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 investment.

What?

So why would we be here?

You have got to hear this one. This was, this was one of my favorites and it's, it's with Ron Shigeta, who, who is a venture capitalist in biotech for food. Super interesting. He makes biotech and, and venture capital approachable. For us, us who are in the shallow end of the investing pool, gets us into the deep end. So you got it here.

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 want to give a very big disclosure that bringing them onto this podcast does not mean that we have done any due diligence. We're not promoting them. And we are not, you know, making any kind of offer to them. We don't have any relationship with them. So you have to do your own due diligence. You know, it's interesting. So we like, we're very curious. We know our listeners are curious, but 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. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. 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.

It's a real pleasure to be here. Thanks.

Well, 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, or the most listened to episode to date by a factor of nearly 2 times has been an episode we did on Intro to Venture Capital or Private Equity Investing, right? 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 I saw your background, you know, Ron's a PhD in chemistry from Princeton. He runs a biotech accelerator and the—

One of those podunk East Coast schools, you know?

Right. It's really out the country. Not too many people know that.

And Ron, I mean, I'm gonna toot his horn then, '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 that have gone through the accelerator, you know, the valuations as of last December in 2021 crossed $1 billion for the portfolio of companies that you have brought through, which is huge. So you have a unicorn accelerator, if that's a thing. I don't know, but we wanted to bring you on to learn about biotech investing, learn about, you know, what that is, you know, why is it important, what's kind of 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 changing the landscape. So Ron, long-winded intro, 'cause I'll let you cut it too.

Those are all really topics dear to my heart, Ben. So 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. So friend and I opened an entrepreneurial, like the world's first entrepreneurial biotech lab in Berkeley about 2014. And it was the world's first for about 3 months. But we got a little bit notoriety around the city and we got issued a bunch of venture capital funds and one of them, SOSV, which stands for Sano Sullivan Ventures. 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? 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 part of a kind of a community of fast growing. Fast-growing companies and you support them. And it's, it's really, it's not really a financial type deal, right? So is that correct?

It is. You know, it's a, it's a, it's a, it's a structure. An accelerator is a structure for venture capital investment where it includes actual physical space and a program. So, so venture capital is not kind of lurk in the background?

Kind of see what's going on?

And I was actually an MC. I actually helped authorize the investment, which was sometimes as little as $50,000 cash.

So, but the point, VCs like accelerators because they get kind of a free look at a lot of deals. They kind of wander the halls and see what's interesting and go, yeah. And then choose, that's where I 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 they, the, the accel— the main thing about accelerator is there's a program that begins and ends. And so IndieBio ran for 4 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. So that's what we did there. I see. That was the fun part of the job.

It's a program. I gotcha. Okay.

Yeah.

So it's not sound like just an incubator, which is more real estate. It's, it's kind of a program with a start and stop.

That's right, Ben. Well, the, the special story here is that my partner and I, Ryan, we both quit our jobs. And left our career 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 basically for the solid 4 months. A lot of accelerators don't do that, but we were there all the time talking about what's your biggest problem and let's try to solve it.

And so VCs were wanting your expertise because you're a PhD in biotech. So they wanted your expertise and advice on, hey, what do you think about this guy, this guy's—

That was right. That was like thrilling for me because I was the only scientist on the staff at the time. And we got to make a call on a bunch of high-risk investments, which would basically outline a completely different future. So McKinsey, actually something you should know about and your your listeners should know about is that McKinsey Quarterly actually put out a report on something called the BioCentury in 2020. And they looked at 400 business cases. So they did this rigorously. What we knew intuitively, they did specifically. And they analyzed 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 call the century the BioCentury. It should, This podcast is your transistor talk. It's like, what is that little piece of silicon gonna do that? Gosh, I don't know. Wow. You know, 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, right? I love that. So, but for me, and I think for a lot of our listeners who may not be computer scientists, but you know, well, so we have this continuum called the, the, what do we call it, Ben?

The, the alternative investment continuum.

Alternative investment continuum. The first step is kind of real estate. That's the shallow end of the pool, right?

Yeah.

And then, and then you go into private equity and, you know, 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.

