#11 Tesloop

From Gimlet, this is The Pitch. I’m Josh Muccio. 

On this show, we take you into the room where entrepreneurs pitch investors.

Phil Nadel: He’s a quitter. There’s no room for quitters on The Pitch.

The stakes are high. Today’s founder hopes to walk away with the money he needs, to grow his business.

Haydn Sonnad: we're kind of like South-West on the ground. 

Howie Diamond: Are you worried that school is going to get in the way of running this company?

Jillian Manus: All we’re saying is that we think you’re onto something. That’s the good news.

Howie: I think you’re leaving money on the table.

Jillian: We think you’re leaving money on the table. That’s even the better news.

In this episode, an entrepreneur pitches his plan to take on Uber for his piece of the ride-sharing pie. There’s just one catch: he has to run his company between English class and algebra. Will he pass the test with our investors?

Phil Nadel is with Forefront Venture Partners. In pitches, he often steers the conversation back to the cold hard numbers.

Phil: I just want to go back to the revenue model because I didn’t finish that off. 

Jillian Manus is here representing Structure Capital. She tends to get really invested in a founder, regardless of whether or not there’s money on the table. 

Jillian: As I said, I don’t see this coffee as being so special. But I do see you and you being special. 

Jake Chapman’s here with Gelt VC. As a former lawyer, he often obsesses over the tiniest of details. But if a founder can hold up under cross-examination, he might just invest. 

Jake Chapman: You need data to say that people do sit and play this for three hours or whatever it is. What sort of data do you have on that? 

Howie Diamond founded the VC firm, Ranch Ventures. He looks for scrappy founders who, come hell or high water, get the job done.

Howie: It's just one of my things, as an investor. I want to know that you can build something that's like actually functional. 

Haydn: Nice to meet all of you.

Our founder Haydn Sonnad enters the room...

Jake: How’s your day going today?

Haydn: It’s been kind of long. We had a plane ride out from LA so just got here.

Jillian: Rock our socks!

Haydn: My name is Haydn and I'm a senior down at Agoura High School in LA. 

Yeah, you heard that right: Haydn is a senior in high school.  

He’s a clean cut, skinny 17-year old. And he seems aloof in that way that teenagers often are. Behind the mic, he tries to stand up a little straighter. But you can tell he's nervous. 

Haydn: And last year when I got my license, I asked my dad if I could get a car. And he said sure, but only if I could find out a way to pay for it. So I came up with a plan to lease out a car for the summer, and drive people back and forth from LA to Vegas on the weekends to make up for the lease and insurance payments.

And because Tesla offered free charging on all its electric cars, he wouldn't even have to pay for fuel. By the end of that summer Haydn thought, why not assemble a whole fleet of Teslas to drive even more people around?

Haydn: So that was then, and here we are now. Tesloop is building the world's leading sustainable mobility service. We're perfecting inter-city transit between 50 and 300 miles. So we're here today raising $1 million to do this, $500,000 of which we've already closed. So to clarify, we're here today to raise $500,000 more. 

Jillian: Very well done. Are you a senior? You must be a senior.

Haydn: Yeah, I'm a senior this year.

Jillian: Okay.

Jillian: So you were able to lease a Tesla because you're 18 years old?

Haydn: When I originally leased it, I was 16, so I leased it under my... Well, that's kind of complicated, but my dad had it leased for me through a third-party service.

Jillian: Because I can imagine a 16-year-old going and saying, hello, I'd like to lease it for three months, and if you don't like it, happiness. Um so, where are you going to school, do you know?

Haydn: No. 

Jillian: Where do you want to go to school?

Haydn: All my apps are due at the end of the month.

Jillian: I know. So what's your first choice?

Haydn: Well, see there's two paths I'm either going to take. I'm either going to go out of state, but that really creates a problem with me working with Tesloop, still. 

Jillian: Right.

Haydn: Or I can stay in the area and still work with Tesloop. So I'm really undecided where I'm going to go to college. I'm applying to a lot of different universities, and...

Jillian seems more curious about Haydn’s own future than she is about the future of Tesloop. There’s only one problem here: it shows that the investors may not be taking him seriously as a founder.

Howie: Are you worried that school is going to get in the way of running this company?

