We are excited for this week’s episode, as we dive further into the world of venture capital. Co-hosts Bob Fraser and Ben Fraser interviewed Ron Shigeta, a venture capitalist in biotechnology for food. Ron is a Ph.D. turned investor and runs a very successful startup accelerator. They talk about his experiences, how investing in biotech works, and the strategies he used in investing. So if you want an approachable take on venture capital, this episode is for you!
Invest Like a Billionaire podcast is sponsored by Aspen Funds which focuses on macro-driven alternative investments for accredited investors.
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Investing in Biotech: From Scientist to Venture Capital Investor feat. Ron Shigeta
We’ve got a fun episode for you today. All about venture capital and biotech. Food investing. What, so why would we be interviewing? You have got to hear this one. This was one of my favorites and it’s with Ron Shigeta who is a venture capitalist in biotech for food.
Super interesting. He makes biotech and venture capital approachable for us who are in the shallow end of the investing pool gets us in the deep end. So you gotta hear. So we love these episodes that focus on more venture capital type investments. And so as with anybody we bring on that does have the potential to raise capital.
We do wanna give a very big disclosure that bringing them on to this. A podcast does not mean that we have done any due diligence. We’re not promoting them and we are not making any kind of offer to them. We don’t have any relationship with them. So you have to do your own due diligence.
It’s interesting. So we’re very curious. So we know our listeners are curious that it does not mean that we are promoting them necessarily. So if you are interested, please do your own due diligence and hope you enjoy this episode. We appreciate your listening.
Welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser joined by fellow co-host Bob Fraser. And today we are joined by Ron Shigeta. Ron, thank you so much for joining us on this episode for a pleasure to be here. Thanks. This is really fun. So we were looking back at some of the podcast numbers that we’ve had so far and our largest downloads to date are the most listened to episode to date by a factor of only two times has been an episode we did on Intro to Venture Capital and Private Equity Investing. So this is something amazing. A lot of our listeners are real estate investors or entrepreneurs that are wanting to get into alternative investments and a lot of podcasts in our space don’t focus on the whole other side of alternative investments outside of real estate, which are venture capital, private equity and hedge funds.
And so we like to just spend some time talking about those verticals. And when I saw your background runs a PhD in chemistry from Princeton, he runs a biotech accelerator and the one of those podunk east coast schools. That’s right. It’s really outta the country. Not too many people know that and and Ron, I’m gonna toot his horn, cause I think he’s probably too humble to toot his own horn, but he runs an accelerator for biotech companies and of the companies have gone through the accelerator.
The valuations as of last December in 2021 crossed a billion dollars for the portfolio of companies that you have brought through, which. Huge. So you have a unicorn accelerator. If that’s a thing I don’t know. But we wanted to bring you on. Yeah. Just learn about biotech investing, learn about what that is, why is it important?
What’s kinda the long term trends going on there. And then later on, we’d love to talk about venture capital investing in general, and what’s changed in the landscape. So Ron, on winded intro, cuz I’ll let you kind get to a, those are all really topics dear to my. Band. Yeah I started, I was working in, I actually have a pretty, not unusual bay area story.
I was sitting, working at a desk, tapping away at the code every day, all day, and I just was dying inside and I decided I gotta do something. Friend and I opened an entrepreneurial, like the world’s first entrepreneurial biotech lab. About 2014 and it was the world’s first for about three months.
But we got a little bit of notoriety around the city and we got issued a bunch of venture capital. Funds and one of them. So S V, which stands for sound Sullivan adventures. They hired us to come downtown and tear down, tear out a basement and basically build a space in downtown San Francisco to be the world’s first biotech accelerator in-house program all year round.
And so the idea of just an accelerator is what’s so getting inviting special companies in, they apply and they would come be a part of your support system, which may include real estate and other, and be a part of a community of fasting that’s fast growing companies and you support them.
And it’s really, it’s not really a financial type deal. So is that. It is, it’s a structure. An accelerator is a structure for venture capital investment where it includes actual physical space and a program. So venture capital kinda lurk in the background and kinda we on, I was actually an, I actually helped authorize the investment, which was.
Sometimes as little as $50,000 cash, but the point ISCS like accelerators because they get a free look at a lot of deals. They do. They kind of wander the halls and see what’s interesting and go on and then choose that’s. They want to invest in, it’s got a little extra tacked onto a VC firm to have the space, to have to collect all these companies in one space.
And then the main thing the accelerator is there’s a program that begins and ends. And so indie Byron for four months. And people would come in and they’re like, gosh, I’d never been to the big city before. I don’t know what investment is. And then coming out, they had to look like prime investments and really be educated and grow up fast.
That’s what we did there. I, that was a fun part of the program. I gotcha. Okay. Yeah. So it’s not like just an incubator, which is more real estate, it’s a program with start and stop that’s right, Ben. The special story here is that. My partner and I, Ryan, we both quit our jobs and left our careers to do this.
And we’d never been venture capital investors before. So we had nowhere else to turn . There was nowhere else to go , which was a great incentive. And we really learned to work hands on with those teams basic for the solid four months. Lot of accelerators don’t do that, but we were. We were there all the time talking about what’s your biggest problem, and let’s try to solve it.
So BCS were wanting your expertise because your PhD in biotech. So they wanted your expertise and advice on, Hey, what do you think about this guy? This guys that was like thrilling for me, cuz I was the only scientist on the staff at the time. And we got to. We got to make a call on a bunch of high risk investments which would basically outline a completely different future.
