#154 Lockstop: Secure the Bike, Save the World

Mike: Sorry my hair looks terrible. I usually wear a hat. My name is Michael Burton. I was born and raised in Maysville, Kentucky. I cannot see myself doing anything else. I can't imagine, you know, a better opportunity than being a founder, being an entrepreneur welcome to a 24 hour work day. it's definitely not for a faint of heart, but I wouldn't trade it for the world. 

I’m Josh Muccio and this is The Pitch. Where startup founders raise millions and listeners can invest. Welcome to lucky season 13, where we’re diving even deeper into the human side of venture. Starting with former marine, Mike Burton.

Mike: I was always a hustler, you know, growing up in subsidized housing, you don't have a lot of resources and so you're forced to go out and, you know, kind of make your own money. Even at six years old, I would go door to door asking people if I could take out their trash during winter time, I'd pray for snow so that way I could shovel it.

His latest hustle, is a bit more involved. Today on the show, Mike pitches four VCs on why they should invest in… well a bike lock. But this is no simple bike lock, it’s a trojan horse that unlocks the master plan.

The Pitch for Lockstop is coming up after this. And whether you’re watching or listening on YouTube, Patreon or your favorite podcast player - thanks so much for subscribing and don’t forget to turn on notifications.

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Welcome back to The Pitch. Let’s meet the investors

Paige Finn Doherty with Behind Genius Ventures

Paige: What gets me to that hell yes conviction, it’s a founder that deeply understands both sides of the business

Mark Phillips with 11 Tribes Ventures

Mark: I’m a midwest investor, so we have a different definition of price.

A new investor to the show, Will Weisman with KittyHawk, the firm that backed geCKo Materials last season

Will: We call ourselves generalist frontier technology.

And Jesse Middleton with Flybridge

Jesse: I don’t normally like edtech, but I really like you.

[clap]

Paige: He's getting good at that. 

Jesse: I think the reason you do this show is just so you can do that. 

Josh: Are you jealous? 

Jesse: I am jealous. I told you this last time. 

Mike: Hey good afternoon.

Jesse: How are you? 

Mike: Hey. Very well. How about yourself? 

Jesse: Good. I'm Jesse.

Mike: Nice to meet you, Jesse. I'm Mike Burton. 

Paige: Paige. 

Mike: Hey. Nice to meet you, Paige. 

Paige: Nice to meet you. 

Will: Hey, Mike. Will. 

Mike: Hey, nice to meet you. Great to meet you. 

Mark: Mike, great to meet you. Spectacular mustache. 

Mike: Hey, thank you. I appreciate it. I grew it out just for this show.

[crosstalk]

Will: This morning. You grew it out this morning -

Mark: I mean, it's not there by accident, am I right? Like that's a, that's a choice. 

Mike: Yeah. This thing was very purposeful. I did try to get rid of it a couple of times and my kids threw a fit. So, you know, it's here today. I did get a haircut to try to look a little bit better. 

Um, absolute pleasure to meet each and every one of you. I'm Michael Burton. I'm the cofounder of Lockstop. But before I started this company, as a Marine, I traveled around the world collecting intelligence, conducting interrogations until 2015 when an injury ended my career and kind of forced me to really rethink my path forward. So after a decade in the hustle of Southern California, my family and I traded in the sunshine state for small town America and we moved to... Bentonville, Arkansas. And Arkansas, it always has that effect on people. But you know, Arkansas has over 600 miles of bike paths, right? They make it pretty easy to ditch your car and get on a bike. And that's exactly what we were looking for. I remember one of our first bike rides, you know, to the farmer's market, myself, my wife, two kids. And that's really where our story begins. So, riding into the farmer's market, picture perfect morning, birds chirping, blue sky, you know, it felt like really a dream. Quickly get into the market and realize that we had forgotten our bike locks. And so, as I stood there frustrated, I watched my wife and kids disappear into the market and I'm standing there thinking how do we have self driving cars and I have to carry around this clunky bike lock. And that's really where Lockstop comes in. We developed our patent pending lock here that mounts to the bike racks that we already have in our communities and we turn the existing infrastructure into these data rich mobility hubs. Cities are missing data to convert car drivers to bike riders. The billion car trips that we take in the United States each day, half of those are within two miles of their destinations. And cities are trying to figure out how to solve this problem. But those existing solutions that are out there, like Uni and Bikeep, cost five to a hundred times the cost of a Lockstop device. They require infrastructure and a lot of space allocation, making them really difficult to scale into our communities and for cities to adopt that technology. But for us, in the last 90 days, since we finished up our MVP, we've already secured two partners, and then we have two others that are selecting their deployment dates and the locations for each one of these Lockstops. 

Now in order to continue to scale and bring this value to communities, we're raising 1.5 million dollars to continue to grow our team, scale our pilot programs, and continue to commercialize the device. We really do believe that if you can secure the bike, then you can save the world and then build those communities that our kids actually deserve to grow up in. 

Will: Can you show us how it works?