It is.

You can drown.

I, I think a lot of people, it's, it's not approachable, right?

It's not approachable. And even for me as a, as a traditional engineer, that's like voodoo, you know, the, you know, I don't understand it. And the whole, even the biotech revolution. I mean, I, I, I'm, I'm the guy A's, but avoided biology courses, right? Straight A's and, you know, all the physical sciences except bio, you know, you had to dissect the frog. That was like a non-starter for me. And it, my, my, my bio biology career ended, you know, in high school, you know? But, but it really is a golden age. I mean, we're seeing tremendous things with gene editing and DNA research and genome research, right? And, And I mean, I'm just reading today, the news is they revived pig cells from a dead pig. You know, it's, you know, I can't imagine, I don't have a place to put any of that, you know?

No, it's, is that magical or not?

You know, I don't know.

It 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, there's this little thing called Google and you can find anything you want. I know, I know. You 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 we make.

Okay. So, so just, just for us completely unwashed, give us, what are the top thing, most exciting kind of scientific areas or breakthroughs in biotech that you're the most excited about? So you PhD.

I'm gonna give you one of my secrets as a venture capital investor. Give us, give us a couple. Yeah. I mean, Just, so the, the first, the first wide open universe of opportunity, first thing for a good capital in venture capital investor is not to invest in breakthroughs because new science, alright, is untested science.

Okay.

So right now we're at this golden, what, what are you most excited about? I, I, I've heard of, 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 on the planet is food. There's all this food tech coming out and it's, it's, and Impossible Foods was like an early entry in there. You know, they've got this hamburger that tastes like real beef because it has a molecule called heme in it, which is actually how we taste red meat. Like when we bite into this veggie burger, but it's got heme in it, it really tastes like an Angus steak.

So it's biologically engineered to trigger your taste buds, the same taste buds.

Yeah. But you know, it's just, they, another way of thinking about it is they sprinkled something else in there that's, that they, that they got from the biological training. You know, we're all sensitive to technology and food, but it is, it is applying the best science to creating the best food. And you know, they're about to IPO. They're look, they're aiming for several billion dollar value on their IPO. I think, but the IndieBio, 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 outta 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 meat costs made this way. I, I put it in a blog post.

Wow.

It, the slope is 4 times steeper than Moore's Law.

Wow. And so That food is, and Moore's Law, for those that, that aren't aware of his famous computer scientist law, basically said that, hey, computability, processing power is dividing in half. I mean, what, what was the log?

It's doubling every like 2 years.

Doubling. So, so compute power is doubling every 2 years and it's, it's, and it's been sustained since forever.

And that's where the whole internet, it's an exponential law, which does, you're crazy. Watch your phone. Your car. That's where all of this technology that is our everyday life, it remade our lives in the past.

So, so you're saying it's happening in addition in bio, biotech.

Biotech has that scale law for a lot of things, and the cost of these products is dropping so fast. People can just look at something and say, that's not going to happen. They look away and it's right there. So this next year, more than one company is going to be selling this, this lab-grown meat or as we call cultured meat on the market where people can buy it.

So will, will, will the dogs eat the dog food? That's the question, right?

You know, there have been tastings and people say it tastes just, it actually does.

Like, will they buy it?

Will they buy it? Well, so this is the thing. So this is the thing is that, uh, 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 look cheaper, meat's just going to get more expensive.

Right.

And so in order to compensate for that, we can do something called shrinkflation where we make a lower quality meat to sell for the same price we did last year. Yeah. We can put more animals per square foot on the pasture. We can ship in grain instead of, instead of having them 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, for, for maintaining the price point we want and the price point's even rising. So against that quality, you know, the, 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 lower cost at the same time. And agriculture just can't do that, you know? So that's, 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 happen. Do before. So this is a completely different way of thinking about everything you see at Target, everything you see at the grocery store. People just tend to have this fatalistic entropy sort of view of the world, like, oh, the universe is spinning into chaos. The heat death is coming.

You're wrong.