So McKenzie, actually, something you should know about and your listeners li know about is that McKenzie quarterly actually put out a report on something called the bio century in 2020, and they looked at 400 business cases. So they did this rigorously, what we knew intuitively they. Specifically, and they analyze 400 business cases where biotechnology can impact.
The business as it stands as the technology stands without any new discoveries. Oh. And so because of that, they called the century, the bio century. It should this podcast is your transistor talk. It’s what are that little piece of silicons gonna do that? Gosh, I don’t know that, wow.
That’s where we’re standing right now. You know what I believe that I believe that. And so I’m a traditional computer scientist. So the guy sitting in the cubicle coding, that was me and loving every minute of it. I love that. So for, but for me, and I think for a lot of our listeners who may not be computer scientists, so we have this continuum called the, what do we call it?
Ben? The alternative investment continuum. The first step is real estate. That’s the shallow end of the pool, right? Yeah. And then you go into private equity and, we do, we’re comfortable with private equity and then you go into venture capital.
Now you’re getting into the deep end of the pool. That is, I think a lot of people it’s not approachable, right? It’s not approachable. And even for me, as a traditional engineer, That’s like voodoo, the, I don’t understand it. And the whole, even the biotech revolution, I’m the guy got straight A’s, but avoided biology courses.
Straight A’s and yeah, it’s a little, all the physical sciences except bio, you had to dissect the frog. That was like a non-starter for me. And my, my, my bio. Biology career ended, in high school, but it really is a golden age. We’re seeing tremendous things with gene editing and DNA research and genome research.
And I’m just reading today. The news is they revived pig cells from a dead pig, it’s hard. Imagine I don’t a place to put any of that, it’s does that matter? I don’t know. Sounds cool. But what were the biggest bargains? What were the biggest deals?
About 20 years ago on the investment market, it was like, oh, this is little thing called Google, and you can find anything you want. I know, but what with biology, what we’re talking about is an interface for us to manipulate the molecular quality of life and every product that. Okay. So just for us completely unwashed, give us what are the top thing, most exciting kind scientific areas or breakthroughs in biotech that you’re the most excited about.
So I’m gonna give you one of my secrets as even give us a couple, just the first wide universe of opportunity. The first secret for a good capital inve venture capital investor is not to invest in breakthroughs because. New science is untested science. Okay. So right now we’re at this golden. What are you most excited about?
I’m fair. We’re in this golden age where there can be some great opportunities where the science is not really the big risk. And so the number one. Investment category right now for this. And the planet is food. There’s all this food tech coming out and impossible foods was an early entry in there. They’ve got this hamburger that tastes like real beef because it has a molecule called he in it, which is actually how we taste red meat.
Like when we bite into this veggie burger, but it’s got he in it. it really tastes like an Angus stage. So it’s biologically engineered to trigger your taste buds. Yeah. The same taste buds, it’s just, they, another way of thinking about is they sprinkled something else in there that’s that they got from the biological training, we’re all sensitive to technology and food, but it is applying the best science to creating the best food.
And they’re about to IPO. They’re look, they’re aiming for several billion dollar value on their IPO. I think, but. Indy bio. What we did is we created a whole fleet of different technologies behind them. And there’s hundreds of these biotech food companies all over the planet. The one of the biggest categories is they’re taking cells out animals.
Then they grow the cells outside the animal and they make meat with them. And that sounds like incredibly crazy. It took years before the market actually validated our first investment, but it actually, there’s a Moore’s law for. Costs made this way. I put it in a blog post. Wow. It, the slope is four times steeper than Moore’s law.
Wow. And that food is gonna be, and Moore’s law for those that aren’t aware as yes, famous computer scientist law basically said that, Hey, computability processing power is dividing in half. What was the log? It’s doubling every two years doubling. So compute power’s doubling every two years and it’s and it’s been sustain.
Since forever and it’s, and that’s where the whole internet, it’s an exponential law, which doesn’t, you’re crazy. Your phone, your car. That’s where all of this technology, that is our everyday life. It remade our lives in the past 30. So you’re saying it’s happening. In addition in biotech has that scaled law for a lot of things.
And the cost of these products is dropping. People can just look at something and say, that’s not gonna happen. They look away and it’s right there. So this next year more than one company is gonna be selling this lap grown meat. Or as we call cultured meat on the market where people can buy it will the dogs eat the dog food?
That’s the question. And there have been tastings and people say, it tastes just, it actually does taste, but will they buy it? Will they buy it? So this is the thing. So this is the thing is that One of the reasons that the meat companies have all like the world’s largest meat companies have all invested in this.
And that’s because they know that without a strong technological base to make their economics lo cheaper, meat’s just gonna get more expensive. And so in order to compensate for that, we can do something called shrink. Where we make a lower quality meat to sell at the same price we did last year.
Yeah. We can put more animals per square foot on a pasture. We can ship grain instead of having the wander around the grass and eating it’s too expensive. So what happens is people are sensing this trade off in economics. That’s what everybody’s experiencing now for maintaining the price point we want and the price point’s even rising.
So against that quality, The creation of this meat is actually going to have higher quality year on year. As we, as that process for creating the meat technologically improves, it can actually improve in quality and lowering costs at the same time. And agriculture just can’t do that. So that’s, what’s really different about a technology.
