“Move fast and break things” is a mantra for a lot of startup founders — but what if the federal government is slowing you down? That’s the situation that Josh Israel is in with his startup, Hava Health. Josh needs to wait for FDA approval before he can even think about making money on his new smoking cessation vape, a process that could take three years or more. But Josh has a plan to extinguish investor’s fears.
Today's investors are Nimi Katragadda, Al Doan, Sheel Mohnot and Charles Hudson.
Today’s founder almost didn’t make it on the show. Because, well investors ... really like this thing, called money. Or at least some hope of revenue to come sometime soon. And so naturally when we’re deciding which startups to bring on the show we look for the money honey, hopefully they’ve tried to sell their product, to someone at some point.
But today’s founder, Josh Israel, hasn’t sold anything, and he won’t see any revenue for at least another three years.
His company Hava health has a new way to help people stop smoking. And with 32 million Americans wanting to quit, the problem is searing hot.
But they need permission from the federal government before Josh can start selling to customers. Let’s see if any of our investors are willing to take the risk.
From Gimlet, this is The Pitch. I’m Josh Muccio.
Today’s investors are:
I’m Nimi Katragadda
Nimi is a partner at Box Group, where they’ve invested $100M in over 400 startups. Including, Warby Parker.
I’m Al Doan
Al built several ecommerce brands, two of them do over $100m in annual sales. And now he’s an angel investor.
I’m Sheel Mohnot
Sheel has sold 3 startups for over $50 million dollars. Now he’s an angel investor and he’s backed several companies worth billions today.
I’m Charles Hudson
Charles started Precursor Ventures where he’s invested $20 million in over 100 startups to date.
The Pitch for Hava, is coming up. In Just a moment.
Alright, here we go.
Founder Josh: Hey. Josh.
Charles: Hey. Charles.
Nimi: Nimi. Nice to meet you.
Founder Josh: Josh.
[Josh smokes from his vape]
In what some may consider a “power move”, Josh takes a drag out of what looks like an e-cigarette! Through a thick cloud of white of smoke, Josh starts his pitch.
Al: This is going somewhere. Please let this be going somewhere.
Founder Josh: Before you judge me for smoking this, know that this is our way of fighting with fire. Fire in this case being nicotine addiction. I’m Josh Israel, I’m the cofounder and CEO of Hava. At Hava, we’re solving nicotine addiction through technology. We’re building a connected Vape pen that pairs with a smartphone application to automatically and gradually ween people off nicotine addiction through minimal effort on their part. We do this with a patent pending design that allows us to burn nicotine oil while inversely burning clean oil, thereby giving our users and patients a consistent smoke experience as we automatically regress their nicotine intake. The idea here is just smoke our device, however and whenever you want, and we’ll handle the entire cessation process for you, reducing withdrawal symptoms and relapse rates.
Hava is kind of like the anti-juul. And way smarter.
It uses little plug in pods, like the Juul -- but these actually have two chambers. One filled with nicotine oil, and the other a clean oil without any nicotine. You just smoke it like any other e-cigarette.
But here’s the twist. The hava ecig actually pairs with an app on your phone. And the app gradually decreases the amount of nicotine you inhale. And the idea is, slowly that over time, you become un-addicted to nicotine.
We started this company just a little over nine months ago, and in that time we’ve made incredible progress. We’ve put together a fully functional hardware prototype as you see here today, mobile applications on iOS and Android. We’ve had our first interaction with the FDA because this will be a regulated drug. Happy to say that we recently closed our pre-seed round of $1 million. So I’m here today to look at potentially oversubscribing that round with investments up to $250,000 to further product development while we go through our pre-clinical phase.
Al: What a strong intro.
Sheel: Yeah. You did a great job.
Charles: Kudos to you, Josh. Can you give me a sense for the range of smoking intensities where you think your product can make a difference?
Founder Josh: So every smoker is different. So we have to be able to account for someone who smokes two packs of cigarettes a day, or someone who smokes six cigarettes a day, for example. And so we do, when we onboard you onto our product, on our mobile app, we ask you the type of smoker that you are. Of course, you can lie. You probably don’t want to say that you’re a horrible smoker. So what we do for a week is actually what we call a control week. So we truly understand your habits by you just smoking our device. If you’re smoking 100 or 200 times a day we’re going to know that you’re not a light smoker like you said.
