Jay Goth is a fund manager here in the Los Angeles area. He talks about how being direct and specific can get you to a yes or a no in 30 seconds rather than waiting 30 days for an answer. He shares a lot of tips on how to pitch whether for a startup or for a fund. He also shares the exciting things happening in the biotech startup industry, showing that when science meets tech, lives are saved.
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When Science Meets Tech, Lives Are Saved With Jay Goth
Hello and welcome to The Successful Pitch. Today’s guest is Jay Goth who is a fund manager here in the Los Angeles area. He has always been an entrepreneur and enjoy the success of building large companies. After years of being a consultant and an investment banker, an entrepreneur in resident, a nonprofit director, basically a cheerleader for the startup community, he is now forming a fund where he comes up with new discoveries that literally save lives, reduce treatment costs and eliminate unnecessary surgeries and reduce human suffering. How great is that? He’s going to be a different kind of venture capitalist he says. Instead of raising money and looking for special companies, he works with a core portfolio companies to create new investment opportunities. Jay, welcome to the show. My Goodness, I love what you’re doing.
Thanks, John. I’m having a blast.
I bet. Before you became such a maverick in saving and changing the world, can you talk us back to your early days? I know you graduated from University of Colorado in Boulder. From there, you worked for some energy companies and solar. You’ve always been at the cutting edge of technology it looks like to me.
I’ve always been an entrepreneur. I started basically right out of high school, working for myself. I never really got along with bosses too well. It was the entrepreneurial life for me. Back in the 90s, after being in insurance and real estate, trying all kinds of different things, I started raising money for other people. I was terrible at it. I made a lot of friends and zero investors and learned that sometimes you don’t want friends, you want investors.
Interesting. Let’s do a deeper dive into that. People always learn so much when people are willing to talk about what didn’t work as much as what did work. What do you mean by that? You can’t be friends with the investors or you were just too focused on the relationship and not what they needed for a return?
I wanted to be friends with everybody. Sometimes when you’re getting people to write you a check, you can’t quite be so friendly. You have to take control of the situation. Initially, I generated a lot of leads. I was one of the best lead opening people anywhere I worked. The problem was I wasn’t closing people because I wasn’t really taking control. I was just ceding control over to them and they’d always give me some excuse and I wouldn’t nail them on it. I’d just go ahead and go with the flow.
Jay, I think this is so valuable. I’ve never had anybody in over 90 episodes talk about this. I’m really happy you brought this up. So many times, people get the polite no. “Come back when you have more traction. You’re too early in the market.” Or whatever the excuse is. They never get a yes. I like to say that the longest distance sometimes is between someone’s mouths and their wallet. Give us some techniques or ideas that people can use to not just take the first no.
It’s really a basic thing, asking for the order. A lot of times, we beat around the bushes. “I’d love to see you as an investor,” or this or that. What I learned is that if I start my conversation with a prospective investor, right up front, “I’m looking for investors who are interested in this and are willing to write a check. Is that you?” I was always afraid to do that. When you start that way, then all of a sudden their guard comes down a little bit. I’m not one of the guys that’s sitting there, calling them, beating around the bush. I’m a real person asking him if he’s interested in making the investment. It’s just as easy to get to no in 30 seconds as it is to get to no in 30 days.
It saves a lot of time when you’re that specific and that direct.
I love it. Let’s take a dive into what you did at Red Tail Capital. I’m interested to know what lessons you learned from that and what types of things you’re invested in.
Red Tail Capital was an investment banking operation. I was really working on mergers and acquisitions, did some debt financing for people. Really, where I learned how to pitch and the things I learned were really when I started a company called Commonwealth Energy back in the late 90s. I was one of the founding fathers of this company. Basically what had happened is we were looking for investors for a number of other companies. Every time we raised money for one of these other companies, they would blow it. They would take the money and they wouldn’t spend it the way they should and they would be coming back to us looking for more money. Our investors weren’t happen with us and we weren’t happy with the management teams. Finally, we decided, why don’t we just raise money for ourselves? With saw an opportunity in the energy deregulation here in California in the late 90s. We built a company called Commonwealth Energy and we started raising money for ourselves. John, we raised $60 million from 1500 private investors over the course of a couple of years.
Holy cow. What was the average investment to get such a large number?
We were doing it under a special California exemption so that we were using California investors and California companies. We were able to get in people who wouldn’t qualify under the “accredited” investor status. There are some looser regulations for those. We were able to get in a lot of people. The minimum investment was $10,000 but sometimes we’d package one or two investors together if they were qualified. Like I say, we raised a lot of money, but the best thing about it was we actually built a business. We build something that became the largest unregulated supplier of electricity and natural gas in the country. Ran the revenues to up to close to half a million dollars and went public on the American Stock Exchange.
