Why Thrive, Founders Fund, and Antonio Gracias are betting on hearing aids

0:00Matthew de Jonge: Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. I'm Rebecca Balan, and this is the episode where we bring on an industry expert to help us explore a trend in the tech world and dive deep. We've talked a lot on the show about AI wearables, but there's an unsexy part of the market that's getting increasing attention. Hearing aids. We've seen Apple take a stab at them with improvements to their AirPods and smart glasses companies like Meta and Legato incorporating hearing aids into their frames. To talk to us about the ways that AI can disrupt a medtech industry that has been stagnant for years, today we're joined by Matthew DeYoung, co-founder and CEO of Fortel, the buzzy AI-powered hearing aid startup that's gotten the attention of Founders Fund, Thrive Capital, and Antonio Gracias.

0:46Matthew de Jonge: Matt, welcome to the show.

0:48Antonio Gracias: Thank you so much for having me.

0:50Matthew de Jonge: Yeah, super excited to talk to you again. Our listeners don't know this, but I came to visit you at your office on the Upper East Side in Manhattan and got to experience the hearing aids myself. And I was pretty impressed. So I'm really excited to talk to you more about it. But before we get into what you're doing now, I just want to give our listeners a sense of who you are and where you came from. So do you mind just giving us a few sentences about your background?

1:14Antonio Gracias: Great. I grew up in New York City and studied mechanical engineering in college, spent a long time. wandering through the desert, figuring out what I wanted to be when I grew up. I did a long stint at a hedge fund, discovered there a real passion for artificial intelligence. And eventually I decided that what I wanted to do was work on high stakes medical devices, got my education and had to do high tech medical devices at a startup company called Butterfly Network. It's now a public company. We built a handheld ultrasound machine. And that gave me the audacity and access to capital and talent and confidence that you need to take on something like building a better hearing aid.

2:06Antonio Gracias: And my co-founders and I started Fortell about six years ago now. And about nine months ago, we finally came out and launched. And as you mentioned, we were honored to host you at our first audiology clinic, which is on 61st and Park Avenue. And now as a company, we're scaling up so we can reach more users while we simultaneously continue to push the boundaries of just how good a hearing aid could be for the millions and millions of people on this planet that need help with their hearing. Yeah.

2:41Matthew de Jonge: And was it you or your co-founder who had like a personal reason for wanting to get involved in hearing aids specifically?

2:47Antonio Gracias: This has affected my other co-founders in varying degrees, but all four of my grandparents lost their hearing and just drifted away. And so I became, it's almost 20 years ago that I first got curious about why the hearing aids weren't more helpful to them. You know, I had this, like, frankly, naive question. Why do I have to beg my grandparents to put on their hearing aids, but no one has ever needed to ask me to put on my glasses? When I put on my glasses, I can see again. I can see just as well as a healthy seeing person with my glasses on. But when my grandparents put on their hearing aids, it didn't seem to work that well outside of the most quiet and simple environments.

3:30Antonio Gracias: So that question, unfortunately, was kind of fomented into an obsession because I had to go through this tragic cascade of hearing loss and cognitive decline.

3:42Matthew de Jonge: Right, because you start to just pull away, right?

3:45Antonio Gracias: Yeah, like I saw this four people I love dearly follow this very similar trajectory. And so that got me very, very interested to the point where it was very difficult to think about anything else in my life, except for how could I make the hearing aids better? Six years ago, we had this aha realization that there might actually be a path to a major improvement in how hearing aids work for people. and so we just decided to chase it and thankfully we did and we didn't know if it was going to work but it did work and now we have a platform that allows us to help a lot of people.

4:23Matthew de Jonge: So you're using AI to do that like what is different about your approach right so for for listeners who haven't dealt with anyone who's hard of hearing I have people in my family who are hard of hearing and when they put on their their hearing aids well the biggest complaints they have is that all sounds are the same they're the same like volume in your head so it could be a plane overhead or someone right next to you and you can't really orient yourself and tell, you know, how loud something is in comparison to other things. Right. Or you're not picking up the selective thing that you're wanting to pick up.

4:53Matthew de Jonge: Right. Like you might be in a crowded restaurant or even just a dinner table with five people talking and you're trying to hear what one person has to say. And, you know, for the best of us with good hearing, that's that can be that could be difficult. You can get distracted really easily. But for people with a hearing aid, it's just like overload in your senses and your brain. So how does your product tell us how your product does this differently?

