Interview with Rory Moore and Retired Vice Admiral Walter Davis, the Co-Founders of Pro Bono Technology Incubator EvoNexus
“It’s fine to celebrate success but it is more important to heed the lessons of failure.” – Bill Gates
In this interview with Rory Moore and retired Vice Admiral Walter Davis, who are the co-founders of EvoNexus, a pro-bono technology incubator in Southern California, we discuss the genesis of EvoNexus and their vision for the future. In the era of for-profit incubators and accelerators, EvoNexus is unique.
Rory Moore was a co-founder of Peregrine Semiconductor, now owned by Mirata, and Silicon Wave, which is now owned by Qualcomm. Rory was also a co-founder of e-Fire.com, Georg!a Now and Optical River. In 2009 Rory founded a pro-bono technology incubator called EvoNexus with Vice Admiral Walter Davis, a board member of CommNexus. The entire organization has now been rebranded as EvoNexus due to the success of the incubator. Rory continues to make Angel investments in technology, and is a graduate of the University of Michigan.
Retired Vice Admiral Walter Davis was the Director of Space systems, Information Warfare systems, Command and Control Systems, and Modeling and Simulation for the United States Navy, where he directed a $3.5B IT budget. He is a former VP for Business Development at GDE Systems, which is now part of BAE Systems. He was a Navy fighter pilot, Aircraft Carrier Commanding Officer, and Battle Group Commander. He has served in numerous Navy engineering positions including Navy Engineer for the F-14 and Naval Warfare IT Architect. He was also a co-founder of E-fire. He is a graduate of Ohio State University with a degree in Electrical Engineering.
Rory and Admiral Davis are two of the most dedicated, hard working and visionary people that I know. What they have built in EvoNexus is transformational in San Diego and greater Southern California. Since its inception in 2010, EvoNexus has admitted 120 companies out of 1,240 applications. They are currently incubating 52 companies in three locations. EvoNexus portfolio companies have had $947 million is fundings and outcomes, and there have been 16 portfolio companies that have been acquired.
Patrick: Hi, this is Patrick Henry from QuestFusion with the Real Deal…What Matters. I’m here today with Rory Moore and retired Vice Admiral Walter Davis, who are the co-founders of EvoNexus.
EvoNexus is a pro bono technology company incubator in Southern California. In the era of for-profit incubators and accelerators, EvoNexus is definitely unique.
Rory was a co-founder of Peregrine Semiconductor, which is now owned by Murata, and also Silicon Wave, which was acquired by Qualcomm. Rory was also a co-founder of e-Fire.com, Georg!a Now, and Optical River. A serial entrepreneur.
In 2009, Rory founded the pro bono technology incubator called EvoNexus with Vice Admiral Walter Davis, who was also a board member of CommNexus at the time.
The entire organization has now been rebranded as EvoNexus, primarily due to the success of the incubator. Rory continues to make angel investments in technology companies and is a graduate of the University of Michigan. Go Blue!
Rory: Go Blue!
Patrick: Retired Vice Admiral Walter Davis was the Director of Space Systems’ information warfare systems, command and control systems, and modeling and simulation for the United States Navy, where he directed a $3.5 billion IT budget. Wow. That’s impressive.
He is a former VP of Business Development at GDE Systems, which is now part of BAE, I believe. He was a navy fighter pilot, Top Gun-type of guy, I guess.
He was an aircraft carrier commanding officer and a battle group commander. He served in numerous navy engineering positions, including the navy engineer for the F14, which is a fighter aircraft, and the Naval Warfare IT architecture.
He was also a co-founder of e-Fire, and he is a graduate of the Ohio State University in Electrical Engineering. Go Buckeyes!
Rory: No, wait until November.
Patrick: That’s really the big question on everyone’s mind: how the heck are you guys working together, an Ohio State grad and a Michigan grad?
Rory: Every so often, one of our teams wins.
Walter: There’s one team that hasn’t in quite a while.
Rory: With Harbaugh, everything changes now in Michigan.
Patrick: This is going to be interesting. We have two really great coaches at both these schools. I’m going to be following this quite closely and this internal rivalry with you guys.
How did it come about with you guys running CommNexus, the predecessor of EvoNexus? Tell me a little bit about that- rebuilding the board.
I think that was a troubled time in the history of CommNexus. You guys came in and turned it around and saved it. Tell us a little bit about that.
Walter: I wouldn’t say saved it. I think we came in and we provided some value. At the time, we were deciding whether we needed a CommNexus or not. The organization was trying to decide that. Rory said, “We don’t mind trying to figure that out. If it’s not needed, we won’t do it.”
We spent about a month going around and talking to all the board members and all our sponsors and finding out what their needs were and finding out what their vision was.
As the end, they came back and said, “No, no, we do need a CommNexus.” Then our job after that was to make CommNexus a success.
Patrick: The programs you guys run there are MarketLink and the SIGs. The SIGs stands for “special interest groups.”
