This Week in Startups - Y Combinator's New Deal, Turo S-1 + Deep Sentinel CEO Dave Selinger: Human-in-the-loop security cameras | E1358

Episode Date: January 11, 2022

First Jason and Molly discuss YC's new $500K deal for startups and what that means for founders and early stage investors (1:53). They also dig into car-sharing app Turo's S-1 (25:32). Then Redfin Co-founder and current Deep Sentinel CEO Dave Selinger joins to discuss how his company blends human monitors and AI-enabled cameras to deliver an unmatched security camera experience (38:25). (00:00) Jason & Molly intro the show (01:53) Y Combinator's new $500K deal (09:41) Eight Sleep - Go to https://eightsleep.com/twist to check out the Pod Pro Cover and get $150 off at checkout! (11:14) Early-stage startup investing strategy (19:46) How does YC's move impact the startup landscape (22:57) Is an IPO an Exit? (24:15) Vanta - Get get $1,000 off automating your SOC 2 at https://vanta.com/twist (25:32) Turo S-1 breakdown (36:56) Ourcrowd - Check out the deal of the week at https://ourcrowd.com/twist (38:25) Interview - Deep Sentinel Founder & CEO Dave Selinger (44:52) Deep Sentinel in action (54:24) The power of finding your ideal customer (1:01:33) Potential new features and Deep Sentinel product roadmap (1:07:53) Jason's Deep Sentinel experience (1:15:33) Deep Sentinel semi-supervised learning inspired by Tesla Check out Deep Sentinel: https://www.deepsentinel.com FOLLOW Dave: https://twitter.com/daveselinger FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Hey, everybody. We got a great show for you today. First up, the news. YC is now going to invest 125 and 375 for a total of $500,000 in startups and Molly and I break down why they're doing it. And by breakdown, we mean I ask a lot of really basic questions on your behalf. And then we understand much more about this move and what it means for the industry at large. We also break down Turo's S1. Remember Turo? It does still exist. And it's Airbnb for cars and it's going public. try to figure out a fair price for them to go public at and what they look like in 10 years. What are the headwinds?

They seem to be many. And finally, I interview Dave Salinger, who is the CEO of Deep Sentinel, which is 24-hour live security camera plus live security guards who interact with people coming to your home or your business. And it has had tremendous results in terms of safety and joy provided to the people by the product. And I've placed a bet on it. So it's one of our portfolio companies. You're going to love the interview.

Stick with us. This week in startups is brought to you by 8Sleep. Good Sleep is the ultimate game changer. Now you can add the Pod Pro cover to any mattress. Go to 8Sleep.com slash twist to check out the pod pro cover and get $150 off at checkout. Vantor. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC2 report.

fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist and Our Crowd. Our Crowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing, you can join Our Crowd for free at OUR-C-O-W-D.com slash twist. Big news in Startup Land. Yeah, I'm so excited about this. This is actually going to be simultaneously conversation and also a little bit of baby VC school. Y Combinator on Monday, and shout out to the Nodigang, who was alerting us to this during our taping on Monday, Y Combinator announced they will now invest $500,000 in startups. This is an increase.

And it has caused a little bit of friction with seed investors. Let's break down the terms. And then we're going to have Jason explain what this means. So YC will still invest its standard $125,000 for 7% ownership and an additional $375,000 on an uncapped safe with an MFN. I'm going to pause now for what is that with Jason Calcanus. So MFN means most favored nation. What it means is when you invest in a company, nobody in that round, that round, not future rounds, not previous rounds, just in that round, can get a better deal than you. And if they do, you get the same terms as them. It's a standard clause in a venture

document. In practice, what it means is I can give you two examples where it can be an edge case. But normally it's not an edge case. So if, as an example, we invested in a company, a friend of mine was investing in a company. And I think I told the story in my book. And he found a found out when he went to the first board meeting that there was somebody in the cap table who had like two points of the company as an advisor. And he's like, you know, looking through the cap table. He said, can you explain this to me? I said, yeah, that was this venture capital firm. And he's like, oh, they did the same round as us.

I'm on the board. They're not even on the board. Why did they get 2% of the company? They said, oh, they wouldn't invest at that valuation. So I said, what valuation do you want to invest that? It was a lower valuation. And so he gave them that extra two points. And he said, well, you know, there's MFFM and the MFN in the contract.

And the person who was running the company said to my friend, yeah, well, they wouldn't have done the deal either. He said, well, you know, you have to then at least give me the same deal as them because you have MFN. And she, it happened to be a female founder, said, what are you going to do, sue a female founder? And this was 10 years ago. This is 10 years ago. So there weren't that many female founders. So I had, what had happened was I had met with the person. I was thinking of investing and my friend,

and I did my diligence. And my friend told me the story and I was like, oh, that's a bit of a red flag, isn't it? And I wasn't going to invest. Actually, I wasn't crazy about the business. So I had already made the decision not to. But I was just doing my diligence and I heard that story and I was like, wow, that's really weird. And my friend did not wind up suing them.

He just bit the bullet on it because she was right. What are you going to do? Sue a female founder 10 years ago was a really gnarly situation. You know, business is hardcore. Uh, welcome to, uh, you're like, when you see these crazy things happens on, on billions or on, you're like, an HBO show and you're like, yeah, that's unrealistic. I mean, I can tell you, I read the. It seriously, it took me all of like last week because I read that Venture Deals book and I was like,

oh, okay, there are times when something like this might be happening and it might just be the lawyer being a jerk or there, there are like fights about this or a company that won't do this. And then I went to our check in meeting and like, yeah, much of That was already happening. And I was like, oh, my God, this is awesome. Welcome to the room where it happens, Molly. I love it. So it's a little crazy.

MFN, once it goes into a contract is effectively, or could be binding. It is effectively a binding type status. It's binding, for sure. It's legally binding. But what you find in startup land is it never goes to lawyers except in like really edge cases with a lot at stake at the end of a relationship, i.e. In Uber, Bill Gurley, or benchmark, I should say, famous. sued the Uber or maybe Travis even and it was like a very gnarly situation.

That's like very notable because it happens so rarely. So I'll give two more examples of MFFN in a minute, but let's go through the rest of this offering. Essentially, this means that no other investor can get better terms than YC. That's what you just said about most favored nation status. But seed funds seem to be having a little fit about this. Now, let's put things in perspective first. Airbnb's Brian Chesky tweeted when we did Wycombinator, you got $20,000. Now you get $500,000.

Aaron Levy points out, these two, by the way, Mutt and Jeff here, my new favorite Twitter show, loving them. And servers used to cost 100 times more to which Brian Chesky responds. Now I feel like my grandpa when I was your age. We only got $20,000. They are like Stattler and Waldorf. and Waldorf. They've become the new Statler and Waldorf. Totally are.

Well done, Brian and Aaron. I just want to create a special filter for like, what do Brian and Aaron have to say about this? No, it's just the two old guys. Because they do have a little bit of gray hair now, and they both were kids. And they come from a time when you only got $20,000 in seed investment. It's true.

Okay, so first of all, I would say, why is White Combinator doing this? This is an ownership play? Yeah, ownership matters. Percentage ownership matters. So in the case of Airbnb, my understanding was Ycombinate had chance to maybe sell some shares early

of Ycombinator of Airbnb and I think they took advantage of that. I don't have confirmation of that. That was one of these backroom discussions. But assume they started with 7%. They got diluted down to three and a half. Let's say they sold one and a half. They maybe had one and a half, two percent of the company

by the time it went public, maybe even a little less because dilution happens, right? And if they sold, they maybe got diluted a little bit more. And they took some money the table. So that means if it became worth $100 billion, maybe they got $2 billion from it. Pretty good deal for a $20K investment, obviously. But when I went out to raise my first and second fund, and I did meet with some of the big folks, they were like, you know, ownership percentage

is, you know, what we really care about in winners. And they want to see 10, 15% ownership. So when I did our launch accelerator years ago, maybe six years ago, I looked at what Wycombinator was offering and I said, hey, we'll offer to put 25K in your company for 5% when you come, which is my original deal, 25% when you graduate at the market rate like they're doing, because it's safe that they're doing. They still have their standard 125K for 7%. That implies a $1.6 million valuation, which is incredibly low, as we talked about on Sunday show.

