Lisa:

This is Lisa Calhoun. I’m Founding General Partner at Valor Ventures here in Atlanta, Georgia, and this is the Atlanta Startup Podcast. I have a brand spanking new Atlanta investor on the show today. I’m so glad you’re with me. This is John Sears at Anzu Partners. Welcome, John.

Lisa:

This is Lisa Calhoun. I’m Founding General Partner at Valor Ventures here in Atlanta, Georgia, and this is the Atlanta Startup Podcast. I have a brand spanking new Atlanta investor on the show today. I’m so glad you’re with me. This is John Sears at Anzu Partners. Welcome, John.

John:

Hi, Lisa. Thanks so much for giving us the opportunity to chat today and really looking forward to the conversation. You’re right, we are we’re very much new to Atlanta and very happy to be

here. 

Lisa:

You’ve been investing actively in Atlanta as a partner for about a year. Do I have that right?

John:

I’ve been with Anzu for about a year now. We’ve certainly been sourcing deals in Atlanta for a bit longer than that, but we don’t have any companies within our portfolio in Atlanta. But strong convictions for us around the Atlanta ecosystem, which is why we’re here.

Lisa:

As we’re conducting this interview, we’re actually choosing to do it remote because it’s during the COVID quarantine. I have a beautiful view of John’s wall, which has a lot of very, very attractive advanced degrees. Tell us a little bit about your background. You were teaching as a professor at Georgia Tech?

John:

That’s right. I was on the research faculty at Georgia Tech for about six years doing research in organic electronic materials, materials for solar cells for LEDs — those types of things. I got a little bit bored with academic research, got an opportunity to go work with a patent law firm here in Atlanta, and decided to go do that. I spent a few years doing that and decided I should go to law school during that time. At some point, I guess it’s been four years or so ago now, I started doing work with Anzu Partners with some of the companies in the portfolio. That relationship has evolved, as you can tell, over time and I began to do more and more work with Anzu until last year when I was given the opportunity to go and work in house with Anzu. I have been heading up our intellectual property aspects for our due diligence, heading up some of our sourcing in Atlanta. I’m the local boots on the ground in Atlanta. We don’t have an official office in Atlanta yet, and so I’ve been helping to lead those efforts and trying to grow our presence. We now have two team members. I’m no longer a team of one. We have two team members located here in Atlanta.

Lisa:

Awesome. Well, staying on you for a minute. What’s it like to go from being a scientist and a teacher into law and then into VC? How does it feel? What do you like about the venture capital world and investing now with all of that background?

John:

I would start maybe from the jump from academia into patent law. In academia, you’re expected to become such a world expert in a topic that’s so narrow and focused that literally I know the five people in the world who really care about the questions I’m answering in any real detail. We see each other at conferences and we sign each other’s papers and it was all good. While I enjoyed my time in academia, I wanted to get more broad with regards to the technologies I was able to touch and understand and problems I was able to address. Patent law created a great opportunity for that. I still actively work in patent law with our companies and help support a number of the companies at Anzu. The reason to go from patent law into VC was the feeling that I wanted to be more engaged directly with the business side of the intellectual property and being engaged with the companies in a way that really makes a meaningful difference. To these venture stage companies, IP is so critical to their enterprise value that our ability to really become ingrained with the company and help them align the IP of the patents with their business objectives. 

Lisa:

Given the background in Atlanta — you’re no stranger to the city, you’ve been here for a while — how do you feel Atlanta is positioned in the startup ecosystem in the country? What is your personal take? What is your view on Atlanta?

John:

I think Atlanta is a great location for deal flow. I know Valor was very early in Atlanta, and that ecosystem is catching up, I think, to the companies. We have a lot of great companies in Atlanta and the investor community is growing up around it. I would say from our perspective for Anzu, for the types of companies we’re looking at, the strong university presence in Georgia and Atlanta — I include UGA even being a Georgia Tech grad, I’ll give credit to the University of Georgia —

Lisa:

As you should! They’re awesome.

John:

As I should! I know the office up there, the Tech Transfer Office, does a tremendous job at UGA getting technologies into the marketplace. We view Georgia Tech, Georgia State, Emory, University of Georgia as great partners for us to find really compelling technologies, and we by and large are a technology-centric investor.

Lisa:

That’s a great transition. I would love to learn more about what Anzu is looking for, and I’m sure our listeners are ready to jot notes as well. What is the perfect deal for Anzu Partners?

