Scaling Hardware: From Concept to Market [Panel Recording]

This panel brought together experts with deep experience in product development, venture funding, and manufacturing to discuss key topics, including:

• Emerging trends in hardware innovation
• Manufacturing in Mexico vs. China: Pros, cons, and opportunities
• Managing cash flow and scaling hardware startups efficiently
• AI’s growing role in product design and development
• Key partners in Southern California for hardware success
• Financing strategies for capital-intensive hardtech businesses

Featured Speakers:

• Terry Arbaugh – CCO, SEACOMP
• Alex Gudilko – CEO, AJProTech
• Mel Tang – Founding Operating Partner, Matter Venture Partners
• David Sharpe – Founder, Bridger Watch

Moderated by: Susan Paley – Partner, Hardware Execution and Partnerships, CCO of Conduit Venture Labs

Whether you're a hardware founder, investor, or product leader, this discussion offers valuable insights to help navigate the complexities of hardware development and scaling.

• 00:00:00 Introduction
• 00:05:23 Changes in Hardware over the Last 10 Years
• 00:07:33 The Current State of Electronics Manufacturing
• 00:12:12 A Product Founder’s Perspective
• 00:13:25 About Hardware Investment Thesis
• 00:18:00 The current state of Hardware in LA
• 00:21:55 AI in Hardtech Products and Manufacturing
• 00:26:05 Data Collection in Hardtech Products
• 00:33:49 Financing Hardtech Products
• 00:45:46 Signals for Partners to Engage Hardware Startups
• 00:56:35 Round Robin Questions for Panelists
• 01:00:58 Audience Q+A

Transcript

Susan
That's okay. Listen, thank you for coming to our lunch panel. LA tech week is exploded. I cannot believe how many events there are, so thanks for selecting this one. And of the ten others that you're not able to go to that are at exactly this time. So thank you very much. So we have a great panel today, we've got great panelists.

We're going to be talking about hard tech, deep tech. You know, there's many different terms for it used to be called hardware, but that didn't get funded. So now we call it two other, two other words. But what we wanted to do today is give you kind of like sort of the LA ecosystem has really grown exponentially.

So part of this panel is to bring people up to represent different aspects of the journey. We have manufacturing. We have product development, we have a founder, we have a funder. So that gives you kind of a whole ecosystem. And so what I'm going to do is, the panel is going to run about 45, 50 minutes. Then we're going to have plenty of time for Q&A.

Also after this, there is to continue the conversations with us, with each other. There's a bunch more people coming in. We are going to have sort of a hard tech happy hour. So in the same location, you only have to park once. Yeah. Because we understand this is Los Angeles. We have drink tickets for all of you to get started.

And, so, so please stick around if you guys want to just continue to have conversations. Okay. So my name is Susan Paley. I've been around the LA ecosystem system for a long time, which is really me saying I'm old. I have, I used to joke, I'm web 1, 2,and 3.. So I have been in the space for a really long time.

Harman Kardon, Beats by Dre very early on. Like actually first employee and CEO. And now I work with a lot of early stage founders, a company called Conduit Venture Labs. There's incubating hard tech companies. But I also I've built a platform with a guy named David Tan who I brought in to Beats, who ran, engineering for a long time.

And we service early stage founders. So if you have if you're looking towards commercialization and you have some questions, and you need a little bit of support and help, reach out to me on LinkedIn and we'd be happy to talk to you. So with that, I'm going to turn it over to this amazing panel of people.

I'm going to start with Alex Gudilko. So Alex is on the Forbes Tech Council. He's a mentor at plug and play. And he is the CEO and founder of AJ Pro Tech, which is an engineering e services firm that likes to build products. And you've been running that for about ten years right now. So very involved the LA ecosystem.

Also what I've heard killer tennis player. So for those of you who want to reach out to him, maybe over a couple sets, he might give you a better deal. We also have Terry Arbaugh. Terry was actually born in Los Angeles. Now he lives in San Diego. He likes the weather there better. Killer beach volleyball player.

Went to Pepperdine and, Japanese and poli sci. That's right. Right. Yeah, I, I do my research. Yeah. That's right. You should all give your signs because we are in Los Angeles, and is now the chief commercial officer for SEACOMP. We're going to be getting into what SEACOMP is doing, which is really exciting for the LA, ecosystem on manufacturing.

Then we have Mel Tang on the hot seat, the funder and on the panel, Mel actually is an engineer who recovered and became a finance guy, started, mechanical engineering at Wharton, and then went into finance and has some great stories. Started in media. I think a lot of people who've been in the tech ecosystem in LA have started in media, because that's where we all stood like, you know, I used to do websites for entertainment companies and for in the web 1.0, we put up wallpaper for different movies that were coming up that was basically an online brochure, but it was, for us,

It was amazing. And then from there was actually the CFO of Ring. So rode that amazing ride, which is one of the big sort of, success stories out of Los Angeles. So if he stays around, you might want to buy him a beer or or give him an extra ticket and he'll tell you some Ring stories.

So a lot of, and actually, we bonded because we were both joking about, like, we were in a San Francisco conference, and he's like, I'd rather be in Hermosa Beach in my shorts, like doing deals. And I'm like, that's that's my kind of guy.

Mel
I was in like a quarter zip, you know, trying to fit in, no vest, though.

Susan 
And right now, Mel is a CFO and a partner of Matter Venture Partners, which is a very large, hard tech fund, 300 million. Yep. In L.A. Which is really exciting. They're not a lot of these kind of funds. So he has a really unique perspective. And he'll be talking more about that today. And then last but not least we have David Sharpe who is the founder on the panel, who is taking building a device from the ground up, which is a wearable device, for hunting and for hunters.

And it's one of those things that the dilemma of the innovator of it doesn't exist, I have to build the whole thing. I can't just build an app on top of something. I've got to go all the way. So, you guys, welcome for the panel. Thanks for taking lunch time with us. So I'm going to start with, we kind of let the frame.

We talked about the framework, how we're representing very different stages of the journey on this panel. So Alex, I'd love to start with you. You've been doing this for ten years. I'd love to hear kind of what you've been, you know, a lot of founders come to you to build products. I'd love to A) talk more about what AJProTech does and what are you seeing in the ecosystem in terms of companies that are coming to products that want to be built?

Susan
What are the things that you've seen? What have been that, some of the changes over the last ten years?

Alex
I'll start with a comment saying that hardware is hard and why that is hard because you have to do things right the first time. Mistakes are very expensive. You have to be the right thing because it's usually if you get delayed for a couple years, you might not get a lot of funding.

So the entire hardware game is to race against time. You have to do things right, you have to be fast and you have to fundraise, and you have to build and ship and ship products. So one of, one of the reasons we exist as a company as AJProtech, we help early founders to build products faster, covering the entire 
engineering from initial feasibility study to picking what components are needed.

How much is going to cost? Industrial design a little bit, electrical engineering, mechanical and early prototyping. So essentially, we are one stop solution for early founders to get started. And we increase their chances to be successful as a company and to exist. The industry is changing towards it just getting faster. So, it's from the time you come up with the idea till the time someone else commercializes it, it may be, I don't know, 12 to 18 months.

So we have to be really, really fast. And yeah, that's one of the things we're doing is to, helping them come all the way from the concepts to production in 12 to 18 months.

Susan
What types of products are you seeing? Anything that you've seen that's exciting and things that are different that you wouldn't have seen maybe 5 or 10 years ago? People are coming to you.

Alex
Devices get more powerful and a lot of features which were not a, which were not, feasible previously. Now you can just do them on device, edge computing becomes more, more affordable. So your very inexpensive device on your wrist can do more than your smartphone could, even five, ten years ago.

So as getting offline processing becomes big, devices without internet connection, because you might be out of range or you might not be willing to pay for service. So being able to do things on your wrist or on your small device, this is probably the biggest shift I've seen in the last five years.

Susan
Right. Thank you. Terry, would love for you to talk about kind of the state of manufacturing.

Talk about, SEACOMP, why you've built a factory in Tijuana in which, by the way, some people here have actually been to that factory in Tijuana. This is a fully vertical electronics factory. So now you don't have to go to China. And we'll talk about that in a minute. But I'd love to hear about the factory SEACOMP.

Terry
Yeah. First of all I'm glad everybody's here. SEACOMP is an electronics manufacturer. We design and manufacture industrial, medical, consumer electronics. We always say small enough to fit into an oven. So in China, we've got a factory, in Dongguan China that was operated for more than ten years. When the China tariffs, the section 301 tariffs came into play in 2018, it really started a lot of the conversations around how do we get out of China, how do we avoid this 25% tariff that now we are paying on importing electronics that are coming from China.

