Celesta Capital invests in deep tech companies, with a focus on hardware, out of a $400M fund
Venture capital used to be a cottage industry, with very few investing in tomorrow’s products and services. Oh, how times have changed! While there are more startups than ever, there’s also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We’re highlighting key members of the community to find out.
Nicholas Brathwaite is Founder and Managing Partner at Celesta Capital.
Brathwaite has over 25 years developing technology and building technology-oriented businesses. Before Celesta, He was also co-founder and partner of private equity firm Riverwood Capital, and from 1996 to 2007, he served as the CTO at Flex, where he oversaw the launch and growth of several of Flex’s largest business units, including an innovative push into product development.
VatorNews: Let’s start at the top with the big picture and what the firm is about. Tell me your philosophy, your methodology, where you fit into the ecosystem, and why you decided to found Celesta.
Nicholas Brathwaite: Celesta Capital was founded by four partners and we actually changed our name not too long ago. The four partners that formed Celesta Capital were Michael Marks, Lip-Bu Tan, Sriram Viswanathan, and myself. Today, three of us are still a very active part of the firm; Lip-Bu Tan is still involved in previous funds but not involved in the new funds.
When we started the firm, seven or eight years ago, it actually was not started as a firm; Michael and I were part of the founding team of Riverwood Capital, Lip-Bu Tan had his own investment firm called Walden International, and Michael and I wanted to do some early stage investing, since Riverwood Capital was a private equity firm. Our partners weren’t that interested so, to do that, we decided to get a pool of money that the three of us could invest from into early stage companies, and that’s how it started. After the first fund, we actually made it a firm and built it up into what it is today. So, that’s how we got started.
VN: What do you like to invest in? Do you do B2B or B2C? What verticals are you most interested in now and what’s exciting about those?
NB: Michael, Lip-Bu Tan, Sriram and I all come from hardware type backgrounds. So, Sriram and I started our careers at Intel; he spent 20 years at Intel in various roles, starting off as Andy Groves’ technical assistant, and he was one of the founding members of Intel Capital several years ago. I started off at Intel as an engineer and, after working for a couple of years on the manufacturing side, moved into technology development, and then became an entrepreneur after that. Lip-Bu Tan has been in the semiconductor industry as an investor for many years and then he ran Cadence. So, we come from deep tech backgrounds, and the thesis seven or eight years ago that the deep tech space had been neglected for too long. Over the past 10, 15, maybe as much as 20 years ago, a lot of the VC world has been focused more on social media, commercial internet stuff, SaaS, and many of those types of applications, while the deep tech space seemed to have been neglected. We felt that there was an opportunity to focus on that space, bring our expertise, as well as financial capital, into the space because it was clear to us that, when you looked at where the industry was going, all of the trends and applications that were being driven in a technology world, that the existing core technologies were not adequate to support those those trends. That included the need to move, analyze, and manage the exponential growth in data; the electrification of the vehicle; autonomous driving; the advances needed in biotech, where we thought that you can leverage the intersection of biotech and high tech to both improve and democratize medical diagnostics; and the ubiquitization of artificial intelligence and machine learning. We felt that the core infrastructure, the semiconductors and other systems required to help enable those and drive them, did not exist, or were not adequate. And so, we decided to focus our efforts in that space, the deep tech space, because, one, we have a lot of expertise in that space, but, two, and I’m not sure it’s in any particular order, the need for new investments and new capabilities to drive or fuel the emergent applications.
VN: So you’re a hardware focused firm, and you don’t do any software?
NB: We do software as well. If you look at our investments, you can probably break it down into multiple categories: we do a lot of hardware starting from the semiconductor up; we also invest in materials; we invest in some services. There are areas where you would look at the investment more as investing in core technologies that can transform a large existing market, but we do have some software investments as well. Many of our software investments tend to be more at the infrastructure or lower levels, but we do have some software applications at the highest levels that we’ve invested in as well.
VN: Hardware has a reputation for being more difficult to invest in, that it takes longer than a software company. Do you feel like that’s changing? Or is that still still the case? Or is that not even accurate?
