Ned Tozun is the cofounder of D.light which is looking to serve the 2.3 billion people that doesn‘t have access to reliable electricity. The company has raised over $100 million from investors such as Omydiar Network, DFJ, or Garage Technology Ventures. The social enterprise has 1,000 employees and 3,000-5,000 commissioned agents, is generating about $100 million of revenue a year, and experiencing 40-50% growth annually.
In this episode you will learn:
- How to build a social enterprise
- Solving big problems with big funding
- Dealing with investor rejections
- Moving around the world to build a solid team
- Balancing equity and debt
- Product-market fit with social impact projects
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
The Ultimate Guide To Pitch Decks
Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
About Ned Tozun:
Since the company’s founding in 2007, Ned has played a key role in developing the company’s mission and strategic plan, securing private investment from multinational venture capital and social impact funds, designing award-winning products, and establishing four international offices and worldwide distribution.
Ned has been recognized by BusinessWeek, Forbes, the Social Venture Network, the Asia Society, and the World Economic Forum for his innovative leadership.
He and d.light co-founder Sam Goldman were named Social Entrepreneurs of the Year in 2014 by the Schwab Foundation for Social Entrepreneurship.
Prior to d.light, Ned founded multiple startups in the San Francisco Bay Area and developed several products that attained global distribution.
He has an MBA and bachelor degrees in Computer Science and Earth Systems from Stanford University.
Connect with Ned Tozun:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello, everyone, and welcome to the DealMakers show. We have today someone really exciting. Ned Tozun who is going to tell us a lot about solar-powered solutions. So, Ned Tozun, welcome to the DealMakers show today.
Ned Tozun: Thank you. It’s good to be here.
Alejandro: Originally from Silicon Valley, and as I’ve told you in the past as well when I came across your resume, I saw a lot of Stanford going on.
Ned Tozun: Yes.
Alejandro: The first thing that I saw that you studied, Ned, is Earth Systems. What is Earth Systems?
Ned Tozun: Earth Systems is the study of ecology, biology, geology. It’s kind of a mix of a bunch of different life sciences and earth-related sciences. It just smushes them all together into one degree. Actually, I ended up double majoring. I got a computer science degree. The reason I ended up in different degrees, I ended up actually changing my major about eight times when I was an undergrad because I couldn’t ever really specialize in one thing. Every time I started to specialize, I got nervous, and then I would switch to something else. Then, as a result, I ended up accumulating all these credits, and I was able to put those two degrees together, but that was the real reason behind why I ended up having those degrees. But they’re both, of course, areas of interest of mine.
Alejandro: Got it. You know, something interesting as well that I found is that your profile very much started on the engineering side, and we’ll talk about that in a second. You then, after getting some experience, you also wanted to get in your business degree at Stanford, again, your MBA. How did you get that? Like, “Hey, I’m going to like switch over here and really perhaps build my business profile a little bit.”
Ned Tozun: Yeah. It’s funny because when I was an undergrad in college, a business degree is like the last thing I thought I’d ever get in life. It would have totally shocked my younger self. I remember, actually, when I told my wife I wanted to apply to business school, she almost fell off her chair. She was really shocked. After I graduated, I had my engineering degree. I worked as an engineer for about six months at a company that was doing really cool stuff in audio engineering. It was a company doing exciting things, but I found that actually being an engineer—well, I was actually pretty good at it and decent at doing what I was doing. It kind of dried up my soul in some way in doing it. It just didn’t feel like it was something I wanted to do for life. This was the problem I had in undergrad, too, where every time I started to specialize, I had this panic feel. So, my wife, I think she was my fiancé at that time, was concerned about this. She was like, “Is this guy going to ever actually focus and do anything?” But I ended up quitting that job after about six months and starting my own company with some friends. I found that I just loved entrepreneurship. Every day was different. You got to be a jack of all trades, solve lots of different kinds of problems, engineering problems, business problems, people problems, all kinds of stuff. So, it kept me really engaged, and I felt like entrepreneurship is what I’m meant to do. I actually started a couple of companies in the Bay Area. I never got venture funded or anything like that, but we brought some products to market. I found that 1) there was a lot of stuff I just didn’t know about how to run and scale a business to a big level. 2) While I loved entrepreneurship, I wanted to find a way to leverage tech and entrepreneurship in a way that would actually have a real meaningful impact. That was another passion that had been developing over time for me. I was really drawn to this whole concept of social enterprise and social impact business. When I was looking at some of the business programs available, at that time Stanford had this social impact and social enterprise. I wouldn’t say focus, but they had some really cool social impact businesses coming out of that program, and specifically, there was a course called Design for Extreme Affordability at the design school which took business students, engineering students, put them together, and they come up with these really cool projects, many of which were actually spinning out to become companies. I was like that is what I feel like I’m meant to do. So, I only ended up applying there. Now, there are social impact businesses all over many business schools. But at that time, I really only found it at Stanford. So, I said, “You know if it’s meant to be, I’ll get in. If not, I’ll do something else.” I ended up getting into the program and then really immersing myself in that world when I was in business school.
