00:00:08:20 - 00:00:14:21 Unknown Well, everyone, welcome to the Hard Tech podcast I'll call After Dark Joint episode with Venture Declassified. 00:00:14:21 - 00:00:30:01 Unknown So we have another episode they'll be dropping here sometime soon. So if you didn't go see that, go check those guys out there. Awesome. For what does it take to invest as an angel? What should you be looking for? And honestly, I use it to point all of my founders towards that I'm trying to coach. And the reason is rounds. 00:00:30:02 - 00:00:52:02 Unknown This is what someone's really thinking when they're reviewing your pitch tech or your deal or your conversation. So check those guys out. But we've got Jacobs back, Mike Kelly and Ben pitching with us. I'll ask all of them to go to a brief intro on themselves and their glorious histories that got them here, but today's episode really is about how do you hard tech companies differ from software or other investments at the early stage? 00:00:52:07 - 00:01:10:00 Unknown This is your seed precede series A what metrics are different? How do you measure success differently? And from my side, I'll play the founder. I'm trying to raise money. This is where I'm at. Guys, what do you think? And I want you guys to grill me and tell me what you're really thinking. Or vice versa. This is, you know, open, open season here, but that's kind of the topic today. 00:01:10:00 - 00:01:36:19 Unknown But, Jacob, start off first with your intro. Awesome. Grant, thank you so much for having us here in your office. This is an awesome studio, first of all. So Jacob, I'm a partner and head of platform at Elevate Ventures. We've invested around 200 million at this point. We have 200 million assets under management. We invest in the precede seed and series A stages. 00:01:36:21 - 00:02:01:20 Unknown So often venture capital firms will come in after there's a high degree of market validation. What makes us unique is we come in alongside a lot of angels, which is part of the reason that this venture Declassified podcast was first booted up is to make sure that the angels that we invest alongside, they're looking at deals the same way that sophisticated capital would 00:02:01:20 - 00:02:03:13 Unknown look at it as well. 00:02:03:15 - 00:02:13:10 Unknown And then quickly, my background had some startups spend some time in government and just been around the startup world since I got out of college. Excellent, Mike, you're on 00:02:13:13 - 00:02:39:20 Unknown deck. Mike Kelly, software guy by background, run a handful of different software companies from consulting to actual SaaS product companies, and then got started in venture originally as an angel investor that probably back starting around 2010, writing small checks with some of my other partners and then more actively with Vision Tech, which then I'll talk about here in a little bit, maybe around 2015, 2016, something like that. 00:02:39:20 - 00:03:10:23 Unknown Started getting involved in vision as an angel there. And then more formally started in 2020, my co-founder Michael Korn started Start Something Ventures, which was literally started as a friends and family email list for for ourselves and some of our siblings and inspire a lot of control. And now is a couple hundred accredited investors, mostly here in Indiana, who co-inventor with us on a deal by deal basis through SSP. 00:03:11:04 - 00:03:32:07 Unknown In addition to that, I am lucky enough to be an operating partner at Elevate Ventures, and I'm an advisor at the Entrepreneurship Center down in Nashville and advisor for the Founders Institute up in Chicago, and probably a couple of other things. And so have had exposure to a broad stretch of companies through all of those relationships and even a little bit with the Heritage Center back when they have their incubator program. 00:03:32:08 - 00:03:55:16 Unknown I worked with them, which is that was very obviously hard tech focused on the hardware front. Specifically, I will say that Ben and Jacob have done way more hard investing than we have an SSD. We've done a couple of deals. I'm happy to talk about how we underwrote those, but and actually, that might even be interesting for your folks if you're if they're coming to an investor who's maybe looking at their first hard tech deal and how that might be different from an investor who looked at many of them. 00:03:55:20 - 00:03:56:09 Unknown 00:03:56:11 - 00:04:07:08 Unknown But we can get into that when we get there. And, Ben, that's the only reason you got invited. I need that perspective that we would have just quietly forgotten to invite you. 00:04:07:10 - 00:04:10:03 Unknown Right, Ben? 00:04:10:05 - 00:04:32:12 Unknown Thanks for having us. This is an awesome setup for sure. Ben Pigeon, I'm the managing director for Vision Tech is a step up in the in the title there. First time it's crossing my lips, so I've got to practice that a little bit. But thank you for that. I appreciate the Dolans. Yeah. Yeah. It's kind of like a congratulations where you shrug your shoulders. 00:04:32:13 - 00:04:46:04 Unknown Congratulations. It's only the job you've been doing for five years. Yeah, so I've been doing it nine years. Thank you. But were you managing? Yeah. 00:04:46:06 - 00:05:15:20 Unknown It's a title. What? It was. We just exist. Yeah. So nine years in and we have a group of about 120 investors, give or take. We're opportunistic investing across the country, really trying to do strong syndications. We have a group of life science people and engineers. So we'll do life science, enterprise software, ag tech, hard tech, but generally pretty optimistic. 00:05:15:21 - 00:05:30:19 Unknown I'm also board observer on 5 or 6 of our portfolio companies. I just took a seat at Nexus Oncology. Pretty excited about what they're working on. Don't want to get to two in the weeds there, 00:05:30:21 - 00:05:51:20 Unknown but happy to be here and happy to share perspective. Awesome. Thank you all for coming and taking the time. So without a third of our book of business at Glass Board is venture backed right of some kind, whether they're large scale or small scale, still raising actual venture money and burning alive to try and make it to the stage where they burn their own money alive, as we talk about in the last episode. 00:05:51:20 - 00:06:11:08 Unknown But really, it's such a different game for all of my founders that were SaaS founders, and this is our first hard tech company. I'm doing a ton of coaching of guys you can't measure the same way. You can't hit the same milestone at the time when you think you can. Like this isn't how it works. And for all the people that have been hard, techs that are frustrated that none of the investors are giving them money when they know they're doing the right stuff. 00:06:11:10 - 00:06:23:15 Unknown What English and English translation can they say? So who wants to to kick off on what you think is the most different thing about our tech versus software? 00:06:23:17 - 00:06:59:06 Unknown Maybe, maybe to put further guardrails on the conversation at elevate when when we talk hard tech, our internal definition, it ranges from innovative polymers that are coming out of tier one research institutes to any commercial product that happens to have some sort of software layer or application. So, so across that full spectrum for us. So what about a blender? 00:06:59:08 - 00:07:09:12 Unknown Yeah. Is not a polymer but also a software. Yeah. There's there's a circuit board in there. Right okay. And what about it. What about a spatula. 00:07:09:14 - 00:07:35:12 Unknown No, no we'd call that a product company. And do you investment products. Yes. Okay. Yeah we do, we do. So when we think about like the aperture of this audience. Right. Like, like really just defining any future advice or conversation that, that we have around what it means when we talk about a hard tech company. I'm going to I'm going to leave all those, what I'll call deep 00:07:35:16 - 00:07:39:14 Unknown tech companies aside, that's a totally different. 00:07:39:14 - 00:07:45:17 Unknown So. So what what do you mean when you say do tech 00:07:45:19 - 00:08:09:20 Unknown I my, my go to is government funded. Oh okay. Is that is that. Yeah. When you say broader deep tech for me is a core change in either the material like an atomic change like this is a new battery chemistry. This is a polymer. This is a new material processing method like that is deep tech because it doesn't have a customer. 00:08:09:22 - 00:08:31:10 Unknown Doesn't make sense. There is no human there. Oh, my tele is my ICP. Are this like, you know, anyone that uses polymers is now my ICP right? That's deep tech. Climate tech always fits into deep tech almost always. Now deep tech that's climate can mature and become hard tech. But almost all climate text charges team tech. It's going to take a decade of research before you even start building the product. 00:08:31:10 - 00:08:54:15 Unknown You have to come up with a new layer of physics or a new chemistry. A whole question here where does quantum computing fall for that? It is currently fully deck. That's it will become a product in the next ten years. Then it's hard. Then people will launch quantum computing products. But right now people are trying to understand how to do the core fundamental manipulation of atoms into a new state, whether it's matter or energy or what they're doing. 