NM: That is, for sure, the perception, but I’m not sure if it’s totally accurate. For example, there’s also the perception that software investments are less capital intensive and that is not always true. It’s a different focus in terms of capital, so many software companies, for example, end up spending a lot of money on advertising and customer acquisition and other things like that. Whereas, in the hardware space, your capital could be spent more on building factories and or on things like supply chain, working capital, and things like that.
Let me put a different twist on this: there is no doubt that when you invest in hardware, you have to have a perspective of working to invest to build a real business. I don’t think you could go into the hardware investing business with the intention of doing quick flips, like you can sometimes get in the software space. So, you have to be committed to the space, and you have to bring more than financial capital because, in order to be successful in the hardware space, or in the deep tech space, number one, it does tend to take longer; some of these investments could take seven, eight years, sometimes more. But, also, there’s a lot more intellectual capital needed in investing in those spaces, whether it’s investing and ensuring that the technology being developed does not represent significant risk, meaning that people are not trying to violate the laws of physics because, oftentimes, you’re investing in these core technologies before there’s a product or anything like that. So, you have to have the deep technical expertise to be able to evaluate these opportunities. And then the success of these companies and these spaces depend, I would argue, more on intellectual capital than on financial capital. These companies don’t tend to fail because they run out of money, which is probably true for any company; they fail because of the reasons why they run out of money. In the hardware space, there are many, many reasons that can be: things like product definition, product market fit, supply chain optimization, having the right type of skill sets to develop the product that you have in mind and many of those areas. So, it is probably fair to say that there is more work involved in building some of these hardware type businesses than there may be building some software businesses, but there are software businesses that have difficult challenges and stuff. They’re just different.
VN: What were the industries where you found the most need for the hardware and the deep tech that you’re investing in?
NB: Let me pick a couple of areas. I mean, there’s several; obviously, we have four partners, and we have slightly different interests and areas of expertise, but there are two areas, in particular, that I can highlight. One is we’ve made several significant investments in the semiconductor space, particularly in the space of AI. Some of these companies are more than just semiconductor companies; they’re evolving more into systems type companies. These are companies such as SambaNova, where we were the lead investor in the seed round, or semiconductor companies such as, and this may not fit the bill of an AI company as such, but Nuvia, where we were, again, in the very early stages of investing there, and Habana Labs and others. So, we’ve been very active there in the early days.
Today, the field has become a little bit more crowded, we’re not playing as much of a role there, but the big role for us, and this has been true since the start of the firm, is in the medical diagnostic space in particular. We have been investing in medical diagnostics since our very first fund; we are on Fund IV now, and our early investments in that space included companies like Berkeley Lights, which had a very good IPO a couple of years ago. And we’ve since invested in companies such as Atonarp, which is a Japanese company that’s developing non-invasive blood profiling equipment. We’ve also made investments in other diagnostic companies along the way, including one called WhiteRabbit that is using artificial intelligence to improve the efficacy of cancer radiological inspection. We’ve recently invested in a company called Magnetic Insight, which is developing one of the new modalities for medical imaging, which we’re excited about. So, this is an area that we’ve been involved in from the beginning and in which we continue to be heavily involved.
Our investments in these spaces could be seen as investing in areas where there is what we call “bioconvergence,” which is the leveraging the intersection of biotech and computational sciences of physics. One could say, generally, it’s leveraging the intersection of biotech and high tech. Again, we focus on those areas because we believe there’s a lot that we can bring, not just the financial capital, but the intellectual capital.
VN: If you had to define the macro trend that you’re investing in, what is that?
NB: If I understand the question correctly, it’s what I described earlier, which is the emerging technology driven applications for which the core technologies are inadequate, or do not exist. We are investing in companies that are developing the technologies necessary to enable or drive these emerging applications. So, that would be core from a technological perspective.
