You can’t be a VC working with pre-seed and early-stage firms if you’re not willing to strap yourself in for a rollercoaster ride once in a while.
There are so many variables and risks at play with firms of this kind that there’ll almost certainly be points where, in the heat of the moment, the success of the project feels like it’s hanging by a thread. But then sometimes, even if at the outset of the deal you think things might become bumpy, what you get is the smoothest of rides.
An example of a project like this that really stands out in my mind is the work I did with Aeroflux Braking Systems, a startup that makes aircraft braking systems.
What really got me interested in Aeroflux Braking Systems was the quiet genius of its core product.
I’d never really thought about this, but standard airplane brakes are ridiculously primitive: they’re basically just carbon pads that press against the wheel to slow it down using friction. They get worn out quickly and need to be replaced frequently, which is not only bad news for the environment but also the whole plane needs to be taken out of service while they’re being replaced.
All this came to the attention of Nikola Kostic, Aeroflux’s founder, while he was studying mechanical engineering at the University of Toronto. He came up with a really clever solution to the problem: using magnetics instead of friction. The concept for magnetic brakes he designed represented a huge leap forward from carbon brakes, because these magnetic brakes would have no parts that wore down, and they would last for the lifetime of the aircraft, eliminating downtime and lost revenue arising from brake replacements.
When I saw Nikola’s pitch, I was blown away by the technical side of things. It was absolutely clear he was the right person to develop his concept into a final product. The commercial side was another matter.
When you make highly specialized components, the big challenge you face is getting customers. Your target market is going to be just a handful of companies, and these will already have a well-developed and pretty tight circle of suppliers.
If you can’t break into one of those circles, your startup’s going to die, no matter how technically outstanding your product is.
The challenge seemed extra daunting in the case of Aeroflux, because Nikola and his team were all fresh out of university, not veterans with decades’ worth of contacts in the aerospace sector. He had done a year or two of work experience at a French aircraft-parts manufacturer called Safran, but that was about it.
Still, I thought that Aeroflux’s tech was so good and its team so talented that I was happy to ride this particular rollercoaster. And then the strangest thing happened: Nikola went to Safran, his one industry contact, and found a way to persuade them into investing with a view to Aeroflux supplying its brakes to Safran. Pretty much just like that, the big question mark that hung over the startup evaporated.
That things worked out this way is a huge testament to the smarts and hard work of Nikola and his team—not just on the technical level, but also in terms of how they made their business case to Safran. Stories like Nikola’s and Aeroflux’s are super unusual, and when they happen, I think they’re worth celebrating and making some noise about. And I’m not just saying that because they save us VCs some stress once in a while!