79. Hardware Investing, Part 1 (Avidan Ross)

*Please excuse any errors in the below transcript

Avidan: Thank you. Oh wait till you see it. How about I show you something crazy? It’s the business card

Nick: oh haha nice, this is cool

Avidan: So gotta eat your own dog food, right? You say everyone should be doing stuff in ShangJin in China, so if you say it you got to do it. So I had my business card made in China. This is awesome. They say it’s laser cut this out and I’ll say well, so it’s a combination of stuff. So they basically, this is a PCB etching, so it’s actually a fully functional computer. You snap away those two corners and it plugs into the usb. You see those four traces, that’s the usb speck. And then on the back you saw solder on a WiFi module. And then it becomes like a usb WiFi carrier.

Nick: This is the coolest VC card I’ve ever seen

Avidan: Well, there’s a guy, a friend, his name is # Ian Burnstein. He’s the CTO of # Sphero .

Nick: Okay

Avidan: His card is quite literally the most awesome PCB business card I’ve seen. So he gives you the business card and then you can actually turn it into a remote control car. I mean,

Nick: Car?

Avidan: Yeah. So he’s #Sphero, right, so like all his toys are like rolling toys. But you can add wheels to his business card and a little chip, and then from your phone you can control his business card and drive it around. It’s awesome.

Nick: I’d love to see him demo that. Give out the card and

Avidan: He does, he does, yeah, no, #Ian’s awesome Those guys in #Sphero are fantastic.

Nick: That’s cool. Man, this is a nice touch

Avidan: Thanks.

Nick: I got to do something. Something creative. Standard business cards aren’t cut

Avidan: Or you can just be creative on other things. Because the truth of the matter is like I feel like I’m, it’s a little pushy and contrived to pull out my business card on people because they’re like * there aren’t any good business card for. But it feels a little bit like, I’m like ooh check out my business card. And they’re like why should I look at your ..ohh cool! But that like initial, that business card handoff, everyone’s like why you’re a tech VC, what the hell are you handing me a business card for? People are like over business cards now

Nick: Yes

Avidan: None of the founders had one

Nick: Yeah

Avidan: Now, they have them , they have them, You know why they end up having them? They end up having them when you walk into a meeting which has a bunch of people you haven’t met yet. And you’re trying to quickly figure out who the hell else is in the meeting.

Nick: Right

Avidan: And it’s a reciprocal quick like give me your title, right. And the only way you can ask somebody their title is you hand them a business card, then they have to hand you back one. You’re like alright, this is the Assistant Regional Manager to the Vice President, alright. And then they sit down and set up a little like wall of business cards

Nick: Yeah

Avidan: They remember who is who and then

Nick: Yeah

Avidan: It all depends on what type of work you’re doing, right. If you need to sit in meetings or go to conferences, you got to have paper, you know you got to have a card to hand out. But the irony is we have so many apps that try to solve that, right? There was the Bump and like, you know, I mean there’s so many ways I could exchange digital contact information with you right now, that’s way more contextual, way more deeply data rich than me handing you a business card

Nick: Sure

Avidan: But there’s nothing more convenient in the user experience than the physical hand-off of a a tangible object.

Nick: Oh for sure

Avidan: You know it’s like, and also on top of it, to me that business card, I had, I had to do it because it reflects who I am too, right. Like I, I designed that business card in Eagle, which is the PCB design software, right. And people still have that, I mean and I can jump into it for hours, I believe like there is an obsession with tangible objects, right. We still are, you know, tactile human tactile people.

Nick: Absolutely

Avidan: And you exchange something with someone, a physical exchange of goods still is like that’s the human experience right.

