How Clean Connect Reached 11 Customers and 20 Sites with AI-Powered ESG Compliance for Oil and Gas (Interview with President Mark Smith)

Introduction and Company Overview

Nathan Latka

00:00Hey, folks. My guest today is Mark Smith. He's the president of cleanconnect.ai. They use AI to help oil and gas companies produce clean energy at a profit. He founded Windows NT magazine with a successful exit of a $100,000,000 in five years. He's also the host of Digital Roughnecks, a video podcast for energy technology executives. Mark, are you ready to take us to the top?

Mark Smith

00:19>> Alright. Hey, thanks, Nathan.

Nathan Latka

00:21Man, you are the definition of niche. Digital Roughnecks, a video podcast for energy technology executives. I love that.

Energy Independence and ESG Regulations

Mark Smith

00:28>> Yeah, well, you know, 80% or more of our energy comes from fossil fuels and will, in spite of all the focus on renewables for the next twenty years. And one of the key things is, you know, that we pride ourselves in The US and other countries do too, is energy independence, right? So these, you know, these energy companies, they want to produce clean energy at a profit, but there's a lot of regulations, heavily regulations, including new

00:57>> ones coming up in legislation that's going to kick in in 2022. And so and a lot of investors are out there that are ESG investors,

Nathan Latka

01:07you know, environments.

Mark Smith

01:09>> And how are you helping me?

Nathan Latka

01:11Like what's this software? Is it a service?

How the AI and OGI Hardware Service Works

Mark Smith

01:14>> Yeah, so we combine specialized cameras, which are called OGI, they're midwave thermal cameras that can see these volatile greenhouse gases, essentially thermal cameras and optical cameras together with our AI software to help automate emission compliance. In addition, what the big discovery was, we also help them with their autonomous operations. So not only do the compliance part, but we also save them some kind of 10x ROI on an investment with us through by people savings.

Nathan Latka

01:53So Mark, what are they paying on average for the software per month or per year?

Pricing Per Site and Contract Structure

Mark Smith

01:58>> On average, okay, so an oil and gas site per site will pay about $5,000 to $6,000 a month.

Nathan Latka

02:04Okay, 5 to $6 a month. And how much does it cost to install the OGI hardware, the cameras and sensors?

Mark Smith

02:09>> So that's that could be an all in, we sell the whole thing as a service.

Nathan Latka

02:14Okay, so it's 5 ks to 5 ks a month. How many cameras or OGI sensors does it come with?

Mark Smith

02:19>> So it would come with one OGI, several thermal cameras, and then an optical, couple of opticals.

Nathan Latka

02:26What are the hard costs of that for you, getting one site set up? Just the hardware expenses?

Mark Smith

02:30>> 20%.

Nathan Latka

02:32Okay, got it. So it costs you a grand, just one time flat fee to get all the hardware?

Mark Smith

02:35>> No. No, these are five to ten year deals.

Nathan Latka

02:39So 20%, 20% of what?

Hardware Costs and Tax Treatment for Oil and Gas

Mark Smith

02:42>> So you got to understand the way oil and gas works. It has a unique tax treatment. Okay? So when you're building a new pad, there's a thing called intangible drilling costs. So in that case, they want to accelerate capex. So they'll pay us for ten years upfront, everything. Hardware, Five all

Nathan Latka

03:00grand a month times twelve months is $60 a year times ten years is $600. You have folks that have paid you $600 per site, all cash upfront.

Mark Smith

03:08>> Correct.

Nathan Latka

03:08Okay. Got it. And so you're saying it's $60 or sorry, $120 for just the hardware install. Right. I see. That's expensive for that stuff, Yes.

Mark Smith

03:19>> And they're used to that because every one of the customers we have has bought a FLIR GF320 camera. It's a handheld OGI camera. That's how they do what's called LDAR inspections, leak detection and repair. Those are $120,000 CapEx item. We, because of the volume and things like that, our camera is substantially less than that. But they're used to it. When they hear OGI camera, which is the standard, they know, hey, this is going be a premium

Nathan Latka

03:47>> service.

03:47Yep. And how many sites? I want to get your backstory here in a second, but how many sites are you installed on today?

Mark Smith

03:53>> So we are on 20.

Nathan Latka

03:55On 20. Across how many customers?

Customer Count and Site Installations

Mark Smith

03:58>> Across ten, eleven customers. So we have, so the company started in March 2020. Oh, that's Congrats. Yeah, so we have early visionary customers, the first two are starting to roll it out to multiple sites, all the rest, they're on one, you know, like pilot site, but usually pilots last three to six months with some of these companies, because our main client is a, I would say, a multibillion dollar oil and gas company.

