SPEAKER_00: hey everybody we got a great show for you today first up the news yc is now going to invest 125 and 375 for a total of 500 000 in startups and molly and i break down why they're doing it and

SPEAKER_03: by breakdown we mean i ask a lot of really basic questions on your behalf and then we understand

SPEAKER_04: much more about this move and what it means for the industry at large we also break down turos s1 remember turo it does still exist and it's airbnb for cars and it's going public we try to figure out a fair price for them to go public at and what they look like in 10 years uh what are

SPEAKER_05: the headwinds they seem to be many and finally i interview dave selinger who is the ceo of deep

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SPEAKER_04: actually going to be simultaneously conversation and also a little bit of baby vc school y combiner y combinator on monday and shout out to the nota gang who was alerting us to this during our taping on monday uh y combinator announced they will now invest five hundred thousand dollars in startups this is an increase and it has caused a little bit of friction with seed investors let's break down the terms and then we're gonna have jason explain what this means so yc will still invest its standard 125 000 for seven percent ownership and an additional 375 000 on an uncapped safe with an mfn i'm going to

SPEAKER_16: pause now for what is that with jason calcanis so mfn uh means most favored nation what it means is

SPEAKER_01: when you invest in a company nobody in that round that round not future rounds not previous rounds just in that round can get a better deal than you and if they do you get the same terms as them it's a standard uh clause in a venture document in practice what it means is i can give you two examples where it could be an edge case but normally it's not an edge case so if as an example uh we invested in a company uh a friend of mine was investing in a company and i think i i told the story in my book and um he found out when he went to the first board meeting that there was somebody in the cap table who had like two points of the company as an advisor and uh he's like you know looking through the cap table so can you explain this to me i said yeah that was this venture capital firm and he's like oh they did the same round as us but i'm on the board they're not even on the board why did they get two percent of the company they said oh they wouldn't invest at that valuation so but i said what valuation do you want to invest that it was a lower valuation uh and so he gave them that extra two points and he said well you know there's mfm in the mfn in the contract and uh the person who was running the company uh said to my friend uh yeah well they wouldn't have done the deal either he said well you know you have to then at least uh give me the same deal as them because you have mfn and she it happened to be a female founder said what are you gonna do sue a female founder uh

SPEAKER_24: and uh this was 10 years ago this is 10 years ago so there weren't that many female founders so

SPEAKER_01: so i i had what had happened was i had met with the person i was thinking of investing and my friend and i did my diligence and my friend told me the story and i was like oh that's a bit of a red flag isn't it and i i wasn't going to invest actually i wasn't crazy about the business so i had already made the decision not to but i was just doing my diligence and i heard that story and i was like wow that's really weird um and my friend did not wind up suing them he just bit the bullet on it because she was right what are you going to do a female founder 10 years ago um was a really gnarly situation you know business is hardcore uh welcome to uh you're like when you

SPEAKER_31: see these crazy things happens on on billions or odd you're like an hbo show and you're like yeah

SPEAKER_04: that's unrealistic i mean i can tell you i read it seriously it took me all of like last week because i read that venture deals book and i was like oh okay there are times when something like this might be happening and it might just be the lawyer being a jerk or they're they're like fights about this or a company that won't do this and then i went to our check-in meeting and like yeah much of that

SPEAKER_35: was already happening and i was like oh my god this is welcome to the room where it happens molly

SPEAKER_04: i love it so it's a little crazy mfn once it goes into a contract is effectively or or could be binding

SPEAKER_01: it is effectively a binding oh it's binding for sure it's legally binding but what you find in startup land is it never goes to lawyers except in like really edge cases with a lot at stake at the end of a relationship i.e in uber bill gurley or benchmark i should say famously uh sued the uber or maybe travis even and it was like a very gnarly situation right that's like um very notable because it happens so rarely so i'll give two more examples of mfn in a minute but let's go through

SPEAKER_04: the uh the rest of this essentially this means that no other investor can get better terms than yc that's what you just said about most favored uh nation status but seed funds seem to be having a little fit about this now let's put things in perspective first airbnb's brian chesky tweeted when we did y combinator you got twenty thousand dollars now you get five hundred thousand dollars aaron levy points out these two by the way mutt and jeff here my new favorite twitter show loving them he says and servers used to cost a hundred times more to which brian chesky responds now i feel like

SPEAKER_44: my grandpa when i was your age we only got twenty thousand dollars they are like statler and

SPEAKER_31: and waldorf they're becoming the new statler and waldorf totally are well done brian and i just want

SPEAKER_47: to create a special filter for like what do brian and aaron have to say about this no it's just

SPEAKER_50: the two old guys because they do have a little bit of gray hair now and they're both were kids

SPEAKER_52: and uh they come from a time when you only got twenty thousand dollars in seed investments true

Jason Calacanis: okay so first of all i would say why is y combinator doing this this is an ownership play

SPEAKER_01: yeah uh ownership matters percentage ownership matters so in the case of airbnb

SPEAKER_24: my understanding was uh why comedy had chance to maybe sell some shares early of uh why combinator of um airbnb and i think they took advantage of that i don't have confirmation of that that was you know one of these backroom uh discussions but assume they started with seven percent they got diluted down to three and a half let's say they sold one and a half they maybe had one and a half two percent of the company by the time it went public maybe even a little less because dilution happens right um and if they sold they maybe got diluted a little bit more and they took some money off the table so that means if it became worth 100 billion maybe they got two billion from it pretty good deal for a 20k investment obviously yeah um but when i went out to raise my first and second fund and i did meet

SPEAKER_01: with some of the big folks they were like you know ownership percentage is uh you know what we really care about in winners and they want to see 10 15 ownership so when i when i did our launch accelerator years ago maybe six years ago i looked at what why comedy was offering and i said hey we'll offer to put uh 25k in your company for five percent when you come this is my original deal 25 when you graduate at the market rate like they're doing because it's safe that they're doing they still have their standard 125k for seven percent that implies a 1.6 million valuation which is incredibly low as we talked about on sunday show now you're getting this 12-week program so other vcs are putting money and don't provide the 12-week program so the difference you know if maybe that was a six million valuation they're getting those other shares for providing the program for putting their name on the company and for introducing you to investors and it's well worth it in my opinion uh for a first-time founder if you're a second or third time founder and you've had success it's obviously not worth it because you could raise or you could fund it yourself first-time founders why combinator tech stars launch accelerator it's a gift it's a major gift as an onboarding to kind of get you into the um into the the world really fast the the get you into the rooms where things happen the 375 is on an uncapped note which means it'll if you do a 10 million dollar round they'll own 3.75 if you do a 20 they're going to own two point whatever you know approximately two percent if you do a hundred million dollar round which has happened recently they're going to own nothing you know basis points

SPEAKER_62: so got it in an average 15 million dollar round this means another two or three points for them

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SPEAKER_04: their program is this about being more competitive with existing seed rounds or perhaps launch it has

SPEAKER_01: nothing to do with being competitive because they're number one and people uh you know being harvard uh which is kind of how they're perceived uh they're always going to get people into the program however if you notice they have a lot of international and i have seen a lot of people in the us do not feel the need to go to accelerators as much in a hot market because they might be able to raise from friends and family or they might be able to raise from angels and i think that's probably the existential risk for y combinator is that founders have now figured out how to get 125k right it's not that hard from friends and family to get it anymore or you can do with a token right

SPEAKER_76: so there is actually pressure from crypto as well yeah so i would say yes if the deal itself

SPEAKER_01: is not why people go they go because they want to be a yc company or a launch accelerator company you know get closer to me get closer to paul graham get closer to tech stars the davids over there so that's really what's happening is they just want to sweeten the pop to be more competitive on the margins but the really number one reason is to get more ownership in these companies because they do find them they do nurture them and then a seed fund comes along and buys 10 percent and right now yc owns seven and so that does seem unfair so uh you do have some people crying a little bit

SPEAKER_79: maybe not crying but i would say crying foul more than crying uh crying calls well yeah complaining let's

SPEAKER_04: say i mean because it's complaining what they're saying what is is now this makes yc a seed fund and

