Guy Reams (00:00.046)
This episode is a conversation with Eugene Cho, CEO and founder at Discover Echo, and also one of his original investors, Dean Rosenberg, currently the fund manager, New Fund Venture Group. I hope you enjoy. Well, welcome, Dean and Eugene. Welcome to the podcast. I appreciate you for being on today. Thanks for having us. The format today is we're going to just have a casual conversation about Eugene, about your journey with your company. We're really focused today on...
Helping other founders realize how, realizing how accessible early stage funding can be, but also to be realistic about some of the challenges that you run into and really to demystify the process. So one thing that will happen during today's conversation is if you use an acronym or a phrase, I may stop you and ask you to explain what that is.
So we'll get started. I'd like to introduce the investor side of the equation first. So Dean, we have Dean Rosenberg with us today. Dean is the fund manager at New Fund Venture Group in San Diego. So Dean, why don't you introduce yourself first? Yeah, so thanks for having us on, Guy. So yeah, so I had a multi -decade journey, mostly as an entrepreneur and founder, and for the last 10 years as investor.
I'm very active in New Fund, which is one of the larger early stage investment groups in the country, if not the world, and served as president of New Fund and most recently as co -fund manager of our annual fund model that invests in about 20 early stage companies every year. Recently jumped into one of my portfolio companies and have a day job as CTO and as a board director, but today I'm going to be a fund manager.
Great. Well, thank you, Dean. And Eugene, why don't you introduce yourself? You are the CEO of Discover Echo. So why don't you introduce yourself? Yeah. Hi, Guy. Thanks for having us. Yeah, I'm the CEO founder of Discover Echo. We actually just celebrated our 10 -year anniversary as a company. So a lot happens in 10 years. And just kind of trace them back. Prior to this, I started off in sales, working in the microscopy world.
Guy Reams (02:24.526)
I say my cross people, what that really means is I worked for Nikon really selling these bio -imaging platforms. So there were high resolution, high speed microscopes that range anywhere between 50 ,000 to all the way up to a million dollars. And that was the world that I came from. I did that prior to this for almost 10 years. And then there came a time and point where I said, you know, maybe we should actually build better contraptions. And through that, I started Discover Echo.
And we really looked at the marketplace and saw some of the strengths, but also some of the problems and how we could build a better instrument. Great. So it'll be exciting to talk to you today about that. Dean was telling me before the call that you were, if Tesla were to build a microscope, they would have built one like yours. I said Tesla or Apple. So you could use Apple if you don't want to use Tesla, Eugene. If Tesla or Apple were to build a microscope, they would build yours. OK, so that's interesting because I actually do tell...
little bit part of this story is that early on when we went on this journey, because microscopy is dominated by four main kind of legacy incumbents. It's Olympus, Leica, Nikon and DICE, and they build really great microscopes, but they've also been around for hundreds of years. And so coming back to this Tesla example, early on in the journey, I had actually heard a podcast where Elon Musk was talking about when you want to go into a mature industry, your product,
can't just be competitive, it has to be significantly better than anything else that's out there. So we actually really challenge ourselves to kind of push the envelope of some design and offerings of our products. So I do take that as a compliment. Thank you very much, Dean. That is interesting. A lot of early founders are always worried about having a product that is what you just said, very competitive.
How concerned were you starting out that you had that product when you first started? Well, we did see a little bit of a trend. So while these other products are very good at what they do, they were really specialized and kind of like, it's kind of a Japanese and German culture where they were really pushing the envelope of resolution and performance at high speed. So the market that they were pushing towards were, you know, what I call kind of the super scopes, which were about $500 ,000. That's where all the new product innovation developed.
Guy Reams (04:42.926)
So this is where we saw a gap in a marketplace. So our first product that we came out with, we were kind of targeting around the $50 ,000 zone. That's where our kind of space was. And we saw that as a very big opportunity. When we say the word concern, we actually saw it as like, this was a neglected space. So we weren't so much concerned. We actually thought this would be our opportunity where they would kind of not pay so much attention. So it wasn't necessarily about beating them in their...
value proposition that they had. It was more about finding an area they were ignoring and becoming the best in that particular area. Did I say that right? Yeah, I think so. That was our initial entry point. That was our first product. Since then, we've done about seven products in our portfolio. But this was really kind of where we set our initial target. Yes. I was going to say, Guy, we knew Eugene was onto something because we have a very big life science contingent at New Fund.
And the former people who ran labs, some still were in labs at different level, they all said, I want that product. Or I wish I had that product in my lab when I was back in the lab. And so what better proof of product market fit? And the reality is that when we met Eugene, he had already made some early sales to companies that we all had heard of. And so we were inspired by seeing the product, but then there was actually proof of product market fit early, which...
As you know, we don't see all that often in early stage investing. So that's an interesting point. I'd like to just dive into that just for a second. Eugene, how important was it for you to have, because when you came to New Fund, there was an entire group of people there that had a specialty in life sciences. I mean, how important was it for you or was it important to have an audience or to have involvement from investors that knew your space?
That's an interesting question. I think maybe as we talk a little bit about the fundraising pathway, we had a little bit slightly different journey on that. Building research tools with the category in which we're in is actually research tools. And so to build research tools, especially when we're talking about the instruments at this price point, is pretty intense capital investment. And typically, people are...
Guy Reams (07:06.606)
you know, guiding you to this pathway of raising capital from institutional investors. And it was, I think, I think back and it was a little bit on, I think, product market fit and also who the investors might be. And what we actually had was quite a bit of success with angel investors and super angels. And there was a lot of momentum there when the Friends of Family Round was getting big, the angels and there was lots of interest within that.
subset. So, you know, quite frankly, when we're talking about how important is it that they understand what we're doing, we were kind of at a phase where we just wanted to team up with people who were interested in our story and who were supportive of that. And it was almost agnostic in terms of like what industry they came for. So for us in particular, it really wasn't that important. Well, that's that's actually interesting to hear because a lot of early stage founders are always worried about that. They're worried that people won't understand their story.
which is interesting. So let's go back in time, because I'd like to get into how you and Dean met and what the process was for you getting early stage funding, Eugene. So why don't you take us through what led up to you presenting to in front of Dean and whoever's with him at the time. And then Dean, I'd like to get your perspective after Eugene is done. So.
