#327 – An Interview with Avidan Ross

Avidan Ross: This is The Amp Hour Podcast. Recorded December 14th, 2016. Episode 327. An interview with Abidon Ross.

Dave Jones: Welcome to the Amp Hour. I'm Dave Jones from the EEV blog.

Chris Gammell: And I'm Chris Gammell of Contextual Electronics. And I'm Abidon Ross of Root Ventures. Thanks for joining us, Abidon. And we are now our third in-person interview. We're getting a little bit better at this. We are currently in Abidon's, what was it, space? Workshop, workshop, factory, cafe.

Avidan Ross: We have a million in one. It's whatever the day holds for us.

Chris Gammell: Right. We might be a little bit echoey, but it's in the service of being around a lot of awesome equipment and hanging out in a really cool space. And talking face-to-face is always nice. So, why don't you tell us a little bit about what you're doing these days. And we'll get back into where you came from and what you're working on.

Avidan Ross: Okay, cool. So, first off, thanks for having me. It's a lot of fun to be on the interwebs like this. So, right now I run Root Ventures, which is a seed stage venture fund. Focused on three areas. At the core, we invest in low-cost robotics and connected devices. Behind the scenes, we invest in picks and shovels. So, engineering tools, developer tools, manufacturing tools, prototyping tools. Really just everything that helps people who make products. And then we believe that supply chain manufacturing and logistics are going to get turned on their head through connectivity and data. So, we are generally the first investors into companies after, call it, the rich uncle phase or the accelerator or whatever it might be. However you get your first couple bucks. And we just roll up our sleeves and help out. So, everybody on the team has a background in engineering or product. And we just want to help entrepreneurs in getting their products and companies off the ground. Awesome.

Chris Gammell: And people can go to Root.VC. Root.VC is your site. There's a lot of familiar faces on there. And I did mention last week that we were actually talking about some of them. Can you maybe run us through some of the ones that we might have heard about or maybe haven't heard about?

Avidan Ross: Yeah, absolutely. So, I probably expect that most of the people listening have heard of Particle. And if you haven't, you should totally check it out. But Particle.io is a great example of someone we found very, very early on. And then there are people who are in the specialized space. So, Shaper Tools recently had their sort of release and pre-order campaign, which was wildly successful. Apparently, a lot of people want a handheld CNC. We've had Jeremy on the show as well. Jeremy Blum works there. Awesome. Yeah, that was a big win for us to get Jeremy from Google. You know, there's a lot of great people out there who just love the product and end up joining the team because they just want to see that product exist. I actually found the team at Shaper while they were at MIT. Well, Alec had just graduated from MIT. And Elon was deciding whether or not he was going to finish his last year.

Chris Gammell: Yeah, Nadia was telling us about them. She was on the show as well, and she was telling us about Elon, I think, was one of her coworkers. Yeah.

Avidan Ross: So, I mean, to this day, I'm still blown away by how that product works. So, one of the weird things that we do is – so, I have a degree in computer science, and I focused on embedded systems and network equipment. And I do code review with companies whenever we get the opportunity. And the code reviewer for Shaper was over three hours. And it was mind-blowing. The algorithms that make that thing run are just absolutely amazing. And, you know, the end effect is that it looks like magic, right? You look at it, and if you don't know what's going on, you're just like, wow, that just is magical. And the technology is so advanced to get there that it's fantastic. But there are a bunch of other great companies we're invested in that, you know, Plethora doing, you know, automated milling for people who want superpowers on the milling side. You know, Mastgen doing computer vision for self-checkout. But I think most of the maker community gets excited about Shaper, Particle, and now Instrumental for people who actually produce products in scale. So, anyone who's, like, on the consumer electronics side who's trying to produce, you know, 100,000 units of something and wants to have yield levels that are at the highest, highest levels and continuous improvement over the course of their manufacturing runs. Instrumental is pretty mind-blowing.

Dave Jones: Now, you mentioned that you're a seed funder, so you get in at the seed stage, and you said that was, like, sort of the first step after the initial money. Can you explain to people out there how the different stages of VC funding typically works? We are our first VC.

Chris Gammell: We haven't had anyone done as VC, right, Dave? Yeah. We've had people that are VC funded, maybe, but not the actual people that are making the decisions. I thought we had. I don't think so.

Dave Jones: Okay. And can you tell us the difference between angel funding and VC funding?

Avidan Ross: And give us the whole spiel. Yeah, so I think the reason why I'm the first VC on the show is because I'm not…

Chris Gammell: He's still internalized as an engineer, I think, right?

Avidan Ross: I'm not an actual VC. I mean, I don't…

Chris Gammell: You're getting there. Come on, Dave.

Avidan Ross: I'm not wearing the right shoes. I'm not wearing the right, you know… I don't have any buttons on my clothing.

Chris Gammell: You didn't get an invite to that meeting today? No, no.

Avidan Ross: I'm not in Washington, D.C. or New York City meeting with the president-elect. You know, as a VC, we're much more like engineers who help out with a little bit of cash and a lot of strategy. You know, and a little bit of cash, you know, we'll write 500K checks, which is a lot. But at the same time, it's not very much in the grand scheme of getting a business built. More importantly…

Dave Jones: You don't necessarily do a lot with 500K. A lot of people think that's a lot. But you get 500K for a crowdfunding campaign and a lot of companies have gone bust because they didn't get enough.

Avidan Ross: Oh, I think that's a huge problem with expectations of what it costs to actually build a product. And NRE is something that people don't really account for. Like, what it costs to tool up. What it costs to build your core firmware products. What it costs… I mean, everyone really just looks at, you know, what their individual bomb costs look like. And they say, okay, well, I'm going to make this thing for $20. So, in order to make, you know, 10,000 of them, it'll cost me $200,000. In reality, there are tooling costs involved. I mean, there's legal costs involved. There's so many core fundamental costs involved. And I think, you know, we see a lot of crowdfunding campaigns that don't… Or underestimate the overall cost of building a business. So, the truth of the matter is that we might write a $500,000 check. But we're usually looking to other investors to come in and be a part of that funding round. So, it might be a million. It might be $2 million. But we're also not shy. If we're going to be the only investor in the room, we're fine with that. We'll write a $500,000 check. I mean, that's what we did with Instrumental. We were the only investors after they left Apple. You know, that's what we did with Particle. We were the only investors after they graduated from the Hacks Accelerator. We're very comfortable being the first ones in and alone. But I'm happy to jump in. If you guys… I mean, I don't know how deep you guys want to go into venture. I think there's a lot more fun stuff to talk about than Sand Hill Road.

Dave Jones: That's why we've got you here. I mean, that's…

Chris Gammell: Well, so maybe just… So, just a quick primer on it would be good. Just like… Okay. So, how does seed then… What is that different then?

Avidan Ross: So, basically, the way it works is, essentially, people raise seed funding. And in Silicon Valley, seed funding is anywhere from $1 million to $3 million. Okay. The idea… Or I should say, when we write $500,000, maybe it's called pre-seed. And the goal with seed funding is to build a functioning product that may or may not get to the point where you're finding the product market fit. Right? The idea that you've gone ahead and said, I have this idea. I might have a crude prototype, but I want to go see if I can get this to market. The next round is referred to as the Series A. And the Series A is when you're trying to scale it up and see if you can get high-velocity growth. You're trying to get to a point where, you know, maybe you've sold a million dollars worth of product. And you want to see if you can get to $10 million or $20 million. The next rounds after that, that's when you get to Series B, C, D, E, all the way to Z. And each of those rounds are much more traditional in their funding set where somebody says, I think you're doing phenomenally well. I want to give you $20 million for a piece of your company to help you grow to become the next Facebook or to become the next GoPro or Nest or Fitbit. And early, early on, there's a lot of conviction or just, you know, a lot of hope and dreaming and people who are really in it sweating with you because it's extremely high risk at those early stages. So Seed Stage and Series A investors are pretty crazy and irrational people who work with emotion. I mean, like genuinely you fall in love. You fall in love that you believe a product has to exist. Whereas in the Series B, it probably fits an Excel spreadsheet. You have an Excel spreadsheet and it either turns green or it turns red. There's no Excel spreadsheet in the Seed round.

Dave Jones: Where do people's retirement savings get invested? Is it A, B, C, D? I mean, that's what we worry. I mean, we've talked about this before. You know, we, a lot of people ask, you know, why do we care about people investing in this? It's because it's people's money, right? If it's your money, that's fine. You know, you can spend your money however you want. But when it starts, you start investing in people's pensions funds and everything else. That's when we go, hey, come on.