00:08:54:16 - 00:09:12:02 Unknown If they're in Bell Labs, you're deep tech. Once you graduate, your product, your heart attack. And it's one of those things most of the time, the people that built the deep tech don't build the heart deck. It's not the same company. It's not like Microsoft's quantum computing team is the one that talks, that build the quantum piece of hardware in your desk that you care about. 00:09:12:04 - 00:09:46:04 Unknown They license that like they license windows out. Right? Okay. Thanks. Thank you. I half way agree with that definition. And my argument would be here in Indianapolis. There's heritage Group right down the road. They had an accelerator. And there would be companies that would come out where they would fulfill your definition of hard tech. Exactly. So I in, I in I will say this, I don't think my definition by any stretch is is more appropriate or better, but it is so nebulous. 00:09:46:05 - 00:10:06:05 Unknown It's like, what is a founder? But yeah, I think I think that is great clarification on what we're talking about when we say like, what is hardtack and what is deep tech time about companies that are that are currently developing the products they're going to sell to an end user? Perfect. Not the core technology that's going to become the bedrock of future development. 00:10:06:06 - 00:10:22:11 Unknown Love that love it. Is that a better. I'm going to subscribe. That was great. That's right. So yeah. So we're talking about hard tech. And I'm going to open this up. This is a product that has atoms in it that may or may not have software, but it is a product of some kind. It could be medical device could be a spatula. 00:10:22:11 - 00:10:24:20 Unknown It could be a bicycle. I don't really care. Could be an IoT 00:10:24:22 - 00:10:36:20 Unknown device. That's what I'm talking about. So maybe as a yes and or a slight variation, I would kind of throw another parameter around it, which is the business model. You know, you think about a business model as a SaaS 00:10:36:21 - 00:10:39:23 Unknown product that has a business library, reoccurring revenues. 00:10:40:00 - 00:10:59:16 Unknown Like right now, hard tech typically doesn't have some kind of subscription model to it. Welcome to 2025 Year of Our Lord, where hardware is asserted as mainstream. I sleep with Oslo Sleep Buds, which are Bluetooth headphones that you don't all try and you have trouble sleeping looking at you. We'll chat later. They're phenomenal. They changed my life. I bought them outright. 00:10:59:16 - 00:11:18:12 Unknown I paid $300 to 99 for them, and they came to my house in a box and I own them. You could also finance them on a firm or pay later or whatever. However, you also can just sign up for a subscription for 20 bucks a month. You have Oslo headphones, and if they break use in the back of the new ones and it's 20 bucks a month, Forever plunge is now subscription. 00:11:18:14 - 00:11:39:14 Unknown You can get your, you know, your chill or ice bath at home on suspicion. Not you don't finance it. You don't ever own it. It's on subscription hardware has woken up to the was a lifetime value of the client. Interesting that no, this is no longer a separate in common. It was invented by software, but it is now being cannibalized by hardware. 00:11:39:15 - 00:12:02:09 Unknown And what would you pay monthly for your spatula subscription? Well, the question what would you pay monthly for a kitchen? If OXO said, hey, we will do all of your kitchen appliances and soft goods, what would you pay monthly for your kitchen? There is a number that's kind of baller. No. And so this is like the hardware is waking up to this because everyone's so used to reoccurring and it's so low friction when everyone's broke today. 00:12:02:10 - 00:12:23:23 Unknown Like you know the consumers, the Gen Z are they don't have any cash, but they have no problems for that. But that's all they know, right? So you have these hardware companies that have to get fitness as a podcast for later fun financing. Now, these hard tech companies not only have a hard time giving them capital to build them, they have to go get really creative with their banking 00:12:24:05 - 00:12:28:18 Unknown institute to have enough inventory to realize this value. 00:12:28:22 - 00:12:35:06 Unknown Unlike the $300 you gave them upfront for those headphones they have to finance off of that $20 a month, the Delta, 00:12:35:08 - 00:12:49:11 Unknown and let's say so cost of goods in hardware should be 25%. That's a good round number. Different markets, different stuff. But let's say 25 points. Right. So those $300 headphones or let's make them for free. You should spend 100 bucks making up for pair headphones. 00:12:49:12 - 00:13:16:10 Unknown Right. Do you then have 100 bucks in margin for the menu like the company that makes them? And then you have that last 200 bucks in margin is selling the product, whether that's going to Best Buy in retail or Amazon 30 points plus as correct from there, or as in cost acquisition like this is the where the the churn happens right in the finance side that sometimes the manufacturer or product owner gets that last 200 bucks, sometimes goes to the party to help sell it. 00:13:16:12 - 00:13:18:00 Unknown So you need to borrow 100 bucks 00:13:18:04 - 00:13:31:11 Unknown to on your $20 sale. Yeah. That's awesome. I got we got a new topic for this is a more right. This is a really deep topic. And you just watched the theme of what you wanted. 00:13:31:13 - 00:13:36:13 Unknown And I'm actually going to do that if we just do this for the perfect. Yeah, we can get more. 00:13:36:14 - 00:13:40:18 Unknown I just kind of wonder like, is that durable? Does it stick around? Feels 00:13:40:18 - 00:13:51:06 Unknown like that could be a fat. It feels like that could be a fat. And that's that's all I want to call out. Like it could be something that kind of takes shape. But I think I would also argue there's subscription exhaustion. 00:13:51:09 - 00:13:52:16 Unknown There's fatigue in subscriptions. 00:13:52:17 - 00:14:01:12 Unknown Yeah. But, that's because you're old enough and you're financially stable enough to have fatigue on subscriptions because you have the luxury of not subscribing. I think 00:14:01:12 - 00:14:19:13 Unknown my eyes glass. As much as I like the idea of renting a kitchen, I think my eyes glaze over on that. But I will tell you, I do think there's a world in the next 5 to 10 years where I'm I'm just going to pay monthly for my Tesla and not worry about machines and not worry about gas and not worry about what, you know, like I'll just subscribe to that. 00:14:19:13 - 00:14:20:08 Unknown But for sure. 00:14:20:08 - 00:14:40:21 Unknown But wake up to the economy. You guys, like all of us in this room, has the luxury of being able to afford our kitchen. Yeah, there's a generation that can't buy houses that they need. Every dollar they like, they can't outlay capital, but they will sign away experts into their life to get this experience. Yeah, this is no different than the way car loans have evolved. 00:14:41:01 - 00:14:44:02 Unknown What was the term of the car loan when you got your first car 00:14:44:04 - 00:14:55:22 Unknown like 36 months? Something like that. Yeah. Great. Okay, 48 months. That makes sense. 84 months now. Okay. What are we doing? Right. No, but 50 year home loan. You're basically renting? Yeah. No, you don't own that. 00:14:56:00 - 00:14:57:20 Unknown No, you're worse than renting it. But you pay for it. 00:14:57:20 - 00:15:19:06 Unknown You pay for all the appliances, and you're effectively right in your home. But no, you know, all jokes aside, in the economy, like, I actually think this is an economically driven thing from the macroeconomics of the buyer's market, not the sellers. Gen Z doesn't have $300 off in headphones like I did at 22, right? They just don't have the capital, but they definitely have 20 bucks a month. 00:15:19:06 - 00:15:35:09 Unknown They'll never see it. I think that's partly true. I think it's the speed in which innovations occurring as well. You just talked about these headphones and you dropped what did you say, $300 on it. And I would not be surprised if a year from now there's headphones for sleeping that are better than the ones that you just paid for. 00:15:35:10 - 00:15:56:03 Unknown I already have them. Yeah, well, there you go. There you go. I have my Soundcore Anchor A30 that have active noise canceling that I fly with. So I think it's one thing to buy a spatula, right. It's or just generally quote unquote the kitchen right where we know a spatula. Well, I'm going to say this and then I'll find the next future spatula. 