Haydn: I think there's going to be a point where I'm going to have to pick one to put all my time and effort into. And the way I'm seeing it, it's school. 

Phil: If that happens, who runs the company?

Haydn: Well, there's five other people working full time right now. So...

Phil: How old are they? They're not in school?

Haydn: No, they're not in school. They're very seasoned entrepreneurs.

Jillian: He was going to say very old, they're very old. 

Phil: Are they as old as we are?

Jake: They're in their mid-20s.

Haydn: Between mid-20s to 50s.

Jillian: That old?

Haydn: And everyone's working full time. 

Howie: And what's your role at the company today?

Haydn: Right now I'm doing, well since school started, over the summer I work full time. And then I just kind of do side-tasks when I'm still working in school. Like today, I still had to go to school.

Jake: How did you bring in your CEO? Where'd you find him and make that connection?

Haydn: The CEO is my dad. 

Jillian: That's great.

Haydn: So I've known him for a little bit.

Okay, now the room can breathe a little. Haydn may be 17, but he isn’t running a lemonade stand. He’s got a team of “seasoned entrepreneurs” and a CEO to keep things running while he’s in class. 

But he’s still the founder, and his job today is to sell investors on his company.  He’s got some work to do.

Jillian: So I'm trying to figure out, and maybe I've completely lost this, exactly what this business is. Is it fleets? Can you explain exactly what it is? Is it just me?

Phil: No, I'm having the same, I don't understand it.

Haydn: No, it's a good question.  So we're kind of like South-West on the ground. Where we drive people from one city to another in Teslas — 

Jillian: Oh!

Haydn: — between their pick-up points, for a pretty low economically-priced ticket.

Jillian: So it's an Uber for Teslas?

Jake: There’s a driver.

Howie: For long distance — long distance trips. Between how many miles?

Haydn: 50 to 300 is our targeted distance. That's what we call the electric haul, where the economics of electric cars really benefit you. Because further than that you have to charge the car too much. Shorter than that, a gas-powered car kind of benefits you because you don't have to charge. 

Howie: So how does that work? You get free charging?

Haydn: Yeah. We get free unlimited charging at the Supercharge booths.

Phil: But everyone does, not just you?

Haydn: Everyone does.

Haydn says that Tesla will continue to offer free charging… because back when Tesloop was nothing more than an idea, our young entrepreneur made a bold move...  

Haydn: So I brought the idea up with Elon Musk at the shareholders meeting in 2015, and at that point he assured me that Tesla would pay for all of the fuel costs for long distance travel in the Model S forever. 

Jillian: Do you mind me asking you how you got to Elon?

Haydn: Just at the shareholders meeting. 

Jillian: So your father must be on the board? Or somebody?

Haydn: No. I just bought a couple of Tesla stocks in 2014, and so did he, so we were both able to get into the meeting. So then —

Jillian: That’s so great. 

Haydn: — you can just stand in line pretty much and ask questions. And I asked him a question which resulted in him telling us, or telling everyone basically, that Tesla was going to supply free long-distance travel forever on their Supercharger network.

Okay, so he didn't quite have a sit down meeting with Elon Musk, but Haydn is showing how enterprising he is. I mean, it’s pretty crazy that he got the CEO of a multi-billion dollar company to promise free supercharging for life. Still, a verbal commitment made at a shareholder meeting isn’t exactly a signed contract. 

Jake: I suppose there could be, they might draw a line between consumer usage and business usage?

Haydn: As of right now they haven't drawn that line. We are in somewhat collaborating with Tesla. They're aware of what's happening. They're aware we're using it for commercial use. And right now, they haven't said anything about that. And there are a lot of people that work in the Tesla stores as well as executives that are aware that we exist. And they haven't had any issues yet.

Haydn seems certain that Tesla won’t have any problems with Tesloop. But competition is heating up in transportation right now. There are more than a few other household names that might pose a problem.

Jillian: I mean, it's a good idea. What's to say that Uber or any other ride-sharing would not just lift this? Or Lyft?

Haydn: Well, we think there are a couple of reasons why Uber can't do this. The first is that, for the next four years this can only be done on Teslas. They have the only platform with the big batteries and super charging and nice cars that allows this model to happen. And for strategic reasons, Uber can't really work with Tesla, because then Tesla would have all the information to their sensory data and Uber would have none of that. So they'd be kind of losing all the information about their cars.