Basically, this is a non-profit organization that services the technology community in San Diego, providing programs for large and small companies. Is that the best way to characterize it?
Walter: Yes, for providing value to our sponsors. In fact, you mentioned SIGs. Marco Thompson actually invented SIGs when he was the chairman of the board.
As I said, SIGs stands for “special interest group.” You could take a domain, and he recognized that domain people from all the companies would like to get together.
Patrick: This would be like human resources or marketing or various different things like that?
Walter: It could be marketing, but mostly it was technical.
Walter: Vertical technical things. They would come together. It was to the advantage of the companies and to the individuals for them to come together to get better in their particular domain, particular field of expertise.
Patrick: All this was done for the members on a complimentary basis? This was like an all-you-can-eat buffet and all these programs were available to all members?
Walter: All our sponsors.
Patrick: That stuff continues on today, the historical CommNexus.
Walter: It does. We evolve where we think it needs to evolve, where it continues to provide value. The SIGs, they were a hit then and they’re a hit today.
Patrick: Yes. What was the genesis of the idea for EvoNexus, the pro bono incubator? Obviously you guys started this in 2009, which was the global meltdown of the world economy.
Rory: Late 2009.
Patrick: I remember Q1 2009, running Entropic, and I think our stock price dropped down to $0.42.
Rory: That’s when I bought some stock, by the way.
Patrick: You were very smart, Rory. Hopefully you bought a lot.
Rory: I did.
Patrick: Tell us a little bit about that. How did you guys come up with this idea? It’s kind of a crazy idea. You guys are entrepreneurial. It’s interesting to hear stories like this.
Rory: The Admiral and I had felt that we’d done a pretty good job of turning around CommNexus. We got it financially stable again and a loyal sponsorship group. The programs were doing well.
We were actually considering moving on- mission accomplished, as they say- when the meltdown occurred, when companies like yours couldn’t be forecast, give guidance.
Patrick: Yes, we couldn’t even forecast. The customers weren’t buying anything.
Rory: You forecast zero. Entropic Communications wasn’t alone. It was companies as large as Qualcomm that were also having difficulties forecasting and meeting expectations.
What was happening quietly behind the scenes was great engineering talent was being laid off. There were small reductions in force. Your company was laying off; my company, Peregrine, was laying off quietly. There was great talent hitting the streets.
The other thing that was occurring as Lehman Brothers and Bear Sterns and the meltdown occurred was the venture capital dried up, private investor money dried up, angel money dried up, as the stock market crashed.
We looked around and thought what this region needed was to re-energize it with an incubator. The incubator had to be different than any other incubator. It had to be free for the entrepreneur, taking no equity, but it had to be supported by the community itself.
The community that would support it, we believed, would be our own sponsors at CommNexus, like you, Patrick, serving as CEO of Entropic.
We proposed to stay on and see if we could create an incubator that would really re-energize the entire region, create jobs, launch new technology, and create wealth.
Patrick: That’s awesome. Rory was kind enough to bring me a tip sheet today, with some of the latest statistics around EvoNexus’ accomplishments since 2010.
Rory: Before you go into that, Patrick, what was your comment when we first told you about EvoNexus?
Patrick: I thought it was a catastrophically bad idea.
Rory: Now you’re on record.
Patrick: My reasoning behind that was, I saw it as a potential distraction for the good work that both of you were doing at CommNexus. I can gladly admit and happily admit I was very wrong in that assessment.
This is amazing. This outweighs anything that CommNexus has done historically, which by the way, is fantastic work.
Walter: We always prided ourselves in, what we call, shooting the head of the rabbit. Trying to not just stay in there, but maybe getting ahead on things. Rory has a great vision. We’d been discussing this for some time, and one day we realized it was time.
Patrick: It’s early 2016 now, 52 companies are currently incubating in three locations; $947 million in financing and outcomes, almost $1 billion in finances and outcomes, which is incredible; 1240 applications received and 120 companies in the portfolios. You admit about 10%.
Rory: One in 10 or less than one in 10 get in.
Patrick: Yes, and then 16 acquisitions to date. This is fantastic. For the entrepreneurs out there…
Rory: You are an entrepreneur.
Patrick: I am an entrepreneur. I’ve run three companies. Any venture capital firm would love to have statistics like this. You’re doing it 100% on a pro bono basis, which is incredible. Tell us a little bit about the selection process for companies in the incubator and how the process has evolved over time.
Walter: Selection process, let’s talk about that a little bit. What we did when we first started this was sit down and say, “How are we going to do this?”
We came up with the idea of, what we call, the funnel. All the companies went into the top of the funnel and then out the bottom of this funnel would be just the best companies.
Then we formed a committee to look at those companies, with the domain knowledge of all those companies in it. The companies would put in an application and then they would sit down and they would grade that application individually.
Then we’d put all our grades together and we’d see how it spread it out. Then we would talk about that spread. As a result of that, we might move a company around a little bit.
Those companies that we selected out of that were moved down to the next level. That next level would involve the companies coming in and briefing us face-to-face.
