How to Bring Your Research to Life

Julian Senoner, CEO and Co-founder @EthonAI on His Recipe for Success to Bring an Idea From Lab to Market in Record Time

Today I’d like to use this medium to congratulate a company I am working with, EthonAI, on their CHF 15m Series A financing! This funding round is led by Index Ventures with continued support from existing investors Earlybird, General Catalyst, and Founderful.

I thought this milestone to be the perfect opportunity to share some insights from EthonAI’s journey so far, especially a few secret ingredients of their recipe for success that helped them manage to grow from a research project, to spin-off, to raising a successfull pre Seed round, over Seed round, to now Series A, all in just under 3 years.

A bit more than a year ago at START Summit in St. Gallen, CEO and Co-founder Julian and I had a conversation on stage about their first steps, from starting in academia to hiring their first employee and raising multiple rounds from international VCs. You can watch the recorded video here (from 1:31:10). Today I’d like to revisit the insights and tipps Julian shared back then so you and others can learn from them.

5 quick questions to get to know Julian and EthonAI:

What is your academic background and why did you leave academia?: 

I am an Industrial Engineer and I left academia because it was too slow

What is the one single aspect you would like to outsource as a founder?: 

Good questions, but basically everything that someone else can do equally well as myself or even better

Single best advice received as a founder?: 

Avoid any distractions and keep a laser focus. That, unfortunately, also sometimes means missing out on great events like this one

What does the team look like right now?: 

We are 24 people, around 40% of which hold a PhD, most based in Zurich and some in Eastern Europe

What is EthonAI’s punchline?: 

We allow laymen to use state-of-the-art quality assurance technology without any prior knowledge

Let’s explore Julian’s recipe and playbook on how to take your research to life. The key milestones include 1) the right idea, 2) a rockstar team, 3) molding it into a product users love, and 4) financing the whole project:

Idea:

Where did the idea for EthonAI come from? Was it a result from your research, or did you try to do research in a field in which you already had an idea?

Becoming a founder has always been a clear goal of mine and I tried to start a startup during my Master’s studies which kind of failed. So I went back and saw doing a PhD in an area that really interests me as a good way to explore opportunities and find product-market fit. This PhD is where most of the substance of what we are now working on today originated from. So it is a little bit of both but I obviously did not start my PhD with the finished product in mind, otherwise it could be better to go to market directly.

You already touched upon it, but what would you say are the biggest advantages of finding an idea in your research field?

So at the end of the day, everything that matters is finding product market fit, fine-tuning it, and figuring out how to go from creating value to actually scaling it. If you start a company and try to find that product market fit you might run out of money before reaching that point. As a researcher, you have the benefit of being on someone elses’ payroll, so you are basically paid for finding product market fit and I believe this is the main advantage of a PhD if you want to found a deep tech company. This might not apply to other areas such as consumer technology.

Team:

Everyone also knows startup success comes down to the right team and institutional investors love to see outstanding talent with complementary skill-sets working to solve tough challenges. How do you thus best find the right co-founder and is there an advantage of finding a co-founder from the same research field versus bringing in someone else?

It has a lot of benefits going with someone you know. In my case, Bernhard, who is now CTO, and I, were friends from university, did research together, and knew each other for a long time. I could therefore be very confident in founding a company with him and could not think of a better co-founder. I think if you bring in someone external, you might not know them so well and not have enough time to explore. 

I would still not say that it can’t make sense in other senses. For example, if you have two technical founders who want to take over product roles, it can make sense to bring in someone from the commercial side.

In our case, we both have technical backgrounds but still complement each other very well. Since I did a lot of manufacturing and AI research and Bernhard is a software engineer.

So you both did research in AI before, was it always clear who would become CEO?

Yes, that was no discussion. I really suck at software engineering.

Okay, after you identified a great co-founder, at some point you need to make your first hire. When did you know it was the right time and what was the most important criteria?