5:16Antonio Gracias: Yeah, absolutely. And before I talk about our approach, let me just give some language to the phenomenon that you described. For 30 years, since hearing aids went from analog to digital, hearing aids have been really, really good at making sounds louder. And so if you're someone who has a hearing loss and you put on your hearing aids, the hearing aids are really good at making sure all the sounds that hit the microphones of the hearing aids are amplified sufficient to give you audibility right because your ears when you're hearing less your ears are less sensitive to quiet sounds typically you see more loss in high frequencies than you do in the mids and lows so the hearing aid is programmed to make sure the world is loud enough for you to hear it and that's called audibility the hearing aids primary job is to give you audibility.

6:03Antonio Gracias: And for 30 years, hearing aids have gotten really good at making sure the world is loud enough for you to hear. But the problem, as you describe well, is that these hearing aids are almost indiscriminate in the amplification that they create. And this problem is very noticeable to a healthy hearing person who puts on a pair of hearing aids, but it's actually even worse for someone with a sensorineural hearing loss, with an age-related hearing loss, Because in addition to having a reduced sensitivity to quiet sounds, they also, as a consequence of aging, have an impaired signal processing facility.

6:42Antonio Gracias: So as a young, healthy hearing person, we could go to a noisy restaurant and mostly we could just kind of tune into the sounds we care about. But grandma, grandpa, they're struggling with the signal processing associated with quieting the voices around them and focusing in on the conversations that matter. So then you add indiscriminate amplification to this cacophonous space. Their signal processing facilities are already impaired. Now this is like a perfect storm.

7:09Matthew de Jonge: Totally exhausting.

7:11Antonio Gracias: Right. And so what we've seen over the last 30 years is this fundamental mismatch between what the technology can do, which is make sounds louder. And I'm oversimplifying a little bit, but fundamentally, these digital signal processing techniques that have powered hearing aids since the late 90s, early 2000s. They are really good at making sounds louder and really hard at differentiating important from unimportant. Right. And so what we do as a company is we built this very, very large, powerful AI that in real time is trained to call balls and strikes on sounds in real time and separate incoming sound into two tracks independently, important stuff and unimportant stuff.

7:55Antonio Gracias: And then we can do normal amplification techniques, like normal heightened hearing aid stuff, to the important track, make the important stuff louder while attenuating the background noise, even if that background noise is other people talking. So we've trained this AI to understand sound at a semantic level and filter it on the basis of what it is, what it means to the user instead of just the frequencies that comprise it. And that allows us to address, you know, the sensory and the neural, the ear and the brain portions of hearing loss. So you can make sounds louder and clearer at the same time.

8:33Yeah.

8:33Matthew de Jonge: And I can attest to this. So I, you know, I don't have hearing loss, knock on wood, but, you know, I came and we went outside and I put the hearing aids in and we went outside on just a street in Manhattan. And of course, it was overwhelmingly loud. Like, and this is what someone who's hard of hearing using hearing aids would experience. And then you pushed a button on an app and it just all quieted down. And then I could hear the person I was standing in front of. Right. And that changed as I turned. So there's something to do with where the mics are positioned as well. Like what sensors are involved in the hearing aids?

9:08Antonio Gracias: Yeah. I mean, these hearing aids are, they're tiny. They have to hide entirely behind your ear and they have to last all day. You know, so our hearing aids last for 24, over 24 hours on a single charge. But to pull off this magic trick requires an unbelievable amount of compute power and sensors. and this technique of using AI to help people hear better was considered forever. It was considered an intractable problem. It was like, don't even, the guidance we got from kind of experienced scientists and engineers in this industry was like, don't bother. Like, that's impossible. We've been trying to do it for 20 years.

9:51Antonio Gracias: And they were kind of right insofar as if you limited yourself to the components that power today's hearing aids, it is completely impractical. It's like, don't even try. So part of our approach was that we knew from our previous company that we could design our own custom chips. And so we built this little AI processor. My co-founder, one of my co-founders, our CTO, was an early designer on the Google Tensor processing chip. And so we knew that he had this unusual talent at being able to design chips that could do very large amounts of AI processing on very constrained, you know, amounts of power.