Eugene, tell us what it was like leading up into the first time you presented in front of Dean. This is actually unveiling of a little bit of a story that I kept secret for some time. I eventually told Dean, so this isn't the first time he's heard this, but initially we did some friends and family and that was actually collecting quite a bit of traction. So we had done a couple million dollars in friends and family, which is usually a little bit larger than what you typically get. But we had a lot of people within our network and I had a lot of people.
within our team, they were making lots of introductions. We had eventually had some traction with a group that they called themselves VCs. And when I see that term, it was kind of loose because I'm going to really call it micro VCs because the initial raise that we were looking for was $5 million. And what they were kind of teaming up with is they were going to get three different VCs to kind of put together that $5 million, $1 million, $1 million, and will you cover the rest? So,
Guy Reams (09:28.91)
It required all three of them to kind of go on board and things were going well. But the last person, the kind of bigger check to come through, the term sheet was all outlined and they were just kind of taking a lot of time to do this. It was, I just had anticipated, why is this taking so long? So eventually we went out to them to meet with them in person. They were out of state and we did kind of this like in -depth pitch and meeting.
in front of their whole entire kind of staff. And there was, it came with a lot of heavy criticism. And so we were quite a bit shocked to actually have this, because it was so far down the line where the term sheet was all vetted out and redlined. And ultimately I found this term that it was kind of like, we were left at the altar. And at the time there was a few things in that term sheet that I was...
kind of advised by our legal that, hey, these are a little bit sharp terms and this particular group may have a little bit of sharp elbows. But I was so eager to kind of get this round going and scale up the company that was one of those things where I said, well, that's okay, let's go ahead and do this anyway. But at the last minute it fell apart. So I went back to our team and you know, it's pretty tough, tough experience to have that happen. Meanwhile, I thought just as a contingency because...
during the fundraising cycle, you're always trying to look at all opportunities. We had applied for the Quick Pitch in San Diego. And I know we're referring to New Fund, formerly known as Tech Coast Angels. So TCA Quick Pitch was the big event in San Diego. It's kind of the largest pitch competition. And I remember saying, all right, well, let's give this a shot. So we get accepted to kind of audition, right, just to come and meet the Tech Coast Angels and the board and the panel.
It was very interesting. No slides allowed, no props allowed. So I'm going in trying to tell our story and I have this little thing in my pocket, like this very early kind of example of what was used for early imaging. And the first microscope is like a little model. And I was kind of telling our story. And when I had told about our customers and our traction, and we had just recently secured a very $2 million purchase order from a company overseas, and we were looking to raise capital around that.
Guy Reams (11:49.454)
actually Dean just kind of looked at me and he's like, where have you been? And, that was kind of our first meeting. And part of the reason why I hadn't actually been there is a little bit of timing, but I also thought we had this deal in hand. So I remember afterwards, some of the, the, the tech coast angels guys who were affiliated with that event, they said, Eugene, would you be interested in, pitching this to the tech coast angels?
I did everything that I could to not look desperate. Really just kind of like, just kind of say like, yeah, I don't know if I'm afraid of that. I'm like, I'm gonna squeeze you in. I did everything I could to try to like be chill about it. But I was very fortunate where, you know, I think it was really, really lucky in the sense that the right people also through that. I met a lot of.
really great individuals. Dean, of course, one of them, he was president at the time. Peter Chu as well, who was a member who was integral part, and also Jeff Friedman. Those three were pretty influential Tech Los Angeles members, and they were also interested and eager to help. So it was a great fit. So Eugene, a couple follow -ups, and then I want Dean to chime in, but let me just follow up.
Early in your discussion there, you mentioned VC, just to make sure that people know that means venture capital, venture capitalist. And then you mentioned this phrase micro VC. So let's dive in. What did you mean by that when you said micro VC? Sure. So I think that word venture capitalists is where VC is used pretty openly. And really, I think what's going to classically define it is how big is the fund that they manage.
So a tier one VC is gonna have a very large amount of capital that they can deploy, hundreds of millions even, it could go into billion dollars. And then I would say that the micro VCs, when we were talking to them, they were in the ballpark of having 20 to $50 million, which they managed through their portfolios and deploy. And in San Diego is a big micro VC market. There aren't a lot of top tier VCs in the San Diego market. So you find, you know.
Guy Reams (14:06.862)
founders find themselves doing those kinds of deals. But important to note is that just because they have VC in their name doesn't mean they're a gigantic company. They could be a very small fund. And Eugene, you discovered that they're not they don't all come the same. They're different flavors, different sizes. Now, getting back to the one that you left you at the altar. In a couple discussions I've had recently, I've kind of learned that there's this
The idea of getting commitments to give you a check and the collecting of said check are two totally different processes. And they may not always be the same, right? So there is a little bit of a, you get a commitment and then you've got to go collect the money. And in your experience, they weren't actually willing to write the check yet. Correct, correct. Well, I would add there's one more, right? So it's first getting strong interest, then it's commitment.
then actually getting the money or the funds transferred over and signed and agreed upon. So this was a little bit of a learning experience. Again, I think I introduced that my background is in sales and trying to walk orders of finish line. I had some training there, but we were able to capture a lot of interest in our story. We had a product that was highly visual. We had a huge value proposition, which we could illustrate to people.
even if they weren't in science. If they were in science, they understood it clearly, but even if they weren't, we were able to basically convey that message. So there was a lot of circulated interest. I think what was very interesting is I learned specifically from Dean on how to basically, quote unquote, bring everyone in, bring the bees to the honey, right? It's basically like try to circle everyone around and bring it in. And it was an art form that actually Dean kind of really helped me with. So we had some interest within the membership of Tech Coast Angels.
Now, New Fund, but also I had quite a few of interested parties elsewhere who were on the outside who I'd met. And so I had done a good job keeping their interest level and I'd done a good job, I think, keeping them informed, but actually bringing them in to actually write that check, the commitment and going through that. So what we actually did is we really worked on, Dean helped put together a diligence.
