This Week in Startups - How to co-invest with other firms (VC School) + Electric Sea Gliders: REGENT Co-Founder Billy Thalheimer | E1493

Episode Date: June 26, 2022

For today's VC Sunday School, Molly asks Jason about co-investing with other VC firms (3:11). Then for This Week in Climate Startups, Molly sits down with REGENT co-founder Billy Thalheimer to talk about the ins and outs of their electric sea gliders (29:46). (0:00) Jason and Molly tee up today’s show! (3:11) VC Sunday School: Co-investing with other VC firms, how and when to do it (12:59) Swag.com - Visit https://swag.com/twist and use code TWIST for 10% off your order! (14:16) Co-investing in a down market + the manners of sharing deal flow (21:29) BetterHelp - Get 10% off your first month at https://betterhelp.com/twist (22:49) More on sharing deal flow (26:21) Toss to This Week in Climate Startups (29:46) TWiCS: Billy Thalheimer, co-founder of REGENT, on their electric sea gliders (39:52) Microsoft for Startups Hub - Apply in 5 minutes, no funding required, sign up at http://aka.ms/thisweekinstartups (41:01) REGENT sea gliders’ physics + regulatory benefits (58:45) Outro

All right, happy Sunday, everyone. Thank you for learning with us. It is, it's education. I love doing this. We're going to kick off with a VC Sunday school about co-investing with other VC firms. This is a major topic. When do you do it? When do you not do it?

What are the rules of the road? What's polite? What's impolite? We should talk about all these things. Yeah. And, you know, as you know, this is going in the order in which I am discovering these things as a little baby VC. So this has come up recently. And then in this weekend climate startups, we have a super interesting conversation with Billy Tallheimer from Regent, which first came up on our show as startup of the day.

This is the company that's making the electric sea gliders that like zip right over the ocean for regional travel to replace, I mean, to be a new transportation category that's all electric and super interesting. Oh, this is the one. It's not an electric plane. It's basically like a ferry that looks like. a plane and then it lifts itself out of the water and flies just above the water, right? There's a flying boat. It's like a flying boat. It's such a genius idea.

It's so interesting. I think this could change, especially, I don't know if you, Hawaii was brought up, but I've always wondered why there aren't ferries between Hawaiian islands and they're like, it's too far. It doesn't make sense. So you're forced to take a flight. And I'm like, that doesn't make a lot of sense. To me what I guess it does.

Their first launch partner operates in. Florida and that kind of like Atlantic Corridor and the Hawaiian Islands. So they're already, that's likely where they're going to launch this craft. So cool. I mean, transportation is going to be so different in the next 10 years and I am here for it. Get me somewhere quicker, faster, better. It's fascinating. Let's go.

And safer, of course. Great interview. I can't wait to listen to it. Yeah. It's going to be great. It's going to be a great show, actually. All right. Stick with us.

Yeah. Actually. Actually. Not surprising at all. Not surprising enough. This week in startups is brought to you by Swag.com. Swag.com is the best place to buy, customize, and distribute custom gifts and promotional products. They work with some of the best brands like Yeti, the North Face, Ember Mugs, and more.

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is open to all and takes five minutes to apply with no funding required. Learn more and sign up at a.k.m.m.s. slash this week in startups. Welcome, everybody. It's Sunday. We like to spend our Sundays with you. And we do two things on Sundays, Molly. We do VC Sunday School, which you as a new VC in the first year of investing. Congratulations on your sixth month as a VC. You're doing wonderfully. I give you A plus grades across the board. Thanks, man. commitment level has been amazing, your focus level, your curiosity, just great across the board. But I expected you would be great at this. I've told you that. And then, of course, we'll do our

climate interview, which is a really cool company, as we said in the introduction. But what is your question for me this week? Let's get right into it, Molly. The audience is at the edge of their seat. At the edge of their seat. So what I have, as you heard in the intro, one thing that's been coming up a lot is this question of sharing deal flow and then more specifically co-investing. So not just like being the other firm in the round, but evidently, and this is the part I'm hoping you'll explain, there are such things as co-investment vehicles. Like there are very specific co-investments that you might make with another firm. Is this a thing? So this is depending on market conditions, you'll see varying levels of collaboration. So when I was thinking about this question, you know, I was thinking, well, you know, it suddenly has changed.

And so let's take three market scenarios. normal market, a hot market, and a down market. We're in a down market. We just came out of a hot market. But let's start with, well, where would you like me to start? The down market, the up market, or the normal market. I guess let's go, let's go like with the baby bear approach. Normal market. Normal market. Normal market. So in a normal market. Is there, does that exist? Is that a thing? Sure. Sure. Sure. Yeah. I mean, normal market conditions in the early stage, you're looking to build consensus around a startup. And if there is a one to three million dollar rounds,

then let's just take the $2 million round for a seed round for 20% of the company, 2 million, 10 million posts or 2 million out of 10 million cap, ballpark, $2 million for about 20% of the company. Somebody, these can occur two ways in a normal market, a party round or somebody will lead the round. So if somebody's leading the round, they say, hey, listen, I love this company.

I think Uber's going to change the world. I would like to give you this term sheet. I'm going to define the terms. I may get some of my legal bills paid. You'll see that little note in there. And that lead will negotiate and they're driving the round. And they say, I will put in $1 million and you can get $1 million from everybody else. And you might have had some angels or other firms that want to put in a $250K check.

I leave it up to you. But we're committed for the million. We'll own 10%. We'll join the board. We're the lead investor. Now, sometimes a lead investor in a normal market will say, you know what? I really think Molly would be a great addition here because I want somebody who's smart, who understands climate and who wants to, you know, syndicate it with her syndicate or her seed fund or she's an angel, whatever it is. And they'll go to you and say, hey, would you like to co-lead this with me? So they'll invite you into the deal. And they're inviting you not just as a favor, but more as a favor to the company. You could be accretive to the investment. That's really in the best case. Chef's Kiss. Perfect. You know, you're using those extra slots to provide value. not have freeloaders in it.

