Nova Spivack is a serial entrepreneur, founder of the venture studio Magical, co-founder of Fuzionaire, and the co-founder and chairman of the Arch Mission Foundation, a nonprofit organization dedicated to creating a backup of human knowledge throughout the solar system.
HAUS: Magical takes a unique approach to technology incubation. How did it get started and what are you focusing on now?
Nova: Back when I was in LA, I was one of the early originators of the concept of a venture studio. I was looking at how Hollywood does movies and thinking we could probably apply some of that thinking to how we build ventures. Hollywood has producers who work across multiple projects. They aren’t the director and they aren’t the CEO, but they’re running the project. They have to have a production model that scales across multiple releases. So that’s the model we started looking at: Finding people who are experienced founders to be a company’s “producer” and then bring a CEO in at the right time when the venture is a little more mature. I think Silicon Valley and Hollywood can both teach each other useful things about how they work.
Why this structure rather than the more conventional approach where a founder becomes CEO?
So they are kind of acting like CEO in the beginning stages of the company and once they’ve raised a Series A they recruit an experienced CEO. But in the beginning, a producer plus a technical product team is all you really need to get product-market fit. Then when you get into sales mode, when you start really hiring and raising capital, that’s when you need a CEO. But typically, a really qualified CEO who’s an experienced operator isn’t going to join a startup and people who are trying to be a first time CEO are pretty high risk. The notion is, let’s not burden companies with a lot of overhead and people who really can’t do much at the beginning anyway because they’re not used to working with no staff and no money. When a company is at that early stage, you want to keep it lean and focused on finding product-market fit. So that’s what Magical’s structure is.
What kind of companies does Magical incubate and invest in?
The one that’s farthest along is probably Blocktag, which makes next generation QR codes. We’ve found a way to make a printer print a QR code that can’t be copied, which means that QR codes can be
used not just to identify something but also to authenticate. You can put this Blocktag on something and prevent piracy and counterfeiting. That’s built and everything’s done. We also have a lot of patents in augmented reality, virtual reality, and mixed reality, with some early texts from ventures that we were developing. I also have a pharma company that’s already spun out called Fuzionaire. Outside of that, there’s the Arch Mission Foundation.
Fuzionaire and Fuzionaire Diagnostics grew out of research done at Caltech. What was the process like of moving that from the lab to commercialization?
Fuzionaire Diagnostics is a drug development company with a new technology for what’s called “theranostics,” where you can both diagnose and treat a disease with the same drug. So we helped build these companies by licensing the largest patent portfolio that has ever been licensed out of a Nobel Prize-winning lab at Caltech. For nearly 10 years now, we’ve been building that IP into a company that’s now getting into clinical trials and may really have something amazing for curing the most common types of cancers and brain diseases.
What are the major challenges with improving the R&D to commercialization pipeline?
There are two broad categories here: There’s R&D that’s funded by the government and universities, and there’s R&D that’s coming out of corporations. When it’s research that’s funded by the government or a university, there’s all kinds of strings attached. If it’s from the government, you have to license it. If it’s from the university, you have to negotiate with the university’s licensing office to get a license to buy. That’s a difficult process that is often very time consuming and rather expensive. It’s just not accessible to most startups because you typically need significant legal resources to get the research out of the university. The blocker is that you’re dealing with big bureaucracy and an old-fashioned system. When you’re talking about big corporations, they typically don’t spin out IP. The issue there is how are they innovating and what are they doing with IP that may have fallen by the side. Some companies can do it, though.
Are there any universities or corporations that you feel are good examples of what successful commercialization of early stage R&D can look like?
A good example of a successful corporate innovation strategy is SRI Ventures, which started based on a lot of IP from projects they’d done with corporations and governments. There were thousands of patents. They brought in funding partners, so SRI provided IP and the venture funds provided capital, and the venture board would decide what IP to spin out into a company. One example of something that came from that is Siri.