Al: You got a real problem!
Founder Josh: Right. And so from there we kind of set our baseline nicotine and regress you from there. So if you’re a heavy smoker, it might take you six to eight months. If you’re a medium smoker, it might take you four to six, for example.
Nimi: And should we really be thinking of this as an alternative to a nicotine patch or a gum? Or used in complement with some of those smoking cessation products?
Founder Josh: I would say we want to disrupt those products. .. So those products are very unsuccessful. Like if you look at the success rates for the patch or the gum, it's 5 to 15%. People try seven to eight times with those products on average to quit. They don't work. So we're looking to deliver a product that's actually going to help people truly quit.
Charles: And are those products, do they not work because of client adherence? Or because they're just fundamentally not effective?
Founder Josh: So it's both. So compliance is a big problem for them because they actually jump people, if you look at the packs, they jump you from 24mg to 14mg. And that big range, people have a lot of withdrawal symptoms, right.
Charles: Withdrawal, yeah.
Founder Josh: And then on top of that, they're not delivering nicotine as rapidly as a combustible cigarette does. Moreover, they're not giving you the smoke inhalation, the oral fixation, everything that you get out of the social smoking aspect. So we're trying to deliver a parallel experience and gradually reduce you. So we can take you, let's say, from 24 to 23.9 where you're not going to get those withdrawal symptoms.
Sheel: Is this something that once the switch is made from a nicotine oil to a non-nicotine oil, do people continue to smoke it?
Founder Josh: Yeah, so that’s what we’re calling our post-addiction plan. Addiction is not like a common cold. It doesn’t go away. You don’t cure it. It’s a lifelong struggle for people. Right? So if we abandon them at the time of cessation, we would be doing them a disservice. So we’re calling our post-addiction plan is essentially clean oils or a placebo effect. So if they’re at a party, maybe they’re drinking, they can continue to use our device to curb that nicotine urge they may have. And just use it as time goes on, but potentially maybe they will eventually throw our product away. Furthermore, as we raise capital, we do want to look at spending some money in R&D to potentially introduce maybe nootropics or alternative oils. So we can kind of take people on this beautiful journey from an unhealthy lifestyle to actually helping them live better day to day life.
Sheel: Got it.
As this pitch is playing out, I’m in the other room listening in. And I can’t figure out if it’s going extremely well or extremely poorly. As soon as an investor ask a question, Josh whips out a super concise, well thought out answer. And then investors, they don’t even have a follow up question they’re just like. Cool.
I’m not sure how to read this pitch. It doesn’t sound like anything I’ve ever heard before.
Here’s Charles, getting down to business.
Charles: What is the cost to the customer and cessation regimen? Is it always paid for by the customer? Is there an insurance angle?
Founder Josh: Yeah, we want to be able to price it so that you can buy it over the counter at like CVS or Walgreens. Very similar to the gums and the patches. Looking to price our device for around $59 or $69. And then a monthly subscription for around $30 to $40, which includes the replacement pods. So the cost to consumer shouldn't be that high. Insurance shouldn't be necessary.
Sheel: And then how long do you expect a customer to stay with the product?
Founder Josh: On average, about 12 months. So we should get around $375 per customer, and the cost to us is around $85 to $125.
Sheel: Got it. umm
Al: To acquire the customer? Or for the product?
Founder Josh: No, just for what they're going to...
Charles: Like the pods, plus the...
Founder Josh: Yeah, exactly.
Sheel: And your plan is, it sounds like to go direct to consumer?
Founder Josh: Yeah, direct to consumer, online, and over the counter.
Sheel: Is anyone else doing this? Have you seen... What's the closest comparison?
Founder Josh: Yeah, nothing that we've seen that's exactly like what we're trying to do. There's one company based in France, but they obviously can't sell here, and they've kind of missed the boat on where e-cigarette design is going. It's a very large modded vape uhh, we've purchased their product. It's just not working at the moment. So...