10:34Antonio Gracias: So we knew that we would have a very unfair advantage relative to others who have tried this before. If we would, you know, first figure out, okay, on the signal processing side, is it even possible to give you important and unimportant? Use the biggest computers you want, right? Give me a rack of servers. First prove the science problem works. And then it doesn't matter how much compute power it takes. We're going to build a custom chip to squeeze all of that compute into the hearing aid. And to your point, yes, in addition to this unbelievable amount of compute relative to any other hearing aid that's come before, we also did some novel things about just how much data that AI chip is zooming from the world.

11:17Antonio Gracias: And a particular thing that we do that's really exciting just insofar of the results that are possible is we use inputs from multiple microphones. And that tells us not just what the sounds are, but also where the sounds are coming from. And so if you can give people preferential amplification on sounds that are both important based on their semantic content, like what does that sound like? Oh, that sounds like someone talking to me. and in the noisiest environments also tell the AI, just give me the people I'm looking at because these people are distracting me. That's very powerful. So we do this filtering at the intersection of both the what and the where.

11:57Antonio Gracias: And the where comes from comparing and analyzing subtle cues, subtle differences between the signals that arrive at all four of the microphones on the wearer's head that teach us, that allow the AI to infer where those sounds are coming from.

12:12Matthew de Jonge: So this has gotten you, you know, when you think hearing aids, you think medical tech. You don't necessarily think venture backed. And yet you are. Right. So I think, you know, Forbes reported in late July that Fortel is raised. Correct me if I'm wrong here. 163 million from investors, including Founders Fund, Thrive Capital, Valor Equity Partners at a valuation of$740 million.

12:34Antonio Gracias: Yeah, I don't know. There might be like, you know, a decimal point that's off. But yeah, that's by and large. about 160 million about 700 million last last last round and antonio gracias so he's you know

12:45Matthew de Jonge: known for his history on the tesla board he he um co-led your series b um he's also known for

12:51Antonio Gracias: his role with doge well i would just say like he's i knew about him for his role in tesla right i mean they know how to scale manufacture yeah like i knew of antonio as this guy i had read about in a book by walter isaacson about the creation of tesla and his like unbelievable support for hard tech. And so, yeah, like we were just we've just been so honored to work with this guy.

13:15Matthew de Jonge: So what's the pitch that got, you know, these people involved?

13:18Antonio Gracias: I think it had two components. The first is that curing loss is unbelievably prevalent. So if you just think about the total addressable market, like any investment thesis, you're trying to figure out like, all right, if this thing works, right, these guys are pitching me on some crazy ideas, there's an unbelievable amount of technical risk. If it works, is the pearl worth the dive? And hearing loss is so prevalent. It affects an unbelievable number of people. The prevalence goes up as people get older, and almost nobody is happy with their hearing aids. There's no cure for hearing loss. There's no cure on the horizon.

14:01Antonio Gracias: The best thing we have for people is go to the audiologist, and you're going to be wearing hearing aids. So I think part of their interest in supporting our dream here was if you really can build a better hearing aid, it could help a lot of people. It could become a very big business because it's so prevalent. I think the other thing was more like, we have to remember like these investors are people and they have families. And in every case, probably because of the prevalence of hearing loss, our investors had seen similar trajectories in their own families. Right.

14:38Matthew de Jonge: So they respect the mission. Yeah. They see the need. Yeah. That happened to my dad. That happened to my grandpa. That happened to my mom. Does the chip, the fact that you guys created this really incredible chip, does that have anything to do with it? Do they expect you to monetize that through a different business segment eventually?

14:54Antonio Gracias: Well, I think that we had this unusual credibility building chips as a small team from our previous experiences, right? So Josh Krishna, when we first met him, Josh was invested with us at the most risky time, when we were just a couple of guys and an idea. But he was intimately aware of what we had done at Butterfly. And it's because our target market was emergency medicine physicians. We were building this handheld ultrasound machine for emergency medicine doctors. And it just so happens that his father-in-law is an emergency medicine doctor, retired now. And so I think it was this combination of this market could be very large if you really can pull it off.

15:39Antonio Gracias: Wow, I want to make the world better and I want to, you know, it's like we're all kind of doing this out of revenge for what we saw happen to our grandparents. And then the third thing is, even though we had this crazy approach of building custom AI and custom chips, that our track record doing this in the medical imaging context and then Andy, our CTO, after Butterfly went on to Google and was a TPU designer, I think that those three elements came together to make this a fundable concept. Right.

