#8 Hykso

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

On this show, we venture into the world of startups, to a critical moment, when aspiring entrepreneurs put it all on the line and pitch investors for funding. 

This week…

Khalil: We produce wearable technology and we allow people to play combat sports without having to hit each other in the face.

Jillian: Phil, you're a moron. I have to tell you. And I never say that...

Phil: Did you just call me a moron?

Jillian: Yeah, I did.

Today, two founders pitch their wearable fitness technology -- basically a Fitbit for boxing. Will investors decide that their device is a heavyweight?

Phil Nadel is the founder of Forefront Venture Partners. In pitches, you’ll hear him put the focus on the hard numbers. 

Phil: I don't like the model. I'm not seeing the path to recurring revenue. 

Jillian Manus is here representing Structure Capital. She tends to only go in on companies when she really understands -- and appreciates -- what they’re doing.

Jillian: I see the merit. I just want to make sure I always add smart money, just not money. 

Jake Chapman’s here with Gelt VC. He looks for founders who have thought through all the small, boring details..

Jake: There are a ton, a ton of operational issues that you haven't had to address yet. I think you can address these issues, but we haven't seen that yet.

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 actually functional. 

Here we go.

Khalil Zahar: Let’s jump into it, I think its a good time. Thanks a lot for having us, guys. My name is Khalil. I'm the founder of our company that is called Hykso. We produce wearable technology and we allow people to play combat sports without having to hit each other in the face. 

Basically, Hykso is a chip you can wear on your wrist, sort of like a Fitbit. But instead of measuring steps or how many flights of stairs you've climbed, it counts punches. How many punches you've thrown, what kind of punches, and how fast they were. So if you were taking, for instance, a kickboxing class, you could see how you were measuring up.

Khalil: Uh, but we realized that a lot of coaches out there are trying to always gamify those classes, and trying to keep score basically, and they have no way to do it. And right now, the best thing available is a company called MYZONE, which is actually a heart rate monitor that displays the heart rate directly on TV.

Here is Tommy, the other founder. 

Tommy: Heart rate is a very tough way to measure output, first of all. Because it's subject to so many external factors, whether it be stress or caffeine.

Tommy’s the muscle in this co-founding team. No, literally. His hands are wrapped like he's ready to step into the ring. And on his wrists, hidden under the wrap, sits the technology that brings everyone in here today.

Khalil: And the competition aspect is really what excites us. Because you can now create a circuit and connect all of those locations together, within gyms for example.

Howie: I guess I'm having trouble. Can you guys just very concisely tell me where this company started, where it is today, where you see it in the future, and what's actually built up to now. That would be helpful.

Khalil: It started three years ago. And the idea was just for myself. And then we had a lot of traction with the professional athletes. Because we were working with the national team of Canada, they needed very high accuracy. And basically, what took the most of our time to develop this, is that you have to filter all the different types of data. If you do jumping jacks, you don't want to count punches. If you clap your hands, you don't want to count punches. And that was a very big challenge. 

Khalil and Tommy explain that because they started out working with the Canadian Olympic Boxing team, the process of refining their wearable technology took a while. They needed it to be precise in measuring punches -- and punches only. But finally, they got it right… and it was then that they decided to take their product to a bigger market.

Howie: Target demographic is boxers and boxing gyms today?

Khalil: No, it's actually wider than that. Right now, the target market when it comes to the users, is actually women between 25 and 40 years old. They're the big market when it comes to fitness. We’re marketing to them through the gyms.

Tommy: It was a pivot, to go to the gym model. It just makes a lot more sense for us.

Rather than marketing to individual consumers -- or to teams like the Canadian Boxing team-- the new plan for Hykso is to sell directly to gyms. This way athletes taking classes like kickboxing and MMA can all use the wearables and keep track of their progress. 

The question is -- how well does the technology actually work?

Khalil: You guys wanna see a demo?

Investors: Yeah.

Tommy: I wanna show you a demo, too. I'm dying. Do you want to hold the phone for them?

Howie: You'll be working with Jake for the demo. He'll be your sparring partner.

Tommy: Show them that, too. 