Now, you're getting this 12-week program. So other VCs who are putting money in don't provide the 12-week program. So the difference, you know, if maybe that was a $6 million valuation, they're getting those other shares for providing the program, for putting their name on the company, and for introducing you to investors. And it's well worth it, in my opinion, for a first-time founder. If you're a second or third-time founder and you've had success, it's obviously not worth it because you can raise or you could fund it yourself. First-time founders, why combinator tech stars, launch, accelerator, it's a gift. It's a major gift as an onboarding to kind of get you into the, into the, the world's really fast. It gets you into the rooms where things happen. The 375 is on an uncapped note, which means it'll, if you do a $10 million round, they'll own 3.75%. If you do a 20, they're going to own 2.

whatever, you know, approximately 2%. If you do $100 million round, which has happened recently, they're going to own nothing, you know, basis points. So in an average $15 million round, this means another two or three points for them. It brings up to 10 points. Okay. Good sleep is the ultimate game changer. We all know that.

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you know, being Harvard, which is kind of how they're perceived, they're always going to get people into the program. However, if you notice, they have a lot of international and I have seen a lot of people in the U.S. do not feel the need to go to accelerators as much in a hot market because they might be able to raise from friends and family or they might be able to raise from angels. And I think that's probably the existential risk for Y Combinator is that founders have now figured out how to get 125K, right? It's not that hard from friends and family to get it anymore or to go on Twitter. Or you can do with a token, right? So there is actually pressure from crypto as well.

So I would say, yes, if the deal itself is not white people go. They go because they want to be a YC company or a launch accelerator company, you know, get closer to me, get closer to Paul Graham, get closer to tech stars, the David's over there. So that's really what's happening is they just want to sweeten the pop to be more competitive on the margins, but the really number one reason is to get more ownership in these companies because they do find them, they do nurture them, and then a seed fund comes along and buys 10%. And now YC owns seven. And so that does seem unfair. So you do have some people cry, a little bit, maybe not crying, but I would say crying foul more than crying.

Crying foul is well saying. Yeah. Complaining, let's say. I mean, because it does seem like what they're saying, what is, is now this makes YC a seed fund and not an accelerator? Yeah. And they also keep their pro rata now. And so it used to be the VCs had all the power because they could write the $3 million check. And the accelerators would basically be like, please somebody anoint this company.

And that was the dynamic. And that was the dynamic that made it worth it because it was hard to get a VC check. It was hard to get that $3 million. So the accelerator in this dance gave a massive advantage to the companies who came to it to get that $3 million check, whether you're called Seed or Series A or whatever it is to get a legit investor involved. Now there's so many more investors. There's so many more startups. There's so many more funding options, you know, equity crowdfunding, tokens, friends and family.

There's just a lot more people interested in the syndicates. So that's what's happening. happening here. And for if you're a company, it's a great deal. Full stop because they didn't put a number on it. And you can go to market with 375 of your million dollars, 37% already accounted for. And once you have over 50, 60% of your round full, man, does it close quickly? Because people start to realize the train is leaving the station. Interesting. So do you think, so will startups, you have a note here that says you think a fair number of startups could take the $500,000 and not raise beyond that?

Sometimes if a company is going well, what they might do is take the $500 in total and say, I'm going to work for the year. I'm burning $20K a month. I'm making $10K a month. I can last a year on this money. So therefore, let me get to, you know, I don't know, $30K a month in revenue for my $10K. And I'll just raise them when I have a higher evaluation. So this could take some companies off the market.

In addition to this, and Y Combinator will deny this, but Y Combinator partners, Y Combinator, alumni, friends of Y Combinator pick off the top 10% of graduates before they go to Demo Day. So when you watch Demo Day as a seed fund in the audience, it's like playing poker at a game where like, I don't know, the people who run the game took the Aces and the Kings, put them in their pockets, and you get the 10 Jackson Queens as your best cards. It's possible to win, but it's going to be much harder.

Interesting. So certainly this makes YC already attractive because it's considered the Harvard of accelerators. Presumably, this makes them even more so. And yet some seed investors are not happy about it. Yeah. So I think they're just pointing out that there may not be enough room for them in the round. So there's a certain amount, there's a certain percentage on the cap table that can go to investors. And now we're seeing not just 7% of it go to YC, but, you know, 10% of it. to 15. What that means is who was getting the numbers between seven and 15. It was friends and family typically. It would be seed funds, power angels, uh, you know, people putting in a hundred k check, a 250k check. And so, yeah, they, they are knocking one or two of those, if there were three or four of them in a round out. And VCs now are so aggressive that sometimes they want to take the whole round. So, they'll give a term sheet that says, you know, I'll give you this, but I want the whole round. So yeah, it does squeeze people out. It's a competitive marketplace as it should be.

And when I started our program, I did something very similar. So in fact, in a way, YC is copying what I did six years ago. I said, we'll give you 25K now, 25K when you graduate at whatever valuation you can get, and then I'll put you out to my new syndicate, which will raise 125 to, you know, 350K, depending on how good you are. And a lot of companies actually did that. So, and people picked us because of that. Now, it caused some problems because it was at our option to syndicate the company.

And then some companies, you know, they didn't show up for the program. They were like, well, I automatically get that buddy. And I said, I don't want it to be automatic. And so I refined it because the syndicate has to want to give you the money. And so although we were clear with that, people felt like, you know, some people like, don't read the terms. You tell them the terms. All the people. And they're like, well, you told me I was going to get more.

And I was like, yeah, I said you could syndicate and that the syndicate would determine how much they put in. This is our estimate of what it would put in. And so then what we did was we said, hey, we will co-lead your round coming out of the syndicate at our option. But we want to see you get half your round done because what I thought was bad hygiene, and I think it's bad hygiene here, is you want to teach founders to fish. You don't want to give them fish or too much fish. And so I said to folks, hey, listen, get a lead, get the term set. You don't want us setting the terms, because that's the issue. What terms does this go out?

They chose to do it at whatever another person puts it at. What if they never raised? And then you've got the safe sitting out there forever. That creates problems. And what if they can only raise at a very low valuation, then this takes up a lot of the rounds. And that can cause a screwed up dynamic. So if they can only raise that $4 million and YC is getting 10%. Well, the other investors got to get 10 or 15 or 20 percent.

So now the cap table is really getting watered down at a young age for the company. So that's a little bit of a trap there. that's an edge case because maybe that company is damaged if it can't raise above a $4 million valuation in this kind of market. But, you know, we started in our accelerator, which is only seven companies. That was our defining principles. We wanted to do just a smaller number of companies. I would say five out of the seven wind up syndicating and we wind up building not,

we wind up building past a 10% position in some cases to 15 to 20. And founders love that because you want to have less people on the cap table in those early stages and you want efficiency and raising money. Efficiency and raising money is what it's all about in the early stages and momentum. So this gives you more efficiency, more momentum. If anybody's complaining about it, here's an idea, start a competing product. Oh, wait, it's a ton of work to do an accelerator. Right.

And people don't want to work that hard. That's the issue here is people are jealous of the terms why combinator tech stars launch accelerator other accelerators get, but they're also not willing to give 16 weeks of their lives, as you see Ashley and myself, Prash and our team do. to these companies. It's a lot of work. It's a lot of work. I like doing that work because I like to build a deep relationship with the companies.

So that's what's going on here. It's a good move by YC. They have the ability to raise more money. Now they get 10% on average ownership. And then if they can maintain that, then when something like the next Airbnb comes along, instead of at the end of the day, them owning 2%,

they might actually be able to maintain the 10% or certainly above 5%, which would be more meaningful. And that's the pitch they gave to their LPs when they raise the extra money to do this. because now if they're doing 1,000 companies a year, a thousand times 125 is 125 million. Now if they're doing a thousand companies,

okay, they need 500 million a year. That's a lot of money, but in today's world, there's a lot of money sloshing around. There is a lot of money sloshing around. Okay. And then finally, there's this complaint that as YC becomes more and more and more dominant,

right? It can offer these terms in an accelerator that is somewhat irresistible. Claire Diaz Ortiz, an angel investor, was tweeting, this could potentially disproportionately negatively affect emerging market founders in their startups, primarily because Y Combinator, which has invested in amazing companies, will then become, you know, the only investor on some of these companies, cap table, and they have a tendency to fund,

you know, Silicon Valley companies with homogenous founders. What are your thoughts on that? Yeah, that's kind of silly. People are not investing in the emerging market. The fact that YC is there is a huge net positive for those founders in those emerging markets. If you go to Africa, if you go to South America, Latin America,

you know, emerging markets, there's not a lot of investors. The fact that YC is so aggressively going to India and Africa and... Right. I mean, part of what she's saying is that's great that they're there, but if they are giving this much money,

then Y Combinator will be the only company on the cap table, meaning that some of these companies in emerging markets could end up having no local funds on their cap table. It seems like this is extrapolating. no local funds there is the problem.

