Being bold enough to stand on the shoulders of giants

Podcast transcription - 28th November 2018

Peter Cowley:                  So, welcome, again to another Invested Investor Podcast. Today, we have Pilgrim Beart, who I haven't known for that long, probably two or three years, but we do live almost next door to each other, and we share a neighbour. Firstly, let's talk about your background, your education, and what you did before you became an entrepreneur.

Pilgrim Beart:                  Thanks Peter. I originally did computer engineering as a degree. I worked in some other start-ups in Cambridge, Oxford, and then in the Silicon Valley in the 90s. And it was only after coming back from Silicon Valley, having experienced other start-ups, that I thought, maybe it's time for me to start my own. How hard can it be?

Peter Cowley:                  So, you finished your degree in the late 80s was it?

Pilgrim Beart:                  Yes, '88.

Peter Cowley:                  And you started your first start-up in?

Pilgrim Beart:                  '98.

Peter Cowley:                  So, you had 10 years of experience?

Pilgrim Beart:                  Yep.

Peter Cowley:                  Excellent.

                                           Just briefly on that, what rubbed off on you whilst in Silicon Valley?

Pilgrim Beart:                  The culture I suppose is the simple answer to that. It's just amazing the way they go at everything hammer and tong in a way that perhaps we're a little bit more cautious about in the UK. I was involved in two very interesting start-ups there, one of which went public, and one of which ended up being acquired. The first one was in the digital audio business, which had been my career until that point. And then the second one was building a media processor for PCs, so it was a mass market very, very full on engineering project with about 300 engineers in it by the time I left.

                                           So, it grew enormously, it was a huge great, space shop project.

Peter Cowley:                  And some people believe you can only build properly scaled start-ups in the Valley, so what brought you back?

Pilgrim Beart:                  Personal things brought me back. I was married out there, and eventually my wife and I concluded we weren't that happy in our relationship, and we couldn't work out why. And we tried everything and eventually coming back to the UK was the last thing to try. So that was a personal reason that brought me back.

                                           I think it was a fantastic time to be there, in my thirties. I really, really enjoyed being there, it is an amazing place. But I discovered I missed the UK, and I'm very, very pleased to be back here. And I think you do see a lot of analogies between what has happened in Silicon Valley and what's now happening in Cambridge and so on. It's obviously different, it's got a lot of local flavour.

                                           I think there's some downsides perhaps as well to the Silicon Valley lifestyle, and I think there's a lot to be said about the different cultures that are emerging here.

Peter Cowley:                  So, you came back to the UK and you formed your first company as soon as you got back? Or did you work for somebody else for a while?

Pilgrim Beart:                  Yes, I came back, I was still working for my US company, having meetings at midnight. It wasn't very easy. So that clearly wasn't going to carry on forever, so I decided that rather than being an employee in another company here, I would try starting my own.

Peter Cowley:                  And was that Active RF?

Pilgrim Beart:                  It was called Active RF, yes.

Peter Cowley:                  Describe that briefly.

Pilgrim Beart:                  So, perhaps rather unwisely, I'd got interested in something I didn't know much about, which was radio technology, which is a black box to most engineers. And particularly interesting was the rise of shortrange radio, car blippers, and what became Bluetooth. And it seemed clear that this was going to change quite a lot in the world. And I thought well that's interesting, let's find out about it. So, I did a few little projects to build things, and the thing that got me started off on it properly was that we had a young puppy, and the puppy kept escaping from the garden. And it fell into our swimming pool and would have drowned if I hadn't happened to find it. And both those things made me think gosh, there must be some solution to this.

                                           Being an engineer, of course, is there a technological solution to it? So, I played around with making a little device for the collar, which would notify me if the dog fell into water or escaped from the garden. And that worked quite well, so I thought maybe that's a starting point for a company.

                                           So, initially we were looking at a safety device for dogs.

Peter Cowley:                  Really? So, it was on the collar, and it was arranged so outside a certain range it would ...?

Pilgrim Beart:                  Yes, basically if it went out of range, the alarm would go off. And if it fell into water, the alarm would go off.

Peter Cowley:                  Wow. And that was Active RF?

Pilgrim Beart:                  Yep.

Peter Cowley:                  And what happened to that company?

Pilgrim Beart:                  It failed, bluntly. Looking back on it, I'm just amazed. People sometimes ask me what my lessons from it were, but they were so numerous, I hardly know where to start. In retrospect I now realise I was an R&D engineer, that had been my experience. And I'd gone up the management ladder and started to understand how teams work, and how products are defined and so on. But I really had had no exposure at all to the big picture of companies, boards, investors, and really a lot of detailed customer engagement. And of course, I had to try and learn all of that quickly.

Peter Cowley:                  And did you have investors, or do you have staff?

Pilgrim Beart:                  At Active RF, yes. So, I took a couple of angel investors who got involved very early. And we then developed the technology and focused more on some commercial applications. And we ended up focusing on commercial anti-theft systems.

Peter Cowley:                  Okay, and why did it fail? Just ran out of cash?

Pilgrim Beart:                  I think we never really managed to get that product market fit. And what became our main customers, which were large supermarkets, are very tough customers. It's very easy to get stuck in trials with them, and never actually really close the big deal. And meanwhile, yes, you're running out of cash. So, we just never really hit our stride, I think.

Peter Cowley:                  And the investors, they dried up, you couldn't raise any more investment?

Pilgrim Beart:                  I could blame the actual death of it on the dot com bubble bursting, but I think that's a convenient excuse. If you look at all the ingredients that you need in a successful company, I think we didn't really have any of them to be honest.

Peter Cowley:                  Right, that's very honest, thank you. But then Antenova, was there a slight overlap there?