Rory: Face-to-face meetings.
Walter: Face-to-face meetings. Sometimes we have 80 companies giving us face-to-face meetings. Endurance contests.
The committee would all listen to those and then we would discuss those. Then the companies out of that face-to-face would move down to the next level, with that great discussion.
Rory: That’s the due diligence level. That’s when we dive into the technology, the business model. We do the due diligence that a venture capital would do.
Patrick: Basically, you’re admitting companies the same way and with the same level of rigor as if you were making an angel investment or a venture capital investment?
Rory: Correct. In fact, we believe it’s even harder because typically a venture capital investor may have two or three partners who make the decision. We have the collective wisdom of the committee of EvoNexus, who are all volunteers by the way, and have domain expertise in everything we look at.
Patrick: That’s awesome. That’s really cool.
Walter: At that due diligence level, the company would not be involved at all. It would be that due diligence team that would convince the rest of the committee that company should be in.
Rory: Following due diligence, much like a venture capital fund, the due diligence group that did the deep dive on the company comes back before the larger committee and describes why they should be voted in.
Patrick: Okay. You end up with one in 10.
Rory: Less than one in 10.
Patrick: Amazing outcomes to date.
Rory: We’re on round 18 now, selection round 18. We’ve had rounds where we admitted no one.
Patrick: Okay. Wow. That’s incredible. You’re not taking equity in these companies and this is 100% pro bono. Tell me a little bit about what you guys see as the key success factors behind EvoNexus. Why is it attractive for an entrepreneur or a startup company to be a part of the incubator?
Rory: Admiral Davis and I founded a company a number of years ago called e-Fire. It was a B2B in the fire and first responder safety space.
The timing was wrong. It was as the bubble burst. Bad timing. At the time that we started it, we believed we had a great business model. We thought we had found an opportunity to own a vertical.
If we had approached an incubator back then, if there had been one that existed, a for-profit incubator, and they had said, “Great. We’ll admit you to our incubator. You stay here four months. You get free rent. In exchange for four months of free rent, some mentoring, we want 10% of your company,” we wouldn’t have done it.
Patrick: That’s the model for most of the for-profit incubators that are out there.
Rory: One of the things that has made this, I believe, very successful is the serial entrepreneur believes that 10%, 8%, of his company, at the beginning, is a lot of stock. Would you give that away in Entropic?
Patrick: No, not for a four-month incubation period. There’s very little that can be done in that period of time. Maybe you get some free space. It’s like when you grow a plant. You rip it up by the roots before it actually starts getting leaves. That’s not super helpful.
Rory: At the risk of alienating everyone who runs a for-profit incubator in this country, it does work. It really does work for first-time entrepreneurs.
You had “street cred” when you were at Entropic. Your founders had street cred, whereas, there are a lot of first-time entrepreneurs who don’t. They’re recent graduates. They have great new ideas that might be the next Facebook. No one knows.
Those types of deals, I think, those accelerators do a great deal of benefit.
Patrick: Before I get into the relationship with the Irvine Company, tell me a little bit about, once a company is admitted into the incubator, what are the things that you guys do for them besides free space?
Rory: The free space is what a lot of people like to talk about, but if you question our entrepreneurs who are there and when they leave, that’s minor.
The first thing that we do when we admit the company is congratulate them for being the one in 10 that made it in. They’re thrilled to be admitted. Then we sit down and figure out their operational milestones on a monthly basis that lead to their graduation, their exit from the incubator.
It’s exactly what you should do with your kid in college. You have four years, and that’s it.
We sit down and figure out their milestones with them, what they’re going to accomplish and all the important areas of growing their company, and to include raising capital.
We track them on a monthly basis. They have a mentor who is assigned to them, maybe two mentors, who understand their business model, their domain, their technology. Those mentors are hands-on, working with them.
EvoNexus has no board seat. We have no governance. We have no equity in the startups. All that we have in a way of leverage with them is that they’re at EvoNexus at our invitation.
If the technology doesn’t work, if the plan is blowing up, we can ask them to leave. That’s really their worst nightmare, being asked to leave EvoNexus. It shows that you can manage a company and help them with adult supervision, with no equity.
Patrick: I’ve been a witness to the stuff going on. It’s been amazing to me that very seasoned entrepreneurs, the likes of Pieter van Rooyen, who’s a serial entrepreneur, similar background to me, or Itzhak Gurantz who started Entropic, but he wanted to get into a new area, historically in semiconductors and hardcore technology, but then goes into the genomics area.
Why would Pieter go into a deal like this, instead of doing it on his own? He can find venture capitalists. They’ll fund him. He has a track record. However, he was doing something novel, out of the box from what he had done historically.
I think one of the things that you guys did was help him network, relationships. This is even for a seasoned entrepreneur, not a first-time entrepreneur.
You have multiple examples of people like this in the incubator. Can you tell me a little bit about that?
Rory: Pieter was quietly a co-founder of ecoATM with Mark Bowles. After the first year at ecoATM, he left the firm. He left the venture early on.