And if there are local funds, they're putting small amounts of money and they don't have competition. This is crazy. This is absolutely incorrect. YC entering that market creates more competition. Now the local people have to compete with YC, put more money in, create their own accelerators, and to look at Y Combinators maybe, and Silicon Valley's candidly, dismal stats at the end there as like the cherry on top, it just shows that the argument is not a strong argument.

Because you're trying to come up with, this is what I always find when people are losing an argument. They'll add something from the past that's already kind of been resolved or has been changing. Like YC has pretty good diversity stats compared to where they were and they started and the Valley started actually. Yeah. And their international stats are tremendous. So like people never want to give YC credit because they're so successful.

But man, I give them a lot of credit for giving more money to founders at WIC. whatever terms, the best terms they can get. And you got to give them a lot of credit for going international and, you know, believing in those markets because that's not a sure deal, you know. It's definitely not. I mean, that's one of the things we talked about with Danny Kennedy on Sunday's sustainability slash this weekend climate startups segment, which was a lot of investors find it very difficult to invest in emerging markets and other countries.

And the growth is there and totally worth it. And so here's why Combinator saying, we're going to put this money, we're going to make that bet. Yeah. And, you know, the point that in emerging markets, they raise at lower valuations. Okay. So now if they raise that $4 million, in that example, why commoner earns 15%.

Most of the time, investors own 50%. So this argument, you know, old to respect to the person, Claire, who is making it, is just, yeah, inaccurate. So it's an intellectually dishonest argument or a poorly constructed one. Let's keep talking about startups. Now let's move on to a possible exit via IPO at least. Do you consider an IPO to be an exit? This is a lot of baby VC here, but it seems that there is debate about this question.

I mean, it's a form of exit. It is the greatest exit possible for. I thought so too. Yes, it's 100% because here's what happens. When you get those shares, you either hold them for a little bit of time like Sequo is doing with their new vehicle. Or you distribute. So when we invest in a company, whether it's Uber or Robin Hood and it goes public, we give those shares to our LPs. Now, they have those public equities and they get to make a decision.

Do I hold them? Do I sell them? Do I believe in Uber and Robin Hood for the long term or do I want to cash in my chips now? It is the ultimate and the pen ultimate is selling to a big company and getting stock in theirs, their company or cash or some combination, depending on what you believe in. So if the company gets bought by Google and you get Google shares and it's 15 years ago or, you know, you'd be pretty stoked about that too. And that's why sometimes they'll offer you cash. You know, like, if you want to buy our shares, we'll give you cash and then you can go buy them. But you'd rather not take the tax event and just get shares.

So that's typically what sophisticated investors will fight for in an M&A situation. Love it. Love it. Okay. Sock two compliance is critically important. Why? If you don't have SOC2 tight, you can't close major customers. It's really that simple.

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to get that thousand dollars off. All right, well, looking for a big exit right now is Turro. Peer-to-peer car sharing startup, Turro filed. That still exists? Oh, they're going public. They filed an S-1, and they would like to raise $100 million in their IPO. It feels to me like you might have some thoughts.

Why did you think it didn't exist anymore? You just hadn't heard that much about it? I was wondering if the peer to, I guess people still need cars for weekend trips and stuff like that. I thought ride sharing had really damaged these businesses. Right. I was wondering about, what was the zip car?

Yeah. Zip car was the other one. But during a pandemic, you don't want the driver, right? So maybe that is counter. I suspect that that may have been a little bit of a bump for them because people wanted a private car. And also, you couldn't get a rental car, right? So Turo probably did have a pretty good two years.

I know that I was traveling at one point for work and was looking at Turo and then ended up leasing a Tesla instead. Right. Well, I mean, when people travel, they usually take ride sharing because going to the rental car place is arduous and they have to deal with the car, your whole trip, pay for parking at your hotel. It just doesn't add up. But I guess if you're going on a vacation and you get your family with you, you rent a car.

And this is a way to do that at a more affordable price. And potentially a cooler car. All right. So here, let's talk about their revenue. You can tell us if you think this $100 million raise in the IPO. makes any sense. 2019 revenue, $141 million,

which surprised me. That seems like a lot of money. 2020 revenue, $149 million up about 6% year over year, and then 2021 on pace for $412 million in revenue, which would seem to suggest the pandemic has, in fact, been great for Toronto,

almost 2.8x year over year, almost tripling revenue. However, they are not profitable. Net losses over time, $98 million in 20, 2019, $97 million in 2020, and $160 million despite tripling their revenue in 2020. So that's what they lost each of those years.

Yeah. So they're losing money. So to get that growth, they had to lose $160 million. Yeah. But they lost $97 million in the year of the pandemic. That much compared to like Uber. Yeah. I mean, if you're building a base of supply, I don't know when this company was founded, 2011, I think.

No, it was before that, 2009. Wow. Yeah. So that's a red flag for me is how long it's taken them to get here. But you do see that somebody in the investment group said, hey, if we want this, what are we doing here with this business? We're growing slowly. We don't have the 2016, 17, 18 revenue, but apparently this was a slow growth business. And somebody said, hey, listen, we need to either sell this business or we need to go for it. We need to put some money into this and show that we can double triple revenue every year. Because this is on a small base of revenue compared to large, companies. Other unique risk factors. So you're thinking they're going public to just sort of like try to raise some capital and get out a little bit. Well, typically if the company has been around for over 10 years, the early investors,

which includes Google Ventures and August Capital, they're going to want to get a return because those funds are getting old. So I don't know exactly when those people invested, but let's say it was 10 years ago. Yeah. They're kind of like, hey, listen, either sell the company and let us get out, buy our shares from us, find a private equity firm, you know, we got to do something here. Venture capital is impatient capital is a way to think about it. And so if you really want to make a lot, create a lot of value in a short amount of time, you take venture capital. If you don't,

you can grow off of your earnings and you can bootstrap. And that is the patient capital in the world. Is, so interestingly, IAC, the match and Tinder company is Turro's largest shareholder, Google Ventures and entities associated with August capital each own over 5%. So that would lend some credence to the idea that somebody wants their money back. But is this a company that should be dumped on retail investors? So it's always a matter of price. So if we look at the IPO price, is it going to trade for two, three times revenue? Uber is being considered a buy by a lot of people because it's trading at three times their sales.

And that's why all the price targets are at 70 and 80 bucks right now. I had to talk my own book, but it went public at 45 and his training at 4,3 or 44 today. In other words, I've still been in the stock for two years flat, right? Like, had no appreciation. And the market appreciated it a lot during that time. So sometimes things are overvalued, then they become undervalued. So it really just depends on value. If they were at three times revenue and you saw a path to them to continue doubling revenue,

and maybe, you know, is it going to be at a $1 billion dollar valuation, $2 billion valuation, then maybe there's an opportunity here. I would look at, again, the 10-year lens. In 10 years, what will this business look like? So what are things that could be headwinds against this business, Molly, in 10 years? Well, I mean, one thing that seems to be headwinds now, I would say, depending on technology, there are a couple of different technology things that could make this problematic, not least of which is autonomous cars.

Correct. Like, that's what comes to mind immediately if those cars ever hit the road. or even if there is some, you know, look, we did just pass a huge infrastructure bill. Let's say that public transit gets good, is better, is available, is electric. Like public transit actually, especially with a huge amount of investment behind it, set to mature in 10 years, massive problem for Turo. And then its immediate problems are, for example, Turo noted in its S1 that they could face liability for the criminal activities of drivers, which include, among other things,

potentially P2P car sharing services being used for human trafficking. And around Oakland, I don't know what's happening where you are, but around Oakland, those get around cars. So if you see one of those sort of making circles in a neighborhood, it's a breaking. And they also get used for, what's that thing they do, where everybody gets around in a circle and an intersection and they spin them around in Oakland? Side shows. Side shows.

You wouldn't take a get, I mean, you might take a tour of car to a side show if it's nice enough. That's true. Yeah. Yeah, I think that's why. You're not drifting one of those little get-arounds. That's just not. I follow one of those, I follow an Instagram account of these sideshows. And I'm just amazed that, like, people getting hit in the audience and what they're doing in cars.

And sometimes they will have cars like a Subaru or something will come out of nowhere. And from what I understand, they steal the tires from other people's cars and then go melt them. And then they go put their tires back on their cars. Yeah. It's pretty deranged. And very dangerous. I wish they would create a space. I mean, I would love to see a side show.

Like, I mean, I did do that at a racetrack and charge tickets. But yeah, like charge tickets, do it in a racetrack. I mean, just to the people who are doing this as a criminal activity, here is a really great idea for you. Stop being criminals and start being entrepreneurs. Take that to, take it to a, like, literally, I looked at that and I was like, oh my God, I can make that into UFC. Like, literally, I can make that into a UFC.

the next UFC. There's tons of places, arenas, or you could just rent a parking lot from somebody, put up a grandstand, and you just start naming these cars, making brands.

