Haje Kamps of Bolt VC Turns the Tables and Interviews Me (Scott Orn)!

Haje Kamps of Bolt Venture Capital - Podcast Transcript

Scott Orn:	Welcome to Founders and Friends Podcast with Scott Orn and Haje Kamps of Bolt VC. Haje is returning for a second podcast on Founders and Friends-
Haje Kamps:	Just can’t get enough apparently.
Scott:	Exactly. It’s quite an honor. I think you’re the third person. So this is, we’re getting up there. Yes. So we did a talk at Bolts, probably like a month ago. And it was actually really good. And we answered a ton of questions. And so we wanted to have Haje back on the podcast. And we got a little twist here. And the twist is-
Haje:	Well, basically, at this event, I ended up interviewing Scott. And I thought, hey, that’s fun. And Scott has a lot of interesting things to say. But usually, he asks all the questions. So I figured it would be fun to turn this on its head, and then ask Scott some questions instead of you know, the other way around.
Scott:	And I, I’ve never been interviewed on this podcast. So this is exciting for me. And the cool thing about being interviewed, it takes, in a weird way, less brain power, because you don’t think of all the questions. So you had to think of a bunch of questions. So, now I can just sit here. That’s why I’m so loose. I’m just like, ready [crosstalk]. I’m drinking a berry Lacroix. And I am ready to go.
Haje:	Excellent. So just a little bit of background to understand where these questions are coming from, I suppose. So I have done three startups. The first one I did was hilariously problematic for many reasons. But the main thing I learned there was that I didn’t know anything about finance. You know, we had one accountant actually we had three accountants throughout the life of this startup. And the third accountant finally explained this crazy thing to me, which was the matching principle.
Scott:	Yeah.
Haje:	And I was like, “What are you talking about? That’s not a real thing.”
Scott:	Yeah.
Haje:	And he explained to me in great detail. And it turned out that that was a crucial thing for us as a hardware company that has a huge amount of inventory to understand. And nobody explained it to me. And I was like, oh, now finally, my finances will make sense. So I guess my first question to you would be, what’s the matching principle? And why should I care?
Scott:	Yeah, and even before that, like Bolt is a hardware VC fund. Which, on the accounting side is actually like them, as you touched on, is the hardest kind of company to do the accounting for. So like, I even I talked to someone you’ve sent over the other day, and she’s a very nice woman, I was like, “Just so you know, this is actually probably double the cost of like if you were a SAS business,” and she was like, “Oh, wow,” you know, because there is there’s, you guys are buying a ton of hardware, a ton of equipment that typically gets assembled into some type of device or a bigger machine. And so there are two ways of doing that. The first one is oftentimes early stage, we will expense everything, it’s basically like you recognize that expense in the time period of happened. And then as the company gets older and more mature, and frankly has more money, they’re buying more stuff, also has more money to spend on op ex like accounting, we will start doing build materials.
Haje:	Yep.
Scott:	And building actual cost of goods sold. And this becomes very important for your gross margin and things like that. In the early days, people, investors don’t really care they just want, like, they want to know what you’re spending your money on and they want to see the product works. And they want a hypothetical gross margin that you can easily present [crosstalk] financial-
Haje:	So we just went real deep, real fast, and I’m wanna stop you and rewind.
Scott:	Sorry.
Haje:	I guess explain to me why hardware is different, and why people should care?
Scott:	Yeah, because for in a SAS company, or consumer internet company, mostly your biggest expenses are people who are usually writing code for software. It’s pretty clear, it’s like payroll expenses, then oftentimes contractor [inaudible]. And then you’re going to spend money like web services, like all the online services that you use to also help build the product. For hardware you’re building like, what’s something you guys have invested in? Trigger trap.
Haje:	Sure, actually, let me just clarify another thing first, is that when you have a server that is incurring costs, you are using that server to deliver your service?
Scott:	Yeah.
Haje:	Right. So if you run a web service or something, yeah, the bill from AWS probably comes in the month that you incur the expenditure, which means that those are the same, you don’t have to worry about it.
Scott:	Yeah, yeah.
Haje:	In hardware that gets really different. So right now, we have a, one of the companies I’m really excited about is called Core, they’re building a hardware meditation device that you hold in your hands, right? But some of the parts that go into this run they ordered months ago. So they’ve put some money towards it. They have wood parts, which is phenomenal, right? But they placed the order for this ages ago. And it takes a very long time to make those parts, then they turn up in their warehouse, and then they get turned into a product. And then eventually it gets put on their website for sale, then it gets, or they receive money. And then they take this product, put in a box and put in the mail. And then it turns up at the customer’s house, and at some point, you have to recognize this as revenue. That is very different from [your] Twitter, right? You sell an ad, that gets served. And it’s pretty much immediate, you don’t even really have to worry about whether or not there’s a time difference.
Scott:	And so for Core, like, when they make that order, probably from like a manufacturing plant in China or something, or maybe they buy ten different components from all over the world.
Haje:	Oh, wouldn’t that be nice, only 10 components.
Scott:	There’s probably 50, so there are a hundred. So they are paying, oftentimes are paying a deposit on some of that to get the run, especially for small companies. And they’re, they’re buying it. So then they get it shipped to them. Say they pay for the whole thing. Theoretically, in the proper gap accounting world that would go in your inventory on your balance sheet. And then as you assemble these products, the physical product, and you sell it, it becomes a cost of goods sold as, like an item you sold. And that’s when you recognize the expense. And you take it away from inventory, put it through the cost of goods sold. And then, of course, you said do they get paid for doing this. So then, you know, you look at your P&L, and you say, “Oh, we sold 100 of these for $10,000, and we had $5,000 worth the cost of goods sold in that month for the items we sold. Therefore, our gross margin is 50% or $5,000.” Great. Now we have a VC fund-able model because I think a gross margin of 50% is pretty good for a hardware company. I don’t know, you know would know better than I would.
Haje:	I could say this now that [Trea Trump] is long dead. We had amazing margins on those products. Because basically, we sold a piece of hardware that we manufactured for about $2 for $39.
Scott:	That’s amazing.
Haje:	That’s an amazing gross margin. That’s amazing. If you are making washing machines, you’re not going to see that kind of gross margin, right?
Scott:	Yeah. And also for startups, in the early days, they don’t have a lot of volume. So typically the gross margins are kind of crummy because they don’t have like any buying power. The factories are making the components of things like that.
Haje:	Right, and they haven’t gone through customs optimization loop, which is an important thing of going from a production prototype to actual scale production, right? The two might actually turn out to be really different because as you start ramping up, you realize, oh, we can’t get those components. Or actually, if we redesigned the board slightly and swap out this component for a different one, it takes 30 cents of our costs.