And my Fritos are going to have 3 less Fritos in the bag next year. Right? And that, if you think about it, that is, that's an amazing thing. And one of the reasons food is a huge breakout technology we discovered was that there's this intrinsic human psychology that you and I and our parents, all of us have sort of 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, you know, 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 of 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 century. I hope.

It's interesting. It probably is the future. I mean, you know, it makes, you know, it makes me think of as Star Trek, you know, and the replicators. That's probably right.

You want Thai food?

Yeah. And there they, they grow the meat and, uh, you know, uh, and it's, it's interesting. I do know that, that meat production typically takes, uh, it takes about 8 pounds of grain to produce 1 pound of meat. And so it's not efficient. Plus add the greenhouse gases that are emitted, the methane, you know, everybody knows what, you know, methane smells like coming out of the, uh, the, the stockyard, you know, and, um, you know, so it's a, it, it, this is probably the future down, down the road.

So 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. Right. It's kind of 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 has actually not been the case up to now.

And, and to your, to your point, there's, there's really cool science and there's really good investments. And a lot of times they're not the same thing, right?

They are not.

I can't remember a famous investor once said, you know, aircraft technology is one of the greatest technologies, but it's been a lousy investment. And it's so true, you know, aviation and—

Commercial aviation gets commercialized.

It's incredible technology, but It's not a great, it never, it never has been really.

But that's venture capital investing. Venture capital investing is a place where there's tremendous opportunity because good VC investments, the rules of economics change. But it's scary because that's like, that's like riding a pretty wild bronco. Like you, you know, like, can I control this? Is it going to go the way I want? You know, makes a lot of, you get kind of sweaty thinking about it sometimes.

So is, is food tech your only area or are there other areas you're excited about?

We actually invent, I actually invested in like 8 different verticals in IndieBio 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. Vegan leather. As we eat less beef, the price of leather is actually rising and the scarcity of leather is rising. And you know, 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, you know, lowers the price as well as cancels the economic or the ecological impact.

Vegan leather would be like lab-grown leather from the cells of animals, or how's that?

Man-made textile that imitates leather.

Oh, actually, actually, there are many people trying lots of different things. And that's what's really great about being a venture capital investor is you have a problem like this, like Hey, leather's becoming more and more scarce. It's become more expensive. There's 5 different solutions. Somebody will invest in each of those 5 and we'll just, we'll just try it out. But my favorite company is MycoWorks. They're out here in Emeryville, California. They have, they actually use fungi, they use mushrooms, and the mushrooms make this very convincing leather base. And they just, they just signed a deal with Hermès. Hermès 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— Ah, made out of mushrooms. But they're going to do it without a single stitch of animal product. And the thing about this is, is Hermès, this is a pretty profound thing because they have a dozen or more different kinds of leather, each of them treated 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, can make all that stuff still exist for a person who can afford to, you know, now a lot of the stuff economically people couldn't afford to buy it, but when they really learn how to manufacture this scale, it may be that you'll be able to buy a leather belt that you just couldn't imagine buying, you know, now, you know, a $500 belt for a reasonable price now. That'd be crazy. Wow.

Give us a few more. What else? What else are you loving? What else? What other, what other bio—

I want to, I want to give a shout out to my— I want to shout out a little, well, let me talk a little bit more about food because I don't think we've really gotten to the depth here. You know, we invested in a company called New Wave Foods. They're making this this plant-based shrimp has no animals in it at all. And, and you know that we eat something like, 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 brought up, the process is very exploitative, right? These, you know, these women made this plant-based shrimp and just gave you the idea like, hey, We can make a meat that doesn't have any animal in it for almost any kind of flesh that we eat. That's not comp— 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, 6 years later, there's like 1,800 plant-based food startups on, on the face of the earth right now. People have lost count. They're, they're in every market. There's some that focus only on Asia, Only on Europe, there's a cultured meat company that makes foie gras in France. You know, they're really sort of like applying this to every kind of cuisine that you can have. And what's really exciting about though is it, like, 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. Like, it's kind of hard. Like, yeah, I've been to Boca do Chão, I've had Brazilian steak and like, And so we've kind of like exploited all of these cuisine traditions over the planet that have come to us. And we kind of know a lot of the app. Someone who goes out to eat a lot in a large metro area, they pretty much know a lot of this stuff. Where are their new experiences going to come from? And there, some of these scientific companies are coming here. They're actually be able to, they're actually going to make food that you can't produce another way. So Another fascinating one is there's this company called Everyfoods. 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 like 5 or 6 different molecules that mostly proteins that make up egg white. What they do is they produce each one of these separately, combine them to make your egg white. Well, they can change the proportions, and when they do, they find out different kinds of food show up. That 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 froth and hold the, hold the air differently than a meringue. And so 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 be whole just different classes of, of experience. So there's some like really exciting things that are happening there, and they're just, they're just starting to peek their heads out.

