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Solutions spotlight: How to buy from a start-up without getting burned

May 14, 2021

Michael Risse, VP and CMO for Seeq, and J.P. Bauman, principal at Altira, a venture capital fund that focuses on venture growth equity stage companies serving the energy and broader industrial space, join Keith Larson to share some best practices when buying innovative new technologies, software, or services from a company that may not have quite the track record of an Emerson, a Honeywell, or Rockwell, or Siemens. How can you make sure you're not left holding the bag? 

Transcript

Keith: Hello. This is Keith Larson, editor of Control magazine and ControlGlobal.com. Welcome to this Solutions Spotlight episode of our Control Amplified Podcast, sponsored today by Seeq Corp, publisher of data analytic software for process manufacturers. Joining me today are Michael Risse, VP and CMO for Seeq. Welcome, Michael. It's a great pleasure as always.

Michael: Thanks, Keith, great to be here.

Keith: Also joining us is J.P. Bauman, principal at Altira, a venture capital fund that focuses on venture growth equity stage companies serving the energy and broader industrial space, and one of the early investors and board members of Seeq. A real pleasure to meet you, J.P. Thanks for taking the time to join us today.

J.P.: Yeah. Thanks for having me.

Keith: For those of you who have listened to this podcast before, you know we tend to focus on best practices and technologies that can help engineers and operators charged with running the process industries' massive investments and production assets to do so more safely, productively, sustainably and profitably. But in this episode, we're doing something a little bit different. I've asked J.P. and Michael to share some best practices of another kind, that is when buying innovative new technologies, software, or services from a company that may not have quite the track record of an Emerson, a Honeywell, or Rockwell, or Siemens. How can you make sure you're not left holding the bag? Maybe to get things started, Michael, you can tell us a little bit more about Seeq and your position within the organization.

Michael: Sure, Keith. So, Seeq was founded in 2013. There were 10 of us back in 2013 sitting around a picnic table in the Columbia River Gorge. Now, almost eight years later, there's about 140-150 of us.

Keith: Wow.

Michael: We've raised $115 million so far from a number of investors including Altira as well as Siemens Next47, Saudi Aramco, Chevron Technology partners, as well as Cisco Investments, and have hundreds of companies. So, we're one of those companies, maybe over the last few years, certainly in our earlier days, that customers may have wondered about. You know, "Who is this company? Do I make a bet on them? How do I know they're gonna succeed? They'll be around tomorrow," things like that.

Keith: Yeah, all that makes sense. J.P., maybe set the stage a little bit. I understand Altira has a unique investment model where you really partner with strategic energy companies as well. Can you tell us a little bit more about that and how that partnership came about?

J.P.: Yeah, absolutely. So, yeah, just to, kind of, set that stage, as mentioned, Altira, we're a Denver-based venture capital firm. We were founded over 25 years ago really with the mission to invest in and help build great technology companies for the energy and industrial space. And I think what's unique about us as a venture capital firm, they all take different shapes and flavors and so forth, but at Altira we invest in a very unique partnership with actual energy companies. And we partner with them to identify investing and then rapidly scale important innovations. And so while our partners are predominantly in the energy space, we also like to find technology with application across many different industry verticals. And so just to give you an example, we've invested in things like artificial intelligence for contract analytics, remote operations connectivity, energy storage software, and of course industrial big data analytics like Seeq. So, our investment model, it's pretty interesting. If you think about the topic of the podcast today, it really was specifically designed to address many of the concerns that industrial customers have when they are thinking about adopting new technology.

Keith: Sure.

J.P.: You know, it's really these same concerns that historically have also made investing in industrial tech and software very difficult. So, the way that we've overcome these concerns as investors, which I think have applicability to, I'm sure, a lot of listeners that are looking to buy and adopt technologies... And by the way, it's been very successful in the way we overcome these challenges, is that we work closely with these industrial partners over the life cycle of what we do. So, it starts with, "What are your big pain points, you know, you...industrial customer, right?" We start there, and then that helps us be very focused on things that are going to be important solutions to them. Of course, we involve them in our vetting and our due diligence so we can do things like field trials and proof of concepts, and so forth.