I can expand on that a little bit: being in the space that we’re in, the data is a big one, the exponential growth of data. The rolling out of advanced communications technologies, such as 5G, for example, is an area. The transition and optimization of the whole idea of cloud computing; there are areas that we’ve seen opportunities to invest in. The development and the ubiquitization of AI and ML. The electrification of the vehicle and autonomous driving. All of those are examples of trends that drive the areas that we are investing in.
VN: What is the size of your current fund? How many investments do you make in a typical year?
NB: Our current fund is just under $400 million, which is a little bit larger than our previous funds, but consistent with roughly the sizes of our funds. That helps us to focus on the areas that we’ve been focusing on up until now.
The number of investments varies. We look at it more in terms of dollars we deploy in a typical year, and typically we’re deploying somewhere between $80 to $100 million a year, and the number of companies we invest in per year could be anywhere from maybe eight to 12, in that range.
VN: What does it average out to in check sizes? I can’t do the math in my head.
NB: Initial checks tend to be anywhere from $5 to $15 million. Total check sizes we deploy in a company usually run $10 to around $20 million; we have some that we’ve gone above that, but usually that’s the range. We’ve done investments where our first check was as low as $2 or $3 million but, typically, even if we start off with a small check, we want to invest that in companies where we can deploy $10 to $20 million at those companies.
VN: What stage are you investing in?
NB: We typically invest in the earliest stages, so most of our investments would be Series A or B. We have done seed and earlier stage investing; the seed rounds we’ve done tend to be a little bit more vague than some of the other seed rounds you may see. When we get into Series D, and some of these stages, depending on the maturity of the company, where companies are raising large amounts at very high valuations, where they look more like a private equity round, then we typically don’t participate in those rounds.
VN: You said the rounds are larger; is that just because, as we talked about before, hardware is a bit more capital intensive, and they need those larger rounds?
NB: But that’s true software as well, so I don’t think it’s limited to hardware when it comes to those larger rounds. Certainly in the semiconductor space, oftentimes, in order to not just commercialize the product but then proliferate the road map, it usually takes larger rounds. If you think about hardware, and in particular semiconductors, your first product is usually never enough to build your success upon; your first product demonstration capability develops a competitive advantage, and then you have to sustain that competitive advantage. Usually, that means taking that platform product and expanding either downwards to lower costs, higher volume opportunities, or upwards to higher performance opportunities, or both. It tends to take a lot more capital; the cost of mass sets and things that add in semiconductors could be quite significant. So, as you expand your portfolio, your costs increase quite significantly.
Now, of course, you’re dealing with real products, so you have cash flow issues that you have to manage when it comes to paying suppliers, and other things like that. But, in software companies, you tend to raise very large rounds towards the end as well, for similar reasons; they may not be related to supply chain, but for similar reasons in terms of proliferating your road map or doing customer acquisition. Over the past few years, we’ve seen a lot of software companies who focus on growth versus capital efficiency, and that has led to very, very large rounds, where the strategy has been to capture as much market share as possible, regardless of the cost of doing so. In general, that is not a strategy that we tend to adopt, but that has been very common in the software space as well.
VN: What kind of traction are you looking for in the companies you invest in? There’s a range, obviously, and a seed or pre-seed company would be very different from a Series A or Series B company, in terms of their numbers. So, what are you looking for in terms of ARR, or number of customers, or any other traction when you invest?
NB: For most of our companies, by the time we invest, they’re pre-revenue if we’re investing at seed or A. Even sometimes at B they’re pre revenue, so what you’re looking for in early investments is the credibility of the business plan, and the credibility of the team to execute the technical strategy, because oftentimes, in the space where we’re investing, people are developing products that they believe will not only be better than what exists today, but it has to be significantly better. If you’re not two, three, or four years ahead of the incumbent, it may not necessarily be a good bet to take, so you have to be significantly ahead of the incumbent in terms of the performance and capabilities of the types of products that you’re developing. You have to believe that a team is capable of executing that and then you look at their product definition or strategy and you evaluate whether or not you think there is good product market fit.