So we started looking at a plus one. We call it our China plus one strategy. We're not abandoning China. Still the electronics manufacturing capital of the world. The entire supply basis within ten miles of the factory. But what are we going to do outside of China for final assembly and production? So us being a San Diego company, Tijuana made a ton of sense.

Right. So we've just launched, just earlier this year. We've been working on it for a year and a half, but launched the factory in TJ. Really, we're in mass production now, ramping up a few products for Christmas and getting ready for, probably it to be 75 ish percent of our business as early as next year.

So the shift from just having China to having Mexico and it being the dominant percentage of our business is happening much faster than we had anticipated. Tariffs obviously is a huge driver for it. But geopolitical tensions and uncertainty and you know, regardless of who wins the election, is that going to be better or worse for tariffs or risk or anything else?

There's just so many reasons why people want to bring, manufacturing closer to home. Cash flow is one of them. Right. If you are building a bunch of product in China and shipping it on the water and is there, is there pirates where your boats going, is there a dock strike where you're coming? How long will you have to be sitting on that cash before you can actually sell it and transact?

So getting that to Mexico is a big driver. So a whole lot of reasons why our customers want to nearshore and being able to offer that solution to not only have production close to home, but to get around that 25% tariff has been a huge driver and a big changer in our world.

Susan 
I think we talked before.  What's the difference really economically of the 25% tariff from China versus doing it in Mexico?

Terry
Mexico, we've seen, we'll call it roughly 18 to 20% more expensive to manufacture the good than it is in China. So if you just imagine most of the components are still manufactured in China. So every one of them that ends up in Mexico has a plane ticket built into that cost.

There's some import cost to get into Mexico, things like that. But overhead, the cost of energy is much higher. And in, Mexico, for example, the cost of labor isn't crazily different between the two countries, but labor as a percentage of the cost of goods that we manufacture is a pretty small percentage anyway. So labor is not a huge driver of that difference.

But overhead costs, some of the, kind of the certifications and the ways you have to operate in Mexico versus China, just add some cost. So your finished goods product cost at the factory floor level is about 18, 20% higher in Mexico. But you reduce, you remove that 25% tariff, you remove time on the water, you remove, you know, if you're shipping containers right now, at the beginning of the year, they might be $3,000 a container.

Right now there might be 10 or $12,000 a container as you get closer to Christmas, you know. So there's all the additional costs come into play. So from a customer standpoint, the total cost of ownership even paying a little higher unit price out of Mexico, the landed cost tends to be cheaper.

Susan
How many people in the audience are actually building in China right now?

Interesting. Okay. And we get a lot of people coming to us saying like, we don't want to build in China, but the dirty secret is your absolutely, alll your components are absolutely always going to come from China. That's not going to change anytime in the near term. I think what has been really interesting for people that are building is there are a lot of low, I wouldn't call them low cost, but you can build prototypes now with a much higher fidelity than you ever could.

So that by the time you have to go either Mexico, China, wherever you're already at a level where you have de-risked so much of your production cost. So your EVT builds, which is your engineering validation build, should go off very well. At this point. There's kind of no reason not to have that situation. So things are really changing in manufacturing and we’ll sort of get into that later.

Susan
I would love to talk about well, let's actually talk with you, David. You're building a product, you're a builder, you're in it. Tell us about your product and kind of where you are in its development cycle.

David
Yeah. So we are building a premium smartwatch for the outdoor and hunting industry, that focuses on, our own proprietary software to view and view, high fidelity and high quality maps for hunters.

And we couldn't find anything that existed that was in a watch size, device that we could do this on. And, that's kind of how we ended up here. And, Alex and his team and our team are working together, mid development to bring this to market.

Susan
What do you think the launch date is going to be?

And then I'll add like eight months or. Yeah.

David
Sometime soon. Okay.

Susan
Christmas 25. Take a look at this. Right. Okay. So great. Melt matter VP. Tell us about it. Tell about the investment thesis. Kind of why? Why here? What you guys are looking for.

Mel
Yeah. So at Matter Venture Partners, new hard tech fund, spun out of Kleiner last year.

We just closed our, last round or last. Closed our first fund in May of this year. 311 million. We focus on seed series A, semiconductors, robotics, picks and shovels of AI. So we won't invest in AI models, but the infrastructure underlying the data center, for example, network switches, etc.. And then the sort of building blocks of electrification.

So we won't bet on EVs, but we'll look at electric motors, things like that. And when we set out to raise the fund, the differentiator or two things. The first is, you know, hardware is hard. As Alex said, I think part of, what a lot of you know, founders struggle with is the inability to connect directly with manufacturers, contract, contract manufacturers, chip makers, etc..

So a third of our LPs are, you know, a world's largest chip maker, contract manufacturers, industrial, etc.. And then the other part where I come into play is from an operating partner standpoint, I can help really our portfolio companies think about how to price their products or think about gross margin and think about unit economics. You know, one of the big things that is happening now is your hardware as a service where a robot or robot is deployed, and instead of selling the robot as CapEx, right, customers pay effectively a wage, right?

You can call it a subscription or whatever, or how does that cash flow work? Because I'm paying upfront for this robot. I'm getting paid over time, you know, what is that payback period? What are all the soft costs that go into deploying that robot need to be? So, our thesis is, between, you know, kind of our strategic ops and our operating partners, we can hopefully reduce that time to value.

Time to commercialization by half and reduce the caliber required by half. So that's the goal of of the fund is, is sort of a new, you know, where capital is necessary but not sufficient to really scale,, you know, hardware companies.

Susan
Yeah, I think I don't I don't think I can overemphasize that. 
We were just at a forge conference and a lot of folks were there that fund, you know, A, B, C and D.

And the financial piece is so critical for hardware companies really thinking through, like how you're going to use your capital, how your capital is going to last, and being really smart and strategic about it. And most early stage founders do not have very strategic experienced CFOs that come on board, they mostly have controllers. So it's going to be in your best interest to talk, to get advisors, get people that really understand cash flow needs, financing, need cash flow.

There's just like the capital stack for hardware or hard tech is much more complicated. It can make or break a company. And that's something that a lot of early stage founders who are so in the mix of building the product and trying to find that product market fit, that they don't think about the capital until they're really kind of behind the eight ball.

And we've all been there. That's why we can sit up here and say that. So, I think, you know, connecting with Mel and I think, Mel, I'm going to start promoting your new advisory service that hasn't just in existence right now.

Mel
Yeah. I mean, you can run out of money growing and and that's the scariest thing, right?

Like at Ring, for example, all of our capital was on shelf, in September, October for the holidays. And all of a sudden you don't have enough cash to do things that you want to do, and you have to plan for that.

Terry
We run into this a lot, you know, we help companies scale. So we're not prototyping really small level.

So we help companies scale and manufacturing. And so the, the companies that need a bunch of inventory for Christmas and 90% of their sales for the year come in this period from Black Friday, you know, to December 10th before you can ship it for the holiday. Well, from a manufacturing standpoint, we have to ramp up, right? We can't just build a 100 or 200,000 units in a couple of weeks.

Right? So you've got to plan for all the materials coming in and all the cash and it's going to take to get there. And as we're talking about some of the newest products on the hardware space that are really a software enabled solution, you're selling this subscription. How do you fund this? And then you get paid? Yeah, pieces over time to end up covering that out that, that, that CapEx.

It's a it's a really huge challenge that we run into a lot of companies trying to scale.

Susan
Yeah, I think trying to cover and trying to decide what you're going to charge for that initial kind of the hardware becomes a Trojan horse. That's what everyone's looking at, right? Because there is no there's no hardware without software anymore. And so you're really trying to build a platform.

Susan
And then, you know, it's always more valuable to have that access into the customer where you have a direct link, and interaction. But yes, this is like this is art and science mixed. And, but people have to get really creative with capital, which we'll talk about in a minute. I would love to hear just also from an LA, just to all of you, how many?

Because this is LA tech week of your clients, of your customers, of your the companies you funded are from the LA area.

Mel
We don't have any right now. Now, granted we're new, right? My my partners are, NorCal based. And so I'm here, so, but, yeah, I mean, definitely there's there's so much happening down here, from Long Beach to El Segundo, like, it's awesome to see just what has spun out over time.

I mean, when I started in tech here back in the late 2000, it was all content and media. And I spent my career in tech sort of building content and media businesses. And now to see the number of engineering and hardware startups that you hear about, is is awesome. So, yeah. No, definitely. Please come find me.

I think it's a, ecosystem that's rich of just talent. I mean, not just from spaceX, but I mean, there's a lot of really smart engineers that are finally saying, oh, like, hardware is back, in a way that it hasn't been in a long time. We kind of had to crawl under a rock and, you know, hope that the the funds came.

