# Advice for Hard-Tech and Biotech founders

**Author:** Jared Friedman
**Type:** Video
**URL:** https://www.ycombinator.com/library/8G-advice-for-hard-tech-and-biotech-founders
**YouTube ID:** C1DlZWfI6rk

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YC Partner Jared Friedman covers hard tech companies and why founders should consider starting one. He also covers a
couple of the most common problems hard tech companies face and how to solve them, with examples from seven YC
companies.

## Transcript

I am Jarrod I am one of the partners at YC and I'm gonna talk about starting hard tech and biotech companies set of curiosity in the colonies here today who i who is starting something like a heart attack or a bio company okay a handful of folks nice excellent excellent um across all of start-up school there are actually over a thousand companies that are doing hard tech or biotech things which i think is really cool so this talk is gonna be most relevant for them but also for other folks who

like might think about doing a company like this in the future even if you're not right now here is what I'm going to talk about and define what a hard tech company is I'm going to talk about the two most common heart tech two most common problems hard tech companies face and how to solve them and then we're gonna talk a bit about fundraising specifically for hard tech companies building on what Caroline just talked about so what is a hard tech company this is my definition because I couldn't find a good one on the Internet

so the way I see it is a hard tech company is a company that fulfills two criteria one it will take a lot of time and money to build your first product and two even if you had lots of time and money it's not clear if it would be possible to build it at all companies like this are a little bit different from other kinds of companies and interestingly it doesn't have to be a physical product and this doesn't say anything specifically about Science and Technology it actually applies to like a pretty broad range of companies and

another way if thinking about this is the difference between market risk and technical risk so if your company is building a normal website or a mobile app you probably have mostly market risk which is to say you have a new idea it's not totally clear if people are going to want this thing that you're making but you probably don't have much tactical risk because building websites and apps is a solved problem at this point whereas with a heart a company you're probably doing something that clearly people would want if you could do it the question is whether you actually can do it okay so starting at heart tech

companies sounds hard I mean hard as even in the name and I think this scares off a lot of founders who otherwise start one and I think this is like non-obvious misconception so I'm going to try to address it here is a quote by Sam Altman that sounds like the complete paradox so it Sam said is in many ways it's easier to start a hard company than an easy company that sounds like it doesn't make any sense um but to explain what Sam I think it's actually

like a pretty deep truth and so to explain what Sam meant by this I'm going to tell you a story about a company called boom who's heard of boom a few folks okay so um boom is a YC company from three years ago and they're doing something completely awesome they're building this it is a supersonic passenger jet to replace the concorde it will fly at Mach 2.2 and taking from San Francisco to Tokyo in five hours no joke they're really doing this the founder of

boom is a guy named Blake and boom is not Blake's first company before he started boom he started a very ordinary company that made a mobile shopping an Blake came and he taught her to IC dinner and he reflected on the differences between his first company the mobile shopping app and his second company boom and he says something really insightful um when he was building his mobile shopping app getting the product live was easy you

can build a mobile shopping app in like a few weeks but then everything after that is really hard see it's hard to get pressed to write about your mobile shopping app because it's not an interesting story it's hard to get really talented employees to want to work on it it's hard to get investors to want to meet with you to hear about your mobile shopping app ensure it's just like hard to get people to care about it and so while launching the product is easy turning the product into a really big company it's actually really hard

whereas with boom it's exactly the opposite building a supersonic jet is like incredibly hard but everything else around it is really easy and from the very beginning back when boom was like idea Blake was able to get some of the most talented people in the world to want to help him we are living at a unique time in the world where it has become easier than ever before to start a hard tech company there is an incredible amount of investor demand to

fund really crazy ambitious ideas like Moo so while you will have to raise a lot more money to do a company like this is also possible to raise a lot more money to do a company like this and an interesting thing is that the market doesn't seem to firmly fully internalize this yet because most YC applications are not for companies like this and I think one reason that founders don't start companies that are super ambitious like this is because it's like really intimidating I mean as you guys know like starting any kind of company is

