Jonathan Kumar pitches his startup, Samaritan, which aims to help people who’ve lost their homes. But can he convince the investors it’s OK to earn a profit off of homelessness?
Today’s investors are Charles Hudson, Michael Hyatt, Jillian Manus and Phil Nadel.
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Today on the show we're bringing you a pitch about one of society's biggest problems.
Jonathan: We're focusing on building an incredible business that helps nonprofits in cities better understand, reduce and ultimately prevent situations of homelessness.
Michael: And, and you think it's okay that I profit off that?
And yeah, this issue touched a nerve with some of our investors. We’ll get into that.
Founder Jonathan Kumar is here asking our investors for $1 million dollars for his startup... Samaritan. Which Jonathan says can help solve homelessness.
Now conventional VC wisdom says that a successful startup is one that solves a real problem. And homelessness is a persistent one. More than half a million people were homeless last year. And that number has been ticking up. So it's a big deal.
But... is homelessness the kind of problem that venture capital can... or even should... solve?
From Gimlet, this is The Pitch. I’m Josh Muccio.
Today’s investors are:
Jillian: Jillian Manus
Jillian is a partner at Structure Capital, where they’ve invested $98 million in high-profile startups like Uber.
Charles: Charles Hudson
Charles started Precursor Ventures, which has invested $20 million in over 100 startups to date.
Michael: Michael Hyatt
Michael built and sold two software companies for over $500 million dollars and now he invests for himself.
Phil: Phil Nadel
As a serial entrepreneur Phil built companies that sold for hundreds of millions of dollars. Now he manages Forefront Venture PARTNERS, one of the largest syndicates on AngelList
Jonathan’s pitch starts when he silently walks into the room holding a handwritten sign.
Phil: Sign says, need medicine for the diabetes in my feet.
Michael: A cardboard sign that you've written.
Jonathan: Would you trust me? Would you have cash on you to give? Or maybe only hundreds on you? Would you have the time to stop and engage and buy them a sandwich?
Michael: Yes. I actually do.
Jillian: I do too.
Michael: I actually do.
Jonathan: That's wonderful. Guys, as you leave the building to catch your flight or to commute home this evening, you will see that homelessness is one of the greatest issues of our time. Cities, healthcare systems, business owners are spending hundreds of millions of dollars per year, per city combating it, and they, no, we are losing. Samaritan provides these incredible free digital wallets designed for people without a home. If someone has one of these digital wallets, which we call a beacon, and you, everyday people have this Samaritan app on their phone. Just by passing by an unsheltered beacon holder you'll get a notification that lets you learn their story.
If you have the Samaritan app on your phone... when you pass by a beacon holder on the street their profile pops up on your phone with a photo and a bio telling their story. And you can decide if you want to donate. If you do, the money is sent electronically. It’s kind of like Venmo.
Now if you're the person who has the beacon, that money goes to you. But there are conditions... to get the money... you have to check in with a local non-profit once a month.
Jonathan says these check-ins can go a long way toward helping people get off the street.
Jonathan: Friends, we've seen these relationships coupled with that simple financial capital result in housing, employment, addiction recovery, and unprecedented data. We've launched a 500 beacon pilot in Seattle, and we've seen and helped over 28 beacon holders leave the street saving our city half a million dollars per year and earning our first $100,000 in licensing revenue.
Phil: Can you talk a little bit more about the product and exactly how the beacons work? Cos I'm not sure I'm clear on that yet.
Jonathan: Yeah. So these are Bluetooth low energy transmitters. We get them from a company in San Diego at about $5 a unit. It has a battery inside.
Jillian: What's the life of it?
Jonathan: 30 days, actually. So it works out really well. Because for them to get a new battery and renew it…
Jillian: Who's they?
Jonathan: The beacon holder.
Jillian: You mean the person who does not have a home?
Jonathan: Right. The person on the street.
Jillian: So it is up to them that every 30 days they're going to go get another battery?
Jonathan: Right. At the nonprofit. That battery exchange offers that nonprofit an opportunity to have what we call a life care visit, where they'll talk about the last 30 days. The 30 days ahead. Setting some goals.
Phil: So. There's a certain amount of money that's put on the beacon for donors in the last 30 days. The nonprofit says, hey good news, you have 50 bucks that's been donated to you. So how do they spend it?
Jonathan: Yeah. So the two ways beacon holders can spend their money are either just sitting down with a counsellor that has access to the money, They can pay down debt. They can get cellphones, pay for cell phone plans. In Seattle we have a couple merchants who have the same app that you would have, but because they're logged in as a merchant, they can see the beacon holder's balance and charge a good or service to it.
