Telesense Revenue, Valuation & Funding (2020)

you're gonna love this interview just got done editing it i'm glad i got it live for you i'll be in the comments for the next 30 minutes hanging out answering any questions you have in fact leave a comment below about data points or what you think is going to happen to the company and i will respond to every comment additionally if you're just loving the content click the thumbs up and i will go and check out your profile as well and give your videos some love as well in the meantime enjoy the interview hello everyone my guest today is naim zafar he's a serial entrepreneur and the founder and ceo of a company called telesense naima's a 7x startup entrepreneur and 5x ceo with successful exits he's deeply ingrained in the silicon valley ecosystem and frequently speaks about innovation and entrepreneurship he's authored five books on entrepreneurship and he teaches entrepreneurship at uc berkeley and northeastern and northeastern university the company is called intellisense again an ag tech company using ai to preserve grain name you ready to take us to the top absolutely all right so what's the silicon valley guy that should only be in computers and software doing digging around in grain bins well we figured that what are the industries which have not been touched by advanced software technology and we looked hard and we found construction and ag our two industries which there's a lot of room there to have innovation so silicon valley we know about wireless sensors artificial intelligence so we decided to apply that to the grain industry and we are sort of the first one to get there yeah so so explain i think this is fascinating explain to those that missed your first interview how the product actually works do you have it by the way the iot device yeah can you hold it up i'll hold it up so there are a couple of devices so let me just say a couple of words here so grain once you harvest it and store it never improves in quality it goes downhill the question is when is it going to go bad or not as good so should i sell it now can i hang on to it for another nine months should i sell it next season that's the decision every growth has to make so what problem is to monitor you need temperature humidity what's going on inside my grain so if you make it super simple then anybody can use it so what we have done is we have created a little ball this ball has temperature and humidity sensors and this is the antenna you can stick this ball in a pile of grain and you can pull it out when necessary but even more interesting is this spear okay so this is a two meter long sphere but all you have to do is stick it into a pile of grain and this thing start transmitting data wirelessly so hold on that thing you just held up for those of you listening audio only it's kind of a blue ball on top of about it looks like a three or four foot long metal stick longer than that six six six and a half six and a half feet what does that cost you to make their name that iot device so this device we sell for about four to five hundred dollars depending on the quantity okay and then you know if you put three or four of these in a pile of grain or in a barge going down the river now you know what's going on if there's a problem there's a hot spot there's a biological activity you can take some action okay and that can save millions of dollars of grain every year those two things though for you as a business the yellow one versus the blue one you just showed me what is what do those each cost you to produce uh our cost of production is around 150 dollars for both of them each yeah approximately one is like 110 one is 170 so approximately one for 440. okay and what makes them so expensive to produce because inside there's several interesting things going on there are of course a battery but must last a couple of years there's a wireless communication circuitry which is needs to collect the data the temperature sensors humidity sensors they have to be weatherproof they have to be able to withstand large temperature variation and snow and humidity they have to be intrinsically safe so you can't blow up in a silo so a lot of advanced technology goes into those things if i am a farmer and i have a silo that are is three stories tall and i stick that instrument you just showed me into the top so it only goes down six feet which maybe like one tenth of the total height of the thing how do you know that the grain at the bottom isn't getting exposed to like insects or somethings and it's actually bad grain but your sensor at the top is saying it's all good yeah so that's why uh for tall silos we have a different product because tall silo you can hang temperature cable which go all the way up and down we sense those cables and we start transmitting data wirelessly in shorter things you can hang these things so these things assure you they're ideal for ground piles shallow storage barge or rail cars so for three story tall we have a slightly different technology which i don't have to show you but it's a box which wireless sensor data interesting okay so for some context for you guys so so when you came on last you'd communicated i mean this is expensive to get going you have to not just you have to make software you have to produce a physical object as well you had raised eight million dollars had staffed the team up to about 20 folks it helped me understand the capital structure business today still eight million raised or if you raise additional capital uh no we are going to be raising this year about 15 million okay why is 15 million the right number because our mathematical calculation tells us that will take us to profitability okay so it comes out a financial model well how do you so even though if that's the right number in terms of getting a profitability how do you make sure you raise that in a way that doesn't really dilute you and your other employees that might have equity shares well it will dilute us that's okay how do you minimize