On this special segment of the Full Ratchet, the following
investors are featured:
Each investor describes a situation where they did
decide to invest, what the key factors were that led
to “Yes” and how that investment has worked out.
Nick: On todays Investors Stories segment, we have Charlie ODonnell of Brooklyn Bridge Ventures. Charlie, can you walk us through a situation where you did decide to invest, what the key factors where that led you to yes, and how that investment has worked out so far?Charlie: Sure. I am a seed investor in a company called Canary, which is a connected home security device. And the company was pre-Kickstarter. They have the Xerox problem. It was a pre-Indiegogo presale. So it was just a couple of team members and a PowerPoint with their designs, and it was a lot of risk. And it was a big market, and they had not built a prototype yet and I wound up leading their seed round. And that was basically There are 90 million homes that dont have security. This makes sense to me intuitively as a consumer, where as an apartment dweller, you know, Im not gonna install ADT.A couple other devices on the marketDropcam. But Dropcams not really sold as a security solution, its more sold as sort of a nanny cam. And the problem still persists. And so I was willing to back that team. Not only that, Ive backed a few hardware plays. Im an investor in Ringly, an investor in goTenna. And so hardware doesnt scare me too much, so I was willing to make the bet that they could build this thing.And as it turns out, the hardware, once you figure out the manufacturing and find a good manufacturing partner, the hardwares not necessarily the hardest part of the thing. Making sure its financed appropriately, not running out of money, and all that sort of stuff. But in Canarys case, the software is incredibly complicated and we had the hardware back in August. It was only February of this year, March, that we felt comfortable shipping it out to backers. Because the combination that really is the hard part.And I like the team in the sense that I felt like they had an appropriate background. Adam started a non-profit related to neighborhood watches and worked in cyber security at a bank, and what just a really thoughtful, mature guy about how consumers think about personal safety. And he seemed like somebody who knew what he knew but also I could work with. He was willing to take feedback and was what he didnt know about. And so I made that investment.
They wound up setting the record on Indiegogo. At the time, almost two million dollars of sales, and they wound up getting a ten million dollar round of financing from Kohsla Ventures jut about five months later, actually, a significant step up from where I invested in it before the pre-sale. And that team is now eighty-five people, give or take, and you can buy a Canary in a BestBuy, on Amazon, in a Verizon store, and its a terrific product. It works and I love it. I had painters working in my hallway and I dont have to worry about Did I lock the door? Did I not lock the door? because if anybody walks into my apartment, Im gonna know it from my Canary.
Nick: Speaking of distribution, you mentioned BestBuy and Verizon and such, in hardware spaces, especially consumer channel can be a whole different challenge than maybe in the software side of things. So, does that enter sort of your evaluation and your diligence process, how the startup and the founder team is gonna go about distribution?
Charlie: Yeah, I mean, theres pretty standard marketing and distribution practices, right. So, How are you gonna market? Well, here are the channels, and heres what I learned at business school, and were gonna execute that marketing. I think-Im not sure theres anybody Ive seen who has a kind of proprietary special angle on distribution and marketing. What you really care about there is that team has thought about it and thoughtfully considered it and understood the risks around it and the cost. And if theyre appropriately resourced. If theyre gonna get carried in retail, well, you know, is there anybody on your team who struck one of those deals? And what is that gonna do to your economics if youre gonna get carried in retail, and heres the plan around it.
And so I think its more of a blocking and tackling. Its not a special, but every channel comes with its own challenges and you want a team to really thoroughly research, understand, and know how to appropriately resource those channels.
Nick: For todays investor story segment, we have Steve Blank. Steve, can you walk us through a situation where you did decide to invest, what the key factors were that lead you to yes, and how that investment has worked out so far?
Steve: I tend to invest in my students and cheer them on, so, unlike other investors who are doing this to keep score for all the right reasons, I tend to invest in students who have a combination of change the world passion, relentless tenacious, and I think theyre gonna have an impact. My favorite example is a company called Neon, which is a content recognition company. Came out of Carnegie Mellon, and was one of our original iCore teams. And so Sophie Lebrecht is the CEO and just an incredible CEO and an incredible startup. That one is incredibly fun watching.
Nick: On todays special segment, we have Rob Day of Black Coral Capital. Rob, can you walk us through a situation where you did decide to invest, what the key factors were that led you to yes, and how that investment has worked out so far?
