Jörnow was previously VP of Mobile at King Digital, and now invests heavily in gaming startupsRead more...
Sharkawy has over 25 years of experience as an operator in the healthcare space
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!
While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Adam Sharkawy is a Managing Partner at Material Impact.
Prior to Material Impact, Sharkawy was Sr. VP of The Medicines Company and Head of the Surgery and Perioperative Care Global BU where he led the $170M acquisition of Tenaxis Medical and the integration of three other acquired companies in deals totaling >$1B. Before that, he helped establish Smith & Nephew’s Emerging Market divisions in Dubai. Prior to that, he started the Advanced Healing Technologies/Biomaterials franchise within Smith & Nephew’s Endoscopy division and led the R&D organization. Adam served on the Abbott Vascular leadership team as VP of Research, Advanced Development and New Ventures where he helped launch the world’s leading Drug Eluting Stent.
In addition, Sharkawy co-led the integration of Guidant Vascular Interventions and Abbott upon their merger in 2006, when Guidant was acquired by Abbott and Boston Scientific for $28B.
Sharkawy received his Ph.D. from Duke University and his Masters from Texas A&M University. He served on Duke's Biomedical Engineering Advisory Board and Texas A&M’s Bioengineering Advisory Board. He received his BS in Mechanical Engineering from the American University, Cairo and before that, studied pre-medicine and Biology at University of Delaware.
VatorNews: What is your investment philosophy or methodology?
Adam Sharkawy: Let me first start by putting forth a hypothesis that I will fiercely debate and argue, and that is if you trace back any disruptive innovation in almost any space, whether it’s health, automotive, aerospace, consumer electronics, etc, I will argue that you can always trace it back to a fundamental and underlying innovation in a material science. Whether you look at what metal alloys have done for the automotive industry, composite materials have done for aerospace, what polymers have done in healthcare and almost every aspect of our lives, or what this funny little element called silicon, which has a unique semiconducting property, has done for the entire space of microelectronics, the web and everything we do and touch today. So, the first step is just to create that underlying argument, or hypothesis.
Then, we have quite a simple methodology, and it starts by identifying and creating a clear hypothesis on enablers of large enduring needs. I like to call them Maslovian needs, so the basic needs in society: water, food, energy, transportation, health. We try to find what some of the glass ceilings are that are limiting the current state of addressing these needs and, by virtue of that, we don’t go after things that are fashionable trends. We look at things that have been problems for hundreds of years and will continue to be problems for hundreds of years. So that’s the first step, creating and identifying the hypotheses on what the enablers are in these spaces.
The second step is then to look for nascent technologies and usually they’ll be out of academic centers, in which a technology has been developed to an advanced stage from a technology perspective but doesn’t necessarily have a clear commercial direction or application. Or maybe it’s going in one a direction but that may not be the best one for it. Usually these technologies will have been developed for years in an academic environment, and maybe with tens of millions of dollars of non-dilutive financing, so a lot of the technology risk has been addressed and it’s really an interesting potential, technology but hasn’t been grounded yet in a real and underlying need.
The third step is we like to partner with leaders who are really passionate about addressing these unmet needs that we discussed, and building companies around these technologies that truly make an impact. When I talk about making an impact, I’m referring to really making a long term and sustained difference in the trajectory of that space. I personally am a big fan of Gene Roddenberry and his vision on Star Trek, where I look around me and say, “Wow, we are really beginning to refute the hypothesis that in order to address healthcare conditions we have to be invasive and cut into the human body. In order to provide food and water, that it has to take a toll on under served populations and create issues in the supply chain that exploit certain geographies.” I think that vision that Roddenberry had of a world living in harmony really comes from the fact that you’re addressing some of the most basic human needs that create sometimes the basis for adversity in the first place. That’s what drives me and that’s our methodology towards achieving that goal.
VN: What are your categories of interest?
