Lisa Frusztajer is Investor in Residence at The Capital Network, where she supports founders in raising angel money more effectively. We discussed some exciting startups that have benefitted from Lisa’s wisdom, skill and network. A powerful episode!
Highlights:
Sal Daher Introduces Lisa Frusztajer
"... What we're doing is we're breaking down how early-stage funding works, but we're also expanding the definition of what constitutes early-stage funding..."
"... We're seeing the potential of digital health really exploding into all new areas that are both patient-friendly, and provider friendly..."
"...The leadership training series creates a cohort where it's one of the few places where founders can really get together and let their guard down. Because one of the things with entrepreneurs, one of the things with founders is that you're under a lot of scrutiny, and you've got a lot of accountability..."
How Lisa Came to Entrepreneurship
"... I think there is potential for the number of women angel investors to increase even more than it has. You'd be surprised, the younger generation of angel investors that there are a lot more women among them than the older generation..."
Sal's View of the Change in Investment Practices
Advice to the Audience
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of, “Opening Up Angel Funding”
Guest: Lisa Frusztajer
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. Faculty 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 to some of the startups, which I'm involved, including a startup, came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast.
[music]
Sal Daher Introduces Lisa Frusztajer
Welcome to Angel Invest Boston. Conversations of Boston's most interesting angels investors, and founders. Today we're very privileged to have Lisa Frusztajer and she is Investor in Residence at the invaluable Capital Network. Welcome, Lisa.
Lisa Frusztajer: Thank you Sal Daher. Really great to be on your show.
Sal Daher: It's great that you made time, really appreciate that. Lisa, tell us briefly what your mandate is at the Capital Network as an Investment in Residence.
"... What we're doing is we're breaking down how early-stage funding works, but we're also expanding the definition of what constitutes early-stage funding..."
Lisa Frusztajer: The Capital Network is a not-for-profit that provides education for entrepreneurs and also for investors. The philosophy of the Capital Network is to make entrepreneurship and capital accessible to all. What we're doing is we're breaking down how early-stage funding works, but we're also expanding the definition of what constitutes early-stage funding. Very often we think about startup funding as being equity funding, VC funding, and that is far from the only alternative. In fact, in many cases, it is not necessarily the best option for founders and it's not necessarily the best option for investors.
Sal Daher: Yes. Absolutely true. We've had Jay Batson on to talk about revenue-based financing and there are other types of financing as well. Let's talk about particular startups that you think are doing particularly valuable work that you've been involved with.
Lisa Frusztajer: There are two I'm really excited about. One is a Boston-based company called Imago Rehab. You've had Imago's wonderful CEO, Chrissy Glover on your show.
Sal Daher: Oh, she's outstanding. She is outstanding.
Lisa Frusztajer: She is, she is. It's really interesting because I'd characterized Chrissy as not your stereotypical startup founder. To begin with, she's female, then her background is design. She came out of a design background and the Harvard Bio-design Lab, but what Imago Rehab is doing is they've created both a telehealth platform and a robotic glove that offers physical therapy for people who have had strokes and have lost the use of their hand.
The combination of the glove and telehealth therapy can restore people's use of their hands if they have completely lost use of their hands. Chrissy says that there have been patients who have lost use of their hands for up to five years, who have been able to recover some muscle control through this therapy. Fantastic, fantastic product, has been really successful.
Sal Daher: What seems to happen is that the symptom is that the fists become clenched because they're not able to open the hand. When I interviewed Chrissy on the podcast and as she mentioned this, she says the secret is that the alternative treatment is for a physical therapist to visit the patient and to help the patient open his or her hand, and do repetitions of that, and it's painful and it's unpleasant.
She said that just the idea of a patient going to the physical therapist or the physical therapist physically being present in the patient's home, there's a lot of logistics that takes time.
The glove is a way that the patient can maybe they have one meeting where the physical therapist shows the patient how to put on the glove, how to use it, and then the robotic glove helps the patient do repetitions. The secret of success as she told it in her interview, and I invite listeners to listen to that.
It's a very interesting interview and I agree entirely with your estimation of her, the fact that she's a very unlikely founder, but an extremely promising founder. I mean, she is so high functioning, so on top of things, so capable and so good at integrating, bringing in people that people she needs. She's very clear-eyed about what she needs, and she works very well with people. No ego involved. Just a very impressive founder. The end result is massive increase in repetitions, order of magnitude increase in the number of repetitions, and then patients get better faster.
Lisa Frusztajer: Chrissy described it that the typical physical therapy setup, you go into the office, you have to get yourself there, you get a piece of paper and you do 30 repetitions. Whereas with their combination of the platform, and the device, people are doing 300 repetitions every single day at home, some are doubling that to 600.
Sal Daher: Perhaps two orders of magnitude over what they were getting before, and that makes all the difference that they're being able to use the hand again.