Nathan Latka

04:30Yep. I mean, can I take 11 customers and 20 sites? Can I multiply 20 times that 600,000 contract value per site you just quoted?

Mark Smith

04:38>> Yes.

Nathan Latka

04:39Got it. So you've done $12,000,000 in all cash upfront already.

Mark Smith

04:43>> The pilots are not that much. The pilots are 6 figures, but it's a finite period of time. However, all the pilots, if we meet the pilot objectives start to go to scale.

Nathan Latka

04:55I see. How many are already paying your per monthly fee of $5 a month?

Mark Smith

05:01>> The two clients yeah. Who

Nathan Latka

05:03Okay. Got it. So pilots the pilots and what? They're like a $100,000 sort of pilots for three months? Yeah. I see. Got it. So you're at like you're like 10 to $15 a month right now in revenue in terms of MRR?

Mark Smith

05:16>> We're no. We're 6 figures.

Nathan Latka

05:20Okay, I don't understand the math. There's two customers and two sites. Paid $600

Mark Smith

05:24>> each and When $500 a you start to go to scale, okay, each one of these customers, some have 400 sites I get that. Yeah, No, when they when they when right when when the customers go to scale, they're adding 10 sites at a time. Okay.

Nathan Latka

05:43So I understand that I'm talking today, though, there's two customers and how many sites across those

Mark Smith

05:48>> two Okay, so just with those two customers alone are 20 sites.

Nathan Latka

05:52Yeah, but I get your point and that they can scale. There's a bunch of extra. Are they paying $5 for all?

Mark Smith

05:57>> Mark, are they

Nathan Latka

05:57paying $5 a month for all 20 of those sites?

Mark Smith

06:00>> Correct. Upfront for the ten years.

Nathan Latka

06:03I see. Got it. So then you're doing you're doing recognized MRR, we deferred over ten years.

Mark Smith

06:07>> You're doing around

06:07>> a 100 a month in revenue.

Nathan Latka

06:08Yes. That's great. I mean, that's fast growth. That's zero to 100 that's zero to a million dollar run rate in under what? Eighteen months? Twelve months?

Mark Smith

06:17>> Yes.

Nathan Latka

06:19Okay, how did you do that? Did you use your media business to close those customers quick?

How the First Client Was Won via FLIR Webinar

Mark Smith

06:25>> Yeah, actually what happened was we, when we started, it was just an idea. We did have a third party company build a basic level model on leak detection. Then literally, when the first month, I did a webinar with FLIR. FLIR is the market leader in this category. They invited their customers, every one of the customers that was invited was a purchaser of one of their previous cameras. FLIR recognized us as their AI partner. And boom, we

06:55>> picked up our first client who then paid us to do those models as well as 10 other models. So now the big idea is we're now selling a suite of models that we call autonomous three sixty five.

Nathan Latka

07:09Yep. But just to repeat this back to you, I want to give you credit where credits too. You've got two logos that are paying you and they've already paid you for installation across 20 sites at $600 a site, all cash upfront. Yes. So 20 sites and $600 all cash upfront means you have $12,000,000 that has hit your bank in the past six to twelve months since launch.

Mark Smith

07:29>> It's as it hasn't gone quite. They go in tranches. So but they're they're upfront. But let's put it this way. We're funded completely by our customers. Yes.

Nathan Latka

07:39No, I love that. I've never been questioning that. I'm trying to get a sense of when you say

Mark Smith

07:43>> I don't, I don't want go too much suffice to say, you're close, but I can't go too deep into the numbers like that.

Nathan Latka

07:52Well, it's fine. I'm just trying to understand all paid. When you say all paid up front, that would mean they all paid up front, not in tranches. So if you if it's tranche, are they paying once per year at the beginning of each year?

Mark Smith

08:02>> Okay, so

Nathan Latka

08:03I've never heard of someone paying ten years upfront. That's why I'm curious.

Mark Smith

08:06>> Yeah, and it's because of there's a tax treatment with oil and gas companies very unique to this market. It's called intangible drilling costs. So when they're it's a new pad, they can pay upfront and accelerate their investment and write it all off in that year. When it's OpEx, meaning it's now a production pad. So our customer number two was a OpEx. We, by the way, found a financing company that will, you know, cash flow the whole

08:36>> thing so we can finance that. But the bottom line is

Nathan Latka

08:38You'll lend your that customers money to finance.

Mark Smith

08:40>> Yeah, that that will not.

08:44>> OpEx doesn't pay all upfront.