AS: Interestingly, because of our methodology and the philosophy of our investment thesis, we kind of are a little bit unconventional, in the sense that we’re not focused on any given market sector or industry segment. We kind of go the opposite way: instead of verticals we really cut across a horizontal, and that horizontal is technologies that are enabled by an underlying material science innovation. As such, we do, and will be, touching multiple verticals and categories, so the speak. Those Maslovian needs, water, food, health, transport and mobility, and industrial productivity, I would say are five large categories that will be of interest to us.
Personally, even though I have 25 to 30 years of almost pure health technology background, I still am focused on all these segments, not just on healthcare. The good and the bad of it is, when it comes to healthcare I know hopefully enough to know that it’s not always easy to invest in that space and what to watch out for. Until Nextgen Jane, which was our latest investment, we hadn’t done a single healthcare investment; our prior investments had all been outside of healthtech. So, it’s all those areas.
VN: What's the big macro trend you're betting on?
AS: I would actually say, and this may not be the answer you’re looking for, that it’s almost antithetical for us to bet on a macro trend, because it’s almost against our thesis. We don’t look at anything that’s fashionable or a trend, we look at things that have always been problems and we feel are so basic and fundamental that they’ll continue to be the source of the biggest enablers of progress in society and advancement in society. So, I would say we probably don’t pay much attention to trends per se. We’re really focused on, again, those longest enduring needs.
When you look at the common theme, that horizontal that I referred to earlier, that ties all of our companies and investment together, we believe that material science is very much like the DNA and the genomic sequencing of the physical world. As much development as we have in the virtual space to help facilitate our lives, we still live in a physical world. As much understanding as we thought we had in material science in the past 100 years, we continue to learn that what we know is just at the very surface, and there’s so many things you can do when you start to really understand and innovate at that level. When I talk about material science, I’m not talking hardcore physics only; I’m referring to some basic and fundamental things that you can do in processing of materials and novel fabrication techniques that can start enabling things that just weren’t doable before, and therefore new products are enabled that can address these large unmet needs that were never really accessible before.
VN: What is the size of your current fund and how many investments do you typically make in a year?
AS: Our first fund is roughly $110 million and we’re averaging, though we don’t pace ourselves with this metric, around two to three investments a year. Out of this first fund we’re likely to do a total of somewhere between 12 to 15 investments total. Sometime by the end of this year we’ll probably have allocated around two thirds to three quarters of this first fund.
VN: What stage/series do you invest in and how much is that in dollar amount for you?
AS: As part of our model, we will do things as early an incubate our own technologies, which we’ll spin out ourselves from a university. For example, our very first investment in a company that’s really taken off right now, called Soft Robotics, we actually spun out of Harvard ourselves, negotiated the licensing, seeded it ourselves, before we even had closed Material Impact. We got the company up and running. So, in some cases we’ll be indistinguishable from the founders. In cases like that, we can make investments as small as sub-$100,000, just to get something going where we’re creating the infrastructure or separating it out from a university setting or hiring a grad student, to get it to a point where we can understand if it’s feasible enough to have a larger investment. So, we’ll do things really, really early, all the way to what is more traditionally called a seed, something in the $250,000 to $1 million range. Then, we’ll do first priced rounds in the $3 million to $4 million range.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
AS: I’d have to say, just because of the nature of, again, the different sectors that we go in, it’s really hard to apply a unified, standard set of quantitative metrics around what we need see for investment feasibility.
Qualitatively, I would say that, and these probably sound like the obvious, but we look at some of the most basic things like the need to have a very protectable technology, the combination of whether it’s patented information or proprietary technology, that maybe is best not patented, etc. We’ll look for a technology that is fairly unique and additive to what’s been demonstrated in the past, that can really make an interesting contribution. Then, we’ll always be looking for product concepts that have a very clear economic value proposition, and I would underline that statement. Now, personally, before I get really serious about any investment, I need to see what that economic value proposition looks like and ensure that it’s very clear. This is particularly true for healthcare; there used to be point in time when we had a fee-based billing structure in the healthcare system. As long as you got regulatory approval, you got to market; the only burden on you was to try to get certain champions in the clinical community to adopt it. But now, as we’re seeing more and more centralized purchasing, we’re seeing more value-based decision making in terms of product adoption, all brought on by transformations in the health economic landscape, that economic value proposition is almost the most critical thing. I apply that to be true, even in unregulated spaces, and that part has to be very clear. That, and a really clear plan on how to monetize the technology and the business model around that. Those three things I look at as critical, and the specific quantitative metrics around them will be very different for different spaces.