So where do you see this going? You kind of made a comment that this is like the early stage of the transistor revolution, which, you know, in the computer era just getting going, the, the internet era, you know, where, where do you see this going? I mean, going back to the Impossible Foods, I remember in the marketing pitch, you know, I'm, I'm a, you know, big carnivore, love meat. And so it wasn't super appealing to me, but it was interesting 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 the meat alternative. It was actually people that would be open to try something that tasted like meat and you get, you know, pretty close and you're also helping the environment and all the other kind of, you know, ecological benefits to your point and, you know, hopefully cost savings. So where do you see this going as you kind of extrapolate the, these trends of maybe traditional food production costs continue to rise, you know, and we're seeing in some areas, you know, with, you know, fertilizer shortages and other things in supply chain that are really causing some dramatic challenges in traditional food production. And then meanwhile, we're kind of having, you're saying a, a 4 times Moore's Law reduction in, in cost in some areas. Which is insane. And as the quality continues to get better, you're kind of almost, I mean, creating a whole new market of adoption for these types of products that are going to be as good and cost a lot cheaper and have a lot much lower impact on the environment. Extrapolate out that for us.

I mean, this is a really amazing question. I mean, I think There's, there's like 2 or 3 points I can call it. First of all, just to talk about the environmental impact. I mean, 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 planet that, that human beings express. You don't have to wait for the Paris Accords to get signed on, which they're not going to, or for policy to, or for Joe Manchin to sort of allow coal emissions to drop in the United States. 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? First of all, that's beyond technology. That's why food is so popular, has this confluence of all these socio, right? Sort of 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 want to do, I think, is look forward to an age where food, new, new generations of food comes out and they really, really improve your health. 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, a 50-cent bottle of water and you're like, oh my God, this bottle, you know, I, you know, I, I'm buying this banana. It's like, 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? Like everything's just like a big, it's a big bag of anxiety every day you go to the grocery store. So, you know, but you know, we underst— when we, we are at a very primitive stage of 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, I very confident about that. I mean, we're still early days, but the attention, the amount of scientific attention that's going on food has got to be 10 to 20 times more than it was 5 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 have, they wouldn't have cared 10 years ago. There's no way, you know, 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 you know, food technology is focused on taste and not on health. And, and taste is less important to me, you know, um, than health, right? I would— I'd be much more interested in, in a meat that really was good for me, that had omega-3s or had, you know, different, you know, you know, these kind of things, and, you know, didn't spike cholesterol levels and whatever. That'd be more interesting to me than just taste, right?

Well, that's the meat. There are actually studies that show the meat is more, is better because first of all, it has no cholesterol, for instance. But you know, what we saw is those burgers existed quite a few years ago, Bob, like in the '90s. Did you ever go to a cookout and say, give me that veggie burger?

Nope.

That burger's not, that's not a recognizable burger. So that's the challenge is I think The agree— the, 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 going to make a compromise. If we're going to make a burger, it's going to be as a reasonably good burger, maybe the, and we're going to aim for the best burger you ever had. And it's going to deliver some health benefits too. We're not quite, we can't really optimize both of those at once. But it's going to be better than what you have. And that seems to be enough to drive it right now. And, but I believe there will come a time we have such control over what's happening when you eat the product that yeah, it will, it will be like if you don't eat it, you're stupid. That's what, that's what I want to go for.

