Advice for Hard-Tech and Biotech founders

Who's heard of Boom?

A few folks. Okay. So, Boom is a YC company from three years ago, and they're doing something completely awesome. They're building this. It is a supersonic passenger jet to replace the Concorde. It will fly at Mach 2. 2 and take you from San Francisco to Tokyo in five hours. Hours.

No joke. They're really doing this. The founder of Boom is a guy named Blake, and Boom is not Blake's first company. Before he started Boom, he started a very ordinary company that made a mobile shopping app. And Blake came and he talked to the YC dinner, and he reflected on the differences between his first company, the mobile shopping app, and his second company, Boom.

And he said something really insightful. When he was building his mobile shopping app, getting the product live was easy. You can build a mobile shopping app in like a few weeks, but then everything after that is really hard. See, it's hard to get press to write about your mobile shopping app because it's not an interesting story. It's hard to get really talented employees to want to work on it.

It's hard to get investors to want to meet with you to hear about your mobile shopping app. In short, it's just, like, hard to get people to care about it. And so while launching the product is easy, turning the product into a really big company is actually really hard. Whereas with Boom, it's exactly the opposite.

Building a supersonic jet is, like, incredibly hard, but everything else around it is really easy. And from the very beginning, back when Boom was, like, just an idea, Blake was able to get some of the most talented people in the world to wanna help him. We are living at a unique time in the world where it has become easier than ever before to start a hard tech company.

There is an incredible amount of investor demand to fund really crazy ambitious ideas like Boom. So while you will have to raise a lot more money to do a company like this, it's also possible to raise a lot more money to do a company like this. And an interesting thing is that the market doesn't seem to fully fully internalize this yet because most YC applications are not for companies like this.

And I think one reason that founders don't start companies that are super ambitious like this is because it's, like, really intimidating. I mean, as you guys know, like, starting any kind of company is really intimidating, but it seems like it's gonna be easier if you start a company that's building something simple like a mobile shopping app.

And the the, like, counterintuitive thing that Sam realized that I I think is true is that it's only easier to get started. It isn't necessarily easier to turn into a really successful company. Not everyone knows how big a part of YC hard tech and biotech are, so I just wanted to give you a few quick stats.

At YC, we funded over 250 bio companies and probably a couple hundred hard tech companies as well. YC is actually the largest bio seed investor in the world and the largest hard tech seed investor in the world. This includes accelerator seed funds, every kind of investor. And here's something that most people don't know.

Hard tech companies that apply to YC actually have about a 10 x higher acceptance rate than other kinds of applications. I don't completely know why that is. I suspect it's something to do with certain kinds of founders being attracted to really ambitious ideas. So a really common question that I get from hard tech companies is like, I am starting a biotech company.

How much of YC's advice applies to me? A lot of it seems geared towards other kinds of companies. And the answer is actually most of it still applies. I went through the Startup School curriculum. This is the Startup School 2019 curriculum.

And I I highlighted all the lectures that are typically relevant for hard tech companies in green, and the ones that are typically not relevant, at least at the early stages, in red. And as you can see, there is a lot more green than red.

And this is my experience working with YC companies that are doing hard tech and biotech stuff, which is that while there are some differences, there are a lot more similarities than differences. Okay. Let's talk about the two biggest problems specific to hard tech companies. So if you guys remember Michael Seibel's talk about MVPs, he talked about how some companies have a heavy MVP.

That is, it's gonna take them a really long time and typically lots of money to build their first product. This is the case for most hard tech and biotech companies. So if you're in the position where you need millions of dollars to build your first product and you don't have millions of dollars right now, what do you do?

The simple answer to this question is you have to figure out some way to make some progress on your idea that doesn't require millions of dollars. That is easier said than done. So to help give you guys some inspiration for how you might do that, I'm going to walk through seven examples of YC companies that were doing hard tech and biotech things that did exactly that. So the first one is Boom.