Alejandro: For people that are listening, how do you define social impact?
Ned Tozun: Really, it’s about using business as a tool to make people’s lives better. Social impact actually can be defined in many different kinds of ways. A lot of businesses are creating a social impact to different degrees, but I think what I was really drawn to in this concept of social impact business or social enterprise was about business where the core mission of what we’re trying to do is leveraging the powerful forces of the market of technology trends and using that to really create transformational change in people’s lives and actually address some big world problems. Specifically, I ended up getting really passionate at business school about this problem of about a fifth of the world not having any access to power. That’s a huge problem the businesses weren’t addressing. There are many other types of problems like that that business and technology can be a really effective tool to address, but entrepreneurs and businesses weren’t filling in the gap at that time. So, we wanted to do something about it.
Alejandro: Got it. So then basically the idea of d.light which eventually became this really incredible company that you’re still involved in after 12 years, which is remarkable.
Ned Tozun: Yeah.
Alejandro: The idea started in Stanford. So, that’s how you got started. Is that right?
Ned Tozun: Yeah.
Alejandro: What was the incubation process of d.light?
Ned Tozun: When I was in business school, I had a clear focus that I wanted to graduate the program having launched and started some kind of social impact business. So, I had that vague idea. I knew there was a lot of really exciting stuff happening at the design school at Stanford around incubating these kinds of businesses. I was determined to get into this course called Design for Extreme Affordability, and I wanted to get into it my first year. So, I had time to take whatever project and help get it funded before we graduated after our second year. I didn’t get in, but I was so determined—this is the whole reason I’m in business school. I actually just kept showing up to this class for like six weeks, and then finally, they let me in. Actually, everything good that has happened in my life is just like persistence.
Alejandro: That’s it.
Ned Tozun: Yeah. It’s all about persistence. So, anyway, I ended up in this course, and there were a lot of interesting kinds of projects that were starting to be formed. There was a day where we were forming our project groups. There was another guy in my business school. His name’s Sam Goldman. This guy is also an American but grew up in India, Pakistan, and Peru, and his working career was all over Africa. He had this experience when he was living in Benin where his neighbor’s son was burned in this kerosene accident. People use kerosene lamps as their primary source of lighting when they don’t have electricity. This boy was horribly burned in this kerosene accident. Sam had this experience and realized, “This makes no sense. This is the 21st century. Why isn’t anyone doing something about this and providing better solutions?” So, he went to business school to figure that out. I knew of Sam. He was in some classes. He was real, very different from the other business students just because of his background, but he was someone I knew from the first minute I met him. Like, this guy is actually going to do something. He’s not just talk. He is going to do something that’s going to change the world. So, as the project groups were getting formed, I remember—I can see clearly in my mind. It was like 13 or 14 years ago when we formed this group, he had written this word energy on the board because that was his interest area. I’m like, “I don’t know that much about that area, but I know Sam is going to do something. I want to work with that guy.” I ended up walking up to him; we ended up forming this group with a couple of other engineers, and that turned out to be the founding group of d.light. That’s how we got started at the very beginning. Then we basically were incubated at the design school. We finished that course, and we came out with a very crude prototype, very crude business plan, and then spent our second year of business school refining that. We ended up getting a little bit of funding to be able to do some trips out to the emerging markets where we wanted to launch a product, test products with customers, and basically by the time we graduated had raised a little bit of seed funding that enabled us to launch the business. That’s really how we got started.
Alejandro: How many of you guys in this group of engineers that you were mentioning?
Ned Tozun: It started out with four of us: myself and Sam. Then we had two mechanical engineering students also that were part of the group. Then a little later on in our second year, we brought onboard another person on the team whose name is [Gab Risk 10:22]. He was the husband of one of our classmates, and he was working at Sun as an electrical engineer. So, started working nights and weekends to help us actually design a product that could function. By the time we got a little bit of funding and started the company, then he quit his job as Sun and joined the team.