When everything we make is driven by technology, it can have a lower footprint, ecologically. It can have a reasonable cost drop over time and it can improve and do things that didn’t hap do before. So this is a completely different way of thinking about everything at target, everything at the grocery store.
People just tend to have this fatal. Entropy sort of view of the world like, oh, the universe is spinning the chaos. the heat, depth is coming wrong. And my Fritos are gonna have three less Fritos in the bag next year. And that, if you think about it, that is that’s an amazing thing. One of the reasons food is a huge breakout technology we discovered was.
There’s this intrinsic human psychology that you and I and our parents, all of us have become inculcated in that for about 120 years. The price of food has been dropping regularly. And the quality has been going up. And then about 20 years ago that stopped the price kept going down, but the quality was not exactly, and so we have this organic high end food market, and we have the food for everybody else market where that compromise exists, or you pay for the quality food that you want.
And that compromise is becoming more and more of a stress on everybody. And the technology is going to allow us to resume that cost drop slide. Into the next center. I hope it’s interesting. It probably is. It probably is the future. It makes, it makes me think of as star Trek, and the replicators that’s probably the, you want Thai food’s and there they, they grow the meat and and it’s interesting.
I do know that meat production typically takes, say, takes about eight pounds of grain to produce one pound of meat. And so it’s not efficient. Plus add the greenhouse gases that are emitted and methane, everybody knows what, methane smells like coming out of the the Stockard, and so it’s a it, this is probably the future down, down the road.
Eventually those costs will catch up to us and we’ll have to start paying them. And then people will be really happy to have an alternative source of meat. It’s already happening in Europe. A couple of the countries have reported that plant-based meats are actually cheaper for them than actual meat.
Yeah. Which is actually not been the case up to now. And to your point there’s really cool science and there’s really good investments. And a lot of. They’re not the same thing. They are not, I can’t remember a famous investor once said, aircraft technology is one of the greatest technologies, but it’s been a lousy investment, and , and it’s so true, that, aviation and that commercial aviation gets co commercial.
It’s like incredible technology. It’s not a great, never, it never has been really that’s venture capital investing is a place where there’s tremendous opportunity because good and VC investments, the rules of economics change. But it’s scary because that’s like riding a pretty wild Bronco.
Like you, can I control this? Is it gonna go the way I want, makes a lot. You get kind of sweaty thinking about it sometimes. So is food tech your only area or are there other area you’re excited about? We actually invent, I actually invested in eight different verticals in ind bio and I continue to be interested in health tech and other kinds of things.
It’s just that right now, food’s just getting a lot. It’s a lot more identifiable people really enjoy it, but the opportunities are there across the board. Actually, one of the big breakouts right now is fashion and beauty. There are these companies starting to produce vegan leather. Leather’s actually getting more expensive as less beef.
The price of leather is actually rising and the scarcity of leather is rising. And, we are used to having leather around. If you’re vegan, you hate that, but if you’re got vegan leather, like everybody loves it. And so there are some amazing companies out there starting to produce textiles that are sustainable, that don’t require an animal to produce them that, lowers the price as well as.
Cancels the economic or the ecological impact. There’s a, so vegan leather would be like lab grown leather from the cells of animals or how is that? Man-made textile both. Actually there are many people trying lots of different things and that’s, what’s really great about being a venture cap investors.
You have a problem like this, leather’s becoming more and more scarce. It’s become more expensive. There’s five different solutions. Somebody will invest in each of those five. And we’ll just try it out. But my favorite company is Michael works. They’re out here in Emoryville California.
They have, they actually use. Fungi, they use mushrooms and the mushrooms make this very convincing leather base and they just produ they just signed a deal with air MAs has made a deal to, for them to produce the Victoria handbag, which I think is supposed to be a $3,000 handbag, but it’s got outta mushrooms but they’re gonna do it without a single stitch of animal product.
And the thing about this is air ma. This is a pretty profound thing because they have a dozen or more different kinds of leather. Each of them treat a different way to have a different role in the handbag. And these people are so into those details that they are actually reproducing each one of those leathers for this handbag.
So this is. This is a really amazing technology that can do anything theoretically that leather workers can do. some of them have hundreds of years of tradition behind them, but technology can make all that stuff still exist for a person who can afford to, now a lot of the stuff economically people can’t afford to buy it, but when they really learn how to manufacture this scale, it may be that you’d be able to buy leather or belt that you just couldn’t imagine buying you.
Now, a $500 belt for a reasonable price. Now that’ll be crazy. Wow. Give us a few more. What else? What else are you love? What other, what are the bio? I wanna give a shout out to my excited about, I wanna shout out a little let me talk a little bit more about food because I don’t think we’ve really gotten to the depth here.
Okay. We invested in a company called new way foods. They’re making this plant-based shrimp has no animals in it at all. And and you know that we eat something. I don’t know, 40 million tons of shrimp a year or something. It’s like the world’s, it’s the largest import of seafood that we make here.
A lot of this is not really super healthy waters. It’s part of the process is very exploitative, right? These, these women made this plant based shrimp just gave you the idea Hey, we make a. Doesn’t have any animal in it for almost any kind of flesh that we eat. That’s not com there’s no compromise.
It actually tastes just like the experience we used to having. And this idea just set everything on fire and here six years later, There’s 1800 plant based food startups on the face of the earth right now, people have lost count there’re in every market. There’s some that focus only on Asia, only on Europe.
