Sept. 19, 2018

#46 Never Get Lost Again

#46 Never Get Lost Again

Somewear founder James Kubik thinks going off the grid shouldn’t have to mean going out of cell phone range. That’s why he created a device that turns smartphones into satellite communication hubs. Can he convince investors to join him on the trail? 

Today's investors are Alexandra Stanton, Jake Chapman, Charles Hudson, and Phil Nadel.


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James: right now, literal billions of dollars are going into new satellite constellations that promise ubiquitous connectivity. And it’s extremely exciting. It’s a great time to be in this space and to be in space, right. 


James Kubik is in the room today raising 2 million dollars for his startup Somewear. He’s here to convince the investors that advances happening with satellite networks in space are opening up new business opportunities here on Earth. 


I’m Josh Muccio and from Gimlet Media, this is The Pitch.


Our investors today...


Phil: Phil Nadel


As a serial entrepreneur Phil built companies that sold for hundreds of millions of dollars. Now he manages one of the largest syndicates on AngelList.


Charles: Charles Hudson


Charles is with Precursor Ventures where he’s invested $20 million in over 100 startups to date. 


Alexandra: Alexandra Stanton.

Alexandra is CEO of Empire Global Ventures and on the side, she likes to do a little angel investing. So far, she’s made bets on 15 startups.


Jake: Jake Chapman


Jake has invested over 10 million in 30 startups, and now he’s a partner at Alpha Bridge Ventures.


Ok, James is up. 


James: So the connectivity landscape is changing right now. I mean we’re here in New York, we have fantastic cellular connectivity. Right? I mean, this morning I was just walking around, there was Wi-Fi available everywhere, cellular everywhere. But what’s interesting is that cellular is extremely costly to expand outside of urban areas. And so still 50% of the world, 4 billion people, don’t have access to consistent connectivity. To us, connectivity is not valuable in and of itself. Connectivity is valuable because of the applications and services that it enables. So that’s where we focus at Somewear. And at Somewear what we’re doing is we’re giving anyone outside of cellular coverage access to digital essentials. Which means communication, navigation, local information. The way we do that is we built a platform across hardware and software. And so the hardware is a compact satellite hotspot. It fits in my pockets. These are extremely tight pants. The tightest pants I own. Fits in the pocket. 


Alexandra: Well done, James.


James: Thank you. Fits in the pocket. And this connects directly to satellite constellations. And so what we do is we build our software to be optimized, it's modern UI optimized for satellite data essentially.


In layman's terms, the Somewear device pairs with your cell phone, effectively turning it into a satellite communication device. You can the open up the Somewear app on your phone to access things like maps, topography, weather and to send and receive messages.


James: we went out and we launched a pre-order campaign in April and in 30 days we sold over $150,000 of product. umm just later this summer we're going to be shipping to customers. 


Charles: Is the idea that I turn the hotspot on when I need it? But otherwise keep it off? My native impression is that satellite data is prohibitively expensive to access.


James: Absolutely. So for an outdoor customer, let's take a backpacker, that's going on a five day trip. They should leave it on the entire time. They don't have to, but they should leave it on the entire time. Because the way that this works is we're using very small packets of data. And so you're not having an open stream of IP. That's when it gets prohibitively expensive. right? And that's the way that we keep costs down.


Alexandra: Could you give us a...


James: You guys want to take a look, by the way.


Alexandra: Yes. We want to see...


Phil: Can you explain that a little bit more?


Charles: Yeah, I was going to say, is this like a full on hotspot experience? Like, I'm in the middle of the woods watching YouTube video on my phone?


James: No. So that's not why we built this. We built this for the core essentials that people need in these moments. For us in a city, of course our phone is our window to everything in the world. And one day, we will be there. What's happening with Space 2.0 is going to get us to that point. 


Charles: Can you tell me what that means and when that happens?


James: So what Space 2.0 really means is that the costs to develop space infrastructure are coming down. And so right now, literal billions of dollars are going into new satellite constellations that promise ubiquitous connectivity. And it’s extremely exciting. It’s a great time, especially for us, to be in this space and to be in space, right. And uhh what’s interesting is all these companies are focused on the infrastructure and no one’s thinking about the end consumer. The end customer that’s actually going to be using this. And so all of that technology, decreased launch costs and decreased costs of satellites, and the ability of those satellites, are creating new abilities in space. That’s Space 2.0. 


The technology in Somewear is connected to a huge network in space. But the device itself fits into the palm of your hand. James walks over to give the investors a closer look at the gadget. It’s gray and shaped like a teardrop. 


Jake: I'm looking at the hardware right now. There's a little SOS button there. So if I get lost on the trail, and I push that, someone will come find me?