dilution though minimize the illusion is by creating the company value higher and higher so when you raise last time the company value was this much this time hoping the company value will be this much so dilution will be you know maybe 20 maybe 25 and not 50 yep so that's what the focus is and to raise your valuation you need to be able to produce half a dozen charts all up going to the right and that's what we have been working on so team is now like 44 people uh we have sales force now and we have dealers selling for us we have found product market fit in two or three markets which we did not know last time when i talked to you so things have really had more momentum than ever before so 44 people how many are engineers uh 28 okay so majority engineer any quota carrying sales reps or no uh any sort of quota carrying sales reps yes yeah absolutely so we have five uh quota carrying sales rep okay and so to back into that you your target what you'd feel like would be a good raise this year would be selling about 20 to the company for about 15 million is it accurate approximately yes so what story do you feel like you have to tell paint some color on those charts that you have to show to get a 60 million dollar pre-money evaluation right so with first of all the story is that there are we did some pilots with the series a initial thing and now we can demonstrate that those people are now proliferating so there's one location now they're in three locations or six locations so we know you can see there'll be a ramp we can see how many people how much time do they spend every week on our website on our using our mobile app it may be there is only using it five minutes a week now they're using 11 minutes a week they plan to use 26 minutes a week so that shows that they're engaging and then ultimately you have to show roi did we detect a disaster and avoid it from happening and the fact is there are several examples now when we detected a disaster which did not happen so as we demonstrate the product has value and the predictive part is working that's what's going to give us the high valuation so when you came on last time you articulated that you were selling 20 balls for about five thousand dollars to to your buyers is that still the same or have you been able to drop that price to get more market share drop that price to get more market share or our own production is more now optimized and we've evolved from just using balls to combination of spears and other form factors so we are founding for example very attractive sil product in hay market hay is food for animals and hay is as expensive product is sensitive product we did not know about that last time we talked so today we are penetrating the hay market so today just to do an apples to apples comparison what do you sell 20 balls for plus the year-long subscription so that has come down slightly not a lot that has come down to maybe i think thirty five hundred to four thousand dollars okay but so idea is not to reduce the price just yet to add more value because we have several software products which will be coming once we have the balls we want to be able to sell people additional products which can give them more value how many how many folks are now paying for the software component uh well everybody's paying for the software component so today we have about 400 customers now okay that's up from 800 obviously when you're just getting going two years ago so 400 and what does that mean is that 400 balls or do they each buy 100 balls is that 400 locations yeah so balls and spears and also those the the what we call the buffalo the for the silo product uh so i think vast majority of these people initially we were focusing on small growers and farmers so they were buying one to ten unit unit could be a ball or a spear yeah now we're focusing on grain majors so so each customer may buy something between 40 and 100 units okay so going after the much larger customers because we found out the sales cycle is about the same might as well focus on the large enterprise customers so how many individual pieces of hardware do you have out in the world today balls spheres boxes buffaloes what three thousand three four okay wow okay so 3 000 across 400 customers people can do the math on that obviously right so call eight nine ten on average per per customer but some are you know 5800 some are one or two so yeah yeah uh okay interesting now let me ask you a tactical question here if you're trying to get market share one thing you might raise money for is to subsidize the hardware costs you can give it away for free and focus on upselling the software because i imagine your retention rates are through the roof once the hardware is installed why haven't you done that because we want to get the product uh perfected to a point then you can press a button and order 10 000 or 5000 or 1000. this year we we plan to achieve we are working with contract manufacturers until then we were assembling the product we were babysitting the product but this year we are slowly transitioning to contract manufacturing when that happens and the costs are much more predictable and under control we will do exactly what you said i see okay now shifting back to just the software side you told me last time your arpu on that on average was about 250 per month uh has that gone up or down or stayed the same it has stayed the same but it is expected to go up because we're planning to add additional ai based software layers and those will be optional for people to buy so we have two or three products which i can't give you too much detail yet because we haven't announced them but that will extract more value from the hardware investment they already have made that's the goal okay so on average regardless if they're buying five balls or you know 40 on the outset the software upsell is a 3 000 a year upsell uh on average it's 40 of what they paid for hardware typically so it could be even bigger numbers in some larger deployment if they bought