There’s a LA there’s a cultured meat company that makes flora in France. They’re really like applying this to every kind of cuisine that you can have. And what’s really exciting about though. It. And there’s a kind of a problem in food if you’re well traveled and you’ve got a decent amount of money, like you and I have probably eaten almost every kind of food you could possibly get.
It’s hard. Yeah, I’ve been to fo good shop. I’ve had Brazilian steak and and. So we’ve exploited all of these cuisine, traditions over the planet that have come to us. And we know a lot of someone who goes out to eat a lot in a large Metro area. They pretty much know a lot of this stuff where their new experiences gonna come from.
And they’re some of these scientific companies are coming out. They’re actually be able to there actually been, make food that you can’t produce another. Another fascinating one is there’s this company called every foods. They make egg whites without chickens, and that sounds great. Egg whites are in all kinds of different food products, but when you actually make the different, there’s five or six different molecules that mostly proteins that make up egg white, what they do is they produce each one of these separately and combine them to make your egg white while they can change the proportions.
And when they do, they find out different kinds of foods show. There, there are some egg whites that bind really strongly. So they bind so much stronger than a typical egg white that they can actually produce different classes of pasta or other kinds of cooking that can be done. They can cause them to fro and hold the air differently than a Mir.
And that’s just the, that’s the first generation. As we really start to understand the actual molecular basis of the food, we will make foods that nobody’s ever seen before and they can behold just different classes of experience. So there’s some really exciting things that are happening there.
And they’re just starting to peek their heads out. So RO where do you see this going? You made a comment that this is like the early stage of the transistor revolution, which, in the computer era, just getting going the internet era, where do you see this going?
Going back to the impossible foods, I remember in the marketing pitch, I’m a. Big carnivore, let love meat. And so it wasn’t super appealing to me, but it was interesting in reading their marketing materials, they were going after what they called the flexitarian, right? Yes. It wasn’t.
It wasn’t just the people that were vegetarians that wanted to meet alternative. It was actually people that would be open to try something that tasted like meat and you get, Pretty close and you’re also helping the environment and all the other kind of, ecological benefits to your point and, hopefully cost saving.
So where do you see this going as you extrapolate the, these trends of maybe traditional food production costs? Continue to rise, and we’re seen in some areas, with fertilizer, shortages and other things in supply chain that are really causing some dramatic challenges in traditional food production.
And then meanwhile, we’re having, you’re saying a four times Moore’s law reduction in cost in some areas which is insane. And as the quality continues to get better, you’re almost, creating a whole new. Market of adoption for these types of products that are gonna be as good and costs a lot cheaper and have a lot, much lower impact on the environment is extrapolated out for us.
This is a really amazing question. I think. There’s two or three points I can call. First of all, just to talk about the environmental impact. I think the most revolutionary thing about this food technology is it allows people to interact with the environment, problem themselves, just by making the choice to not eat an animal product.
You’re really, you’re helping to reverse. Potentially 20 to 30% of the carbon deficit on the human beings express. You don’t have to wait for the Paris Accords to get signed on which they’re not going to, or some policy to or for Joe mansion, allow coal emissions to drop in the United States.
Like this is something you can do, and it’s a free market sort of mechanism and your health will be improved because of it. That’s a kind of a win-win situation that has a social driver to solving a problem. That’s not. Economic. See what I mean? That’s, first of all that’s beyond technology.
This is, that’s why food is so popular. Has this confluence of all these socio like economic sort of like advantages strategically that nobody else has, but. For me as a scientist, what’s really happening is like up to now. Technology’s been very primitive and when we apply it to food, usually there’s a compromise.
Like I said before of quality goes down a little bit, price also drops. And what we wanna do I think is to look forward to an age where food new generations of food comes out and they really improve your. This is also true for cosmetics, by the way, which is another sector I’d like to give a shout out to, but like everything we use, a lot of us know that we’re making a compromise when we buy almost everything, you buy a 50 cent bottle of water and you’re like, oh my God, this bottle, I, I’m buying this banana it’s did someone get paid to harvest this banana?
Is this banana been shipped green? And did it ripen in a way that it’s not as nutritious? Everything’s just like a big. It’s a big bag of anxiety every day goes to the grocery store. We under, when we are at a very primitive stage understanding how the food that we eat actually interacts with our health and we’re finding some really amazing things collectively, scientifically.
And if it becomes part of our food system to improve the quality of the food and what it does, you will see people living longer looking better, being younger. be just because they’re eating the food. I’m very confident about that. We’re still early days, but. The attention, the amount of scientific attention that’s going on food is gotta be 10 to 20 times more than it was five years ago.
There’s a journal. There’s a journal from the nature publishing group, which is like the most prestigious publishing group in science about food and technology now. And they wouldn’t. They wouldn’t have cared 10 years ago in no way, so those kind of social forces that refocus have changed the potentials of what can be done and it can happen.
So in such a short period of time, it’s interesting. Most of the articles I’ve seen on, food technology is focused on taste and not on health and taste is less important to me, than health. I would, I’d be much more interested in a meat that really was good for me that had omega threes or had, different, these kind of things and, didn’t spike cholesterol levels and whatever.
That’d be more interesting to me than just taste. Lot of meat, they actually studies that showed the meat is more, is better because first of all, it has no cholesterol for instance, what we saw is those burgers existed. Quite a few years ago, Bob, like in the nineties, did you ever go to a cookout and say, give me that veggie burger?
