By Breakout Labs

Q&A with Propel(x): How a new online angel investing platform is helping deep technology startups

posted on October 30th, 2014

Propel(x) is an exciting new service that connects “deep technology” startups with angel investors. We spoke with Co-Founder & CEO Swati Chaturvedi and Chad Trainer, Director of Investor Development, to learn how their crowd-investing platform bridges the understanding gap between investors and deep tech startups by providing access to crucial diligence and technology expert insight. 

Breakout Labs: Could you give us a quick summary of your mission and the problems you’re trying to solve?
Swati Chaturvedi: Propel(x) is an online angel investing platform focused on the niche of “deep technology” startups – that is, startups that are founded on a true technological innovation or scientific discovery. One of the key challenges for deep technology companies— which can be found in a diverse range of fields including computer science; energy and clean tech; telecom; life sciences; and, materials —is that they’re complex enough that you have to put in some effort to understand them properly. So there is a diligence aspect that’s required which we’re also providing on our platform.

Swati Chaturvedi, CEO & Founder of Propel(x)

Swati Chaturvedi, CEO & Founder of Propel(x)

Q: What inspired the formation of Propel(x)?
A: I’ve been in management consulting and investing, Venture Capital and private equity. My co-founder and I run an angel investing group for MIT that focuses on deep technology companies and diligence. And there we learned firsthand the challenges of diligence and responsible angel investing. Our passion is deep technology startups. We were finding that if you look at online investing, deep technology companies are not at the forefront. Then we started exploring why that is the case. And the reason is: these technologies are so complex that you need a bit more understanding. You need a better diligence infrastructure.

We said, “Alright, since these technologies have not found a home yet, we will create a home for them.” So we created a platform that focuses exclusively on deep technology startups. Then we enable investors to make informed decisions by helping on the diligence side. We started out writing diligence reports. We would research each company, and compose something like a Wall Street analyst report, in which we would identify key risks. We did a lot of primary research about customers, management, supply and distribution, background, reference checks—just like you do in an offline angel investing environment.

That’s how we started. And we got great feedback on those reports and realized people really want this primary research. They want to talk to customers. They want to talk to technology experts. Now we’re building a due diligence platform, which is far more detailed, a far more organic platform where individuals can ask their own questions and get responses from experts online.

Chad Trainer, Director of Investor Development

Chad Trainer, Director of Investor Development

Q: Was there an “Aha!” moment where you realized there was this “gap” in the angel investing process?
A: The “Aha!” moment was born more out of frustration. When this whole online investing gig started, I was looking at the companies that were featured online. It was all very interesting because it was disrupting finance, but I don’t have a background in consumer companies or Internet companies, and social/local/mobile companies. When I went on these platforms looking for the kind of companies I know best, I didn’t find many of them. So out of frustration, I started asking around, “Why aren’t there companies with significant IP, that are science and technology based?” And after talking with people, I realized the answer – they’re more complex. And we said, “That’s no reason for not investing in them. These are the companies that move the world forward.”

Lisheng Wang, Co-Founder and Investor Development

Lisheng Wang, Co-Founder and Investor Development

Q: Can you give a few examples of what you consider to be “deep tech”?
A: We define deep tech startups as companies that are based on a scientific discovery or true technological innovation. I think this is best understood by giving examples. We launched our platform with a drug company. Then we worked with a company that enabled reliability in data centers, which is a big problem right now. Due to securities regulations, I can’t publicly discuss the investment opportunities currently on our platform, but as long as you’re an accredited investor, you can sign up (for free) in order to see what we’re currently up to.

So, these deep tech startups are all companies that improve and enhance life, and fundamentally they’re based on technological innovation. They’re not Internet companies. They’re not based on a business model innovation. They’re based on a discovery or invention of some kind. The reason we’ve kept the definition of “deep tech” a bit vague is purposeful. It’s hard to have an all-encompassing definition of “deep technologies”. So we said we’ll lead with this and we’ll focus on five key areas.

The number one area right now for us is life sciences. We think that is the most underfunded and under-valued sector right now.  And we’re not talking about health-tracking applications, or how to find a doctor, or share your problems online, or find a community online. We’re talking about new drugs, new medical devices, new diagnostic techniques, imaging, genomics – very important stuff. This is deep tech.

Number two is computer science. I think there’s a lot going on when it comes to infrastructure, machine learning, and data science. The third area is energy and clean technologies. The fourth area is materials. Finally, the fifth area is “other,” which we think will end up being quite significant because many companies cannot be classified in just one area.

Q: You’re currently focusing on startups from specific incubators: QB3 and Breakout Labs. Can you tell us what led to that decision and what it is about the startups from these incubators that earned your confidence?
A: We are trying to build partnerships with incubators that are focusing on deep technology startups. Breakout Labs is pretty unique in that. You are founded on this principle of enabling deep technology companies that have a hard time getting funded. You’re taking scientific research and converting it into startups, which is not done in other places.

Because life sciences are key to us, we reached out to QB3. QB3 is part of the California Institutes for Science and Innovation, and is focused on quantitative biosciences. These institutes were established by Governor Gray Davis in 2000. They work with the UC system, and there are leading entrepreneurs and scientists, including Nobel Laureates, who are part of this system, that are advising some of these companies. So in effect, they are the incubating grounds for new technologies coming out of the UC system. There are four incubators in the California Institutes for Science and Innovation system – 3 in addition to QB3. Eventually we would like to build partnerships with all of them. One is in nanotechnologies. Another is in software. And the third is in telecommunications. So we absolutely think these are in our sweet spot. We’ve also reached out to the NSF and NIH, and intend to reach out to more.

Q: How does your process work?
A: When it comes to accepting applications, we look for pre-vetted startups. We often start by working with the angel group that I mentioned earlier. Once the startups are vetted by the group, we may invite them to our platform. We have now opened up the application process, and startups can apply through our website as well. We also reach out to the incubators that I mentioned. My advice to startups is to begin by going to our website and looking at the criteria there. In order to fundraise on our site, your startup has to at least meet the criteria listed on the site. Then, we have a diligence and evaluation process on our end.

First we go through a quick preliminary evaluation of your application, to make sure you meet the minimum criteria. If you do meet these criteria, then we move forward. The second step is the diligence process, in which we research the market viability of your technology. We also focus on valuation, which is pretty important for evaluating whether your startup might be a good investment. Then, we ask them for additional information, list them on our web page, and broadcast the new investment opportunity to investors on our platform.

After that, every startup holds investor conference calls. All the investors are invited to participate in the conference calls. The investors can also read secondary research materials gathered by us on the relevant technologies, ask further questions, and if they choose to make an investment, they can do so online. Importantly, we are launching our diligence platform shortly. That will radically improve and enhance investors’ diligence! We will keep you informed.

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To learn more, register as an investor, or get listed as a startup, visit Propelx.com.

To learn how Breakout Labs is helping early-stage startups take their ideas out of the lab and into the economy, click here.