A lot of our diligence is technical. We built a team of very strong technical folks, in addition to strong investment firms and we have a network of people that we call upon who can help us on this diligence with the technical aspects of the deal. Then you look at the management team and the confidence you have in the management team to be able to deliver, so it’s technology and the competitive advantage that they can have relative to the competition, their ability to execute it, and the ability of the management team to deliver. You have to look at the typical risks that you look at in technology investing, which is technology risk, market adoption risk, and execution risk. The one you have to diligence really, really well at the beginning, obviously, is the technology risk and the product market fit. Execution risk is also important because a big factor in execution risk is the quality of the management team, and the quality of the team in general. But, generally speaking, oftentimes, you can augment the team and help address that but, if the other two are off, then it’s very, very difficult to justify investing in a business.
VN: Especially for early stage investors, if you’re investing pre-revenue, or maybe even pre-product, the team is really the most important thing. What are the intangibles of that founder or that team or that entrepreneur that make you want to invest in them?
NB: If you’re lucky enough to find an experienced team that has done this multiple times before successfully, then that’s always a winner, always a plus. It doesn’t mean that past success is a predictor of future success but that is always important, though that is not always the case.
So, then you have to look at two aspects: one is the technical competence of the team to be able to deliver the technical solution, and then you have to look at the executive maturity or managerial competence of the team. You have to determine early if there is risk in that area, and then make sure that there is a plan for addressing that. We will invest in a company if there is some risk on the executive execution side, if we believe that the team is prepared to bring in the expertise and experience needed to address that. If the team doesn’t even recognize that they have such a weakness, and are not agreeable to improve on that, that makes investing in them very difficult. But you can sometimes invest in a company, even when you note weaknesses, if there is an openness, if there’s agreement, that that is a weakness, and there is openness to addressing it. But if you have, for example, a founder who has never managed anything, has never built anything, has never sold anything to the marketplace, and they’re not willing to bring in experienced people who can help in that area, then it makes it very difficult to invest.
VN: Do you invest pre-product?
NB: Many of our investments are pre-product. It’s declined a little bit, but in the past somewhere around 30 or 40% of the companies we invested in, we were the first VC money. So, quite a few of our investments are pre-product. Having said that, when we say it’s pre-product, it may not necessarily be pre-proof of capabilities. In some cases, they may not have a product but they can demonstrate that they were able to achieve the performance or they may have a lab type prototype that they can demonstrate in the case of a system that is more or less capable of doing some of the things they say they’re trying to. So, when we talk about pre-product, it doesn’t necessarily mean all they have is a PowerPoint. In some cases, they may be beyond the PowerPoint and actually have some proof of capability.
VN: Do you invest in companies that just have a PowerPoint?
NB: We have in a few cases, yes, and in those cases there were three factors that helped us to invest. One is where we really understand the areas in which they are invested, we know it extremely well. Second, the team is very, very strong with a proven track record. And the third area is where, as a combination of these two things, we’re pretty confident that what this company is working on is highly differentiated, and they’re able to deliver it. Some of that comes from the fact that we have a pretty extensive network of people that we can call on. Many of our investors are actually strategics, large corporations who have invested in us, and we can call on them to get a sense for their view of the market and the opportunity. We also have quite a lot of high net worth individuals who are investors, many of them are current C-level executives that we can call upon to help us evaluate these opportunities. So, yes, we have invested in a few cases where they were pretty much a PowerPoint.
VN: Talk to me about valuations. We’ve seen the last couple of years, they were going very high, but it seems like maybe in the last six months or so they’ve started to dip. Where do you see them now? Where do you see valuations trending? What does that mean for the companies going forward?
