This is part 2 of my interview with Ross Bundy, CEO of Nanomedical Diagnostics, in which the focus is on the challenges and advantages of building a startup in San Diego. Be sure to catch part 1 of the interview if you’d like to hear more about the technology that Nanomedical is building.
Shawn Baker (SanDiegOmics): Have you always been here in San Diego, or did you relocate?
Ross Bundy (Nanomedical Diagnostics): We’ve always been here and, in fact, Brett and I are San Diego natives. [Editors note: It’s pretty rare to meet someone who actually grew up in San Diego. Most of us have moved here from somewhere else.] Yeah, there’s only so many of us. He and I grew up in Poway – class of 98, Poway High. We went to UCSD together as undergrads. I’ve been here my whole life. Brett did a circuit through different schools in academia across the country before coming back here and worked with SPAWAR [Space and Naval Warfare Systems Command]. We founded here and San Diego was always where we were going to found a company. California is a little bit difficult to start a company in as a state, but San Diego is a great city to start a company in, so that’s always been the plan.
Shawn: I’m sure as a founder you expected to face lots of challenges, but were there any particular challenges that surprised you?
Ross: I would say the business plan challenges [are the ones] we expected – we knew there were going to be challenges. It was really more a matter of scale and degree. Taking a new technology [was always going to be a challenge], especially being a hardware startup with a nanomaterial going into biotech. We kind of picked all the hardest things and combined it into one, so that was perhaps not the brightest plan. Understanding the differences as we transitioned from an academic environment to a manufacturer of materials to an industrial environment – we expected it to be hard. We didn’t expect it to be as hard as it was and it was harder than we expected by far. But we did it. We got through it, so that was fortunate.
Then selling a product we expected to be hard, but also didn’t know the degree. That’s definitely been a challenge. I think we’ve gotten a lot better at that and we’re taking the right steps to go along that path. I’m proud of all my scientists as they’ve come to realize that their ideas [on their own] really don’t have a lot of value, but rather realizing that execution on an idea is where the real value is and where the real hard work is. And as hard as your science is, commercializing is always 10 times harder. And so if your science is really hard, the commercializing, it’s going to be 10 times harder no matter what. It’s always 10 times harder, no matter how hard it is. Just understanding the magnitude and really being able to understand what challenges we’re going to face. We did understand that they’re going to be challenges, so we tried to get as much advice from people we thought were very experienced. It was really hard sifting through the advice to figure out what we would do because we would ask five people and get eight opinions on what to do and then you’re kind of like, OK, which opinion do you take? And sometimes you say, well, pieces of everybody’s opinion matters. So we’re going to mix it all together and go our own path. And then you piss off all the people that gave you opinions because it didn’t quite follow their advice and juggling all these personalities and opinions [was a big challenge]. And then just being persistent and trusting your instinct and saying, you know what, this may not be right, but this is the way we got to go. I’ve got to trust that we’re doing the right thing and having your investors trust you that this is going to be the right thing. Just understanding that and feeling that moral obligation to do the right thing by your investors. Picking the right decision without knowing it is one of those things that keeps you up at night and gives you the sleepless nights as a startup founder. So it’s a lot of the softer side, I would say. Not the real hard side of executing business, the technical side, but really more the softer side. There are always lots of people who are willing to give you advice and opinions. But finding the right one, finding the right advice, balancing all the different relationships you build is more than half of my day these days, but it’s what you have to do to be able to hold it all together.
Shawn: Is there anything you would do differently if you had to start all over again? Something you would avoid doing or something you would have done in the beginning that you didn’t do?
Ross: It’s hard to say yes or no to that because I would say the biggest learning when you’re running a company is that your job is to fail as often as possible and learn from it and get better. And so a lot of the things that I feel like we’ve made a mistake on, I feel like we learned things that has made us better. So it’s a painful mistake, but we were still able to pull value out of that failure and become a better company. But now in retrospect, if I’d had a greater appreciation for the challenges of commercialization, I probably would have brought on a company a lot sooner like that we’re bringing on now to take over our sales and distribution and saved myself a lot of graying hair. Sales is a tough one. I took on a lot of the role of myself and that, one, was hard and, two, made me have less attention to the company where I probably needed to spend a lot of attention. We have a great staff. We’ve had extraordinarily low turnover of our staff. They’ve been dedicated. I wish I could have given them more attention and more support than I was able to, but I was so focused on a lot of our fundraising and sales efforts. That would be an area I wish I could’ve done more – to really support our staff who’ve been stellar for us. So, handing off the commercialization side to people who are real experts a lot sooner. We probably should have done that a little bit faster. But it’s hard to say no because you learn so much from the things that you fail at. I might have tried things sooner, to fail sooner and learn lesson sooner and get better sooner. But it’s really more a matter of degree I think rather than one thing or another.
