Founder to CEO: Why Great Technology Still Fails | Heath Naquin | EP18
In this episode of The 1,000 Day CEO, host Bill Canady interviews Heath Naquin, Senior Vice President of Innovation and New Ventures at the University City Science Center. The conversation challenges the common belief that lack of capital is the primary cause of stalled growth in science‑ and med‑tech ventures. Naquin argues that the real constraint is the ability to convert capital into capabilities, customers, and enterprise value – a concept he calls capital efficiency. He explains how med‑tech companies often waste capital by cutting corners on regulatory work, quality management, and corporate hygiene, leading to costly re‑work, burn, and failed fundraises. The discussion also highlights the mismatch between founder and CEO skill sets, emphasizing the fiduciary responsibilities of a CEO versus the passion‑driven founder mindset. Naquin outlines early warning signs of troubled ventures, such as tech‑first pitch decks, lack of business advisors, over‑reliance on academic affiliations, and resistance to feedback. He describes the Science Center’s Capital‑Readiness program – a week‑long, intensive due‑diligence bootcamp that audits corporate hygiene, data rooms, regulatory plans, and leadership fit, often prompting CEOs to reconsider their role. Real‑world anecdotes illustrate the high cost of cheap regulatory shortcuts, a costly “expensive intern” scenario, and a $600 million acquisition delayed by poor corporate formation. The episode concludes with practical advice on building disciplined growth plans, cultivating the right advisory network, and focusing on the next value‑creating milestone rather than merely seeking more money.
Chapters
Sustainable growth, and building a business that thrives beyond any one leader. Your host is Bill Canady. Let's make every day count.
Welcome back, everyone. Today, most leaders assume that when growth stalls, the answer is more capital. But what if capital isn't the real constraint? What if the real problem is converting capital into capabilities, customers, and enterprise value? Today, I'm joined by Heath Nachwin, Senior Vice President of Innovation and New Ventures at the University of Science Centers. We're gonna explain why well-funded innovations fail to scale, where the conversion process breaks down, and how leaders can sequence capital against the milestones that create measurable value. Heath, welcome to the show.
Well, thanks, Bill, for having me.
So most leaders believe, as we said in the intro, that growth stalls because of lack of capital. You argue that capital is available. The real constraint is conversion. What does that mean and where do leaders most often get it wrong?
Um, you know, in this environment, I mean, people will be listening like, no, no, capital's super, super tight. And yeah, it is. Of course it is. Um, but I think from my vantage point, and it depends on where you're at as a company, um, you know, uh, capital usually isn't actually the problem. It's usually the structure of the venture overall. Um, you have a great tech and great plan and you're trying to raise capital, the issue when you keep getting told no isn't usually the tech and it's not usually always the team. It's that the value prop hasn't been fully baked and the corporate hygiene isn't candidly there. Like you don't have any, actually have that growth plan and that scale plan in a way that can be believed from capital markets. That's one slice of a part of the answer to your question. But an argument I would make for some of the CEOs and something we talk about at the Science Center and in some of my other work is there is an element of capital efficiency tied to commercial milestones that often gets overlooked in doing that fundraise. And so what I mean by that, so like in my day-to-day, I work with a lot of medtech and life science companies, very capital intensive to get those things from start to, you know, human launch. I mean, we are in the order of tens to fifties to hundreds of millions of dollars before it even sees light of day, right? But there's a lot of steps along the way that if you were more capital efficient and design things right from the get-go and you had a mind towards capital efficiency and say regulatory, knew when to spend money smartly, maybe cost you a little more upfront, but it saves you $5 million later. That's a good investment. And There's all kinds of stuff there. So I think that a lot of CEOs, at least the ones I run into in my work, often are not thinking about the capital efficiency layer of how they're growing their company. And that does not mean being cheap. That means being planful and thoughtful about your growth trajectory as it pertains to the capital stack and capital markets and the market itself. So that's slice 2 of my answer. Slice 3, which gets back to where people most often get it wrong, And I think I already brought up a couple of things that were wrong, but, you know, really a few more things that, I mean, granted, I see hundreds of companies a year. I'm an active investor myself. So I see a lot of companies at all different stages. I think that a lot of CEOs, as they're trying to grow and scale, aren't necessarily thinking about growing and scaling in the right fashion towards a market reality. And it's real easy. I've been in an operator role myself. It's, I have made this mistake. So this is not trying to call anybody out. This is just, it's real easy when you're in the middle of the scrum to have your blinders on. Like, this is my mission. This is what I have to do. And lose sight a little bit of, should you be growing that way or not? Is this the right team around me or not? Do I know enough to engage my experts in an appropriate way to be capital efficient so that when I'm doing my fundraise and trying to find my capital, I'm asking for what I need related to value milestones and actually doing it in a way that's thoughtful and planful, which is real hard to do when you're on the treadmill 24/7. So those are just a few things, and I feel like I went all over the place, Bill. I apologize, but hopefully there's some nuggets in there that were a little bit useful for the audience.
