#23 - Three Breakthroughs: Regulatory Pushback, Glassy Gels, and the Year of the Drone

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I think, you know, in a way this is the year of the drone.

Now, as you're trying to combine some soft, squishy material with maybe something very rigid, even a metal, can, can you have one material come in and solve that?

Companies don't like being second-guessed when they make a decision. We've seen a huge amount of capital jump the fence to get into the private sector.

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All right. So welcome to Alumni Ventures Tech Optimist Podcast and our 3 Breakthroughs segment. And this is where we get together and talk about things in the news that we think have pretty profound potential and impact in the area of technology and science. I'm Mike Collins. I'm the founder and CEO of Alumni Ventures. I'm joined today by Matt Caspari, one of our managing partners out in Menlo Park. Matt, welcome.

Yeah, good to see you, Mike.

The— I think I go first today.

Yeah, you're up. You're up. Kick us off. All right.

So mine is kind of a blend. I'm calling it kind of regulatory pushback.

Okay.

I think there was 3 things that are kind of somewhat related. And the first is really the US Appeals Court, which knocked down this SEC kind of private equity oversight rule. Yeah. And I, listen, I think politics aside, this court is clearly sending bow shots to regulatory agencies about overreach.

Yes.

And I think this has implications for venture capital and private equity. And I think that's one. I think we also are seeing kind of the second vote on the Elon Musk pay package passing again.

Yeah, that's an interesting one. Yeah.

Right. Delaware since forever basically has been the place where companies would domicile and set up. It was kind of the default and it was always kind of, hey, there's 100+ years of case law and companies can feel pretty safe.

Yeah. My first startup, when we raised our Series A, we reincorporated from California to Delaware for just that. Reason. Yeah, yeah, it's just standards. What you do. Yeah,

what you do, right?

So Mike and Matt being the venture capital experts they are, they obviously know what it means and why you know certain startups would incorporate their companies in Delaware. But for other people, maybe some people like me or anyone else who's listening to the show who doesn't know the advantages of reincorporating a company in the state of Delaware here in the U.S., it's pretty advantageous, and I researched it and I'm gonna tell you why. So Delaware is a popular choice for incorporating a business due to its business-friendly environment, tax advantages, and legal system. Delaware doesn't have a corporate income tax for companies that don't operate within their state. Therefore, you don't have to obviously live in Delaware to have your company incorporated within Delaware, which can be a huge advantage for some people who are in the startup space. And it also doesn't have a sales tax, inheritance tax, or personal property tax, which also is huge. Delaware has a specialized court that handles corporate law disputes, and the judges are known for their expertise. I guess they're kind of legends within the startup space. And as far as privacy goes, you know, businesses don't need to disclose the names of their officers and directors to the state. And as far as flexibility, there's no minimum capital requirement. And the board of directors can set the sort of price of shares, which also is huge and very personalized per company. And then lastly, speed. Apparently filings are processed quickly and the Court of Chancery, which I mentioned earlier, is known for resolving these disputes quickly. Uh, yeah, let's get back into Mike's breakthrough, but I figured this would be an important topic to sort of explain before we kept going. So. Take it away.

And I think that is, you know, I think there is buzz that people are taking a second look at that now. If you can have basically a judge come in and say, you know, we don't like what the board has decided and what the shareholders have voted for, that we view this for whatever reason, legitimate or not, we don't like it. Companies don't like being second-guessed when they make a decision. And then, again, they're picking on the wrong guy. They're

picking on a guy who has some resources to fight.

Has some resources and a bit of an F-you attitude. So, they ran the vote again and it passed with a vast majority. And, you know, and I think a couple— and there were some groups that were kind of called on the carpet for, oh, you were okay before he made these— this incredibly lucrative but long-shot benchmark.

Amazingly long-shot deal.

I remember when that came out. Oh, it was a long-shot deal and everybody was cool with it. It's like, you're not going to 10x the value. It's like, oh, and then they did and it's like, oh, now we don't want to pay you.

Yeah.

You know, That's not how one does business. So for me, that was 2.

Yep.