They get scored like ballerinas do or ice skaters do. Boom. Yeah. It's like the Pass and the Furious. I completely agree. Couldn't agree more. So anyway,

I would say that ride sharing and rental car companies, there's so many people who are heading, wins against this business, I wouldn't want to hold it for 10 years. I don't think that their position gets better in 10 years. I do think they'll have an okay business for the next five, but then I think the headwinds start to come in. So I look for businesses that I think in 10 years can be stronger because of the trends. And if it's Uber and they have ownership in self-driving

and they have hundreds of millions of customers in their database and self-driving companies don't want to run an Uber. I mean, Elon said he wants to run one. I'm a guy, cab service, but the other self-driving car companies want to sell them into fleets. They don't want to run them. So Uber will have, and Lyft will have 10 people to buy self-driving cars from. And my personal theory on this is five self-driving companies are all going to get there, and regulations are all going to get there in 10 years, you know, when the drivers can come out in edge cases in major cities.

Right. And that's when I think it has its major impact. I think you'll have minor examples of it. I'm only laughing because it's been 10 years for 10 years, but I completely agree. I mean, yeah, we've had this discussion. Yeah. Yep. We've got a real good startup Tuesday going. Should we move on to your interview? Ah, yes. So this is going to be a great interview. I obviously care a little bit about safety. As I maybe follow me on Twitter. I talk about it a lot coming from family with cops in it and law and order and haven't grown up in New York in the 70s and 80s. And I became obsessed with something

David Sacks had showed me, which was a company called Deep Sentinel. And it was a bit of a struggle for the company because they were making their own hardware cameras in the face of Ness, which was formerly a drop can and ring. So hard, right? Hardware is hard. I stay away from hardware. They did something amazing. Maybe purpose belt hardware where if somebody gets into your camera, it's a two-way speaker.

It has an alarm on it. And they say, hello, how can I help you? And let's say this is your home or your office. And this live guard gets triggered. But if they see it's you and they're like, oh, they just, they don't say anything. So they created this two-way 24-hour guards and knowing people, businesses and private individuals who have security guards on their property or people at the front desk, we all know the security guards are not perfect, right?

They'll play bejeweled, they'll fall asleep. They go to the bathroom. They, you know, get distracted. Well, here you have 24 hours videos coming in to a bank. of work from home or in Manila, guards, those guards then interact with folks. When people come to do something bad, like they did at David's office, they were breaking in.

The person was like, what are you doing here? It's two o'clock in the morning. We're calling the police, please exit, the police are on their way, the police are a minute out, person ran. So I was like, ah, I really love this company, but they were charging so little for their service. I was like, this can't work as a business. So I got to know the founder.

And then I said, you know, let me know if you figure this out. I'm really interested, and I have it at my office, and it works brilliantly. And he texted me and said, hey, can I get on the phone with you? I think I figured it out. And he raised the prices. He figured out who is ideal customer. And we put a little bit of money into it. And so I had him on the program to talk about their great progress.

To me, it's hardware as a service is the theme for startups. I take the cost of the hardware, spread it out over a $200 a month subscription for 24-hour guard service. Which otherwise, I think you said, is $150,000 a year. I mean, the price difference is pretty remarkable. Yeah, you just take the number of hours in a year times it by 40 bucks, 50 bucks, because that's what you pay all in for a guard. The guard probably gets paid 20, 25, and you have all the other services you have to put on top of it, like the company that provides it and trains the guards. So it's a great bit. It's turned into a great business.

It was a little bit of a struggle to get there, and we talk about that. Deep Sentinel is the name of the business. The CEO is Dave Seller, and it is indeed a super interesting conversation. It's time for another R Crowd Deal of the Week. Right now you. Yes, you can join. our crowd's investment in Blue Tree. According to the deal memo, Blue Tree has developed a process to significantly reduce the sugar in any natural liquid. This lowers health risks while

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investors, and this week in startups in the world. Hey, everybody. Next up on the program is Dave Sellinger, and he is the CEO and founder of a company called Deep Sentinel, which I was lucky enough to invest in. This is a company that when I saw it, I said, why didn't this exist before? I have been obsessed with security cameras since drop cams came out and ring doorbells like many of you. But I always said to myself, gosh, you know, this is great for me to have a video of somebody robbing my house or my office. but this is not going to be helpful in deterring in, you know, some crime, intense crime environments, like I say San Francisco. And so a friend of mine, David Sacks, a bestie, in fact, had put in his office something called Deep Sentinel. And he sent me a video one day. And he said, wow, Jake, I'll check it out.

Somebody's breaking into my office. And Deep Sentinel, talk to them. And what Dave created is 24 hour a day, seven day a week monitor. on a two-way video camera. That also has a blaring alarm. It's not as cheap as a drop cam or a nests cam or a ring doorbell, but it's nowhere near the cost of having a security guard on your property, but it kind of gives you most of the value.

I would say 98% of the value because your security guard is not going to jump in front of a bullet for you. They're going to call the police. So, welcome to the program, Dave. I think I described the company accurately. Am I correct? Jason, you nailed it. I would put one tiny caveat on it, which is that, yes, our guards cannot jump in front of a bullet for you,

but they also do not fall asleep, plan their iPhones, pick their noses, or turn around away from their cameras. And so your friend David Sachs is actually a great example. And he's also very security-minded, but very conscious that, you know, the security guards that they work with at their business, you know, they go to the bathroom and, play on the iPhones for an hour between 1 a.m. and 2 a.m. And it turns out that's a great opportunity for somebody to break in. And so I would say that on balance, our guards are probably only maybe 150% as effective as a live guard while being a ton cheaper. Okay. So these are designed for business. So we have a business offering and we have a residential offering. What you said is exactly right. Like our mantra and our mission, as a mission-driven organization, we believe

that everyone deserves to feel safe. That's kind of the active word that we think about. And that applies to psychology, that applies to politics. It applies to so much stuff. I mean, you mentioned San Francisco. Like, think about how much this sense of lack of safety in San Francisco has created massive schisms. It creates schisms inside of families. It creates schisms in front of between neighbors.

It's a horrible thing. And they're not coming to the city to do corporate events anymore or tourism. It's destroying the city. That's exactly right. Collapsing because of it. So what does it cost to install the cameras? If I remember correctly, they come in pairs or in a triplet. It's a triplets as the starting pack.

So we customize it, especially for businesses. We have installers all throughout the country. And they'll do a site walk. So for, let's say, a warehouse, we're going to have a different layout than we will for a car lot that's getting hit once a week. We have customers, Jason. I mean, again, like, you're not going to be surprised because you get security that they're literally having a minor to, you know, somewhat major security event once or twice a night.

Like a trespass slash vandalism. There's so much homelessness. Some of the vandalism is minor, but it still means you as the property owner have to deal with it. And so we'll customize it to that. Our average installs probably like five cameras. Our wireless starter pack has three. What does that cost with the service for the year? Yeah.

So our pricing is a little bit in flux right now, but just kind of, if you think about a ballpark, right? So a residential home with three cameras is going to be about $800 for the startup and about $200 a month. Got it. So for $200 a month, most people pay for their online security, like if they have alarm.com or whatever ADT, because we're always $50 to $300 a month, I think. $50 is really kind of the starting point. And a lot of the larger homes are like $50 to $300. So that's exactly right.

So now, if you have this, the way it works is the camera is meant to look a little intimidating. It's black. It's got a big, powerful red light and a blaring siren. It's got a two-way speaker. Somebody walks up to it. What happens? Yeah. So you nailed part of it, which is that we don't think of our cameras as recording devices, really?

You go to Best Buy and you get a beautiful nest and like, okay, sweet. you have this beautiful device that's going to record somebody stealing your stuff. Awesome. We think about the world completely differently. Our entire mission is to prevent. So what our cameras do is as soon as somebody enters the property, they trigger just like any other type of camera. But that's really where the similarity stop. Our system has an artificial intelligence hub.

It's a small device. It's on property. Again, scaled to however many cameras you have. And within about 250 milliseconds of that camera starting, it's running every single frame analyzing to see if there's something abnormal happening. The second it identifies something weird happening, it brings a guard on. We have guard staff 24-7 all around the world, making sure that every single property is protected every time. And so within 15 seconds on average, if somebody is starting to prepare for a crime, they're being talked to. Hi, this is Deep Sentinel Security.