Nick: Oh I agree

Avidan: You look at, recently I  was looking at a list of the most powerful brands in the US. Some of which weren’t tech companies, you know. You’d be surprised that they were on there. But almost all of them were like physical tangible good brands. Brands like Amazon that only recently started releasing physical products didn’t make the list. Google is further down than you would think

Nick: Yep

Avidan: So people don’t really have that brand enthusiast sort of strong affiliation as much

Nick: Absolutely

Avidan: I mean if you look at what Nike has done over the last 50 years, it’s amazing, right. Like their sneakers are non differentiated but there’s an obsession, an absolute obsession. People will buy their sneakers and never wear them and hold on to them as like collectors items, because that’s the idea of a collectors item right?

Nick: Sure

Avidan: I’ve been personally contemplating buying very old cars. Not like super fancy like, you know, 1960 Porsche or whatever. But like just getting in touch with like classic old, old cars. Because I believe that eventually we’re going to get to a point where driving is going to be purely an emotional, like it’s going to be a convertible. It has to be a convertible and it has to be fun to drive because, yeah, the only reason we’re ever going to drive in the future is for fun, right?

Nick: Right

Avidan: That will be reason you drive. You agree?

Nick: Yeah

Avidan: And so it’s, it’s pretty interesting that people’s like brand affinity is definitely alive. And the funny part is if you look at the correlation between that list and like the size of companies, you’d find out that it’s actually not one to one, right. There are these huge companies that people have no brand affinity towards, right. People don’t care about #IBM or #Accenture or #Deloitte or like services companies don’t matter to people. Commodity products don’t matter to people. So like gas companies, nobody cares, BP, Shell. People go gas station to gas station, they don’t care where they’re getting their gas from. But it’s pretty interesting. I think a lot of it has to do with like design oriented companies, companies that think a lot about their design. Design branding, marketing, I think that sort of building that sort of brand affinity is important

Nick: For sure. It’s funny you mentioned sneakers because we were walking up from downstairs and on the first floor is a sneaker shop. They had all their bright colored sneakers right in the front window. And my wife would just love now when she said that’s the virtual symbol is the sneaker shop.

Avidan: Yep. They have a couple sneakers stores around here that will literally have hour long waits for people to go in and get. And like they have security that let in only a certain number of people at a time. So that’s, you know, an obsession with this little product definitely hasn’t gone away. I could totally jump right into like, I mean this totally leads right in to where my thesis is on a lot of investing. Specially on the consumer side, right. Consumer physical products. Why are people willing to pay a premium for products? Whereas there’s an expectation that if it’s digital and software it’s free? Like the idea like, you know, they say if you don’t pay for the product then you are the product, right. That idea of your data is what’s valuable. So you don’t pay for Facebook, you don’t pay for Twitter, because you are the product. You are the product. And Apple has harped on this hundreds of times, mostly i think because they haven’t been able to figure out how to turn their consumers into the product, or arguably are so good at it that it’s behind the scenes. But they basically say like we’re not selling your information, we’re selling you an experience. We’re selling you the product and you pay $700 – $800 for an iPhone, right? And that is probably one of the most emotional products people have. Or at least it’s emotional in the sense that if you try to take it away from them, they probably flip their *.

Nick: Sure

Avidan: Right. So it’s pretty wild what’s going on over the last 10 years or so in the  hardware space. I’m a firm believe that there’s a massive shift in the way that people interact with the world around them. And there’s actually a really pretty strong split, right. You have a world of deeply connected devices and experiences that are constantly connected, constantly interactive, constantly spinning off data. And then you have this deeply authentic analog experience that people are having, right. So the idea that someone would go out and find a leather bag where you know exactly where the leather came from, where it was stitched or perhaps it was stitched right there on the spot when you bought it or when you ordered it. Or you took your dimensions and said I want a bag exactly this size and it was made to order. And that’s a very authentic experience. But it becomes a very analog product that you emotionally hold on to. On the flip side, you have companies that are building connected luggage that is constantly beaming it’s location into the file so that you can track your luggage as it moves around. So you never lose your bag ever again. And there are a couple companies now doing it. The first I think was an interesting one out of YC called, was it called Bluesmart, blue I don’t know