Charles: What's a meaningful amount of money for a beacon holder to get in a course of a month?
Jonathan: We see right now about 40 to $50 per active beacon holder per month. Which is so low. But what's amazing about that number is even with an amount as low as 40 to $50, we're seeing 30 to 40% of beacon holders keep their Beacon and go through the process of that monthly one on one to hold on to it. So I think that's really promising.
Phil: 30 to 40...
Jonathan: Will go through the monthly one on one at a nonprofit. Which is our, that's probably our key, our most key predictor of success. Is are they consistently accessing relationships? We see that beacon holders who complete those one on ones are likely to exit to housing, employment.
Phil: So the other 60 or 70% are forgoing the money that they have?
Jonathan: That's the data right now.
OK, so Jonathan is saying that most people who take a beacon don’t actually keep using it. 60 to 70 percent in fact! Which seems high to me! But even though it catches Phil’s ear, the investors don’t seem to get hung up on it.
Charles: Do you get a full picture of what the person's been up to? If I'm at Salvation Army, do I know, oh, Jonathan went to Red Cross and then he went to the soup kitchen?
Jonathan: Of course, yeah.
Charles: Do I get the full care, the full service picture for that individual?
Jonathan: Because the beacon holder has opted in to sharing that information when they sign up for a beacon can know, oh, you've actually sat down six times with Salvation Army.
Jillian: So one of the biggest problems with homelessness is that, they are transient. And so nonprofits have a difficult time finding them. So they go off the radar and then two months later and they
Jonathan: That is one of the most tragic things, is when someone goes on a housing list for six months or a year or two years...
Jillian: Oh it happens.
Jonathan: And their name is called. And they're not there. They're not in the community. So this helps keep people in and above the surface. So that when their name is called, nonprofits can actually use Samaritan together to contact an individual to see, ohh. He’s been to the Salvation Army recently. umm So there's a coordination aspect that allows them to keep track of individuals and contact them and say, hey, your room is ready.
Jillian: Especially when they're on a drug program.
Jillian: Which is a big issue.
Charles: If you
Jillian: They can connect.
Charles: How do consumers find out about the Samaritan app?
Jonathan: The license includes an ad spend. So we'll get at it with Facebook and Google. It’s great for local business
Phil: But do consumers want this app? Do they want to get these notifications when they pass by? Or does it make them feel guilty every time they pass by if they don't give? How does that...?
Jonathan: Yeah. Well, I think our mission isn't to inspire guilt in anyone but to really create this sense of poverty in spirit or being poor in spirit, realizing that you are no different than the person holding the sign in front of you but for circumstances. And when you see their story, when you see their portrait, you realize that and you stop pitying them. You partner with them.
Phil: So your revenue model is a licensing model, right? You're licensing it to nonprofits or municipalities?
Jonathan: Yeah. We license this technology to health care systems, municipalities, business owner and real estate groups. So we license the beacons, the software, the hardware and the data And that allows us to provide the beacons to non-profit partners to pass them down. Our average license for a Portland-sized city or a Madison, Wisconsin, would be about 175k a year annually. And it costs us about 100k to execute.
Charles: It just seems like, if you're successful, the gains so greatly outstrip the licensing fee. Like, cities spend so much money. And I'm from San Francisco. And huge problem where I live. Cities spend hundreds of millions of dollars trying to address a lack of housing. And in a weird way I feel like you're almost too efficient.
Jonathan: We're pretty early. I mean, we have one customer. We're still learning. We need your guys’s help in that, right. So as we launch more successful pilots, the value of our service, we can expect it to go up, but we want to stay with what we know. Our first contract was annually $100,000 in revenue for a 500 beacon pilot. So we'll go up from there as we get more efficient.
Charles: Yeah. I mean, I guess this is the thing that I'm struck by. This is a keeping, getting one person housed or in a job is worth so much more than the entire value of the license. Like, I'm racking my brain trying to figure out how do you get to have this be a wildly profitable venture, in a way.
Jonathan: Yeah. I think when we win, this is a 15 to $25 million a year business. So it's not in the stratosphere in terms of VCs and Facebook type valuations. So we definitely believe there are returns to be had. We want to work with the right people to get there.
Charles is struggling to see where the profits will come from, and Jonathan basically says he's not expecting Samaritan to make heaps of money.
But when we come back, Michael raises a different concern. About whether he would feel comfortable making any money off of Samaritan at all ...
Michael: I love what you're doing and why you're doing it. I don't know if I want to capitalize on this.
Welcome back. We just heard Jonathan's opening pitch for Samaritan, a startup that's meant to address the problem of homelessness. And something about it is making Michael uncomfortable.