Nope. cause that burger’s not, that’s not a recognizable burger. Yeah. So that’s the challenge is I think the agree, the deal that’s really. The idea that’s really creating a movement in investing in startups here is that we don’t need to make a compromise. We’re not gonna make a compromise. If we’re gonna make a burger, it’s gonna be as a reasonably good burger, maybe the, and we’re gonna aim for the best burger we ever had.
And it’s gonna deliver some health benefits too. We’re not quite, we can’t really optimize both of those at once. But it’s gonna be better than what you had. And that seems to be enough to drive it right. And but I believe there will become a time. We have such control over what’s happening when you eat the product that, yeah, it will be like, if you don’t eat it, you’re stupid.
That’s why I wanna go for this is so interesting, but maybe let’s shift our conversation to approachability and for investors. And like I said, it’s seems so much the deep end and I’m not a PhD, to a scientist, what business do I have sticking the fork in here?
How, how do you find good investments? Is it something any, an individual should even attempt? Are there good funds out there? What is the best way to approach yeah. Approach, approach this, I think that. First of all, what you guys are doing on your show here is very similar to the experience.
A lot of high end net worth organizations have they line up just like you guys on your show separately, they line up all different class of investment and then they just compare them. And then when they started doing that, I think they grand experiment started about five to seven years ago.
People just like anybody just looks at the. The whole chart and there’s this one little blip at the end, which is really high returns and that was venture capital investment. And so everybody said, you know what? Let’s cut off 3%. Put it in venture capital or 5%. Now a lot of the pension funds I’ve met are 10%.
Wow. But then they have a bunch of restrictions on it. So you diversify and you put a little bit in and you wanna try to find some, a good vendor that will actually invest that for you probably. Some people like to do it on their own. There’s a lot of there’s a lot of. High net worth individuals who are just doing their own investment.
They just I consult on the side to do diligence for them sometimes, but I think that dipping your toe in can be pretty cheap. And I think. I had a similar experience with Bitcoin. I was like, oh, I gotta get around to it. I just don’t know. Finally, when my brother just he’d been talking about it endlessly and I just went and I put $300 into Bitcoin and suddenly all my apprehensions of appre oh, I’m not gonna miss $300 when I’m on my death bed.
I won’t be thinking about this, but now I appreciate it but things have changed because there’s so many people who’ve done gone to that comparison and done that little experiment. When I started in the business about seven years ago, I think there’s 80 or 90 venture capital firms.
There just weren’t that many. And we were basically going home every night and praying, at the shrine of good fortune Hey, hopefully one of they like one of our investments, can we get one of them invested? Now. As we speak we clip mostly they’re nano funds under $30 million under management, but there’s 3000.
Venture capital funds on the face of the planet. So the whole game has changed from we heard it, which actually that means it’s much more accessible than they used to be. There’s a lot of smaller checks being written. And then those people are happier to interact with the LPs to share what they know and to offer.
Following doesn’t gimme a lot of comfort as an investor to know there’s 3000 nano funds out, out there, and I do know for a fact that, that venture capital returns overall, if you average everybody they’re not that they’re not, they’ve dropped.
They’ve dropped. They dropped massively they’re inches above private equity right now. And it’s people. What it’s a crowded marketplace. It’s too many shoppers, venture capital buyers who are inexperienced or making mistakes or whatever. And it’s just a very diff different world.
I actually was a venture. I had a venture capitalized company, so I had a startup, a tech startup, and the.com Aaron. One of my, one of my first investors was the guy who’s one of the founders of seven Rosen, which was one of the largest VC. They were the fair, one of the very first VC firms around and they were the first money in Lotus, Citrix, Cy Sienna, a few guys, and they made a ton of money and their average returns were a hundred percent per.
That was their deal and their model, I, their model was to invest. They invest, they want one deal in 18 to hit. Yep. And hit means it goes a hundred X. They wouldn’t invest in anything that didn’t have a hundred X potential. Anything that, that doubled or tripled or quadrupled was it lost to them and they just wrote it off.
And. They don’t care, didn’t care at all. It was only the a hundred Xer that they cared about and they wanted one in 18. So it was this, it’s this absolute swing for the fences model that worked. But I hesitate to say what they’re making now, but I highly doubt it’s a hundred percent per year.
There’s no one hitting that mark anymore. So actually I would say that’s turns going down you’ve quality going down. True. So as an investor, this is not something I’m gonna approach, right? This is not something I’m gonna dip the toe in. I think that I think. Opportunities are out there. And I think performance above average can be had it’s a lot, like actually the same thing happened with conventional retirement funds in the nineties.
If you remember right, there were like, there must have been thousands of little funds to invest stocks for retirees retirement. And and then someone did a study and. Almost none of these outperform standard POS deck, right? Every, every teenager decided to make their own little mutual fund, and, but got someone to a advance.
They continue to be there, continue to be star funds that you have to just to be a fund now for stocks, you have to outperform the standard and pores. And so I think what’s gonna happen is that there’ll be an expectation. I can have poor standard and pores. I just buy an index and leverage it. Yeah.
If the bull market, there you go. It’s, so this is my point. It’s so deceptive. It’s you can make the math, do whatever you wanna do. Yeah, that’s true. However, when a venture capital firm is successful, it, first of all, if it just outperforms private equity by 2%, that’s still the best return you can get as a sector.