Lisa Frusztajer: What I find really interesting about Chrissy is that she is highly empathetic. She really believes in the mission of the company and really wants to help people. She's lit up by how promising this therapy is, and sees it as just a beachhead, that will expand into other kinds of therapy. She really wants to nail it on the hand and the glove first, and then establish that as the base.
The next thing is she's really curious, and as you say good at integrating a lot of information. When you talk to her, she'll take in information, she'll consider it, and then she'll weigh it. She'll decide what she wants to act on, and then decide what maybe is not appropriate to act on, but she is confident in her ability to take in information and evaluate it. Then the other thing is she has this really wonderful resilience, so both intellectual resilience, but then emotional resilience to understand that the founder journey is going to be ups and downs and that she's playing a long game.
Sal Daher: It's funny, I was brought to an appreciation of people who are the design of the creative space of their work ethic from working with my sound engineer on this podcast. He is a sound engineer. He's a composer. He's a music person, but let me tell you, Lisa, he takes phenomenal portraits, phenomenal portraits of people. When we were doing in-person interviews, we had this brick wall outside of studio, and he would go back there, and he would take pictures of people.
There are a lot of people who will use that as their official portrait because the guy is just so-- that's not his field, but he just sweats the detai-- I hadn't noticed that it's sweating the details, it's looking, checking the lighting, doing it again, and again and again, and again until you get it right. Maybe I do that when I write, I have the ethic of revising the draft. When I'm taking a picture [chuckles] it doesn't occur to me, and they do that and everything, and so the design process is very much like that sort of creative process. Architects, designers, very painstaking, very long hours, and there are no shortcuts, you just have to sweat the details.
That's the same thing with trying to build a product, try to find product market fit. They're no easy shortcuts coming from that background is really helped her and she is very, her notes are tremendous. When she writes things down, she could look them up, and she knows what was said in the last session or whatever.
Lisa Frusztajer: Interesting. She's capturing all of that experience, and so true about people in design, and people in the arts having to be meticulous when you're creating a finished product that people will see, I think of it as the 90-10 rule. 90% of what you're producing, or 90% of what you're churning out, takes about 10% of the time. It's that last 10% of polishing, completing, capping it off, making sure that it's mistake-proof, that takes 90% of the time and that meticulousness is really important when you're creating something that is a visual finished product.
Sal Daher: A real discovery for me, working with Raul and then interviewing Chrissy. I also think that this aspect of digital health, this connected device space is hugely promising. I had on another founder who came to me via Chrissy Glover and that is Jeremy Weigel, who is a urologist. He is creating a connected device platform for incontinence for pelvic floor disorders. I think the first use case is for incontinence after giving birth.
His wife had the experience and he is a physician who practices in this specialty, and he had trouble coordinating her care because it is not just the physician examining and determining a course of treatment. There are other professionals involved. There is measuring response. It's a lot like physical therapy.
It's very similar to what Lisa is doing. Integrating a device that can measure what the patient is doing, the exercises the patient is doing, and what responses the patient is getting is very powerful. I think we're going to see a whole bunch of these kinds of connected devices digital health delivered digitally but with a device at the other end, which creates a lot of value, which doesn't exist before.
Lisa Frusztajer: It's interesting as you describe that, it's a scenario where the patient is really empowered because the feedback goes directly to the patient. The patient is the one in the driver's seat on the number of repetitions and the use of the device.
Sal Daher: Yes.
Lisa Frusztajer: I actually want to go back to one other thing about Chrissy, partly because she is not the typical founder. She might be open to new ideas. She's never done it before. She approaches the project without any preconceptions. In her case, that's definitely a strength. The other thing that really appealed to me about Imago is that structurally the company's in a really interesting place.
It's on the path of a pipeline of developments coming out of that lab that are poised for commercialization. Some of them will work, some of them won't work, but the lab has commercialized other technologies and will be commercializing future ones. I felt like structurally there was strong support for the commercialization effort for that company.
Sal Daher: I agree with your perception of the support from the lab, but I think there's another dimension of this which amplifies the promise of all those devices. I think that Imago Rehab has the potential of becoming a platform that facilitates the work of physical therapists who are in very short supply and creating a more efficient way for them to work so that a physical therapist might be able to see many more patients in a day.
Before this interview, we were talking about how impoverished online experiences are on Zoom and so forth for social interactions. However, in the delivery of healthcare, digital means have been an unbelievable boom because it's not depending on serendipitous interactions, social interactions, so forth, it is delivering very basic stuff using digital means, which weren't pursued before for no particularly good reason. There is evidence, I've heard that digital medicine has not diminished the connection between patients and the providers because they still have to go in to get a blood draw and they still interact with people.
It has expanded the possibility of interaction. I think it's a very significant plus. There is a lot of potential in this.
