Why People Matter More Than Science in Deep Tech with Shahin Farshchi
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
Shahin Farshchi's journey from PhD to General Partner at Lux Capital offers a masterclass in breaking into venture capital through unconventional means. (05:35) Starting as an unpaid postdoc scout in 2006, Farshchi reached out to Lux offering deal flow and due diligence services without asking for anything in return. After 18 months of pro bono work, he joined the firm and has since helped build it into a $5 billion deep tech powerhouse with early investments in Zoox, Relativity Space, and Mosaic. The conversation reveals how elite investors evaluate founders, the critical importance of people over technology, and why distribution often trumps product innovation. (16:30) Farshchi emphasizes that venture capital is ultimately about recruiting exceptional people who can build and scale transformative companies.
- Main Theme: The transition from technical expertise to investment mastery, focusing on people-first evaluation in deep tech venture capital
Speakers
Shahin Farshchi
General Partner at Lux Capital with a PhD in electrical engineering from his work on wireless neural interfaces for brain signal capture. Farshchi started his venture career unconventionally by working unpaid for Lux Capital for 18 months as a postdoc, eventually joining the firm and helping grow it to manage over $5 billion across 10 funds. He has invested in notable companies including Mosaic (acquired for $1.5 billion), Zoox, and Relativity Space, bringing both deep technical understanding and entrepreneurial experience to his investment approach.
Key Takeaways
Venture Capital is Fundamentally About People, Not Technology
(16:15) Farshchi learned through experience that spending extensive time evaluating technology feasibility was "completely wasting my time." He discovered that successful investing requires focusing on founders who understand problems, know who has solutions, and can recruit talent effectively. Technology can become obsolete, fail to work, or be completely rebuilt - as happened with every single one of his portfolio companies. The key insight: investors are "glorified recruiters" looking for people who can create virtuous cycles of hiring great talent, raising capital, and scaling businesses. This people-first approach explains why non-technical investors can excel in deep tech.
Strategic Positioning Trumps Perfect Timing in Deep Tech
(14:52) Deep tech companies face unique challenges where they often have "one shot on goal" with $100 million+ funding requirements. Success requires strategic partnerships with deep-pocketed entities before the capital becomes scarce. The example of autonomous vehicle companies illustrates this perfectly - while billions flowed in 2016, funding dried up by 2021. Companies that survived, like Zoox, partnered strategically with Amazon. The lesson: when capital markets are favorable, secure strategic relationships with entities that have vested interests in your survival and deep pockets to weather market downturns.
Distribution Often Matters More Than Product Excellence
(32:57) Even revolutionary products fail without effective distribution channels. Farshchi argues that if forced to choose between perfect product and strong distribution, choose distribution every time. Many technically brilliant founders naively assume products "will sell themselves," but this never happens. Building distribution is like Olympic-level gymnastics - it looks effortless but requires thousands of hours of deliberate practice. Companies should optimize for reaching customers first, then iterate on product while maintaining that customer access. The key insight: distribution is often harder to build than great products, making it a more defensible competitive advantage.
Back Your Founders' Decisions Even When You Disagree
(23:56) Farshchi's most painful lesson came from a failed investment where he fought management's strategic decisions instead of supporting them. The company was burning $5.6 million monthly with over 100 employees when their major customer churned. Rather than respecting management's chosen path, he spent enormous energy trying to convince them to pivot - even missing his child's birth due to the stress. His key realization: "I'm backing you guys... if you choose to do something, the best I can do is support you." Once you've made the bet on founders, trust their judgment and provide unwavering support rather than second-guessing decisions from the sidelines.
Differentiate Through Scientific Risk vs. Technical Difficulty
(11:40) Understanding the distinction between scientific risk and technical difficulty is crucial for deep tech investing. Scientific risk involves fundamental discoveries that must be made before talented engineers can build products - best suited for academic institutions with patient capital. Technical difficulty, however, involves taking proven scientific advances and engineering them into monopolistic businesses. Farshchi prefers investing in teams tackling technical challenges rather than basic science problems, except in life sciences where regulatory milestones create clear value inflection points. This framework helps investors assess risk profiles and determine whether startups or research institutions are better suited for specific innovations.
Statistics & Facts
- (08:21) Lux Capital has raised 10 funds totaling $5 billion, with their current fund being $1 billion. The firm can write checks ranging from $50,000 to $100 million and invest from idea stage through public companies.
- (19:08) Mosaic was acquired for $1.5 billion by Ali (likely Alibaba), despite being controversial until literally days before the acquisition offer was made.
- (22:43) In Farshchi's most challenging investment, the company was burning $5.6 million per month with over 100 employees before ultimately running out of money and going to zero.