And I'm here to tell you, like, we're focused on growing our presence here as well.

Alex
I think it's hard to say that whether the companies from L.A. or from somewhere else, because if you want to be successful in this market, you have to be global. Just having an office in a nice place is not enough, because your suppliers might be in different country.

You're some of your best engineers might be different place. So being able to tap into talent and supplier’s pools elsewhere in the world is very helpful. So even though your HQ might be in L.A., the majority of our clients are have some presence overseas in some other cities because you have to think global. So yes, it's great to do all your business in your shorts on the beach here, but you either substantially have to increase your base to support everything here.

And still your production usually happens somewhere else, whether it's China, Taiwan, Mexico, somewhere else. We have to be able to, to support that. You have to have someone on the ground there. If, for example, if you build in China or in Asia in general, you have to get on the plane, you have to you have to be there.

We have to see that. So yes, your, HQ might be here, but you have to be global. That's what I've seen for quite some time.

Terry
I think we have 10 or 12 customers in the LA, Orange County, San Diego kind of region that are, that are scaling hardware. And it's a different combination of startups, and some established companies that we're working with kind of in these markets.

So it's a it's certainly growing the amount of investment that's coming in. If you add if you add, you know, call it the Cali Baja region, you had Tijuana  and that, that, that, northern border area, there is so much investment coming into Southern California for all kinds of different things. Not just biotech in San Diego, not just space here in LA.

It's really expanding. You know, there's a lot of, kind of fitness or sports tech. There's health and beauty, there's some consumer electronics companies out of Carlsbad that we're working with. So there's a lot of business, an investment in, in the SoCal market right now, which is really exciting.

Susan
It's great. Let's talk about AI and how AI is affecting the products you build, how it's getting integrated, how you think about it from an investment perspective.

It seems to be like, you know, it was one of the things where you had to put AI in your pitch deck in order to get funded. But how have you seen AI impact hardware development, hardware funding, hardware manufacturing, anyone can start.

Alex
I can take this. I can be used in few ways. It doesn't replace humans yet, but it definitely can help.

And we have great example with David at Bridger, we were iterating with numerous design ideas, how the watch might look like. We wanted to make it like, look sleek, look very unique, and David was very lucky to get one of his inspirations from AI prompt. And it was so good that we essentially skipped a lot of steps.

And we done that. And that was good enough for us to, you know, to substantially reduce our investment into the design. Yet we still had engineers and designers to make it real. But the initial idea was from a AI. So it was, you know, like from, from months to literally minutes. And then another point you can use the UI for is to, just streamline your communication, for example, like reaching out to hundreds of suppliers, which might not be as as easy to work with as Digi-key, just by using AI tools to grab information to write those emails, which can be hundreds of hours.

So AI for communication, even though it's not directly for hardware, it can save you a lot of time. And especially communicating with people overseas.

Mel
I'll give an example from our standpoint. So we recently made an investment into a company called Path Robotics. They're an AI welding robotic company. And when people hear sort of a welding robot, it's wait a minute.

That's been around for decades. Toyota has it in their assembly line. I think the difference and it's a huge difference, is that on the Toyota assembly line, the chassis comes the exact same spot. The weld happens at the exact same spot. Path robotics, on the other hand, one of their big clients is they make the utility poles.

And so if you imagine welding the base to the, the pole, there's a lot of variation in that seam. And welding is actually a pretty precise activity. And you need to be able to lay the right bead at the right place, etc.. And so what their technology does is sure it's a welding robot, but it can accommodate for those tolerances.

And it uses AI to do that. And so when we look at robotic type investments, it's less about just pure automation because that's been around for a long time. But you know, you think about sort of task parity, a human is able to do that just through training, whatever else. Can you train a robot to do the same thing where you don't need human intervention?

And so we think about that in terms of like task parity. And typically a human, if you're trying to automate a task that humans are actually doing a lot of things around the task, setting up the jig, doing all this other stuff, and so, until you kind of get real task parity and that requires a fair amount of AI.

You know, it's not interesting from an investment standpoint for us, because robot robotic automation manufacturing has been around for a really long time.

Susan
You know, essentially we were at this conference and there was a a woman who actually runs something called Diligent Robotics, which is a very interesting company that actually puts robots in hospitals and a lot of times, I think this is also in the hard tech community.

Oftentimes we overthink the problem, we try and overcomplicate it. So they had a thesis by putting these robots in hospitals that they were going to be able to make beds and do all these things. And then but they weren't sure like it wasn't quite working, and they literally just left it in the hospital and said, what do you want to do with it?

And they said, we just want the robot to carry equipment back and forth, like, we don't want to keep going down the hall to like carry it all. And it was such a simple task and she's like, oh, okay. So it's actually just offloading some super menial tasks. It doesn't have to perform all these amazing feats. And then dialing back that MVP and building a business around that was super interesting.

Susan 
And I think the other piece that it's been missing from those are how many people are actually building robotic anything, here in the audience. The issue of like where you're getting your data from as you're starting to look at like are using open source data. I mean, there's actually I would love to talk about data just in this group.

Right. Because if you think about, you know, AI, you think about where you're building and all the software you're building on top of this hardware and where that data is coming from and what you think about. And I also, I think from an investment standpoint as well, Mel, like what you think about how people are addressing the data and how they're building these systems and how you do it from a development standpoint as well.

Alex
I think the biggest reason why hardware is developed in the first place is to be able to collect data, which you wouldn't be able to collect otherwise. For example, the biggest example is Apple Watch. It's, we are super in the early stages too, and it just gives us enough information. But the real play for Apple and for other companies in wearable space is to collect information about people, about the health, and only figure out what they can do with the data later.

What AI is doing there is for previously, analyzing that vast amount of data was pretty hard and complex, but I can find those patterns much easier than humans. So AI plus data you get from the device might be another, you know, just a whole nother story for businesses. Yes, they do make money on the hardware.

Yes they do make money on the software. But being able to leverage that data can be, a big one. And thinking about that long term is helpful because sometimes, yes, we have to build hardware to collect that information, whether it's a wearable device or a smart home device. To get there where your smartphone cannot get into.

Susan
And what about the ownership of that data?

Alex
That's a big one. So at the same time, you know, as you collect data, you have to be very straightforward about that. A good example is, Meta. And what they're doing with, with the headsets. So it is hard to put it in some applications because people know they collect enormous amount of data.

So if you are collecting data, yes, you're going to be denied entry into some applications. But how big those applications are? Just figure out whether, let's say for medical applications. Yeah. Those devices won't get there unless, the data is properly stored. But for anything consumer, anything wellness, collecting data, just being transparent about that and being able to tell people what you're collecting and how to delete that information if you don't want to.

That's a big one.

Susan
Love to hear from a funding perspective, how you think about like what they're building on, like if they're using LMS, if it's their own data, the wall around the proprietary aspect of it, how do you guys think about that from investment?

Mel
So, we tend to avoid sort of investing in pure LLM, you know, models.

One of the bigger things that being talked about right now in terms of robotics, right? The the data to train, say, a foundational model for robotics doesn't exist. You know, the in LLMs, the internet has, you know, got amounts of, of data that you can use to train language models, images, etc. the physical world, that data doesn't exist.

It exists in 2D videos, right? Some people are trying to interpolate that and translate that into physics. But a lot of work is being done right now on, I think what they're calling basically foundational models for robotics to where, hey, there's a base layer of knowledge that a robot knows how to maneuver around a house, how physics works in reality.

And then you can specialize and build on top of that foundational model. But the challenge right now that a lot of these companies are having is, how do you get that data, the physical reality data in a way that won't bankrupt you before you have enough. So it's a pretty interesting challenge. Because these are tasks, you know, you need to almost need to body suit a thousand people and track them, you know, for a year, whatever the data points need to be.

So data as it comes to robotics in the physical world is actually a different type of challenge. I mean, it's analogous to when Tesla and Waymo and others are putting cars on the road, right? Like you can't easily come up with a million miles of driving situation, right? To do it. You just have to do it. Yeah.

Susan 
And after several billion dollars, which is what Waymo has taken in,. And they still can't do highways. Right. So you know there's there's still like there's still issues around highway driving.

Mel
So I think there's a lag of innovation around that. That'll be interesting to see. We've we've made a bet in that area. But it's it's an interesting challenge for sure.

Terry
So from our, from our perspective, a couple things we're looking at are much simpler. Kind of like the hospital idea. You know, there's a lot of tools. We keep seeing more and more of them in the engineering space. So there's, you know, tools that do circuit design, you know, for printed circuit boards when we help scale manufacturing, like I said.