Rob: To answer that, you really gotta understand how our firm does things differently than most venture capitalists do.
Rob: We have a lot of flexibility and we also share a lot about manager teams and execution. So Im gonna give you a specific answer to your question, but you have to understand the context of why it wouldve been compelling to us and not others. I mentioned my colleague, Christian, whos our management director. His background is not only as management, but also he brings this specific methodology for assessing managing teams. Their core skills and gaps. And that was one of the things that he and I hit it off one, what I just really strongly believed that in these sectors, Id gonna come down to execute more than any on particular package or one particular technical idea or something like that.
And so a few years back, we came upon a team here in Boston that was doing home energy services. Pretty small group, about ten guys, two trucks, show up at your home, doing an air sealing, energy audit, help you do insulation. And a lot of VCs, for very good reason, wouldnt take a meeting with them because its like Wheres your secret sauce? What are you doing that different than anybody else? and what we saw was a really high execution team that had a strong vision for how they wanted to actually change how energy efficiency and energy solutions scaled up in the residential sector.
Residential energy solutions has always been highly, highly fragmented. Theres just a world of things that home owners should do, if you look at the payback periods over life, that they just dont do. And theres a bunch of reasons good and bad that homeowners dont do it. And thats what these guys wanted to solve. What I recognized was they wanted to become a new channel for energy solutions.
And meanwhile, I had already spent several years getting hit up by very smart entrepreneurs with a widget for a solution for the home. Something where theyd say Hey, look at this payback period, every homeowner should want this. And I would say Yeah, that makes sense, on paper they should. How are you actually gonna get it into thousands of homes? and the entrepreneur would scratch their heads and say Well well work with utilities. Well, anybody whos actually tried to sell things using utility as your channel partner, you need tests of whata lot of brain damage thats gonna use.
Or they would say Were gonna sell it through BestBuy or through Amazon. Its like, okay, theyre just gonna go [inaudible], right, so its still unclear how youre gonna get your profitability. What we really liked about Next Step Living was they were gonna show up in peoples homes as a trusted energy advisor. They were gonna do an analyses of the home, and be able to present a fact based set of solutions, some of which they did, some of which they didnt, and be able to say Here are the things that you should be thinking about for your home.
And some of that, people may not be thinking about. Like Okay, I want to put solar on my roof. Well, in a home that was built in 1950s and its very leaky, thats not where you should start. You should actually make sure that your home is efficient, and then, yeah, also think about solar on your roof if you have the right conditions. Or if you dont have the right conditions, you know that you can now do community solar, which is essentially virtual panels on your roof, although theyre on a ground mounted solar farm somewhere far away.
And thats what these guys at Next Step Living had a vision to do, and we really liked it. So we backed them as a Series A investor. That companys grown to now be tens of millions of dollars of annual revenue. They show up in tens of thousands of homes per year as a trust energy advisor. They continue to build out that suite of offerings that they can provide to homeowners. Theyre in multiple states out, and for their growth equity along the way, now they have become interesting to venture capitalists who looked at whats been pretty exciting growth, and they said We want to be a part of that. then they look at whats going on in the solar world, in terms of residential energy services, they say Yeah, this company is actually doing what theyre doing quid pro quo, so that they can get an even bigger share of customer wallet and they haven get an even lower cost of acquired customer dollar, which you take advantage of all the different things that homeowners might want.
So its become a really exciting growth story, but at the time, we looked at it and said High execution team. They got a business model innovation. We were willing to get in early stage because we have the flexibility to do so, even though it pressed on what was their secret sauce, we would have had to just point at the team. And so thats actually worked out well for us.
The way that we approached identifying high performance teams and then backing them has really helped us becauseI dont know about other investors butI am not a great entrepreneur. And being able to partner with great entrepreneurs has worked out a lot better than trying to pretend Im a smart entrepreneur.
Nick: Sounds like that rare but unique combination of resourceful, determined, but also coachable too.
Rob: Yeah, thats exactly right. I mean, these guys are first time entrepreneurs, and thats one of the great things about bring in the follow-on investors that have been [inaudible] is, as the hit that big growth phase, you get a lot of pattern recognition about what that looks like for any kind of startup. Again, labels dont really matter, right. A fast growth startup is a fast growth startup. They have their own challenges, their own risks, and thats where being able to get other smart investors able to handle it has really helped Next Step Living.