Mike: Yeah, absolutely. So it's pretty simple. So you can see you just download a Lockstop app on your phone. Really difficult. You click that button there that says scan. You hold it over the QR code. And then you can see - you can see here that there's a yellow light. That's telling you, hey, you have 20 seconds to lock your bike. I apologize, trying to reach over the mic here. Once you secure it in, you should see a green indicator there and that's the whole process. And so then you as the rider, you can see where your bike is locked up. Say if you're like me and you get lost everywhere you go, route back to your bike and then you reverse the sequence: the little button that says scan, click that once again. And that's it. I apologize. Stepping around the microphone is a little bit difficult. 

Jesse: That's not usually in the way at the bike rack. 

Mike: Yeah, usually you don't have a microphone. You know, I do -

Jesse: Children hanging around. 

Mike: Yeah, that's it. Children, they do make it difficult, but not nearly as difficult as the microphone. 

Jesse: Who - who are you - of the partners, who, who is your optimal partner to sell to? Are you selling to the municipality or are you selling to a retail place that has a bike rack already? What, what's sort of your go to market? 

Mike: When we first started this, we thought, Hey, we'll charge the individual rider. And we've had conversations with thousands of rider all over the world. And every rider said, yeah, absolutely. I would pay to use this device. But then, when we were looking at accessibility, I grew up in government subsidized housing, and originally, we had priced this for a dollar an hour. But even a dollar's a little bit too much for some people. So, how do we remove that accessibility barrier? So, now we charge the cities. Because what we're able to do with the cities, Jesse, is they install these devices, and now they get access to those mobility insights that don't exist anywhere else. So we sell into the city, each individual device. We do a one time charge to make it really easy. And then we give them data as a part of that purchase monthly that they don't have access to right now. 

Jesse: And what kind of data beyond - do you have other sensors on there or the data is around like how many bikes are being used there, where those users are going? 

Mike: I'm loving your questions because that's exactly it. It's a smart bike lock. So it's an IOT device. So we do have active collection. So say Jesse, you download the Lockstop app. Now we know who you are. We know generally where you're located, aggregated and anonymized obviously. And now we can start to understand like maybe Jesse is actually willing to ride four miles in for a coffee or a drink or dinner with friends. And so we capture who is Jesse How far is Jesse willing to travel? But then along that route, is Jesse hitting any friction points that are going to make him get off his bike and back in the car? And then once you lock up to a device, now we know, Hey, Jesse's always hitting coffee at 9 am. That business owner would probably want to know about that. 

But it is an IOT device and there's a lot of stuff out there that we can collect. And so we also have environmental weather sensors in here so we can do micro level climate. And then we have a feature that's coming on that's trained to listen for specific grinders. So that way it can send you an alert to your phone and sound an alarm here. 

Will: A grinder? Someone trying to steal your bike?

Mike: Exactly. Yes.

Will: Okay.

Mike: So it's a tamper detection system. My background was threat vulnerability assessments for US embassies and other places around the world, and you cannot make anything completely defensible. So what we did is we just made it the hardest target in a city. So then a bike thief says man, I maybe need to find a new industry to steal in.

Jesse: Or a different bike.

Mike: Or a different bike. Yes, yes But hopefully by offering the service free of charge to the riders that those riders would be locked up to a Lockstop device.

Will: Where, where does the power come from for this? 

Mike: This is entirely standalone. It has its own battery in there. We do GSM connectivity. All of that is self contained in this device and we use a lo-fi Bluetooth chip that allows us to get two months of battery right now. And we're, we're adding a solar trickle charger that will extend that battery life up to a quarter. But right now it's a completely self contained unit that can deploy nearly everywhere.

Paige: In your conversations with the municipalities, what is the core value that they're looking to get out of working with you all? 

Mike: Just, uh, about three weeks ago, we met with one of our partners that had already selected pilots. And I said, hey, here's what we can actually do. And I showed her our data dashboards and, you know, what we were able to capture there. She's like, Mike, you came to me with a locking solution and that was already enough. Now that you've told me all the things that I can generate here, understanding like who my riders are, where they're riding, where are they staying, what my environment looks like. She said, you can charge me effectively anything for this device and I don't think I'd have any issues getting them approved. So that's really where we're replacing a lot of the technology. So you see the little white flashing light that's there right now? There's a little pinhole to the right. That's a motion detector. We had originally built that in to wake the device up out of hibernation. And then we realized our cities are already paying between 5 to $20,000 for trip counters. That's what that does. So every Lockstop device is a trip counter. So you would effectively be able to think of this as the Ring doorbell for a public space and for a bike rider. 

Jesse: Can you talk a little bit more about the model? You mentioned them paying one time. I assume there's also maintenance or subscription that goes with it. What is that price point just broadly speaking?

Mike: Yeah, so year one we charge a city 750 and then we scale up to 1200 per individual device as we get further along. What that covers is that basic level data package, because then the data that we're able to aggregate out of this has other monetization opportunities, everything from environmental to development industries. So that way we monetize all of that data. 

Jesse: So 750 per year includes the device for the year?

Mike: 750 is a one time upfront fee. 

Jesse: Got it. 

Mike: And so 750 on a device that has nearly a five to seven year lifetime. And so for us, the data monetization opportunity is so significant that we don't want to pass the burden on to our individual cities. But here's the fun part. Even if we do, you can use federal level grants. Like one of our partners that we're in active conversation with is actually using an EPA grant to fund their program. And then the more of these devices you have, the more data that you have. And so then they can use that data to support additional grant opportunities, really creating this flywheel says, Hey, the more devices that you have, the more data that you have, the more grant you can access and the better our infrastructure. 