SPEAKER_01: not an accelerator yeah and they also keep their pro rata now and so it used to be the vcs had all the power because they could write the three million dollar check and the accelerators would basically be like please somebody anoint this company and that was the dynamic and that was the dynamic that made it worth it because it was hard to get a vc check it's hard to get that three million so the accelerator in this dance gave a massive advantage to the companies who came to it to get that three million dollar check whether you called seed or series a or whatever it is to get a legit investor involved now there's so many more investors so many more startups there's so many more funding options you know equity crowdfunding tokens friends and family there's just a lot more people interested in the syndicates so that's what's happening here um and for if you're a company it's a great deal

SPEAKER_71: full stop because they didn't put a number on it and you can go to market with 375 of your million dollars 37 percent already accounted for and once you have over 50 60 of your round full man does it

SPEAKER_79: close quickly because people start to realize the train is leaving the station interesting so do you

SPEAKER_04: think so will startups you have a note here that says you think a fair number of startups could take the 500 000 and not raise beyond that sometimes if a company is going well uh what they might do is

SPEAKER_01: take the 500 in total here and say i'm going to work for the year i'm burning 25 i'm burning 50k a month i'm making 10k a month i can last a year on this money so therefore let me get to you know i don't know 30 40k a month in revenue for my 10k and uh i'll just raise them when i have a higher evaluation so this could take some companies off the market in addition to this and y combinator will deny this but y combinator partners y combinator alumni friends of y combinator pick off the top 10 percent of graduates before they go to demo day so when you watch demo day as a seed fund in the audience it's like playing poker at a game where like i don't know the people who run the game took the aces and the kings put them in their pockets and you get the 10 jacks and queens as your best cards going to be it's possible to win but it's going to be much harder interesting so certainly this makes

SPEAKER_04: yc already attractive because it's considered the harvard of accelerators presumably this makes them even more so and yet some seed investors are not happy about it yeah so um i think they're just

SPEAKER_01: pointing out that there may not be enough room for them in the ramp so there's a certain amount there's a certain percentage on the cap table that can go to investors and now we're seeing not just seven percent of it go to yc but you know 10 to 15. what that means is who was getting the numbers between 7 and 15. it was friends and it wasn't friends and family typically it would be seed funds power angels uh you know people putting in 100k check a 250k check and so yeah they they are knocking one or two of those if there were three or four of them in a round out and vcs now are so aggressive that sometimes they want to take the whole round so they'll give a term sheet that says you know i'll give you this but i want the whole round so yeah it does squeeze people out it's a competitive marketplace as it should be and when i started our program um i did something uh very similar so in fact in a way yc is copying what i did six years ago i said we'll give you 25k now 25k when you graduate at whatever valuation you can get and then i'll put you out to my new syndicate which will raise 125 to you know 350k depending on how good you are and a lot of companies actually did that so and people picked us because of that now it caused some problems because it was at our option to syndicate the company and then some companies you know they didn't show up for the program they were like well i automatically get that money and i said i don't want it to be automatic um and so i refined it uh because the syndicate has to want to give you the money and so although we were clear with that people felt like you know how some people like don't read the terms you tell them the terms all the people like well you told me i was going to get more and i was like yeah you i said you could syndicate and that the syndicate would determine how much they put in this is our estimate of what it would put in and so then what we did was we said hey we will co-lead your round coming out of the syndicate at our option but we want to see you get half your round done because what i thought was bad hygiene and i think it's bad hygiene here um is you want to teach founders to fish you don't want to give them fish right or too much fish yeah and so i said to folks hey listen get a lead get the term set you don't want us setting the terms because that's the issue what terms does this go out they chose to do it at whatever another person puts it out but what if they never raise and then you got the safe sitting out there forever that creates problems and what if they can only raise at a very low valuation then this takes up a lot of the rounds and that can cause a screwed up dynamic so if they can only raise that four million and yc is getting 10 well the other investors got to get 10 or 15 or 20 so now the cap table is really getting watered down at a young age for the company so that's a little bit of a trap there um that's an edge case because maybe that company is damaged if it can't raise above a four million dollar valuation in this kind of market but um you know we started in our accelerator which is only seven companies that was our defining principles we wanted to do just a smaller number of companies um i would say five out of the seven wind up syndicating and we wind up building not we wind up building past the 10 position in some cases to 15 to 20. um and founders love that because you want to have less people on the cap table in those early stages and you want efficiency and raising money efficiency and raising money is what it's all about in the early stages and momentum so this gives you more efficiency more momentum if anybody's complaining about it here's an idea start a competing product oh wait it's a ton of work to do an accelerator right and people don't want to work that hard that's the issue here is people are jealous of the terms why combinator tech stars launch accelerator other accelerators get but they're also not willing to give 16 weeks of their lives as you see ashley myself crash and our team do to these companies it's a lot of work it's a lot of work i like doing that work because i like to build a deep relationship with the companies so that's what's going on here it's a good move by yc they have the ability to raise more money now they get 10 on average ownership and then if they can maintain that then when something like the next airbnb comes along instead of at the end of the day them owning two percent they might actually be able to maintain the ten percent or certainly you know above five percent uh which would be more meaningful and that's the pitch they gave to their lps when they raise the extra money to do this because now if they're doing a thousand companies a year a thousand times 125 is 125 million now if they're doing a thousand companies okay they need 500 million a year that's a lot of money but in today's world there's a lot of money sloshing around there is a lot

SPEAKER_04: of money sloshing around okay and then finally there's this complaint that uh as yc becomes more and more and more dominant right it can offer these terms in an accelerator that that is is somewhat irresistible um claire diaz ortiz an angel investor was tweeting this could potentially disproportionately negatively affect emerging market founders and their startups primarily because y combinator which has invested in amazing companies will then become you know the only investor on some of these companies cap table and they have a tendency to fund you know silicon valley companies with homogenous founders

SPEAKER_71: what are your thoughts um yeah that's kind of silly um there are people are not investing in the

SPEAKER_01: emerging market the fact that yc is there is a huge net positive for those founders in those emerging markets yeah you know if you go to africa if you go to south america latin america uh you know emerging

SPEAKER_07: markets there's not a lot of investors the fact that yc is so aggressively going to india and africa

SPEAKER_04: and uh right i mean part of what she's saying is that's great that they're there but if they are giving this much money then y combinator will be the only company on the cap table meaning some of these companies in emerging markets could end up having no local funds on their cap table it

SPEAKER_24: seems like there are no local funds there is the problem so this is and if there are local funds they're putting small amounts of money and they don't have competition this is crazy like this is

SPEAKER_71: absolutely incorrect um you you yc entering that market creates more competition now the local people

SPEAKER_01: have to compete with yc put more money in create their own accelerators and uh you know to look at why commoners maybe and silicon valleys candidly dismal stats at the end there it's like the cherry on top it just shows that the argument is not a strong argument because you're trying to come up with this is what i always find when people are losing an argument they'll add something from the past that's already kind of been resolved or has been changing like yc has pretty good diversity stats compared to where they were and they started in the valley started actually yeah and their international stats are tremendous so like people never want to give yc credit because they're so successful but man i give them a lot of credit for giving more money to founders at whatever terms the best terms they can

SPEAKER_24: get and you got to give them you got to give them a lot of credit for going international and you know

SPEAKER_07: uh believing in those markets because that's not a sure deal you know it's definitely not i mean

SPEAKER_82: that's one of the things we talked about with danny kennedy on sunday's sustainability slash this week

SPEAKER_04: in climate startups segment which was a lot of investors find it very difficult to invest in emerging

SPEAKER_113: markets and other countries and the growth is there and totally worth it and so here's ycombinator saying we're gonna put this money we're gonna make that bet yeah and you know the the point that in

SPEAKER_01: emerging markets they raise at lower valuations okay so now if they raise at 4 million in that example ycombinator owns 15 most of the time investors are on 50 so this argument you know hold to respect to the person claire who is making it is just um yeah inaccurate so um it's it's a intellectually

SPEAKER_04: dishonest argument or a poorly constructed one let's keep talking about uh startups now let's move on to an a possible exit via ipo at least do you consider an ipo to be an exit this is a little this is a lot of baby vc here but yeah it seems that there is debate about this question i mean it's a form of

SPEAKER_76: it is the greatest exit possible for i thought so too yes it's a hundred percent because here's what happens uh when you get those shares you either hold them for a little bit of time like sequoia is