Now, if they're obviously breaking in, like what happened at Mr. Sachs' office, I need you to leave right now. I see you. You are trying to break into the front door of this office. I need you to leave right now. I'm going to be calling the police. Get off the property. So you're having the guard describe what's happening, which then scares the bejesus out of the criminals. Because they look at these cameras and think, I've got a hood on, I've got a mask on. Nobody can identify me. They're not going to call the police. Nobody's even looking at this camera. But then somebody starts talking to him. The red light goes on, oh God, it's a different experience. And you have a video queued up here. I think it's just great for us to throw to a video here and then continue

our discussion. For sure. Yeah, yeah. And if you could sports cast this video, but it's a video here, I guess, of somebody's porch. Yeah, so for anybody who's not watching this live, we've got a guy with a white male about six foot tall. I've been notified by the homeowner that you're not supposed to be here. He's not wearing a shirt covered in tattoos. We, we contacted him immediately. The, the guard called the resident. The resident said, I know this person. He needs to be gone. We called. We called the police, the police responded in one minute and 45 seconds. They had him in handcuffs in two minutes and 12 seconds. The video here is ending with an officer walking to the door. That is exactly three minutes and 35 seconds from the first interaction with this person. It encapsulates everything about what we do. You have the quick intervention, right, where we address the person, I need you to leave. But then we didn't even talk about this. Like police, right? Yeah. Police are overwhelmed. They're certainly a political topic. Let's not get into that. But they are overwhelmed, right? They're getting they're getting hammered on in every single possible way. And one of the biggest culprits of hammering police is, I don't know if you know this or not, is ADT. ADT calls police departments all across the country every day and tells them there's an open door in someone's house. There was a bush that just waved in front of a motion detector. So please send three officers out, put them.

in harms away. And then they give you a $200 bill. They give you a $200 bill. Or they don't respond, right? Right. Because they've got too many calls coming in. So what you just said about what we do to the criminal, we describe what they're doing. We describe them back to them. We make it personal. We do the same thing for the police. I don't call and say I have an open door. I called the police. In instance, I said, I have a white male covered with tattoos. I have an armed homeowner. Not wearing a shirt, which is a big of a towel. The homeowner is inside the house and scared for his life right now. That gives police departments everything they need to know to assess. what is the risk of the situation? What's the information I'm going to give to my officers? Make sure that, by the way, another thing. What percentage of calls are false alarms? Like when ADT gets calls to police?

98% of calls from ADT are false alarms. 98. Because ADT is not looking at the camera, whatever. That's right. And so that's why police don't respond. $2,400 a year in service, plus whatever you pay for the cameras, which is de minimis, you can have this kind of service. The equivalent of having a 24-hour shift at your house, or even if you just did it at night,

say because you're home during the day. 12 hours, security guards cost $30 an hour, I think. 40 bucks an hour, something in that range. Yep. You would be talking about, gosh, in whatever, if you just did 10 hours, we 300 hours, yeah, in the first month it would cost that amount. Easy. It's way more.

It's way more. In a week you'd have occurred that cost. Yeah. A 24-7 guarding really starts at about $150,000 a year. Right, because you have three shifts, yeah. That's the starting point. And that's, again, that's for somebody who is still going to take bathroom breaks. You have one person.

She have a single point of failure. That one person is also only looking at one part of your property. Now, what do they do when UPS comes or I have guests coming? And I forgot I'm taking a shower. I got a guest coming. They came half an hour early and I didn't hear the doorbell ring. I'm in the shower. What happens then?

Do they call the police scare the bejesus out of my dinner guests? Well, Jason, this is an uncomfortable admission on my part. So when I launched the company about three years ago, I only trained the guards to say one thing. And that was, hey, you, get the F off my law. That's literally the line that we had in their training. We had them repeat it over and over again to make sure they got the intonation right. They were like aggressive enough. And then we found out, holy crap, of all of our customers, 90% of our interventions turn out to be the cousin, you know, the nephews running up to the window and looking to the window and looking suspicious.

Yeah. And so what we did is we started actually having problems because our guards wouldn't interview. enough, they'd get scared, like, I don't want to intervene because maybe I'm going to piss off a neighbor. And so what we did is we introduced a protocol called the hello. And it's just, if we're not 100% sure that there's a crime going on, it's suspicious, but it's not necessarily a crime yet, is we'll say, hello, this is deep sentinel security. Can I help you with something? Great. And it's just, it, to your point about if there's a criminal there, they still catches their attention, they slow down. And then our next step, if somebody is not responding, not doing

what we need them to do. There's a psychology that we start working into, which is just making it personal. Yeah, I see you. Hey, you dude, with the tattoos all over without the shirt on. You're not talking to a robot here. I see you. So how many interventions a day does the average residential or business customer have? And then how do you make a business out of that? Because you and I, when I made the investment in the company, this is one of our discussions is like unit economics. So just going to the business, I think everybody understands the product, how revolutionary it is let's talk about the business. Like if somebody's got a high traffic place,

are you getting, you know, 10 interventions an hour or, and how do you deal with that? Because some people might have a house in the country and, you know, it's their summer home and there's not that much going on. There's not that much going on. So they get one,

you know, person who wanders onto the property every week. You might have somebody who has one person wanders onto the property every 10 minutes. So right now we have pretty fixed pricing. We're, as we expand into our B2Bs, our B2 business really only launched.

middle of last year. And we've been expanding that extensively over the last 18 months. So we're introducing that more rateable usage-based pricing this year. And that'll accommodate-B business. I know there's residential, there's business. What does B-to-B mean? B-to-B means everything from protecting retail places, car lots, warehouses. We do a ton of industry in cannabis, but it also means multi-tenant residential. So like we have people that own 100, 200, 500,000 properties, and they need to protect all of them. But they don't want to really differentiate between the different owners. And so they use up a lot more of the service to your question. And so we've just told them today, we can't do that. But we're just starting to, we have actually some of

the largest property owners that we're working with to do that. Are you going to work with property owners who don't have your cameras, but maybe they've already installed a bunch of cameras, or is that defeat the purpose? Because you don't have the two-way, you don't have the screaming alarm. They need to use her cameras. That's a great question. We actually, again, in the last year, let me jump back to your question about unit economics. So 2021 was our transition year of unit economics. 2020, we proved that we have something that's revolutionary. Like the product, nobody can argue, I don't think, with the fact that this is a game changer. You found product market fit. Let's pause there for a second, because when I met you,

you didn't exactly have product market fit, right? There's a little bit of wandering for two or three years. And I was like, I think you're going to figure it out. I placed a bet on the company. I invested a little bit of money with our syndicate. So explain what the product market fit journey was and then post product market fit. Yeah. So the product market fit journey was pretty extensive. I'll describe it in three phases. The first phase was we started out with just like, I really want to prove this in a market

that's going to allow us to do a bunch of experimentation. So we started out with just mid-level residential. We started at a lower price point, a little bit lower level of service. And then what we found there was that the expectations were incredibly high. and it was very difficult to acquire customers. We were competing against ADT directly. There's a lot of noise in the market. The problem of, is this ring?

Tell me how this is different than ring. We got that question every single day. And then, and so we found that our CAQ, just to give you kind of a sense, our CAQ average was about $700, and our ACV average was about $900. So we were under a year, but it was kind of a tough grind at it.

It wasn't that like obvious. us, this is it, this is scaling. So maybe this was not your ideal customer profile. That's right. And our gross profit was low. The expectations were really high. Our gross profits were like, in a lot of cases, they were negative. And to your point, the big ones were pulling us down.

The second step in our journey. Big ones being people who were taking too many calls and taking too much security. Every call of the police, we got to do tons of documentation and all this other stuff. Then we moved into kind of slightly higher residential and mid-market or SMB. and we found there that we were now a little bit more profitable. Our cost of acquisition was about the same, but our pricing could double. And so we doubled our ACV into like the $1,300, $1,300 range. Our gross profits were like just over break-even, like 10%ish,

but our cost of acquisition was still like $900. And this is where 2021 came in. 2021 was our inflection year period full stop. At the beginning of 2021, our CACs were still like $500. We exited 2021 with a cost of customer acquisition under $100. Our ACV went from $1,200. Our average ACV went from $1,200 to $2,800. Got it.

And our gross profits went to 40%. This is why I like to bet on, I'll just be candy with you, when I know somebody is a product-driven founder, you're a product-driven founder. You're a builder. Am I describing you accurately? 100%. Like, I've got electronic. If anyone's watching the video, I have electronics all over my office right now.

