📍  Have you ever had an idea for a physical product that you just knew had the potential to change the world? Maybe it was something you dreamt up in your garage or a solution to a problem you encountered in your daily life. Whatever it was, you knew it was a winner. If only you can turn that idea into something... You are not  📍 alone!

Countless entrepreneurs and innovators have stood exactly where you stand filled with passion and drive, but unsure of where to begin, and that's where "The Builder Circle" comes in.  

My name is Sera Evcimen and I'm a mechanical engineer, hardware enthusiast, and hardware mentor.  I've had the privilege of working with numerous hardware companies that are passionate about solving some of the biggest challenges in the world.  And I will be your host as we explore the exciting and complex world of physical product development.  

  welcome to the Builder Circle. Today I have Orin Hoffman with me, and we're going to be talking about,  setting up your capital stack so that as a hardware company you can set your entire goals and your budget and your funding and everything up for success so that it works with your hardware product.

Orin, thank you so much for joining. I'm very excited to have you. If you don't mind, if you could do a brief introduction and background to the listeners.

Sure. Happy to. Great to be here. Let's see Before getting into the investment racket, I was a longtime robotics operator. Actually started out teaching robotics at Mount Holyoke College. Went to iRobot when it was in its early, doing 10 different business units. Stage of company was an early researcher with the D O D and organizations like DARPA and Office of Naval Research and things like that.

So really doing robotics research. And then when the conflicts in Iraq and Afghanistan broke out, we very quickly transitioned from, hand building research and development platforms to first deploying the pack bot system overseas, and then doing all manner of different robotic systems over the course of six or seven years, had the privilege of going overseas after we manufactured them to help with the deployment, the training, the repairs.

So seeing that user experience and, doing some crazy repairs on the fly as it were. We later spun out the government oil, gas, industrial division out of our robot. Endeavor Robotics, which got bought by flir, which then got bought by Teledyne in the Fun Dance of Defense primes.

And and then I did a three year stint in a C T O capacity with a defense innovation unit experimental which was really interesting to see how the sausage is made on the government side of the house, trying to figure out how the government can help non-traditional startups in their capital stack which.

Was a great entree into the engine as it was getting stood up. M i t stood up. The engine is both a traditional venture capital organization, but also with a lot of other tools that after a lot of research and studies academics do, they had given some thought on why these breakthrough technologies.

Oftentimes hardware weren't transi transitioning into, fundamental anchor companies, the US Industrial base. So in addition to a fund, we had a network of academics and corporates and government and other founders to help these technical founders as well as working space lab space to help with the capital stack of these founders as they needed lab space as they were leaving university.

And then I'm still a special advisor at the engine, but actually started my own fund in January called VX I Capital. So I think that's the long and the short of it, maybe a little bit on the longside.

No, that's perfect. Because I think it's really important. I I think there's a lot of there's a lot of VCs out there and there's a lot of VCs that do like a hybrid investment between software and hardware, and there isn't a lot of  knowledge when it comes to hardware and the intricacies in like the entire development cycle.

So it's very refreshing when I meet VCs with hardware backgrounds who've really been in it and understand the ins and outs of it. And I think it probably makes for obviously  better investment decisions when selecting which hardware company to go with and being able  do the due diligence and also be like a really helpful board member and partner for those people.

So  I really appreciate you going into in depth of your background and your experience with hardware because. I think it'll also really shine through when talking about capital sourcing and doing it in a strategic way so that it actually very specifically enables hardware people because it's such a different game than software.

The entire business model and funding structure and how you even use the cash is so different. So we can get right into it. So what I would really love to start with is getting your opinion on why it is so difficult to raise money as a hardware startup, because we hear this all the time.

So just your opinion and your perspective would be great.

Yeah I don't think I'm gonna say anything overly controversial or insightfulness. Software is in a lot of ways, easy.  It takes a few people and some computers to build minimal viable products. When you're successful. If you're successful, it generally tends to scale very quickly.

And then that ends up returning capital to investors very quickly. That's the 30 second explanation. I think it there's some interesting nuance there in terms of what. Investor expectations are, and that's in the due diligence process. Why I think kind of software  folks oftentimes don't understand hardware , and definitely vice versa because, with software oftentimes  you're able to develop very quickly, but you're trying to, either, create a market or go after an existing market.

And your big question is, do you have product market fit? Can you acquire customers? What's the cost of your customer acquisition? And is there scaling potential in a way that's monetizable? I think with hardware, unless. You're making a really what I would think was a bad strategic decision or just are taking a flyer.

There tends to be more kind of anticipated product market fit before you bother to enter into your seed round of a startup. Generally that can be because, in the university you had built a prototype that you got some data on or the need is sufficiently there that, whether you get product market fit from a full capability to price perspective is still a question.

But at least there's some, generally some understanding that, there's a big market there, there should be some amount of product market fit going into it. And so really you're focused on reducing technical and I would say techno economic risk in developing it. So I actually think, it's not just about having an IP mode.

As lasting value for the companies. It's that combination of IP mode that comes with hardware and, it's just a different risk assessment for for a company as they're looking at going into the hardware space. I actually like that. I feel like given my experience, I'm pretty good at tracking what a team's execution capabilities are and, seeing the risks out there.

And I'm much less comfortable with sort of market creation or, the struggle of product market fit. And I think that's why so many software companies failed because, you can afford to take those flyers. You can't really afford to fail as a hardware company at least not too many times, cuz there's only so many pivots you can afford as a hardware company, unlike a software company.

Yep. That, that definitely makes sense. And  it is a completely different landscape, feel like. It's a more difficult storyline to tell when it comes to return of investment, and it's not as speedy. And not a lot of people understand it. So it, I feel like it accumulates and there's this domino effect of reasons that we could probably have an entire episode dedicated to why it's hard.

 But hopefully this this episode will really dive into how we can make it less difficult to actually set up that funding structure. Diving right into the steps to determining your capital stack and this capital stack word kind of bundle I got from you because when we first talked about it, I love the way you described it because I'm a system level thinker and I feel like capital should be thought of almost as systems where you're stacking different types of it.

Very strategically so that you can optimize your output in a way that I guess like minimizes dilution maximizes execution ability and also gives you a little bit of contingency that, so that you don't take on as much risk as you go through developing your technology. When let's start from there.

So when determining your capital source if you could give a few examples of what those capital sources can be and then talk to I guess like the pros, cons, what you've seen, any thoughts that you have on them. I think it'd be very valuable for our listeners.

Yeah I guess for a hardware company as, as different from a lot of software, especially consumer software companies, is, there are sources of capital that are different and that I think are quite useful. Make sure that I come back to government but certainly government as a source of capital is important.

As a hardware company, you can get debt on equity or on capital equipment. You can get oftentimes state grants for physical spaces. You can in, later stages as you're doing sort of deployment projects. There's a potential to get project finance, which I isn't necessarily equity based.

I think I mentioned venture debt. And there's also, I think, and then of course there's equity investors. I think a thing that I would note is, if you're gonna do any startup, you wanna make sure there's gonna be a massive market at the tail end, right?