Nick: Yeah

Avidan: I’m so bad with names but, that’s the horrible thing to admit though. Thank God for my iPhone because I could very quickly just write GPS connected luggage and there it is. But it’s a, it’s a world where people have gotten, you know, that split is pretty interesting. Because at the same time, you know, people are looking for certain experiences in their life that are very disconnected and certain part soft their life they want to be fully connected. I focus clearly on the fully connected part but I’m very, I try to continuously stay aware of the macro trend of people wanting to maintain authenticity in their lives. And, and as things get more and more digital and more and more ubiquitous or commodity, there is a desire for focusing on the things “that matter” to them, which are authenticity designed apparent a brand, a personal brand that’s built around stuff. I mean that’s why I think Nest and the idea that they have such a beautiful industrial design was super important because it was a product that sat in the center of your home, that we just took for granted. It was supposed to be ugly and looked like, you know, the same thermostat in your high school you had at home

Nick: Oh right, sure

Avidan: It was just, it was hideous. And we’re willing to pay $300 for it both that beautiful industrial design but also this additional experience of saying I can now control my temperature from anywhere in the world I am, I have full control over my home, right? It gave you a sense of empowerment that you owned your home’s thermostat or temperature control from anywhere, and it was an empowering field from a control standpoint. I think it was really a control standpoint but it was also about I think the word AI gets thrown around a lot these days

Nick: Yeah

Avidan: But really I believe that the machine learning element was very, very interesting. I think to people smart homes still means obvious wires everything together to make their lights turn off at the right time, their lights turn on at the right time, you’re using a different hub and a different device and all these different things. And I, you know, self admittedly have been a smart home junkie since my days. I was a, I had a 75 square foot dorm room at Columbia University in New York City where I could literally touch every wall sitting in the center of the room. But I still ended up wiring the entire thing for smart home if you will. So I used something called Xten . With that every time you tried to turn on or off a light, it made the loudest snapping sound. So not only was it like horribly unnecessary because of the size of my room, now every time I wanted to turn on the light on or off or anything smart home would happen so a couple things happened at once. It would be like pop pop pop pop pop pop pop pop. This is, this is awful. But in any of that really what people are after is they’re objects to be more and more intelligent. And the, the smart home experience I think that worked for Nest was the idea that your Nest thermostat was going to learn over time and become better than the day you first bought it. So you bought a $300 thermostat, but very rarely do you then look at the product you bought 3 months later or 6 months later and say I like it even more today than I did when I first got it.

Nick: Right

Avidan: And that is a huge huge selling point. Everyone is always, you know, there is that anecdotal sort of oh everyone says the day you drive a car off the lot it loses 30%. And we all think about that, that our products are at their peak value the day we have them. But what we have now with connective devices is the idea that products can get better over time. So you bought a Nest thermostat, and in the beginning you set the temperature. You said I want it to be 73 degrees, and then at night we like it a little bit warmer so let’s set it to 75. And what the Nest has done is it basically analyzes how well your home reacts to outside temperatures. So if you have a very old home then it might not be as well insulated or maybe it’s even better insulated because it used, you know, whatever materials they used in the 1910s. And the Nest thermostat basically sold you on this idea of the connectivity into the cloud. So the fact that you connected your Nest to WiFi and there were sensors in that Nest that could basically report how well your home was heating or cooling, combine that into the cloud where there is unlimited processing power and a combination of other data sources. So for example, it could connect to the temperature in your city or in your zip code as well as a cross section analysis against other homes that have had similar trends if you will of heating and cooling along with prediction on weather patterns

Nick: Exactly

Avidan: it’s going to drop 10 degrees in the next few hours. Exactly, so if it’s going to drop 10 degrees in the next few hours then maybe we shouldn’t turn on the air condition, we’ll just rely on the home cooling itself in the next couple hours. And then on top of it you will also have location awareness, are you in the home, are you out of the home? And that was a fully self contained product, which to me is the most interesting is, you know, a lot of people try and sell this hub, hub and multiple devices. But at the end of the day you walk into Home Depot or you walk into Lowe’s or you walk into Best Buy, you‘re there to buy something.