Guy Reams (16:24.654)
which was very well vetted and it had all the right questions and all the right presentations. There was also, if I remember correctly, I can't remember what platform it was, but there was some type of platform where the appropriate documents could be looked at. And there was also, I remember there was a time where people could come back and they were invited to ask particular questions. So all that stuff was kind of coached and really well handled. But the other part that we worked on together was...
Dean said, all right, well now we have this, it's time for us to kind of orchestrate how to bring this over the finish line. So what we had done was we actually had three separate close dates and we kind of marketed around holidays. I feel like it was around like, if you did it by this month, then this bucket would get filled and this would be like the most attractive one. Then 30 days later, then it would be, you know, you could still join, but it wouldn't be as attractive. Then there was a third one. And so we'd kind of...
broadcasted that and we did that. And then it was just very, very, it was, it was great because the first month already, there was so much interest that we actually oversubscribed by the first month. And so that was a kind of well choreographed and marketed, cascade of events, I should say. Yeah. A lot of, a lot of early stage entrepreneurs don't think about the idea that they've got to create this sense of urgency.
and sense of demand and sense of like, I got to get in now. You got to create this, this, this idea because you want some urgency so that people will actually give you the check. So Dean, tell us about when Eugene shows up with the microphone in his pocket. Tell us, tell us what your side of the story is. Yeah, the microscope. So I mean, full disclosure, I'm like a SaaS software guy, right? I'm not a life science guy. I've never looked through a microscope in my life since fifth grade.
So, but what I can tell is, and those at New Fund kind of have heard me tell the story so many times, one of the attributes I look for in who I want to invest in is I like to see a founder that knows how to extract a check or a credit card from a customer. And Eugene was like 10 out of 10 in that, like he had sort of the Steve Jobs, Elon Musk.
Guy Reams (18:43.278)
product -centric founder focus, like building this inspiring product, being able to figure out how to get it to market and all that. But he also actually had the ability to engage with a customer very, very early on in the journey and actually get the customer to exchange money for value. And that's something that was super, you know, super exciting to me. You know, we also, early on, we cleaned up some other things, which were kind of fun little side trip adventures, like,
A law firm early on did some work for equity and it was a lot of equity and, you know, Eugene was a little stressed about that equity and I was stressed about the optics of that. And I said, well, why don't we just go over there and just kill that equity? And he's like, what are you talking about? We can't do that. Sure. We can. Let's just go over there. We made an appointment at the law firm and I basically said, you know, we're here to invest millions of dollars, but we're not going to do it with this thing overhanging. So we'll make a commitment that will like pay you cash for the services you provided and you'll kill this ridiculous equity thing. And they're like, okay. And you didn't like.
I didn't know we could do that. So that's one of the benefits of working with a particularly because angel investors often get a bad rap for like too much work, too little money. But when you work with more experienced sort of early stage investors, they know the tricks. I was an entrepreneur. I was in Eugene's shoes for 20, 25 years before I was an investor. So I've been.
I know when a founder says they're talking to Sony, I know that that means they sent an email to Sony and it hasn't been responded to yet. I know the tricks. Eugene was quite good at those tricks, which ended up not to tell stories about dollars and such, but Eugene's ability to have those conversations and to generate enthusiasm is what ultimately generated a nine -figure exit for the business.
And so, and I hope I'm not talking out of line to say that you can, you can edit later guy. If I wasn't supposed to say that. So, yeah. So, so, you know, Eugene was, literally the poster child for the type of founder we look for, product already in the market, arms, like customers paying for it. an inspiring sort of, you know, go forward, you know, execution plan. you know, he was coachable.
Guy Reams (21:06.542)
And he was freaking smart. Like he had the business judgment. And I always talk about like the game of shoots and ladders for founders where you start your journey as a founder and then, you know, you're sort of presented with these like challenges or these forks and you have to decide which way to go. And if you go the wrong way, it either costs you money or it costs you time. You slip back down, you know, boom, you just lost $50 ,000. Boom, you just lost 90 days. Boom, you just lost 18 months.
And so I look for founders who like are going to have the business judgment to choose the right fork more often than not. because so many, you know, of our deals, we see at new fund, the product is actually kind of inspiring, but there's a 0 % chance that the founding team will get it to the finish line. And so those are the things we look for. So Eugene, you had a sales background and, and I've heard Dean, you referenced several times how important it was that, that the, the,
the entrepreneur, the founder has that sales acumen. That's a pretty important characteristic. It sounds like in your mind. sorry. I thought, yeah. I mean, I'd again, every, every, you know, every early stage investor has their own criteria. but, you know, I was a, I would like, like you guy, I was a software development guy for most of my career, computer science, education. And I thought like the programmer was the hard part, right? Like, like cutting code was the hard part. And then as I matured, I realized sales is freaking hard.
Like we can, we can hire offshore programmers, but sales is freaking hard. And, and so, you know, to have a founder come into, you know, our ecosystem looking for funding who has an inspiring product who was, and correct me if I'm wrong, Eugene, but you were a top selling, if not the top selling kind of my cross -speaker, my cross -speaker guy at one of those top four companies. And so like, you had proven your ability to, you know, to do this.
It was just, it was, and it also kind of, you know, the quick pitch thing, we talk about product market fit for Eugene, but quick pitch was an example of product market fit for like, it found this new deal that we weren't going to have found if Eugene wasn't left at the altar. And so it was, it was kind of cool, cool for us as well. That's interesting. So, so, so fascinating to think about that, that that was kind of a chance encounter or was it? I don't know. It's kind of an interesting thought, right? That you.
Guy Reams (23:26.158)
had the opportunity to do that pitch. Very fascinating. So he won it, by the way. I don't know that that's come up yet. He won the quick pitch competition. Yeah. And I don't know what that was that like 10 grand or 15 grand. I don't know what you won, but you won a couple of bucks. Yeah. I think it was 15 ,000. You know, that actually, okay, so God, it's so good to think back on these stories, but I do remember as we were negotiating the deal, we kind of coincided. Again, a lot of this, what I was taught by Dean is to kind of coincide the marketing. So.
the deal and term sheet, we were actually coming really, really close and we want to time them at the same time because as we were coaching, we're saying, okay, well, and I remember Dean just looked at me. He's like, yeah, this term sheet, this deal looks good. And he basically said, you just got to win the quick pitch. And I was like, okay, I'll give him my best shot, Dean. And, you know, it was a pretty big audience larger than I would have kind of normally expected. There's hundreds of people in the audience and
You know, you have a couple minutes and I just remember kind of just, all right, let's go and deliver this pitch. Let's make sure it's engaging. Let's tell our story. Let's entertain the audience. And then very, very fortunately, you know, after the two hour event, we, we, we win it. And then I just remember calling Dean the next day and it's like, let's, let's go, let's do this. So you're right timing, luck, right place at the right time. But when, you know, when you're, when you're an entrepreneur, really turning over every leaf to look for opportunity at the early stages, like.
