Speaker 4 (00:00.322) Welcome to the first season of the Hard Tech podcast. The Hard Tech podcast is about bringing together innovators, builders, investors and thought leaders all in the world of hard tech. In my background and starting software companies that I've scaled and exited, there's so much content out there for folks building in the software space and not as much in the hardware space. And that's exactly why the Hard Tech podcast exists. In this episode, we sit down with Rafique and Monica from DePalo Ventures. a Chicago based venture capital firm investing in health, consumer and connected devices all in the world of hard tech. I think it's a unique insight into what it means to raise capital for a venture capital firm specifically investing in hard tech and what they're looking for as early signs of success and founders that they invest in. I think you guys are really going to enjoy this one. I know that we did. Everybody welcome back to the Hard Tech podcast. I'm your host Deandre Hericus joined by my usual suspect Grant Chapman. How's it going. And we have some super exciting guests in Rafik and Monica from DiPaolo Ventures and also representing another podcast here. So you happy to get you guys do a quick little intro on your podcast and learn more about DiPaolo. Yeah, tails from the hard side. But DePalo Ventures first. We're an early stage deep tech fund, if you will. We focus on hard tech. We've been around physical products pretty much all our careers. We've also been around software and data science. So we put that together and essentially are trying to fill that gap where manufactured innovations matter. So we had a first fund, Vintage 2020. We're now raising our second. And we've done a number of deals. generally around the Midwest, but also in other states we can get into that. And tails from the hard side, Monica, jump in. Speaker 3 (01:41.038) Hi, I'm Monica. I'm head of platform at the Palo Ventures. of the Hard Side is basically a podcast or a series of podcasts where we just meet folks like you. We share stories. It's basically a platform where we are trying to educate people about venture world. Not everyone talks about that and I think VC requires lot of education still at this stage. Yes, people get excited, lot of younger generation is getting excited, but then they don't know where to begin. They don't know how to get into the world. Right, like how to tell their story in a way that VC wants to hear it. All they think about VC is glamorous and it's we are always attending events and it's party. But then reality hits if you're working in. I think you guys will agree with that. But there's lot going on. So that's what we are trying to do. We are trying to share real story. What's happening on day one. You know, on negative sides, what's happening. Nobody talk about real shit. No, and it's really hard to, as an external person looking into venture, to understand the underlying business mechanics and mechanisms of like, the world's capitalistic. mean, venture capital has the word capital in it. You guys have to make money doing this, right? This isn't a charity where you're giving out funds to do economic development. You guys are gonna get a return. You're having to validate that deals are going to return capital, and you're making bets before there's any clear answers. Speaker 1 (03:07.414) Right? So that's a much more complicated game than looking at Wall Street and Historics and upcoming projects of these large corporations. This is, do I believe in this person? This problem they're trying to solve and the market they're in. And then there's that X factor that you guys are in that's hard tech VC. So again, I'd love to kind of pick your guys' brain because I'm in the doing, in the building, in the making here at Glassboard. And the hard tech VC side is so different than SaaS VC. And Deonna, your background, you raised capital in a SaaS product. You understand that world. And I'd love to compare and contrast, you know, what's so different about hard tech other than what I know is that it's hard. It's got heart in the name. And I guess a more specific question around that exact thing is like maybe to kind of peel back the onion a bit on on the software side, like I know at least we're in a software startup. They got acquired early last year. And like, what is peeling back the onion of risk look like from the pre-seed stage, the seed stage, etc. And as you guys like are looking at deal flow, what what is peeling back the onion look like in a hard tech product? So what are the different validation? That's right. prior to investment. A lot there. A lot of topics. think we've got to know. What do we have? Like 30 minutes. But let's first start with, you know, who we are, how we met and some of those things. But everyone listening at home, right? So like you guys have been coming to Chicago, we've been coming to Indy from Chicago. And so our paths have crossed. Sometimes one or two projects have been done together or for everyone who's in the home. Speaker 1 (04:31.31) Yeah, basically, sure deal flow back and forth, right? You guys like, we like these companies, we're investing in them, or these people are looking at and they need help in engineering. Right. And we get lots of people that need help in engineering that are also trying to raise capital. Like, hey, I've got the people that actually know how to invest in hard tech to go talk to you in the Midwest. Exactly. So it's good to have, I think, development, design development companies everywhere. We're partnered with one in Chicago, course, MPC, so that we're working with them closely on the second fund. But that leaves plenty of room to partner with others as well, because you need to all be together in building what these solutions are. of work to go around. That's the other part that, know, hard, there's so few people that do hard tech development that you can always look for new friends in that space. Even us, we're trying to build relationships with friend firms and peer firms because sometimes