Hi, this is Wayne again with a topic “Building a VC Investable Hardware Statrup”.
All right so um, congratulations! Thank you particle! Thank you. I like it um, so so uh transitioning into the into the next part of this um. So, first avedon, why don’t you tell us about yourself and uh and your fun line line wells, awesome, uh? First off, i’m very excited about renaming it as particle uh. I’Ve i’ve had the confused conversation. Many many a time on. It’S never actually sparked the car. It’S usually one of the other sparks on that on that list. But a little background about myself, i started out. Actually i can thank my mother exclusively for turning me into a maker. She gave me my first set of power tools. Actually, i stole my first set of power tools from her garage when i was eight years old to take apart my sister’s teddy ruxpin and turn it into a walkman. I felt like that was the my foray into hardware hacking i later then jumped into network hardware. So i worked at excited home working on the first cable modems back when everyone was shocked that anyone would need a t1 line at home, and now we laugh at 1.5 megabits.
But most recently i actually took time off from working at a previous investment firm, and my younger brother exposed me to arduino. He was a graduate of itp um and i ended up building crazy food robots for the food network that we built a 6000 pound pizza. Oven that was cooked, that cooked pizza in 45 seconds using robotically charged afterburners uh.
It never made it to eric as it burnt my buddy’s eyebrows off, so that was uh deemed not unacceptable for television, but i then started lionwell’s ventures a couple years ago and lionwell’s ventures is a seed-focused venture firm. That has a very specific focus on low-cost robotics and connected devices. So uh, you know our investments are usually first institutional money in and we like to really focus on companies that are building connected devices that are very much trojan horses um.
So i can tell you, i mean spark was one of our. I think, first five or six investments that we made um and it’s been one of our. I i think, one that we’re most excited about uh, both because of its broad reach as a product, but also as a platform. We get exposed to a lot of great companies that are using particle. Now now i’m going to use the name, correct, name, uh, so uh we get exposed to a lot of great companies that are utilizing the particle platform to actually accomplish their goals. So so, let’s talk about some of the other companies that you’re invested in and in particular in the hardware space like um.
What what types of companies do you look at, so we really like companies that are trojan horses. I mean it’s. I think it’s the easiest way to describe. It is a company that looks like one thing and then, when you really peel back the onion, you find out that they’re really something a lot deeper. So, for example, we’re invested in a company called tactia and tactia is actually a product directly squarely focused on the maker on the maker world. What they are is a handheld cnc.
It’S a team out of mit a couple phds whose thesis was around digital power tools. So it looks a lot like a traditional wood router, but it’s capable of creating automatic correction to give you 1 1000th of an inch accurate cuts and it might look like just the most amazing power tool you’ve ever seen. But in reality it’s a trojan horse to help you actually take on bigger and bigger projects. You know doing recessed lighting in your house or building a chair or building a table or building kind of anything you ever thought possible and with that comes additional revenue streams or we’re invested in momentum machines, which is a hamburger making robot very exactly what i describe It as it is a hamburger making robot.
That is what it does. It’S a big robot, it’s a very big little person who, like uh or like a humanoid, most people when you say hamburger, making robot they either picture the hamburglar making hamburgers like the actual like robot hands, or they just picture like a humanoid. You know uh star wars, type robot, that’s that’s flipping burgers. In reality, this is something that produces 400 hamburgers an hour, which is, unless you have a really serious appetite or a lot of kids at home.
This is probably meant for more of a shared shared space and then we’re invested in the drone space. We’Re invested in just a variety of companies that are really some are b2b. Some are b2c, but just in general, the one thing that we believe in is that hardware is the next opportunity and i i went through it and i understand how difficult it is to pull it off, which, in my in my vision, right now, silicon valley has Very much focused on some things that have low barriers to entry and therefore people are just piling in monies because piling in money, because the problem is not very hard to solve. So, therefore, you have to grow and scale as quickly as possible, and i believe that hardware companies have a lot more moving parts and therefore are more protectable businesses and more interesting and at the end of the day, humans still want to hold tangible products.