This is so interesting, but maybe let's shift our conversation to approachability and for investors and, You know, like I said, it seems like so much the deep end and well, I mean, I'm not a PhD, you know, scientist. So what business do I have sticking the fork in here? You know, how do you find good investments? Is it something any individual should even attempt? Are there good funds out there? What is the best way to approach this, you know?

Well, I think that first of all, what you guys are doing on your show here is very similar to the experience that a lot of high-end net worth organizations have. Like they line up just like you guys on your show separately. They line up all different classes of investment and then they just compare them. And then when they started doing that, I think the grand experiment started about 5 to 7 years ago. People just like anybody just looks at 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% and put it in venture capital or 5%. Now a lot of the pension funds I've met are 10%, but then they, they have a bunch of restrictions on it, right? So you diversify and you put a little bit in and you want to 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 sort of, 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 got to get around to it. I just don't know. Finally, when my brother would just, he'd been talking about it endlessly and I just went and I put $300 into Bitcoin and suddenly all my apprehensions evaporate. Like, oh, you know, I'm not going to miss $300. When I'm on my deathbed, I won't be thinking about this, but now I kind of, 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 the business about 7 years ago, I think there's like 80 or 90 venture capital firms. There just weren't that many. And we were basically going home every night and praying, you know, at the shrine of good fortune, like, hey, you know, hopefully one of, they like one of our investments. Can we get one of them invested? Now, as we speak, we clip mostly their nano funds under $30 million under management, but there's 3,000 venture capital funds on the face of the planet. So the whole, 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 there's, those people are happier to interact with the LPs. To sort of like share what they know and to offer follow-ons.

It does give me a lot of comfort as an investor to know there's 3,000 nano funds out there, you know, and I do know for a fact that, you know, that venture capital returns overall, if you average everybody, they're not that, they're not, you know, they've dropped, they've dropped massively.

They're inches above private equity right now.

And it's people, it's people, what it says, it's a crowded marketplace. It's too many shoppers, you know, venture capital buyers who are inexperienced or making mistakes or whatever. And, uh, you know, it's just, it's just a very diff— different world. I actually, I actually, uh, was a venture cap— I had a venture capitalized company. So I had a startup, a tech startup, in the dot-com era. And one of my, one of my first investors was the guy who's one of the founders of Severn Rosen, which was one of the largest VC firms. They were the fair— one of the very first VC firms around. And they were the first money in Lotus, Citrix, Cyrix, Sienna, a few guys, and they made a ton of money and their average returns were 100% per year. That was their deal. And their model was to invest, they invest, they want one deal in 18 to hit. And hit means it goes 100x. They wouldn't invest in anything that didn't have 100x potential. Anything that doubled or tripled or quadrupled was a loss to them and they just wrote it off and They don't care. Didn't care at all.

Yeah.

It was, it was only the 100x that they cared about and they wanted 1 in 18. So it was this, it's this absolute swing for the fences model that worked. But I, I hesitate to say what they're making now, you know, but I, I highly doubt it's 100% per year. There's no one hitting that mark anymore.

So actually I would say that's hard to say.

Turns going down, you see the quality going down. So as an investor, this is not something I'm going to approach, right? This is not something I'm going to 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 '90s, if you remember, right? There were like, there must have been thousands of little funds to invest stocks for retirees, retirement funds, like, and then someone did a study and said like, almost none of these outperformed standard. Right.

Every teenager decided to make their own little mutual fund. You know, and got some into it fast.

There continue to be star funds that you have to just to be a fund now for stocks, you have to outperform the Standard Poor's. And so I think what's going to happen is that there'll be an expectation.

I can outperform Standard Poor's. I just buy an index and leverage it up.

Yeah.

Well, I mean, if the bull market, there you go. I mean, it's so, this is my point. It's so deceptive. It's like you can make the math do whatever you want to do.

Yeah, that's true. However, when a venture capital firm is successful, it, I mean, 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 that sustainable? Right?

I think, well, it depends on, it is tough because really what it's more like buying a horse.

I think it depends on finding that next deal.

It is about how—

It's kind of magic to do.

Yeah. But it's just kind of just understanding.