16:10Matthew de Jonge: So the team had a lot to do with this as well. Where do you do you feel like hearing aids are the final form factor? I mean, we're seeing other companies that are, you know, Ray-Ban Meta's got, you know, some kind of a hearing aid situation in the glasses. There's a hearing tech startup Legato. They came out of stealth recently with a 12 million and some AI hearing glasses as well.

16:30Antonio Gracias: um a bloomberg he's calling the metaglasses perv spectacles sorry to laugh more about their

16:40Matthew de Jonge: cameras than their hearing i think but yeah but yeah i mean the let's not get into the immense surveillance uh issues that are involved but i mean where do you think that hearing aids like yours sit in the broader ai wearables conversation is this med tech like how is it being priced is Is it being priced as like a wearable company, a healthcare services company, an AI company, or just? Yeah.

17:02Antonio Gracias: The reason we started this company is to help people with disabilities live life in the ways that they want as themselves for as long as possible. We really see ourselves as almost like we're making medicine. We're here to solve high stakes problems. And when we looked out into the ecosystem of companies, we saw a lot of attention, a lot of smart engineers, a lot of capital being funneled towards consumer use cases with, you know, arguably like very limited kind of consumer surplus at the end of the day. Like how important is it for me to be like, Hey, meta, like who tell me about this painting?

17:41Antonio Gracias: Like, that's cool. But like, what motivates us is like, can we help people on their worst days? Can we help people with high stakes needs. And we just felt like there's not enough talent globally funneled at problems like this. How many of the smartest engineers you know want to go work at Medtronic? And yet, like those products are really important. Right. And so Fortel exists to constantly push the state of the art on helping people hear better. We don't have a passion for, you know, like kind of lower stakes consumer use cases. Not to say the technology we've built couldn't be applicable for glasses or headphones or what have you.

18:34Antonio Gracias: But it's not something I would expect that we will pursue first order. Maybe we'll license our technology. You know, I want better headphones. Headphones are great. But the reason we exist is to help people in profound, high stakes moments. And so we're going to stay focused on curing disability rather than entertainment or other fields where big companies are already, I think, doing great work.

19:02Matthew de Jonge: Have you been approached at all for acquisitions? Like Apple's got the AirPods that say that they can. I don't know what you think of their AirPods that can do some version of of what your your company is doing in terms of hearing aids. But I'm curious, like if a big player like that came to you and said, hey, we want your tech like.

19:22Antonio Gracias: You know, I probably shouldn't comment on on that. But what I will say is, you know, I think that what Apple's done with AirPods is a profound improvement in access. Like the idea that for$200,$300, you can get like pretty sophisticated amplification. It's, you know, I would say largely as good as what you might get from like a mid to high end hearing aid, not a foretell hearing aid. But like if what you need is audibility to make sure the world is loud enough for you to hear it, AirPods do a pretty phenomenal job of that. And then the other thing that's not been reported on nearly as much, but AirPods are also clinically valid audiometers.

20:13Antonio Gracias: They're capable of testing your hearing in a clinically rigorous way from home. The idea that now the millions and millions of AirPods out there can allow people with very low friction in the privacy of their home to test their hearing in a way that's clinically rigorous, that's valid. That's awesome. And we like just completely applaud the work that Apple's doing there.

20:34Matthew de Jonge: Well, speaking of accessibility, so when Wired first covered your company, I think the title of the piece was, Want this Hearing Aid? Well, who do you know? They talked about the fact that customers paid$6 ,800 for the devices. I think that it's probably a little bit more complicated than that, right? Like there's from what, you know, discussions that you and I have had, there's been somewhat of a monopoly in med tech over hearing aids and whether or not you can be one of the companies that insurance can cover or does insurance not even cover hearing aids? I'm just curious what your thoughts generally around like the price of the hearing aids and how to break into a market.

21:15Matthew de Jonge: It's got a bit of cartel going of medical device companies.

21:19Antonio Gracias: Yeah, it's true that there are five major companies that make all the hearing aids. As a consumer, it's not always obvious because it's kind of like the cereal aisle where it seems like there's a lot of choice. But actually, it's like Kellogg's and General Mills. It's a similar dynamic in the hearing aid industry where there's five big companies and they make 97 % of the product. So it's like it's honestly it's a particularly bitter pill to see that hearing aids are both expensive and haven't gotten better at the pace that we think consumers are.

21:51Matthew de Jonge: Are they covered by insurance? Can they be covered by insurance or no?