Will: So what is the ongoing after year one and that one time? What is the, the revenue that you're generating per device? 

Mike: For per device, we generate, uh, it's all, uh, really effectively about the number of users that we have. And so for each one of those users, we generate a specific dollar amount. So each device generates about $750 a year on its own. 

Jesse: So it costs 750 for the device. That's like one time they pay. 

Mike: One time. Yes. 

Jesse: And then it's 750 per year roughly is what you're thinking based on usage?

Mike: Right. But that -

Jesse: Okay. 

Mike: But yes, exactly. So those are the usage from monetizing the data that we pull from the individual devices.

Will: So the city isn't paying that that's revenue that you're generating from that data.

Mark: Right. Exactly.

Will: Got it.

Mike: And so what the opportunity is, is we give the cities that basic level data package included in the purchase of the device, but then we give them the opportunity to trade up into different data packages. Because now, Jesse, I know how frequently you're riding your bike and I know how much a vehicle, you know, expends in carbon emissions or greenhouse gases. So then the city would know, hey, whenever I install a Lockstop here, I'm pulling this much carbon out of the environment. So they can understand, hey, do we have hot spots that we need to target first? Or then after the devices are deployed, how is our carbon emission stacking up in the different areas? And then we can start to ask questions about why there are some areas growing more rapidly than others, and then we can make data driven decisions to fix it.

Jesse: And so the city could be a buyer of the data, but it could be others you're thinking as well.

Mike: Exactly.

Jesse: It could be the local restaurant group or whatever may want information. 

Mike: That’s exactly it

Jesse: Got it.

Paige: Can we talk a little bit about the bike lock itself? Like, how much does it cost to make it and how long does it take in your current manufacturing scale? 

Mike: Yeah. I'll start from the bottom of that. So it takes us eight weeks to manufacture right now, but here's the fun thing is it's small batch manufacturing in Northwest Arkansas right now. So we small batch manufactured this device for under $600 and we have another device that we're designing right now, an aluminum cast, that will take that cost and cut it by 70%. And so next year we'll be about $300 a device. 

Paige: So these should be profitable upon delivery, but I'm assuming there's like other costs associated with putting them in? Like how do you install them? 

Mike: Yeah, so it's a very complex installation process. These are the tools you need. And so in under a minute, this thing installs or uninstalls from any bike rack and it's semi permanent. We're actually patent pending on the mounting bracket, which gives us a lot of defensibility there, so we'll be the only ones that can come in and install on the existing bike racks. And it's a very simple proprietary bolt pattern that - put a drill in there, takes about 12 seconds to crank it in, and now it's installed and then you do it in reverse and that's how you uninstall it. 

Will: How do some of like the Citi Bikes of the world impact your business? 

Mike: Recently we've been working with some pretty large campuses and they are actually buying their own bikes and now we're writing in a feature so that individual campuses or universities or cities can buy cheap analog bikes, lock them to this and effectively create their own ride shares. And so I would say yeah, we do now, threaten a lot of those micromobility solutions like scooters and bikes, because 53 percent of Americans own a bicycle. So it's effectively like walking past the car in your garage and going to rent one to drive to work. 

Jesse: I just want to go back to your, the model for a second is the reason to not sell a subscription because the municipalities won't pay it, or you just feel like it's the least, like, path of least resistance? I - in my mind, it sounds like you're leaving a lot of money maybe on the table, but maybe there's something I'm missing and why you're doing it that way. Because strikes me as a more complicated business to sell one product and then have to figure out who else you can sell data to? 

Mike: Yeah. I think because we are a startup and our goal was to get to market as quickly as we could, make it as easy as possible to adopt and then continue to explore those revenue streams and make sure that we're optimizing our business, you know, to hit the numbers that we can.

Jesse: Yeah. How large are the municipalities, the two that have signed already? How large roughly are those? 

Mike: So 100k and then 150k. In year one, we're only focused on five cities, and we want to make sure that we do everything exactly the way that it needs to be done so that we can rapidly scale in 26. So two communities with over 100,000 population … 

Jesse: And so that, just to be clear, it's two, two municipalities, one's paying $100,000 at 750 -

Mike: Oh, I'm sorry. I misunderstood your question. I thought you were asking about population size.

Jesse: Well, I'd like to know both. Those are population sizes. Got it.

Mike: Right. Okay. Perfect. Yeah. So those are population size. Right now, the two cities that we're working with and we'll be installing is 100k, 100, 125k, right around that part. And then the individual contracts right now are for the 25 devices with the expectation of scale once the data proves out. 

Mark: Mike, I'd like - I'd love to spend a minute just on your background. I think it bears stating just to thank you for your service. It sounds like you spent a lot of time protecting our country and the people around the world. So I really appreciate that. And I am hard pressed to imagine that it hasn't influenced the way you think about building as well. Not necessarily the product. Security seems like your specialty. But even just the starting of a company and what's required from that.

Mike: Yeah. 

Mark: So could you just touch on that a little bit and what that mindset has been like as you've entered into the world of entrepreneurship? 