00:15:56:03 - 00:16:21:06 Unknown But we know the spatula likely will not change in the next ten years. Cooking might change in ten years. Let's be honest, actually, now that I think about it, I might want to do at least a monthly subscription just because I know that robots coming down the future. Right? But my end point is, with innovation occurring so quickly, why invest the capital if there's not a buyer on the back side? 00:16:21:07 - 00:16:45:19 Unknown I mean, look at cell phones right now. Like when you upgrade your cell phone, your old cell phone, which still works fine. It's just lags, right? There is no market for that. For what? For an old cell phone that lags. Where are you? There is a humongous market. There's an entire cottage industry that's making like millions and millions and millions of dollars moving your cell phone in America. 00:16:45:19 - 00:17:09:20 Unknown To let me rephrase that, as a consumer, we just ended up finally releasing a tablet that we had, and the most we could get for that tablet was $25. The tablets, it it turns on and it works. It takes forever for it to load Netflix. But 25 bucks was the going market value. So as a consumer, that's not worth anything. 00:17:09:20 - 00:17:42:04 Unknown When I know a tablet is to to do bare minimum iPad is $275. That's right. Which is incredible, by the way. It shouldn't be that cheap. But that's a story for another day. But so what's your point? My point is, is the speed of innovation. I believe that's a factor. I do agree with you that there's macroeconomic reasons that entering in a subscription for hard tech or for a product company is now a theme that we're seeing. 00:17:42:05 - 00:18:05:21 Unknown That's right. I do believe that that is due to economic conditions. But I also think you can't rule out the speed of innovation. And folks, frankly, not knowing if a year from now I even want to own this and if I want to get rid of it, there's no one that wants it. And so this is like the strong Iseo and I, I will buy a piece of tech, even if I know it's only the last minute here, and throw it away when I'm done, because I can't be bothered to sell this on eBay. 00:18:05:23 - 00:18:23:18 Unknown Sean ritualistically trades everything down and up like he's always hunting on Facebook Marketplace for deals for a slightly used thing that someone tried out and they didn't like. So he can get it for not retail and then selling his old stuff to cash flow, his addiction to technology. He's my glass board spirit animal. Yeah, this is why you do get along and I don't see that what you're doing. 00:18:23:19 - 00:18:40:23 Unknown This is why wouldn't you just put it in the trash can? Why would you need money for your use tech like you already got the enjoyment out of it. But this is the the exciting part about the hard tech economics. Because it used to be the physical goods would last for n number of years, right? This is I think this is the end point you're trying to make right now. 00:18:41:02 - 00:18:57:07 Unknown Hard tech might last for n number of months, whether that is 18 or 12 or eight we don't know. But this is where renting before instead of buying your heart that comes in right. That's right. For a really stressful time in my life, I just had a newborn and my wife and I are not co-parenting, were taking turns. 00:18:57:08 - 00:19:05:17 Unknown Right? Someone gets to sleep tonight. Someone gets thrown. I need more canceling sleep. Headphones only for the next 12 months, right? Maybe that's the thing with why you rent and don't buy it. 00:19:05:20 - 00:19:15:17 Unknown Yeah, yeah. So then things were completely derailed. Yeah. I'm sorry. The only thing going through my mind right now is stuff's not made like it used to be. 00:19:15:18 - 00:19:29:12 Unknown We just replaced a furnace rental at a rental property, and you're renting your new furnace, and you just bought years old, I bet was a tank. It was an absolute tank. And, no, we paid for a cash. So, 00:19:29:14 - 00:19:34:21 Unknown yeah, I mean, I, you know, I think, oh, no, you paid for it. But, you know, your new furnace will only last for four years. 00:19:34:22 - 00:19:43:07 Unknown Yeah. Just to say that out loud. Yeah, yeah, yeah. Yes I'm aware. Unfortunately, I bought my rental in 2015. I put two HVAC units in it. 00:19:43:09 - 00:19:53:15 Unknown What? Yes. Oh, right after the warranty expired. When? When is hard tech going to address that? What do you mean? 00:19:53:16 - 00:19:55:12 Unknown 00:19:55:14 - 00:20:24:09 Unknown Well, Clearly longer. I can't sell another one. There's no incentive. You know, my brand suffers. There's no incentive. Yeah. You designed for failure after after warranty, which is just part of the economics. And it's not just designed to failure. It is like you just don't waste money making the last longer. So there are obviously premium brands, brands that we know provide a superior product, a brand that provides a superior product like one that you think has a longer warranty, like a longer life cycle. 00:20:24:09 - 00:20:51:03 Unknown Subzero, I'm guessing. I don't think it was so I could do a good one. So most of your home fixtures will have longer warranties your faucets, your plumbing, your things you install will have longer warranties because even if these things start breaking, you're going to have brand loyalty if they don't. And this is a thing that you're going to buy over and over again. 00:20:51:03 - 00:21:12:14 Unknown And there's a very limited number of buyers or sellers. This market, those things that are permanent are going to last longer. But your HVAC, that's an appliance that like you aren't isn't like tiled into your bathroom. This is in your furnace room, you know, you don't remember who bought carrier and crap out last time you. That was a house ago train and who's train? 00:21:12:16 - 00:21:32:09 Unknown You don't see these brands on TV. You don't see them in the hardware stores. You're not shopping for this thing. Now, if you go to pick out your fixtures for your plumbing, you go to pick out your toilet. Toto toilets. Great premium example. But in product and like in the consumer products and in like equipment, you don't think about it. 00:21:32:10 - 00:21:53:14 Unknown Cars suffer from this. Cars actually have to last. They're the thing that you are graded on like lifetime longevity the most and actually spent a lot of money making them last night on the hardest thing in the class. So weirdest dichotomy when I need to buy an appliance, I go to wire cutter and Reddit, and I look for a solution that I know. 00:21:53:14 - 00:22:12:17 Unknown If I buy this, it'll ask me twice as long as an inferior product and give me a better user experience. You don't have to be fast. You said faster than the bear. You gotta be faster than your best friend, right? You don't actually have to outrun the bear. You have to run the guy next to you. This has been a race to the bottom together again. 00:22:12:20 - 00:22:33:20 Unknown Think about your refrigerator. It's always been GE. It's always been whirlpool. It's always been. There's five brand names. Maytag. Their average time to failure has dropped. Line them all up. It just goes like this. They all drop the other. Now one of them might be a year older, the other one. But they play this price arbitrage. It's all down for what it used to be. 00:22:33:20 - 00:22:54:09 Unknown But also there's a reason it's shorter lifetimes. It used to be technically. What's that? We can now engineer to the limit. If I wanted to sell a refrigerator with a two year warranty, I had to overbuilt things. I didn't know how to do the math to make sure it was going to break in 26 months. I had to know at least last 24 months where I'm going to pay for it. 00:22:54:09 - 00:23:17:07 Unknown So that always lasted five or 10 or 8 years because I just overbuilt everything. I didn't have the simulation tools or the test rigs or the math or the experience building this product to know how close this I'm, I know I was the same. That is the same word. I was thinking I don't like anymore. You guys can even come out for the last one. 00:23:17:07 - 00:23:27:13 Unknown It got worse. But no, seriously, this is a technical capability we built in hardware engineering. We are better at flying closer to the sun. 00:23:27:14 - 00:23:37:19 Unknown You think so? This is why investors are not interested in hardtack. Yeah, that's exactly where I was going to. I was like, what's the argument to invest in some of this stuff? 00:23:37:21 - 00:23:42:05 Unknown Shareholder value. The reason we engineer close to the sun is for shareholder value. 00:23:42:06 - 00:24:04:20 Unknown Yeah, sure. For those that are already invested it is to optimize. I completely agree. Anyone in the company, the only people are screwing over consumers. And who cares about those guys jokes? Of course. Of course we're all laughing. Yeah, but really, are we? Well, we're we're we're laughing. So Grant doesn't feel uncomfortable the way you actually do. Not users. 00:24:04:22 - 00:24:24:10 Unknown I can turn this off like a light switch is really cool. But in real talk, if you're trying to sell a product, you have to delight users with this experience. It has to be a refrigerator that closes every time. It doesn't lead in like every day. You use it as great. The user experience of how early does it break is actually quite low in the user experience, like pool of your refrigerator usage. 