John:

A perfect deal for us? Our investment thesis focuses on what we call breakthrough industrial and life science technologies. We are fairly, from conventional technology silos, agnostic. I mean if you look at the companies in our portfolio, we have electronics, electrical engineering based sensors and software, and modeling. We have materials companies that are spanning across various technical sectors. We are fairly technology agnostic, but we’re looking for things that are strongly differentiated on a technology standpoint. That’s why IP, for us, is so critical. When I say breakthrough, for us breakthrough really has meaning — it’s not just a buzzword. We’re looking for something where the technology is giving us a 10x, an order of magnitude improvement, in some metric that’s relevant to the company. It could be a performance metric, it could be a cost metric, it could be a scale metric, but there’s something in that technology that we’re able to protect, which gives our companies a right to win in that space. That is really the focus of our investment. If you look at stage, I would say we’re a bit agnostic with stage. It’s not uncommon for us to be the first institutional capital in the door with our companies.

Lisa:

I know that feeling.

John:

Right, you’re there often. I would say that it’s probably less common for us to be the first capital that it would be for Valor investment. Most of our check sizes, our sweet spot is about $3 to $8 million for a first check. Because we’re dealing with companies that are coming out of universities, they’ve often been very successful in raising non-dilutive SBIR type of capital, so they’re ready for a $3 or $4 million check as the first institutional investor.

Lisa:

That’s such a great investment partner to have in Atlanta, too. It’s really a hole in our market. It’s great to have an insider like yourself, who’s been in this community for a while, to fill it. When you think about technology themes that play really well in Georgia, and from your experience with Georgia Tech, what are some of the sub themes that you’re passionate about? You’re really like “there’s going to be gold in this vein”? What veins are you mining?

John:

In Atlanta, traditionally, when I think about the Atlanta startup ecosystem, I start thinking about logistics and FinTech and some of the big areas that have been real markets for, I think, early successes for Atlanta. There are opportunities for Anzu there. It’s probably not from a technology standpoint — companies that fit squarely within some of the hotspots for us. When I think about things for Anzu, I think about the future bio manufacturing economy — I think it is a hot area for us as an investment thesis. There are programs — NSF sponsored program over at Georgia Tech comes to mind that is in cell manufacturing. You know, really keeping our eye on the technologies that are coming out of that research and that work. Atlanta is, I think, positioning itself well in the medical device space. If I look at some of the investments that we’ve gotten across the finish line, internally for us, I look at a Boston Microfluidics — a company up in Boston that is making a home blood sampling blood collection device. Whereas we’re probably not going to write a check for a therapeutic, we definitely touch heavily on the life science industry. We see therapeutics as being very high capital, very binary investments, and probably not within our overall mandate I would say.

Lisa:

Especially with the corona pandemic that we’ve all been living through, there is certainly a heightened sense of awareness that there are all kinds of ways that the life sciences can be streamlined, and that we really desperately need that. Does that play into your investment thesis at all?

John:

It certainly does. I mean, I think anytime we’re facing a brave new world, we have to look at what sort of opportunities are going to have a headwind and what sort of opportunities are going to have a tailwind because of that. It’s certainly an ongoing conversation within the fund and with the investment team is identifying those opportunities. I think the new environment certainly creates certain challenges logistically — it does for companies, but it also just for the investors. The typical investment diligence period where we would go out and visit the companies typically multiple times — there would be multiple face to face visits — that’s really a challenge for us right now. While it’s business as usual for us, it’s business as usual in a new world and a new environment where we have to figure out how to conduct diligence, how to source companies. I think one thing that I’ve seen for us is that our network becomes even more valuable in this instance, and where we’re getting deals that are referrals from within our network so that we have other points of contact. That becomes very important right now for our diligence.

Lisa:

How do you see yourself, say the next three to six months, deal sourcing? How are you framing that in your mind and where might founders who have really interesting products for you, how can they find you? What are you doing?

Lisa:

Well, we have a very active pipeline. We look at the top of our funnel — about 500 companies a year — that would result in a hard look at a few dozen and probably term sheets on 10 or so companies per year. We’re very active in the deployment of capital. I don’t see that changing in the current environment. I think that we are reassessing how we do that more than if we do that. There are certainly great companies and opportunities to be had. If you want to reach out to us, you can reach out to us through our website, you can reach out to us directly. Our emails are all on the website, and we have a sourcing email available on the website as well. I would say that if you know someone in your network who happens to be connected to one of us, then that’s probably the easiest way to reach us. Because I think referrals for us carry a lot of weight. Referrals from within our network are very important.

Lisa:

Awesome, so referral intensive, and that’s fairly visible on LinkedIn. Are there any major events? Are you guys very involved with SBIR? What are some of the other ways that founders can look to kind of meet with you in the wild?

John:

Yeah, so we’re definitely out and about. We attend conferences regularly — all of the investment teams are investment teams of about 12 people, and they are actively out and about at SBIR or DARPA events, NVCA events — you name it. The new world has sort of impacted that a bit. We’ll see how many of those events that are moving to virtual, and we will still continue to go. I know a lot of these events are moving to virtual events for the next few months. We are also actively sort of sourcing our existing deal pipeline to see. I think there are potential opportunities that maybe look different in light of the changes that we’ve seen in the economy.

