Investing in Sensate

I don’t invest in many consumer hardware companies. Every now and then I spend a lot of time with a CEO who is amazing, their product is damn good (I use it myself) and they growing so damn fast that I write the check. That happened with the Oura Ring ($143M funding) and I am now writing a check for Sensate.

Like many of you, this past year for me has produced a supersized helping of stress and anxiety. Fortunately, I have been on a 10-year search for the best tools to attack these forces and have spent thousands of dollars on dozens of practices and devices. The Sensate is one of only two devices still in my daily toolbox. I have gotten to know Anna, the CEO over the last two years, and am excited to be able to join Unlock, ExpertDojo, and TenOneTen in investing in the company. We are investing in a very limited inside round ahead of the imminent Series A in the fall.

Sensate: Turning the tide on the global anxiety tsunami.

The Story

“Almost everything will work again if you unplug it for a few minutes, including you.” [[Anne Lamott]]

Since suffering a debilitating bout of depression after the IPO of my first company (TED talk here), I have been on a decade long journey to find solutions that actually work. I started with therapy (fail), Prozac (fail), and spent tens of thousands on every product or service that claimed to work. Most masked symptoms but didn’t address the root causes. As I dug into the literature, a common theme emerged. Those with depression, stress, and anxiety tend to be in a high state of alert, sometimes called “Fight or Flight”. When your Autonomic nervous system (ANS) is in fight or flight, everything seems like a life or death situation. The proprietary combination of specific sounds and vibrations in the Sensate device reliably relaxes the Vagus Nerve, the main nerve in the ANS which becomes overstimulated during fight or flight. Sensate “unplugs” the Vagus nerve in a 10-minute session. No conscious effort is required by the user, there is nothing “to do”. Sensate “just works.” This reset, like the reset of a computer, allows your nervous system to come back online and handle more. After 7 years of therapy trying to figure out why I was in fight or flight, in 10 minutes of Sensate, I was out of it.

I met Anna Gundmundson, CEO of Sensate, two years ago when she was going through the ExpertDojo accelerator. At the time I had tried over two dozen products that claimed to “get you out of fight or flight.” Of course, being a nerd, I had a quantitative way to measure this, increase in Heart Rate Variability (HRV). A 10-minute session with Sensate gave me the best improvement in HRV of any product I had tried so far. The business model at the time was focused on selling individual devices and they had just completed a very successful Indigogo campaign. Concerned about long-term margins in a device-only business, I passed at the time while introducing them to UnLock Venture Partners where I am an LP and frequently co-invest. The partners at UnLock dug in, were impressed by the customer response, technology, and saw a path to a higher margin subscription business so they led the Seed round in 2020 (so I am a Sensate investor through Unlock). Sales took off during the pandemic as people sought new ways to combat stress and anxiety. The company ran out of inventory and had to rework the supply chain to meet demand.

About six months ago I gave one to my wife and two daughters (10 and 5). “Life-changing,” my wife says for herself and our children. Everyone is noticeably less stressed. We have since purchased over 20 for friends and family and referred many more. When UnLock partner [[Sanjay Reddy]] called last month saying they wanted me to join a very limited inside round, I called Anna immediately. She walked me through the impressive 2020 progress and the plan for 2021 which includes the addition of a premium software subscription in Q3 (YEA for higher lifetime value!). Sensate is currently a UK company and Anna is from Sweden, but has moved to Los Angeles to focus on US expansion and the company will transfer to a US company in Q3. Given the reduced product/market risk and the upside of the subscription model, I decided the time is right to invest in Sensate.

Why I am Investing

At Incisive Ventures, we focus on categories where we believe we have some kind of information or insight advantage. Stress and anxiety reduction is something I have been looking into for over a decade. Sensate is one of the few products to have bubbled to the top of the list. I have seen the product’s impact in my own life as well as the impressive market validation and investor validation from other smart investors. My network of health and wellness contacts built as CEO of Upgrade Labs is a perfect compliment for Sensate. I have already connected them to Dave Asprey (father of Biohacking, founder of Bulletproof), who is a big fan of the product and has driven substantial sales their way. Given my personal experience with the product, long-term relationship with CEO and investors, the traction in 2020, and the improved business model in 2021, I am excited to support Sensate.

Trends I am betting on

Self Care eats Healthcare. If you are healthy you don’t need healthcare. The healthcare system was built and all the incentives are designed to fix people when they break, not to keep them in good working order so they break less often or less severely. Traditionally self-care (fitness, nutrition, wellness, etc.) has taken a shrinking share of wallet to spend while healthcare share has exploded. Awareness of the ROI to self-care spending was growing before the pandemic and accelerated by orders of magnitude as people’s access to healthcare was cut off and they searched for ways to stay healthier during it. The trend of wallet spend shifting from healthcare to self-care was pulled forward. The pandemic brought new stress into our lives. And it also opened up space to reassess priorities and try new things. Especially anything you could do at home without a special facility or professional service provider. We were mostly cut off from “the professionals” so people had to figure out what they could do themselves and for many, this was very empowering. Spending on all sorts of self-care from home gyms to meditation apps to devices like Sensate exploded. I believe this sense of personal empowerment and the wallet share dedicated to self-care will continue to grow over time.

“Just works” wins. Most approaches to Mental Health generally and stress reduction specifically are very “active.” They require people to “do something.” Go to counseling, build new habits, breath a certain way, sit on a cushion for hours, exercise, etc. All of these approaches have very low success rates because they depend on willpower, time, and “doing it right.” While drugs are “passive” they come with many well-documented side effects including “zombie mode.” The body’s nervous system that produces the stress response has an on/off switch. What if you could just turn it “off”? Allow the body to unplug and reset to handle more stress later? That is what the Sensate does. Products that “just work” will be preferred to those that can fail from “user error.” With products like Sensate we are finally providing solutions around Mental Health that “just work” without the side effects of drugs, I am betting customers will prefer this category of solutions.

Why this deal is Incisive

Sensate ranks very highly in key areas of our Meta Themes.

Disruptive innovation. There is a huge unmet need for stress and anxiety management. Current products have a spotty record working for some people and not for others. Sometimes the innovation is that a product “just works”. Sensate has patented a combination of vibration and sound frequencies that are science-based but “just work” as far as the user is concerned. The high use rates for Sensate and massive customer referrals are unlike any other product in the category as far as I can tell.

Americans are lazy. One of my friends called Sensate “Lazy man’s meditation.” Anything which requires practice, or belief, or multiple sessions has friction between the customer and the desired outcome. The fact that Sensate “just works” without any physical or mental effort on my part removes all the friction between me and the outcome (calm). Sensate allows me to get what I want and be lazy at the same time.

Invest when I can be helpful. I have already been very helpful to the company introducing them to investors and influencers because of my personal experience with the product. I have seen the value of the product in my personal life and my family. We have the opportunity to invest in this round only because the current investors and CEO understand the value my network brings and have invited Incisive Ventures into this very limited opportunity.

Invest with other smart people. Unlock Venture Partners is currently my best performing Venture fund (out of 12). They have an impressive track record of investing early in game changing companies and adding value growing the businesses. Sanjay and I have worked closely with Anna to design the premium subscription product which will significantly improve margins in the business. I am also excited to continue to invest alongside ExpertDojo and TenOneTen.

Investing in BizzTM

I have looking for a way to invest in social commerce for a couple of years. A friend was an early investor in Mesho which recently became a Unicorn. He told me one of Meesho category leads had identified a huge underserved market with a superior business model and had started a company. BizzTM is that company. BizzTM is how I am betting this wave of social community commerce.

BizzTM: Community Buying platform for home and personal needs

The Story

My wife grew up on a farm. Neighbors would get together once a year and buy a cow from the local rancher, splitting it between them. Group buying has been around for a very long time. In the 80’s Sams Club and Costco brought group buying to scale through large retail stores. About a decade ago, Groupon and others extended group-buying with technology to primarily retail services and experiences (restaurant and hospitality). I was the founder and CEO of a white label group-buying technology platform during this time called Tippr. While e-commerce and social media have become ubiquitous they are still largely focused on individuals making discrete purchases through expensive physical distribution networks. Social is becoming the driver across commerce categories.