Avidan Ross: We are not investing people's pension funds. Excellent. I have, we have actually, I have a lot of friends who tried to invest in the fund who were going to pull it out of retirement. And I said, this is such a high risk, right? You look at it and you say, we are so risky where we are. You know, people look at things where they've launched a crowdfunding campaign and they might have, you know, raised 300, 400,000. And they think they're out of the woodwork. It's like they're just starting the risk level. And that's why a lot of people turn to someone like us because we've seen so many startups go through all of the things that they're about to go through. You know, hardware, building a hardware startup is what we would call the triple black diamond of entrepreneurship, right? You're not only building a product, you're building a platform. You're writing software. You're designing hardware. You're going through electrical engineering, mechanical engineering. You have, you know, new product introduction. You have to deal with contract manufacturers. You then probably need to handle distribution, supply chain, logistics, compliance. I mean, you might need UL certification. You might need NSF certification. You might need to go through FCC certification. You might, I mean, like, there are so many pieces.

Dave Jones: If you're a medical device, you screw it up. Oh, my God.

Avidan Ross: We don't, we try it very hard to avoid. Every once in a while, I fall in love with a medical device. But that is, that is the, the quadru, that's jumping out of a helicopter with only one ski on. But the, but the rewards, the rewards pretty fantastic. If you could save, if you could save humanity, you know, moving forward, it's, it's, it's worthwhile. But that's why a lot of people look to hardware focused investors at the earliest stages is because this is complex enough that you're looking for somebody who's a specialist, right? You don't just want a loan from Wells Fargo or Bank of America to build your startup. You want somebody who's been through it, done it. And, and that's, that's why hardware investors are, I, you know, if you're not taking money from us, we don't have enough, we don't have enough money to be able to fund every great hardware entrepreneur we meet. But we always like to refer them to other great hardware investors who can help. Because it's rough going.

Dave Jones: Right.

Avidan Ross: Where is, it's, it's in a bank account. Where is your money coming from?

Dave Jones: Is it your, like, you know, how did you get started? Did you just get lucky? You had a bunch of money.

Chris Gammell: The other question I used to have is that, is that people that are, are running funds, it's not just, I mean, I'm sure that you have money in it. Right. It's not just your money.

Avidan Ross: Right. It's not just my money. It started out, it, it started out with just me. Well, so the, the story goes back a little bit and I, I, I'm happy to go as far back as me building cable modems and voice over IP handsets in the nineties. I mean, I, I, I started out in hardware in the first dot com boom and after the crash ended up going, falling backwards into running tech for an investment company that was doing a lot of energy and infrastructure investing as well as a bunch of other things they were doing, real estate investing. And I was the CTO there and I was focused on water, wind, solar, smart grid, vehicle telematics, building energy management, things that cost a lot of money to get started. And I was approached by a couple of guys leaving Tesla and they said to me, look, we want to build a vehicle telematics business and we only need $2 million to get started. And that sort of threw me for a crazy loop. I was like, there's no way you can build a startup building physical products with only $2 million. Right. And they showed me the Martin Eberhardt, Elon Musk school of building hardware when I came up here and it was the Tesla Roadster, right? You buy a Lotus, rip out the drivetrain, call it a Tesla. And all of a sudden you have an MVP, right? Maybe you're not launching on Kickstarter, but people have to pre-order their vehicles. Right. And all of a sudden you don't have inventory risk. Right. And I went even deeper and deeper into this world of capital efficient hardware and more importantly, treating hardware as a platform for delivering services. Right. Like layering software into your hardware. And I turned to my partners and I said, I can't, I have to be a part of early stage hardware. And this was about six years ago. So, you know, we had just started to see Raspberry Pi. Arduino was, everyone was still focused on the Uno. Although everyone's still just focused on the Uno six years later. Right. We can't, we can't shake it. We can't shake it. Um, and so I, I ended up, so first I told my partners that I would give them a year where I wouldn't invest in anything out of respect for them running their investment firm. And that's when I built this crazy food robot, which we can talk about. That was my hackaday talk that, uh, spurred a lot of this. Um, and then, you know, after, after that year of burning my buddy's eyebrows off on television, um, I ended up investing my own money to get started. When I, I started meeting really cool entrepreneurs building stuff and I was writing, you know, small checks, but friends of mine who heard that I was investing said, whatever you're investing in, we're in. And that led to a bunch of investments that eventually became a fund where people I've known for years or people I'd met over the, over the years said, we would love to be a part of this fund. So, you know, it's wealthy people that I've met over the years who have, uh, an interest in the space and allow us that the pleasure of being able to deploy that money and invest in great companies.

Chris Gammell: That's great. Is it, is it, um, I mean, I, I don't know if you have public house, how big the thing is, but like, I, I hear about the really big funds and it seems like they have different requirements and like how.

Avidan Ross: Yeah. Yeah. So we, we have published how much we raised cause I, I think it's hilarious cause we raised 31.41592653. Uh, nice. Very nice. Yeah. Uh, although, although funny enough, the SEC made us round off the pennies. Um, they would not allow us the full 10 digits of pie. Um, but, but that being said, we're, we're, we're small for a reason. Right. At the end of the day, we believe the real opportunity, the real shift for entrepreneurs trying to build hardware these days is that the earliest stages are possible with minimal amounts of funding. Right. Right. You know, at the end of the day, scaling up a huge business is still going to be expensive. You still need to manufacture and you still need distribution and salespeople and supply chain, but we've never had a time before where you could get a functioning prototype built for a couple of grand. Yeah. Right. Like you can, you can get your PCBs made in China. You can get them stuffed. You can stuff them yourself if you want to, right. You can make your own PCBs. If you want to, you could 3d print your own enclosures. You can write your own. I mean, firmware development has become extremely accessible and you can be launching a crowdfunding campaign weeks later. You know, I would say don't skimp on the video.

Chris Gammell: Yeah. That's right. That's what you spend the most on, right.

Avidan Ross: Right. You spend your money on your video because videographers are not cheap. Um, but, but, you know, and they come with a lot of gear. Yeah, that's true too. Um, so that, that's, that's where we think the real opportunity is that the earliest stages have changed drastically around what can be, what can be built, uh, super early.

Chris Gammell: Yeah. That's great. And that's, that's encouraging. I think that, uh, you know, everybody listening is probably shaking their head, like, you know, and, and the costs continue to drop in terms of like the automation tools that are out there, right. Tempo's down the street, macro fab we've had on the show, like circuit hub we've had on the show, like in terms of just, just the assembly. And then there's other stuff, right. Plethora, you mentioned is one of your portfolio companies doing the automation pieces where it just makes it more and more accessible and fast. And that's what's really exciting. I think too.

Avidan Ross: Yeah. I think it's, you can iterate and iterate and iterate extremely quickly and extremely cheaply. I think we're getting to a point where you have to think about compute being free, right? Computation is going towards zero. Yeah. I mean, pi zero is just the beginning. Um, at five bucks is, is it's going to seem really expensive soon. Um, and you're going to say, you know, for a dollar, you're going to have a full sock. It is getting to a point where we're saying computing is free. Connectivity is ubiquitous, right? So you can throw a radio in there and you could be connected to, to wifi in any building, Bluetooth on every person and a cellular radio that covers everything in between. So now if you have unlimited free computing, well, you have free computing that's localized. That might be a couple of gigahertz. Then you have a backhaul radio. If you want to push any sensor data or if you want larger amounts of compute in the cloud. And when you start to combine those things, people get into really creative solutions. Now, a lot of it has been IOT quote unquote, which is, I think a horrible, uh, it sort of has forced a question of like, Oh, if we just make a thing and put it on the internet, then we have value. And, and that drives me crazy because people aren't thinking about the value first. Instead, they just say, well, if it's possible to put a radio on,

Dave Jones: I'm just going to put a radio on it. Can we get your opinion on this? Cause we talked about it the other week, the, uh, the toaster oven that got what? Oh, the, the June $70 million.

Chris Gammell: I just remembered today actually that I saw, what's his name? The designer who did that. He talked at Sala two years ago. And I remember thinking then too, like what is what? Anyway, sorry, go ahead.

Avidan Ross: Oh no. I mean, I, I, I, I have to be, I'm going to go after it, even though my friends are invested in it. Um, uh, I, I do not understand why you would want such an expensive toaster oven that like that, that, that, that look, I believe the kitchen is ripe for disruption. Sure. Right. And we're going to talk about this. There are things in your kitchen that need to change, um, but I'm not convinced it's going to be thousands of dollars and I'm not going to, I'm not convinced that it's, uh, putting a drop cam inside of your, uh, inside of your toaster oven so that you could see your cookies baking and post them on Instagram. Right.