So there's this concept of freeloaders, people who just throw money in and they disappear and they don't do any work for the company. And so in a normal market, you're trying to fill the round with people who are going to add value. Everybody's going to work together to make the share price go up.

That's the magic of Silicon Valley, in fact. So that's what typically will happen. In a party round, the founders say, we're going to raise $2 million on a $12 million cap. So they take advantage of the fact that nobody's setting the terms and maybe nobody has information rights

except people with checks over 500 and there's nobody who's putting a check in for 500 and they just start going to investors you saw this at its peak at Y Combinator where Y Combinator would invite a lot of high net worth individuals, dentists, etc. I remember meeting multiple dentists one year.

Yeah, people wanted to, you know, I mean, think about you're a high net worth individual you want to place some bets. You have a million dollar cash machine every year and you decide you're going to put 200k every year or athletes or whoever. They have great income. They want to put some money to work and make some long bets. Nothing wrong with that. But they would not be discerning. They would just sign and get 50K. The terms are the terms. They're not doing diligence, etc. That's the danger of

party rounds. But those were occurring more and more frequently and great for the founder in the short term because you get the deal done and you don't have anybody to answer to in the long term. People will debate if it's good or not. So that's what happens in a normal market. Sometimes you don't need to have a co-lead and it's just the founder is driving it. Other times there are investors who have a short list. I've been on that short list where people would say, hey, you want to talk to this company we're leading around. Something happened, though, in the hot market.

As we lead up to the hot market, funds got bigger. And when funds got bigger, they needed to put more money to work. So if it was a $2 million seed fund and I had $40 million fund, I want to make $31 million dollar bets, save the other 10 million to do follow on, something in that range. So I don't want the other two million. But then if my $40 million round becomes a hundred million dollar round and I want to have 30 names in it, well, I'm going to put $2 million into each company and then have 30 million left over, right? So then there's no room. And so those rounds close very quickly. They take the whole amount. And for founders, it's great. I only have one more person on the

cap table. I don't have to pass the hat, but you lose the benefit of having additional people. So as the market got hot, people were then battling to take the entire round. And that's when the sharp elbow phenomenon comes out, which is people just tell the founder, here's the deal. You have 24 hours to sign, 48 hours to sign. We want to be your partner. We want to put the money in. Full court press.

We'll be, okay, you have valuation of 10, 11, and 12. Great. We'll do 14. We'll put 2.5 million in. And you have this deal until tomorrow at 5 o'clock. If you want to do it. If not, we're going to move on. And we totally understand.

So that's when things become a little chippy when it's a hot market. And then the dynamic switches. So questions from there and then we'll go to the down market. So presumably in that case, there's no. But then is there such a thing as an actual co-investment vehicle where you're like, me and this other firm are going to lead this round? No. I mean, it wouldn't be like a legal vehicle if that's what you're saying, like an LLC or something.

Right. Everybody's got their own structures. They would do it. But they might, you could have co-leads. They might discuss. the terms together. They might discuss the board composure, you know, okay, we're both putting in a million, then there's 500K from Angels. Do you want to take the board seat? Maybe I'll take backseat to this one. I'll have an observer seat. You have the actual voting seat. You know, and they

could come to some discussion about that. Usually the first person in kind of drives this, the biggest check and the first person in gets to drive the terms and the process with the founder. In a hot market, it's very much founder driven. In a down market, will then power a cruise to the people writing the checks. That's the moment we're in now. That's very interestingly, you joined, we had this discussion when you were leading up to you joining. You joined right as the market switched from the hottest market I've ever seen in my life, or, you know, only comparable to the dot com to now the greatest pullback I've seen second only to the dot com. This isn't as bad as a dot com. And it feels like the 2008 crises, if I'm being honest.

So here we are in the down market. So more questions for me. drama and so fast at that. That is the thing people have learned is that when things turn, they turn fast. Everybody thinks it's going to be gentle. It's not like that. The way it works is you have this, it's not like a smooth curve up. It becomes, as Bill Gurley pointed out in one presentation, I think it was at the Olin Summit, that these things are kind of jagged.

So you have these like little down markets and then it pops up and goes really high. You get these super. And it's only at the very end that. it goes, I think the term is parabolic, where it just shoot straight up. And so we saw that where like Tiger Global and Masa came in at these two last peaks. And they were like, whatever anybody else is paying, we'll double it. Yolo. I have a huge fun.

Let's go for it. And that last little push up is literally like a plane going full power and tilting straight up in the sky. And when a plane does that, what happens is, yes, you get that phenomenon. Whoa, you feel the Gs? But then you lose the lift under the wings because your pitch is too high and the air gets in. And then what happens? A stall.

And that's what we're going through right now is the plane has stalled. We flew too high to the sun, Icarus style. The plane is stalled. It's spinning. And all the pilots are just trying to get the nose to dip, which is a really hard thing to do. You kind of have to dip and get speed again. And then you get lift under the wings. But it's counterintuitive.

When people are scared, they pull back. Right. When you pull back, you lose control of the plane and you plummet to the earth. And I think this analogy is the pullback right now is so severe. So you plummet for a while before you can regain lift. Yeah, totally. And it feels chaotic. And sometimes for some companies, it will be a stall and you will not have time.

The height in this analogy, your altitude is your runway. And if you stall the plane, you need to have altitude in order to recover the plane. That's why planes don't like to fly close to the earth. And they're like, we're only going to get close to the earth when we're landing and we can see the, you know, runway because if you need time to recover, something like goes wrong with an engine like we're seeing. It's pretty brutal. So in a down market, everything changes. That's such a good analogy for a down market. If you like delighting customers and employees with amazing swag, well then swag.com is the place for you.

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and startups.com. Maybe we'll send your prize. Maybe we'll send you a gift certificate for Swag.com. But here's what I want you to do right now. I want you to get 10% off your first order. if you go to swag.com slash twist and use that promo code twist when you check out for 10% off. But so what then does, let's talk about what co-investing looks like in a down market. And then I want to ask you about the sort of like politics and manners of sharing deal flow.