So that's table stakes. I think for hardware founders, you should probably expect, and I don't think this is a hard and fast rule, but  you're gonna have to give up likely more equity upfront in the early rounds either because it's harder to find those investors, or you just need more of those early rounds.

So it's not uncommon to, you raise a couple of million in your seed, maybe a couple hundred K in a pre-seed, then you do a series A, and then you might do a series A two, and then you might do a series A three and then, name it whatever you want. But there's capital up front.

But the nice thing about that is that once you have your. I'll say low rate of initial production, contract manufacturer. However your manufacturing stood up and your selling product, you can now start getting other creative financing on, debt on purchase orders. And also investors as they see this sausage crank trying to, starting to wind up, you now have an execution moat that is a lot wider than software companies.

So your valuation should be reflective of that. You've crossed the first initial bridge, and so I think you generally, as you get into later rounds as a successful hardware company, you should expect to actually start taking significantly less equity. I can't say I've done like a deep data dive on how that compares to software equity in the late stage, but I say this mostly just to it can be disheartening to founders to, give up 20, 25, 30% of the company in each of the early rounds.

But it's not uncommon and it gets better 

Yeah, so you mentioned a few a few sources. So we went through government funding taking out debt for capital equipment and then obviously investment from venture capital. And then I guess generally loans.

I know that like the example that I constantly give is Dyson, where he took out a collateral on his house and stood up his entire manufacturing line and then didn't give up any equity, which is like a intense example. Maybe don't do that.

off to the founders that, that, that pull off that Marial move

But yeah. So when it comes to you wanted to touch on government funding. W you've been in that space a little bit in the past. So what have your experiences been and what do you re recommend to founders that are considering that?

Yeah. And just so that I make sure you continue to keep me honest.  There's the other, the whole other conversation of customer funding, which we should get back to at those stages. So on the government side,  there's a lot of investors that will tell just n knee jerk companies to not engage with government because government procurement is pretty hairy.

It's long sales cycle, even longer than industrial sales cycles in a lot of cases. But I think that misses a key. Contribution that government can make in addition to non-dilutive capital. So I think as most listeners know, there's a world of SBIRs and broad agency announcements from, as I think white, I said, go where the money is.

So the DoD funds a whole boatload of stuff, and it's relatively straightforward to go get some early stage funding. And a lot of, I think, misconceptions is that because you're getting money from the d o d if you're not familiar with this as a listener, it doesn't mean you're gonna go work on a weapon system, right?

It, the d o d is A country in and of itself. So it, yes, they build, armor and planes and boats and missiles and whatnot, but they also build buildings on bases and build, electrical grids and put ev chargers in and buy, camelbacks and backpacks and phone chargers that are maybe a little bit more rugged.

And so it's, it, the d o d if you look at the whole budget is, it's effectively an entire country and of itself with, all the personnel and requirements they're in. And so there's not many areas of our global life that the d o d in a microcosm isn't working on. As a and because of that, they generally fund research and development in that.

And so as a founder, what I always say is, you'll find opportunities to get government money. And I'll talk beyond the d o d in a moment but especially for the d o D, you have to make the decision of. Look is the money I'm getting to push my roadmap forward? It's never gonna be a hundred percent aligned with your roadmap unless you just get super lucky.

So I always say there's like the straight line that you take to your product roadmap, and then there's like the distraction that the d o D funding would cause. And as long as the sign of that multiplied by the money you're getting is still aligned with your roadmap, it's probably worth it. I don't know that anybody's e ever actually done the geometry or whether that really makes sense when you do the math.

But it, the point being is that you have to be willing to, if you're building a fast charger, okay, you have to spend a little bit of extra time putting a military connector on it, and that's not very distracting. Okay, you can do that, but if it's, you gotta go like totally redesigned the product and go do something Beto bespoke with your core technology, that might not be worth it.

And the DoD is the largest fund funder by far, especially at the early stage. But, DoE ARPA-H ARPA-E ARPA- I if it ever comes about Noah, nasa, pretty much every government agency has some amount of this early stage funding. An important point that I wanna make to hardware developers, especially if you're gonna be selling into things like oil and gas or industrial markets or anything non-consumer, is that I will allow that.

The government is a kind of horrible procure of things in volume. They generally put a lot of requirements on you. It doesn't look commercial. But the d o d if you get a champion within a program office, they're really good at continuing to fund development. And there's also these amazing capital and human resources at our national labs that, if you need to go pay for highly accelerated lifestyle testing of your product, or you want, you're building a solar panel and you want to go make sure it's tests in all conditions.

Guess what? The d o D has an arctic test facility in Alaska and they have a desert test facility in 29 Palms. And so you get this amazing, test and validation resource, which then as you're thinking about, okay, now I'm gonna go talk to an executive from John Deere Oshkosh, or whatever, the fact that you have this military blessing that, the d o D says you're ready to, work with d od customers.

That means a lot as a startup that you know, you're gonna end up having trust issues with. Your first industrial customers and I find the dod to be very helpful from that customer relationship, but also just from the, effectively free testing and validation that can provide founders.

Yep. That, that definitely makes sense. And actually I've had the pleasure of working on an S B I R project and an RPA e project, which was sponsored by the d o e in my previous jobs. And overall in the proposal process, if you propose your project or whatever it is, it's usually like a sub r and d project that you could also propose. It doesn't have to be like your entire company's product.

If you do a good job of setting it up and are honest with  what milestones and deliverables that you envision and how it can have a really good application and have a good advocate on the government side, it actually works out it, as you said, to be a really good resource among all. And you also just get a few more eyes on On the technology that you're developing, and usually it's really experienced eyes.

We've gotten some, I remember getting very good feedback on some of the design reviews around certain decisions that we had made. And we chose to pivot certain I guess like micro decisions because they were saying like, Hey, we've seen this in like these other, because they're working with a lot of programs and they see a lot of novel technologies too.

So you're working with a wealth of wealth of information there.  If you were to set up your capital stack, would you be able to give maybe like a pie chart of , percentages of how much  non-dilutive funding you should have?

Like what percent should be venture, what percent should be loan to just give an idea to the the listeners, if they're specifically entrepreneurs that are trying to strategically make decisions on this.

Sure. So a problem with government funding is that you never know when it's gonna hit, right? So if you and, incorporate your company and you're like, I'm gonna go get government funding and that's it, that tends to not be  a good way of going about it. Cuz you don't know how long it's gonna take to get that funding and you're not gonna be able to make much progress without it.

Now look, , if you're. It's in that weird in between academic where you're like still in the lab and maybe outta the lab and there's always a little bit of a murky area and, make sure  you stay on the right side of the law there. But I, we, we do get folks coming for seed rounds where they've ma maybe gotten a couple hundred K of a pre-seed and then gotten an S B I R too as they go into their seed.