Charles: Can you tell me more about like in your conversations with the FDA, given all the issues around JUUL and other pod… What's the current thinking around relationships with regulators and sort of what best practices are?
Founder Josh: Yeah, I think the regulatory winds are actually at our back. So the agency has held public hearings on how to sort of stop this epidemic of vaping, especially in the teenage demographic. So we've actually spoken with them about a prescription pathway for our product, under 18, go to the doctor get it prescribed for your teenager. In regards to like JUUL and all those products, they're addiction alternatives. And they're not really truly helping people quit. They're nicotine addiction. And we're not going down the path that they're going down. That's tobacco. That's nothing to do with us. We're going down a regulatory pathway that has to deal with drugs and medical devices. So I think the agency sees our product, hopefully, in a positive light and what the technology should have been instead of what it is today.
Charles: And can you tell me a bit more, what is the timeline like for, on the FDA side, just so we can have a picture for that.
Founder Josh: Sure. So our pre-clinical studies we’re anticipating taking six to eight months. Post that, we submit what’s called an IND to the FDA investigation of a new drug.
IND. FDA. Pre-clinical, and phase ones and twos ... etc. All the investors hear is, this going to be a long journey through the regulation swamp that Josh will have to slog through before his product ever sees the light of day.. And even that’s not a guarantee, they may never get approval to sell in the US.
And this is Josh’s POSITIVE spin on the process. The best he can do is guess as to how long this will all take …
Josh: So total time to market estimating around 36 months. While it does seem like a lot, obviously, you know, the more time and capital you spend in this, the agency does reward on the end of this. So they have like 3-5 year exclusivity if we were to get approval and things of that nature.
Founder Josh: They have like 3 to 5 year exclusivity if we were to get approval, and things of that nature.
Sheel: And how much money do you think you need to get there and get the product to market?
Founder Josh: Yeah, we’ve already estimated costs for our phase one trial. It’s $500,000 to run that trial. From a CRO we’ll probably in the next six to eight months after we’ve done our pre-clinical studies raise a seed round of around $4 million. That will take us through our phase one. And then post that, probably look at one more raise. Depends on the cost of the trial and how many patients we’re gonna do. But anywhere from probably another 5 to $10 million to raise.
Sheel: Did you consider launching in another country where you have easier regulatory system?
Founder Josh: So yeah, we’ve looked at, we’ve looked at other countries. Every different country has its own regulatory body and it’s quite complicated. And for us being here, being on the ground, we felt that once we get through the FDA, it’s kind of the biggest stamp of approval. And then from there we can leverage the data and science we’ve already created here and go into other countries.
Sheel: It’s a... It’s a different model than we’re used to.
Sheel: Because we’re not bio-investors. So thinking through that process is a unique one. Like it’s... I don’t think, I’ve never invested in a company that couldn’t get a product to market for three years.
3 years is a lot of time for things to go wrong. And that’s a risk that’s making the investors pretty wary. But they’re also intrigued by a good idea, and a sharp founder.
When we come back, we’ll see if they get over their fear of the unknown.
Al: This is so far out of my world man. I've never smoked in my life. Never touch the stuff.
Founder Josh: Good for you.
Al: I have no idea what any of this means.
Welcome back! The investors are doing their best to understand Hava’s business model, by asking Josh to look into the future just a little bit. Here’s Charles.
Charles: What do you think is the end game path for this company? I mean, given that you sort of are at that intersection of tech where I think the path forward is known and bio, sort of biotech, where the paths a little different. Like what do you can you help me envision what the end state might look like?
Founder Josh: Yeah. I mean I think there’s two, two sort of exit opportunities for us. One would be that, if we successfully complete a phase one trial, big pharma will come knocking, potentially, at that point. And they have a well-oiled machine to kind of take us through this whole process. If not, we’re not building for that. We’re building to bring this to market, so that’s not even in our mindset. The second route is that we bring this to market, and look at how much value we create from there. And I’m sure you’ve seen that biotech companies go public prior to...
Charles: It’s insane.