He wanted to pursue another idea he had. He watched what happened at ecoATM, which was one of our first companies we admitted to EvoNexus and how we helped them succeed in building the world’s first fully automatic kiosk to recycle your phone.
Patrick: Both Mark Bowles and Tom Tully are also serial entrepreneurs. These guys are my age, maybe a little bit younger than me, about my age.
Rory: They got a high value from being in EvoNexus for a number of the reasons we just discussed. Peter saw that occur, and with his new company, one of the areas that worried him the most, you mentioned it earlier: he’s a semiconductor guy going into genomics, but using semiconductors in genomics.
He needed the connections we had in life science, in genomics. He needed mentoring. He needed access to capital. We provided that to him, which he did not have. He was a great entrepreneur. He knew chips, but he didn’t have the credibility in genomics. We provided that for him.
Patrick: That’s awesome. That is really cool. Tell me a little bit about the relationship with the Irvine Company. For those entrepreneurs out there, the Irvine Company is one of the largest landowners and landlords in the country now. Managed by one guy, Don Bren.
Rory: Owned by one man.
Patrick: Obviously, this is a big deal. In order to accomplish what you guys are doing, you have to have some place to do it.
We talked about, before the program started, does your office make you successful? No, but you need to have a place to work in order to build a company. Tell us a little bit about that.
Rory: I’m going to start off with that and then the Admiral’s going to jump in as well. For EvoNexus to be a transformative incubator, we needed a really transformative major real estate partner. That was obvious to us that it would be the Irvine Company.
They provide office space to more tech companies than any company in California, both tech and life science. The Irvine Company is a company that, at its core, believes in innovation.
They believe that the small and mid-market companies will drive the economy. It’s great to point to a Qualcomm or a Broadcom or some of the Fortune 500 companies that do exist in Southern California, but those are anomalies.
The support of the economy is going to be the small and mid-market companies. They saw EvoNexus as core to that, to developing those new companies.
Granted, some of the companies that leave EvoNexus may end up as Irvine tenants, but that’s not a requirement. The Irvine Company saw this as ecosystems build. Creating successful companies leads to building the entire ecosystem.
Patrick: I don’t believe they saw that immediately. I think you guys had to do some selling and convincing to get them to believe in the vision, didn’t you?
Rory: No. Actually, it was something that was not that difficult. Now to maintain them as a pro bono real estate sponsor, we had to show them results.
Patrick: Yes, which obviously, your results are pretty spectacular.
Rory: It came down to we love your vision because it’s our vision, too. Now, execute on it.
Patrick: It was an experiment. They got you some space in La Jolla UTC. Tell us a little bit about that, Admiral.
Walter: I wouldn’t call it exactly an experiment. One of the things that has been consistent with Rory when we had these visions, we go to someone, we explain that vision, and all of a sudden they explain that vision to us better than we can explain it.
This was a little bit like it was when we went to The Irvine Company. We told them what we were trying to do. It turned out that they had a vision similar to that. As Rory said, it wasn’t about real estate by itself. It was about building that ecosystem.
Patrick: Yes, building the economy.
Walter: That’s what they can explain well. Also, their belief that the future companies would be these remarkable mid-market companies.
That rang a bell with them. They saw, also, the fact that by being a free, no strings attached incubator we could get pretty powerful mentors. I think that’s the kind of thing they bought into that let them contribute so much to this.
Patrick: This is a big deal. That’s a huge investment for a for-profit company to make. I think it’s incredibly impressive that you guys were able to pull that off.
Obviously, $8 million from these other big guys, too, like Qualcomm and ViaSat, Entropic, other big sponsor members. Tell us a little bit about that.
How did you get your historical CommNexus sponsors excited about stepping up and being bigger contributors to the incubator?
Rory: Going back to your Entropic days and also looking to your experience in Silicon Valley, talent goes to where the opportunities are.
One of the reasons that there’s so much talent in the Silicon Valley is that there are lots of opportunities, whether it be a big company, publicly traded, all the way to a startup.
In San Diego, there’s not the diverse of opportunities that you have in the valley, so it’s hard to keep the talent here. The lure of the valley is pretty strong.
Even if you graduate from UCSB in Engineering, it’s awfully tempting to move to the valley for the opportunities.
Companies like Entropic need talent. One of the things that EvoNexus provided Entropic and Qualcomm and ViaSat is another magnet to keep the talent here.
In addition, companies like Entropic and Qualcomm are always looking for small companies to acquire, technologies that develop quietly by three or four bright engineers that can be tucked in and rolled into the large companies.
Patrick: I’m a huge believer in this whole innovator’s dilemma. A large company, it’s really difficult to be highly innovative once you have some degree of success because, first off, you don’t want some bonehead making some mistake that tanks the entire company.
On top of that, the processes and systems are set up such that the bigger the company is, the more these processes and systems exist to squash any of that kind of stuff.
It’s difficult to be highly innovative in those kinds of cultures, but you need innovation. The best way to do it is to do an off-balance sheet and make investments in companies that have promise.