That was a perfect answer, and it really just speaks to the complexity of what's going on. But you really brought up a great point. What convinced you that this was the real problem when you were working with these guys, right?
That the capital efficiency side.
Yeah. The capital efficiency piece of it. Like what, what was the, it's a huge one.
So, so quite honestly, this is like, so again, I mentioned like medtech life science, right? And it would, I'd see companies and, and at the Science Center, we routinely work with companies like this. So I'll do a shameless plug. I mean, we'll run 30 companies a year through our process, which is all, it's all about capital readiness and raising your money. Right. But You would see companies successfully raise funds. They would raise $5, $10 million. Great CEO, super happy, sweet. Everything's going great. This is enough to get my regulatory pathway set. I can start doing my FDA approvals. Then I can do my quality management system design studies and then some, maybe some contract manufacturer stuff. And they start moving this money around for this plan that's all interrelated in some way. Right. So it's, I mean, if regulatory goes sideways, everything else changes, blah, blah, blah. So I started looking at that and from what I can see, at least in medtech, the 2 areas where people often get it wrong, because they're at this earlier phase, they haven't raised money yet, whatever, is going cheap on regulatory, usually because they know a guy somewhere and they get some bad advice or maybe cheap advice, not following the regs. And so they go cheap on their submissions. They had, there's a timeline there while they're building out their, their sort of manufacturer strategy and going down the road. And then they find out 8 months later that, oh wait, FDA didn't approve it. You have to go back and change your study and change everything else because you didn't do a pre-sub or whatever. And I'm using some of these terms depending on where you're at, that may not apply, but in medtech it does usually. And then they have to go back, do all the rework that takes them another 6 to 12 months. Before they can go back again, hopefully get approval this time. But now they've raised a bunch of red flags and all along the way they have to rework the manufacturing facility. They have to rework the production line. They have to rework the experiments. They have to do stop work orders to change the whole thing. They're still carrying the burn of all the staff that were floating around.
Got a big burn already.
Now 24 months before, because all because They didn't have the, if they would've spent $50,000 more upfront and, and maybe 2 more months, that $10 million they raised, which is now burnt and went up in smoke without any commercial milestone hit, that they're now begging on a down round for $20 million to keep 'em alive. Um, you know, that would've been avoided.
They got the dilution issues.
You got everything. All that starts floating down, right? Um, so, so it's that, and then like quality management systems, not setting up those experiments, 'cause those are, those are pricey. I get it. I literally had this conversation a week ago. They're like, well, this group's going to charge $60,000 versus $30,000. I think we're going with $30,000. I'm like, yeah, but the $60,000 group I know does it right. The $30,000 has some bad— I've heard mixed reviews on, and they chose to go with the $30,000 and, you know, we'll see how it goes. But, and I get why they're saving money. It's almost like, that's why I said capital efficiency isn't about being cheap. It's about being thoughtful in deployment towards value. based milestones. And I think that gets real hard to do sometimes, at least in the world I see a lot of. Does that answer your question?
It really does. You know, you're dealing with some of the smartest, most innovative people in the world, maybe not always the best business people. Uh, why do you think they, uh, these capable organizations really struggle with this?
Which organizations?
I'm sorry. These capable, these people you're working with. Why are they doing it? Why make it hard?
But, uh, You know, I've had the pleasure of working with some of the sharpest people around the world, honestly. Like, I mean, Nobel laureates, you name it, you know, I've worked with them on the science and innovation side. And then inevitably there's this like, oh, you're doing cool science. You should create a company. And then, well, of course the right person to be the CEO is the inventor. And then that sort of like happens in this space because they know the tech best. They know, and they do, they created it. They have the 20 patents or whatever it is. I mean, Great. Yeah. Are they the best fundraiser? Probably not. Are they the best at leading a scalable and building a scalable team to repeat the sales process in a way that can the organization consume revenue in and recruit the best talent for that? Usually not. Are they willing to follow organizational processes that make the business operate more efficiently versus just the science? That often creates a lot of tension. So, but I think there's this big assumption that, you know, gets disproven regularly that at least in this, at least in the beginning that the CEO should be the inventor, at least in the science and tech world. And in my view, that's often not actually the case. It's, are they the right founder of the company? Absolutely. Should they be attached to it as advisor or chief scientific officer and all that? Yes, 100%. Should they be necessarily leading the business as it's going through capital scale and trying to grow? Probably not sometimes.