You put yourself out there. So of course there is a little bit of luck, but it's not luck that we had applied to TCA. It's not luck that, you know, that was an opportunity. It's just the timing and it all come together worked out well and through the help and coaching of, of, of Dean, we, we leveraged that opportunity as best as we could. Yeah. I think that's a good point. You were trying anything and everything you could, and you just landed on one that worked, right?
And I mean, there were members in our group who were very inspired. I remember Annie Mack was super inspired. She was managing people in a lab. Jeff Friedman was super inspired. He stepped up early. Former customer of mine too. Yeah, Annie Mack was a former customer. Yeah. So a phrase that you hear a lot in our community of investors is deal flow, which I think is the idea that we need more companies coming in to evaluate so we have more opportunities for investment. Deal flow.
Guy Reams (25:42.606)
So I'm assuming that the reason why New Fund would be doing a contest like that and giving money out is to attract more deals in. Is that, was that the idea? Yeah, that was, I mean, you know, a small percentage is just sort of PR and keeping the name active. But at the end of the day, you know, our mission at New Fund is to be the best place for the best teams to raise their early stage funding. And, and so we want to kind of get the word out and, you know, we've done a lot at New Fund to sort of.
simplify the process so that, you know, they're not stuck in the old way of like, you know, dealing with a bunch of people who never get to the finish line. Good idea, bad idea. It doesn't really matter. A lot of early stage funds are looking for opportunities. They're not going to make fun of you for coming and not having all your ducks in a row. They're really looking for it sounds to me like you and others really helped Eugene out, irregardless of
his level of preparation. There was a willingness to help him get across the finish line. Yeah. I mean, there were members, full disclosure, it wasn't me, but there were members who I think even funded, like Bridge funded the company while we were in the process of closing, just to, you know, allow, just allow the company to continue to move forward. And so, you know, you know, a lot of times when you talk VC, you know, you defined it earlier as venture capital, you know, some will, you know, there's a kind of an old like derogatory term they would call it vulture capital, right? And.
And a VC might take advantage of that cash crunch, right? But, you know, angel investors often are like a little bit more founder friendly and, you know, they're in it for the long term. And why would you do that, Dean, just on a personal level? Why would you? Because obviously you put a lot of personal time into helping Eugene. Why? What's the motivation for you in doing that? I mean, there's two. I mean, there's no question when I was co -leading the deal for Echo at New Fund.
I was looking to generate ROI at the end of the day. I was in it for real. This wasn't like a hobby. It wasn't a social impact thing for me. I was spending substantially full time in the early stage ecosystem, sourcing deals, working with founders, mentoring founders often for weeks or months who I was never going to invest in. But for me, it's probably 75 % ROI and 25 % giving back. And
Guy Reams (28:09.87)
You know, using the basketball analogy, I'm getting to a point in my career where I'm probably a little bit more valuable if I step over the, how to bounce line and, and help on the sidelines. And if I'm in the middle of the game, and so that's, you know, that's something that I enjoy doing and it exercises a muscle that I think I'm fairly good at. And, and so that's, that's why I do it. Good. So Eugene, a phrase that I've heard a couple of times is this phrase called smart money.
The idea that you're raising money, of course, you need the money for the business to keep going or to get to the next level. But the money's also coming with advice, guidance, assistance, help. So they call it smart money. Do you feel like the fact that you landed on an organization of angel investors that were able to step in and help you, did you get more value out of that than just the money? Yeah, certainly. I mean, especially when it came down to fundraising, structuring a deal.
And you know, what's quite interesting is Dean had said earlier, he comes from SAS and he knows nothing about life science and microscopy. I mean, he's kind of discredited. He's learned such a fast absorber of our business, but he was really kind of helping me on the fundraising and how to market this and how to put it all together and create an offering. Well, that happened not just once in the initial round. Then the next part that actually came about is then we started working on putting together series A. And then, so I said,
Hey, Dean, I got all this other interest. So actually Dean, after the Tech Coast Angels round, we got the new fund round. We actually got the convertible note and shortly after we had drummed up more interest. And so I talked to Dean and I said, Dean, I want to actually put together a series A together on this and hear the terms that I want to kind of talk through. And we actually did this at his place. He invited me to his house.
We sat down and we hashed it out. It was me, Dean and his dog. And we're sitting down and working on this and penciling it out. And then we talked about how we can market this and how we can bring this all together across the finish line. And this was again, different. A lot of times series A are going to be with one venture capitalist or maybe two or maybe three, depending on the size. But this was done throughout the network of angels and super angels throughout San Diego and through other people that we had known through our network.
Guy Reams (30:32.43)
Fast forward one more time, we go further and we do, we did a bridge round that was going to take us into acquisition. And it was let's capitalize just enough so that we have some comfort security. So when we were looking to potentially selling the company that we're not really thin on capital. So that part was another exercise. And then finally we got an inbound offer and I used Dean's feedback and networking and
and coaching on how to manage the acquisition and how to negotiate through this. To be clear though, Eugene, not to cut you off, to be clear, had you taken my advice when that acquisition offer came in and you took the advice of our other keyboard member who was another major investor, you would have sold the company for half the amount you sold the company for. So we didn't always deliver the best wisdom. We were saying like, what are you doing? You're an instrument company. There's no way you're gonna get those numbers in.
