Angel Invest Boston is sponsored by Peter Fasse, top life science patent attorney.
Angel investor Paul Silva has an idea about how to help startups after they exit accelerators. Launch413 is taking the friction out of getting and giving advice to founders. Great chat with a fun guest who is also a listener.
Click here for full episode transcript.
Highlights:
Sal Daher Introduces Angel Investor Paul Silva
“…because they're a first-time founder, so they're going to make all the first-timer mistakes. We don't want to pay the tuition bill for them to learn, right?”
“…a lot of great founders out there that don't…have access to those things, and so angels…say no because they're inexperienced. That drove me nuts. That was the problem that inspired Launch413.”
“…providing each of our entrepreneurs a virtual C-suite of executive coaches.”
“…we get compensation…through a royalty sharing agreement with the entrepreneurs. We don't take any equity.”
413 Portfolio Startup IgnitePost Greatly Improves Responses to Sales Calls
413 Portfolio Startup Apprentiscope Takes the Friction Out of Hiring Interns
Super Angel Jay Batson’s Back Story and Revenue Based Finance
Sal’s Portfolio Company AceUp Makes Coaching Easy for Large Enterprises
Sal Daher Asks Paul Silva About Ways to Back Early-Stage Biotech Startups
Eric Ries’ Podcast Out of the Crisis
Sal’s Critique of Syndications – Paul Silva’s Response
QSM Diagnostics – Doing a Lot with Modest Funding
Savran Tech., Purdue Company with Ultra-Rare Cell Technology
Waseem Daher of Pilot on Why You Can’t Have Too Many Angels
“As an angel, I love that my money is helping do all the things, but I really want to do more. I want to help.”
Paul Silva Brainstorms Ways to Help Purdue Connect with Angels
“There's a huge gap in what happens after the entrepreneur launches the company.”
“He joined a group of these angel investors in New England where they ride in their motorcycle and they listen to angel pitches in different towns in New England”
Transcript of, “Launch413”
Guest: Angel investor Paul Silva
Sal Daher: This podcast is brought to you by Peter Fasse, patent attorney at Fish & Richardson.
Sal Daher Introduces Angel Investor Paul Silva
Welcome to Angel Invest Boston, conversations with Boston's most interesting founders and angels. Today, my guest is Paul Silva, who is an angel. Paul is from Western Massachusetts, Springfield. He's involved with RVI and a bunch of other things out there. It's an area that's very hot in technology, computer science, and so forth. Welcome, Paul Silva.
Paul Silva: It's a delight to be here, Sal. Thank you.
Sal Daher: I understand you're a listener to the podcast as well.
Paul Silva: I am a huge fan, Sal. I was just listening to your latest episode this morning after dropping off the kids at school.
Sal Daher: Oh, we keep it family-friendly exactly for that reason. If your kids haven't gotten enough sleep, you can put the podcast on, there'll be no swear words, and they'll catch up on their sleep. [laughs] I hope you don't doze off and drive into a tree or something.
Paul Silva: Infrequently.
Sal Daher: We keep it family-friendly precisely because of people like my buddy, Mike, who listens to the podcast driving his many kids around. Paul, let's talk about Launch413, which is your latest effort to create a better experience for startups and for advisors. Explain to us the problem you're addressing and explain to us how you're addressing it.
“…because they're a first-time founder, so they're going to make all the first-timer mistakes. We don't want to pay the tuition bill for them to learn, right?”
Paul Silva: Sure. Sal, because you and I have been in the angel game for a while, almost all of your audience is too, they're going to recognize this problem. A first-time founder gets up there with a wonderful story, and then they give their pitch, they got lots of things figured out, and most of the time, we can't fund them because they're a first-time founder, so they're going to make all the first-timer mistakes. We don't want to pay the tuition bill for them to learn, right?
Sal Daher: Too green… Exactly.
“…a lot of great founders out there that don't…have access to those things, and so angels…say no because they're inexperienced. That drove me nuts. That was the problem that inspired Launch413.”
Paul Silva: Now, there are exceptions, but the exceptions are very disproportionate. These are first-time CEOs, often young, that have this great network of people. They've got connections to Amazon or IBM or whatever, something that's very attractive to us. It tends to be that those people look a lot like you and me when we got out of college. That means there's a lot of great founders out there that don't, by luck, have access to those things, and so angels for a very practical reason say no because they're inexperienced. That drove me nuts. That was the problem that inspired Launch413.
Sal Daher: Excellent. How is it that it works? Explain the mechanics, and how it accomplishes your goal of improving the advisor and founder relationship and experience.
Paul Silva: Sure. The problem for the founder is they don't know stuff yet. They're getting ready to learn the hard way. That's their problem. The problem for us mentors, because all of us mentor, all of us help entrepreneurs, and I've run a number of accelerators. Accelerators are wonderful, they're a critical thing for startups at the beginning of their life to take advantage of, but then what happens after you graduate from the accelerator? Who's holding your hand after you launch and all the things that they can't teach you in an accelerator? Like about your first hire, your first fire, your first big, "Should I take the investment or not?" These things that keep the entrepreneur up at night, where are you learning all that?