we are, they're not the right fit for a product or a client or we're full and that client needs to move right now when we're trying to make sure they find a good home. Yeah. Well, this is a question I've got on the venture side. So on the software side, it's like the classic founder duo is a CTO or in a business guy or just two CTOs. And like from a software investing perspective, you're much more bullish to invest in those companies because you know that they actually have a kitchen, have a chef in the kitchen kind of thing. Yeah. From a VC perspective, looking at hard tech products. Why is it is it more acceptable that if someone doesn't have like the actual technical team to build that prototype or take it to market and working with an outside firm is OK? That seems a little bit different than on the software side. Speaker 2 (06:00.216) Yeah, so let's kind of look at what it takes to build a physical product. It's a number of different engineering disciplines, electrical, mechanical, firmware. There could be chemistry or biology involved. And there's user experience. So you need a wide range of skill sets. It's not just my laptop, myself, and let's start coding. So typically, somebody has an idea. industrial design. Speaker 2 (06:26.504) and they don't have the engineering team. can't. You can't go hire nine people. In best case, they have a CTO that has a 3D print in Arduino that is faking doing the thing they're trying Raspberry Pi or you you've hooked up some things you've done some prototyping. So I think it's very common to find founders then connecting with an engineering studio, engineering design service to go build the first prototypes. It's expensive. So I think people have to figure out how you get through that first stage where maybe they can't hire a glass board or hire an MPC. or how do they use this efficiently to raise capital? That's the other thing is everyone wants to start building hardware right away. And you actually don't need hardware to raise your first round in hard deck. You need a really good problem statement and you need to be able to paint a picture of what you're building and that it's feasible. You need to be a good storyteller. You need to believe in your own idea first before making other people believe in you. Speaker 2 (07:25.058) So, I mean, even in building, it's expensive, right? If you want to go through a tooling process, that's going to be costly. So if you tool the wrong thing, you've just wasted a bunch of money. One of the reasons we came together, Mintul and I, for that exact reason, that founders were building products without necessarily having the right specs, even just like what are the specs? What is it that we should be building? What's that minimum viable? Which, you know... Very different than the end product. Yeah, and in software you can put another drop in next week or maybe tomorrow morning, right? But in hardware you got to go through so many steps. So the mistakes are costlier. Yeah, software updates are called recalls in our world. Yeah, and you don't want that. You want to get your defects down, all that stuff. But I'll give you examples where often we see somebody with just a mechanical engineer consultant. And they'll have done some schematics. They'll have done some design work. We get into it and ask the question, why are you building what you're building? Where's the user validation? So I don't even start with how good is your design? Can we build this thing? Because you probably can build it, right? But why are you doing this? Speaker 1 (08:35.02) and who wants to buy it. Who wants to buy it? How are you going to sell it? So these are the types of things, and especially in today's climate, like don't start a business unless you have a clear reason to exist. So around this room, if we don't have a clear reason to exist, then the market's going to basically wipe us out. Prices out. Could you define that more? So a reason to exist. Yeah, so what is the problem you're trying to solve? And how big is that problem? So for me, the things I'm passionate about are people and planet, which maybe sounds very generic and broad. But what are those critical things around health or medtech or climate or energy and these types of drivers that if we don't address them now, for example, climate, it gets wrapped up in political Speaker 2 (09:24.63) sort of, know, who's the party or who's the president, but it's not about that. The planet is doing what it's doing and nobody can change it. What we can do is sort of start adjusting to it and if we don't do that today and yesterday and the day before, you have to go for those things and you can't solve that with just software. So the reason to exist in our world is, yeah, I mean, you're solving something. critical, but is it also big enough? If it's too small, then is that worth solving? In software, so many people do copycat products. Just a veteran mouse trap. just a better mousetrap or slightly different or, you know, so. the Uber for other industry here, the Uber for food, the Uber for pet sitting, the Uber for, and that model is just all worn out. Speaker 2 (10:14.446) And that's super old, like even referring to what you're doing as the Uber for X. So I think, yeah, the reason to exist, because you're to have to compete with other people that are also trying to solve the same problem. So the problem's going to be big enough, and then you have to compete with everyone else trying to solve for the problem. And you have to do it with a user-centric design in mind, right? You, as a founder that's in love with your own technology, that's not good enough. You actually have to find a user that loves your technology so much, they are willing to part with money for it. Yeah, I I came out of Motorola's design team, and that's where the ethos of some of our fund partners are out of Motorola's either design, engineering, et cetera. And so I had the privilege of working in a group. It was called Consumer Experience Design. We had nine different disciplines from market research and user