Alejandro: Got it. Being so many engineers like right off the start, did you guys find potential, like challenges because maybe you didn’t have that much diversity in having someone from business or from sales or from different backgrounds?
Ned Tozun: Yeah. At the beginning, really it was about cracking the product problem. So, I would say with our business there are actually three big challenges. One is cracking the product; getting the offering right. Two is figuring out how to distribute it, and three is how to finance it. We could talk about those. On the product side, unless you get a great value for money product that can actually survive in the real-life conditions that our customers live in, you don’t have a business in the space we work in. At that time when we got started, there were solar panels connected with lanterns, but they would break in a week. Really. Like they just couldn’t survive. Or they were so expensive it was just out of reach of affordability of our customers. So, with engineers, they each had different focus areas. So, Xianyi, who is one of our mechanical engineers, he was just brilliant at designing beautiful-looking products that were tough, that were cost-effective. He was brilliant at design. Erica, who was one of the other mechanical engineering students actually had a very different focus which was around human-centered design, and getting those insights from the customer on what it is they need. What’s going to draw them to it? It’s especially important for our business because we are not our customers. It’s not like if you’re designing stuff for Apple, you’re also probably going to use Apple products every single day. Of course, I use d.light products in my house when the power goes off. I’m not a rural customer using this in a village every day. So, we really need to go deep in understanding what those customers want and can’t assume the things we think are cool is going to be something they think is cool. So, there was that. Then we had the electrical engineering side which is about how to design it optimally from the electrical perspective. I feel like we had a very good division of labor among the team. Then over time, as we then finally brought a product to market that could survive and be tough, then we started bringing on sales resources, and as we started getting into financing products that were higher end, we brought in resources that could do that. I would say we built the company in those stages, but if we didn’t have a product, then we wouldn’t be able to build those other things. So, we did it in sequence.
Alejandro: Of course. What ended up being the business model for d.light?
Ned Tozun: The business model for us, which by and large has stayed pretty consistent over the last decade is we sell our products—we want our products at the end of the day to be affordable to the end customer. People often ask us, “How much do you sell through the humanitarian channels or government, or subsidized channels. It’s very, very little. Maybe it’s like a couple percent of our business at the most. Really, it’s all about getting the product proposition right to the end customer. All of our sales end up happening through two main channels. One is retail shops. In the markets we work in, there’s not the Walmart equivalent that reaches the rural areas. These are very informal disorganized channels that require a lot of on the ground field management. It’s a significant operational lift just to drive and manage that channel. Then the second is through partners and partnerships. These might be, for example, microfinance organizations that provide loans for customers, but then also can provide a product like this as a way to improve their life, and then they can add that product on to their loan, for example, if they wanted to buy that product. But the MFI in that case, the Micro Finance Organization becomes the partner that brings that product to the customer. Then we serve that partner and make sure that the product can get logistically delivered and all that kind of stuff. Really, it’s through retail distribution and partnerships. That’s how we sell the products to the customers.
Alejandro: What is the main difference of let’s say building, now that you’re talking about the business model, let’s say like a social enterprise like d.light, especially during the early days from building like the typical hypergrowth startup, tech startup that probably many of our listeners are familiar with?
Ned Tozun: You know, I’ll tell you from our perspective, I know other social entrepreneurs have had different experiences, but it’s really with the market that we were addressing. We really felt fundamentally that it was a market failure essentially that was happening. This was a multi-billion-dollar opportunity. We felt that we could build a billion-dollar business in this space, but the reality is just traditional investors, commercial investors weren’t taking it seriously. So, at the beginning, we raised a blend of Sun Venture Capital investors. So, there were some who believed in it, although we got many, many rejections from traditional commercial investors. Then we had impact investors as well who I would say are similar to the venture investors in that they want to build a big business, but it’s more patient capital. At the end of the day, they understand that the markets that we work in are hard and that things take time. Me and my business partner and the team, we underestimated at the beginning just how challenging it was to actually make this happen in the kinds of markets that we were working in. It just doesn’t happen at the same speed as a lot of companies that work in more developed environments where you have better infrastructure, distribution channels that just have wide-scale distribution from the day one. So, what really helped us was having these impact investors who understood the kinds of markets we worked in who were patient and were willing to take lower or a longer time horizon. But over time, as we’ve proven out the market, and as we got to scale, now the investor base is just the traditional, commercial investors. For us, that’s so central to actually achieving the mission that we’re trying to achieve because we think if you’re going to try to address a problem that’s impacting 1.3 billion people without power, and then another billion people with highly unreliable power, that’s the segment of the market that we address. If you’re going to do that at scale, it has to be commercially viable because you have to unlock capital at commercial level scale. It can’t be just small-scale grants or relatively small-scale impact funds. At the end of the day for us, to achieve that social impact mission that we wanted to achieve, we felt like we have to build a company that was commercially viable. So, for us, we didn’t really ever have conflict between those missions, but what we were really clear about with investors from day one is “This is the market and the customer segment we’re going after. This is where the opportunity is, so look. We’re not going to be going off and getting distracted by developing the perfect camping light. It might be a good market, but it’s just not all that big, and we need to focus on cracking these markets, and of course, if our current product works for the camping market, we’ll sell it there, but we’re not going to spend a lot of time on it. We’re really up front with the investors at the beginning that this is the market, this is what we’re trying to do, and the people who joined our company were passionate about achieving that mission, but also understood that to achieve that we had to make it commercially viable. So, that’s how we thought about it. There was actually a lot less conflict between the commercial investors and the impact investors, and frankly, than I had thought there would be. I think there was pretty strong alignment. If anything, the only real area of conflict would just be in time horizon and expectation of exit, and their ROI for some of the earlier investors. But I think now that the company is at a big scale, and we’re getting commercial investors, there’s pretty strong alignment all around.