Lisa Frusztajer: Especially in this climate, seeing what happened with healthcare providers during Covid. Whatever we can do to make the lives of healthcare providers, any kind of healthcare provider better is a good thing.
"... We're seeing the potential of digital health really exploding into all new areas that are both patient-friendly, and provider friendly..."
Sal Daher: Yes. Another startup that comes to mind that I've had the founders on the podcast is Delfina. Delfina is basically digital health startup integrating data to support expectant mothers. It is particularly women who are economically deprived. There is the incidence of problems during pregnancy goes up tremendously as you go down the economic scale.
This is where having an app that can help the patient keep track of her conditions, of her situation throughout the pregnancy is incredibly powerful. It has a chance to diminish many problems before delivery and the cash problems early on before they really come out. It's just incredible. It's basically about assembling data and having it available in the right place at the right time and making usable. There's some devices that might be used and so forth. A lot of it is just about bringing together data that's scattered all over the place and helping the patient have more control.
Lisa Frusztajer: Yes. It's so powerful also to break down geographic boundaries.
Sal Daher: Yes, the first founder, his family's from the Middle East and he's worked in that space.
Lisa Frusztajer: Actually, I want to mention another digital health platform which is a company called SimpliFed. I'm invested in SimpliFed through Third Culture Capital which was started by Julien Pham. It is a breastfeeding counseling platform to get women up and running. Postpartum, it's really difficult to go into the doctor's office with an infant. Yet, those problems can be really challenging.
It came out of somebody who was connected with MIT, seems to be really, really effective. We're seeing the potential of digital health really exploding into all new areas that are both patient-friendly, and provider friendly.
Sal Daher: Yes. In this space, digital communications have been a great boon. I mean listeners should know that before this interview started. Lisa and I were having a back and forth because I just gave a talk at Northeastern about entrepreneurship and the person who invited me, Dave Fogel. Thank you Dave for a very nice invitation. He was surprised that I was going to turn up in person.
After the talk, I had an opportunity to talk to several of the students and we've connected via LinkedIn. One of them I walked with him to his next class and we chatted about various things. It opens up the possibility, in real life opened up the possibility for these discoveries that aren't possible. It's funny that during that talk, I told the story that when I was a city banker having worked overseas and that being a foreigner in the US not having a Green Card, it would have been hard for me to work in the US.
I was interviewing at the headquarters of Citibank for a job at the head office. I ran into somebody that I had interacted with on the phone from when I was in Buenos Aires. It was Citibank Buenos Aires and he was also an immigrant to the US from Holland and he told me, "Sal, listen when you're negotiating for your job, ask them to get you your Green Card so you can stay in the United States permanently. It turns out that if you've worked for Citibank overseas, it's relatively easy for them to get your Green Card."
I had no idea. This chance encounter coming out of an elevator really made my life just so much easier.
Lisa Frusztajer: Yes, amazing.
Sal Daher: Yes, and there was another chance encounter that I had years later with someone from Citibank. This is a time when I'd been working at another bank in Boston a decade later, by then I had a daughter and I married and I had a mortgage and all this. This guy's a person from Citibank. My whole team at the Bank of Boston had been shut down and laid off. My boss was laid off and it was a difficult time in 1987.
This friend from Citibank said, "Let me connect you with somebody here in Boston who would need somebody with your background." This is a chance encounter in the streets pushing a stroller. Those things don't happen on Zoom, not on Zoom.
Lisa Frusztajer: I'm really missing that personal contact even though Boston has a reputation for being a relatively reserved city, some people even call it unfriendly. I think the startup scene here is really welcoming. I've talked to founders who have come to Boston from other cities and find that Bostonians are actually really open to giving help and to welcoming founders. A big piece of that was all the serendipitous meetings that you would have or just running into people at events or running into people at talks or on the street. I'm definitely missing that.
Sal Daher: It is paradoxical that Bostonians are at once standoffish and helpful. It's a culture of volunteerism that exists, but there's also a certain culture of reserve. They don't want to true to people's things but at the same time, there's an intense sense of responsibility for their community.
Lisa Frusztajer: Exactly.
Sal Daher: Then they can help themselves. They can't help them, with a sense of responsibility, it all goes back to the Puritans.
Lisa Frusztajer: Yes. Let's just call it a culture of service. When there's something that needs to be done, somebody's going to raise their hand, take responsibility, and get it done.
Sal Daher: Yes, this is not for fun. This is not just-- idle chitchat. This is serious business. This person needs help and I'm going to pitch in.
Lisa Frusztajer: Yes.
Sal Daher: Otherwise, don't even say hi.
[laughter]
There's a lot that's been written about the old Yankees. When they would wear their winter coats from Beacon Hill to the financial district, never before the summer. No matter how cold the day is, you would never wear a top coat before the summer. We believe-- It gets pretty darn cold in Boston but it's just not done.