Phil: Are you leasing the cars?

Haydn: Yes. Well, we have a leasing company that leases the cars for us, and then offers us a zero down. It's around $2500 to $3000 a month for the cars.

Phil: How many cars?

Haydn: Right now we have one Model S and two Model Xs.

Phil: And what cities are you servicing now?

Haydn: We launched between LA and Vegas, well LA and Orange County to Vegas and back.

Howie: How are the routes booked? Does the driver wait in Palm Springs for a few hours if the timings don't match? And then you're paying the driver to wait? Just walk me through that.

Jillian: That’s a good question.

Haydn: So right now we have two cars running in Palm Springs, and they leave at 8 am and 1 pm from Palm Springs. And then there's returns at 11am and 3pm. 

Howie: So set times? Okay.

Haydn: Those aren't specifically set times. How we've kind of been doing it right now where is if the first person to book wants it within an hour difference, we can accommodate that. And then the other people booking will just have to go with the first person's time.

Jillian: Okay.

He may have started this pitch a little behind the 8 ball - but Haydn’s really starting to build momentum. You can tell he’s been in the trenches as a founder and he’s come out with a clear understanding of what it takes to make this business work. Now investors are ready to talk dollars and cents.

Jillian: What's the cost?

Haydn: So, that's pretty dynamic on the day and the demand. But for Vegas, it varies between $59 to $129 one way per person. 

Howie: But I can book in advance?

Haydn: You can book two months in advance.

Howie: Two months in advance.

Phil: And what's the Palm Springs cost?

Haydn: And Palm Springs is $39 to $59.

Phil: How long does that trip take?

Haydn: The trip's about two and a half to 2:45 to three, depending on traffic.

Phil: And somebody could pay $39 for that?

Jillian: I can't even get from San Francisco to Atherton for $39.

Howie: San Francisco to Atherton? I can't get from the Ferry Building to the Mission some days.

Phil: Is that right? I can pay $39 and go for a two-and-a-half-hour drive to get to Palm Springs?

Haydn: Yep. It is a shared car, so there will be a possibility... We have in the Model X, four available seats to book. In the Model S, three.

Howie: Okay. But even if you don't fill up the cars, I still pay $39?

Haydn: Yeah, you still pay the same. 

Jillian: How did you price this? Just curiosity. Because it seems quite low, and it seems that you could probably price this a wee bit higher.

Haydn: We're pricing it basically to meet all of our expenses. We're not, as of right now, because the expenses are going to be trending towards zero in the future, this cost for right now is going to remain the same. And maybe two years from now, that's when we get really...

Jillian: Create revenue.

When Haydn talks about expenses trending towards zero, he's betting on future breakthroughs in technology, like self-driving cars. But a few years is a long time in the world of startups; Haydn will have to convince investors that Tesloop can generate enough revenue, the way things are right now.

Jillian: Why would you only price this to cover your costs? When I think the market would bear you charging at least $50 on the low side, and $75 on the high side. I'm just trying to figure out...

Phil: What's the competition? How can you get from LA to Palm Springs, or LA to Vegas now?

Howie: Plane. Bus.

Phil: What are the competitors and what's the cost?

Haydn: So for Palm Springs, the only real other travel alternatives would be fly there, which is expensive. It's almost $200 or $250. You can take an Amtrak, but that's not a direct route. 

Phil: How about a bus?

Haydn: The buses aren't, we wouldn't call them competitors, because it's a completely different experience.

Jillian: But actually you're supporting, Phil, my question and it's that it seems like you're the only horse in town. So why not price yourself a bit higher no matter what? So that you're actually not just covering your costs. All we are saying is that, we think you're onto something.

Howie: Yeah.

Jillian: That's the good news.

Howie: I think you're leaving money on the table.

Jillian: We think you're leaving money on the table. That's the even better news. 

When an investor says to an entrepreneur, you aren’t charging enough, you may think they’re pointing out a major flaw. But what they’re really saying is “you’ve created a thing that is so unique that you could raise your prices and people would still use your service.” 

And what makes this feedback even more remarkable is the fact that Tesloop is in transportation, a market that is extremely price-sensitive.

