matt kozlov

Matt Kozlov — Techstars Space

Posted on Thursday, April 9, 2020

Our guest Matt Kozlov is the managing director of Techstars Space and ran Techstars Health for 3 years before that.  

We chat about launching toaster sized objects into space for a couple million bucks, getting non-dilutive grant money, and of course Techstars ($120k and a great program)! 

 

View Transcript

Today Matt Koslov and I are on a zoom video connection.

Matt is the managing director for TechStars Space. And before that, he was three time managing director for TechStars Health. Also here in L.A., he had a few jobs before jumping over to TechStars. Yahoo! Mobile gaming, enterprise security. Looks like a lot of expertise in corp dev. But we’ve got to start by just acknowledging what’s going on today, which is we’re in the middle of Covid-19. We’re all sheltering in place at home. Matt and I both, I think, have kids who might bust in on us at any time.

So it’s kind of an anything goes podcast day. Matt, thanks for joining. Thanks. I’m hiding in my bedroom where hopefully my two small children will not interrupt and this is the closest thing I have to quiet space, but we don’t have a desk in this room, so I am in fact lying in bed doing this podcast. I must be your first podcast guest doing this from from their bed. Is that true?

That’s entirely true. I wasn’t. I was not sure whether to call it out. 

We are in the middle of a world health crisis. So I think it’s a little bit looser standards here.

So, you know, you were the managing director for for a health tech accelerator for the past three years.

Do you have thoughts on what’s going on right now in the world? What I’m seeing on the health care front with a lot of my startups and I I’m hesitant to call this a, you know, an opportunity, because I think that could potentially sound callous. But it is highlighting the need for certain technologies in health care and things like telehealth and things like digital tools to improve doctor efficiency and tools to speed clinical trials, tools to find drugs to more easily and to enforce adherence and to make to make the health system work more efficiently.

Health systems that have made the investment to integrate technologies and focus on innovation to make their operating environments more efficient, everything from patient communications to patient intake to billing to, you know, nurse staffing and to to care pathway optimizations, it’s all paying off for them.

I don’t think anybody was prepared for this, but I think the hospitals and health systems that did start integrating technologies sooner are probably better equipped for this. And startups who are offering tools for hope for those types of applications are in wild demand right now. I’m seeing startups, you know, onboarding thousands of doctors a day and be rolled out statewide across the entire health system.

Sometimes it’s actually sort of hard for me to sort out who’s going to be the winner and how to how to sort of think about sorting things out in, let’s say, telehealth right now.

Yeah, well, I think starting at the triage level if I’m sick.

Now, what do I do? Do I try to go to the doctor’s office? I try to go to an urgent care facility. Do I got. Do I go to the E.R.? The answer is, well, first you gotta triage that and create some kind of tool that points you in the right direction. And maybe the answer is you just need antibiotics that a nurse practitioner can actually prescribe to you virtually without even seeing you face to face.

I think the irony is a lot of people are not aware that their plans even necessarily cover that and prefer to talk to their primary care physician. I also struggle to know sometimes whether I’m getting someone who can actually diagnose or prescribe for me or for my children more often versus someone who can kind of just tell me you’ve got to go to urgent care.

You don’t. Yeah, and that’s a part where technology, I think is going to play an increasing role, too, in putting some of the sensors and equipment into the home for remote care touchpoints, you know, making sure you have a connected digital thermometer connected, digital scale connected, you know, blood pressure, cough, glucose monitor for diabetic patients, but trying to create as much of a bridge between the data that you as a doctor would get from your patient in person versus when they’re at home.

What do you think? As you know, ten when ten we tend to focus on data is a big focus of ours. What do you think about this, the status of data and being able to share data and actually make use of our health data right now? I think there’s a lot of different ways you could unpack that question. I mean, from a public health epidemiology perspective right now, data is going to be essential. You know, contact tracing and figuring out the nodes and how this is traveling and how to get our handle on it is going to be really important trying to this probably information about, you know, what what limits this virus and what accelerates this virus in the data, whether it’s humidity or temperature data, whether it’s wind or animals, there’s probably data around the spreading transmission of this that is out there, just isn’t being captured and analyzed in the right way.

When it comes to personal health data. I think, you know, HIPA compliance is still the rule of the land. And, you know, we’re very careful as technologists and health systems to make sure that patients data stays anonymous.