VN: What other signals do you look for? Team, product, macro market?
AS: I’ll step back for a moment, and if you'll humor me, I'd like to go into an analogy that may help illustrate the answer to the question.
I used to give this talk in Silicon Valley, when I was more of an operator, about leadership. I noticed there are so many books on this topic, and it’s always, “The 15 Steps To This” and “The 12 Measures of That,” and all these numbers that are thrown around and all this great advice. However, I always thought there’s a much simpler thing that, in my opinion, is a model for leadership and entrepreneurship. It stems back to, and this is the funny part so I’m going to ask you to bear with me, a poem written by a Lebanese poet called Gibran Khalil Gibran, who likened relationships to a sailboat. He said, basically, you have a rudder and you have a sail, and compatibility is like your rudder, and passion is like your sail; if you have compatibility and no passion you have perfect control of where you’re going, but you’ll go nowhere. If you have passion without compatibility, it’s like having a sail without a rudder, you’ll go everywhere but you’ll have no control over where you’re going.
I loved that, and I felt it was really applicable to entrepreneurial leadership. I took it and I kind of adopted it; so the model for a team that’s a strong set of entrepreneurial leaders, to me, is the anatomy of a sailboat. I added a third element: so I have the rudder, I have the sail and I have the hull. The rudder, to me, is strategic vision; it resembles the ability to navigate through the seascape, being able to see beyond the first wave…being able to see the second and third wave, and knowing how to navigate the seascape. The sail, to me, is the passion, the grit, the resolve, the ability for the team to influence others to follow them; not just other team members but the entire community, the entire set of industries around them, to follow them on this journey that they’re taking. The third, which is the hull, is the integrity of the team, because, if you have the first two you can great attention for little while, but you won’t sustain the journey. If you have a hole in the boat, very, very soon you won’t be able to sustain the journey.
Those are the very simple three elements that I look for: strategic vision, the ability to inspire and influence people around you through passion, complete conviction in what you’re doing, and, finally, the integrity to be able to survive and thrive the journey.
VN: What do you think about valuations these days? What's a typical Seed pre-money valuation and Series A?
AS: I don't think we, as a community, have a common vernacular around what even is a seed stage versus an A stage versus a B, and now we have pre-seed and we have A1 and A2. So, I think the entire community probably speaks in multiple, different languages. That said, the art and science of early stage valuation is much more of an art than a science. So, I think it’s going to be much more dictated by what the objective of the company is. If it’s a company that is really working on something that they know is a long haul, then, honestly, it’s very insensitive to initial valuation, because it’s the value they’re going to be building over time, for the long haul…versus a company that has a very direct shot at an opportunistic time window, and it’s a two to three year play, where it creates a certain value… an exit value of Y, and so those may play a more deterministic role in what valuation is, but I would say it’s really hard to dictate valuation at this level of stage.
A lot of valuation comes down to the fact of how much of the ownership of the company do they feel is fair to give away at a certain time, with the right investment partners. That obviously becomes much more of a subjective assessment on both the entrepreneur’s part and the investor’s part. I hate to sidestep the question, but I think it would be silly of me to give you figures on what valuation range there should be for seed or an A given the fact that seed and A don’t have a real meaning, they’re so different, and every technology, every objective of a company, and every space is so different.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
AS: This came as a bit of a surprise to me, honestly, but it seemed to me that our thesis was, to most of the LPs that we initially talked to, fairly unique. I and my business partner, we have a clear sense of purpose, and I think it’s somewhat unique, but I didn’t realize just how unique it really was. There are very, very few funds that have the elements, at least to our knowledge, that I discussed in the first question.