“…providing each of our entrepreneurs a virtual C-suite of executive coaches.”
What we're doing is providing each of our entrepreneurs a virtual C-suite of executive coaches. They get a CEO coach, they get a board, and then whatever problem they run into, we reach into our bench and bring in the hero that they need. "Oh, you're trying to figure out your branding. This is the former global brand manager for Procter & Gamble. You need to build your supply chain? This guy built the Apple supply chain in China," and they're going to come in and kick your butt once a week until you've done the thing.
Now, we're coaches, we're not the players. The entrepreneurs have to be the players, they have to do the work, but we're there making sure that they have the right advice, so they can make the right choices, and editing their work, and just by doing that, that's a real cost-effective way for the entrepreneur to be able to not make mistakes and dramatically increase their progress.
Sal Daher: Right, right. Can you talk a little bit about how this helps the advisors?
Paul Silva: Yes. Well, the most important way it helps, of course, is that we're all junkies for helping entrepreneurs, right? We love it, but what we want is we want to help entrepreneurs in a way that's going to have the most impact. On the impact side of the equation, we like it because we're part of a team. You're not just a mentor helping an entrepreneur. They have structure, and we have systems that are helping bring in the right person, so you know that you're not alone. All of us, Sal, are good at a very finite number of things, and we can help the entrepreneur all we want, but then they need to do something that's not our area of expertise, like for me, financial, say. At launch, there's the financials gal. She'll come in and clean things up. To have that, your entrepreneur is more likely to succeed, and we love that.
We also threaten compensation. Most of my mentors don't care about the money in terms of- it's not going to make a meaningful impact on their life. They're already asked one enough that it doesn't matter, but they like it because it changes the nature of the relationship because now the entrepreneur knows, "This isn't charity, I'm paying for it, so I'm going to take it seriously, I'm going to respect what this person says, and also, I have to listen to a certain amount of what they say, or otherwise I should terminate the relationship because they're investing in me, and it would be unfair of me to ignore everything that they say," so that changes things a lot.
“…we get compensation…through a royalty sharing agreement with the entrepreneurs. We don't take any equity.”
Then the way we get compensation is through a royalty sharing agreement with the entrepreneurs. We don't take any equity. There's nothing wrong with equity. You and I are in the equity business, it has very specific pros and cons. Those pros and cons aren't good if what you want is to be compensated for coaching an entrepreneur to help them succeed as opposed to necessarily a company having a big exit.
What we get is usually half a million bucks from the entrepreneurs, about 5% of their revenue at a time. If the company doesn't succeed, they don't pay a dime. If we hit it out of the park and the company grows to even 3 million a year, then they're going to pay us off in just a couple of years' time. They know that our incentive is super simple; help the company grow as fast as it can handle, which I'm under the delusion is a healthy thing for a startup to do.
Sal Daher: Absolutely. Yes, it's very good. I understand you have a couple of companies that have gone through the process already?
413 Portfolio Startup IgnitePost Greatly Improves Responses to Sales Calls
Paul Silva: Yes, we've got six companies active in our portfolio right now. One that is right in Boston, and you might have bumped into Arian Radmand from IgnitePost. Have you met him?
Sal Daher: I've heard the name. What do they do?
Paul Silva: What they do is they dramatically increase the effectiveness of your sales team's cold email practices. There's a few other places where they operate. Let's just imagine that case. All right, I've got my CRM, I email all these people. If they don't answer three times, I consider it a loss, and I ignore it. Well, instead, Arian's software talks to your salesforce, notices that Sal hasn't responded, and automatically, there are robots that hold pens, they have hands and they hold pens, and they handwrite a letter to Sal. It looks handwritten and it's got the indentations from the ink, so it doesn't look out of a font.
Then the letter goes out. Now, lots of people have handwriting things, the difference is this one's fully automated and integrated with your sales system. [laughter] The salesperson doesn't do any additional work, but their close rate goes up by 3 to 10X. That matters. [chuckles] That's what he does. He joined up with us in February of 2020. It's a real case study of what happens when you get the right kind of help and why people like you and me love helping entrepreneurs.
We came in and obviously, 60 days after he signed up with us, his problem wasn't the problem it was when he walked in, it was that COVID had just destroyed 80% of his revenue, and he was probably going to be out of business in a month. It wasn't our first economic downturn. We parachuted in people that knew how to deal with an economic downturn, how to make a penny scream, and got him to six months of runway.
Then his problem was, "Oh, well, if I'm alive for six months, what am I going to do with those six months? I need to stop taking money from anyone who will give it to me and find the right customer, that's going to be the foundation of building my business." Now, we brought in the experts to help him with that. At the end of the six months, he had identified those customers and gotten to break even. Now, it was time to do an angel round. Then I was the one who coached them on how to raise angel money, was oversubscribed in that, and so on and so forth. That's the pattern.