Nick: Yeah

Avidan: You’re there to buy a product. You’re not there to buy into a platform, you’re not there to buy an ecosystem. So, you know, I never really, I tried out a lot of the hubs and some of them were fantastic, but I don’t think anybody walks into a store saying I want to buy a door lock and the guy selling the door lock says great which hub do you own, right?

Nick: Right

Avidan: The door lock needs to work on it’s own, needs to be compatible universally. It needs to work well enough so that somebody walks in, you could ask somebody do you use iPhone or android, and that’s an appropriate question. And to a certain degree that is your hub.

Nick: Sure

Avidan: You’ve made a decision that your phone is your hub. But that, from my perspective, I think that Nest really lays the trail for quite a few companies to think about it differently

Nick: Yeah

Avidan: And before that, there was you know, there were connected devices. There were things using expensive cellular connections, there were things that tried to connect your WiFi and add screens on everything. I mean, I’ve had connected devices for like I said since Xten in the 90s, but they’ve gotten so much better over time. And most importantly startups now are able to really take advantage of a new paradigm for building hardware.

Nick: Great. There’s a couple things in what you said that I want to touch on here. So it’s timely you bring up the example of driving off the lot with the car. Because I just wrote a blog post last week and I think I called it changing the asset value equation, where hardware all of a sudden can appreciate in value after the time of purchase. Where previously that was never the case. You drive a car off the lot or you buy some device and before you know it, it’s depreciated, there’s new versions. But now we have things like the Amazon Echo, or the mobile phone in my pocket, or the Tesla which arguably will appreciate in value over time as more software and firmware will what have is added to it and the value increases.

Avidan: Absolutely. I think I, a lot of people, we have a interesting experience when you meet a Tesla owner. Their first couple weeks are amazing because they, you know, it’s a totally different driving experience, they’re playing with all the fancy dials and everything. But the truth of the matter is every time someone buys a new car that’s how they feel

Nick: Sure

Avidan: That’s the new car smell, the new car experience. The interesting piece is that first time they get a pop up on their screen it says congratulations you now have  the following new features.

Nick: Yes

Avidan: And that to people is something beyond anything they’ve ever experienced before. I mean, to a certain degree they’ve experienced it with the phone and the phone will get firmware updates, but more often than not people think that those firmware updates are security patches and just staying up to date. The fact that Tesla released their auto pilot function through firmware over the air, that is a, that’s a turning point. I agree, I think that, you know, the other way to think about it is are you actually buying the hardware at that point or are you buying in to a continuous service upgrade, right? If Tesla told you, look we want you to pay a monthly fee and all of these updates come to you, would you pay it? Absolutely, right? I mean, that’s the, the alternative model that is due actually even over your car. Are you, are you owning the car and are you subscribing to Tesla’s service of transportation? You shouldn’t have to, you should be able to switch out the hardware any time you get in an accident, you get a new one, right. It’s. it’s a pretty wild, I mean, one could argue that having an autopilot function plus purely over the air updates essentially turns Teslas into rolling smartphones or rolling computers, right?

Nick: I agree

Avidan: That was my sort of thesis is that it will become a platform like the iPhone with applications that are built by, you know, third parties and plugins and all sorts of features that not even, that Tesla hasn’t even planned on

Nick: Yep

Avidan: And you see Uber trying to do it from the other direction, right? Uber is saying we’re not going to build the hardware, we’re just going to build the platform, right? They’re taking a software model where they say okay you want Uber is transportation as a service, right? So let’s go ahead and bake Uber into other applications. So if you’re using, you know, a open table and you’re, you’ve just got a reservation, when you’re done, open table, you know, or whatever it might be, it might be synchronized to when you pay your cheque using a cheque paying app. That your Uber is automatically paged. And I totally agree that a lot of this is going to move towards a service model where people who are buying physical tangible products are not interested in just the experience they want. They’re interested in the ongoing experience of having that product. And the only reason that happens is because of a pretty serious paradigm shift that occurred about I would say 10 years ago, right? So 10 years ago if you wanted to build a physical piece of hardware and turn it into this rolling platform with over the updates, you basically were in a pretty tough bind. One, WiFi was not yet ubiquitous.