And I, I think that's fine. So from a pie chart perspective, I think, go out and raise your seed fund, go get a consultant to help you with government program capture cuz it's just not worth learning yourself. And as much as the government tries to make it easy on founders, it's just there are, sausage turning entities that just have done a billion, SBIR proposals and they can just help you out with it and take their cut and that's fine.

So I guess I would say, Work with one of those, get a landscape of available government funding opportunities. Include that in your pitch. Don't budget for it, but basically say, Hey look, I'm gonna go, raise a 2 million seed and we've done the work and we expect in the next, 18 months.

To get, one to $2 million of government funding and it might not hit in the next 18 months. That might, just serve to extend runway a little bit. So it might be 24 months or a little bit beyond that. But, an investor in hardware especially should understand that, okay these guys know what they're doing from a early stage capital stack.

They're gonna use our money to build out the prototype risk, reduce, attract government sponsors, get some money in and, extend their runways so that they just are more valuable by the time the series A comes around. And then, you mentioned other sources of capital, so call it, for that maybe.

 70% investor capital and 30% government capital, which should the size of the pie should increase depending on the nature of your startup. And then independently, if you're buying capital intensive equipment, go out and do capital equipment financing, and that's a totally separate thing.

And so that will factor into the pie chart, however it factors in. But generally it's premature unless you're willing to, mortgage your own house to expect to get loans or, venture debt or anything that sort of are more creative financing options that are available in later rounds at that early stage.

Gotcha. Yeah, I think I, I think that makes a lot of sense. And I guess when going down from your pie chart . Venture capital is  a critical part.  It really there are I guess like very high risk ways around it like a house collateral.

But other than that there, , it is something that needs to be done. So in your experience when entrepreneurs, specifically hardware entrepreneurs are going through and trying to pick the right venture capital folks do you have any recommendations for them and , how would you  advise that  they go about that entire process?

Yeah, so I mean there's a lot of different. Philosophies here. And I guess what I would say is the most important thing to me is trust and understanding and expectation setting with your investor. Some people think, oh, just go get one investor who you deeply trust. The problem with that is that unless they have incredibly deep pockets, if you do need a bridge, cuz you know things haven't gone exactly right.

You only have one person to pull from. So some people say go build up a syndicate of investors. And that just depends what business you're in and what kind of fundraising process you're running. But at the end of the day, you're looking for your investor either to put more money into the company later, whether it's as a bridge or just a pro ratter investor in the next round.

But at the very least they're gonna be the first or second call that any new investors will make.  It's okay to be a little showman during the initial pitches cuz the world is the world and you know you're gonna make the unobtainium thing. But at some point, you know that marketing veneer has gotta wear off.

And you have to be straight with, look  here's what we're gonna accomplish, here's the risks, here's the mitigation of those risks. And I'm gonna keep you updated through this process so that if it turns out that in eight months our supplier in wherever is laid on a delivery and that's gonna kick out our critical fundraising milestone by two months and we need an extra a hundred K of money, if I get caught out of the blue, that's not a good situation. But if I'm tracking what they're doing and they're executing, they're doing what they say they were gonna do things happen, especially with hardware and it, it doesn't matter whose fault it is. You want to create a relationship with an investor where when you come to them and need some more funding or need their help to go get other investors to come in.

There's always that question in an investor's mind is, okay, is this really they're on it and executing and they just need a little bit more because, no one's perfect at estimating or are, they either not being lean enough or are they really not in product market fit?

So these, customer contracts aren't closing, not because of long sales cycles, but because there's something fundamentally wrong, I guess bottom line is a lot of stuff will, can and will go wrong in hardware. And so I think you need an extra special relationship with your investor, which means, choose someone who you wanna work with and choose someone who is gonna be additive or at the very least not subtractive to your business.

Yeah, that is a really good point, and I think it's, At that point, when you're raising, a lot of entrepreneurs are at I guess like a scarcity mindset. So oftentimes some investments can be either rushed because they're really desperate, they wanna move forward, but having some level of like filters and what you expect from venture capital partner, because at the end of the day, they're becoming your partners.

It's really important to know that. So thank you for your perspective. That's excellent. You wanted to get back to kind of customer driven funding. I'd love to hear your thoughts on that.

Yeah that's generally gonna happen a little bit later unless, again, depending on,  what you're doing, right? There are certain corporates that have very strong internal r and d arms, and if you're the world expert at Blahdi blah, and they really need blahdi, blah, and they can't find that internal you might find that they will provide internal funding just, as part of their corporate problem.

Generally speaking, you need to have something that kind of looks product esque or something where, you know, someone in the innovation org can see the potential and then you start talking about, and it feels a lot to be honest, like government research involvement where, they're willing to fund you to do, to deliver a pilot.

And you get into that flywheel. Now I would caution a couple of things here. I don't have any expectation that when I'm working with an S B I R program manager in the government, that gov government employee's gonna turn around and buy this thing. Like I'm doing that for a specific reason.

A lot of founders make the mistake that because someone with a  shell business card is funding them, that means that Shell as a organization is interested in buying the product. Oftentimes it's the exact opposite, like the innovation orgs within corporates are really good at being really excited about technology and using money to scout for it.

And my experience at least is that has little to nothing to do with whether a business unit. Is going to actually use your technology. And frankly, oftentimes bus business units and corporates have a fraught relationship with the innovation arm cuz the innovation arm always just parachutes in with this new shiny thing that they may have tried a couple of times and then it ends up breaking in the field and they're like, okay, don't ever take anything that the innovation org gives us cuz it's just gonna affect my PnL.

And so you gotta, I don't expect founders to understand that out of the gate, but I think it's really important to understand, why you're taking money from a customer. And, if it's, Hey, this is gonna push my roadmap forward and I'm not giving up critical IP and this gives me the opportunity to get a door opened and the person I'm working with can gimme some examples of how stuff that they've funded from the innovation org has gone into a business unit.

And I feel warm and fuzzy about it. But again, there's, just to wrap that thought, there's just getting customer funding is not an indication of future events, but it in, in itself can be a great signal to both investors.  You can get access to operators within that corporate that can help provide feedback.

You can obtain beyond the money you're obtaining resources potentially facilities and equipment access that, that corporate has. You gotta figure out what industry you're in and what the appetite for corporates to invest at what stage of development you are. But  it definitely is a great source of capital and sometimes it's a great source of business development to actually, when you're ready, sell stuff into that corporate.

What a great call out. I feel like that is something that people fall into the fallacy of it often. I've fallen into it personally. Because you, it's, when you look at it logically from like a step away, you're like, obviously like they funded it, they're almost incentivized to buy it. And that we have this established relationship.

They don't need to do additional business development, but it doesn't mean they're gonna turn into a recurring customer. So that, that is. I wouldn't have known to ask that. So thank you for bringing that up. That, that's excellent. 

Yeah. There's a whole, there's a whole playbook associated with that is, is too long for this podcast. But just, it is okay for you as a startup to ask for certain things. Like in milestone deliveries, you want to meet with the business unit.

yeah.

Who is as part of the project, right?