Phil: How much revenue did you do last month?

Haydn: Last month we did in total around 27 thousand.

Jillian: With three cars?

Haydn: With three cars. 

Jillian: So you raised $500,000 of a million. How did you raise that? And what was the valuation? I missed that. You were raising $1 million.

Haydn: It's $1 million and a $6 million cap.

Jillian: Six cap, okay. 

Haydn explains that his first $500,000 was funded by Clearstone Venture Partners, an early investor in PayPal. With half their fundraising already in the bank and $27K in monthly recurring revenue with just three cars, Haydn has the ear of our investors. But before they cross the finish line—

Jake: I have a question, too. We've all sort of danced around, we brought it up a little bit, but you built a company that is, you built it entirely on the Tesla platform. And Tesla is not really a platform company. They didn't build a platform for other people to build businesses on. I mean, you did it in the name, Tesloop. And I think that if you got really big either Tesla is going to buy you or they're going to shut you down on that name because it's definitely a trademark infringement. I think that's a problem. And then you've built your cost structure on using Tesla cars and free-charging, which Musk said would remain free. But that doesn't mean free for commercial use. And you don't have a contract with him. I would feel great if you had had a personal conversation with Tesla.  Something to say, we acknowledge that your business exists and we give you freedom to operate. I think if you get big, Tesla is either going to have to buy you or they're going to have to shut you down.

Jillian: Or they're going to build this themselves.

Jake: And then shut you down. 

Haydn: We don't think Tesla is going to try and do this themselves. Elon Musk is not about creating city to city transit. Right now, one of his biggest focuses is on automating manufacturing. And there's a lot of focus on that from Tesla and the rest of his companies. We don't think Tesla directly will come into our exact model. And I would also differ to say that Tesla did create a platform to be built upon. They have open-sourced a lot of their data. They're very accepting of use of their Supercharging from us. And they have a lot of future implications that are going to arise from their platform.

Jake: I think this is awesome — this company you've built. It's really great. So don't take this to be brutal criticism. But they're accepting of a three-car company using Superchargers. It's very expensive for Tesla to build out these networks. And if you scale up and you've got 100 cars on the road to Palm Springs every day, and the other Tesla drivers who are not commercial drivers cannot get a Supercharger, I guarantee you Tesla is going to say, "No commercial use, you are not allowed to use our stations." Because they built this network for their private owners.

Jillian: Right. They didn't build this for commercial use. 

Haydn: Yeah. It comes down to if we're at the scale where Tesla won't let us operate on this, we're going to have to pay for electricity. And that will all come into play in the future. But for the foreseeable future, there's no issues with Tesla and the Supercharging.

Jillian: Okay.

The question of how Tesla might react is starting to swallow up the conversation, and because Haydn's answers are based on maybes and speculation, this may cast a shadow over an otherwise solid business.

Let’s see what the investors decide. Jillian speaks up first.

Jillian: So I commend you for being so young and having so much vision. In fact, I'm dumbfounded.

Haydn: Thank you.

Jillian: I'm going to kill my kids for not. I'm going to say, there's this kid, he sat there, he's 18 years old, and he came up with this business.

Haydn: 17 right now.

Jillian: Oh 17? Gosh. I'm just — I’m gobstopped. I think you're bright and I give your father so much credit for supporting your vision and seeing the merit of it. And I do think it has tremendous merit. It's a little early for me to go in, right now. Because I think there are some challenges up ahead. And I'd like to see how the company addresses those challenges. So I'm going to pass, but I'd like to say on the record that choose a school. Because this is not going to be, if you thought this up at 17 years old —

Haydn: Well, to clarify, it would be community college in LA versus school out of state.

Jillian: I'm saying as a mother, I'm saying to you, this company will run itself with your father and everyone else. You don't need to be a part of it right this second. I would put your education first and try to get into the best school possible because if you're doing this and you have this vision at 17 years old, you are going to have a lot of other ones. And I would love for you to have the education to know how to build a business because I think you have many more in you. This is personal advice. Prioritize your education. Go to the best school. And you can always say that "I started a company when I was 16 years old." That's all I'm saying as a mother.

Haydn: I'll take that to heart.

Jillian: Please do.

Phil: I want to —

Here's Phil, with a slightly different perspective.