Sal Daher: That's great. That's a great idea. I know one of the advisors for that company. His last name is Marx, Groucho Marx.
[laughter]
Let's say authenticity is everything. If you can fake it, you got to it made. I like that. They actually have a robot that handwrites notes.
Gosh, there's so many mothers who tried to get their kids to write thank-you notes. Imagine this, a mother has been trying to get her kids to write thank-you notes her whole life unsuccessfully. She then gives a subscription [laughs] to her recalcitrant children, who then have an easy way to write notes to friends and they look authentic. Groucho Marx up there or down there, wherever he is, is gratified. Anyway, any other companies that you'd like to talk about?
413 Portfolio Startup Apprentiscope Takes the Friction Out of Hiring Interns
Paul Silva: Yes, another great example of one of our portfolio companies is Apprentiscope, who recently relocated to Boston, but they were originally out in Vermont. We met this company, led by a young man Will Lippolis who was just out of undergrad. This description, even younger than Aryan, just out of undergrad, graduated from an accelerator, got his computer science degree, launched a pilot that summer. The pilot customers said, "Yes, this is broken. You’ve got to fix it."
Then he fixed it, and by the end of September, had his first two paying customers. It was a pittance, it was 500 bucks a month or something that he was making, but it was real, he had real paying customers for a software that helps automate the process of managing an apprenticeship, which turns out a ton of paperwork involved, a lot of regulatory stuff. It's not a huge, huge industry, so all the big players aren't paying attention. There are little companies like Siemens that have thousands of these apprentices. He thought it'd be a neat niche.
We helped them figure out, "Okay, how do you attract the right customers first?" Then his problem was, he was running out of ramen noodles. People were giving them a bunch of advice, like, "Hey, you should raise a million bucks." We were like, "You're 22. You're in Burlington, Vermont, and you got $500 a month in recurring revenue, no one's going to give you a million bucks. If they do, you won't like the terms."
I bet you've been in this situation, for 30K or 40K, you would get enough runway, and I'm confident given what you're doing that you could turn the corner and really impress people. We did that. We helped them raise a little glorified friends-and-family round, my angel group was actually most of it. That bought him six months of runway. In those six months, he closed Siemens and a couple of other national scale customers and got to break even. That was a year ago.
In that year, he has continued to increase his profitability, he made his first hire in January, that hire is on track to- he was no longer profitable, but now he's on track to be profitable in no time. Now, our debate is, "We kept saying we're going to raise another round, a real seed round or something, but I don't know, we got to decide. You could maybe bootstrap this guy and only have given up 2.5% of your company," so we got to figure that out with him.
Super Angel Jay Batson’s Back Story and Revenue Based Finance
Sal Daher: That's a possibility. This looks like a company that could have the potential for revenue-based finance that's much talked about because they actually have revenue and some growth. You don't see them as possibly venture scale, that's a thing that's been very much talked about here with people like Jay Batson / I've had Jay on the podcast twice. First of all, his amazing biography-- By the way, have you listened to the life story of Jay Batson?
Paul Silva: I did. That was a great episode. What a guy.
Sal Daher: Yes, it's just so amazing. I guess his family was in the oil business or something, but then he becomes like a software person and then ends up at Forrester Research and all these different software startups. He's just amazing, but anyway, this is very interesting.
Paul Silva: Yes. A company like his, it's not a Silicon Valley venture scale deal. It is a Basil Peters early-exit deal. He can get this to the north of $10 million, and sell it for a nice multiple of that and the angels make a great 10X in a pretty short period of time or he might be able to do it with revenue-based financing and not have to give up any more equity. It's pretty neat for him to have those options, and because we have a revenue-based model, our incentives aren't to push him to raise money. It is, "Hey, what do you want? All right, as long as you want to be big enough, it will pay us off, but anything north of that, it's up to you. Do you want to keep complete ownership of the company? That's fine. Let's double sales next quarter."
Our team really enjoys the freedom to be able to help an entrepreneur follow their passion and build a company that's creating jobs. This isn't a mom-and-pop shop, this is a real business, it's important for its community, and we're now supporting a half dozen of them, and my job is that now that we've proven the model at this scale, my next challenge as a leader is to do the same thing, Sal, you and I always have to tell our entrepreneurs to do, like, add a zero. How do I go from 6 to 60, and 600 companies? Those are some of the things we're working on, which is why we're actively recruiting more mentors, particularly ones with exited CEOs to help our entrepreneurs take those steps.
Sal Daher: What I like about this company is that it's removing the friction of people acquiring new skills through apprenticeship, the stupid stuff that makes it hard for enterprise companies to take on apprentices and to do it without a lot of hassles. I'm an investor in a company called AceUp, I don't know if you've run across them.
Paul Silva: No. Tell me about them.