SPEAKER_01: doing with their new vehicle um or you distribute so when we invest in a company whether it's uber or robin hood and it goes public we give those shares to our lps now they have those public equities and they get to make a decision do i hold them do i sell them do i believe in uber and robin hood for the long term or do i want to cash in my chips now it is the ultimate and the penultimate is selling to a big company and getting stock in theirs their company or cash or some combination depending on what you believe in so if the company gets bought by google and you get google shares and it's 15 years ago or you know you'd be pretty stoked about that too and that's why sometimes they'll offer you cash and like if you want to buy our shares we'll give you cash and then you can go buy them but you'd rather not take the tax event and just get shares so that's typically what sophisticated investors will fight for in an m a situation love it love it love it okay soc 2 compliance

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SPEAKER_02: that thousand dollars off all right well looking for a big exit right now is tarot peer-to-peer car sharing startup tarot that still exists their s oh they're going public they filed an s1 and they would

Jason Calacanis: like to raise a hundred million dollars in their ipo it feels to me like you might have some some thoughts why did you think it didn't exist anymore you just hadn't heard that much about it i was

SPEAKER_71: wondering if the peer-to-peer i guess people still need cars for weekend trips and stuff like that

SPEAKER_138: i thought ride sharing had really uh damaged these businesses right i was wondering about what was it

SPEAKER_140: probably yeah zip car was the other one but during a pandemic you don't want the driver right so maybe

SPEAKER_82: that is counter i suspect that that may have been a little bit of a bump for them because people wanted a private car and also you couldn't get a rental car right so so tarot probably did have a pretty

SPEAKER_04: good two years i know that i was traveling at one point for work and was looking at tarot and ended up

SPEAKER_144: leasing a tussle instead right i mean when people travel they usually take ride sharing because going

SPEAKER_86: to the rental car place is arduous and they have to deal with the car your whole trip pay for parking at

SPEAKER_71: your hotel it just doesn't add up but i guess if you're going on a vacation and you got your family

SPEAKER_112: with you you rent a car and this is a way to do that at a more affordable price and potentially a

SPEAKER_04: cooler car and all right so here let's talk about their revenue you can tell us if you think this hundred million dollar uh raise in the ipo makes any sense 2019 revenue 141 million dollars which surprised me that seems like a lot of money 2020 revenue 149 million up about six percent year over year and then 2021 on pace for 412 million dollars in revenue which would seem to uh suggest that the pandemic has in fact been great for duro almost uh 2.8 x year over year almost tripling revenue however they are not profitable net losses over time 98 million dollars in 2019 97 million in 2020 and 160

SPEAKER_41: million despite tripling their revenue so they lost each of those years yeah so they're losing money so to

SPEAKER_00: get that growth they had to lose 160 million yeah but they lost 97 million in the year of the pandemic that much which is like uber yeah i mean if you're building a base of supply i don't know when this

SPEAKER_138: company was founded 2011 i think no it was before that 2009 wow yeah so the that's a red flag for me is

SPEAKER_01: how long it's taking them to get here but you do see that somebody in the investment group said hey if we want this what are we doing here with this business we're growing slowly we don't have the 2016 17 18 revenue but apparently this was a slow growth business and somebody said hey listen we need to either sell this business or we need to go for it we need to put some money into this and show that we can double triple revenue every year because this is on a small base of revenue compared to large

SPEAKER_04: companies so other unique risk factors so you're thinking they're going public to just sort of like try to raise some capital and get out a little bit well um typically if the company's been around for

SPEAKER_71: over 10 years the early investors uh which includes google ventures and august capital um they're going to want to get a return because those funds are getting old so i don't know exactly when those people invested but let's say it was 10 years ago yeah they're kind of like hey listen either sell the company let us get out buy our shares from us find a private equity firm you know we got to do something here venture capital is impatient capital is a way to think about it and so if you really want to make a lot create a lot of value in a short amount of time you take venture capital if you don't

SPEAKER_152: you can grow off of your earnings and you can bootstrap and that is the patient capital in the world

SPEAKER_04: is so interestingly iac the match and tender company is turrell's largest shareholder google ventures and entities associated with august capital each own over five percent so that would lend some credence to the idea that somebody wants their money back but is this a company that should be dumped on retail

SPEAKER_179: investors so it's always a matter of price so if we look at the ipo price is it going to trade for

SPEAKER_71: two three times revenue uber is you know being considered a buy by a lot of people because it's trading at three times their sales um and that's why all the price targets are at 70 and 80

SPEAKER_01: bucks right now not to talk my own book but it went public at 45 it is trading at 43 or 44 today in other words i've still been in the stock for two years flat right like had no appreciation the market appreciated a lot uh during that time so sometimes things are overvalued then they become undervalued so it really just depends on value if they were at three times revenue and you saw a path to them to continue doubling revenue and maybe you know is it going to be at a one billion dollar valuation two billion dollar valuation and maybe there's an opportunity here i would look at again the 10-year lens in 10 years what will this business look like so what are things that could be headwinds

SPEAKER_04: against this business molly in 10 years well i mean one thing that seems to be headwinds now it i i would say depending on technology there are a bunch there are a couple of different technology

SPEAKER_109: things that could make this problematic not least of which is autonomous cars correct like that's what

SPEAKER_04: comes to mind immediately if those scars ever hit the road um or even if there is some you know look we did just pass a huge infrastructure bill let's say that public transit gets good is better is available is electric like public transit actually especially with a huge amount of investment behind it's set to mature in 10 years massive problem for turro and then its immediate problems are for example uh turro noted in its s1 that they could face liability for the criminal activities of drivers which include among other things potentially uh p2p car sharing services being used for human trafficking and around oakland i don't know what's happening where you are but around oakland those get around cars so if you see one of those sort of making circles in a neighborhood it's yes

SPEAKER_00: um and they also get used for what's that thing they do uh where everybody gets around in a circle in an intersection and they spin them around in oakland side shows side you wouldn't take it i mean you

SPEAKER_04: might take a turro car to a side show if it's nice enough that's true yeah um i think that's why you're not drifting one of those little get arounds that's just not i i follow one of those uh i follow an

SPEAKER_01: instagram account of these side shows and i'm just amazed at like people getting hit in the audience and

SPEAKER_63: what they're doing to cars and sometimes they will have cars like a subaru or something will come out

SPEAKER_31: of nowhere and from what i understand they steal the tires from other people's cars and then go melt them

SPEAKER_191: and then they go put their tires back on their cars yeah it's pretty deranged um and dangerous i wish

Jason Calacanis: they would create a space i mean i would love to see a sideshow like i mean i do that at a racetrack

SPEAKER_70: away but yeah like charge tickets do it at a racetrack i mean just to the people who are doing

SPEAKER_24: this as a criminal activity here is a really great idea for you stop being criminals and start being entrepreneurs take that to take it to a like literally i looked at that and i was like oh my god i can make that into ufc like literally i could make that into a u the next ufc there's tons of places arenas or you could just rent a parking lot from somebody put up a grandstand and you just start naming these cars making brands they get scored like ballerinas do or uh ice skaters do boom yeah

SPEAKER_109: it's like the fast and the furious i completely agree couldn't agree more so anyway um i would uh

SPEAKER_71: say that ride sharing and rental car companies there's so many people who are headwinds against

SPEAKER_01: this business yeah i wouldn't want to hold it for 10 years i don't think that their position gets better in 10 years yep i do think they'll have an okay business for the next five but then i think the headwinds start to come in so i look for businesses that i think in 10 years can be stronger because of

SPEAKER_71: the trends and if it's uber and they have ownership in self-driving and they have hundreds of millions of customers in their database and self-driving companies don't want to run an uber i mean elon

SPEAKER_01: said he wants to run one um attack a cab service but the other self-driving car companies want to sell them into fleets they don't want to run them so uber will have and lyft will have 10 people to buy self-driving cars from and i my personal theory on this is five self-driving companies are all going to get there and regulations are all going to get there in 10 years you know when the drivers can come out in edge cases in major cities right and that's what i think it has its major impact i think you'll have minor examples of it i'm only laughing because it's been 10 years for 10 years but i

SPEAKER_57: completely agree i mean yeah we've had this discussion yeah yeah we've got a real good

SPEAKER_04: startup tuesday going should we uh move on to your interview ah yes so this is um going to be a great

SPEAKER_00: interview i obviously care a little bit about safety uh as i've you maybe follow me on twitter i talk