experience all the way to surface engineering and prototyping and colors and materials. So a founder doesn't have all that. And I think in my career since then, I had a startup called Demi Books that I did after Motorola and then after our exit in 2015, started to get more into other funds and being an angel investor. But the thing that founders don't have is like a big CXD behind it, behind them. And so that's, think, the challenge and what each ecosystem needs to provide. So in Chicago, in Indianapolis, who are the... We're the people that we can go to that have those skill sets that can help us build something and do it efficiently, do it without, you know, billion dollars. Speaker 1 (11:50.862) bazillion dollars of money. It's the crawl, walk, run approach, right? What is the smallest step I can make to prove the thing I'm chasing is headed in the right direction, that people want this thing. Raise more money, do it more real, get more good data. Maybe in the medical device, right? You start with a prototype and you're just getting doctors say, like this. Then you go and do a prototype that's rated for a clinical through an IRB and you test it on patients and you get data and it works. then you need to raise more money to go take that to a real scale, build it under a full quality system and manufacture tooling and all that validation go through the FDA process. And that's that crawl walk around that we pitch in hard tech that unlike software where your MVP can go to end users right away, the first user of your first prototype isn't an end user. You're designing an experiment to test what you're trying to test and you have to define that. Otherwise you're building the wrong thing. Yeah, exactly. So, I mean, does that answer what you were... Yeah, think so. And I think in addition to what Grant was just mentioning around capital constraints does create really amazing innovations. Right. So sometimes if you just if founder is over invested in, which kind of leads me into my next question around VC, then they have so much they have so much capital. They deploy it at kind of willy nilly and they're not really focused on that constraint. those things you're looking Speaker 2 (13:05.792) Is that the impression of VC? Will you nearly investments? No, no, no, no, no, no, no, no, that has gotten too much money like accidentally won the hearts and minds of That's what I'm speaking to the founders perspective. I think back on like 2020, 2021, interest rates are super low. Yeah, there's funds sprouting everywhere and it's relatively easy to raise venture capital at that point, specifically in SAS. I think that, you my company's I benefited from that. All my people, my cohort also benefited from that. And then you fast forward to now. Like, that's not really the case nearly as much. What would you guys say in terms of I find it interesting that, you know, having conversations with VCs today who are actively doing it. feel like those are like the real VCs and not the folks that were potentially like really just taking advantage of the opportunity like back in a few years ago. Speaker 2 (13:55.854) We just play VCs on LinkedIn. I'm not sure what happened, but I think COVID has changed a lot of the way people think or how people are raising money. Industry before COVID was, I'm sure different. I just joined this industry in 21. So before that, I had to like Google it what this was. I didn't have that much knowledge about it. But I also come from India and I was just in school and I was understanding what my, and I had a computer science background. So I was going to go into, I was a Python and just go into Python and just do my coding and then changed and I moved to states. But I think, and you guys can say more, Rafique, you are in this VC industry for decades now. So I think it has changed, perspective has changed. People see VC in different way. And like I said before, more younger generation are getting interested to understand what is VC all about. how to raise capital, how to put money into right buckets, how to be smart in terms of your allocation, how can I be smaller checks, whatever. Yeah, they want to be there early. And then my experience being in this industry now at very early stage, right out of college, has been like, I really feel lucky after so many, every time I'm going to conference, especially yesterday, I went there, I met so many people, they all have. smaller check. Speaker 3 (15:27.35) experience 15 years plus and then they are like, you're right out of college. Nice. You got lucky. And I'm like, yeah, I got lucky. It's insane because you all come in this VC realize this, okay, what I'm making changes. Am I doing right with my life? What's the difference I'm creating in this world to me just being in here and then living that world every single day, meeting someone who is just coming here with an idea who doesn't know who. where my engineering will go, who is going to be my CDO, who's going to be my CFO or whatever, what my entire end product will look like. But then I have an idea, I believe in that idea. I think I'll go to this particular, let's say a particular accelerator program or somewhere in the industry. I know this person knows more. That can be my entry point. Discuss with them. And one thing which is insanely good about VCs like VC love. When you ask them question, it can be basic question like what VC is, who is the right person, this is my engineering and this is my math about the product. Can you tell me what that stands for you or this makes sense or not? The old adage that if you want money from a VC, ask them for advice. If you want advice, ask them for money. Yeah, for sure. But you know, mean, so to add to that, like the industry is a little upside down, for sure. I mean, so I guess we can rattle off problems, but we also have to be optimistic that innovation has to be backed, like no matter where you are, and you've seen the growth in innovation ecosystems around the world, software, hardware, now AI, whatever it is, which is a good thing. Speaker 