Okay. The down market experience is one in which everybody circles the wagons and looks at their existing portfolio and says, who's going to die and in what order? And then who's growing revenue and has who's profitable, right? So you start putting in your mind companies into buckets. One bucket is they don't have product market fit. They don't have runway. So the viability of the business is low. So you have like the viableness of the concern.

You know, I like when people call companies concerns. It looks like a really good old timey term. So let's just say. It is kind of fancy. Yeah, I like it. So the viability of your concern. And, you know, you, you're kind of looking at and then your runway.

So if the concern is super viable and it's profitable, well, you don't need any run one way, runway. Inside.com has been thrown off a little profit every month, or I should say quarter. Sometimes we have a down month and then a up month. But we actually were profitable for the last four or five quarters, I think, which is really surprising to me. And we actually, as a concern, we're adding to our cash position, which is adding to our runway. Fantastic.

We're ready for the down market. Then you look at another company, they might not. be viable as a concern and they don't have runway. Super dangerous. This is like the person who loses control of the plane at 5,000 feet while they're taking off. No, Bueno. You don't even have the altitude to turn around. You ever see those videos on YouTube when a plane takes off and they can't even turn it around or at Aspen or whatever and they just go right into the trees. That's, so VCs will put that bucket and they're like, not my job. Can't save it. It's up to the founders. Maybe they pull a rabbit out of the hat. We'll support them

any way we can, but let's be realistic. It's not going to happen. Then the other side, you have the, like I said, for inside, profitable, lots of runway. We're fine. Then there's everything in between. Okay. You know, and then you, yeah. How does that translate?

Yeah. Well, yeah, how does that relate to co-investing if you're evaluating new companies? So now I am trying to, I only have a limited amount of dry powder. Usually, you know, you have enough dry powder for 10% of your companies. and that dry powder is where you make a lot of your profits. So if you had a $100 million fund and yet, let's just say $20 million in dry powder, you know, follow on money for existing investments. Are you giving it to category one, two, or three?

Category three, product market fit, profitable growing. Category one, not viable, no runway. Category two, figuring it out. Well, category three doesn't need your help, but you probably want to put your money in there because it's best for your LPs. So you start there. category two, you're going to be very discerning and you're going to try to put

strategically money in there for the ones that you think can become category three quickly and then everything else you're not going to put a dollar into. So what some VCs will do is, they will start plotting off bucket one to other VCs and say like, hey, this is a great company, I'm forwarding it to you. And then those VCs go, how much are you putting in this round? You're like, oh, you know what, I hit my ownership target. I'm not putting

any more in. That other VC gets the signal and that's kind of the nod, right? Yeah. And then you have this awkward situation. The founder's asking you to invest in somebody you're not investing in the round. You don't believe in the company anymore and you forwarded it on to somebody. And the kind of nod is, well, if you're not investing in this round, maybe I shouldn't, right? Because I know you would invest if it was in bucket number three. So then there's, hey, I'm doing you a favor. Bucket number three. This company's surging. I want to do you the favor. So I'm sending it to Sequoia. I'm

sending it to Shemoth. I'm sending it to Sacks. I'm sending it to Bill Gurley because I want to build up the favor bank with them. And so I will send to those specific. specific people and say, listen, this one's, you know, screaming to me that it's going to be a winner. And I want Bill Gurley on the cap table. I did the angel round of Uber. He did the series A. I want Bill Gurley to do that round. I want Rulof to do the next thumbtack round.

You know, that's like the dream for me, right? The downstream investor who you really care. So you want to send those best ones. Those nice crisp pass right to, you know, Steph or Clay. You should know the chance to have been going in the basket are very high. I get the assist. So anyway, that's what happens. And you can build a favor bank and maybe they'll invite you into interesting things.

And another great thing for young VCs to do, young in their career, not age-wise, early in their career, is to just randomly email other VCs and say, hey, you've got any interesting deals you're doing, would love to meet some companies. I have some time on my schedule next week. Anything interesting you're seeing in SaaS or anything interesting you're seeing in climate or marketplaces, whatever. And just keeping up with other folks, they might very much bring you into a deal, especially if they've already bought their piece. So the name of the game is to lock in your piece

and then get the best people possible to make a bet. Because like that Ryan Breslow tirade, you're building that mafia, you're building that voting block, that consensus. The more people you can build consensus with a startup with the greater the chances of their success. It's not guaranteed, of course, but it does help. So it does, because it does seem to be,

I mean, some of the most interesting companies I've met have come from other investors. we also have a robust strategy for uncovering new companies. Talk to me more about the favor bank. Like it does seem, because you, it seems that there is an important networking component to sharing deal flow. There's also,

we're so early that sometimes it's like, well, there's only a million dollars left in this round and we need it. So I like don't want to share it. Like I don't, you know, it's usually in the early stage. How strategic do you have to be here?

It's usually the series A, firms in the series B where they just want to take the whole thing. Yeah. And in these seed funds, because you don't have a lot of data go on, data to go on, you would rather not take the whole round, spread a little bit of the risk so you can make more bets. So that's typically what people are doing. Okay, it's a $3 million round.

I'll take a million. I'll take $500. I'll take $750. Let everybody else do it. And then, as Naval famously said, the easiest time to raise money for your startup is when you're oversubscribed. So one technique for startups is to target a million. but having the back of your head or approval with your board that you go up to three.

Because when you hit a million and you're oversubscribed, then you can say to people, you know what, we're oversubscribed. What did you want to invest? I could go to my board and see if I can open up a little more. I wanted to put a million in two. I want to put $250 in. And they say, okay, listen, I got approval for $250, but I got a lot of other people. So I need you to sign and wire, you know, this week, you know, by Friday.