Alejandro: When we’re talking about scale like in your case, what was that point where you and perhaps the team really understood that you had gotten into this scale point where financing was needed?
Ned Tozun: Well, when you say financing is needed, do you mean—
Alejandro: Like there was a point in time, Ned, where you are like, “This works, and this is proven, and I know that if I receive an investment of Y as an input, I can get an output of X.”
Ned Tozun: Yeah. For us, that really happened when we brought our first product to market. So, we got a bit of angel funding at the beginning, and some seed investment shortly after we finished up school. Then I moved with my wife to China to figure out, basically, how do we build this affordably, high quality, at scale. Then Sam moved to India which was our first market to figure out how do we distribute this at scale? At that point, basically, the seed funding was giving us enough money to actually get a product into production to get a basic skeleton sales team and to prove out that this thing works. I think for us, once we got to that stage where we had products that customers love, they’re willing to pay for, and was actually moving in the distribution channel, that’s when we realized that we had a real business and it was going to be about getting financing to scale that up. That was the point for us. It took us about a year and a half I would say after we got that first seed money before we got to a point where it’s like, “Yes. This thing is ready to scale.” It still took a lot longer than we thought even at that point because you get excited when you see the product/market fits there and you see how distribution works. But then just the mechanics of scaling efficiently in these markets turned out to be harder than we thought. So, I would say it ended up taking longer to achieve that kind of execution of scale, but we could see that that path was there within a year to a year and a half from that first seed funding.
Alejandro: Product/market fit: how were you present to the fact that you guys had product/market fit?
Ned Tozun: This was something we really were obsessed about. Actually, we still are. This is really ingrained in us from the design school where our mentors were some of the founders of IDEO. We got amazing people around us that knew about how to design products that delight the customer. In fact, our name of our company d.light, it derives from—you know, that’s the emotion we want our customers to feel, and it’s d.light (d-dot-light) because we came out of the Stanford D School. They call themselves the d.school, so it’s like a link back to our design-thinking roots. So, for us to understand we had that product/market fit it was about spending a lot of time with the customers, both with prototypes. Then we had a final version of the product, really talking to them, understanding if they’re referring the product to their friends. Are their neighbors now buying the product? Just seeing the level of excitement that would happen in these villages where these products would get introduced. We would see in very early days sometimes entire villages go from being in the dark to being totally upgraded to solar. At that time, it was just solar-powered lights. But the impact for these families when you go from having no light at night or kerosene light to bright, solar-powered lighting, kids study longer, there are more productive hours of use. People can keep their shops open longer. They can make more income. There are all sorts of benefits for these families. We saw the transformation in these communities. We saw how excited the customers were about the product, and just that there was a willingness to pay for the products once people saw what they delivered. At that point, we knew the product worked in the market. People liked it, and it was just now a matter of how do we make it available? How do we make sure the price point stays affordable for people? How do we make people aware that the products are even out there? Because I think a particularly big challenge with solar products when we started is solar actually had a very bad reputation in these markets. There had been a lot of just junk solar that had been dumped into the market that vastly underperformed at spec. So, people had a very negative view of what solar was. It required demonstration. It required explanation. It required sometimes demos like where people can have the product in their home for a few days so people could really believe. So, there was a lot of effort that had to go in to really convince customers that our claims were real, but once they understood the claims were real, and the product did what it said, then people would be extremely enthusiastic. So, we knew we had that product/market fit. Then the challenge became about how do we actually distribute and market this at scale in a way that is affordable because of the high-level of customer engagement required in the selling process?