Jake: Take it easy. Not the face.

Howie: It would have been Sheel, but...

Jake: This is the moneymaker right here.

Tommy: The sensor's right here. He's holding the charging dock. Both sensors go within that charging dock. It doubles as a carrying case for you.

Tommy is showing the investors the sensor, which sits inside the wrap that goes underneath his boxing glove.

Tommy: So punch harder, punch faster, punch more, you maximize that intensity score. So I throw a punch - how many punches am I at right now Khalil?

Khalil: 13.

Tommy: 13, 14, 15, 16, 17.

Tommy is throwing punches now, showing investors how the Hykso sensor can pick up the speed, velocity, and type of each punch.

Phil: So we need a little more velocity. Come on man.

Tommy: I'm retired.

Phil: Let's get it over 12. 

Jake: Oh intensity through the roof.

Phil: Off the charts.

Tommy: See, see what the social pressure does. Imagine in a gym setting, right, when your stats are up on a TV screen?

Phil: Oh right, you're off the charts.

Jake: The instructor's like, pick it up! Pick it up Jake!

Phil: You’re talking and intensity is dropping. Dropping.

Tommy: So imagine you're in a gym setting now, right. And individual you have that social pressure. The other modes we have are super interesting too. So imagine you can take the gym now, and you split the class into two teams or four teams of equal size. And now you have team one, team two, team three, team four coming together to beat one another.

Phil: And you can tally it by team?

Tommy: The 6:00 class coming together to beat the 8:00 class. Because in a gym, and I spent a really long time in fitness myself, the holy grail in a gym is community. If you can get that community feel in your gym, strengthen those relationships, you drive retention through the roof.

As a rule, investors love seeing a live demo -- and they view it as kind of a first hurdle: if the founders can nail the demo, then they’ll move on to the tough questions. 

Jillian: Could not any of the other Fitbit or wearable companies come out with this?

Tommy: Good question. But it's extremely difficult. So what the Fitbit does, it's a pedometer, right. So if there's an event, it says there was an event. If there was any kind of movement.

Jillian: Yeah, but Apple's also working on things. They're all, I'm not just saying Fitbit, I'm saying wearables in general, as a category.

Tommy: So what we do is full 3D motion tracking. The sensor knows its position in time and space 1000 times per second. 

Jillian: Right, but it can be done by any one of the wearable companies?

Khalil: Right. And honestly when it comes to the Fitbit, the angle of the product is completely different.

Phil: But she used that as an example.

Jillian: Fitbit is not an exact science.

Phil: Let's say I started Phil's Boxing Sensor company and I did the same training machine learning. What's proprietary?

Khalil: What is proprietary is actually the algorithms. When it comes to the sports that are very dynamic, it is actually complex to be able to filter what is a relevant motion and a not relevant motion. It's hard to know if there's not other brands out there who can do that. We know HBO worked for two years on a similar product and wasn't able to pull it off.

Phil: Are you thinking of doing like a Peloton for boxing?

Khalil: Yes. Exactly. At a certain point, we want to allow people even at home to connect with the people in the gym.

You might have seen the commercials for Peloton. 

It's a $1200 stationary bike that comes with a big screen, and you ride it in your home. They have a $50 monthly membership that lets you tune into live classes.

Phil: To me that makes a lot more sense than even having to go to the gym. I'll stay at home like I do with my Peloton, and I'll go online and do an interactive class or compete with other boxers.

Khalil: Yep. Absolutely.

Phil: That's smart. I really like that idea. Because, well, firstly Peloton is killing it. And with your model they don't have to buy expensive hardware. They have to buy sensors that are a hell of a lot cheaper. And they can get a great workout and still have that interactive training and leaderboards and the whole thing. So it's smart.

Tommy: And not just that, but I think the at-home fitness market has always been more geared towards women. Women have been more accepting as an overall of the at-home fitness market. And it's obviously a huge opportunity right now.

Jillian: Do you know why?

Tommy: No.

Jillian: It's because Jane Fonda.

Tommy: Right. 