Lisa Frusztajer: Mind over matter.
Sal Daher: Mind over matter. The other thing is, also this is great. The first job that I had, connection with Northeastern was teaching English or trying to help servants of a gentleman whose family had been very, very generous to Northeastern University. My dad was doing a PhD there and the president of the university came to my dad and said, "Professor, do you know anybody who could help Mr. Stearns? Russell Stearns, Stearns Hall was given by his family.
It was my first job was helping this couple, there were servants in their house in Delhi, it was a very nice job, very traditional New England household of the old type. Then later on I found out that Stearn's family, their business was, they had this department store, the building's still there, right on Tremont Street. This is the apartment store for the people who lived in Beacon Hill to come and buy clothes that looked just like they had been inherited. Never fashionable a hat like mama's. Mama's hat has worn out. I like a hat. Believe me, the fashion history was--
Boston didn't have an opera house. We had a symphony orchestra, Henry Lee Higginson, but an opera house was morally suspect. This is Boston, the delightful Yankee quirkiness and it creates a very, very welcoming and supportive environment for angels.
Lisa Frusztajer: Very much so. It's counterintuitive.
Sal Daher: Totally paradoxical. Anyway, let's talk about the other venture that you wanted to touch on.
Lisa Frusztajer: This is a really interesting one. It's called Founder's First Capital Partners based in San Diego and founded by a woman called Kim Folsom, who is African American. She is a six-time enterprise technology company founder.
Sal Daher: Oh wow.
Lisa Frusztajer: She raised VC capital and a lot of the capital that she raised was actually from Boston VCs in the 1990s. As far as I can tell, there is nobody who has done what Kim does or there's nobody who's done what Kim has done in terms of successfully raising money as an African American female. What Kim has done with Founders First is really methodically deconstructed the early-stage funding world.
She is rebuilding a structure that will channel capital to underrepresented founders. In Kim's definition, that means people of color, it means women and it means veterans. It's a multi-multipart organization, including an accelerator where founders apply. They come in and get a top to bottom review of their businesses. Her strategy is essentially diversifying the income stream of the companies. She wants companies who go through the accelerator to come out with at least three revenue streams so that they diversify their revenue streams, their revenue sources, and then for those who qualify, they can apply to get revenue-based funding.
The floor is $250,000 of revenue in order to apply to get revenue-based funding but if they get funded, then they get really intense consulting from very experienced executives, former founders. They actually pay a reasonably small monthly fee to get those consulting services. The whole idea is to set these companies up for success.
Sal Daher: The idea of paying, I think is very important so that they don't feel that it's just a handout. It is a service that they are acquiring. They need to take it seriously. There's money coming out of the company. They need to make the most of it because people tend to devalue things that are just offered for free. It's important to have them have a sense of skin in the game.
Lisa Frusztajer: Exactly.
Sal Daher: They prioritize because the founder has a lot of stuff going on and that support is extremely helpful, helping the founder get the scale once they have a product.
Lisa Frusztajer: Exactly. The goal is to get these companies to be mid-market size companies, so $10 million plus in revenues, whereas without the support, they will be very successful companies but they'll be operating at a smaller scale.
Sal Daher: There'll be lifestyle companies which basically will provide a living to the founders, but won't have impact beyond that.
Lisa Frusztajer: Exactly. What I think is really wonderful about it is, first of all, it's an alternative source of funding. It's not equity funding, it's revenue-based funding. Then again, what Kim is creating is a lot of the structural underpinnings--
Sal Daher: Excuse me, let's just explain to people who may not be familiar with the term. I have an entire podcast about revenue-based financing with Jay Batson Revenue-based financing means that in some form or another, the funds advanced to support the startup are returned based on the company's revenue. It's a percentage of the revenue or paid back over a certain time and the idea here is that founders not giving up equity. The founder is getting fuel to jet-propel the startup.
Lisa Frusztajer: Exactly. It aligns the interest of the founder and it aligns the interest of the funder on the same side. The typical percentage of revenue that gets paid to investors is 5%. There are two forms of revenue-based financing. We probably shouldn't go into the detail, but there's an equity form and a debt form. When it's set up, there's a target return and a target payback period. The main thing is, as you say, the founder doesn't give equity.
Success does not depend on an exit. There are plenty of companies that are good candidates for exit, but there are many more that are not good candidates for exit. In fact, it creates an incentive to go for the exit rather than creating a strong, sustainable, long-term business. That's the aspect of revenue-based financing that Founders First is really underscoring, which is this is not just about creating a business that is going to be a momentary success.
This is going to be a business that creates good jobs in the community, that creates good employers, and that starts building intergenerational wealth, which has been closed off to huge segments of the population, it serves many purposes.