So I don’t think that’s really something to really, but true, but is it sustainable? I think it depends on it. It is tr tough because really what it’s more like buying a force is it depends on finding that next deal. It is about how magic did understanding magic. It’s really changed. Like it used to be when I started out.
Everybody was coming out of credit suites. They had a strong financial background. They were comfortable handling millions of dollars. And then they would just judge different startups and they would invest and they would do this on something called the two and 20 model.
And that was the whole description. The two and 20 model is every year I take 2% outta the fund as an operating expense. And then when the profits come back after the capital’s, after the principal’s returned, I take 20% of the profits is commission. That’s so everything’s done. Yeah, what used to be in a headshot.
That’s right. And that’s, what’s changing now is. Funds are not based on those terms anymore. Everybody has a structure like that, but people are judge LPs, judge funds now by what are they doing to be competitive in the Milu of all these thousands of nano funds that are being competitive. And so what you’re seeing are people really innovating on software, on structure, on the entrepreneurial sort of relationship they have with the teams.
Everybody has to show how they’re gonna get better than average performance. So they’re trying to compete on process. They have to, because if they don’t compete on process, then they’re all just a bunch of suits from credit. We see. But the assumption is that the process produces better outcomes.
And that’s a hypothesis that it is. That is if you are lucky to get into some of the good firms, , the returns can still be had. I. I also we actually had a venture capital fund, give us a help, create a side car fund for us. So we were an investment of theirs VCs, and we went, we got invited to their summer bootcamp and the senior partners kicked off the bootcamp and he started off to saying our fund won returned 11500%.
so that’s an attention getter. I believe. That if you’re out there and prospectuses, you will see returns substantially higher than I think it’s 30% per year or something like that. That, that the average. The average is supposed to be, and it’s good to hit for. It’s good to swing for the fences.
Yeah, but it’s a very different risk. It’s a very different risk regime than you usually get. And so just hearing about how the hamburger is made to use a time. It’s really, you have to be, you have to be acclimated to it. You have to understand this is a numbers game. One in 18 hits.
That’s a pretty good, that’s a pretty good ratio. Pretty. Yeah. The, again, I just can’t help my, my my skepticism, I was actually a Silicon valley guy, so I grew up in Silicon valley and I went to school at Berkeley and I worked retire back in the heyday.
Awesome. And There’s a famous book that was out in the time they made a movie out of it or a show out of it called accidental empires. And it was all about the rise of all the tech giants and how flipping accidental. The whole thing was, it was like these guys, they didn’t know, they didn’t know their ass from a hole in the ground and they just got, they got Uber rich and.
And there’s a certain amount of luck. And I could tell you a hundred stories, but luck. And so how much did this 11000% return was? It, was there one lucky deal and the rest where a bunch of dogs, this is possibly boy, you can make some great numbers. When you happen, when you have a great luck on the first deal and you just keep quo about the that’s possibly one of the most prestigious firms in Silicon valley.
There you go. And they, but they charge way more than two and. Yeah. You just to be friends with somebody to get into the fund when they raise, so it’s it’s what’s interesting. You mentioned side cars and I really like side cars. I think, maybe BEC just to my predilection to, as a roll up the sleeves investor more than a passive right.
Is a sidecar. And so for our listeners, what a sidecar is, so let’s say a venture capital firm makes a term sheet to go and invest. $10 million into this company. And they’ll create a sidecar that allows friends they’ll create another million dollars that can be put in by a few of their, whatever their friends are.
So they put, they’re gonna put in 10 and you can invest on the same terms, alongside them in a deal in a smaller. And everybody likes side cars. I love side cars because I have the opportunity to go kick the tires on my own, on a deal. And I would call Ron UETA and say, Ron, what do you think about this deal?
And I’ll put some money in on my, and I don’t have to go with every deal that, that these guys are invested in the fund. I could pick and choose. So what do you, is that something that’s? Is that something, is that a thing out there or is that something maybe it’s good. Maybe it’d be time for me to tell my story.
I mean sitting in I, I told you guys, I was a friend of mine started an accelerator for venture capital funds, actually, an accelerator for VCs. And that’s, that’s that sign of the times, but it was really a great experience for me. Maybe that’s a sign of the top of the VC world.
It is what’s really informative is as an emerge as someone who’s raising for the first time. I got to see 50 other decks and 50 other funds. And so the trends I’m talking about 50 is not 50 pitches to investor pitches. And I, and he let me sit through the class twice. So it’s really a hundred and wow.
And, and you guys have to have ’em on cuz he’s seen four or 500 now. Oh, we gotta get him. Yeah. I’ll connect it to him, to Joel Al at Sutton capital, but he That was the first thing that jumped out. And he is at first everybody was really bland and they’re like two and 20 and we’re looking for 5 million and and we’re really smart.
That would be the whole deck. There’s the pitch. now there’s a, the last class had this fund where this guy had written a book with Reed Hoffman called blitzscaling. And he decided that he was gonna write a. On blitzscaling. And if you, or an LP over a certain amount, you get to join an animal annual dinner with Reed Hoffman
And not just that he would then go to he’d actually only follow investments from top venture capital funds. He would watch. I don’t know, say Andrew and Horowitz’s investments and just go to them after reducing, invest, just go to them. Hey, can we put some money in follow? We do my, I followed the other, what the other guy did well that’s not the special part.
