Graze (August 2020)

Deal Abstract

https://www.seedinvest.com/graze/series.a/about

Electric, fully autonomous commercial lawn mower. Backed by the same people who backed Miso Robotics. No revenue but has commitments of purchase from landscaping companies and eventually wants to expand to be a landcare platform. Analysis requested by a reader (yes, I take requests at mail@muhanzhang.com!)

Shoutout to A.S. for the tip!

Decision

Pass. But it has a place in other investors portfolios.

Why Investing/Passing

  1. Too Big for my Investment Thesis: Raising $10MM on a $23MM valuation, my money buys too little for meaningful percentage of the company.
  2. Too Hardware for my Investment Thesis: Robotics and such is really cool, but it’s not a space that I have much additional experience than others in.
  3. No Revenue, No Product in the Market: The company has a well defined product and vision, but it stands that the company has no product and historical revenue numbers. As a category, I don’t touch it.

Big caveat: I really like what the company is doing and think it definitely belongs in any robotics investor/hardware investors portfolio. It feels a little earlier stage than Miso Robotics, but I see the path. Even if it’s not a fit for me, doesn’t mean it’s not a fit for you. This is the idea of investor/company fit.

The 6 Calacanis Characteristics (91 161 18)

CheckPass/Fail
1. A startup that is based in SVFail: Los Angeles, CA
2. Has at least 2 founders False (1)
3. Has product in the market Fail: no product in the market.
4. 6 months of continuous user growth or 6 months of revenue.Fail: no revenue.
5. Notable investors?Pass: Wavemakers Lab, the same people who did Miso Robotics.
6. Post-funding, will have 18 months of runway Pass: 2018 yearly burn was 267k so 22.25k/mth, they raised $1,495k so 67 months.

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Good: Automated lawn mowers is definitely better than manual lawn mowers. Miso had a compelling business case, and so does Graze.
  2. The Timing question
    • Good: This is the age of using automation to reduce labor costs.
  3. The monopoly question
    • Good: Very viable that this company scales up to be the one place to buy automated lawn mowers/automated lawn mowing services.
  4. The people question: 
    • Good: CEO, Principal Engineer, and Wavemaker Labs all seem promising.
  5. The distribution question
    • Good: Find companies that have landscaping needs and sell them landscaping services, use automation to provide service. This is what the CEO brings.
  6. The durability question
    • Good: for the same reason that
  7. *What is the hopeful secret?: 
    • Machine learning and vision is good enough for commercial applications in the next 2-5 years.

What has to go right for the startup to return money on investment:

  1. Sell a Low Maintenance Product: The same innovation that would allow Graze to have better margins could have higher unknowns in servicing of these robots. Keeping vendor partners happy with the product and not having to service the new tech is key.
  2. Build Recurring Revenue: “Many hardware and equipment manufacturers suffer from “one and done” customer purchasing. This is not the case in landscaping. Commercial landscaping and maintenance companies regularly purchase new equipment at the end of useful life spans (i.e., every 2-5 years). Because of this, Graze has the potential to have meaningful and predictable recurring revenue.”
  3. Expand Into Other Commercial Services: How many automatic land mowers are needed? The company needs to bring its robotics and maintenance expertise to other areas. “In the future, we expect Graze technology will also track and plan around weather data, detect and defend against turf and plant diseases, provide data analytics and insights to its customers, and, eventually, will manage mower fleets with Artificial Intelligence, thereby providing a reduction in indirect labor costs (i.e., administrative personnel).”

What the Risks Are

  1. Hard to Scale after Lawn Mower: Selling a hardware machine is one business, data analysis and other insights via SaaS/AI is a whole-nother-business.
  2. Team Risk: as far as I can tell, there is only a CEO and a Principal Engineer with two advisors and the Wavemakers team. Will this team be enough to ship a commercial autonomous lawn mower to vendors across the nation? How will they scale the org?
  3. Hardware and Capital Risk: Raised from 08/2019 to 08/2020. Is 1.5MM enough to bring a product to market and solve for all the hiccups of manufacturing?

Muhan’s Bonus Notes

I like the company. It’s not a good investment for my portfolio and investment thesis, but again, for anyone who wants to invest in robotics and hardware, I think this is a fine investment. There’s real challenges and risks, but given the Wavemakers/Miso affiliation with the team, I think this company should be able to bring something to market. Of note, in the video, the Graze machine never actually *cut* grass, it just moved for the demo. Will be curious to see how long it’ll take for the lawnmower to actually cut grass autonomously.

Financials (References)

  • None.

Updates

This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.

Review these deal memos every time the startup raises a new round

Test if original thesis still applies

Notice trends in how you think

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2 comments
  1. Yina
    Yina
    August 10, 2020 at 12:52 pm

    Hi Muhan, thanks for breaking down your investment analysis for this deal! I had a few questions based on this post — would love to have an ongoing conversation on these topics!

    I. NO REVENUE, NO PRODUCT:
    “No Revenue, No Product in the Market: The company has a well defined product and vision, but it stands that the company has no product and historical revenue numbers. As a category, I don’t touch it.”

    1. What instances are there exceptions to this rule?
    2. Are revenue numbers always going to be top priority when fundraising (seed and pre-series A)?
    3. Is this specific to your investment thesis?

    For context — as a pre-rev pre funding startup cofounder, I’m curious what other validation I can offer to potential investors if this data point is missing in my overall investment pitch.

    II. CALACANIS VS THIEL:
    I noticed your analysis of the product checks off all of Thiel’s investment priorities, however fails on all of the Calacanis front. In the end, based on this analysis, you decided to opt out. What weight do you give to each analysis? In this case where it’s literally a 50/50 split — what was the tipping point for your final decision?

    Reply
  2. Yina
    Yina
    August 10, 2020 at 12:54 pm

    Correction* Fails on most of the Calacanis front (not all)

    Reply
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