Jillian: Jane Fonda really opened our eyes into basically taking responsibility. And that was the first one. And then Cher and all the other ones filed up. But it was really introduced to women first. That's why. And then men were a little bit off put on it. That's too girly and all that. But now with all the, what is the...

Khalil: Tae Bo was another one.

Jillian: Right

Howie: For the record, I had a jazzercise party when I was three. So I was into it.

Jillian: Did you have a jazzercise!

Jake: I can see that.

Phil: My opinion of you has changed dramatically now.

While Howie might be the lone enthusiast for Jazzercise, all of the investors sound like they are getting kind of excited by the idea Phil brought up -- Of Hykso as a product that you could use at home.

Jillian: So how does this fit into that model? Because you don't have really the workouts, do you? It's just the device right now, just the sensor.

Khalil: We don't provide the workouts for now. Our first focus right now...

Jillian: Is the sensors?

Khalil: No, it's actually going into those gyms. Because that demand is there. So we signed two LOIs. And one was actually with the fastest growing franchise in 2015 in the US.

Jillian: Which one?

Khalil: It's called Title Boxing Club.

Jillian: Oh yeah. I know that.

The thing Khalil is bringing up - LOI, or letter of intent - this is a smart move on Khalil's part. He's taking control of the conversation, moving investors into an early success story. Title Boxing Club recently signed a Letter of Intent -- an LOI -- basically saying that if Hykso builds the sensors and leaderboard app for the gyms, they will buy it.

Khalil: They're expanding super-fast right now. And they basically were looking into MYZONE, but they didn't like the fact that it was irrelevant for boxing. But now, with our system, they can measure output. Which means that they can rank all of their members, and create links between all of their locations. So that creates a bigger sense of community with all of their members. And you become part of the Title Boxing Circuit. 

Tommy: We recently signed an LOI with CKO kickboxing, as well. I don't know if anybody has heard of them?

Jillian: Yes.

Tommy: They put out a press release yesterday. And the COO just texted me today and he said the reaction is just off the hook.

Phil: What do you think the value of that LOI is?

Khalil: $2 million.

LOIs worth two million dollars is nothing to sniff at -- though it’s worth distinguishing that LOIs are not contracts. Still, they could turn into contracts if everything goes right for Hykso. 

The question on all the investors’ minds now is: assuming this does work, how big could Hykso really get?

Jillian: Do you think this is going to be a trend? Is this trend sensitive?

Khalil: You know, it's hard to say. You know, I don't believe so. Spinning has not been a trend, although it started...

Jillian: Oh, it's a trend now. It wasn't.

Khalil: It wasn't. But it's constant now. It's pretty solid now.

Phil: Let's distinguish between trend and fad. Are you talking about a fad that's going to come and go? Or are you talking about something that's…

Jillian: Actually, that's a really good question. I'm thinking more like a fad.

Phil: A fad fades quickly.

Jillian: Yeah. I mean, now, Tae Bo was everything, and now it's gone. Everything comes and goes.

Phil: Howie, what about jazzercise? Has that gone? How's that going for you?

Howie: Well, I do host some jazzercise parties once a quarter at my house.

Phil: You're still doing them? Okay.

Howie: It's more for nostalgic purposes.

Jillian: I mean boxing's not. But boxing actually as a sport has also hit a low. Not in terms of fitness, but in terms of...

Khalil: Boxing survived more than 120 years already of popularity.

Phil: And MMA is more popular.

Khalil: MMA is exploding.

Phil: That's picked up the slack more than anything.

Khalil: And then the way we see it when it comes to those fads, is we look at what happened with running, which really got popularized in 2005, saw the peak growth. Everyone started running. People didn't run before. And then you had all those companies like Strava, Runkeeper, that all suddenly came out. And then you had the same thing with spinning in 2012 and 2011 where they saw the peak growth, and then you had SoulCycle and Peloton. And then in 2015, there's like multiple analysts in fitness that are saying that combat sport is the new thing. 

Jillian: But I'm wondering if it's a new fad, where this has only a little bit, it's going to peak similarly and then that's it.

Khalil: If I had the answer to that, honestly, but...