Eugene was like, no, I think that we can do better than this. No, I think we can do better than this. So back to the wholesale genetics, right? And so Eugene was a very big part of that. Thanks. Yeah. So when we talked about smart money, it can come in different ways. A lot of times people were like, which network are they going to open you up to? Which customers can they bring in? But I think really where Dean and I hit it off is really kind of like just strategy in terms of how to get to the next phase of fundraising and exit. And
That was interesting that it goes from his experience in different industries to ours and it just kind of crossed and it served really good as a feedback mechanism. That's great. So let's go back to the New Fund time. So you get in front of New Fund, you win the contest, they give you some money, we get towards a round, you present and the New Fund's willing to kick in. And I imagine some other investors also kicked in money. So you're now at the point where you're starting to collect checks for this. Talk us through what happens next. So...
You start getting funding in this is more funding than you've ever had before. So now you're ready to rock and roll. So talk to us about, okay, now what you've got a bunch of money coming into your bank account. Did you, did you already have that money spent in your mind? Did you already have a plan? Walk us through that. Well, the first thing that happens is that I believe the convertible note was about $2 million. First thing that happens is you stare at your screen for like, you check your screen and refresh it, you know, a hundred times that day to make sure that it's real.
Guy Reams (33:01.358)
another part of it was though, is that, we had got an order. We'd met a group from Asia who was at a trade show and they're very interested in our product and we were brand new. We literally had like three prototypes of this trade show. And they were basically saying that they were interested in purchasing some. So they came over to take a look at our quote unquote office, which was a warehouse at the time. And they said, well, we'd like to purchase some.
And I said, how many would you like? And they said, well, how many can you build? So we mapped out and we were able to get about a $2 million purchase order. And so what ended up happening is, as soon as we had that capital, we had a need for it. And it wasn't a need of like, let's start advertising. Let's start marketing. It's let's procure goods so that we can fulfill this order. So we had already kind of. Which is like the fantasy angel investor investment, right? Yeah. So it was a.
there was already kind of strategy there. Of course, what came with that is headcount. And headcount also came with kind of a little bit of the assembly line and pieces like that. But, you know, again, these instruments costing what they cost $2 million is great to get that momentum, but you have to really start thinking about what's next. So you did you run into a problem where it's like you've got that one customer to fulfill the orders, you spent most of your money doing that. Now you need to start bringing in more customers to
get the business thriving, but now you're out of money. Is that where you get to the point where you need a bridge round? You need more money to keep the business going? Not exactly. So we got the the convertible note round because we'd been left at the altar for the $5 million. So that convertible note round, carry us over in the interim. But I think right away, Dean and I started working on the Series A. And so the Series A from there, we were going to do $5 million, and then it overscrubbed to $7 .5 million.
And so this was all part of it. And we were kind of over the course of the year, we're working on a lot of things that startups kind of need to do through that fundraising process. We didn't even have a board at that time. So we were kind of getting coached on how to form a board. And then we were also basically fulfilling those orders and getting ready for that series A, meanwhile, scaling up and hiring a team. Then finally getting the series A. Once the series A comes, we start expanding. We realize that we...
Guy Reams (35:24.814)
outgrew the capability of this 3500 square foot warehouse. It was just sublet and it was like too dirty to build optical goods. And so then we started working towards building a facility. And prior to that, it was just very difficult. We couldn't even get a building to lease to us because we didn't have the kind of credit history to facilitate that. So this in a way created enough with certain
building owners, landlords, that they would actually give us the opportunity to build a facility. I remember your first place was needed heat too, as I recall. I always had to bring a jacket when I... The winners were pretty cold there, yeah. So this is a thing I've been diving into with some entrepreneurs lately is when you get involved, when you get the first check, you're definitely involved in customer acquisition, but you're also involved in delivering whatever service or product or whatever. In your case, you're manufacturing.
product for the customer. You're fulfilling, which is important, but you're also dealing with issues like expansion problems, like getting a new building, getting a new space, leasing. I mean, that's complicated, but it sounds to me like a large percentage of your time was also looking for the next round of funding. For that year. So basically that year, again, the convertible note, we kind of pushed through it, but I actually do think I'd have to trace back. But I think from the convertible note to the series A was only about five months later. really? That went pretty quick.
Yeah, it was, it was actually a suggestion, I think, by Dean to say, Hey, let's get this done. Like it was a lot about the marketing positioning and progress is that we got this quick pitch. Let's have the offering available for the very next day. And the offering was a convertible note at that time. And it's much easier in a short period of time to get a convertible note. So once we got that closed, okay, great. Let's go ahead and do this here. Exactly. So Dean, just so everybody understands, why is it, give us the philosophy behind a convertible note.
When Eugene uses the phrase convertible note, what does he mean by that? And why would that be good or bad for an investor or for the founder? So a convertible note used to be like the accepted easiest way to raise money. There's now an easier way, which I'll mention in a second, but, you know, convertible note essentially means the investor is loaning the company money with a term in that loan that says if the company.
Guy Reams (37:50.766)
does their part and raises what's called a qualified financing, meaning a substantial funding event with a venture capital group or a meaningful investor, then when that convertible note is papered, they agree in advance that without our consent, you can convert what you owe us into equity in that qualified financing round. A convertible note is typically a two -page document. It requires very little legal, and it can be papered and then offered to anybody.
which is why founders like it. Now, fast forward to 2024 and into the current decade. SAFE, S -A -F -E, which stands for Simple Agreement for Future Equity, is an instrument that was created by Y Combinator, one of the big accelerators, incubators in the Bay Area. SAFE have essentially taken the convertible note construct and turned it just into not actually a loan that is required to be paid back, but just an agreement that says,
you'll take the money from the investor today and it will convert into equity when and if you have an equity round. But convertible notes and safes are widely understood as being easy ways to raise capital, whereas an equity round typically requires, you know, you have to change your organizing documents, you need a lawyer to paper it, there's typically 50 to 100 pages minimum in an equity funding. So it's just a more complex financing route. So this centers all around the legal costs as it takes to work out an arrangement, whereas a note...