SPEAKER_07: about it a lot coming from family with cops in it and uh law and order and having grown up in new

SPEAKER_71: york in the 70s and 80s and i became obsessed with something david sachs had showed me which was

SPEAKER_01: a company called deep central and it was a bit of a struggle for the company because they were making their own hardware cameras in the face of nest which was formerly drop can and ring so hard right hardware is hard i stay away from hardware they did something amazing maybe purpose-built

SPEAKER_71: hardware where if somebody gets into your camera it's a two-way speaker it has an alarm on it and they say uh hello uh how can i help you and let's say this is your home or your office and this live guard gets triggered but if they see it's you and they're like oh they just they don't say anything

SPEAKER_01: so they created this two-way 24-hour guards and knowing people businesses and private uh individuals who have security guards on their property uh or people at the front desk we all know the security guards are not perfect right they'll play bejeweled they fall asleep they go to the bathroom they you

SPEAKER_71: know get distracted well here you have 24 hours videos coming in to a bank of work from home or in manila guards those guards then interact with folks when people come to do something bad like they did

SPEAKER_01: at david's office they were breaking in the person was like what are you doing here it's two o'clock in the morning we're calling the police police exit the police are on their way the police are a minute out

SPEAKER_71: person ran so i was like ah i really love this company but they were charging so little for their service i was like this can't work as a business so i got to know the founder and then i said you know let me know if you figure this out i'm really interested and you know i have it at my office and it works brilliantly and he texted me and said hey can i get on the phone with you i think i figured it out and he raised the prices he figured out who his ideal customer and we put a little bit of money into it and so i had him on the program to talk about their great progress to me it's hardware as

SPEAKER_101: a service is the theme for startups i take the cost of the hardware spread it out over a 200 a month

SPEAKER_04: subscription for 24-hour guard service which otherwise i think you said is 150 000 a year i mean the price difference is pretty remarkable yeah you just take the number of hours in a year times

SPEAKER_63: it by 40 bucks uh 50 bucks because that's what you pay all in for a guard guard probably gets paid 20

SPEAKER_112: 25 and you have all the other services you have to put on top of it like the company that provides it

SPEAKER_73: and trains the guards so it's a it's a great bit it's turned into a great business it was a little

SPEAKER_02: bit of struggle to get there and we talked about that deep sentinel is the name of the business the ceo is dave selinger and it is indeed a super interesting conversation it's time for another

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SPEAKER_216: world hey everybody next up on the program is dave selinger and he is the ceo and founder of a

SPEAKER_00: company called deep sentinel which i was lucky enough to invest in uh this is a company that when i saw it i said why didn't this exist before i have been obsessed with security cameras since drop cams

SPEAKER_218: came out and ring doorbells like many of you but i always said to myself gosh you know this is great for me to have a video of somebody robbing my house or my office but this is not going to be helpful uh in

SPEAKER_00: deterring in you know some crime uh intense crime environments like i say san francisco and so a friend

SPEAKER_218: of mine uh david sacks a bestie in fact had put in his office something called deep sentinel and he sent me a video one day and he said wow jacal check it out somebody's breaking into my office and deep

SPEAKER_68: sentinel talk to them and uh what dave created is 24 hour a day seven day a week monitoring on a two-way video camera that also has a blaring alarm it's not as cheap as a drop cam or a nest cam or a ring

SPEAKER_218: doorbell but it's nowhere near the cost of having a security guard on your property but it kind of gives you most of the value i would say 98 of the value because your security guard is not going to

SPEAKER_224: jump in front of a bullet for you they're going to call the police uh so welcome to the program dave uh i think i described the company accurately am i correct jason you nailed it i would i would put one

SPEAKER_225: tiny caveat on it which is that yes our guards cannot jump in front of a bullet for you um but

SPEAKER_227: they also do not fall asleep plan their iphones pick their noses or turn around away from their cameras and so your your friend david sax is actually a great example and he's you know uh also very security minded um but very conscious that you know the security guards that they they work with at their at their business you know they go to the bathroom and play on the iphones for an hour between 1 a.m and 2 a.m and it turns out that's a great opportunity for somebody to break in and so

SPEAKER_228: i would say that on balance uh our our guards are probably only maybe 150 as effective as a live

SPEAKER_231: guard while being a ton cheaper okay so these are designed for business so we cameras we have a

SPEAKER_227: business offering and we have a residential offering um what you said is exactly right like our our mantra and our mission as a mission driven organization we believe that everyone deserves to feel safe that's kind of the active word that we think about not that applies to psychology that applies to politics it applies to so much stuff i mean you mentioned san francisco like think about how much this sense of lack of safety in san francisco has created massive schisms it creates schisms inside of families it creates schisms in front of between neighbors it's people are leaving the

SPEAKER_218: city and they're not coming to the city to do corporate events anymore or tourism it's destroying

SPEAKER_00: the city that's exactly collapsing because of it um so what does it cost to install the cameras if

SPEAKER_218: i remember correctly they come in pairs or in a triplet and it's a it's a triplet the as the starting

SPEAKER_227: pack so we we um we customize it especially for businesses we have installers all throughout the country um and they uh they'll they'll do a site walk like so for let's say a warehouse uh we're gonna have a different layout than we will for a car lot that's getting hit once a week we have customers jason i mean again like you're not going to be surprised because you you get security that are literally having a minor to you know somewhat major security event once or twice a night like a trespass slash vandalism there's so much homelessness some of the vandalism is minor but it still means you as the property owner have to deal with it and so um we'll customize it to that our average installs probably like five cameras um our wireless starter pack has three um what does that cost uh with the service for the year yeah so so our pricing is a little bit in flux right now but just kind of if you think about a ballpark right so a residential home with three cameras um is going to be about

SPEAKER_234: eight hundred dollars for the startup and about two hundred dollars a month got it so for 200 bucks a

SPEAKER_00: month most people pay for their online security like if they have alarm.com or whatever adt those

SPEAKER_227: were always 50 to 300 a month i think 50 bucks is really kind of the starting point and a lot of the larger homes are like 50 to 300 so that's exactly right so now if you have this the way it

SPEAKER_00: works is the camera is meant to look a little intimidating it's black it's got a big powerful red light and a blaring siren it's got a two-way speaker yep somebody walks up to it what happens

SPEAKER_227: yeah so uh you you nailed part of it which is that we don't think of our cameras as recording devices really you go to best buy and you get a beautiful nest and like okay sweet you have this beautiful device it's going to record somebody stealing your stuff awesome um we think about the world completely differently our entire mission is to prevent so what our cameras do is as soon as somebody enters the property they trigger just like any other type of camera but that's really where the the similarities stop uh our system has an artificial intelligence hub it's a small device that's on property again scaled to however many cameras you have and within about 250 milliseconds of that camera starting it's running every single frame analyzing to see if there's something uh abnormal happening the second it identifies something weird happening it brings a guard on we have guard staff 24 7 all around the world making sure that every single property is protected every time and so within 15 seconds on average if somebody is starting to prepare for a crime they are they're being talked to hi this is deep sentinel security now if they're obviously breaking in like what happened at mr sax's office i need you to leave right now i see you you are trying to break into the front door of this office i need you to leave right now i'm going to be calling the police get off you're having the

SPEAKER_218: guard describe what's happening which then scares the bejesus out of the criminals because they look at these cameras and think i've got a hood on i've got a mask on i nobody can identify me they're not going

SPEAKER_00: to call the police nobody's even looking at this camera but then somebody starts talking to

SPEAKER_242: him the red light goes on okay it's a different experience and you have a video queued up here i think it's just great for us to throw to a video here and then continue our discussion for sure yeah

SPEAKER_255: yeah and if you could sportscast this video uh but we it's a video here i guess of somebody's porch

SPEAKER_248: yeah so so for anybody who's not watching this live we've got a guy with a white male about six

SPEAKER_258: foot tall i've been notified by the homeowner that you're not supposed to be here he's he's not