00:24:24:10 - 00:24:29:17 Unknown It's a very small area under the curve. So why optimize for that one big pain point 00:24:29:19 - 00:24:40:14 Unknown when I could make everything else about it better? So if I'm a hard tech investor, are you implying I should be underwriting the investment with this lens of like, 00:24:40:16 - 00:24:45:19 Unknown like, should I be telling my founders, hey, don't go play that. Don't don't make it the best one in the market. 00:24:45:19 - 00:25:05:16 Unknown Don't gold plate it. Don't make it indestructible. That's what I'm saying is to different experience gold plating. The user might love gold plating. It might really delight them. I think them stand out in the lineup. If I have an LG and a maytag and a whirlpool all next to each other, you want to be the best user experience, the most features, the most beautiful on the showroom floor. 00:25:05:18 - 00:25:27:03 Unknown You can't tell in the short war when this breaks, right? Right. And it's this uncanny valley between two points. Big purchases like your car. You might only ever buy five cars in your lifetime, but it's so financially important you can't afford to get one the brakes. So you actually spend time researching and making sure and hearing from your friends. 00:25:27:03 - 00:25:46:06 Unknown Because when one of your friends owns a BMW, I used to have one. They break early their spends and the fix and they're horrible. That everyone I know that's ever going to be a W yells about these things and you're in two games. You can either fix your own car and you love your W, or you're wealthy enough and you enjoy driving your BMW that you love your W, or you're in camp. 00:25:46:06 - 00:26:06:19 Unknown Number three, you've owned one BMW and you're not going to do it again because it's too expensive for happiness. Your camps. I now don't drive to be something much more reliable and reasonable in all these things. Cars are expensive and you buy them and they're so financially perilous to buy you care. Other than the spectrum. You buy a cell phone every year. 00:26:06:20 - 00:26:15:14 Unknown You have an opportunity every year to experience quality or not. You're traveling these things out in such a short amount of time. You know, if you like the last one more or not. 00:26:15:17 - 00:26:24:03 Unknown Right? I buy yourself like every three years. No one likes you like I know, right? But when was the last time you truly bought a refrigerator? 00:26:24:04 - 00:26:28:03 Unknown I remodeled our kitchen. Yeah. Like, not not recently, 00:26:28:07 - 00:26:38:05 Unknown but it wasn't such an expensive purchase. If you had one LG crap on you, but you'd like the fridge, you'd probably try it again. Yeah, totally. Right. Okay. It's even even you go further if the other four 00:26:38:08 - 00:26:44:00 Unknown appliances in that room are LG just what you're buying? You're buying an LG just because you don't want the mixed brand. 00:26:44:00 - 00:26:48:14 Unknown You don't want the yeah, you're already there. Yep yep. Right. So this is where this uncanny valley goes like 00:26:48:14 - 00:27:01:13 Unknown really cheap stuff. You actually have to be high quality because you buy them frequently enough. You understand the the lifetime ownership of it. Really expensive stuff. You care about that middle four figure number appliance. 00:27:01:15 - 00:27:04:06 Unknown Yeah. Okay. So this is interesting for consumer products. 00:27:04:06 - 00:27:11:11 Unknown Is that same thing occur in med device. In some med device is different. Yeah yeah yeah like 00:27:11:12 - 00:27:26:21 Unknown other parts of hardtack. No this is good because is 180 degrees the other way a failure gets reported to the FDA publicly and they stack up. This is a cumulative lifetime effect. This isn't how many failures a year to have, which is warranty claims that your pal FDA is. 00:27:26:21 - 00:27:52:15 Unknown Every failure adds to your list. And if you don't launch new products that make you a new code, those failures can get pretty a high number relative. But no one looks at how long the product's been out for those number of failures, so you just you can't have them. They're really expensive to prove it wasn't your fault. You kill somebody, you don't flood their kitchen, so you actually overspend over engineer and over test everything in med device because the cost of failure is so darn high. 00:27:52:15 - 00:28:13:20 Unknown As a company, are there other parts of other categories of hardtack where you have that same dynamic at play? Yeah, we have a customer in the oil and gas space that does some really cool stuff, and the part that we helped them design goes into a function they have where you're like, you're creating an initial well, right. If their thing screws up before the well is completed, that well is dead. 00:28:14:02 - 00:28:25:07 Unknown You've now bricked. You have to you have to move over a couple of feet and go down again, because you've now screwed this thing that you were working on for weeks. And it's like a mid six figure number per failure. 00:28:25:09 - 00:28:34:11 Unknown They make a what is it. Yeah they make a mid five figure number of units month. 00:28:34:13 - 00:28:38:11 Unknown They just get destroyed every time they get used these things, that's the last time they get used. 00:28:38:13 - 00:28:54:01 Unknown So we make you know tens of thousands of these things a month. And all of them have to work because hundreds of them get used in one. Well. And if one of them fails, that well has to get them to be thrilled and moved and all this bad stuff happens. Okay. Does this, like, paint the picture of failure so high? 00:28:54:02 - 00:29:03:23 Unknown Yeah. The cost of failure of your refrigerators compressor now is, like, not high for you or for the company. 00:29:04:01 - 00:29:28:02 Unknown All right, get us back on track for original. I don't think we should. I almost think that, like, what other questions do you guys have for hard tech at this point? We'll do this again. I mean, so this is what's fascinating. This is my world. None of this is novel to me. So if your investors what things what misconceptions about hardware gave you the EV, Jeeves, are coming in, aren't the financial sector going to do next time? 00:29:28:04 - 00:29:44:23 Unknown Well, I guess I'll I'll go first. Just thinking through some of the conversations had when we've underwritten some of the things we've done. So I mean, one thing is just does it's the right way to say this because hardware actually make money. No, it's not that because there's obvious example in the wild that you can see it makes money. 00:29:44:23 - 00:30:09:17 Unknown It's if I'm talking to a software founder. And so let's take non-technical founders out of the equation for a second. Let's talk technical founders, okay. If I'm talking to a software technical founder, in that one conversation, I can I feel like I can get a good grasp of this person's capability to address the technical challenges or not address or not the technical challenges that are going to face them in the next 24 months. 00:30:09:18 - 00:30:32:14 Unknown Yep. And hardware. Because in my mind, and I think this is true, I don't think this is just my mind. It's so diverse. Of all the things you could potentially need to know and understand and have experiences with and gotchas with, like, there's there's almost no one person who I would trust if I had a conversation with Grant that I would get comfortable enough that, like, he knows everything that's in front of him and he's going to be able conquer those challenges. 00:30:32:14 - 00:30:36:14 Unknown So it's almost underwriting the technical acumen of the 00:30:36:16 - 00:30:49:20 Unknown of the technical founder, of the person you're investing in. That for me is one of the big challenges. So let me flip this on his head, because I actually think what you just said is untrue, because you you are such an expert in software. You were the same thing I'm about to happen. 00:30:49:20 - 00:31:12:10 Unknown Hardware hit me. So I have the opinion of software. That software is actually so diverse. There are so many different things you have to understand about launching a SaaS company from the true what I'm calling networking stack of like, what does your server infrastructure look like? Who are you renting from? What platform are you deploying on? How do you get it to all of your users cheaply enough that you can actually make money doing this? 00:31:12:12 - 00:31:31:11 Unknown Then there's the hey, how do I write efficient enough code? On what, like Substack? Like, am I right? It's on Ruby. Like, what am I writing this on? There's a million flavors today. And then there's the UX, UI side, like, hey, does this founder have the ability to make users delight in using software and human centered design, and are they solving a real problem? 