While the Groupon wave cohort has mostly stalled in services, I have continued to search for the right physical goods group-buying model that can scale. What I have been waiting for is someone who has mashed up the power of social with local, more efficient distribution and the leverage of group buying for physical goods, preferably frequent use repeat purchase items. Oh, you don’t daydream about perfecting business models for decades? Welcome to my world.

A couple of months ago, I read about Meituan and Pinduoduo transforming remote Chinese towns with community buying and sent the article to Hershel Mehta who runs 2AM ventures in India (where I am an LP) with the note: “Is anyone doing this better in India?”. His response “We have a few deals in the social commerce space, stay tuned :)”. A couple of weeks ago he emailed me, “I think we have a winner, BizzTM, we are trying to lead the round, it is very competitive.” Last week he called me with “We have a signed term sheet and given your experience in the area, we want you in.”

The founding team was part of the Groupon wave (Snapdeal – India Groupon) and saw firsthand the limitations around physical products. They were also part of the recent social commerce wave (Meesho – apparel) and saw the limitations in that model for additional product categories. The team identified a number of key features for the platform that would crack this problem at scale including:

  • Convenience. Most home and personal needs items are purchased from the 15M small shops around every corner across India. BizzTM had to be more convenient (or improve service for the local store) than a 10-minute walk to the store.
  • Sufficient Local leader economics. To harness the power of locals to organize their neighbors into groups, there had to be sufficient economics to reward their work either part or full time. Their operational cost had to be mostly variable to compete with the fixed costs of the shops. Or the leaders need to extend an existing customer base they already have on a fully variable cost basis (for example existing local store owners)
  • Better prices. Prices had to be the same or better than the local shops and e-commerce. This can only be done by shortening the logistics chain to the end consumer substantially.
  • Wide Assortment. Local shops have shelf space limitations. There is a sweet spot between a local shop and Amazon where the assortment is very wide, but the cost to carry the assortment does not overburden the distribution system or lead to expensive delivery options. Local shops that can better serve customers with a wider assortment on a variable cost basis could be big advocates.
  • Technology leverage. Be an app on a device consumers and leaders already have. In India that will be WhatsApp first. Mobile native. The platform must also provide all the back-end for logistics, messaging, accounting, and compliance for the local leaders to make group management a breeze. Group-specific features need to be built versus e-commerce 1:1 design.
  • Not MLM. Scalable, mass-market community buying cannot smell like Multi-Level Marketing. There is too much blood in the water in that category.
  • Local is different that “social commerce”. Social commerce today is primariarilly a “reseller” model where a company (for example Meesho in India) handles sourcing and distribution of products by recruiting individuals as resellers. Resellers use social media, email, etc. to market products to their audience at a mark up. The sponsor company provides a back end and handles individual shipments similar to a traditional ecommerce platform. What is new with social commerce is that “influencers” get a margin when they resell the product. But fulfillment and distribution still consumes approximately 18-22% of the average cart and deliveries are to discrete individuals. This model works best for branded or high margin products. It does not work well when “value” is the primary purchase metric.

In India 85-95% of wallet spend is local. In India 92% of shopping time is spent in research and price comparison (including online). Especially in rural or second-tier markets, “Value” is the primary purchase metric. To deliver value products at scale you must solve fundamentally shorten and reduce overhead in the supply chain in some material way.

BizzTM’s model fundamentally shortens the supply chain and reduces capital costs within the supply chain. BizzTM aggregates community demand for a curated list of products (more than local shop, less than Amazon) from local leaders collecting money for purchases upfront. One community leader serves 2-500 local families within a 300M radius of their home. BizzTM aggregates all demand across their network and orders products direct from the manufacturer for bulk shipment to their central warehouse. Many of the value-based product manufacturers are locked out of current distribution due to the thin margins available to the current multi-tier supply chain. Products are batch shipped to local leaders consolidating individual shipping into a community shipment. The local leader handles distribution to end consumers (typical pick-up from their location). Other than their time, the local leader requires no capital investment to participate in this model. This leads to an individual shipping cost of 2-4% of cart size instead of 18-22% in e-commerce or the reselling model. This two-tier distribution (BizzTM – Local leader) supply chain compares to a 4-6 tier traditional supply chain in India. It is also much more flexible, responsive, and capital efficient. BizzTM collects customer money upfront and typically has payment terms from manufacturers resulting in a very positive cash flow model. BizzTM spends money recruiting local leaders who already have customer relationships so the end customer CAC is very low as well.

The BizzTM team built an MVP of their product during their time at the Lightspeed Extreme Entrepreneurs accellerator. The attracted leading India seed investor Axilor. They have onboarded over 1,000 local leaders (70% owners of local shops) (Bizz Owners) who manage thousands of consumers in groups, and are processing tens of thousands of orders per month. 2AM Ventures is leading the pre-seed round and I am excited to partner with them to build BizzTM.

Why I am Investing

The problem BizzTM is solving is a problem I have been thinking about for a long time. The team has deep subject area expertise and has thought deeply about how to build a better mousetrap. The initial traction is impressive and there is a clear path with this round to a 5-10x increase in all key metrics. They are enabling mass entrepreneurship across India through BizzTM Ownership. I am excited to partner again with 2AM Ventures who know the Indian market and founders well. I believe BizzTM will be a leader in a new community buying wave for physical products.

Trends I am betting on

Value and Efficiency win the mass market. While brands may get the headlines, the largest part of monthly wallet spend tends to be value driven. This is especially true in developing markets like India with significant rural populations. It is also true for categories with frequent use like personal care and home items. Walmart built a very big company by obsession over consumer price. Amazon upped the game with a very efficient highly scaled distribution system and massive selection. To continue to deliver consumer value, fundamental changes must be made in the supply chain, specifically much shorter chains, much more capital efficient. By leveraging existing local leaders with customer relationships and shipping in bulk, BizzTM has the opportunity to deliver on this value and efficiency.

Trust matters. While trust in fully digital ecommerce has improved over the years, it can only go so far. The company that can deliver prices in line with the best prices in ecommerce and big box retailers with the additional service and trust of a small retailer or neighbor will not only be able to halt the march of ecommerce giants, they may be able to turn the tide. I am betting that we are coming to a time where local trusted sellers can be enabled by technology so they can compete at scale. I am betting that trust will matter when price is comparable.

Why this deal is Incisive

BizzTM ranks very highly in key areas of our Meta Themes.

Software Eats Everything. Getting a price advantage in group buying requires aggregating demand and reducing distribution costs. Software is particularly good at aggregating demand, especially when that software is on a person all day (WhatsApp, mobile apps, etc.). Traditional physical product distribution efficiencies were gained through heavy asset investments in retail (Costco) and/or distribution (Amazon). BizzTM has the opportunity to deliver exceptional consumer value in a VERY asset-light model for their Bizz Owners. The most asset-light model yet. Software has the opportunity to eat physical goods distribution.

Great Founders figure shit out. The founders have been dreaming about solving this problem for over a decade (like me) and learned the ropes in some of the leaders in adjacent categories. Having multiple early start up experiences, they know it isn’t going to be a straight line and are agile enough to respond to the challenges as they come. I love backing second and third time successful founder like this team.

Disruptive innovation creates new markets. Disruptive innovation delivers unexpected value to unexpecting consumers. Who knew they need their own personal driver until Uber came along and offered one for cheaper than a taxi ride? Early surveys of BizzTM group consumers reveal they are discovering unexpected value. They may have not been looking for an alternative to local shops or ecommerce, but when they started getting higher quality products cheaper and with more variety very conveniently from a local leader (many times their trusted local shop owner) they trusted, they have become very loyal. BizzTM has created a new market for consumers as well as for BizzOwners with their asset-light model.

Platforms Win. Buying a cow from the rancher neighbor doesn’t require a platform. It also doesn’t scale. And you can’t buy anything other than a cow. By building a purpose-built community buying platform to serve consumers, leaders, and manufacturers, the value of the platform increases as more of each are connected. There are network effects and scale effects. The platform can also expand from its initial beachhead of home and personal needs over time. A platform designed specifically for local community buying will win over a 1:1 designed platform.

