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January 20, 2020, Online, USA
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Jared Friedman - Advice for Hard-tech and Biotech Founders
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About the talk

YC Partner Jared Friedman covers hard-tech companies and why founders should consider starting one. He also covers a couple of the most common problems hard-tech companies face and how to solve them, with examples from seven YC companies.

You can find the lecture slides and transcript here: https://www.startupschool.org/videos/78

Find more Startup School and YC content at https://www.startupschool.org/library.

00:00 Intro

00:55 What is a hard tech company

01:36 Difference between market risk and technical risk

07:05 Problems specific to hard tech

10:21 Notable labs

11:32 Ginkgo bioworks

12:48 Pre-sales

13:26 Letter of Intent

14:42 Fundraising for hard tech and biotech

15:37 Fundraising plan

17:00 Final thoughts

17:30 Q&A

About speaker

Jared Friedman
Partner at Y Combinator

Jared Friedman was co-founder of Scribd, which was funded by Y Combinator in 2006 and grew to be one of the top 100 sites on the web. Jared previously worked at a pioneering AI company and studied computer science at Harvard.

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I'm Jared. I'm one of the partners NYC and I'm going to talk about starting hardtack and biotech companies. Set up. Also be in here today who who is starting something like a heart attack or a bio company? Okay, I handful of folks across all of start at school. They're actually over 1,000 companies that are doing heart attack or I think is really cool. I'm so pissed off is going to be most relevant for them. But also for other folks who like might think about doing a company like this in future, even if you're not right now. Here's what I'm going to talk about

Define. What a car tire company. Is I am going to Talk about the two. Most common part has come from Sparta companies face and how to solve them. And then we can talk a bit about fundraising specifically for our tech companies building on with Carolyn to talk about So what is a car tech company? This is my definition cuz I couldn't find a good one on the internet. So the way I see it is Phil's two criteria. One will take a lot of time and money to build your first product into even if you

have lots of time and money. If not clear, if it would be possible to build it at all. Companies like this are a little bit different from other kinds of companies and interesting Lee. It doesn't have to be a physical product and it doesn't say anything specifically about science and technology. It actually applies to like a pretty broad range of companies. Another way thinking about this is the difference between Market risk and Technical risk. So is your company is building a normal website or mobile app and probably have mostly Market risk, which is to say you have a new idea. It's not

totally clear. If you were going to want this thing that you're making but you probably don't have much technical risk because building websites and apps to the solve, the problem at this point. Whereas, with a heart accompany. You're probably doing something, they clearly people would want if you could do it, the question is whether you actually can do it. Okay, so it's starting a tech company that sounds hard. I mean heart is even in the name and I think the skiers off a lot of Founders who would otherwise start one and I think this is a like non-obvious misconception. So I'm going to

try to address it here is a food buy sample. That sounds like a complete Paradox. So it's Hampstead is in many ways. It's easier to start a hard company than an easy company. That sounds like it doesn't make any sense, but you explain with Sam. I think it's actually pretty deep truth. And so to explain what's a meant by this. I'm going to tell you a story about a company called boom. Who's part of Boom? If you folks, okay, so is a y c company from 3 years ago and they're doing something completely awesome, their building desk. It is a supersonic

passenger jet to replace the Concorde. It will fly at Mach two point two and taking from San Francisco to Tokyo in 5 hours. No joke. They're really doing this. The founder of Boom is a guy named Blake and 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 her twice, eat dinner and he reflected on the differences between his first company. The mobile shopping app and his second company boots, and he said something really insightful. When he was

building his mobile shopping app and getting the product life was easy. You can build a mobile shopping app in like a few weeks, but then everything after that is really hard. It's hard to get, press to write about your mobile shopping out 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 out in Troy. As soon as I try 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. Words with boom. It's exactly the opposite of building a supersonic jet is like incredibly hard but everything else around it is really easy. And from the very beginning back when Ben was like just an idea, Blake was able to get some of the most talented people in the world who want to help him. We are living at a unique time in the world where it is become easier than ever before to start the heart. A company. There is a new runnable amount of investor demand to fund really crazy. And so will, you will have to raise a lot more

money to do a company. Like, this is also possible to raise a lot more money to do fully internalized this year because most points, the applications are not for companies like this. And I think reason that Founders don't start companies that are super ambitious like this is because it's like really intimidating. I mean is you guys know like the starting any kind of company is really intimidating, seems like it's going to be easier. If you start a company that's building something simple like a mobile shopping up and the the light

counterintuitive things that Sam realize that I think is true is that it's only easier to get started. It isn't necessarily easier. Turn into a really successful company. Not everyone knows how big a part of YC hardtack and biotech are. So I just wanted to give you a few quick stats on. How do I see you? Refund it over 250 Bayou companies and buy a couple hundred hard tech companies as well. Why she is actually the largest bioseed investor in the world and the largest heart attack scene investor in the world. This includes accelerator seed funds