The conversation is moving in a direction that Khalil and Tommy aren't totally comfortable with: debating whether or not contact sports is a fad or a trend. So Khalil gently nudges investors towards something a bit more concrete: past sales.

Khalil: Basically when we learned that the sale cycles were so long, and that was last January, we decided to do a pre-order campaign. That was in March, and in 4 months we sold 2500 units. It's $360,000.

Howie: What did you do it through?

Khalil: Directly on our website.

Howie: Through your website, okay.

Khalil: We didn't think our community lived on Kickstarter. 

Howie: So you pre-sold this next generation product?

Khalil: Yep. That we're shipping in 12 weeks now.

Jake: How many did you sell?

Khalil: 2500 units.

Howie: And it's just the sensor?

Khalil: Just the sensor, and the mobile app. That's direct to consumer. And then in the meantime we got all those discussions with those big gyms. So one LOI with Title Boxing Club is a $4 million LOI. 

Jake: And what's your cost to make a pair of sensors?

Khalil: $32 landed.

Tommy: And it will go down over time.

Jake: In terms of hardware development, it's basically done, right? They're making the product. Final designs are done.

Khalil: We already pressed the green button with Arrow. Arrow is our manufacturing partner. And they financed the first production run.

Howie: So you didn't have to pay anything up front? They covered all the costs?

Khalil: Yeah, exactly. So they offered a line of credit for $175k.

Jake: You guys are kind of scrappy with the cash flow. You've got Arrow doing the development, you've pre-sold units.

Khalil: Exactly.

Phil: So total revenue's how much?

Khalil: I'd say right now we're about $405k.

Phil: How much are you raising and what terms?

Khalil: $500k. And we're raising under a SAFE capped at $4 million.

Hykso is valued at $4 million -- and Khalil and Tommy are trying to raise a half a million dollars from investors to get their sensors perfected, shipped, and hopefully into gyms. 

Phil: How much of that has been committed so far?

Khalil: $175k.

Phil: From whom?

Khalil: So we have $100k that is from friends and family, and the rest is from angels.

It’s decision time. Have Khalil and Tommy talked up these LOIs enough to get investors on board with Hykso?

Here’s Howie

Howie: Thanks for the demo. That's actually rare for us. To see a working demo. You guys built something that seemingly just works, which is awesome. For this space, it seems like it is underserved and it feels like you guys are solving a problem. To me, I worry about the total addressable market. Like, The TAM. I think for me it's a little too narrow, so I'm going to pass.

Jillian: Phil?

Phil: Yes, Jillian?

Jillian: Really?

Jake: Phil's taking notes. I'll go.

Apparently, Phil's undecided. Here's Jake.

Jake: I do box for fitness. I think it's an enormous amount of fun. And it is the hardest workout you could possibly get. On days when I feel motivated, I want to puke at the end of it, but in a good way. I don't think it's a fad. And maybe that's just because I'm in it, I really enjoy it. I think if I had these at my gym and I were doing it and I showed someone an app, other people would want the sensors. And I know that's not the market you're going for because you want, sort of, the gyms to buy it. I think it could work. So I'm in. I think this deal's a real knock-out.

Investors: Ooooh!

Phil: I had that one queued up. I totally had that one ready.

Jake: We're working on puns. We're a smaller fund, but I definitely want to be in. I think probably a $25k commitment from us. I think there's a future here. I think you can become something like a Strava or a Peloton.

Khalil: Absolutely. Thank you. Awesome.

Wow, so Jake's in for $25k. Let’s find out if Phil has made up his mind yet.

Phil: I got to tell you. I'm still on the fence. I really like the idea of the Peloton model. But that's not what you're targeting right now, what you're targeting makes a lot of sense, but it also requires sell-through. That's why for a sort of early stage like this, where it's pre-delivery of the product, there's so much more risk. If for some reason the members don't bite, then the thing falls apart. So let me ask you this. On the two big LOIs, is the hardware component of those set in stone? Is that guaranteed?

Khalil: It's not guaranteed since it's an LOI, you know, to be completely fair.

Phil: So what are the terms? They can cancel at any time at this point?

