be the future and that they can execute on it. That's what we look for on the founder side. On the market side, obviously we look for massive markets.
“Ideally, you can choose your competitor set.”
Everybody looks for massive markets, but I think, ideally, you're really looking for a market that is both multi-billion dollars and has great market dynamics. Porter's Five Forces, you don't want really concentrated customer bases. Ideally, you can choose your competitor set. You can choose to compete in a place like Web 3.0, where there's just a ton of venture capital and a ton of strong engineering teams going head-to-head with you.
You could choose that set of competitors or you could choose to compete in Reggora's case, residential real estate appraisals, where there's virtually no venture backed competition. You can choose who you compete against. We obviously choose to invest in those companies where there's a massive opportunity and ideally a little bit less competition. On the product side, we just look for a phenomenal product, early signs of traction, and so on.
Sal Daher: How much traction?
“For B2B actually, we are open to investing pre-launch, as long as there's a product.”
Aaron Michel: It varies. For B2B actually, we are open to investing pre-launch, as long as there's a product. The way that we think about that is that as long as there's a product, we can put the CEO on the phone with prospective customers who we find for him or her and say, "All right, you've got 10 minutes to pitch this customer," and then ask the founder to get off the phone. We ask the customer, "Would you buy this?" and we can diligence demand pretty easily that way.
For B2C, we need to see pretty clear signs of early revenue traction in order to get conviction. That's just because I'm not smart enough to look at a consumer product and say the mass market is going to like this. Consumer tastes are fickle and it's very hard to figure that piece out and so while there's not a hard and fast, we need to see this level of MRR, we need to see that the number is going up and to the right, we need to see strong retention, low churn, and so on, and just real evidence that people love the product and that this is going to work.
Sal Daher: Very, very interesting. On B2B, you actually don't require a thick book of customers, you do your own homework on that.
Aaron Michel: We do. Most of our investments have some degree of revenue. They might have 20 or 30,000 MRR, but we've certainly made investments that are pre-revenue. We're more than open to doing that on the B2B side. When you break down our portfolio, it's probably about 70-75% enterprise SaaS, and then 25-30% B2C
Sal Daher: You really are seed investors. A lot of people claim to be seed investors, but [unintelligible 00:36:18] [laughs] you guys are actually seed investors in the software space.
Aaron Michel: That's right.
Sal Daher: You're a software VC, were in EdTech which implies software as well these days, and all of angel investing and a lot of VC investing has grown up around the whole explosion of software investing in the last 10 years. Now, for my portfolio, I'm an angel investor and I've invested in about 70 startups, and what I began to notice given where I am here in the Cambridge, Massachusetts, and also certain accidents of investment and so forth, that my portfolio is dominated by life science companies, by a particular subset of life science companies. I've developed a screen of the kind of life science companies that I'm interested in, the sort of early-stage angel-scale life science companies.
There's an interesting thing happening, a trend among venture capitalists in the life sciences that they're not taking pitches anymore. The big players are not taking pitches. The small players do take pitches, but they're so overwhelmed with the opportunities because there's an explosion of interesting life science companies. The same...similar factors to what circa 2011 when Marc Andreessen talked about software eating the world, APIs, lawyers charging deferred fees, and all kinds of things, a software library.
Well, similar things are happening in the life sciences, which make starting a life science company much more accessible, much cheaper, and there's a lot of support for academic founders, technical founders, sometimes solo founders to do this. The thing that I'm working on is they cannot get in front of a VC, but how do I create a support for these founders? Because, they...angels, who have grown up around software investing don't really understand these life science companies, but the opportunities are huge.
I've been involved with companies, I mean, there are lots of 10X opportunities in three years and the founders are usually more mature, fewer loss rates. My loss rate among life science companies is lower. Some of them are longer-hold. I'm trying to figure out how to support these companies better as an angel. I'm just curious if you have any thoughts on that? Open-ended question.
Aaron Michel’s Mind-Expanding Suggestion for How Better to Address the Opportunities of Angel-Scale Biotech
Aaron Michel: I am, as you noted, not a life sciences investor, which means that anything that I say here should be taken with a small bucket, maybe a large bucket of salt.
Sal Daher: This is precisely that, I want the perspective of the non-life science investor because most investors in this are going to be non-life science investors. The life science VCs are interested in creating their own founded entities, starting out with $50 million, and then going up to $300 million, the next step. Moderna is the model now. Everybody's model. Your thoughts, I'm very curious to hear.
Aaron Michel: In the world of accelerators, YC for software has sucked the oxygen out of the room, and what you really see there is that as they've gone from 125 to 150 to 400 applicants, not applicants but companies per batch, they've really now become the go-to for accelerators. When you take a look at life sciences in those batches, there is usually a few, but it's a very small portion of what YC does. It's not their bread and butter. I wonder whether there's an opportunity to create a really major accelerator in the life sciences space, a YC for Life Sciences. Like I said, my knowledge of the space is fairly minimal and so that may already exist. I'm just unaware of it.
