Is it really easier to start a hard tech company than an easy one?

The paradox suggests that while building the product itself is harder, the surrounding activities like attracting talent, gaining press, and securing investor interest can be easier for ambitious hard tech ventures due to their inherent appeal. This makes it easier to scale into a large company.

How can hard tech companies make progress without millions of dollars?

Companies can start by assembling advisors, building computer simulations, creating physical models, securing airline interest with models, using service revenue to fund development, or building test satellites. The key is to demonstrate progress and customer demand without fully building the end product.

How do you prove customers will want a product you haven't built yet?

The best method is through pre-sales, similar to Kickstarter. If pre-sales are not possible (e.g., due to regulations), a Letter of Intent (LOI) can be used. An LOI is a non-binding contract showing serious customer intent, which investors also value.

What is the recommended fundraising strategy for hard tech startups?

Instead of pitching for a large sum like $50 million upfront, founders should break fundraising into smaller, discrete rounds. Each round should have clear milestones that, when achieved, enable the company to raise the next, slightly larger round, minimizing risk and 'fundraising walls'.

Are YC's startup school lessons applicable to hard tech and biotech founders?

Yes, most of YC's startup school curriculum is relevant. While there are some differences, the core principles of building a company, focusing on customer needs, and iterating on product apply broadly across different industries, including hard tech and biotech.

How important are Letters of Intent (LOIs) in fundraising?

LOIs are crucial because they act as a strong signal to investors that there is genuine customer demand for the product, even if it's not yet built. The difficulty in obtaining an LOI often reflects the significance of the problem you are solving.

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Jared Friedman - Advice for Hard-tech and Biotech Founders

Y Combinator

Science & Technology3 min read25 min video

Sep 20, 2019|89,177 views|2,592|72

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Key Moments

TL;DR

Hard-tech founders face technical, not market, risk. Build MVPs smartly, prove demand via pre-sales/LOIs to navigate fundraising.

Key Insights

Hard tech companies are defined by significant time and capital requirements for product development, coupled with inherent technical uncertainty.

Starting a hard tech company can paradoxically be easier than a 'simple' company, as ambitious projects attract talent and investor interest more readily.

The primary challenges for hard tech founders are developing a product with limited resources and proving market demand before full product completion.

Overcoming resource constraints involves creating clever Minimum Viable Products (MVPs) or demonstrating progress through simulations, models, or service offerings.

Validating demand is crucial and can be achieved through pre-sales or Letters of Intent (LOIs), which serve as non-binding commitments from potential customers.

Fundraising for hard tech should be a phased approach, breaking down large capital needs into smaller, sequential rounds tied to specific milestone achievements.

DEFINING HARD-TECH VENTURES

Hard-tech companies are characterized by two key criteria: they require substantial time and financial investment to develop their initial product, and there's inherent uncertainty about whether building the product is even possible, regardless of resources. This contrasts with many software or app-based startups that primarily face market risk, where the product is feasible to build but its market adoption is uncertain. Hard tech, conversely, assumes demand if the technology can be realized, focusing on technical risk.

THE PARADOX OF HARD-TECH STARTUPS

Contrary to intuition, starting a hard tech company can be easier than a 'simple' company. This is because ambitious, technically challenging ventures, like building supersonic jets (e.g., Boom), inherently attract top talent and significant investor interest from the outset. While building the product is difficult, the surrounding activities like recruiting and fundraising become more manageable due to the compelling nature of the goal.

YC'S COMMITMENT TO HARD TECH

Y Combinator actively supports hard tech and biotech founders, having funded hundreds of companies in these sectors and becoming the largest seed investor globally. Notably, hard tech applicants to YC exhibit a significantly higher acceptance rate compared to other types of companies. This suggests an alignment between YC's mission and the founders drawn to tackling complex, ambitious technological challenges.

STRATEGIES FOR RESOURCE-LIMITED MVPS

A significant hurdle for hard tech is the need for substantial capital for initial product development. Founders must devise ways to make progress without immediate, large-scale funding. Examples include Boom assembling expert advisors, building simulations, and creating physical models to secure airline interest. Solute demonstrated their hydrogen peroxide production concept with a simple beaker MVP, and AirX pivoted from building a new medical device to software around an existing one.

METHODS FOR VALIDATING MARKET DEMAND

Proving that people will want a product that hasn't been fully built is critical for both founder conviction and investor confidence. Pre-sales, as exemplified by Jetpack Aviation, are the ideal method. When pre-sales are not legally feasible (e.g., due to regulations), Letters of Intent (LOIs) serve as a powerful alternative. These non-binding agreements, if specific and detailed, signal serious customer intent and provide a roadmap for development.