And just complexity, like, you know, before an equity round, there might be discussion about like forming an option pool. There might be other disclosures. It's just more complicated. So Eugene, by the time you get to series A and you're raising money there, talk to us about any concerns you had about losing control of the business or losing too much shares in your business. Were you concerned at that time about that? And talk us through that.
thinking that you were going through prior to your Series A? Yeah. You know, fundraising was always part of the an essential piece for us to get to our goals. And with the evaluations that we had achieved, we were comfortable. So of course, there is some dilution when you raise capital, but this was all part of the kind of strategy and roadmap, and it was acceptable. I think that one of the things that was changed a little bit is that there was
Guy Reams (40:16.782)
places in the previous contract from the other micro VCs, which were a little bit sharp. And I talked to Dean about this and I said, hey, these are areas which I've been advised that I'm not so crazy about. Is this something that I can get your support on to change? And what it was in particular is on the previous contract, if they had majority board membership and if just they collectively as a group said, we need to find a new CEO.
That was part of that contract. And so there was some risk that was people who I didn't really know could change their mind and very easily change that. So we added in one more step where it was actually the majority of the investors also would have to agree. So the board and the majority of the investors would also have to agree. And that was a very, very important step to help get us a little bit more comfortable with this and also...
I think what it also did is it made me also commit to keeping our investors well informed and try to be, try to keep them happy as well. So I think I hope in this particular case, it seemed to have worked, worked well for both of us. So when you said sharp earlier, what we're really talking about is leverage and control. So, so the early stage investors were giving you money, but bartering and arguing for in their terms, greater control of the business effectively.
Right? That's what was sharp to you because their money came with a lot of strings attached and those strings meant they were gaining more control over the business. And so you mentioned, Dean, earlier there was a lawyer that had bartered for equity in trade for their services. And so that was another sticky issue. Having somebody, I think one of the tendencies for early stage founders is to give too much away too early.
Why is that a problem? Why did that rub you the wrong way, Deena? Why did you want to address it right away? And again, to be clear, it wasn't a giant part of the top table, but it was material. You know, it was it was we'd rather give that, you know, that equity to employees in the company to incentivize them to keep going than to a lawyer who wasn't even the company's counsel anymore. Like literally it was, you know, and and so, you know, one of the challenges is the.
Guy Reams (42:38.638)
equity you give away at the starting line is very, very hard to get back. And so like an example, and this wasn't the case at Echo, because Eugene didn't have co -founders. But one of the examples that comes up all the time is there's like four co -founders and a dog, keeping the dog analogy going. And they decide to form a company. One of the four is the CEO and really the powerhouse behind it. The other three are friends who are along for the ride.
And a founding CEO makes the mistake, well, I'm just going to split it four ways equally. And then, you know, fast forward six months, one of them, one of the other founders leave fast forward, you know, a year or two of them leaves. And now you have 60, 70 % of equity in the company that's gone, you know, to these people who are no longer participating. So the decisions you make early on around your cap table around who owns what and the hard conversations you have, like I was a founder of a VC backed company back in the late nineties and.
We had four co -founders and our founder CEO had very, very hard conversations with each of us around like, you're important, but you're not as important as me. You're important, but you're not as important as him. And so this is how we're going to start. And if it's okay, if you don't want to do it, I'll be upset. I wanted to go on this journey with you, but we also have to make sure this is set up in the right way for moving. Eugene, did you have early people that were involved that ended up not being involved?
So the people you started with, did they stay with you the entire time or did some of them fall away? A lot of our core team stuck with us through the journey, especially the early engineering team who built it. We were very, very close. But as with any growing team over time, again, going in with 10 years now, of course, there's new, there's turnover and there's going to be people looking at different opportunities, different stages in life and even just a real hard push and they may burn out.
So that yes, in a simple way, yes, a lot of the core team were very, very dedicated to this, but we did have some turnover as well. Yeah, definitely. So, but it sounds like the core team stayed, which is probably a testament to you, but also to the success, right? When things are succeeding, people want to stick around.
Guy Reams (44:59.118)
Well, and this sort of thing doesn't always, this is not always just an early, like beginning first inning kind of thing. Like a lot of times throughout the journey, you know, the, the CEO wants to hire a rock star executive. And then you learn pretty quickly that that rock star executive can't carry a tune and, and, you know, you want to make sure you haven't given too much away so that you can find the real rock star, right? Are there any ways to protect against that Dean when you do bring on a rock star and.
And you're giving them stuff. Is there ways to protect yourself if they leave? You can somehow get that back. Yeah, I mean, the classic way is through stock options, right? Where you have a vesting schedule where where whether it's, you know, whether it's an employee or we even see this with founding teams where the venture capital will come in and say, yeah, we know you founded the company, but we want to convert your equity into vesting stock options so that after we give you $10 million, you can't just decide to leave because you'll lose a lot of that equity.
We did not do that. We don't often do that when we when New Fund invests in early stage companies, but it is, you know, it is done at the VC level, but certainly should be done with key employees so that they, you know, they have a reason to stick around and build value with the, with the team. Did you start out with a stock option portion of your cap table, Eugene, or was that something you added in series A? For a very early team, we actually had stock we issued once again, kind of coming with the structure. Once we raised the series A,
Then with the board, we also were granted an option pool and that's when the stock options began. All right. So you get the Series A, you raise, I think you said 5 million and you were oversubscribed, meaning more people invested than you originally anticipated. So what happens next after the Series A? So after the Series A is when we actually started to really kind of grow and scale up in terms of adding more salespeople, growing our manufacturing team.
And then we actually started scaling up as well with some of our distribution channels. So we were participating more in their trade shows and we were actually doing more and more events with that. So it was kind of a push into kind of growing the business and selling more essentially. What we also did is we started expanding our product portfolio. Our initial product was at about $50 ,000. We thought we were going to go into the $100 ,000 range, which had a lot more automation and sophistication.
Guy Reams (47:22.542)
We started on that, but since our traction with our distributor was so good, we needed something that was a little more distribution friendly. So then we pivoted and did kind of an entry level product. So this instrument was about $12 ,000. And that turned out to be a very good decision because as soon as we launched that, we had lots and lots of success. We had pre -orders on that. And that really served as kind of an entry level, kind of get your foot in the door to a lot of these labs, not only in the U S but now in other parts of the world as well.