2 (17:13.73) But it's a bit upside down because capital is so hard to raise. For founders and... But that's happened in the past too. The world didn't begin two years ago. So what people sometimes forget or don't have is sort of that history. And so I think the guys that... the gals have been around in venture for a longer period probably are more calm about it. You shall pass. this too shall pass or we've seen this a couple of times, but what many venture capital folks today are, know, yeah, maybe it's a whole influx of new folks came in and what they, I don't think everyone realized that you start a 10 year fund, it's a 13 to 15 year journey with those portfolio companies, right? So, I mean, yesterday the MT25 guys, Victor was here, he's only 33 and he's... On his third fund, I told him, like, can't believe you're 33 years old and you started at 23 and it's a successful firm. They've just raised their third fund doing good work in the Midwest and elsewhere. And thanks, M25, I just gave you a plug. But it's amazing, right? But not everyone has that ability. For every success story you hear, there's like so many people that you're not going to hear about. And A, too many people have gotten into venture. Which is not a bad... Speaker 1 (18:39.32) popular. It's no different than how many people are in CS degrees right now with not enough jobs in CS to go around. And at the same time though, know, so many are frustrated because fundraising is difficult and long. So if funds don't raise, then how are startups going to get the benefit? So, I mean, think under, generally speaking, under 100 million AUM, funds that are below 100 million are the most nimble, have the best track record. But what LPs are doing, we're seeing, is maybe a flight to safety or a flight to sort of larger AUM sizes. So the bigger last year, think half of the venture capital money in the market went to the top nine funds. And none of them are from the center of the country. I don't think they're all from the coast, et cetera. So it's a struggle and innovation is at is in risk. Right. Because how do you start products? And I guess what are you guys seeing in your business? It's interesting. So as you're saying, like money's hard to raise and reality, money should always be really hard to raise. Right. It's one of these things that everyone thinks the idea is the hard part. And ironically, execution is the actual hard part of being an entrepreneur. There's a million one great ideas that could save the planet or cure cancer, you know, do a thousand things. But as the execution of taking that idea from an infancy, finding its market. finding its capital, finding the team to build it, and then grinding through all the value of death and the bumps along the way to get it to becoming a successful company, not just a successfully launched product, but making that an exitable company with value creation. And that execution is so hard. And what you find and what I find in hard tech venture is two things. The founders that are going to get funded, no matter the environment, Good times, bad times, easy money, hard money, are the ones that should be funded all the time. Speaker 1 (20:30.062) because they're going to grind through any speed bumps that come their way. They have that grit and diligence to keep trying and not just bang their head against the wall and ask, well, why isn't this working? They'll pivot. They'll go find out what venture is looking for. What is the thing they can do to de-risk their idea with little capital? How do they be nimble? As you said earlier, like the smaller ones are more nimble. These early stage founders that can do that translate, it's like English to English translation. How do I translate my value to de-risk? for a venture capital firm. Cause that's what I wanna ask you guys and get your direct feedback. Cause what we're trying to do and coach our clients in is when they come to me with an idea, we'll take them through a genesis or discovery phase. We're not even developing the end product. We're defining who's that market. What are your competitors and price points? What features do we have to have? And what's your technology risk look like between here and the end? And then go through and build your use of funds between now and launch us today's best estimate. Giving them that. sets them up for success way more so than if I give them a 3D print and Arduino that flashes lights in the right order, right? That's what we're trying to do. And I love your guys' opinion. When you're talking to an early stage founder, what are those activities they've done that make you guys go, this is a good bet? Yeah, mean, so I can just talk about some of the indicators and you were looking for what are you looking for. So we have a screening process. We look at lots of things about the business and the product and the people, the market and all those usual things. When it comes to sustainability, for example, we have another list of important items. When it comes to something thematic like synthetic biology, which is something we're getting into, then you have a list of other sub items. There's a lot of ways to screen. But at the end of the day, though, you're talking about getting a good early start, which is important. I would look for, again, reason to exist, user validation, user research, some data, knowing what you should build. So what are my features? What are features that need to be built today versus later or never? Speaker 1 (22:29.582) will I need to sell this? Is this a regulated product or not? Yeah. So and then so on and so forth. what is your, you where are you in the TRL level? Where are you going to have your first pilot? How are you going to scale that? How are you going to get into contract manufacturing? Do you know your bomb? Do you know, is it optimized? Have you been able to figure out like how are you building this? Where are you building? And now we have tariffs, so that's new math. It is new. And it's taking everyone's time. We can talk about that if we have time. But I