Invest when I can be helpful. I have been thinking about this space for over a decade. Even had an early company in the space. We have been invited into this round by the lead due to that experience and network. This is one I hope to spend an outsized amount of time on.

Invest with other smart people. Investing across boarders is hard. Having some of the smartest people on the ground, 2AM ventures makes all the difference.

Investing in Goodable.TV

Goodable.TV: Where good things happen. AKA Headspace for News.

Goodable.TV is a pre-seed technology company building an AI-powered application to deliver positive and inspiring news stories. The News Sucks. 90% of the news is driven by fear and negativity and > 40% of people currently suffer from anxiety and depression. While many wring their hands, Goodable is bringing technology and business model innovation which promises to deliver good news at scale. Goodable is not a media company, it is a technology company bringing advanced technology to the media market. Early beta traction is impressive (85,000 Fans) with very low CAC demonstrating strong consumer interest. This funding round builds infrastructure for public launch and securing distribution partnerships. We are investing alongside OnDeck and C-level angels from Reuters, LionsGate, Nextdoor, etc.

The Story

The human brain is wired to pay greater attention to negative signals. The news business knows this and exploits our fight or flight response to support their attention-based model. Reading the news you would not know that the data shows the world is getting much, much, much better. Like many, I have turned off the general news and rely on carefully curated feeds on specific topics. A couple of years ago my family and I started a gratitude practice at dinnertime. Everyone goes around the table and says what they are grateful for that day. Our own attempt to combat negative news and an endless, incomplete to-do list. It has changed the character of our days completely. It is amazing how 5 minutes of focus on the good can break the fight or flight response. Much more effective than another cat video. Occasionally I share some good news during gratitude (like the graphs above). It occurred to me that good news prompts could be helpful to many people battling the negative news-driven stress onslaught.

On Deck is a modern learning platform with aspirations to be “The Stanford of the Internet.” Earlier this year I was part of their Writing Fellowship (is it working?). I met Mohammad (Goodable CEO) who was in OnDeck’s flagship program for start-up founders during that fellowship. As he shared his vision, it struck a chord with me. Having seen a couple of efforts in this area before, my primary concern was how are they going to scale and make money with a business model that was exactly OPPOSITE of the entire current industry. Paul Graham recent wrote “Crazy New Ideas” in which he warns against dismissing implausible-sounding ideas from reasonable domain experts. I have also written about the power of a Counterintuitive thesis on investment returns. When you make a bet that most people think is crazy, and you are right, the rewards are outsized on the upside. I have found the trick to betting a counterintuitive thesis correctly is to find a credible team paired with some kind of unique insight and/or innovation that enables fundamental disruption.

Goodable has unique insight and is innovating in two areas that I believe will enable them to fundamentally disrupt a significant portion of news and attract customers at scale.

Technology innovation. There is good news out there, the problem is finding it and delivering it to the right people at the right time. Goodable deploys advanced AI with sentiment models to identify good news from hundreds of sources. Advanced categorization and tagging algorithms enable them to deliver targeted good news across geographies and interest areas to various customer segments across multiple devices. They have cracked the code for creating a structured good news database at scale.

Business Model innovation. While pre-revenue today, Goodable threw out the attention driven ad model and intends to monetize through:

  • Subscriptions. Community, enterprise, healthcare (to treat depression), and personal at an average of $5 per month per subscriber.
  • In-Platform transactions. Product purchases, donations and other calls to action to support good things in the news. Average 8% transaction fee.
  • Partnerships. Brands, OTT carriage partners and others will pay for good news feeds. Estimated at $1M+ per partnership.
  • No Reporters. Previous good news efforts have invested heavilly in original content prior to getting revenue scale and have typically run out of runway. Goodable’s tech based approach changes the business model in a very positive way.

The product is pre-MVP with a strong email list and following already from PR and the private beta. This is the first round of capital for the company and is oversubscribed. We have the opportunity through my OnDeck relationship and my personal passion for the category. I personally look forward to adding the good news feed to my information diet. Goodable’s technology and business model innovation could crack this nut which many are looking to consume.

Why I am Investing

I have personally experienced the value of adding a focus on good news. Mohammad has identified technology and business model innovations that have a good chance of disrupting the news model at scale. The technology innovation should allow Goodable to scale in a way prior efforts in this area have not. This is a solution that almost everyone I talk to wants and is not able to find. OnDeck sees a lot of company ideas through their Founder fellowship and only invests in a very select few. The validation from C-level angel investors in the business is another major vote of confidence. I am excited to be a very early supporter of this one.

Why this deal is Incisive

Goodable.TV ranks very highly in key areas of our Meta Themes.

Disruptive innovation creates new markets. The news business model is broken and is unlikely to be disrupted from the inside. Muhammad initially took his idea to CNN and they turned it down. Using AI sentiment and a new business model to deliver good news is just the kind of innovation that might work. What is the market size for good news today? What was the market size of ride sharing before Uber? What was the market size for digital contract signatures before Docusign (one of my early investments)? The innovation will create the opportunity for people to consumer good news at scale, a whole new market segment.

Americans are lazy. Today I have very little control over my news feed other than opting for various editorial filters (which have their own slants built-in). What if there were a “sentiment dial” on every feed that I could adjust to improve my mood during times of stress? That enables me to be lazy. Goodable is building the infrastructure for that.

Great founders figure it out. Goodable management has over 40 years combined journalism experience. They have first hand experience of being pushed toward fear based news as both a producer and consumer. Muhammad has spent over a decade trying to crack the good news problem. Recently with the maturation of AI sentiment technology and growth of paid news subscriptions, it is possible for Goodable to deliver on that vision. Given his platform and vision, the company has delivered a level of customer interest I rarely see at this stage of product development. Management is definitely figuring it out.

Software Eats Everything. Most news even online is basically broadcast pushed. Personalization algorithms are tuned for more attention not sentiment today. Goodable would not have been possible 5 years ago, the sentiment software was not good enough and no one was paying for news. Software advances in AI and content subscriptions and transaction software enable Goodable to deliver their product today. Sentiment software will enable further eating of the old broadcast and echo-chamber news models.

Invest when I can be helpful. Goodable is a product I want for myself and my family. I have a reasonable network with content sites and large news aggregators. I will spend an above average amount of time with this investment.

Invest with other smart people. Investing in an OnDeck graduate could be 10 years from now like investing in a Stanford graduate today. Their OnDeck fund is very selective in investments and their endorsement speaks volumes. When C-level executives from the companies soon to be disrupted (Reuters, etc.) invest, those are the smart people I want to be investing with.

Trends I am betting on

Personal Wellness/self-care. What good is meditating if you immediately get triggered from your Facebook feed? The pandemic has refocused most of us on the importance of wellness and self-care. I am betting this attention will extend to mental wellness and include some tactics for improving our information diet. Those who want to change their information diet today don’t have many choices. Like supermarkets in the 70s packed with processed foods. It was hard to find anything organic if you wanted to – it was not a choice available at scale.

Efficiency wins.. The need and desire for more good news have been around and recognized for a very long time. The problem has been the business model to deliver it at scale. Bad news simply sells better, especially in an ad-supported environment. Today’s AI technology enables good news to be found and delivered an order of magnitude cheaper than any time in history. There are additional ways to monetize attention today as well (subscriptions, transactions, sponsorships, etc.). If there is an efficient way to deliver something lots of people want, the value will be created.

Investing in Unlu

Why we Invested in Unlu

Unlu: Celebrity driven full stack learning and engagement platform.

Unlu is the leading celebrity-driven learning platform in India for the creator economy. By combining celebrity-created classes, community engagement, live events, and career opportunities, Unlu is delivering a full-stack solution to aspiring creators. The celebrity leverage has enabled amazing traction with very low CAC. They have a backlog of celebrities to onboard and we participated in the very limited Seed+ extension to accelerate traction.