Once they get to a stage where they can survive inside of an environment like a Qualcomm or Intel or one of these big companies.
It happens in healthcare as well. I think a lot of the stuff that you guys have done has been in the life science space where some of the bigger acquisitions that have occurred have been by life science companies.
Yes, everyone wants to be innovated, but it’s very difficult to do that, if you’re a big company. Talk a little bit about some of your successes there.
Rory: In some ways, we’re a bit like a Triple-A farm system for baseball. We’ve had 16 acquisitions. These are small teams of individuals that created new technology, that got it to work, but they were a ways away from mainstream productization.
That takes a lot of capital. At that point in time, they do a trade off: do we get acquired or do we raise $50 million to take it to market?
That’s the decision made by the investors and the founders. The 16 acquisitions that we’ve had, those founders and investors have realized, “This is a great outcome for us. We fold into a great company, and it gets the technology that we’ve killed ourselves for two years developing in the mainstream faster.”
Some of the outcomes that we’ve had that we’ve been really proud of is we had a company called CRISI Medical Systems and they identified a problem years ago where mistakes were made in the operating room by incorrect dosage.
It was an anesthesiologist who is in a critical path in the operation, has mistakes made due to incorrect dosage, or mistakes that are in the medical records or an allergic reaction to a medication or an anesthetic.
Sixty percent of all medical problems in the OR are because of those areas. A lot of human error. How do you correct that?
The team at CRISI came out of CareFusion, Cardinal Health, GE Health. They saw a problem where they needed an invention in the electronics area, to where it would take out that human error.
They developed a device that sits on the IV line, so when the syringe is injected into the device, it immediately gives an alert on what’s been injected. It tracks what’s been pushed, compares it to the medical records, and warns the anesthesiologist before the push, “We have a problem.” It’s like a black box.
Patrick: That’s very cool.
Rory: It’s very hard to do, by the way. It has to instantaneously sync up into the electronic medical records of the hospital, of that patient, before that dosage is applied in the OR.
Patrick: These are real-time, game-time decisions.
Rory: Life changing. Catastrophic outcomes if it’s wrong. Lawsuits if it’s wrong.
Patrick: This company was acquired by?
Rory: By Becton Dickinson, which is the world’s largest syringe manufacturer, and which acquired CareFusion, the largest infusion pump manufacturer.
That’s a great outcome. The engineers came to us with a drawing on a piece of paper. “Here’s the problem. It’s going to be really hard, but we think we can do it.”
We bet on the team. We bet on the problem. In two years, they’d raised their capital. A year after that, they got FDA approved clearance for the device and 30 days after the FDA approval, they were acquired by BD.
Patrick: It’s fascinating, the technologies on the life science side. I’m a semiconductor guy, a hardcore technology guy. I always thought the chip business is so difficult because you have to put so much money in before you even know if you have a product. That takes a couple of years, at least.
You have to sample it to your customers. That is a 9 to 12-month process. Then they have to give it to their customers and there’s a 9 to 12-month approval process.
You have a lot of money in, tens of millions of dollars, maybe even as much as $80 million to $100 million before you actually get revenue.
The medical side, I was reading something about the FDA approval process for a new drug- the pharma side, not the medical device side- and it’s 14 years, on average.
Can you imagine? For a lot of these companies, acquisition is definitely the way to go if you hit key milestones, whether it’s phase one trials or phase two or all these crazy things. Having a company like yours, an incubator, is incredibly valuable in those kinds of circumstances.
You guys are both tech guys, basically, but you’ve expanded into the life science space. How did that occur, that you started attracting companies that were not tech type of companies?
Walter: It turns out San Diego is an ideal area, because we have the chip industry here and we have the health industry here.
Patrick: Yes, big biotech industry here.
Walter: Rory mentioned one of those companies. We now found people who say, “There’s overlap there where I can take advantage of the chip technology and do some medical things.”
One of my companies, for example, NanoMedical, uses a graphene chip to detect Lyme disease. They did that whole project in less than two years.
Rory: On top of blood, on top of the surface, on top of graphene.
Patrick: Wow. That’s crazy. That’s interesting. Tell us a little bit about the evolution of EvoNexus. You started with some borrowed space from Cricket Wireless. Then you moved to an Irvine Company location in La Jolla. You now have a location in downtown San Diego. You have one up in Orange County. How far can this thing go? How big can this get?
Rory: I’ll talk about the San Diego expansion and the Admiral can talk about the expansion up in Irvine and beyond that.
The UTC is a logical first location because it’s nestled in between UCSD and the tech sector in Sorrento Valley. That was a logical location. The Irvine Company has many of the buildings there.
That became successful pretty quickly. We’re launching some great companies. Then the Irvine Company came to us- I’d like to say this was our idea, but it wasn’t- and said, “You need to help us re-energize downtown.” At one time, downtown had all big law firms.
Patrick: Downtown San Diego.