Michael: Do you think this is... I'm just listening to this and here's my struggle. I love what you're doing and why you're doing it. I don't know if I want to capitalize on this. And I have my money and then I have a foundation. Which one do you want money from? Do you want it from my foundation, or do you want it from me? Because if it's from the Michael Hyatt investor, I'm going to be talking to you about all the nuts and bolts and returns and scaling and all that. With my foundation, it's a completely different metric. It's the, completely, how do you do good? Tell me which one you want the money from?
Jonathan: Right. our ultimate vision is to help people without a home in 99 more cities by 2023. But we felt that the fastest way to get there, to get there by 2023, not 2028, was to show that we had a scalable business model. So again, we showed, we're showing that this is repeatable in Seattle, we're showing that it's sustainable in terms of the revenue.
Michael: So where do you want money from?
Jonathan: So this would be a financial investment that we'd hope to return your capital so that you can make a couple more bets down the road.
Michael: How are you going to return my capital? Are we taking this business public? I'm still struggling if this is a financial investment for me.
Jonathan: Makes sense. I totally understand that. Our investors I think are in to either cash out when we hit 25 or 50 cities.
Michael: How do they get out? Are you saying you're going to buy them out?
Jonathan: Right. Yeah. So we can take a topline portion of our revenue to buy back their shares. We're not targeting an exit right now. We're focusing on building an incredible business that helps nonprofits in cities better understand, reduce and ultimately prevent situations of homelessness. But as we scale, we see partners that could potentially make it even bigger. World Vision, Red Cross could use this to provide beacons to disaster victims that have been have had their home destroyed in a fire or an earthquake or a tsunami.
Michael: and you think it's okay that I profit off that?
Jonathan: I think we're looking for value-aligned investors that when they get their return, will make two or three or nine or ten more bets on similar ventures in the future. We want to team up with good investors that are going to do good things with the profits.
Phil: I don't mind investing in public benefit companies. But this just seems to be too much like a nonprofit. ummm I just, you know, I'm just having trouble with how this really scales to be a big company.
Jonathan: Yeah. Tell me more.
Phil: And you know, it feels... Like we've all said, it kind of feels funny to talk about that because you're doing such a good thing and I don't, I don't feel right talking about, you know, how much money you can make and the potential because I love your mission. But as an investment, it's tough for me. It's tough for me to wrap my arms around it.
Jonathan: If you talk to the rest of our angels, they would probably say that they were investing in it for the opportunity of financial return, but really to change the way our cities look at our most vulnerable in the process.
Phil: I get that. I get that. I understand the idea of investing in your company because you want to do good and help. Like Michael, I sort of look at it in two different buckets. You know. I do my philanthropy apart from my investing
Phil: When I'm investing, I'm looking at it strictly as a return on investment. When I'm being charitable, I look at it as, how can I help and get the biggest impact? So this feels like it's in between. And that makes it challenging for me. Like I said, I really love your mission and what you're doing. But as a business, as a financial investment, I have to pass.
Jillian: Okay. So this is obviously extremely important to me. Being a homeless person myself I've been trying to hit this square for most of my life since that time.
Many years ago Jillian was homeless after leaving an abusive relationship. She spent a year in NYC with no place to live, and today she's still really involved with the issue.
Jillian: I know exactly what the people on the street need because I'm on the street with them all the time. One of the reasons people spit on people in the street is because they all assume that they're drug addicts and they all assume that they're crazy. And the fact is that they're not. They're just not. They've hit hard times, and it's just been a spiral, a slippery slope and they end up on the street. So... You can pick people and get them back on to their feet and give them their pride back. And that's one of the things I really like about this. Just what you touched on. I like this a lot. A lot. At the very minimum, right now, I can commit $50,000. I do believe that's going to be more and I'm going to try to figure out how to do this and maybe bring in the rest of the money to you in different ways. I want to obviously have many more conversations with you. And connect you with other people. But you are really something special. The way your mind thinks. It is as equal to your heart. Both are equal. And I think that you're going to make impact. You are going to move this needle. I believe in that.
Jonathan: Thank you. Wow. So meaningful. Thank you for that.
Jillian is in… and she’s really connected with the idea of Samaritan. Now what about Charles?
Charles: Jonathan, I think you've addressed a lot of the really important issues here. I do think that this I think the reason at least I'm struggling is I've never seen someone apply such sound business logic and have such a complete solution to something that feels like an intractable social problem. And so if I were an angel investor, I would invest in your company, because from my personal angel investments that I made before I had my fund, I was able to set my own returns threshold. I could say, if I get my money back on this investment and I get a chance to work with an awesome entrepreneur, then I'm happy. For my fund, I don't have the same flexibility. So I'm going to pass. But I have to say, if there's anything I can do to help... In particular help you connect you to capital providers. And there are many people in the business community who are looking for creative solutions like this. So the door is open if I can help you there in anyway.