Locking magic, right?

It's really changed. Like it used to be when I started out, everybody was coming out of like, you know, Credit Suisse. They had a strong financial background. They were comfortable handling millions of dollars, and then they would just sort of judge different startups and they would invest and they would do this on something called the 2 and 20 model. And that was the whole description. The 2 and 20 model is every year I take 2% out of the fund as an operating expense, and then when the profits come back, after the capital's, after the principal's return, I take 20% of the profits as commission, right? That's—

everything's done.

And yeah, but you know what? It used to be, right? That's right. And that's what's changing now is that funds are not based on those terms anymore. Everybody has a structure like that, but people are judged, LPs judge funds now by what are they doing to be competitive in the milieu 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 going to 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 Suisse.

But the assumption is that the process produces better outcomes, and that's a That's a hypothesis that we're, it is, that is, if you are lucky to get into some of the good firms, the returns can still be had.

Like I, I also, we, we actually had a venture capital fund give us a, help create a sidecar fund for us. So we were an investment of theirs. We were VCs and we went, we got invited to their summer, summer bootcamp and the senior partners kicked off the bootcamp and he started off just saying, our fund won. Returned 11,500%.

So that's an attention getter.

I believe that if you're out there and you see prospectuses, you will see returns substantially higher than I think it's like 30% per year or something like that. That the average is supposed to be, and it's good to hit for, it's good to swing for the fences. 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's made, to use a pun, like it's really, you have to be acclimated to it. You have to understand this is a numbers game. 1 in 18 hits. That's a pretty good ratio. Pretty good. Yeah.

You know, the, you know, again, I just can't help my my skepticism, you know, you know, I was actually a Silicon Valley guy. So I grew up in Silicon Valley and I went to school at Berkeley and I worked for Atari 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 flippin' 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, you know, and there's a certain amount of luck. I mean, and I could tell you 100 stories about luck. And so how much did this 11,000% return? Was it, was there one lucky deal and the rest were a bunch of dogs? And boy, you can make some great numbers, you know, when you, when you happen, when you have great luck on the first deal.

And you just keep quoting about possibly one of the most prestigious firms in Silicon Valley.

There you go.

But, and they, you know, they charge way more than 2 and 20, right?

Yeah.

You have to kind of be friends with somebody to get into the fund when they raise, you know, so it's, it's, you know, you know what's interesting, you mentioned Sidecars and I really like Sidecars.

I think, you know, maybe because just of my predilection to as a kind of a roll up the sleeves investor. More than a passive, right, is, is a sidecar. And so for our listeners, what a sidecar is, is so let's say a venture capital firm makes a term sheet to go and invest, you know, $10 million into this company and they'll create a sidecar that allows friends and they'll create another million dollars that can be put in by a few of their, you know, whatever their friends are. Right. So, right. So they put— they're going to put in $10 million and you can invest on the same terms alongside them. In a deal in a smaller amount. And everybody likes sidecars. I love sidecars because I have the opportunity to go kick the tires on my own on a deal, right? And I would call Ron Shigeta 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 these guys are invested in, like the fund, right? I could pick and choose. So what do you— is that something that's— is that something— is that a thing out there?

Maybe it's good. Maybe it'd be time for me to tell my story. So, I mean, I mean, sitting in, 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, you know, that's a sign of the times. It's really a great experience.

Maybe that's a sign of the top of the VC world.

You know, it is. Well, I mean, what's really informative is as an emergent, as someone who's raising for the first time, I got to see 50 other decks and 50 other funds.

And the, so the, the trans I'm talking about, not venture capital pitches to investor pitches.

And I, and he let me sit through the class twice. So it's really 100. Wow. And, and, you know, and you guys have to have him on 'cause he's seen like 400 or 500 now.

Oh, we gotta, we gotta get him on.