Rory: Downtown San Diego. Over time, the tech companies and silver spotters drifted out of downtown. They moved to Sorrento Valley, Del Mar, La Jolla, UTC.
The Irvine company owns eight or nine of the largest buildings downtown and they wanted to see something done downtown that replicated what was happening to South and Market in San Francisco with software companies.
The asked the Admiral and I to take another mission and create a downtown incubator that was more software-centric, like San Francisco. Being both former military, me in the Air Force, he Navy, we accepted the mission and launched a software incubator downtown.
It has re-energized downtown. We have multiple companies that we’ve launched out of downtown. They’ve stayed downtown. It’s a long-term play. This will take 10 to 15 years, but in that length of time, I believe you’ll see dozens and dozens of software companies now located downtown, replicating in some small way what’s happened in South and Market in San Francisco.
Paul: That’s awesome.
Rory: The next mission they asked us to take on was Orange County, and to replicate what we’ve done down here in Orange County in L.A.
Walter: Our board recognized that, when we look at ourselves as an economy, it includes the whole Southern California. It turned out the next place we could go in Southern California and do this was Irvine.
We had the University of Irvine, UCI, the University of California at Irvine, who we had been talking to already many times and looking at some of the technologies that were rolling out of there.
They gave us a space that’s fairly near the university. We have two graduates, actually, out of the technology that came out of UCI, came into the incubator.
Now, it turns out, just in one year, we raised over $9 million out of that area. Sure enough, just as we suspected, that effect that we wanted to have. It’s about whole Southern California ecosystem.
One of our entrepreneurs who was part of EcoATM, he’s nearer to UCI than he is here. He spends actually most of his time in UCI mentoring companies there.
That’s worked out really well for us. We see a path to expansion. We’ve been around and visited other areas and other universities. All of them have asked to have us nearby because they have great technologies they’d like to see roll out into our incubator and help them be more of a success.
Rory: Already we’re being pulled by UCLA, SC, Caltech, Harvey Mudd, these schools in the L.A. area, to have an incubator near them.
Patrick: The pro bono aspect of it has to be extremely attractive for universities. It’s a big differentiator.
Rory: I would say, if I could give you a rough count, right now EvoNexus probably has 40 ventures that came directly off campus into EvoNexus, five already out of UCI in the first year. UCSD leads the pack with probably 15 or 16 ventures.
Patrick: You’ve been down here longer so that makes sense.
Rory: It’s a diverse group. The element that also is overlooked so much by the Silicon Valley investors is they focus their efforts at the university level on Standard and Cal, when in fact Southern California has more engineering schools of excellence than Northern California. They believe that intelligent life ends south of San Francisco.
Patrick: I did a little bit of research around this in my angel investing/venture investing. The center of gravity is definitely up in Silicon Valley.
If you look at geography for private company investing, you could combine San Francisco and San Jose. Three of the top 10 are Oakland, San Francisco and San Joe.
Then, if you just take San Jose and San Francisco together, the amount of money they invest in companies is larger than the next eight combined. It’s just crazy.
A lot of those companies do make venture investments in Southern California. You talk a little bit about that, the top 10. However, they’re not making seed investments and Series A investments. I think they’re making later stage investments.
Rory: That’s correct. The top 10 venture capital funds that invest in Southern California are from Northern California. They’re funds based in Northern California. However, they’re investing in later stage companies. This would mean B and C rounds.
What’s developed is a gap, a funding gap for the seed and the A rounds. That’s getting worse and worse. That’s an area where we spend a lot of our time trying to solve that funding gap. The close to $1 billion that we’ve raised goes a long way to doing that. The $1 billion you see there is early and A round money.
Patrick: The gap is partially being filled by angel investors, super angels, syndicates of angel investors, like AngelList, and stuff like that. There definitely is a gap that still exists. It’s going to be interesting how that evolves over time.
Let’s switch gears a little bit. Rory, tell me a little bit about your history of being a serial entrepreneur and angel investor. How does that help you in running EvoNexus?
Rory: It was essential. You cannot operate an incubator unless you’ve walked in the shoes of an entrepreneur. You can’t. You have to have had that background. You’ve had to have failures. I’ve had 10 startups and six of them failed.
Patrick: Learning opportunities, is what I like to call them.
Rory: Learning opportunities. Although I’m a native of California, I spent many of my years in Phoenix, Arizona. I had some successful ventures over there.
In 1990, I cofounded a company in San Diego called Peregrine Semiconductor, a chip company like yours. My other two cofounders were from San Diego. We took a vote on where the company would be. They out-voted me, so it was San Diego. I moved from Phoenix to San Diego and we founded Peregrine.
That experience at Peregrine gave me some great insight as to what high tech entrepreneurs would face. Peregrine had so many near-death experiences. I can’t describe them all. Did you have some at Entropic?
Patrick: No question. You can’t run a company without having times of adversity, as we call them.
Rory: It’s near-death experiences. Every great company has those occur. There may be a few that luck out that don’t, but most do. That really builds character. It creates a work ethic and determination. That’s what I got out of Peregrine. That’s what I got out of Silicon Wave, that experience.