And here's the paperwork. So people will use that as a technique, the oversubscribed one. And listen, you can't go wrong by introducing great companies to other investors. It's just a great thing to do on a regular basis. Now, you don't want to send the companies you're not investing in because that's a negative signal. And founders will ask you to do them. Hey, you didn't invest. Can you interest me to three more investors? And what I tell them is, you know, you really don't want me to do that because it will then decrease your ability to get an investment from that person because they're going to wonder why I didn't invest.

And what didn't I see? But you really, you might be much better served by going in cold. And now a word from our sponsor, BetterHelp. Listen, the startup grind can be really overwhelming. We all know that. And a ton of people on our industry are dealing with burnout. And you know what? Some of them might not even know they're dealing with burnout. But you know the symptoms.

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Twist listeners can get 10% off their first month at BetterHelp.com slash twist. That's BetterHELP.com slash twist. That is definitely a thing that I was wondering about, because I do have this tendency to want to be like, well, I like this company, but we can't invest, but maybe it's right for you. And like a mom, like a baby bear kind of way, you know, where I'm just like, well, it's not, just because you didn't find a home here,

doesn't mean you won't find a home here. Yeah, no, you're not doing them a favor. Yeah, okay. It's got, you know, I'm not going to go to the dating. She's. But if you were single and this person was such a great catch and you're at that stage in life where you're looking for a partner to raise a family and you and your friends, I'm not doing, putting any genders on this.

And you're like, oh, my God, you know, it didn't work out with me in this person, but yeah, you should start a family. with them in a partnership. Well, but to be fair, that could really be the case. It could be. There must be scenarios. In fact, I could imagine that one scenario was like, listen, this is a great company. We cannot invest because we have an identical business plan in our portfolio.

Sure, sure. There must be exceptions that are just like. I would say that's an exception. Yeah. I mean, I guess if the person was a certain religion and they only wanted to marry within that religion or something, like I have seen that happen. Ferramones are real. Like, sometimes it's just simply hormonal.

months. Like you're not, our fair months are not compatible, but on paper, you know. So, but here's the thing. With a, it will, this is my theory, it's going to put in the back of the head of the person who is asking to engage after you passed. Yeah. Why did Molly pass? Especially the higher profile of you all, the harder it is as well. Like, oh, this person's great. I dated them for two years. And it's like, okay. But it was me. It was me. I totally, I've got a billion dollar fund. I don't want to invest a million dollars in this

company, but you should. Just, you know, in this instance, it's a really dangerous thing to do. I refuse to do it. And I tell people, listen, my obligation is to invest the companies I've bet in, bet on already to investors. I can't spend my capital introducing you to folks. Yeah. If I haven't invested, number one, I need to reserve that, that, you know, social capital

for my companies. And number two, it's going to look really bad for you. So please don't ask me to do it. It's just a really bad idea. And if people have heard this before, it's a really bad piece of advice. What you could do is say, I don't want an introduction, but who do you think might be interested in this who cares about hardware? I know you don't want to do hardware, consumer hardware?

Do you know any other investors you know who've done Fitbit or GoPro or other consumer hardware, drop cam? Because I'd love to pitch him. You get the idea. Yeah, that's a good idea. So if, for example, there is a VC in your orbit, and I'm not saying there is, who sends do a lot of companies that they haven't invested in, but they think you might be interested in.

They're not doing me or favor either. It could be stage. No, it could be stage. So I will make a caveat here. I have had people say, I only do series A. And so this is a pre-seed round or a seed round or an accelerator company might be good for you. So there are some exceptions there. It's too early for us would be one of them.

But then you have to really make sure because if it was too early but it was a brilliant founder, people make exceptions. So I also don't buy that. If you found somebody and it was like Uber, you'd be like, or Robin Hood, you'd be like, oh, this is personally pretty good. I'm going to make a small check, right? So I actually don't buy it most of the time

when that happens either, which goes to my point of like, it kind of sticks in your head. Why are you not making a bet? So just be careful. Okay. Is my best advice. Love it.

Love it. That is BC Sunday School for today. Let's get to our this week in climate startups. interview. Billy Talheimer is who I'm talking to today, the founder of Regent. They have developed these electric sea gliders for regional travel in coastal areas right now. So we talked about this on the show. When? When do we get? 2025 is when they will have commercial flight ready vehicles. I can make that work. They actually have, you know, clients. They've booked pre-orders for these craft. And right now they're described as flying boats.

They also happen to look like planes. So when there's like FAA approval, they've got a regional, like bigger one ready to go. These short-term ones are going to be 180 miles range. And they also go 180 miles an hour. So like forget high-speed rail between San Francisco and New York or New York to Boston. I'm sorry, San Francisco to L.A. and New York to Boston. Those two corridors, boom. Plus inter-island travel and like a massive amount of travel.

coastal? Did not know? Yeah, I mean, if you think we have very, people want to live by the water. That's just the nature of humanity. We like the water. And there's a lot of water on the planet. So therefore there's a lot of coastline and people just go to the coastline. And the cities on the coast tend to be dense.

So that means this traffic. So if you look at Boston, you know, the harbor and then New York City Harbor, you know, D.C., some harbors down there, I guess, but it's kind of inland, so maybe less. Well, and there's the rest of the world, too. I wonder if San Francisco, L.A. makes sense. San Francisco L.A. is a little too far because 180 miles is the range, and San Francisco L.A. is...

300, yeah. Yeah. It's just a hair too far. Yeah, yeah. But it's really... It's all about battery technology. They're off-the-shelf builders, so as battery technology improves, these things...

Oh, those are battery-powered? These things go far, yeah. They're electric. They're 100. I thought they were, oh, that's even better. Yeah. I thought they were building planes that were using regular engines. No, bro, that's why this is a climate startup.

Got it. Well, no, I thought it could be, I thought that the electric engines weren't ready. So I thought it was just a transportation that would be a smaller footprint because it doesn't need as much power to go as high. Right. Right. No, they're electric. They're all electric. They're like zero emissions.