Lisa:

I think you’re absolutely right. One of the things that I’m kind of curious about, too, is where are you in the fund’s cycle? If you wouldn’t mind sharing the size of the fund you’re currently deploying, kind of where you are in the cycle, maybe your feeling about how many deals could come from the Atlanta ecosystem in the next couple of years?

John:

Yeah, that’s a great question. We are in our second equity fund. To give you an idea of size for Anzu, we are $350 million under management. It’s split largely between two equity funds. The second fund we announced the end of last year, the close of that fund at $190 million, heavily oversubscribed. We are in our first year of deploying that, so we’re in a very active deployment situation. I would expect that we will see a handful of deals this year. For Atlanta, seeing one or two deals coming out of Atlanta in the next year or two would be ideal. That’s what I’m hoping, and that’s part of the reason that they have me on the ground here in Atlanta and why we foresee having an official office in Atlanta in the near future.

Lisa:

How do you work with your portfolio founders after initial investment? What is some of the platform that Anzu provides?

John:

So that’s interesting. We are a very active investor. A lot of investors write a check, and they come back every quarter, or they kind of show up once a year to see how you’re doing. We have a robust business services platform. We don’t require any of our companies to use any of them, but we have a team of about 20 professionals that we make available to our companies. That’s covering everything from strategic communications to manufacturing and scale up to intellectual property. I head up building out our intellectual property support team to marketing to HR and payroll and accounting. We have a team of accountants in Tampa that help manage the books for the majority of the companies in our portfolio and we pass those services on at cost to our companies. There’s no markup for us there, it’s just a way for us to help, really support these companies. I would say that a weekly point of contact with our companies is the norm and when necessitated, it could be almost daily. There are certainly periods of time where one or someone within the fund is in daily communication with our companies. If you look at our ecosystem, our biggest ecosystem right now is Boston. It’s been a very productive ecosystem for us. No surprise there, right? 

Lisa:

No surprise, but you are headquartered in DC, I think? That’s interesting. 

John:

That’s right, headquartered in DC, but our most investments and our most sort of real estate is in the Boston ecosystem. We have, I think it’s something like 25,000 square feet of light and dark industrial space in Boston in the building that we just finished and we’re working on an agreement for new space there now. We have portfolio companies co-located with us. We are helping to create — whether it’s clean room or tooling space — space for those companies that gives them the resources that they need to succeed along with the expertise from within the fund right there working alongside them. I would say we are actively engaged alongside our companies in many of these.

Lisa:

That reminds me a lot of our space at Atlanta Tech Park. It’s 45,000 square feet of sharable space with our portfolio, and some of them choose to work out of there, some of them don’t. Some of them use it ad hoc when they need a user conference or a meeting. We have a different investment focus, and I’d love to let listeners hear a little back and forth between us on that. That’ll be fun, but I really can relate to how much value you can add with that kind of infrastructure to really provide a portfolio. So speaking of that, I’m a fairly classic style of Atlanta investor in that I invest in post-revenue companies and I’m a little IP agnostic. It’s a “nice to have” in my world. I can see you laughing — a very different point of view. Let me have it, why is it the most important thing in an early stage investment decision?

John:

Well, for many of these very early stage companies, that is, for us, the real enterprise value we feel like. These companies are going to win on their ability to drive a new product with compelling technology, and we have to figure out a way to keep them. The companies that we’re investing in, they’re competing with the 3M’s and these Fortune 500 companies that have robust intellectual property teams internally and robust intellectual property portfolios. That’s very difficult for an early stage company to do, and so what we see in building out our IP team to support our companies is to give them access to an intellectual property team that would be competitive with what these Fortune 500 companies would have at their disposal. We integrate very closely with our teams. We see that as the real enterprise value, and so how do we create space for that company? It’s a long road to commercialize an industrial tech if you’re making a product, right? There’s just a long, slow roadmap there and the hold periods tend to be pretty long. We have to create space and time for that company to develop the technology, and the only way we do that is through intellectual property.

Lisa:

How do you protect intellectual property? Just kind of give us a sense of some of the value you’re providing yourcompanies in a global environment where not everyone has the same respect for IP as we do here.

John:

That’s, I think, a valid concern and one that I hear many investors and many companies and founders talk about concern over your foreign IP protections. The debate around China and theft of intellectual property and protection of intellectual property is something that’s been going on for several years now, as long as I’ve been in intellectual property. I would say that my impression is that the ability to get strong IP protection in China and in some of these other foreign jurisdictions has really improved dramatically in the past several years. I think that the old mantra of “we just don’t file in China because we can’t get strong patents in China” has really changed. When you hear a founder when we’re doing diligence on a company say that, I try to course correct for them because I really think that that’s legacy advice.

Lisa:

You like,  “They haven’t worked with John Sears.”