every kind of address. And you're so mean that most people don't know. I'm hard to come instead of. Why do I see actually heard about a 10x higher acceptance rate than other kinds of application. I don't completely know why that is, I suspect it's something to do with, like, certain kinds of Founders being attracted to really ambitious ideas. So really,, question, that I got from our tech companies is like, I am starting a biotech company. How much at ycs advice applies to meet 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 start of school curriculum. This is the start of school. 2019, curriculum. And I highlighted all the pictures that are typically relevant for heart tech companies in green, and the ones that are typically not relevant at least in 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 y, c companies that are doing heart attack in biotech stuff, which is that while there are some differences there a lot more similarities than differences. Okay, let's talk about the two biggest

problems specific to our tech companies. So if you guys remember Michael Seibel talk about MVPs. He talked about how some companies have a heavy and that is it's going to take him a really long time and typically, lots of money to build the first product. This is the case for most heart attack and five. So if you're in the position where you need to dollars right now, what are you do? The simple answer this question cuz 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 y c companies that were doing heart attack and biotic things to do exactly. So the first one is Boom. So booze 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 assemble advisors in the space, to give them like, credibility, computer, simulations that showed that they had a design that could work.

They built like a plastic model like a couple speed law that they could, like, take around two people to show them what they're like, a vision of this plan would look like and then they took that model and they went around to a bunch of Airlines and they showed them the plastic bottle and they use that to get interest from Airlines to show that they would be customer demand if they were to build a plane and they use basically all of these things in order to raise the money that they needed to actually build a plane. There's a y c company called Sonia, Jen, 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 on the right side. Is there MVP. This is what they had when they applied to buy, see it is a beaker that can produce about 1 cup of hydrogen peroxide speaker, prove 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 an eager and then a progressively, scaled up to a larger and larger installations until they have the giant hydrogen peroxide plan. So Eric's is a y c company that originally plan to make their own medical device. Making a medical device is really hard on, their original plan was going to take like the several years and millions of dollars in order to get FDA approval for the new device. And then they realized that they could be sick version of the sink or service. They cook the law by using an existing medical device that was already

approved and writing some software around in that it's not as good as the like eventual long-term Vision, but he was like a good hack to build like something simple. That worked. It worked well enough and because of this plant, they were able to get live during y c in less than three months with no FDA approval. Notable Labs is a y c covering that is developing new drugs for cancer. Developing new drugs for cancer is super expensive. It takes a super long time. And so, the way they got started was by providing services to screenshot Pharma companies. The services that they ran enable them

to generate with revenue and data to develop their own trucks. Stratus is a y c company that builds telecommunications satellites and watches them into space. That is obviously not a cheap thing to do. It. Turns out actually that the cheapest telecommunications satellite that is useful cost like at least 10 million dollars to build and launch. And so as strong as this Act was to start with a test satellite of the satellite in this photo was their first satellite. They built it in less than three months during my seat and for less than $50,000. Now, they said doesn't do

anything really useful like you can't sell it but by watching an actual fully functional satellite into space of showing that they could do that. They were able to, like, generate The credibility that they needed to go and raise the money to watch, like a full-scale useful telecommunications satellite. Last example of Ginkgo bioworks is a y c company that does genetic engineering of organisms. And in order to engineer their first organisms. They were going to need like millions of dollars. And so there was no one around to some large companies. And

they closed, contracts shoe cream the organism before they actually made the or miss with the contract. Basically said that we will pay you lots of money and they use those contracts and it took those contracts around to investors as proof of customer demand. And they use that to raise the millions of dollars from investors that they needed to actually make the organisms that they had promised to customers. The basically, they sold it before they made it. And this is a very generalizable technique that a lot of heart that companies use in one form or another. Okay, so, and that

brings me to the second most common protect problems, which is How do you prove people will want your product if you haven't built it yet. This is important for you to prove to yourself because the last thing you want to do is spend years working on some product but people don't actually want it at the end but it's also going to prove it to investors. And so here are a couple of ways that you can do that. The best way is through presents. So ideally you just sell your product before you build. It is what people do on Kickstarter has ample, if this is a

common cold, a jetpack Aviation from two batches ago, which is building a flying motorcycle in the picture. And which nation did was, they ran a precept in pain and they basically sold flying motorcycles to a bunch of people on the internet to prove that people would want them doing peace. House is not always possible if you're doing. For example, if you're doing something medical, the requires FDA approval, it's actually illegal to do pre-sales. 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 non binding contract to buy your product. When it's ready. Finding contract, seems like kind of a silly idea like non binding. Contract is kind of like a paradox. It turns out that is Sasha convert Fiber contract because it's not binding. He doesn't actually commit the customer to buy it because it looks like a contract customers. Take it really seriously,. It's easy. When you're talking to a customer for them to like be polite and

casually say, like, sure I buy your thing, if it ever work someday cuz 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 a product in the best with nude. Since you're just some quick advice about Eloise, if you decide to go down this round, the more specific the other. Why is the more valuable? It is a good LOL. I includes all the following information. And the cool thing is if you can get a customer to sign an Loi like this, it literally gives you a roadmap for what you need to build in order to

generate revenue from a product. Okay. The last thing I want to talk about is fundraising for hardtack and biotech companies. Moved apart of building a heart. Egg company is coming up with us, Mark fundraising plan. And sometimes hard to companies will come to me at the beginning of the batch for the fundraising plan. That looks something like this. This fundraising plan is like hey, I have a really good idea. I need $50 to go and build it. So I'm just going to go pitch to a bunch of a duster is until

7 to give me $15 and then I'll be all set 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 at the wall. The wall is like the 50 million dollars, like impossible. Fun races has issues like impossible to get investors to give you $15 for an idea to make some progress first. And so would you want to do is a fundraising plans? It looks like this. It is still gets you 250 million dollars, but it's split into five to start very small. And the key thing here.