Shawn: Has fundraising been a big challenge for you?
Ross: It’s our most important challenge for sure. It was definitely a challenge in terms of figuring out what the investors were expecting and trying to be able to suss that out and position ourselves as a fair deal for [new] investors and for our current investors. I think also one of the hardest things for us was finding a way to articulate our message. I think the biggest challenge for fundraising really was nailing that exact sweet spot of just enough information to communicate the value proposition while not providing too much information that people get confused and they don’t understand what it is we’re doing. And, unfortunately, we are very confusing company. The life science investors look at us and find us attractive, but are perturbed by the semiconductor nature of our operations, which historically is a very high capital business. It has a very unique sort of costs scaling curve that is difficult for people not used to semiconductors to understand how it could even be real. So that can be very intimidating. On the other hand, the semiconductor people who look at us find what we do very attractive. Graphene has been on the radar of a lot of them for a long time. We’ve successfully commercialized, fitted into the existing industry, and so it’s scalable across the existing infrastructure. And they looked at our life science business and they say, I don’t even know how to understand what is a protein, what does that even mean to somebody? Those are the types of questions we get from those guys. They’re intimidated by that side of us. I like to think we’re the best of both worlds, but for the investors we have major intimidating aspects that we have to communicate and so in many ways our message is totally different for everyone we talked to so we can educate them on the part that they don’t know and are scared by. It’s different for every person we’ve talked to. We try to translate that into something that is simple and concise but explains the value but doesn’t go into so much detail. I’ve been through 300 pitch decks and I don’t think I’ve ever gotten it right, ever. I’ve been beating my brains out for years trying to get to exactly the right communication. And everyone I talked to has different advice: “this much detail, no less detail, no fewer slides, no more slides”. Everyone has a different way and there’s no right answer to it. I still don’t know what the right answer is and I don’t think I ever will know. That is definitely a hard one. I have definitely gotten in wrong hundreds of times, so it’s a challenge.
Shawn: You mentioned that being a new startup can be difficult in California, but that San Diego in particular is a good city. Can you expand upon that?
Ross: I actually have to take back what I said about the state of California because we just got a big [tax credit] win from the state. But, ultimately California has a higher cost of living compared to other states, which directly affects burn rates. Regulation wise, tax wise, it can be a little more expensive than some other places. Obviously we’re a start-up so we’re not necessarily profitable yet, so we don’t have that aspect, but there’s still state fees and regulations, there’s environmental concerns, there’s all these other things that California can sometimes be a little bit challenging. With that being said, though, California also has a little bit of an offset because they’re also aware, because of Silicon Valley and this history of startups, that it is a big part of the community and big part of the economy. It’s driven so much value to California on its own and the state governments are not unaware of that. There are programs out there to help startups get going. I have a history with my former career working with state agencies, so I was aware to go look at these things, but I think they’re really overlooked. I’ll give you one good example. It’s always hard to being a hardware manufacturer, but there is a fantastic tax credit program that the state of California runs called the California Competes Tax Credit [http://business.ca.gov/Programs/CaliforniaCompetesTaxCredit], which we just won a $700,000 tax credit for. It’s funny – I applied and the agency was the most efficient government agency I’ve ever seen. They’re very cooperative. They really helped us fine tune our application because they understood what we were doing and they were excited by what we’re doing and they’re like, “let’s help you fine tune so you understand the program and what your goals are”. It’s over five years and we have to meet certain goals of hiring and investment of our own money, and then we get a tax credit. The flip side is a lot of the way that government agencies work is through tax credits – they can’t provide direct funding the way they operate. You think as a startup, we’re not necessarily profitable, so how do I use the tax credit? The interesting thing about tax credits is there’s a secondary market for them so you can actually generate cash that way. Most states that do tax credits have set up these secondary markets so you can sell it to a company that is profitable and you can make about ninety cents on the dollar. So if you have a tax credit from the state, you can go to one of these online brokers that do this and then companies that are much more established, like Illumina or Qualcomm, can go out and buy these tax credits. And for them they look at it as “I buy $100,000 tax credit for $90,000, so it’s $10k cash right to my bottom line”. So I get $90k free cash, they get $100k tax credit, they net out $10k cash. They buy up a bunch of these and they make a little bit extra cash. So there are creative ways to leverage what the government does and if you’re clever enough you can try to pull these together to generate more income, to generate more cash, to help fund things in a non-dilutive fashion.