Jonathan: Absolutely. Thank you for that.
Michael: So I'm going to pass and here's my reasoning. I can't get comfortable around being involved in a business like this because I don't feel comfortable pushing for profit and scaling and all this kind of stuff and when I have to consider what we're really doing. I can tell you that a lot of nonprofits should act more like businesses and figure out how to make it profitable so they can do more, like what you're saying. So I'm not totally against what you're doing. I just don't see it as a way to fit into what I want to invest in.
Jonathan: Yeah. Makes sense. I get it. Thank you.
Jillian: Thank you so much.
Jonathan: Thank you.
Jillian: Okay, we’re good to go.
The investors left the room deeply divided on this question of whether it’s ethical to profit off a major social problem.
After the break, we're going to dig into this question with Jillian and Michael... and find out if any of this changes Jonathan's thinking on Samaritan.
Welcome back. A couple months after the pitch we followed up with Jillian to see if her views on whether Samaritan should be a for profit company had changed at all now that she’d spent a little more time with the company... Producer Heather Rogers gave her a call.
Jillian: Jillian Manus.
Heather: Hi Jillian, it’s Heather.
Jillian: Hi Heather.
Heather: How are you?
Jillian: Fantastic. Fantastic.
Heather: OK so where are you with Samaritan?
Jillian: So I went in in the very beginning
Heather: Was it philanthropic or was it through your VC?
Jillian: I invested in Samaritan as an angel investor out of my angel fund called Broad Strategy. I think the way he's approaching that is as a business. I don't know if they're going to be able to get the traction but if they can. If the cities do start to support this, then this is no longer a nonprofit.
Heather: Well Michael didn't invest in the room and he was very concerned about the ethics of Samaritan being for profit
Jillian: You know this goes back to the fundamental sort of theory of mine, which is: a nonprofit, many of them have difficulty scaling, obviously sustainability issues. I know so many organizations that I give money to and they don't have the metrics. They're unable to sustain themselves. And they'll get halfway through their mission and then they won't be able to finish it because they're continually fundraising. So I look at this and I say this is a philanthropic organization that is looking on how to monetize and move themselves into the profit lane.
Heather: That's one thing but to make a profit off of that is the question. Like that's what Michael was so he's so and that's why he was so adamant about not investing.
Jillian: We're making profit off helping people get off the street. And that is one of the biggest most is that the solution and aren't we investing in solutions and isn't elevating society the endgame? Isn't this one of the most dynamic returns that we could get? Is to help families out of living in their cars and provide a roof over people's heads. What, we should be ashamed that we're making a profit off of that? The profit goes back into society. Isn't that what we're all doing with every company or should be doing?
Heather: But don't the profits go into the investors’ pockets?
Jillian: Yeah. Every other thing they go into the investors’ pockets.
Heather: You don't see a problem with that?
Jillian: I don't see any ethical question in this case. I see I see this as investing in hopefully a sustainable business that will provide paths to self-sufficiency, and to salvation in many cases, for people who have been marginalized and literally passed over, you know, every day on the street. And umm I don't see that as a problem.
Jillian ended up investing 25K in the company... And she really sees Samaritan as a chance to use venture capital to do good in the world. But when we caught up with Michael he told us, that VC has its own rules and they aren’t so altruistic.
Michael: I had a real kind of moral struggle with what this was. Think about me saying, Hey I'm making a ton of money off of this app that is built to make money for the homeless. You know I don't I don't feel comfortable with that. And it didn't make any sense to me At the end of the day I mean I mean I don't really want to be in the business of profiting off of people's difficulties right because the profit and I'm getting off it should not be going to those people? I don't need that money. They should. I mean I can't reconcile that in my head. Just step back and think about it. Right. you're looking for three to five times X on your number I don't see any any VC wanting to say to their investors that they made all this money off of this type of program. Do you know what I mean? I don't see it.
Heather and I took Michael’s issues with Samaritan to Jonathan to get his response…
Heather: And he said I don't need the profits people living on the street need that money not me. What do you think about that?
Jonathan: umm Yeah I mean I definitely agree people on the street need the money more than he does. I mean but more than more than money they need a physical and social home. And if we can get there in five years instead of 10 because we took capital from people who were trying to multiply their wealth and as a result of that we returned a lot of money to these folks to use on their yachts or their vacations, like I am glad about getting to people in five years instead of ten. If we were doing banquets fundraisers and passing the hat for donations. It's all about how can we help people across the country experiencing homelessness the fastest? And if we need to make some people rich to get there, or richer, I should say that was an acceptable outcome.