And if a person that's funny, that's Ooh, I don't think we can do that. Cuz they're like really busy. You're like, okay you're an empty suit and maybe you take the money, maybe you don't. But don't be afraid to say, Hey look, I'm in this to build something with you that you're gonna use.

So I want to, make this part of this process to make sure that I'm talking to the end users and the people that are decision makers. And you'll get pushback and, part of being a founder is just getting used to pushing back on that pushback amongst people that are a lot larger than you.

Yeah, either pushing back or at least adjusting your expectations and utilizing whatever that funding is to to the degree that you can. And I think resources is a great one. And maybe they won't be your customer, but their like partner will be. And it's still, relationship building and networking as a founder with businesses that you might have as clients is just a part of the game anyway.

So that's a great also incentive structure to be a part of such a good call out. Okay. Actually, I wanted to ask you one question before I, I move over to our I guess like podcast break. And but you mentioned something where you said after the critical, I guess milestone of your first product development and production is done.

So your pilot production is done and you're getting whatever product you're making it to client hands or consumer hands that hardware companies comparatively I guess either in the eyes of VCs or in macros are in a better state because they've gone through this hump. What did you mean exactly by that?

And could you describe that a little bit more?

Sure. I think so remind me to, to come back, and this might be a good topic for our break of what I'll call program management reserve and what is the true v p, but what I meant by that was, one thing about hardware investors is we know it's hard. We know it's hard to stand up manufacturing.

We know it's hard to deliver a, not just a capability rich product, but a reliable product and a manufacturer product. So if you've managed to figure that out and get actual acquiring customers,  every great success story is an execution success story. So it's not like you're not gonna get fast followers, but you've got a hell of a headstart there.

And so , if I'm looking at kind of growth capital for a company and, this isn't my area of expertise the ability to go fundraise on hardware product sales, The expectation is, and it depends on your customer mix, is that should continue because you've done enough iterations, you've had a long enough development cycle, and customers that buy hardware tend to have like more specific requirements for that hardware than, a software where you're, as I said, creating a market and they don't know that they're gonna use it.

They might be trying it, but they can also get rid of it really quickly. Once customers bought a piece of your equipment and put it into their p and l operating process, it's pretty sticky. And so that to me is a different valuation spike than at least I personally would give evaluation spike to a software company that's got, an equivalent volume of sales or volume of customers or whatever.

Now look, every investor has their own way of valuing a customer. So I'm sure there'll be a lot of, disagreement with that. But that's my personal opinion on company value.

Super interesting. Yeah, you're right, especially if it's if it's going into a system where you're like building something that goes into another hardware system. Forget about it. That, that do does become very sticky. That's such a good point. And also I feel like and I'd actually love to hear your opinion on this too.

I always think about competition and how it's different in both software and hardware, whereas in software competition can kill you overnight. It feels because if someone has just a better software, a better code, or a better UX, that people are able to utilize more, you'll forget, forgotten pretty quickly by by the consumer.

Whereas with hardware, I always give the example of just we don't have just one car out, out in the streets, right? There's multiple brands, multiple different cards. They all do the same thing. They get us from A to B, their function is the same slightly different performance metrics.

Sure. But there are comparable ones too. And, but they still can coexist. So I guess I, in your mind, how do you look at the competition landscape when thinking of hardware? Because it is different.

It's the double-edged sword, right? So you, we talk about stickiness with hardware and I fundamentally believe that is the case. And you make a good point about the non-stick of software which isn't by the way, across the board, correct. Software can still go into people's, production environments and whatnot.

But the, if an amazing thing that founders have, especially, engineers that are used to like saying, this is better than that, and this is clearly more perform than that, and this is more reliable than that. So obviously you're gonna buy this, in hardware sales being better doesn't mean you're gonna win at least out of the gate, right?

And so it, but that sort of, again, the flip side of that coin is it just shows how sticky customers are, right? Customers have various levels of tolerance of being the first procurers, the second procurers the long laggards. There's great, data-driven graphs of customer hardware acquisition cycles and.

So if you go with the titanium flange that you figured out how to 3D print, so it costs the same as your steel flange, but it'll last for 40 years. And people will be like, okay show me the 30 year reliability data. And I might think about changing, cuz oftentimes people, their business is operating, they're fine.

Like it might be able to operate better with your hardware, but they certainly don't wanna risk it operating worse. So the period of adoption, even if you're clearly better, is gonna be frustratingly long. But then the flip side is that when you win, the dude that's trying to follow you is gonna have that same experience.

And as long as you're executing, you're improving the product, you're improving the reliability, and you're delighting the customer, even if your competition is slightly better than you, you're going to, you're gonna have a hold on that customer and the time to reimprove your product to hopefully continue scaling into a massive business.

So I think the stickiness goes both ways.

Yeah, and oftentimes I don't know if you'll agree with this. In hardware. Sometimes competition is actually regarded as a good thing when investment is being made. If there's no competition, everyone will just be like, why is no one doing this? This is weird. And and competitors can coexist is I guess like the crux of what I was go going to say.

And I totally didn't think about what you just said of just like the stickiness and how people have brand loyalties. I'm so glad that we broached this topic  📍 too because it's very interesting to think about. 

This podcast is presented to you by Pratik, a startup advising and coaching company that is geared to help hardware entrepreneurs get their ideas from a napkin sketch into a lab and out into the world. Okay, so let's get dive into our podcast break.

Podcast Break

So usually I have this podcast break have a funny hardware title to it. So today to make it topic specific, I'm calling it hardware financing horror stories, but you can make it whatever you want. And I'd love to hear, , what you've seen and how a hardware startup potentially got it wrong with how they set up their finances and how they set up their hardware development with it.

Yeah. Okay, so I'm not gonna give specific examples by name although I want to but I'm gonna, I'm gonna take on my founders. The I guess a thing that, that, again, especially technical founders get wrong in hardware, is it's all about, when you're still knocking down technical risk on the capabilities.

It's all about building the n of one thing that like. Is the thing. And look, I built the product and it really is surprisingly hard to break through the shell of no, that's not the product. That's a capability widget that you've made. The product is designed for manufacturer, manufacturable, documented, has field support engineers behind it is reliable.

And I think a lot of founders believe that they go through the two years of three years, however long it takes of building, tech reducing the capability and they're in the lab and they're showing the thing moving up and down and it's whoa, we've made it. And it's heartbreaking to have to tell them like, you've made it, like you're not the, I'm not like a sports guy, but you're not at the one yard line.

You, you're like at the one yard line on the other side of the fifth. Okay, this is like really bad sports thing, but let's move back to engineering. You're at the start of the race and that's fine. Like again, if you've done a good job with your investors, the investors will know that and your advisors will know and counsel you and you'll have a capital stack.

But I, I do see a big mistake in founders will treat their cash as if that moment is near the finish line. And that can be devastating, right? Because a lot of founders don't understand that ooh, it took a couple of engineers to get to that point. It takes so much more money to then go do all the things that I mentioned, but also like when that product goes out to the customer.