So when somebody hires us to do something, we kind of do it the tried and true way, because it has to be. It has to be perfect. So we're not we're kind of looking at some stuff, but we haven't deployed anything like that. There are tools we see now that are more for sourcing and procurement of components. Right.

So as you might imagine, we get every different format of bill of materials and every level from A to F in terms of its quality or accuracy. And so there's tools that are now, you know, looking at every, you know, millions of electronic components, looking at every distributor catalog and 
buying trends and, you know, taking all that data and trying to provide a tool that helps save people from doing data entry or making manual typos.

So there's some value there in those types of things. A customer of ours, on the other data side, like you're mentioning, customers is Bird Buddy. You know, they, they, they've got, you know, hundreds of thousands of these, smart bird feeders out in the wild. And so the they use AI to identify the species of the bird that's visited you.

As you can imagine, over time, as they get more and more units out in the field, and they're collecting all that data and they have, you know, migration patterns and, you know, the population density of certain birds. They can say, hey, in your neighborhood, there are these types of birds that haven't visited yet. We should you should buy this type of food to see if you're going to attract them.

Or in a couple of weeks from now, this these birds are going to be coming through your area. They like this type of food. You should try to put this out to attract them. So they're using that data not only to increase their user satisfaction and user experience, but now it's potentially a separate, it's a separate revenue stream just from the data itself to the scientific community, for example.

Right. So the it just keeps adding layers of, you know, revenue potential or usage.

Susan
Yeah, I think that's a good example. I think ten years ago people would always talk about how we're going to be data. We're going to be able to monetize it. And almost like nine out of ten people were not able to model to monetize it.

Terry
We start getting towards scale models of data that you it's now where I think we're at a point where there actually there's a lot of value in that capture because you're starting to see like the pattern recognition is at a massive scale. And that's when there's like actual monetization. Sure.

And to your point, though, it's like, can you do everything or could you just do this?

And we focus on birds. It's like a niche and we can monetize it and you can make a business out of it. Right. So it is interesting.

Susan
I would love to change. Just talk about, a topic that we talked about when we were having a discussion about this panel, financing hard tech. We have a 
VC here who but a lot of people need to understand there are so many different ways to get capital that isn’t  just going to a VC or a “VC and”.

I love for you to talk about Mel and also what you guys have seen also within your companies and your customers of how you can get creative with financing.

Mel
Yeah, something that I'm actively trying to develop better. I mean, it exists already, but obviously everyone knows about getting equity capital, taking it or dilution, etc. but there's an entire ecosystem of non dilutive capital financing from bank-debt to mezz debt to folks that'll lend against your marketing spend or hardware as a service type lenders.

Right. And if you think about fundamentally, at least the businesses that we like and tend to invest in is where you're buying an assets and you're deploying it in the field and getting basically a contract against it. So it's no different than if I bought a car and put it on Turo, or I bought a house and I put it on Airbnb.

I have an asset that fundamentally will return that cash. And lenders across that spectrum that I mentioned are really getting to understand this better. And the challenge is what I've found is, you know, as a lender, they come in and go, okay, we get it. But what if you as a startup go under, right then this series of cash flows goes away.

So I think there's there's some bridging to be done in terms of helping folks understand because the underlying customers are actually, you know, pretty creditworthy. And then also once you deployed it, the cost to service that or someone to continue it actually is quite low. And so, you know, I think you should consider, non-equity financing. One, it sort of reduces your dilution in to it in some ways better matches your cash flow.

But I also caution companies who take on venture debt and use it to fund R&D or operations, like I think about debt, or sort of things that are non dilutive is really hey, this is more for putting assets to work versus funding my burn, if that makes sense.

Susan
Yes, I know you had talked about, equipment leasing, which I think is another

Mel
I forgot to mention equipment leasing.

You know, traditionally you have these equipment lease or say, hey, I'll find your forklift purchase or whatever. And now they're saying, look, we'll fund that robot you're deploying in the field. You know, these are folks that have really adapted to this mezz funnel. And it makes a ton of sense. At the end of the day, because they're helping you procure and buy.

And then at the end of the day, they're collecting a spread on your collections. And so that's a great way to just to get your flywheel and your customer base growing without needing to raise a ton of capital. That will dilute you. And once you start having kind of okay, my paybacks are within six months or a year, you know, above a certain sort of threshold, you should be cash flowing and then you can organically fund.

Right. And then how fast you grow depends on, you know, your cash flows coming in. But the kind of getting to that 0 to 10 million of ARR or annual recurring revenue is, you got to get creative. And it's more than just hitting up your VC and taking dilution. There's other solutions out there.

Susan
Yeah, because no offense, this is the most expensive capital sitting on this seat that you will take, because that's where you're going to give up control of your company.

And non dilutive means you give up no control. Yeah. Might have interest rates but you're not giving up any control or any ownership.

Mel
And yeah and I think that's what people don't understand. Right. Like as VCs we're trying to make 3x money. Right. If you sort of like invert that and you understand what that rate is, it's typically three times the cost of even 10%, 12% interest.

And so a lot of these companies that will lend to you will defer that interest, or that amortization payment for 12 months, 18 months. So it really can be structured in a way that can help you grow. But again, it is, you know, they're sitting at the front of the line and what you don't want to do is kind of overextend yourself and find yourself in a position where suddenly the bank owns your business.

So it's an option. It needs to be carefully structured. You have to be constantly aware of it, because sometimes they come with covenants and what have you. But it can be a good source of financing, especially if deploying assets with a hard return.

Susan
Do you have any other comments on that?

Alex
Yeah, I think the entire world of startup is synonymous with uncertainty and uncomfortable.

So you have to be comfortable with a bit uncomfortable and finding creative ways. And David is going to talk about how they fund Voyager, which is a really good one. I think overall, regardless of what you think is going to take, if you think you're going to take this much, it's going to take double time, money, resources, issues.

It's going to be double. So the people you get on board with, you should understand that people who are coming from traditional finance and background expect their payments promptly at this date, especially for any startup, especially the hardware startup, you have to be prepared that it might take longer. So being able to get people on board, investors, employees, partners, everyone who aligns with your mission is important because it has to be a) emotional b).

They have to support you if you need more help. And sometimes it's just a phone call or some some connection. Smart money. Smart capital is always better than just taking money from someone who cannot give you anything else. So and David can talk about how they fund it. It's a pretty good.

David
Yeah. So, pretty much all of our founders have been not VC.

No pe. It's all been, just personal investment from people. Basically being sold on on the idea and the dream. And, Cody's probably raised $1 million just on our AI picture that we created, a couple, whatever, eight months ago now. So it's been pretty unique that we've been able to stay away from that and raise so much money, just from, personal funds and stuff like that.

Terry
That's awesome. I'll add from yeah, from the manufacturers perspective, we get a lot of startups, especially asking us to be, you know, the partner. And we're not a partner from the finance standpoint. And I think if you know, a lot of companies that come into manufacturers and saying, look, if you could just help us with the first 5 or 10,000 units and, and do that at a loss or do that at no margin, you know, then we'll all win later.

And that's not the game that we play. It's not a high margin business electronics manufacturing. So there it takes like one bad bet out of ten customers can like tank the company almost. Right. Like it. It doesn't take a lot for something to go really south financially in the type of business that we're in.

So we don't usually take that step of of investing or being a partner. We look at square footage and utilization of equipment. Right. Think of it as the shelf space at a target. We want to know how many dollars that square footage is going to turn based on your product. And if we're going to make a bet on you that you're going to scale, you know, upwards of a million.

And and being a growing company, that could be a great partner for us. That's the bet we're making on deploying resources and space, allocating that to you for for our profit. But the bet is the resource is not. We're going to also then do it for free. So just from that standpoint, if you're as a startup looking for your manufacturer to be, we get that word a lot.

A lot of times we're just looking for you to be a partner. And in that particular case, and the it's not a great word and every other case, it's fine. All right. But from that case, the manufacturers aren't usually the ones that are going to bail you out.

Susan
Yeah. I mean manufacturing in China is down almost 30%. So there's they're more willing to have discussions.

And they have been in the past. But you only have a couple levers. One, you might be able to get a credit line so you don't have to prepay or pay 50%. So with a bunch of like on time payments, or POs, you can start to build credit with that manufacturer. You can potentially negotiate tooling costs that can get amortized into your units.

But beyond that, like they're running a business. And the big thing we tell startups all the time is that you have to really forecast. Nobody wants to spin up a line for a run and then be done. And then you don't know when that second like forecast going down, because that is like, you know, they're making a bet that there's an opportunity cost by working on your project for someone else.

