Ep. 172 – Ikove Capital’s Flavio Lobato on Commercializing Technology

Ep. 172 – Ikove Capital’s Flavio Lobato on Commercializing Technology

In this episode, Brian Ardinger, Inside Outside Innovation Founder talks with Flavio Lobato of Ikove Capital. Ikove is a venture development company founded to pursue early-stage investments with an emphasis on technology commercialization. Brian and Flavio discuss investing in the Midwest, identifying and validating high-impact technologies, bridging the gap between R&D and VC funded rounds, and innovation talent.

Flavio Lobato, IKove Capital

Transcript of interview:

Brian Ardinger: Inside Outside Innovation is the podcast that brings you the best and the brightest in the world of startups and Innovation. I’m your host Brian Ardinger, founder of insideOutside.IO a provider of research events and consulting services that help innovators and entrepreneurs build better products launched new ideas and compete in a world of change and disruption each week will give you a front-row seat to the latest Thinking, Tools, tactics, and Trends and collaborative Innovation. Let’s get started.

Welcome to another episode of inside Outside Innovation. I’m your host Brian Ardinger. And as always we have another amazing guest Flavio Lobato. He is a co-founder and principal at Eco of capital. Welcome to the show

Flavio Lobato: Hey, Brian, thank you very much. Thank you for having me.

Brian Ardinger: Hey, I’m excited to talk to you because, couple different things. You’ve been in the space for a bit of time and this new model around Venture development rather than a kind of venture capital. I really wanted to dig in on this particular episode. Maybe for the audience, let’s start with a little bit about your background and a little bit about Eco Capital.

Flavio Lobato: I’m originally from Brazil. I’ve been in the states for 35 plus years really begin my career in Investment Management Investment Banking back in the 90s after business school, working at places like Goldman Sachs, Credit Swiss. And then really my career focus quite heavily on alternative Investments and hedge funds. I launched a very successful alternative investment shop in Switzerland called Swiss Capital Group, which was a part of a very sizable fund of hedge funds Liongate Capital that eventually sold to a large insurance company. Really after 25 plus years in both traditional and alternative spaces. Me and my partners Rodolfo Bellesi, John D’Orazio, Dr. Rob Lee, and David Moritz decided to put together Ikove Capital to take advantage of what’s happening in technology commercialization and adventure as a whole

Brian Ardinger: Excellent and my understanding is you’re five years old. You probably invested in 14 startups in the Stem, Medtech, Agritech vertical and you’re based in the Midwest where we are as well. I want to talk a little bit about investing in particular markets Like the Midwest is different. Obviously investing in particular markets like med tech or ag tech and that are different. So what are some of the things that you’re seeing that set you apart and set the ecosystem apart in the Midwest versus some of the tech hubs.

Going to the Source

Flavio Lobato: What we do is we actually go directly to the source of innovation and we partner with research institutions like Ohio State University in Columbus, Ohio where we identify and vet technology that’s been in development through their research programs. And once we identify a technology that we really like and that and go through that process we go out and build teams around IT technology and spin them off as independent companies.

What’s unique about what we do is that we identified and we saw that about 25% of the US research budget, which is about 70 billion dollars invested each year to universities to front their R&D.  Very little of that less than 1% of that amount is actually invested in commercialization of these Technologies. At the same time the Venture industry, which originally started as a way of commercializing West Coast technology with East Coast funding, has now shifted and has grown to such a place where primarily a lot of that funding is going towards late stage.

Ten years ago one percent of all the deal flows were called unicorns and about 1% of the dollar amounts were invested in so-called unicorns. Fast forward to this year still the number of deals are still around at 1 to 2%, but now the same deals are taking close to 30 percent of all the money invested in Venture, right. So that money is going to the Uber is to the left to the WeWorks of the world and at the same time, since 2014, early stage deals meaning Pre-Series A have been cut in half.Okay.

So you have this ecosystem of concept stage Technologies, right? Which in the past a lot of VC’s come in and invest these technologies and then bring it to Market and now days that’s just not happening.  So we really have built a bridge between lab and Market, between University concept research right with the right infrastructure funding and teams to spin this company’s Technologies off as independent and successful startup companies.