So Boom's hack was they started off by doing a bunch of things that don't really cost any money at all. Here are some of the things that they did. They assembled a team of top advisers in the space to give them, like, credibility. They built computer simulations that showed that they had a design that could work.

They built, like, a plastic model, like, a couple feet long that they could, like, take around to people to show them what their, like, vision of this plane would look like. And then they took that model, and they went around to a bunch of airlines, and they showed them the plastic plane model.

And they used that to get interest from airlines to show that there would be customer demand if they were to build the plane. They used basically all of these things in order to raise the money that they needed to actually build a plane. There's a YC company called SoluGen, which does something really awesome. They use synthetic biology to produce hydrogen peroxide.

So on the left is a photo of their current hydrogen peroxide plant, which is enormous and produces truckloads of hydrogen peroxide that they ship all around the country. Obviously, this plant cost a lot of money to build. But on the right side is their MVP. This is what they had when they applied to YC. It is a beaker that can produce about one cup of hydrogen peroxide.

But this beaker proved the concept of their new industrial process for creating hydrogen peroxide, which is like the core idea of the company. And basically, they just like started with the beaker, and then they progressively scaled up to larger and larger installations until they had the giant hydrogen peroxide plant.

So Aerex is a YC company that originally planned to make their own medical device. Making a medical device is really hard. Their original plan was going to take, like, several years and millions of dollars in order to get FDA approval for this new device.

Then they realized that they could launch a basic version of the same core service they hoped to launch by using an existing medical device that was already approved and writing some software around it. Now it's not as good as the, like, eventual long term vision, but it was, like, a good hack to build, like, something simple that worked worked well enough.

And because of this plan, they were able to get live during YC in less than three months with no FDA approval. Notable Labs is a YC company that is developing new drugs for cancer. Developing new drugs for cancer is super expensive and takes a super long time. And so the way they got started was by providing services to screen tumors to pharma companies.

The services that they ran enabled them to generate both revenue and data that they're now using to develop their own drugs. Astronis is a YC company that builds telecommunication satellites and launches them into space. That is obviously not a cheap thing to do. It turns out actually that the cheapest telecommunication satellite that is useful costs like at least $10,000,000 to build and launch.

And so Astronus' hack was to start with a test satellite. The satellite in this photo was their first satellite. They built it in less than three months during YC and for less than $50,000.

Now this satellite doesn't do anything really useful, like you can't sell it, but by launching an actual fully functional satellite into space and showing that they could do that, they were able to, like, generate the credibility that they needed to go and raise the money to launch, like, a full scale useful telecommunications satellite.

Last example, Ginkgo Bioworks is a YC company that does genetic engineering of organisms. And in order to engineer their first organisms, they were gonna need, like, millions of dollars. And so their hack was they went around to some large companies, and they closed contracts to create those organisms before they had actually made the organisms.

The contracts basically said, if Ginkgo makes these organisms, we will pay you lots of money. And they used those contracts, and they took those contracts around to investors as proof of customer demand, and they used that to raise the millions of dollars from investors that they needed to actually make the organisms that they had promised to customers.

So basically, they sold it before they made it. And this is a very generalizable technique that a lot of hard tech companies use in one form or another. Okay. So that brings me to the second, most common hard tech problem, which is how do you prove people will want your product if you haven't built it yet?

This is important for found for you to prove to yourself because the last thing you wanna do is spend years working on some product only to find that people don't actually want it at the end. But it's also important to prove it to investors. And so here are a couple of ways that you can do that. The best way is through presales. So ideally, you just sell your product before you build it.

This is what people do on Kickstarter. A good example of this is a company called Jetpack Aviation from two batches ago, which is building the flying motorcycle in the picture. And what Jetpack Aviation did was they ran a presale campaign, and they basically sold flying motorcycles to a bunch of people on the Internet to prove that people would want them.