Keith: Sure.

J.P.: And then, of course, once we make the investment, we bring these partners to the table of large fast adopting customers, but then we also facilitate a lot of direct interaction between our investee companies and our customer partners, right. And then by doing so, these partners are able to help shape and guide these technologies and these offerings really to their spec. And so, we provide some very unique access to our investment strategic partners. And so if you think about our model, you think about what are risks to early-stage companies, it's one and the same, both has an adopter and an investor. It's really, the technology, does it work? What is the adoption rate going to be? So, is this kind of something that's going to be rolled over 20 years or does it solve a large important problem and it will be adopted very quickly?

And then, of course, it's also about the team, right? It's great to have a great product and a big market but if you don't have a team that can execute and build a real company around the solution, there's no real opportunity to use that. And so we completely understand this problem that you sort of laid out in this podcast. And so again, we work with these partners. They want to use innovative technologies, but there's a couple of issues. One, they're not always getting this from the incumbent service providers in their space.

Keith: Right.

J.P.: And then, two, they're oftentimes very hesitant to use new technology from an early-stage company. If you think about it, it takes a lot of time, a lot of resources, a lot of risks on the part of these customer companies to work with early-stage companies. So, our partners take a lot of comfort in working with Altira because we vetted these technologies but we also could be there standing alongside these early-stage companies to help them mature and professionalize and really develop into a sustainable vendor for these industrial customers.

Keith: So, do you ever get some of your partner companies bringing startups to you and saying, "Hey, take a look at these guys," or, "Would you help them out because we think they've got something going?"

J.P.: Yeah, absolutely. I mean, I think I could count on a couple of hands the number of times where our partners have said, "Hey, here's a great company. We love what they're doing. It solves a big problem. This is actually a really important innovation to us, but you know, we're a little afraid to sign a big contract with these guys. I don't even know if they're going to be around in a year from now." So, it's really neat how that partnership goes both ways. A lot of times, we bring them things. We're sort of forward-looking around the corner the way the industry is going, and here's something you might not even be aware of that came from outside your industry." But oftentimes it's, "Hey, here's a company that knocked on our door. Hey, go take a look at these guys. We'd love to get you guys involved so we can get some comfort in working with them going forward."

Keith: So it sounds like you have a really, kind of, unique vantage point given that your investment partners are in the energy space. Why are they looking for innovation? Is there a way you can kind of classify the types of innovation they're looking for in this day and age?

J.P.: Yeah. No, for sure. So I mean, why are they looking at me? First and foremost, it almost always starts with a major pain point,  "We're trying to solve this. We're trying to do something better because we have an immediate issue." The other category is really, and you're seeing this across the industries, is this "digital transformation" that's happening, right. And that's more of the category of, "Look. We know they are new and completely new in better ways of doing kind of critical things in our organization and there's a large prize associated with that transformation." And so, companies I think are always looking for that. But, you know, I think there's a couple of things to keep in mind. We hear from our partners, and I think your listeners will definitely relate to is that the engineers, the operators, they're busy with their day jobs. They don't have all the time in the world to go scour the universe for the latest and greatest innovation, right? Sure, they're going to their industry conferences and their networking with peers and they're reading their industry journals, but I would say, that doesn't really get them outside of their bubble, right? We're always trying to do things that...new ways of thinking tend to come from the outside and if you're open to it.

And so, you know, it can happen...innovation, kind of, can come from that and ideas. But then there's also a lot of these organizations, will set up internal groups that can do some scouting and they'll be responsible for doing trials and so forth, but from our view, those kind of had mixed results. And, it's been nice. Our partners have really found that they can lean on Altira. They can lean on us to help go scout, curate deployable technology to address a lot of their issues. And the other thing to keep in mind is, a lot of these folks have just sort of said, "Look, the large incumbent service providers are not bringing us real innovation." If you think about it, these incumbents have huge franchises they don't want to disrupt. I mean, it's almost like they have a different incentive to some of this new and emerging technology. So, that's really where we can come in as venture capitalists. That is our job to find things that are going to have major improvements and disrupt the way industries are doing business. And that's really where our partners have leaned on us to find innovations.