But I think part of HIPA is keeping it anonymous and part of it is actually you’re going to have to keep me honest here. But part of it is also the data is meant to be able to be extracted from your health records and that you’re supposed to have some ability to sort of own your data. Maybe that’s entirely part of it. I know it’s true.

A sense for portability, not privacy. And in HIPAA, however, it’s there for the patient to be able to port it, not for the hospital.

You know, if you want to bring your data from one provider to another, that is your right. That said, it is very difficult in today’s data architecture to do that because the data lives in these electronic health records. The EHRs and the health records are generally built to try and keep the data as locked in as possible. And so there is this tension between what is right for the patient and what is probably right for the hospital systems and what the EHR companies are doing just the way they design their products to make it difficult.

So there are a lot of work arounds. But I mean, if you look at what Epic has done there, what they’re trying to lobby the government to prevent, you know, looser data portability standards. So, you know, there is a there is a tension there.

So, you know, I had to I had to ask some about our current situation. But I try to always get some of the basics. 

So give us a little bit more about Techstars Space. As far as I understand, the there’s usually sort of corporate sponsors, maybe in this case it’s not corporate. Because I think there’s some U.S. government to your sponsorship. But give us a little bit of the basics of TechStars space.

Yeah. So when I ran the healthcare program with Cedars Sinai, that program was with with one partner. And it was a very deep, integrated partnership between ourselves and Cedar Sinai for this program. Given the nature of the space industry, there’s commercial, there’s civil, there’s military. Now, what we wanted to do for this program was to bring together a consortium where we would have different viewpoints from each of those three legs of the space industry, commercial, civil and military represented in the consortium. 

So this program is sponsored by the United States Air Force, NASA’s Jet Propulsion Lab here in Pasadena, Lockheed Martin, Maxar,  technologies mixer is a publicly traded commercial satellite company, SAIC, which is a very large government systems integrator, and Israel Aerospace Industries, which is actually the government owned aerospace Prime Defense Company out of Israel. But they also have a presence here in the United States, North America.

So does that help? Like, if I’m a company and I want to win a government contract and you’ve got the U.S. Air Force. Is that something that you can help people and just generally do you have advice for startups? Like, if I want to have a government contract, should I give up all hope or is there hope for doing that, and how do you advise people on approaching that?

Yeah, great question. So our program is actually the second of three programs that we now run with the American Department and U.S. Department of Defense. Our first program is a program that we set up in Boston with the United States Air Force, which is very generally focused on solving problems at the Air Force.

Needs help with the original vision behind that program was that there are a lot of amazing technologies being developed for commercial markets in the United States that are foregoing working with the Department of Defense, because the perception is it’s going to be a long haul. It’s going to be a lot of paperwork. The people who win those contracts are all the government primes who are equipped and know how to work with the government.

And so the Air Force and TechStars started this program in Boston to try and break down those walls and to increase the mentorship and to make it easier for startups to work with the Department of Defense. And they actually wound up changing their approach to two grants. Now, you can apply for a grant with the Air Force, and these are non-dilutive sources of capital where you can apply, you can fill out a relatively simple form.

And hear within 30 days, what whether you want to phase one and if you want to phase one, that basically gives you access in two different customers within the military. And if you find one that says, yes, we would be interested in purchasing your product, then you can be eligible for it. And we have companies who have actually received 1.5 million dollars or more in government grants as part of Phase II, they’re called SBIRs. And what we’re seeing is that companies are getting that access to to mentorship as well as customers and government grant funding with really very little experience having done this before.

And what we’re seeing is that that affirmation and confirmation of interest from the Department of Defense often makes it a lot easier for our companies to raise venture funding because they see that there is actually a potentially big, reliable customer.

My understanding of SBIRs is they’re sponsored by different government agencies. So like the Air Force might give you an SBIR Grant But then NASA might also give SBIRs.

And is that usually a good entry point? Are there other entry points? Is that is that a good place to start? If I’m a startup looking for non-dilutive money or just or a relationship. Yeah, I think it’s a fantastic way to start.

And you know, each of those SBIR are administered from different pools of of capital and how they can be deployed changes from department to department. The department that I’ve seen sort of speed line the process as quickly as possible is the Air Force. And so I would encourage companies to specifically look at the Air Force’s SBIR process administered through AFRL Works or AFRL of the Air Force research lab.