Unfortunately, doing presales is not always possible. If you're doing, for example, if you're doing, something medical that requires FDA approval, it's actually illegal to do presales, so don't do that. So because of that, we created something called a letter of intent or LOI. And a letter of intent is a nonbinding contract to buy your product when it's ready.

Now, non binding contract seems like kind of a silly idea. Non binding contract is kind of like a paradox. But turns out that it's actually a very clever construct. Because it's not binding. It doesn't actually commit the customer to buying. But because it looks like a contract, customers take it really seriously.

It's easy when you're talking to a customer for them to be polite and casually say, like, sure. I'd buy your thing if it ever worked someday because it's, like, no commitment for them. But if you ask them to sign an LOI, you'll find out if they're actually really serious about buying your product, and investors know that. So here's just some quick advice about LOIs.

If you decide to go down this route, the more specific the LOI is, the more valuable it is. A good LOI includes all the following information. The cool thing is if you can get a customer to sign an LOI like this, it literally gives you a road map for what you need to build in order to generate revenue from your product. Okay.

The last thing I wanna talk about is fundraising for hard tech and biotech companies. Most hard tech companies will not be able to bootstrap. They will typically have to raise money from investors. So part of building a hard tech company is coming up with a smart fundraising plan.

And sometimes, hard tech companies will come to me at the beginning of the batch with a fundraising plan that looks something like this. This fundraising plan is like, hey, I have a really good idea. I need $50,000,000 to go and build it, so I'm just gonna go pitch to a bunch of investors until somebody gives me $50,000,000, and then I'll and then I'll be all set. I don't recommend this plan.

When I see a plan like this, it makes me think of this guy who's just, like, standing in front of a wall, staring up at the wall. The wall is like the $50,000,000, like, impossible fundraise because the the fact is it's just, impossible to get investors to give you $50,000,000 for an idea. You have to make some progress first. And so, what you wanna do is a fundraising plan that looks like this.

This still gets you to $50,000,000, but it splits it into five discrete races that start very small. And the key thing here is that for each of these fundraises, you wanna have specific milestones that you hit. So, like, you start off, you wanna be able to make some progress with your company before you raised any money at all, like, how Boom did.

And then you wanna use that in order to raise maybe, like, a couple hundred thousand dollars. And then you wanna use the couple hundred thousand dollars to make more progress, which enables you to raise, a million dollars. And then you wanna use the million dollars to make more progress, so you can raise $4,000,000 and so on.

And while the general principle is simple and easy to understand, a lot of the skill in building a hard tech company is in fine tuning this fundraising plan so that, like, all the steps are, like, as small as they possibly can be. Because the most important part of this fundraising plan is that no step should be too large.

It like, by the time you go out and start trying to raise a $15,000,000 series a, you have to actually have accomplished enough that investors will give you that larger fundraising round. Otherwise, you're just gonna hit another one of those, like, fundraising walls.

And so really good hard tech founders are maniacal about, like, pushing down the size of each of those steps so that each step is as small as possible, which makes it as easy as possible for them to achieve the milestones that they need to raise the next round of funding. And that is all that I have about heart attack and biotech companies.

Okay. We'll do some questions. One over there. So I thought it was interesting out of the seven examples. Something was on the AI side. Is that any ideas of of examples there? Or has it been Yeah. Sure.

So the the question was, of the examples, I didn't mention any AI companies,.

and that's a great point. I probably should have included one. There's a really famous YC company that's an AI company called Cruise. Guys heard of Cruise? Cruise built self driving cars, and they got acquired by GM for a billion dollars. Yeah, Cruise is a great example of a hard tech company. The original Cruise car was built in less than three months during YC.

Kyle basically just, like, was in a garage building this car and writing code for, like, three months solid. And by the end of YC, he had an MVP that he could use to drive on the highway to show that, like, basically, he could build a self driving car. Yeah.

One over there. Got me? Yeah. Have you ever worked with any nonprofit hard tech startups,.

and how did they raise money? So the question is, have I ever worked with any nonprofit hard tech companies? No. You have one? Yes.