SPEAKER_227: wearing a shirt covered in tattoos we we contacted him immediately uh the uh the the guard called the resident the resident said i know this person he needs to be gone we called the police the police responded in one minute and 45 seconds they had him in handcuffs in two minutes and 12 seconds the video here is ending with an officer walking to the door that is exactly three minutes and 35 seconds from the first interaction with this person it encapsulates everything about what we do right you have the quick intervention right where we address the person i need you to leave but then we didn't even talk about this like police right yeah police are overwhelmed they're certainly a political topic let's not get into that but they are overwhelmed right they're getting they're getting hammered on in every single possible way and one of the biggest culprits of hammering police is i i don't know if you know this or not is adt adt calls police departments all across the country every day and tells them there's an open door in someone's house yeah it was it there was a bush that just waved in front of a motion detector so please send three officers out put them in harms away and they give you a 200 bill they give you a 200 bill or they don't respond right right and so many calls coming in so what you just said about what we do to the criminal we describe what they're doing we describe them back to them we make it personal we do the same thing for the police i don't call and say i have an open door i called the police in that particular instance i said i have a white male covered with tattoos i have an armed not wearing a shirt which is not wearing a shirt the homeowner is inside the house and scared for his life right now that gives police departments everything they need to know to assess what is the risk of this situation what are the what's the information i'm going to give to my officers make sure that by the way another percentage of calls

SPEAKER_271: are false alarms like when you adt gets calls to police 98 percent of calls from adt are

SPEAKER_01: 98 is not looking at the camera that's right and so so that's why police don't respond a year in service

SPEAKER_00: plus whatever you pay for the cameras which is de minimis you can have this kind of service the equivalent of having a 24 hour shift at your house or even if you just did it at night let's say because

SPEAKER_218: you're home during the day 12 hours security guards cost 30 bucks an hour i think uh 40 bucks an hour something in that range yep you would be talking about gosh in uh whatever if you just did

SPEAKER_275: 10 hours with 300 hours yeah in the first month it would cost that amount we couldn't easy it's way

SPEAKER_227: more five times way more in a week you'd have occurred that cost yeah uh a 24 7 guarding really starts at about 150 000 a year right because you have three shifts yeah that's the starting point and and that's and that's again that's for somebody who is still going to take bathroom breaks you have one person you have a single point of failure that one person is also only looking at one part of your

SPEAKER_00: property now what do they do when ups comes or i have guests coming and i forgot i'm taking a shower i got a a guest coming they came half an hour early and i didn't hear the doorbell ring i'm in the

SPEAKER_76: shower what happens then do they call the police and scare the bejesus out of my dinner guests well

SPEAKER_227: jason this is an uncomfortable admission on my part so when i launched the company about three years ago i only trained the guards to say one thing and that was hey you get the f off my lawn that's that's literally the line that we had in their training we had them repeat it over and over again to make sure they got the intonation right they were like aggressive enough and then we found out holy crap of all of our customers 90 of our interventions turn out to be the cousin uh you know the nephews running up to the window and looking through the window looking suspicious yeah and so what we did is we we started actually having problems because our guards wouldn't intervene enough they'd get scared like i don't want to intervene because maybe i'm going to piss off a neighbor and so what we did is we introduced a protocol called the hello and it's just if we're not a hundred percent sure that there's a crime going on it's suspicious but it's not necessarily a crime yet is we'll say hello this is deep sentinel security can i help you with something great um and it's just it to your point about if there's a criminal there they still catches their attention they slow down right and then our our next step if somebody is not responding not doing what we need them to do there's a psychology that we start working into which is just making it personal yeah i i see you hey you dude with the with the tattoos all over without the shirt on you're not talking to a robot

SPEAKER_00: here i i see you so how many interventions a day does the average residential or business customer have and then how do you make a business out of that because you and i when i made the investment in the company this is one of our discussions is like unit economics so just going to the business i think everybody understands the product how revolutionary it is let's talk about the business like if

SPEAKER_218: somebody's got a high traffic place are you getting you know 10 interventions an hour or and how do you deal with that because some people might have a house in a country and you know it's their summer home

SPEAKER_00: and there's not that much going on there's not that much going on so they get one you know person who wanders onto the uh property every week you might have somebody who has one person wanders

SPEAKER_227: onto the property every 10 minutes so right now we have pretty fixed pricing we're as we expand into our b2b so our b2b business really only launched middle of last year and we've been expanding that extensively over the last 18 months so we're introducing that more rateable usage-based

SPEAKER_242: pricing this year and that'll accommodate business i know there's residential there's business what

SPEAKER_227: does b2b mean b2b means everything from uh protecting retail places uh car lots uh warehouses we do a ton of industry in cannabis but it also means multi-tenant residential so like uh we have we have people that own 100 200 500 a thousand properties and they need to protect all of them but they they don't want to really differentiate between uh you know the different owners and so they they use up a lot more of the service to your question and so we've just told them today we can't do that but we're just starting to we have we have actually some of the largest property

SPEAKER_228: owners that we're working with to do that are you going to work with property owners who don't have

SPEAKER_242: your cameras but maybe they've already installed a bunch of cameras or is that defeat the purpose because you don't have the two-way you don't have the screaming alarm they need to use our cameras

SPEAKER_227: that's that's a great question we actually again in the last year let me let me let me jump back to your question about unit economics so 2021 was our transition year of unit economics 2020 we proved that we have something that's revolutionary like the product nobody can argue i

SPEAKER_228: don't think with the fact that this is a game changer it just changes everything let's pause there

SPEAKER_00: for a second because when i met you you didn't exactly have product market fit right there's a little bit of wandering for two or three years and i was like i think you're gonna figure it out i placed a bet on the company i invested a little bit of money uh with our syndicate um so explain

SPEAKER_270: what the product market fit journey was and then post product market fit yeah so so the product market

SPEAKER_227: fit journey was was pretty extensive i'll describe it in three phases the first phase was we started out with just like i really want to prove this in a market that's going to allow us to do a bunch of experimentation so we started out with just mid-level residential we started at a lower price point a little bit lower level of service and then uh and what we found there was that the expectations were incredibly high and it was very difficult to acquire customers we were competing against adt directly that there's a lot of noise in the market the problem of is this ring tell me how this is different than ring we got that question every single day and then um and then and so we we found that our cac just to give you kind of a sense our cac average was about seven hundred dollars and our acv average was about nine hundred dollars so we were we were under a year but it was it was kind of a tough grind at it it wasn't that like obvious this is it this is maybe this was not your ideal customer profile that's right and our gross profit was low the expectations were really high our gross profits were like it's in a lot of cases they were negative and to your point the big ones were pulling us down

SPEAKER_232: the second step in our journey people who were taking too many calls and taking too much

SPEAKER_228: security uh every call to the police we got to do tons of documentation and all this other stuff

SPEAKER_227: then we moved into kind of slightly higher residential and mid-market or smb and we found there that we we were now a little bit more profitable our cost of acquisition was about the same but our pricing could double and so we doubled our acv into like the 1200 1300 range uh our gross profits were like just over break even like 10 ish but our cost of acquisition was still like 900 bucks and this is where 2021 came in 2021 was our inflection year period full stop at the beginning of 2021 our cacs were still like 500 we exited 2021 with a cost of customer acquisition under a hundred dollars our acv went from 1200 our average acv went from 1200 to 2800 got it and our gross profits

SPEAKER_00: went to 40 this is why i like to bet on i'll just be candid with you when i know somebody is a product-driven founder you're a product-driven founder you're a builder am i describing you

SPEAKER_227: accurately 100 like i've got electron if anyone's watching the video i have electronics all over my

SPEAKER_00: office right now so here is why for our firm launch and the syndicate our motto which i evolved this year is we back builders and i actually got the domain name webackbuilders.com because almost every great investment i've made i'll actually say that every great investment we've made is with a founder who understands how to build something of incredibly high quality that when it touches the ideal customer my lord it's magic and so that's what you discovered was once you had the right customer amen customer acquisition cost plummeted 80 90 percent it was crazy because you knew who you were selling to and then because they're your ideal customer they don't churn they don't leave the product so the lifetime value goes up and they're willing to spend more because they're getting so much value

SPEAKER_218: the people who have higher-end residential or these other businesses warehouse construction sites they're comparing you to security guards that's exactly right they're not comparing you to nest and that was your journey and you got there but let me ask you a candy question did you in your gut know you were going after the wrong customers and wish you had changed quicker oh man um in retrospect