Mike: Yeah. First, I want to say thank you for paying your taxes because I really did have an exceptional career. Being a counterintelligence, human intelligence guy, I did things that I read about when I was a kid, you know, foreign countries. I mean, it was mind blowing that I had that opportunity. 

Jesse: I thought you were going to ask about specific things he did. I was like, he’s not going to talk about those. 

[crosstalk]

Mark: I assume he's going to give us it totally off the record here. 

Mike: We can check your clearance, but we both may go to jail if we have that conversation.

Mark: It's not worth it. 

Mike: I'm fine, but you probably won't do well in there. But, you know, I think - I wrapped up my career with Marine Special Operations, and I think when you're performing with a group that are the most elite of the most elite, then it requires you to have very high expectations. I take that same little scrutiny with each person that we bring into the team. My cofounder Clayton is probably one of the most tenacious, hardworking individuals, that I've ever met, as is my CTO. We actually landed a unicorn. He was a former bike cop that decided to ditch law enforcement and go data scientist and machine learning. And our lead engineer, very similar from Pakistan originally now a US citizen and has been working in this field for 20 or 25 years. So we do have very high expectations about anyone that's working with us. The same with our CMO. Each person has to understand that this is not a nine to five job. And that's kind of the way that I interview. I say if you want to start the worst chapter of your life, but the most rewarding, then become an entrepreneur because it's not easy. It's really, really difficult. And I'm very thankful for my time in the - in the marines and working with Special Operations Group from every service because it gave me that filter to make sure who we're bringing onto the team have the same character attributes that I do. And I'm not saying that those are great, but what I'm saying is if we can't go over something, we go through it. And that's what each of our founders bring. 

Mark: Yeah, that's awesome. I appreciate that. Yeah. 

Will: Can you talk a little bit about bike theft and how rampant that is. I just, I don't have any sort of senses to it. I've had bikes stolen before sadly, but, uh.

Jesse: I've had two stolen. 

Will: Have you? 

Jesse: And I got rid of my bike in New York because I just use Citi Bike at this point. It's the only solution. 

Will: How big of a problem is it? Like what, what are the stats around, you know? 

Mike: 2 million a year.

Will: 2 million bikes are stolen?

Mike: But here's the crazy thing. Only half of bike thefts are actually reported. Because only 5 percent of those bikes were returned. Do you know why? Because they don't know their serial number. So in the Lockstop app, you can go in there, you register your bike, so now we have your serial number and we can, if something does happen, well now you have all the data that you need to go to the authorities, report the theft, and then hopefully get your bike back. Because a large majority of stolen bikes are recovered. They just have no way to associate them with an owner. 

Will: Very interesting. 

Jesse: Yeah, I mean, with these devices, there's some other interesting things. There have been a number of smart bike companies that have launched where they've included tracking and other things in it. So I could imagine you augmenting this product with other things. If you're able to convince more cyclists to use it, you could wind up tagging their bikes for them so you can find ‘em. 

Mike: Yeah, and that's the goal. It's like, this is our first step. You know, one thing that we look at is like, what are those boring spaces in the cities that can be informative? Bike racks were step number one. We fully anticipate the closer that we get into these cities and we start to see those other boring spaces, who knows? Maybe they're park benches. Um, but we'll start activating those spaces as well, just to make sure that we have a really clear picture. 

Will: Skis and snowboards. 

Mike: Snowboards and skis. Like, I don't have a lot of, uh, experience there. I'm a pretty good snowball. My wife's like a great skier, not me, but we've heard that time and time again. Skis and helmets, big theft. Now when you think about marinas, right? Boats, big theft. Think about the number of people that own, you know, vacation homes in Texas on a lake, but they have no idea if their boat's still there. Well, now in the future, they will hopefully be able to hear and see their boat and then understand if anyone's interacted with it because it'll be locked up to a Lockstop. Because really it's just a smart lock. So anything that you think that needs locked, well now we have a really hefty chain and tamper detection system to do it. 

Will: How long does it take to actually cut through it? 

Mike: So it'll take us 65 seconds to cut through the - the lock, or the chain rather. 

Will: Wow. 

Mike: But again, if you do a diamond plate grinder, you can cut through anything. And so that's the reason why we're implementing the audio features. So that way if you're a thief in a public space, not only do you have to worry about all the grind sparks because you're cutting through steel, but now there's a hundred decibel alarm going off and there's a text message going to the authorities that say there's an act of bike theft in progress. So if I'm a thief, which I've never been, well, I did still one bike when I was a kid and I returned it, 

Will: Way to come clean man.

Mike: You know, it was a different life then. I returned it a couple hours later. 

Jesse: You heard it here on The Pitch Show.

Mike: Yeah, I'm on The Pitch Show, I'm so sorry. I did do that. It was a different life. Um, but, you know -

Jesse: Your clearance is going to be really affected by this.

Mike: You know what? I don't have to maintain the clearance anymore. That probably wasn't on the initial form. But you know, last year we actually held a bike stealing competition, one of the most fun things I've ever done, and people were celebrating. Like, so one gentleman cut the lock with bolt cutters in eight seconds and he had to run off with the bike and they were all celebrating. And I said, have you stolen a bike before? And he's like, no, I'm like, do you realize you just did that in eight seconds? And I think the realization hit him like, Oh, I can steal a bike in 8 seconds. What does that mean for someone who actually steals bikes for a living? You know, so, yeah. 