It's gonna break, , they're gonna ask for features, they're gonna have features that need to be taken away. Like you've got a couple of design cycles, unless you're just, just crushed it, which I've never honestly seen before. All of that, a founder needs to be, oh, all of that is money.

That's capital stack. And I've heard pitches for seed stage companies where it's like, we're gonna, with this money, we're gonna get to a thing and then we might never have to fundraise again. And, I don't automatically, not fund them, but it's a huge discount in my head where I'm like, I understand where you're coming from because we've all been there.

But on the flip side, like there needs to be this recognition that, the scaling part of a company is so much. More capital intensive and frankly harder than that initial time period. So I think that, I'm not suggesting that founders from a capital perspective keep like a program management reserve, although they absolutely should.

For, what they, what a founder needs to be very responsible with. Again, it goes back to that investor communication is, you've told your current investors and potential future investors who you're always socializing with, here's what I'm gonna accomplish and here's the customer milestone I'm gonna accomplish with that.

And you want to have enough money where if something goes wrong and you need to iterate. And honestly, for me it's like I'm,  I don't give any like props until it like goes to a customer and comes back. I do internally, but like until you've like externally been punched in the face by a customer, like I have no idea how much money they're gonna need to get it to a point where when your next round of investors calls that customer, they're gonna get a, yeah, it's good.

There's some things that we wanna see and there's blah, blah. That's all like fine startup stuff. But like you need to, again, in communication and collaboration with your investor community, both existing and future, be very clear on what it was that you set out to accomplish. And that you responsibly like land the plane on that glide slope of accomplishing what you set out to accomplish.

And then you should be able to raise more money, even if there's still warts and the contract manufacturer is more expensive and take more time. Like, all that can be solved with capital, but it doesn't work to just like totally drive the car off of the step function capital cliff and realize, oh, shoot, you need two, 2 million more dollars to like, get to the milestone that you thought you were gonna get to with the customer.

Which, if I can keep blathering on give, gives me the other side of that, of a corrective action for that moment. Is founders often talk in the poste investment about the m v mvp, right? It's a trope at this point. I have never seen a especially a first time technical founder who's, Focused externally, like talk to the customer, but also internally on engineering wizardry.

There's always this sense need to make the viable product not the minimum viable product. Making a minimum viable product and the capital efficiency that goes on with that should be incredibly painful to engineers. It should be like, a ballet dancer watching me spin circles in the living room and calling it ballet.

Like it should just be like offensive to a great engineer. Like what this minimum viable product really is from their perception of what the customer is. Too often, like a bunch of engineers with great customer feedback oftentimes will sit in a room and whiteboard and it's it's this vision of what the product should be and then they'll start building all these different parts of that.

And it's. Inevitably so many of those parts are gonna have problems or take longer that, 12 months down the line, they're like, oh, damn it. Why did we include that? And now we have to fix it. And so I really would encourage founders to, and this really does often need to come from the c e o and you're gonna be unpopular in the lab for this of okay, no kidding.

What do we need? Like minimum, literally minimum to get that first piece of customer feedback. Cuz the other thing that happens, even if you ship that viable product, you gonna ship that to the customer and they're gonna come back with all this other rework stuff that you have to do. And the more fully fleshed, you've built out this like theoretical, viable product, you're, it just makes it that much more expensive to then change that thing so you know, as many touchpoints as possible with increasing layers of viness as it were.

And don't be afraid to use capital for that, right? If you think. Ooh, I'm not gonna be able to go get customer financing until I have this fully fledged thing. Then don't be afraid to give stuff for free or go pay a customer to go use your thing, because that oftentimes will be more capital efficient than trying to do it all in a vacuum and then throwing it over to the fence at a customer.

So there's different capital ways beyond engineering to plot out this trajectory. Okay. That was a lot.

no, that was, there were so many valuable nuggets in there that I'm gonna try to. I guess summarize, like the first thing you said was basically like I'm gonna call it product completion fallacy. Where it's where you truly are. At the beginning of the race when you think you're at the end.

And that's where a lot of hardware startups actually fail. That's like the valley of Death that you just described for hardware startups. So that is so incredibly important. I couldn't have I feel like you explained it so well. And I think everyone, every founder or hardware developer, even if you're an engineer in a product team should take what Orin just said and really reevaluate your perspective on your development because that happens.

So o so often. And it's a shame because a lot of these products really have a lot of purpose and potential and just because of that perspective , it doesn't come to actual fruition. And then I really appreciate the perspective that you just gave me. When it comes to capital efficiency, I feel like the simplest form of it is to say, oh, I'm gonna try to make this cheaper.

Whereas there are so many layers to what capital efficiency actually means, and it manifests itself in daily technical decisions that people don't know they're making. And a lot of engineers don't actually know they're going against capital efficiency because that's not how they're trained to operate at all.

And that really needs to come from the perspective of the CEO and I guess like C F O combined that understand the technology and understand the manifestation and the specific system decisions that get made. I. And  you also touched on another thing, and I wanted to be clarify one thing.

You, you talked about how important it's to get that customer data because that really should inform , how your system is gonna exist in the world, and how it's going to be used. And if you're not building the right thing, mine is now not build it at all. But. It also doesn't have to necessarily be a customer for those who are working on non-consumer products.

The customer could be yourself where you're testing, like testing is a huge part of de-risking and getting that minimum viable system to a test that you can learn from is the most valuable thing you can do in your product development as well. But if it's a consumer electronic, obviously getting it to a customer, getting that feedback super valuable.

I just wanted to also give that like slightly different example of if you're building a complex system that's I don't know, gonna be plugged into a grid rather than gonna exist on someone's shelf. It's important to think oh, like I, I don't want people to listen to this and be like, I don't have a customer so it doesn't count for me.

It's no, it does count for you. You need to be able to test it.

A hundred percent. I think my point there is that your customer is the real world operation. So your example of like playing something into a grid, go buy someone else's hardware and put one of your components in it instead of waiting till you've built the full like customer competition thing. Like it, there's just so many, there's. There's a reticence to, to give a customer the product until it's the viable product. And I think, the capital efficiency there is recognizing that, use capital to get that early customer data. And you'll find honestly that if you've chosen the right set of customers at various times, like you'll build up a loyalty amongst the people.

Who doesn't love participating in like the design process. I if, they feel like  they're having to say some customers actually don't they're super busy and they hate it. But there's a lot of customers that you'll find will become your biggest champions if you have done this.

But those customers, you're not like trying to monetize them. And I think that's it's a really hard thing to be told by investors. Ooh, you need, like to get sales, you need to get paid pilots and whatever. And so you go with this heads down internal thing, when. God, like an engineering project that is four or five months behind is gonna cost you so much more money than paying for two weeks of like customer testing.

 In the middle of that, that could have caught that. It's just, it feels like money wasted cuz there's always a big list of engineering stuff to do. And I think that was like the net of my point is make that engine engineering list as small as possible and use capital to get the feedback you need so that  you're ramping up to that viable product.