guess I want to also point out that there are many, many, many dangers and snakes in the grass much, much later. Even after you get into market, you've had your first successes. You have some revenue or you have growing revenue. You may have lots of revenue. It's never too late to fail because so many things can happen. revenue. Speaker 2 (23:28.11) Even in the early stage, like you take pre-seed and seed companies, they get to a certain point and then they're looking for somebody to lead the next big round. It could be a later seed, it could be a CBC. Where are the hard-tag funds in the Midwest? No, there's a lot of people that'll put money in who leads around. to follow where are the folks that can analyze the situation and actually lead. There are not that many. Can we double click into that? Like actually who are the players? Cause I don't know that many. We'd like to be one of them and hopefully we will because our mandate in the second fund is to leave. We've had lots of good founders ask us, if you're raising, you're working on the closes, etc. Can you write a smaller check out of some other vehicle? And sometimes we're able to. Because they want the value of having people that are from a product background and not just to our horn. There are many people. MHub has a venture fund. Speaker 1 (24:05.452) Excellent. Speaker 2 (24:29.474) They focus on their cohorts. But honestly, I'd be hard pressed. There are people that lead, but they're not hard tech specialists. think in this town, there's been, know, Heritage has done work out of their CBC. They've had a great accelerator. HiAlpha does a lot of things. mean, Ben's... The heart attack does a lot of stuff, but none of them are heart-tack investors that would lead on a regular basis. a lot about hard tech and vision tech. really is really good at poking the bruises of early stage founders and asking the right questions. But he's a great follow. Right. I don't see vision tech leading any of the investments where we work with them on. on something right now but the other folks, there's obviously bigger funds like Elevate, more general, there's funds in Michigan, there's funds in Ohio, in Chicago, we've had honestly like M25 does some things in climate, Amy at Vorient will do some sensors but it's mostly always about software, digital solutions. I was going to say, mean, based off the way you're describing and just my experience in the mid larger Midwest VC ecosystem, like what you guys are doing is completely differentiated in terms of like focusing on leading hard tech rounds. I couldn't I feel like I've been pretty well versed in this space. I couldn't you speak on like M25. I'm not I'm not sure they'd even do. I know how Alpha doesn't do hard tech investing only be to be says in 25 may if it may be like the right connected and has more of Speaker 1 (26:14.815) An IoT play with hard tech. That's not that first priority. But I don't think that's like their focus. I don't know if anyone. used to, Nick's gotten more digital than hardtack. Yeah, I'm hard pressed to tell. that we're both like actually in this injury for a while. We do this daily and we can't write down a list. Imagine the founders that are trying to enter it, how hard it is for them to go find. Speaker 2 (26:36.974) They have to go elsewhere. They have to go coastal. have to, you know, maybe Austin or Arizona or wherever, Florida. Maybe. And think about the incredible deal flow you guys will get as well. We're now to Chicago and to Palo, but I think the Yeah, I mean the deal flow is amazing. The ideas are great. But what do do with them? So that's what we're trying to solve for. And so the states also come into play. What is their role? And the fund of funds, the foundation? Speaker 1 (27:04.568) local economic development corporations, where are they putting capital to enable this to happen? We talk a lot about manufacturing in the region, know, manufacturing has to start with that early stage company. Everyone loves the later stage stuff because it's I love the IEDC, and not to pick on Indiana, any economic development corporation salivates over your big fortune 100s, 500s coming to their state and build a new factory or facility. They will literally do anything to get that to happen. But it's really hard for them to wrap their heads around. You need to make a bunch of small bets to grow companies to become that one day. It's like that long-term thinking versus the medium or short-term thinking. And it's really difficult to get voters and constituents and taxpayers to get behind too. It's a long-term play and everyone's voting for tomorrow, not for the, you know, 30 years from now. If you put yourself in allocator's shoes, which I often try to do, try to empathize with their situation, mean, you know, it's really more about like trying to make sure that there are returns across this asset class, other asset classes that they're and in a timely fashion, right? So I just think that we have to find a way, and I'm not sure exactly what that solution is yet. Speaker 1 (28:08.814) It's highly fashion. Speaker 2 (28:21.486) Otherwise, innovation in the region and elsewhere is going to get severely impacted. And the innovation I'm talking about is again, innovation wherein which is is manufactured products and, and harder technologies, deep, deep, tech. So, yeah, I mean, I think the bigger AUM shops need to think about that a little bit more, maybe they have a little seed, you know, seed capital for direct investments and funds and so forth. There are many people that would love to to scale but they can't they get stuck at smaller fund sizes Yeah, and and they either fold or you know, nobody, know, I thought there'd be a lot more mergers by the way sure, but I It's It's hard economics don't support it That's expensive right now for merger, right? If you're a smaller, large company to go buy a startup. of VC for infantry, not just the actual assets themselves. Yeah, I'm talking about funds merged. Speaker 3 (29:21.76) I mean, with given market collaboration is the only