And I think that's— You gotta know what you're good at.
That's the— That's why I think sometimes it's knowing when maybe you're not the right person for that seat.
As someone who advises a lot of these people, shepherds them through, what's the early warning signs that maybe there's a problem?
What, on a CEO front?
Yeah. Well, I mean, look, so like you said, they're good at something. Typically it's the technology and they've gotta get all these other things to have to happen. What's the early warning signs that you've got an issue and then how, what do you do to keep it on track? Because that's, that's really what you're trying to, you're trying to, you're trying to get.
Right, right, right. So to keep it on track, I mean, there, there's a couple things that we'll do. Well, actually those things we'll do and then there's the warning signs. So there's 2 different sides of that.
That's right.
Warning signs.
First you gotta know you have a problem. They have to—
Right, right, right. It's like a, and then maybe we can fix it. So the warning signs for me, uh, at least the And it's not picking on any one particular group. Warning sign is when people lead with the tech in describing their venture, when they lead with the technical, like, composition of a drug or something like, look, we've made this GLP-1 molecule. I'm like, that's cool. We've spent 15 minutes talking about that. I still don't know what you do from a company perspective. That's usually warning sign number 1. Number 2 is when I see a slide deck that has a board of advisors that includes And everybody for like to advise the CEO, there's a, there's 15 different advisors. They're all like amazing scientists and are obviously like either former collaborators or grad, you know, grad advisors or whatever you want to call it. And I don't see one business person on that, on that chart. I'm like, that's probably going to be a problem.
Mm-hmm.
When I see, look at all the accelerator programs and all the different academic institutions I've collaborated with, with about 30 different logos. I'm like, okay, I'm a little nervous about that. When I see our IT comes from the university I used to be at, that raises huge investor red flags. That's going to cause potentially all kinds of issues there. And then the final piece is really, and it's going to be a broken record, is being open and receptive to feedback. And that From just as like an investor lens, because I'm not a just throw it out and I walk away. I'm like, if I can't add some value and there's not a, I can't actually like have an honest conversation and be like, look, this is going to start to go a little sideways here. That's another red flag there. So being able to accept, it doesn't mean roll over, but accept feedback and be thoughtful about it without letting ego get in the middle of it all. That's another, you know, one lesson in RevLab.
That makes a lot of sense. What does that next conversation look like? Where are you gonna direct 'em for?
What I usually tell 'em to start with, I'm like, okay, step number 1, let's take a fresh look at the corporate hygiene you've built so far. Like this is, and, and this is not cool or the sexy startup stuff. It's just, it's very boring. It's like, are all your contract docs in place? Do you know where your books are really kept? Do you trust how you're having, is that how that's organized? Do you have all your ducks in a row on agreements with consultants, contractors, whatever? If you don't, can you clean that up? Do you have things papered? Meaning if you have a license agreement from a university, make sure that is an ironclad, well-documented thing, right? And so, and by the way, for those of you out there going to raise Venture money. I'm assuming most folks know this, but there at some point you'll be asked to share your data room or your deal room. This is, and that you can email decks all the livelong day, but if somebody's ever serious, you're going to have to see your data or your deal room.
You're going to have to have a data room and it's going to have to be managed and, you know, all—
Well, right. But then they're going to, all this stuff I'm mentioning is going to need to live there, right? You have key person insurance. I mean, all this stuff just starts building and it just keeps growing, right? I'll tell a quick Funny story. Like, great. So there was an, uh, there, I'll give an example of how important this is. That's why I'm saying I direct people to think about that first. Uh, so there was a company in the middle of about a $600 million acquisition, right? I mean, this company had been operating for like 17 years. I mean, it's been going.
Mm-hmm.