Admiral got that, as well, with his experience both in the Navy, but also, following his departure from the Navy, at e-Fire, for example.
We both had that entrepreneur experience. We understood what it would take, the sacrifice. When we came up with the concept of EvoNexus, we knew we were the right two founders to kick this thing off.
Patrick: You have a great set of experiences, too, Admiral Davis. You’re a career Navy guy, and Admiral. The leadership skills that come from being any kind of officer in any of the branches of the military, but then achieving the height of leadership in an organization like that.
Rory: He was a high risk-taker, Admiral. He wasn’t sitting behind a desk. He flew test pilot F14s, F4s. He was that Admiral who was on the fringe.
Patrick: Both of you, obviously, are risk-takers. I know you take risks in your personal lives, too, even more than I do.
Tell me a little bit about that, Admiral, in terms of running large organizations, the leadership experience, being a fighter pilot, all the things that make you up as a person. How is that helpful to entrepreneurs and providing guidance?
Walter: People are always interested in my experience on the aircraft carrier. You have 5,000 men down there, and numerous squadrons.
In order for me to be successful as a commanding officer of that aircraft carrier, all those guys had to be successful. They had to be doing their jobs right, otherwise I wouldn’t be a success.
If you look at the incubator, it’s almost the same thing. All those incubator companies and the people in them have to be a success in order for Rory and I to be a success.
We’re there to try to ensure their success. They always ask me, “What makes your day, Admiral?” I say, “You make my day. If you’re doing well, I’m doing well.”
Patrick: One of the things I’ve witnessed with you guys, especially you Admiral Davis, is you do a lot of what I call management by walking around and visiting the companies.
You’re up in Orange County. You’re down in San Diego. You’re in La Jolla. You’re always talking to the entrepreneurs about what’s going on and picking their brains.
Then you store that information and bring someone like me in or someone who does what I do, former entrepreneur, and say, “Why don’t you guys talk to each other? Maybe you can help him.”
It’s not just a formal mentorship program, EvoNexus. There’s this informal thing that goes on. Can you talk a little bit about that?
Walter: I can. One of the neat things about Rory, his mind works that way. He will see a company and all of sudden he’s thinking about some guy he met 20 years ago and he’s bringing him back on to the scene for this because this is the perfect person to help this company.
We see that over and over again. That builds, too. Other people see that and then they bring us people and say, “John Jones working in this domain had a similar problem. He might be a good mentor for this company.”
There are several kinds of mentors that you have. Have a mentor who can be tough on you, I’d say. Marco Thompson calls it a KAM mentor. You can figure out what that A is for. KAM mentor.
Having that kind of mentor sometimes is key to that organization, especially if it’s a senior guy who thinks he already knows everything, but he has someone who comes in, also, and gives him that perspective that allows him to be a success because he’s also had a great experience.
Patrick: It’s interesting dealing with young entrepreneurs sometimes. Everyone says they want coaching, but they don’t think about Bobby Knight or Coach K or someone who’s in their face.
Sometimes you need that. I’ve needed it in my career and I’ve definitely had bosses, especially in Silicon Valley, who are very tough, very difficult people to work for.
However, I’ve learned and grown from those experiences. It’s great that you guys are able to provide the love, but also provide the tough love at times when companies need it.
I know both of you guys are airplane pilots. I don’t know if you’ve flown more combat missions than anyone else in the U.S. Navy, but I know it’s up there.
Walter: Rory more than anyone else. I’ll tell you that.
Rory: Actually, the Admiral flew his entire 37 years in the Navy, which is really rare.
Patrick: Wow. Yes, that’s very rare. You’re an incredibly accomplished world-class stunt pilot. Tell us a little bit about your hobbies.
You guys are obviously risk-takers, adrenaline junkies, as they like to say. How do your hobbies fit in with your life today? How do you keep some kind of life balance around what you guys do?
Rory: The hobbies I have embody my attitude about starting a company. It is risk. If you’re not willing to take a risk then keep your day job at IBM or wherever.
To me, the risky things that I do, like aerobatic competition flying, are a way of escaping, getting away from the startup world, getting away from the office.
Believe it or not, when I’m flying my airplane, I am totally in the zone. I’m thinking of nothing else. You’ve blocked out everything. You’re not worried about your emails, your phone calls, your meetings.
The flying that I do demands absolute, total focus. That’s relaxing. It’s hard to explain until you get into that zone. You talk to a professional athlete, a runner, and they get into a zone. That is the relaxation. It’s also exercise.
Also, I have a goal to achieve. When I fly, I only know what I’ve done. There hasn’t been an audience of 200,000 Air Show people clapping. I’m up there practicing doing a sequence. I know when I’ve done it right. It’s personal.
In technology, in a startup, you know as a CEO when you’ve made the right decision. You may be the only one on your management team who knows you made the right decision. The board may not understand. You see all the factors.