Dave Jones: There are, cause there's two examples here. There's one is the thousand dollar toaster oven. The one is the thousand dollar juicer. What is it? Juicera.

Avidan Ross: Uh, okay. Well, juicera, um, and juicera I'm allowed to rip on cause like everybody invested in that. So like basically, and for me, the, the, the problem there is like, what are, who's, whose problem are you really solving at that point? No, it might not be a VC's problem. Right. This is a big problem that a lot of VCs have is that they're not able to separate themselves from real people. Right. You know, a lot of VCs are already independently wealthy and you know, if they're only going to fund their own problems, they're only going to fund wine companies and private plane, private jet programs. And you're like, guys, these are not real world problems. Nobody's saying, Oh my God, my juice was squeezed six hours ago. It wasn't squeezed six minutes ago. And I'm willing to pay $12 for a juice. For a packet as well. And the crazy part is, is like, it's a packet that you can't even see inside. So you have to take their word for it, that it's really whole pieces of fruits and vegetables inside there. And you put an, you know, an 80 pound piece of equipment on your, that's taking up a good section of your, of your kitchen counter. And it's going to squeeze out for you. Mind you a fantastic tasting juice, but you're paying massive dollar amounts for each packet of juice. And if the juice packet expires after a week, the juice machine won't, it won't squeeze it for you. It scans it, right? Oh no. It tells you, it says, I'm going to protect you from this juice packet, but I already paid for it. It's my freaking juice packet. You should at least give me a warning that says, Hey, this, you know, it's like, can you imagine like the milk is a day expired and it won't open? It locks, it locks itself. We're like, come on. Or it implodes.

Dave Jones: Have you read Paul Reynolds' blog on that? No, I haven't. Oh, okay. We'll have to link you into that. But he basically goes into, he's formerly of, of Ubeam. And he's a, anyway, into this VC world. And he outlines all of the reasons why it ticked all of the boxes for these VCs. So can you understand why the VCs invested in this?

Avidan Ross: Oh, absolutely. I mean, without reading the blog, I can tell you that there's, there's a, you know, first off, it's a, it's a founder who has an extreme amount of energy and clarity. And a big name, right? Right. And just wants to go, go, go. And, and, and VCs like investing in a, in the sense they want to say, I want to invest in a world-class athlete that just needs coaching rather than training. Right. A little bit of coaching. But, but second of all, it is the stereotypical hardware investment in the sense that it's a razor blades model. Yep. Right. So you say, Hey, you make a little bit of money on the machine, but then it's a Keurig, right? Like it's just the Keurig model for this new hot industry that by the way is really hot in San Francisco, but not so hot in Cincinnati. Right. Like you don't have like juice bar. Right. Or Australia or like anywhere else in the country. So it ticked to sort of like, I, I see juice bars popping up all over the place. Why wouldn't someone want a juice bar at home the same way that coffee shops were popping up? And you said, well, I want to have a high-end coffee experience, experience at home. Sorry. These are the background noises of a factory. We have our compressor, our compressor on, um, the compressor is legit. It's legit around here. No, but it's, you know, it, it ticks a lot of the boxes and really there's also a sense that when, when other investors are excited about something, you want to participate with them. And, and, and look, by the way, I think Juicero is going to find an amazing home basically doing Juicero at restaurants and cafes where volume makes sense.

Dave Jones: You think they're actually going to work? I think I, I give them a 99% chance of fire.

Avidan Ross: Oh yeah. No, but that's a good, those are good odds in venture capital. You want to take that 1%. Those are, those are golden odds. If you got something 99, you know, 1% likelihood of success, I'm in, I'm in. Yeah.

Dave Jones: Do you, is it for you? Like when you have a, like somebody pitches something to you or you go look at something or whatever, do you instantly just go winner loser? Is it like that? Or do you have to investigate the details?

Avidan Ross: Is it just gut? Yeah. So there's, there's a lot of gut. I mean, gut is a description of a combination of years and years of experience and thinking through things. And it's really hard. The hard part is, is like we have the gut feeling right then and there. And then we spend the next couple days, if not weeks trying to suss out what was that gut feeling? Why did we have that gut feeling? What made us believe in that? But, but it's, it's a, it is a very emotional feeling. And we only, you know, because we only write a couple checks a year, we only invest in a couple companies a year. We have to feel emotionally like we fall in love and go for it. But that gut feeling, it's important that you can separate. Why are you having that gut feeling? What is it about it? And then that allows you to drive a little bit more into how big the market is and why consumers are going to be excited about it. And maybe go research like why have others failed at this or why are others succeeding? And can we beat them?

Chris Gammell: Yeah. Like what's different now versus then?

Avidan Ross: Exactly. I think that's a big question is, is why today? Why is it? Why is today possible?

Chris Gammell: Right.

Avidan Ross: Yeah.

Chris Gammell: Yeah. I was talking to someone about Palm Pilots today and they're like, you know, Palm Pilots, the idea is essentially what we have, right? We have what Palm Pilots could have become in our pockets, but it was the wrong time and the wrong technology and the wrong everything. I was, I was all over Palm Pilots.

Avidan Ross: I actually. That was huge, Chris. But, but I always tried to make mine the smartphone, right? Like every time I got, every time I got the device, I immediately was looking for an RF sled. I was looking for a Wi-Fi sled. Yeah. I was like, can I, how do I put this thing? Because I was, I was lucky. I was at, I went to Columbia University in New York where they had one of the earliest Wi-Fi deployments. Oh, wow. And so I was working on network hardware. You know, I, I'd worked on cable modems at excited homes. I was clearly very excited about high speed connectivity for like, I was in, I was all about post dial up, right? So first working on Doxis, eventually working on A0211B. And, you know, for me, the Palm Pilot was essentially useless until I got a Wi-Fi radio attached to it. And sometimes the Wi-Fi radio was larger than the Palm Pilot.

Chris Gammell: What about the IR connection? You had that. Right. I had the IR connection.

Avidan Ross: So I could, so I could beam somebody my contact information. That's right. Your V card, man. Send someone your V card. I don't know how that would catch on. It was, it was ridiculous, but, but what, what I realized, and this was for me the, like the beginning of an obsession was wireless communication. Wireless connectivity was what it was all about. And so I went from the Palm, I believe my Palm V had a, had a Wi-Fi attachment. And then I had a handspring visor that had a sled that dropped in with Wi-Fi. And I had a PCMCIA Wi-Fi card for like the laptop I had in order to get Wi-Fi. But once I had a Palm Pilot with Wi-Fi connectivity, all of a sudden that's when I realized that it wasn't just, you could have minimal compute. But once you had HTTP, you were good. TCP, UDP, you could write applications. And basically just a screen with internet connectivity became more valuable than, you know, any amount of horsepower in your pocket that didn't have wireless connectivity.

Chris Gammell: Why carry around a full encyclopedia when you can access Wikipedia, right? Right, exactly, exactly. So, so you did network stuff. What was, what layer were you working on? You were working on firmware, hardware, everything?

Avidan Ross: So firmware primarily. So I was computer science, so writing everything, you know, C, embedded C. Now I'm, now I'm addicted to wiring. I love the, the Arduino world is so awesome. But then, you know, also writing network stack stuff in, in Perl. And I mean, Perl is so dated at this point, but I, I still love it. Cause you can write, you can write like, you know, a million and one things in a single line. Yeah. Of regular expression. God bless Perl. But, you know, for me, it was all about where software and hardware met. I have an obsession with the physical world. My mom is an industrial engineer. Oh, cool. So she taught me how to use like all the power tools in her studio and just build, build, build and gave me the freedom to go out and build whatever I wanted. So what I wanted to build in high school was I wanted to build a glass blowing studio. So I like, she like let me go and build whatever it is I wanted. Right.

Chris Gammell: So kind of the opposite of the, uh, you know, you'll shoot your eye out kind of thing. It's a, Oh yeah. She was totally cool with me shooting my eye out.

Avidan Ross: She was just excited that someone was going to inherit her power tool collection.

Chris Gammell: That's awesome. And you, so you did, you did do glass blowing.

Avidan Ross: Yeah. I mean, I built a glass blowing studio and then ended up, uh, focusing on glass blowing for years. Uh, actually living in Australia, working in a, uh, in Sydney college of the arts, uh, went studied glass in, in, in Istanbul and, and Sweden.

Dave Jones: Yeah.