way or only key to hold or like survive in this world. lot of people, Midwest is known for its manufacturing and I love it. I think like in the word hard, hard tech, it's very hard and people don't understand that Midwest loved the idea of like manufacturing industry and working with hard tech funds or found, sorry, founders. But then like Rafique said, or you guys mentioned earlier, it's like they don't understand the chemistry, physics and engineering behind the entire timeline. And then it's very difficult to educate folks here, high network folks, fund of funds, family offices, to just make them understand what VC is all about, why they should put money in these early. Hard tech this is all about. to SASPC. Yeah, there's SASPC. you're giving them a deal flow that's got the wrong metrics. There's SaaS, there is real estate, there is so many other things, but when it comes to VC, when it comes to hard tech, it's just that like, oh, this takes time, you know, this is a 10 year journey, 13 year journey, we don't know when we will get start getting that DPI raised, when are we getting our returns, but then you need a lot of patience. If you want to make higher money, you want to make get those high numbers, you have to have patience, you have to believe. Speaker 2 (30:48.891) We looked at some data where deep tech investments were about the same, returning the same as your average non-hardware. And if you know this data, please let me I'm guessing here, I bet you the spread is wider on deep tech. The losses are more and the peaks are peak year. There's less winners that go higher and a lot more people. In a particular portfolio, but I'm talking about overall fund return. And that's where I'm going is like the spread from high to low is more spread out, but the average is the same because I completely believe that because in hard tech, if you win, it's incredibly sticky. You've done something so hard. The competition doesn't just come take it away from you once you've made it to market. Usually, right. If you've gotten through that valley of death, you're the one company that survived. How hard it is raising of capital to build physical tooling and assets and sales process and distribution because, you know, software to publish you go online and put on the app store and pay 30 percent to Apple or Android and You're out. You're good to go. Speaker 2 (31:45.614) I think what you're also talking about, Monica, in terms of that understanding, that's not as prevalent, right? Because people haven't gone through those journeys. For example, also, yeah, I mean, the point you're making about you could have deeper losses and higher returns almost is a case for a portfolio approach. Correct. Get into a portfolio, an angel group, a fund, what have you. It's not just a single bet. That's a point. Speaker 1 (32:12.034) And it's not a single bet. someone there is vetting the deals that is a hard tech human because founders can't say the truth out loud. Right. When anyone's raising money, you're not actually saying your deepest, darkest fears pitch tech. You're putting your rosiest dreams on a deck. And you need someone in hard tech that can internalize that rosiness, translate it into here's your realistic risk portfolio. Right. Here's the standard deviation of risk. What the founder is telling you that here's where it could land and here's where it probably is going to land. And I think that's missing in VCM. It's and you know it's not that hard to actually go get some talent to do this. Tom Chi, really well known west coast investor at One Ventures, climate tech, will do hard tech as well, made a comment about like you know just hire a PhD for 5,000 bucks to vet something. Yeah, the hard science and go hire a product manager that's been industry to vet the timeline and the realism of getting that to market. Yeah. And it's one the things that Deandre and I are working on here at Glassboard and within the Hard Tech podcast is, Rufy, spoke about this like two weeks ago, is we have this fever dream of the Hard Tech venture network that we're looking to start, which is, again, for us, truly just a way to go make a bunch of friends and connect all of the deal flow we get in the dev side to all the right investors and have us live as that translation layer. Right. We build products all day, every day and every entry from medical device, consumer electronics, to climate, to power and energy. We've seen all these timelines. We know the sniff test. This founder understands enough that they're probably going to make it as long as they don't crash and burn before then. Or this founder is so optimistic, they don't know the sharks that are in the water. They're never going to swim to shore. So we can help be that translator. And I think that's what we're trying to do again. They always say, if you want to change the world, go be the change you want to see in the world. No, it's good that you guys are doing this and it's nice to see you guys scaling in both space and people and capability. I think every ecosystem needs glassboards. Speaker 1 (34:07.63) In their shops. Well, it's one of those things that like everyone's like, well, why are you going to work on that grant? You don't make money in VC. I'm not going to go make points on this exchange. We're not trying to, you know, earn on, you know, land and deals for these clients. It really is. our job is to go make friends and the hard tech industry is so small. If you're making friends, making introductions, that is always paid back tenfold with the right contacts to new companies, to new friends, new engineers. And that for us is building the community. And Monika, I know this is exactly the world that you live in and platform that our goal is just to tie that community together with a knot, because that's the other part of the Midwest that is so powerful. We should probably mention the July event. yeah, mean talking about community, have everyone is welcome in Chicago because we are having aspirin climate week and then tech week. It's starting from July 20 