And so here is why for our firm launch and the syndicate, our motto, which I evolved this year, is we back builders. And I actually got the domain named webackbuilders.com. Because almost every great investment I've made, actually else, I already say that, every great investment we've made is with a founder who understands how to build something of incredibly high quality that when it touches the ideal customer, my lord, it's magic. And so that's what you discovered was once you had the right customer, customer acquisition cost plummeted 80, 90%. Oh my God, it was crazy. Because you knew who you were selling to. And then because they're your ideal customer, they don't churn.

They don't leave the product. So the lifetime value goes up. And they're willing to spend more because they're getting so much value. The people who have higher-end residential or these other businesses, warehouse construction sites, they're comparing you to security guards. That's exactly right. They're not comparing you to net. And that was your journey and you got there.

But let me ask you a candy question. Did you in your gut know you were going after the wrong customers and wish you had changed quicker? Oh, man. In retrospect, I'm going to give it a maybe, right? Okay. But here's why I don't jump straight to yes. Like if you just look at the financials, you might say yes. But there were companies targeting kind of these larger businesses.

What we built that they didn't build was we built a combination of real AI. technology, like the entire backend software and AI, and we built a brand around stopping crimes. We require two-way audio. And when you go straight into the SMB and mid-market, when you go straight into these higher-end customers, they generally don't like you to tell them what they need to do, to be frank. So when we did our initial market tests two and a half years ago, we said, oh, cool, you need to install two-way audio cameras.

They would say things like, no. And that was the end of the conversation. Now, when we come to them, we say, okay, I have 25 proof points every single day of every crime that I stopped for the last year. And I know that this makes a difference. This is why you have to do it. They say, oh, thank you for educating me. I feel educated now. Here's my money.

And there you go. And by the way, let me just put a pin in. What you just described is what you see in your company. I haven't even updated you. I will hand on the Bible tell anyone. I haven't told anyone what you just said. And what you just said is exactly what 2021 was. Our CAC went through the floor.

We doubled last year. So not only do we like quintuple our gross profits, drop our cack to the floor, and we doubled revenue at the same time. So that's just super efficiency. It takes the pressure off. And on a union economic basis, this is sustainable and you can be profitable for each customer. Yep. Absolutely.

Wonderful place to be. It is an amazingly good place to do. Well, if you add 100 customers this month, you're not scared that you're going to burn more money and basically you're selling $100 bills for 50 bucks. Yeah. Which is what you were doing in the beginning. It is. Jeez, this is not a great business.

I'll make it up in scale. Yeah, be careful. So the business is going great. The technology is going great. What is the ultimate future for the business as you see it today? Because there seems to be another level of customer who maybe owns 100 sites. Maybe they have 100. you know, maybe they own a franchise of 100 Subways.

And they're like, you know what? I'm a franchisee of Subway, but Subway doesn't provide us or whatever franchisee they are with security. That's up to me. And I get a hundred of these. Now, that's a different type of customer. We're talking about six-figure customers. Have they started to show up yet? Yeah.

So that's exactly what just happened towards the end of last year. We have our first $50,000 customers now. And as soon as we started figuring out, how to service them, right? They need a different level of customer service. They need a different level of technical support. We had to educate our partners. We have a nationwide partner network, but it was a little bit eager. And so we needed to make that more robust. And then we had to figure out how do you service, like let's say somebody owns 100 subway franchisees across the entire northeast of the United States. I'm not going to have the same installer for each of their

different locations. So I have to create standard operating procedures so that to the customer, it appears completely transparent, but it's consistent. And then at the same time, I allow my partners to be, you know, the installers to be as effective as they can in their special way for their region. And this seems like the obvious next big step, you then are going to charge based on HASS, hardware as a service. So you can just, for those big customers, if they have, whether it's somebody who owns five homes, they're a high net worth individual, they have a house manager.

and estate manager, they might have a head of security. They want you to just do all five homes and they want a private, you know, central hub for all these things. The person who owns, you know, maybe she owns like 20 of these subways in one city and 20 pizza huts and another. She wants all that in one interface. So that has to be built out. And they're willing to pay a higher level, but the installing is a bit of a pin in the neck.

But, you know, I have another company density. We invested in, which does space planning. And you can see all the spaces, you know, how many people are inside of it. of space, right? And they have done a great job as well of saying, you know, don't worry about the hardware. Yeah, there's a hardware cost. But let's just talk about, you know, the amount of square footage you are trying to understand and get data on. We'll just, we can charge you for that, basically. That's right. You can just charge people in the number of locations and the number of doors that you have to monitor. Yep. And then in terms of our expenses, like SVB and a lot of the other

banks are developing instruments specifically to help us bridge that. Ah, yes. So, So they'll provide the capital in the middle anyway. So from a great part about your services, you don't need to have Ethernet hookups and power. You have a version that has a giant battery in it. Talk about that decision. Yeah. So that's kind of part of the, if you just go to businesses, we never would have developed our wireless solution. And our wireless solution is the one that I think is where we hang our brand.

I love it. I'll hold it up for the people that are watching on the video here. is the front of our wireless camera. It has a battery that lasts about two and a half, three months. You can also hook it up to solar and other power options. But what this does, like let's talk about my home right now. So obviously, I'm the CEO, so I've got to make sure I protect my home. I have a series of these all around the perimeter of my property. They're out to the fences. They're out to the edge of the driveway. And then my home itself is all wired POE cameras all around the home. And so one of the neatest things that we ended up getting as a part of this journey was we now have one of the only

mixed mode solutions out there. So if you have a construction site where you've got a central office and that's wired and that's great, but then you need to protect the edges of a security construction site, that's really difficult with a wired camera solution. We solve all of that. Got it. I mean, that's just amazing. Now, does the interface, for people don't know, POE power over Ethernet, you can just run an Ethernet cable, it gives a little power to it. Are people requesting, now that you got have AI there, you obviously know hey, this is the homeowner, this is

the site manager, these people are faces we've seen before. Is there an interface now where you could say, hey, this person works at this company, these are the 10 people who work there, you don't need when you see their faces to call a security guard, they work here. Or conversely,

can I see, let's say was that person with the subway, hey, I want to just know anybody who shows up here between 11 p.m. and 7 a.m. Because if people are casing the joint, which criminals do, you could just tell people, hey, this person has shown up four nights in a row, and they've been in your backyard. So they might be somebody's, you know, deranged ex-husband, wife, whatever, who's going to, you know, commit some horrible act, and they're waiting for, you know,

their previous spouse or they could be a stalker if it's a celebrity. Are you starting to do that kind of deep AI and those kind of dashboards for customers? Is that coming in as a request? That's exactly what we're doing. We're doing it with a slight twist on kind of where you started, which is, certainly we're going to look at our cogs and try to not use the guard time effectively. But what we've realized is that the way that we use guard time is not binary. It's not, is there a guard viewing it or not?

It's what is the guard looking at? What are we drawing their attention to? So, for example, if it's a known person, instead of saying don't have the guard view, just make sure the guard knows. there's a known person in the field of view and there are two other people with them or there's one person. And so it's a little bit more nuanced in that at the end of the day, to provide security, I always think about it from, you know, you mentioned a product person. Like I think about it from my home and our business. I want to make sure that when my employees go in and out of our

office at night, that there's a guard watching them because that's actually kind of an important thing. It makes you feel great as an employee. My employees at our office felt great that we had this because they know when they go into the hallway, if they happen to work late, yeah, if something happens, it's going to be on camera. And now it's going to be on camera so we can play it, you know, for the police later, is going to be somebody live watching it. That's right. And they call the cops if you're assaulted. So we don't do facial recognition and say, don't show the guard. What we do is we should do facial recognition. Just make sure the guard knows there's someone we know here. Got it. And what educated is there, again, going, going back to

your question, I hadn't really thought about this before, but one of our very first early kind of low-end beta testers was this single woman. She's a friend of to defend her family. And for the whole first year, she was our, like the guard's mantlepiece. Every single guard would say, I escorted this woman home from her, from her driveway to her front door. And it was this point of pride that we're creating, we took her home, which is the unsafe feeling for her at night and just changed that whole tone context. And so we always kind of look back at that use case. Whenever I'm getting pressure to like reduce our costs and not why. watch videos, I always think back on that. And from a product perspective, I never want to sacrifice being the absolute unconditional

best at this for those marginal economics. Yeah, I'm super excited that we made the investment when we did because I think people didn't want to invest in your company because it had the hardware component and you were kind of figuring it out. We put in, I think I could say what we put in. We put in $2.8 million back in August of 2021, or was it before that? It was July August. Yeah, something like that.