SPEAKER_227: i'm gonna i'm gonna give it a maybe right okay but but but but here's why i don't i don't jump straight to yes like if you just look at the financials you might say yes but there were companies targeting kind of these larger businesses what we built that they didn't build was we built a combination of real ai technology like the the entire back-end software and ai and we built a brand around stopping crimes we require two-way audio and when you go straight into the smb and mid-market when you go straight into these higher-end customers they generally don't like you to tell them what they need to do to be frank so when we did our initial market tests two and a half years ago we said oh cool you need to install two-way audio cameras they would say things like no and and that was the end of the conversation now when we come to them we say okay i have 25 proof points every single day of every crime that i stopped for the last year and i know that this makes a difference this is why you have to do it they say oh thank you for educating me i feel educated now here's my money and and there you go and and by the way let me just put a pin in what you just described is what you see in your companies like i i literally i haven't even updated you i i will hand on the bible tell anyone i haven't told anyone what you just said and what you just said is exactly what 2021 was our our cat went

SPEAKER_278: through the through the floor we doubled last year so not only did we like quintuple our gross profits drop our floor and we doubled revenue at the same time so that's just super efficiency takes the

SPEAKER_00: pressure off and on a unit economic basis this is sustainable and you can be profitable for each customer

SPEAKER_324: yep absolutely wonderful place to be it is an amazingly good place well if you add 100 customers

SPEAKER_218: this month you're not scared that you're gonna uh burn more money and basically you're selling 100

SPEAKER_255: bills for 50 bucks yeah which is what you were doing in the beginning you know it is like geez this

SPEAKER_00: is not a great business i'll make it up in scale yeah be careful um so the business is going great the technology is going great um what it what is the uh ultimate future for the business as you see it today because there seems to be another level of customer who maybe owns 100 sites maybe they have a hundred you know maybe they own a franchise of a hundred subways and they're like you know what i'm a franchisee of subway but subway doesn't provide us or whatever franchisee they are with security that's up to me and i get a hundred of these now that's a different type of customer we're

SPEAKER_71: talking about six figure customers have they started to show up yet yeah so so that's exactly what just

SPEAKER_227: happened towards the end of last year we we have our first uh 50 000 customers now um and as soon as we started figuring out how to service them right they need a different level of customer service they need a different level of technical support we had to educate our partners we have a nationwide partner network but it was a little bit eager and so we needed to rope make that more robust and then then we had to figure out how do you service like let's say somebody owns 100 subway franchisees across the entire northeast of the united states i'm not going to have the same installer for each of their different locations so i have to create standard operating procedures so that to the customer it appears completely transparent but it's consistent and then at the same time i allow my partners to be you know the installers to be as effective as as they can

SPEAKER_00: in their special way for their region and this seems like the obvious next big step you then are going to charge based on hass hardware as a service yep so you can just for those big customers if they have whether it's somebody who owns five homes they're a high net worth individual they they have a house

SPEAKER_218: manager an estate manager they might have a secure head of security they want you to just do all five homes and they want a private you know central hub for all these things the person who owns you know maybe she owns like 20 of these subways in one city and 20 pizza huts in another she wants all that in one interface so that has to be built out and they're willing to pay a higher level but the installing is a bit of a pain in the neck but you know i have another company density uh we invested in

SPEAKER_00: which does space planning and you can see all the spaces you know how many people are inside a space right um and and they have done a great job as well of saying you know don't worry about the hardware yeah there's a hardware cost but let's just talk about you know this the amount of square footage you are trying to understand and get data on we'll just we can charge you for that basically that's right you just charge people in the number of locations and the number of doors that you have to monitor

SPEAKER_228: yep and then in terms of our expenses like svb and a lot of the other banks are developing

SPEAKER_227: instruments specifically to help us bridge that ah yes so they'll provide the capital in the middle

SPEAKER_218: anyway so from a great part about your services you don't need to have ethernet hookups uh and power you have a version that has a giant battery in it talk about that decision yeah so so the one that's

SPEAKER_227: that's kind of part of the the if you just go to businesses we never would have developed our wireless solution and uh our wireless solution is the one that i think is where we hang our brand i i love it i'll hold it up for the people that are watching uh on on the the video here this is the the front of our uh wireless camera it has a battery that lasts about two and a half three months you can also hook it up to solar and other power options um but but what this does like let's talk about my home right now so obviously i'm the ceo so i've got to i've got to make sure i protect my home i have a series of these all around the perimeter of my property they're out to the fences they're out to the edge of the the driveway and then my home itself is all wired poe cameras all around the home and so one of the neatest things that we ended up getting as a part of this journey was we now have one of the only mixed mode solutions out there so if you have a construction site where you've got a central office and that's wired and that's great but then you need to protect the edges of a security uh a construction site that's really difficult with a wired camera solution yeah we solve all of that got

SPEAKER_300: it i mean that's just amazing now does the interface uh for people don't know poe power over

SPEAKER_00: ethernet you just run an ethernet cable it gives a little power to it are people requesting now that you got of ai there you obviously know hey this is the homeowner this is the site manager these people are uh faces we've seen before yep is there an interface now where you could say hey this person works at this company these are the 10 people who work there you don't need when you see their faces to call a security guard they work here uh or conversely can i see uh let's say it was that person with the subway hey i want to just know anybody who shows up here between 11 pm and 7 am because if people are casing the joint which criminals do you could just tell people hey this person has shown up four nights in a row and they've been in your backyard so they might be somebody's you know deranged ex husband wife whatever who's gonna you know commit some horrible act and they're waiting for you know their their previous spouse or they could be a stalker if it's a celebrity are you starting to do that kind of deep ai and those kind of dashboards for customers is that

SPEAKER_225: coming in as a request that's that's exactly what uh we're doing we're doing it with a slight twist on

SPEAKER_227: on uh kind of where you started which is certainly we're going to look at our cogs and try to not use the guard time ineffectively but what we've realized is that the way that we use guard time is not binary it's not is there a guard viewing it or not it's what is the guard looking at what are we drawing their attention to uh so for example if it's a if it's a known person um instead of saying don't have the guard view it just make sure the guard knows there's a known person in the field of view and there are two other people with them or there's one person and and so it's it's a little bit more nuanced in that at the end of the day to provide security i always think about it from you know you mentioned a product person like i think about it from my home and our business i want to make sure that when my employees go in and out of our office at night that there's a guard watching them because that's actually kind of a an important thing it makes you feel great as an employee that's right employees

SPEAKER_00: at our office felt great that we had this because they know when they go into the hallway if they happen to work late yeah if something happens it's going to be on camera and that's going to be on

SPEAKER_218: camera so we can play it you know for the police later it's going to be somebody live watching it

SPEAKER_227: that's right so all the cops if you're assaulted so we don't do facial recognition and say don't show the guard what we do is we should do facial recognition just make sure the guard knows there's someone we know here got it and and what what educated us there again going going back to your question i hadn't really thought about this before but one of our very first early kind of low-end beta testers was this single woman she's a friend of mine she's a friend of our family and for the whole first year she was our like the guard's mantelpiece every single guard would say i escorted this woman home from her from her driveway to her front door and it was this point of pride that we're creating we took her home which is the unsafe feeling for her at night and just changed that whole context and so we always kind of look back at that use case whenever i i'm getting pressure to like reduce our costs and not watch videos i always think back on that and and from from a product perspective i never want to sacrifice being the absolute unconditional best at this for for those marginal

SPEAKER_00: economics yeah i'm super excited that we made the investment we did because i think people didn't want to invest in your company because it had the hardware component and you were kind of figuring it out we put in i think i could say what we put in we put in 2.8 million uh back in august of 2021 or was it before that it was uh july august yeah something something like that and you

SPEAKER_218: and i have been talking for a year i've been a huge fan of the product and i was just like listen are you ready and you're like i think i'm ready i think i'm ready um but you haven't raised money since

SPEAKER_227: right and we haven't we're actually going to be going out this quarter because we just we just compiled all of our 2021 numbers yeah and and the other headline number that we saw again it's right what you just said our conversion rate our close rate from proposal is 80 wow our close rate from

SPEAKER_01: a site walk is 90 right now amazing it makes sense i mean i it might be a sign that you're charging too

SPEAKER_00: little for this product i knew you were gonna say that it typically is when you're a vc you see this movie over and over and over again if you're closing 90 it could be that you're undercharging but i do think there'll be features you could put on top of this like you know let's say you just want the monitoring but let's say you want to have an analysis of what's going on with your space yep that could be a higher level where you say hey you could unlock everybody who comes to the space and