James: Exactly. So that taps into a dispatcher that has resources all over the world that can provide a rescue. And that's actually, I'll share the origins of why I started this. So when I was younger I lost a friend in a sailing accident. And it was a very unfortunate event where she went out - I'm from Chicago - she went out on Lake Michigan with her dad and her younger sister, and they got separated from the boat. They didn't have any way to call for help. And they never made it back. And so when the boat washed up on shore, this is the part that always kind of stuck with me, when the boat washed up on shore they had marine radios, they had a satellite EPIRB, which is essentially a marine grade SOS.


Charles: So that seems like an EPIRB, yeah.


James: Totally. Exactly. And so it was this realization for me of those products are designed for emergency and yet they weren't accessible in that moment. And so what I started working on, I was a product design engineering student at Northwestern, and I started working on this wearable EPIRB, essentially. A wearable SOS device that would give the ability to call for distress anywhere in the world, and it was always with you, always on your person. 


Charles: And how does this compare to something like a goTenna? It’s probably the only other thing I can think of that I’ve seen that at least purports to have similar functionality.


James: So point to point communication, that’s what goTenna does. What they’ve done is they’ve created a device where you pair to your smartphone and you have point to point VHF communication. So we have to be within three miles for goTenna. And then you have to have a piece of hardware. I need to have that piece of hardware.


Charles: That’s line of sight too, right?


James: Yeah. Exactly. 


What’s different about Somewear is that it doesn’t rely on VHF radio, this old-school system that requires specialized radios on both ends. Instead, you can use Somewear to communicate with people back home on their smartphone. 


Suddenly, this simple little satellite messaging gizmo sounds pretty groundbreaking. But the investors bring it back down to earth.


Jake: So do users buy like a 10 megabyte plan?


James: Yeah. So business model, for this customer specifically, there's a onetime hardware purchase.


Alexandra: Of?


James: The pre-order was at $300 and then rose to $320. Proposed retail is $350.


Alexandra: Okay.


James: So it's a onetime hardware purchase. And then there's going to be the actual data plans. And so there are different data plans depending on how much data you'd like. They range from $15 a month to $50 a month for unlimited. 


Alexandra: James, could you talk a bit about what you perceive to be the size of the market? Because on some levels, hunters and backpackers going remotely doesn't scream to me 50 million people in the US for example. So what else are you thinking?


James: Absolutely. So when we think about backpackers, there are 10 million of them in the US. So every single year, 10 million people are backcountry camping. And there are specific spots where there are concentrations of them So the Pacific Crest Trail is on the west coast. The Appalachian Trail is on the east coast. And there are a certain number of people that every year dedicate six months, six months of their time, to just doing that trail. And we’ve actually spent a lot of time on the PCT with them. We understand those customers very well. And every single one of them was like, I absolutely need this. 


Phil: Is there a primary concern or problem that they want to have an SOS button? Or is it that they want to have the location tracking and the weather and all that? 


James: number one, the primary thing is messaging. Is communication with the people back home. That is absolutely number one. No question. However, once you get in the door with messaging, in the back of their mind they’re saying, it’s nice that I have this SOS button as well. You know for us, this is a true story, what was unique is on the PCT when we were testing, wildfires broke out. And so no one had visibility into what to do. I mean, trails were literally blocked off because there were fires on the trail. And so people would be, and this is a true story, people were hiking 50 miles through smoke, because it’s very disorienting, you don’t know where the source of the flame is, they would see flames and then they would have to turn back. They didn’t know what to do. Whereas our hikers were able to get updates, were able to get alerts of what’s happening with the fire. That is one of those things where once you have an experience like that, you know that having access to consistent connectivity always is an essential. You have to do it. 


Alexandra: Let me ask you a question. Have you thought about making these for rent?


Charles: I was going to ask the same question.


James: Yeah. Absolutely.


Alexandra: Because I got to tell you, most people are not quitting their jobs for six months and hiking anything. They’re going once a year. Max twice. And just as if I go to Europe, I up my plan on my phone to be able to be connected 24/7 in Europe, whatever it is. I need that bump as opposed to permanent plan for a year. Which I don’t need.


James: 100%. I love where your head’s at. And it’s part of the business model that we’re thinking in the future we can test out. And the way that we’re viewing that is more of a B2B2C, not a direct rental to customers, where we partner with trip providers. So you show up at Yosemite, you get your permit, and at the place where you get your permit, it’s the wilderness center, you can pick up a Somewear hotspot. 


James is on a roll - he’s actually encouraging investors when they ask the “right” questions about his business. But founders pitching hardware face one notorious stumbling block - And that is.. How much does it actually cost, to make the thing?