INNOVATIVE FUNDRAISING APPROACHES

Fundraising for hard tech is rarely a single, massive round. Instead, a strategic, phased approach is necessary, breaking down large capital requirements into smaller, sequential rounds. Each round should have clearly defined milestones that, upon achievement, unlock the next stage of funding. This iterative process, exemplified by companies like Astranis launching test satellites or Notable Labs providing services to fund drug development, incrementally builds credibility and de-risks the venture for investors.

LEVERAGING LOIS AS SALES DRY RUNS

The process of obtaining a Letter of Intent (LOI) often forces founders to conduct a preliminary sales cycle before the product is complete. This 'dry run' is invaluable for uncovering complex stakeholder dynamics within potential client organizations. By navigating these discussions to secure an LOI, founders identify and address the various incentives and concerns of decision-makers and users, refining their sales strategy early on.

RECRUITMENT ADVANTAGES IN HARD TECH

Despite the inherent difficulties, hard tech companies often find it easier to recruit talented early employees and founders. This is largely attributed to the allure of tackling ambitious, groundbreaking challenges. Similar to how investors are drawn to bold ideas, skilled individuals are motivated by the prospect of contributing to significant technological advancements and building something truly impactful.

Mentioned in This Episode

●Software & Apps

●Tools

●Companies

●Organizations

●People Referenced

Hard Tech & Biotech Startup Guide

Practical takeaways from this episode

Do This

Focus on making progress that doesn't require millions of dollars initially.

Assemble a team of top advisors for credibility.

Build computer simulations to prove your design concept.

Create simple physical models to demonstrate your vision.

Use pre-sales or Letters of Intent (LOIs) to prove customer demand.

Structure fundraising into discrete, smaller rounds with clear milestones.

Be maniacal about minimizing the size of each fundraising step.

Leverage ambitious ideas to attract talented founders and employees.

Avoid This

Assume you need millions of dollars from day one.

Wait until the product is fully built to prove customer demand.

Pitch for a huge amount of money upfront based solely on an idea.

Enter into pre-sales if you are dealing with regulated products like medical devices (unless legally permissible).

Make fundraising steps too large, risking hitting a 'fundraising wall'.

Common Questions

A hard tech or biotech company is defined by two criteria: it requires significant time and money to build the first product, and its feasibility may be uncertain even with resources. This contrasts with typical software startups which primarily face market risk rather than technical risk.

Topics

Technology & Innovation Science & Mathematics Business & Entrepreneurship Product Development Venture Capital Startup Funding Customer Acquisition Minimum Viable Product Hard Technology

Mentioned in this video

People

Michael Seibel

Mentioned for his talk on Minimum Viable Products (MVPs), specifically in the context of how hard tech companies often have 'heavy MVPs'.

Sam Altman

Quoted for his paradoxical statement that it's often easier to start a hard company than an easy one, which the speaker uses to illustrate a deeper truth about ambitious ventures.

Organizations

FDA

The U.S. Food and Drug Administration, mentioned in the context of medical device approvals, which can be a significant hurdle and influence go-to-market strategies for biotech and medtech companies.

Letter of Intent

A non-binding contract used to signal a customer's intent to buy a product once it's ready, serving as a way to prove demand when pre-sales are not feasible (e.g., due to FDA regulations).

Companies

Astronja

A YC company that builds and launches telecommunication satellites. Their hack was to build a small, functional test satellite for under $50,000 to prove capability and raise funds for a full-scale launch.

Cruise

A famous YC AI company that built self-driving cars and was acquired by GM for $1 billion. Their MVP car was built in less than three months during YC.

Air X

A YC company that adapted its plan to make a medical device by using an existing approved device and writing software around it, allowing for an MVP launch in under 3 months.

General Motors, the company that acquired the YC AI startup Cruise for $1 billion.

Boom

A YC company building a supersonic passenger jet (Mach 2.2) to replace the Concorde, used as a prime example of a hard tech company that made challenging aspects easier through its ambition.

Jetpack Aviation

A company that conducted a pre-sale campaign for its flying motorcycle to prove customer interest, serving as an example of using pre-sales to validate demand.

Y Combinator

The startup accelerator that the speaker is a partner at, funding many hard tech and biotech companies with a high acceptance rate for hard tech applications.

Ginkgo Bioworks

A YC company that does genetic engineering. Their hack was to close contracts with large companies to create organisms before they were made, using these contracts to secure investment.

Notable Labs

A YC company developing cancer drugs by first providing tumor screening services to pharma companies to generate revenue and data.

Software & Apps

Kickstarter

Mentioned as a platform where people do pre-sales for products, illustrating a method for proving customer demand before a product is fully built.