Sal’s Portfolio Company AceUp Makes Coaching Easy for Large Enterprises
Sal Daher: Coaching platform, Will Foussier (podcast interview here: https://www.angelinvestboston.com/ep-81-will-foussier-ace-up) is really a remarkable founder and he just understood very much the importance of mentoring, actually coaching which is different for someone to acquire skills. It's a platform for coaching within enterprise companies. They provide a coach and coaches sign up, people who are good at coaching people sign up.
As a matter of fact, a guy who was a trainer at this- now defunct, the Boston Racquet Club, a very motivational trainer is a coach. They don't know the subject matter, but they know how to get people to do things and that just removes the friction and it helps large enterprises retain staff who are very valuable and keeps the employee from feeling that they're out of their depth, that they can get to the next level, they can re-skill- instead of feeling, "Oh, geez, this is not working out for me, I got to go somewhere else." They say, "Oh, there's an interesting move I can make if I get this skill, that skill, so I'll see- [crosstalk]
Paul Silva: That's so important.
Sal Daher: Staying at a company, as an employer, myself, I so much rather keep an employee. Every time you bring in a new employee, you're exposed to potential risks. An employee works well, you know the employee well. It's always better to get from within because you know more about the employee. This is what it does. I love this kind of company, but I'm kind of a bore right now because I'm sort of like a one-note Charlie, a one-note Samba. All I can talk about is the scrappy biotechs, okay?
Sal Daher Asks Paul Silva About Ways to Back Early-Stage Biotech Startups
Before we started the podcast, I asked you for some ideas on this and you came up with a really good one, which is connecting with Eric Reese. By the way, if any of the listeners have an in with Eric Reese, I'd like to talk to him about the scrappy biotechs and how to support them, how to create the structures necessary for supporting them. Any further thoughts, any other thoughts on the problem? What are scrappy biotechs? Scrappy bioethics, a term that Jeff Behrens, who's on the board of Savran, with me came up with, part of his doctoral work on finding out why it's so hard for life science companies to raise money for venture capitalists.
There's a trend… the people who funded Moderna, for example. Basically, Moderna was a company built by the venture capitalists. It was kind of like their own founded entity. The history there is that the founder, Derrick Rossi, approached Bob Langer of MIT who brought in Noubar Afeyan and they talked, and basically, Noubar invested directly… of Flagship Pioneering and also the fund invested. He's a very successful venture capitalist in Boston, and we've had this outstanding result.
That is a very, very rare thing in the life sciences. It's like the other 99%, the other 97% of life science startups don't have that experience. They end up being funded by angels if they're lucky. There's a lot of potential and there's going to be a lot more of those types of startups coming down the pike. My question is, there's going to be an explosion of the number of these startups. They're going to be very promising because all these technologies are maturing at about the same time.
This is comparable to 2011 and Marc Andreessen saying, "Oh, software's going to eat the world." I see biotech eating the world in all sorts of ways. So, they need some money. We know one thing; the pace of investing cannot be the same as the pace of investing for software companies. They have different needs. You have to have staging of capital, but the money is only part of it. The big thing is providing support. It's almost impossible to get executive talent into a startup unless you can pay a salary- the salary starts at 350 a year. For a startup that's raised $2 million, it eats their runway.
Paul Silva: 350 is a good angel round. What are we talking about?
Sal Daher: Exactly, it's a lot of raising. It's a lot of raising just to pay one year for a professional CEO. They can't afford a professional CEO. What they need to do is they need to figure out a way to work around it. Given your background, given the work that you've been doing as an advisor and as an angel, what are your thoughts on how to approach this? How can we create structures that will support these scrappy biotechs? The other 97% of the biotechs that are not in the charmed circle of the Modernas, or even like the SQZ Biotech. It's a Bob Langer company, in which I led the angel route of SQZ. It's not a public company, which I really like.
Paul Silva: Woo-hoo.
Sal Daher: Yes, I like it. I have a lot of my net worth tied up with that company. Disclosure, disclosure. Anyway, I'm a CFA charter holder. I have to reveal my interests, but I'm not acting as an investment advisor. Seek advice from your own investment advisor. It's just my opinion. I'm an opinionated bloviator. Anyway, what are your thoughts here?
Eric Ries’ Podcast Out of the Crisis
Paul Silva: A couple of things come to mind. A, for your audience that shares your passion of scrappy biotechs, we'll go back to the mention of Eric Ries, his podcasts Out of the Crisis, if you go on there, a large chunk of those interviews are about biotech companies that pivoted to deal with COVID and how the pace of innovation has completely changed in the past year. He's interviewing some of the top people that care about this. You can hear a lot of great stories and names. Anyone that cares about this, I would say, check that out.
The next one, is if I put my River Valley Investors angel group leader hat on, a big part of what we've done is be very active in the Angel Capital Association's syndication efforts. I know that once upon a time, there was an effort to try to create national syndication around life science deals. I don't know if that's been continued or not, but I recently just rejoined the effort led by Pat LaPointe if I remember correctly, from Frontier Angels.