Alejandro: One thing that comes to mind, Ned, is when we’re thinking about the pricing here because one challenge is that you’re also dealing with a segment that doesn’t really have a tremendous amount of money. So, when thinking about pricing for the products, what were some of the strategies that you guys used to really understand that you were hitting on the right price points?
Ned Tozun: Yeah. For us, this is now in the early days when we’re just doing the solar lanterns if you get complete benchmark against the alternative because people were spending significant money on kerosene for lighting. The estimates range a little bit, but around 35 to 40 billion dollars a year globally is spent on Kerosene for lighting. So, not a small number. People would buy this in daily increments, maybe every few days, every week. What we determined at the beginning was, “If in three months the product pays for itself because our customers because they have limited income, they’re shorter term in their time horizon and thinking. But if you can in three months have the product pay for itself, and after that, you’re just saving money, that’s going to be pretty compelling. That’s how we set the benchmark from the beginning on affordability for our lights. Now, actually, we’ve lowered that threshold in the sense that with our entry-level solar light that we want to make affordable for everybody. That one is about three-weeks cost of kerosene now. So, it’s really a no-brainer for customers as long as they believe that your product delivers within three weeks. Even very well-income customers can afford to figure out how to save up four buck, five bucks to get a basic solar lighting that’s going to replace their kerosene lamp. Not only do they save money, but it’s just a much better experience. There are all sorts of other—there’s health impacts and education impacts. All these things I’ve talked about. Then as we’ve grown into bigger products like solar home systems, then those products we offer all on finance to the customer. Then it just becomes about what kind of deposit rates can the customer segment for this product that we developed can they afford? Then what daily rates are appropriate, and therefore, what kind of financing period and length is appropriate for this kind of product? So, we backtrack it that way. In that case, it’s not just about benchmarking with kerosene, although we do that, but it’s also about charging your phone because these are typically customers now with a mobile phone, or if it’s a solar home system with something like a fan or a TV or a radio, you’re adding a lot more value. So, you can charge a little more on the daily rate, but you always have to be sensitive to the customer segment you’re serving and what’s actually affordable for them. Then, of course, once the customer pays off the product, then everything after that is just like pure upside for them. That’s how we think about pricing. But pricing and affordability is absolutely key. We just have to be maniacal around making sure the pricing and affordability equations met for the customers, or the business just doesn’t work.
Alejandro: When you’re thinking about financing Ned, again dealing with the segment that doesn’t really have a lot of money, I would assume that if you guys are engaging on the financing of this to these people that the default rates is something that is a challenge as well. What were some of the strategies that you guys did to keep those default rates low?
Ned Tozun: Yeah, and this is something when we started out financing the product directly to customers, we had high default rates like in the teens. But now, we manage it to less than 3% in our markets, and I think the way we’ve been able to manage that: first of all, we started working with microfinance organizations who could finance the products. These guys are experts. They know how to finance products to customers. The way they typically do it is they have joint lending groups where they’ll make a loan to each of the people. The groups are typically groups of women who are found to be better pairs in general in these markets. So, there are groups of women, and if one defaulter doesn’t pay all the other women in the group are accountable to pay for them. So, there’s very strong social pressure, and their default rates are very low. So, that model works. That’s a channel like I said, we work to sell a lot of our products, and it’s a very efficient way. In that case, we’re not actually doing the financing directly. It’s our microfinance partner? Now in other markets where the microfinance landscape isn’t as built out and isn’t as deep, we’ve had to do the financing ourselves. We’re not a microfinance institution, but we have to build a lot of capabilities around consumer finance. But the key thing we’ve done to really enable making consumer finance work is we’ve built a technology called Pay as You Go that allows the customer basically to pay via the mobile phone, via mobile money, which is ubiquitous in a lot of the markets we work in. So, they make a payment to us maybe for a day-worth of use or three days depending on what they can afford, and then remotely the product will either be locked if the customer has not paid, or it will be unlocked. Then once the customer pays off the product in full, it will be unlocked permanently. Because the daily rates are set at such a rate where it’s affordable to the customer, the alternative cost to get similar experience would be higher. Then there’s a very strong incentive to pay. So, we’ve been able to use technology and leverage the mobile money infrastructure in these markets, which is frankly much more sophisticated and developed than in developed markets because there’s not a formal banking system for a lot of these customers, but they use mobile money. So, we’re able to leverage that kind of tech infrastructure in a way to enable customers to pay for these products even though they’re unbanked, even though they don’t have a credit history. Then we’ve been able to develop mechanisms around a screening creditworthiness of customers, around collections. There are a lot of capabilities we had to build as we learned, but that’s how we’ve built out that capability and what’s really allowed us to scale up significantly in bringing these solar home systems solutions that are much bigger and more holistic solutions to these markets.