And you and I have been talking for a year. I've been a huge fan of the product. And I was just like, listen to you, are you ready? And you're like, I think I'm ready. I think I'm ready. But you haven't raised money since, right? We haven't. We're actually going to be going out this quarter because we just compiled all of our

2021 numbers. Yeah. And the other headline number that we saw, again, it's right what you just said. Our conversion rate, our close rate from proposal is 80%. Wow. Our close rate from a sitewalk is 90% right now. Amazing. It makes sense.

I mean, it might be a sign that you're charging too little for this product. I knew you were going to say that. Well, it typically is when you're a VC, you see this movie over and over and over again. If you're closing 90%, it could be that you're undercharging. But I do think there'll be features you could put on top of this. Like, you know, let's say you just want the monitoring, but let's say you want to have an analysis of what's going on with your space. Yep. That could be a higher level where you say, hey, you could unlock everybody who comes to the space and see, you know, here are the top 100 people who come.

to the space when they come, the times. Now, that would be a little scary for people, maybe in privacy, but you have to remember, this is on private property that these things are occurring. Man, is that an important. That is a super important point. Like, if we're, if I, if this is my front door, it's my right to know every person who comes to my front door, and I can track them forever. And if I want to know that there's a stocker keeps coming to my front door and they show up

every Thursday, you know, that would be an incredible feature. I mean, I'll show you in terms of like, you know, a little bit of my personal political cards here, but the fact that we are doing this as a private company, you know, everyone, when I very first launches, everyone would say, oh, that sounds like Big Brother. And I said, actually, this sounds like the exact opposite of Big Brother. The fact that I'm running this as an enterprise, designed to be profitable, where I can tell you who my customer is, I can look at you in the eye and say, you are either my customer or you are not. Yes. I am accountable to you and you own this data or you do not. Yes. That to me is so incredibly important because there is no fuzzy line.

Like, let's say, for example, let's use your office. Let's say I have a police officer who calls me and says, hey, I think something happened here. Can I get the video for Launch's office? You know, my answer is? Yeah. Absolutely. Just bring me a subpoena. Just go talk to Jason or go bring me a subpoena.

And by the way, when we get a subpoena, we're not like the other companies out here who say they take it seriously. We have received numerous subpoenas. When we get a subpoena, we verify it. We go to the, we go and we do a reverse lookup. We do a three-way verification. We call the court. We verify that there is a judge with that person's contact information. We have that person then we email them a verification letter to their official email

and have them fax it back to us from their, email back to us, sorry, from their official email on a document. We don't mess around with this being a private business. There's no blurry line between us and the government. We rely on the police, but we are independent entity full stop. A little kerfluffle in it because in the building where I am, it's a, I guess they call it a condo when you have multiple owners and then there's a management company. And they're like, according to our, you know, bylaws, like, you know, you can't put up security cameras. So I was like, in our apartment complex slash live work, loft studio kind of space, half the people have ringed doorbells.

So I was like, everybody's got ring doorbells. What's the issue here? And they're like, well, yours sticks out. It's on the wall. I'm like, well, I don't care. Like, who cares? you know, and they're like, well, you know, and it's like, that's technically my space. And so we get into this like little back look and this like one Karen who's in our building is like,

well, you can see the neighbor and you can see the, um, you see the neighbor's door from the, from my estimation where the cameras, you can see the neighbor's door and you might be able to see the elevator. And I was like, okay, why don't you ask the neighbor if they want me to take the camera from the right hand side and put it in the left hand side and they don't get the protection of the deep sentinel. She was like, no, no, no, no, no, no, no, no. Please leave it up.

I'm drafting off J-Cowell's $2,500 a year service. That's right. Please keep it up and running. And then it has happened that people were lost in the building, and Deep Sentinel interfered, and it was great for us. And then I get an alert on my phone. My assistant doesn't alert. A third person gets an alert.

It's absolute magic. And it just shut the whole discussion down. And I was like, do you think we should get this for the entire building? Because we have dumb cameras in other places and packages are being stolen. And they're like, oh, yeah, I guess we could do that. You know, because they're thinking about getting a security guard. How do you work with buildings that have existing security guards, but then also want this? Yeah.

So that's actually become a sales channel for us because the security guard business itself is kind of a funky little business. Their entire business model, with all respect to these guys that are doing their best, is they send in the A team. They close the business at like, let's say, $10,000 a month. And then within three months, they move the A team to the next account that needs to be closed. And you get stuck.

with not even the B-Team C-Team or D-Team, you get stuck with somebody who happens to have a heartbeat at that particular moment. Basically, yeah, they put Chuck who is sleeping on the job, playing, butjeweled, and could care less. We already got these guys. They're stuck in a one-year contract. We're done. And that's their entire business model.

And so the problem with that is, not surprisingly, the churn in that industry is basically 100% at the end of every contract period. That's why they make them do two-year contract. Exactly. And so for us, what all of a sudden is, oh, Deep Sentinel's part of our solution. Imagine your guarding company comes in and says, yeah, Deep Sentinel's part of the solution. And now their effectiveness goes up by a factor of five or six. They can put the most lazy guard on the scene because we're actually doing 99% of the work.

And we just call them and say, hey, Chuck, time to wake up, buddy. Wake up. The cops are on their way already. Put it down. Go up to floor three. We got a problem on floor three. Now, what about cities? You know, we have a big discussion here.

There was a guy, the XRP guy, was putting up cameras in San Francisco, was a little bit weird, and who has access to them. But if a city of San Francisco said, you know, or another city that, let's say, had a drug problem, whatever, if you put Deep Sentinel's in the tendriline, you know, three on each side of each block, and then people are loitering and you're monitoring everything and you see somebody who's committing a crime and you could talk to them and call the police, this would seem to me, to be an incredible opportunity but you know cities and governments move slow has law enforcement said you know what we want to have something like deep sentinel working with the san francisco police

department or the san diego police department in areas where we know it's high crime you know there's a high crime area you can put these cameras up even temporarily to to to stop the crime or permanently so i i'll say that governments move slow right i'll reiterate that but but you know who does move pretty quickly are police departments and police individuals. So when police see what we do, right, when a police department gets their first call, hey, I've got an assault happening at this street, at this location, wait, who are you? We're the security company. We're monitoring the cameras. That usually starts a conversation with the police departments. That's been part of our growth because police departments, at the end of the day, how they're measured is by how much money

they spend and how effective they are. Deep Sentinel is one of the best ways for police departments to be more effective. Yeah. Because it doesn't cost them more feet on the street and it reduces crime. So what we have seen is like certain areas like Santa Cruz, where there's a ton of homelessness. It's similar to San Francisco in that regard. Right. A lot of the-

Homelessness. Just let's be clear. We're not talking about individuals who are down on their luck, can't afford rent, can't find a home necessarily. We're also talking about addiction, mental illness, violent criminals, gang members as well. And there's some overlap there. And the whole spectrum, right? We're not going to arrest somebody who has a mental health issue for every trespass and vandalism they do.

But if I'm a property owner, I definitely don't want them doing that. And what's interesting about this is that you think about it from, I don't know if the terms humane perspective, but we're able to prevent the crimes to the property owners and at the same time, not put an armed police officer in front of a person who has mental health issues. Yes. And yes, avoiding a deadly confrontation. I mean, a really horrible one, right? I live in Pleasanton, which is a small, tiny town.

And in Pleasanton, we have, we just settled, our police department just settled a lawsuit because they shot an unarmed mentally unstable person last year. It's not fiction. Like, reducing contacts. It's happening in every city, yeah. Reducing contacts between police officers and these people is a big deal. So what happened is the police department verified that, yes, this is working. and their neighboring city Salinas, the city council got together and put together a grant program so that all the downtown businesses get a rebate. They install Deep Sentinel because it makes the entire community better.

So it's happening a little bit at a time. It's not happening at the big cities like Oakland and San Francisco that I think drastically need it. But the property owners are starting to catch on. We have tons of installs in San Francisco. And we actually had a group of property owners not related to me at all who just happened to buy Deep Sentinel. saw it work, and they by themselves went and petitioned the city council of San Francisco to support it. As you know, there's issues with San Francisco politics. So that's stuck exactly where it is. But people see it, right? Individuals see this and they're like, this is the solution.

Can you please get off whatever political problem it is that you're on right now and start using this? Please. So an easy add-on for this product would be, I have a parking lot. Things happen in my parking lot. I've got a parking garage. I put a deep sentinel in. I get the live guard on duty. But you could also be reading all the license plates, putting them into a database and knowing, hey, these 95 license plate

that are coming onto my private property. You know, we're not talking about a public thing. It's my private property. So they came onto my business. They parked here. These 95 are, you know, this 95% are employees, this 5%, whatever. These are customers, but these 5% we don't know.