Congratulations. That’s a great exit.
Yeah. All of our investors did well. It was the greatest ride of my life, I’ll tell you. That was about four years of just nonstop excitement. There were times when we thought we were going to lose everything. There were times that we were just really riding high. Of course you get to a point in the company where the entrepreneurs leave and the professional management team comes in. That’s what happened. When I left that, I went into consulting and started doing all kinds of things. The core things I learned when I was raising capital at Commonwealth Energy have always remained in my mind. There were some very simple steps that I found that were taught to me that really can help. You get to a yes a lot faster.
Please share those steps.
The first thing you want to do when you’re talking to a potential investor is you don’t want to tell them a long elaborate story because the longer your story the more confused they get.
That’s a great line. The longer your story, the more confused they get.
A confused investor never invests.
We would give them a very general idea of what we were doing. Of course you have to frame it in the right way so that it sounds really good. Then we would ask them a couple of very leading questions. Something like, “The pharmaceutical market is a multi-billion dollar industry. If you were come out with a blockbuster drug, don’t you agree that there’d be a lot of money to be made?” You’re asking them questions that they almost have to say yes to. The adage that I was taught was three yeses and ask for the order. You would ask them, “Blah, blah, blah, right?” They would go, “Yeah, that makes sense.” You would ask them something else and they go, “That makes sense.” You’d ask them the third thing and as soon as they agreed with you, you’d say, “Here’s what I suggest we do. Why don’t we go ahead and put you down for an investment?” Right away, you’re taking their temperature. Of course usually they’re going to come up with an objection. “I don’t know about that.” “Let’s just get a gauge of where you’re at, what you would feel comfortable in. If everything I tell you is borne out in writing when I send you all the information that you’re going to have to review before you make the investment decision, how much would invest at this point?”
Nice. Because you’re basically becoming copilot with them and saying, “We’re going to land the plane. We’ve agreed that if everything works, the landing gear goes down and everything in due diligence checks out, that you’re going to write a check.”
Exactly. If they said, “No, I’m not going to write a check.” I say, “No matter what I send you, you’re not going to invest, right?” If they said yes then we’re at zero and it’s a good time for us to shake hands and part friends. Go find somebody who is going to write a check.
There’s nothing worse in my opinion Jay, than the maybe or let me think about it. That just drags everything out. Like you said, you can get an answer in 30 seconds instead of 30 days by being specific and direct. I love it. You are no longer pitching for money because you’re on the other side of the table now.
Wrong, you’re wrong. I still have to raise money for my fund.
You’re listening to pitches and pitching. What’s the difference between pitching for money for a fund versus pitching to get a startup funded?
There’s absolutely no difference. Whenever you’re asking somebody to write a check to somebody they don’t know, to do something, it’s always a difficult situation. It’s never easy. Whether you’re a startup, a fund, an established company. I’ve worked with public companies before. It’s always the same question. What do you do? How do you make money? How am I going to make money as an investor? When am I going to see it? Those are really the things they want to know. There are a couple of different ways you can approach investing. With the biotech, I’m always talking about the greater good, I’m talking about saving lives, speeding innovation to market and really making a difference in all the people that are suffering today that don’t need to if only we can get them the right drug at the right time in the right dose. That’s what I do. That’s what gets me all fired up about biotech. As much fun as I had at Commonwealth Energy, it’s nothing compared to the rollercoaster I’m on right now.
Let’s just quickly recap. There’s such great questions that you just gave us that you could ask when you’re pitching, whether it’s to raise money for a fund or a startup. The first one I think you said was, how do you make money? One of them is, how do I, as an investor, make money? Correct?
In other words, what’s your exit strategy? In the case of a fund, I would assume that somebody gives you money for you fund, they make money when one of the companies that you fund that they also own goes public or gets sold, correct? There’s some strategy there that eventually there’ll be an exit for them to make a big return.
In a fund, it’s a little different because we’re investing in a number of companies. It’s not just one. You’re a little more diversified so your risk may be a little lower because if one doesn’t hit maybe another one will. At the same time, we’re a very specially focused, special purpose fund. We’re not out there, I’m not looking for the next investment. I’m helping actually produce the next investment. What we’ve been able to do is put together three core companies that I call our consortium or eco system if you’re in the west coast. I know east coasters don’t like that. Basically, these companies work synergistically to develop new intellectual property assets that we can then package into a new company and take to market. I’m very involved in funding these three companies to keep them going. At the same time, I’m really more focused on these new assets that we’re developing because these are the things that are going to be game changers in the medical industry.