NB: Most people will agree that the market was overheated and valuations were pretty ridiculous, quite frankly. I’m sure there might be some but I don’t think many people disagree on that. You will also find that many venture investors would also agree that we all knew that there was going to be a correction coming; we didn’t know when, we didn’t know how big the correction would be, but most people believed that there was a correction coming at some point. I believe what we’re experiencing now is a true correction, it’s not that there’s not just a speed bump along the way, but it’s a true correction. Valuations were not supported by the dynamics of many companies, where you have a company that was founded by first time entrepreneurs, zero revenue, years away from having any revenue, and being valued at billions and billions of dollars; to me, that didn’t make a lot of sense. We have tried to avoid a lot of those types of investments, but we have invested in areas where the companies were higher priced than we thought they should be and, in many of those cases, we have structured warrants and other terms that would effectively lower our valuation. So, we’ve had cases where we’ve invested in companies along with others, where our effective valuation was as much as 20%, lower than others because of the structure that we put in place, based on the fact that we felt that the valuations were too high. Now, it doesn’t mean that 20% was enough, so I want to make that clear, but at least it is better than nothing. Because, in some of these cases, some might argue that the valuations were probably 2x too high, so 20% doesn’t get you back to reality, but it does take into consideration the fact that it’s high. And so, we’ve tried to do some of those things as well in order to reduce the valuation. Where we thought things were just ridiculously hot, we’ve avoided them.
VN: What does that mean for the companies, especially the ones that raised funding over the last few years at those elevated valuations? If they have to take it down round, is that going to hurt them going forward?
NB: Well, there are a couple of things. First of all, because we’re early stage investors, we have had many companies that have had huge valuations post our investment, and so if those companies got adjusted down, in many cases, we will still be nicely up because we were early investors. It would obviously affect your current mark in the market, and it might affect the performance versus what you might have thought they were going to be, but you’ll still be in good shape. So, you might have cases where you thought you were going to do 10x, and you might end up doing 5x or 4x, which is still not too bad.
In cases where you have to have a down round, there are multiple strategies that people are using, like you could potentially do a down round where the current investors could be given preferential treatment, with a new down round with insiders only, where they can get a lower valuation than they may have come in before. For most companies that have solid business plans and, in the deep tech space, where we believe we’re investing in core technologies that are necessary, I don’t think those down rounds will necessarily impact the company too badly from a negative perspective. But I do believe there are some companies that might have difficulty actually getting another round done, even at lower valuations.
VN: How does that affect your returns?
NB: It will have an impact on returns overall but, if you don’t have too many of those, overall returns will still be healthy.
VN: You had mentioned a little bit earlier that a lot of your LPS are strategic investors, so that’s really interesting. What is your pitch to them? And are they different LPs than a lot of funds go after?
NB: A lot of funds go out to them too, but let me talk about what we see as our competitive differentiation: our pitch is that we bring the combination of intellectual capital and financial capital to our portfolio. A lot of other investors say that, so on the surface, it may not necessarily seem like as big a differentiation as it is. In the areas in which we are investing, intellectual capital is extremely important and, we believe, in many cases, actually more valuable than the financial capital. A lot of our companies we invest in believe that, because we have gotten companies to accept our term sheets at lower valuations than other term sheets at higher valuations. For some, valuation is all they care about, but my view on that is, if all you care about is valuation, then we probably don’t bring any competitive advantage, but if you care about building a great business, then the intellectual capital that we bring is extremely important. And so, when we talk about being value-add investors, we are truly that.
There are a number of factors that help us to ensure that we can bring that value: number one, our firm is structured in such a way that all of us are compensated based on the performance of the fund, not based on individual investments that we may have done. The reason that’s important is that, when we invest in a company, that company gets the full might of our firm available to them, to help them with whatever problems they have. We will switch partners to support that company, depending on what’s going on with that company. So, it’s not uncommon for me to invest in a company, for example, and then, depending on what’s going on, I will step off the board and Michael will step on the board instead of me, because he can add more value to that company at that stage of their life cycle. The other thing is, if you look at our backgrounds, we have a background of building businesses. We are a relatively small firm, but the partnership of our firm has been involved in starting over 40 successful businesses; these are both companies as well as business units inside of a bigger company. So, we have a history of starting and building businesses. The partners in our firm, collectively, have hundreds of patented inventions, so we know what it takes to develop intellectual property and to protect competitive advantages that you’ve developed. And we have experience working with businesses across geographies, and in different verticals, and such. We also have a lot of experience working with companies outside of the United States, whether it was Michael and Flextronics, where we built a company and operated in 30 something countries, or Sriram from his days at Intel and from his investment days at IndusAge. We have a lot of experience in all of those. So, I would argue that, even though on paper everybody says this, if you dig deeper, you will find that the level of intellectual capital and experience that we bring in the areas in which we are investing are second to none.