And the ports with a docking is located at airports. So they just like, burr-whirp, it's right there for, you know, to plug right into existing transit modes. Like, you would dock at an airport, get off and then do whatever. Yeah, I wonder like what type of ocean, if it, you know, what the ocean conditions need to be. There might be some places like San Francisco, we're going out the Golden Gate Bridge is too rough or does it seem to do well? It's flying above the water. So their big thing is that they've developed this, yeah, this AI to sort of like keep it all level. and it's not a hydroplane situation.

Like it's up to 50 feet, I think, above the water. So it's not wave-dependent. You also listen to it. It's actually, it's really interesting. I can't wait. I'm so glad. It's really great that we have these things on, we live in the future,

and then we quickly get the CEOs. It's such a great way to get two swings at the bat, you know? It really is. We talk about it, and then we go deep if we think it's interesting. All right, stick with us, everybody. It's going to be a great interview. Enjoy. Enjoy.

Enjoy. Welcome back to this week in climate startups. Billy Tolheimer is with me, the founder of a founder of a, Regent developers of electric sea gliders for regional travel in coastal areas. You may have heard us talk about Regent as either startup of the week or we live in the future. I can't remember, but we highlighted you. And then we've had meetings since.

And I'm so excited to have you on the show because anytime you're talking about electrifying vehicles that are not cars, it's super exciting and new. And then you're talking about electrifying vehicles that also just move around in a totally different your way. Thanks so much for having me on the show. It's just super excited to be here. And yeah, we're part of this overall climate space sustainability of transportation, looking at what transportation looks like in the next few decades. So really excited to be part of that ecosystem. Yeah. So tell us, for people who may have missed that segment the first time around, tell us what you're building. Regent builds sea gliders. Sea gliders are all electric flying

boats. They fly on a cushion of air called ground effect. It's the same sort of thing that you see pelicans flying over the water, flying on this cushion of air. We do dock to dock over water transportation. We always fly within a wingspan of the water. And so we offer low cost, zero emission, high speed transportation on regional routes. And we're targeting the coastal mobility market. So think about routes like Boston, New York, L.A. San Francisco, the global ferry industry, island hopping in Hawaii. Those are some of the key markets we're targeting. And how big a market is that?

I mean, ferries, lots of them. Absolutely. It's massive. Our market, our TAM scales with the battery technology. So today we can do 180 miles at end of life of the batteries with existing technology. Regent is an OEM. We're sort of like the Boeing of sea gliders in this case. And so we sell our sea gliders to the operators, to ferry companies, to airlines.

And so with existing battery technology, we have about $11 billion market between sea glider sales and aftermarket maintenance. As battery technology grows, we can actually service about 500 mile routes. And so that's more like a $25 billion, tam. Pretty massive market. How, what will it take to get battery technology to that point? Or not that you're building that part of it, but how long do you think that, you know, might take? Yeah. Expect sort of mid-decade, mid-to-late decade.

We actually already have a lot of the new battery chemistries or even alternate energy storage technologies like hydrogen in prototype phase right now. But there's a lot that needs to take place between, you know, your cell on a bench and, hey, it works in this specific configuration, the specific environment too. We're mass producing these and we're putting them in vehicles like sea gliders. And then so tell me about the kind of philosophy here because you're building in some ways a craft that, doesn't currently exist, at least in the form in which you're building it, and also asking people to travel in a different way. Talk to me about sort of tackling both of those pretty big hurdles. Yeah.

Well, they always tell you, you know, build what you want to use, right? So we're a Boston-based company, moving to Rhode Island soon, but a lot of New England blood in the company so far. And so growing up for me in the area was Boston and New York. Like, that's the painful route for me. So if you try to drive, you're stuck in traffic no matter what, you have to go over a few bridges. It's four plus hours. If you want to fly, you spend as much time at the airport as you do actually on the plane.

And you can't even take out your laptop to answer an email on the plane because you're going up to altitude and then you come down immediately. Right. There's no high speed rail and boats are too slow. So there's really, there's no mode of transportation where you can do a route like that in less than four hours. Similar in the LA to San Francisco mission. And California proposed a high-speed rail system and it was going to cost $80 billion. And so it's sort of amazing that we have all this technology and, you know, we have commercial spaceflight and we have supersonic jets and we have EV-Tol planes, but we still can't do these regional routes in under four hours. It's sort of the gap between the cars and the trains and the boats that are good for low range and the commercial aviation based in the airport infrastructure and network that are good for long range.

And so that's really where sea gliders enter the mix. It's these routes between, say, 100 and 180 miles with existing technology, up to 500 miles with this near-term battery technology that none of the other modes touch. And it just makes sense across the board. It's basically a high-speed rail without the infrastructure cost. It's half the price of an aircraft. It's an order of magnitude faster than a ferry. And it completely eliminates emissions because we have all battery power. I have so many more questions.

to take a quick diversion because you said you're moving to Rhode Island. Is there something I need to know? Is it the new Austin or Miami? It's going to be the center of sea glider production. Rhode Island's a really cool state for us. As we are looking around the country about where to move, we needed a place that had protected waterways for testing of our hydrofoil systems and sort of sheltered environment. We needed access to the ocean so we could really put our vehicle through its paces, open waters, high speeds, ocean conditions. We needed to be near airports with good connectivity, and then we needed a place to build. And so we actually just had a great deal with the state of Rhode Island, between $15 to $30 million incentive package to move there, 40 acres of

coastal real estate on which to build both our prototyping facilities and production facilities thereafter. It's the center of the maritime industry in the country, all the, you know, the The composite racing yachts, the America's Cup yachts are in Rhode Island. There's no sales tax on boats in Rhode Island and we build boats. So there's a lot of advantages for us to be in Rhode Island. I mean, honestly, I wasn't sure what the answer was going to be, but that is so interesting. Absolutely. And it's sort of a Boston-based team originally.

And so it's, you know, it's close enough. Like whenever you move a company, the company is about the people at the end of the day. So this was the perfect place where we could build what we need to build. with all these extra benefits and also our company can make the move pretty easily. Yeah, totally. Let's go back to that infrastructure question that you mentioned, you know, because in this case, you don't have to build roads. It's not like hyperloop or pipe where you have to create any tunnels.