The Story + Product Thesis

I have been poking around online learning startups for over a decade, way before it was fashionable as part of the “remote everything” trend. Early efforts were not much more than videos of classroom lectures. While some knowledge was transferred, there was very little LEARNING going on. Even today, video-based platforms like MasterClass and even Teachable (slightly more engaging) suffer from embarrassingly low completion rates. When it comes to Skills, learning from someone who has demonstrable credibility with the skill in a community of learners becomes extra important. I recently participated in a Writing Fellowship through BeOnDeck where they use a combination of proven industry experts, fundamental skills training, cohort-based communities, and ongoing community engagement. The experience was transformational and not only did I complete the full course, I learned more than in any course and have relationships that will likely continue (just like college). While I passed on BeOnDeck’s recent Series A for valuation and stage reasons, I kept looking for an earlier stage company that is taking a similar transformative approach to online learning that actually leads to learning.

I have been involved with the ExpertDojo accelerator in LA for over a year and funded both YuvaPay and Suavei with them. On a recent surf trip to Los Angeles I asked Brian (the CEO) “If you had to pick one company in your portfolio (currently over 100 companies) to break out 10X in the next six months, which would it be?” “Unlu, since you already invested in Suavei and Yuva.” Brian said. I called the CEO that afternoon.

CEO Vipul Agarwal went to the best business school in Europe, INSEAD after receiving math and statistics degrees. After two successful start-ups in India, he started thinking about what India could be like if everyone had the opportunity to learn from the best of the best in the world with a community around them like he did at INSEAD. Having taken classes on MasterClass and Teachable he had experienced firsthand the low completion rates. He also noticed a striking lack of skills training for the emerging creator economy. Unlu was born.

His first courses came from his personal relationships with leading actors, singers, and writers. He realized very early that to raise completion rates, the platform had to have multiple engagement points. That led Unlu to have a class platform, a vibrant community platform, live events, as well as placement opportunities for students to monetize their newly learned skills. This full-stack approach has led to an enviable 80% class completion rate (vs < 40% on MasterClass) and students buying multiple classes as well as adding on live events and other services. Unlu has also innovated class production (three-camera shoots) and cost ($20K) which allows them to pay back their investment in a new class in under 2 months. Customer acquisition is growing like crazy in part due to the celebrity leverage the instructors bring. Unlu has also found paid advertising channels that return 2.2 dollars for every dollar spent so they can scale efficiently with paid acquisition when they need to.

In February the company raised a Seed round and has seen a crush in demand in Feb and March leading them to need to expand the team more aggressively than originally planned. They have a backlog of celebrities and courses to create. This led to the opportunity to invest in a very limited Seed+ round with select investors led by Expert Dojo and Nexus.

Why I am Investing

I have personally experienced the value of learning from the best in the world as part of a community that stays connected over time. I want that for all learners. Stanford doesn’t scale. Unlu has identified the creator niche and has solved the major scaling problems to deliver learning for the creator economy. Their efficient class production costs paired with the celebrity reach and an engaged community has solved the completion problem systemic in most prior platforms. While laser-focused on creators in India today, I do believe there are global expansion and category expansion opportunities to solve the completion problem at scale across geographies and verticals.

Why this deal is Incisive

Unlu ranks very highly in key areas of our Meta Themes.

Disruptive innovation creates new opportunity. The high failure rate with existing learning platforms is an opportunity for innovation. Solving the completion problem with an engaged community, celebrities, live events and work opportunities in one platform will unlock pent up demand in the market from learners who have failed to make progress. I believe Unlu will continue to innovate on the cost and engagement side to scale their solution into new geographies and content verticals over time.

Platforms Win. Platforms increase in value over time and with scale of members. Unlu has already grown this way. People learn in different ways, through different experiences. MasterClass is recorded celebrity classes without a community, no live events nor any work opportunities. By combining the various ways people like to learn into a single platform, Unlu has largely solved the completion problem and is moving toward true value creation for their learners. When people get more value out than they spend, the buy again. Customers are rebuying now at a 1.8x rate and management is focused on getting this up over time. As learners stay engaged with the platform over time, there will be new monetization opportunities. Learn to sing, then learn to podcast, then learn something else. In learning, I see platforms winning.

Great founders figure it out. Management is mission-driven to deliver a very valuable product at scale. They started focusing on the celebrity monetization side of things then realized their customers were really the learner. They pivoted their focus to delivering value to the learner and solved the completion problem while maintaining the value to the celebrities. Management has been involved in operations and investment in multiple startups and they have shown they understand how to deliver customer value at scale.

Software Eats Everything. Software eats an industry when you can reduce costs and increase access by an order of magnitude both ways. Unlu is delivering that for the creator economy in India. A kid in a rural village can take a whole singing course from the top pop star, participate in a learning community and get work opportunities for less than the cost of one live event ticket for that pop star.

Invest with other smart people. When investing far afield it is important to have partners on the ground who have deep experience with the market and the management. ExpertDojo has spent months with Unlu management during their accelerator program. Nexus is a leading investor in India and has multiple successful companies in related industries. These partners know the landscape well. I am excited to partner with them.

Trends I am betting on

Lifelong learning. Back in the “normal times” many of us felt too busy with work or life to learn anything new. With all the “pandemic time” we had on our hands, many started checking of the “learn that someday” list. Many also realized that their old jobs may not be there and were faced with learning new skills in short order when schools were closed. Thankfully on-line learning platforms were there for many of us. Consumer demand for life long learning was pulled forward 5-10 years during the pandemic. I am betting this is a trend that holds over the long term. Especially as online learning platforms become more robust and cheaper. Unlu is on the frontier of this trend.

Learn from the smartest people. It is always best to learn from the best anything you want to learn. Traditionally general availability to experts has been gated by access (time, scheduling, reach) and cost barriers. There has been a wide gap between the value of (and access to) an expert’s time and the cost someone is willing to pay for that as well as a lack of structured learning versus “broadcast” of a subset of ideas. The best online learning platforms will shrink this gap and enable anyone to learn from the best at a reasonable deal for both of them. As more experts embrace the lower (consumer) cost platforms and access increases, the flywheel will spin faster. I am betting the demand to learn from the best only accelerates as the best make themselves more accessible.

Minimalist CEO update for investors

In my startup investment portfolio, I have found a strong positive correlation between CEOS that regularly communicate with investors and company performance. As a CEO myself when I felt “too busy” to provide regular updates it was usually a sign of avoidance and focusing on the wrong things. The #1 job of an early-stage startup is to NOT RUN OUT OF MONEY. Here is a quick template that I recommend for early-stage portfolio CEOS (up to Series A) and should take less than an hour to create.

There are five sections, all focused on NOT RUNNING OUT OF MONEY. Given a starting amount of money (investment round), there are only three levers to pull that affects the cash-out date: Revenue, fundraising, and expenses. CEOs should focus on telling investors which of these levers are being pulled, how it is going and how they expect the lever pulling to change in the near term.

  • KPIs
  • Product/Market Fit
  • Traction over time
  • Lowlights
  • Outlook/Asks

KPIs

Cash = Time for a start-up. Every company has a cash balance and growth objectives. Cash is spent to grow. Monthly KPIs tell you how you are doing toward those objectives and how much time (cash) you have left. Primary KPIs directly measure time and secondary KPIs are early indicators that should translate to cash and growth.

Update on all relevant KPIs for business as relevant along with MTM % change.

Primary KPIs

  • Cash balance
  • Monthly Burn
  • Total Revenue
  • revenue by segment if important (product vs subscription)
  • Gross Margin

Secondary KPIs

  • NPS
  • Customers
  • Traffic
  • Social followers
  • Search rank, keyword rank

Product/market fit

Every company starts off with a thesis around a product that can reach a big market. Once customers are engaged, the company responds to customer feedback and invests in product features that customers say they want. Tracking this iterative process is what this section is about.

  • product development updates
  • customer adoption/engagement trends
  • competitive landscape update

Traction over time:

Very few things are always growing up and to the right. By showing monthly graphs over time for key traction metrics, the company can communicate bumps in the road. There are always bumps in the road. The important thing is how do you respond to the bumps? By communicating the bumps to investors, management can get a wider view of them and potentially some additional action options they may not have considered.