Scott:	Exactly. And so, actually, hardware companies can have really good margins. Like Apple is the consummate example. Like, they have huge margins. But they’re also, they’ve optimized everything. Like you’re talking about, they have 30 years or 40 years of manufacturing experience and they have a ton of software in the product that makes it kind of sticky, and people don’t want to replace it and you can’t use commodity … You can’t swap it out for a commodity product, right?
Haje:	Right.
Scott:	But did I answer your question? Like, as core buys their components that’s effectively an expense, or money they paid in advance that goes on their balance sheet in the inventory component. And then as they start assembling and selling it becomes the cost of goods sold, and that goes on your profit and loss statement. And then you figure out your gross margin after you take the revenue minus cost of goods sold.
Haje:	Yeah, and I guess the thing worth highlighting there, both for hardware companies and for every other company, would be that there’s a huge difference between how much cash flows in and out of the business and what the P&L actually shows.
Scott:	Yes.
Haje:	What do you call it here? It’s not a P&L, it’s something else?
Scott:	Income statement.
Haje:	Income statement.
Scott:	But no that’s an awesome point, and that’s what makes the accounting hard actually. Is because you’re paying, a lot of times you’re paying like half of it up front to the factory just to get them to build whatever you need. So that’s half the cash of your components that went out the door. You’re not even close to revenue. And then you’ve gotta float the rest of it when they finally produce it and send it to you, you pay the rest of that. And so you have a lot of working capital costs. Which is exactly what you and I are talking about. And then eventually you can sell the product and get the money back. That’s actually why Kickstarter is so popular for hardware companies because you can effectively finance your working capital upfront through Kickstarter or Indiegogo. And so that’s why you see that a lot happening. And also the reason why Kickstarter and Indiegogos are popular for hardware companies is a lot of VCs don’t like to fund hardware companies. So that’s why I always love Bolt, because you guys, I feel like you guys are a very brave VC firm and are really doing it. And I think there’s a ton of opportunity, but like Kickstarter effectively exposes demand for these hardware products that VCs may or may not want to fund.
Haje:	Yeah.
Scott:	And so Kickstarter is solving two problems. The inventory build-up or inventory funding, and also the fact that these companies are just getting funded a little bit.
Haje:	Yeah.
Scott:	Do you guys look at that? Do you get a lot of companies coming to you that haven’t done a Kickstarter, and then-
Haje:	Yeah, so this is a complicated answer. Because I personally am a huge fan of Kickstarter. Bolt as a firm is. And there’s a lot of history around what’s, around the why.
Scott:	I can guess why.
Haje:	But I think the honest truth is that you know, there is an assumption there that if somebody has to go to a Kickstarter campaign, it means that they were unsuccessful in any other way of doing funding.
Scott:	Yeah.
Haje:	Much like equity crowdfunding, right? When I first discovered equity crowdfunding was a thing that existed I was very excited about it. But if you think about where that deal flow comes from, it is … And there are very big notable exceptions I should say that up front … But a lot of it is just the dregs, where there was a reason why these companies weren’t funded. And so it ends up on a crowdfunding site.
Scott:	I would say though, the cool thing about … So those are both good points. One of our clients, our old clients, they outgrew us, is Republic, [inaudible] and shout out to [Ken Nguyen]. And they are I think doing a good job of changing that. That whole adverse selection problem is what you’re talking about.
Haje:	Right.
Scott:	And it’s becoming more normalized, it’s exactly what you would expect as, like, a concept goes from kind of the crossing the chasm as the elites or whatever and then it crosses the chasm into more mainstream.
Haje:	Yeah.
Scott:	And, like, some of … The “Meet The Drapers” TV show, and what’s the what’s the Shark Tank one? All these things are making investments in startups, more normalized, I think in our culture. And so Republic’s kind of riding that. Angeles obviously helps. But so I think that’s changing. But you’re right, especially like two or three years ago, you’re super right. You know?
Haje:	There’s another thing as well, which is, there is a very scary thing about investing early stage, right? And I feel like Shark Tank is actually a little bit disingenuous. In particular Shark Tank, but also all the other shows, in that obviously they’re well produced, right, and there’s a lot of stuff happening in the decision-making process that the viewer doesn’t get it a look into. So it feels like it is an angel investor is pretty sexy and awesome. And it’s basically guaranteed to be a pretty awesome person who gets to make a lot of money. The real world is very different, right? Have you ever made angel investments?
Scott:	Yes, I have. The reason I’m laughing is on Shark Tank they very rarely do follow-ups of like, what the actual performance is. We’ve had, I think, four or five of our clients on Shark Tank. And so I get the real story from CEOs and it’s, like, a four-hour process. They cut a four-hour process down to like, five minutes. And it’s, like, brutally long and the judges get bored, and they stop paying attention for long periods of time. Yeah, so you’re totally right. Going back on the Kickstarter thing. I thought your answer was going to be … Why you guys don’t like it is because the minute you take people’s money, you actually have to deliver a product and delivering a hardware product really hard.
Haje:	Kickstarter is debt.
Scott:	Yeah. And the people totally under underestimate how hard it is to deliver, and how expensive it is. It always costs more than they think. And you’re right, it’s like an obligation, it’s debt.
Haje:	Well, and you’re doing all that in public, right? You’re doing that in the most public way possible, you’re basically putting a stake in the ground that says, hey, we believe that this product should exist. And we’re putting our reputation on the line, which, you know, whether that matters or not, I don’t know. But it kind of means that you can’t really change your mind that much anymore. So, if it turns out that your great idea is unmanufacturable, or the worst case scenario I often see is people raise way more money than they think. And they just start doing stretch goals. They change the stakes-
Scott:	They start adding things in that they can’t they can’t really manufacture.
Haje:	Right. And that becomes really messy and problematic. And scary. And the other flip side is that a lot of people doing Kickstarter campaigns are first time entrepreneurs, extremely inexperienced first entrepreneurs. And I definitely fall in that category. I did both my Kickstarter campaigns with zero experience. And the fact that we were able to deliver the first one was, that was an absolute fluke.
Scott:	I didn’t know you’d actually done one.
Haje:	[crosstalk] We did one that kind of worked out. The other one just bombed. But I think finance was a huge part of that, right? So the thing that really killed Trigger Trap was that we raised half million dollars from Kickstarter. And suddenly it felt like you could throw money at any problem because the bank account is full. There’s nothing that could possibly go wrong. But then, you know, as a finance person, you’re giggling at me. Because you know exactly how that goes. If you think that you can throw money at a problem, hardware turns out to be really expensive.
Scott:	You can throw money at every problem, you just have to raise more money. The consummate device, I think you’ve heard me say this like a million times is always raised more money. And the person that you referred over, she was raising 750, which is perfectly reasonable … And I was like, you know, just raise, like, a million or 1.2. Because I’m just telling you … And she’s like, it was great, because she actually said, “You know, we were originally going to raise 500, but people gave us that advice, now we’re raising 750,” and I was like, “750 is still not gonna be enough for a hardware product. So raise a million or 1.2, you know?” So if you give yourself a huge buffer, you can do that. And I totally advise to doing that.