Yeah. I'll connect you to him, to Joel Palatnikle at Sutton Capital. But he, that was the first thing that jumped out at me. It's like, you know, at first everybody was really bland and they're like 2 and 20 and we're looking for $5 million and like, and, and we're really smart. Like 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 Reid Hoffman called Blitzscaling, and he decided that he was going to write a fund on blitzscaling. And if you are an LP over a certain amount, you get to join an annual dinner with Reid Hoffman. And not just that. He would then go to, he'd actually only follow investments from top venture capital funds. He would like watch, I don't know, say, you know, Andreessen Horowitz's investments and just go to them after Andreessen invested, just go to them, hey, can we put some money in?

Follow up.

You do? Why do you do that? I followed the other, what the other guy did. Well, that's, that's not the special part. 'Cause everyone wants to do that. That's not bad. Following, following the guys who pay. Actually, it's a little lame because anybody can do that. But what he does do is he says, if you let us invest, then you're going to get the author of Blitzscaling on your team. We're going to give you the Blitzscaling package and we're going to embed with you for a year. And that's like, so that's, that is pitch. Yeah. It's fricking fabulous.

So I get, I get your point. Yeah.

He almost, he almost finished raising before the end of the class. And so I think, and so, you know, 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 2 years. And so instead of just—

these are the companies that are in your accelerator.

Yeah. Then they come in, 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 you know, we've had like an incredible funding rate of like over 90%. And so the companies are moving.

Funding rate, meaning 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 capital, that's why I got to $1 billion this last December, and that's why things are moving up now. And so we really improve the chances of survival and the value of the companies that we work with. That's the fundamental. And then the fund that I have is a fund that follows on from that. So the, the fund gets to watch the companies struggle for a few months, really gets to know how things are moving, and then the money—

figure out who's got the best technology, the best leadership, the best market opportunity, and put a little capital in, in them. Yeah. After observing them, not in an interview or artificial format, you're, you're, you're running alongside them.

And then if the, and if the, 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 kind of open. Yeah.

So, so, Ron, what, what's the secret sauce for, for the portfolio companies that you bring into the accelerator? Because you, you know, you've created a billion dollars of value in these companies in 2.5 years, you know, being alongside of them as a consultant. But what, what do you, what do you find are kind of the, the kind of secret sauce or kind of the, the, the key pieces you're looking for when you're looking at these younger startup companies?

So, As you know, 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 that'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 market that they may not even know about, then we'll ask to sign up with them. And then if we do, we'll, 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, that's how we earn the, like the small—

So you look your market first, your market first, product second.

Well, 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.

But you bring, you bring product expertise so you can help tweak their product.

It is. Yeah. And help, but we also understand their technology in a way that most investors simply don't.

It's interesting because Savin Rosen, he said his, their investment philosophy was invest in, bet on the jockey, not the horse. So they did, 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, I get that.

It was operator. Second was market.

It's a good thing.

And after that, the product was, was down the road.

Things have changed though. A lot of products have come to the market now. And so before, I mean, back in the day, maybe 15, 20 years ago, you could pretty much choose any market because no tech company had been there. You know what I mean? So I think things have, as things have become more competitive and the spaces have filled up, like I was in, I was in YC a few years ago and I met this team. They were, they were like, they were like creating sales and infrastructure for barbershops. That's a very small niche for me, but they raised their A just fine. You know, 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 immature.

I'm not sure there is a right way to do it.

There isn't. Yeah. It's, it's really, it's, it's who you are.

That was just their, their methodology.

You know, well, I, you know, the thing is that I have had, I'm kind of 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 sort of like get them to the point where they can represent the company. And that's not a foolproof, a foolproof process. If I don't think someone will make it, I, I will drop them during the trial period because I don't want to take their stock for nothing. I want them to get value out. So, but I mean, we, we work on the people as well as we work on the product and the technology. Yeah, we've created a new technology for some of the companies too. Nothing's off, nothing is off the table for us. We'll try anything.

It's interesting because my company, I had a great market and all this, but you know, and Ben, I'll tell you this about me, but I just got a lot of hustle. I mean, 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, you know, brilliant. I can't stop it. And so everybody wants to invest in, I kind of do favor those kinds of people. It's like, just, I know that, hey, they're not good. No one's going to get it right. You just want a person that's going to keep at it until they do get enough right, you know, to submit.