SPEAKER_218: see you know here are the top 100 people who come to this space when they come the times now that would be a little scary for people maybe in privacy but you have to remember this is on private property

SPEAKER_363: that these things are occurring man is that an important that is a super important point like if

SPEAKER_218: we're if i if this is my front door it's my right to know every person who comes to my front door and i could track them forever and if i want to know that there's a stalker keeps coming to my front door

SPEAKER_224: and they show up every thursday you know that would be an incredible feature i mean i'll show you in

SPEAKER_248: terms of like you know a little bit of my personal political cards here but that the fact that we are

SPEAKER_227: doing this as a private company you know everyone and when i very first launches everyone would say oh that sounds like big brother and i said actually this sounds like the exact opposite of big brother the fact that i'm running this as an enterprise designed to be profitable where i can tell you who my customer is i can look you in the eye and say you are either my customer or you are not yes i am accountable to you and you own this data or you do not yes that to me is so incredibly important because there is no fuzzy line like like let's say for example let's let's use your office let's say i have a police officer who calls me and says hey i think something happened here can i get the video for for launch's office you know my answer is yeah absolutely just bring me a subpoena just go talk to jason or go bring me a subpoena and by the way when we get a subpoena we're not like the other companies out here who say they take it seriously you it will we have received numerous subpoenas when we get a subpoena we verify it we go to the we go and we do a reverse lookup we do a three-way verification we call the um the court we verify that there is a judge with that person's uh contact information we have that person then we email them a verification letter um to their official email and have them fax it back to us from their sorry email back to us sorry from their official email on a document we we don't mess around with this being a private business this is that there's no blurry line between us and the government we rely on the police but we are

SPEAKER_216: independent entity we have a little kerfuffle in because uh in the building where i am it's a

SPEAKER_00: i guess they call it a condo when you have multiple owners and then there's a management company and they're like according to our you know bylaws like you know you can't put up security cameras so it's like uh in our apartment complex slash live work loft studio kind of space i have to people have ring doorbells so it's like everybody's got ring doorbells what's the issue here and they're like well yours sticks out it's on the wall i'm like well i don't care like well who cares you know and they're like well you know and it's like that's technically my space and so we get into this like little back and this like one karen who's in our building is like well you can see the neighbor and you can see the um you see the neighbor's door uh from the from my estimation

SPEAKER_218: where the camera is you can see the neighbor's door and you might be able to see the elevator and i was like okay why don't you ask the neighbor if they want me to take the camera from the right-hand

SPEAKER_224: side and put it in the left-hand side and they don't get the protection of the deep sentinel person was like no no no no no please leave it up i'm drafting off j cal's 2500 a year service

SPEAKER_218: that's right let's keep it up and running and then uh it has happened that people were lost in the building and deep sentinel interfered and it was great for us and then i get an alert on my phone my assistant gets an alert the third person gets an alert it's absolute magic and it just shut the whole discussion down and it's like do you think we should get this for the entire building because we have dumb cameras in other places and packages are being stolen and they're like oh yeah i guess we could do that you know because they're thinking about getting a security guard um how do you work with buildings that have existing security guards but then also want this yeah so that's actually

SPEAKER_227: that's actually become a sales channel for us because so the security guard business itself is kind of a funky little business their entire business model with with all with all respect to these guys that are doing their best is they send in the a team they close the business at like let's say 10 000 bucks a month and then within three months they move the a team to the next account that needs to be closed and you get stuck with not even the b team c team or d team you get stuck with somebody

SPEAKER_228: who happens to have a heartbeat at that particular moment basically yeah they put chuck who is

SPEAKER_366: sleeping on the job playing bejeweled and could care less we already got these guys they're stuck in a

SPEAKER_227: one-year contract we're done oh and and that's their entire business model and so the problem with that is it not surprisingly the churn in that industry is basically a hundred percent at the

SPEAKER_380: end of every contract period uh that's why they make them do two-year contract exactly and so for

SPEAKER_227: us what all of a sudden is oh deep sentinel's part of our solution imagine your guarding company comes in and says yeah deep sounds part of the solution and now their effectiveness goes up by a factor of five or six they can put the most lazy guard on the scene because we're actually doing 99 of the work and we just call them and say hey chuck time to wake up buddy wake up the cops are on their way

SPEAKER_278: already put it down plans yeah go up to floor three we got a problem on floor three now what about cities

SPEAKER_00: you know we have a big discussion here there was a guy the xrp guy was putting up cameras in san

SPEAKER_218: francisco was a little bit weird um and who has access to them but if a city of san francisco said you know or another city that let's say had a drug problem whatever if you put deep sentinels in the tenderloin you know uh three on each side of each block and then people are loitering and you're monitoring everything and you see somebody who's committing a crime and you could talk to them and call the police this would seem to me to be an incredible uh opportunity but you know cities and governments move slow has law enforcement said you know what we want to have something like deep sentinel working with the san francisco police department or the san diego police department in areas where we know it's high crime you know there's a high crime area you can put these cameras up even temporarily to to to stop the crime or permanently so i i'll say that governments move slow

SPEAKER_227: right i'll reiterate that but but you know who does move pretty quickly are police into police departments and police individuals so when police see what we do right when a police department gets their first call hey i've got an assault happening at this street at this location wait who are you we're the security company we're monitoring the cameras that usually starts a conversation with the police departments that's been part of our growth because police departments at the end of the day how they're measured is by how much money they spend and how effective they are deep sentinel is one of the best ways for police departments to be more effective yeah because it doesn't cost them more feet on the street and it reduces crime so what we have seen is like certain areas like santa cruz um where there's a ton of homelessness it's it's similar to san francisco in

SPEAKER_00: that regard right a lot of homelessness just let's be clear we're not talking about individuals who are down on their luck can't afford rent can't find a home necessarily we're also talking about addiction mental illness violent criminals gang members as well and there's some overlap there and the whole

SPEAKER_227: spectrum right like we're we're like i we're not going to arrest somebody who has a mental health issue for every trespass and and and vandalism they do but if i'm a property owner i definitely don't want them doing that right and and what's interesting about this is that you think about it from i don't know if the term's humane perspective but we're able to prevent the crimes to the property

SPEAKER_278: owners and at the same time not put an armed police officer in front of a person who has mental health

SPEAKER_265: issues yes and yes avoiding a deadly confrontation i mean a really horrible one right i live in

SPEAKER_227: pleasanton which is a small tiny town and in pleasanton we have we just settled our police department just said a lawsuit because they shot uh an unarmed mentally unstable person last year it's it's not fiction like reducing contacts in every city yeah reducing contacts between police officers and these these people is a big deal so what happened is the police department uh verified that yes this is working um and their neighboring city salinas the city council got together and put together a grant program so that all the downtown businesses get a rebate they install deep sentinel because it makes the entire community better so it's happening a little bit at a time it's not happening at the big cities like oakland and san francisco that i think you know drastically need it um but the property owners are starting to catch on we have tons of installs in san francisco and the we actually had a group of property owners not related to me at all who just happened to buy deep sentinel saw it work and they by themselves went petitioned the city council of san francisco to support it um as you know there's issues with san francisco politics so that's stuck exactly where it is but but people see it right individuals see this and they're like this is the solution can you please get off whatever political problem it is that you're on right now and start using this please so an easy

SPEAKER_00: add-on for this product would be i have a parking lot things happen in my parking lot i've got a parking garage uh i put a deep sentinel in i get the live guard on duty but you could also be

SPEAKER_218: reading all the license plates putting them into a database and knowing hey these 95 license plate that are coming onto my private property you know we're not talking about yeah public things my private property so they came onto my business they parked here these 95 are you know this 95 are employees this five percent whatever these are customers but these five percent we don't know and then you can be alert in the security guard to hey there are five license plates at facebook or whatever place that have never been here before and they're not in the guest parking maybe we need to figure out who's in a little bit more attention that's exactly right that is exactly where i think is so easy for your

SPEAKER_227: cameras to do is license plate recognition that's where we're going like what you describe right there is exactly how we're thinking of using ai it's not not again not just this binary do you do something it's really being informed about what you do i i got really inspired when i watched tesla's ai day a couple months ago and they talked about instead of trying to predict this is a person or this is a car this is a tree instead predict the driver action predicted it's a it's a type of ai called semi-supervised learning where you're you're trying to learn the output you're not trying to learn the objects that are the input and so we started uh on that journey about three four