Phil: What is your margin on the hardware at 350 retail?


James: Yeah, absolutely. Oh so at 300 it’s kind of where we started, saying, okay, if we’re going to sell this pre-order at 300 then we need to price it that way and then anything above that is great. So at 300 right now we’re at about 40%. And we’re looking to improve that over time. I mean, as I’m sure you guys know, any hardware business that starts at… We’re actually really proud of 40. [laughs] 


Phil: And what about on the monthly plan?


James: Yeah. About 40% as well. 


Phil: And how much money have you raised so far?


James: Yeah. So ahh we initially went through an accelerator called Highway One. and then after that accelerator we put together an angel round. So total we've raised a little bit less than $500,000. And we have built everything across hardware, firmware and software.


Phil: That's impressive.


Jake: This is super impressive for $500,000.


Phil: What was the valuation that you raised at?


James: It was a 5 million cap. And I... If you find a company that's been able to get to this fidelity with less money, please let me know. I'd love to have a conversation with them. 


Phil: I have to ask you a question. So I'm a hiker, backpacker, and I would say I hike for two or three weeks out of the year. Your plans are monthly. Can I turn them off anytime? Turn it on just when I hike?


James: Yeah. So when you turn it on, then you're going to be charged for another month. So anytime that you activate, it's going to be a monthly charge. And then you can cancel. We don't cancel it. You suspend right?


Phil: Right. I guess my concern with that is it really limits your recurring revenue, as opposed to a mobile, a regular mobile phone plan. Do you anticipate only offering annual plans at some point?


James: Not to consumers. To consumers we want to offer that flexibility. Where we see more predictable revenue coming in is as we open up enterprise channels. Those are the customers that absolutely need 12 months of data. And so what we want to do is essentially have predictability in our enterprise channels and have annual plans that fit their needs better. And then offer the monthly plans to consumers.


Phil: Based on that type of erratic revenue stream, or unpredictable revenue stream for the consumer channel, I’m going to pass.


James: Sure.


Phil: But thank you. 


Phil is out - but James still has 3 other investors on the line. 


Alexandra: Can you talk a bit, after the, whatever the, however we're defining outdoor recreation. What's next, market wise?


James: What's next? Yeah, it's a great question. Now, when we launched our pre-order, every single moment of marketing was targeted at the outdoor customer. Zero was targeted at enterprise. However, I was still getting inbound from all different sorts of enterprises. [00:22:00] From the military, government agencies, fire departments. The main opportunity that we're not even going to wait to start pursuing because we've already had enough inbound interest, is search and rescue and the emergency responder market. 


Alexandra: Yeah.


James: Right. I mean it’s something where our functionality fits them perfectly. There’s no reason to wait.


Alexandra: What's the size of that market?


James: It's a good question that it is really hard to define. I'll give you one statistic that I found very interesting. In the US, there are 52,000 fire departments, and there are about 100 firefighters per department. 


Alexandra: I... I worry that your initial acquirers are going to end up sticking it in the drawer and not using it and canceling. Because I ultimately think this is something you rent episodically. And that has a higher volume of usage for you than someone who buys it and does an annual plan. So I think I want us to be in touch and I want to watch. I’m going to pass for right now. 


Alexandra is out, here’s Charles. 


Charles: So I think I'm going to pass. But it's a tough one. My only concern is... I actually think you'll get people to sign up for annual plans. I think you'll be fine there. For me, it's just a velocity, I don't have a sense of the velocity. I think you convinced me that there's an opportunity to get six digits worth of people eventually. I just don't have a sense for how quickly you can get there. And that's my concern. And so I can see the two end points on the line, but I have no idea about the distance, the time distance between them. 


James: Okay.


With 3 investors out, Jake is James’ last chance for investment today. 


Jake: You said you're raising 2 million. What are the terms of the current round?


James: So I haven't set the terms. We're looking for a strong lead that we can help come to a mutual agreement on what's a fair valuation and what those terms should be.


Jake: Okay.


Phil: Why don't you name your price then?


Jake: Yeah. You know every deal, every company is a good investment at the right price.


James: Sure.


Jake: Um... Hm...


Phil: That's not even true.


Jake: What? I mean, if you're going to sell me 5% of your company for $1000, almost every time I'd take that deal.


Phil: What until you hear about my company.


Jake: Well, not your company, Phil. I mean, almost anybody else. Um... Wow. Okay. I really like what you're doing. I'm incredibly impressed by what you've built for $500,000.


Phil: That is amazing. 