  • MTM cohort data for relevant traction metrics.
    • Include Revenue, customer usage, web traffic, transactions, waitlist growth, etc.
  • Partnerships and impact
  • Software, operations, other department traction.

Lowlights:

Many CEOs are hesitant to say anything negative to investors. As an investor, this may be the most important section. It tells me management is self-aware and not problem-avoidant. It opens opportunities for me to help where I can.

  • What is not going well? What are you going to do about it?

Outlook/asks:

This is another opportunity for the CEO to engage investors. At Incisive Ventures, I have the rule to take at least one action to support company goals immediately after receiving each monthly report. Sometimes that is a hire reference, or a business development connection, often it is an additional investor connection. When I know what is coming up, there is always something I can do.

  • CEO commentary on traction, areas for improvement, major upcoming milestones or goals.
  • Asks from investors including hiring, business development, finance leads, etc.

PRO TIP: Try a tool like VSBL.IO to make your updates easier.

Investing in OtherSide.AI

Investment Thesis

It seems like everyone wants to “invest in AI” these days. Nearly every pitch deck I see these days have “AI” in the deck somewhere. “AI” has been the “next big thing” for decades and in the last couple of years has jumped the shark in investor interest. To develop an investment thesis in a complex new technology area like this, my first step is to separate the “picks and shovel” (infrastructure/core technology) companies from the “prospectors” (those using the tools to deliver value).

Prospectors can’t create meaningful value before the infrastructure has reached a critical mass. AI investing has “jumped the shark” because certain infrastructure components have reached critical mass. In AI there are many different kinds of picks and shovels for different jobs with each of these categories on its own development track toward “good enough.” The trick to investing in prospectors is to wait until the specific picks and shovels are “good enough” and then bet on an aggressive team with unique insight into a particular customer problem area where huge value can be created. Last summer with the release of GPT3, it looked like natural language processing picks and shovels had reached “good enough” so we went looking for prospectors.

A great prospector will be smart, tenacious, and have some unique insight on “where to look” for the jewels. The founders of OtherSide.AI are all this and more. They are “looking” for GPT3 applications that will improve daily writing tasks we all have to do like email, blog posts, and more (areas where I personally want solutions). As a pre-seed investor, one has to be willing to make meta bets which allow for pivoting over time into a product that at the time of the investment is as yet not fully formed. The meta bets we are making with OtherSide.AI include:

  • The picks and shovels (GPT3, internet connections, etc.) are “good enough”
  • The team is smart, tenacious, and is looking in the right place.

The Story

Matt Shumer, like many of us, hates email. “I hate email so very much,” he told me on our first call. “I came across GPT2 and immediately I was obsessed with it. I started using it and didn’t sleep for like three days. I built a summarization tool, action tools, writing tools, so much stuff. Because it was fun as hell. I hacked together a bunch of stuff over the next months, but it was not very elegant. Then this July (2020) we got access to GPT3 and ended up building a demo that was, I mean, miles better than what we spent months building previously. Like it wasn’t even a comparison. I posted the email writing demo on Twitter. Chris Sacca loved it and started tweeting about it. All hell broke loose.”

Matt and a handful of early users started using the email tool in late 2020. He estimated it saved him 50-70% of the time in email. The VCs started calling and the company raised a round very quickly in late 2020. Turns out lots of people hate email and Matt’s hacker approach struck a cord. In addition to email productivity, the company has developed HyperWrite.ai to help people writing fiction, blog posts, and more. The company has other GPT3 enabled applications under development as they “prospect” for the best product/market fit. In the early days of prospecting the trick is to stake multiple claims and then mine those that have the best yields.

Why I am Investing

I have been investing in and looking for email and writing improvements for a long time. Back when Spam was the #1 email problem, I was an investor and on the board of Cloudmark, which started in email and moved on to all message platforms quite successfully reducing the signal to noise ratio in messaging. There has been quite a bit of innovation on the client-side to prioritize, categorize, and auto-respond to certain standard email types (Superhuman, Hiri, SaneBox, etc.). While filtering and tagging have reduced the flow, there has been precious little innovation around the time it takes to actually respond to the emails which are important. Many people (including myself) have turned to their assistants to filter the inbox more and respond to standard mails following pre-defined If/Then templates. All stuff that AI can do much more efficiently. I once read a science fiction book about an AI program that could read and reply to emails intelligently in my own personal style. I wanted that product. OtherSide AI has built it.

Other Side AI is earlier than I usually invest. The company was only a couple of months old when we invested and this is their first round of financing. The closed Alpha was released, and they are using that to nail down the most valuable use cases and the go-to-market strategy/pricing. There are three reasons I am investing earlier than usual:

1. Passionate Hacker Founder. Matt is an experienced founder solving very personal problem in a unique and innovative way. He and his co-founders are building something to make their own lives easier, and in the process going to help the rest of us.

2. Innovative solution to a huge problem. Despite all the filtering, there are still emails that must be responded to in a relevant and personal way. This is the first product that I have found which is actually delivering on that promise. It is me, just faster. If the product can deliver 50% improvement at scale, that is an extra 6 hours a week for the average email user. This type of “auto writing” functionality can and will extend to blogs, fiction, and other forms of writing over time.

3. Smart co-Investors. Many of the best investors are actively looking for innovations that create value in very specific markets with specific technologies (like I have been for writing improvements). They have opinions about where technology innovation needs to go and are looking for the best entrepreneurs to drive those companies. This is how I found Other Side AI, as did Madrona Venture Group, Active Capital, Hustle Fund, Chapter One.

Why this deal is Incisive

Other Side AI ranks very highly in key areas of our Meta Themes.

Software Eats. In this case, software eats itself (the email client). And the AI intelligence eats the manual time we spend on writing. OtherSide.AI is mining for applications that can “eat” 30-50% of the time we spend writing today across multiple use cases. This is a significant reduction in friction which gives people back a significant chunk of time to us all.

Smart founders figure it out. When the team is solving a very personal problem and working with passionate early adopters in a very smart way, I have seen great products come out. The explosive backlog while still in Alpha shows demand. In discussions with the team I have been very impressed at their decision process taking this feedback and putting it into the product road map. The hacker mentality enables them to go fast and pivot when needed.

Americans are lazy.. Americans love anything that makes life easier, lets them do less work. But in writing and email, efforts so far (like text expander, and autoresponders) have not been personalized and lack soul. OtherSide allows me to be lazy while preserving my personal style and not coming across as dismissive. This is the holy grail.

Trends I am betting on

AI “picks and shovels” for Natural Language Processing are “good enough.” Windows 1, 2 and 3 were pale barely useful operation systems. With Windows 3.1 things tipped and took off. It became “good enough.” GPT 1 and 2 were very academic and produced some comical results. GPT3 could be the tipping point and I am betting it is. I could be wrong, it could be GPT4, but that is the bet at this time.

Personalized efficiency wins. Everyone likes getting things done in less time, especially email and writing. We also know when receiving a form letter or reading something the writer “phoned in.” I would pay alot for a writing tool that would keep my style and soul while turning it out much faster. I am betting many people would.

Investing in Fluent

Why we Invested in Fluent

Fluent: Language immersion everywhere for everyone.

Learning a language, especially later in life, is hard and incredibly time-consuming. Immersion is the best strategy (I moved to Germany to learn German) but not practical much of the time. This is where Fluent comes in. Fluent imbeds language learning into your daily web browsing activities.

For a pre-seed company, Fluent has impressive traction and user engagement metrics. Customers love being able to learn and practice a language within their daily work without dedicating time to “lessons”. The product stacks well with existing lesson-based solutions like Duolingo ($184M raised) and is benefiting from the move toward remote learning across the board.