You just cruise over the existing ocean, but you do have to build this crap. So talk to me about the parts of that that you have created. You're not inventing new battery technology, right? you're using off the shelf to make these craft? Cots everything, off the shelf components everywhere. And that's really, you know, my background is as an aerospace engineer and building EVTOLs in electric aircraft. And, you know, when we, when myself and my co-founder, Mike started this company, we said,

we're going to build a vehicle technology based on existing tech and we can immediately deploy this into service. So yes, Cots batteries, Cots motors, existing structural composite technology, existing flight controls and sensors, and we have some pretty spectacular stuff there. And then how does this, so it's all electric, so effectively zero emissions, how does that compare to the way that we, I mean, I know the answer to this, but the way that we already travel on by ferry or by plane or by driving? I mean, have you done the sort of gigatons calculation here? It is gigatons. It sort of depends on how many you assume are going to move

over to this mode from what other modes. But I'll actually sort of change it to more of the, I'll answer in a way that's more on the economic side, on the maintenance costs, because for our customers, you know, sustainability is table stakes. And when we think about future technology, it's really like any new mode of transportation needs to be green table stakes. And then the question is, what's the value prop on top of that? What does this do for my customers?

What does this do for me on a unit economic perspective? So for us, with an all-electric system, there's not many moving parts. So you think about an aircraft, right? And you think about an aircraft specifically doing these short regional routes. So an aircraft ages by the flight cycle. Every time you take off and land, you're impacting the landing gear. You're expanding and contracting the fuselage as you pressurize and depressurize. You're heating up and cooling down the engine.

All of those things are cyclic fatigue activities and you're aging it. And so all your maintenance activities and your cost is associated. with take off and landing. So as you shorten your route from sort of the long haul routes, a thousand plus miles that these planes are built for, and now you start doing 100, 200 mile trips, basically your cost basis is the same, but your revenue shrinks because your routes are shorter. So it's not a good economic model. So really what you want is an unpressurized vehicle that is all electric. So there's not as much heating up and cooling down. There's less moving parts. So my maintenance costs drop precipitously. Also, I'm not paying for fuel anymore. Now I'm paying for fuel anymore. Now I'm

paying for electricity. And so on a direct operating cost perspective, just counting the maintenance and the fuel cost, we're 70 to 80 percent less than any other aircraft in class. So the tickets, when this eventually becomes widespread, will be a lot cheaper, too, it sounds like. A lot cheaper. When you talk about ticket costs, you have to start wrapping in some of the other aspects of this. So you have to pay for the plane or the sea glider and crew for it in dock space or landing fees at the airport. But even at that basis, our initial product vehicle, it's called Viceroy, it's a 12 passenger vehicle. That beats the competition by about a third. And then our larger vehicle, Monarch, a 100-seater, beats things like regional turboprops and regional jets and

even single aisles like a Boeing 737 actually drops the overall cost by half. So still really compelling cost savings. By some estimates, over 90% of startups will go out of business in year one. That's why Microsoft created the Microsoft for startups founders hub. This program provides founders at any stage with up to six figures in resources. I kid you not. Wait until you hear this ridiculous list of perks. That's just sitting there waiting for you. Up to $150,000 in Azure credits based on your stage and size.

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by signing up at this is important. You've got to write this down. AKA.m. slash this week in startups. All right. So let's do nuts and bolts. The craft that you're working on right now, or the one that will launch Soonest, is 12 passenger, like you said, goes, has an 180-mile range. Yes. And it also goes, it looks like 180 miles an hour.

You got it. And it skims right over the water. And I remember when we talked about this, Jason was like, I'm going to die. Tell us about the physics of how this works. Awesome. Well, yeah, so we'll be flying not right over the water. When you look back at some of the past wing and ground vehicles or even look back to the 1960s and some of the first attempts at this with the Soviet chronoplons, they called them, they were skimming right over the water. We'll be flying at altitudes of 10 to 30 feet over the water.

So we still get some aerodynamic efficiencies out of this. But you'll notice that our vehicle, sea gliders, are much more airplane shaped than these past vehicles that have weird sort of reverse triangle wings and short little stubby wings. The reason for that is this. While ground effect is aerodynamically efficient, you're flying on this cushion of air, it's also aerodynamically unstable. In order to fix that problem with past human piloted vehicles where you actually have a pilot holding the thing off the ground, they basically change the wing design to give passive aerodynamic stability.

The vehicle would sort of regulate itself. In doing so, though, they actually gave up all of the flight efficiencies that you get by flying in ground effect anyways. So you look at those things and they're just as efficient as an airplane that flies at altitude and now they have the restriction of they can't even fly at altitude. So it's not a great solution. So what we've done is we say now we have all this technology available to us specifically in digital flight controls. So our vehicles are regulated as maritime vessels because operationally they are. They're dock to dock. They're overwater only. They're within a wingspan of the surface. And now we're making it So that so too, the captains of these vessels are also maritime masters that get a sea glider endorsement.

And so all of the airplane stuff is abstracted away with our digital flight control system, the altitude control, the roll, the pitch, the rejection of gusts, the takeoff and landing. So when Jason's worried about, you know, holding this off the water, that's exactly the difficulty of the past ground effect vehicles. But now we can control it all with the digital flight control system. and there's lots of mature technology that can control unstable vehicles. I mean, there are sea skimming missiles that fly at Mach 3 10 feet off the water. So this is a totally doable problem that's proven. And then it also means that we can have much less training for our crew. So we can add both safety and ease of crew training with this digital flight control system.