And manufacturers need to keep once lines are dedicated, they need to stay busy. So I always tell founders like, really come up with a forecast where don't say you're going to do 10,000 units. If you're only to do 1,000 units a month, say that, right, because that's what the manufacturers wants to hear. The other thing and non dilutive, there's a lot of grant money around if you're willing to go right the grants and spend the time Sibbers, STTRS.

There's a lot of government money. There's a lot of money for underrepresented founders. But that takes time and energy and understand what that is. But that is also fantastic. Non dilutive capital. And there's a lot of it around. You just need to know how to find it. And you need to talk to people about, you know, do your research.

Because again a great mix is some strategic capital maybe some VC, some debt and some government. That is really the hard tech cocktail that is the best cocktail to have from a financing standpoint. Okay. I would love to talk about, signal. So I don't know if you hear like, timing seems like you need signal. You need signal.

Get funding in signal from the market. So I'd love to talk about how you guys think about signal. Like, right. Like, for example, a company's coming to you. What's the signal you're looking for that I'm going to take on? This is a manufacturer. A startup comes to you, Alex, what's the signal that you need so that you're going to take on this client?

And, Mel, what are the signals that you need and the early stage that you want to go forward with diligence and potentially fund.

Alex
Before we go there, you know, I wanted to add something for the previous comment about manufacturers. Time is changing, especially in China. And it's good for startups and for smaller companies, usually there are like a tiers of manufacturers, like tier one, tier two or 2 or 3 like tier one.

Think about someone who's making iPhones and what we saw manufacturers who previously you wouldn't be able to set foot at their site. They're reaching out to you sometimes. And we were able to get like tier one manufacturers talk to our clients about manufacturing their product because they're down. A lot of big companies are trying to get away from China to other locations, and some of their lines are available.

So if your product is unique, even though your volume might not be as huge as those, the companies, you still might be able to get in. So it's a great time to secure partnership with those really great manufacturers who might be a great partner for you long term

Susan
If you are ready to work with someone at that scale, because that requires a bunch of resources and knowledge of how to work with a tier one or tier two that many early stage companies do not have, and they will.

It will not go well. I'm just telling like an if

Terry
if you don't do as a company, if you don't do what you say you're going to do in terms of your volume and your sales and everything else, and that company has amortize tooling costs or giving you breaks or giving you payment terms. That's where you lose control of your IP or your design.

And they start saying, well, we already did all this work. If you're not going to sell it, we'll try, right? And that happens as well. So you got to be really cautious with that.

Susan
So so let's talk about signal.

Terry
Signal for us. Yes I'll answer since I'm talking, for us, how we evaluate. Like I said, we generally are going to look for companies that are going to be $1 million plus in revenue, after you ramp.

So after, you know, the first year, call it year two to start scaling in production. So how do we evaluate that? Usually if it's a startup, you know, it's as somebody on the founding team done hardware before. Right. We don't want to say, hey, it's going to take you, you know, 12 months in a million bucks to get to production.

And they go, yeah, it sounds about right. You don't want them to go, oh my gosh, I thought I was going to take three months and I've got 40 grand. What can you do. Right. Sorry.

Alex
That's by Christmas.

Terry
Yeah yeah yeah by Christmas. So usually it's somebody in the founding team done hardware before and for our business we don't we don't make any profit before we get to production. 

Terry 
So we price everything for engineering, for tooling, for certification management, all of those things. We're basically just trying to cover the expenses. So that's, that's that's a year of not really making any money. Right. It's turning it's turning revenue dollars and you're certainly paying for it. But it's not making any money. So can you fund that whole process.

Can you fund the year of tooling engineering certifications? You know, even buying materials in advance if you want us to be ready to produce 20, 50, 100 thousand units as soon as samples are approved and ready to go, then we need to have all those materials in stock ready to start turning the machines on. You've got to fund that sort of thing.

So we're looking for that experience, you know, and kind of that level of funding. And how much do we believe in your your ability to scale as a business or do you have sales. You know, what is the financing situation look like? Have you, you know, do you have a do you have a team? Do you have realistic expectations or are you trying to sell to enterprise without understanding that they're going to pay you in 60 or 90 or 120 or 150 days, like, and you haven't taken that cashflow into account, like you've got to look at the business savvy of the team as well.

Right? So that's kind of how we we look at it from those three lenses.

Alex
I think that building the product is only probably 30% of the entire job. The harder part is how do you manage inventory? How do you do sales? So one of the things we look at is what are you going to do with the product afterwards?

Because we also stay involved with the product and we want to be supporting the vision afterwards. So how, what do you do with the product after we develop it enough to manufacture it? That's one. Second One is

Susan
they need to have a plan that you can sell it.

Alex
Yeah. Second one, founders need to have a vision. Vision, which is not just taken what's existing out there and making it cheaper like ten, 15%.

If you're trying to compete on a only on a pricing standpoint, you're going to lose because someone else is going to do it cheaper and you're going to be like, race to the, to the bottom. So having some creative idea out there and not just taking out something and sell it on Amazon for ten bucks, I'm going to make it for for two bucks.

This is not sustainable, especially for a startup. And the third one is, startup founders need to be agile. They need to be able to listen. And we as a company learned the hard way. If you are a startup and you're stubborn, you're going to be painful to work with for everyone out there. So one of the biggest things to look at is are you able to take advice?

Are you able to pivot? Are you able to listen? Because we can only help you as much as we listen and take our advice. So yes, yes, you might have funding. Yes, you might have background. But if you're stubborn, even with a great vision, chances are it's going to be a loss for everyone. So, you know, just be agile and listen to people who've done it before, especially if you come in for assistance.

Mel 
For us, it depends on the stage, obviously. So signal at a pre-seed or seed is really more around the tech. We tend to invest in sort of more hardcore engineering and science type things where we don't like to take market risk. Meaning if this is, if you're able to build a technically, there's a huge market for it.

So at the pre-seed and seed  level, generally it's about, the, you know, it's always about the founder. But I think even more so, can this founder actually have the technical chops to develop this new chip or what have you? And then importantly, does this founder have a record of success in other things? Because inevitably there will be generally a pivot.

There's a problem that you can't solve technically, so you might have to do something different. Can the founder effectively, Is this someone that we would back to figure that out right. That's kind of generally early. By series A, hopefully the invention risk is largely, sort of been identified and mitigated to some extent that then it's about product market fit.

And for us, you know, MOU’s or selling into other startups where you're stacking startup risk on startup risk doesn't, doesn't do anything for us, doesn't move the needle. It's about, hey, have I gotten a customer, a real customer to put dollars and resources against this, either as a pilot program or a demo or what have you? And I think having those as green shoots means a lot more for us than LOI or MOU’s..

Or oh yeah, startup A will buy our product. So it, I think the, in this environment right now, it's, it's a lot harder quite frankly, to, to sort of raise money on a dream. I think it's the discipline and, and I think the, the reality of, okay, I need to build a business quickly, especially in hardware, is more and more important because, you know, one of our big criterias is this business venture-able, meaning, can I get a venture return within the venture timeframe, which is typically 7 to 10 years?

And if you back that up, it's like, okay, I fund you, by year three, you better be in market, by year five, you better be scaling, to position yourself for an exit, generally

Terry
just in 3x and 7 to 10 years to get your, your money back. Right.

Mel
Yeah.

Terry
And that's a it's a great point. It's not a lot of you know, every hardware startup is venture backable.

Right, right. And a lot of people have the vision and believe they want to be, which is amazing. But a lot of them are not venture backable. So if they're not, then then what?

Mel
Yeah. Then you're selling, you know, your IP and hopefully you get your money back. Right. But a 1X recovering your money doesn't work for a venture.

Susan
One thing. And that's a really important point. Some people here might be building products that are really interesting, products that just aren't venture. Right. You're going to take it through government loans, through financing. So that doesn't mean you shouldn't build the company, but that just might mean you're not.

Mel
I may not be the right investor for you.

Right. If you're investing in fusion or nuclear or whatever things that are going to take a long time, there are other avenues, people that will fund that longer term vision. Right? We have a very specific mandate.

Susan
So, David, I'm curious, what do you think your next signal is in your journey? That you can unlock more funding or or.

So what? Where what are you thinking about that? Like how to how do you think about that?

David
I think our team is very complementary and diverse as far as our capabilities and experiences. That everybody that we've brought on has been in the trenches. And, you know, like you said earlier, is in is in torture together, on this journey, and I think that a lot of people look at us and, you know, at first on the surface level, oh, they're just making this thing, and they don't know what they're doing.

But when they really get to meet us and understand that we've been here, our team has been there and done it. They can really see that we know the path that we need to take and and we may not know some of the potholes, but, you know, we've been there and we've done that. And I think that, that has really helped us a lot.