The Story

I have been waiting for something like Fluent for 40 years. In high school, I took Russian on a whim (ok my girlfriend was in the class) but quickly lost it as there was no way to practice in Medford Oregon in the ’80s. In the ’90s I moved to Germany to run a department for Microsoft without knowing a word of German. While Microsoft spent a small fortune on private lessons, it was the immersion, having to use the language everywhere, which made it all stick. Over the years I have kept up German with a combination of Duolingo, Babble, and the occasional phone call with friends, but have always pined for a very low friction way to practice and learn without having to set aside yet another dedicated time block. And without having to move back to Germany.

Atin Batra at Twenty Seven Ventures in HK is one of the smartest people I know thinking about EdTech and the Future of Work. When he mentioned Fluent to me on one of our regular calls, I relayed my language story and scheduled a call with CEO Gavin Dove immediately. Gavin and the team have faced similar language learning challenges and created Fluent first and foremost for themselves. They have obviously hit a cord as the early user engagement numbers are impressive. While it is early, Fluent feels like the right team at the right time with possibly the right product.

Why I am Investing

It would be a reasonable investment thesis to believe language learning is “done” with unicorns like Duolingo, Babble, and various online learning platforms. But with a 90% incomplete rate on these programs, it would also be reasonable to consider there is room for new solutions. A counterintuitive thesis is that there are methods of learning and practice which will attract the pent-up demand falling out from current platforms. While still early, I believe Fluent has identified a compelling way to engage language learners with new modes that could potentially lead to higher success rates. The trick to this stage of product development is to have management obsessively focused on user engagement and product-market fit. The team at Fluent has some of the most detailed metrics I have seen and continues to drive engagement up every month.

I love supporting founders who create a product to solve a personal pain point. Double points when I have also experienced that pain point and would buy the product. Triple points if the company is creating and leading a new niche in a big market. Quadruple points if smart people with a deep thesis in the sector who I know and trust are also investing. It is not often I get the opportunity to support a company with all four point bonuses that is also growing 50% MTM. Super excited to support Fluent’s growth.

Why Fluent is Incisive

Fluent ranks very highly in key areas of our Meta Themes.

Disruptive innovation unlocks new demand. When lots of people want something and 90% of them fail with existing products, that industry needs some innovative thinking, some disruptive innovation. My 10 year old daughter has been “trying” to learn spanish on Duolingo for over a year. She started strong and now can’t find time for the lessons. We installed Fluent and she now learns all day everyday and is crushing the Duolingo tests. She just needed a new mode of learning. New demand was created.

Americans are lazy. Anything that I have to schedule a time block for is in competition with all the other “tasks” on the list. That is why I am a huge fan of “stacking” things like listening to a podcast while exercising. When something can be “stacked” into something I am already doing, it will get done 10x more. By putting language immersion into my everyday browsing, Fluent reduces all the friction and lets me be lazy.

Software Eats Everything. My first language lessons were on CDROM which required dedicated time and a special device. I have hundreds of hours of personal 1:1 lessons. Fluent’s software now puts language learning in all my browsers. The software has significantly reduced language learning friction and increased reach. Software wins again.

Invest when I can be helpful. Fluent is solving a problem I care about and have a network that can help. Since the problem is personal to me, I will spend an above-average amount of time with this company.

Invest with other smart people. I am not an EdTech expert, but Twenty Seven Ventures is. Their approach to pre-seed is more incubator than a traditional venture with a very active program to connect portfolio companies and share best practices. The other CEOs I talked to who are invested in the company are very smart as well. Gavin and the team have surrounded themselves with very smart people in this sector. I am excited to be a part of the team.

Trends I am betting on

Stacking wins. Anything which requires a dedicated time block to complete ends up competing for time with other priorities. Competition has winners and losers. When innovation allows me to stack my priorities together in the same time block, I am able to achieve more in less time. Innovation that enables stacking will always be adopted at a higher rate than something that requires a dedicated time block.

Remote everything. When I have to be in a specific place at a specific time for a specific thing, there is a ton of friction. Commute time is friction in going to work in an office. Travel time to a gym is friction. Anytime I can get something I want to get done where I am, when I want, friction is reduced. Remote is all about reducing friction. The pandemic has forced many industries into remote options and I am seeing a preference for remote in many things as people value the friction reduction.

Inner growth is the new fashion Fashion is all about external validation. The pandemic and lack of contact with the outside world for a long time has moved up appreciation for inner growth in many people. Progress on my reading list exploded as my shopping for the latest fashion declined. I am betting that this mental shift toward valuing inner growth over external validation will continue to grow over time.

Investing in Vega Cloud

The Prevailing Cloud Infrastructure Thesis:

The Cloud is simple to use and the early leaders (Amazon, Microsoft, Google, etc.) will take most of the economics in the Cloud.

The Counterintuitive Thesis:

Cloud complexity is growing and Cloud waste is becoming a material problem for cloud customers. There will be economics available for companies that reduce Cloud complexity and manage costs, especially across platforms.

Why we Invested in Vega Cloud

“The Cloud” can evoke in many images of magical unicorns and fairies. Developers and IT Managers know different. While the breadth and depth of Cloud services have exploded, the management tools, especially across vendors, have lagged significantly. Applications can be developed very quickly with dozens of plug-and-play services from a multitude of vendors, which is great for developers. But when the applications are in production the IT Manager is tasked with a whole new set of problems and a mishmash of tools. Current management tools suffer from two limitations; 1. the tool typically only manages a small subset of services, not the entire Cloud infrastructure, and 2. they typically charge a % of cloud spend so charge a fixed tax on infrastructure.

The Vega Cloud platform solves both these issues with:

1. a consolidated central dashboard across platforms.

2. Flat rate licensing.

With 10 years of Cloud experience running one of the leading Cloud Managed Service Providers, the management team is now solving in software what they previously solved with people. I have been very impressed with Kris (CEO) and his personal commitment to delivering real value by solving a very personal set of problems. Only a few months into launch, early customers agree and they signed a significant go-to-market partnership with Qumulo and secured high-profile first customers. We love betting on a CEO solving a very personal problem with software that fundamentally reduces friction and simplifies life for a large number of people.

The Background.

The Problem:

The public cloud is complex. Each vendor has dozens of not well integrated services and there are multiple vendors.

Best practice management covers multiple areas of technical expertise, each with separate tools including:

Performance Efficency

Security

Cost Optimization

Operational Excellence

Reliability

There is a cornucopia of separate individual tools for managing different parts of the Cloud.

Complicated tool environment has created unhappy customers.

Gartner estimates $14.1B in Cloud Waste in 2019. Cloud vendors are not motivated to help you reduce your Cloud spend.

Forrester Research estimates that 91% of businesses use two or more cloud platforms, increasing complexity and introducing cross-vendor management.

In a recent Forbes study, managing Cloud sprawl is a top CIO priority.

IT manager time. It is estimated that 15-20% of Cloud budget is IT time managing the Cloud with custom scripts and disconnected point solution tools.

It is very hard for an IT manager to have a single view into the size and shape of their Cloud infrastructure.

Current service management tools typically charge a % of infrastructure spend, causing costs to raise with scale and imposing a fixed percentage tax on cloud infrastructure.

Solution

The Customer gets from Vega Cloud:

Visibility into public cloud infrastructure across vendors.

Simplified scale management

Optimize cloud for efficiency.

Customers see a 40-65% savings on cloud spend when optimized through our management.

Vega Cloud consolidates Reporting and Operations into One Tool

Vega is also innovating on pricing for its management tools

Most mangement tools charge a % of cloud spend per month.

Vega charges a flat fee with flat fee add ons, resulting in a 70-90% cost reduction versus traditional management tool pricing.

Trends I am betting on

Move to Cloud accelerates. The Cloud is already upon us while expanding bandwidth and increased intelligence will pull even very complex applications into the Cloud. In 1996 I started encoding.com to transcode media files and bought a ton of servers and storage to do that. You couldn’t move the files over the internet cost-effectively. Today encoding.com is a cloud service preferred by Adobe, Warner Media, and more enabled by the expanded bandwidth. There are also cloud services with a level of intelligence that is simply not possible in a local machine. Services like GPT3, voice recognition, credit card processing, and credit scoring cannot be local and are available via an API to a cloud developer. There are more “cloud only” features and intelligence coming which will enable applications to be built which are impossible locally.