Sal Daher: It does exist but not a YC. There are lots of-- It's a highly fragmented space, highly fragmented. I know that but I like this. This really is intriguing to me, because this is an observation that I had not made. I have not cottoned on to this whole idea of, like a killer accelerator, and why is there not a killer accelerator, a category killer accelerator in the life sciences.
Aaron Michel: There is one other thing to take a look at as well, which is that, there's a fascinating company called Stonks that Andreessen Horowitz has backed, which basically combines a demo day-ish model with social commerce. What they'll do is they will have a demo day and they don't charge the companies any equity. They'll choose five, six companies to come and present it on their demo day. They'll have, say, 1000 investors in the audience and the investors are all talking on a chat.
They'll say, "All right, we're going to charge carry on this deal." Let's say we'll charge 20% carry and this company is taking in $2 million. The first million in, only gets charged 10% carry. They create an incentive to come in early. They create a sense of investor FOMO. What they've been able to do is actually get these companies and get the investors to invest $3, $4, $5 million in 10 minutes. It is unbelievable. I've never seen anything like that.
What Stonks is doing is they are licensing that software out to different accelerators for free. All that they want in return is visibility into who's attending your demo day. They're trying to create a graph of investors. There might be an interesting opportunity in the life sciences to partner with them, to create an accelerator to partner with Stonks so you have that investor-facing interface.
Then they'll actually send some of their investors to you. They'll let their investor base know, "Hey, this life sciences accelerator's having this demo day on May 15th. You should take a look, click here to RSVP." You get to start with a base of investors, courtesy of Stonks, in addition to whoever you're inviting. That is another really interesting model and a good way to short circuit your way to having a meaningful accelerator.
Sal Daher: Very interesting. I suspect at some point in the lifecycle of a life science company that could be usable. The thing is that the due diligence in biotech companies, there's a lot of gravity there. It's a plodding process. I can see it's very interesting, very, very interesting. I have a friend who founded a software platform to create access to next-generation sequencing machines, that sort of thing. It's called Meenta.io.
During COVID, they suffered a transformation and they became like any tests for anyone, anywhere, reagents and all this stuff. They've exploded, and they’ve grown. They have a lot of researchers going on their platform. They're trying to figure out a way to create a nonprofit arm that will help researchers get funding directly into their projects. I wonder if Stonks couldn't be a good platform for them?
Aaron Michel: Yes, very much so
Sal Daher: Help the researcher do the demo for the researchers. I'm going to suggest it to Steven. I'm interviewing him again in a few days. Very interesting thoughts Aaron Michel, this is a tremendously mind-expanding conversation.
Aaron Michel: It's been a lot of fun. Stonks has, I think a fairly broad range of potential applications. I'm fairly bullish on the application of social commerce to a range of different buying processes. Investing, I think, is a fairly innovative one, that makes a lot of sense.
Sal Daher: Fantastic. Well, you've been a great sport making time to be on the Angel Invest Boston podcast. Are there any parting thoughts that you want to communicate to our audience, of founders, of angel investors, and of people who are interested in becoming angel investors, and also founders?
Aaron Michel: I will end it by making a pitch for 1984 to reach out to us, which is to say that we invest in a very broad range of industries, everything from Prop tech to e-commerce enablement to digital health and so on. Really, if it's phenomenal, founders going after a massive market with a compelling product and software, we're going to take a close look. After we cut a check, we really pride ourselves on certainly offering advice.
“VCs tend to overvalue their advice and undervalue their introductions.”
I think every VC firm says that they offer good advice. VCs tend to overvalue their advice and undervalue their introductions. We do pride ourselves on founder therapy, which is, it's always miserable to start a company, even the successful ones, it's still-- There's a lot of painful points. We pride ourselves on being that 2:00 AM or 3:00 AM phone call on help with hiring. You'd be crazy not to get on the rocket ship conversation with potential hires, and most importantly, help getting to a Series A with A top Series A firms in the world.
If you take a look at our portfolio, and who's backed our portfolio companies, I think that speaks for itself in a pretty meaningful way. I would love to hear from you. If you're a founder, you're thinking about founding a company, or you're thinking about leaving your job at Google and you're trying to decide which company to go work for, I've got a few points.
Sal Daher: [laughs] This is tremendous. Aaron Michel 1984 Ventures, thanks a lot for being on the Angel Invest Boston podcast.
Aaron Michel: Thank you for having me. It was a pleasure.
Sal Daher: I'm Sal Daher.
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Sal Daher: I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.