00:31:31:13 - 00:31:52:03 Unknown Then there's the business side. Does this founder understand how to do marketing and sales and go to market? I won't belabor the rest of the actually goes, yeah, I am mature enough to understand that a good software founder needs a little bit of the networking software side, a little bit of the actual like what their what is their tool built on, and a little bit of the user experience side. 00:31:52:03 - 00:32:14:15 Unknown And then as long as they or someone continues to create sales, let's go south. You feel the same way about hardware. Interesting. Right? There is mechanical engineering. There's electrical engineering, there's embedded software and there's industrial design. Right? Those are my four flavors that we split up. How you build hardware. Then within that there's always there's radio frequency engineering for wild and Bluetooth and Zigbee and Wi-Fi and all that good stuff. 00:32:14:16 - 00:32:33:19 Unknown There's power electronics. Hey, can I get my USB-C power? You know, the right voltage to power my radio and new power electronics, or make my scooter move and move the motor controller? Those are different parts of engineering, but they're just engineering. There's then there's circuit board design, right? Like, hey, am I making my circuit board? That's really dense? 00:32:33:19 - 00:32:54:22 Unknown Or I can limit moves hundreds of amps for power storage for Tesla power walls. Those are different engineering, but they're just electric engineering. Mechanical engineering. Hey, I making a really cheap, robust, strong plastic part. We make a million of or only making 100 really incredible 3D titanium printed things that go into space. All broad mechanical topics. But the good mechanical engineers. 00:32:55:03 - 00:33:18:10 Unknown What you worry about in hardtack is when reality happens, say more you can. And I'm sure this happens in software. Mike, how many people come to you with a bang or a prototype piece of SaaS that you then have to light on fire in the backyard and rebuild from scratch to scale? May have happened yesterday. Okay, so like I said, bang or prototype never going to happen a million years. 00:33:18:10 - 00:33:26:18 Unknown We want to build it even more explicit in hardware in today's day and age. It didn't used to be this way. 20 years ago you would have never, ever seen 00:33:26:18 - 00:33:35:15 Unknown a banger prototype you couldn't make a bunch of because is that just three 3D printing, the tools you got to two Arduino plus 3D printing, plus online YouTube video, you know. 00:33:35:17 - 00:33:37:00 Unknown Yeah, yeah, yeah, yeah. 00:33:37:02 - 00:33:53:08 Unknown That was a leapfrog. Yeah. So you have these amazing. And this is the no code, low code platforms that are happening in like all of your worlds. Yeah. Right. That are lovable all that stuff. And you can get a, a, a diet version with 100 users or 50 users running to proof that you've built. 00:33:53:09 - 00:34:05:13 Unknown You're solving the right problem. Yep. You then have to tear it down and build that right. So the thing in hard tech today, that's harder than it used to. It used to be you had to be an expert to get to that stage. And then you didn't have to test the founders anymore because they knew how to scale this thing. 00:34:05:14 - 00:34:24:16 Unknown Like there was no way to make a circuit board that did this thing, other than knowing how to make circuit boards and make them. Well, in this game today, you could like dev, get this thing in the shoe box in 3D print a case. Is this helping to open up? Oh that's great. Yeah. That's phenomenal. The new skill is to ask, hey, what do you know about actually scaling this poor thing? 00:34:24:21 - 00:34:42:18 Unknown The pure science risk is much more diffuse now. It used to be if you had a founder in heart attack that came in with an idea, and I'm going to go to you because you're the usual first check in because, you know, elevator has to support in Vienna and you guys have used to pitch competitions. And then you had a like a milestone based fund. 00:34:42:20 - 00:35:02:19 Unknown It's very early before pre-seed even. Right? You used to have to bet on founders that literally had a pitch deck. That's right. Right. And it used to be that there is a huge gulf between the pitch deck and their first test with the user. Nowadays, you can probably give a founder one of your early milestone checks, and they or me in their help can go make them a single thing. 00:35:02:19 - 00:35:19:09 Unknown They can go try with users. Yeah, amazing for hardware software. That's been around a while. Yeah, but it used to be that if they had the thing that worked, you already passed this today. You have to ask. Hey, I see you've got a thing that does this off. What do you know about mapping? Fracturing? Who are you talking to? 00:35:19:10 - 00:35:38:00 Unknown Where are you going to make this? More importantly, how are you going to test it? How are you going to validate it before you go invest in tooling and $1 million of inventory you got we talked about last podcast. There's a bunch of money in engineering. And then there's a fistful of capital. You light on fire in a 90 day span that we had to go button. 00:35:38:02 - 00:35:50:19 Unknown Right. Yeah. So it's all about how do you build and test not having to engineer? Those are the questions to ask. It's different and I'm sure. Let me flip the script. What are the equivalent of those questions in software. Because I know that they exist. 00:35:50:21 - 00:35:55:06 Unknown How do you separate the person who's got a cool demo from the person that you think can scale this thing? 00:35:55:08 - 00:36:01:17 Unknown I mean, yeah, now, I mean, now that you've framed it up that way, they're probably the identical same questions. Yeah. 00:36:01:18 - 00:36:12:11 Unknown Hardware is I just don't. You're right. This is just weird. 10,000 hours are I just don't think of hardware that way. Right. Because it's such a scary black box to you. Yeah. No, my black box is a lot more painful in here. 00:36:12:11 - 00:36:33:07 Unknown Black box, I think. And everyone is is an absolute masochist. But same like box and more expensive. It just hurts the whole time. And you and you and you, it's it's not more expensive. It's more expensive. It has four. You have proof. That's the difference because software actually gets more expensive later. Yes, that's that's true. It's more expensive at the pre-seed stage. 00:36:33:08 - 00:37:04:01 Unknown Correct 100%. It much tighter risk tolerance unpacked by that that software. You can be much more nimble towards the feedback you're getting during customer discovery calls. Yeah. Really. Come on. Means you're developing wrong. If you aren't doing customer discovery calls before you've committed the paths and before you commit to technology, you're just not the. No, no. Yeah, that is true. 00:37:04:03 - 00:37:14:09 Unknown I jump in, I took Aaron, do we know in a three printed thing in a shoe box and I go do customer discovery. That cost me three weekends and two cases of beer to make. 00:37:14:11 - 00:37:20:15 Unknown I go get real feedback. No founder does this. I yeah. I think what Jacob is saying, just to put a finer point on it, I don't want to put it in your mouth. 00:37:20:15 - 00:37:31:20 Unknown So tell me if I'm getting this wrong, but like, I can demo something for you on my laptop right now. You can give me feedback and I can change it in front of you while you're watching. Say, do you mean like this? So can 00:37:31:20 - 00:37:34:04 Unknown I. No you can't. You got to go back and 3D print the new thing. 00:37:34:05 - 00:37:55:05 Unknown Nope. Because most of our connected experiences actually are software and hardware together. And I can change software like, well, that's what we're saying. Software you can change like, well, let me go. Hardware. We do this all the time. I will show up to a user discovery call with a different wrapper for the product, different 3D printed cases. So all of my electronics are in a shoe box over here. 00:37:55:06 - 00:38:06:13 Unknown Off to the Wizard of Oz. Yeah, and I have the device and I say, hey, put this on your shoulder, go running with this and tell me how it felt. Really? I have the device over here doing the magic, 00:38:06:14 - 00:38:14:11 Unknown like, hey, this one's actually too big. Swap it out. Is there a version of this test where I have to force you to run next to me? 00:38:14:12 - 00:38:15:19 Unknown If I go run for five miles 00:38:15:23 - 00:38:33:08 Unknown and do it, do I hear the best one? So, hammerhead, let's just share this hammerhead. Big bite. Computers. Yeah. And we were working on GPS modules for them. And this was years ago in their last generation, and we rented a U-Haul truck. And in the bed of the truck, we had a big plexiglass sheet. 00:38:33:09 - 00:39:00:08 Unknown It was maybe like three by four foot. And literally Velcro to that sheet. Were different development kits from different GPS members, from Sony to tell it to, you know, all these vendors. And we drove a loop around town with an RTK module, which is like a more accurate GPS that like, you have to have a base station. And we set this all up and we ran the same loop over and over again, all these same radios in the same that of this truck, to see which ones were more accurate, drew less power, more. 00:39:00:10 - 00:39:11:07 Unknown All this stuff dealt with urban canyons between buildings or forests. Better. You can absolutely do this. Is that a good example of like, literally trying more than one thing all at the same time? 00:39:11:09 - 00:39:18:06 Unknown I think that, I mean, I love that example and because I could have written a bike, it's definitely a good strategy of de-risking. But I don't think that's the same thing that Jacob. 