Then kind of the trifecta, and it's not completely in the same camp, but I think it's related, which is the establishment of a new stock exchange coming, kind of the Texas state version to kind of compete with You know, New York and the marketplaces where, you know, I think there's some people that are saying competition is good and, you know, we don't like marketplaces doing more, getting out of their lane.

Yeah.

And telling us, you know, how we should do things. And so—

Do you think that's an opportunity for venture-backed companies to get out Earlier? I mean, I know NASDAQ, New York Stock Exchange, ton of costs, ton of regulatory overhead. Do we think this Texas exchange could allow us to see venture-backed companies potentially getting out earlier? Is that something that interests you?

It definitely interests me. I definitely think it has become— again, this has been happening for 10 years. The cost and the hassle of being a public company has led most companies to say, no thanks, I will stay private as long as I can. That has at the same time seen a huge amount of capital jump the fence to get into the private sector. And I think it's the cost. I think it is the frankly, a very short-term-oriented perspective that the public market crucifies you with one bad quarter. It is not a long-term capital perspective. And so again, sometimes good things take time and either you have the resources and wherewithal To withstand that. If you look at Amazon's journey over 15 years, they lost enormous percentage of their value multiple times because they said, we are going to make it a long-term investment, which the market didn't appreciate. So they were able to withstand it and come out on top, if you will. But many, many companies can't. And so there's a reason that well-informed, rational CEOs prefer to stay private. And you're seeing innovation among private companies to provide liquidity to early investors and shareholders. And I think 2 things need to happen. The cost of going public needs to come down. Investors need to have a longer-term perspective or companies will continue to stay private. Yeah. I mean, in founding my company, and I'm a venture capitalist, from the very get-go, I said, I want to build something over 20 or 30 years. I'm not going to raise venture capital, which has a fuse. Yeah. And I have no plans to go public because we want to make investments that may not pan out and at the very least may take 3, 5, 7 years of hard grindy work to achieve. So I am optimistic though that more competition is always good. So I am excited about companies going public in London. I'm excited about this new exchange. I think clearly SpaceX or one of Elon's companies is going to get listed on there. I think people thinking about incorporating in other states, Nevada, Texas, I know those are being talked about left and right. And I think it's all good. Yeah. I think, I think that makes people that have monopolies get their act together. And I think you've seen that with Google in a whole different realm, which is like, you know, It took, it took OpenAI and ChatGPT for them to kind of get going on huge AI assets that they had in-house.

Yeah,

the market works, competition works. Sharpen your blade. So that's one I'm calling it.

Okay.

Bureaucracy, regulatory backlash. What do you got?

Thanks, Mike. We'll jump into Matt's breakthrough right after this short break. Don't go anywhere.

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Okay, so I've, I've got one a little, a little more technical in the material science realm. So you may have seen there's this new type of material that made headlines over the last week, and this new category of material is actually called glassy gels. And this was published in the scientific journal Nature. Mm-hmm. What's interesting about this material is it's as hard as plastic, so a hard material, but can also stretch up to 5 times its original length. Without breaking. Yeah. So I thought I'd start out by just a little context on why these materials are actually called glassy gels, which I thought was kind of an interesting name.

That's cool, yeah.

Dig into this. So if you think about a hard plastic object, like a plastic chair, the material that it's made up of, scientists call these materials glassy polymers. So, the plastics, they're strong like glass, but they're also brittle. They don't stretch. That's why they call them glassy polymers. If you take a glassy polymer and you add liquid to it, you can create a stretchy gel. Okay. So, if you think of something like a contact lens gel-like material, the problem with that transition to a gel is that it becomes very weak. You could rip a contact lens in half. So the question these scientists asked was, can we create a new novel type of material that is as strong as plastic but has the stretchiness of a gel? And that's what they did. And that's why they call this new material type of glassy gels. So is this practical? Yeah. I think the first thing is they actually did this all at room temperature in a process that is easy to replicate. So it's like, okay, this is pretty interesting. It's not, you know, just in a lab scientific discovery. And then it's like, well, what could you actually do with these new classes of materials? So I thought this could be a little fun for us to go through. I've got—

Yeah.