Haje:	But the scary thing about a huge buffer is that then you know you have a buffer, right? And you kind of lose the cost controls-
Scott:	That’s very true.
Haje:	You just run out and buy iPads.
Scott:	But I just would rather have it that way than the I don’t have any money.
Haje:	Sure.
Scott:	We’re bankrupt.
Haje:	Sure.
Scott:	Actually, it’s an interesting thing. I think if you raise a money … Raise a money, I’m totally good with words … If you raise a round, you should have a very clear milestone in mind. So as soon as you raise the money, you go, okay, with this million dollars, I have to deliver these five things in order to raise another round. And it’s actually a really transactional thing.
Haje:	Completely any good VC is going to ask for those milestones.
Scott:	Right. And then they also say, “That milestone’s not strong enough to raise money. So you need to actually do something better than that.”
Haje:	Yeah. And I’ve now sat in on a lot of board meetings where we have that exact conversation, where it’s like, “Look, if you don’t have a very clear milestone, where you think, you know, this million dollars should get us to these five milestones. So I don’t know, 20 units out in the world. A good picture of what our customer acquisition cost is going to be, and a solid functioning prototype. And a,” whatever, right? So there’s a list of things. And you put a budget against those, you go, okay, that means I have to raise 1.2 million instead of 1 million, or whatever.
Scott:	That is like the whole game. And then because now you’ve been an entrepreneur, now you’re on the VC side, the good entrepreneurs sandbag those projections for their board and the VCs. So, they build in like another 20% error. So if it says 1.2 it probably, they probably in their head are internally really budgeting like a million dollars. But they know that they can’t go back to the VCs at a time of weakness. Or it’s going to be not pretty. It’s not gonna be a good term sheet. So the good ones sandbag and tell the VCs that this is what’s going to be, but they really give themselves another three months or something like that. That’s also why debt is is very good for startups in moderate amounts. Because you can actually extend your runway through venture debt for like another three to six months and it’s less dilutive. You obviously need to be smart about it, not take too much money, all those kinds of things. But those extra three months tend to be incredibly valuable.
Haje:	Right. And those are the months where you’re kicking ass, trying to raise more money.
Scott:	Exactly, especially for hardware companies, because people underestimate the deposits that you have to give to your manufacturers. Just like something they don’t think about.
Haje:	And NREs, right?
Scott:	Yeah. What does NRE stand for?
Haje:	Nonrecurring engineering costs.
Scott:	Oh, yeah, yeah.
Haje:	So it is basically a-
Scott:	To engineer the production, right?
Haje:	Sure. So it’s, it’s making the tool. So each individual piece of plastic in a widget costs maybe 20 cents, because you basically, you get like a giant bag of PVC pellets or ABC or ABS pellets-
Scott:	But you have to make the tool.
Haje:	But the tool will cost a phenomenal amount of money. And, you know, you have a suspected amount of life. And a tool gets offset against the production costs if you do the funding correctly. But it still means that you, you will pay $5,000, $10,000 $15,000 up front to make a giant hunk of metal that in itself is worthless. It’s a tool you use to do the [shocks].
Scott:	We have a client that’s doing, making 3D printing of tools now, and it’s like one of my favorite clients because they’re basically enabling this whole sector to do it super cheaply. Because, like you’re saying, five or $10,000, but in my experience, that’s actually pretty cheap for something that’s gonna manufacturer a lot of stuff. Usually, I think it’s like $50,000-
Haje:	And it’s all related to size.
Scott:	Yeah.
Haje:	And advanced-ness of the tool. Some tools are surprisingly advanced, right? They can have like a series of moving parts, they can have all these, you know, some parts are finished with the texture, some parts are perfectly smooth because stickers need to go there. And the amount of work that goes into making a tool is actually a whole skill set in itself. But those things are expensive.
Scott:	Other nonrecurring engineering revenues, sorry, engineering costs are things like FCC approvals, right? So if you send anything that does a transmission, you have to have a-
Haje:	I never thought about that.
Scott:	Right?
Haje:	And so, and drop tests, and water ingress tests, and all the kind of thing … Hardware is weird like that. But there’s a lot of stuff that … Or, you know, designing your packaging, designing your … And making sure that your packaging has to drop security it needs. So the stuff arrives in one piece.
Scott:	Yeah. Even all the stuff you’re listing I have never thought of, you’re totally right.
Haje:	And this is the crazy thing about the hardware world.
Scott:	And the package has gotta look good so people want to buy the product, you know?
Haje:	Yeah, I mean, if you’re listening to this, and you’re doing a SAS business, you are doing it right. Because there are so many things you don’t have to worry about. On the other hand, the hardware is a lot more fun. So I guess you’re losing-
Scott:	It’s also more defensible. Like, if you, you know, I think we’re an age of SAS where it’s a little easier to build SAS then it used to be. Like, five years ago it was still really hard.
Haje:	Right.
Scott:	And it’s getting easier. And so that means there are more copycats-
Haje:	But you have tool sets, right? You have, you know, I remember software back in the day, when had to spin up your own servers, which means you have to spend $20,000 in service and server racks and space. Now, people would laugh at you if you suggested that if you don’t suggest to use as your AWS [crosstalk]
Scott:	That’s where the whole venture debt industry came from. Financing server costs. They made it a non-fixed cost through debt. Right. And that’s how the whole industry grew up. And then once Amazon and [Asher] came-
Haje:	That’s [crosstalk] .
Scott:	It all shifted. Yeah.
Haje:	And so, we’re seeing a lot of that happening in hardware now, right? So, it wasn’t that long ago that if you wanted to spin up an IT product, you would have to do, reinvent the wheel on every possible thing. Do you want to use a SIM card? Cool. There was no kind of off the shelf anything. Now, if you look at the things like Bird and all that kind of, the scooter companies that are zooming around here in San Francisco, they all run a tiny little board called Particle.
Scott:	No, really?
Haje:	Yeah, so there’s a little Particle board in there, which gives them, for free, radio frequency, it gives them … So, basically, all they do is have a Particleboard in there that does GPS tracking and inventory control, essentially. And it turns off and on the power to the scooter. And maybe plays an alarm sound if you try and steal it.
Scott:	If someone is producing all these boards, wow.
Haje:	Well, Particle. Right? You can buy these things for $12 a pop. But if you look at a particle.com website, and you can see … Basically, you can take this tiny little board and turn it into anything. You can automate anything in your house. All that kind of stuff. Now, if that had existed when I did my first hardware company, it would’ve saved us at least a year of [crosstalk] time.
Scott:	Yeah.
Haje:	Because basically, we didn’t have to reinvent the wheel.