Avidan Ross: Yeah. Yeah. I mean, you know, when that's, that's the, the, the, that actually took an extra high uptick when I was just writing software and I wasn't getting my hands dirty. So if I wasn't making anything with my hands during the day, I would find ways to make things at night. Yep. Um, so I was building all sorts of crazy ovens and furnaces and, and that actually led me into once I wasn't able to build furnaces cause I was in an apartment. All of a sudden I was like, all right, how do I build big fire breathing anything? And that's what led me into, uh, hacking my oven at home and putting, making my home oven run at a thousand degrees. Right.

Chris Gammell: And that's what your talk was about at the super conference. Uh, and that was, as I was saying at the beginning of the show, that was one of my favorite talks. Um, so that was not just, so you have a couple of different food projects, but for that one, you were trying to, what was it? Perfect the, the pizza, like the, yeah, you said the pizza out here is crap, right?

Avidan Ross: Yeah. Yeah. The pizza in California is, is, is awful. Although now people have figured out that it's not, it's not something that's natural to California. That's the problem. Like everyone was like, Oh, it's the water, you know? And I was like, that's BS. I could bring a bottle of water from New York and hand it to a pizza guy here. He still wouldn't be able to make a pizza. Right. And what it came down to was that there's, there's a real science to making great food, right? Like emotion is, is very much, I mean, like having that like romance of a food is all fine and good, but really the science of food is it's a chemical process. And yes, the water is important, but you can, you can change the chemical composition of water very easily. So what I started to realize was that it actually was a lot of the other, really, if you were to summarize it, it's, it's, they didn't care enough in California to make their pizza perfectly. And if they, now they do, and they like really put a lot of effort. But back then I found out that the temperature of the oven was causing pizza in California to be super chewy and like not very crisp. And the problem is if you, if you run your oven at a thousand degrees, the person working the oven better be quick. They better be trained. They better know how to move that pizza. And so instead everyone just lowers the temperature of their oven so that you can have a much easier and much more forgiving bake process. And I said, forget it. I'm going to build a pizza oven that makes like super hot, super fast pizza. So the first thing I did was I converted my home, you know, electric oven. And it was, it was an electric oven that had a self-cleaning mode in it and I put it into self-cleaning mode and I disabled the locking mechanism so that even while it was in self-cleaning, I could open the door and use a laser thermometer to catch, catch the temperature, get it to 900, slide the pizza in. And I was making, you know, pizza in two minutes and I was like, yeah, I can go, I can go faster than this. And that's when I started building the fire breathing monstrosity that is in the Hackaday talk, which used, you know, basically like fire breathing afterburners that burnt at 1500 degrees. They used the turbos, right? Turbo blowers, two furnace blowers hooked up to a nice H bridge and four K-type thermocouples. We actually had to like shop around on thermocouples because we thought we were going to hit the theoretical max because it's, I think K-types go up to 1900, 1900 degrees and we thought we might, we might break 1900. But the pizza, we actually, we actually burnt a pizza in 30 seconds. That was, we incinerated one. It just turned to coal. It was pretty crazy. That's awesome. Um, so a lot, we actually had to turn the oven down to make good pizza, but that, uh,

Chris Gammell: yeah. And that was at some, like you guys were doing that for some like hacking event as well.

Avidan Ross: Oh no. So that was actually, so most of this stuff was built for, for originally I was just building it for home. Like I was building, I built a smoker that was connected to Twitter that would tweet the temperature of the meat every five minutes, uh, built like immersion circulators and deep fryers. And then the food network approached me and said, we love what you're building. Will you make a TV show about it? And I was like, I should give me enough money to go build a oven. I'll go build an oven. Um, and then my, my buddy lost his eyebrows on the first episode and they decided never aired. Yeah. It never aired. They basically said, uh, that's too much of a liability to put on television. Right. Um, and there wasn't enough frosting and, you know, action shots in the kitchen. It was all welding and, you know, wiring up. Arduinos are not the most romantic thing for television. They're a lot of fun to make.

Chris Gammell: So we had, we had Joe Grant on the show many years ago and he was telling us about his experience with, what was it? Dave, what was that show called? I forget.

Dave Jones: It was, uh, prototype this. Prototype this. Yeah. Yeah.

Chris Gammell: And he said that there was, you know, they were just trying to get stuff done, but the, the camera crews is like trying to introduce it. Just that's the drama. Yeah. Yeah. I was trying to do that too. And like, you know, God bless them for it. But like sometimes, unfortunately this stuff is boring. Yeah. The output is great. And like the feeling of building stuff is great.

Dave Jones: The final product is terrific. But yeah, the process is like.

Avidan Ross: Yeah. You should have seen the day we were pouring concrete. It was like, we were so excited about pouring concrete and leveling it. And the film crew was like, what the hell are you guys doing? This is like the most boring thing we've ever seen. I was like, no, you don't understand. Like it's, oh, you guys don't get it.

Avidan Ross: Wait until you see it dry. We're going to paint next.

Avidan Ross: It was a lot, a lot of fun. And then like welding, they, the second they saw welding, they're like, oh, sparks. Yeah. Oh, this is, this will be good. Yeah. Yeah. But, but it's a lot of fun. I mean, look for, for me, the process of creating something that then creates something to feed people is the most meta thing you can do. Right. Like you not only, you get to experience it. You get to experience the process of building the machine and the equipment. And then every time you bake a pizza in that oven, you feel that, that little bit of creative, you know, DIY, you know, your heart, your heart skips a beat a little bit because you're, you're a creator, right? And you're, you're creating something. And I think that's what a lot of people get excited about the creative process. It's not because like you're, you don't like someone else's product or you don't like the way they built a product. It's that you don't, it's not your own. Like the process of building something and creating something is what we're after, right? You're, you're not, you're not, you know, somebody can show you a, a, an awesome pair of headphones or a speaker, but if you make your own speakers, you're not doing it for just the purpose of making the perfect speaker. You love the process of creating. And, and also the, the, the beauty of it is you walk away from it a more resourceful person, right? Because you didn't just acquire a physical object. You acquired capabilities and knowledge and you got to experience the process of creating. And I think that's, that's the priceless piece of people who are in the world of physical products is, is that, that feeling you walk away from.

Chris Gammell: Yeah. I always talk about like at maker fair and just people that show up at the hardware meetup stuff like that, but the people that I always want to hang out with was when you ask them why they built a thing, they kind of stare at you. And then they say, because I had to, like those, those are always the people I want to hang out with. You know, like that is, that is, that is the, the group, right? Dave, you know that too. I mean like it's the same. Yeah.

Avidan Ross: Yeah. So now, now we're, we, we continue our food hacking and now we, we have to modify our coffee machine because like, well, you're crazy about coffee anyway. Yeah. I'm crazy about coffee, but also like you, if any, anytime I buy something, I'm immediately looking for how to open it. Right. Like I, it drives me crazy when people like glue stuff together. Yeah. So I was like, you clearly weren't going to allow me like, you don't, don't, don't epoxy that, don't epoxy that port. Come on, man. Like it, so we definitely have a lot of fun, uh, especially with old machines that never thought about hackers trying to get into stuff because they just leave it all open. And sometimes they even label it for you, which is really nice. They're like, R has two 32 pins. Like, yes. Thank you. That's what I wanted.

Chris Gammell: Right. And then those go more for more on eBay when they, when they, uh, when people are looking for them. Right.

Dave Jones: So with the open thing, is it a positive that a company you're looking to invest in is open source hardware or it can that, I assume it is a positive, but can also be a negative from a VC point of view? Because, Hey, if they don't have patents for stuff, well, how are you going to, you know, flip the company for a profit in 10 years time? You know?

Avidan Ross: Yeah. So, so, uh, we are very much, uh, in, I mean, we're pro open source. Like we are, I was a, I was a free BSD guy. I mean, Linux is like totally, totally where, where I believe the future is. That being said, a lot of VCs get scared when you're open source and they'll ask, you know, they'll be like, Oh, what's your patent protection? What does your patent portfolio look like? And I push entrepreneurs. If an entrepreneur comes to me and early, early on in the conversation starts telling me about their patents, I basically look at them and I say, I'm not here to fund a lawsuit.

Chris Gammell: Right. I'm not here to fund you to protect.

