By Peter Hébert
Believing in something in the face of widespread disbelief is, by definition, a lonely endeavor.
Why do they not see what I do? How can they not appreciate what seems so patently obvious? Am I crazy?
Mornings filled with optimism and confidence fade into evenings marked by self-doubt and what ifs.
What if I am wrong? What if all the others are right? What if I fail?
These questions ricochet in the minds of all first-time entrepreneurs, as they vacillate between haste and hesitation. Every day, founders must confront these fears, tread untrodden territory with little to illuminate potential paths forward and relentlessly power through each day. Each doubt, a mental and emotional gauntlet. Founders are expected to show strength — to convince themselves so as to convince others — and show conviction for the team members who have placed their careers and families and livelihoods in their hands. The responsibility, the fear of failing, of letting others down can be exhausting. The pressure can be overwhelming to show a brave face, to move forward, to instill confidence, to never let them see you worry.
This is entrepreneurship, raw and unfiltered. There’s an old cartoon that depicts two characters outside looking up at a roller coaster:
At once enthralled yet filled with dread, the kid on the left asks his friend:
Why not save the money and just throw up right here?
The answer is this: because of the ride. The gut-punch lows and the euphoric highs against the improbable, the often-deemed impossible. The ride is the true unseen and unappreciated reality, belied by surface-level headlines of large financings, exits and success stories in the venture industry — one that exists beneath the self-congratulatory tweets and digital high fives.
I have visceral empathy and appreciation for first-time founders because I’ve lived the experience. In 2000, barely a year out of college, we started Lux full of boundless and naïve optimism. We had no roadmap, no guidance out of the gates and no idea what to expect. We quickly burned through our meager personal savings but kept at it, relentlessly seeking others who might believe in what we saw. Yet what seemed to us as an obvious opportunity (that investing at the intersection of hard science and technology was the next frontier of superior investment returns) seemed to others as foolhardy. Embers of hope were swiftly and repeatedly extinguished as naysayers summarily dismissed the ideas and the plans we had worked so hard to create.
It’s from that foundry of distress, disappointment and disillusionment that great founders emerge. Most people guided by pattern-matching heuristics (particularly investors) will make snap judgments, rapidly jumping to the conclusion that this will never fly. I have been guilty of making these reflexive decisions while reviewing investment opportunities, too quickly drawing conclusions about someone else’s life work, just to selfishly conserve time on a busy day.
What would I say today about myself 20 years ago?
How do I not make the same mistake of underestimating the persistence and tenacity of committed human beings? Some of the biggest successes I’ve had the fortune of being closely involved with — aside from the experience of building Lux — appear to be obvious and inevitable in hindsight, but were far from it at the time. The truth is this: all were close to going bust at one (or more!) moments in time. Here a few case studies I’ve learned from, and hope you might too:
The Contrarian Play
Today, it seems obvious that the future of surgery will be guided by robots. Add to that thesis the founding father of robotic surgery (Fred Moll, founding CEO of $70 billion publicly-traded Intuitive Surgical), together with modern technological tools, and — voila — you should get the largest VC-backed medical device M&A in history, right? Not so fast. In 2012, the surgical robotics game had already been called in favor of incumbent Intuitive Surgical when Fred started Auris Health with the belief there was a new, modern platform to be built. We saw a platform technology company bridging core innovations like robotics, data science and computer vision while delivering groundbreaking medical intervention. But others saw Auris as a tweener — appealing to neither technology investors (FDA regulatory risk? Eh, not for me) nor traditional medtech investors (The name of the game is building to flip; you should stay in your lane). The truth is, while Auris ultimately raised more than $700 million over its life with participation from premier mutual and hedge funds, it was more of an “ugly duckling” in the beginning. After Lux co-led its Series A financing, the company struggled to find new investors for its Series B financing, requiring a bridge predicated on the conviction that others would see what we saw…just later. But we believed — in Fred, in the team, and their vision that the future of robotic surgery would be flexible. And sure enough, the market came around to that inevitable conclusion as well. Last year, Johnson & Johnson acquired Auris for up to $6 billion in cash.
Choosing the Difficult Path
Over the past several decades, few semiconductor technologies have offered more tantalizing benefits and transformational potential than Silicon Photonics. It’s what enables cost-effective 100 Gbps data networking — 100 billion bits a second, roughly the equivalent of downloading over 30,000 songs every second. But for more than a decade, the innovator in leading this emerging field was not a publicly-traded Silicon Valley behemoth, but instead a tenacious, never-say-die Caltech spinout called Luxtera operating on the outskirts of San Diego. The company rode straight through a buzzsaw of scientific challenges, Gartner hype cycles, and financial crises. Due to its brilliant and relentless executive team led by CEO Greg Young — and a world-beating technology — Luxtera emerged on the other side with a hell of a story to tell. From government-funded academic research, to early commercial development, to global scale, Luxtera is a case study in taking an extraordinarily difficult path and proving naysayers wrong. The company has shipped millions of Silicon Photonics transceiver products since inception and its technology powers many of the largest datacenters in the world. Lux first invested in Luxtera in 2009 as a part of a recapitalization valuing the company at just $10 million— it was previously valued in the hundreds of millions of dollars. Many (but not all!) earlier investors had just plain given up. But the Luxtera team did not. In 2019, Cisco acquired Luxtera for $660 million, at the time the largest private semiconductor M&A deal since 2000. Conviction rewarded.
Seeing What Others Can’t
Investors praise simplicity. Be the best in the world at one thing and profits follow. But in many emerging areas of deep technology, startups must do multiple things at once (beyond their core technological advantage) to serve a customer’s needs. That was the case with Matterport, whose core technological advantage lay in the realm of computer vision — enabling enterprises and consumers to capture the physical world around them and convert that into digital 3D models. When Lux first led the company’s Seed financing in 2013, it was a bet on the adjacent possible: we had no idea of the initial markets the technology would gain traction, but it was clear there was something here. To deliver its technology, Matterport needed to build its own 3D camera. Hacking together the depth sensors found in Microsoft’s Kinect, they developed a product that saw near immediate pick-up in residential real estate. But despite steady growth and adoption, the company would still struggle to raise capital as many skeptical Sand Hill Road investors saw a business model that combined hardware and software (Meh, we don’t do hardware). But we held a deep-rooted conviction that Matterport was quickly becoming a dominant leader in spatial computing, temporarily misunderstood by the market. Lux stepped up solo to lead several financing rounds while many struggled to grasp the thesis. Importantly, founders should not ignore market feedback, and in fact should use it to continuously test and re-test hypotheses. In fact, Matterport solicited, acknowledged, and incorporated these other investors’ feedback. But at the end of the day, we at Lux knew we saw something others didn’t see and we knew it to be true. Today, while Matterport remains an independent company and no one yet is ringing the NYSE bell, it has quietly become one of the fastest growing enterprise software companies in Silicon Valley, delivering extraordinary growth as COVID-19 accelerates the world’s transition from physical to digital. Conviction rewarded.
Success is sweetest when all others doubt you, often with absolute certitude — and you prove them wrong. There is no greater satisfaction, for either an entrepreneur or investor, than building something otherwise thought impossible, willing into reality a vision that was so quickly dismissed by many. It requires all the tenacity you can muster, demands you to be more clever, to stay the course, to repeatedly iterate, to never stand still, and work like hell. But most of all, it requires conviction.
If after listening to naysayers, critically assessing their feedback, and you still believe in your idea — we at Lux want to hear from you and we want you to hear this from us: we believe. Turning doubt or derision into motivated intention is power. After all, some of the most powerful achievements have followed these three words: I’ll show them.