really intimidating but it seems like it's gonna be easier if you start a company that's building something simple like a mobile shopping up and the the like counterintuitive thing that Sam realized that I think is true is that it's only easier to get started it isn't necessarily easier to turn into a really successful company not everyone knows how big a part of YC hard tech and biotech are so I just wanted to give you a few quick stats um at YC we funded over 250 bio

companies and buy a couple hundred hard tech companies as well YC is actually the largest BIOS seed investor in the world and the largest hard Tech seed investor in the world um this includes accelerators seed funds every kind of investor and here's something that most people don't know um hard tech companies that apply to YC actually have about a 10x higher acceptance rate than other kinds of applications I don't completely know why that is I suspect it's something to do with like certain kinds of founders being attracted to really ambitious ideas so a really common question that I

get from hard tech companies is like I am starting a biotech company how much of ycs advice applies to me a lot of it seems geared towards other kinds of companies and the answer is actually most of it still applies I went through the startup school curriculum this is the start of school 2019 curriculum and I highlighted all the lectures that are typically relevant for our tech companies in green and the ones that are typically not relevant at least at the early stages in red and as you can see there is a lot more green than red and

this is my experience working with YC companies that are doing hard tech and biotech stuff which is that while there are some differences there are a lot more similarities than differences okay let's talk about the two biggest problems specific to hard tech companies so if you guys remember Michael Seibel talk about MVPs he talked about how some companies have a heavy MVP that is it's gonna take them a really long time and typically lots of money to build a first product this is the case for most hard tech and biotech companies so if you're

in the position where you need millions of dollars to build your first product and you don't have millions of dollars right now what do you do the simple answer to this question is you have to figure out some way to make some progress on your idea that doesn't require millions of dollars that is easier said than done so to help give you guys some inspiration for how you might do that I'm going to walk through seven examples of YC companies that were doing hard tech and biotech things that did exactly that

so the first one is boom so booms hack was they started off by doing a bunch of things that don't really cost any money at all here are some of the things that they did they assembled a team of top advisors in the space to give them like credibility they built computer simulations that showed that they have a design that could work they built like a plastic model like a couple feet long that they could like take around to people to show them what they're like a vision of this plane would look like and then they took that

model and they went around to a bunch of Airlines and they showed them the plastic plane model and they use that to get interest from Airlines to show that there would be customer demand if they were to build the plane and they use basically all of these things in order to raise the money that they needed to actually build the plane there's a y-z company called solute which does something really awesome they use synthetic biology to produce hydrogen peroxide so on the left is a photo of their current hydrogen peroxide

plant which is enormous and produces truckloads of hydrogen peroxide that they ship all around the country obviously this plant cost a lot of money to build but on the right side is their MVP this is what they had when they apply it to Y C it is a beaker that can produce about 1 cup of hydrogen peroxide what this beaker proved the concept of their new industrial process for creating hydrogen peroxide which is like the core idea of the company and basically they just like started with the beaker and then they progressively

scaled up to larger and larger installations until they have the giant hydrogen peroxide plant so air X is a YC company that originally planned to make their own medical device making a medical device is really hard their original plan was going to take like several years and millions of dollars in order to get FDA approval for this new device and then they realized that they could launch a basic version of the same core service they hope to launch by using an existing medical device that

was already approved and writing some software around it now it's not as good is that like a ventral long-term vision but it was like a good hack to build like something simple that worked it worked well enough and because of this plan they were able to get live during YC in less than 3 months with no FDA approval notable Labs is a YC company that is developing new drugs for cancer developing new drugs for cancer is super expensive it takes a super long time and so the way they got started was by

providing services to screen tumors to pharma companies the services that they ran enable them to generate with revenue and data that they're now using to develop their own drugs astronomy that builds telecommunication satellites and launches them into space that is obviously not a cheap thing to do it turns out actually that the cheapest telecommunication satellite that is useful cost like at least 10 million dollar to build and launch and so estranja was