Avidan Ross: You don't have that much money anyways to really go for that. Right. What, what, if, if you think that your product is protected because of a piece of paper, you know, that's, that, that, that means that you're not thinking about the real protections of building a company, which is that you move faster and continuously innovate and, you know, improve your product day in and day out. And that you don't mind that someone's going to try and copy you. Now, that being said, I do believe people should have patents. If they're, if they're concerned about someone copying their stuff and just using it more as a defensive tool. So sometimes it makes a lot of sense to, to, to actually look at, I mean, I, I, you know, I, I, I believe that it's hard to actually make that decision of whether or not you're going to be open source or, or protected. But I think the two actually can work in unison, right? You can be, you can be open source for all the things that you want people to feel the comfort that they can get into and control and be a part of. But you might, you might protect, for example, the cloud components of what you build, like the, the, the, the, the, the enterprise functionality where somebody says like, I want, you know, and it's a mix, right? Like I think particle is a great example where they, they have an open source physical device so that if anybody wants to, you know, stop using particles cloud, they can develop their own firmware to run on that chip. Whereas big companies want to know that they're, you know, they're paying for a proprietary thing in the cloud that, that does fleet management for them. And it's a really nice example of a, of that fine balance of trusting engineers with the keys to their own kingdom. You should not be holding a physical chip in your hand and not have access to the firmware that runs on it. Now, if you connect to a cloud service that's hosted by someone else and someone else is footing the bill to run that cloud service, you might not, you might not get the keys to that kingdom. And I think that that's a fair one. I think, I think a lot of hardware entrepreneurs like balked at products like electric imp because they said, well, what if I find a bug in the firmware? Right. I want to be able to fix it. I'm a capable engineer. I should be able to fix what's running here.

Chris Gammell: We did talk about that. And it does seem like with electric imp, it, you know, it was more like you just have access to that little script interface. Right. And so, but Particle is different than that. Right. It's just for the firmware management stuff, right? Yeah.

Avidan Ross: So, so, so, so Particle, you can, you can go to the GitHub and like literally download the entire like firmware. Everything minus, you know, Broadcom, it within certain radios, there's parts of the radio firmware that are not open source, but that's outside of the control of someone like Particle. But everything that's running on the Cortex-M3, everything that's running in Flash, everything that's running like exposed on the chip, that's open source. And you can, you, you don't need to just like write a script and wiring. You could go ahead and like say like, I want to change everything about this firmware, you know, from, from soup to nuts.

Chris Gammell: Right. So the thing that they're protecting is basically someone else not turning on a similar web service that just then someone, they could say, oh, you're paying a hundred bucks a month with Particle. We'll charge you 50. Come over to our stuff and just read. Exactly. And like, yeah, I mean, if you got to draw a line, I think that's a decent place to draw a line, to be honest. Right. So, you know, like that's.

Avidan Ross: It's, it's protecting their part of the business while still giving entrepreneurs or engineers and entrepreneurs the ability and flexibility to like move away. Because basically if Particle became an evil, evil empire and Zach Zappala is, if you haven't met him with the most amazing entrepreneur in the maker world, I think he's, he's like really, you know, a special, special CEO. But if they started becoming a terrible company, people could just write new firmware to point their code. They can point to a new server that they then spend some time and write, but they shouldn't be allowed to just, you know, open, take a copy of the cloud service that Particle is created and just like roll up their own. So I think there's, there's a balance there, but I think for, for us going back to the patent conversation, you know, patents are, are all fine and good, but I don't think that's what makes a company interesting. We just sort of like check the box and say, okay, if you're not open sourcing, you are closed, apply for a patent, but know that you really need to be an innovator. That's your, your real protection in this world is the ability to innovate and speed to iterate. Yeah. That's what protects you.

Chris Gammell: Yeah. And I mean, the patents will also help if the, I mean, cause even if you guys aren't asking for it, if then later they want to raise more money, someone else might say that kind of thing. So it makes a lot of sense.

Dave Jones: Can you see a, an open source hardware company becoming a unicorn as in a billion dollar valued? Yeah. I don't, I don't see it because it has, it famously has not happened yet. People predicted it. And then it just like, you know, no, it is just sort of like they get to a certain level where the whole corporate mentality takes over and it's just not physically possible to have a billion dollar open source hardware company.

Avidan Ross: I think, I think particle can make the move, but that's because they have that blend between open and closed source. I'm trying to think of somebody in the open source hardware world that, you know, 3d robotics was close.

Dave Jones: Um, I don't think that was make a bot. They were, they were the holy grail of, you know, Oh, they're going to be a billion dollar company. And it turns out, no, once they went up a level, no, they sort of started closing source and stuff and they had to protect themselves.

Avidan Ross: Well, maker bot, maker bot is a long, long conversation. That's probably its own, its own one hour session. Yeah. We've talked about it from our perspective. But it's the classic example, right?

Dave Jones: It, it, it basically built itself upon the heart open hardware community and open hardware products. And then they closed it.

Avidan Ross: Right. So I think partially, the, the, the part of it is really, we're talking about China here, right? Without, without saying it, we're talking about China, right? 3d robotics got beat up by DJI. They did. Yep. And maker bot ran into trouble when there were Shenzhen copies of their hardware getting released. And decent ones. Right. No, no. Arguably sometimes better on the, you know, there were people who were, who were building really high quality products there. And I think that the reason we haven't seen an open source hardware, uh, unicorn is because all of those companies we just described are physical products and their primary, the primary value of the maker bot was the quality of the extrusion and the quality of like, it was a physical product. And the, and the, and the, and the 3DR, you know, uh, drones, it was really about the physical drone that you would take out and fly. And those things are, are easily replicable in China in really, really tightly run manufacturing processes that are, if you, if you, you know, anyone who's listening, who has the opportunity to go to Shenzhen should go to Shenzhen. Cause it is a special, special place to see how products get made. The way I think an open source hardware product becomes a unicorn is when the product itself is not the core business, but rather a Trojan horse for something much larger, right? Where the hardware is just a, a means to an end. It's an enabler. It's a hardware enabled services business or a hardware enabled software business or a hardware enabled security business or a heart. I mean, and, and the hardware itself should be open source because, anyone who buys a physical product, I think that they benefit when that product itself is open to a community of developers who improve it. Yep. Right. But the service that is on the backend of it might be something that is closed source. And that's where the real value comes from.

Dave Jones: So almost by definition, the answer is no, it just open source hardware on its own can't become a unicorn.

Avidan Ross: I think it would be extremely difficult for it to live, for it to be entirely. And by the way, who said that like, I don't, you know, unicorns, who, who freaking cares?

Dave Jones: That's not the definition of success. Who says that's the, can we, in that case, can we talk about Pebble and exiting, right? They apparently turned down a $740 million offer from Citizen. Dave was going on and on about this last week too.

Dave Jones: Is that, to me that's one of the dumbest decision like I've, I've, I've ever heard because they thought they were so special.

Avidan Ross: He didn't turn down $740. You don't think? No.

Chris Gammell: There was another article too that we posted with Stephen.

Avidan Ross: He turned down, he turned down some, some, some larger offers. Absolutely. Absolutely. Um, but the hard part is, is that when you're building a product like that is, you know, Apple and Google come out and create products. I mean, look at the end of the day, Google was able to give away the, the brains of a smartwatch for free to anybody who wanted to build one. And all of the costs that Pebble had gone through to develop their operating system basically was dead weight for them because anyone who wanted to build a watch now could build one with, with that, with zero startup costs, right? All they had to do was go to Shenzhen, get a reference design. Google was making it super. And then it's a design exercise. And the truth of the matter is people were, a lot of people were actually losing money selling their watches because they were using it as a form of like land grab to see if they can get in and beat, you know, Apple before Apple beat everyone else. Right. And so like, hypothetically speaking, Apple probably has 120% of the profit pie because everyone else was losing money and Apple was the only one making money. That's correct.

Dave Jones: Yeah. Yeah.

Avidan Ross: And so, so, so really what, what, what, what happened for Pebble was yes, timing would have been, timing is brutal and you know, he could have made a lot of money for his investors, but the hard part truly is, is that even if he would have landed at another company and made a quick buck for him and his investors, the real question becomes like, would, would, would Pebble have been a big success within, you know, fossil or any, or citizen or wherever? Would they have still run into that same problem? And the CEO there kept on pushing. I mean, if you look at his, his most recent Kickstarter campaign, there was a product there that wasn't even a watch, right? The, the Pebble core that was, you know, from my perspective, that was like the first glimpse at someone building an Android IOT device that was literally breaking away from the cell phone, right? All of a sudden now you had Bluetooth and cellular, meaning you could take Spotify on the road with you. It was, it was, you know, he had made some really big decisions about breaking away from the wrist only and trying to build something that went above and beyond it. But at the end of the day, it's a really expensive business and investors look at it and say, you're not going to beat Apple at the Apple watch game at this point. And Google is giving this stuff away for free. So I feel for them, but yeah, that was, uh, that was not a happy, uh, happy outcome for Kickstarter backers. It was not a happy outcome for, for, you know, at the end of the day, we're just.