Nick: Yeah

Avidan: Some people were still plugging into computers at offices. Some, you know, there was a little bit of WiFi coverage in people’s homes as, you know, Verizon and Comcast were starting to ship out WiFI routers for people. Bluetooth was a rare but it wasn’t quite as ubiquitous as it is today. And then the cellular providers were charging an arm and a leg to get data access to their networks. Now connectivity is ubiquitous. Everyone is carrying bluetooth on them, every building in the developed world has a WiFi connection and there’s cellular coverage in between that the cellular providers are willing to charge, you know, pennies if not dollars to gain access to. So now all of a sudden, any device can be connected. And there are companies like #Particle and #Raspberry Pi that make it very easy to prototype and scale up. Although #Particle is probably better suited to scaling up. And you basically now can prototype something that’s connected to the cloud. Now that’s all fine and good, except what we have now in the cloud is unlimited storage, unlimited processing power and the interconnectivity to other data streams.

Nick: Yep

Avidan: So you’re talking about, you know, future weather patterns. You can now get access to that. With a couple API calls, you know the weather anywhere in the world, and as a matter of fact you can actually go so far as to not just do a weather check that you can do predictions of further out weather

Nick: Yeah

Avidan: a week, a month, on a zip code by zip code basis. So those things combined with the fact that a product called Arduino launched out of NYU and it was actually a collaboration between an Italian university and NYU’s ITP. And they basically created an open source micro controller called Arduino.

Nick: Okay

Avidan: Which changed the way that electrical engineers, mechanical engineers and just hackers and prototypers were able to create a proof of concept product. So now all of a sudden you have people creating these small little products for a couple hundred to a couple thousand bucks. They are able to connect it into the cloud and create this experience that only #Nest or #Tesla could provide. And by the way, #Nest  did not raise 8750K angel round and then a $3M seed round. #Nest went out and raised twenty, thirty million dollars out the gate. Because back then, you had to build it on your own.

Nick: Yep

Avidan: Now startups can get started with just a couple grand, well maybe a couple hundred grand to get your first prototype started, and build a proof of concept to actually show what people want and how, and what the experience could look like. And all those that ubiquitous connectivity, unlimited processing, connectivity to other data streams and the ability to prototype super cheaply. That is what has allowed startups to exist in this space. It’s like the convergence of a bunch of different drivers at the same time

Nick: Yep

Avidan: that allows something to occur, right?

Nick: Absolutely

Avidan: So many startups and so many trends have failed just because timing wasn’t right, they came too early, the connectivity didn’t exist. But yeah we will get external, we call them external drivers, a lot. You know, what’s going on from the legislative standpoint, from the technology standpoint, from a market and consumer standpoint that’s allowing the potential for a startup or a business to exist in a really scalable way. I mean, an obvious example would be, you know, before there were mobile devices in everyone’s hand and you could do remote on demand requests, you know, at your fingertips, Uber was not going to be a viable concept, at least in the form it is today.

Nick: Absolutely

Avidan: We think about this stuff a lot

Nick: Alright, so anyway, just to back up here, today we’re in Los Angeles. I’m with #Avidan Ross, founder and partner of #Root Ventures. Before founding the firm in 2013, he designed industrial robotics for the # Food Networks kitchens. And before that, #Avidan was CTO of #CIM group, a $15B investment firm, where he focused on industrial internet investing. Previous to #CIM, #Avidan worked as an embedded network application developer at #Excite@Home and #Avidan was generous enough to meet me in Los Angeles. I’ve been out here traveling with my wife for her birthday, and he was kind enough to carve out some time to join me and talk a little bit about hardware investing, robotics and all the above here. So #Avidan, welcome and thanks for doing this.