Khalil: It's an LOI.

Howie: But if it goes to contract, what are the terms?

Tommy: All of the terms that are laid out in the LOI, so...

Phil: So why isn't it a contract?

Tommy: We're shipping in a month.

Phil: But you can have a contract now.

Khalil: The biggest doubt of all of those customers is that it works.

Phil: Yeah. Well, that's my doubt, too.

If you’ve been paying attention to past pitches, you know Phil is our most cautious investor. He tries to nail down every single detail before he puts a cent behind a startup.

Phil: So you've shown them this demonstration you've showed us? And they're like, wow, that's great. So they see that it works. So what are they concerned about? That it won't get up on the TV screen?

Jillian: Is it integration?

Tommy: That's honest pushback, honestly.

Phil: That's what they're saying. We see it gets on the app, we're not sure you're going to get that information up on the TV?

Khalil: Well, it's because they didn't see the exact, they didn't see the exact context with 15 people, for example, doing it at the same time. 

Phil: I just want to understand. What's the timing for getting these LOIs to contract? Do you have to deliver the product first? Do they want to see it, actually?

Khalil: Yeah, I think those will actually be done, I'd say six weeks after first shipment. So I would say within the next 4 months and a half.

Phil: I'm gonna pass for now. In four and a half months, if there are contracts, I'm in even if it means a higher valuation at that point. Because at this stage, I really like what you're doing, I really do, this is very tough for me. But I just feel like there's this big question mark there.

Tommy: Seed stage is maybe a little bit too early for you right now.

Phil: Pre-shipping is a little early. And I'm trying to make an exception here.

Jillian: I don't think they would have manufactured all of these if they didn't really feel confident that these LOIs are going to turn into contracts.

Phil: Oh, I don't doubt that they feel confident.

Jillian: Okay. Can I just say one thing? 

Jillian: I just want to address one of your concerns. I think they're doing it the right way, where they have the gym marketing dollars behind them, and the adoption will be in the gym and then they can expand it into at-home. So I think at a $4 million valuation, um... I'm not trying to convince you. But I would think that going direct to consumers is probably not the best way to go and I'll tell you why. Because the reason why this in-home spinning has done so well, is because of SoulCycle. And all the other gyms that launched SoulCycle. So people started to be introduced through the gyms and through these franchises. And then it enabled companies to come in and start the home.

Phil: Good point.

Jillian: And so that said, I'm going to pass and I'll tell you why, and it has nothing to do with me not being completely excited about this at all. It's because I don't invest into devices. I don't do wearables or any of that. I don't know anything really about this. And so I never invest in something I don't know anything about. But I do know about boxing, and I do know enough that this is a very hot space and I am positive, I think that this is a huge opportunity for everybody. And good for you for taking this. Because you're going to be laughing at all of us. I think what you're doing is amazing.

Phil: He already is. I hear him chuckling.

Jillian: I absolutely see this. So, thank you so much. And I think your raise will be pretty easy at this valuation and with this incredible product.

Howie: So wait, Phil are you still passing? Or did Jillian convince you?

Jillian: Phil, you're a moron. I have to tell you. And I never say that...

Phil: Did you just call me a moron?

Jillian: Yeah, I did. You're one of the smartest men. And you also do, you understand this market and I see such a huge opportunity here, it's killing me. And of all the people I would think you would be able to scoop up money for this.

Phil: Jillian, you love the deal. Why don't you make an exception?

Jillian: You want to know something?

Tommy: It would be such a pleasure. I really like your vibe.

Khalil: Especially with Class Pass.

Jillian: Phil!

Phil: Let me say, we can do the whole round.

Jillian: You let him do this to me! 

Phil: We can get the valuation lower.

Jillian: The valuation is already 4! That's the smallest we've basically ever seen.

Phil: Right, I think we do a $3 million valuation and we do the whole thing.

Jillian: Phil.

Phil: $3 million and we do the whole thing.

Jillian: I can't. I can't.

Phil: Jillian.

Jillian: It's not your money! It's my money!

Howie: Phil, you shouldn't need Jillian to go into this deal, to go into a deal.