Scott:	It’s like a programmable circuit and [crosstalk] -
Haje:	Yeah. But it’s specifically a platform for building other cool stuff. So, it’s basically like AWS but for [crosstalk] -
Scott:	That’s really cool. I remember there were a couple companies like ten years ago that didn’t make it that were trying to do that. So, it’s cool that … I’d lost touch, I don’t know the industry that well … That there’s a company out there making all this happen.
Haje:	Yeah.
Scott:	And then they get better and better, and they get enough going, and they become a successful company.
Haje:	Yeah, there’s been a few. I mean, [Arderino] was an early one that had … It isn’t nearly as good at anything. And then Raspberry Pi came along, which is like a computer in a box. And that’s super exciting. But again-
Scott:	That’s open source too, it’s [crosstalk] -
Haje:	Yeah.
Scott:	Yeah.
Haje:	But that one’s interesting in that it doesn’t natively have any of the IOT stuff, right? It’s a computer. So, you still have to add a networking interface, that kind of stuff. So, the next generation is the … There’s one called Chip Pro, there’s one called, there’s a Raspberry Pi on a stick that has all the IO stuff already dealt with.
Scott:	Wow.
Haje:	So, there’s a whole number of ways of developing very rapidly where you don’t have to reinvent the wheel. You don’t have to think about the whole architecture. You basically have the architecture and you just do the magic sauce that makes your product special. The cool thing is once you buy a regular module, that is in itself already FCC approved.
Scott:	Oh, no way.
Haje:	So, you can have a module approval, and you still need to do a separate emissions approval and stuff. But the most expensive and problematic part of that is already solved by the supplier you’re using.
Scott:	That’s really cool. That is the exact analogy for Amazon Web Services. In fact, Amazon will probably be coming out with some of that. I’m sure they’re looking at that and being like, we should do that too.
Haje:	Yeah, for sure. I mean, they have a history of making like game engines and stuff like that. So this seems like a pretty logical next step. And especially just [crosstalk] IOT stuff.
Scott:	Yeah, I was gonna say, then they have like drone initiatives, all kinds of crazy stuff. So that’s cool. Does that answer your question on the matching? I don’t know if I actually specifically answered matching.
Haje:	No, let’s do that one more time.
Scott:	Okay, so matching would be, you’re talking about like an invoice and payment, right?
Haje:	Yeah, I’m talking about the matching principle between all the bits and pieces to go into a product, and when you recognize it as the cost of revenue.
Scott:	Yeah, so I was thinking of, this is very simple, like you, you get an invoice and you eventually, you store that invoice, you owe someone some money, and then you make a cash payment or a wire, whatever. In accounting, you match the invoice with the cash payment, and you close out that invoice. So think of is like an open door and closed door. So one of the things we send all of our clients is accounts payable schedules, and it shows all their open invoices and kind of … So that way they can expect … Because you talked about how the cash flow is different for [inaudible] especially. They know they spent like in a cash flow way, but then they can look at their invoices, their open accounts payable and say, oh, man, there’s another $500,000 coming due over the next 60 days I need to make sure I’m ready for and be able to pay. That’s the way I think about matching, matching invoices with cash payments and closing out those invoices.
Haje:	Yeah, I think in the context of hardware, it’s specifically around, you know, you may have a warehouse full of bits and pieces, but you don’t recognize those of costs until you ship the final-
Scott:	Exactly. They sit on your balance sheet in inventory and then you, as you assemble them into one big product or many different products, you then recognize that when you ship it out the door.
Haje:	Yeah.
Scott:	That’s exactly how it goes. You’ve got to keep track of all that stuff. It’s called a work in progress inventory. And it’s actually very complicated. So that’s so if I were to connect us to like our deep dive to start the podcast … Sorry, I got ahead of myself … When I say we expense everything in the early days, it means that it’s not really worth the company’s time or money to have this big work in progress spreadsheet and keep track of all this stuff. There are some, actually, some good SAS products that keep track of this stuff too. Because it’s just like, it’s not material to the business yet. They don’t have product-market fit.
Haje:	And also they’re probably not really building a product, right? They’re building prototypes, and that at that point it’s definitely R&D and it’s definitely an expense, not a-
Scott:	Yes, that’s a good point. And so they, there’s this shift that we, we’re constantly checking in with them being like, “Do you have enough volume? Do you have enough money? Is series B? What series is this?” And that’s when we start doing these big schedules. And we keep track of working progress inventory. Candidly, for hardware companies, because they’re so accounting intensive, they actually usually bring in like a full-time VP of finance or controller earlier than our SAS company clients. Because it’s like double or triple the work. And so the outsourced CFO accounting works really well when it’s not crazy complicated and there’s kind of like a pattern. So SAS companies are perfect for us. Early stage hardware companies are perfect for us. But as they scale they need someone like full time. It just gets too crazy.
Haje:	Well, another luxury that software companies don’t ever have to worry about SKU keeping. Right? SKUs still keeping units.
Scott:	Yeah.
Haje:	It’s like, if you think about it, each individual component that goes into an iPhone probably has a stock keeping unit. So you have-
Scott:	Absolutely.
Haje:	It’s not just a battery and a screen, right? It’s hundreds, if not thousands, of individual components. It’s a resistor, it’s a transistor, it’s a processor, it’s a memory chip, it’s a screen, it’s a button. It’s lots of buttons. And all of those individual pieces … So if you think about it, Apple buys those in individual pieces from a supplier and it goes into a warehouse and now they have 1,000 SKUs. Now, those individual SKUs eventually disappear, because they get built into a product.
Scott:	Consolidated into a product. Yeah.
Haje:	And so those they go from 1,000 skews to one skew which is an iPhone X.
Scott:	That’s the bill of materials, that list of materials is what goes into a final product, basically.
Haje:	Precisely.
Scott:	We have a lot of robot companies because robot companies are hot right now in their hardware. What a lot of them do, I’d be curious if your companies are doing this, is they will work with a contract manufacturer and essentially buy the finished product, which makes the accounting so much easier.
Haje:	Yeah.
Scott:	The contract manufacturer is solving a problem of like, this assembly brown that you’re talking about for the startup. Eventually, probably the startups either get enough volume to really kind of beat down the price from the contract manufacturer or they bring it in-house or, you know, have their own manufacturing.
Haje:	Although honestly, Apple still uses Foxcon for a lot of them [crosstalk] -
Scott:	Yeah, they do-
Haje:	They’re a contract manufacturer.
Scott:	Because it makes sense, right? And so, but that makes the accounting aspect of this easier. Because you basically have, like, an arm’s length transaction where you’re like, “I’m paying $1,000 for this robot, and therefore, I know exactly what I’m spending for this thing. And it’s going to be the cost of goods sold,” less you have less of this crazy build up for inventory.
Haje:	Actually, startups don’t generally have this problem, because they use a contract manufacturer or whatever.
Scott:	Most of the time.
