Episode 25 | Part Two: California Dreamin'

Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author. This is The Boss Podcast with Gregory Shepard.

Thanks for joining me again for my conversation with Paul Roben, the Associate Vice Chancellor for Innovation and Commercialization at UC San Diego. Paul, you've touched upon failure in part 1 and how you encourage students, Not to be afraid of failure. And this is one of the things that I really focus on. I studied why entrepreneurs fail for about 5 years with 5 people because I was trying to solve this problem. I was trying to make it so that the 90% failure rate over a 5-year period drops down by, let's say, 10%. And when you look at the entrepreneur ecosystem, even in the early stages of the lifecycle that you guys are involved in, What are the common mistakes that you see entrepreneurs making?

Well, I guess you know the most common mistake is I, the entrepreneur, know everything. Nobody can tell me anything, right? But that's that's that's what we're here to to do, right? Is to provide an environment, a sort of a safe environment to to make sure that in some ways that they do fail. You know, and that they understand that they, they need other people. They need to build this team of expertise in order to move things along. But that's, that's certainly, you know, particularly among students, it's, it's this inexperience and in a nice way, kind of an arrogance, right?

Mm-hmm.

In that they believe that they can bring the whole thing forward. That's probably the biggest mistake that we see. But as they do go through cycles of this, you see them coming back the second time and the third time, you know, by the time they've done this a couple of times, that's gone. Then you start seeing the venture guys coming after them because they recognize it in them that these are people that, you know, can deliver results for them kind of stuff. So that's what we're here to do, is to bring them through those early sort of experiences. And, you know, get them over it in a safe environment.

It's sort of like most universities' athletics department, right? They push them into failure, right? And by pushing them to failure, they push them towards a higher level of success. And so you guys do that with these entrepreneurs.

Yeah, exactly.

Exactly. I think that that's just brilliant because in my personal scenario, I haven't failed building a business or investing in a business, but I failed a lot of times in between. You know, and all of those little failures are marked as like rungs on a ladder that eventually you can stand on those failures as something secure and then climb the ladder. And I haven't seen a lot of universities think that way. What caused you guys to have a shift? I mean, that's a mindset shift in, you know, going from, okay, you have to succeed to be successful, to you have to fail to get to successful.

Well, you know, part of it's my own personal experience of raising funding for my own companies, right? This is back in the '90s, but the first question that a lot of venture guys would say, okay, tell me about your last failure. You know, and if you went in there and said, oh, I've never failed, that was it. You were out the door straight away kind of thing. You know, and that was a lesson I had to learn. I mean, I was one of those arrogant, you know, inexperienced entrepreneurs way back when as well kind of thing. So, you know, personal experience to some extent, but also it's go out to the community. You know, I think something that a lot of people don't do is They don't go out to the community enough and kind of say, you know, what would you like to see the university doing that would deliver people to you that are going to be more successful? So we did a lot of that, you know, we went out and we talked to the innovation community and the venture guys and everybody else kind of stuff. And it's kind of based off that that we delivered a lot of programming. Plus we have some really, really good people on our team, you know, like people like Greg Horowitz and those whose life it has been—

God.

Scott Tate, you know, this is what they do. They build these ecosystems. I kind of surrounded myself with good people, you know, listen to the community and build the programs off that. And, you know, also from my own kind of personal experience of what's needed.

Let's talk a little bit about deal flow. The podcast has entrepreneurs and investors listening. So we've talked a lot about the side of it that the entrepreneurs are paying attention to. So let's give some attention to the investors. For the investor side, explain how the university engages with investors with regards to deal flow.

Yeah, that's a very good question as well. And this is something that we're in the middle of revamping, if you like. You know, if you go back 10 years, investors found it really difficult to engage with the university the size of us, right? And to really figure out what was coming out of it. And this is part of the reason why a lot of deals had been left on the table way back then. It was just this kind of communication and access issue. So we've been working very closely with a lot of the seed investors, you know, that do actually support many of the startups that come off the campus to kind of say to them, you know, how should we be presenting opportunities as they come along so that you can recognize them, right? You know, what information should we be presenting to you and in what format so that it's of value to you? And in doing that, we've developed this kind of 5-stage system, if you like, you know, where the earliest one is a student or a faculty member who has an idea, period, you know, and the latest getting all the way up to where these ideas actually have a company that's fundable kind of thing. So we developed that whole ranking system with our seed investors. And then we put them into a database, which very soon is going to be accessible to the public and searchable by all of our investors, which hopefully will kind of accelerate the ability of all of these investors, ones we've met and ones we haven't met, basically, to very quickly get to the opportunities on campus that they're actually interested in. So that's one side of it is, you know, what data and how do you present it, which we've been working very hard on. The other side of it is You just have to have better deals, right? If you have investors that keep coming to the university again and again, and they keep seeing the quality of the deals that are coming off the campus, and they're just not where they need them to be, eventually, and probably fairly quickly in some cases, they're going to say, "Oh well, it's just not worth going there anymore." So you have to ensure that the quality of these opportunities are increasing over time as well. And that's. That's a lot of the programming that we do. So our Entrepreneur-in-Residence program brings serial entrepreneurs onto the campus to look at these opportunities and help to guide them down the commercial path. We put funding into these projects to develop commercial milestones that have been described by investors to us, not by the inventors themselves, right? There's a whole bunch of these types of programs. We have pitch prep programs where we take these teams of people on campus and we teach them how to develop a pitch deck that's, you know, of relevance to the venture community. So it's the whole combination of these programs to improve the quality of the opportunities, and then it's the management of the data to be able to actually deliver it to our investors. I think in the next few months, you know, we'll be able to launch that as well. And hopefully, you know, I'm hoping that we'll see a lot more funded deals coming off the Campus as a result of all of that.