Sal Daher: This is very promising and I think that a revenue-based model is particularly appropriate to this type of business.
Lisa Frusztajer: I do want to say one other thing about Founders First, and that is that Kim is really building a national organization. She's expanding into a number of different cities. She got backing from CIM, which is West Coast Institution Community Investment Management, that has matched her funding with a $100 million pool that she can use to fund companies then she's also gotten backing not only from the Rockefeller Foundation, but they brought in all the big name foundations.
She's getting support on many different levels, creating this national organization and her goal is to be a prominent national financial institution that is going to change the way that we fund underrepresented founders.
Sal Daher: Kim's name again.
Lisa Frusztajer: The last name is Folsom, F-O-L-S-O-M and the organization is Founders First Capital Partners.
Sal Daher: Excellent.
Lisa Frusztajer: There's also a Boston-based investment management firm that created a credit facility to back Founders First. It's Chat Reynders at Reynders McVeigh, set up this credit facility and he has brought some of his clients into the credit facility to back Founders First. The reason that I mention all of this is that it shows that not only are there many ways to get involved in early-stage funding, but even within a given structure, there are many ways to create the funding vehicles. The capital stack serves many different needs and you can pick and choose how you want to finance something.
"...The leadership training series creates a cohort where it's one of the few places where founders can really get together and let their guard down. Because one of the things with entrepreneurs, one of the things with founders is that you're under a lot of scrutiny, and you've got a lot of accountability..."
Sal Daher: That is really valuable. How does the Capital Network interact with these types of founders? Do they provide guidance about the funding that's appropriate? Is there a program at the Capital Network to help founders in this way?
Lisa Frusztajer: The Capital Network runs lots and lots of programs, dozens at least on things like sources of capital, how to pitch, legal issues, valuation and one of the things that I'm doing through TCN is I'm running a leadership coaching program that is a multi-session program to look at what the founder journey is like, what are the challenges connected with the founder journey and how do you overcome them.
One of the things that I find is that the people who decide to start companies, the people who choose entrepreneurship are enormously capable, enormously high-functioning, and enormously hard-working people. The problem is rarely figuring out how to get something done. A lot of it is the mental shift that you need to make in order to get comfortable with the ups and downs of the founder journey in order to create a new identity as a founder. Then the other thing is, everybody walks their own journey so it takes a little bit of experience and it can take some mistakes before you figure out what is the right way for you to go out and raise money?
What is the right way for you to go out and build the team? What are the values that you want to bring to the company that you're building? The leadership training series creates a cohort where it's one of the few places where founders can really get together and let their guard down. Because one of the things with entrepreneurs, one of the things with founders is that you're under a lot of scrutiny, and you've got a lot of accountability.
You're under scrutiny, or you're being evaluated by the people who are working for you, you're being evaluated by investors. There aren't that many places where you can really let your guard down. This leadership training series creates a forum where people can just really open up about the challenges that they're facing as founders.
Sal Daher: This is really valuable. A metric of the guardedness of founders is that when I interview founders, podcasts tend to be very short, and I tend to strain to make it long enough to meet the format [laughs], because they have honed their message and they stay on message relentlessly, and they are afraid of saying something that's going to blow their startup up. Whereas investors are much more freewheeling, they're more willing to speculate because they're less susceptible to being just blown up by an ill-thought term.
They have a lot more independence than a founder. Startups are very precariously funded. Their resources are just a bare minimum for them to get off the ground, and they don't have room for unforced errors. They will make mistakes, but mistakes of discovery, not an unforced error. [laughs] It's good to have an environment where founders can let their hair down.
Lisa Frusztajer: That is actually really an amazing data point. It's one that doesn't surprise me.
Sal Daher: Angels go on and on and on. They also have a lot more experience, they're older. At this point, Lisa, what I wanted to do is switch the tempo of the podcast a little bit. I'd like to do a very brief promo for the podcast and ask for the support of our listeners in helping promote the podcast. I want to get a little bit more into your journey into entrepreneurship and investing and how you got involved with that.
I want to say that the Angel Invest Boston Podcast, like the Capital Network and like so many other things, is a vehicle for learning. The idea is that people will listen casually to conversations that may spark an idea, it may help solve a problem, it may incentivize someone, encourage someone to go off and start a company. I think humbly that we have some very, very, very valuable conversations with guests, and that people have learned mostly from my guests, because they've heard me a million times.
Listeners have heard what I know. If a listener wants to help, a good way to do it is if you are in the Apple universe, go to the Apple Podcast app, leave a rating, of course, we ask for five stars, and then also leave a written review. It doesn't have to be long, a couple of lines. What that does is helps the algorithm, everything is run by algorithms, to understand that people like this particular episode.