Haje:	The people who really have a problem are people like cabinet makers. You buy 16 planks, you use 12 and a half planks. And you have to reconcile that properly. So, smaller, more lifestyle businesses run into this way more often, because maybe they’re not really set up to scale. I think, at scale, that’s where this becomes painful, but then suddenly is worth paying to solve the problem.
Scott:	Yep. And the contract manufacturing has been a huge trend, over like the last 20 or 30 years, but we have, we do have some companies that build all their own stuff. And it’s, again, we’ll do … In the early days, it’s not a gap. It’s like we call it semi gap, where we’re expensing it.
Haje:	Small gap.
Scott:	Yeah, exactly. But then they get to that point where it’s like, okay, we’re going to do this for reals. We’re raising huge amounts of money, we need to do things the right way. And that’s when that kicks in. Does that answer the question?
Haje:	Yes.
Scott:	Good. We actually, that’s, that’s like a lot of hardware accounting. So we’ll be able to listen to those 10 or 15 minutes and be like, okay, now I know.
Haje:	Can you guys talk about something interesting now, please?
Scott:	I’m hoping they will know what we’re talking about.
Haje:	But I think this is fascinating. I think this is actually the reason why I wanted to come back and have another conversation with you because I thought this exact thing would happen. I asked you a relatively simple question. And we talked for 30 minutes.
Scott:	Was that 30 minutes? No. Oh my god.
Haje:	I think this is fascinating, right? And this is why it’s fun to be a guest [crosstalk] -
Scott:	It’s a conversation we have with entrepreneurs all the time. Because you mentioned, it’s not, a lot of hardware founders, our first time, I think part of that is honestly they’re brave enough to do a hardware company because they’re really freaking hard.
Haje:	Brave. That’s totally the word I would use. Crazy is another word.
Scott:	I think it is. It is, yeah, crazy. And so we have this conversation because they’ll hear something in a board meeting, they’ll be like, “Why aren’t we doing the whole work in progress inventory?” And it’s like, “Well, we could, but instead of charging you $1,000 it would be like $4,000 a month, do you want to do that? And we don’t really in our professional opinion, is not necessary yet, because you haven’t hit like [crosstalk] scale and product market fit.” And so that’s, that’s these conversations.
Haje:	But I think that is something I really love about some suppliers and hate about others. So, I mean, in the big scale of startups and stuff, lawyers and accountants are crucial, right? You need them. But a lot of them are not very good at being pragmatic. And I think that is my biggest pet peeve, right?
Scott:	You’ve just gotta find the right people.
Haje:	You could do inventory accounting, or yes, you could file 53 patents. But honestly, those are not necessarily the right things to do. And where you easily get into problems as a startup founder, is that you have the professional at your beck and call, your lawyer, who tells you have to go and file patents. But they are coming from a really weird conflict of interest because they make a lot of money from doing those patterns.
Scott:	Yeah.
Haje:	And so you get in a really weird situation where you don’t really know where to turn for advice, you can really only turn to your lawyer for legal advice. But their incentive is a little bit of.
Scott:	Yeah, you have to find people, there’s a long-term incentive that good lawyers understand, especially the Silicon Valley layers, which is … And accounts … If they do the right thing, give you the right advice, you have a much higher probability of being successful. In which case you’ll be a client for five or ten years instead of six months. And so, the best people all kind of do it that way. And they also know that like word of mouth is where most of their marketing comes from. So by doing the right thing [inaudible] over and over again, you just get the word of mouth. Like we spent almost no money on marketing Because folks like you send people over to us and say, “Hey, talk to my friend Scott, he can help you out with your accounting and your taxes,” you know? So for us, we think of that. We think of like, high-quality service, and always doing the right thing as like, almost like a marketing cost. And like the best law, the best lawyers do that. Where you get into trouble is like, you think you’re saving $5,000 on an incorporation or whatever, and your uncle does it. But your uncle incorporates you as an LLC, and does all these things wrong, and then, you know, whatever. And then, you end up spending way more. Vanessa actually has a really good slide in her presentation that shows the cost of using a bad accountant, or like a bookkeeper, you found on Yelp-
Haje:	What is the worst that could happen, Scott?
Scott:	It’s about 20, on average, we have it at about $20,000 of cost. Because what they do is, A, they do things wrong, usually. And they’re nice people, they’re doing their best, they’re just not like highly trained and optimized for startups, they’re doing probably like a bakery and a woodworking company. And then they’re also doing your SAS startup or your hardware startup. There’s no way they can, they know all the rules and how to do everything. And then the things that people don’t talk about, or they don’t know is that like, oftentimes, they don’t know how to do taxes. So they refer you to someone. They don’t have a good strong relationship, because they only do like five companies at a time. So they refer someone that charges you $5,000 for your taxes instead of $1,500 like us. And oh, by the way, they forgot to do an R&D tax credit. Ee always joke, it’s like the tax, the CPA in El Camino, which is in like Menlo Park, you know? That’s who, we see who people are using for their taxes before they come to us. And it’s like a local CPA that you’re like, what is this person doing a startup tax return? And of course they forget the R&D tax credit, which is, for those who don’t know, R&D tax credits used to be you offset some of your R&D against your profits later on in life and you get a tax credit, you get money back. Well, last year, the IRS and Treasury said that you can use it on payroll taxes.
Haje:	So, what does that mean?
Scott:	That means that you can offset your payroll taxes, like the taxes that we all, every company pays immediately with the R&D tax credit. And R&D tax credits are generally about 10% of whatever you spend on R&D costs, like payroll for engineers. Contractor payments in the US. Also equipment for hardware companies.
Haje:	Well, it sounds to me, Scott, like that is basically a 10% discount on your tax bill.
Scott:	Exactly. It’s basically getting … You capture 10% of your … Of whatever you spend on R&D. So you can actually get, it’s more than a 10% credit discount, you can actually pay no payroll taxes. You can get up to $250,000 in payroll tax credits. So, this is like, but $250,000 of found money, right? We did a study, we did our analysis. And last year we did almost $2 million of R&D tax credits. The average R&D tax credit was $38,000. And so can you imagine like $38,000 for every one of these companies, that’s a huge amount of money.
Haje:	Yeah, that’s like three or four angels that you don’t have to [crosstalk] for money.
Scott:	Exactly. And you got it for free, basically, you know? And like, the local tax CPAs just don’t know about this. This is something that happened just last week, where I’ve been talking to a company in November, December. The woman, she’s building a great business, she actually had a baby, so she didn’t want to sign up with us until later, until this year. And in between her having those conversations with us, she just, like, wanted to get her taxes done in February. So she had the local CPA do their taxes. This is a woman who’s super smart. She’s, she built a hell of a business. She actually used to be a corporate lawyer for startups, so she knows … She’s as educated as you could possibly be about stuff. And unfortunately, that CPA didn’t do an R&D tax credit and also didn’t file extension. If they were to file an extension we could have gone back and done it. And so she lost $40,000 because she delayed working with us for two or three months.
Haje:	She saved some money, though, she didn’t have to pay you.
