By Rick Bentley, CEO of Cloudastructure, Inc.
Know Your Lane: Identifying an Uber from a Theranos
In 1998, years before anyone coined the term IoT, I started a company called Televoke. Our tagline was “Connecting people to things”. When presenting to a VC, I brought in a battery powered circuit board with an analog cellular radio in it, clicked a button on a web page, and a light turned on on the circuit board. At the time, it was technology that was indistinguishable from magic. One of the venture partners even picked up the board and waved his hands under it to make sure there were no hidden wires. I proved that the technology worked and that I had a deep understanding of it: I had made this all myself.
That VC was Softbank, and they invested millions. Televoke went through a merger, was renamed deCarta, and was eventually sold successfully to Uber in 2015.
During that same time, Elizabeth Holmes started a company called Theranos. Tim Draper, of “Meet the Drapers” fame and a successful investor, invested the first $500k into Theranos out of his DFJ fund. Did Elizabeth Holmes show him that Theranos’ technology worked and that she had a deep understanding of it? Of course not, because the technology didn’t work and she had, at best, a lower division undergraduate level understanding of a complex topic.
How could you, as an investor, predict the Theranos outcome vs the Televoke outcome? Well, it’s actually pretty easy. I’m not going to say I’m smarter than Elizabeth Holmes, she raised a lot of money and did some amazing things. Did I spend more time learning about IoT than she did about blood work? Maybe. However, the biggest difference was the newness of our spaces. Testing blood samples is a century old, multibillion dollar industry. It employs countless PhD’s, postdoctoral fellows, professors and staff scientists who dedicate their lives to topics like “how can we get by with a smaller sample size”, which, coincidentally, was Theranos’ primary claim. All the big improvements have been made, and the competitors are all in a race to incrementally reduce sample sizes while increasing accuracy by a fraction of a percentage point.
Let’s compare that to IoT in 1998. Who was in it? Well, basically it was me and a small number of goofy people who thought “hey, this stuff is all going to be connected someday … I wonder if I can make money off it”. It was easy to be a leading world expert in IoT because there just weren’t that many people in the space. It’s like running a race with your neighbors down the street vs. running the Boston Marathon: one is a bunch of yahoos and the other is full of people who will work an entire year to shave less than 1% off their time. Which one are you more likely to win?
Pay Attention to the Competition
When you’re looking at an investment opportunity, pause and think about how well entrenched the competition is. For blood work, the competition was and is fully entrenched .. in a castle, with a patent moat around it and archers at the battlements. Let’s compare that to Uber and AirBnB. Who was offering a ride or house sharing service in 2009? What did their competition look like? It wasn’t much.
Would you invest in a new cryptocurrency today? Probably not, at least I wouldn’t, but how about a dozen or so years ago? Do you wish you had? The best opportunity is found off the beaten path.
Get Off The Beaten Path
Okay, so now it’s 2022 and I’m raising money for another company, Cloudastructure. We do computer vision in the cloud, where powerful computational AI and Machine Learning engines literally look at video footage and tell us what’s in it. People, faces, cars, license plate numbers, objects… all become searchable. It’s cool stuff. We’ve got AI Surveillance with built in monitoring capabilities, cybersecurity and smart parking solutions all on one cloud-native platform, so enterprise businesses can enjoy end-to-end physical and cybersecurity. But our computer vision can enable us to do so much more down the road in terms of safety, intelligence, maybe even predictive behavior.
Did I run back to the VC’s for Cloudastructure? Well, I admit I did try. However, there were a ton of other entrepreneurs also trying. The VC’s are more fashionistas than prognosticators – they follow the herd and the herd wasn’t into AI at the time.
So I got off the beaten path. How? Crowdfunding.
Bill Li, founder and CEO of Knightscope, was the CEO of a Softbank portfolio company when I watched him crowdfund successfully. But he was the only one. A short time later, I went to a Silicon Valley party. There were dozens of startup CEO’s talking about how their quest for VC dollars was going, but none were talking about Crowdfunding. That’s how I knew it was time to get into Crowdfunding.
Since that time, Cloudastructure has raised over $30M crowdfunding vs $400k from VC’s. According to King’s Crowd, we’re in the top 1% of crowdfunded companies. What’s the lesson? Get off the beaten path. Carve out a new path for yourself that leads to the next big thing.