something where for let's say fifty thousand dollars then the recurring portion is 20 000. i see so maybe a better question here is to ask if you look at your current run rate just on the software side it sounds like you're you've got to be flirting with a million dollar run rate correct you're pretty close to it yeah yeah do you think you'll break that the next month or two no i don't know but next month we will break it before christmas yeah fahren and obviously there's a lot of other things happening in the world right now so is that is the virus impacting farmers and grain at all it is impacting in the sense that everybody's a little frozen to figure out what to do i mean large companies have said we no more if you're a non-business critical person you're not allowed on the premise till they figure out what to do but the good news is food grain is fundamental to our survival so people may not go to theater or may not fly or take vacation but they gotta eat so we are in some sense we are a little bit more protected but the logistics confusion has to be clarified which will happen i think over the next one to two months fair enough so 400 customers paying between 150 and 250 per month for your software puts you flirting with you know 60 70 80 000 a month in terms of run rate help us understand growth just on that part of the business the software side so exactly a year ago what was run right there i think run rate was not meaningful back then because we were just rolling out these things so it was really just getting started now the thing which is interesting dynamics in the market is we are selling to growers and grain cooperatives they're not used to recurring revenue or paying recurring fees so this is a new concept which they are just getting comfortable with and some are not comfortable with so sometimes we have to come up with a capex pricing versus a subscription pricing see all of us 10 years ago we did not pay for subscription for dropbox or netflix or with this and that we used to just buy something now we are comfortable paying many multiple subscriptions that industry ag industry is still getting used to it so we're a little bit ahead of the curve okay now let's shift back again to just the hardware side so if you have three thousand units out there in the wild then you're saying you're retailing those for about 400 a pop i mean that would put total sales there about 1.2 million dollars is that accurate or do you do group discounts no no that's about accurate i mean it's of course spread over nothing it's all did not happen a single year but yes yeah it is accurate so it's really building the momentum yeah yeah yeah i guess the reason i ask these questions is because and you're you're in the valley you teach on this stuff so you've i know i've thought about this when you go out with a story to tell to try and get a 60 million dollar pre-money valuation you articulating the money you've made on the margin on hardware which it sounds like you've made there about seven or eight hundred thousand dollars when you subtract your retail price plus your cost of goods sold that's not going to get evaluation right like you're going to get on your software side of the business but they feed each other so what story do you tell investors when you go out to raise i think a story is about the machine learning and ai based insights that what we story we're selling is look today a grower has a lot of labor picking fixing running elevators and co-ops those people are not scientists we're dealing with a workforce with a certain education level you have to not tell them show them a chart with bunch of numbers that what do they do with this nothing but you need an actionable insight so we are going to deliver something which they don't have today such as turn on the fan on on pile asylum number seven for three and a half hours the guy knows exactly what to do or empty silo number 17 and refill it because there's a hot spot inside developing because we're looking at the temperature ambient temperature temperature inside the grain temperature inside the silo we have algorithm which can figure out what to do now push the air in or suck the air out so this actionable intelligence is invaluable now as you're focused on driving this growth and driving towards this next fundraise obviously you have to manage burn we're in very uncertain times right so everyone's making adjustments on this right now every ceo interview i've done today there's been some talk of this right so i want to get your perspective uh what were you burning kind of pre-three weeks ago when this kind of virus hit and how are you changing your burn plans moving forward so we're looking at different scenarios at this point you know it's not time to panic it's time to study and understand the atmosphere out there only thing i've done so far is frozen the hiring process and uh question is do we have the right people we have to right-size the company it's too early for me to compute that i am lining up additional funding yeah from our investors to extend our runway uh into the next year so we have plenty of time to raise money and we're not sort of hurrying it up and what are you burning today in terms of net burn you're trying like 50 grand a month 100 grand a month something like that no it's more than that okay but uh the fact is that we are uh you know with 44 people it's more than that so but we're we're watching it right under under a million though right net burn per month yeah yeah okay fair enough good now has you know one thing i'm curious about you should have through the roof net revenue retention numbers once the hardware is installed that's one of the benefits of an iot device you know sale at the beginning have you had anyone you know two years ago install the hardware but for whatever reason not renew the software subscription not yet okay this is very positive you know that's exactly the one of the metric we watch what is the churn rate and churn rate in this case is extremely