00:39:18:11 - 00:39:21:16 Unknown Yeah. That's. Yeah. Thank you. Mike. 00:39:21:18 - 00:39:45:03 Unknown Maybe a better way to articulate what I was, what I was trying to say here, Grant, is to begin selling and converting from validation, from interviewing potential customers to actually handing a solution to a customer for money, for money. So I want to triple click into this. That is the big difference. Yeah. 00:39:45:04 - 00:40:18:08 Unknown That's right. So so in I will layer on top the margins as well. Obviously for software far greater. That's right. So the risk profile of going from the quote unquote 0 to 1 that that and that, that was that was the the point is for for investors to they see that discovery. Let me let me yeah. Let me just make one more one more final point on it. 00:40:18:09 - 00:40:56:12 Unknown One thing that the three of us harp on is power law. And no one has infinite money, so they need to determine allocations of capital that they have. And in order to exercise power law, it's a lot easier when going from 0 to 1 cost a fraction in software than it does in hard tech, and so that if you have two founders, both of them have the 1 or 10,000 hours, and they're experts in their domain, and you see the hockey stick projections for both of them, they both come to you with the same type of market validation. 00:40:56:14 - 00:41:16:12 Unknown The one with software, though, will look better purely from the standpoint that chances are they need less money to get there. There's only one difference in the back half of that your hardware founder. If they make it, it's far less likely to be supplanted before you get paid out. Yeah. You can have a software like I'm sure you're all invested in this. 00:41:16:13 - 00:41:35:16 Unknown You have all three of your software investments or have had, I should say, have had software investments because they no longer exist. First movers don't always win that blow up. They are ready. There are is off the are they are just crushing it. And you know what they had a they had an offering bot and they said no they're on such a tear and you're like back, don't sell it. 00:41:35:16 - 00:41:55:00 Unknown You guys are let's do this. Nine months later, competitor two walks into the door and takes all of their lunch and they literally sell for debt. Tell me this hasn't happened. Yes. Now this does happen in hardware. I'm not going to say they're immune to this. It is so much harder. It's the moat. It's the moat. It's it's. 00:41:55:02 - 00:42:17:03 Unknown Yeah, yeah. It's the same chasm that the founder needed to cross in order to secure enough capital to get from. 0 to 1 is the same chasm that any competitor would need. Also, face. Can I add color to that? It makes purchases much more likely because it's so much easier to buy the company that already did it than to try and do it yourself. 00:42:17:03 - 00:42:41:10 Unknown Because even if you're copying someone, you're copying someone's actual products. They have bad patents, right? Where someone people hire me to do this all the time. There's still so much more risk in copying that than just paying than their multiple. It is so much easier to justify by me instead of compete with me hardware I that's fair. And software as well, particularly when a software company is on a tear in there gobbling up new customers. 00:42:41:11 - 00:43:00:00 Unknown But that's from a sales perspective. Vines actually from the tech perspective, is really easy. No in the tech for software to like it's yes on that. You know a lot about software too. I'm happy to know. But you you develop software for money and you you probably get paid to copy stuff. I'm actually asking from my like the same perspective as mine. 00:43:00:01 - 00:43:18:21 Unknown I got you as a consultant, like from an investor. I want to hear your point later, but I really want to hear like you're developing software teams every day. Frank, frame the question for me again. Fresh. Okay. We're company A who is not in this room is on a tear and they've uncovered a new market is Uber. I want you to go copy Uber for me. 00:43:18:22 - 00:43:22:04 Unknown Okay. This is two years. Three years after Uber launched, 00:43:22:08 - 00:43:44:18 Unknown I needed to go copy Uber. What is your technical risk? Not your marketing or sales risk. I just wow. Yeah. I mean, it's so rare in software for it to actually be a hard technology problem. It's so if you look at most B2B software, I'm going to I'm making up numbers on the fly, 90% of it, if not 95% of it has technical risk at all. 00:43:44:21 - 00:44:04:05 Unknown Zero. Now there's actually a fusion risk. The difference is risk or sales and marketing excuse risk. No no no no technical execution risk. Yeah. So but so I want to be clear. Like there's always written whenever you're writing. Just like any engineering there's always risk. People can make mistakes. It's hard. But if you look at Uber is actually a beautiful example. 00:44:04:05 - 00:44:14:11 Unknown There's no technology, particularly today. There's no technology innovation there. It's like it's a business model invasion, right? Like Uber was not hard to write when it was written. Originally. It was very simple. 00:44:14:15 - 00:44:24:16 Unknown Like this is where the code is simple, this one trying to go. Even if someone invents a new spatula, for example, there is a significant technical and like 00:44:24:21 - 00:44:32:05 Unknown time delay, technical risk and developing the copy of that spatula that that is only the case in software. 00:44:32:05 - 00:44:37:15 Unknown If you have a team that does not execute, that's execution. Worst in my mind, there's not a lot of technical risk 00:44:37:17 - 00:44:49:08 Unknown for something as simple as a spatula. Yes, in the same in hardware, but for anything as complex as a connected IoT device, that's actually not quite that simple. 00:44:49:10 - 00:44:58:02 Unknown Maybe, but nobody knows in hardware. Like, oh, in hardware, I believe that that's hard work. Even if you would have cracked. I was thinking of software. Yeah. No, 00:44:58:04 - 00:45:06:21 Unknown you were at a crack team. There's still a thing they could screw up that could push you back. Nine months of delay, which means you've lost your market. Yeah. And that that is. 00:45:06:23 - 00:45:27:01 Unknown I shouldn't say that, but the bell curve, it's out of the standard deviation of software. Firmly. Way easier to ameliorate in software. Yes. So take it back to you. You had your we were talking about how you think the moat and hardware is deeper, but you don't see a bunch of copy on software stuff. But we see copycat software. 00:45:27:06 - 00:45:50:08 Unknown Yeah, yeah. What do you mean in front of go back to our point that you were trying to make about oh, the point is we do see acquisitions occur to buy the software where it's, you know, for for all intents and purposes, the company is not performing year over year with the kind of growth that would typically give off venture back returns. 00:45:50:13 - 00:46:17:15 Unknown But they end up getting an acquisition that is a venture back acquisition because the acquiring Take Your pick private equity firm or corporation wants to acquire the software, the software, or they think they can make that sales market engine just work better. Because I actually want to separate these two entities, because in hardware, somebody's marketing engine, they actually care about software, right? 00:46:17:16 - 00:46:22:13 Unknown My answer in hardware they will buy the company purely for the technology. I 00:46:22:16 - 00:46:40:22 Unknown want to do. One small caveat to that. Actually there the the caveat that immediately occurred to me as soon as that idiot statement came out of my mouth is for products that have actually, really, truly cracked the nut on user experience. Yeah, so much so that, like that becomes a hidden ingredient. 00:46:40:22 - 00:46:41:17 Unknown I don't think that's 00:46:41:19 - 00:47:00:05 Unknown true, but but again, that is a very rare play. And I follow the that's industrial. You bought the industrial design of the product that exists that you have. These are interchangeable hardware software terms. Well yeah. So to enter your you're like to talk about this which is so different in hardware is there's actually such a value in the technology. 00:47:00:06 - 00:47:28:01 Unknown Let's pretend we get a company that was going gangbusters that was throwing off crazy multiples in sales. You'll have a corporate buy them not because of their sales. They'll buy that they want that technology in their sales. And then they could do it even better. They'll outbid venture returns or returns to get this core technology. Oh, you're talking about using the intellectual property or trade secrets and applying it towards other products. 