Founder Josh: Yeah. Going to market. So if we’re on a good trajectory and we believe the regulatory winds are at our back, that’s a potential option as well.
Al: This is so far out of my world. I've never smoked in my life. Never touch the stuff.
Founder Josh: Good for you.
Al: Well, but like I mean, on the one hand I'm like rooting you on because I know a lot of people that struggle to come out of this. My grandparents, you know, it's such a crazy addiction. And then on the other end I'm like, I have no idea what I'd even do with it. Um... So just saying. I'm cheering you on, but I have no idea what any of this means.
Charles: Can you tell, are there any restrictions or prohibitions or challenges with marketing this project, this product digitally?
Founder Josh: Aside from the regulatory aspect? No. Once we get past the regulatory aspect, we can make pretty powerful marketing claims. You know, saying that our product is eight times more likely to help you quit over the current leading nicotine replacement therapies. So once we get through there, we can pretty much say anything we want that current vapes or e-cigarettes are just not allowed to say.
Nimi: That’s awesome. We’re actually investors in a company that...
Founder Josh: Lucy.
Nimi: Yeah, exactly. So given that closeness, I'm going to hold off. But obviously very much believe in the mission of what you're trying to do within smoking cessation. And I think all of these different paths to it I think are a big part of the solution.
Founder Josh: Thank you.
Nimi is out. As she’s already invested in a direct competitor to Hava, a startup call Lucy. Which sells nicotine gum as a subscription.
Now here’s Charles.
Charles: See I’m torn on this one. We’ve had a strict sort of no tobacco, no cannabis policy at Precursor since I started the fund. And I think for the most part I’ve been happy to have sat both of those markets out. This is the first thing I’ve seen where I think it’s not a wink wink cessation product, but like actually interested in addressing the problem.
Charles: So I’ve never had to sit down and think about under what circumstances would we say yes to a product that I think could actually address… And I have a ton of smokers in my family. So it’s a very personally relevant problem. For now, for now I’m going to pass. But I want to follow up with you and see if I could come up with... Because I’d have to explain sort of to my investors why we’ve decided to change our rules and stance on both of those categories.
Founder Josh: mhmm So I don’t know if this will give you any comfort, but we have two advisors, one is Dr Thomas Brandon from the Moffitt Cancer Center, and he has been approached by large e-cigarette companies and rebuffed all of them. So what we did in his advisory agreement, we made it explicitly clear that we’re a smoking cessation product and we will never take capital from big tobacco. And we have been approached by certain big tobacco companies about that.
Charles: Oh yeah.
Founder Josh: We’ve rebuffed them.
Charles: Awesome. Thank you.
Al: That’s great man. I'm... I'm going to pass as well. But ah, but I mean, only from my own ignorance, right. I'm stoked for you, I'm stoked that a product like this will exist, excited for it to get on the other side of all the regulation stuff and for people to start using it.
Founder Josh: Thank you.
Sheel: Um, tell me about the... So you closed the round, pre-seed round. Was that a cap valuation?
Founder Josh: 4 million cap.
Sheel: And what are you suggesting that I would invest at?
Founder Josh: Ah I would say to go up to a six million cap just we don't dilute ourselves too significantly.
Sheel: Can you help me with who your existing investors are? Are they folks in the biotech space?
Founder Josh: No. No one directly in the biotech space as far as funds are concerned.
Sheel: Okay. Um... Cool. I like what you're doing. It's pretty off-thesis for me, but I've looked from afar at JUUL play out, and actually have thought a lot about in my... I always start with a lens of like, is this making, building a better world? And so many times I struggle with it. We talked a little bit about Lucy and like other, other smoking cessation products I've struggled with, because I wonder if people will get addicted to those. So I really like what you're doing. I'd like to write like a small personal check of like 25k. If you could fit me into the previous round.
Founder Josh: Yeah. Okay. We could probably do something with that.
Sheel: Okay. Sounds good. I'm in.
Charles: Really nice job.
Founder Josh: Thank you. Appreciate it.
Sheel: I think you really had a strong pitch. That's why this is so short.
Sheel: You like addressed all the questions like right off the bat.
