SaaS Interviews with CEOs, Startups, Founders
1753 "IoT AgTech Device Hits $1m Software Run Rate and $1.2m in Hardware Sales. Can He Get $60m Valuation? "
12 May 2020
Chapter 1: What innovative technology is TeleSense using in agriculture?
playing in the ad tech space selling these orbs to farmers and producers to measure temperature changes and other metrics in their grain silos hay silos barges you name it he has 3 000 devices deployed he retails those devices for an average of about 400 bucks cost goods sold 150 for him so call it 800 000 and kind of spread he's made on the hardware sale but that's not the long-term play the long-term play is the software upsell the ai on the back end where you're seeing acvs there
somewhere between $150 and $200 per month. He's flirting with a million dollar run rate on that side of the business with 400 customers. Founded in 2014, his team today is about 44 people, 28 engineers, 8 million raised, burning more than 100 grand per month in net burn, but less than a million.
Looking to do a $15 million raise here shortly where he hopes to sell 20% of the company, which would be about a $60 million pre-money valuation. Hello everyone, my guest today is Naeem Zafar. He's a serial entrepreneur and the founder and CEO of a company called Telesense. Naeem is a 7X startup entrepreneur and 5X CEO with successful exits.
He's deeply ingrained in the Silicon Valley ecosystem and frequently speaks about innovation and entrepreneurship. He's authored five books on entrepreneurship and he teaches entrepreneurship at UC Berkeley and Northeastern University. The company is called Telesense, again, an ag tech company using AI to preserve grain. Naeem, you ready to take us to the top?
Absolutely.
All right. So what's the Silicon Valley guy that should only be in computers and software doing digging around in grain bins?
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Chapter 2: How does TeleSense monetize its IoT devices?
Well, we figured that what are the industries which have not been touched by advanced software technology? And we looked hard and we found construction and ag are two industries which there's a lot of room there to have innovation. So Silicon Valley, we know about wireless sensors, artificial intelligence.
So we decided to apply that to the grain industry and we are sort of the first one to get there.
Yep. So explain, I think this is fascinating. Explain to those that missed your first interview how the product actually works. Do you have it, by the way, the IoT device?
Yeah.
Can you hold it up?
I'll hold it up. So there are a couple of devices. So let me just say a couple of words here. So grain, once you harvest it and store it, never improves in quality. It goes downhill.
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Chapter 3: What is the current financial status of TeleSense?
The question is, When is it going to go bad or not as good? So should I sell it now? Can I hang on to it for another nine months? Should I sell it next season? That's the decision every grower has to make. So the problem is to monitor, you need temperature, humidity, what's going on inside my grain. So if you make it super simple, then anybody can use it.
So what we have done is we have created a little ball. This ball has temperature and humidity sensors, and this is the antennae. You can stick this ball in a pile of grain and you can pull it out when necessary. But even more interesting is this spear.
Okay.
So this is a two meter long spear. but all you have to do is stick it into a pile of grain and this thing start transmitting data wirelessly.
Chapter 4: What challenges does TeleSense face in fundraising?
So hold on that thing you just held up. Those of you listening audio only, it's kind of a blue ball on top of about, it looks like a three or four foot long metal stick longer than that. Six, six, six and a half, six and a half feet. What does that cost you to make their name that, that IOT device?
So this device we sell for about a four to $500 depending on the quantity.
Okay.
And then if you put three or four of these in a pile of grain or in a barge going down the river, now you know what's going on. If there's a problem, there's a hot spot, there's a biological activity, you can take some action. And that can save millions of dollars of grain every year.
Those two things, though, for you as a business, the yellow one versus the blue one you just showed me, what do those each cost you to produce?
Our cost of production is around $150. For both of them? Each, yeah, approximately one is like 110, one is 170. So approximately 140.
Okay.
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Chapter 5: How does TeleSense ensure product quality and reliability?
And what makes them so expensive to produce?