If you listen to an episode within 24 hours, 48 hours of launch, if you leave a review there, it will bump that episode up. That episode will get extra downloads. The back episodes will also get extra downloads. The way that the world of podcasting is set up, the current podcast looms very large. Everything is about the current podcast. In reality, the content that we produce here is evergreen, so another podcast might be much more interesting to you, but it seems to get a lot of attention because of the structure of the podcast.
I asked for that help from our listeners and I really appreciate this because our guests really put in a lot of effort to jump through all the technical hoops to do a podcast. I'm very grateful to Lisa for doing this. Lisa, you started out Procter & Gamble working in large companies and the branding side, and you worked in project management. When is it that the entrepreneurial bug bit you? Was it after AVID technologies? Tell us about that.
How Lisa Came to Entrepreneurship
Lisa Frusztajer: A couple of things, one is I've always been really interested in technology and innovation, and I'm still really fascinated by pure technology.
Sal Daher: Where did you grow up?
Lisa Frusztajer: I grew up in the Boston area.
Sal Daher: Oh, in the Boston area?
Lisa Frusztajer: Yes.
Sal Daher: I wouldn't have guessed that. I thought you might be an immigrant from Germany or someplace.
Lisa Frusztajer: My parents are both immigrants to the United States. My mother's from Brazil.
Sal Daher: Brazileira
Lisa Frusztajer: Yes, she's from São Paulo. [Portuguese] São Paulo.
Sal Daher: São Paulo [Portuguese].
Lisa Frusztajer: We spent a lot of time in Brazil growing up. We used to go there every year and Boston was really different then.
Sal Daher: You were interested in technology?
Lisa Frusztajer: Oh, and then I should say my father was born in Poland and grew up in Siberia during World War II.
Sal Daher: Oh my.
Lisa Frusztajer: Came to the US, and he actually worked in technology in the early days. For me, engineering, technology seemed like just a normal thing. He actually started a company after coming to the United States. I grew up familiar with what entrepreneurship was all about. I grew up really fascinated by technology and I also was interested in the financial markets and the power of the financial markets. How capital gets allocated and also concerned about inequities in the way that capital gets allocated. Something that I was always really intrigued by. After working at a couple of technology companies, interestingly enough, the first time I made an angel investment was because of a very innocent question that I got asked. I was at a conference talking about serendipitous encounters. I happened to be in a breakout group with Jean Hammond.
Sal Daher: Oh my. [laughs]
Lisa Frusztajer: We were talking about angel investing and I think there were only four of us in this breakout group. It was not a really well-attended breakout group, which is great. In the middle of the breakup group, Jean Hammond turned to me, and I've told Jean this story, so she knows. She turned to me, and she said, "Oh, have you ever considered becoming an angel investor?"
Sal Daher: [laughs]
Lisa Frusztajer: The answer to the question was no, it had not ever occurred to me. I had never even thought that that was a possibility, but I think it really goes to show. Why not ask? An innocent question like that can send somebody off on a journey you don't know where it's going to lead.
Sal Daher: With Jean asking the question, it's particularly powerful. I had a conversation today where one of Jean's stories came in because Jean has been on the podcast, she's kind enough to make time to be interviewed on the podcast. It was about focus in one of her startups, I think it was her first startup. She was talking, I think, to an investor, and she said, "First we're going to work on this and second we're going to work on, no."
The investor said, "There's no second you're going to work on first, forget -- there's no second." This is exactly, it came up in the conversation in a Jean Hammond saying that it's been imprinted in my mind. You see, this is the kind of --, when I say it's a learning vehicle, I learn stuff from my guests all the time anyway. It was just a straightforward invitation to why not be an angel investor, and that's how you got the bug?
Lisa Frusztajer: Just the most innocent question. You put somebody in a position of saying, "Consider it, answer yes or no." Then suddenly I just started getting drawn to ways that I could learn about angel investing. I could start angel investing. One of the first things that I did is I did the Pipeline Fellowship. The Pipeline Fellowship is an educational program for women, and it's designed to teach you the nuts and bolts with a peer group.
I had a wonderful Boston-based peer group, and we evaluated some investments, we made a small investment. The company that we invested in ended up getting sold, but it's still alive, and our group remains in touch. I think it's a really interesting illustration of how community can really expand capacity. We learn together how to do angel investing and there are a couple of groups that I'm involved in that are designed to educate women in particular to become investors.
A lot of the people who come through these programs have never before seen themselves as investors. You start imagining how we could change the way that the investment world works by increasing the reach of these educational programs and inviting more people into the fold of investors. Suddenly we'd be allocating capital potentially in a very different way.
"... I think there is potential for the number of women angel investors to increase even more than it has. You'd be surprised, the younger generation of angel investors that there are a lot more women among them than the older generation..."