And in the due diligence that was happening, I mean, major acquisition, right? We're not talking tiny dollars. The question was asked like, hey, where was the initial corporate formation, transfer of funding from the founder. So all you guys that go to Incfile and everything else and establish a corporation, and it held up this acquisition for about 3 months and cost about another half a million dollars in legal fees and, you know, to go back and rework all the paper so that it was a clean chain of title all the way through that whole thing. So it's not really a funny story. It's more of like, oh crap. But I mean, it's like as simple as that can have implications way, way down the road. I mean, honestly, I don't even think the founder was really, was just sort of hanging as an advisor these days. It was a whole, it was a whole thing, right?
I've been through those. Those are really difficult and they're expensive to resolve.
Very expensive.
And a lot of times the deal will die in the process.
I mean, this one was going to, honestly, but it, It worked out that in that case. I mean, there's the case of the $4 million intern. In this case, somebody had spent like 6 months working on the science in the lab with the company. There was a contract in place. It was a contractor 1099 relationship. Everything was fine. And they parted ways. And then years later, they're in the middle again, similar type situation. They're trying to do a $150 million close. And we're on a C round at this point. And when money pops up, people start paying attention. So next thing you know, this intern pops up and says, hey, I was part of actually the inventive step of this tech. And we did that. And oh, by the way, we had had beers one night with the founder. And he had said that maybe there'd be a position for me in the future because of all the hard work I'd done. And nobody knows if that was true or not. And probably it was. Maybe they had beers and they were just talking.
People say, make those comments all the time.
Yeah.
It's like, hey, I hope you can come back. We got a role for you if you do.
Right. And then this happens and then he was saying like he was not provided clear direction, was not provided an opportunity even though it was promised. And oh, by the way, he, it was not clear that the work he was doing was purely for hire in his contract and it was sloppily done contracting paperwork. And the decision was made like either this is going to make the whole deal fall apart, are we going to have to pay this guy off? And so the number that he said he'll go away for was $4 million. So that was a very expensive intern.
How do you get them through that?
For us, it actually, we do it mostly through our programming. So, uh, the way companies interface with us is usually the entry point in, it depends on where you are, is our capital readiness program. So for companies raising around the $2 to $10 million range, usually they've already raised some angel money. and maybe gotten some friends and family money or some grant money. That's cool. We recruit nationally for that. We run them through essentially a due diligence process for a week. They come to Philly. We have a network of about 40 different venture funds that also will send representation and spend the whole week with us. We have every, you need accounting, you need regulatory, you need human, whatever. We have experts in those areas, but we don't, it's not about us selling services. It's about like, Let's walk through where you're at as a venture before you do this raise. Do you have a deal data room? We're going to go through it a little bit. And oh, by the way, let's identify all those gaps you think you don't have before somebody else does. Right. And usually what happens is by day 3, people are like, crap, I didn't realize. By day 5, they're like, I'm not sure I want to be CEO anymore. It's a pretty intensive week, just for clarity. But it does help reframe the discussion to be like, is this the right, am I the right person at this time for this thing? Do I really want to do this? And now I have at least a much better lens on all the things I might be dealing with in the future. So that helps inform decision-making. A good example, we had a company come through, it was like the CEO and the COO. The CEO was like, I don't think I can add value to this company anymore. They resigned after the week. And the, I mean, like, well, we're not trying to destroy companies here. But also was identified as there wasn't like a healthcare economics study done that would prevent any venture group because they would all be asking that. And the information was known, but it wasn't like a bona fide third-party verified thing. And that was a critical gap from allowing a fundraise to occur. And then the CEO, to their credit, it was like, we'll absolutely do that now. And then it did unlock not only some investment, but also some very large strategic partnerships because those were some of the things that were missing. And it wasn't to pick on anybody. It was just like, if you don't know, you don't know. And so nobody really gives you the roadmap for this stuff either. And so it was just like, let's unpack it. Let's pull it from a capital side and sort of old people like me side, like, hey, here's the things that maybe you should work on. And this is how we've seen it go sideways. And then we do that. There's no cost to attend. We don't take equity. We're not, you have to get yourself there. It's a very competitive process. I mean, basically, you know, my requirement is they have to have an actual company. They're a couple full-time employees and, you know, at least half a million dollars that have gone for the venture, but average is about 2.5. But they're trying to do that next fundraise to actually do some professional. Yeah. Yeah. They're trying to professionalize it, which often is going to lead to team growth. initial sales, those types of things. Yeah. So, um, it's one thing to prove the tech. It's another thing to prove you have a business that a venture group will throw like $2 to $10 million into.