Simplicity Wins. Every technology that achieves mass adoption follows a similar pattern from complexity to simplification usually starting with developers and eventually reaching everyone by having the complexity hidden. V1.0 of the cloud is very infrastructure and developer-focused. Amazon wrote the first cloud services for their own use, for their own developers. Then they shared with other developers and Microsoft, Google, and the rest started serving the developer community with their own APIs. Cloud 2.0 is companies like SnowFlake building applications on top of the infrastructure that make deployment and management easier. Cloud 2.0 is about simplicity and expanding the market outside hard core developers. Vega is delivering simplicity for IT managers, finance and operations staff tasked with cloud management. The move to cloud simplification is well under way and will continue.

Vendors don’t want costs managed. One of my pet peeves with any vendor who charges by the hour to fix something for me is that there is an inherent conflict between their business model and mine. I want to solve the problem as cheaply as possible, they want to make as much money as possible, which often means taking their time even when it is not necessary. Lawyers are the worst at this (don’t get me started). This inherent business model conflict is on steroids in the Cloud with estimates of “cloud waste” being billions of revenue to the cloud vendors. While there is competition on cost per cloud unit (compute, storage, bandwidth, etc.) the vendors want you to consume as much as possible. Companies like Vega can give users a level of management the vendors will never provide on their own, especially across vendors.

The Value of a Counterintuitive Thesis

In order to beat the averages in any game, you have to disagree with the average opinion and be right. To get top decile investment returns as I have in angel investing for over 25 years, you must have a counterintuitive investment thesis. And you must be right. If you are right, the counterintuitive thesis will become the prevailing opinion and you will be rewarded 10-100X versus those who stuck with the prevailing thesis. You will also get some be wrong. Good bankroll management and the magnitude of being right will over time make up for the times you are wrong.

coun·ter·in·tu·i·tive: contrary to intuition or to common-sense expectation (but often nevertheless true).

A counterintuitive thesis is especially important in early-stage investing. Disruptors are unlikely to have disrupted much when you place your bet on them. The incumbents will have more money, more investors, and more customers. This is where you must have a thesis about how the disruption will play out and the ability of management to execute the complex environment.

Here are a few opportunities to place bets that I have had over the years and the counterintuitive thesis at the time.

  • Amazon in 2000. In May of 2019 Barrons ran a cover story called Amazon.bomb. It was the start of the DotCom bubble which burst in March of 2000. The prevailing thesis on Amazon is best summed up by [[Kurt Barnard]] at the time: “…Once Wal-Mart decides to go after Amazon, there’s no contest, Wal-Mart has resources Amazon can’t even dream about.”. The counterintuitive thesis was “Amazon is not a retailer, it is in the customer service business and Amazon’s model can deliver a higher level of customer service (low prices, fast delivery, easy of buying) over time than WalMart can.” I had this argument with a hedge fund friend at the time (me for Amazon, he for Walmart) and we made a bet. $10,000 into Amazon and Walmart in 2000, who would have more in 2020. In 2020 he had turned $10K into just over $100K and I had turned $10K into over $10M. The reward for being right about a counterintuitive thesis was 100X better than following the prevailing thesis. That is the power.
  • Docusign in 2004. In 2004 paper and the fax machine ruled for contract signatures. Everyone still had a dotcom crash hangover and was skeptical of tech disruption claims. Electronic signatures were not even legal in most jurisdictions. I was at Ignition Partners at the time who was considering investing in Series A. The counterintuitive thesis, which I stated in the partner meeting, was “Digital signatures reduce so much friction that users will demand them and legislation will get fixed to allow them. Docusign will create a whole new category that doesn’t exist today.” It was a bumpy road in the early years at Docusign as regulations and change of customer behavior at scale took longer than expected. Yet the thesis proved out. The default for most contracts today is a digital signature. I get offended when someone asks me to print and scan a document. That is the Stone Age.
  • Google at IPO 2004. I was an investor pre-ipo in Google through a venture fund and received O{P shares from the fund. Yahoo at the time was valued at 50% more and Google the prevailing thesis was that Google was overpriced and Yahoo would continue it’s lead. The counterintuitive thesis was that Google’s algorithm was a step function better than Yahoo and everyone else and the company would create a more valuable ecosystem. Google priced at the bottom of the range at $85 per share after originally targeting $108-$135. We all know the outcome, the counterintuitive thesis proved to be right. Google has averaged 24.8% annually since IPO, I still own those shares.
  • Peloton in 2012. In 2011, Equinox bought Soul Cycle and all the talking heads believed that deal had anointed the winner of cycling fitness. Equinox with its leading brand would own it. In Feb 2012 Peloton raised their seed round of $400K from three guys with a very counterintuitive thesis: “People who love studio cycling will prefer to do it in the privacy of their own homes connected to a virtual community instead of in a physical studio.” In Dec of that year, more people piled into the $3.5M Series A believing that thesis even after Soul Cycle grew much faster that year and Peloton didn’t have a shipping product. While I did not place a bet (big regret), today Peloton is worth over $30B and is much larger than the entire studio cycling business.

At Incisive Ventures, I continue to bet on counterintuitive thesis. While too early to tell if we are right, some of the recent ones include:

  • Yuva Pay early 2021. A prevailing thesis around connectivity is that everyone has a smartphone, everyone has fast connectivity and broadband will soon be cheap everywhere. Yet in India, they are selling 20M feature phones a month and broadband is only available in the cities. The counterintuitive thesis is “Feature phones will be around for a lot longer and broadband, especially at affordable rates, will take decades to roll out, especially in secondary and rural markets.” Mobile payment and digital bank companies are all the rage these days, but most of them require a smartphone and a stable high bandwidth connection. Yuva Pay delivers a mobile financial platform on feature phones AND smartphones over the SMS data channel without the need for a separate internet data connection. They have a proprietary, patented, very data-efficient protocol that gives rich financial transactions on any mobile device. I am betting the lower end of the mobile market will want the rich features of the higher end.
  • SilverTree in late 2020. Apple is the most valuable company in the world because most people believe they will own hardware devices including the general-purpose wearable with the Apple Watch. Adherents to this viewpoint to the rise, fall, and subsequent fire sale to Google of Fitbit. Most investors hate hardware and very few want to compete with Apple. The counterintuitive thesis is “Some specific wearable applications cannot be well designed into a general-purpose wearable and require a specifically designed device to deliver specific functions into meet specific market needs.” Silvetree is building an active adult wearable to help with fall detection, location, and communication needs of that market. A key user requirement for such a device is long battery life (2-4 weeks) and the Apple Watch needs to be charged daily. The current specific devices in this area were mostly designed in the ’80s and ’90s and do not have modern technology or aesthetics. I am betting a well-designed modern specific function wearable will disrupt the incumbents and the general-purpose wearables.
  • FightCamp fall 2019. By 2019, Peloton had gone from counterintuitive to obvious. In 2020 the obvious became necessary as everyone upgraded their home gyms. The prevailing thesis in 2019 was that Peloton or Apple would own home fitness. I was thinking of what would disrupt them, what would people want in addition to Peloton, Apple, or others. The counterintuitive thesis was “There is lots of room in-home fitness, especially if it is portable.” FightCamp is bringing a boxing workout into the home with a Peloton-like model, but also an app that lets you bring the gloves and workout with you when you travel. I placed a bet. FightCamp grew like crazy in 2020 and has become one of the best investments in my over 200 company portfolio.

Counterintuitive and right. Two things that are hard to achieve, but very rewarding when you do.

Investing in Katalyst.fit

Katalyst.fit: An at-home workout like never before.

I am going to start this memo by admitting a mistake and a bit of luck.

Early last year (2020) I was unsure of the direction of the home fitness trend so hedged by betting both sides of it. I shorted the (I thought over-hyped) leader, Peloton, and doubled my investment in Fight Camp, an early stage up and comer. Of course, I took a bath on Peloton, and Fight Camp has become one of the best performing investments in my portfolio by far.