Susan 
So what's your next milestone?

David
Having a real product that works. And I think that that's, you know, going to be big for a lot of people and a lot and a lot of our raise.

Susan
Yeah. I think the other thing is going back to pilots that pilots are kind of the new word that everyone uses the word pilot, like, I've got to get to a pilot.

The key is for funding. And we talk with, you know, Mel is kind of the guru of this, and there's a lot of other people in the space. Most pilots are unpaid because you're going to a bigger company and you're trying to validate your technology. And so the signal is not the pilot, the signal is the I will I see enough value in this to pay for it.

And that's something that like fundamentally a lot of early stage founders don't realize. But that's like what that's the signal. The signal is I will now become a customer. Getting the pilot is like, oh, I'm interested. So that's half the battle. But that pilot's just like MOUs and LOIs today are not enough. You need to get paying customers, which validates your product and your business model.

So you get kind of a twofer on. Yeah.

Mel
Let me add to that. That pilot is interesting because we are a portfolio company that was selling pilots first. Right? And they were saying, hey, here's a 45 day trial of our technology, etc.. And what ended up happening was it would just drag out 45 days within 90 days, etc..

And just this year they got rid of the pilots and it was basically just selling, and, and that became actually more successful because people had a, you had a, you're better off getting to a quick no than a drawn out, you know, maybe. Right. And so I don't know that that sale definitely helps you. You know, the pilot is.

Yeah. I don't even say it's a double edged sword. I mean, it's almost a knife to your throat. That may bleed you dry. You could have a ton of successful pilots, and you run out of money.

Susan
Yeah. It's true.

Alex
I think I'm out of time. You have to figure out whether it's going to be the hardware innovation or hardware enabled innovation.

Meaning sometimes you just develop a product which just needs to be sold. You don't need partners, you don't need pilots, you don't need venture. You just build a product. If it's fairly complex, it can be some kitchen device or can be something like a purely mechanical, like no electronics, just sell this. This is not a venture business, you know, just just do it at the same time.

If you're solving something, if you're building the hardware device to solve the bigger pain, to collect data, to enable gathering data where, well, it's not been done before or help some bigger company to solve one of the pain points. This is where you go to pilots. Your end client is not that factory or that big, innovation team or that big factory is actually, it's just it's there and it's there and clients.

So you help that partner be successful. So you take yes is good because you they help you get there. That customer. But you take the risk double on your technology and then on that company be able to sell. So pilots are great if you cannot go directly

Susan
okay I'm going to switch gears. Just we're going to kind of do a couple quick round robin and then we'll open up for questions.

Favorite products right now down the road.

Terry
We're we're launching one.

Susan
Can you talk about it.

Terry
Yeah. It's out there now. Okay. Thanks. So, we're making a product that's a called the chromatic. It's a new it's a new version. It's a premium version of a Game Boy. Right. So it's a remake of.Yeah, yeah. Okay. Game boy that we're currently, that we're currently launching, manufacturing.

So that's, that's my favorite in it right now.

Susan
When's that launching?

Terry
Because I'm a 90s kid and I've played Nintendo and we're happy to be making this, this new thing that they already have available for pre-sale. And they'll be selling it for Christmas. Okay.

Susan
So chromatic, so go to the website and even okay, so you now know that it's been manufactured by a reputable, partner.

Alex 
Bridger Watch,, which the reason is that oftentimes you develop products which are even hard to explain to people. And we've done a lot of stuff that is complex or, you know, out there, but being able to use something every day that we developed ourself is huge. And, you know, I counting days till we can actually launch this and I can replace my watch with a Bridger Watch.

Susan 
Nice plug. Mel?

Mel
So good question. Actually, for a gadget guy, I'm actually sort of in between sort of something I'm, I'm loving. You know, the one thing I'm actually, it's it's old. It's it's just noise canceling earbuds. I used to have the big over the ear, and I'm traveling up to SF quite a bit, and it just got too bulky.

And I have a set of noise canceling earbuds that I love, so. And they're not the AirPod pros. I hate the white thing. So very kind of lame answer, but okay. Awesome.

David
Bridger Watch, my watch.

Susan
Oh my God, I'm seriously okay. You have to say it. Okay. I saw that one coming. Yeah, yeah. Right.

Right. Okay. Podcast you're listening to right now. Do not say all in another one. It's hard. I'm on. I'm on the phone all the time. I don't I don't listen any podcasts right now. I drove up here for two hours and is on the phone the whole. The whole ride, so I'm boring. Sorry.

It's okay.

Alex
Yes. You already took my hand. Yeah. I have nothing else.

Susan
No podcasts.

Mel
I'm not a regular listener, but when I do like Hidden Brain, I. It's kind of like Hidden Brain. There's just, like, interesting nuggets about people, and how your body works, kind of things then.

David
I don't listen to too many podcasts, except for. Wow, this is not a good place for the podcast market.

Okay. My, my co-founder is a podcast about business and hunting and how it relates together. So it means it relates to me. So that's pretty much the one I listen to.

Susan
Okay. And book. You guys favorite book you've read recently or reading right now?

Terry
One that pops into my mind is Shoe Dog, The Story of Nike. I've read it a few times now.

It's just incredible. I love the storytelling.

Alex
Build. It's about there. I forgot the name. He was one of the, Yeah.Faddel,  is probably one of the best hardware books I ever read, so I highly recommend for anyone who haven't read yet.

Mel
Wow. All right. Mine's pretty nerdy. I like the Murderbot series for anyone that's into sci fi.

It's it's a very short sort of seven book series. It's about basically this security robot that's overridden this software. And it's a really interesting observation on humanity. It's super nerdy, but it's a very fun read. Easy.

Susan
Okay. I'm going to read that one. Yeah. Taken over. Murderbot. Yeah. That's awesome.

David
Yeah. I'm, just finished up, book called Why We Sleep, which kind of just teaches you everything about sleep and why things matter and why things don't matter.

And it's just, been a big part of my life, so I figured I'd read the book.

Susan
Awesome. Okay, guys, I want to open up for questions now to the audience, so. Oh, and you want them to go up there to that special mic spot? I think for the videographer. So, anyone have any questions for this amazing panel?

Susan 
Wow. No questions. Oh, here we go. Okay, we got the roboticists. Oh, I got some movement. Yes.

Guest
One question is, and as it didn't come up, but how has 3D printing, changed the game in hardware?

Susan
Oh, that's a great question. I should have asked. Thank you.

Alex
Oh, it's it's been it's been used a lot. Has been out there for probably decades. But the quality of what you can do with 3D printing is changing dramatically.

Like from some crappy 3D prints. You just do like to prove your concept to something that you can actually ship 3D printed. Sometimes you can for your small batch, you can just 3D print your entire product, entire enclosure without tooling. So it's great to scale, to a certain level. And then you have to go tooling in most cases.

But yeah, it's been phenomenal alternative to traditional tooling for the last couple of years.

Susan
The problem with 3D printing is though, it's great for mechanical design, obviously, and to make sure like part fits and things like that. The problem is for anyone who's building robots or anything like that, it's reliability testing, right? Because you don't have the same material, it doesn't give you any indication of durability.

And what you're and how that thing is going to perform when you're in reliability. I mean, I think one of the big things for, by the way, for hardware, just FYI, material science is so critical for hardware development. I mean, there's so much innovation going on in materials and a lot of hardware builders don't have. It's rare to find someone who's great at material science who can really help people think through like, I need this IPx rating, like, what's the right material to use?

So I think that's that's a great area of innovation. But 3D printing, yes. To get fit and parts, it just doesn't help Like for any of the reliability, the only thing it does for you, it does it, it makes life easier for you because you do things that you can for you print anything, but just be aware that, it's not going to be an easy change from 3D printed part to tooling because you essentially we have to redo it from the ground up to be, injection molded.

Terry 
Yeah. You're not you're not almost done.

Susan
Yeah. You can test a lot of the UX and the human human interaction. It's great for testing that. Yeah. For sure.

Terry
There are companies working on, additive manufacturing with metal to where you can 3D print metal tools for injection molded parts, for example. It's not useful yet, at least in terms of our experience, but that's something I'm actually really interested in and how that advances.

Speaking of material science,

Guest 
hi. I have a question. How do you balance social and environmental, consequences of what you're building with running healthy businesses?

Susan
And that's such a good answer. Good one.

Terry
Great question. So we, you know, operate in two geographies. We've got three, three sustainable development goals as a company that we operate responsible manufacturing, clean water and quality education are the three of the 17 UN goals that that we operate in.