Phil: I know. So you're out? You're passing? You're done?

Jillian: I'm passing.

Tommy: That's such a shame. You know business though, very well.

Jillian: But he knows it ten times better and he knows this space and I don't.

Tommy: So if he comes in would you be in with him? That way he gets...

Jillian: What's this, like the Trump Hillary thing? You show your emails, he'll show his tax returns!

Phil: What are you willing to do on the cap?

Khalil: What do you propose?

Phil: $3 million. I'll do 250.

Khalil: K?

Phil: No, $250.

Tommy: Take out the wallet.

Phil: I got it here for you. I'll close today. I can close now at $250. The k, I would have to wait a little bit. But the $250 I can close today.

So Phil is offering to come in for a quarter of a million dollars if Khalil and Tommy will drop the valuation of their company from $4M to $3M.

Phil: Jake can ride along at the $3 million. 

Jake: Generous. Generous.

Phil: How much did you come in at?

Jake: $25k.

Phil: Okay. So you'd get $275 at 3.

Jake: And then Jillian would come in for, I think she would do 25.

Phil: I think she would do something.

Jake: Because that makes it an even $300,000 on a $3 million cap.

Jillian: Fine, Jillian's giving a 25.

Phil: There you go. $300,000 at $3 million.

Tommy: So three. Jesus Christ. It is so much lower, though. Okay, what do you think?

Howie: Do you want to phone a friend?

Jillian: You don't have to take it.

Khalil: Let's do it.

Tommy: You wanna phone a friend? Let's do it? Let's do it?

Phil: We're doing it?

Khalil: Yeah.

Jake: Are you phoning a friend, or are we shaking on it?

Tommy: Thanks for coming in. At 4.

Howie: Oh, at four. I'll still shake your guys’ hand. Congrats.

Jake: Howie's going to lose out on this one.

Phil: You did a great job.

The investors have promised $300K to Hykso -- all it took was some serious strong-arming by Phil to get the founders to drop the price of their company to $3M and convince Jillian to ride along. So now they all own a bigger piece of the pie than they would have, if Hykso had kept its 4M dollar price tag. Now that’s some smooth talking. 

Everyone shakes hands, and the founders head home, leaving our investors to debrief.

Phil: Did you consider jumping in at the end? After we got the valuation down a little bit?

Howie: No. It wasn't about the valuation. I didn't get a sense that they were closers. To me, LOIs, those are just bullshit. If they're exciting, if like the CKO gym, if these gyms are really excited about utilizing this technology, where's the contract? Where is the money?

Phil: Are you guys worried about that? The aspect that they have LOIs, why don't they have signed contracts?

Jillian: You know what, usually, and this is the only thing I do know about devices, wearables, they do like to see things that are shipped, so that they know that nothing goes wrong in the production.

Phil: I think we can push them off and say, we want to see it.

Jillian: But then we hammered down them on the valuation, right?

Jake: $3 million is a great price, too.

Jillian: $3 million is a great price. 

Jake: I got to say the move of, Phil, you really need to get into this deal, here's all the reasons why, but I'm gonna pass

Howie: It backfired.

Phil: I'm out though. Yeah. What was that? You're a moron, but I'm not a moron for passing.

Jillian: You know why? I don't know anything about wearables!

Phil: Neither do I!

Howie: Are you guys having regret? Are you guys having some investor regret?

Jillian: I'm actually not having regret. I actually feel more confident. I'm blowing so much money on this podcast. I'm going to kill you. If you're listening to this!

Howie: It's all your fault Josh.

I may be responsible for making the investors a little poorer after today's episode, but we've also made one company a little richer. In a moment, we'll get Khalil on the phone and find out what happened in the months following his pitch. 

Welcome back. So I got Khalil on the phone to hear how things are going with Hykso and find out what became of the investments.

Josh: First, Jake committed $25,000, then Jillian talked Phil into going on. Then Jake, the first guy who came in, talked Jillian into putting $25k in and making it an even $300,000, I think. All the while renegotiating the valuation from 4 down to 3. So, what happened after that?