Brian Ardinger: Let’s unpack that a little bit. So obviously tech transfer sometimes gets a bad rap or you have professors and that they come up with great ideas. But like you said, it’s very difficult to take those ideas sometimes and commercialize them oftentimes professors who are great at research aren’t necessarily the best of Founders or don’t necessarily want to even start a company, so what’s the secret sauce of how you approach finding that right match and helping Professor or a research team understand what it takes to commercialize

Venture Development Methodology

Flavio Lobato: You hit the nail on the head. In most cases the researchers stays doing what they love, which is to develop life-changing research, right. And we bring the business aspect to that in the majority of situations there’s a very clear division of roles where the researcher does not have a C level position and we actually go in and to our network recruit and bring teams that are going to run the day-to-day operations of the company imported by our Global relationships and Global Network of investors to take it to Market.

We have within our Venture development methodology basically five key characteristics of what we do first. I mentioned we go directly to the source of innovation. You know we go and scout the labs and we get to know the researchers and we see what’s happening from a bottom-up perspective, you know, knowing intermediaries. We do that ourselves and also focus on where very few people are looking.  So we stay away from the coast. We stay away from Boston, New York, San Francisco and started IKove like you mentioned in the Midwest.  Why? For many reasons. First reason the number one economic region in the country, right.

Second point it receives about 25 to 30 percent of that 70 billion dollars in basic research but receives Less in three to four percent of all venture dollars. That commercialization Gap is greatly exacerbated in the Midwest and that’s exactly where we want it to be. We have now since extended the nursery and I’m actually speaking out of South Florida. I’m here in Miami. And we’re growing the nursery into regions that are similar to the Midwest in terms of a lot of R&D dollars but little VC type of involvement. Very important that we are founders. We’re coming in at the founder cap table of each of the companies that we get involved with. Before Ikove was involved, you know, you had a great technology and that was it, right. We build entire team and infrastructure. We bring in the funding to take that technology to Market.

Fourth would be we invest in painkillers, not vitamins.  We’re not investing in apps, we’re investing in tick tack. Stuff that can really change the world and backed by very significant IP.

And then number five is we built to sell. It does not necessarily mean that we won’t have a company that will go all the way to an IPO. By just understanding the exit Dynamics where 95% plus of the exits are M&A driven. A lot of the technologies that we’re building, were building with an idea of who the potential requires would be right. So these are the main tenants that we built around our process.

Exits & Investment Opportunities

Brian Ardinger: I want to talk a little bit more about that last point you have as far as talking exits and trying to identify investment opportunities in that where you find a home for them down the line and a lot of that I would imagine means finding the right corporate Partners or existing larger companies that are looking to innovate and looking for ways to stay relevant in that. So what are some of the things that you do to help your startup or new companies manage that process of going from a brand new idea, getting traction, building the market, and then finding that right corporate partner to either partner with and or eventually exit too.

Flavio Lobato: That’s a great question. Each company has its own path, but I would say a great example is one of our companies in the portfolio is a company called Nikola Labs.It’s a Columbus based Wireless power company. Really interesting when basically the core technology, it captures RF and converts that into direct current, right.  So the initial go to market was actually we developed a iPhone 6. phone case that’s self-harvesting of the wasted energy RF energy of the iPhone and plug that into the battery and extended battery life.

We launched that at Disrupt New York. You know the company won the People’s Choice immediately got huge exposure, you know around the world, but then we saw that at the end of the day we didn’t want to be a phone case company and that the technology could be a lot bigger than that. So we shifted the business, you know, and we really saw the advent of IOT where you’re going to have these big in plus devices and sensors that are going to need to be powered. Not to the traditional way, but wirelessly in most cases batteries don’t do the trick because a lot of these sensors are going to be embedded in walls and any hard to reach places.

So we shifted the business towards really being the cornerstone words powering the IOT Revolution and within that we’ve identified industry as the way to go specifically preventive maintenance. So we built a business around preventive maintenance. And today Nikola is growing very very fast with Fortune 500, Fortune 100 clients. We also developed part of the technology, especially when we miniaturize the tech from the back of an iPhone 6 into a chip. We work closely with TI and Skyworks. If you really think about where Nikola is stands today, but to start up company, but the clients are all giants. We’re talking significant massive companies.