Jake: That's impressive. Hardware is tough. Um... In my heart of hearts, I feel like your market is going to be more in the enterprise than it's going to end up being out on the trail. But I think I want to invest either way. I think you'll figure it out. But I'd like to do a small check, like 25k or something, and start working together.


James: We can definitely work something out.


Jake: Hardware is tough. You're going to need to raise that next round too, so...


James: Of course. Of course. Beautiful. Thank you.


After getting a commitment from Jake, James leaves the room - but the investors aren’t done yet


Jake: I think the rental idea is great. At the trail heads, at the local RAI stores, at marinas, people going out on boats. Absolutely. I think it's a good rental market. But I think it's going to be the search and rescue, the firefighters and the utility workers. I think that's the bigger play.


Phil: I do too. Because then you get away from this non-recurring erratic revenue stream. I think search and rescue would be recurring. They're not going to turn it off.


Jake: Yeah. And you sign large multi-year contracts. 


Alexandra: I just think about where we are right now, just New York state. The people that end up in the Catskills and there’s no cell service. Right? and by the way, weekend skiers, states with seasons where on weekends... I mean, any state tourism bureau, and I sit on the governor’s tourism council here, I’m telling you, those weekend folks, you could rent these things with... I think you would get, you would solve your question of erratic revenue after a year or two of rentals. Because I think it would become reliant. 


Phil: Yeah. Yeah. That's true. 


Phil: I think he’ll end up discovering a lot of niche markets that he can pursue. Each one is a different marketing challenge and different sales channel. But you know, there are probably a lot of little, or maybe not so little, niches that he can pursue.


Alexandra: He's a good salesman.


Phil: For sure. He was knowledgeable. 


Coming up, something stops our founder dead in his tracks. 


James: I mean, since that day I have not set up one more meeting. 


Welcome back. When we left, James had just reeled in a commitment from one of the investors. Jake Chapman. Two months went by and I called James for a fundraising update.


Josh: What has happened since then?


James: Yeah. It's been ... it's been a fun couple months. When I walked into The Pitch, we had a fairly, far-along prototype that, you know, I think Jake commented, "I'm very shocked to see this level of fidelity." And so in that time -- in the last two months -- we've actually gone from that level of fidelity, which we were extremely proud of, to a whole another level of fidelity which is production units. And so we're gonna be shipping product at the end of September and I ... I couldn't be more thrilled to say that. 


Josh: When in September, do you know? Do you have a date?


James: I don't have a date. We're just saying end of September. But ummm... but yeah, it's ... it's happening.


Josh: Got it. Umm so you were raising $2 million dollars on the show. How is the round going?


James: So I mean, since that day I have not set up one more meeting, because I've literally just been heads down with product and manufacturing. Fortunately we had the runway where we could push out the ... the fundraising a couple months. 


Josh: So you stopped fundraising.


James: I mean, I ... I came on The Pitch, I gave one pitch and then I ... I did not take a single other meeting.


Josh: Huh! And ... and why again?


James: So ... so a couple days after I got back from New York from The Pitch, we had an opportunity come up which was --it's a really exciting one that unfortunately I can't speak a ton to, but you know, there was a... people within the government reached out, they were excited about what we've been doing, and this opportunity kind of presented itself that we just couldn't look away from. And so we've just been heads down trying to get product ready and out the door while also understanding some of this new opportunity, that is more of an enterprise type ... type deal. But specifically with the government.


Josh: Okay. So who vaguely in the government reached out to you?


James: Yeah, so it's essentially it's ... you know, when you think about the first responder market, there's, of course, local and then federal. And so when you think about last year, a disaster like ... like in Puerto Rico. And FEMA agents that are going into the field where, you know, terrestrial networks are down. They have to be supported with reliable communications and connectivity.


Josh: Oh my gosh, yeah.


James: And so that's an opportunity where we can step in and provide a really fantastic experience for them that right now is ... is lacking.


Josh: So when the network goes down, when cell towers goes down, how do you communicate? And so you have that, like Somewear can fill that gap.


James: Exactly.


Josh: Oh wow. Wow. That's ...


James: Yeah, so it's ... it's a really exciting ... it's an exciting opportunity because it is something that again, it ... it comes from that same ethos of, "How can we take a kind of disaster scenario, right? And provide, you know, real safety, real security, and ... and real stability. 


Josh: And so then you hear this opportunity, and you've mentioned before that, like, there are lots of different enterprise opportunities that have presented themselves since you guys did the pre-launch. What was it about this that made you say, "We're gonna put everything else aside and focus on getting this contract fulfilled, getting units into the hands of this government entity?" 