You're not just driving off a cliff of a product.

Excellent perspective.  That is such a good way to think about it. I'm going to definitely personally mull over the definition of capital efficiency and what that actually could mean. It's not just getting it's not getting the cheapest equipment on the market. Yes, that's capital efficient, great, but there's so much more strategy that goes into it.

This, that tees up like the final founder foible of capital stack in this, which is engineering projects tend to take on an inertia of their own, especially when there's a delay in one part of the team. So the mo the more you can do to mitigate that delay by making simpler deliveries of full capability, but full team capability to the customer.

There's a reticence amongst early stage CEOs to, I had an old mentor that called it, taking the engineer out back and shooting them in the woodshed, but the, it's a, it was a horrible thing and probably inappropriate, but there's a, there's always more stuff that engineers can do, and a project team becomes a really cohesive unit.

You've spent a lot of time on pizza and cultural and, throwing access together and whatever. So you've got this this like amazing team culture, and then when there's a delay with, software or a supplier, whatever, the team just stays together. And there's always if you don't take a close look, there's always a list of stuff that everybody's working on, but.

As a startup in your like seed series A, you can't just afford to have people like just kinda working on stuff. And that's not like number one priority here on fire stuff. So as a c e O of a company that especially is in the middle of an engineering delay oftentimes you'll see full teams kept together and just working on stuff and it feels good.

And this is this is where being a, c e o or a VP engineer is is really hard is, you either have to figure out the actual top priority things in the company for those engineers to be doing and take them outta that team and go have them do something else. Or you've gotta change headcount or change around the team because a 20% engineering team is very expensive and if only five of those people are working on truly critical path things, It's, it, , you can suck up a lot of capital and not know you're doing it until you know it's too late.

So that's a really hard statement to make cuz there's like the wanting the startup culture and the team unity and the project team and the company culture to not just be like, Machi Valley and I'm, every time someone has a week of stuff not to do, I'm gonna fire them. You don't want that culture, but you also have to recognize that there's a flip side to that coin and yeah.

I'll leave it at that. But that's really tough. And each company will be different depending on where they are.

I think that's a really important call out because it happens more often than most would care to admit. And I guess, , I totally hear you. And another way to deal with it is actually I, as a project manager, I always say this plan to replan. I feel like people really like to have  a very solid and stable  outlook on what the next year is going to look like.

But the reality is, in startup land, this should change because you're learning, you're also technology developing. And as that changes, I actually think that when those kinds of stalling teams happen, it's just a lack of proper project management that's kicking in. That a lot of these a lot of entrepreneurs or technical developers that get promoted to like managerial positions really struggle with project management because it's a very specific type of training and mindset and I think what needs to happen there in startups, usually the way that I describe this is there's a massive pile of things that need to get done, a massive pile.

It is disorganized, it is not categorized, and it is oftentimes regarded to be. Uncategorizable,  it's just like we have so much to do, we don't even know what it is. It's like all this thing. However, when these kinds of things happen, you need to look at that massive pile and strategically pick out pieces and then assign it to the team.

And you need to plan to replan if you don't wanna constantly fire people because it becomes really capitally inefficient. And eventually what does happen is people l do massive layoffs and that's not good for anyone. It's not good for the team that stays. It's certainly not good for the team that goes.

So in order to avoid that, having this agile planning mechanism in and being strategic about it, I think could avoid that and also help you from falling into that trap of having stalling teams and super burned out teams too, and level the playing field a little.

I think  that's a great point. I think there's a couple of things, and again, this is where a great, VPN comes in, is using contractors for a certain percentage of your engineering work and using, consultant shops because they're, that's a lot easier to dampen the sinusoids as you described it without affecting team culture.

So I think that's an important tool. And I guess I, I would just also say going back to the capital differences between software and hardware. No engineering team's ever super efficient. And so when you're in a really high growth situation that's really fast, nobody really cares cuz like, okay you're, you keep raising bigger and bigger chunks of money and then you start getting customer revenue.

The engineering team can just grow and even if, 5% of it and then 10% of it, then 20% is inefficient. Yeah. At some point you want a great engineering leader to come in and solve that, but it's not a critical thing to solve for a hardware company, especially one that is, is hitting roadblocks and delays and whatnot.

You, you can't, you don't have that luxury of oh, we're just super high growth and we're raising all this capital and so we don't have to worry about the efficiency of the team and like over optimizing it. And I think it's, I think it's hard cuz some founders will look at other companies and be like, oh, but they just keep like growing the team and they're just, they're off doing.

And so it's like a, it's a very different cultural mindset and just depends on where you are. But definitely need to be prepared to be proactive earlier. Cause as you said, Sera, it's much better to be proactive earlier and take the nasty looks from the team for, moving folks off or whatnot than having to do much more extreme things, six months later.

Yep. Absolutely. It's a good call out. I feel when. Companies are just starting off. They don't think about these things, but being really strategic about your org chart, don't just hire people. I feel like there's this and maybe this is like a little bit caused by the vc, like some part of the VC world where it's we're in this growth phase, we hired 300 people, and it's like this token that's used for growth.

Whereas I've seen so many companies just write terrible job descriptions and have absolutely no plans for the people that they're hiring. And that becomes not only a capital inefficiency but also it's not fair to the person that you're hiring. And often it's also people don't let inwards to see if p other people wanna do the job.

This gets into a whole like hiring strategy and org chart strategy that has so many domino effects, including capital efficiency. But I think it's a really important call out. And I guess slightly pivoting is

Okay. Could we pivot to something fun cuz that podcast break there was like a little depressing and disheartening. So if that was my break, I want like another break. Break. So yeah.

Yes. 

And on a fun note,

definitely, no I don't want it to be disheartening at all. It's just like the tough stuff, right? Like when it comes to capital, it's like, it's the part that I think most entrepreneurs loathe the most. So I'm not surprised that we went into a very dark little hole. 

Hey. To, to the end point, it's not, it's it's always gonna be a little bit dark sometimes, but it's a matter of mitigating how dark it is. So I'm all good with it. But, there is, I guess for founders that are listening, like there is a wonderful moment that happens at, if you've done this right at the tail end of it, where you see a customer actually delighted by the product and all of the like, arguments you had with your engineering team and you having to play the bad guy and all that stuff just fades off into like acute history that you talk about when you're toasting it, company outings and whatnot.

I don't wanna make it seem like hardware is not fun. It's super satisfying. Has its own challenges.

Yeah.  I agree with you.  So I guess  on I, I don't know if it's a more positive note, but a curiosity note. So with raising funds and working with people you also established a board and you're a part of many boards. So I'm sure that you've  seen a lot of good examples and potentially bad ones. So when companies are choosing their boards one, what advice would you give them while they do and then two, how do they manage a board successfully?

Oh wow. So I will say my, and this is just my opinion. I find early stage boards to be not that useful. I think later stage like governance is super important. I. Committees to audit and decide executive compensation and to make sure that like the company is staying in the left and right lanes.