And then you can be alerted to security guard to, hey, there are five license plates at Facebook or whatever place. that have never been here before, and they're not in the guest parking. Maybe we need to figure out who's in these parking spots. A little bit more attention. That's exactly right.

That is exactly where we're going. Because that I think is so easy for your cameras to do is license plate recognition. That's where we're going. What you described right there is exactly how we're thinking of using AI. It's not, again, not just this binary, do you do something? It's really being informed about what you do. I got really inspired when I watched Tesla's AI Day a couple months ago. And they talked about instead of trying to predict this is a person or this

is a car, this is a tree. Instead, predict the driver action. It's a, it's a type of AI called semi-supervised learning where you're trying to learn the output. You're not trying to learn the objects that are the input. And so we started on that journey about three, four, five months ago. What's an example of the AI doing that? We understand for a Tesla, but give me a Tesla example, give me a deep central example. So Tesla example is, hey, when there's a person walking towards the car, and it looks like there's a crosswalk in front of me. slow down, right? Even if the person's not in the crosswalk, slow down a little bit. Get your speed under 45 miles an hour or something like that. That would be a Tesla example. And it would

just notice that drivers tend to slow down when there's a person approaching the crosswalk. And it doesn't have to know necessarily that this is a crosswalk or this person. It doesn't have to label those objects. It just has to recognize, I keep seeing these two white lines and this object approaching from the right side. And when that happens, I do this behavior. An example for Deep Sentinel that it's actually live, we actually just filed a patent for it. So like, I'm all on sharing about it now is we recognize that when guards dismiss an event. So they'll say, hey, this doesn't have anything interesting in it. One of the things that we do is we tune our AI to be super sensitive.

So if it has even a 1% chance of being a person, boom, we trigger it, send it to a guard, make sure that it's getting reviewed. But that means that flags and dogs and things like that get triggered a lot. And so what we do is we look at the negative action of the guard, the rejection of an event. Got it. And then after time, what we do is we actually train not a general model. This doesn't go to every single person. We actually know in your hall at your office, Jason, we know the areas that have false triggers.

Right. If you have a flag sitting in front of your camera that's triggering the camera a million times a day, but 99% time the AI doesn't get fooled, but it does a little bit. We'll actually be able to identify for your flag in front of your camera, your AI is going to be different to identify that case. I know about this issue because I have a NECM at a property. and there's a light by it, and I get, you know, every evening, the moths come on a summer evening. They fly by the Nescam, and I get an alert at 1 a.m. And it's like, oh, there's a moth going to the light,

and it's set off the drop cam. And drop cam is too stupid or the Ness cam is too stupid to know that's a moth. You would actually be able to say, that's exactly what we do. We don't need to ask the moth what they're doing on the property. That's exactly. We look at the time. We look at the shape.

We look at the location. We look at the trajectory. And all of that is just for your. camera. So we don't induce the bad problem of having a false negative, right? We don't want to have that. And that's why it's a very, very precise model. Are you thinking about going either into the alarm business and starting to do the doors and the locks and all that stuff and somehow integrate them? Or do you think you've got enough on your plate just perfecting this product? It's so tempting, Jason. It really is because there's like a lot of revenue and there's people that

like it. And frankly, the gross margins on that are so high because they shuck all their costs. over the police department, right? It costs them nothing, just call and say, hey, I've got a door open. But at the end of the day, you know, if I really believe in the future of where we want to go, I'm more comfortable partnering with companies like that and doing some level of integration versus potentially really dragging our brand down. Now, I may swallow my own words at some point, but right now, I love what we do so much. I love being preventive. I love being so effective. I love that inspiration I get every morning when I wake up to just like, I am going to get up and go to work and I'm going to crush it today.

And I get my 10 emails of crimes we stopped that are all videos and just people running away overnight. I love that. And so we're pretty focused right now on make that as extensive and as awesome as possible. Yeah. The only other thing I've been thinking about is giving you a floor plan of a property when you have eight cameras. And then also there being some other type of sensor.

So there are some cameras now. that have motion detection or what does it call when the camera moves automatically? Oh, PTZ, the pan tilt zoom. Yeah. So there's PTZ cameras that are motion detected. So, hey, somebody's far off to the left. We're going to zoom in on them. So those are very advanced cameras.

They tend to be $2,000 or $3,000, I think, as opposed to yours, which are a fraction of that. Have you thought about those type of cameras and then sensors around a large property? So you're doing this construction site. You put eight cameras out, but you don't have the lay of the land. And they could really have a more robust system if you knew every square inch in the place. So lay of the land, absolutely. So when we very first started, we really focused on the AI is going to do everything. The guards are going to do everything.

Let's not distract the guards by having too much information. But we're definitely starting to get more information from our customers. Like, are they on vacation? Because that's a very different state. Is your alarm armed is actually an interesting state for people. Unfortunately, most people never arm their alarm. It's crazy. I mean, after you realize that it,

it's not very effective and that all the alarms are false alarms, I get it. But nonetheless, if you kind of think about it from an AI and all information and more information is better, that's kind of the view that we're taking of it. And so we're going to, again, continue to focus on preventing crimes using video and two-way audio, but expand the footprint of the data that we bring in in order to enable us to do that effectively. Absolutely fantastic. Thanks so much for letting me invest. Anything I missed with what you're doing, I know you're hiring. So you need AI engineers.

What do you need? Engineers, what do you need? We need AI engineers. We're hiring ahead of revenue. We just opened that position recently. Does that mean you're going to have like a SaaS sales team and be doing outbound like that? Or do people just inbound call you because of social media marketing? It's actually a combination of both.

So with your question about the larger accounts, we're identifying some of these larger accounts. I mean, all the retailers have been in the news for the last month, right? So being able to develop a strategy for them. shutting down. They're just like, we can't take this anymore. Right. I mean, as if it were hard enough to get a COVID test at a Walgreens, it did not even open to let you get them. All the Starbucks are closed right now in the area as a combination of COVID and the crime. And that's, and this is again, this isn't pleasant. Like I'm, the word pleasant is in our name. But I mean, yeah, I mean, we're definitely hiring.

We're going to go out to raise a next round in the next month. I'd love your feedback. We're going to get the deck together here in the next couple of weeks. go through the deck. I mean, I would like to invest more, I think. I think we're somehow, like, I don't know, close to 10% owners at this point. And I think I'd like to, this is the type of business. My general philosophy is that I find a great founder would vibe with them. They're making progress. They have product velocity. You have all of those things that you figured it out. You know, getting to 15% ownership is kind of a nice thing for us. So we might want to go not only pro rata, but super pro rata. So that's definitely something for us to talk about. That would be awesome. Yeah, I mean, the only thing Sentinel, everybody, Deep Sentinel.com. The last thing I would mention is go to our YouTube station.

We have a YouTube channel where we publish all these videos. Oh my gosh, that's like... You don't have to do any marketing. You just watch these videos and it sells itself. And, you know, I get so many emails. I'm going to just unsubscribe from all these emails, create a secondary email. And then when people want to keep me updated,

I have like a second email, whatever, or for marketing stuff. And the Deep Sentinel email that comes every week or two with a new video on it, I open it every time because I'm like, this to me is like a great little, you know, version of cops. It is. I get to watch some, you know, deranged criminal do something incredibly stupid or, you know,

really scary. And they run. And there was one video in the early days, it was right before I invested, where you used to, your security guards start to talk to somebody and they go, that's tight. Yeah. And literally like, hold the robot. That's right. He's like, you got me.

That's tight. And he just walks away. That's exactly right. I started laughing. I was like, this guy is scoping out like a warehouse or something. And he's literally holding a crowbar to break into a warehouse. And he said, yeah, that's fine.

Yeah. It is an awesome, awesome. You ask the most important question, which is just, you know, what's the big idea behind it? And why do we do it? And it is, there's no question in my mind that this is the future of security. and, you know, everything else kind of comes from that. Yeah, and if you just type Deep Sentinel into YouTube, you'll find the channel and subscribe to it, give it a thumbs up.

Yeah, you've only got 2,000 subscribers, so that should be like 20,000. People will start getting into it. Just type Deep Sentinel and watch this stuff. And, you know, if you've got a home and you really care about protecting your family, if it's a, you know, you need three or four cameras, it's well worth it, I think. Amen. And certainly for a business well worth it. So continue success, thanks for including me on the journey. I look forward to those emails.

I get them. I feel super excited. to be part of the journey with you. And thank God you figured out the unit economics, so now we can start scaling. And if there's somebody out there who wants to lead the series, I guess I led the series A and somebody lead to series B or something, I guess. There we go.

Let's go do it. Let's go do it. All right. We'll see you all next time on this weekend startups. Bye-bye.