Paige: Can you, um, take us a bit through like your early journey of building the company so far?

Jesse: And fundraising to date? 

Mike: Yeah. So when I had that experience in Bentonville about a year and a - maybe a little over a year later, um, I started grad school and I was doing new venture development. So graduate certificate in entrepreneurship and you had to have a project. And I'm like, well, this will at least get us an A, you know? And so that's where I met my cofounder and he and I had started riding bikes together like probably 60 to 70 miles a week, just out riding. And he's been in the cycling industry for, you know, 15 years. He used to sell into municipalities for trail building. And so he's like, Mike, I think this is a good idea. During graduate school, we traveled on the pitch circuit and we won some money. I think we were about 55K. We did raise a small friends and family. So we had 235k contributed by folks that had gone to grad school with us or, you know, others like that. And that's really taken us to this spot. We've tried to kick the can down the road as far as we can, but now we know we have an exceptional product. And if we don't raise the capital, then that's going to cause a lot of people to miss out on the value that we can create. So that's why we're here today. 

Will: Give me a sense of, I don't know, mid tier city, how, how many of these might you be able to install and for, you know, a top tier city, what's the, the revenue opportunity? 

Mike: Yeah, so it's around 90k per city is that revenue opportunity when you're looking at a place like - 

Will: 90,000 units?

Mike: I'm sorry?

Will: 90,000 units?

Mike: 90,000 revenue, about 100 units for a city the size of Fayetteville, which I think is about 150k. They're a great pattern match. They have a city and a university butted up. So it takes us about a hundred devices in order to completely cover down there. 

Jesse: And so your assumption though, is that there's some like 0.01 percent of those citizens that are going to use it at any given time. Is that -

Mike: Yes.

Jesse: Or point zero zero one. I may be off on that but yeah, but a hundred would seem very small.

Mike: It does seem very low. But fortunately for us, PeopleForBikes, shout out to them, they do a ton of comprehensive data collection in order to rate each city on their people for bike score. So it helps us understand like which cities actually have the infrastructure, so as we're developing right now, and we need those cities that are ready, the ones that already have the infrastructure, so we target them first and then we understand like which cities are trying to do what they're doing, and now we can go there and start to work through them also. 

Paige: How many cities are bigger than Fayetteville? 

Mike: Yeah. So we're projecting in five years, our goal is to hit 291 cities that have pretty developed infrastructure or they have infrastructure that can develop pretty rapidly. 

Jesse: Right. What's the revenue in five years?

Mike: Five years, what we're projecting right now is 60 million. 

Will: 60 million. 

Jesse: I have a concern that like you're not necessarily thinking big enough. Why not have a thousand per city where - I mean, you're talking about a place where there's 600 miles of bike trails.

Mike: Right. 

Jesse: Like, I would imagine that they would love to have a goal of getting 10 percent of their people riding bikes all the time every day, in which case you would need thousands of these -

Mike: Right. 

Jesse: - to have enough. And so I'm just wondering, in your model, are you just like really a sharp shooter. You're like, this is the conservative bet, but there's a lot more. Or are you, is it - and either one. I mean, 60 plus million dollars in revenue would be phenomenal. So don't like no knock there. 

Mike: I'll walk you through this very complex funnel. I was hoping not to do that. So the way that we look at it is anyone 12 years or older is kind of our target market. So that's about 80 percent of the population right now. And then 53 percent of them own their own bike. So then we gradually funnel it down. And then we say 60 percent of those people actually live in an area that has active transportation. And then we look at the favorable weather days and understand like how does climate impact riding. And then we say based on a total year, here's the number of days that you can actually ride. And that brings us down to a very specific formula and how many devices that we need. We know we're not going to capture everyone. And I love the fact that you say I'm not thinking about this large enough because it seems like there's a lot of people around the table that could help me expand the way that I'm looking at this business. We've undoubtedly missed things that would add value. And so if there's anything that adds on to that 60 million, I think that's icing on the cake for us.

Jesse: Yes, I'm thinking at a municipal level, there are many projects in some of these mid-sized cities where they wouldn't even look at a project that costs less than a hundred thousand dollars. Like they can't sort of wrap their heads around that. You might be able to charge 10 times as much and it would actually get more traction because it becomes more appealing to the municipality. And so that's, I - I'm not an expert in this, so it's more of a gut feeling and you would obviously learn this, but I would love to dig in more here. Do you - have you raised any of the 1.5 million so far? 

Mike: No. So nothing against it. We're at the 235 and have enough ba - money in the bank. So it's not stressing us out. We have what we need to do right now. So we're kicking it off with the expectation of that pretty tremendous scale. 

Jesse: Yeah. We, we could be a significant investor in the round - I'd say there are a couple of diligence things I want to get underneath and some people I want to talk to, but I'd say, like, I would like to at least commit 50k to sort of kick this off with you. I don't know what the raise is ultimately gonna look like - 

Mike: Jesse, I absolutely hate to say this, especially on YouTube, but we've left the 50k checks on the table. So we don't allow any investments under 100k. 

Bold move Mike Burton. Almost as bold as that ‘stache of yours. We’ll be right back.

