Paul Russo, Kyto - Medtech Investments | LSI Europe '22

Transcription

Paul Russo  0:06  

Well, thank you very much for being here and listen to our story we, our vision six years ago was actually to create a vehicle for the world to be able to better participate in the startup asset class. So we are a fund, but we're a different fund than a typical VC fund. As, as you'll see, we believe we created a vehicle that is going to become the ETF of startups. And that's what we're trying to do. Now, just a high level flyover to show you what we're up to. So the first thing is, what to invest in is a key issue in startups. Because those of you who've done it for decades know that vast majority of startups don't work out, you're better off putting your money in the market. So you need to make a lot of investments. And the more due diligence you do the higher probability of success. So our strategy is not to lead deals, but to syndicate with top angel groups. And establishing those relationships was one of the early challenges. Now, that means that every investment we make is double that. That means an angel group like the band of angels, some of you may have not heard of independence angels was the world's first real angel group. 35 years ago, a bunch of Silicon Valley CEOs said we didn't want to retire, that's helpful to startups do due diligence. 150 people, we look at 1000 deals a year invest in 20. So I thought, gee, suppose we now have our own experts, and look at those 20 and invest in some of them. And there's double vetting has resulted in excellent results, which I'll get to in a second. We also learned the lesson of what's hot today may not be hot next year. So we're agnostic as to market and geography. We have over 80 portfolio companies. We have eight in Israel, seven in Canada to an India most in US and one of the reasons we're here is we want take a look at potentially European startups. So it's kind of a different world here. Another differentiation to a to a standard VC fund is that our investors are not limited partners, their shareholders, management is incentivized was talk options were fully aligned. We don't win, unless the shares go up, shares go up, and investors win and we win. So it's a different model. There's no annual management fee, and there's no carry. And we're now working on the final phase talking to bankers about raising a lot of money, money and going public, on NASDAQ. Hopefully, when the window reopens late this year, early next year, a track record we have over 30. At portfolio companies, we've made over 160 investments, we make many smaller investments say 100,000 Roughly each. But we will do follow ons. We don't require board seats. But the CEOs love us because they know they make good progress. We'll be there for the next round. And we give free advice as a matter of strategy. So we started investing in early 2018. So call it four and a half years already had three small exits, three budding unicorns, companies that were 5-10,000,00 4 years ago, they're not worth 150 to 200 million and off to the races. Only one small write off out of all these portfolio companies. And we believe our underlying assets are appreciating about 30% per year, which is about as good as it gets. And in the startup world. Let me give you example of a recent exit and show you how we actually try and help startups. So I happen to go to an angel event in San Francisco there are tons of angel groups in the Bay Area in California, where we're based. And and looking at this woman was giving a talk about a company called baseballs. She was a Russian woman moved to Southern California, used to run Groupon in Moscow. So she was great, I'd be to see very charismatic. So I really liked the story. She was gonna do cat DNA, and study how DNA relates to nutrition. So I talked to her after I said, Look, we can't lead the deal. We don't lead however, we really like what you're trying to do. Let me sponsor you to the band of angels. So I did that evangelists invested, we then invested. And they were just acquired recently, but what is the public animal health company and you can see here how we made 12 times our initial investment and the bridge that did related to the closing we made one and a half x and in four or five months, which is actually as good a return as the 12x and the other 50k. So it's an example of one of our recent exits are budding unicorns. At least three companies and let me just focus on from Axel from AXA, is what we refer to as deep science startups is a term we've coined The NIH National Institutes of Health in the US spent $9 million over seven years to fund research on a low cost MRI machine so that older men can get the prostate MRI each year, because MRI catches catch up much earlier than holding other tests. And so four and a half years ago, they had something wiggling. So the hardware medical device CEO to create a new company called Pro Max's he moved from AXA, he moved the company to Oakland, across the bay for San Francisco. So I go visit him. And I see this toroid with a bring out the magnetic field out of a toroid. So you can put your butt there or a breast or whatever fits in that space can be a mirage Causton machine is 600 1000, weighs 2000 pounds doesn't require cryogenic cooling, it can go up in an elevator and it's cheap enough to go into your urologist office. So look at that and say, Whoa, the hole in the toroid is passive, you can put a robot through it. And for the first time, you can actually watch the biopsy being taken. So I said this is amazing. We want to invest. So that was actually our biggest initial investment invested a quarter million dollars, which is now worth more than 10 times that. And they are now off to the races of that set. So this is an example of the kind of deals that we can find with a broad network that ranges from Asia to Europe. Actually. I won't go through my long five decades of history, bored to death, but I've been on Bleeding Edge things for quite a while. One of my highlights of course is I founded a company called I'm at semiconductor guy. When the world weapon was big fat displays on your desk to the flat ones turns his Mikko chip had a chip in almost every flat display in the world, big public NASDAQ IPO in 98. But the main point here is I've been doing angel investing for 35 years learned a lot of expensive lessons, and that we're applying towards our new our new model. So we have over 95 advisors, our advisors are all investors, we don't take advice, people just pontificate we don't have their own money at risk. We probably have 2000 person years of experience, and we have advisors, so almost any space and you mark it, we have the expertise to look at it. And that's a that's an interesting point. Because sometimes you want people doing due diligence, who are not experts, sometimes experts are not the best due diligence because they have preconceived notions how things should work at Heart Church might say, that'll never work. Because they know their piece really well. And therefore they can't accept that there might be whole new ways of doing it. It kind of reminds me of a funny story. So I started three chip companies. One of them was very successful. One was not as successful. But that one won a World Economic Forum, technology Pioneer Award. So off I go to Davos, and this