00:47:28:03 - 00:47:44:16 Unknown Yeah, this is where I'm going that this is what's different. My heart attack and software. This is even bringing the most basic IoT thing to market, has so much more trade secret value than even mediately complex software. Like this is where you. Oh, yeah. No 00:47:44:19 - 00:47:50:17 Unknown question. Rattle it off like battery life and or through sensitivity chain. Supply chain. 00:47:50:18 - 00:47:54:23 Unknown Yeah. Like all things you don't even see when you see hardware. Correct. That's right. 00:47:55:01 - 00:48:11:23 Unknown Yeah. And it's not that they that another firm, another glass board could go co-develop or copy this thing. It is how much risk and how much time it's going to be from today until that launches. Yeah. Yeah. So yes I agree with everything you're saying. 00:48:12:00 - 00:48:35:15 Unknown I think the, the other variable to go back to the theme of investor risk is the multiples that are applied to hard tech and product companies relative to software companies. Do we think that's going to be true going forward? I don't know, because my suspicion is that's not going to be real, I don't know. Well, yeah. Was it Microsoft CEO that said software is dead or SaaS is dead? 00:48:35:17 - 00:49:08:20 Unknown Yeah, I don't know. Sitting here on January 8th, I, we still see the multiples like we used to see. Okay. But but we're still seeing we're still seeing. Oh oh come on. No no no. But we're, we're still right now seeing seven x multiples for what I'll call traditional SaaS companies. We're still seeing seven X's. And for will you tell me Grant, what are you seeing in hard tech seven X what multiple on revenue annual. 00:49:08:22 - 00:49:31:12 Unknown I was like yeah that's totally irrational. Yeah. What we're seeing in hard tech rational numbers in software. I know, you know, let's just talk product companies. Let's not even talk. Let's not even talk software. Hardtack in a product a barbecue sauce company. Right. Those are getting 2 to 3 x on top line. Yeah, that rings true. Yeah. Like seeing that on top line makes 00:49:31:16 - 00:49:32:19 Unknown sense. 00:49:32:21 - 00:49:42:00 Unknown Yeah. Like starting on the software company keeps doing it. It for the fence I can get a 2 to 3 x on barbecue sauce. Like that. Sounds easier than software. Well no. But 00:49:42:02 - 00:49:52:07 Unknown you you actually have to make revenue. Yeah. Yeah. That's that's the problem. That's the problem. That would be a problem. How much barbecue sauce can you buy? 00:49:52:09 - 00:49:59:01 Unknown No. So this is the hardware chasm that you and I debate all the time is like it takes so much more money up 00:49:59:04 - 00:50:10:05 Unknown front before this proof, which should be higher returns, it should be higher payback because you're taking way more risk. So give me your best pitch right now as an angel investor, why should I even include hard tech as a percentage of my portfolio? 00:50:10:07 - 00:50:32:06 Unknown Other than you think it's cool? Yeah, I don't think it's cool. No, I think on investor the reason to do it right now. And let me let me buy forget this. I'll say that average case first and then just go talk about the new stuff coming down the pipeline. Yeah. The average of hard tech in general. This is your cell phones and your players and your blenders. 00:50:32:12 - 00:50:57:23 Unknown Just regular products, MP3 players. Was this device from about. Yeah, exactly. But I just want to do like I wanted to set the bar that low. Right. This is your stuff. Your stuff you're selling at best by the reason you invest in that is the same reason you invest in SaaS, that it has its own special rate of return, which is when you get stuff that goes it, goes it. 00:50:58:02 - 00:51:09:04 Unknown The moat is big, it's protectable. There's once you make it over the chasm, I think there's actually less risk because there are real businesses, because they don't make it over the chasm if they're not a real business. 00:51:09:07 - 00:51:15:10 Unknown Yeah. This is you aren't going to be falling onto a C round that doesn't make you money. How many one hit wonder? 00:51:15:12 - 00:51:19:10 Unknown Sorry, I'm telling you, how many one hit wonders in the hardware space are there? Well, 00:51:19:12 - 00:51:31:20 Unknown one hit wonders in that the product only made one version that made the investors boatloads of money, and then they were just gone, and then they just disappeared. That happens all the time. It does. The investors made a boatload of money. Okay, this is where I'm trying to, like, separate. 00:51:31:20 - 00:51:53:17 Unknown This thing that happens is that SaaS will explode, go raise even more money and then tank it before anyone gets paid. Yeah, hardware will throw off dividends that are so big when they go big that the original investors are just dividend made whole. There's a lot of similarities between hardware and life science 100%. Well, because it's all real. 00:51:53:19 - 00:51:57:22 Unknown Even SaaS for life science has to have a tangible outcome in the real world. 00:51:58:01 - 00:52:14:19 Unknown Yep, yep. So when you make it, you you start printing money. Yeah. One big difference between life science and hardware is the regulatory requirements you have. You have a life science hardware. You're going to have that regulatory requirements and the technical due diligence you've got to get through. 00:52:14:21 - 00:52:16:08 Unknown But in life science you just 00:52:16:11 - 00:52:30:20 Unknown you the science has got to work and you've got to get through the regulatory correct. And that exists for for medical. So where I was going in Harvard, there's the every one case which we just talked about. Right. But when you make it it's an operating business. You can still fail. You still the operational error, all of you. 00:52:30:20 - 00:52:40:15 Unknown But if you make it, the investors usually either make enough money literally owning a fraction of this company that's going on profit, or they get gobbled up by a corporate 00:52:40:17 - 00:52:52:14 Unknown because corporates actually can make this thing make more money. Unlike SaaS, you actually Microsoft can't make Samsung buying a startup. They have the engine, which is the go to market exclusive. 00:52:52:20 - 00:53:13:05 Unknown No, no go to market. You have a a hardware startup that has blowing up DVD sales, that is printing money. They literally can't make widgets fast enough. Samsung owns factory. They can make widgets free 100th of the costs. I don't even see that shit. That's. Yeah, they own the silicon. Yeah, we saw that with Smart Apply this time last year. 00:53:13:05 - 00:53:18:04 Unknown I remember walking around CES and there was John Deere's mega booth 00:53:18:06 - 00:53:36:22 Unknown and walking through it with all the tractor equipment. And sure enough, there was smart apply. Really? Yeah. I didn't know that. Was it on the gust or the, they had another platform they partnered that with. There was an automation that they were selling. Let's pretend like our listener doesn't know what the two of you are committing. 00:53:37:00 - 00:53:58:10 Unknown Jacob, you want to provide the background a a shared portfolio company that ended up selling to John Deere and then to the point of getting this new stage, quite literally, this new stage. It was a hard tech to. That's right. It was a hard tech company 100%. Yeah. So that's that scale difference, right? That why you get acquired? 00:53:58:12 - 00:54:16:23 Unknown More likely because it's not a sales marketing engine. That is the reason you're getting acquired. It's not that their sales is better than yours is their marketing. It is that not only do they need your core tech, if you're doing something innovative, they can just make your Cogs cost of goods, your timeline to market, your manufacturing supply. They can make that all melt away. 00:54:17:02 - 00:54:22:03 Unknown So it's very inefficient to build hardware at low volume. It's very costly. 00:54:22:05 - 00:54:37:12 Unknown I think we should come back to smart, smart guided actually, because this is this ad company. Yeah, this is the ad company. I think it was interesting, but we started off this entire session with like, what does it take to invest in something? Yeah, we invested in that. 00:54:37:13 - 00:55:06:17 Unknown Yeah. On what metric. We invested on it because it was a solid thesis. We had a chance to talk to farmers that we using it. So end customer discovery. And I mean, basically they set it up a little bit. The company had a leader technology that was joint developed with USDA, and they could put it on the front of a tractor that would assess the tree density and determine whether or not the tree was there. 