Jesse: Pending some diligence, like, I would like to at least commit 50k to sort of kick this off with you. I don't know what the raise is ultimately gonna look like -

Mike: Jesse, I absolutely hate to say this, especially on YouTube, but we've left the 50k checks on the table. So we don't allow any investments under 100k. Completely understand -

Jesse: Yeah, that's fine. 

Mike: Yeah, we actually just told our last graduate school buddy, like, Hey man, I'm so sorry you missed the boat. 

Jesse: So, so I, so I would like to -

Mike: It's terrible. Yeah.

Jesse: So I'd like to then like, I won't commit anything, Let's do the diligence of it and see - see where we get to on it. 

Mike: We would love that. I think just the value that you'd add alone just by sitting down with the conversation would be wonderful. 

Paige: I love that you drew that hard line. That was awesome. 

Mike: That was a hard one to say. I'm so sorry, Jesse. 

Jesse: I'm good with it. That saved me 50k today. 

Paige: Yeah, I really respect that. I mean, I guess one of the questions I have is like, do you think 1.5 million is enough to be like super, super aggressive with your growth targets? 

Mike: Yeah, it actually in 24 months is when we expect to hit our breakeven point. And so that 1.5 takes us all the way to that position where we're generating our own revenue and we're floating our own boat. We do hope to pull a salary after we raise just so that way, you know, we can go home and maybe not eat ramen. I'm joking. We don't eat ramen. That's a terrible myth. We don't want to dilute any early investors, people that saw the vision. So the faster that we can get to that cash flow positive, which is limited by the number of networks that we have deployed, then the better off we're going to be. We don't anticipate raising a Series A. 

Paige: Yeah, I guess it is like much easier to remain lean if you're not taking a salary and I think. I'm assuming that is like you paying yourself a market rate salary. 

Mike: Um, so actually what we're earmarked for right now is under market for myself. I made some pretty decent investments in our lives and that helps me kind of float my boat. So we'll take on um kind of a tiered salary based on revenue. So we'll pay a couple grand starting next month and then tier up. And then once we hit the city and the contract comes in that's when we'll start to scale it up. But that's also something I can say about our team which has been pretty phenomenal, is the understanding that the vision pays the rest. You know, like, hey, we're gonna go do something that other people have not done before and, yes, the money in the bank may not be great year over year, but the impact that we're creating and the end of this story is going to be far greater than anything we could have imagined. 

Mark: I really love the culture and the mindset you're building, Mike. For us, it's not going to be a fit. I think it boils down to hardware is not an area that we feel like we have a specialty in. It's a challenging thing for us to step in and support a hardware business. And so, you know, we want to be able to step in and really support folks with respect to the relational capital, in addition to that financial capital. And I just don't feel like we can do that with this deal. So not a fit for us, but I really appreciate hearing your story. 

Mike: Yeah, no, I really appreciate you. Thank you.

Mark: Yeah. Yeah. 

Will: Yeah, Mike. Great to meet you. Congratulations on - on what you've built. I really love how you have bootstrapped this and love seeing entrepreneurs who are just 100 percent, you know, committed to building a great business and kind of doing whatever, whatever it takes in these hard early days because it's so brutally hard in the early days, right? Like the lowest lows are being an entrepreneur. 

Mike: That's it. 

Will: But anyway, it feels like you are at a really exciting inflection point. And so congratulations on that. It's not a fit for KittyHawk just cause of our kind of deep tech type of focus. But if I can be supportive, would love to help in any way I can. So. 

Mike: Yeah, no, I absolutely appreciate those kind words. Thank you very much. 

Paige: Wow, this has - Sorry. Um, no, this has, this has been super interesting. I, I think the lean mentality that you've been able to run the business with is incredibly impressive. And how you've been, I mean, like building hardware is no small feat. So the limited amount of capital that you've been able to take on, and actually build a patent pending... What stage of the process of the patent are you in?

Mike: So we submitted our patent in March. So it's just a waiting game at this stage. 

Paige: Awesome. Yeah, I mean that's like really incredibly impressive. I think, for our firm in the hardware space I usually look for companies that like are a bit further along, from a revenue perspective and I think that's just the risk tolerance that, I personally have as an investor for hardware. I know you said you're probably not looking to raise series A, but if there does end up being like a seed+ or something like that, I would love to stay in touch as the business grows and as your vision expands. 

Mike: I completely understand everyone's perception on hardware, but the one thing that I've learned over the last 30 plus years, we'll stop at 30, um, is that anything that's hard to do is hard to disrupt. And there's a lot of SaaS and AI going on in the market right now. And for us, it's like, once we have a hardware component there, it's very difficult to remove. Just because the city doesn't want to have to make another decision. So really respect everyone's opinion here. Thank you so much for the opportunity to sit with you. Would love to stay connected and would love to hear more about the revenue goals that you're looking at. So we'd know when to start a conversation if that opportunity arises.

Mark: That's awesome. 

[congrats and byes]

Mike: Can I shake your hand now? Am I -?

Jesse: Yeah. That's cool. 

[applause]

[nice to meet yous]

Mike: Definitely stay connected. 

Mark: Yes, we will. 

Josh: I love that guy. 

Will: Yeah, super cool guy. 

Mark: He's the coolest. 