3 ideas I had. I'm sure we can come up with more. So the first one, we've been hearing a lot about robotics. It's a pretty hot area within venture. So I'm thinking if you have these materials that are tough, flexible? Can you give robots new capabilities that they didn't have in the past? Can you create robots that have components that last much longer? So I thought that was kind of a fun potential application of these novel materials. The second one is in healthcare. So you've got things like prosthetics, orthotics.

Yeah, that's where my mind went is You know, you need that, those characteristics in, you know, a lot of the human body, right?

Yeah. And the way we do it now is you're trying to combine some soft squishy material, you know, a silicone, something like that with maybe something very rigid, even a metal. Can you have one material come in and solve that and do it in a more efficient, effective manner? I think that's interesting.

Okay, so along these lines of glassy gels, this breakthrough that Matt is sort of talking to Mike about here and is sort of teaching us all about, right? Um, he brought up a really interesting fact of prosthetics and how, you know, this glassy gel and how it might have a really interesting potential within prosthetic manufacturing space. And I I totally understand what he's talking about. You know, when obviously when you think about a prosthetic, you have some sort of silicone or felt or padding that then has to go within a sort of like exoskeleton, crazy feat of engineering to replicate a missing limb. Matt's question with this is, what if we just, you know, eliminate the sort of exoskeleton and this glassy gel is used as the padding? And the sort of classic materials that you see in prosthetics now, like metal, uh, 3D-printed plastic, carbon fiber, etc.? And what if you replace it with this glassy gel? Like, how would that sort of hold up? But I wanted to sort of get into a little bit about how prosthetics are made currently, and then maybe that can help you sort of envision as a listener how the glassy gel could replace some of these materials and some of these processes. So the manufacturing process involves several key steps: measuring and casting, design and modification, socket creation, material selection, manufacturing and assembly, cosmetic finishing, fitting and adjustment, and like follow-up care. The prosthetist takes precise measurements of the patient's residual limb, and then the prosthetist creates a positive model of the residual limb and modifies it to achieve the desired shape and fit. And then CAD software is often used to digitally view and modify the prosthetic design, therefore helping with any of the steps down the line with fitting it to the patient and all that fun stuff. So first, a test socket is fabricated, usually by vacuum forming a transparent plastic sheet over the modified model, and it allows for initial fitting and there's room for adjustments. And then when it comes to material selection, this is the part that I wanted to get into. A variety of materials are used to create the final prosthetic, including acrylic resin, carbon fiber, thermoplastics, silicone, aluminum, titanium— the list goes on and on, right? But the choice depends on specific needs of the patient and the type of prosthetic. So that's another thing that is fascinating with this whole thing, is it also depends on what the prosthetic is going to be used for. Like, I would be interested if the first thing that comes to mind are like track and field runners, you know, that need those sort of spring-loaded below-the-waist prosthetics. So I'm curious how that would sort of work. Obviously, material scientists know more than I do, but it's just a fascinating topic to think about. So I will give it back to Matt, but I just figured these are some Fascinating things to bring up and can sort of help you think a little bit better about this topic. So let's keep going.

The other one is sports equipment. So if you think about, again, football or other types of materials where you're putting together foams, really hard plastics, can we replace that with something that solves the problem that we're trying to get to? I think this is the beginning of a bit of a trend. I think AI is going to unlock a lot of new material science. And I think it's an area that, you know, over the next 5, 10 years, we could see some major breakthroughs. And it's not something I think the average person thinks about much. Yeah. But if you can get a material with totally novel properties, these, you know, glassy polymers are almost the exact opposite of stretchy gels. Yeah. Now, you're putting them together. I think that's exciting. I think we're going to see more of this. That's why I picked it.

I mean, the other place that my brain went to is obviously transportation, right, where you need strength but you don't want brittleness, right?

Yes.

That's the thing. And, even in things like bumpers, right, kind of thing is you want it to be strong but you want it to not be brittle.

Yeah, not break. Yeah, yeah.

For example, and those kinds of things. So yeah, I think the theme too is the right one, which is everybody appropriately is focusing on a couple of big areas of technology innovation. But I just am super excited because things in material science, things in energy, and these have compounding effects. So if you really look at You know, a lot of the innovations that really change our lives, it's actually the combination of software and hardware and material science. Great point. Yep. And, you know, and even taking something that has just changed all of our lives, like the iPhone or the Apple Watch, any of those wearables, I mean, there's a serious amount of material science For sure. In all of those products. So, uh, that's a good one.