Yeah, talk to me more about these benefits of being a boat, a flying boat, because there's a regulatory benefit too, right? Absolutely. And that was really one of the key unlocks of this sea glider technology of wing and ground technology. The FAA is an incredible organization with an incredible record of safety. They also are severely understaffed to handle the hundreds of new aircraft concepts of electric vertical takeoff airplanes, electric conventional takeoff airplanes that are in

line. And as a government body, they need to give time to all of them to work them through the process. You know, it's interesting that everyone's using the same battery technology here, but electric cars are ubiquitous and they're still not a single commercial human crew that has flown on an electric aircraft. So it sort of speaks to that, you know, certification divide. On the maritime side, while we still have the same bar of safety, and that's really important, we do. Actually, the maritime regulations reference the exact same safety process. We need to generate the same artifacts, do the same homework, improve the same rigor as the aviation authorities. We have more of the bandwidth of the Coast Guard of the maritime regulators. Additionally,

testing at low altitudes, lower speeds over water is much easier to conduct than coordinating flight tests over land. A lot of the team's background here came from experimental flight tests where you need to coordinate with the airport, with the FAA, with TSA, with the FCC on your radio frequencies. There's all this coordination, and rightfully so, it can be dangerous to fly experimental aircraft. You need to show safety there, but on the water, it's a much simpler process. So case and point, we have a quarter-scale prototype undergoing sea trials right now, proving out our float, foil, fly mode of operations that are particular to the sea glider. This is a 400-pound prototype with 18-foot wingspan, and we were able to work with the Coast Guard to get that approved for test on the order of two weeks.

And so we're already seeing huge expediencies, and we can still run a very safe process, but it's really the engineering and the safety that's running the process, because we have the full bandwidth of the maritime regulator, and we can do so in a more accommodating environment. So are you saying that the challenges in creating an electric airplane are not technical? That, like, you could potentially create crafts that flies in the air or skims over the water, and it would be a roughly equal technology challenge, just a regulatory challenge to get them moving? Well, I'll say there's actually two challenges, two main challenges that my co-founder and I saw before we founded Regent being in the electric aviation space.

So, yes, on one side, it is that. cost and duration of an aviation cert program and that you can prove similar levels of safety by going through other certification channels just by having more bandwidth available to you from the regulator. The other is range. So you take an airplane and you power it with with some battery. And again, we want to baseline this on existing technology so we can get these products to market now. You start with a very rosy picture of range, 150, 200 miles. We see some of these companies advertising. But you're going to operate this. You need to make money. from it. So you're going to fly this many times a day, get as high utilization as you can. You're

going to cycle your battery. And just like the batteries on your cell phone, these batteries age over time. So a battery dies out, basically, has about 80% of its useful life left after 2000 to 3,000 cycles. And if you're flying five to 10 times a day, you're achieving that cycle count in about a year. So if you want to throw out your batteries, replace your batteries, we want sustainable vehicles here. So we can't be throwing out our batteries every week. So if you want your batteries to to last at least a year, you need a bookkeep that 80% life left. But then that's not the only thing in airplane, and I'm a pilot, so this is really great when I'm in the cockpit. The FAA mandates fuel reserves. If your airport's occupied, you need enough fuel on board to sustain powered flight

and divert to another airport. They mandate a half hour by day, 45 minutes by night or 45 minutes in instrument flight rule. So if you're flying through clouds. And so that's a huge amount, because battery technology today gives you on the order of an hour of total endurance. So that's half your battery or more that's relegated to this reserve mission you never use. So we say, what's the hard part of doing this, boats versus planes? Sea gliders as boats and flying right over the water have this pull over on the side of the road option. Right. If the dock is occupied, if there's an issue, we land, these are boats, they'll float, we turn off the power system,

and now we can use our full battery. And that's actually even more so of a range extension than our aerodynamic efficiencies in total giving us double the usable range, the mission usable range of an electric aircraft. All right. This is super cool. And I can imagine hearing our audience being like, yeah, but when am I going to get to go in one? Absolutely. When am I going to get to go on a field trip? We're working hard here. So we're currently targeting end of 2025 as end. entry to commercial service. We have customers with firm deposits down lined up. We actually recently announced Southern Airways Express as the inaugural operator. They operate charger and commuter airlines in Florida and along the East Coast. And they also own the subsidiary

Mokulele Airlines in Hawaii. And so it's sort of up to them which market they choose as the operator. But really importantly in Hawaii, we also just formed a partnership with Pacific Current as an infrastructure provider. So we're not only building the vehicle, but we are thinking about how do we get the docks ready, what charging tech, how do we get the charge down for our batteries as well? So really addressing the whole ecosystem. So end of 2025, entry to service. We have a quarter scale prototype working now.

And then the middle step and where we're going next is actually a full scale, human operated, human flown prototype. And how does the business model work? You said you're an OEM. Are you going to, and what does that mean in the context of transportation at this level? Sure. So we build sea gliders. We sell sea gliders. We provide aftermarket maintenance services for sea gliders. And we also provide crew training. You know, we'll expect to be converting maritime captains, maybe converting airline pilots, maybe training people from zero to sea glider hero here. So those are our three primary revenue streams are, you know, vehicle sales, maintenance and training.

You better have hats that are like the top gun hats that say Seaglider Hero. I'll send one to you. You're going to need merch. And then you mentioned two craft, and one of them sounded a lot like a plane, the monarch. So we have two size. Yeah, we have two size craft. Weisseroi is our 12 passenger vehicle or 3,500 pounds of payload with entry to service by the end of 2025. That's sort of your commuter charter airline replacement, almost long range water,

taxi, all COTS components. The vision system is called Monarch. We've chosen butterfly names. They're underutilized in aerospace nominclature, we think. So Monarch is this vision system somewhere between 50 and 100 seats. And we're working with some of our early launch partners like Hawaiian Airlines that recently invested in us. Also, Mesa Airlines recently invested in us.

So we're working with operators like that to say, what's the right size of this vehicle. But sort of baseline pegging this as a 100-seat vehicle. It looks like an airplane, but again, this is this overwater only dock-to-dock wing-and-ground effect vehicle or sea glider. But this is the vision system because it replaces the bulk of regional traffic globally, or supplements fleets, at least, in the overwater sense. So your regional turboprops, regional jets, small single aisles that are flying these short routes, which is very un-economical for them to do. That's really where the monarch shines.