Secondly, our experiences are relatively different. Among the team, and we’re a small team, we complement ourselves really well. We all have common roots in being entrepreneurs early in our lives and having experienced entrepreneurship. In the case of Carmichael Roberts and myself, both of us were serial entrepreneurs and did many startups ourselves. We have that common core, but after that we have very complementing and different experiences. He went onto venture, I went onto the dark side of large corporate leadership, but, as such, we got very different experiences and are able to see through very different lenses. In my particular case, having been acquired many times, and having acquired many companies, sitting on both sides of the table, I have a good sense for what is important for a large company to see in terms of exit potential for a small company, and what the triggers are for them that are important to see.
A subset of those complementary experiences is that we don’t talk diversity in our team, we are diverse. We have Carmichael who is an African American and has one set of origins; I have immigrant roots and have another set of experiences. We have Elyse Winer who is a young female entrepreneur who has a different set of experiences. It’s not about talking about diversity, we truly bring very different sets of origins and, therefore, experiences to our discussions and our assessments. When you combine all those things: our thesis that focuses on material innovations; our desire to partner with our portfolio companies, shoulder to shoulder with entrepreneurs, because every venture fund will say that they partner but we are truly involved in many details and helping them build the company; and then the diversity of our experiences, those three things seem to be very appreciated by our LPs.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
AS: I’ll expand upon that last point that I made about the partnership aspect, because I think that’s really critical. Many VCs will say that they bring value outside of money, that they are partners and many define that partnership as really helping make connections to other sources of funding, to commercial and strategic potential partners, and helping by getting involved in key strategic discussions, etc. That’s a very advisory type of partnership relationship. We are about as shoulder to shoulder with entrepreneurs as at least I’ve seen. We’ve truly become almost extended members of the team, and we will help with everything from negotiating license agreements upon inception of a technology; we get down and deep in developing a commercial strategy down to the modeling and spreadsheeting. When I say this I’m not referring to through associates on our team, I’m talking about us. We do that. We’ll help assess candidates for all early roles, to the extent that the entrepreneurs would like to involve us. We’ll help them create the right culture. So, we truly partner and, for those companies in our portfolio, I think they would attest to that. As a result, they view us becoming very instrumental.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
AS: Let’s take the last two investments that we made. They both very different but equally exciting.
One of the last investments we made was in a company called Fusion Coolant, this very humble, off the radar technology in the middle of the country, in Michigan. So, whenever metal parts are cut in production, the grand majority of those have had to go through some sort of lathing or milling or drilling or some sort of operation to shape the metal part into the product. Whenever that happens, all these huge automated machines that do this, there’s this constant stream of fluid that has to shot at the tool that’s cutting the metal, and it has to do that because it has to keep the tool from getting overheated, which can damage the tool and can also damage the part, because of friction and everything else that’s going on. That also limits the speed at which parts can be cut, because the faster something is moving, in terms of rotating with a drill, the more heat that’s generated, so all those things have to be taken into account.
All these fluids that are aimed to cool the part are basically, for almost the last century, have been this emulsification of oil and water, and it’s messy, it spatters all over the place, and it has to be collected at the end of each day and sieved and filtered from all the other shavings and then has to be processed and reused again the next day. It’s just a lot of stuff that has to get handled. It also aerosols and creates health hazards for employees who are inhaling it and if it gets on their skin it causes dermatitis, and then it becomes an environmental nightmare to deal with because of the sheer volume and how you have to dispose of it. So, this company came up with a very simple and elegant way of taking carbon dioxide gas and putting into what’s called a super critical phase, which means it puts it into a state where it’s between a liquid and a gas. In that state, carbon dioxide becomes a very, very effective coolant, so it allows machines to go faster, and, when it has done its function, it just dissipates into air,so there’s no mess and nothing to be cleaned. There’s no environmental hazard because you don’t have to dispose of it, and it doesn’t cause any health hazards.
So, it’s a very, very simple and elegant technology that addresses a very large and unmet need that’s ubiquitous any time a metal part gets cut.