I think we still have a yearning for things that we can experience more so than just experiencing them on a touch screen, um and – and i think uber you know, uber is not a hardware company, but at the end of the day the human experience is still There it’s a ux, it’s a ux problem um, so that’s that’s sort of what we do and how we, how we think about it. Well, so let’s talk a bit about like the the incentives of a vc right. So how does your world work and how does that drive the decisions that you make to make an investment so uh? I would, i would say the cliche is it’s all about the money, but it’s really not uh. You know we as vcs for better or worse. It’S a very small community and you can very quickly gain or lose a reputation. There are certain things that are driving forces for vcs, that they just quite simply get can’t get rid of um.
We can’t shake the fact that our investors want to make money. So we have to make sure that we’re investing in things that are that are that are positive and winners. We also take pretty dramatically outsized risks on some of our companies, so we you know the the cliche is that uh vcs are always looking for the billion dollar opportunity, and i don’t know if that’s quite a fair assessment, because really what it’s about is the fact That vcs are going to make a bunch of investments out of one fund right and that is going to be a fund that they raise and they’re going to spend three to four years. Deploying the capital on that. And whether or not you care about the other investments, so you, for example, have to actually care about how my other investments perform, because my performance is based on how the aggregate of all of my investments performed in totality. So oftentimes entrepreneurs are sort of confronted with a question. They can’t answer right away, which is what does this mean? What does the rest of the portfolio for this venture capitalist mean to me, and it’s really important, i mean a you want to look at the rest of the portfolio companies to see. If there’s synergies, i mean one of the great things that you’ve been able to experience with other portfolio.
Ceos and ctos is there’s a great overlap in the the hurdles that you have to get over, but the other thing that’s very important is understanding that, in your success, a vc when they’re trying to assess the risk of investing in your company they’re, basically trying to Figure out, if you as a success, could actually return their entire fund to just make up for any potential mistakes they make otherwise, which makes it very hard. But that’s why companies that are oftentimes. We look at companies and we say there is no way. Those guys are going to get to the moon, but as by definition, a moon shot is, is something that can can yield those kind of returns.
So a lot of i think, a lot of investors are like hardware. Startups are a hot new, hot, new category right and um, but i think a lot of investors are still spooked, because it’s capital intensive it’s it’s it’s not as it’s not as easy as a software company. So what is it that makes you feel comfortable with the things that other investors aren’t uh aren’t doing, i’m a little bit crazier, just just just no, i i think that uh, really what it comes down to is. It actually is a genuine desire for vcs to help um venture capitalists.
Oftentimes will tell you how great their relationships are and how deep their rolodex is and how many, how much the experience they’ve had as operators, and i think the unique element of what’s going on today in the connected device space. Is that we’ve been doing hardware in the valley for many many years, but we haven’t been doing hardware like this. We haven’t been doing lean hardware, we haven’t been able to come up and build a prototype for a couple. Grand or you know a couple hundred bucks, and so really this entire world of a connected device company is an absolutely new category and when you talk to a vc, oftentimes they’re, basically looking through their rolodex saying, how can i help this company? If i don’t actually have anybody that i know who’s done this before or who could step in and help with relationships in china or who might be able to help with understanding the full stack development, and i think what we end up seeing is vcs – are unwilling To really jump in super early when there’s a technology risk involved because they don’t feel comfortable assessing that technology risk. I have a deep enough background in the hardware to be able to look at a company and say: okay, your bomb is off by 30 percent. You probably actually shouldn’t do your first run in china. You should do a domestic run of a pilot of x number and then i’ll introduce you to some people in china who might be able to help, and we can see those pitfalls. So i’m willing to take on that extra risk early on, and i think one of the things that’s been great about it is, as i develop that sort of program i can share it with other vcs, because at the end of the day, i’m not a large Enough venture firm to be able to absorb all the fantastic startups that are popping up there are i mean the the deal flow is fantastic, because so many people, the barrier at entry, has dropped and the interest is there.