There’s a terrific book that’s been written recently by Ben Horowitz of Andreessen Horowitz venture capital firm called The Hard Thing About Hard Things. It talks about risk, the loneliness of being the CEO, of making a decision when you may be the only one who believes in it.
Whether you’re flying an airplane like the Admiral in a combat mission or whether you’re flying an aerobatic sequence in competition or you’re the CEO, the decision comes down to you.
Patrick: How about you, Admiral, in terms of life balance? You’re a family man. You also have some fun hobbies, I’m sure. Of course, I don’t think you still fly F14s and F18s.
Rory: He flies me. We fly together.
Patrick: That’s awesome. That’s great.
Rory: He’s still a great stick, by the way.
Walter: Flying a fighter aircraft is all about getting yourself in the right position, at the right time, so when you fire your missile or your gun, it’s going to hit the enemy.
You could say there’s a parallel there. Being an entrepreneur is about timing, also managing what Navy fighter pilots would call managing your airspeed and energy and the altitude, so it’s the right place, right time.
If you’re going to be a successful company, it’s the same thing. You produce a product- you know this really well because you had to produce a product- when that product was needed in order for it to be successful.
If you had been too early, you wouldn’t have got a hit. If you had been too late, you wouldn’t have got a hit. You have to be there at just the right time, produce that, make your shot, and it hits. It’s the same thing.
Rory: But a little less dangerous.
Patrick: Typically. Typically, no one dies.
Walter: You don’t want to change airspeed at the wrong time.
Rory: In his former life, someone had to die.
Patrick: For the entrepreneurial audience out there, is there anything you guys want to emphasize that we didn’t touch upon, which are key pearls of wisdom from your experience or things that you look for in entrepreneurs? Anything along those lines?
Rory: I’m going to quote my cofounder of Peregrine Semiconductor, Dr. Ron Reedy. A lot of people think they want to be an entrepreneur. He’s also a Naval Academy guy. He did parachute jumping. He says it’s like getting up in an airplane and looking out the door. Do you really want to jump? You have to. You have to fully commit.
It’s not for everyone. You need to have the support. Not only do you have to believe in it, your family has to believe in it. Your friends, your girlfriend, everyone has to believe in you.
If you don’t have that, it’s not going to work. You need to have that support and complete conviction. If you have it, then your cofounders will have it, then your team will have it. If they see any kind of hesitation from the leadership, it destroys the company.
Patrick: It’s really as you progress through your career- I’m sure you’ve seen this, too, Admiral Davis- people are looking at you and looking to you, even though you don’t realize it.
It’s your body language. It’s your attitude. It’s your trajectory. It’s your passion. They’re looking to you even though you may not even realize it. All of that stuff is really important. If you don’t have that 100% commitment, everyone is going to see it.
Rory: I’m going to give you a compliment from one of the cofounders of Entropic Communications, Itzhak Gurantz. You came on Entropic when there were 40 employees, not a founder of the company but early on.
Itzhak, as a founder of the company, paid you an amazing compliment. He said, “I started the company, but Patrick built the company.”
Patrick: That’s very nice of him. He’s a great guy. He was one of the best people I ever worked with, in terms of a true partnership. He stuck it out. He stuck it out through the IPO and through all the different ups and downs we had at the company.
He’s not only a brilliant guy, he’s a real gentleman and someone who knows where they’re good and knows where they have limitations and brings in other people to help support them in those areas.
A lot of times, especially with founders and some entrepreneurs, there’s this, what I call, transference of credentials. They might be brilliant in this area and therefore they think they’re brilliant in all areas.
I think that becomes a real potential limitation for entrepreneurs. If they can figure out where they’re brilliant and where they need help to build the supporting cast- it does take a team if you’re going to build a real company- that can be the difference between success and failure.
Fortunately for me, I was with a guy who saw that. He was still brilliant in the areas that he was brilliant and just a real great partner and a wonderful guy.
Rory: What has made the successful leaders that you’ve had in Navy?
Walter: One of my favorite sayings is, if you’re in charge and you’re not enjoying yourself, then no one else is.
Like any leadership, that CEO sets the example. If he’s working hard at it and enjoying it, his team will be on board with you. Later on they’re going to call you the builder.
Patrick: That’s awesome. This has been really fun, you guys. I’m really glad you could take the time to do this.
I think that EvoNexus is one of the most brilliant things I’ve ever seen in my career. I think we’re just at the very beginning. It’s an exciting time for all of us. I really appreciate all of the things that you guys are doing to help build the Southern California economy, one brick, one step at a time.
Rory: Thank you, Patrick, for building out Entropic, creating, at least, a thousand jobs in San Diego, high paying jobs, and value for the community in the technology that Entropic created.
Patrick: Thanks, Rory. This is Patrick Henry with QuestFusion, with the Real Deal…What Matters.
I hope you find this interview informative, fun, and inspirational. What is your experience with startup incubators and accelerators?
This is Patrick Henry, the CEO of QuestFusion, with The Real Deal…What Matters.