to start with a test satellite of the satellite in this photo was their first satellite they built it in less than three months during YC and for less than $50,000 now this satellite doesn't do anything really useful like you can't sell it but by launching an actual fully functional satellite into space and showing that they could do that they were able to like and generate the credibility that they needed to go and raise the money to launch like a full-scale useful telecommunication satellite last example of Ginkgo Bioworks is a YC company that

does genetic engineering of organisms and in order to engineer their first organisms they were able need like millions of dollars and so their hack was they went around to some large companies and they closed contracts to create those organisms before they had actually made the organisms the contracts basically said if ginko makes these organisms we will pay you lots of money and they use those contracts and they took those contracts around to investors as proof of customer demand and they use that to raise the millions of dollars from investors that they

needed to actually make the organisms that they had promised to customers so basically they sold it before they meet it and this is a very generalizable technique that a lot of heart that companies use in one form or another okay so that brings me to the second most common heart tech problem which is how do you prove people will want your product if you haven't built it yet this is important for found for you to prove to yourself because the last thing you want to do is spend years working on some product only to find that people

don't actually want it at the end but it's also important to prove it to investors and so here are a couple of ways that you can do that the best way is through pre-sales so ideally you just sell your product before you build it this is what people do on Kickstarter a good example of this is a company called jetpack aviation from two batches ago which is building the flying motorcycle in the picture and what jeff macke aviation did was they ran a pre-sale campaign and they basically sold flying motorcycles to a bunch of people on the internet to prove that people would want

them unfortunately doing pre-sales is not always possible if you're doing for example if you're doing something medical that requires FDA approval it's actually illegal to do pre-sales so don't do that so because of that we created something called a letter of intent or LOI and a letter of intent is a non-binding contract to buy your product when it's ready now a non-binding contract seems like kind of

a silly idea like non-binding contract it's kind of like a paradox but um it turns out that it's actually kind of very clever construct um because it's not binding he doesn't actually commit the customer to bite but because it looks like a contract customers take it really seriously it's easy when you're talking to a customer for them to like be polite and casually say like sure I buy your thing if it ever worked someday because it's like no commitment for them but if you

ask them to sign an LOI you'll find out if they're actually really serious about buying your product and investors knew that so here's just some quick advice about lis if you decide to go down this route the more specific the LOI is the more valuable it is the good LOI includes all the following information the cool thing is if you can get a customer to sign an LOI like this it literally gives you a roadmap for what you need to build in order to generate revenue from your product okay the last thing I want to talk about is

fundraising for hard tech and biotech companies most hard tech companies will not be able to bootstrap they will typically have to raise money from investors so part of building the hard tech company is coming up with a smart fundraising plan and sometimes hard tech companies will come to me at the beginning of the batch but the fundraising plan that looks something like this this fundraising plan is like hey I have a really good idea I need 50 million dollars to go and build it so I'm just gonna go pitch to a bunch of investors until somebody gives me 50 million dollars and then I'll and I'll

be all set I don't recommend this plan when I see a plan like this it makes me think of this I just like standing in front of a wall staring up at the wall the wall is like the $50,000,000 like impossible fundraise because the the fact is it's just like impossible to get investors to give you 50 million dollars for an idea you have to make some progress first and so what you want to do is a fundraising plan that looks like this this still gets you to 50 million dollars but it splits it into five discrete races that

start very small and the key thing here is that for each of these fund races you want to have specific milestones that you hit so like you start off who want to be able to make some progress with your company before you raised any money at all like how boom did and then you want to use that in order to raise maybe like a couple hundred thousand dollars and then you want to use the couple hundred thousand dollars to make more progress which enables you to raise like a million dollars and then you want to use the million dollars to make more progress you can raise four million

dollars and so on and well the general principle is simple and easy to understand a lot of this skill in building a hard tech company is in fine-tuning this fundraising plan so that like all the steps are like as small as they possibly can be because the most important part of this fundraising plan is that new step should be too large it like by the time you go out and start trying to raise a fifteen