We should maybe talk about that after. I'd be interested to hear how that could work.

Any other oh, one question over here. Yeah.

So I'm wondering if you're sort of like a chicken and the egg problem where, like, you're trying to get investors to, like, trust that people want this, and you're also trying to get, like, companies trust you to, like I I understand some of the contracts are nonbinding, and that some of them might be, like, if you deliver, then, like, we'll give you x or whatever.

But it seems like a lot of companies would wanna, like, plan specifically around, okay. If I need these organisms or whatever, like, do I have a plan that's definitely gonna get me the organisms, or am I, like maybe if I have them, that's great. That seems like a weird situation. So how do you get around that?

Yes. So I'm I'll try to paraphrase the question. It was like it seems like getting an LOI would be hard because the company doesn't know if you're actually going to be able to deliver it, they have to, like, plan around that. And the answer is yes. It is hard to get LOIs. Like, even though LOIs are not binding, they're actually pretty hard to get.

And the weird thing is that the very fact that they're hard is it makes them valuable. If they were easy, they wouldn't be worth anything. So the reason that they're kind of valuable is that it is hard to get a company to do that. They'll typically only do it if you're solving a really critical pain point for them.

If it's just like a nice to have, it's gonna be hard to get an LOI, which is actually really good signal for you to know that you're working on something that's a really big problem for them. In.

the back.

In the middle. You. Yes. Thank you so much. So quick question. So is there a differentiation between hard tech ideas and moonshot ideas? And how do you judge that or go above those to know much of their idea falls? Okay.

So the question was, is there a difference between hard tech and moonshot ideas? So it's a terminology question. The answer is no. I I was using the terms interchangeably. Yeah.

What.

if the hard tech idea you're working on is disruptive? It's very different from what have what has ever existed before. Then how do you prove it to investors and people? So the question is if your idea, like, is disruptive, how do you prove how do you prove that you're gonna be able to make it, or how do you prove that people will want it if you make it? Both. Okay. Both.

Well, that's kind of like, the examples were kind of about some ideas for, like, how to how to do that. Like, kind of the key the key thing for hard tech companies is to figure out ways to prove as much as possible as early as possible in order to reduce the, like, perceived risk that the idea is going to work.

Because the more you can reduce the risk, the easier it's gonna be to raise money in order to get to the next step.

One in the back. So.

for pragmatic ideas, how do you reach the decision maker because it might not be clear in a in a big company, which person is actually going to make the decision about this specific field. And in in that.

Okay. So the question is for a hard tech company where you're selling it to an to an enterprise and there's one person who's like the decision maker about buying it, there's another person who would actually be the user, how do you manage that situation? Right? Okay.

So this is actually like a really cool thing about the LOI is that the LOI basically forces you to do a dry run of the sales process that you will eventually do when you have the product before you have the product. So sometimes, sales are complicated because you have a bunch of different stakeholders in an organization who may have different incentives.

And by trying to get an LOI out of the organization, you will basically uncover that path. And you will figure out what you need to do in order to appease all the different stakeholders in order to get the sale. So hacking that should be really valuable feedback to get early on in your company.

Last one over here. So when.

you're in the early stages of building out a a team of of hard tech engineers, outside of going to grad school, where are you finding these early.

engineers? So the question is, like, how do you find, like, yeah, like, founders and early employees for hard tech companies? The good news, actually, is I found that hard tech companies tend to have an easier time recruiting than other kinds of companies, kind of like how I was talking about Boom, because talented people are drawn towards, like, crazy ambitious ideas.

So I actually think it's like a real recruiting advantage to be working on something that's really, like, crazy and ambitious like that. But in terms of, like, where to find people, I mean, kinda like everywhere, just like, you know, hiring employees. It like, it's gonna be hard. Even if you're doing a hard tech company, it's gonna be hard to find, like like, super talented people. Yeah.

Cool. That's all we have time for. Thank you, everyone.