What do you look for when somebody comes to pitch you to fund their medical biotech startup? Are you looking more at the team and their background? Are you looking at their passion for making a difference in the world or that they have a business plan? What is your criteria?
I think if you talk to investors, and I talk to them all the time, the number one thing that we always look for is management. We want to see somebody who has successfully been able to do what they tell me they’re going to do now. When I tell somebody that I started a company and we took it public, I have a little bit of credibility compared to somebody who says, “I started a company and it never really got off the ground.” I’ve done that too, believe me. You’re not an entrepreneur if you haven’t had a couple of spectacular failures. I’ve got those. Really, the management team has to be able to execute.
You have two risks in biotech I think. One is the execution risk. That’s the management team. That’s the group of people that are going to make this happen. In biotech, so many times you see a great management team of scientists but you’re missing a business element. A lot of times when I see a biotech deal and I see a bunch of doctors and scientists, I’ll say, “This is all great, but who’s going to make the business part happen?” They’re like, “We all run our own operations. We understand business.” I say, “No, this is a whole different thing.” You got to talk about marketing, scaling, operations. There’s just a lot more involved than simple research. You’re translating a product that you’ve developed in a lab to a commercial product. Management is key.
Number two in biotech is really a regulatory risk. Is the FDA going to approve this or not? One out of ten drugs that starts in the clinical trial process actually makes it to becoming a drug. It takes over ten years and a billion dollars. When you’ve got that risk, that’s a very low success rate. You really got to look at how can we maximize the opportunity and increase the possibility that you’re going to get through clinical trials. Fortunately, that’s one of the things one of my portfolio companies does, is you can actually tell in advance who will respond to a drug and who won’t. So when we go in to clinical trials, we’ll be able to tell what our efficacy rate is going to be ahead of time.
One of the things I’m really interested to hear about Jay, is not only do you give money but you roll up your sleeves and get in the trenches and help these companies be successful. That’s so important.
I think a lot of venture capitalists say that they do that. To an extent, as much as they can, they do. That’s why I kept my fund size very small. I’m not looking for a whole bunch of companies. I really want to help make this happen. I’m intricately involved in all aspects of the companies’ operations, even though I don’t hold a management position and I don’t hold any vote. We do have governance positions where we can take an oversight look at the thing. Really, the key to me is if I want my investors to be happy, I got to make their investment spectacularly successful. What can I do to make that successful?
What are you working on now that you can share that you’re excited about?
We have a diagnostic that we plan on bringing to market very soon. Right now, if you get a CAT scan of your lung because you’ve had this cough for a long time and you look at the lung and there’s a mass in there, you don’t know what it is. The first thing you do is do a needle biopsy. Go in and you actually pull a piece of that mass out to see if it’s cancerous or benign or what it is. We’re coming up with a liquid biopsy that will actually just use a little bit of your blood from your arm and be able to tell with 100% accuracy whether that mass is benign or cancerous.
Wow. Early detection is everything. To make it so non-invasive is really exciting.
That’s the key. This was actually developed by a surgeon who didn’t want to do unnecessary biopsies. This is just one of the exciting things. We’ve ran the tests on 282 patients and it came out 100% accurate. We’ve done a couple of other tests for validation and they both came back with the same high accuracy rate. We’re really looking at moving this out to the market next year.
What do you do in terms of worrying about barrier to entry from competition?
The competition in the biotech sector is just super intense. Everybody you talk to knows somebody who’s working on something. I was at a conference yesterday and I must have talked to 20 people who are working on exciting biotech things. Some of them overlapped, some of them didn’t. I just talked to a gentleman today on the phone. I thought I was pitching him for an investment. It turns out he was pitching me for an investment. He’s running a diagnostics company and I’m running a fund that funds diagnostic companies. Who knows, we may be able to do something together. There’s just so much competition in the space.
What do you do about barriers to entry? We actually have a very strong intellectual property attorney. The companies have formed a relationship with a gentleman who is one of the top biological attorneys in the country when it comes to intellectual property. You want to not only protect the IP that you’ve developed, but you also want to protect how you got to that IP, what kind of strategies you need to employ to make sure nobody else can say, “We found something that’s very similar and we can use it.” Because you want to walk it up as long as you can from a greedy capitalist standpoint, but at the same time, when you’re looking at intellectual property like this, the research and dollars that go into generating it are so huge that you’ve got to be able to get your money back.