Actually, it was quite hard with the first hires, since when you start a company, no one cares about you. You have a terrible website online, get one or two applications a week and I think sometimes founders then tend to make a compromise. Luckily we were told not to do so, we remained patient and had 30-40 interviews before hiring the first person.

Product:

So the team is set up and now the next step is to build a great product around it. When did you have the insight that now is the right time to productise your research and how long did it take you to turn it into a working MVP?

In terms of my research, I was a bit lucky. My department worked closely with industry, so the theoretical research we did always had the goal of being applied in the real world instead of sitting in the ivory tower of academic research. I worked with companies like ABB and Siemens,  deployed my research there, and started to see that we were saving them a lot of money.

At some point, Siemens simply told us that if we were to build a product around our research, they’d be the first customer. I think that was the signal we needed to be confident enough to start a company, raise our first round, and go to market.

Your product is very complex and deep-tech. How did you manage to find time to build all this while being a full-time PhD student, publishing, researching, and maybe even teaching a bit?

I'm not going to lie, it wasn’t easy. We worked 7 days a week trying to come up with a prototype. The technology was validated so we just needed to hack together something that looked like a product and did that next to our PhDs. We were lucky that our professor, who then also became a co-founder in our company, helped us a lot and knew we were not willing to pursue a career in academia and gave us the freedom to work on this.

We also outsourced certain tasks. We got an ETH grant of CHF 150K and thus had some money to hire some contractors building user interfaces for us. But most was done by us.

How much of a game changer was the university network and close connection to those large enterprises who even asked you to please build a product for them?

Definitely quite a game-changer, especially in the beginning. However, your network runs dry very quickly no matter how big it is. Especially if you do B2B SaaS it is very slow in terms of the sales motion, so your pipeline has to go beyond your network.

Starting with companies and exploring opportunities helped a lot. Especially large brand names like Siemens as a first customer help to attract investors and build conviction with them that this is a great product that is gravely needed.

Is this first customer Siemens still on today?

Yes!

Funding:

So product, team, and customers are ready for launch by now. The only thing still missing is money. When did you feel like it was a good time to raise a first pre-seed round? And is there even a “right” time?

It really depends on what you are building. If you are building hardware, it can make sense to survive on university grants and start raising, when you know that go-to-market is close. However, for software, I think you have to go fast. So while we got a grant, we realised this CHF 150K won’t take us that far and we need to pick up speed. This is why we immediately went on to raise a VC-led round targeting to raise at least CHF 1.0M and we ended up raising CHF 1.2M. I believe this was the absolute right decision. 

You went from pre-seed to seed round in almost record time, not even one year. How did you manage to deploy the capital that quickly and also hit the milestones you need for that next round?

We hired an exceptional team that built a great product in a very short time. That also makes me most proud of our journey so far to see what we have accomplished. The product was used by some very big names and they started to pay substantial sums that would justify raising a new round.

As for the money, we did not deploy all of it but at some point it makes sense to raise more money to be able to plan ahead a bit longer. Not only 12-18 months but up to 24 and we knew we had the traction to raise that round. It became a bit bigger than anticipated but I would prefer that over raising less.

Did you have any investors that were majorly concerned about the entire spin-off situation either in pre-seed or seed round?

I think ETH is quite reasonable with their terms and there are international studies that show the ETH model’s success compared to others. They are not taking an equity stake, which is important to me since that makes you less attractive to investors. It can be a concern but if you show a solid framework for it like we did, then it is not a problem for investors.

How did you decide on the right partners for your rounds?

There are two components: First I think the average founder-VC relationship is longer than the average marriage, so you have to be sure about the people you work with. This is the most important part. The second part is that VCs have portfolios of startups, but startups should also have portfolios of VCs. The VCs should complement each other. So when we raised our first round, we went for a local Swiss fund with geographical proximity. A great argument was also that they are ex-operators, which I think gives you the best advice in the very early days. Then in the seed round it was all about being confident that this fund can help us, understands the product and really believes in what we do and feel a mutual connection.