Will: Yeah, that mustache is - [chef’s kiss]

Josh: I don't think I've met a guy or gal that chill in the pitch room in the entire almost 10 years we've been doing this. 

Will: He's been in much more intense situations than this.

[laughter]

Josh: So, like, if I were to assess what happened between you and the founder, Jesse, you were like, hey, let me sneak in a 50k check into this kind of small first round so you can build a relationship with Mike, get to know the business, before you write like a lead check either in this round or another round.

Jesse: No, sort of. I was actually thinking a little differently. We have this micro fund strategy where we have with 50 entrepreneurs and executives that invest on our behalf and with us and they all have expertise in various areas. Called Next Wave. And that gets the ball rolling. And he hasn't raised any money yet, and so being able to go out and say, there's a commitment to this from a new investor. And I would do the diligence either way for us to potentially lead. And that doesn't require like an angel check first, it was more of an option. Like, uh, it could be a yes and, as opposed to either or.

Josh: But do you think that was the right move? To decline the 50k like -

Will: It was a gutsy move. 

Josh: I guess he's not desperate. He doesn't need it.

Jesse: Well, on one end, I don't fault a founder for having a, like a structured approach. Like we do this with our own investors in our fund. We have minimums that we set. So, I mean, I, um, I think at the stage that he's at, they're going to be some really smart people who could be really helpful, who would come in at this stage, who probably would be 25k or 50k angel check writers, who he may turn away and lose access to because of that limit. I've not seen many founders raising a million to two million dollars to have like a hard line on like, 50k. I've seen people that are like, I don't want to do five, you know, I don't have a -

Paige: But it might be like I, I'm like, I'm looking to secure a lead, and I will take, like, conversations with smaller checks later.

Jesse: Yeah, like, I'm still gonna dig in, but if I thought of one or two of these other people who I think are amazing, who have sold in to municipalities, have built massive businesses here, and I'd say they're all 50k check writers, well, I'm not gonna introduce any of them to him, because he said he doesn't want to take those checks. Like, I'd probably leave the optionality open. But I don't fault him for having that line. And personally, I'm not, like, I'm not offended by that. I'm like, we normally write million plus dollar checks, so I'm going to do the diligence on that check either way.

Paige: I respect that. I love when a founder draws a hard line like that. One of the recent seed deals I did, the founder was like very much like negotiating against the smaller checks in the round. Like if you negotiate with me like this, you're definitely negotiating with like your customers. Like, it's a strong indicator. 

Will: How do you think about this in terms of an exit? Like this as an acquisition. 

Jesse: Yeah, it's an acquisition. it's a hard one. I, sometimes there are investments that I've made where I think they can be decent exits. You know, if this is the only round he raises and raises at a reasonable price, raising a million and a half bucks, never dilutes me again. The exit doesn't have to be that big. A hundred, two hundred million dollars could return a fund even, depending on, you know, how much of the round you take. And there are certainly a lot of mobility related exits that have happened at that size. Uber made a half a dozen of them globally and, and so did Lyft with Motivate and others. There are some companies though that I've invested in where I, it's, I don't know if, if all my LPs would like this, but we can make a lot of money on it, but it's also like great for the world. And if it only returns half my fund, I'd still feel really great about backing that company. Like if this can change the world that, you know, our kids live in and make it safer and more convenient to like ride a bike and and not get their stuff stolen and whatever, it's probably a net positive, even if it's not a fund returner.

Josh: Back the things you wanna see in the world. 

Jesse: Yep.

Josh: Awesome. Super quick turn. Yeah. And I've said this before. I guess, Will, you have to head out? 

Mike walked out of the pitch room with a 50k commitment from Jesse that he turned down. That may eventually pay off in the form of a lead check. Or… it could bite him in the bike. 

Coming up after the break, diligence.

BREAK

Welcome back. A few weeks after the pitch, Mike and his CFO Tiki got on a call with Jesse

Mike: Hey Jesse, how are you? 

Jesse: Hello.

Mike: Jesse, this is Tiki. Uh, so Tiki's actually on travel right now. Tiki, what time is it in India? 

Tiki: 7:33 p. m.

Jesse: So are you in India for work or you're in India to see family, friends? 

Tiki: I'm here for a wedding. One of my cousins is getting married. Funny enough, after this call, I'm jumping to a dance rehearsal. Cause I'm in a dance for the wedding. 

Jesse: Amazing. Please send footage of said dance when you are done. 

Tiki: You got it. 

Jesse: Awesome. Cool. We can get started as a reminder. You know, we tend to look at leading or co leading kind of seed rounds. So since we last talked on the show, it would be helpful to hear sort of progress on just your side. Anything that's changed. 

Mike: So when we got back from the pitch. We go to what's called a Blake Street here. It's effectively a Soho of the Northwest Arkansas region. The Walton spend a lot of money here. And the management team came out and I said, hey, what is this? We walked him through it and they said great. Can you send us a contract?

 We also just got accepted into a catalyst. And then the boulder conversation has expanded also for a 25 device pilot. And last week, we were in Tulsa, hosted by the indigenous nation. And all those answers were like, no, we don't have it. Yes, we need it. And can we set up a conversation next week? 

Jesse: Yeah, no, that makes sense. One question I wanted to touch back on was the size of a, of an implementation. I think your number was like a hundred or something would like cover the city and it, that's still.