So we, do things like, partner with one of our customers who is the irrigation control company, to help dig deep water wells, in third world countries. So we try to offset there, in responsible manufacturing. Yeah. The just being, responsible with the materials and the recycling, and how we treat our people and the environment that we manufacture.

And we're exploring additional ways. We have a lot of customers that ask us, for example, about, recycled plastics, you know, but we're generally making new products for manufacturing that have drop test standards and lifetime standards. And quite often the customer decides the materials that we are to use, and both from a material standpoint or durability and also cost and availability, especially in China.

That has been a really difficult bridge to gap. We're looking at, different ways now that we have this factory in Mexico. What opportunities are there in Mexico or in the US for different materials that might be more sustainable and reliable that we can use? So we're still exploring, from that materials standpoint, but in how we operate and where we put resources for funding, according to those, sustainable Development Goals.

Susan
That's how that's how we view it. Yeah. I think there's another thing on the design side, reuse and refurbish is now become like a design imperative of thinking through, like, how am I going to service these parts? How am I going to replace these parts or not I have to replace these parts. You know, we used to do back in the day field destroy, which is like, okay, if they don't work like we're just going to ship you another one, right?

That just sits in a landfill. So really being deliberate of this is becoming like an issue from the actual it's a design imperative now of like, if I have robots in the field, if I have like expensive CE devices, how am I going to replace those parts or refurbish those parts? So I'm not filling landfills. It's a good one.

Alex
Are we, as a company, trying to stay away from products which can be used in, as weapons? So even though it is a big industry right now, drones and all the other stuff, I believe that this is not where we should spend our time on. So yeah, we just generally stay away from dual use equipment and equipment which can be used for spying on people, without their knowledge.

And, but there are some interesting stuff we turn down because of that. That's what.

Guest
Hi, my name is Matthia. What's your perception on, vending machines nowadays? And let's take, two standpoints to one from AI. So integration with AI for on demand service and then another standpoint, financing opportunities and just models around that.

Mel 
For what kind of machines? Sorry.

Guest
Vending machines.

Susan
Do you want to tell us what you're building. Because clearly this has relevance. So you're you're building an AI vending machine.

Guest
Yeah. So we are building a vending machine for printing temporary tattoos on site, instantly. And, mainly trying to target, high density areas like, amusement parks, sports events, stadiums, festivals, concerts, etc.. And basically we already developed AII design software for tattoo design and then want to integrate that with, on site production.

Alex
One of the interesting cases I've seen was there, you know, people trying to automate, coffee making robots has been around for, for many, many years. But, one of the things I learned about one of the companies who've done it successfully, they not just making the software or the hardware, they also selling what this device dispenses.

For them is coffee. So they make money, not on their device itself, on a software. They make money selling coffee and just reduce their labor. So if you can, double dip and, you know, just make, make your margin on your product, that might be an easier sell than just trying to leverage, just the sell of equipment or software.

You have to make.

Susan
That's the thing about movie theaters, by the way. They make all their money on concessions. Yep. Right. So you're the concession. You. That should be extremely high margin business of, like, the hardware itself should be. You know, it's like the cable box model, right? Like you're making money of every single thing that gets dispensed from that vending machine.

And that's where your money comes from. You. It's like, yes.

Terry
Anything they think. Asked about funding to that model,

Mel
I mean, it's funny because like years ago, I looked at sort of trying to stand up like a vending route myself. And, and I think just it, I would say not knowing your business model is you really got to figure out your unit economics and make them sort of next level.

Not not just. Okay, I think if you're going to try and raise money around sort of at the it could be the fanciest vending machine on Earth, but if your margins are low, like I think it's going to be again, like it's going to be tough to finance because the moat around that seems relatively low ultimately. Like, where are you if I'm, if I'm a retail shop or I'm a stadium, that real estate is important to me.

And if that vending machine, whatever it is, it could be, a vending machine could be a pop up hot dog stand. It could be whatever. If that's not returning the right sales per square foot, then it's gone. And then I don't care what it is. And so I think you really need to make sure that you know, your business model works for your customers.

To keep that in place.

Guest
Hey, question for Mel. You mentioned a 3X return. What happened at the 20, 30, You know, up to 50 x return? That venture typically asked for end on the road. Is there a typical, like, valuation cap for an acquisition of a hardware company? I'm in consumer, but maybe there's different, you know, segments here. I heard robotics or B2B.

Could you speak to that?

Mel
Yeah. So the the 20,30, 50 X. Right. Like you saw some of that in software during the heyday etc.. I mean, in general, most VC funds look to return like a 3X returning VC fund generally will get funded again right? Like not saying that people don't go for the 10 x or whatever, but you know, this 50 x.

Yeah, I mean, it'd be great if everyone could sort of shoot for the 50 X, but hardware was a little bit different too, because, you know, as you pointed out, some of the multiples on hardware just aren't what software is, is why you're seeing a lot of hardware as a service. They're trying to take advantage of the, the subscription multiple per se.

Right. But you look at semis, you look at, you know, a lot of these, tend to be tend, to be lower than, than software. But you do have IP, right? Unlike a consumer app, which if it's doing great, awesome. Maybe that's a 30 x, if no one adopts it, Zero. Whereas hardware there's IP. So generally speaking, like our returns may not be necessarily as high.

Hopefully we can get them as high as software, but the downside, you know, your loss ratio generally is a lot better than traditional just software as well. I don't know if that answered your question.

Guest
I think. I mean so more like three x for the fund, you know, at the company.

Mel
Yeah. I mean, look, obviously you're trying to shoot for the moon for the company, right.

But as a fund and what we have structured our carry around, it's it's sort of more rational multiple X.

Guest
Yeah. And then what about the valuation cap piece like I've heard, I've heard that maybe 50 million or 100 million. There's some like magic number where if you go above that you have to be a unicorn or no one is going to buy you.

And I know that we're all as founders thinking about like building a great big company with a vision and but, you know, planning for the future. Is there any no limit there or.

Mel
No, I don't think so. Right. I mean, I think good companies will always, command whatever it is. Right. Will come in premiums. I think what you may be referring to is in hardware, sometimes there's this barbell effect where, hardware startup develops some great IP, boom, Google, Facebook, whatever comes in and buys for a couple hundred million bucks, right?

300 million. And it's like, okay, I want to take it off the market, develop it in-house. The other side of the barbell is folks that go all the way, right? And they go public or, you know, they get big or whatever. And also and you have a multibillion dollar exit. I don't think there's a valuation cap. We wouldn't be in this business.

Susan 
But the first barbell is the more typical barbell for hardware. Yes, there's many more acquisitions than IPOs. And the value of that acquisition, it depends how much money you raised. Right. So  if you've only raised, you know, a couple million dollars, you get sold for 50. That's a killer outcome, right? So it's all about the the ratios of how much capital you've taken in versus what you get.

A 50 million exit is amazing. Yeah. If there's just a little bit of capital that's gone into the company. Yeah.

Mel
I mean as a founder. Look everyone should be focused on building a good business, right. And the outcomes will figure themselves out. If you build a good business, things generally will work out. Well, either you they're cash flowing and you're sort of doing your own thing, or you get a nice exit or whatever.

But at the end of the day, focus on building up a good business.

Guest 
Hi everyone. My name is Olga Vargas. I'm a co-founder of WowCube. While cube is a physical and digital gaming portable gaming console in the shape of Rubik's Cube right here. So we do have hardware and we do have, content and IP, and the product has been in development for about five years now. We have over 20 patents for the hardware.

And essentially it's a new type of the gaming console that you see here. And, I really loved your inputs that do not sell, equity for inventory. Right. It's like when you're fundraising through VCs. So would you raise VC money and would you want to have some sales, we do have revenue, we sold about $1 million worth of the product to the early, adopters.

And now we are looking for the next, financing round. So we're looking to scale and to go to market, which that financing is a little too early for us, but also we do not want to sell too much equity for inventory. What would be your advice? What's on there like alternative financial? Rounds, rounds. Can we consider

Mel
Are you saying that you have the demand?

You just need to scale up. You got to find financing to fund inventory. Or are you saying I need to raise money to develop my go to market?

Guest
We need to finance the inventory because we need to to manufacture and before selling. Right. And then when you go to market budgets as well, because it's a product and then your category.

So we do not really have direct competitors. And it's it's a lot of when you have a lot of educational content and, influencer marketing to explain to people what this is.

Susan
Are you selling it direct or is someone placing a PO for units?

Mel
Are you selling into like retail? You're selling direct through your site?

Guest
We were selling D2C through our website, but now we're looking so to expense for retail.

It's also about talking to a few major retailers.