James: This is always been something that's been in our head. And when the opportunity presents itself with almost, you know, zero sales effort, you have to just say the time is now, right? And you have to recognize that this opportunity doesn't come along always, and you have to start moving.


Josh: Yeah. Now there's also the argument that could be made that OK, I assume that there was some sort of contract set up to say, "We need this many units and we will pay you this much money to deliver these units by this time." And so I've seen companies all the time, or founders go and take that information, take that contract and leverage that to get the fundraising they need. Like, never mind whether you actually need it for the contract or not, but that's leverage you can use to raise the money you need to build the consumer side. Why not ... why not do something like that? 


James: I mean, when it's time to ... to fundraise again, this will be part of the story, right? And the pitch will be ... will be an evolution from the last pitch. You know, I think that the company's always growing, and when you tell that story, and you just have more proof points of, you know, when I said there are enterprise opportunities, and I give some examples. it's much more powerful to say, "Hey, here is an example that we're executing on." Right? 


Josh: Now that's actually pretty risky from a fundraising perspective. They say you're supposed to start fundraising, like, 6 to 8 months before you actually run out of money, because of how long the fundraising process is. Why ... why is that not a concern for you?


James: I think that business is about managing risk, right? And so when the right opportunities come, you have to ... you have to make that decision. And so for us, sacrificing two months to, you know, two months to focus on really, really high-value things, it's only gonna make the business stronger, and it's only gonna set us up for success. And so for us, it was just the risk worth taking. 


Josh: I mean Jake, he invested because he thought the bigger opportunity was these enterprise sales. He's like, "You'll figure it out. I wanna invest. I think in the end, this is where it's gonna be at is on the enterprise side of things." So have you talked to him? Does he know what's going on?


James: Yeah, yeah, yeah. We've ... we've been in discussion, and still ... still in discussion there. I'm ... I'm meeting his partners in, I believe, two weeks. So, excited to meet them. 


As of now, James and Jake are still working to get connected. Which is ironic, because Somewear is all about… connectivity.


But clearly James and his team are excited about the unusual path the company is taking … They’re somehow stoked about putting their fundraising on hold. Which is something you don’t see everyday. But hey, every company’s path is different - Good luck James


We’re gearing up for another taping event this November. We are on the hunt for new and exciting startups, ideas, founders, and we need your help! If you know a founder that we should invite to pitch our investors, send an email to [email protected] and include the subject line “startup tip.” Again that’s [email protected] subject line “startup tip”


And thanks for listening. See you next week.


Our show is produced by me, Josh Muccio, Molly Donahue and Kareem Maddox,. We are edited by Blythe Terrell.

We are mixed by Enoch Kim. Original music composed by The Muse Maker. Additional music by Bobby Lord. Our Theme Music is by Breakmaster Cylinder.

Lisa Muccio planned the recording of this pitch.

We discovered Somewear because of an introduction from Nick Moran with New Stack Ventures.

Our disclaimer, no offer to invest is being made to or solicited from the listening audience on today’s show.

All right -- you’ve been listening to The Pitch from Gimlet Media. We’ll be back with a brand new episode, next Wednesday.

Phil NadelProfile Photo

Phil Nadel

Investor on The Pitch

Phil Nadel is the Founder and Managing Director of Forefront Venture Fund and of Forefront Venture Partners, one of the largest syndicates on AngelList. He has started and sold several companies and has invested in more than 200 startups with several exits.

Jake Chapman

Investor on The Pitch

Jake Chapman is a Managing Director at Army Venture Capital Corporation and focuses on companies working on technology that enhances the national security of the United States of America. The sectors I focus on are AI, Robotics, Aerospace, Autonomy, Quantum Computing, Semiconductors, Manufacturing, Security, Biotech, Defense, Energy and related industries.

Charles Hudson // Precursor VenturesProfile Photo

Charles Hudson // Precursor Ventures

Investor on The Pitch Seasons 2–10

Charles Hudson is the Managing Partner and Founder of Precursor Ventures, an early-stage venture capital firm focused on investing in the first institutional round of investment for the most promising software and hardware companies. Prior to founding Precursor Ventures, Charles was a Partner at SoftTech VC. In this role, he focused on identifying investment opportunities in mobile infrastructure.

Alexandra StantonProfile Photo

Alexandra Stanton

Investor on The Pitch

Alexandra Stanton is the CEO of Empire Global Ventures LLC, which advises Fortune 500 companies, national central banks, senior elected officials, and nongovernmental organizations across three continents. In 2013, Alexandra was appointed by President Barack Obama to the Board of Trustees of The Kennedy Center in Washington, D.C. She currently serves as Vice President of the Board of the Parrish Art Museum and is Vice President of Doctors of the World – USA.