The Angel Capital Association is now building tools to facilitate national syndication on a scale that's never been done before and the prototypes are being used. I think that people that are passionate about this, like you should be talking with the Angel Cap association and figuring out how do we get all of us to care, putting all of our deal flow in the same place. Step one, let's just get talking on a regular basis. Then once we see that, we're all gonna agree on what the pain points are and start figuring out those. I don't know the answers to any questions, but I know how to put you in a room with other people that care, and then y'all can make the magic happen. That's mostly a false illusion of things, but smart people in the right room, [laughter] and they figure it out.
Sal Daher: [laughs] Okay.
[music]
Sal Daher: This podcast is brought to you by Peter Fasse, patent attorney at Fish & Richardson. The biggest assets of a startup are its team and its intellectual property. Make the most out of the great efforts of your team by getting the best advice on building your intellectual property portfolio. I urge you to check out Peter Fasse, Patent Attorney at Fish & Richardson. Fish & Richardson is the foremost patent law firm and you should not skim on patent advice.
Sal’s Critique of Syndications – Paul Silva’s Response
One criticism that I've heard of syndications-- Look, syndications in the context of discussing here is not a syndicate list. Syndications are like an angel group decides to invest in a startup, half a dozen people, 10 people in the group have invested, and then they get in touch and they have the due diligence report. They send it to other angel groups that are within the Angel Pact, which is an agreement on how you're going to share due diligence and all that. Then you take that around to the various angel groups and they decide whether or not they're going to join individual members, or if they have a sidecar fund, a sidecar fund is going to join into this syndication.
That's what they mean by syndication, not the individual syndicates that you have on angel lists and so forth. That's a different-- Most of the time, these angels are going in directly. They show up on the cap table, and the criticism I've heard from one founder, she said, "Listen, I love the idea, but it just takes too long for the beginning to the end. I've tried once. It took forever, but I haven't gotten involved in this." For example, QSM, did they get involved in a syndication?
Paul Silva: Yes, that's how my group ended up investing alongside you guys is because I saw them at the regional event and I invited them to pitch my group, and with the bias of all of us see the world through the lens of where we live, with that bias clearly stated, I've heard that problem since the beginning and entrepreneurs are totally right. A lot of times-- I mean, entrepreneurs always wished they had the money yesterday. They got to get over that, but to be fair, a lot of times, "Walnut agrees, they're in. They're going to put in half a million into the deal," and then you go to, "We'll make up a make-believe angel group, a Red Sox Angels."
Well, Red Sox Angels looks at it and they're like, "Well, I really like all the work you did, Sal. We are now going to start our due diligence process from scratch, and it's going to take three months. We have to ask the entrepreneur most of the same questions you already asked, even though you did the due diligence." By the way, she also has got to pitch White Sox Angels, and Green Sox Angels, and Blue Sox, and they all do the same thing.
Sal Daher: These are all imaginary angel groups, although I do know somebody who works for the Red Sox. I've got to pitch to her the idea of having the Red Sox Angels, how the Red Sox players become angel investors. I like that idea. [laughs]
Paul Silva: They would understand sports tech. Now, that being said, we've experimented with something at my angel group that's worked really well for us. I have no idea if it's useful in other places, but I wonder if it could be a pattern that it could adopt. When a syndicated deal pitches my angel group, I tell all my angels, "Here's the deal. They're pitching today. If you like what you hear, raise your hand, we'll go on a follow-up date next week and you'll get to ask them questions for an hour. Then at the end of that hour, you're either in or you're out."
Now, I'm not asking you to write a 100K check because it's probably irresponsible for you to write a 100K check based on reading Sal's due diligence package and spending two hours with the entrepreneur in total, but if you're going to write a 10K check or 15K check, look, get some diversification. I set that expectation of my members that it's small checks. You make the decisions fast. You only looking at syndicated deals. As a result, on Wednesday, two companies pitched, we liked one of them. That one had a due diligence meeting with us yesterday, so six days later, and she got a commitment for $60,000 from our group yesterday.
She was like, "What? You actually gave me a commitment in six days?" "Yes." I think if we can think about when we're doing something syndicated to lower the dollar amount and just get to yes or no much faster, I think that would help a lot. As you in the life science community are thinking about how to build your syndication, maybe that's the thing to steal.
Sal Daher: My experience with Walnut is that the startups hear right away if they have a chance or not, right after the pitch. If they're going to get money, they'll know within a week or two. It's basically just one follow-up meeting after they decide yes or no. Basically, it doesn't take much longer than two weeks.
Paul Silva: Well, that puts your group and my group in the absolute exception because anywhere else a month is considered faster diligence. Quite frankly, that's appropriate given how much work they're doing.
Sal Daher: It could be three weeks, two weeks, three weeks, just depends on the scheduling time and all that stuff, but generally, before the next meeting, before the month is out, people have made up their minds if they're going to invest or not, that's a very good thought to have in mind.
Paul Silva: You can even imagine, Sal, that you're running an event, I'll pick on you. I'm not trying to give you more work, Sal, but we'll imagine that Sal hosts an event once a quarter or whatever, with the top deals in scrappy life sciences that have been syndicated by everyone that looks like the regional angel events that you've been through but your audience might not have, where it's kind of a demo day.