All I do is I just going to push that just a little bit, a little bit, Bob. What I'm going to do is I'm going to say, look, I think you could have hustle and I'm going to work with you to get you the hustle.

I love that. The potential is huge. Yeah.

It just, yeah, just, 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 'em to create a billion-dollar company, it's timeless, man. Right?

Oh, sure. So that's awesome.

So Ron, what, what's next for you? What's kind of the next big thing you're working on with?

I, I like to do the sidecars, man.

Yeah. Well, actually, I do have an answer to that, to that, Ben. Like, so I, I've decided my next stage is to bring out partners and yes, raise a sidecar. But the partners I brought on are going to 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.

I mean, it's got a high bar of entry, right? A multiple billion dollar price tag for, for a drug approval.

Getting all the way through the clinical trials, right? That's the big deal. But what I've done is I've brought on, you know, one of the partners, he's going to 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.

If anybody—

that's an edge. I mean, if a company—

we can bring a biomedical company on, we want to get them into a partnership. And deep into clinical.

So connect, connect the technologists to the money guys, the, the big pharma who, who have the, who have the big, 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 game. You know, just like, just like with the food and everything else we've done, we really, 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 product on the market. The customers are— the patients are dying when this is happening, literally. And they're paying zillions of dollars to do it, you know. And so, uh, we, we really, really need to take advantage of tech. It sounds crazy, but high-tech and, and healthcare is not really operating at full steam. And so, uh, you And me and my 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 Race is that we're taking everything to a new level.

I tell you, the world we live in is so exciting. There's so many people that are doomsdayers and everything, 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.

Well, I appreciate you having me on to talk about it because I just, I'm so excited. I just like every day, I just get up. What's going to happen today? I gotta tell you, like, the, I'm gonna tell you my last story. When I was at IndieBio, what changed my life and gave me all this energy was I, I had been, I had been in academia for most of my life. You know, like 15 years I was in school just studying science. And you know, here I'm at, I'm in this little crummy lab. It was not, it had nothing, it was not like the Princeton labs, you know? And, but we had minimal eco and we had these people, they had like, they had $50,000, like nothing compared to a grant, but they were in 3 months, they were actually taking technology and turning it into a product and they were hitting their technical milestones. And all that time, the time I was there, it happened over and over again. Now at iAccelerate, 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. And 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, 3 weeks in a coffee shop.

Wow.

Think about that.

Let me design a genome on, you watch the YouTube video.

I just buy what you know, some, the line screen for us. I don't know. What creature of— That's right. It will be. I think it's gonna happen. It's incredible to believe from where we're standing now, but Ron, this is— you won't recognize ourselves.

This is so fun. I mean, 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 new to us, but it's really cool. I mean, we see the trends happening. So what's the best way for listeners if they want to get more info on the incubator and other things you've got going on with us?

That's great. Well, I have a form at iaccelerate.tech. I'll give you my email, which is just ron@iaccelerate.tech. Um, you know, really looking forward to, would love it to meet some LPs, some potential LPs here and, uh, and any company that's interested in working with us. And then I'm on LinkedIn too under my name, Ron Shigeta. Uh, you know, happy to, I, I, I've always got time to talk to someone who's really interesting.

Awesome. Ron, thank you so much for coming on the show. It's been really fun.

Awesome. Thanks. Wow.

That was a lot of fun. Such great energy. Ron is, is so fast, 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. I mean, you kind of 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. What were some of your big takeaways, Bob?

Yeah, well, you know, I'm, I'm just an investor, so I'm thinking, ah, interesting. So, you know, we're always there doing due diligence on all these companies. Kind of snooping around and seeing who's doing what and who's, who's doing interesting things. And so, yeah, if you want to, want to track us and keep, you know, get alongside what we're looking at, you know, make sure to sign up on the website.

Yeah. So we have our investor club list. If you go to AspenFunds.us, click on the invest button at the top and you can join that list. And it's really exciting. You know, 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. And you know, our Fund Aspen funds, that's what we do. We do very, very deep, deep due diligence. And so, you know, if you're looking for opportunities that have been vetted by our team and our team that has experience across many different, you know, 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.