Sal Daher: I think there is potential for the number of women angel investors to increase even more than it has. You'd be surprised, the younger generation of angel investors that there are a lot more women among them than the older generation. I think that a lot of people are intimidated by saying, "I don't have the technical specialty to be involved in this." I come from a business background, but I don't know about this business."
The thing about angel investing is that what you know about the business may be of some help, but very often, the founder is on a voyage of discovery, sailing uncharted waters, that your experience in work doesn't help. What the angel helps the founder with are much more human things, and also very mundane things. Keeping them from tripping on their shoelaces is one thing, "Oh, don't sign that lease. That's--" That kind of stuff.
The angel investor is not going to tell a founder, "Oh, wow. That market--" or shouldn't tell a founder, "Oh, that market blah, blah, blah." Let me tell you. That's for the founder to discover. The founder has to try and figure out what is the market for her or for him. The angel is there to provide a shoulder to cry on, encouragement. It's a very human thing. It's not about spreadsheets, because they're this little data.
It's about judging the ability of the founding team and then figuring out ways to support the founding team. It's a tremendously human thing. If you have been in business, and you have been successful in business, in helping people work in teams and so forth, your help is needed as an angel, even if you are not a specialist in this particular aspect of data, or this particular aspect of the life sciences and so-- Whatever. You could always bring in people who are more specialized, and so forth, but you're supporting the founder. Angels can help a lot more than they think they can.
Lisa Frusztajer: It goes back to what we were talking about earlier, when we were talking about coaching and how founders, in some senses, feel very much like they have to be on guard because they're being watched. I think that there's a tremendous place for coaching, I think there's a tremendous role for mentoring, and just being there to support the founder.
There's definitely a role for mentors to help with business deliverables and to give concrete advice, but a lot of the time, the founder is closer to the business, the founder is closer to the customers. A lot of the role that a coach can play, or that a mentor can play, is to give the founder the confidence to pursue what they really deep down know. That's one thing that I really find, again and again, that if you ask founders whether intuition is about something, whether instinct is what they would pursue, they actually know. Sometimes it's just clearing away the noise so that they can see what they actually know.
Sal Daher: I think that was very well said; clearing away the noise, so they can see where they should go.
Lisa Frusztajer: Can I say two things that are out of sequence, but I'd really like to say? One is about what you're doing, and that is that, if you look the roster of podcast guests that you've had, the diversity is tremendous. You're talking to people in different sectors, at different stages, you're talking to investors, you're talking to venture capitalists, you're talking to investors, you're talking to the founders, and you're creating this amazing sense of diversity of the Boston investing community. There's a huge amount to be learned. What you're doing provides a huge service to the community.
Sal Daher: I'm very gratified to hear that, and honored that you [chuckles] went through my back catalog. The people who come on the podcast are an indication of the people that I run into, that I find interesting. It's like a record of my encounters, and people from whom I think I can learn. That's the common theme; what can I learn from this person, and what can my audience learn? This is what drives this, and it goes in all sorts of directions.
My primary focus is life science companies, but once again, there are a lot of things that you can learn from someone. In the most recent podcast, I've launched, is a very dynamic founder, Alicia Tulsee. She founded a company called Moxie Scrubs, [chuckles] helping nurses have better clothing, and not a technology thing, but I think there's a lot of lessons in her approach to doing things.
Lisa Frusztajer: She's been really creative in harnessing what drives the business. She's doing it differently from the way that the business has historically operated, but she's doing it in these really amazingly creative ways. Can I ask you a question, Sal?
Sal Daher: Certainly.
Lisa Frusztajer: I know that your focus is now on life sciences. I think the way you describe it is you're talking about angel-level biotechnology.
Sal Daher: That's right.
Lisa Frusztajer: How are you seeing that sector change, and how are you seeing investment practices change?
Sal's View of the Change in Investment Practices
Sal Daher: There are long-term trends and their short-term trends, a long-term trend is there is a growing number of very, very impressive academic and technical founders wanting to start companies that technologies are more and more accessible in terms of capital needed to develop them than ever before. This is the Cambrian explosion that's happening, similar to what happened in the early 2010s in software, it's happening in the life sciences.
There are not enough executives, people with experience in the life sciences, to actually do this the old way, the professional way. We have to invent new ways of doing it because the possibilities are exploding. By the way, a lot of life scientists are women. There are a lot of women who are just phenomenal founders. My goal is to figure out ways that I can support them as an angel investor.
I look for companies that don't need more than $5 or $6 million before they get to the point of a bit of a collaboration with one of the big established players, well-defended intellectual property, an area of technology that is of interest to the strategic players. My goal here is not to be grooming, future IPOs. It's to help people, for example, Sherine Abdelmawla that I interviewed on this podcast, and she is just an unbelievably capable founder and is doing very, very important work to protein interactions, and how to interrupt them. Extremely important in the treatment of cancers and other things.