People might ask, “well, why is that important?” There are two reasons: one is the point I made earlier, that companies don’t fail because they run out of money, companies fail because of the reason why they ran out of money. A bunch of mistakes over time can cause companies to run out of money and cause investors to lose confidence in them and not wanting to put more money in. The intellectual capital and experience we bring can oftentimes help companies avoid some of these pitfalls. The other thing is that, with the experience and intellectual capital we bring, we can potentially help companies increase their rate of success or decrease the time to success, decrease the time it takes to develop a product, for example, decrease the time it takes to commercialize a product. In a startup environment, if you can decrease time to market, you have a really good chance of being successful, and have a very good chance of also amplifying the level of success that you can achieve. So, that’s why intellectual capital becomes important.
VN: Highlight a couple of companies, for me that you’ve invested in, maybe one or two of them. What was it about those companies that was exciting, and made you want to invest in them?
NB: I’ll pick a couple that I know very well, that I was deeply involved in. Atonarp is a Japanese company that is developing a technology where they’re taking optical spectroscopy and shrinking it, improving signal to noise performance, and leveraging that to do a non-invasive blood profile. When we invested in this company about seven years ago, there were a few things we liked: number one, the fact that the technology that they were developing, even though the goal was non-invasive medical applications, we knew that that was pretty long putt, and it would take a while, but we felt that the core technology they were developing had broad applicability. The other thing we liked at the time we invested was they that had about seven or eight people in the company at the time, but they already had about eight potential customers who were paying them to do POC type analysis, even though they didn’t actually have a real product, we had a lab type product. So, that said to us that not only were we correct in our analysis of the potential of this, but obviously there were a bunch of companies, across different verticals, they had people in pharmaceuticals and oil and gas and other areas, that were paying them just for the privilege of staying in tune with what they were doing.
It’s taken a while, but we actually worked with them to change their strategy, because it’s a Japanese company and we like the fact that, in Japan, you have very strong technical capabilities, the universities are great, the technical competence is second to none. And they have great discipline around core technology development. So, for a product like this, Japan was a great place to do core technology development, but this product also required a lot of software development and it also required a team that was very experienced at commercializing technology globally. And so, one of the first things we did was encourage this company to expand and build a software team in India, and a commercialization team in the U.S. The reason I’m using this as an example is because most people investing in a startup company would not have taken that route; they would say, “you’re a startup company, you need to have everybody in one location and focus, focus, focus.” Because of our experience building businesses internationally, we felt that that was not the right strategy for this company because they wouldn’t necessarily get the core competence they needed to be able to develop all of the elements that they needed to in order to make this successful.
The other thing we said to them is, “instead of going directly for medical diagnostics, let’s pick some other applications along the way that we could use to commercialize parts of this technology as we develop it. So, by the time you get to your big home run application, you can prove that the technology pieces you’re developing are working and commercializable, so you’re not developing a bunch of stuff that integrates at the end and hoping for success.” We started with the pharmaceutical application, we were able to commercialize some products there, we got early revenue. Most recently, we were able to commercialize a product for the semiconductor application. These are process monitoring type products using similar technologies that we’re developing. We’ve been able to commercialize that and that business is starting to take off. And now we are working on the final stages of product development for the medical application. The other thing we did with this company is we brought in a large medical device company, had them invest, they invested quite a bit in the company, and then they are working directly with the company to test and commercialize the initial products. So, that’s an example of, again, the kind of thinking and value-add we bring to these companies. And like I said, many people say they do these things, but you can talk to these companies and they will tell you this is not just us being in a room and having a discussion. This is us, in many cases, saying, “here are the things you need to do to be successful,” convincing them and then helping them.