Khalil: So after that, we started getting into due diligence with all three of them. Jillian actually discovered that she had a conflict of interest with one of her portfolio companies, so unfortunately she had to pull out. We kept going through due diligence. And then, at a certain point, we started getting another offer from 500 Startups. I was looking to close the round, especially at that valuation. Because the program was starting. And I basically asked Phil and Jake if they were ready to move forward. Phil had a few things that were kind of, he wanted us to go through shipment, that would have de-risked the deal a little bit from his perspective. And then we decided to basically revisit once we will have been through shipment. But Jake decided to invest.

Josh: Okay. So Jake's in?

Khalil: Yep. Jake came through. And you know, he's awesome. We've been talking, we added each other on Facebook, we've been like texting each other at weird hours, that you usually don't text business people. So super glad to have him on board. He was a great addition.

As so often happens, the due diligence period weeded out some of the investors. But not all of them. Jake hung on with this $25K investment -- and as it turns out, he wasn’t sorry he did.

Josh: You wrote that 25 year check like last year and then like how are things going this year? 

Jake: we've stepped in, stayed in really close contact. So I talked to them at least once a month sometimes more often than that and they've just been growing like gangbusters so their direct sales through their website. Well first of all I should say that they started shipping product early this year I think back in February so that was a big initial hang up that some of the other investors had. But the product came through -- very very few complaints from customers almost nobody shipping it back. Their sales are —

Josh: for real on their first version? 

Jake: Yeah it's amazing 

Josh: On a hardware product?

Jake: Very very few quality control issues once they sort of shipping. I mean they work really hard at the factory to get it right. 

Josh: Yeah. 

Jake: But yeah, Their sales have been growing incredibly fast. They started rolling out to gyms the gym members love it. So those pilots that he talked about had started expanding into larger pilots or full blown contracts. I think every month it's just, it's growth. And, you know, good news. So I mean there's always setbacks in every startup but I mean these guys are just doing incredibly well. 

After those initial sales, the investment in Hykso started to look even better to Jake.

Jake: So yeah so they went out to do some more fundraising and based on all this progress we decided to increase our investment so, you know, our initial commitment was 25,000. Relatively small. But we just committed an additional $100,000 to their round. 

Josh: Oh this just happened 

Jake: Just happened. Yeah. Last month. 

Josh: Oh fantastic. 

I’ve said it before: pitching is a little like a first date -- and an investment is like deciding to go steady. All of it is done in the hopes that one day you might say: I love...your company.

Jake: You never really know exactly what the relationship is going to be like before you invest no matter how much diligence you do. But once you invest sometimes you figure out that this thing that you thought was great is like mind blowingly great. And whenever you can increase your investment in a company like that like you've done a great job for your investors and hopefully a great job for the company. 

Here’s to Jake and Hykso -- may their relationship be long... and profitable.

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

Come join the conversation on social. I’m @joshmuccio on Twitter and Facebook and the show handle is @thepitchshow. You can also send us an email at thepitch@gimletmedia.com 

Our website is thepitch.show, and you can subscribe to our brand new email newsletter and get behind the scenes stuff at thepitch.show/email

Our show is produced by me, Josh Muccio, Asthaa Chathurvedi, and Rob Szypko. We are edited by Devon Taylor.

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, Bienart and Jonny Cool. We were mixed by Enoch Kim with help from Matthew Boll.

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

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

Also, I do want to say a quick thank you to the original sponsor of season 2, the It’s Worth Doing Right Family for taking a leap of faith on us, when we were just a little independent podcast.

Finally if you’re enjoying The Pitch, please leave us a rating and review on Apple Podcasts. It really helps us others discover the show. 

All right -- you’ve been listening to The Pitch from Gimlet Media. I’m Josh Muccio. See you next week.

Next week on the pitch

Alex: How do you balance creating a nutritional diet against picky eating habits? So we really asked ourselves, how can we create a healthier generation through food and technology?

Jillian: Okay, what makes a good business? Not just a mission. Not what makes a good mission. What makes a good business?

Sheel: As much as I want the business to exist, I don't know if it can.

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