Scott:	She saved about, probably $1,000.
Haje:	See, it’s worth it. [crosstalk] $40,000 to save $1,000.
Scott:	Yeah, and I’m a little bit on my soapbox here. But like, this is, because I see this pattern over and over where it’s like … She wasn’t doing it to save money, she had a baby, too complicated. But I’ll see these people who are like, “No, I don’t want to pay an extra $200 to work with you.” And we I’m sitting they’re going like, “That’s cool. But you’re probably gonna …” I know, they’re gonna probably miss out on like, $20,000 or $30,000. So, there’s the penny wise pound foolish thing that’s, tracing all of that. If you don’t use good advisors like good lawyers, and good accounting firms, and good, marketing consultants you just end up bleeding money because you just don’t get the service you need.
Haje:	I mean, it’s interesting to me because it’s kind of a well-known thing that hiring the wrong person, like into your company, is the single most expensive thing you’ll do.
Scott:	Yeah. And the logical extension of that is hiring the long wrong lawyer or the wrong accountant. It’s exactly the same thing.
Scott:	Yeah, people just don’t understand that sometimes. I think sometimes they think it’s a commodity. Like, I was just on a call with the CEO of a really cool New York company that we’ve been working with for a year. And he started off, he was like, “You know, I kind of think like the accounting stuff is a commodity like I don’t even know why I’m paying you guys.” And I like started laughing. And I’m like, “That’s because you’ve been working with us since day one. You have you have no idea how many fucked up financials I get that we then fix.” And I walked him through all that. He’s like, “You’re totally right. I’m sorry. And I hope I didn’t offend you.” I was like, “It’s okay, I get that question a lot.”
Haje:	And now I have an anecdote for my podcast.
Scott:	And, even better, like 20 minutes before you walked in to do this podcast, I overheard our tax VP in our controller on that account finding a tax rebate for them, this company has no idea this is even happening. They found a tax rebate in New York that’s going to like, literally, the company’s going to get like $50,000 back that they have no idea … And by the way, their lawyer doesn’t, is not very sophisticated. So the lawyer was arguing with us on some … Like, the lawyer doesn’t know taxes, and it’s going to end up costing this company a bunch of money. But like, just now, just because we’re good at what we do, Stephen, our VP of tax saved this company like $50,000 after two-
Haje:	Do you get a commission?
Scott:	No, we don’t. But like two weeks ago the CEO was telling me that we didn’t provide a valuable service. There’s this weird stuff that comes up that you may not know or be able to anticipate. So just use someone good. And the best people are people in your network who know who’s good who can just refer you. The chances of you doing a Google search and finding someone good is not super high. Like I would network if I was picking someone. Same way me as you pick your VCs, you don’t just like Google “venture capital” and then be like, “I’m going to call those Bolt guys.” No, you look around, you network around, you find out who’s good. Figure them out, then [crosstalk] -
Haje:	Hello, switchboard. Can I talk to Marc Andreessen, please? I heard he’s good.
Scott:	I got a big idea.
Haje:	Does he have time this afternoon? That’d be good for me.
Scott:	Exactly. That’s, that’s how it works. So anyways, okay, that was a little … I got on my high horse there.
Haje:	That’s good.
Scott:	It’s a passionate thing where I see people making the same mistake over and over again. And I’m like, god, if you could just, just please don’t make that same mistake. Let’s talk about … I really do think you guys are really brave and awesome for doing this.
Haje:	I think actually it makes perfect sense, right? So I think there is-
Scott:	It’s an underserved market. It’s exactly what venture capitalists should be doing exactly. It’s exactly what VCs should be doing.
Haje:	So, start with two premises. One is that a lot of people are investing in hardware, and two hardware is incredibly difficult to predict who is going to be successful and who isn’t. And so what we do from there is to de-risk it as much as possible. So we have an extensive prototype shop in both [crosstalk] -
Scott:	Oh, talk about that. That’s awesome. I’ve been to your office.
Haje:	Yeah, so the prototype shop basically has a ton of machines in it that helps you build prototypes. So we have 3D printers, we have laser cutters, we have lathes, mills, CNC machines, a lot of tools to do like woodworking and metal bending. And there’s an environmental chamber that helps you like ramp up and down through temperature and humidity. So you can actually test properly whether or not your device that you’re putting in a car can withstand heat in Arizona and all that sort of stuff.
Scott:	And it looks awesome.
Haje:	It does look awesome.
Scott:	It’s a cool, very cool office, like manufacturing thing. Like it’s the real deal.
Haje:	So this is one half of it, right? So it means that when you take money from us, you get to move in with us. So you don’t have to pay rent. You get to use the shop, which is a fantastic luxury. Because being able to get up off your desk, walk twenty feet-
Scott:	That’s a great point. And build whatever you’re talking about-
Haje:	Build whatever it is. And if it doesn’t work, don’t worry about it, build another one. If that doesn’t work, don’t worry about it, build another one. So it’s like the rapid prototyping that you get in software for free because you’re working on a computer, is hard in hardware. And so having access to the shop is really good there. The second thing we’re doing to de-risk it is to basically have a really good engineering team. So, you work with industrial designers, mechanical engineers, electronic engineers, project managers, people who have shipped hundreds of thousands, in some cases, millions and millions of products. So they’ve seen it, right? And they go, “Well, actually, you could do it that way. But in my experience, when we were shipping iPhones, this doesn’t work for these five reasons.” And so tapping into that, even knowing where to turn for advice is impossibly hard in hardware. And, you know, the people working out of our space have like five or six hardware experts that they can reach out to at one end of the building, they have a workshop at the other end of the building. And it really does, these sound like really good perks for a startup. But in the cold hard light of day it is for us to de-risk the investments, right?
Scott:	Yeah, totally.
Haje:	We have the same model as any other VC, which means, you know, some of the companies will fail, some of them will be moderately successful. And hopefully, there’ll be one or two runaway winners. And that’s how we make our money. And I think it’s just, it’s really basic mathematics if you model it out this is the only way to do it.
Scott:	Also, like if they’re … I think it’s, maybe this is something I didn’t understand before this podcast, if there are companies like Particle that are making manufacturing easier, you’re probably, you guys may talk about this internally like we’re on the cusp of this like golden age of simpler prototyping and bringing hardware products to market a lot easier. In the same way that Amazon Web Services and other stuff made it easier to build a SAS company five to ten years ago, or five years ago. That’s huge … That’s like a great thing to talk to your LPs about. And get them excited about and raise money about because like, if you can like an order of magnitude de-risk something in the ways you’re talking about it, but also just other people being out there in the ecosystem that makes it easier to build, that’s huge. That’s how you get big returns. Yeah, while the other VCs are saying like, oh, I don’t invest in hardware companies. Because I’ve heard that a million times.
Haje:	That makes sense, right?
Scott:	So many VCs say, “I don’t invest in hardware companies.”