So that’s just one example. It’s really around setting up manufacturing within California. They try to set up a lot of these types of programs. There are a lot of programs around developing things in a hub zone. Places like Chula Vista and Barrio Logan – they’re gentrifying, they’re up and coming and those are difficult areas to commercialize a business. So you can get a lot of great government programs to create jobs that are high paying in those areas. It’s worth it to look at some of those programs and see what’s out there. Applying for some of them takes a couple hours so you can just apply – the worst they can do is say no. But if you get it then it’s like there’s some free money. It’s not going to get your business going, but we got a $700k cash tax credit and if I can generate another $650k of non-dilutive cash over a couple of years, I’m not going to turn that away. So those are programs I would look at.
San Diego, on the other hand, is culturally a better fit for startups. Cost of living is expensive relative to the rest of the country, but way lower than a lot of other places in California. We haven’t done it, but I know there are opportunities to do cross border stuff in places like Tijuana. Mexicali is three hours away and they have the highest population of college degreed Mexicans outside of Mexico City and they’re right over the border, a short drive away. There’s a lot of emphasis from those cities to provide resources to help companies get going. And being in San Diego you can just drive down and spend a day with a bunch of really great Mexican engineers and do things really cheaply. So there’s a lot of resources that are off the wall that are not well advertised but are really good to leverage. And San Diego’s got a lot of other great benefits for startups. The fundraising side is difficult for here, but there’s a good angel community. There’s not a good “next stage” investment community, but I still think it’s a better environment for a startup.
I think San Diego’s a great place and part of the reason we put our business here is our philosophy as a company for a long time is to be very family friendly. I have kids. We have 13 employees in our company and, with one woman pregnant right now, that’ll put us at seven kids under the age of five. So work life balance is pretty important to a lot of our staff. I think that’s difficult to do in Silicon Valley. Just the expectations are of working really long hours and the cost of living can be really high. Here it’s different. This is a very family oriented community in San Diego. And there’s a lot of really solid talent and engineers. We’ve benefited from having a lot of the existing chip infrastructure. Not a lot of people know that San Diego was a silicon hotbed before Silicon Valley. A lot of the technology that Qualcomm and Paragon Semiconductor developed came out of a SPAWAR back in the eighties. A lot of that telecommunication stuff now became Qualcomm. So there’s a lot of electronics guys and chip packaging guys, hardware people. There’s a ton of people here. The engineers we use are all former HP guys that were on the team that designed the inkjet printer. So they’re very good for medical devices because they know electronics and small amounts of fluid and high precision placement of fluids. There’s a lot of really unique talent here that if you just start poking around, you find a lot of really unique kinds of things that can really add a lot of value and you can do it not very cheaply, but inexpensively relative to some other similar areas. And you can do it without having to travel. I can just drive over to somebody’s house or drive over to somebody’s office, figure out a few things and get back at the office and still have half a day of work you can do as opposed to spending all day flying up to Silicon Valley or out to Texas or wherever some of these other resources might be. I felt that just being in San Diego, we had everything we needed except for the next round of funding. Those investors are Silicon Valley and Asia. A lot of our money has come out of the Midwest, oddly enough. But we have gotten a lot of seed money here. But the business community and the technical ability with the defense industry here, with the chip industry here, with the biotech here, with the electronics industry here, has created a skill set of people that are actually highly talented that you can leverage. You can build a good team and everybody’s here. You just have to get the money from elsewhere.
Also published on Medium.