Do some, uh, fun—
They do, they do meet. It's, and, and of course we do additional post-support stuff. They do meet folks from the venture capital. And actually we're big about not doing like, we don't do pitches or demo days. It's, it's really about like cultivating relationships. So they do meet folks from the venture community and get some very candid feedback, probably in a way that most people never do. But more whether we introduce somebody, which we do sometimes, but it's not really about that. It's more being able to identify those gaps and proactively fix it that really unlocks the capital. And so that was back to your original point.
Mm-hmm.
Capital's scarce. I'm like, it is, but it's also not if you're approaching it the right way. And oh, by the way, we have seen CEOs like say, I shouldn't be CEO. I'm gonna go recruit a new one.
Now, now I wanna know how many, how many decide that during your program? It's like, I come in, I see—
We've had at least, on average about, 'cause we only accept 10 per cohort, on average about 1 or 2 decide that every cohort. They're like, I don't think I'm the right person right now.
That is so amazing. And, you have to apply, about 1 out of 10, give or take. It's a week long. And, uh, and it's really just laying out—
It's focused on medtech. It's focused on medtech to be clear.
On medtech as well. Right. And you're, and you're in the early rounds, uh, but they've raised something. Right. And that's, that's kind of the target market. Where do they, how do they find you? How do we, where do they go to get this information?
I mean, you can go to our website at www.sciencecenter.org. Uh, I'm, I'm on LinkedIn. I do, I'm sure people will find me. So I'll put stuff out there. It's podcasts like this. So thanks, Bill. Appreciate it.
And then this is wonderful.
Uh, I mean, and we're, we're, we usually are at some of the major medtech conferences as well. So, I mean, if you ever want to find us, have a conversation, reach out. But I mean, candidly, it's just apply and get it out there, you know?
Yeah. You know, it's funny, particularly in professionals like, like doctors and scientists, people, all this, they're so good at that, but they miss this side. They need that, that helping hand. That guidance, because they've put 25, 30 years in this. They can barely deal with the business side of it, just like I can't deal with the science side of it. So the central question really isn't where can we find more money? It's what risk must we remove next so that the milestone will change with the value of money? So they have a chance, right? Without it, the technology's just going to die.
Yeah.
That's, that's what it is. It's gotta grow beyond the founder and the scientist piece. It's gotta become, it's not ready to commercialize, but it's gotta become ready to handle that journey.
So, so I'm gonna say something. I learned this a long time ago and it stuck with me. You know, a founder creates a science-based venture, and that says the word founder. You're founding something, right? And that's great. A CEO is an executive of a corporation. And that's right. That is an important distinction. It's the title CEO, chief executive officer carries with it a fiduciary obligation for a legal entity, a corporation, right?
Mm-hmm.
And as a result, that is very different than founding a tech-based venture. 2 different things, 2 different skill sets most of the time. And so, um, when, um, for companies and for founders and CEOs, One of our big things is I need to switch you from having a founder mindset to a CEO mindset. I think that's part and parcel for sort of what you're trying to promote, Bill, is the mindset of things. And, uh, that's a conversion step that is not as easy as it may sound. But I stick with, bear in mind, for those of you listening that are CEOs, you are not behind a passion project. You have a fiduciary legal obligation, even if it's a corporation of one, to a legal corporate entity.
And you do. And it is, uh, and it's real. It's real.
I mean, so, so I say that if it helps maybe for the audience to think about and reframe a little bit like, hey, wait a minute, let me think about how I'm doing my work and my business a little bit.
One of the most impactful things I heard you say is people Recognize that while they may love being a founder, the CEO job's not for them. And having the confidence to be able to make that, to give that company that really could potentially change the whole world, uh, that is something special. And you're helping people go through that journey. That's powerful.
Trying to. Trying to.
Well, Heath, this has been a powerful conversation for me. For every, uh, uh, CEO listening, stop and ask, you know, it's not where we can find more money. I see it myself every day. Uh, out there, the money is out there. It's, it's, it's what is our real constraint? What must we accomplish next? And which form of capital is best suited for that? Am I the person to lead that? Right.
Right.
Thank you for sharing your experiences and insights with us. Everyone listening, you can learn more about Heath's work through the University City Science Center. Uh, he's there, like he's on LinkedIn. Reach out to him. Uh, thank you so much for having me. Until next time, everyone, focus on what matters, execute with discipline, And let's keep driving that profitable growth.
You've been listening to The 1,000 Day CEO with Bill Canady. Follow the show for more decisive leadership, sustainable growth, and strategies that build enduring businesses. Until next time, make every day count.