John:

It’s not that. I mean, it could be that.I think it’s really the Chinese system has really come a long way, and so have many other foreign jurisdictions. It’s really, for me, helping the company to identify where they are creating intellectual property and having a game plan for how we’re going to move into protecting those pieces that are going to be so central to our business value.

Lisa:

That is really good to hear that things are evolving the right way for founders and people who are building game changing companies with a global application. I wasn’t aware, so thank you for sharing that. Another question that I think would be really interesting to know is: how do you look at the divide between industrial tech and life sciences? You invest in both. Is it like 80% life sciences and 20% industrial tech or what is the portfolio mix that you’re working with?

John:

We’re largely industrial tech. Traditionally, that was our clear focus. Life science wasn’t even in the sort of our elevator pitch, right? We weren’t a life science investor, we were an industrial tech investor. I would say that as we have gained experience, over the past few years of investing in these companies, we have developed expertise and a fair amount of focus in the life science industry. It tends to be around tools, materials, devices that are important for the life science industry. I look at a company like TerraPore out in California who makes membranes. They have some really elaborate, rare, very impressive membrane technologies that they’re able to make that are very important for bioprocessing. The companies that we’re looking at are serving the life science industry in some way. We just closed a deal in Santa Fe, New Mexico with a company that’s doing cell-free protein translation technologies. This technology is just phenomenal in their ability to manufacture things like vaccines without the traditional sort of cell machinery that’s taking place. It’s impressive technology, and that was one of our most recent deals to close.

Lisa:

You know, that sounds really fascinating. One of the sub-sub themes that Valor is really interested in is not on the industrial technology IP side of things, but alongside that, sort of the SaaS potential solutions that help automate and accelerate the bench. There’s so much on the bench that takes a lot of human time — it’s being literally monitored by a stop clock or a recipe clock. There’s a lot of opportunities, we think, for software to engage in the testing and QA process in the lab that hasn’t been done yet and could accelerate the development. It’s interesting, we’re kind of  alongside each other in trying to make that stuff more rapid.

John:

I think the size and scale of the life science industry and the complexity of the problems just creates a lot of opportunity for us service providers or companies that are providing value to that process. I think whether it’s software or whether it’s a new sensor technology coming out of one of our companies, there are a lot of opportunities there.

Lisa:

How about climate change? Is that something that you’re touching on or seeing a lot of inbound on?

John:

It’s certainly something that we touch on and we see. I think that’s one that’s a bit cyclical. I mean, the price of oil goes up and down, and so it looks more interesting in different periods of time.

Lisa:

That’s cynical! That’s so cynical.

John:

It really is, right? But the economics just change so much. Whereas the life science industry, the economics are pretty consistent. What is a good investment today is probably still a good investment next year, despite some global battle over the price of oil and OPEC issues. 

Lisa:

There’s no question our country and our world has deep life sciences needs. I couldn’t agree.

John:

The current situation just amplifies some of that.

Lisa:

Yeah, we’re all feeling a little recency to the shock, that’s for sure. Is there anything that I haven’t asked you that we should ask? Our audience is a bunch of tech entrepreneurs, people who are employed at startups and tech companies, a large population of people employed near or in life sciences startups, quite a few VCs as well. Is there something else we should discuss before I thank you for your time and let you get back to investing?

John:

That’s interesting. We’ve touched on a lot of a lot of topics today. I think that, for me, the current environment is still one that I think all investors, all VCs like ourselves, all companies are figuring out how to navigate. I think that, for us, standing up alongside our companies looking through the opportunities that exist — some of the companies in our portfolio have real opportunity that has been created by the current situation. Helping to identify those is adding a lot of value to the extent that companies that are tangential to problems that they had identified before, but there are new opportunities for those companies now in the current environment. I was on the call this morning with a startup here in Atlanta that is developing a new diagnostic tool. They were not working on COVID related issues until about a week ago, but now they are. Why? Because there’s a real opportunity that they see to be part of the solution to this and they have a compelling technology to do that. I think look for those opportunities and don’t be afraid to embrace them right now because I think that you can get a strong tailwind for the company or for your investment.

Lisa:

That sounds fantastic. John, thank you so much for your time. Really appreciate you being on the program.

John:

Thank you, Lisa, for the opportunity. I really enjoyed the conversation.

________________________________

Lisa – The Atlanta Startup Podcast is produced by Valor Ventures as a service to the startup and investor community. We couldn’t do it without the support of our sponsors–Atlanta Tech Park, the global innovation center, and Write2Market, Atlanta’s favorite tech and healthcare marketing firm.

If you’d like to get your information on the Atlanta Startup Podcast, our share a message with our listeners, visit us online and check out our affordable rate card.

All advertisements here are tax-deductible donations to the Startup Runway Foundation, a nonprofit whose mission is connecting underrepresented founders to their first investor.