Nathan Latka

08:46I see what you're saying. Yeah, they want to recognize and sign the contract. That is sort of like billable ARR because then they can take the tax credits upfront. The cash will actually leave the bank, though maybe on a different schedule.

Mark Smith

08:57>> Yes. So see. So works out different new pads versus existing pads or sites.

Team Size and Co-Founder Background

Nathan Latka

09:03Yeah, I see. Very cool. Okay, tell me more about the company. So you launched it last year. How many people are on the team today?

Mark Smith

09:09>> 10.

Nathan Latka

09:1010 of you guys. Okay. And are you the sole founder?

Mark Smith

09:13>> No. There's four of us.

Nathan Latka

09:15That's okay. That's a lot of that's a lot of people to get to agree on one thing. What did you do? Split 25 each?

Mark Smith

09:21>> More or less.

Nathan Latka

09:22Okay. And are you guys all like buddies? Or how'd you how'd you meet these guys?

Colorado Regulations and EPA Approval

Mark Smith

09:26>> I was the IT guy. These guys were all oil and gas engineers. And so there was a particular problem that was happening in Colorado, which is where we're founded, where Colorado regulations were moving to continuous monitoring. And that was a game changer. So we met with FLIR, how are going to handle it? You know, so we said, Hey, we'll jump in and create the first machine model. Another regulation happened in Colorado, basically saying with oil and gas

09:54>> tanks, they could not open the thief hatch, they needed another solution for that. So essentially, we're following these regulations. And then in Colorado, and now it's starting to spill out all over The US. There's some other regulations coming up, we're getting our, our system being approved by the EPA. And it's done through one of our clients actually, who's presenting our stuff to the EPA.

Nathan Latka

10:20Mark, how many engineers are on the team?

Mark Smith

10:23>> So we have six.

Nathan Latka

10:24Six. Interesting. Okay.

Backstory: Windows NT Magazine Exit

Nathan Latka

10:27Take me back on the backstory here, because you had a magazine that you sold as well.

10:30When did you exit that company?

Mark Smith

10:33>> 2002.

Nathan Latka

10:34Okay. And was that your baby? You own 100% of it?

Mark Smith

10:37>> No. I mean, I own that with some other partners.

Nathan Latka

10:40When did you found that? When did you issue the first issue of

Mark Smith

10:43>> that The first magazine was September 1995. We sold in September 2000. Then I had a two year kind of exit.

Nathan Latka

10:54How's the magazine valued?

Mark Smith

10:56>> It was valued at 100,000,000

Nathan Latka

10:58How? What's that a multiple on?

Mark Smith

11:01>> It was a multiple on certain things. So at the time, at that time, the multiple was based on three chunks. So the print magazine part, the events, and then the digital part, the digital had a 16 times multiple, because digital at that time was so new in the media space, that the acquiring company paid huge multiples for it.

Nathan Latka

11:24Yeah. So what the digital was doing 6,000,000 by itself times 16 is 100,000,000?

Mark Smith

11:29>> Digital, not quite, but print was, print was healthy. It was a subscription based magazine. So all paid. Events were very profitable, and the digital was literally printing money at the time.

Nathan Latka

11:42How many issues did you ship? Like, like how many households got a copy of your magazine in 2002?

Mark Smith

11:46>> So it was in. So let's see, probably about 250,000. So but that was in it was in 13 languages. And it was 160 countries. So and it was a paid subscription magazine. So it had all of these different

12:05>> internationalization versions of it as well.

Nathan Latka

12:08And what did you what was the cost of subscription costs?

Mark Smith

12:11>> $50 a year.

Nathan Latka

12:13Wow. Okay. That's not bad. You know, $50 times what? 250,000 houses. What is that? 12,500,000 a year in revenue there? Wow. That's incredible. Do you regret selling it now looking at big media companies today?

Mark Smith

12:23>> No,

12:24>> the timing was unbelievable. Honestly, if we had waited another year, probably would have got a third of that.

Nathan Latka

12:31Now was that like life changing sort of f u sort of money where you don't put money the rest of your life?

Mark Smith

12:35>> Yeah, but you get bored really quick, you know, so and some other stuff. So I ended up creating an agency and helped other media business owners exit. So that I got, I was well known in the M and A space in the medias deal. So I would help other business owners and get their portfolios going and stuff like that.

Nathan Latka

13:01Right, cool. And you bootstrapped this company quicker. How much of your own can I ask how much of your own to put in?