That’s the one. And the. They have something called an open topic, which is show me what you got. They just say, you know, tell us what you have and we’ll tell you if it’s interesting to us as opposed to putting out a very specific request for a very specific technology. 

And so know, I would definitely recommend starting with with the Air Force open topics and an SBIR as Navy and Army NASA, the Department of Energy has a as a SBIR process. I think the FAA has started issuing grants as well. You know, certainly the NSF also has. I mean, you should. Any startup that thinks they might have a technology that could be applicable to the government should be looking at that as a way of bringing in capital.

And it usually starts off small like $50 to 70k, but it can be in the seven figures as you go towards second phases.

And then I think it’s it’s related to one of my questions about TechStars space.

They also relate to just the U.S. Air Force is sort of how broad, how broadly or how narrowly do you define the companies that you’ll take into TechStars Space.

We try and cast a pretty broad net and we definitely invest in companies that are obviously space companies. We had one company in our last cohort that’s building propellant depots in space, so that satellites going to refuel and build build longer lasting missions. Had another company that’s doing a lecture say that’s like gas stations in space.

Having have gas stations in space. Yeah, that’s a cool orbit fab. And we had another company that’s doing electric propulsion systems using tiny little thrusters that can be assembled on your satellite to allow small satellites to move nimbly through space for for for very, very long time.

So these are obvious space companies, but we also have companies in our in our program that are applicable to space as well as many other industries. We had a company in our last cohort that’s building a nuclear power source for stable, long lasting energy. 

And we have also companies that are doing aerial imagery analysis from either satellites or drones that can be used for farmers to optimize their crops and irrigation can be used for oil and gas companies to detect leaks or problems in their equipment. But it can also be used for for surveillance of enemy or other countries, military bases.

So, you know, a lot of the companies that we like to invest in would be called dual use where they have a commercial application, but they also might have a mission based application.

So TechStars decided to launch TechStars Space. It didn’t exist before.

I think you were doing this in the last last year, I guess, you know, kind of the the I’m turning into a veazey. Oh, my gosh. Why now?

Matt? 

So I don’t think five years ago we could have run this program. I think that there have been a number of disruptions that have enabled this program to run now and to be as compelling a category for venture capital.

The first is access to space has been fundamentally disrupted by companies like SpaceX, Blue Origin and Rocket Labs. They have made it significantly less expensive to get a satellite into orbit. And what that means is you can go for $2M dollars or less. You can build a satellite, get it into space, start generating valuable data or connectivity from that satellite. And if you’re a startup, space is now. A viable option, whereas five years ago you couldn’t you couldn’t get that satellite into orbit for anything near the price per kilogram you are now.

So if I wanted to put you know, I don’t know the terms very well, but like CubeSats some I’m always hearing about how how much investment, how do I what are the steps day to day contact with to actually get that into space? If I wanted to do that.

Yeah. Well, you know, assuming you’ve already built your satellite, you know, you could and you know, universities now have have programs where they’re building CubeSats and getting them into orbit.

How big are they actually? I’m like waving my hands around here. Yeah. The typical measurement is they they designate by use. So like one unit to unit six units, usually most CubeSats are between one and six U. That’s the. And they’re about like this is about a 1. You take a toaster.

Yeah. Yeah, yeah. It’s like a toaster. Yeah. A big ten. Yeah. And then once you start getting into the small sat those can start looking like small refrigerators.

And then when you’re looking at the massive satellites they are the size of buses. But you know these small SATs and that’s another big disruption which is the miniaturization and standardization and beginning just people are starting to standardize around these smaller satellite functions. And you can build really powerful computers that can work. You know, the components are increasingly off the shelf. So we call them cots commercial off the shelf equipment that are not necessarily meant to last for 30 years. It’s OK now because you can get access to space.

You can put up a satellite that’s maybe only meant to last three to five years and it will eventually degrade in the launch. New one, because it’s not that expensive to build and it’s not that expensive to get into orbit. And so a lot of these new constellations that you’re seeing from one Web and from Amazon and from some of these startups, like the TechStars company called Kepler, I don’t think anyone expects these satellites to last 30 years. But, you know, they’re launching Starlink.