Cause everyone wants to do that. That’s not bad following the guys who actually it’s a little lame because anybody can do that. But what he does do is he says, if you let us. Then you’re gonna get the author of blitzscaling on your team. We’re gonna give you the blitzscaling package and we’re gonna embed with you for a year.
And that’s so that’s a good pitch. Yeah. It’s fricking fabulous. So I get your point. Yeah. He almost finished raising before the end of the class. And so I think and what I do is I basically, I want a sidecar fund too. I thought about raising my own fund, but I really like what I’m doing.
I sign on to work with the companies for two years. And so instead of just, and these are the companies that are in your accelerator. Yeah. Then they come. They actually just give me stock as an advisor, but I spend more time with them. And I work with all of my entire bag of tricks becomes available to them.
And, we’ve had an incredible funding grade, like over 90% and the companies are moving. Find meaning they, they get venture capital money. Yeah. And, but most importantly, they’re still alive. So a lot of them are going to their a, this year. And so the capitals, that’s why I got to a billion dollars this last December.
And that’s why things are moving up now. And and so we really improved the chances of survival and the value of the companies that we work with. That’s the fundamental and. The fund that I have is a fund that follows on from that. So the fund gets to watch the companies struggle for a few months, really gets to know how things are moving and then the money to figure out who’s got the best technology, the best leadership, the best market opportunity, and put a little capital and yeah, after observing them.
Not in an interview or artificial format. You’re running alongside them. And then if the, and if the LPs want, they can invest further, they can put more money into a special purpose vehicle just for a company. They like all that stuff is open. So what’s the secret sauce for the portfolio companies that you bring into the accelerator?
Because you’ve created a billion dollars of value in these companies in two and a half years, being alongside of them as a consultant, but what do you find are the kind of secret sauce or kind of the key pieces you’re looking for when you’re looking at these younger startup companies?
As the difficult you guys said it like the most difficult part about venture capital investing is really having the guts to invest in something that might not work. But if it does work, it’s like super great . And so my trick is what I do is I take, something’s got something great. Sometimes they don’t know it.
And so me and the team will actually sit there and listen to them. If we can see a path to a market that they may not even know about, then we’ll ask to sign up with them. And then if we do. We’ll help refigure their product and then the multi, the value of the company and its appeal as an investment triple or quadruple.
And then that’s how we earn the, like the small. So you look your market first, your market, first product second, product and technology. Play and fit into markets like puzzle pieces. And so really where I’m highly technical and my team is highly technical. We start with the technology and then we project it into the market.
And so we can just by taking what they have and what they can do, we can reconfigure that whole thing all the way to the customer. Once you bring product expertise so you can help tweak their product, it is. We also understand their technology in a way that most investors simply it’s interesting because SA Rosen he, his he said his his, their investment philosophy was in vet.
It bet on the jockey, not the horse. So they did like the market. It wasn’t market first. It was market second. It was jockey first. It was operator first. Oh, number one, I get that. It was operator second was market. It’s a good thing. And after that, the product. Was down the road and things have changed though.
A lot of products have come to the market now . And so before, back in the day, maybe 15, 20 years ago, you could pretty much choose any market cuz no tech company had been there. You know what I mean? So I think things have, as things have become more competitive in the spaces have filled up. Like I wasn’t, I was in NYC a few years ago and I met this team.
They were. They were like creating sales and infrastructure for barbershops. That’s a very small niche for me, but they raised their a just fine, the money was coming in pretty well, but they had to find just that right place to be for them that they could exist. And so I would say that there’s a lot of wisdom in what those people were doing.
But times have changed a little bit. Also I have different set of skills, so I’m not afraid of taking on people who are, I’m not sure there is a right way to do it there isn’t yeah. It’s yeah. It’s really it’s who you are. That was just their methodology, i. The thing is I have had, I’m an amateur psychologist.
And so as a coach, I also work on growing up the executives. I will spend time to serve someone who just doesn’t quite, can’t quite reach the countertop to get them to the point where they can represent the company. And that’s not a full proof. A full proof process. If I don’t think someone will make it I will drop them during the trial period because I don’t wanna take their stock for nothing.
I want them to get value out. But we work on the people as well as we work on the product and the technology. Yeah. We’ve created new technology for some of the companies too. Nothing’s off. Nothing is off, off the table for us. We’ll try anything for it’s interesting. Cuz my company, I had a great market and all this, and Ben will tell you this about me, but I just got a lot of hustle.
It’s just, I’m all hustle. And so if I make a mistake it’s yesterday’s news. I’m just, I’m always trying to, that’s brilliant. I can’t stop at and so everybody wants invest in some I favor, those kind of people it’s like just I know that, Hey, they’re not, no, one’s gonna get it right.
You just want a person that’s gonna keep at it until they do get enough. To win. Bob, all I do is I’m just gonna push that just a little bit. Bob, what I’m gonna do is I’m gonna say, look. I think you could have hustle. Yeah. And I’m gonna work with you to get you the hustle.
That’s I love that the potential is huge. Yeah. It just, yeah, it just gives me a deeper reach into the market. I can take people who really couldn’t do it without me. And I’m happy to do that. I’m happy to spend hours and hours with the company. I love that for a, to get him to create a billion dollar.