How did you know to predict that, that a smaller device, a lower cost device would be so popular? What was it that led you down that path? Well, the distribution channel that we're using is quite large and they're kind of one of the key leaders, but those sales reps have something like 5 ,000 products in which they can sell. So they by no means are experts and specialists in every single product line. But by...
being able to have kind of an entry level position, this is something that's easy for them to talk about. And there's so many potential customers here. So let's give them a product that's a little bit easier and a little bit more entry level to kind of get our foot in the door. So in your case, this channel of people that are always selling these devices is mission critical. That channel of people that are out there selling devices like yours is something that's really important to your type of business.
Well, you know, we were competing against other organizations that have hundreds of sales reps. And at the time we maybe had three or four. So by going through distribution channels, now we have a thousand sales reps for show, of course, responsible for multiple products, but we really focused our efforts, launched products for them. We also were doing a lot of marketing and training with our groups. So we're traveling quite a bit doing kind of this dog and pony at their regional sales meeting.
That was quite a bit of an investment and it worked out quite well. So a lot of founders really struggle with this. In their mindset, they believe that they can grow their own sales team and they can do it all. They can do marketing and get an incoming leads. But then there comes a point where they're not getting the acceleration they want. So they're always struggling with the temptation to use a distribution channel like that. Sounds to me like that was great success for you.
Guy Reams (49:43.47)
But you mentioned investment. What do you mean by investing in that channel? That means by going to all these events and giving up a percentage of the revenue to them for compensation. Is that what you mean by investment? Correct. And also investing in the relationships. Even if we generate the interest or the leads, we would go through this distribution channel. We'd say, hey, we have this person who's interested in purchasing. Let's work on this opportunity together. Right. And...
really kind of just focusing on products and stories and our sales process, how that would cater and be easier for our distributor. So these are the types of investments that we would make. So Dean, in the early stages when you get a company coming to you, this go -to -market, the way you're actually going to get the product to market is a big topic.
How much of this idea of using a channel or figuring out a way to accelerate sales plays into early stage for you when looking at companies to invest in? Yeah, I mean, it's how you're going to force multiply on a small amount of money as an early stage company is important. And what Eugene didn't say specifically is that his channel partner was one of the largest players in the lab, you know, equipment and supply space. And many of the prospects that his team was
directly interacting with already had blanket sort of agreements with that distributor. So it made it, it reduced the friction of you didn't have to like start a master service agreement process or a contracting process or terms, you know, T's and C's with the big multinational gorilla. You just said, just go buy through our distributor. And, and, you know, I watched Eugene at one point, correct me if I'm wrong, Eugene, you, you won like vendor of the year with that, you know, with that partner and,
I mean, there was, it was a big part of his strategy. I'd also share that, you know, it sounded like Eugene saw that there was an opportunity for a lower priced microscope and then went at it. But the reality was as early as quick pitch, he was presenting a business plan that said, we're starting with the $30 ,000 product. We're then going to move to the $10 ,000 product, and then we're going to move to the $100 ,000 product. So that was like part of the roadmap.
Guy Reams (52:03.694)
for a long time. And as a board, we were constantly debating on when the right time was to enter on those two products. And so we had the mid -level product, which was the flagship. And then when do we go to the small one? That was a big part of the strategy, because it takes real money to build these new products. That's interesting. What a great thing to think through is finding that channel partner that can help you multiply your sales force. So Eugene, OK.
So that you had some tremendous success. I'm sure you learned a lot going through early stage, working with Dean, getting up to series a, and then going on to the next level. Anything that you would, anything that you learned that you wish you would have known from, from those early days, like if you could tell yourself, like, don't waste your time on that, do this instead. Is there anything that you can think of that you would give other people as advice? You know, there's a lot of people who say the reason why we succeeded is so many.
mistakes that we made and, you know, don't be afraid to fail. And, you know, that I hate to say this, but that didn't really resonate well with us. You know, I just remember becoming actually working in a science lab and the scientists that the, that the PI, the lead in the, in the lab was basically telling me if you're not experiencing a 90 % failure rate, then you're not actually pushing the boundaries of science.
And just my own personality, that was not something that I don't like experiencing, a 90 plus percent failure rate. And sure, sure. And this is kind of the science mentality, but also the startup mentality embraces failure to learn. And while I do think it's a constant iterative learning process, I mean, I think that what we really tried to do is say that, you know, this really kind of commitment that failure is not an option, we're very lean on resources.
So you have to make smart decisions and you have to figure out ways to stretch your capital. You have to figure out ways to problem solve. And so by no means did we do everything perfectly, but we did not embrace a culture of failure and mistakes. And we don't, we take that very casually. We've just really tried very hard to focus. In particular to say, is there any instances where we would have changed things just a little bit? Well,
Guy Reams (54:24.75)
I'm actually very, very glad that the contract that we were actually left at the altar. When I did a little more digging like with these other investment groups, part of the reason why we revised is not only the terms, but they did have a little bit of history of taking founders out pretty early, potentially for their own interests, levels, or whatever the reason is. But looking back at that, I'm just very, very grateful. And that was not by...
twice, it was just kind of by circumstance. So I got one, Eugene. How about not moving into a big two -story corporate headquarters right before a global pandemic?
Yeah, yeah, yeah, yeah, of course. Yeah, that's a good one. Yeah, yeah, you couldn't have seen that coming. That's funny. Well, good. Well, that's that sounds awesome. So tell us, finish out the story. So you, you get past Series A, you get some investment, and now you're starting to get growth of some other product lines. Take us to where you're at now. So I think the Series A closed, I think in 2016. And
We have been growing quite a bit to the point where I say to our board, to Dean, I say, look, I think that it's getting closer to getting ready to market this thing. Why don't we take a look and see what's next? So there's a big conference within our industry. It's called JP Morgan Healthcare Conference in San Francisco that's held every January. And so in 2020, we go to JP Morgan and we had been introduced by a banker to a
venture capital to a private equity group, and then also to a strategic buyer. So he had made all three meetings for us during this event. And so we had had these conversations. It's kind of a lot of speed dating there. So we had these very brief meetings with all three of the groups and there was a very high level of interest. So right away, NDAs were signed and they all came to visit our company to take tours and they're very interested.