So what i’ve been trying to do is actually go out and spread the word and teach other vcs about my process of figuring out who the next great startup is. So you talk to a lot of companies um and probably a lot more no’s than yes’s right. So what are the patterns that you see and like how should how, if somebody’s developing a hardware startup, how would they know if they’re really ready for venture investment? So it’s actually a really tough question, because you know so many times when i say no, i’m actually elated that the company exists. I’M super excited: the company exists, because what they’re doing is absolutely fantastic, and i think that they’re going to actually do very well and become very wealthy and be very happy and build a great business selling their product. But for me it really does break down to products versus companies, and people who are building products have a fantastic opportunity. Nowadays there are great ways to do.
Crowdfunding. There are great ways to get distribution done. There are great great ways to get manufacturing done, but if you’re selling a product, it’s not something, that’s venture backable, it’s generally just a product that you’re making a margin on, and it’s all about the skew. It’S all about generating margin on a skew where i get excited is when something’s a trojan horse, and i think, by definition, a a wirelessly connected device is generally the the starting point, because a trojan horse with a usb cord is is not interesting. It’S just it’s not a trojan horse, so i really look for companies masquerading as products and they look like a single product but really they’re a trojan horse for something much larger, whether it’s a hardware-enabled subscription business, hardware-enabled, commerce, business hardware enabled platform business. That’S really what gets exciting for me and, most importantly, i look for some validation that someone has done some.
You know product market fit testing actually can identify, who they’re going after and what the value proposition is to that person and, most importantly, i actually just love seeing new companies and hearing about what people are up to. So as long as people are understand. That me saying no is not me saying i don’t think your idea is great. I actually am super excited about the opportunities that exist that are not venture. Backable. Do not measure yourself based on your ability to get venture funding measure yourself based on your ability to build an awesome product, and then, if you want to think about it as a big big scale, venture company we can.
I can i can help you better understand that and walk you through it cool. I think we’ve got a couple of minutes left. I don’t know if anyone else, if, if anyone in the room wants to ask any questions, so um throw your hand up. If you do uh, but if not i will, i will ask one more anyone out there, no all right um.
I know it’s really interesting. The venture capital industry is very like so do you have any like particular requests like? Is there? Are there any ideas that you’d like to see somebody doing that you’d invest in if it were the right team sort of pursuing the right vision? Uh, you know i i actually really enjoy what people are pushing at um as far as sort of leveraging the unlimited resources of the cloud to get into machine learning capabilities where we look at sort of what the end point look like. We basically have figured out ultra low cost. Sensors right, we have you know arm, is pushing out chips that are cheaper and cheaper. We have bluetooth chips, wi-fi chips, sub, gigahertz, 2.4. Everything is really compressing as far as those endpoints are concerned, and i think what we’re starting to see is a race to the bottom.
As far as those end nodes – and i think what’s far more compelling about it – is if you can then take those those end nodes and get to the point where you say these are practically disposable right. Take a bet, i think the the great quote is wayne gretzky said don’t go to where the puck is go to where the puck is going to be. So i think everyone in this room can basically assume that you know wireless connectivity and sensors are going to get to be the point where they’re in the sub dollar range in five years in 10 years, or maybe even three years now. If you think that that’s where everything is going, i like to joke with people like i, i would say the most outrageous thing that someone told me recently that i didn’t think was outrageous was uh that all of the drywall in new houses was going to be Wirelessly connected and people that i say to are like: oh that’s, that’s the. Why would anyone wirelessly connect the drywall in their house and what you have to do is actually look at what insurance claims look like on mold mold abatement in drywall when people have a water leak, and you can’t see it because this there is no sensor behind The wall, so i think, getting into the the nooks and crannies of really you know cisco, loves to call it internet of everything, but i think we’re all sort of building 3d printers and quadcopters right now, because that’s our that’s the the easy way to get into It it’s the exciting and fun way to get into it, but then i think people who have taken domain expertise where they said you know i was a general contractor working on drywall.
So therefore, i’m going to look into how i can learn more about turning that space into a more interesting sort of universally accepted and and ubiquitous connected space. I think that’s that’s what’s interesting for me cool all right! Well, thanks! So much very good! Absolutely thank you! .