Alejandro: Really cool. Going back to what you were discussing before: patient investors. What’s the profile of a patient investor? The reason why I wanted to ask you this is because you reminded me of when I was either fundraising for myself or helping others, those funds, they always have a life cycle. They, obviously, are reporting to their LPs, and eventually, they need to return the money to their LPs, and they put pressure on founders to do the exit.
Ned Tozun: Absolutely.
Alejandro: So, when you’re thinking about profile of a patient investor that you’re going to be able to avoid that so you can continue to focus on the long-term mission and vision of the company, what is a typical profile of a patient investor, Ned?
Ned Tozun: Yeah. They range a bit, but I’ll give you two examples, like two main impact investors that we work with. One is Acumen Fund. They were structured in a way where essentially, they were a foundation. Now, they set up a more traditional kind of fund. At that time, we got invested out of their foundation which was working to make commercial returns that they would recycle those returns into other investments. So, they didn’t have a specific hard exit timeline or fund life end. But, of course, they need to demonstrate successes in their portfolio. But they didn’t have the same kind of funding life requirement. The other one we work with is Omidyar Network. This was founded by Pierre Omidyar. He’s allocated a huge amount of his wealth to figuring out how to leverage that wealth to spark—essentially, Pierre is the founder of eBay, so he was figuring out how to create the eBays of emerging markets. eBay has created an amazing social impact, empowering lots of small entrepreneurs around the world and he wanted to figure out how to create those other kinds of eBays in let’s say Africa, India, and their fund. It’s his money basically, so they don’t really have fund life requirement. They want to make commercial returns, but they don’t have that same kind of pressure on timelines. But it can really depend on the fund. Some of them do have exit horizons that you have to meet, but they might have lower ROI thresholds in a traditional commercial investor. There’s a whole range of them out there. There’s not really a one-size-fits-all description of what they look like.
Alejandro: Right. How much capital have you guys raised to date, Ned?
Ned Tozun: We have raised a little over 100 million dollars. That’s a mix of equity and debt financing. So, roughly 50/50 mix of both. As we scale this consumer financing business—now is focused much less on equity as the company is profitable, and we don’t have to use equity to fund operating losses, but it’s really about funding the growth of our financing business which we can get through banks. But that’s been an evolution over time for us.
Alejandro: Talking about the investors, you have there DFJ. You were talking about Omidyar. Then you have Garage Technology Ventures which I believe is Guy Kawasaki and Acumen. You were talking about it too. So, what was your strategy or the process in order to get in front of these guys and close them?
Ned Tozun: Well, we just kind of went to everybody actually, and what was amazing about being at Stanford is just because of the name brand there—I tried to raise money for companies before I was in business school, and it was hard. I had to get a meeting. But when I was there, VCs would go and give guest lectures at classes and would want to talk to people about what businesses they were working on, so I’d get in front of every one of those guys, and I would also just cold email people. They would be like, “Oh, you’re at Stanford doing stuff. Okay, cool.” So, I got a lot of names. I got a lot of practice pitching. Sam and I got tons of practice pitching. A lot of noes. A lot of rejections. Some pretty constructive ones in terms of like how to improve how we think about pitching. Some very harsh ones like, “You guys are going to fail.” Literally, an investor told us, “You guys will fail. Please don’t waste your life on this.”