It’s timeless spent, oh, sure. So that’s awesome. Ron, what’s next for you? What’s the next big thing you’re working on with it’s fun and side cars, man. Yeah. Actually I, do you have an answer to that to that then so I’ve decided my next stage is to bring up partners and yes, raise a side car, but the partners that brought.
Are gonna help create a huge depth of field in healthcare. Healthcare was one thing that always was difficult for us to do. Even if you have a million dollars and you give it to a company, the chances they’ll die is way, way too hard. It’s got a high bar of entry, right? A multiple billion dollar price tag for a drug approval.
He’s getting all the way through the clinical trials. That’s the big deal. But what I’ve done is I’ve brought on, one of the partners, he’s gonna be a GP with me. He actually sat on the partnership board at a major pharma company. So he knows. How to engineer partnerships with these companies?
How, what do they, what does the customer want here? That is the problem. We were never able to solve back when I was a venture capital investor, I don’t think there’s a resource like it in the world. Interesting. Bring that’s an edge. A, we can bring a biomedical company on. We want to get them into a partnership and deep into clinical within five years, connect the technologist.
To the money guys the big pharma who, who have the big checkbook. But what we ask for is that we looking for people with the technology and a vision that is just completely new gain, just like with the food and every other thing else we’ve done. We really want to change.
We want companies that can change the rules of how the game is played, because it takes 20 years to get a pharma, Pharmac product on the market. The customers are, the patients are dying when this is happening, literally and they’re paying zillions of dollars. Yeah. To do it, and. We really need to take advantage of tech.
It sounds crazy, but high-tech and healthcare is not really operating at full steam. And and me and that two partners are really excited. One of them is a major editor at one of the major journals. She completely understands. The intellectual landscape in academia and innovation, she sees lots and lots of the best innovative articles in the world.
So we’re really, that’s a, I think that’s, what’s really special about the races that we’re, that’s exciting taking everything to new level. I tell you, the world we live in is so exciting. There’s so many people that are doomsday errors and every, but honestly it is a golden age. It’s a golden age in virtually every area of technology and science.
It is just amazing. And this is one that I hope to get in the deep end at some point. With you? Absolutely. I appreciate you being, having down to talk about it, cuz I just I’m so excited. I just, every day I just get up what’s gonna happen today. I gotta tell you, like though, I’m gonna tell you my last story.
When I was at indie bio, what changed my life and gave me all this energy was I had been, I have been in academia for most of my. Like 15 years I was in school, just studying science. And I, here, I’m in this little crummy lab, it was not, it had nothing. It was not like the Princeton labs, and but we had minimal income and we had these people, they had they had $50,000, like nothing compared to a grant, but they were in three months, they were actually taking technology and turn into a product and they were hitting. Their technical milestones and all the time I was there, it happened over and over again.
Now at I accelerate, I still keep it happening. So I know there’s a lot of unused potential in this regard. And when people see it, they just can’t believe it. That’s what the 21st century’s about is like, when we can get to that level of productivity, it’s gonna be, people will sit down and do a pharmaceutical company.
The way that you can make a website. Now, three weeks in a coffee shop. think about that. Let me design a genome on watch the YouTube video. I just buy when you get some vanilla ice cream for us. I dunno. Check out what I just, what creature that’s right. It will be. I think it’s gonna happen. It’s incredible to.
From we’re standing now, but. Ron. This is you won’t recognize ourself. This is so fun. For a nerdy scientist, you’ve got a lot of energy and you really dial this down. That’s my style. No, I love it. It’s so fun. It’s an area that new to us, but it’s really cool. We see the trends happening.
So what’s the best way for listeners that they wanna get more info on? The incubator and other things you got going on what’s best. That’s great. I have a firstname.lastname@example.org. I’ll give you my email, which is just Ron. I accelerate.tech. Really looking forward to, would love it, to meet some LPs, some potential LPs here and and any company that just been working with us.
And then I’m on LinkedIn too. Under my name, Ron Shigeta happy to I’ve always got time to talk to someone who’s really interest. Awesome. Ron, thank you so much for coming outta the show. It’s been really fun. Awesome. Thanks.
Wow. That was a lot of fun, such great energy. Ron is so funny. I said it in the interview, but he, for a guy who’s a PhD in chemistry from Princeton, he’s got a lot of passion and energy for what he’s doing, and it’s such a cool space. You see the trends, especially in the food sector, moving that direction.
And it’s just really cool to see someone who has boots on the ground experience in that area. Four three, your big takeaways, Bob. Yeah. I’m just an investor, so I’m thinking “Ah, interesting.” We’re always there doing due diligence and all these companies. We’re snooping around and seeing who’s doing what, and who’s doing interesting things.
And so yeah, if you want to track us and keep, get alongside what we’re looking at, make sure to sign up on the website. So we have our investor club list. If you go to AspenFunds.us click on the Portfolio button at the top, and you can join that list. And, it’s really exciting.
We have people that are promoters talking about these really cool things they’re doing, but really the devil is in the details. And a lot of these deals that we look at and new opportunities it’s really important to do due diligence. Our fund Aspen Funds. That’s what we do.
We do very deep due diligence. And if you’re looking for opportunities that have been vetted by our team and our team that has experience across many different real estate venture capital, private equity experience, then join that list. You can see what we’re putting out to our investors.
As always, thank you so much for listening. We appreciate the support and any reviews you guys can put online helps get this in front of more people. So hope you enjoyed the show.