Bootstrapping and Founder Investment

Mark Smith

13:09>> Not much. To be honest with you, I expected to put way more, but we land our first client in thirty days, and they wrote us a check. So I'm like, holy crap, this is like the this will be the biggest return of my life.

Nathan Latka

13:24Yeah. So you put in like under 1,000,000 of your own capital, would you say?

Mark Smith

13:28>> Yeah, I don't even want to tell you because it's embarrassing. It's I

Nathan Latka

13:32don't think it's embarrassing.

Mark Smith

13:33>> I think it's impressive. But you have to say what it is for us to be impressed.

13:37>> Less than 6 figures.

Nathan Latka

13:39That's great. So you were able to sell this customer and get that cash before you had the actual hardware You sold them on a slide deck.

Mark Smith

13:45>> Correct.

Nathan Latka

13:46Yeah, that's great. That's the way to do it. Very cool. Any plans to raise or you want to stay bootstrapped?

Plans to Raise and Possible SPAC

Mark Smith

13:50>> Yes, we're going to raise. And the main reason is because ESG is happening now. And there's a big opportunity right now.

Nathan Latka

14:01And that is What is the right amount to raise?

Mark Smith

14:06>> It's interesting, because when I the number we need to hit the scale numbers we want to hit isn't much a couple million bucks. But we have people who want to give us way more than that, because they, one of the things that I was very successful at doing with Windows NT Mag is buy a bunch of companies. So, you know, we're talking about doing a SPAC and putting extra money and buying up because I was very

14:31>> successful near the last year prior to exit of buying great engineering companies who couldn't market their way out of a wet paper bag. And they're like, we hate sales and marketing. And I go, well, I love sales and marketing. Let's pair up and great engineering company. And they was very accretive. So there's a number of acquisitions that we'll probably do as part of this.

Nathan Latka

14:53What do you think the company's worth today?

Mark Smith

14:56>> Buck $3.50. And what? Mean, I I honestly, that's that is the, you know, $100,000,000 question. I don't know. Interesting.

Nathan Latka

15:07Alright. The m and a guy does not know what he thinks his company is worth today. That's I don't believe you, Mark, but we'll leave it at that. Alright, talk to me about salespeople. Any sales reps on the team?

Mark Smith

15:17>> No, the founders are doing all the selling.

Nathan Latka

15:19Okay, that's you. And you don't have enough history yet to know about churn. CAC, how did you find these customers? I guess it was from your media business, right? You had a distribution mode.

Media Strategy and Digital Roughnecks Podcast

Mark Smith

15:27>> Yeah, I mean, this is one of the things because I have a media background, I launched digital roughnecks. And it's amazing, you know, and create a, you know, I became an expert in the industry by interviewing experts in the industry.

Famous Five Rapid Fire Questions

Nathan Latka

15:41Very good. All right, Mark, great story here. Let's wrap up with the famous five. Number one, favorite book.

Mark Smith

15:47>> Currently? Yep. I would say play bigger.

Nathan Latka

15:50Number two, is there a CEO you're following or studying?

Mark Smith

15:54>> No.

Nathan Latka

15:55Number three, what's your favorite online tool for building Clean Connect?

Mark Smith

16:01>> Clickfunnels.

Nathan Latka

16:03Number three, what's your or how many hours you sleep every day every night?

Mark Smith

16:07>> Eight.

Nathan Latka

16:08And what's your situation? Married, single, kids?

Mark Smith

16:11>> Married with kids.

Nathan Latka

16:13How many kiddos?

Mark Smith

16:15>> I have one kid and I have one grandchild.

Nathan Latka

16:18Wow. Okay. How old are you?

Mark Smith

16:20>> 61.

Nathan Latka

16:21Last question mark. Something you wish you knew when you were 20.

Mark Smith

16:27>> Becoming an entrepreneur is tough, but it ain't that tough. You should go go for it.

Nathan Latka

16:33Guys, cleanconnect.ai helping oil and gas folks comply with new ESG rules and regulations. He sells an OGI hardware pack plus an AI installation pack, call it $5 per site annualized at $60, and they usually pay ten years upfront. At least they commit to it contractually. So $600,000 contract values there. They've already got two customers live paying for 20 sites, $100,000 in a recognized MRR, about a 1,200,000 run rate, all bootstrapped, which we love. Team of ten,

16:58six engineers, founders in all the sales, then maybe we'll raise now a couple million bucks, maybe look at a SPAC and doing a roll up. We will see what happens. Mark, thanks for taking us to the top.

Mark Smith

17:07>> Yep.

Nathan Latka

17:09One more thing before you go. We have a brand new show every Thursday at one p. M. Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every

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