Okay, great, Matt. Thanks for enlightening us on the breakthrough that you wanted to share this week. We'll get right into this week's final breakthrough right after this.

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Um, the last one I have today is actually, you know, this wasn't a specific announcement that I picked out, but just kind of a, a culmination of just seeing a lot of things just around and in life. Um, which is, um, I think, you know, in a way this is the year of the drone.

Okay.

Right? And, you know, a lot of technologies, um, you know, sometimes get overhyped. Sometimes they go through this kind of valley of despair and then they come out in the long run and those kinds of things. And sometimes, you know, it's just 10 years too early.

Yeah.

And there's aspects of kind of 3D printing that have been there. I think, again, I'm very bullish in the medium and long term about crypto and distributed ledgers. Blockchain has clearly proven to be a strong competitor to gold as a repository of value. But some of the more business cases are taking longer. But drones, which were a lot of, oh, they're just a toy, they're a hype, but I am just seeing them more and more solving real-world problems. Now, obviously, there's the whole military angle.

Yeah, that's where my mind went when you said seeing them in the news. Yeah, there's that, obviously. And defense tech has become a really popular area within venture. And we are seeing a lot of, um, drone, uh, unmanned aircraft, you know, for military applications. But obviously there's a lot, a lot that aren't in that zone.

And again, it's like, you know, um, the next major con— I think we're seeing this a little bit in Ukraine, but again, I think it's like, you know, strategically nations, their next, you know, You don't need— you need a drone force as a 4th branch of the military, if you will, kind of thing. I think, you know, robotics as a sister to this is absolutely kind of changing the kind of military landscape. We have a portfolio company that's, you know, in this space that has, you know, exciting news taking place right now. But I'm also just seeing it in commercial life, right? Obviously, people are seeing it in kind of the entertainment space. But, you know, I'm seeing more and more business plans about using drones to do dangerous things.

Yeah.

Including, you know, there's examples of flying and doing you know, doing lead capture for people who might need roof repairs, right? You just— yeah, sounds crazy, but if you're a roofer, you can fly over a neighborhood with a drone in like half an hour and it's like, yeah, I need to, I need to knock on the door of, you know, 25 Baker Street.

The gutter cleaner guy probably shouldn't have been a drone too. That's, uh, yeah.

Right, kind of thing. And, and so Again, I think the bigger picture is some of these things that are either— that are developed for one application, say the military, all of a sudden it really drives miniaturization and performance and, you know, the kind of the value proposition. And then an entrepreneur looks at that and says, you know, I am going to create a film company. And we're going to get you up in the rafters of the Boston Garden by flying a drone around.

Yeah.

So, I just— I

like it. Yeah.

I like these kind of— and that has also happened extensively with some products related to addressing a part of a market that might have a special need. And, some of the computer brain interface stuff is dealing with people that are quadriplegic. that have, you know, a brain injury or quadriplegic— excuse me.

Yeah.

And, um, but that technology then addresses eventually— Use it in another market, right? So,

yeah,

yeah.

So great. Yeah. And I, I, you know, drones, we've, we've seen this for, for years. I mean, probably more than a decade Or more. And like you said, it's— you start to hit these tipping points. And I think it is multiple areas of technology coming together. I think, you know, we talk a lot about AI, but I think this kind of ties it all together. Material science, lightweight materials. Yeah. So—

Batteries. And then there has to be a regulatory framework as well for these.

For sure. For sure.

I mean, you can't— you don't want these things buzzing over Logan. Right, kind of thing. So, you know, society needs some time to kind of, you know, how are we going to deal with driverless taxis, right? That, that can't, can't just be the Wild West. There does need to be regulatory framework and safety and those kinds of things as well. So yeah, a lot of— 3 good ones again this week, man.

Yeah, great. Yeah, I really like this. Good to see you.

Good to see you. Thank you again.

Take care.

Yeah, enjoy the fourth.

Yeah, you too. Bye.

All right.

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