Keith: Well that makes sense. So, Michael, you obviously have J.P. on your board and they obviously had invested. Tell me a little bit about how that relationship developed with Altira from your perspective.

Michael: Well, you know, that's an interesting question. I don't remember if it was...which way it went. I don't know if Altira found us and then they found out that some of their partner investors were already using Seeq or if their partner investors were using Seeq and they said, "You know, we're using Seeq, and you should take a look at it, J.P." All I remember was this.

J.P.: Yeah.

Michael: It was pretty quick and it was pretty symbiotic because their investors were already using Seeq, and so the enthusiasm was on both sides pretty quickly. Is that about right, J.P.?

J.P.: Yeah. No, that's absolutely right. I mean we're constantly sitting down with our partners and understanding, "Hey, who's knocked on your door lately? ." He said, "This is interesting, but we're a little hesitant. Are these guys going to be around?" So yeah, actually that came from that way as well as another customer that we know really well. One of Seeq's original customers had mentioned them to us and, you know, we got connected to the CEO. And next thing you know, we had Michael and the rest of their team in Denver sitting down with us walking us through their plan. And Seeq was certainly one that didn't take us long to get our heads around and say, "Yes, there's a big pain point here and this is something we wanna be a part of."

Keith: Yeah. Michael, I guess let me also congratulate you on Seeq's latest round of investment, a Series C influx of some $50 million if I'm getting that right. I think this is...

J.P.: Right.

Keith: That's actually the announcement that had me thinking about this idea for the podcast. It was like, "You know, that's interesting way to talk about, how should people view new companies? How should they invest in them and invest in them as customers and not get left holding the bag?" This actual level of investment really puts Seeq in a different league of performance expectation, doesn't it? I mean, it's not just a strategic investor that's looking at the longer term and these guys want some cash flow out of you, don't they?

Michael: I would say it's sort of J.P. but, yes, it's another level of the game.

Keith: You might be a little more patient maybe.

Michael: I think the key thing is how do you think about this Series C, right, and just what's Series C is. It's around after Series B. What's Series B? It's around after Series A. So, it's basically the third stage of funding that a startup will go through. And the interesting data point for the engineers in the audience, about 10%, depending on the year and the cohort, about 10% of companies gets to a Series C, right. 90% don't is the other way to look at that. And of the 10% that get there, approximately 90% have a positive outcome in terms of either becoming profitable, going public, being acquired. And the key thing is being acquired for the business, right. When small companies are acquired early, that's called an acquihire where you're basically acquiring the company to hire the employees. So, Series C is this inflection point where you are in a different category of organization in terms of size, potential, momentum, and highly probable outcome, right. It's a very different thing to talk to a Series C company to invest time and money from an organization's perspective than it is from those early days in the Series A camp.

Keith: Sure. And I'm sure even as an early-stage company when you went to see customers, you were probably cleaning up from some of those 90% companies that didn't make it. What were some of the biggest mistakes that you saw or oversights that customers have confessed to when it came to buying from a startup? Are there things they shared with you?

Michael: You know, we call those "oops," these customers, like, "Oops, we didn't." And honestly, it's, "Oops, we didn't know you were out there."

Keith: Yeah.

Michael: And what it was just the basics of, if you're interested in...if something's interesting, it's interesting enough so that you're going to invest money and time then spend an hour, right, and I can be very prescriptive about this. Spend an hour, go to LinkedIn, and look at the employees of this company, where are they coming from, and how many employees do they have, and is the headcount growing or not, right? Just straight up. And build a little table. Have a couple of different options. Figure out what the options should be. Have a couple...LinkedIn. So let's talk about the employees, their history, how many there are, is the company growing or not. Number two, go to a site like Crunchbase, which has the funding history, okay. How much have they had invested in the company? When were the investments? What are the names associated with the investors, right. You know, Altira, obviously, a huge plus for us in that category. And number three, this is going to sound incredibly tactical, but realistic, go to the company's webpage, website, and look at their blog. When was the last time they posted a blog?