SPEAKER_200: five months example of the ai doing that great example we understand for tesla but give me a tesla

SPEAKER_227: example give me a deep central example so tesla example is hey when there's a person walking towards the the car um and it looks like there's a crosswalk in front of me slow down right even if the person's not in the crosswalk slow down a little bit get your speed under 45 miles an hour or something like that that would be a tesla example and it would just notice that drivers tend to slow down when there's a person approaching the crosswalk and it doesn't have to know necessarily that this is a crosswalk or this is a person it doesn't have to label those objects it just has to recognize i keep seeing these two white lines and this this object approaching from the right side and when that happens i do this behavior an example for deep sentinel that we it's actually live we actually just filed a patent for it so like i'm all on sharing about it now is we recognize that when guards dismiss an event so they'll say hey that this this doesn't have anything interesting in it one of the things that we do is we we tune our ai to be super sensitive so if it has even a one percent chance of being a person boom we trigger it send it to a guard make sure that it's getting reviewed but that means that flags and dogs and things like that get triggered a lot and so what we do is we look at the negative action of the garden the rejection of an event got it and then after time what we do is we actually train not a general model this doesn't go to every single person we actually know in your hall at your office jason we know the areas that have false triggers right if you have a flag sitting in front of your camera that that's triggering the camera a million times a day but but 99 time the ai doesn't get fooled but it does a little bit we'll actually be able to identify for your flag in front

SPEAKER_228: of your camera your ai is going to be different to identify about this issue because i have a nest cam at

SPEAKER_68: a property and there's a light by it and i get you know every evening uh the moths come on a summer

SPEAKER_218: evening they fly by the nest cam and i get an alert at 1am and it's like oh there's a moth going to the light and it's set off the drop cam and drop cam is too stupid or the nest cam is too stupid to know

SPEAKER_255: that's a moth you would actually be able to say that's exactly what we do we don't need to ask the

SPEAKER_225: moth what they're doing on the property that's exactly we look at the time we look at the shape we look

SPEAKER_227: at the location we look at the trajectory and all of that is just for your camera so we don't induce

SPEAKER_228: the the bad problem of having a false negative right we don't want to have that and that's why

SPEAKER_179: it's a very very precise model are you thinking about going either into the alarm business and

SPEAKER_00: starting to do the doors and the locks and all that stuff and and somehow integrate them or do you think you've got enough on your plate just perfecting this product it's so tempting jason it really is

SPEAKER_368: because there's like a lot of revenue and there's people that like it and and frankly the gross margins

SPEAKER_227: on that are so high because they they they shuck all their costs over the police department right it costs them nothing just call and say hey i've got a door open yeah but at the end of the day you know if i really believe in the future of where we want to go i'm more comfortable partnering with companies like that and doing some level of integration versus potentially really dragging our brand down now i may swallow my own words at some point but right now i i love what we do so much i love being preventive i love being so effective i love that inspiration i get every morning when i wake up it's just like i am going to get up and go to work and i'm going to crush it today and i get my 10 emails of crimes we stopped that are all videos and just people running away overnight i love that and so we're we're pretty focused right now on make that as extensive and as awesome as possible

SPEAKER_179: yeah the only other thing i've been thinking about is giving you a floor plan of a property

SPEAKER_00: when you have eight cameras and then also there being some other type of sensor so there are some cameras now that um have uh motion detection or or what is it called when the camera moves automatically oh ptz the pan tilt zoom yeah so there's ptz cameras that are motion detected so hey somebody's far off to the left we're going to zoom in on them so those are very advanced cameras they tend to be two or three thousand dollars i think as opposed to yours which are a fraction of that have you thought about those type of cameras and then sensors around a large property so you're doing this construction site you put eight cameras out but you don't have the lay of the land you they could really have a more robust system if you knew every square inch of the place so lay of the land

SPEAKER_227: absolutely that so when we very first started we really focused on the ai is going to do everything the guards are going to do everything let's not distract the guards by having too much information but we're definitely starting to get more information from our customers like are they on vacation because that's a very different state um is your alarm armed is actually an interesting state for people unfortunately most people never arm their alarm it's crazy uh well i mean after you realize that it's not very effective and that all the alarms are false alarms i i get it um but but nonetheless i if you kind of think about it from an ai and all information and more information is better that's kind of the view that we're taking of it and so we're gonna again continue to focus on preventing crimes using video and two-way audio but expand the footprint of the

SPEAKER_228: data that we bring in in order to enable us to do that effectively well absolutely fantastic thanks so

SPEAKER_179: much for letting me invest anything i missed with what you're doing i know you're hiring so you need ai

SPEAKER_227: engineers what do you need engineers we need ai engineers we're hiring a head of revenue we just opened that position recently um does that mean you're gonna have like a sas sales team and and

SPEAKER_343: be doing outbound like that or do people just inbound call you because of social media marketing

SPEAKER_227: it's actually a combination of both so as you with your question about the larger accounts we're identifying some of these larger accounts we're like i mean all the retailers have been in the news for the last month right so being able to develop a strategy for them shutting down they're just like we can't take this anymore right like i mean as if it were hard enough to get a a covid test at a walgreens it's not even open to let you get them all the starbucks are closed right now in the in the area of as a combination of covid and the crime yeah um and that and that's this is again this isn't pleasant like i'm the word pleasant isn't in our name um but uh i mean yeah i mean we're we're definitely hiring um we're gonna go out to raise a next round in and the next month i'd love your feedback we're

SPEAKER_298: gonna get the deck together here in the next couple weeks great i'll go through the deck i mean i

SPEAKER_00: would like to invest more i think uh i think we're somehow like i don't know close to 10 owners at this point and i think i'd like to this is the type of business my general philosophy is that i find a great founder would vibe with them they're making progress uh they have product velocity you have all of those things you figured it out you know getting to 15 ownership is kind of a nice

SPEAKER_343: thing for us so we might want to go not only pro-rata but super pro-rata so that's definitely something for us to talk about that'd be awesome yeah i mean the only thing sentinel everybody deep

SPEAKER_227: sentinel.com the last thing i would mention is go to our our youtube station we have a youtube channel where we publish all these videos oh my gosh that's like you don't have to do any marketing you just

SPEAKER_218: watch these videos and it sells itself and you know i get so many emails i was like i'm gonna just unsubscribe from all these emails create a secondary email and then when people want to keep me updated i have like a second email whatever uh or for marketing stuff and the deep central email that comes every week or two with a new video on it i open it every time because i'm like this to me

SPEAKER_224: is like a great little uh you know version of cops where it is i get to watch some you know deranged

SPEAKER_00: criminal do something incredibly stupid or you know really scary and they run and there was one video in the early days this is right before i invested where you used to your security guard starts to

SPEAKER_67: talk to somebody and they go that's tight yeah and he's like you got me that's tight and he just walks

SPEAKER_439: away that's exactly right i started laughing i was like this guy is scoping out like where it was like

SPEAKER_31: a warehouse or something and he's literally holding a crowbar to break into a warehouse and he said ah

SPEAKER_225: yeah that's fine yeah it it is uh it is an awesome awesome that that's the you asked the most important question which is just you know what's the the big idea behind it and why why do we do it and and

SPEAKER_278: it is there's no question in my mind that this is the future of security and you know everything

SPEAKER_275: else kind of comes from that yeah and if you just type deep sentinel into youtube you'll find the

SPEAKER_00: channel and subscribe to it give it a thumbs up yeah you've only got 2 000 subscribers so that should be like 20 000 people will start getting into it just type deep central and watch this stuff and uh you know if you've got a home uh and you really care about protecting your family if it's a you know you need three or four cameras uh it's well worth it i think amen and certainly for a business well worth it to continue your success thanks for including me on the journey uh i look forward to those emails i get them i feel super excited uh to be part of the journey with you and thank god you figured out the unit economics so now we can start scaling and uh there's somebody out there who wants to

SPEAKER_343: lead the series i guess i led the series a and somebody lead the series b or something i guess there we go let's go do it yeah let's go do it all right uh we'll see you all next time on this week and start us bye-bye