What is the pitch process like for this? Like, I would imagine that it's a hard sell in some ways because so much is new, even the mode of transportation. At what point do you see in your conversation, somebody go, but what if this works? Yeah. It sort of depends on the audience. I think, you know, in general, audience-specific messaging is incredibly important for any marketing and sales organizations. So we sort of try to identify, we try to understand our customers' pain points and whatever vertical they're in.

So if they're in the ferry industry, they're often Europe-based. They're getting crushed with carbon taxes. There are new modes of transportation, low-cost air carriers, tunnels and bridges being built that are cutting into their traffic. and they're in danger of getting relegated to just carrying cargo. So, here we come to them and we say, what if rather than being behind aircraft aviation, you could lead here, you could operate a vehicle with aircraft-like performance for the same cost as your existing vessels and you could crew it with your existing mariners and operate it from your existing docks and your existing routes?

And then they say, oh, we could grow, we could start doing these markets and we could go further because it's faster. To the airline groups, it's really on the cost perspective. It's, you know, you're using these airplanes that are designed for much longer range flights and you're sort of making them work in this mission that they don't love. And it's not very economical. And you have these huge maintenance costs. And so what if you could have a vehicle with half the cost and run them on the same routes?

And what if now you could start feeding your hub airports and a lot of the larger carriers are based in hubs. What if you could start feeding those hubs from 180 mile radius? And many of the largest coastal cities have coastal airports. There's noise mitigation reasons why you'd want to put an airport on the coast. So what if you could just run these sea gliders right up, dock them at the airport, and feed everyone into and out of your hub in a much easier way? And so the light starts to go off there. But we've had a lot of success by really trying to learn, understand what's driving the customer, or what their pain points are. As an aerospace nerd,

I love the fact that we're building this beautiful thing that flies in this cool way and takes advantage of these cool physics. But at the end of the day, from the business perspective, we're developing a widget that solves a customer pain point or helps grow their market. So we've had a lot of success really focusing on that messaging.

What do you consider to be your competition? Yeah, I think about how people move regionally right now. So to some extent, they're flying airplanes and there are, you know, electric aircraft that are in development. To some extent, they're taking boats and there are electric boats and there are hydrofoil boats. So to some extent, those could eat into market shares to some extent we could be as OEMs in the space selling to similar operators. But I actually think more so that this is a space where collaboration will be the name of the game as we see this proliferation of innovation. and new configurations, there's going to be a lot more sort of multimodal connectivity. And, you know, you might connect a regent sea glider to electric airplane A here and then it

might land over here and connect to some electric ferry. So I think we're going to start to see this proliferation of new ideas. And they're actually very complementary. You know, a sea glider does things an electric aircraft can't do. It's longer range. It's cheaper. Obviously, they can fly over land. You know, an electric ferry can be much bigger.

It can potentially take cost. Mars. So everyone sort of finds their own niche and we'll find the markets that work for us. How much does one of these craft cost? The 12-seater is $5.2 million, and we've been selling the 100-seater for $35 million. And then how would that, leaving aside, you know, the maintenance costs that you talked about, how does that compare to a ferry or a regional jet? Ferries are super expensive. Ferries are 50 to 250 million, depending on the size. Regional jets are interesting too because there's a big aftermarket for regional jets.

So you can pick them up for as low as maybe 10 to 20 and on up through 50 depending on configurations. So it's really sort of market dependence. It's an interior dependent to some extent. Even the business model between airlines and ferry companies are different. When we pitch sea gliders, it's much more in the airline. business model and a passenger-only movement. You're just sort of getting as high utilization as you can. Because ferries are so slow, like where you go to Europe, and by the way, the ferry market is enormous. There's four and a half billion passengers moved a year on ferries. That's as many as

in the global airline industry. So it's this massive untapped market of people moving in these really old boats that emit just horrible fuel, like way worse than aircraft. But they're so slow that you're talking like overnight voyages, you're talking six hours on the ferry to do a crossing, that they're actually more like a cruise ship model where they're selling alcohol and, you know, selling cool swag on board. And so when we compare to, again, sort of messaging, understanding the customer, when we sell to airlines, the value proposition on economic perspective is based on cost savings. When we sell to a ferry company, it's based on revenue and the fact that we can move more people faster, get higher utilizations and up the revenue.

Right. This is awesome. Is there anything that I should know about Regent that I haven't asked you? Let's see. Well, we're growing. We continue to look for amazing talent here. We have some big announcements coming up as it pertains to other ecosystem development projects. Again, where we're not just developing the vehicle technology, but we're ensuring that our

customers who are putting deposits down. are not just ready to buy them, but they're ready to take delivery and operate them. So we have some really exciting announcements coming up in some other big mainland U.S. cities, but things are going well, and we're on pace for 2025. All right. Keep us posted, Billy Talheimer, is the founder of Regent, developers of electric sea gliders for regional travel. I can't wait for my field trip. All right, and I owe you a hat, Molly.

Sea glider hero. It might be a little like, I don't know, maybe it won't fit on a hat. I'm not sure. There's a hat. There's a hat. All right. We'll work on the whole summer catalog here. All right.

Love it. Love it. All right. Thanks everybody for watching and hanging with us on a Sunday. We have another amazing week of content coming up starting tomorrow. Yes. And I'm going to do a co-lab on the interwebs with my pal downtown Josh Brown. We're going to do some sort of Q&A this week.

He's the cool cat from, you know, CNBC. really outspoken New York guy so that should be fun and we're going to look to do some more of those collabs with interesting YouTube channels that are, you know, talking about tech and markets.

It's going to be a great week so we'll see you all tomorrow. Bright and early 10 a.m. YouTube.com says this weekend. Hit the subscribe button, then hit the bell. You get the notification and you can watch it live or you can just watch it on your podcast player later that day.

10 a.m. Pacific time, of course. 1 p.m. Eastern. 1 p.m. Eastern. Yeah. All right. Okay, bye. Okay, bye.