Home fitness is here to stay and users expect more than dumbbells, yoga, and bodyweight stuff. They are demanding advanced technology in the convenience of their homes. Over the last year, I tripled down on finding a company that had a fundamental technology advantage that would create a new blue ocean of opportunity behind this meta trend of home fitness. Katalyst.fit is the best company I have found. I believe Katalyst could be bigger than Peloton and Fight Camp combined.

The Background

Like many of you, I have always been into physical fitness. Soccer team in high school and college, biking and running for fun. In my 30’s I was one of those CEOs who worked 70 hours a week and competed in marathons and triathlons on the weekends. I have spent hundreds of thousands of dollars on fitness over the years joining every kind of gym and buying every fitness gadget that came along. I bought one of the first Peloton and returned it (I prefer my own bike and Zwift). Unfortunately, I have also spent almost as much on doctors to recover from the injuries incurred along the way. When cross-fit came along, I jumped in with both feet and six months later had a terrible case of tennis elbow from jerking all those weights around. My primary care doctor was overjoyed: “I love Cross-Fit, the best thing for my business! Everyone gets injured!” A patellar tendon overuse injury ended my running days and now I mostly bike and lift weights. Physical fitness has always been a brute-force time-sucking injury-prone activity for me. Working in the technology industry, I saw the power of technology to transform wide swaths of our lives. A tiny idea came to me: “Why are we still doing the same basic physical fitness exercises our caveman ancestors did? Why hasn’t technology fundamentally changed the time/reward/injury relationship?”

Five years ago after I invested in Bulletproof, Dave Asprey introduced me to biohacking. “Biohacking is the art and science of changing the environment around you and inside you, so you have more control over your own biology,” Asprey explains. That seed of an idea started to grow. As CEO of Upgrade Labs I was in the middle of the technology-enabled health and fitness revolution unfolding. Innovative fitness technologies tend to start in with elite athletes, doctors, and gyms before coming broadly to consumers. Electro Muscle Stimulation (EMS) is a technology that has been on that path for nearly 40 years. Katalyst is the first company to bring it in a convenient package to consumers in their homes. With EMS you get a full-body strength workout in 20 minutes that would take over 2 hours in the gym, without any muscular-skeletal stress and a significantly lower injury profile.

I strapped into my first EMS full-body suit four years ago in Santa Monica (yes Los Angeles is always on the leading edge of fitness). The advertised 20-minute workout took almost an hour with all the set-up, suit adjustments, and tweaking. I was had to wear a base layer from the club (ick!). The suit was connected to the control unit with heavy cables that kept getting in the way. The system costs over $40,000 and the user interface was so complex you needed special training, certification, and facilities, hence the $150 price tag for the session. The workout itself was amazing and I have done over 100 sessions with significant strength improvements, about 5x what I would expect for the same amount of time in the gym. While the core method of action was sound, the technology was too expensive and cumbersome for the mass market.

I meet Bjoern Woltermann, CEO of Katalyst in 2018 in Seattle as he was raising funds to build a chain of EMS studios using his in-house developed wireless EMS suit. EMS studios were a $1.7B worldwide market of over 13,000 studios, just starting in the US. My first question was “Great, so can I buy a suit and do this at home?” “No, the FDA requires current EMS systems to only be operated by certified instructors, preferably with a doctor’s prescription.” “Could you handle all their safety concerns in software?” I queried. “Theoretically yes, but no-one has attempted that yet,” Bjoern replied. “Do it and I will invest in that company.”

Bjoern ended up raising (I did not invest) as he pursued a dual strategy of building studios and seeking FDA approval for home use of his suit. Katalyst came to the Upgrade Labs conference in 2019 and the most common question was “How can I buy one of these for my home?” They received FDA clearance for studio use and the studio business started growing well in late 2019. Then Covid hit killing the studio business and drying up funding. Bjoern took the remaining capital and reworked the supply chain and product for home use. There was a ton of software and hardware upgrades required to get FDA clearance. Katalyst received FDA clearance in Q4 of 2020. The company is now solely focused on in-home fitness. The product and supply chain are complete, it is about sales and marketing from here on out.

Bjoern called me in February to see if I wanted to try one of the new suits. There were going into closed Beta. I said, “of course, and are you raising capital?” He was, so I am now an investor in Katalyst.fit.

Why I am Investing

I am obsessed with fitness and efficiency. I have spent hundreds of thousands on fitness and the Katalyst suit is now my only go-to for strength training. EMS is the most efficient full-body workout I have come across in over decades of searching. Katalyst is the first to bring down the cost and improve the useability for the home user. They have a three-year head start on the competition. Bjoern and the team have proven their resilience and ability to pivot in a difficult market. Peleton, Fight Camp and others have shown the way to bring technology into home fitness. By not being tied to one sport and being portable (you can take it with you), I believe Katalyst will appeal to a much larger market.

My tiny idea finally has an answer. We don’t need to exercise like our cavemen ancestors. The Katalyst technology fundamentally upgrades the time/reward/injury relationship. In 20 minutes three times a week, I can keep fit for any other activity I want to do. Today I went for a bike ride with a friend and a hike with my kids. I am super excited to help Bjoern and Katalyst bring the most efficient fitness technology into every home.

Trends I am betting on

At-Home is the new gym.. 2020 “pulled forward” many trends that were already underway, especially those that reduced friction in a material way like ecommerce, telemedicine and at-home fitness. The Gym business was already faltering with less than 15% of americans belonging to one and less than 4% going regularly, and obesity/overweight people growing much faster to over 60% of the population. The “Fitness industry” was not delivering fitness. It was a house of cards. The COVID pandemic was the storm. In 2020 while the physical retail fitness business shrunk, at home fitness of all types exploded 1-300%. The pandemic “pulled forward” the demand for more effective and friction free fitness. Most of my friend who now have significant investments in home gyms see no need to go back to the gym even when the pandemic is over. I believe the switch has been flicked in the public’s mind in favor of home fitness and won’t get switched back.

Efficiency and Efficacy win.. How many of us have started a new fitness program in January and by March are not doing it anymore (or February)? Usually there are two reasons: Time and efficacy (not seeing results). Fitness classes are like old broadcast TV. You have to get yourself to a certain place at a certain time, disrupting your day and conforming to someone else’s schedule. At home fitness is like your iPhone, always available whenever and wherever you want it. Any company that provides greater Convenience (Efficiency) for customers will win over time. Convenience is a major reason why Amazon is killing store based retailers and you buy a coffee at Starbucks drive through for 50x more than you could make it at home. Efficacy (results) is also related to Efficiency. Everyone wants the results faster. That is why Amazon has same day delivery. Traditional fitness is a brute force effort that has traditionally consumed 6-10 hours a week for an active person. What if you could get the results in a fraction of that? While there has been a lot of snake oil sold with this promise, EMS is a proven technology used by professional athletes for decades. I have replaced 4 hours of strength training (weights) per week with three 20 minute Katalyst.fit session, a 75% improvement in Efficiency. And efficacy has gone up as my muscle gains have exceeded my gains with weight training. EMS provides the best Efficiency and Efficacy I have found for strength training. Desire for Efficiency and Efficacy is a long term meta trend which is impacting many industries. This trend has been “pulled forward” in the Fitness industry and will continue in my estimation.

Growing appreciation for: “An ounce of prevention is worth a pound of cure.”. We have all heard this phrase, but few of us apply it in our daily choices. While many people quarantined at home eating the same processed foods and not going to the gym while waiting for the vaccine “cure”, I ask myself “What can I do on the prevention side to strengthen my immune system so when I get it (and everyone will eventually), my body will be ready?” I focused not on the prevention of getting the virus (impossible), but on the prevention of an adverse outcome. While the hospitals were packed with COVID patients, many people could not even access the health care “cures” for any other issue they may be having. I believe this jolt has flipped another switch. The switch that makes you take action on prevention BEFORE you need a cure. I am betting that there will be a material and ongoing shift in wallet spend from “cures” into “prevention” across many areas of our lives. In healthcare (a cure), given the colossal spend there, even a small shift toward prevention (fitness, supplements, etc.) will drive massive growth.