All the audience are all members of life science-oriented angel groups. They had a chance to see that pitch beforehand, see the due diligence of whoever nominated it to get there, and then it's, "Here's the pitch, agree on your second date, and folks, you're in or you're out for 25K." You could just set that that's the rules for this meeting, and if you're going to lead a deal, you lead it and you spend the amount of time it takes to decide to commit 100K checks per person. If it's just a follow-on, here's the cultural norm, folks. I think you could radically change what happens with these scrappy life science deals.
Sal Daher: Okay. Almost like a scrappy life science fair.
Paul Silva: [laughs] Yes.
QSM Diagnostics – Doing a Lot with Modest Funding
Sal Daher: A virtual fair which may be quarterly, we could do that, whoever happens to be raising because the cycle is like-- QSM, today I sent off the paperwork for my follow-on investment at QSM Diagnostics. They're doing a bridge round, which is basically 50% of the original raise. I think their original raise was a million and they're raising another 500,000, and they're almost all fully subscribed, and just with people who are original investors. They've made a lot of progress and they are the prototypical scrappy biotech. Why? They're using the QSM technology, which is quorum sensing molecules, founder, Ed Goluch is one of the top authorities in the field. He's a professor at Northeastern and wrote his doctoral thesis on this, and has been working on quorum sensing molecules all the time.
The idea is to use these molecules that bacteria use to find out if there are any of the other types of its other kind in a space and an environment as a detector for bacteria in a human or in animal serum and an animal fluid like dog ear goo. That's the first thing that they're doing.
Paul Silva: That's what's scrappy about them, right? It's that they were smart enough to say, "We're going to start with dogs because the regulatory hurdles are a lot shorter. We're going to go with this simple disposable thing that the docs are already going to be pretty comfortable and familiar with." They sound a lot like a scrappy software company.
Sal Daher: Exactly, and the results are in a minute, literally in one minute because these quorum-sensing molecules are-- That\s what they do. They give an immediate response, but the simplification was greater than that because originally, their idea was to go after doggy urinary tract infections, but that required six sensors for them to develop, six different of these molecules that they needed because there are six different causes of urinary tract infections in dogs.
By the way, there's 95% commonality between the organisms that cause urinary tract infections in humans and in dogs. I could well imagine somebody coming down with a UTI going to their vet to get their urine sample tested so they can know right away what it is instead of waiting for days-
Paul Silva: "Doc, I need this on the side."
Sal Daher: Yes. This is for Toto, the dog. [laughs] But they realize, "Oh, geez, why develop successors?" They discovered that dog ear infections, there's one bacterium Pseudomonas aeruginosa, which is the usual culprit. If it's not that, then it's a fungal infection that can be treated with an antifungal. They have a test which is in trial right now with a bunch of vets and it's going to be rolled out at scale very soon. Basically, they swab the ear, put it into the device, and they can read if the dog has Pseudomonas or not, if the dog needs antibiotics or just an antifungal. It's a revenue source for the vet. It's peace of mind for the pet owner, and eventually, the technology is going to be making a transition to humans.
Paul Silva: But they're required to configure that problem out.
Sal Daher: This is a company that's going to have profits. They already have revenues, and they're probably going to be profitable in not too long. This is what I mean by scrappy biotech, and these guys, they're very lean, they run very lean, a great example of dedication. Ed Goluch giving up a very promising professor of Northeastern to be full-time with a startup, [chuckles] it takes commitment.
Paul Silva: That's the kind of crazy we look for.
Savran Tech., Purdue Company with Ultra-Rare Cell Technology
Sal Daher: Amazing. There are a lot of companies like that. I'm on the board of Savran Technologies and they have a technology for basically finding extremely ultra-rare cells. How rare? One in a billion rare. By the way, listen to the One in a Billion podcast, it's called One in a Billion with Çağrı Savran, who is the founder, he's a professor at Purdue University. The company is located here in Boston, the investors.
This is the company Walnut led the investments, although we do have one RVI investor and I don't want to reveal his name. You know who it is. It's a very promising company, it's a platform, and to date, they've raised a couple of million dollars, so there's not a lot of dilution. They've done a ton with that. They've developed the technology tremendously.
Paul Silva: Sal, isn't that why we're in this business? Politicians complain and complain and don't get things done and the rest of us complain, and then entrepreneurs just solve problems. They invent stuff that seems impossible all the time, it's amazing. They make jobs and prosperity. I can’t get enough of work with them.
Waseem Daher of Pilot on Why You Can’t Have Too Many Angels
Sal Daher: They do, it’s just amazing. Oh, by the way, it just happens that today I read this post on LinkedIn by Waseem Daher. Waseem Daher is a very successful repeat founder. No relation to me. He was actually my daughter's classmate at MIT where they’re both undergrads. They met each other at some point because of the same last name, but he's not related to me, but he’s a brilliant guy, and he wrote this article about there is no such thing as really too many angels. People should look this up. Waseem Daher, W-A-S-E-E-M Daher D-A-H-E-R. He’s a founder of Pilot, they have a Unicorn valuation, a very interesting company that he and his two co-founders put together.