21:54Antonio Gracias: So it's a little complicated, but the short answer is they're not covered by insurance. Medicare does not cover hearing aids at all. And I think that's like outrageous, to be honest, like hearing aids are medicine. And I think that they should be covered by insurance companies just like medicine.

22:15Matthew de Jonge: Where does the cost of your hearing aids fall compared to what's existing out there? We priced our hearing aid better in all the ways that it is under the top of the line products on the market today from the incumbents.

22:33Antonio Gracias: So our product is$6 ,800, which is, that's a cost, that's a lot of money, no matter who you are. We bundle it with five years of audiological care, three-year warranty, extensive diagnostics. And then the other thing that's a little bit unusual about our model is we're updating the software and improving it constantly. And we don't charge you more money every time we make it better. We just released, we call it AI 2.0. And it was a major improvement to the core experience of the hearing aid. And it went out as a free over the air update to all of our patients. But, you know, there are hearing aids available at every price point, all the way down to like over the counter style AirPod price points.

23:15Antonio Gracias: And so I would say we're on the high end of the market, but less expensive than the top spec hearing aids from all these big five companies.

23:25Matthew de Jonge: OK, so at the moment, if someone wants to use your hearing aids, they have to come into one of your offices, one of your audiology clinics. You've got one in Manhattan. I think you've got one in Greenwich, Connecticut, and then Palm Beach, Florida. How do you scale this? Right. Because when you talk VC, you want scale. So how are you like, what's your path to scaling?

23:41Antonio Gracias: What we want to be is the best combination of medicine, you know, audiology and technology. So the limiting factor on our scale up is not actually like how quickly we can manufacture the devices or how quickly we can open up brick and mortar clinics. but it's how quickly can we find and train audiologists that we would be happy to send our own parents to see. We interview a ton of audiologists every week and we're very demanding about the qualities that we're looking for in terms of like the horsepower, the empathy, the intellectual curiosity, the aptitude to learn about our technology because it's a complicating new variable that a lot of experienced audiologists have not had to play with.

24:29Like, you know,

24:30Matthew de Jonge: how much signal to noise ratio improvement do you want to target for this user?

24:33Antonio Gracias: How does that decision, you know, influence the rubber tip that you use to put inside? So it's complicated. So we're opening up more clinics in new cities. So soon we'll be in San Francisco, Palo Alto, Boston, Miami, LA. And we're just building them again as fast as we can find and train excellent doctors. The other thing that we have started doing in the states where we can do it legally is we started fitting people fully remotely. And this is an amazing solution, particularly for experienced hearing aid wearers. If you send us a picture of your hearing aids, from that picture, we can tell, okay, how long a wire do you need?

25:17Antonio Gracias: What type of rubber ear tip are you accustomed to using? What size? We can basically get all the physical fit. You send us your most recent audiogram and over Zoom, you work with an audiologist that's licensed in your state, sometimes even co-located interstate in order to comply with state level regulations. And then we can give people the full foretell audiology experience no matter where they are. So this is something that we've started doing quietly. We're doing it at a pretty exciting scale now. And I'm really excited about this as a tactic to get quickly to people who need us. But it's complicated and slow going because there is a morass of state by state regulation that the incumbents have put into place to try to reduce the likelihood of competition.

26:09Antonio Gracias: It's kind of these anti-telemedicine laws. So it's a lot of careful review of state laws and making sure we're compliant. And we're very careful because we intend to do this for a long time.

26:21Matthew de Jonge: Yeah. Okay. Well, Fortell, disrupting the hearing aid industry. Love to hear it. Is there anywhere that our listeners can connect with you online if they want to learn more or, you know, get fitted for a hearing aid? Yeah.

26:34Antonio Gracias: Fortell.com. And then, you know, we're, I personally pay close attention to questions on Reddit. So Reddit has a very active community of people who wear hearing aids or interested in hearing aids. And if you go on Reddit and search for Fortell Hearing Aids, you'll see a lot of great back and forth with members of the community.

26:57Matthew de Jonge: Amazing. Well, thank you so much for joining us on the show. It was really great to talk to you and hear more about your mission. To our listeners, you can find me on LinkedIn and Twitter, and you can find Equity on Twitter and threads at EquityPod. Talk to you next time. Equity is hosted by TechCrunch Senior Reporters and produced by Teresa Locansolo with editing by Kel. Subscribe on YouTube or wherever you get your podcasts and find out what's next at techcrunch.com slash events. Thanks so much for listening and we'll talk to you next time.