Phil: Just to contradict Jillian a little bit, I have my older son who while in college took a leave of absence to start a company. Because he couldn't do both at the same time. And he started a company called Klink, which is alcohol delivery, and he's crushing it. He's doing great. And he'll eventually go back to school. But he's on leave of absence now.

Jillian: So he took a gap year?

Phil: Gap years. But in any case…

Jillian: Gap years.

Howie: There's no right or wrong.

Phil: And I want to say that...

Jake: Criticizing parenting styles — that never goes down a happy road.

Phil: I want to say also that I'm a Tesla evangelist. I've been a Tesla owner for four years. I've had two of them. Love the cars. Love the company. And I think what you're doing is really cool.  I think you have a lot of challenges ahead of you. I think there's perhaps more competitive pressures coming in the near future than you're accounting for. There are a lot of other less expensive electric cars that are going to be introduced in the next year or two that will have the same seating capacity. So I'm just not Supercharged up about the deal. Did you catch that? I got him to laugh. I got him to laugh.

Howie: He's good.

Phil: He noticed my pun.

Howie: He got the pun.

Phil: So I'll do what I can to help you, and I wish you all the best. And again, I think you're a rock star but I'm going to pass. 

Phil’s out. Here's Howie.

Howie: The initiative you're taking is incredible. You're incredibly inspiring. I think that you have an entrepreneurial — I mean it's clear you have an entrepreneurial mind. You speak like an entrepreneur. You use all the right terminology. You're thinking about things in a very scrappy and creative way, which is awesome. So keep doing that. But this feels like a really cool hack. And you have some revenue. But I would just need to see a little bit more of that before I would go in. So right now it's a pass, but keep up the good work.

Haydn: All right, thank you.

The only investor left is our former lawyer, Jake. If anyone can navigate the risks associated with Tesloop… it would be him. 

Jake: So, to Howie's hack point, I think a lot of great businesses have been built on the back of hacks. Sort of taking advantage of loopholes in the system. Your first car was a loophole in the system, basically.

Haydn: Yeah.

Jake: So I've got no problem with that whatsoever. My problem is that I think you haven't thought through yet, or you're not at the stage yet, of figuring out how to move from the hack to the sustainable company. There are a ton, a ton of operational issues that you haven't had to address yet. And I think you're super sharp, you've got this great team. I think you can address these issues, but we haven't seen that yet. I don't even think you know yet what you don't know. And you won't know that until you've got 20 or 30 cars on the road. And so you're definitely a little bit early for me, because of those reasons. Without really raising the ire of Tesla you can build a $100,000 a month business. A nice business. I just think to get to that real next level, the $10 million, $50 million, $100 million, billion dollar business, it's a really different business from what you have now. So for me, it's a pass.

Haydn isn't walking away with any money today, but he is leaving with the respect of these investors.

Howie: Wow. What a great kid. I would use this service, while I can. Like when I'm in LA, if I can go to Palm Springs for $40!

Jake: In a Tesla! Like, a nice ride, right?

Remember earlier when Haydn said that Tesla was aware of Tesloop and hadn’t done anything to stop it yet? Well, a couple weeks after the pitch we just heard, Tesla dropped a bombshell announcement. They will not permit Tesla’s self-driving technology to be used on any ride-sharing service except for their own. This should mean the beginning of the end for Tesloop.  When we come back we’ll find out from Haydn himself.

[break]

Welcome back! Since Haydn pitched our investors, a lot has happened to the young entrepreneur. He got accepted into Chapman University in Southern California, but he actually took Phil’s advice, and decided to take a gap year to keep working on Tesloop. 

With his college plans all sorted, I had to ask, what was it like to pitch to our investors?

Haydn: I would say for the first maybe fifteen seconds it was a little intimidating, but after I kind of met the investors and talked to them and introduced myself, I just felt pretty comfortable in the room and I was ready to just tell them what we were doing at Tesloop.

Josh Muccio: What was it like pitching these big-time investors in the room, and then you leave from there and you head back home? You were back in school the following morning, am I right?

Haydn: Yeah.

Josh: Was it weird being back in, I don't know, what math class were you in? Like calc or something?

Haydn: AP Statistics.