slow and two or three people who churned they either sold the business got out of it or or nobody has abandoned a product or got anybody else's because nobody else quite does what we do so we watch the churn rate and you're absolutely right that's the metric to watch okay so you've kept turned very low what about expansion revenue opportunities do you have a strong upsell kind of ability yet and has it worked absolutely so you know we are testing doing some some of these experiments with barge and in that wells that we already have expanded that to multiple barges and ideas to go to the hundreds of barges same thing in hay market we started with one example uh now they have placed order for several hundred units we did not even know rice was a problem we did experiment with the pilot with one company and now they're just expanding to like 46 locations so yes absolutely so this is the story which i'm telling the investor that this thing is there's a need for it you start it with pilots that are proliferating into multiple deployments that's why you should pay attention to this company what are you spending to get these new customers so what's your fully weighted cac look like so again we don't have enough data to compute a hack right now because initially we're going after direct sales model what's your best idea though you have a you have an idea that's some idea yeah so i think currently if i have to compute you know how much i'm paying my five guys and how many sales that they're bringing in so that i can compute a cat it's probably gonna be you know five to ten thousand dollars for a large customer which is probably higher than we wanted but we start setting up dealers we set up two dealers already ideas to set up 20 dealers bring the cap down customer acquisition costers people who may not know cac so idea is to be a typical customer should be let's say twenty to thirty thousand dollars up front with about ten thousand dollar recurring and if you spend five to ten thousand dollars a customer like that that's not too bad yeah yeah what about today though to get someone that buys ten devices and they pay you a thousand you know you know call it three thousand dollars per year for the software what will you spend to get one of those guys i think if we i have to compute more carefully how many uh your idea is to make zero trips send them a video and and fedex box and we have done that with you customer it worked so you know one of the largest companies uh you would know in the greeners that's it we send them five spears in a fedex box with a video and a page and they installed it themselves yeah so my cap on that deal was literally like two hundred dollars yeah yeah yeah very good all right uh well well sorry how your cap would be higher than that right because each thing caught each if you send five balls your costs are 150 per ball so there's no but cac is different than your my total expense cac is customer acquisition cost which is the marketing spend to get that customer well everyone so ever that's why i asked everyone measures it differently so some people include their cost to goods sold like physical hardware or server installations or things like that some people don't so you are only including in your cac direct marketing expense exactly and as a professor of entrepreneurship i'll insist they should not mix the two that will cloud the scenario because i'm a professor i teach this topic they must separate cogs from cac yeah yeah otherwise they will be confusing themselves certainly measure both all right let's wrap up here with your uh with famous five number one favorite business book well favorite business book what have i read lately which has been interesting uh i should have prepped for this and you can say you can say none it's okay yeah i mean you know the thinking fashion thinking slow is still a good book it's not a new book but i read it recently okay number two is there is there a ceo you're following or studying no number three what's your favorite online tool for building the company well i've been we are heavy users of slack and gusto and those have been very useful for us number four how many hours of sleep to get every night uh about six six and what's your situation i am married single kiddos uh married two kids two kids okay and how are you uh how old am i yeah yeah i'm 62. 62. take us home here last question what's something you wish you knew when you were 20 i wish when i was 20 i would have read more guys he's playing in the ad tech space selling these orbs to farmers and producers to measure temperature changes and other metrics in their grain silos hey silos barges you name it he has 3 000 devices deployed he retails those devices for an average of about 400 bucks cost goods sold 150 for him so call it 800 000 and kind of spread he's made on the hardware sale but that's not the long-term play the long-term play is the software upsell the ai on the back end where you're seeing acvs there somewhere between 150 and 200 per month he's flirting with a million dollar run rate on that side of the business with 400 customers founded in 2014 his team today is about 44 people 28 engineers 8 million raised burning more than 100 grand per month in net burn but less than a million looking to do a 15 million raise here shortly where he hopes to sell 20 percent of the company which would be about a 60 million dollar pre-money valuation not even more room for you thanks for taking us to the top thank you very much your excellent summary unbelievable do you guys know i fight like heck to get these data points for you from these ceos that rarely do these kinds of shows if you want more shows like this make sure you subscribe right now we're trying to get 10 000 youtube subscribers by the end of september here 2019 and it would mean the world to me if you clicked now to subscribe additionally i've got two more great interviews for you if you want more data points from the world's leading sas ceos click and watch one of them right now