Anyway, it just says the importance of having angels and how much angels have helped him. I think it’s a great tribute to what angel investors do. Even one angel, there is no such thing as too many angels on your cap table.
Paul Silva: I hear that concern from entrepreneurs like, “I don’t want to have too many people on my cap table and I--” If your concern is chasing-- I guess because my group tends to write small checks. If your concern is you have a lot of people to chase down to get signatures, create a special purpose vehicle. Make that sign of peace maybe that says, “Whatever Sal does we do,” you can make their problem go away. Then you have all these fans who love you because angels to your point, Sal, they’re like philanthropists. Angel investing is not generally the smartest thing to do economically.
Sal Daher: No.
Paul Silva: If what you want to do is have impact and know that your money has a chance to come back to you many folds, so that you can then invest in more entrepreneurs who are making the world a better place, as opposed to- and philanthropy has its place, don’t get me wrong, but if you're in philanthropy, it's "Give it away and you never see it back". Entrepreneurship, angel investing, you have a chance to create so much more prosperity. We can't have enough.
Sal Daher: I have a little bit more ambition than that if you control your risk right and so forth, but angel investing is about a whole lot more than the money. The reality is that if you screen out the problematic angels usually if you talked to a couple of founders, it’s easy to know, “Forget about that guy, he's just trouble,” but the majority of angels are either neutral or some are just unbelievably helpful, so why not? The more the merrier.
“As an angel, I love that my money is helping do all the things, but I really want to do more. I want to help.”
Paul Silva: That was literally one of the reasons my co-founder Rick Plaut at Launch413, the reason he wanted to start this with me was along the lines of that very reason. He’d been a member of my angel group for a very long time. He said, “As an angel, I love that my money is helping do all the things, but I really want to do more. I want to help.” Most of the new entrepreneurs we’re seeing would just like to use me for my money. The entrepreneurs that do that aren’t realizing just how much talent they would get for free. They're getting paid to have a consultant. A very qualified consultant.
Sal Daher: They don't understand.
Paul Silva: Some of the consultants think they're smarter than they are, or think they're smart and everything just because they're human. You're a CEO, you can figure out which parts to ignore that Paul says and which parts to listen to, but he was just so excited about how can I really roll up my sleeves and really help the entrepreneur. Then yes, if they need money down the road, I'll put money in, but now I'll have a lot more knowledge than I would if I was just an angel investor. That's been one of the things that we've been learning a lot about. Sorry, I changed it on you.
Sal Daher: No. Paul, given your work with Launch413, 413, which is the area code for the area where RVI Springfield is, 413.
Paul Silva: We're not limited to working with startups there, but that was the excuse for—
Paul Silva Brainstorms Ways to Help Purdue Connect with Angels
Sal Daher: Yes, because a lot of the investors are located out there. There's a lot of talent in that area, but anyway, Paul, because of Savran Technologies, I've developed a connection with people at Purdue University and Purdue University has a very unusual situation. They are one of the top engineering schools in the United States, but they're not close to any large industrial center. It's not like MIT being in Boston, it's in the middle of nowhere, so they need to find connections with the Bay Area, with Austin, with the Boston area, and particularly the life sciences. They're very strong in the life sciences.
I'm trying to figure out ways that we could build connections with startups at Purdue. I've had some of them on the podcast as a matter of fact, the current podcast, the guys from Neurava podcast are a couple of doctoral candidates at Purdue. What thoughts do you have on this question that I'm grappling with on how to create a stronger connection between this island of technology and know-how out in Indiana and these other hubs, Boston, and these other places?
Paul Silva: A lot of colleges have built alumni angel groups. I think there's even an angel group that specializes in building them for colleges. Do they already have a Purdue alumni angel?
Sal Daher: They have Purdue alumni in Indiana. Purdue is a large university, and this is a very good thing because MIT alumni in the Bay Area is very active. The MIT alumni here in Boston is very active. I've had Wan Li Zhu who does the non-life science companies and Patrick Rivelli, who does the life science companies here in Boston, and he was also involved with MIT angels in the Bay Area. That is an excellent suggestion, a really excellent suggestion, especially since the boilermakers are huge. They have a huge diaspora from West Lafayette, Indiana.
Paul Silva: You recorded it long before it aired, but the episode I was listening to this morning of your show was the gentleman who started a couple of angel groups in Texas and is now doing some really innovative stuff.
Sal Daher: Hall Martin. Hall, yes. Paul: Yes, and Hall mentioned how, when he built an alumni oriented one, the retention rates are much higher because it was a bunch of other things going on. That tells me that when you're out in the middle of nowhere, but you've got a college, the college is the thing that can bring stuff together. Then they want to connect to other organizations that are not geographically focused.