Right. So the the the Space-X satellites, you know, they’re they’re again, they’re they’re meant to be temporary. They’re meant to try value in the short term. They’ll probably last longer. What we’ve been seeing is that they’re lasting longer than most people would expect. But, you know, that is that is a big disruption where you’re able to build them faster and cheaper and get them into orbit faster and cheaper to. I mean, it’s Szilard.

It’s so amazing to think I could build not that I could, but, you know, you can build one of these toaster things and send it into space. And then it could be in space. 

Before I go too far into this conversation, just the basics. I did an episode with Anta Barber about TechStars and now I’ve forgotten, but there’s something like it. I know that’s great, but I think there’s a $100k and there’s $20k and TechStars ends up taking common stock. But can you just hit me with the basics of TechStars for one second?

Sure. So every company accepted to our program is offered up one hundred twenty thousand dollars of financing. On day one of the program. So there’s no winning TechStars or anything like that. Once you’re in, we give you one hundred twenty thousand dollars and we do everything we can to help you grow your business as rapidly as possible and help you raise additional capital. One hundred twenty thousand dollars is is split into two components. One is that we give founders our program as well as thousand dollars to cover living expenses typically and miscellaneous costs.

And for that, we take 6 percent common stock. As you mentioned. And then we also offer every company a one hundred thousand dollar convertible note. And the note know the cap on that note by default is is three million dollars, but we are able to raise that up to five million. If a company is raised outside capital at a higher valuation, up to 5 million, and then the note is optional. Do other things take common stock?

That is a great question. I don’t. I don’t. Not traditional bases in general. But I wouldn’t be surprised if other accelerators did something similar. I mean, the idea is that VCA take preferred stock, which is kind of like what it sounds like, right? It’s you get set of preferences with your preferred stock. But I guess you’re more aligned if you’re taking common stock.

We yeah, we we want to be there with the founder. We want to dilute with them over time. We don’t take control. We don’t take a board seat. We really want to be at the same level as the founder and for the founder to see us as a as part of part of their team, an extension of their team.

And do you think TechStars space is very different than TechStars health? There are a lot of ways to answer that one thing, because I had no space experience prior to starting this program. Did you have health experience?

I also had no health experience.  Not to call you out.

Yeah. Well, OK, let me let me answer the first question and then I’ll answer the second. So there are a lot of similarities between healthcare and space.

Their hard problems to solve. I think that the generally accepted understanding is that health care sales cycles tend to be pretty long. The general guidance is that it usually takes 18 months to close a hospital as a contract. And often these are not, you know, 10, 20 million dollar contracts. They can be two hundred four hundred thousand dollars contract. So it’s not you know, it’s not an industry where you’re gonna have quick wins. And the same is true in space.

You know, founders who are trying to build products in space need to be in it for the long haul. They tend they tend to be there’s even fewer there. 5000 hospitals in the United States. There are. If you’re selling into hospitals, that’s your customer base. That’s a finite pool. There’s a much, much smaller pool of finite customers in space. Interesting. You know, military customers, aerospace primes and space agencies. That’s a finite number in the world.

And so you’re looking at big ticket items, smaller volume. But interestingly, another similarity between the two is that they’re highly regulated. You can’t get them wrong.

Its also putting billions of dollars of equipment and decades of time at risk. So when we put up the Mars 2020 rover, you can be very, very assured that every single component on that craft has been tested thoroughly. The design for that has been in the works for a decade. You know, these are very carefully calibrated and designed and tested before they actually get launched there. I don’t want to say overengineered, but they’re precisely engineered.

And so if you’re a startup trying to integrate a component or your product into a space mission, you similarly have to make sure things have been all the I’s have been dotted and all the T’s have been crossed. So it’s a careful industry.

Yeah. Do you feel like you end up coaching? Like if you’ve got a dozen p_h_d_ in your program, do you feel like you end up providing different coaching for those sorts of founders?

Yeah, we had a lot of p_h_d_ in our health care program too. And that actually goes back to another similarity where sometimes I miss I’m going to compare these two programs to health care and the Starbucks program with Anna’s L.A. program. Know I am getting companies that may have and, you know, very well funded. I know that electric propulsion company that I mentioned to you before, six p_h_d_ being it was being developed over the course of nine years out of the university.

