Wired Science

Paul Kedrosky is a venture capitalist. That’s someone who connects investors to people with ideas and in spite of the bursting of the dotcom bubble back in the year 2000, remember how it got all poor a few years back? Well, there is still plenty of money out there, looking for brilliant ideas and of course, looking to avoid the crazy ones.

Today, Paul works with a San Diego based venture capital firm and his blog, by the way, is one of the most respected sources for information on the venture capital world. I mean green technology, consumer electronics and biotech they’re all arenas that Paul plays in. He joins us tonight to discuss moving science from labs to companies.

Ziya Tong: Welcome to the show, Paul.

Paul Kedrosky: Thanks for having me.

Ziya: You’re involved with a very innovative center. What’s the idea behind it?

Paul: The center is the Von Levy Center, which is in Sand Diego. The idea behind it is to find a way to get science out of universities and out to where people can benefit from it.

Ziya: Does the center actually run like a business? Do you expect some sort of return on investment?

Paul: We pretend we are. The idea is we operate as if we’re a normal venture capital firm but the reality of doing early stage venture capital, which is really what we do, where we’re operating at the point where all you often have is an idea, a great researcher and maybe a graduate student or two hanging around the project. You don’t even have a company. Even if you wanted to make an investment and put some money into some ground-breaking research, in a drug or a diagnostic or something else, there’s nothing to put money into. You often have to put it in a form of a grant, literally give people money and say, “Take this a little bit further down the path and then whenever you’ve got a company in place, we’ll put in some more money.”

Ziya:  So you’re like an angel investor for scientists, in a way.

Paul:  Yeah, in a sense, except we’re able to do some things that angels aren’t able to do, because we can be very patient and hang in for a long time, we can wait, while research finds its way to the marketplace. Whereas an angels got spouses at home who are saying, “Why would I put $500,000 into that? I want a return tomorrow.”

Ziya: Right.

Paul:  We don’t really have that problem. We can wait it out a bit and say, you know, let’s see whether or not in a year this is at a point where we can wrap a company around it. Then in a year, see if it’s appropriate to try to pull together another $5 million. We can be patient and helpful rather than just saying let’s turn a single company right now and get it out, and then get money. We don’t have to do that quite so quickly.

Ziya: So, what kind of projects are you involved in developing?

Paul: We’re involved in some really interesting projects. For example, one of the projects we’ve been working on for some time now is material that was originally intended to be a light weight alloy for armor. We thought, this is an interesting application but it’s not a huge market or at least historically, it hasn’t been a huge market, these sort of ideas for light weight…

Ziya: Historically, it was probably a huge market, not so much now.

Paul: I mean way back. Not so much now. We started off thinking that was going to be the market and as we looked at this material more and more, and tests we did in the lab, we realized, you know what, this alloy has some weird properties. One of them is if you drop it on the floor, it actually bounces in some strange ways. Metal doesn’t normally bounce particularly well.

Ziya:  That sounds very sci-fi.

Paul: Yeah, it’s very sci-fi and what we thought was, what kind of things would you want to do with a metal that’s got "a high coefficient of restitution”? The notion being that if you compress it, it expands back really quickly. What would you do with something like that? You’d hit something with it because clearly, if I hit something with it and it springs back quickly, whatever you hit with it is going to go far. What do you want to hit and have go far? Golf balls would be nice.

Ziya: Yes.

Paul: This was sort of the process and now we’re in the process of signing licenses with this technology with some of the largest golf club manufacturers, who probably still…

Ziya:  So from armor to golf clubs.

Paul:  Right and that’s the kind of stuff that you see as you start off in one place. You think this is the direction you’re going with this piece of technology and as you follow it along and think through what it is you really have and what markets can you really change, it turns out its golf clubs.

Ziya: Who knew?

Paul:  Who knew? It’s somewhere else all together.

Ziya:  What are some of the other crazier projects that you’ve been investing in?

Paul: We’ve got a list. So, hopping robots,

Ziya:  Hopping robots?

Paul: These were for something that was created as part of a DOD, Department Of Defense grant. The idea was that we’d have robots that would go hopping into caves looking for terrorists. It turns out that most caves have really rough floors, so you know hopping robots…

Ziya: Always thinking ahead.

Paul: Hopping robots would look like a good idea. You’d think, I can’t get a crawler tread in there but I can probably hop through the cave. That was a pretty small marketplace. We’ve taken that to other places and now it’s turning into probably a toy for launch at Christmas, maybe 2009. These self-righting, hopping robots.

Ziya: What’s the ratio of success compared to investing in a traditional business because you’re investing in scientists?

Paul: Yeah, it’s horrific. That’s one of the basics that people have to keep in mind when you’re doing this. It can sound really exciting. I’m going to invest in research that potentially is a cure for cancer, therapeutics for HIV. These are great places to be but the reality of working in early stage research is the failure rate is through the roof. By way of comparison, in a traditional venture capital, about 1 in 10 of your investments pays out, meaning that it returns, say 4 or 5 times what you put in. In early stage science centric venture, investing the mad science stuff we like to do, if you hit 1 in 50, you’re incredibly successful.

Ziya: That’s already considered a success.

Paul: Oh, that’s a huge success. More realistically, 1 in 100, people would still be coming to your house and applauding on weekends.

Ziya:  In a ration of 1 in 50, what’s been the one great success?

Paul: A good example of one that we’re really excited about, and I think is going to do great, is called Face Effects. It’s a software product that is based on the most leading edge research in facial feature recognition. Instead of having to tell the software that these things are eyes, this is a nose, this is a mouth, it recognizes all the features on your face immediately and then you can take it to the next step and say, “I want to brighten the teeth 4 shades. I want to shrink down the nose. I want to make the eyes wider.”

Ziya: It’s to enhance people’s features?

 Paul: Right. You can make them worse if you want to, but not a lot of people want to do that. Where this has found huge levels of interest are on some the biggest dating sites and the cosmetic manufacturers. They want to be able to say that as you change your features you can use…

Ziya: That’s scary.

Paul: You can use eye shadow number eleven or whatever the case may be. But, underneath all of this, what might seem like a trivial application, is some of the most cutting edge research in facial recognition.

Ziya:  It’s sort of an auto-correcting PhotoShop in a way.

Paul: Yes, a much smarter PhotoShop. In many ways that’s exactly what it is. It knows what it's looking at.

Ziya: What’s an example of one that kind of got away?

Paul:  All the rest. No, we’ve had a long list of them. Of the ones we’ve had fail, probably one of the biggest disappointments of ours was doing delivery of drugs to the back of the eye. There are all sort of disorders that have to do with back cortical, and other “back of the eye” diseases. It turned out that what we were trying to do was pretty heroic but it never really penetrated the eye adequately. You find out all the time in life science that it just wasn’t as effective as we hoped. It was a great idea. It just didn’t work in the real world.

Ziya: How about “green” applications?

Paul: One of the biggest themes we’re seeing right now is “green.” The idea of environmentally friendly technologies and, within that, the biggest thing that we’re focused on is LED technologies. Light Emitting Diodes, which have been around forever, for at least 100 years now. There’s a law in LEDs called Haitz’s Law and the notion being that the performance of LEDs doubles about every 18 months. They become twice as bright for the same power and with approximately twenty percent of global electrical power going to lighting, that’s a huge drop in the amount of electrical consumption. One of the most green things you can do is replace lights with solid-state lights.

Ziya: That is astounding. I’m definitely looking forward to learning more and seeing more of the projects that you guys put out there in the future.

Paul: Sure. Thanks.