Is that for each of these fundraisers, if you want have specific Milestones that you hit. So like you start off. I want to be able to make some progress with your company before you raise any money at all. Like, how good did you want to use that in order to raise maybe like a couple hundred thousand dollars? And then you want to use the couple hundred thousand dollars to make more progress, which enables you to raise like a million dollars and then you want use the million dollars to make more progress. You can raise $4000000 and so on. And while the general principle is simple

and easy to understand, a lot of the skill and building a heart. Egg company is in fine-tuning, this fundraising plan. So they like all the steps are like a small as they possibly can be because the most important part of this fundraising plan is that new Step should be too large it. Like by the time you go out and start trying to raise a $15 series 8, you have to actually have accomplished enough and investors will give you that larger fundraising round. Otherwise, you're just going to hit another one of those like fundraising balls and so really good. Artec

Founders are maniacal about like, pushing down the size of each of those steps. So that each step is a smaller possible which makes it is easy as possible for them to achieve in my shows that they need to raise the next round of funding. And that is all about her companies. Okay, I will do some questions Whenever there. What is a stinger? Yeah, sure. Sue. The the question was I'm of the examples. I didn't mention any AI companies and it's a great point. I probably should have included

one. There's a really famous wise company. That's an AI company called Cruise, Cruise Cruise built self-driving cars and they got acquired by GM for a billion dollars. And Cruz is a great example of our tech company. The original Cruise car. was built in less than three months during y c, Kyle, basically, just like But in a garage building this car and writing code for like 3 months solid and by the end of yce, he had an MVP that he could use to drive on the highway

to show that like basically you could build a self-driving car. Whenever there. Have you ever worked with any nonprofit? Hard, tech startups. And how do they raise money for the question is have I ever work with any nonprofit hardtek companies. Do you have 10K, we should maybe talk about that. After I be interested to hear how back to work. Any other question over here until I understand some contractors on finding and that some of them might be like, if you deliver that I can give you a kiss or whatever, but it seems like

a lot of organisms, or whatever. Like, do I have a plan with you? And maybe I'll try to park, it was like, It seems like getting an alawite would be hard because the company doesn't know if you're actually going to be able to deliver it and they have to like plan around that. And the answer is yes. It is hard to get Eloise like even though LOL eyes are not binding. They're actually pretty hard and The weird thing is that the very fact that they're hard as it makes them valuable. If they were easy, they wouldn't be worth anything. So the reason of their kind of valuable is

that it is hard to get a company to do that till typically, only do it. If you're solving a really critical pain point for them, just like a nice to have, it's going to 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 mail. Party ideas, and how do you get a chance that our club? Is there a difference between hard tack in. I just had such terminology question. Answers. Know I was using the terms interchangeably.

What is the Honda Accord? So the question is, if your idea like this disruptive, how do you prove, how do you prove that you're going to be able to make it? Or how do you prove that people will want it if you make it? Okay, that's kind of like the examples for kind of about some ideas for like, how to how to do that. Like, Kind of sticky sticky thing for our tech companies is to figure out ways to prove as much as possible as early as possible in order to use the like perceived risk that the idea is going to work. Is the more you can reduce the

risk easier is going to be to raise money in order to get to the next time. What is actually going to make the decision about who spend between and dumping? I actually they just can't Wrong song. Okay. So the question is for a heart tie company where you're selling it to into an Enterprise. And there's one person who's like, the decision-maker about buying if there's another person who would actually be the user. How do you How do you manage that situation, right?

So this is actually like a really cool thing about the Ella. Why is that the l y 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 like sales are complicated because you have a bunch of different stakeholders and organization. He may have different incentives and by trying to get an Loi out of the organization, you will basically uncover that fact and you will figure out what you need to do in order to Aquis all the different stakeholders in order to get the scale.

How can I be really valuable feedback to get early on in your company? Restaurant over here when your belly button is like, how do you find like, yeah, like Founders in early employees were hard tech companies. The good news actually is, I found that hard to have an easier time recruiting than other kinds of companies, kind of like that, boom. Because I wanted people are drawn towards like crazy and vicious ideas. So I actually think it's like a real. Recruiting advantage to be working on something. That's really like

crazy in a vicious. Like that look like where to find people. I mean, kind of like everywhere. Just like, you know, why is it like that going to be hard even if you're going to be like, Super Bowl?

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