Dave Jones: Basically everyone lost on that one in the end.

Avidan Ross: I mean, you know, I don't know everyone lost at the end, but hopefully, uh, hopefully Fitbit is able to take, if, if not the technology, hopefully members of the team and really step up their, step up their game. Cause I think Fitbit does need to, to innovate above and beyond the, uh, the, the fitness pedometer world. Um, and really, and, and this is their opportunity to do so. I think it's interesting too.

Dave Jones: Their share price is just tanking.

Chris Gammell: I mean, it's just, yeah, I think it's interesting because that's a, that's a very consumer focused thing. Right. And, and Dave and I've talked about this and obviously your companies are not consumer focused. Could you kind of give your, I mean, what's, how's your feel about consumer versus industrial versus whatever B2B?

Avidan Ross: Yeah. So I would say about a third of our companies are consumer. So it's, it's the, the vast majority are, are, are industrial or B2B. Right. Um, and the reason why we've focused on the industrial and B2B is I think that there's a very clear value proposition to a company to just, you know, integrate connected technology. They have assets to track. So they need asset, they need asset management, asset tracking. Right. They, they have a very clear ROI. Every piece of what they do is already tracked and it's a, not an emotional decision. Yeah. Right. And a lot of technology, at least what, you know, we as a team, uh, look through is, is just does the tech provide value? And I think a lot of consumers, you know, consumers are a little fickle. They make designs or they make decisions around brand and design and what celebrity is crack,

Dave Jones: right?

Avidan Ross: There's a much, much tougher nut to crack. So we're taking enough risk as it is.

Dave Jones: Potentially larger gains. Right. So for you as a VC, uh, it's a trade-off between, you know, yeah, if I crack the next, you know, Apple, right, I'm going to be a, you know, gazillionaire, but the odds of it happening are much, much lower than if I invest in this nice little niche, you know, in, in understandable history, which is understandable, narrow focus. And it's, you know, it's a much greater chance of actually succeeding, but it'll never be huge.

Avidan Ross: Yeah, absolutely. Absolutely. So that's, that's the trade-off. Everyone calls it the high beta, right? It's a high beta investment. All right.

Dave Jones: High beta. Okay. Right.

Avidan Ross: It's, it's, it's high risk, high reward. Um, so that's why we reserve about a third of the fund to look at some of those.

Dave Jones: Okay. So you, so you deliberately go, we're going to take a third of our money roughly and, and put it in higher risk stuff.

Avidan Ross: Well, I would say, I would say all of it is very high risk, but the third of it is in, the third of it is in consumer. And, and what we generally do when we're investing in consumers, we know what we know and we don't know what we don't know. And we're not, you know, like we're not social media. We're not industrial design and branding experts. So we've tried to find other investors who may not be hardware focused, but they may be social media focused, or they may be industrial, or they might be design focused, or they might be branding focused. And, and we try to bring them into the fold as well and compliment each other's skill sets. But I would say that for us, it's a lot easier to wrap our heads around a problem that is solved for established industry. I mean, people, you know, people in Silicon Valley are a little too navel gazing. They just like think about their own problems. And there are companies around the world who have very little to do with Facebook, Google, Apple, Snapchat, but what, but they have really, really expensive problems and serious amounts of revenue. And they are trying to innovate and they don't have internal R and D departments. So they're looking to technology companies to help them innovate on every level of their business. And we know that, and we know amazing entrepreneurs who come through our doors, who are, who have industry specific knowledge, who say, we want to apply this technology layer to manufacturing or construction or, you know, refrigeration or fast food or whatever it might be. And, and, and we are excited to help the, what, what some consider unsexy businesses. Um, and most people, most Silicon Valley VCs are looking for that high beta social media, you know, super, super win, because they believe that one catching one of those deals will make them, you know, we'll, we'll, we'll make up for the hundred fires. Exactly. Exactly.

Chris Gammell: And it's not like those can't go, the, the industrial stuff can go big too, right? The, uh, who's the, the robot, the Amazon robot company. Kiva, Kiva automation.

Dave Jones: There's nothing wrong with having a, the world's best hundred million dollar industrial widget company. You know, I mean.

Avidan Ross: There is nothing wrong with GE buying you for a billion dollars and no one has even heard of you. Right. Like R-Cam.

Dave Jones: And it wouldn't even make the news, you know.

Avidan Ross: I mean R-Cam, so, so GE has been on a buying rampage, but no one's talking about it because it's all industrial additive manufacturing. Yep. It's like software around predictive analytics for equipment. It is, it is a world of investment that is not sexy and consumers don't know about it because unlike people listening to this show, like a lot of consumers out there are just, they think that tech is what they download to their iPhone, right? Like it's whatever apps they download. Exactly. Right. Yeah. So.

Dave Jones: Hardware is just so off their radar. It's not funny.

Avidan Ross: Hardware is off most people's radars because it's, it's, they, they, they become consumers of the hardware and have very little understanding of how things are created. Whereas when they run an app, they get to say, oh, this was coded, right? Like learn to code. This is just code running on my phone. Whereas if you look at a complex piece of hardware to learn about injection molding and PCB etching and, you know, pick and place PCB assembly and like RF design and enclosure design and like the mechanics of like mechanical engineering, what goes in. If you look at shaper tools or you look at Mastgen or you look at any of these companies with extreme levels of complexity, you would have to bring in engineers of multiple, multiple disciplines to tear it down and explain to you how it all works. But that's what makes the magic. And you don't want the consumer to have to know all of that. Just similar to a car, right? You look at a car, not everyone's a mechanic, but they get to experience the car. And if you ask somebody how a car is made, they probably wouldn't have any answers for you. Robots. Yeah. Robots. Yeah.

Dave Jones: So how does, how do you exit? How do you get your money back? How do you make a profit?

Avidan Ross: I got it. I got it.

Dave Jones: Have you exited yet?

Avidan Ross: Yeah. So, so there's, there's two ways to exit. Well, there's three ways to exit. One is a company goes public, which is obviously a fantastic exit.

Dave Jones: And you own, how, how much percentage of the company roughly would you own? Is that proprietary varies from company to company? It varies from company to company.

Avidan Ross: You know, we're not, we're, we're, we're small owners. So call it high single digits, low double digits. So, you know.

Dave Jones: So is that because you got in at the early seed round?

Avidan Ross: Yes. Yeah. And then, and that we reserve.

Dave Jones: And then, and then it gets diluted as it goes up. No, no.

Avidan Ross: Actually, what we do is we try and avoid dilution by continuing to invest with the company. So we reserve, we reserve a fair amount of, of, of money in our fund for the follow on rounds for companies. Because the way that we look at it is we want to be helpful to the company for its future. Right. This is not just a write, write one check and then just disappear. We, we write a check. The way, the way we say it is we write a check on Friday and we show up on Monday and we're just there to help. And our help changes over the course of a company's life cycle. And the goal is, is that at every round of future investing, we want to continue to back our entrepreneurs with more, with more funding. So what we do is, you know, there are some VCs out there that are trying to get 25% ownership, 20 to 25% ownership. That's not our approach. Um, but at the same time, we're also not a, you know, a small, write you a 50 K check and then hope for the best. Let it, you know, call us once a year, call us once a quarter. We write a large enough check that we're extremely invested, but we're also not so, you know, we're not trying to, to basically have such a deep level of control over your company that we have significant, significant ownership. We want our entrepreneurs to be the largest investors in their own companies. That's good. That's what we're after.

Chris Gammell: Right. Because then they have a stake in making, making success.

Avidan Ross: Yeah. I mean, we write a check on Friday, show up on Monday, but they show up Saturday and Sunday too. That's right. Right. So, yep.

Dave Jones: So the exit, the number of ways to exit.

Avidan Ross: Yeah. So you can, one is go public. You can go public. First is to go public. Obviously. That's the obvious one. The company can get a purchase. It can get purchased. So it can get bought by a, number two. And then the third is if another new investor wants to own more of the company, then the founder, so let's say a founder says, I want to sell 15% of my company right now. And the new investor says, I really just want to own 20%. So then the founder will turn to their existing investors and say, Hey, is anybody willing to sell a little bit of their shares? Got it. We don't take percentage of anyone's earnings. We're not here to make a monthly draw from a company's. We never, we never are profit sharing with companies. We always tell them to reinvest their profits into building their business. And, and that's, you know, the, the market of helping entrepreneurs build their business is having done it before being patient with the money, not pressuring an entrepreneur to sell immediately so we can get a two X. We're not in this for a quick buck. This is a long term, you know, 10 years minimum, maybe 15 years for every, for every investment we're looking at.