Josh: AP Statistics. Was it weird just looking around — I'm guessing none of your classmates knew that you were doing that the day prior?

Haydn: I mean, maybe they saw a Snapchat story of me in San Francisco.

Josh: But that's it?

Haydn: Yeah. I don't know. I don't really see it as a big difference in my life. It's just kind of part of my life. And school is also. And they're all just elements that go together. And they're pretty separate. I don't even see myself as different, or in a different place. I'm still just a student at Agoura High School.

Josh: Really? It doesn't feel weird at all to be probably one of the, I mean, you have to assume you're the only person building a business of this scale at your age?

Haydn: I mean, it feels weirder to be in the investor room than it does at school. That's where I'm really out of place.

So it sounds like things are going pretty well for Haydn. But of course, I’m really dying to know what’s going on with Tesloop since the news broke from Tesla. The company announced that its driverless cars cannot be used to make money on other third party ride sharing services. You know, like Uber, Lyft... Tesloop?

Josh: That sounds like it kills your whole business model which was relying on the fact that you weren't going to have driver cost in the future once autonomous Tesla cars were driving.

Haydn: Um, there's some speculation on that. I don't know the exact details, but that announcement wasn't fully true. Because it doesn't actually eliminate us from using their timeless ride sharing. There's some weird clauses in there that actually do let us proceed with everything that we're doing.

Josh: Really? Can you explain this to me?

Haydn: We talked to Tesla, and we just kind of closed it, because it didn't really apply to us.

Josh: You talked to Tesla? What did — what did they say?

Haydn: It was an in-person discussion that I wasn't present for, so I don't have any of the specific details. But I know that it was not directed at us. 

Josh: Interesting. So you've gotten in their good graces for whatever reason? I mean this announcement seemed, from the outside, to be directed at companies exactly like yourself.

Haydn: Well, how I see it, at least in the short run, we're really doing Tesla a favor because when you look at the numbers of Tesla’s test-drives and how they're trying to get customers into cars, we're actually introducing a lot more people into Tesla's than any of their marketing efforts have allowed for them. So in a way, we're kind of a big marketing benefit to Tesla, and they're not trying to lose that at this point. So in the future I can't say what's definite, but at least right now, it has been a good relationship.

Josh: My favorite line from this  — we're doing Tesla a favor. I don't know. That's gonna...

Haydn: I think we definitely are doing Tesla a favor in many ways, but what I said was the most important, in that we're bringing more customers to their cars.

This is the beauty of being an 18 year old founder. You can confidently walk straight into a tenuous relationship Tesla with an attitude of “we’ll figure it out, we aren’t worried. Tesla likes us and we’re doing them a favor.”

Unlike more “seasoned entrepreneurs,” Haydn has yet to be jaded by years of experience. And with nothing to lose, he’s taking risks that no one else is willing to take. He could make millions, or witness the demise of his first company. You know, normal teenage stuff. 

To hear scenes from next week’s episode, stay tuned til after the credits.

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Our show is produced by me, Josh Muccio, Asthaa Chaturvedi, and Rob Szypko. We are edited by Devon Taylor with help from Annie-Rose Strasser.

Special thanks to Colleen Pellisier and Allison Behringer, who originally produced this episode back in our indie podcast days.

Our Theme Music is by Breakmaster Cylinder, with original music composed by The Muse Maker, Bobby Lord, Donny Carma, John Kimbrough, Louis Weeks, Keen Collective and Edwin. We were mixed by Enoch Kim.

Thanks to Lisa Muccio for planning the season 2 recording event last fall.  

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

Also, I want to say a quick thank you to the original sponsor of season 2, the It’s Worth Doing Right Family.

Alright — you’ve been listening to The Pitch from Gimlet Media. I’m Josh Muccio. See you next week.

Next week on The Pitch:

Laura Bilazarian: we did what any normal person would do, we quit our nice lives and we moved out here to a garage at Palo Alto.

Sheel Mohnot: I think it makes sense. Like, I never respond to recruiters. 

Laura: I'm sure most of you haven't applied to a job since you were in college, like me.

Sheel: Any good person doesn't apply for a job, right?

Laura: Is there a number at which you wouldn't pass?

Phil: Yeah. I think for me at 10 I would do it.

Laura: No. Can't do it.

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