Keith: Yeah.

Michael: And are they keeping things up? Are they keeping things fresh? Are they keeping things, you know... Is there a sense of momentum? If you do those three things across a couple of different companies, just very quickly, you will get a sense of, "Okay, who's got momentum, and where is it worth spending time and energy?" If you see something interesting and pursue it, then that's where we come up. That's where we get the "oops" customers from. You know, "Oops, we didn't consider Seeq in this context," and switching is always a little bit harder than starting from scratch.

Keith: Yeah, all that makes sense. J.P., as an early-stage investor, you're often putting millions of dollars on the line with many of the same concerns that potential customers have. It's never 100% obviously, but is there due diligence that you perform, questions you ask and have answered before you decide to invest? Are any of these practical for an end-user audience to be able to learn from and apply to their own tech investments?

J.P.: Yeah. No. For sure. I mean I look at a lot of what Michael said. It's interesting. There's a lot of parallels, right, between how a customer looks at this as well as an investor. You know, again, as to Michael's point, there's no question. I have a really interesting vantage point, right. Early-stage companies fail, I mean, very frequently, right? The ones that make it to "The Wall Street Journal" are the very select few. And they fail for a bunch of different reasons. It's good to keep them in mind, I mean, there's all sorts of studies and surveys, but it ranges from not having the right product-market fit, right? So, is the solution working for a problem, slow adoption, right. We know sometimes our industrial customers can be very slow to adopt. Well, customers...companies can just run out of cash because they don't, you know, they're not getting enough customers, right? So, you know, that's something.

Keith: Right.

J.P.: And then sometimes companies just break as they try to grow, right. Think about scaling from 10 to 20 people to 200 or 300 like Seeq has, that takes some very skilled executives, and I'd like to think board members could help with that, right? You got to be able to continue to execute as you grow. So, there's all sorts of risk certainly with these early-stage companies. And as Michael mentioned, you can start to handicap that a little bit by following their funding and seeing how they're progressing. There are several, kind of, indications there. And then I guess a little bit into the insight and the sausage-making, you know, what a venture term does, right? You talked about funding, but what does that mean? Well, look, I mean as venture investors, our job is to ensure that we're building great companies and that they have all the right resources, right. And so, if you think about it, it's making sure the company is properly capitalized. Do they have the right resources to grow and continue to invest in their product development? You know, do they have the ability to go out and recruit and retain the right team and the right executives that know how to grow a business? Different stage companies have different challenges. Do they have the right team to lead them through that?

Keith: Yeah.

J.P.: And then I'd like to say the proper governance, the proper oversight, right, making sure you have these certifications, get all the things that help put in place the foundation to build a large, large company. So I think as you look at, as Michael mentioned, as you look at these founding rounds, you get successful rounds, I mean, those are resources to help the company grow. Those are credible partners that do this professionally to make sure, "Hey, these are viable customers and the later they get, I guess the more comfort you can take." And so, the only thing I would add, that's one area. I mean, certainly, like you said, looking at the news, looking at the LinkedIn site, you can gain a lot. Do they have referenceable customers? "Hey," ask them, "can I give one of your customers a call?" I mean it takes a little time, but you might learn a lot. You might create a new, you know, somebody new to your network.

You know, take a look at that team, do they have entrepreneurial experience? Is this their first time? Some entrepreneurs can take these companies for a while, sometimes they're part of a succession plan. Is there a large market for this? Is this just a point solution or is this a big application? I mean, those are all things that will help you think about, "Hey, is this company going to continue to grow? Is it going to continue to get funding?" So, in the simplest terms, I would break it down in this way, I would say it's team, market and product, right? If they have those three things, you can bet that there's somebody like me. If you find somebody out there that checks all three boxes, give me a call because I'd like to meet these early-stage companies. 

Michael: Absolutely.

J.P.: Yeah. You can do your own analysis there, but chances are, somebody who's doing it has a great team, a huge market for their solution, and a product that works and is being developed and progressed. That's one that there's a good chance it's going to continue to get funding and be a good vendor for you going forward.