She has sort of, in the conjunction of artificial intelligence, and wetland biology, she's doing stuff that is just unbelievably promising. This isn't West Lafayette, Indiana, my connection with Purdue University cannot believe how much stuff is going on in the life sciences here in Boston and in lots of other places across the country. This is for me, it's like how do I support them? This is why I decided to focus in this area because I-- and of course, selfishly, I also think that can make a lot of money doing this because there's just so much new things, so many new useful things are going to happen. There's so many people with such tremendous drive and motivation for doing this.
Liz Frusztajer: Do you think that the path to commercialization, do you think the way that things are being commercialized is changing?
Sal Daher: Yes, yes. Let me just mention, I said long-term, this is a sort of a long-term term, short term, a lot of the companies have gone public or suffered terribly in the stock market, the stock market has been very unkind. It has been unkind to established technology companies, it has been unbelievably vicious, to early-stage research-oriented biotech companies. It is just brutal.
Even before this market, I was always thinking in terms of the company shouldn't be looking for an IPO, they should be looking for strategic collaboration. I think that the way that that technology is going to be developed, is invariably going to have to change, okay? I mean, I'm not going to name names, but uh, one of these large strategic players, they're all like this, they have this attitude that everyone has to have a PhD, even the facilities manager, the janitor has to have a PhD.
Sometimes it gets to get really finicky; it has to be in molecular biology or something, it's the same because if there is not enough human capital for this. I'd say each PhD should be one PhD in a little startup, starting the company, and then having other people around that PhD, helping her or him get that business off the ground. Figure out, is it a business is that a collaboration with a strategic? That innovation is really in the ferment that's going on with these early-stage companies. Because guess what, the VCs are not interested in that, VCs are creating their own moonshot companies, a la Maderna.
Everybody wants to have a Maderna, in their stable. This is an opportunity of the era, from my perspective, to help-- and guess what it is people scale. It's angel scale. It doesn't require hundreds of millions of dollars of funding, a group of Angels can get together and fund one of these companies.
Lisa Frusztajer: It's a really exciting initiative. Does it suggest that you're testing the market for new developments earlier than we historically have been?
Sal Daher: There are many, many more technologies that are amenable to being developed with a lot less money. It doesn't cost $100 million to develop a microfluidic chip. I'm on the board of a company called Sivran Technologies which is in the business of capturing extremely rare cells in serum. This company hasn't had $400 million in developing technology. It's had a few million dollars. They are involved in very serious discussions with strategic players about how their technology can just like 10 x businesses that they have.
This is the power of biotechnology. These new technologies, combination of engineering and the life sciences that just we're beginning to understand the value of them. The last decade, since 2011, Mark Andreessen wrote his article in the Wall Street Journal, why software is eating the world. Software has been everywhere, eating the world everywhere. Angel investing is really software investing and it grew up as software investing. I think that the 2020s going forward are going to be the decade of biotech.
Lisa Frusztajer: It sounds like this--
Sal Daher: We've watched miracles happen with, of course, those are miracles funded by $2.7 billion in funding, but they're going to be mini miracles funded with $4 or $5 million by 20, 30, 40 angels. That can change the world as well.
Lisa Frusztajer: It sounds like the start of an amazing new chapter in biotechnology.
Sal Daher: Definitely. Lisa, if there are any closing thoughts that you'd like to leave our audience, the mic is open to you.
Advice to the Audience
Lisa Frusztajer: I really want to go back to something you said, Sal, which is that it's about the people. Investing early-stage funding is really a network-driven game. It's about people connecting with people and creating opportunity for one another, but I think within those assumptions, there's huge opportunity to democratize the way that we allocate capital and the companies that we fund. It's something that everybody can get involved in and I think it can make the world better, but I think it can help everybody involved have a lot more fun.
Sal Daher: [laughs] Oh, definitely. It is extremely rewarding. I must say even in cases where I've lost money, almost every single startup. I would say out of the 70 startups that I've invested in, maybe 2 I would say I wish I hadn't invested. That's because of character issues, but everything else, I've seen founders, I've seen CEOs invest their savings in the company they don't have to, and they almost ruined themselves because they wanted to make the company successful. This is genetic for testing for newborns. Magnificent people. Just the magnificent people that you get to work with and that is so rewarding.
Lisa Frusztajer: It's one of the most energizing things that you can do. You're working with people who are creating something new, testing themselves, and testing the limits every day. Incredibly exciting.
Sal Daher: It is. Lisa Frusztajer, an Investor in Residence at the Capital Network. A very, very supportive investor. I thank you for making time to be on the Angel Invest Boston podcast.
Lisa Frusztajer: Thank you for having me and thank you for all you do, Sal.
Sal Daher: I'm honored that you listen and that you came on. This is Angel Invest Boston, I'm Sal Daher.
[music]
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.