Chris Gammell: Wow. Yeah. Cause we've, so we've, we've talked about that in the show as well before. Like if someone takes money, it's like, usually, I mean, people want their money back. Right. And so it's always about, you know, who you're working with, how fast they expect, what's the expectations, that kind of thing. Right. Yeah.

Avidan Ross: And that's a nice part about working with venture capitalists is that, um, by definition, they're set up as funds and those funds are structured to be patient. Meaning, uh, if, if you're, if your uncle gives you $50,000, he's probably going to ask you the next year when he's going to see some returns. Right. When a fund is set up, the expectation is that the fund doesn't need to return for 10 years.

Chris Gammell: So is that like upfront, like they'll tell you that? Yeah.

Avidan Ross: So when you sign the documents to start a fund, it says it's a 10 year fund, meaning, um, there's no trigger that causes people to request exits from companies for 10 years. And some company, some funds actually have 12 year or 14 year options. So by definition of venture capital fund is there to be patient. That being said, a VC is going to turn to you and say, patience is fine. You, you have, you have competitors that are popping up left and right.

Chris Gammell: After 10 years, you better be worth something. Right.

Avidan Ross: Like, you know, like forget about my patience. The market is not patient. Right. And you might be, be, you know, putting one foot in front of the other, but everyone knows technology runs and technology runs fast. So speed is extremely helpful, extremely valuable in this market. And we're there to give entrepreneurs the comfort that they can run really, really fast because we're able to help them. If they fall, we can help them with, you know, whether it's more money or strategy or recruiting or, you know, anything they might need so that they have that comfort to know that they can run at a breakneck speed.

Chris Gammell: Yeah.

Dave Jones: Having said all that, are you willing to call it quits on a company? Like if it just like, if it's just not working out and you can see the writings on the wall, like this thing is not going to work. It's just like, have you encountered that yet? Or, or, you know, or is that at the back of your mind that what you would do in that situation where you just one day, you just realized, no, this is just not. Yeah.

Avidan Ross: It's, you know, it's not, it's not a one day thing. You know, we, we spend so much time with our entrepreneurs that we see it. We see when it's happening and we're having an open dialogue with them about it. If it wasn't clear, I'm, I, I don't have a filter. I just say what's on my mind and I, you know, for better or for worse, I just, you know, I'm, I'm very blunt and get your stuff together.

Chris Gammell: Ass head. Right.

Dave Jones: So is your money scaled in that risk? Like, do you hold some of it? Like, yeah, we'll invest 500 grand, but we'll give you 200 now. And if you show this prototype in six months, yeah. You know, if you show a prototype in six months, you get the other 250 K or something.

Avidan Ross: No, we don't, we don't do that. We think that's a, we think that's an unfair, that's a real shitty thing. That's a very clean Russ Hanneman. But you know, if you got to keep those trace comas, you got to keep those trace comas. What we do instead is we reserve half of our fund for the follow on investment. So we write a 500 K check. And what we say is,

Dave Jones: Do you tell them that? Yeah, absolutely.

Avidan Ross: We're very upfront. We're very upfront. If not, Dave, they might've just heard it. Now we did that. Do you mind erasing that part? I mean, I heard something.

Chris Gammell: I don't know what you told me, but.

Avidan Ross: So, so, so what we, what we do is we're, we, we give them, we write a check. There's that compressor again. It's pretty. We actually just have a sound effect machine that's supposed to sound like a factory. Um, so what we do is we invest and then we push, we push the entrepreneurs to try and grow, um, as, as quickly as they can. But there's no sort of like, I'll, uh, you send me, you know, send me your pay, pay stubs for the month and I'll pay them off. Um, what we do is when a company is not doing well, we, we, we often have the conversation with them leading up to it. And we either help them find a soft exit, meaning we help them find a place that's looking to acquire great talent. Um, but more often, you know, if, if it's happening, we have the conversation and say, look, this is not the last startup you'll ever have. Right. You learn a lot more about an entrepreneur and an investor on their way down and how they handle when things aren't going well. Then you learn everybody's really cool and great when things are going well. Everyone's flown in, man. Right.

Dave Jones: So do you think that gives people street cred if they've got a far, you know, like a failed startup?

Avidan Ross: Oh, totally. Right. Like you, if you, if look, I mean.

Dave Jones: But, but, but even if it failed for really bad reasons. Well, there's corner cases. Come on.

Avidan Ross: I mean, it's, it's, but you're saying in the general case. If they didn't fail, you know, if they failed because they like went to jail, um, that's not cool.

Dave Jones: Or they're just clueless and, but they were a good salesman. Right.

Avidan Ross: So what I like to say is like, look, it's the, it's the big difference between failing as an entrepreneur and failing as an actor or actress in Hollywood. Right. What they tell you in Hollywood is if, if you, if you had a terrible movie, you should escape to a Caribbean Island for six months. Don't pop up your head. Don't post any pictures and then return and never mention that movie again.

Dave Jones: It never happened. Wow.

Avidan Ross: And it's a, it's a, it's a, it's a like the black eye of having a really bad movie that you were on and like you try and erase it from IMDb. Whereas on the flip side, an entrepreneur, it's all about what do you learn from that failure? Right. Whereas there's nothing to learn from a failed movie. Right. You didn't, no actor is going to say, oh, what did I learn from this really terrible Adam Sandler movie? The director was terrible. Right. So, but, but entrepreneurs actually went through a process and they learned what went well and what went poorly. And because they're building a company, the next company that they build, you hope that they learn something from that process. And what I would say is, you know, failure is good. We don't like to, you know, uh, you know, idolize failure because I think that just, that doesn't send the right message. And also on top of it, don't fail, fail and fail again. Cause then you're just a failure. Right. Like that's funny. I said that in Taiwan and they actually accounted how many fails I said. They were like, so you said I could fail four times.

Dave Jones: On the fifth time I'll do okay.

Avidan Ross: Yeah.

Dave Jones: Um, but as a, as a, as a practical engineer, I just can't, to me, it's always about the, the numbers, the data, the product. Like it's not about the person. I don't care who you are running. I don't care how many startups you've made. Like, is your product a viable idea or not? Um, yeah. VC seemed to put a lot of stock in like the, the, we were talking about the juice era thing, right? Oh, that was popular because the right with VCs because of the person who ran it.

Avidan Ross: Yeah. Right. Yeah. Well, so I don't think it's the personality. I think that it does. Well, it is the personality.

Avidan Ross: It's important for the sales piece, especially like money raising. But it's important for leadership, right? The executive leadership. Look, you're absolutely correct. We will not invest in a great CEO who has a terrible idea. And the truth of the matter is, maybe he's not so great if he has such a terrible idea. But we're probably one of the few firms that leans more towards deep technological problems that are being solved in complex fashions. We have more PhDs in our founder circles than just about any venture firm out there. And that's because we gravitate towards deep tech, people who are doing really hard technological things. That being said, it's important to have leaders on the team who know how to take it from idea to prototype through to production and who can inspire a team later on. We're not just thinking about how are they going to get this product from prototype to production. We're thinking, how are they going to get their second, third, and fourth products out there? How are they going to build up a strategy of partnerships and channels and distribution? And a lot of those questions aren't questions that land squarely on engineers' shoulders. Those are questions that land on the CEO's plate. And one might say, okay, well, eventually they'll hire a CEO down the road. But I don't like that. I would prefer to find a founding CEO or at least a CEO who comes in in the first three or four people of the company.

Dave Jones: I was going to say, if you found a great idea but they're just this introvert nerd who could not run it, who would never run a company or be a CEO to save their life. But you like them and you like their tech. Would you invest in them and then insist that they bring in a CEO?