Another one I can pick is Berkeley Lights because that went public a couple of years ago. That’s a medical device company that has developed medical equipment that would help accelerate antibody drug discovery. Back seven or eight years ago when we invested in this company, this was not a big topic as it is today. And there were two things that we liked about it; first, we felt that the biotech industry needed to move from a lot of these bulk processes to more microscopic type processes. This company was started by a semiconductor technologist who understood how to work in a microscopic space. I mean, we work with electrons, whereas in the biotech space, in a lot of cases, they’re working with test tubes and at bulk media. We felt that this was an opportunity to leverage semiconductor type thinking into the biotech space and it turned out to be very successful. And then, of course, COVID happened at the end of 2019, and that made this investment look like a really, really good idea at the time. So, it went public in 2020 and did very, very well.
VN: Talk to me about some of the lessons that you’ve learned in your career as a venture capitalist. Let’s say somebody was coming to you and they said, “I want to be a VC.” What are some of the lessons that you impart onto them?
NB: Let me start by saying I never intended to be a VC, I never intended to even be in the investment business. I am a technologist, an entrepreneur, a business builder, that’s what I like doing. When I was the CTO of Flextronics, I’ve been credited with being the guy who started almost all of the contract manufacturing businesses inside of Flextronics and all of the fastest growing businesses. And so, even as a CTO, I saw myself not as developing new processes and new technologies and new widgets, but I saw myself as developing new businesses inside of the company, leveraging technology, versus the other way around. So, I was not developing stuff and hoping somebody else would figure out how to commercialize it; my whole objective was, how do I help the company enter new business segments? How do I help the company accelerate growth in its existing business segment? And how do I leverage technology to be able to help us do that, whether it’s process technology, or product technology, or actual products? And so, I see myself as a business builder.
I ended up in the investment business when one of my friends became a partner in one of the big private equity firms and he asked me if I would come and join him. He was building a team there and I was intrigued, so I went and I met with people and they’re an awesome firm and they do great things, but I didn’t think it was a fit for me. So, when that same friend and others came and said, “Why don’t we go start our own investment firm?” I was very intrigued and excited about it, because it was an opportunity to help build businesses, and to play a slightly different role. So, what I enjoy about venture capital investing, and even investing in the growth stage of companies, even on the private equity side, is you are playing a role in helping to build businesses. On the VC side, you’re helping to turn startups into small businesses, and then turn those small businesses into bigger businesses. On the growth equity side, you’re helping to turn small businesses into big businesses and I like those things.
I’ve learned a lot. For one thing, I’ve learned that you cannot underestimate the issues associated with the quality and experience of the management team. As technologists, we sometimes get enamored by the technology, but technology by itself doesn’t create success. And there are many examples of this; if you could walk through the graveyard of technology, you’ll see a lot of tombstones of great technology ideas that didn’t make it, whereas less impressive, lower performing ideas made it. Oftentimes, a big difference there is the quality of the team. The other lesson I would say I’ve learned as an investor is also around the quality of the syndicate that you put together to invest. Because when you invest in a company, and you have multiple investors, it is really important that the investors are aligned in terms of strategy and objectives and things like that for the company.
VN: What’s the part of the job that you really love the most when you go to work as a VC? What really motivates you to do this?
NB: At my core, I’m a gadget guy, I’m a technology guy, and I’m motivated by working with entrepreneurs and managers to build great businesses. A part of building great businesses is developing and commercializing a differentiated product. Evaluating new deals and seeing what people are working on and seeing the potential for what the future could look like, that gets me really excited. When I work with startups, and I see what they’re doing and I can get a good picture of how they can impact the future, that is extremely exciting. The medical diagnostic space is particularly interesting to me, because I was born in the third world and I’ve seen some of the challenges that exist in terms of the quality of medical care and the lack of tools and when I see companies that are developing capabilities that can help reduce the costs or improve the effectiveness and help democratize medical diagnostics, that is very, very exciting for me.