The other is NextGen Jane; you did an interview with Ridhi Tariyal, the co-founder and CEO. Female health has largely been underrepresented and, only in the last 10 years or so, has it really begun to garner more commensurate attention. There are many different ways of looking at certain aspects of reproductive health but every company is looking at it through a separate lens and addressing some sliver of it. NextGen Jane is a simple and elegant approach towards creating an entire, noninvasive platform to harmonize the understanding of reproductive heath conditions at their source, at the most fundamental levels through the ability to use genomics.
What do these two seemingly disparate technologies have in common? Three things: they are addressing ubiquitous challenges that currently have very archaic solutions; secondly, they are simple, elegant technologies that are taking an important step towards a much bigger vision; thirdly, they are driven by brilliant teams that are very small. In the case of Fusion it was four and a half people when we invested, and in the case of NextGen Jane it’s really two full time people and a bunch of contractors. Driven, brilliant teams that are small but powerful and they’re committed to leading a revolution. These two companies are committed to doing what it takes to do the right thing and push this against a lot of headwinds to be able to transform the way something is currently being practiced in an archaic manner. Those are the kinds of things that I love to see in the companies we invest in. That’s what excites me.
VN: What are some lessons you learned?
AS: I’ve been an operator for probably 25 to 30 years, so I’m still fairly new to venture. So, I’m sure I still have a lot of lessons that are still out in front of me.
The two I would say I’ve already learned are, one, the criticality of having co-investors that are of like-mind and like-chemistry. What I mean by like-mind is they have similar objectives and priorities for the company, that they have a similar vision as the company does and as you do for what the company is trying to achieve long term, and then the short term steps towards that. That can be very different for different investors. When I say like-chemistry, I mean that they have similar dispositions, similar levels of transparency, similar engagement styles. It’s not to me that one is right and one is wrong, it’s just that certain investors are the types that will have no problem hashing things out right then and there, rolling up their sleeves and pushing and arguing a certain point, while others prefer to digest and then go in the background and deal with the company in a one-on-one. Those are just different styles and if you have a wide variety it can become more difficult for the company to manage. So, like-mind and like-chemistry are important in co-investors.
The second thing that may be more apparent is that it’s important to encourage ambitious entrepreneurs to not be distracted by too many good opportunities. Inevitably, when you have a really good technology with really great leaders, they will find many, many interesting applications. When you’re a startup, you add value by doing something superbly that no other larger company, with much greater resources than you, can do, and it’s not by doing bunch of things moderately well that you create value. As obvious as that seems, we’re always tempted constantly by interesting applications or business opportunities, especially if the technology’s really, really good and the leader is really, really great. We see this lesson in nature all the time: the most productive fruit trees and the most productive flowering trees are pruned very heavily early. You’ve got to cut out a lot of young branches to get the germane branches to be extremely healthy and productive. It’s no different here.
VN: What excites you the most about your position as VC?
AS: I'll tell you right off the bat I’m blessed in this role. There are three things that really excite me about being in venture.
The first one is learning. There isn’t a day that goes by that I’m not learning so much every day, and that learning is really instrumental in cross pollinating a lot of ideas and leading to more and more innovation. It helps a lot of our portfolio companies that we’re learning from different portfolio companies, but in different spaces, completely different verticals, because of our model, where we’re in so many different spaces. When I say "we," the entire team is really able to learn and leverage that learning across our companies and it’s just fascinating.
Second is being constantly humbled and inspired by the brightest people. Unlike being in large companies, where you can have mediocrity that is tolerated, in small startups the tolerance for mediocrity is very little. So, I’m just humbled by the constant number of extremely bright people that I get to learn from and that I’m inspired by.
The third is the agility to make an impact. Most people confuse impact with having to throw really large resources towards a problem, which sometimes are needed at a certain stage, but, before that stage, you’ve got to be fast enough to be able to apply a transformative type of technology that will change behaviors, and change the way something is done. You’ve got to be rapid and fast. In the venture community, it’s a great pleasure to be able to move quickly and help companies move quickly in order to make a big impact
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