And so maybe you didn’t necessarily have the experience raising capital selling, you know, rolling out a commercial product.

And so we spent a lot of time and our program surrounding them with mentors and business leaders who have done that. And, you know, teaching them how to fundraise and and helping them build those that muscle. I do think that, you know, you can turn. Not all p_h_d_, but a lot of p_h_d_ integrate entrepreneurs, some kids. PhDs, again, are too into their own technology and being in the lab and don’t want to actually run a company.

But there are a lot of amazing p_h_d_ who, you know, have built a great technology and can build a great business around it.

Great. So I mean, you alluded to Anna at TechStars L.A.. I’m kind of curious about TechStars, actually. And so I think there’s a lot of differences between the city programs and the what you call it, an industry program. What is yours?

Very we we call them, you know, corporate program and or an industry program. OK.

So so there’s some differences there. I’d love. I mean, you’ve been part of TechStars for a long time now. 

I’ve I’ve been at TechStars now longer than I’ve been at any company. I don’t know if that’s a good thing or it’s as much for me. I don’t know what it says. It says a lot about TechStars, though. And you know, my commitment and passion for the organization.

I’ve been an employee managing director with TechStars for four and a half years. And before that, I was a mentor. Cody Simms, who ran the TechStars Disney program, had actually been one of my bosses at Yahoo! 

I do think it’s an incredible mission. I mean, we’ve invested now in over 2000 startups since we started, I guess, about 15 years ago.

Each program has about 150 mentors, you know, at times 50. That’s a lot of really amazing people that we can plug our startups into. And we have over 80 corporate partners, including governments and Fortune 500 corporations across the globe. I think it’s an amazing network to be a part of.

But let me let me ask a different one. Hard to be a part of. Yeah. Yeah.

So I’m coming from San Francisco where I’ve been or the bay or the Silicon Valley for two decades now.

And there isn’t much techstars in the Bay Area. I think that’s MRO.

We don’t have a program there, but we have a lot of companies there. We have a lot of mentors there and a lot of our corporate partners are there. 

You know, historically, we’ve always tried to go into communities where there was a vibrant tech community, but it hadn’t necessarily been synthesized into an organization yet. And, you know, I remember that I we now run three programs in L.A. And I think there’s probably room for more.

How much it so TechStars HQ, if that’s a real word, is in Boulder, I believe.

Correct. How do you how do you interact with how much latitude you get as the managing director?

Quite a lot. I mean, there’s certain things that can’t change or won’t change, you know, will always be a 13 week program, will always unless 120K know, we generally will always have, you know, our mentor madness experience where we bring in our mentors in the first month, second month and we focus on execution and building business and third month that’s focused on fundraising. There are certain requirements around our logo. But, you know, we do have a lot of latitude around how we run the program.

We select our own companies. How we interact with those companies is up to us. 

And so where do you think you really are leaving your mark on TechStars or on L.A. as an ecosystem, or where do you want to be leaving your mark over the next decade? I should probably be thinking about that question more than I do. You also have small children at home and we are all so you are you’re given some latitude. But I am kind of curious.

I like what motivates you and and where you want to be going.

Yeah. I mean, at the end of the day, this goes back to what I said about helping really passionate founders who are really passionate about the problem they’re trying to solve and helping them to do it. To me, that’s what I love more than anything. I love being helpful. I love helping founders with big dreams who are solving big problems.

And if they can build a great business, that all makes us a little money. At the end of the day, that would be nice, but I don’t think I think about much more than that.

Cool. Cool. And where did you grow up and what were you like in high school? I grew up in suburban New York in a suburb called Scarsdale, which is part of Westchester County, about 30 minutes outside of Manhattan. What was I like in high school? I mean, I was definitely a nerd. I was I was a very good student. I got very good grades. I worked hard, probably worked harder in high school and college.

But I was also a musician. I played the saxophone. Still do, although not as often given two small kids.I had a great group of six friends and those are the main people I saw.

That’s great. And how do friends describe you? How would your friends today describe you?

My friends today would probably describe me as pretty cheerful, outgoing, extroverted, fun loving family guy.

Totally. I like that. Re-institute, that’s great. Oh, yeah. I have no more personal questions for you. This is great.

It was really interesting to learn more about both tech health and and, you know, I had fun.