Haje:	And I think the reason that makes sense is that it makes sense to have a good tight thesis, the tighter your thesis is, the more likely you are to get the deal flow into things you are good at and good at evaluating. And then there are people who only invest in enterprise SAS.
Scott:	Yep.
Haje:	And no offense to those people. That sounds incredibly boring to me. But it means that you have a very clear set of metrics, and you have a clear benchmark. And if somebody comes through your door and says, “This is what we’re seeing,” and it falls outside those benchmarks, they better have a good story for why that is.
Scott:	Yeah.
Haje:	And so from an academic point of view, running a VC firm that does SAS means that you have a lot of comparables. That becomes a very good business model.
Scott:	I always say like, the VC business is like the solar system, you know how companies fit relative to other companies. And the other thing is like, this is super underrated. But you get the call, you get the call. I’m sure you guys get the call in every hardware company where they’re selling [crosstalk] -
Haje:	We are the hardware people.
Scott:	Yeah, because people know, and they’re like, “Oh, call Haje at Bolt. He’ll take a look. Because that’s all he does, hardware, all day long.”
Haje:	Yeah.
Scott:	It’s not the, “Hey, maybe I can fit you into my schedule next week. Because I don’t really give a shit about hardware companies.”
Haje:	Right.
Scott:	Kind of typical response from a VC.
Haje:	Yeah.
Scott:	It’s like, “Oh, I’ll do this right now. We’re set up to evaluate your kind of company. That’s what we do.”
Haje:	Yeah. And we specifically like to say that we invest at the intersection of hardware and software, which is interesting, right? So some of our hardware, some of our companies are incredibly light on hardware. They’re basically just using an off the shelf component that helps them feed their algorithms to be, you know, powerful. And if it was up to them, they wouldn’t even use that piece of hardware. They’re really software companies at heart. Others are very, very heavy, very advanced hardware companies with a very light touch software, right? And we have the full gamut, right? There are people doing manufacturing tools that are basically exclusively hardware. And there are people who are basically machine learning companies. In fact, we have a couple of pure software companies as well. So it’s like the full range there, but they’re all kind of within our wheelhouse. Because they are, they have some sort of relation to what we used to call IOT, and it’s now called connected hardware or whatever.
Scott:	I would love, like, five years now for you guys to do an analysis on is it the heavy hardware side that produces the big returns? Or is it the software oriented, more software than hardware kind of companies?
Haje:	That is a really good question.
Scott:	Yeah, I don’t know, I honestly don’t know which one it would be. Because I’ve seen some awesome hardware companies get bought for tons of money. Because they’re just so hard to replicate.
Haje:	Well, if you think about Nest for example, right? They were one of the original IOT companies that are like smart home companies. And they, are they a hardware company? I would argue they’re a software company. So yes, they have a very important hardware component, but honestly, that hardware component isn’t that hard to make. The magic sauce for them [crosstalk] -
Scott:	It made it tangible to people.
Haje:	Yeah.
Scott:	I actually lost Nest in an [inaudible] deal. And I lost it partly because, or my partner and I lost it because they, we didn’t go cheap enough. And I still remember the partnership meeting where our east coast partner, he’s the greatest guy ever. But he was like, “I don’t understand why you want to do this deal. It’s a thermostat company.” And I was like, “This is, like, something we’ve never seen before. We need to do this deal.” And we lost. And that was, like, a 10X. That was a 10X at that point. I think the evaluation was, like $300,000,000 at that point. So, that was a huge mistake. But, our team couldn’t see why this was a unique kind of thermostat. They couldn’t see the software aspect of it, I think. They just saw a thermostat.
Haje:	I think that is also fair right? Because it doesn’t fit into your worldview. The first person who took a look at Air BNB also had no idea what Air BNB. Well, the first 3,000 people who looked at Air BNB were like, “What the hell is this?” But the interesting thing is one of our partners, Greg [Mikadu] was the person who finally saw that Airbnb was an idea and invested-
Scott:	No way. Are you kidding me? Oh my gosh.
Haje:	So, yeah, he did very well out of that. As did Sequoia.
Scott:	Yeah,
Haje:	But yeah, so that is kind of the interesting thing, being able to spot the patterns. So I’ve only been in venture for about six months. The main thing I’ve realized is that pattern spotting is incredibly hard when the deck that’s in front of you is for something you’ve never heard about. And that isn’t because you know, they’re not going to do great, but it doesn’t have the Nest logo on it. It doesn’t have the Ring logo on it, it doesn’t have the Sonos logo on it. I know this is such a banal thing to say, but it’s only in retrospect, looking back that, Yeah, of course, Sonos was going to be successful. When you look at a Sonos deck from the early days, you go, “Oh, yeah, no, of course, they’re always going to be successful,” because there’s the Sonos logo. What you forget is that the first time you see this deck, Sonos means nothing.
Scott:	I think the way … No one’s perfect, like, I missed tons of stuff. But like, I always have that mentality of like, I’m lucky to be sitting with this entrepreneur for half an hour, an hour, and they are going to … They are the world’s expert in whatever they’re doing.
Haje:	They’d better be.
Scott:	And they’re going to teach me why it’s important. And what’s so cool about it, and if you … It’s almost like going to school, if you go to school, instead of asking questions like, designed to trip them up or show how smart you are, whatever, if you just do it like you’re going to school and you’re listening to a world expert, like you’re going to the MoMA to listen, to hear about these paintings, you know? If you do it that way, you tend to see their enthusiasm captures you, and you can see what’s going on. Now, sometimes what that does is it you end up loving everything and then you can’t say no. And then you end up spending all your money.
Haje:	But at least you get a huge portfolio.
Scott:	Yeah, you get a huge portfolio of companies that don’t succeed. And then you have no more bullets in the chamber, right? That’s the danger. But that was always how we try to think about it. Also just like, it helps if you’re … Like, you are very interested in hardware, like you ran a hardware company or two hardware companies.
Haje:	You can say nerd. It’s okay.
Scott:	Yeah, yeah, you’re a nerd. So like, to you, this stuff speaks at your core the same way that like ten years ago, social networking spoke to my core, you know? And a lot of our SAS companies do now. And it’s, it’s like, it’s just something you enjoy, you know? It’s almost like a hobby. Like, I think of our business. There’s definitely like grueling days and nights and things like that. But it’s pretty fun for me because I just like working with the company, I like working with the CEOs and they teach me stuff all day long.
Haje:	This is the main thing I’m loving about my job, right? It’s a real privilege to be able to work with people who are far smarter than me, who are delivering on really amazing dreams.
Scott:	Yeah. But you’re also really good at what you do. So, I think they’re lucky to have you too. And you’re gonna magnify a lot of these stories. And I think the cool thing about what you’re doing is, like, by magnifying some of these stories you can make a difference in a $20,000,000 pre-money valuation and a $50,000,000 pre val. And I don’t know if anyone’s ever gonna be like, “That was Haje’s work.” There’s never gonna be a direct correlation, or a direct formula. But companies, other investors, or people, or customers will start hearing about the companies in your portfolio a lot earlier than they probably would.