It should super important, I think, as you get more investors and have a fiduciary responsibility to different shareholders whose voices can't always be heard by the founder. I think it's super important, but I think there's a big difference between an investor who may be a smart human being who has an opinion, and an investor who has an expertise and an opinion that goes along with that.

In a boardroom, often those are conflated. And I just, I hate when founders have to listen to just smart people advice because they wrote the check and they might wanna write them another check. And there's always like a dance of how to compliment that great idea. Like investors should realize that founders are surrounded by.

Incredibly smart advisors, incredibly smart PE people. And you might be one of those people, but you're like, giving advice is different than your board responsibilities. And it is it. So I would say one thing is as a founder, in terms of running a board meeting, cuz you're inevitably gonna have a board like make sure you're distinguishing between.

How you're running a board meeting to solicit specific company feedback that is tied towards the capital stack of the company and the investor buy-in therein. Versus if you want to just ask a room full of people that are familiar with your journey, like their opinion on something, then great. Make that a discussion topic.

And it's just, I'm not saying investors are stupid, they're generally like smart people and they have sometimes a lot of experience, but I don't like it when it veers off to just because I gave you  a check means that I suddenly know how to run your business even though I'm not in the trenches every day, unless I have a massive amount experience doing that, in which case at least take my opinion at the value that it is coming from that.

So I think a really important thing as early as is appropriate is bring on independence onto your board. Strategically figure out what you want out of an independent. And it might be an expert on internal org, it might be More often than not, it tends to be a business development focus person from the industry that you're trying to sell into.

But a great independent is great. Until series A, a lot of investors these days aren't even creating a board or at the seed stage. It's more like a board meeting. There is more like a check-in, especially if you're a solo investor in the company. But on the flip side, it's good muscle memory for a founder to build up, like how to run a board meeting, how to extract value from humans that are willing to read pre-read material.

And there's various ways and tips and tricks of running a productive board meeting that probably outside of the scope of this podcast. But I guess that's my perhaps cynical view of like early stage boards of make sure, What you're trying to get out of your board members and why and structure your interactions like therein.

Definitely. And I think like on, on a broader note, it's also have a personal filter of whose advice you take. Oftentimes there's a little bit of I guess like social tango that you just need to do to , bring the bread home, but it, not, it there's sometimes like a signal to noise ratio that you really need to get good at having, like a gut feeling around and evaluate as a C E O or a co-founder.

So that you are taking the right advice and taking that home and taking that to your VP of engineering or C t o but then others being like, thank you so much for your advice.

I, I would say give your board and your advisors if you're, especially if you're paying them in equity, give them tangible homework. You're like, Hey, you come from this Let's do an hour or chart review. Cause that's your area of expertise. We can do that outside of a board meeting or Hey, this is the industry that you came from.

Go through your LinkedIn and pick out like, five different people who you think are phenotypes for this role so that I can learn more about what you think this role should be. Board members should work for the CEO e o as much as they're provided in governance. 

Yeah. Utilize them.

as a C E O, they're, I would not be afraid to set expectations for your board and honestly, like your board will respect you for it.

They might not always do the homework and, but I think it's a, it reflects well on a C E O to as a board member, an investor, to see them starting to manage the board because, Early stage boards are pretty benign if things are going well and, but seeing someone that can manage, people that have a lot more experience like that, gives me a lot of confidence that they can walk into a office of a corporate who it's gonna be a similar dynamic and they can hold their own.

So it's.

Yeah, because beyond their investment, they're also resources of themselves. And like util utilizing that is also a nimble mindset. And I think even though investors have a stake in the game through equity, it's also like they, they should, they would have a stake in the game by actually contributing.

And with that, I will end the episode. Orin, thank you so much. This was absolutely phenomenal. I think there's a lot of really informative chunks and very insightful comments you've made, and I think it's going to really help a lot of our listeners.

Awesome. Thanks for giving me the opportunity I got to go down from the attic where I usually do my work and take over my wife's office for the podcast. So you've given me a great hour break of my day and really fun talking to you.

Oh, excellent. Thank you so much.

So if you've made it this far, we have entered into our too long didn't listen section of the podcast where I go through all of the. Bits and pieces and key takeaways that I was able to extract from the episode so that if you don't have time to listen to the entire episode, you can just. Come here, listen to the too long. Didn't listen, key takeaways. And then when you do have time, you can always come back and listen to the rest of the episode. 

With Orrin. And this episode, we really dove deep into how to strategically. Build out your capital stack and then got into some details around government contracts. And also non diluted funding. And we ended up talking through some common pitfalls that hardware, startups and startups in general fall into and how to avoid them and got into a little bit of a board management and 

Other really important little tidbits that Orrin was able to share through his extensive experience with startups. 

 To kick us off. I'll start right away from the key takeaways from the episode. All right. So most entrepreneurs going into there. The development of their company, ask these questions. They ask  does the product have product market fit? 

Can you, can I acquire customers? What's the cost of customer acquisition and what is the scaling potential in a way that's monetizable. Although these questions are also asked in hardware and it's important to answer most of the time hardware products get started because there's a perceived product market fit. 

Otherwise it's a big undertaking and a risk to go into it. So the focus more lies in reducing technical risk and techno economic risks. So knowing that those are the big chunks of effort going into it. And ideally that's where you should be. If you are starting a hardware a hardware startup but those are going to be the primary focuses going in. 

And then we shifted to capital stack and capital stack as a term is used to describe fundraising and a systematic way in order to set up your hardware company. There are very strategic ways. You can combine different sources of funds. So some of these are the most obvious venture capital, which we talked about with Haje and with Tyler in previous episodes. 

Debt. Debt on equity on capital equipment government grants. So debt in general, just like taking out a loan. So that you can cover your business expenses, but then there's also debt financing when it comes to very large capital equipment because capital equipment costs 

Huge chunk of money that you might not want to spend from your venture capital that you've raised. So you can combine those government grants for product development, government grants for physical spaces. Project financing and later stages that doesn't take equity and customer funding where it could be a Kickstarter or a corporate innovation arm or business unit of a big company could say, Hey, this project is really interesting to me. If you share your data, we'll give you money. 

So on and so forth. So those are some of the strategic ways that you can get funds for your hardware. Product. When it comes to funding from the DOD, it's important to look into how it's aligned the, how the grant is aligned with your product roadmap. It's never going to be a hundred percent aligned, but. 

If there is a small distraction. That could take away a few months, but unlock a decent amount of capital without dilution. It might be worth pursuing. So an example Oren gives is if you're building a fast charger, okay. You have to spend a little bit of extra time putting a military connector on it

that's not very distracting. So you could do that. But if it's going if it's say a situation where you completely need to redesign your product and go do something. Very bespoke with our core technology that might not be worth it. So there are sometimes very good DOD contracts. That will enable you and art will be aligned with your roadmap. And that's just a really good that's a really great way of getting funds that don't dilate you, but also contribute to your product development. 