Heather: So like what you're saying is you feel like you can make an impact faster if you have investors who are seeking a profit because you'll get more money to grow.
Jonathan: I think it's important to take a look at again if you were forgoing that opportunity to sell what you're doing for money, then you're handicapping your ability to grow. And so if we wanted to be in more than just Seattle in the next couple of years we needed to find a way to do what we were doing sustainably but also with some margin to grow the business to grow the impact. And so to think that we were turning a profit and if that's a bad thing I would be sad if someone thought that. If someone thought that because we have 99 more cities to get to.
Josh: Why not just make it a non-profit where you know that the money is going to be? Why. I know you said like things go faster like you can make more of an impact but I guess by being in this limbo, like limbo between a for profit nonprofit company, you kind of open up yourself to the scrutiny of VC money going towards homelessness and then those investors expecting a return.
Jonathan: No no. I mean. We get it from both sides. Just like nonprofits don’t think we're a non-profit because we don't have a shelter or a day center or case management. For profit something where for profit because of the people we're serving. And the fact that we're looking at a space that is not typically addressed by for profit. So I get we have an identity crisis. And if, if someone told me, if this wise man told me that you would be able to raise a million dollars as a nonprofit a lot faster than as a for profit and as a social enterprise I probably would have gone a non-profit route. Umm So I mean I didn't want to be dependent on donors and like the motivations and the whims of donors if I didn't have to. So I'm trying it this way and if we fail but we’re, it’s still worth keeping Samaritan around, then we'll do the donor route.
Jonathan told us he wouldn't rule out making Samaritan a nonprofit if the VC route didn't work. And so we asked him, why he didn't say that to the investors …
Jonathan: I think that they want to see that the business is going to work. And if I'm already talking about what we're going to do we fail. That's not going to instill confidence in an entrepreneur that they have just met five minute ago. Like I think that we will always have a backup plan but to lead with a backup plan be like OK we have this idea about business and selling this or licensing it. But if I went I mean if that doesn't work then we have a plan to be a nonprofit. Like they're not going to want to throw money at that. And we still believe that we can do this as a as a social enterprise. I mean there have been successful social enterprises that we can follow their example. But we're not opposed to being a nonprofit and we may end up finding that that is the best way to do things. We're just not at that point where we would pivot to something like that unless we needed to.
Jonathan went to the VC world hoping to raise more money faster than he would otherwise. And, he found some takers. He ended up raising $500,000 dollars of the $1 million he was seeking on our show. 25k of which came from Jillian.
And despite the debate around the ethics of a for-profit company tackling homelessness. My sense with Jonathan is that he’s like a lot of young entrepreneurs. He has an idea he’s passionate about... and he’s going after the big money to turn that idea into a reality.
And the reason this pitch got heated is because homelessness is a problem that has touched many of us on a personal level. So it’s easy to say that we want to end homelessness. But it’s really tough to agree on how to get there.
Our show is hosted by me, Josh Muccio, Produced by Heather Rogers, Kareem Maddox, and Molly Donahue. Edited by Blythe Terrell with help from Caitlin Kenney.
Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder and The Muse Maker. We are mixed by Enoch Kim.
Lisa Muccio planned the recording of this pitch.
We discovered Jonathan Kumar through Jon Hart. With Praxis Labs!
Our disclaimer, no offer to invest is being made to or solicited from the listening audience on today’s show.
You can find more episodes of The Pitch on Apple Podcasts, Spotify or wherever you listen. We’ll be back with a brand new episode, next Wednesday.
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.
Investor on The Pitch
Michael Hyatt is a serial entrepreneur and active investor. He is the co-founder of BlueCat, (acquired by Madison Dearborn Partners), and previously co-founded Dyadem (acquired by IHS). He currently serves as a Director of BlueCat and is also a weekly business commentator on CBC, is the Host of “Business Unplanned”, a podcast to help small businesses.
Investor on The Pitch Seasons 1–10
Jillian Manus is Managing Partner of an early-stage Silicon Valley venture fund, Structure Capital. Branded “Architects of the Zero Waste Economy," they invest in underutilized assets and excess capacity. She was named one of the top 25 early-stage Female Investors by Business Insider in 2021. Jillian serves on numerous corporate and non-profit boards, these include: Stanford University School of Medicine Board of Fellows, NASDAQ Entrepreneurial Center Board of Directors, Fuqua School of Business at Duke University.
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.