Haje:	Yeah, I hope so.
Scott:	And it makes, like, that, those little proof points or little data points make all the difference. One of the Sequoia partners, Doug Leone, was famous for going around at cocktail parties … Actually, I think it was Doug Leone. Anyway, whatever the story is, the Sequoia partner would go around at all the holiday parties, instead of saying, like, “Hey, how are you doing?” He would ask, “What’s your three hottest deals?” And that was his way of getting all the intelligence on the market. You know, or, “What’s your hottest deal?” Because everyone in that thing has one deal that they’re super proud of, but like, that’s how you find out what, that’s how he would find out one of the ways of like, what to invest in. So, when the bowl guys are at the Sequoia Christmas party or holiday party, and he may have already heard of the companies before, you know, I just think you’re a magnifying word of mouth, and you’re magnifying like the adoption of these companies. And it really helps the VC has heard about something before they’re looking at it. And they know it’s doing well. So I think your job is pretty cool.
Haje:	Well, and the storytelling part of that is super exciting. And I think just being, I mean, pitching is storytelling, everything is storytelling. Pitching, in particular, is storytelling, which is really cool. The other really big thing I’ve learned over the last few months is Bolt is really big on what they co-founder market fit.
Scott:	That’s kind of what we’re talking about. Like, you love hardware, you’re going to be a hardware person, you’re not going to get burned out on it.
Haje:	But I think that is the magical thing about, you know, if you’re investing in pre-seed stage, I mean, a lot of the time, we’re investing in inklings of an idea, and a team who has really good vision of what they want the world to look like. That is hopefully somebody who is already an expert in the space. So they’re really good at the market. They really get what they’re doing, and the why of it.
Scott:	That’s all you can really do. I don’t know if you remember, we can’t tell, say with this company did. But I sent you a diagnostic company, and it’s a home diagnostic. And like, the guy who’s doing it knows this stuff cold, he just knows it cold. And my decision to invest in him was like, my personal money, invest this personal money was, like, just the passion, and how well he knows it. He’s lived it, he’s run [inaudible] home diagnostic on me before. And it’s like, boom, done, here’s the money. It’s a little cliché, like, you shouldn’t do venture capital like that theoretically. But sometimes you just see it and you just have to take the leap.
Haje:	Yeah.
Scott:	You’re never gonna get more comfortable, until a year from now, at which point … Or two years from now at which point you’re paying a huge premium in valuation.
Haje:	Yeah.
Scott:	And people like me don’t get to play in that world because I don’t have a fund. And you guys are early, so you guys probably don’t get to do the late stage stuff. So you’ve gotta be right early.
Haje:	But the converse of that is also true. I mean, my first company was in photography and hardware. And I know that the company wasn’t that successful. But photography, I get. Hardware? Sure. I get now. A little bit too late. But my next two companies, one was in marketing and I explicitly ended up walking away from it because I wasn’t just that passionate about solving a problem. And the second company I just didn’t know enough about, right? And we got some really, really good advisors, really good partners. But it turns out that founder market fit I mean, I was really passionate about it, still am but I just wasn’t the right person to get this, to land this. And that was a massive epiphany to me because I really thought I was.
Scott:	The reason why we’re successful as a company is because Vanessa lives and breathes accounting and startup accounting, and is constantly redesigning our processes and coming up with new innovations. Like, I can’t even tell you how many innovations she comes up on a weekly basis. And that’s what makes us successful, yes, it’s the founder market fit. And like, I think some advice for people who maybe are having a hard time finding that fit is found someone who’s slotted in and fits perfectly and join them. That’s basically what I did. I saw an extremely talented founder who had like, 60 clients by herself. And I was like, holy shit, this woman’s magic. I’m going to join. Even though she happened to be my girlfriend and later my wife like, she knows what she’s doing. She nails it. Because I’ve interacted with accounting firms and startup CFO firms at Lighthouse, I knew they weren’t always the strongest and didn’t do the greatest job. So there’s a hole in this market. And I jumped in with her.
Haje:	And the other thing is, you can’t fake that.
Scott:	No.
Haje:	There’s no way, I mean, even with the most even with a giant bag of inspiration in one hand, a giant bag of cocaine in the other, you can’t muster that kind of enthusiasm, right? That is something that has to come entirely intrinsically from your real genuine passions in life.
Scott:	And other people recognize it, as I’ll never forget, we won an award for Emerging Partner of the Year for Expensify two years ago, and we were at the conference, she went up and accepted it, and we weren’t like a high profile firm and every kind of accounting industry luminary like circled her for the next two hours. I didn’t even get a chance to talk to my wife after she won this award for like two hours because they saw it, they were like on her. She was like one of them, right? And that’s what you’re talking about. You know, like you, and you guys are one of those people you live and breathe hardware, that’s why you guys are investing in it. It’s not you, it’s not like a holiday or a one-off for you guys.
Haje:	Right. And I think that is true for you know, it is hard to identify that in industries you’re not that familiar with so you know, how do you find a lawyer that will-
Scott:	But that’s that’s part of the value [crosstalk] you guys help founder with, is that you know who the good ones are, and you forward them over. The great thing about Silicon Valley I would say is reputations really matter. And so everyone’s always on their best behavior. And there’s just a lot of believers here. And when you see things turn from concept to a successful company may time you just become a believer yourself, or you are a believer, and you take that brave step, and fun that company that maybe someone else other than a fund. Or you work with them as an accounting firm you know, because you believe in them. Dude, I think … I apologize but I think we gotta wrap it up.
Haje:	Sounds good.
Scott:	I got, today is the 20th, we have a lot of financials going out today.
Haje:	Awesome. Back to work, [crosstalk] -
Scott:	By the way shout out the Haje for teaching me how to use this brand new recorder that’s been sitting on my desk for like two months that is … Literally, it was in its box still and he set it all up for me. So if I sound extra good today is because I’m using like some fancy new equipment that he told me to buy.
Haje:	And if you never hear this podcast then we also know why.
Scott:	Yeah, it’s like hope to god. That’s an awesome point. I hope you hope this podcast sees the light of day. All right. Haje Kamps, Bolt BC. Awesome VC hardware fund. Also very talented storyteller, marketing experts, and photography nerd. People don’t know this, but you’ve written like six photography books.
Haje:	Sixteen.
Scott:	Sixteen, oh my god. He’s written a lot. Okay. Thank you for coming over.
Haje:	Thank you for having me.
Scott:	Okay, awesome. Looking for an accounting firm that knows what it takes to raise money from top tier VCs? Learn more about Kruze Consulting.

Haje Kamps of Bolt VC Turns the Tables and Interviews Me (Scott Orn)!

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