Al: And he's got the power stance right now.
Al: If you can see this!
Charles: I just really liked the fact that I thought your answers were really crisp. Not a lot of fluff. Just to the point.
Al: You know what you're talking about!
Josh takes off with $25K from Sheel. After just 20 minutes in The Pitch room. Which is unheard of on this show. A short pitch, usually equates to a failed pitch.
But what was even more striking to me, was that Sheel.. invested knowing full well that he’d have to wait at least three years before Josh could even think about making any money.
Sheel: It’s a huge risk.
Josh Muccio: But that, you decided to invest despite that. Why?
Sheel: Yeah. It’s a huge risk. I don’t know how to price it. And I haven’t done it before. So I was a little bit, um... I wish that he had other biotech investors, which he didn’t really, But I felt like I liked him, his answers were crisp, I feel like he has a good sense of where this is going, the price seems reasonable enough for the potential. So...
Josh: So bet on the founder?
Sheel: Bet on the founder.
Josh: The only other question I guess I have is around the whole... His delivery and just the speed at which he gave you the answer and then just shut up. I was like, what is going on? Is this guy a robot? He’s either good or really bad.
Sheel: Yeah, I think any time, like... What I'm looking for is somebody who can clearly articulate and define their vision why they're going to win. And it's important because that's how you raise money. But then also, he has to convince the FDA, he has to convince future employees. So when I see that, I get excited.
After the break, six months have passed and in that time, e-cigs have been getting a bad rap in the news. So we asked Josh, what’s it like building a company in the midst of a media firestorm.
That’s coming up, in just a moment.
Welcome back. Six months after his pitch to investors, we got Josh israel on the phone.
Josh Muccio: How you doing Josh?
Josh Israel: I’m doing pretty well. You know, a lot happened in the news around what we’re working on kinda the industry we’re working in. So a little stressed but it’s a good stress.
Since Josh’s time in the pitch room. Vaping was in the news a lot. Over 2,000 people were hospitalized, and over 40 people died because of vaping.
Josh Muccio: How have those events and the increased scrutiny on vaping affected you?
Josh Israel: I think both positively and negatively. If you look at nicotine based vapes, there hasn't been any directly related health crisis or crises that have sprung up because of them. It's all been linked to THC and vitamin E or vitamin A acetate and the THC kind of black market pods. The product that we're building, our North star metric is smoking cessation, nicotine de-addiction. We are not these other guys trying to sell to teenagers. We are not an addiction alternative and we're certainly not a THC based vape. Our product has to pass through nonclinical, clinical trials for safety and efficacy. So once it is FDA approved, it's for certain that it's not going to cause these major health issues that we're seeing in the news.
Josh Muccio: Right. You're saying like Juul and these other e-cigarette companies, they are not FDA certified at all and they don't have to go through any of that?
Josh Israel: They haven't done any, any tests at all. Right it was like a pretty much a free for all pre-2016 where anybody could release a product and they were grandfathered in.
Josh Muccio: So obviously like you're able to clearly make the argument why you're different. umm But I guess I'm curious how is it affected conversations with investors or even conversations with the FDA? What's changed for you?
Josh Israel: I get calls, I get emails. They're just like, "Oh, we saw this on the news. Are we at risk or is this going to affect the time to market?" And so every single person is basically after every single news item comes out, I get an email, I get a phone call about it. Right. So I went so far as to send out a general update like a few weeks ago to all our investors trying to answer every single question that I've gotten. Like an FAQ, like, here you guys go. You know what I mean? Like everything's okay.
Josh Muccio: Before you hit send on that email you've been working on.
Josh Israel: Exactly right. Yeah. And I know you're typing furiously there, but don't panic. We're going to figure our way around this.
Josh Muccio: Yeah. And have you been able to successfully talk investors down or are they still concerned?
Josh Israel: Yeah I think the problems that we will face will be more around regulatory scrutiny with the FDA. So I think that's where we're going to face our issues is really around explaining the regulatory process and how we can maybe speed up that timeline and lower the cost to market.
Josh Muccio: But that’s what you've been up against all along, right?
Josh Israel: 100% yes.