Other examples of government entities that Oren mentioned were DoD, DoE, ARPA-E, ARPA-H, ARPA-I, NOAH, NASA for those who are. For those of my listeners who would be interested in government entities. These are ones to look into. It's also important to note that the funding from these organizations comes. 

With human resources and access to test facilities, which is a huge added bonus. And oftentimes I've had the pleasure of working on projects on this as well. And it's really, you get a lot of people that have worked in the field. So you get some extra experienced eyes on the designs, you're doing the tests you're doing. 

So that's always good. Just from a fail safe  risk reduction point of view. It's also thinking about it from the business development point of view, the stamp of approval you get from a government acts as a catalyst for other customers, and we'll like to make it easier for you to acquire new customers since you fulfill the DOD quality standards. 

And it's. W one, caveat that Oren mentioned, it's always good to plan for government funding, but make sure to not hedge all bets on it because the money that. Gets released the funds that get released. From government funds. I could hit the the company's bank account. 

Not at the same speed of development. So it's important to see it as a . Force multiplier or like an add on support to extend your runway but not make it the entire development process depend on it because that will end up likely slowing you down and causing some. Runway issues, which you don't want to face. 

A good rule of thumb or in talked about. And his experience was to do 70% VC funding with 30% supportive government funding. And that 70% of VC funding could be debt and VC together.

When choosing VC partners, it's important to be realistic with what milestones, the capital will unlock and have a great path of communication. So this goes back to our whole talk with Haje in the pitch. In the episode that we focus on the pitch when it comes to VC. So definitely check that out. If you haven't. 

But this is exactly what Haje said as well. It's really important that communication. Of what will the funds Enable the team to do and what those milestones are and how they attach to the technology and the business development and bridging all of those gaps will be really critical. 

And when choosing venture partners. Orrin says that you really need to have an extra special relationship with them, which means choosing someone you really want to work with and choose someone who's going to be additive or at the very least not subtractive to your business. So this goes into a little bit of self-awareness that 

Founders should have, and team awareness where it's like really understanding your weaknesses and strengths and finding venture partners that either have a network that can add to the value chain that you might not be able to fill with your team or yourself or the venture capital themselves have that background. 

And they can act as that partner for you because at the end of the day, it's really a partnership and you are choosing your board and you are choosing. Using who you are listening to when either times get rough or when you're having a business question, they're going to be the first people that you can call. 

It's really important to be very mindful of who you choose to accept funding from. So then we shifted into talking about how business units and innovation units of very big companies could be customers that support a project and even a release, complete funds for them. It's important to not fall into the pitfall of just because of business unit innovation. 

A unit is funding you. It doesn't mean you will be able to convert them as a customer. This is apparently a trap that Oren has seen a lot of companies fall into. It was one of the hardware horror stories that he mentioned and just this is what we ended up talking about. So it's really important to know that don't hedge all bets on that innovation unit that is funding. 

You definitely continue on your business development and if they do end up converting great, but. At least you've covered your bases. Regardless the networking and the reputational benefits and the S the sources the customer driven funding route will bring is usually worth the potential of non conversion. As it'll give you a really good track record, specifically with VC's. 

And then we got into an interesting conversation around hardware competition. And basically the key takeaway there was that hardware competition is a double edged sword. Once you integrate your product into a customer system, you have a very good chance of having them as a recurring customer, as long as you do a poor quality, of course. 

Which is great. But when another competitor has established that relationship and it has integrated their systems, the conversion can be  much harder if it's an integrated system. Or in defines this as the stickiness of hardware with customers, AKA brand loyalty it's not just technological stickiness, but also training marketing modes of operation. The list really goes on. 

And then a comment that was important that I wanted to put as a bullet point, was that having a good program management early on will save you from over-hiring and or development slumps. This was A slight sidetrack that I did because Orin was talking about how it's important to stay like cash nimble. And if you have teams. 

If you have business changes, it's really important to Potentially consider restructuring your team or letting go certain parts of your team if the end is not near, et cetera.  It's very valid point that he was making. It's important to be able to make those really hard decisions.  Before they hurt an entire company. However, it's also equally important to create an org chart and a system and have a program so that, what skills, when. You will be. You will need so that you can hire in a very thoughtful way. I had gone to a conference where someone was talking about this and I'll add it to the notes here. Is that it's just really important to hire one. There's a persistent headache on the team.  It is really important to see that headaches happen and hire accordingly and also hire with a program manager in the room. So that you don't over-hire and have to lay off and also to avoid any type of slump where there isn't enough work for the people that are in the company. 

Which happens more often than people might care to admit in startups. And then the, a few of the last bullet points is when going into your minimum viable product, it's important to remember that is in fact that a minimum viable product, it is not the actual product or in calls us out really. Passionately because he's right. 

When a lot of companies are pitching their product, they're so excited about the progress that they've made and the fact that they have a minimum viable product. They sometimes forget that is not be quality qualified, final product. That's going to potentially exist in the world. And if you plan your entire fundraising, thinking that's where you end up landing, then you really might struggle in the next stages of your company and scale up. So it's important to say and plan your fundraising according to that minimum viable product, but also know that the actual product will cost much more money, much more time and more people. 

And then the last point, and we really just scratched the surface with this one. I just wanted to get a one take from Orrin. Because I know that super important and a lot of people are fundraising right now and thinking about how to put together a board. So Orin had some very important advice when it comes to managing that board. So one was utilize expertise in a strategic way and choose your board members according to primary needs of your business and pieces of the value chain that you are not able to fill or. 

Or neither of your co-founders can and your team can't too. This goes back to the point I made earlier when we were talking about picking venture capital partners, same goes for your board. Give your board homework, especially if you are paying them with equity. So if there is a 

Specific need that you haven't, you don't have the talent on your team. It's very reasonable to ask a board member to potentially help you out with that. They might not do it all the time, but they, it will definitely generate a decent amount of respect from the board. So that is a very reasonable thing to do. 

And then last but not least listen to advice from everyone, but take advice very carefully and systematically, there will be a lot of people with a lot of opinions and it's important to be able to sift through them and really choose which one aligns with your business, your values and your product. 

And of course your team. So with that, we end our T LDL. There was a lot on this episode. So this TL;DL is a little bit longer than others. So if you've bear with me up until this point, I appreciate it. And I hope that you got a bunch of really important lessons and little bits of actionable advice. 

And I really hope that you enjoyed the episode. I hope that you come back. I will be releasing one more  a farewell to season one episode after this one, as this is our season finale. 

I'm  📍 incredibly grateful for the level of support and engagement I've had with season one. And I intend for that to only grow and season two and get better. Please make sure to follow, subscribe and leave ratings on your favorite podcast platform. 

So that we can get the builders circle in front of many more entrepreneurs and builders out there. 

Thank you so much for listening and I wish you all the best. And I hope to see you. Back listening. For season two of the builder circle.  

The opinions and information shared on this podcast are for informational purposes only. We always recommend that you seek professional advice before taking any action related to your business or personal ventures.

 Thank you for listening, and I hope that you enjoyed the episode