Guy Reams (56:30.862)
even to the point where one of us made us a verbal offer for us to bounce back to our board and see what that would look like. So we're pretty excited. So basically what ends up happening during this period of time is this is right when COVID starts becoming a real thing, where flights are canceled and events are canceled. And we went from this emotional roller coaster of, wow, this has actually kind of gotten a lot of momentum and excitement and acceptance to, wow, everything's getting shut down.
the offices, the labs, no more access and how are we going to do all this? And so it went all the way into just like, how are we going to get out of this? And it was actually kind of a dark time and trying to figure out. And so what shifted then is there was a realization that the big four, microscope companies that I had rec that I had, that I stated before, they all had name brand recognition, but ours was still new enough where we're saying people aren't going to know to call us, when they're looking for opportunities.
So our traditional tactic of all these other trade shows and flying out to these meetings and doing all these kind of road shows and cold calling, those are all the sales culture tactics that I grew up with. Those were come to an abrupt halt and kind of talking through and working with other people. We got introduced to the idea of basically it's digital marketing. It was called growth hacking at the time and really trying different things in a very capital lean and efficient way to basically do online marketing and that had existed before.
And another person who had lots of experience with this was Dean. So we would bounce back ideas. And what was great about this is it turned out that our, even though these methods and procedures were already used, we were finding out very quickly that within our own industry, people weren't really doing this. So we pushed in and the entry point was actually pretty cost effective and we were pretty early on on this. And through this method, our business actually rapidly scaled in terms of lead generation.
then now doing virtual demos, and then basically doing sales. So there was a little bit of lull when people were in the capital equipment were holding and, you know, holding off on purchasing and signing their checks. But then the following year was a big, big year for us. So then we have this, another great growth year, and then things start coming back to life. And then the following year, as we're getting ready to do the kind of same type of circuit to see you kind of if we're going to raise more capital, show the company, we had a
Guy Reams (58:58.67)
another company who had contacted us who had showed very strong interest and they were interested in learning more about the company, which then led us into our &A discussion. That's great. Now I've heard you say several times industry specific things. You knew of a channel company that could help you. You're going to the right trade shows. You're talking to investors that are in your space and now you're reaching directly out through a direct outreach campaign to the right people.
It sounds to me like a secret to your success has always been talking to people within that industry, knowing that industry pretty well. Well, I think so. For sure, we knew our industry quite well. I mean, I started right out when I was out of college. It's actually, for better or worse, it's the only industry I really have worked in. But I would actually get information from people from outside industries. And I would say, how could those tactics be used within our own business?
I see. That's interesting. So you have your own industry knowledge that has helped serve you well. And then you're using tactics from people like Dean, this outreaching concept to work into your business. And that's causing it to be an accelerator that you weren't expecting. So that's kind of curious to me. You're using your own expertise to go after the market the way you know, but then you're interweaving other advice. So that's another reason why getting
investment the way you did has been very beneficial to you. You know, again, I think it comes from our industry being very, very mature, and hundreds of years old. They do things very, very well in certain regards, but there's a lot of new ways to do business. And fortunately with me and the right people and, you know, I think being in San Diego, which is, you know, blends the West Coast and the California and the science, life science, it's a great place to really kind of get modern and progressive business ideas. Eugene's being a little bit humble.
He is selling in an industry that is very old, very tired and very boring and he is cool. And they did some very, very cool things in their marketing and in their go -to -market. I mean, even just dumb things like time -lapse photography, putting up a trade show booth at a big trade show, just like things that Nikon would have never done, right? Or like here or Olympus or whatever.
Guy Reams (01:01:23.31)
So it was just this breath of, it was almost like a blue ocean strategy kind of thing where you just make the competition irrelevant. You just march at it in this whole new way, right? That's interesting. It's interesting to think that there's nothing sacred. Like you can go after a market in any way you think is actually going to connect and resonate with people. And it doesn't matter if anybody else is not doing it or not, right? I mean, who cares if people haven't done it before? If it resonates, it resonates. I mean, who cares, right?
It's kind of funny how we get trapped in the way it has to happen when it really doesn't need to happen that way. All right, well, Dean, any parting thoughts for us today? Any thoughts about Eugene or about the path that he took? Anything that you would have liked to have seen done differently or anything you'd like to highlight that went really well? I mean, I think, again, the combination of sales genetics and then just like relentless focus on execution, it's exactly like...
It was such a fun partnership to be on that journey with them. I'll share a 45 second story about, so Eugene sold his company, he moved to a nice house. I have since jumped into a portfolio company that sells solar. It's a national sort of Uber of solar. And Eugene calls me one day and he says, hey, I need solar, can you help me out? And so I drive over to his new home and.
and bring my laptop and we're sitting at his kitchen table. And I'm like, how did this happen? Like I was like, I was your mentor and your investor and your deal lead and your board member. And now I'm sitting as a sales guy selling you solar. Like, you know, you are like, it was, it was a very funny like ending to the story. That's funny. Mentor, investor, board member, solar sales guy. Yeah. That's, that's great. Well, Eugene, any parting thoughts before we go?
Yeah, so we were talking a little bit about kind of the journey and with investment and money is a funny thing. It really is an enabler to build a business and it's a critical component. But with that comes relationships. And I think that it's very, very critical not only to find the right partners, but also to work hard at that relationship as well. It's an ongoing thing. So while Dean tells a story about all the way through the pathway through solar, like
Guy Reams (01:03:41.678)
I hope we continue to see each other and do other things. And, you know, it's an ongoing relationship, you know, that starts at a certain point, but it should continue all throughout the journey. And I'm trying to get him into New Fund now. Yes, he should come and join the party. So, no, but, but, Dean, Eugene, you've said this several times during the call, investing in the relationship, whether it be your channel partner, whether it be your customer, whether it be your investor.
You've said that several times. So there seems to be an ongoing theme with you, which is be willing to make the investments and the partnerships and the relationships that are really going to help your business down the road. Certainly. I think doing a few projects yourself, there's things that you can do with some hard work, but to do something in a much larger scale requires the help and support of the team and good people. So.
It's really important. All right, well, I think we'll end on that. Thank you very much for your time today. Appreciate it. Thank you for listening to this episode of the Founders Journey. You can follow us at foundersjourney .fm for updates on our episodes and to recommend future guests. Special thanks to our primary sponsor, New Fund Venture Group, who can be found at newfund .com.