So Josh is still fighting the good fight. Assuring investors that the three year FDA approval timeline will be worth the wait. But as for the investor on our show who he already convinced, Sheel Mohnot. Well, his 25K check is in the bank. He also introduced Josh to another investor, who put in 200K. Not bad! And it totally makes up for the fact that Josh never heard back from Charles Hudson. But he’s got bigger fish to fry. He spoke to some experts who’ve been through the FDA approval process before. And they told him, don’t put all your eggs in the FDA basket. Have you thought about launching first, internationally?
Josh Israel: So there's potentially Europe, potentially Canada. The regulations are a little more relaxed in the UK. They actually look favorably upon e-cigarettes and vaporizers over there. It's not just to bring it to market there, but more importantly, once it's commercially available in the market that we do choose, we'll be able to start running clinical trials and generate clinical data, which we can leverage and bring back to the FDA and say, "Hey look, our product is safe. It's effective in humans. Take a strong look at this." So that's what's been happening. Nothing's set in stone yet, but we're moving in the right direction.
Josh Muccio: So you're saying you might delay the FDA approval process, go out and do clinical trials in another country, and then come back and get your FDA approval, like ultimately faster because you've got those clinical trials.
Josh Israel: Potentially. Yeah. Having clinical data in humans obviously is much more powerful than having nothing-
Josh Muccio: Than rabbits.
Josh Israel: Than rabbits or rats-
Josh Muccio: Or mice.
Josh Israel: Or pigs or dogs. Exactly.
Josh Muccio: the one final thing I'm guessing I'm kind of still struck with is just how wildly different your business is from anything we've had on the show before. is it weird doing a thing where like you can't just go to the market? You can’t just…. Like there's something very freeing about, I guess capitalism and being able to just put a product out in the market and letting them give you feedback on whether they like it. But what you're building here, it's like you have to go an entirely different route. What is that even like?
Josh Israel: You know, I think as an entrepreneur, if you want something to exist in the market and you're convinced it has to exist, no barrier really is too high. And you're going to try to transcend that barrier. And to be perfectly honest with you, we were naive when we started it. We said, "Oh yeah, we'll build this and we'll release it." And we didn't realize all sort of the regulatory issues, the clinical issues behind it- but...
Josh Muccio: You’re like, wait we have to talk to the FDA?
Josh Israel: Yeah, exactly. We were like, "Oh man, what did we do here?" So…
Josh Muccio: Yeah. But you didn't ever think of saying, "Ah, forget it. This is too difficult."
Josh Israel: No, no. Never. Never. As soon as we started, we said we're going to figure this out one way or another we're going to figure it out.
The Pitch is hosted by me, Josh Muccio. Produced by Kareem Maddox and Heather Rogers. We are edited by Sara Sarasohn.
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.
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Thank you so much for listening. We’ll be back with a new episode. In two weeks. See you then.
Investor / original co-host on The Pitch
Sheel is a co-founder of Better Tomorrow, a seed-stage venture capital fund investing in Fintech companies globally. His own startup experience includes 2 successful FinTech exits – a payments company and a high-stakes auction company, and he is GP of the 500 Fintech fund. He formerly worked as a financial services consultant at BCG and started his FinTech career at the non-profit p2p lender Kiva.
Investor on The Pitch
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
Nimi Katragadda is an investor at BoxGroup, which is a seed stage venture fund that invests in entrepreneurs building companies with visions to create the next generation of category defining businesses. Prior to joining BoxGroup, Nimi worked at Google and J.P. Morgan. In 2017, Nimi was named to the Forbes 30 Under 30 list for Venture Capital.
Investor on The Pitch
Alan Doan is a bearded Missourian, entrepreneur, husband and father, pickup basketball legend, investor and mentor.
He’s started the Missouri Star Quilt Company, a 14-year-old business with a focus on reimagining the commerce experience of shopping for fabric online. The company now has over 400 employees and ships several million orders annually. As part of that focus, the company has rebuilt a rural midwestern town into the “Disneyland of Quilting” launching 14 quilt shops, three restaurants, and a hotel all in a town with a population of 1,800.