And we also have our technical, let’s say Partners in the development of our chip is again, very significant companies. Any of these companies could acquire Nikola, right. So it’s really when I say this is that structuring the business in such a way where you can have multiple conversations and then when the time is right, you can go and potentially exit. I mean Nikola is actually one that I see you that could actually go all the way and the structure of the business is such that my belief is that this company will be a unicorn over the next three years.

It really is just exciting to see the type of evolution of really taking a technology to sitting in the lab at Ohio State, you know at the Electro science labs and really build out a business that has the potential of becoming a very significant company down the road.

Innovation Talent

Brian Ardinger: Last core topic I want to talk about is this idea of talent and as an investor you’re constantly trying to identify and talent not only at the core research level in that but then you got to go out and network and find entrepreneurs and founders that want to take that and commercialize that, and then you’ve got to find the talent on the corporate side or the commercialization side. What are some of the things that you learned over your 30 years of doing this as far as what makes an innovator an innovator and what are some of the core traits and talents that really make people stand out in the space.

Flavio Lobato: Yeah. It was a great question and really the way we look at this is the following right. You can have the best technology and without the right team that could knowledge you will fail. You can have so-so technology and the right team that team will find a way of making that technology successful. So we have a natural let’s say bandwidth constrained within what we do and that is to identify the talent that we want to bring in to really scale these different companies.

But what’s interesting is that and you know, and so far that bandwidth has been really launching four to six companies a year and to do it, right which is a lot, but I’ll give you a great example and we have one of our portfolio companies is emotional AI company called Cognovi labs and Cognovi Labs, you know, the CEO is called Beni Gradwahl.

Beni is a PhD in astrophysics. Had been a very successful hedge fund manager in his early career, then worked at one of the largest investment banks as product development and then during the financial crisis was staffed to go and help Citi unwind their massive mortgage portfolio. Spent 6 years doing that. After he became one of the leading voices in AI and emotional intelligence and we were lucky enough to get introduced to Beni through one of our partners and network and now he’s running Cognovi Labs. That’s the caliber and his COO Jim, work closely with Beni at Citi and ran groups with thousands of people.

So the kind of intrapreneur and the kind of people that we are attracting and we’re bringing to run these businesses are people that have done it before have had a lot of success. And are really interested in this particular vertical and basically love the idea of doing this with the support that someone like Ikove go can provide and having the whole infrastructure in place and allowing that core team to focus on the scaling and growing the business.

Outside the Core

Brian Ardinger: That’s  fascinating stuff and I love the fact that you’re doing it in places outside the core technology hubs that we talk about all the time and you know and Innovation is really everywhere and I appreciate you sharing those stories and helping our audience understand how to do that more effectively.  If people want to find out more about IKove or yourself, what’s the best way to do that ?

Flavio Lobato: https://www.ikovecapital.com is our website and my Twitter handle is @FlavioLobato. So feel free to reach out. We love to talk about this stuff and we’re just getting started if there’s anything that makes sense please reach out and let’s see what we can do together.

Brian Ardinger: Flavio thank you again for being on Inside Outside Innovation. Look forward to continuing the conversation.

Flavio Lobato: Thank you Brian. Thank you for your time.

Brian Ardinger: That’s it for another episode of Inside Outside Innovation. If you want to learn more about our team, our content, our Services check out Insideoutside.IO or follow us on Twitter  @theIOpodcast or @Ardinger until next time go out and innovate.

For similar podcasts, check out: 

Ep. 165 – Touchdown Ventures’ Scott Lenet on Corporate Venture Capital

Ep. 152 – Acceleprise’s Olivia O’Sullivan on Investing in Corporate/Startup Collaboration

Ep. 133 – Drive Capital’s Chris Olsen on Investment Innovation in the Midwest

Find this episode of Inside Outside Innovation at insideoutside.io. You can also listen on AcastiTunesSticher, Spotify, and Google Play.

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Episode 172

Ep. 172 – Ikove Capital...