In the university sector, the University of California system has done a lot of tech licensing, but most of these universities don’t have a lot of success stories. There have been a lot of licensing deals, but they haven’t necessarily brought in huge amounts of revenue for universities. Having a patent is nice, but there’s so many steps to take that patent and turn it into a revenue stream that can pay the licensing fee back to the university–and it can take a decade before they see any money.
How can universities help their scientists commercialize their research?
The universities need to find a way to be more involved with creating startups from university IP much more quickly. They need to have a really simple template and probably some kind of venture partner–either an outside venture studio or one they build themselves. They need venture producers because typically the people who work in the IP offices of universities aren’t really venture producers. They’re not qualified to do it. They’re A players from an IT standpoint, but they don’t really know how to build companies, so if you have the university IP office trying to build companies it usually fails. So really I think universities need to either participate in venture studios or build their own to develop their best IP, and they haven’t really done that yet.
Is there a reason why these university researchers couldn’t just go do a funding round from a more conventional VC rather than a studio?
They definitely don’t want to go directly from a university to a venture fund because venture funds are not really designed for very early-stage startups. They’re optimized for after Series B rounds because venture funds only make money when there’s an exit. So what they really care about is selling companies and going public. Anything else they do is just to get those companies in the pipeline. So there are seed and Series A funds, but they’re always struggling because they’re so far away from an exit and they get diluted. So really large venture funds shouldn’t be doing startups. Small venture funds could work, but they should also be working with a studio because the small funds need to deploy capital and are focused on helping their companies raise their next rounds. That’s where the venture studio fits in: They can take some of the workload off of founders so that the founders can focus on product-market fit and the funders can help go get money rather than running the company.
What are the risks with turning lab research into companies?
Sometimes the IP is ahead of the market’s readiness. We developed a lot of IP for augmented reality and virtual reality, but the companies we built didn’t work because we were just too early. Most devices weren’t able to make use of it. We see this with a lot of new technologies. There’s a hype cycle: it starts with initial excitement, then there’s a trough of disillusionment, and then reality kicks in with an adoption curve. So one of the biggest challenges when you’re working close to actual innovation is to try to gauge how far away you are from a mainstream market really being able to adopt it. The technology needs to work, but how are you going to get it into a customer’s hands? Just because you have a patent doesn’t mean you have a way to produce it at mass scale and so on. It’s like trying to play pool: you’re trying to predict how a bunch of different balls are going to roll and from that prediction try to get a ball in the pocket on the other side of the table. Many conditions have to happen just right to get that ball in the pocket. It’s really, really challenging.
How do you determine whether some IP or research is ready for commercialization?
It all comes down to distribution. How mature is the distribution channel? Do you have to build it yourself? If you are too early to market, you can also waste a lot of time building tools you need to build your products, rather than building the actual products. But if you wait until the tools are built by large platform providers, then they start consolidating market share and creating walled gardens that you’ll have to go through. And that means they can cherry pick the ideas that are best at making money and copy it for themselves. So what you really need to determine before you walk that route is whether your idea has escape velocity. Otherwise, it’s going to get stolen and you’ll get crushed. You have to have a strategy to grow so fast that an incumbent can’t catch up. If you have a good idea for a big opportunity you’re probably going to have to battle with your distributors at some point and the only way to survive that is if you can achieve escape velocity.
What’s the latest on the Arch Mission Foundation?
The big picture goal is to provide a planetary backup strategy that includes both on site and off site redundant backups of critical information such as all our knowledge, culture, and history and even things like genome data from various species. We’ve done a bunch of space missions and we are launching on two more missions to the moon in 2024 – one with Astrobotic and the other with Intuitive Machines – to send further installments of the lunar library to the surface. We’ve also done some things on Earth in lava tubes and other kinds of projects and we’re in discussions about a Mars mission. But what’s more exciting than landing on planets to me is I really want to put Arch Libraries into orbital locations like Lagrange points. Then it sits there forever. If it’s on the surface of a planet all kinds of things can happen to it and you have to land on the planet to retrieve it. If it’s orbiting it’s much easier to find it and retrieve it.