Avidan: Absolutely. Thanks for having me.

Nick: Alright, so we’ve already kind of gotten into this, but would you be willing to talk a little bit about your background and how you got involved in VC?

Avidan: Sure, absolutely. So as you mentioned, I started out in hardware way back in the way when it was a little bit boring. I was working on cable modems at #Excite@Home back when people were wondering why anyone in their right mind would nee a T1 line at home. DSL yeah, 56K should be absolutely sufficient. And then after the crash, basically ended up moving back to New York where I studied, I studied Computer Science with a focus on embedded network application hardware at Columbia. So built one of the first voiceover IP handsets. And really saw that connectivity was, was where it was or where the future was. But this was late 90s early 2000s and, you know, as we discussed, timing is everything. And building hardware companies was super expensive and there wasn’t funding out there for it. So I ended up getting a call from a friend of mine who was starting an investment firm here in Los Angeles and brought me in as CTO. It was an amazing, amazing growth trajectory. You know we went from 200 Million under management to 15 Billion under management in a matter of 8 years, 7-8 years. And it was awesome. We, I focused my time investing in Industrial internet or mostly infrastructure, so water, wind, solar, smart grid, vehicle tolomatic, building energy management. And for me the interesting thing that changed about 6 or 7 years ago was I saw a trend where people were asking us for less and less money. And we were raising more and more of it. And it all hit a turning point when I got approached by some guys who were leaving Tesla, and they said we need $2M and we’re going to build a vehicle tolomatics company. And I was shocked. I was thinking how the hell are you going to build anything for $2M? I was seeing companies that raised 20 to get started. This

Nick: Yeah

Avidan: This was the time that #Nest had just gotten off the ground. And they said no no no, come to Menlo Park and we’ll show you. And I flew up there and actually now I’m based in the valley because I believe that’s really the mecca of everything and the epicenter of it all. And they showed me their first prototypes that were built on arduinos in 3D printed cases utilizing a cellular connectivity to basically track vehicles for fleets. So FedEx, UPS, Electric car fleets. And they really were going to do it for $2M. And that was the first time that I had seen somebody take the —-longbus 27:48 school of building hardware, right. I mean the Tesla roadster, if you look at it, it’s actually a bunch of parts from Lotus, you know, so that’s an mbp, right? You don’t build the entire car yourself, just build the drive train, prune something out, realize you have something and then stop ok now let’s build it all ourselves.

Nick: Got it

Avidan: He didn’t launch on #Kickstarter, but just like he did with the model 3, he ran the Roadster through a pre-order campaign. So he knew what his inventory risks were. He knew how many people wanted his car. And he could basically adjust his manufacturing process around consumer demand for his products. And, you know, I think that a lot of that has found it’s way into hardware startups. But when I saw this, I knew I had to get back into hardware and back into startups. So I ended up leaving the investment firm I was at. I gave them the year of noncompete and during that year, that’s when I got a call from the Food Network. So once an engineer, always an engineer. When I got exposed to all this Arduino and Raspberry Pi stuff, I started building crazy robots in my back yard. And they were all food related robots. So apparently someone from the Food Network found me on the internet and called me up and said we want to make a TV show about the crazy robots you’re building in your back yard. The show never made it to air because our prototype of it burned my buddy’s eyebrows off on camera in the process of making a 45 second pizza pie. But it was, it was absolutely awesome.