Keith: Any new startup is going to have zero customers at some point, how do those very first customers, the ones who can't call a reference, what qualifies them? Who's the type of company that see a really large prize of adopting a new technology? How do they take that plunge and get the courage to take the risk at a brand new company?

Michael: Well, in our experience in the early days of Seeq's perspective, it wasn't at the company level, it was at the individual level. You found somebody, a champion, who saw what we were doing, Seeq was doing, and said, "I get it," right. It was very much an individual, personal drive that they had. By the way, a lot of those have gotten promoted. Those folks have gotten promoted since then for their ability to spot this innovation that's worked out so well, but it really comes down to an individual person that feels the pain that J.P. spoke of and says, "I recognize what this is trying to do." And they get personally and professionally committed to giving the vendor, and Seeq in this case, but giving the vendor feedback and pushing them and pulling them and working with us as a partner and a customer to improve the product and make that early vision they had pay off themselves and for their organization.

Keith: Yeah. Do you have anything to add from your perspective, J.P.?

J.P.: Yeah. No. I think I echo a lot of what Michael said there. Now look, we commend those early pioneers, right, because somebody has to be that leader and they're doing it because there's huge value for their organization, right. There may be some risk, but there's huge value. And so, I would say, "Look, you can't do this 10 times a year, but maybe really sit down, What are your big pain points? What could really impact your business if this technology works?" And then set the right expectations internally. "Look. We're going to do a couple this a year and we're going to work with these companies because it has a huge reward for us." And they may or may not work, but that way, you manage expectations. And there is an opportunity to work with that company. I spoke earlier about the ability to kind of shape and guide some of these technologies. I mean, you can do that as an early customer. And by the way, the entrepreneur loves that. They would love to talk to you once a week if they could.

So, it does take a little bit of time and investment, but if you start with something that is a payoff for you in the end, I think a lot of our partners have found it absolutely worth it. And, as I said, it can be very rewarding. And I completely agree with Michael. We've seen people in these organizations take on this leadership and be promoted because of it, because of the value it's created. So, I don't want to ever discourage somebody from working with these early-stage companies because that is the way we progress our industries.

Keith: And from your perspective, Michael,  having one champion is a great place to start, but obviously a lot of Seeq's growth has come from being able to replicate that success from one individual to another to another facility within the same organization. A lot of end-users, as well as tech companies have been having trouble, getting stuck in pilot purgatory, you know, "We're going to try one pilot and we're going to..." and it never progresses beyond that. I think you've clearly found a way past that. Can you share a little bit about what you do with your clients to help get broader adoption, so you can scale it within the organization?

Michael: That's interesting because I read about that type of thing. A number of analyst firms talk about pilot purgatory and how to get past it and this, that and the other.

Keith: You've never run into it yourself, no?

Michael: It's not something we either see or experience. And if you look, for example, at our Top 50 customers, customers are spending hundreds of thousands and up over a million dollars on Seeq because they've got hundreds or thousands of users of Seeq. I want to say 47 out of the Top 50 all started as pilots. And so pilot purgatory, getting trapped, is not something we experience. Why not? I think there's a couple of things, certainly ease of use. Your existing employees with their engineering degrees, their expertise, their experience, if they can use Excel, they can use Seeq. Ease of use is a key thing about getting viral spread rapidly. The other thing I think is key is just the time-to-value, right. So, once you've got your existing users, you've got your data where it is because we don't need you to move or change it, but your data can be where it is, your existing users, an easy-to-use product, then their time-to-value gets measured in hours or days rather than months or quarters.

I mean, nobody at the end of a Seeq proof-of-value experience is wondering whether they got value from it or not, which would be the normal sort of, "Well, maybe we should think about this a little longer," story. That's not what happens with Seeq the way we've designed the software and the user experience. So, having accessibility to those users is of use. Having a very fast or a wide, very provable impact, whether that's the asset availability or higher quality or higher production or better regulatory compliance. A customer's measure of value starting at the millions of dollars, right. It's a million dollars of impacting. That's pretty easy to see. So, we haven't had that issue where we get stuck forever in pilot. We tend to go in proof-of-value quickly and then grow quickly within those organizations. As I said the 47 out of the Top 50 all started as proof of values and we've grown from there.