Mel
So it's, I'll go first. I'm sure you guys have a ton of is a much longer conversation. I would actually I think you're putting the cart before the horse a little bit. I would not be buying a bunch of inventory until you sort of figured out the other side, right?

Like I would almost have your demand pull, how much you need to raise, because that's a lot easier to say. Hey, I've got orders for 100,000 units. Like someone will give you money for that. I think it's a lot hard to say. You got 100. I gotta buy 100,000 units, and I think I can sell it.

And so, you know, unfortunately, that GTM motion and that sales motion is probably at your stage, better funded by VC dollars, than sort of inventory dollars. And the thing you just got to keep in mind is look, giving up dilution sucks. But you rather have that dilution be of $1 billion, $2 billion number, then 100% of a zero.

Right? So, you know, I think depending on where you are in your go to market and your sales, you know, selling into retail is a whole other Oprah than going direct. Both are expensive in different ways. I would sort of focus on raising money to figure that piece out. Before you go. Okay. I need X dollars to to build a bunch of inventory because how much inventory you need also dictates ultimate the price per unit, right?

If you're building a million units, that's different than building 10,000. So yeah, we can have a much, much longer conversation, around it. Right? Yeah.

Alex
II think another point is, how far away are you from production at scale? So I know you produce some volume, but you substantially, you're looking to substantially increase your volume. So, getting financing against your PO, especially from retails, might be hard if you're, say, a year from delivery.

If you're a couple of months from delivery, it's so much easier. So short answer if you are a year from delivery, probably VC money if you a couple of months is probably that direct appeal.

Susan
to get your VC money. Your signal is I have back orders right I have thousands of people who want to buy the product I cannot finance.

I don't have enough money to finance production. But those pre those basically that back order is a demand signal because you don't have retail POs. So that's your best likely demand signal of like I've generated enough energy and activity and excitement around this product online that I have several thousand back orders, that need to be filled. And, you know, the more the better.

In terms of from a funding perspective.

Mel
The last thing I'll say on retail, because I lived it for a bit at Ring is retail POs are fickle, meaning like Costco, for example, they can move a lot of freight, but if you don't move freight in that very first time, they put you in or out, you're out. Yeah.

Right. And so they'll send it back to you. So all of a sudden you're sitting on all this inventory you produced for them that didn't sell. And so retail is a different animal that you really got to figure out. And I think sort of getting your demand signals, particularly on a consumer device critical before you start ramping up production. 

Alex 
Well, your pricing may need to be very different if you're selling direct, you can sell a 2X 3X and still be profitable. When you're selling for retail. You have to be like at least five times multiple on your cost of goods because everyone needs to make money unless you got a tail of recurring revenue. In which case, yeah,

Guest
well, that's I guess our, our, our revenue from the App Store, right.

Because this is hardware. This is the way to deliver content to the consumer.

Mel
Oh, super cool.I do want to. Yeah. You can play with it later. New favorite product okay. Yeah. All right.

Guest
Thank you very much. Thank you. Anyone else okay. Two more. Okay. Got it. And then we're going to go.

Guest
Hello, I'm Gaurav, I wanted to know about you mentioned robots as a service kind of thing for hardware, but they're like anything with a smartwatch. That's a model where it's every few years that you expect the customer would just buy the product again when you upgraded it substantively. And meanwhile, there's both models like Rabbit AI, right? They just moved plenty of product once, but they don't have longevity as in that they raised funding, but it failed eventually.

Guest
Now it's fizzling out. Humane did the same thing. And then there's other models where it's much harder to like start off with make money immediately from the product unless you are at scale, but you are going to get there when you're when you when you're moving that same unit for multiple years, you're not like trying to rely on just crash and burn eventually.

Guest 
I'm sure that those founders did not aim for that. But that's what happens, like when startups start going under, in that space. So they didn't have that long term vision maybe as much. But what's your take on this? Like instead of hardware as the service versus these kind of products, smartwatches being one example for that?

Mel
I don't know if you want to say I don't.

David
I was I was going to ask you to clarify, like what what's the question like

Guest
that would be largely to Mel like as like a comparison of selling widgets versus selling service. Is that sort of. Yeah. Because if I understood it right, robots are typically more expensive, but they're more durable goods that you can sell the smart products.

Susan
Yeah. Yeah, yeah. They're very different models. I mean, a robot is also a B2B like industrial. So versus like an end consumer product. And I would argue that all of those products, even the one that failed, were trying to do hardware as a service. They just didn't have a product market fit for what they were doing

Mel
or the service wasn't enough.

I mean, there's nothing wrong with selling widgets, right? Like Anker, Belkin, these guys do an amazing business selling widgets with no sort of like subscription attached to it. And I think you hear a lot about, oh, there's a subscription for this, subscription for that. And fundamentally, like if you're not developing delivering enough value for subscription, you're just a deferred payment plan, right.

And so, I think what what I'm hearing from you is, is is it sort of what happened to Humane or Rabbit? I think it's exactly what Susan said. They try to launch a product that fundamentally one didn't quite work, and two, there wasn't enough value to develop to deliver the recurring revenue stream. I think your ideal is the hardware becomes an enabler, right?

It's you think about the Ring device, for example, you know, Ring. We we saw the hardware as an entree to delivering ongoing peace of mind. Right? We were selling peace of mind. We were selling security, and people were willing to basically pay for that. The hardware was just an enabler and a sticky device to do that.

And I think the best hardware as a service companies take that approach. It's not, hey, I'm, I'm making up a service so I can sell the robot in. The robot is just a way to get welding done more accurately or faster.

Guest
A follow up question to that specific point, like are VCis more interested in the hardware as a service versus the Ring kind of business model. 

Guest
We are more similar to Ring than most, but what are we more interested in? Because it seems like Rabbit sold 100,000 units, which would be a decent quantity for any manufacturer or even. But now there's only 5000 people that are actively using the Rabbit AI device. On the other hand, Humane had more returns than they were selling.

Mel 
And I think I think just like VCs, any investor is interested in the good business, right? You look at Path Water, you know, path water. I just learned this recently. I mean, that's a massive business. They make water bottles like that's VC backed. Right. And so I think again, like if you're solving a pain point, you have a sustainable business with good economics and you're building a good business that becomes a big business that is good.

Like it's a very sort of like generic answer, but there isn't sort of one model  or certainly you're going to run into people to like to secure recurring revenue, and they'll pay up for that. Right. But I think, generally speaking, if you're building a good business that grows and sustainable, has a large TAM, is sticky, like you're going to find financing.

Guest 
Yeah. I would love to talk to you afterwards, sir.

Susan
Right. So the last question.

Guest
I was just curious, and I'm not sure this qualifies as hardware, but with, like, Google Glasses, meta Ray-Bans, I guess a category that I think should have really taken off, but it really hasn't that much yet. I was just curious if you guys have any thoughts as to why

Alex
It is complex. You know, it's just very complicated.

So, so just technically takes a decade sometimes, you know, just to bring something like that, even technically. But there may be another decade just for marketing adoption. I think what, meta did with, talking about that with someone the other night, what they did was brilliant when they got the meta one, because they're not a, glasses company.

They got some technology, but the glass company is actually selling that, so that's what helps to bring that to masses. While Google trying to sell glasses directly was, you know, no one wants Google for glasses from Google. They want glasses from Ray-Ban or from someone else.

Susan
I think I'll just say my I mean, I think it goes back to LA, I think until there's like we've been waiting for VR to happen for how many decades now?

And we thought the last one was the finally. It's just it comes down to content, right? Unless there's that thing that you can only do with those glasses that you have to do right. And there's that piece of content, like if Fortnite were only available through glasses, like every, you know, for a while, everyone would be doing it right.

So like, there's so many different ways to engage now and screens and there's nothing exponentially better from an experience that it's interesting. Right? But like, know what people will buy all the meta quest. There's millions have been sold, but no one's doing it. Every day. There isn't that use case like I have to have I it's like becomes a daily want and need.

And until that happens, which is usually driven by content and experience.

Mel
That's so true for like so many horror devices like, what's that killer use case. Right. You know what we found for Ring? Ring’s killer use case was I wanted to see what was happening in front of my house. Even if I didn't get an alert, or I just was curious what's going on in front of my house.

And we had people just hitting it sort of every hour and that, you know, like that drove. Oh yeah, I want to subscribe because if I don't, I don't know what's going in front of my house. So I think to your point, like, what's that killer use case for AR, VR, right.

Susan
All right, guys, thank you so much for spending the lunch hour with us.

Anyone who wants to go, I guess it's next door, right? Is, beers in the afternoon, for those of you. And nonalcoholic alternatives, always, next door. So please stick around if you guys have the time. Awesome.