I think, and this is me putting on my political hat a little bit, but I think the FDA is starting to take a different approach to how they look at things. They still want to maintain safety and efficacy, which is the most important thing, making sure people don’t get hurt by a drug and making sure that people are helped by a drug. I think what we’re going to see is this turn towards what I call precision medicine. That’s generally the term. You can call it personalized medicine or individual medicine. Really, we take a little bit more time before we do a diagnosis and treatment. We look at your individual human biology. We look deep into your biology to figure out, “Just because you have diabetes doesn’t mean that your diabetes is as advanced as the next guy’s diabetes and what works for him may not work for you. Why don’t we design a treatment based around you as a specific individual?”
I think we’re going there and I think that this is going to actually end up, even though drug makers won’t be selling as much of a drug because we’d be prescribing different things, I think they can actually, because the drug is going to be working, we’re going to go to a pay for performance model eventually. If I prescriber a drug for you and it doesn’t work, that drug maker is not going to get compensated.
It also sounds like we’re really going into this whole specialized, customized dosage and everything else. It’s much like marketing is very specific and customized, that medicine is going to become the same way. I love it. What impact is artificial intelligence having on medicine and what you’re doing?
It’s a good question. One of the things that we have is a bio informatics engine. It’s not artificial intelligence per se but it’s a whole new way of looking at math. We have a laboratory in Pennsylvania that we’re building right now that will be able to generate 250 million data points off of one single tissue sample. It’s looking at human tissue at a whole different way because it’s looking not only at the genetics but at the proteins, at the lipids and all of the different things that make up that little tissue sample. If you have 250 million things that you know about this sample and you’re trying to find out what is the reason for a specific outcome, why is this a diseased tissue versus a normal tissue, or whatever it is, and you have a dozen different tissue samples, 250 million times a dozen.
These data points are interacting with each other to cause whatever the problem is that you’re looking at, that’s a huge mathematical problem. A lot of people have tried applying artificial intelligence, machine learning, support vector machines, all these advanced ways of looking at math. Nobody has really been able to hit the nail on the head. Luckily I found a company that actually has done that with a whole new way of looking at math. It’s very cool. It’s almost like evolutionary math where the data actually fights itself out to find out who the victor is at the end of the day.
I love it.
It’s really cool stuff. We’re seeing all kinds of advancements. I think it’s this marriage of science and technology that is really causing a revolution in the medical industry right now. We’re right at the beginning of it. It’s very exciting.
Do you think the result of medicine and technology joining forces is that people will be living longer?
Absolutely. I hear people saying we’ll all be living to 150. The people who are born in the 2020s will be living to 150. I firmly believe it. The application of technology to medicine is allowing us to learn so much more about the human body and how it really interacts and what causes aging. Aging is simply our cells being unable to reproduce themselves the way they did when we were young. Because our bodies are always replenishing itself. We’re always rebuilding our cells. We start losing the ability to rebuild them properly. Why is that? There are some incredibly intelligent people who are looking at that right now, everyone from Craig Venter at Human Longevity to Dr. Michael Rose at the University of California Irvine. You name it. There’s just so many people doing this. There’s no way we’re not going to be able to live not only longer but better lives longer.
The impact that’s going to have on population growth and crowding and people not retiring at a certain age anymore, it’s all just going to be fascinating to watch.
You’re right. It’s going to be pretty incredible. Love being in the catbird seat, being able to watch all this stuff unfold.
I bet. Is there a book that you would recommend someone who is interested in getting in getting their startup funded or learning to be a better entrepreneur or just learning about how to live a better life that you want to give a shout out to?
I’ll say two. One is self-serving because there’s a lady out there that I’ve met recently that I really love what she has to say and the way she’s able to connect people. You know her very well. Judy Robinett. How to be a Power Connector is killer. I hear she’s coming out with a new book soon. That’s one. When it comes to pitching and doing stuff, you’ve probably had people recommend this book before. Oren Klaff has a book called Pitch Anything that is just out of this world. I’ve read that probably 50 times and I’ll probably read it another 50 because I just love his approach.
It’s all about how the brain works and framing everything. It’s really well done. I love it as well. Fantastic. Jay, how can people stay in touch with you on social media, your Twitter handle, all that good stuff?
The name of my fund is Forentis Fund. We have Facebook, Twitter, LinkedIn. Feel free to hit me up there. We post regularly whenever I see something cool in precision medicine. We’re always posting news up there and of course our own stuff. It’s a good way to stay in touch with me. I’m at Forentis.com. If anyone ever wants to get in touch with me, you can reach me right through the website.
Fantastic, Jay. You’ve been a great guest. I love your passion. I love that you have so many great tips on how to be successful and have a successful exit and making a difference all at the same time. Thanks so much for being on the show.
Thanks for having me, John. I really enjoyed it.
Me too. Bye.
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