Launch413 would be happy to work with them. We work for startups all over the country and there's other people that do those kinds of things, sometimes if they have the right friend that can connect them to the MassChallenges of the world, that also works with people no matter where their geography is. They just need some of us to give them the on-ramps because like we were talking about before, why do diverse founders have a hard time? It's often because they don't have the network, and whatever we can do to help build bridges to people that don't have a network, whether it's because they're in rural America or because they have darker skin than me or because they're a woman, whatever we can do to build more of those bridges, it's going to let more awesome entrepreneurs do their things to everyone's benefit.
Sal Daher: Yes, very good. Paul, as we get to the point of wrapping up our interview, I want to ask you for your parting thoughts. What thoughts do you want to leave us with?
“There's a huge gap in what happens after the entrepreneur launches the company.”
Paul: There's a huge gap in what happens after the entrepreneur launches the company. That's why Launch is around, but Launch isn't the only solution. For all of you out there that love mentoring entrepreneurs, some of the things I'd love for you to think about that have been lessons we have hard-learned over the past couple of years, I've yet to meet an entrepreneur that failed because they were lazy. They fail by working really, really hard on the wrong things and then running out of resources. What can we, as mentors, do to help the entrepreneur identify what the right things to do are?
The number one thing I've realized we do for our CEOs at Launch is just help them figure out what to be doing and what not to be doing. Yes, all the other stuff sounds attractive, raising money, the global brand manager at Procter & Gamble. That sounds very attractive, but what actually just not is, "Stop doing that. No, that customer won't be a customer for a year and you need money now, so don't do it."
How can we do that? How can we find more tools to help our entrepreneurs do some of those identification? For those who that aren't familiar with the Village Capital, it has something called the VIRAL Framework, not a great name since the pandemic. It long predates the pandemic, but the VIRAL Framework is a balanced scorecard for a startup from ideation, all the way to venture capital exit with a bunch of boxes of milestones. It's limited by being a spreadsheet, no spreadsheet is good as having a bunch of smart people talk to the entrepreneur. I got to tell you, 80% of the time it's right. It's shocking. We have our startups fill it in every quarter. We recently published a case study on our website.
People should take advantage of it and Village Capital published the tool for anyone to use for free. It is a real handy thing to help the entrepreneurs and to help us, advisors, because again, you and I, we're passionate about certain things, we're smart about certain things, so that's what we're going to focus on with the entrepreneur, but maybe they need to focus on their financials and that's Paul's weak spot, so he doesn't tend to think about it. There's this scorecard showing that you're weak here and this is the thing you need to do and then that helps you keep the entrepreneur focused on the right things.
I think that's a really important thing for a lot of us to take away and I think all of us being open about the scrappy that you were talking about, that was really about how can we remove the friction in our own process while helping founders because we angels- it's a hobby, so it's fun, which means we only want to work so hard at it, but if we don't find ways to remove the friction that don't also become unfun for us, then we're hurting entrepreneurs. We need to think about some really clever things we can do so that we can catalyze even more innovation. I think those are my parting thoughts, my friend.
“He joined a group of these angel investors in New England where they ride in their motorcycle and they listen to angel pitches in different towns in New England”
Sal Daher: My parting thought is as you're describing removing friction and still making it fun, reminds me of my friend, Arrigo Bodda. Arrigo is an Italian who has worked for U.S. Steel in the human resources area as their international guy, but of course, he's Italian, he's very stylish. He joined a group of these angel investors in New England where they ride in their motorcycle and they listen to angel pitches in different towns in New England. [laughs] They go I think on a Road Trip Angels or something like that.
Paul Silva: What?
Sal Daher: Yes, exactly.
Paul Silva: That's crazy.
Sal Daher: That is so funny. They're just like--
Paul Silva: That's great.
Sal Daher: I remember getting his-- Let me tell you. You should follow him on LinkedIn, Arrigo Bodda, the life of Arrigo. The guy has amazing lifestyle, [laughs] very stylish, very stylish. Anyway, well, Paul, I thank you very much for taking the time. Paul Silva of Launch413. If you want to give a website that people can go to-
Paul Silva: Yes, launch413.com. If you're a startup, we'd love to talk to you. We have a super simple application process. You can see our term sheet and all that good stuff there. If you're an angel group and you've got little fish that you're turning away, first-time founders that you can't fund, but you like them, consider sending them to us, so we can feed them and bring them back to you.
Sal Daher: Outstanding.
Paul Silva: Thank you, Sal. It has been a joy to be on your show and truly a privilege because I have enjoyed listening for so long, so it's an honor to be here.
Sal Daher: Well, it's an honor for me whenever I talk to someone who listens. I mean, it really gets me to step up my game. I'm just amazed at the people who listen to my podcast. It's like, "Wow, this guy listens. This woman, wow, I mean, I had an impact on her life in terms of work she's doing? Wow." It makes it very rewarding. That's tremendous. Once again, Paul Silva, thanks a lot. This is Angel Invest Boston, I'm 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.