Intellectually, it still seems low. I live in New York City So I know it's a different kind of place but like even if you took Manhattan you said is 1 100th size. I'd still think it was more than 50 or 100 of these locks, but I could be wrong 

Mike: Yeah, no, and, and that was probably me misspeaking on that perspective because really the devices scale with the population. And so when you're looking at a city like Bentonville, you know, that has 150, 000 population, a hundred devices serve us well, because we have all of our amenities. Very concentrated and then we have those, you know, kind of leapfrog points. 

Jesse: Yep. 

Mike: Very similar to, you know, any other city where you have, you know, your B cycles or your lime scooters positions. Yep. Strategically, yeah. 

Jesse: They're strategic and dense places. Yeah. It's, you know, right near the train station. Exactly. 

Mike: And so for us it's like that scales with the population. So yeah, 150 K is the easiest way. So about every 150 K we go up is a hundred devices. 

Jesse: Got it. That makes sense. It would strike me as there is some I don't think you'd do this any time soon, but there's a potential path here where eventually you let individuals a la, you know, Tesla's level 2 chargers, like, buy these for their home, either use it personally or they can even say, hey, drop me on the grid. And I get a hundred bucks back for my city or something and I would urge you to, Keep it simpler for as long as you can, you're trying to sell hundreds of municipalities on 100 units per 150,000 people at 1,200 a unit, and that's the business, and when you get to a certain scale, you can then sell one to one enterprise data contracts. There's probably a hundred companies that want it. It's just like, no, we want Google to pay us a million dollars a year. For access to foot traffic data. That's it. Like, that's that's the deal. 

Tiki: Yeah. And or, you know, realty, like, if there's a realty person who wants it, like, it's very specific to the group. It could be that state, or it could be. You know, as a national level, I think there's quite a bit of opportunity there. 

Jesse: Okay. I think at the stage that you're at, because you're just beginning to roll this out to a couple of places, like you're, you're certainly on the early side of where we get comfortable. And so. I think. I'd like to find a way to support you along the way and and stay close to this and potentially, you know, get to leading a round. That could be sooner. That could be later, but like, I just need to get, I need to spend more time on it and I want to see it go live. 

But I certainly could be swayed by, you know, if I shared it with five people that I consider to be more experts in this category and all five said I'm in, you know, this is the thing I want to be doing. This is where the world's going. Hey, we want to roll this out in all of New York City tomorrow. You know, they can do it like that will obviously make me feel different. And truthfully, each person I'm going to send it to could be an investor in the business, a customer of the business. Or maybe an advisor, but I probably my rule of thumb is don't let anybody be an advisor who can otherwise be an investor. But let me start with that over the next few days.

Mike: Well, let me know, Jesse, if it's easy. I mean, Everything always sells itself when it's there. That's what we found about the lockstop device in itself. So if it makes sense, I mean, I can have one shipped up there to you.

So that way you can see how easy it is to mount to any of the bike racks. Because of the simplicity is what sold it every time we've not gone into one door that we haven't walked out with a yes.

In VC speak, “stay close to this” typically means, I’m not writing a check anytime soon. Maybe Mike can work his magic. Or maybe he should’ve taken that 50k.

It’s probably time to shift gears to another VC… We'll catch up with Mike on the season 13 finale.

No offer to invest in Lockstop is being made to the listening audience on today’s show. But you can join our private investor community on Substack. Where you’ll get access to the deals we’re doing behind the scenes.

So, if you’re an accredited investor, you can apply to join at thepitch.fund

Next week on The Pitch… 

Cathy: We built this platform about a year ago, and since then, we've served over a thousand students, 500 companies. We've built a $1.2 million annual run rate. 

Paige: That's so sick. 

Cathy: This is my third company, which is fun.

Mark: Can you talk about traction, Cathy? 

Cathy: Most of our revenue today is still coming from startups. 

Mark: Okay. 

Cathy: We don't do any marketing for startups -

Jesse: Okay.

Cathy: - and we get an average of 10 new startup signups a week. 

Jesse: You'd assume roughly $100,000 a month 

Cathy: $100,000 is comfortable because we save them about five times more than they pay us. 

Paige: What were the terms of this latest round? 

Cathy: We raised $4 million on a 16 million post money valuation. 

Paige: How much allocation do you have open? 

Cathy: We actually closed the round in August of last year. 

That’s next week! Season 13 is available to watch on YouTube and Patreon, OR listen on your favorite podcast player.

Subscribe to The Pitch right now, and turn on notifications so you don’t miss it. If you enjoyed today’s episode, be sure to hit that like button. We’ll see you next Wednesday, in the PITCH ROOM.

–

This episode was made by me, Josh Muccio, Lisa Muccio, Anna Ladd, Enoch Kim, and Jackie Papanier. With deal sourcing by Peter Liu, John Alvarez, and Phoebe Sun.

Thanks to friend of the show Mauricio Iglesias for introducing us to Mike and the team at Lockstop.

Music in this episode is by The Muse Maker, Ray Catcher, Our Many Stars, Joey Cantor, Joya, and Peter Jean and the Runway Queen 

The Pitch is made in partnership with the Vox Media Podcast Network.