is 2006. And Davos, as you know, doesn't have a lot of startup people. It's sheiks, oilman, wealthy people, politicians, diplomats. So I hear about his session on social media. So I said, Hey, what the hell of social media that 2006 So awkward this room 300 people, and there's Mark Zuckerberg gets up and says, remember those words, he said, You know, when you go to a website today, like Amazon, you go deeper and deeper, we're gonna go horizontal, and the whole audience is looking each other saying what the hell is he mean by horizontal? Well, today, there are 2 billion people connected horizontally. The point is the really game changing things don't have comparables, the due diligence is not just good manager, good market, executive, etc. You know, every CEO is gonna conquer the world. But you got to look more deeply how will the world evolve in three years? And how will the world adjusted this? And will this really become something revolutionary? Imagine if you were presented with Facebook before you knew what social media was, how they helped you evaluate that investment. So this is what we try and do very, fairly quickly because we don't lead so we start with a deck due diligence package, a term sheet from a lead investor will talk to lead investor will talk to patent attorneys reviewed patents, one of our advisors is was was was a top patent and biz dev guy arose globally. When we review patents, we often give them free advice on how to improve the patents and so we do a quite a thorough job, but it's a second level of due diligence. So or investment decision process is pretty well structured. We have massive deal flow. We we look at about 100 companies a month. We have a screening thing and to see if it fits our profile. You know, we want to be early investors. And it's gotta be someone that's as a lead, when they don't have a lead, and we really like it, we might help them get one, then we do a due diligence process. That's fairly quick. Usually it takes us a few weeks, with our advisors, then we have a monthly meeting, where we present to all of our advisors, essentially, the four or five investments that we're recommending that month, we make four or five investments a month, we invest a lot, but smaller amounts. And then we go get Board approval for each investment, because if we're going to be public company, all this has to be recorded and the minutes, and then we do the document signed and the funds get disbursed. So it's a very structured process. But very quick, we can do this in as little as two weeks, the more standard process might be, might be six weeks. By the way, if anyone here wants the full deck, this is just a brief one, just send me an email, and I'm happy to send you all the information we do. And it gives you an idea of our investments. So far, as you can see, we're about 75% life science, even though I'm a tech guy. And when I look back on the last five years as to how this happened, well, I really believe that technology is far more mature than life science. You know, how much more can you do in a smartphone or a computer or beyond 5g and bandwidth. So I believe that they're going to be massive innovations in the life science area over the next year plus, more people, wealthier people, older people, we're all gonna need a lot more health care. But you can see a distribution also by geography, USA, Canada, Israel, India, nothing in Europe yet. And even in life, science, medical devices are our biggest area. But we're also pretty big and biotech. We're agnostic as to market and geography, we'll look at each investment as a money for money investor, it's an industrial deal, maybe only five bucks opportunity, but very safe will invest if it's a valid tech deal, highly risky, but 100 bucks of a charity. And we look at we assess the risk reward, we invest we invest, typically with a five year horizon to an exit, it just gives you just the distribution. And you can see how the follow on investments have really grown as a percentage. Of course, when you have this many portfolio companies that are looking for next rounds. So more and more of our investments are actually now follow ons and existing companies. So we give free advice to our to our CEOs. They love our model, because we don't charge them anything. We're available for advice. And we'll be there when they do the next round if they make proper progress. So this is probably the most important slot and shows you the mechanics of the machine, we've created how we expect it's going to work. Unlike an operating company, let's take a dog tech to get FDA approval, and suddenly the stock is worth 10 times more. This is dot com investment. We believe if we can show that the underlying assets are appreciating 30% per year, then the stock price may fluctuate by it'll go roughly 30% per year. And we believe with this shorter. Think of us as a five year long pipeline full of startups. Every month, we make a bunch of investments every month, we got a bunch of exits, after five year period, which is actually coming up by next year. Very small team because we leverage the world of angels, we have probably 20 Angel groups that we've syndicated with and elect syndicating with us because we share our own conclusions with them and often helps them make the decisions as well. So we have some exits, very small expenses, because we don't have we don't need a lot of people, we're leveraging the world of angels, we make new investments to keep our number around 100 or so. And all the excess cash every quarter gets distributed to our investors, as dividends. So this is a model where not only will the share price appreciate nicely, forever. But also you should expect some material dividends, if one is unicorns hit you dividend might be a large percentage of the share price if everything works out. So this is the model that we're following. And one of the reasons that I'm here is that we want to take a closer look at some European startups, of course, establish some relationships with some VCs here where we can where they can lead and we can call invest with them, but also where we're at as we speak. Now we're in the process of engaging bankers and raising up to $100 million on a NASDAQ IPO and we'd like to get people to commit to be part of that IPO process. It'd be much easier towards 100 million if we have 30 or 40 million of commitments. And the reason we want that much money is when we have these unicorns They're now raising 30 million US putting another 100,000 and doesn't make much meaning. So we're going to evolve our model where we invest more and more each round. So when unicorns raising 30 million, maybe we'll invest four or 5 million, but we'll always start small and grow with the company. So, so in summary, the other benefit of our thing is that a small investor in Hungary or Latin America wants to invest $2,000, to be able to buy the stock on NASDAQ, until access to deals they could not access. If it's a band of angels deal to maybe room to syndicate with another angel group. There's no room for a guy from Dubai to participate in those really good deals. So access to the best deals, liquidity, no fees, diversification. So thank you very much. And if you're interested in a full deck for more information, just email me or give me a card and we'll go from there. So thank you very much.