00:55:06:19 - 00:55:32:12 Unknown The tree was, and then run it through an algorithm that would tell you that would control the sprayers on the back side. How much pesticide or fertilizer this. Right. That's right. Yeah. So they could they could prevent the spray or they can pull spray it and get adequate coverage. And the interesting piece was the current standards today were turn the sprayer on right off, drive down the the row. 00:55:32:14 - 00:55:53:03 Unknown And that was it. Yeah. There was no control. So the bar was low. Is one might think the bar was low but there was adequate customer discovery. And you know, we had a farmer that was telling us they saved $800,000 the first year that they the day one. And that's it. Just material cost. Not in value. No, it was in water cost. 00:55:53:05 - 00:56:00:08 Unknown What? Yeah, it was a water is the primary delivery for pesticides and. Yeah. Yeah. So 00:56:00:11 - 00:56:10:16 Unknown and there's so much volume of water per instead of grams of pesticide dissolved in the water. That's. So it, it prevented overspray. It prevented, you know, you're not getting pesticides in the 00:56:10:16 - 00:56:13:09 Unknown water streams and. Well, that's just the ethical text a lot of. 00:56:13:10 - 00:56:22:01 Unknown Yeah. So so there was an ethical alignment reserve customer don't start acting. It sells. 00:56:22:03 - 00:56:26:18 Unknown I love. 00:56:26:20 - 00:56:30:16 Unknown Man. 00:56:30:18 - 00:56:34:09 Unknown I just said quite loud Mike. 00:56:34:11 - 00:57:01:07 Unknown Did I, did I capture all that. Yeah. No I think I think you did that. And just I've been sitting over here through the whole conversation thinking like this really? Software hardtack. Life science two brought it up. I mean, it comes back to just first principles. Is the problem severe enough? And then it's a little bit for the investor. 00:57:01:09 - 00:57:38:12 Unknown The way I've heard it best, it is at bats. How many times have you been pitched. And it's no different than how many times have you bought a used car, and you learn what the sales cadence looks like, and you learn how to negotiate and you'll learn the process. But that's like hardtack software. It's it is. Show me a founder that truly 10,000 hours truly understands how to solve for a problem that people want solved. 00:57:38:12 - 00:58:17:06 Unknown It's a severe issue. It's requires medicine, not vitamins. And then let's go. Right. It's those three ingredients founder problem solution. Having those working is rare enough where if you have enough at bats, you see how rare it is when you have those three ingredients that that's that's where these what I would consider to be outside risks that's are associated with hardtack or associated with life science, which also then sets up for outsized returns. 00:58:17:06 - 00:58:24:13 Unknown When these things work, all those fall in alignment. When those three elements are all 00:58:24:15 - 00:58:38:09 Unknown working, and then obviously the other ingredients fall into place, total addressable market and so on. And I agree with all of that. And I think you also grant you asked a question like, what is an investor? What do you need to say to an investor? 00:58:38:10 - 00:58:51:14 Unknown Get access to capital. There's no silver bullet. We know. And I think that the the yes. And here is you have to also find an investor that's aligned with the mission of the problem being 00:58:51:16 - 00:59:00:10 Unknown solved. Well, how do you find hard investors? The last question, because I've been in this for a decade, 15 years, and there's like three of my favorite friends that touch the space in the room. 00:59:00:11 - 00:59:02:00 Unknown What are you passionate about? What do you want 00:59:02:00 - 00:59:12:04 Unknown to solve? What's worth solving? Well, it's it's a dig. Those are founder questions that should be asked of the investor I agree. Yes, I got an answer directly for 00:59:12:06 - 00:59:32:13 Unknown you. Those that are investing in this is a generalization, but mostly true. And check me on this. Mike and Ben, those that invest in life science opportunities, those those those that invest in life science opportunities are ones who work in life science. 00:59:32:15 - 00:59:58:10 Unknown Those who invest in software are those that made their money in software. Hardtack in that thing. Exactly. Yeah. Or maybe they've had an exit. Right. And so I want to I want to there's two topics I just heard that are really important to separate. So what you mentioned in most of your soliloquy was the right founder. Right. The right founder finds the right problems. 00:59:58:10 - 01:00:14:03 Unknown They find the right solutions and they are the right founder. I just want to actually say the quiet part out loud. Yeah, we would all agree to that across the board. But I'm saying this for the listeners. Actually, we all know people that we're trying to coach that are not the right founder, that actually have stumbled across a really good idea to get out of their own way. 01:00:14:04 - 01:00:39:17 Unknown And I want to say this out loud if you are pitching what you believe is the right market, with the right Tam, with the right numbers on the page, and no one is giving you money, you might be the problem. And I want to say this out loud in public. You can hear this and I'm not calling one out like I have so many companies that crossed my door in the last ten years that I'm like, I would literally closed last board today. 01:00:39:18 - 01:00:55:13 Unknown Like not even sell it. I would just close the doors. I would personally go out of my savings to pay everyone in salary, to like and raise money on this idea that I think I could raise money on this idea so successfully to make this company happen. I can't believe this person is dropping the ball because they don't know how to talk to investors. 01:00:55:13 - 01:01:15:17 Unknown They just weren't in the zone. They don't have 10,000 hours in the hardware or the software. If they're a software company, they're missing these core clicks. The word I want to use as a founder. And that is so separate from the question that I was starting setting this podcast up for, which are what are the revenues that evil AR at every stage? 01:01:15:17 - 01:01:37:03 Unknown Is that you you need to check it out. Precede seed series aid from software to hardware. What are these metrics that should exist in your pitch deck? And I want to separate those two, because from what I heard from you and I heard from you in the past and like you as well, like the founder is so separate from the opportunity or the technology that sometimes you'll back great founders on mediocre technology and problems. 01:01:37:03 - 01:02:04:13 Unknown Totally. Yeah, yeah. We've kind of capitulated on this in a in a couple of other episodes around coach ability and how that word gets thrown around so much, and it's been a little bastardized on what what it means to be coachable where you'll you'll sometimes see academic examples of entrepreneurial coach ability as just falling over in just taking. 01:02:04:15 - 01:02:33:05 Unknown Yeah, following directions is taking what's in front of you. But what what I have found and I would say for Ben and Mike, just generally from our conversations, what, what coach ability really looks like. And you guys. Yes. And or argue with this is that that coach ability is more about being adaptive. It's bringing in all those inputs and then processing them and doing something with that information 01:02:33:07 - 01:02:35:14 Unknown different than just following that information direction. 01:02:35:15 - 01:02:48:22 Unknown Exactly. So there's a little bit of danger here, and I want to throw a little bit of danger zone the song should be playing. That's right. Danger zone whoever's editing this like bring it in, Top Gun. There you go. Whoa 01:02:49:02 - 01:02:58:23 Unknown whoa whoa whoa. Someone's looking for a lawsuit. Oh, that's so good. The the danger 01:02:59:04 - 01:03:03:17 Unknown is that you get opinions coming at you from a lot of different sources. 01:03:03:18 - 01:03:19:03 Unknown Yes, and you might get the wrong the right advice at the wrong time. Or you just might get one advice. Like, if you have to choose on which you are to give it right, guaranteed to get bad advice. If you are a founder, it is guaranteed 01:03:19:08 - 01:03:22:04 Unknown twice. So if you talk to me, you're going to get a whole lot about advice. 01:03:22:05 - 01:03:31:03 Unknown That's right. And to be clear, bad advice is literally the opposite of what you should do in some 01:03:31:05 - 01:03:44:18 Unknown even like a little off kilter. Yes. Yeah. From investors to like there. What you should do is stop selling B to B and go direct to consumer. That's right. 01:03:44:20 - 01:03:51:22 Unknown Yeah, yeah. I think you can pivot your consultancy into hardware. I don't think that's going to end up for me. 01:03:51:23 - 01:04:08:03 Unknown Oh man. Well I think was that an acquisition offer by the way we can figure this out. I mean, there's a price I'll pay for it or you might not like it, but I know. So. So everyone listening. Guys, thanks so much for hanging out with us. All of you in the room here. Thanks for joining. To be continued. 01:04:08:03 - 01:04:20:04 Unknown This is so much fun. This wraps up a good, solid episode, but this requires a third episode. We're actually talking about investment in our tech and not just markets. And how do you quantify all this? Thank you all for listening. And thank you guys for 01:04:20:09 - 01:04:22:08 Unknown coming. Yeah. Thank you. Thanks, Grant. Awesome.