Keith: Yeah. That makes sense. J.P., have you run into this problem with any other companies that you've worked with where scaling has been an issue, and if so, what typically has been the problem?

J.P.: Yeah. No. I would say, you know, it depends on where the company is in its lifecycle, right. I mean, as we said, some of these very, very early-stage companies maybe don't have the luxury of going in and commanding quite as much in these proof of concepts. It is a partnership model with that customer. "Hey, yeah, you're going to give us access to your operations and we're going to do this." But as you get later...I mean, we often try to push companies to a point where, number one, somebody's paying for the trial, nobody's getting anything for free because if you have some skin in a game, it makes that customer more focused on it and more interested in making it successful. And then the other thing we really encourage our sales teams and our entrepreneurs is to really make sure you set expectations of, "Okay, here's the pilot. Here's how it's going to progress. Here's how the product is going to evolve. Here's what the expectation is of you as the customer. Here's what the rollout looks like." Kind of setting some of that upfront, I think can help you get out of that purgatory. By no means is that an easy thing to do, but I think folks that kind of set those expectations on the broader rollout upfront tend to do better in that category.

Keith: So, have some mutual agreement about what that value that Michael was mentioning is going to be. And if that value is there, then the path should be forward to do more.

J.P.: That's right.

Keith: Yeah. That makes a lot of sense. Well, I think we're kind of coming down to the end of our allotted time here, but I guess in conclusion, I want to ask you to each share may be your most important go-to criteria for judging whether to invest or purchase from a given tech company. Do you have one overriding concern that you would expect our listeners to retain once they leave the podcast today?

J.P.: Like I said, I think there's a lot of parallel to what we do and how an investor or buyer would look. It always comes down to the team. I'm not just saying that because Michael's on the call here. It always comes down to the team. Because you know what, I can tell you that product and that solution is gonna look a little different than the way it was originally drawn up and it will evolve over time. Every company runs into challenges, every market evolves. And if you start with a great team and a good leader, I think that tends to be, you know, the biggest sort of projector of success. A lot of other things do have to fall into place, but we almost always start with the team and go from there.

Keith: Makes sense. What from your perspective, Michael?

Michael: It's a tough word, but just the sense of momentum.

Keith: Right.

Michael: You consider the externalities and what will change. As J.P. said, the product won't look quite the same in a little while, or for goodness' sakes, the situation we've had last year with the pandemic and COVID. Like, things are going to happen, and so if they've got a center of gravity, they've got some masses, they've got momentum, they've got that team, they've got ahead of steam, then they're going to get past some of those things. It's called pivoting. Either there's some minor pivots in what they're building or how they're thinking about the business or they're going to survive those external pressures, and we've certainly seen some of those recently. So, that sense of momentum that they have, is it building year over year and over time? Then that's going to be somebody who's going to come out the other side. Maybe a little different like J.P. said, but it's going to come out the other side and reward early investment in the organization.

Keith: Well, I certainly get a sense of momentum just from talking to you, Michael. You clearly broadcast that from Seeq's perspective, so a very good representative for both the team and the momentum on Seeq's perspective.

So, I think we're just about out of time. So, J.P. and Michael, I really can't thank you enough for chatting with us and sharing your insights with us today. For those of you who are listening, thanks also for tuning in. Thanks to Seeq for sponsoring this episode.

I'm Keith Larson, and you've been listening to a Control Amplified podcast. Thank you all for listening in, and if you've enjoyed this episode, you can subscribe at the iTunes store and at Google Podcast. Plus, you can find the full archive of past episodes at controlglobal.com. Signing off until next time. Thanks again, J.P. Thanks again, Michael.

For more, tune into Control Amplified: The Process Automation Podcast.

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Control Amplified: | Control Amplified: The Process Automation Podcast

The Control Amplified Podcast offers in-depth interviews and discussions with industry experts about important topics in the process control and automation field, and goes beyond Control's print and online coverage to explore underlying issues affecting users, system integrators, suppliers and others in these industries.

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