Nick: Oh that would have been great

Avidan: Yeah, I thought so too. But the lawyers at the Food Network apparently thought differently. And yeah, but it was great. I knew my mark, I wasn’t really going for being on TV on the Food Network. Really what it was about was getting my hands dirty again with building hardware and seeing it first hand and realizing what was accessible to people traveling to ShangJin, Soon the actual you know, city blocks filled with prototyping shops and part distributers and malls that were just selling LED lights. And realizing that we were at the tipping point of startups getting to build hardware once again. And so I ended up starting #Root Ventures, originally we were called #Lion Wells. But #Root Ventures originally started out by just me writing checks personally and a couple friends of mine who have always liked backing what I do. And we focused our investments on at the core low cost robotics and connected devices, picks and shovels behind the scene , so engineering tools, developer tools, manufacturing tools, prototyping tools, design tools. And then we have a deep belief that data is going to change supply chain manufacturing logistics on the front end. So we’ve done about 16 deals. We actually ended up raising a fund early last year , and I’m a math nerd so we raised 31.415926 and 53  —30:43—

Yeah, so up high it was going to be a $25M fund and then it was going to be a $30M fund and then I decided to stop at a number that made me happy inside every time I saw that. Someone told me I should rename the fund Irrational Ventures, but I thought my LPs wouldn’t appreciate naming the fund Irrational.

Nick: It’s lucky you don’t have any LPs in Australia 

Avidan: Oh, well that, Root Ventures I got a couple emails from some Australian friends when I announced Root Ventures. Yeah so we, we, you know, we do about 6 to 8 deals a year. And really a lot of focus on the robotics and connected devices space, hardware, you know, industrial enterprise, consumer , all of the above.

Nick: Cool. So we are talking hardware investing. Can you start off by talking about how you think about the landscape of hardware? You told us about your thesis and sort of the areas you’re interested in. But how do you sort of categorize the hardware investment landscape and decide where you’re going to focus?

Avidan: Yeah so I think, you know, an easy way to focus on the categorization or segmentation is who the audience is, the product. You know, there is a world of consumer hardware that’s being built and that is a very well documented in public just because it needs to be marketed to the public. So you’re looking at the # Fitbits and the # Nests of the world or you’re looking at the Drone companies that are, you know, # DJI or # 3D Robotics. But as you probably could tell, there’s a bit of an overlap there because #DJI and #3D Robotics sell to the enterprise as well.

Nick: Sure

Avidan: So they’re out there pushing to the enterprise and you have a lot of enterprise focused hardware companies. And then there is an industrial element to connected devices, which are things you would never, you wouldn’t see that overlap. And those industrial players are out there selling direct to manufacturers, direct to transportational logistics customers. But we look at things, when we look at hardware, we’re actually focused primarily on the value of the product above and beyond the physical tangible asset you’re handing to someone. So a lot of people look at something and the first question that a hardware investor will ask is what is your BOL? What is the Bill of materials cost on your product? And what they’re basically getting at is trying to figure out what your margin is when you sell the product on Best Buy or on Amazon.

Nick: Yep

Avidan: And for us that’s, it’s an important element because it really reflects a deep understanding of, you know, what it costs to get your product into people’s hands. But that’s not what we’re concerned about. We actually are looking at the lifetime value of that product in people’s hands. We just have good pricings, then it, exactly. So, you know, is it entirely about that 40% margin you gain the day that somebody walks out the door with your product? Or have you caught them now in an ecosystem where they’re just as we were talking about earlier, does the value of that asset appreciate, or more importantly, are you able to monetize on that consumer day in and day out, month after month, week after week, year after year? And so, that exists for consumers, it exists for enterprises, it exists for everyone in between. And for us that’s what we would consider a trojan horse.

Nick: Okay

Avidan: It looks like you’re receiving a certain product, but in reality there’s something deeper inside. There’s something else that’s going on. So I think a couple really interesting examples of that

Nick: .com We had some fun talking to Avidan in Part 1 of the interview. In Part 2 we continue the discussion on hardware trojan horses. And also hear some examples from Avidan of trojan horses. We also discuss Avidan’s response to those that view hardware as very capital intensive, more difficult to commercialize, and thus too risky to invest in in an already very risky asset class. His thoughts on the advantages that hardware companies have over software companies. Examples of business models and approaches that work particularly well in hardware. If his approach to deal flow and connecting with founders is different considering his focus areas. And his final thoughts on hardware and core science startups. Until next time, remember to over prepare, choose carefully and invest confidently. See you next time.