Ned Tozun: So, we’ve gotten the range. But we got really good at pitching because we practiced so much. I was someone who—I don’t like public speaking. I’m more of like an introverted person, more naturally; I was like a coder and stuff. So, going out and pitching to venture capitalists and stuff, I was so nervous the first times. But as with anything if you do it enough, and if you really believe in the business that you’re doing you’ll get better and better. So, we improved. What ended up happening, we got a couple angel investors. They were actually professors in the business school who were really successful business people. They saw how passionate we were about this thing. We were constantly getting their advice. Like, “Oh, I’ll put in 50K.” We got some of those. We were like, “Oh, my gosh. This is amazing!” So, we’d get some of these guys, and some of them had really good brand names. We’d say, “Can we use your name, by the way, when we talk to VCs.” “Yeah, it’s fine. Use my name.” That helped. Then shortly before we graduated, actually, we participated in this competition. It was called the DFJ, Draper Fisher Jurvetson Venture Challenge which is only open if you’ve won your school’s business plan competition. That’s only if you’re eligible. Then if you get second prize, you get zero. But if you get first prize, you get 250K. So, we found out about this thing at like the last minute. Like a friend of the family forwarded it to us. I think Sam forwarded it along to me and deleted it. I looked at it, and I was like, “Maybe we should try this thing.” So, we contacted the organizer. I told them we hadn’t won any business competition yet, but we’re very confident we’re going to win Stanford, so you should let us into this one. They’re like, “Okay, fine. We’ll let you in.” I actually don’t know why they let us in when I think about it. So, then we came to this thing, and I remember Sam had to borrow a suit because he didn’t have one and he biked to this place and was dusty. So, we come there, and we do this presentation. It was like a five or ten-minute presentation. They said, “Okay, after the lunch as you guys know, there will be a longer 15-minute presentation for the finalists.” We were like, “Oh, my gosh.” We looked at each other because we hadn’t prepared the second presentation. We didn’t know. While everyone was eating their fancy lunches at this nice, swanky venture capitalist office, we were out in the parking lot putting slides together, pacing around the trees practicing. Then we got called in. Then they said, “The five finalists are one, two, three, four, and the fifth is d.light, and they will present now. So, we came up, and I just thank the grace of God where we came up and somehow, we gave what I think is the best presentation we’ve ever given. It was so good for some reason. We didn’t really have much. We had kind of a crappy prototype, and the other businesses were doing some really cool stuff. For whatever reason, they believed in us. They went and deliberated, and they said, “We have decided, let there d.light.” They had this huge check, like a 4′ long check that they handed to us. We were completely in shock. From there, I had actually known the guys at Garage Technology Ventures. I had pitched them some of my other businesses before, you know, but they go, “Stay in touch.” So, I ended up having breakfast with one of the managing directors there is Bill Reichert, one of Guy Kawasaki’s partners. I had breakfast with them at Hoagies, and I told them about this idea. He knew about the 250K that we won from DFJ. At the end of the breakfast, he’s like, “You know what? We’ll match it.” I was like, “What!” So, for us, we were excited about getting a few thousand dollars here and there. Just all the sudden, we had half a million bucks. That’s actually how we got started. Then the last piece of it was we ended up getting Acumen Fund onboard, Gray Matters Capital. There were a couple of other investors, and then Nexus Venture Partners came onboard. I think once people see that you have others believing in you, then it makes it a lot easier.
Ned Tozun: That first 250K, I feel like for us, once we got that, it made it much easier to get the rest. We must have talked to over 100 investors, and we must have just practiced pitching and redoing the slides for a long time. I didn’t spend much time in classes. It took forever to get that right, but it was really good training for us because it taught us how to sell our business in an authentic way and communicate to investors. We learned a lot in the process, and it made us better.
Alejandro: That’s great. I always say that as a founder, you are kind of like swimming in an ocean full of sharks around you, the sharks being the investors. Eventually, one of them is going to bite, and then everyone else wants to bite. It’s unbelievable. You just need to swim to stay afloat. That’s the only thing.
Ned Tozun: I know. Yeah, it’s so true.
Alejandro: So, Ned, I wanted to ask you so that people that are listening get an idea. How big is the d.light operation today?
Ned Tozun: We’ve grown. We set a goal when we started which was a crazy goal and had no idea how to achieve it. We wanted to have 100 million people using our products by 2020. As of today, we’re at 92 million using our products and whose lives have been transformed by these products. It’s just like it’s so awesome. By the end of 2019, like one year early, we’re going to hit 100 million lives impacted. That’s our main metric that we use to determine if we’re successful, and that’s incredible. Just the scale of impact—when I visit our factories and just see the quantity of stuff going out, my mind gets boggled sometimes like, “How are we selling this many?” Because I remember the days when selling like a few 100 was like really exciting.