So when you think about the, the, the journey, right? So if you think about an entrepreneur that has an idea and then they go through ideation and vision, and then they move down the funnel, one of the routes, if they're going through a university, is to go to the university incubator. And then the universities will either have their own systems or they send them off to an accelerator. What is the, the difference between what you guys offer and what the accelerators offer, or is there even a difference?

I think it's more resources on a continuum. We tend to offer resources that are going to be applicable to teams that are far earlier on the continuum than what a lot of the community incubators and accelerators can offer. To get into many of those incubators, you have to, you have to have some level of maturity, you know, of the company that you've created. I mean, we'll take, you know, 4 students and a suitcase kind of stuff, right? That just have a complete— just have some sort of— even sometimes they don't even have an idea. Because what we're developing is the entrepreneur. So we'll go earlier kind of stuff. Having said that, I think the reason why it works in our case and, you know, in other university cases, but particularly with us, is we bring that community onto campus really early, even if they're not going to engage. So a lot of our seed stage investors, you know, tell us, please show us even the earliest stuff. You know that we're not going to invest in it, but we can offer advice or we can just keep an eye on it.

Right. Yeah.

The accelerators say the same thing. Please show us the stuff that's not ready for us. We just want to keep an eye on this stuff. And sometimes we can help to, you know, throw some sort of resource at it kind of stuff. So it's making sure that the 2 systems are completely inter-engaged kind of stuff that I think makes it successful. It's, you know, If it's a kind of a— it was too linear before, you know, the university said, right, I'm going to do A, B, and C, and once C is done, then I'm going to go to the community and look around for D. Well, that doesn't work, you know, it creates all these gaps in the whole system. You need to bring the system in at A so that by the time it gets to wanting D, they already know that and they pull it rather than us pushing it.

Right. Yeah. It's one of the things I wanted to ask you about is that when I look at the ecosystem, everybody knows that right now the startup ecosystem is the fastest and largest growing sector of the GDP pretty much in every country in the world. And we've had record-breaking valuations, record-breaking rounds of funding, exits, and liquidity events all over the place, and everything's just going gangbusters.

Yeah.

And what I've noticed is that in the scenario of investors is that the venture capital community has started to move in earlier into the territory of accelerators, and corporates have done the same thing. So the corporates are moving into the accelerators, and that's sort of squeezing out some of the accelerators that don't have as much experience or smaller or newer or whatever. And I'm wondering, you know, if you've seen the same thing from an ecosystem perspective, is that everybody's trying to get earlier in on the deal. And part of that has to do with what you were just talking about, which is just keeping your eye on it. Because for me, I like to look at deals as early as possible because I'm not just watching the progression of the business, the horse, I'm watching the projection of the jockey, the entrepreneur, to see how they're performing. Is this trend something that you've seen as well?

Well, the point that you just said there is a very, very good one. I think that's mostly why at least the traditional venture guys that I deal with, that's mostly why they want to keep an eye on these early deals, is for the people, it's for the jockey. And so even if the, you know, the current horse stumbles, they know the good jockey's out there and they'll see what the next horse is kind of stuff. So I think that's a lot of it. Yeah, I think I have seen it to some extent. I think the venture guys are much more willing to look at earlier stuff. Whether or not they're investing earlier, I'm not entirely sure. I haven't seen any massive shift in that. On the other hand, we're able to bring things to them that are of higher quality and more investable. So we are getting, you know, a little bit more investment because of that. So yeah, they're looking earlier. I don't think that their investment thesis has changed hugely, at least from my perspective sitting where I do at UC San Diego. The corporate guys are different. The constructs we're seeing the corporate guys come with are entirely different. You know, they're hooking up with contract research people and coming up with new sort of broad deals across the university that are linking sponsored research together with company creation at a later time. There's all sorts of interesting new constructs that we're seeing that are actually accelerating the development of these companies, particularly in the health side of things and therapeutics in particular, not as much in the tech. But I think we're going to see more and more really, really interesting constructs like that over the next while.

Do you think that the reason why the health is what you're seeing more than anything is because of the, you know, geographically where UCSD is located? Or do you think that that's something that is a trend across all different sectors?