till July 25th. So it's like a week long and you will have a lot of different ideas, founders coming in together, investors coming from all over the nation. to the two or three days. Speaker 3 (35:11.398) Yes, and then focus this time is more on climate and sustainability. I think everyone is now starting to realize how important climate and planet is. interesting because of that focus in other I mean a lot of other yeah I so there's a lot of like changes now and some people are keeping the focus others are not it's real and everyone has to figure out I know and then I think one thing that I've recently realized is like no matter what's happening in politics and world people still want to make a difference. Well, what's interesting is when it becomes out of vogue in the political and like the money falling from the SBAR sky, right? Just raining down. It actually is the opportune time for venture because the good ideas aren't just being funded by SBARs and they're going to get non-dilutive and you're not going to be to put your money into these game-changing ideas. They're looking for money too, right? It's one of those things that like the scarcity and the harshness is like evolution. The really strong ones are the ones that survive and now is not even time to get in early with them. Just it's not a hard tech specific thing, but this morning we're having breakfast with one of our LPs who's moved down here and he's also a GP in a regional fund. And he was describing how one of our portfolio companies, we share this at DePalo as well, they were looking for an SBA loan, so they got it, but they have to document all of the, every investor. So if there's a fund, they have to document the LPs of that fund. Speaker 1 (36:40.327) it's like it's like opens the gate all the way down. And you can't do that. so at some point, you know, people said, no, we can't do that because A, we can't. I mean, you can't just shut down. And then you have entities that may have, you know, other members. Share your information. Speaker 1 (36:54.958) and SPVs that are in those entities that have 10 members of peace and all only put in five grand. It's a lot of work for what government ask and then you have to prove that you are US citizen. foreign capital you have to go report all that. foreign investors. That's a whole lot of different side of the story. Speaker 2 (37:15.602) it a little bit, you have to pause and wonder like okay is that the right move? Okay so I mean I guess to kind of, I mean you're probably running out of time, but I just think that we have to also understand that some of these projects that we back as hard tech investors or you know product allies is going to take a long time and investors have to realize that it's going to take a long time and they have to be interested in the impact you're talking about. If this is only about how quickly can I get a return, it may not be for you. the stock market. Wall Street bets on Reddit and go to the stock market. And even then, mean, I longer term venture does better. It's just a little bit harder for people to see the returns now. And the graph doesn't move. That's the other thing. The game theory of being in the stock market is every day can check my phone and see what my portfolio did up or down or sideways or left or right. When you're in venture, you dig a hole in your backyard and you put your money in it and you put the dirt over it and you put a little automated sprinkler and hopefully one day there's fruit in a tree. But you do nothing as a road investor between now and the day that company exits. Speaker 2 (38:33.454) But in reality though, RLPs are in multiple funds. They're looking for some exit, some distributions, because what's happened is interest rates went up and so people that borrow capital to make these types of alternative investments find that their cost of capital is a lot higher. So it's difficult, that's been part of the struggle too, and they projected. Speaker 4 (38:55.022) It's probably like most of the struggle is it not? Well, A, if you have returns, B, if you have to borrow capital, that's been a double whammy. I people can invest in alternatives through their retirement funds. I don't know if that's a well-known fact or not, but you have self-directed IRAs, you have SEPs, there's different, I mean, you can do it through Roths. So there are custodial banks that will set things up if you want to do set up that tax filter investment. But it's longer term, so maybe that's one way to think about venture, that it is longer term. And let's break that down for hardtick. This is gonna be really fun as the last topic we get to cover today. so I'll start at the beginning because I can tell you how long it takes to build things. So from a let's call it an IoT device, right? The fastest I can get a real new IoT device to market that's doing something slightly different than anyone else is 18 months, right? You're in three months of figuring out user research and all that. Then you go into six months of alpha build, six months of beta build, and then you're in manufacturing, you launch, right? Speaker 1 (39:56.886) That's it. is your 18 months is the fastest when nothing goes wrong when you're in med device now, you're 24 to 36 months You hope to be and that's just mostly Dev you have six months of FDA review after your class two or class three So now you know you're in that three to four your time frame for revenue even starts to get rolling Right and this is again the whole story from an inception of idea to market launch What for you guys from experience is the exit event in either any generic card tech in med tech? or in climate tech for you guys. I'm sure those three timelines are all very different. You know, what is, I know in SaaS, you you're going to get acquired what? Series CD, right? Is when you really want to be acquired that. So like the question is in HardTek VC, what are you guys planning for? Hey, if my product's going to take me two years to get to market, when is MI as a VC hoping for my first chance at a