Avidan Ross: So I never invest with insisting on a CEO. But what I do is I have an open conversation with them saying there is a time and place where eventually you guys are going to want to bring somebody else in who does the things that you don't love doing. Because if you're a PhD in mechanical engineering or computer science, there's a good chance you're not going to love being a CEO. Because being a CEO means raising money, recruiting, HR, like a lot of things, getting on stage and talking about your company. So we don't ever make it a requirement that somebody goes out and finds a CEO. But we're never shy about it. We always are open and honest with our entrepreneurs that they might one day want. And I think it's actually public knowledge that Shaper Tools, the two founders, met at MIT during their PhD programs. But the CEO is someone that they met once they moved to California. And he was at Google working on Google Glass and became a very key part of the earliest, earliest part of the team. So it wasn't like they had 20 people and then they brought in a CEO. He was like the third person. But they knew that they wanted to bring somebody in who was excited by the company building aspects that weren't core engineering. They recruited him. They brought him in. And he's been phenomenal. So Joe Hebenstreich is a – and Joe is an amazing, amazing leader. And it has allowed Alec and Elon, the two founders, to focus on what they love doing and remain the sort of spiritual leaders of the company. As far as like what the company is all about still comes from their original dream for the company. And I think that's the perfect match. We don't keep like a bunch of ex-GE and Goldman CEOs in like an office somewhere. Double MBAs. Yeah, double MBAs.

Chris Gammell: So, okay. So I think – so we're starting to run out of time. But the last thing I wanted to ask you about at least was people are probably listening. I have an idea. I have whatever. What do you usually advise people towards thinking about – if not talking to you, talking to other people or even preparing a company to move towards funding and that kind of thing?

Avidan Ross: Yeah. I think the best resource is to talk to other entrepreneurs. Okay. Talk to entrepreneurs who have done it before because if they've raised some seed funding, they've gone through conversations with VCs. They've gone through conversations about how big is their total addressable market? What are the pitfalls? It's really about learning from other people. And yes, absolutely. Getting in touch with us, it's never too early to talk to us. The best route to talk to us is talk to one of the entrepreneurs we've invested in. Right. And then you get some advice from them and if they really like what you're doing, they'll offer to – we have told every single entrepreneur we've ever invested in and even entrepreneurs we did not invest in that they're welcome to send us people. Of course, you can just email us and tweet at us and post on our website. Absolutely. But honestly, the best way to get high-quality feedback is to first talk to other entrepreneurs. They'll give you not only an introduction but they'll give you a heads up on the types of things we're looking for and how to ask questions and how to suss out really helpful advice. And beyond that, there's just – we're thankfully getting a lot of great resources from some of the accelerators out there have posted a lot of great content, whether it's Hacks or Bolt or Highway 1 or Lemnos. Some of the hardware accelerators have done a really great job. Yep, yep, yep.

Chris Gammell: We'll put links to all those as well. I mean we talk about those guys all the time.

Dave Jones: And also Chris and I are big fans of people just getting out there and doing it on their own first rather than – That's true. Just going to run in your own Kickstarter from your garage. You're a one-man band. Or making the prototype like you mentioned. And you get your $100,000 or whatever rather than just go, oh, right, I'm going to go to VC school or startup school. VC school. Sorry, startup school. Did you graduate VC school?

Avidan Ross: I could not disagree with that idea more. I mean that is – no, no, no. I'm kidding. There's a balance, right? There's – I always – I do worry about a lot of entrepreneurs going into running a Kickstarter campaign on their own because Kickstarter actually generates some liability. Oh, interesting. Because you then owe people $100,000 worth of stuff.

Chris Gammell: Oh, sure, sure. You don't mean – you seriously mean that like promises.

Dave Jones: Yeah, but if you deliver, if it's easy enough that you can deliver that on your own. I mean I've run my own $100,000 Kickstarter campaign as a one-man band and I delivered the day the money came through. You're not normal. Yeah, yeah.

Avidan Ross: Dave, you're special. And if everyone was capable of doing what you do, the world would be a better place.

Dave Jones: But no, I'm saying it's – I don't know about that. It's possible. Yes, it generates liability. But if you know what you're doing, it's an easy path to actually have a basis for then going to talk to people. Is it impressive if somebody comes to you and says, hey, look, I ran this successful $500,000,000 Kickstarter thing and we delivered and, you know, is that more impressive on their resume than somebody just coming in cold with just an idea and a card deck or whatever it is, you know, a presentation deck?

Avidan Ross: So I worry about it. Actually, I don't totally – I don't get horribly impressed if somebody runs a 200, 300. I mean I shouldn't say that. I'm very impressed when people run 200,000, $300,000,000 campaigns on their own. But what if they deliver?

Dave Jones: What if they deliver?

Avidan Ross: And they deliver. That's great. Yeah. However, we also are just as excited when they're talking about a campaign they haven't delivered yet. Right? So they're looking at us and they say, look, we're about to launch this campaign.

Dave Jones: Okay.

Avidan Ross: Yep. Would you be willing to fund us to make a better video and to run an advertising campaign and to get minimum order quantities done so we can do better bomb? Because the problem is like what happens if you go out and launch a campaign and you're like, all right, I'm going to sell this product for $100 because I think that the bill of materials is $50 because at a minimum order quantity of 500 units, I can get it for $50. Well, what if you had an investor behind the scenes who said, look, you should get MOQs that are 10 times that size. Like you should be going out and going bigger. Plan bigger. Yeah, yeah. And you then get to sell the product on Kickstarter for $75 at which point you might have a much broader audience to hit. You might. That's right. And you have to be able to get that. And you can't just make that decision on your own. You have to have somebody willing to sort of go to bat for you and fund you to be able to get to that level. So I would say forget about venture-backable businesses for a second because there are plenty of people who create awesome products. And if you walk down the aisleways of Best Buy and Target and Walmart, 99.9% of those products are never venture-backed. They're just great products that were built. So we oftentimes urge people. We say, are you sure you want to build a venture-backable business or do you just want to build a great business? And if you want to build a great business, then there's a great argument for using Kickstarter, hitting a $200,000 campaign, shipping that, focusing on your next product, and trying to build the next thing and the next thing and the next thing. Venture capital is fuel that goes on a fire. And if you have a small little fire and you just want to add twigs to it and logs to it and bigger and bigger wood, you can build a fire over time. But if your fire isn't capable of accommodating some jet fuel, then don't pour jet fuel. And turbo glass blowing oven.

Chris Gammell: This guy knows building fires. I can build fires.

Avidan Ross: But usually I might burn your eyebrows off.

Chris Gammell: You might burn your eyebrows off.

Avidan Ross: I might burn your eyebrows off.

Chris Gammell: Yeah. That brings it all back around. Awesome. Well, that's great. Dave, any last questions?

Dave Jones: No. I think we've covered it. We're all VC'd out.

Chris Gammell: I'm sure we would love to talk to you again in the future. I'm sure we'll have questions about all this stuff and people will have questions. But how do people get in touch with you or Root in general?

Dave Jones: Can they follow you on Twitter?

Avidan Ross: Yeah. So on Twitter, we're at RootVC. Or you can find us individually. I'm at AvidanRoss. And Kane, my colleague here, are you at Kane? He was able to get the awesome one. Oh, wow. At K-A-N-E.

Chris Gammell: And Kane helped us set up. So thank you, Kane, as well.

Avidan Ross: And Kane also runs one of the most awesome Twitter. Is this private knowledge or public knowledge that you run the awesome one? He runs MachinePix, which is... MachinePix? Oh, my God. You'll spend hours. I just totally destroyed... Yeah, yeah. I just destroyed your weekend. Okay. MachinePix.

Chris Gammell: Is that kind of like the MachinePorn subreddit where it's just like, awesome? Yes. Oh, man. Oh, okay. Yeah, yeah. That's all they want.

Avidan Ross: Animated GIFs until your head explodes of amazing... I love it. Yeah. So we're all into machines and factories and building products.

Dave Jones: I'm looking at it now. Yep, yep. Okay. There you go. That's the rest of my afternoon.

Avidan Ross: Yep. Yep. All right.

Dave Jones: Sweet. So I hope you don't get inundated with people saying, you know, I've got this new Raspberry. I've got this new Arduino shield and we'd like half a million dollars, please.

Avidan Ross: Yeah. No, I'm cool with that because I might just buy one.

Chris Gammell: Buy the Arduino shield. Ideas are not so much, but maybe, yeah. I'm a customer, not an investor. Right. That sounds good. All right. Well, thanks so much. We appreciate you being on there. Absolutely. Thanks for having me.

Dave Jones: Thanks, mate. Catch you next time.

Chris Gammell: Take care.

Chris Gammell: Bye.

Speaker ?: Bye. Bye. Bye.

Avidan Ross: Yeah, whatever that means. Okay. Yeah. It's Australian for perfect. Yeah. By the way, are we going to, okay, we're going to get into some jokes about it. To Dave, the name of my company is fucking hilarious. Actually, I've made that mistake before. Yeah. He's like, Root Ventures. I love it. That's great.