Ned Tozun: So, that’s been awesome. We’re present and our products are being sold in over 60 countries. We have about 1,000 employees working for us. On top of that, we have anywhere between 3,000 to 5,000 commission-based agents also making their incomes off of selling d.light products in different markets. Then there’s actually just thousands more who are indirectly employed by us by running retail shops. People not on a payroll, but people connected into the d.light ecosystem. So, it’s really become a significant business. We’re doing around 100 million of revenue a year at this point, growing at a really fast clip like around, you know, anywhere between 40%, 50% a year. It’s been really exciting, and I feel like what happened for us, we had so many ups and downs along the way. So, I don’t want to overly paint like a rosy picture. It was really hard to get to this stage. There were many, many times where it looked like the company had a month of life left, and that was it. I think just the persistence and the perseverance of getting through those challenges even if you don’t know exactly how you’ll navigate through, just be steadfast, and really believe in the overall mission, and be willing to go down with the ship, frankly, and having that level of commitment was really what enabled us to pull through some of those dark patches and enable us to get the business to where it is today. Of course, at all levels of scale, there are always different kinds of challenges, new kinds of challenges. As a founder, especially, we’re always having to constantly evolved because running a 100-person business, or 10-person business, or 1,000-person business is very different. I found that I’ve been constantly having to learn, and d.light is the biggest company I’ve ever worked for is the reality. It continues to be as the company grows. It’s been an amazing experience, and we’ve been able to surround ourselves with such an amazing team, board, and supporters. So, we’re in a good place, and it’s a marathon. It takes a lot of perseverance. It takes a lot of hard work, and we definitely had to go through many different valleys along the way to get here.
Alejandro: What a ride, Ned! So, the question I always ask our guest is if you could go back to the past knowing everything that you know now and give yourself one piece of advice before launching a business, what would that be and why?
Ned Tozun: Well, it’s hard to confine to one. I’ll try to confine to one. I have a few, but the one that as many mistakes as I’ve made, I think the one that I would really council is that it really is a marathon; it’s not a sprint. I think that what I’ve found is—you know, entrepreneurs are optimistic. We think success is always right around the corner. We always think things are going to happen faster than they actually do. This is like with any business plan, it’s really never what ends up happening. Here’s something I’ve learned on the technology side about batteries. This will link to your question. Batteries, the way they work, if you deplete them to 0% charge, and then you recharge them, the battery is healthy, and you can cycle it many times. But a battery, you can do something to it called deep discharging where you take it to zero, and then you actually can suck more energy out of that battery even when it’s at zero, and you can get energy out of it, but you’re fundamentally destroying the lifetime of that battery, and your battery cycles will not last very long. So, this is like a common problem that happens with products that use batteries. People don’t manage the battery well. So, I think humans in some ways are like batteries in that we can get deep discharged also where you can be at zero and keep somehow going and giving energy, but there’s a cost to that, and I think entrepreneurs need to be aware of that. They need to be aware of their families and how their work impacts them. If they have kids, how that impacts their kids, their friends. How it’s impacting their health because if you want to build a company that is at big scale, that has big impact and it has a successful outcome, the company needs you at the end of the day. It needs you to be functioning at full capacity and not deep discharge. So, there are always going to be some crisis moments where you need to dig deep, but you have to down those, and for the most part, you have to be in a place where you’re operating at a level where you’re not deep discharging yourself because you are needed for the long-term if your company is going to be successful.
Alejandro: I love it. By the way, I know that the Ramen and working non-stop for weeks was like the valley mentality, but things are changing and what you’re pointing to that if you don’t take care of yourself, nothing is going to work.
Ned Tozun: Yeah, that’s right.
Alejandro: Well, I love it. Ned, what is the best way for folks that are listening to reach out and say hi?
Ned Tozun: The best way is to visit our website. It’s www.dlight.com. You can learn about all the kinds of stuff we’re doing. You can contact us there. You can even find out where to buy our products in the U.S., so although I said that we’re not designing products for the camping market, our products are available on Amazon, and they’re great for camping for the people who are listening. So, you can check that out. Yeah, you can learn about what we’re doing. We have some links from our website you can learn about the impact we’re making and the social impact space in general because one of the things I get really excited about actually is entrepreneurs—not just entrepreneurs. People in business who get excited about seeing like, “Oh, wow. Business can actually be used as a tool to create awesome social change and change in the quality of life in the people who are living without a lot of means, living at the base of the pyramid. If this can be an inspiration to you to start your own social impact venture or be part of one, I think that’s just an awesome thing, and I get really inspired hearing about people who learned about d.light and then went off and did something on their own and created an impact in other areas.
Alejandro: That’s amazing. Well, you’re definitely making a big, big difference, Ned, so thank you for that, and thank you for being on the DealMakers show today.
Ned Tozun: Yeah, thank you. It’s been great. I really enjoyed talking with you.