Because inside there are several interesting things going on. There are, of course, a battery that must last a couple of years. There's a wireless communication circuitry, which needs to collect the data. There are temperature sensors, humidity sensors. They have to be weatherproof. They have to be able to withstand large temperature variation. and snow, and humidity.
They have to be intrinsically safe so you can't blow up in a silo. So a lot of advanced technology goes into those things.
If I am a farmer and I have a silo that is three stories tall, and I stick that instrument you just showed me into the top, so it only goes down six feet, which is maybe like 1 10th of the total height of the thing, how do you know that the grain at the bottom isn't getting exposed to like insects or something, and it's actually bad grain, but your sensor at the top is saying it's all good?
Yeah. So that's why for tall silos, we have a different product. Because tall silos, you can hang temperature cables which go all the way up and down. We sense those cables and we start transmitting data wirelessly.
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Chapter 6: What are the future growth plans for TeleSense?
In shorter things, you can hang these things. So these things, I assure you, they're ideal for ground piles, shallow storage, barge, or rail cars. So for three-story tall, we have a slightly different technology, which I don't have to show you, but it's a box which directly sends the data.
Interesting. Okay, so for some context for you guys, so when you came on last, you'd communicated. I mean, this is expensive to get going. Not just do you have to make software, you have to produce a physical object as well. You had raised $8 million, had staffed the team up to about 20 folks. Help me understand the capital structure of the business today.
Still $8 million raised or have you raised additional capital?
No, we are going to be raising this year about 15 million. Okay.
Why is 15 million the right number?
Because our mathematical calculation tells us that will take us to profitability. Okay.
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Chapter 7: How does TeleSense manage customer acquisition costs?
So it comes out of financial model.
So even though if that's the right number in terms of getting to profitability, how do you make sure you raise that in a way that doesn't really dilute you and the other employees that might have equity shares?
Well, it will dilute us. That's okay.
How do you minimize dilution though?
Minimize dilution is by creating the company value higher and higher. So when you raise last time, the company value was this much. This time, I'm hoping the company value will be this much. So dilution will be maybe 20%, maybe 25%, and not 50%. So that's what the focus is. And to raise your valuation, you need to be able to produce half a dozen charts all up going to the right.
And that's what we have been working on. So team is now like 44 people. We have Salesforce now, and we have dealers selling for us. We have found product market fit in two or three markets, which we did not know last time when I talked to you.
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Chapter 8: What insights can be gained from TeleSense's business model?
So things have really have more momentum than ever before.
So 44 people, how many are engineers? 28. Okay, so majority engineer, any quota carrying sales reps or no? Any sorry? Quota carrying sales reps?
Yeah, absolutely. So we have five quota carrying sales reps.
Okay. And so to back into that, your target, what you'd feel like would be a good raise this year would be selling about 20% of the company for about 15 million. Is that accurate? Approximately, yes. So what story do you feel like you have to tell? Paint some color on those charts that you have to show to get a $60 million pre-money valuation.
Right. So with First of all, the story is that there are, we did some pilots with a series A initial funding, and now we can demonstrate that those people are now proliferating. So there's one location, now they're in three locations or six locations. So we know you can see there'll be a ramp. We can see how many people, how much time do they spend every week on our website, using our mobile app.
Maybe they were only using it five minutes a week. Now they're using 11 minutes a week. They plan to use 26 minutes a week. So that shows that they're engaging. And then Ultimately, you have to show ROI. Did we detect a disaster and avoid it from happening? And the fact is there are several examples now when we detected a disaster which did not happen.
So as we demonstrate the product has value and the predictive part is working, that's what's going to give us the high valuation.
So when you came on last time, you articulated that you were selling 20 balls for about $5,000 to your buyers. Is that still the same or have you been able to drop that price to get more market share?
Drop that price to get more market share or our own production is more optimized. And we've evolved from just using balls to a combination of spheres and other form factors. So we are founding, for example, very attractive products in hay market. Hay is food for animals. And hay is an expensive product. It's a sensitive product. We did not know about that last time we talked.
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