million dollar series a you have to actually have accomplished enough that investors will give you that largest fundraising round otherwise you're just gonna hit another one of those like fundraising walls and so really good hard tech founders are maniacal about like pushing down the size of each of those steps so that each step is as small as possible which makes it as easy as possible for them to achieve the milestones that they need to raise the next round of funding and that is all that I have about our tech and biotech

companies [Applause] okay we'll do some questions whenever there sure so the the question was of the examples I didn't mention any ai ai companies and that's a great point I probably should have included one there's a really famous YC company that's an AI company called Cruz has

heard of Cruz Cruz built self-driving cars and they got acquired by GM for of billion dollars and yeah Cruz's a great example of a hard tech company um the original Cruz car was built in less than three months during YC Kyle basically just like was in a garage building this car and writing code for like three months solid and by the end of YC he had

an MVP that he could use to drive on the highway um to show that like basically he could build a self-driving car over there yeah so the question is have I ever worked with any nonprofit hard tech companies no do you have one yes okay um we should maybe talk about that after I'd be interested to hear how that could

work any other question over here people want this and you're also trying to get like companies to trust you to like I understand some of the contractors on the finding and that some of them might be like if you deliver they're like they give you X or whatever but it seems like a lot of companies would want to like plan specifically around like okay if I see these organisms or whatever like do I have a plan that's definitely gonna get me the

organisms or am I like maybe if I have them that's great a weird situation so how do you get around that yes who I'll try to paraphrase the question it was like it seems like getting an LOI would be hard because the company doesn't know if you're actually going to be able to deliver it and they have to like plan around that and the answer is yes it is hard to get LOI is like even though LOI ZAR not binding they're actually pretty hard to get and the weird thing is that the very fact that they're hard is it makes them valuable if they were easy

they wouldn't be worth anything so the the reason that they're kind of valuable is that it is hard to get a company to do that they'll typically only do it if you're solving a really critical pain point for them yeah but just like a nice to have it's gonna be hard to get an LOI which is actually really good signal for you to know that you're working on something that's a really big problem for them yeah yeah in fact yeah about in the middle you yes okay so the question

was is there a difference between hardtack and moonshot ideas as that terminology question the answer's no I I was using the terms interchangeably so the question is if your idea like is disruptive how do you prove how do you prove that you're gonna be able to make it or how do you prove the people will want it if you make it okay both well

that's kind of like the examples are kind of about some ideas for like how to how to do that like kind of the key the key thing for our tech companies is to figure out ways to prove as much as possible as early as possible in order to reduce the like perceived risk that the idea is going to work as the more you can reduce the risk the easier is going to be to raise money in order to get to the next

you reach the decision leader because it might not be here in its innovation of meat which person's actually going to be and we're okay so the question is for a

hard tech company where you're selling it to into an enterprise and there's one person who's like the decision maker about buying it but there's another person who had actually be the user how do you how do you manage that situation right okay so this is actually like a really cool thing about the Elda why is that the LOI basically forces you to do a dry run of the sales process that you will eventually do when you have the product before you have the product so sometimes like sales are complicated

because you have a bunch of different stakeholders in an organization who may have different incentives and by trying to get an LOI out of the organization you will basically uncover that Pat and you will figure out what you need to do in order to appease all the different stakeholders in order to get the sale so how can actually be really valuable feedback to get early on in your company last one over here so the question is

like how do you find like yeah like founders and early employees or hard tech companies the good news actually is I found that hard tech companies tend to have an easier time recruiting than other kinds of companies kind of like how I was talking about boom because talented people are drawn to words like crazy ambitious ideas so I actually think it's like a real recruiting advantage to be working on something that's really like crazy and ambitious like that but in terms of like

where to find people I mean kind of like everywhere just like you know hiring employees it like it's gonna be hard even if you're doing a hard tight company is gonna be hard if I'm like like super talented people yeah cool that's all we have time for thank you everyone [Applause]

you