real exit and my, like, I'm going to be exited by here. What is your range there? It all depends. Speaker 2 (40:52.334) You want me take that? I think that's a topic probably for an entire podcast. It's going to take a long time. There's no smiley face way to say that it's going to take a long time. Building the product is unfortunately only the tip of the iceberg. You have to build a business and you have to then scale it and then you have to exit it. So it's a lot of work and founders that have been on this journey know that. Lots of bad things are going to happen. you're not going to be able to raise capital as quickly as you want. You may never be able to raise capital. Your competitor may have been very close. Yeah, sure. But I don't see that as much as you've got terrible VCs that are part of your cap table. You've got really poor boards. You've got bad advice. You're not you're not skilled enough to know the difference between advice you're hearing. You haven't done this before. Any number of things can and will go wrong. And so I think you have to surround yourself with good people. And it's not just the people with the largest check or the boards. We that's another Speaker 1 (41:57.528) nicest to you. You someone that'll tell you when they think you're doing wrong, but not in a way that is just you're going to ignore. Yeah, I mean, so I think it needs a coalition and really leveraging skill sets, technical skill sets, investor skill sets. But more direct answer to your question, funds that are set up for 10 years, you expect some &A activities and that's more likely somebody buys out the company because the product works. They can then and scale it that way. That happens much, much more than obviously an IPO. and store a better portfolio. Speaker 2 (42:32.334) We've had one exit in our first fund and everything else is still in place. But more than likely, it's a seven, eight year period before you can build that product in three years, but you have to be in market. before, think on average, some kind of a... But that doesn't mean exits can't happen earlier or later. And some will never happen. flight. Yeah. Speaker 1 (42:55.734) Yeah, standard deviation, right? And to save this as well, it only takes one. No, doesn't only take one. I think that's a misconception of venture. That one is going to do 100x and everything else is going to just go by the wayside. I haven't seen it in anybody around me. Maybe in software, but for hard tech, think it's lot different. singles and doubles in hard tech than the zeros you see in software. Yeah, because think software, you raise so little money and you flash out, right? You have a decent early raise, but you're not raising many seven figures. You're raising a half million, a million bucks and you hit users and you make a big splash in the pan and then you fizzle. You don't get to raise that A round. That's what I see in software. We get a lot of people that'll have a banger seed round and then fizzle before they hit A because they don't actually hit. Speaker 1 (43:50.65) dollar conversion growth because A rounds aren't based on emotions or hope or dreams. A rounds are based on does the graph go up and to the right on revenue. Profitability, we'll worry about that later. But revenue up and to the right. Cool. A rounds coming. If you're flat, that's That's also changing profitability now is important for software only as well. is now cool. And I think it's because too many people got funded on their A round up into the right revenue and they never were able to turn the knobs enough to hit profit out the other end. They were growing and they could grow forever as long as they could acquire capital, but they couldn't actually make that capital return. Just to add to that, the thing about, yeah, you can have a 40x, 50x, let's say 25x, it's possible, and a whole bunch of your companies that look good can turn out to be, you know... Speaker 1 (44:40.52) ones that don't return. Maybe it's a situation like tariffs. Tariffs are driving a lot of companies into the ground right now. And it could be COVID. It could be externalities that are beyond your control. You thought you had a good story for a capital raise and then something like this happens and you don't have runway. So many good companies with good products and good teams will fail. And so that's why the portfolio theory building some robustness Sure. Speaker 2 (45:11.22) Sticking with your investment strategy or check size you like something you put too much money in Sticking to discipline like right right as saying the right the same check we were talking about this this morning Right the same size check into everything protects you so there's so many topics right I mean and and this comes with experience time you see it like I didn't know all this stuff on day one I've learned some of it the hard way of seeing other people talk about it, and there's a bunch of stuff. I don't know yet yeah. Speaker 2 (45:40.066) So we're going to figure it out. But you got to stay the course. think this is is mission critical. We have to build things here and that part of building in America I like we have to build where whether it's in America or elsewhere, we have to solve these problems. Anyway, so I love being in Indiana. I don't know. I'll share a little known fact. I made subway sandwiches in the circle back in the day. No, I was in college. Yes, there was there was a subway here. Those I'm dating myself. but people in India will know when. I would even know that. So, okay, I thought it was gone a long time ago. so maybe not that far back. But yeah, in college, summer job doing subway sandwiches. scooping Reuters ice cream and serving Wendy's hamburgers and Zyzzel Carmel. yeah, that's worst origin stories. It's probably just being bored. Everybody, this is the Hard Tech Podcast with Anteos from the Hard Side with DiPaolo Ventures and of course, Glassboard. See you guys next week. Speaker 2 (46:37.87) Probably. Speaker 1 (46:41.716) and tales from the hard side. Speaker 3 (46:47.534) Thank you.