This is just my personal opinion on this. I don't think it's a geographical thing. I think it's a maturity of sector thing. The pharma guys, for example, they've gone through this whole, you know, 10 years ago or 15 years ago to, if I didn't invent it, it can't be worth anything, right? So, you know, that's, that's where that sector was a long time ago. Then it went through the, oh, well, let's, let's throw lots of money at the academic sector and they'll develop new therapeutics for us. And now they've kind of gotten to the point of, we do need to engage with the academic sector, but we need this interim step in order to de-risk this stuff for us. And that generally is a startup company.

Yeah.

So what we need to do is be involved in the different stages of this, which is leading to these sort of broader agreements that help us to sort of move the research to startup company stage that they may then invest in or not, but set it up then for acquisition at a later point if the whole thing works out. So it's a fairly sophisticated model. A lot of the other sectors I haven't seen that kind of shift in. So I think it's more of a kind of a sort of the stage at which that particular sector is at.

Yeah, because it's always the opportunities or the sectors that are left behind. And then when they, when they come full circle and they realize that they need to change the way they see deal flow and how early they need to see it and how they need to engage with it, then usually those opportunities pop up. So that makes a lot of sense. Um, in the tech sector, you know, this has been going on for ages, you know, and everybody knows that You know, there's a big company in Silicon Valley that'll, that'll buy them if they have something that'll, you know, that's promising to their customers.

Right.

That's fascinating. Have you seen an increase in overall corporate accelerators over what you saw before?

Yeah, yeah, I think that's definitely true. Yeah, I mean, there's, there's much more enthusiasm to, to sort of create this triumphant of the academic research with the startup, with the large companies. So yeah, definitely.

What we've noticed is that, because we sell the platforms that they use, and what we've seen is this huge increase in this connection between the university and the corporates, and that connection being sort of filled in with these accelerators, which allows them to connect the dots. Is that what you're seeing too, or?

No, that's exactly it. That's exactly it. I mean, you know, we can only take things and should only take things to a certain point. When you pair us with the formation of a new startup company, that's gold for these large companies, right? Because then you give the right people in these companies, you know, the asset to work with and bring it to de-risk it to whatever point the large company needs to be able to acquire it kind of thing. So we're even, you know, having those conversations with the Department of Defense. So even the defense side of the house is looking at this as a model, which I think will be interesting in coming years. Yeah.

I mean, one of the deals that Scott Tate brought to us out of the university we're making an investment into, which is a defense side company, which is, you know, which is— I was like, I didn't realize at the time that UCSD was so dynamic and diverse. I always thought, okay, it's going to be pharma or biotech or something San Diego. But it has changed a lot. You guys have put so much energy into sort of into not painting San Diego into a corner. It's more dynamic than, than what I think people think. And you can see it in the numbers in terms of the numbers of deals that come out by sector as compared to, you know, the benchmark of obviously the Valley. I think that largely that comes from what you, you have done since 2015.

Yeah.

out there at UCSD. Personally, because I'm— I live down here, you know, I cut my teeth in the Valley and came down here, and I was worried that I was going to miss out on something. What I found is a, a renaissance of, you know, diversity that I never thought possible down here. And I think largely— I think a lot of it has to do with you, and for that I'm personally grateful.

Well, thank you. I appreciate that. But I think it's true what you say about San Diego, though. It's very diverse, and It isn't a one-trick pony by any means. And I think that's exciting because it's out of that kind of collision of different current sectors that the new sectors emerge, right? So I think, you know, you're going to get a lot of these data-driven sectors are going to emerge from San Diego and a lot of climate-related sectors are going to emerge from San Diego.

Yeah, all the stuff we need to see. I really appreciate you coming on the podcast. You're somebody that I really look up to personally. I don't know if you know that. I've seen you in the office and stuff, and I always look at you and go, man, this guy has really changed things. I know more about what you have done in the last 6 years than you may think, and it's, it's remarkable, and you deserve a standing ovation for that. And I just want to thank you again for being on the podcast. I appreciate it.

Well, it's my pleasure, and I'm not sure I deserve all those accolades, but thank you very much. Working together, you and I are going to make this new Design and Innovation Building a success.

I'm very excited. I'm very excited. And we have a few other things to talk about now that I've done this podcast.

So— Excellent.

Yeah, thank you so much.

You're very welcome. Thank you.

To find out more about Paul and the Office of Innovation and Commercialization at UC San Diego, go to innovation.ucsd.edu. And that wraps up this episode of the BOSS Podcast. If you enjoy the show, please take a second to subscribe so you automatically get my new shows when they drop. Also, if you have a minute, I'd love it if you left a review so more folks like you can discover the show. I'll see you next time. Namaste, my friends.

Learn more about the Boss Business Operating Support System at bossstartupsience.com, or you can reach Gregory Shepard at Gregory. GregoryShepard.com. This has been a production of Forbes Books.