Pilgrim Beart:                  Yeah, Antenova was slightly strange. We were trying to solve a problem at Active RF to do with radio location for the commercial applications, trying to work out where things were. And so, we were looking at some novel antenna technology. I talked to a researcher at Sheffield University, who was working on a project with another researcher at Brisbane in Australia. And really, I was just asking them for some consultancy. But every time I talked to them, we discovered that they were working on an interesting piece of science, which would allow spatial diversity basically, a very new quality of antennas. And we thought wow, what happens if you apply that to a big market, like the mobile phone market?

                                           So, to cut a long story short, we created a separate company, which I was CEO of to begin with. But because I was still running my first thing, we quickly bought someone else in as CEO. And that has ultimately gone on to sell billions of antenna systems into primarily smartphones. Well it's really an IP company yes, so it's a bit like an ARM model or something. It owns the IP, but the manufacturing is mainly done in the far east.

Peter Cowley:                  And it's based in Cambridge as well, isn't it?

Pilgrim Beart:                  Its R&D is based in Cambridge, yeah. That's where it was founded.

Peter Cowley:                  And you were involved just a couple of years with that as CEO?

Pilgrim Beart:                  Yes.

Peter Cowley:                  Okay. So, then it appears, just looking at your LinkedIn, there's a bit of a gap before Alert Me. What was in that gap?

Pilgrim Beart:                  So, that gap was filled by Splash Power, which was a wireless power start-up, started by a couple of people who were fresh grads out of Cambridge. Fantastic individuals. And their vision was that we could charge, all off the gadgets in our life by just throwing them onto something that looked a bit like a mouse mat. And if by magic, they would charge up.

                                           And it was a fantastic vision, and obviously it is coming true. But now is 2018, not 2002 when they started. And I've talked in other places about my experiences, essentially, I think, we were very early to market, we were probably 10 years before the market really emerged. And we kept trying to deliver the end game, which was the mass market consumer product. It's very hard to put technology into mass market products like smartphones. There's no space, there's no budget, there's no formal budget. And therefore, that was a challenging thing to do. And ultimately Splash Power was fire sold for about £4.5 million in 2008.

                                           And again, the approximate cause of that you could say was the credit crunch, but I think it had other problems. I think in retrospect, what we could have done was to aim at a slightly less ambitious target and focus on niche markets which really needed wireless charging, like military, or sports. Getting rid of the last connector, which was the power connector, the company could easily have survived within those niches and continued to develop.

Peter Cowley:                  You were trying to take on the market weren't you, effectively?

Pilgrim Beart:                  I think we were trying to go from zero to sell in one go. And that is very challenging.

Peter Cowley:                  The £4.5 million you've just mentioned, that probably wasn't too bad for some of the early investors? And I suspect it had raised more money.

Pilgrim Beart:                  Well, no, it had. It had, so it was a complete washout for the early investors.

Peter Cowley:                  Oh, was it? Okay.

Pilgrim Beart:                  I was a little annoyed, because I felt there was no need to sell it quite that quickly. It was sold within 28 days. I think if it had been sold a little slower, then something else could have been realised.

Peter Cowley:                  And there were some preference shares in there, which was why the ordinary shares, the founders ...

Pilgrim Beart:                  Yes, but this was just after Lehmann Brothers had failed, and I think frankly there was some panic going on amongst investors.

Peter Cowley:                  Well £4.5 million for somebody is better than zero, even though it washed other people out.

Pilgrim Beart:                  Yep, absolutely.

Peter Cowley:                  Good, so then was it called Alert Me to start with?

Pilgrim Beart:                  Yes, yep.

Peter Cowley:                  Okay. So, you formed that with Adrian?

Pilgrim Beart:                  With Adrian Critchlow.

Peter Cowley:                  And was that after Flash Power, or towards the end of it?

Pilgrim Beart:                  Yes.

Peter Cowley:                  This is a long journey and an interesting journey, so let's concentrate on this one. Tell us about the beginning, the middle, and the end.

Pilgrim Beart:                  So, Alert Me started with Adrian and I having a series of lunches, convivial lunches just discussing the way the world was going, what was happening in technology, what was happening in markets. Trying to identify interesting trends that were happening, and gradually that led into us realising that there was an opportunity here which somebody was going to seize, and so it might as well be us.

                                           So, there were some technology drivers to do with short range radio, again, and to do with Broadband, connecting people's homes. And phones becoming a thing in everyone's hands that was connecting them to the internet. But it felt like there wasn't really a product which connected people to their homes at an emotional level. Homes are very important to people, they spend a lot of money and time in there. Their precious family is there, their precious possessions are there. It felt like there was a real opportunity to create a platform which would connect people to their homes, and then from that platform you could deliver applications like security, energy management, looking after older people. That kind of thing.

Peter Cowley:                  And this was in '07?

Pilgrim Beart:                  2006.

Peter Cowley:                  '06, so the iPhone, although that's not the first smartphone by any means, was around about then.

Pilgrim Beart:                  2007. So, yeah, the iPhone came along about a year after we started Alert Me.

Peter Cowley:                  Okay. And the premise, the initial premise for the company was what?

Pilgrim Beart:                  To create what you'd now call a smart home platform. It's funny how I can now say it in one sentence, but in 2006 it took at least five minutes of explaining what we were trying to do. But essentially, yeah, a smart phone platform, so a gateway in the home. Some initial starter devices around some application. We chose security, but it could have been anything really. But the premise was, as we now see with Alexa and Google Home and so on, that once you've got a presence in the home, once you've got a platform, once you've got a brand, you can then expand out from that.

Peter Cowley:                  Right, okay. And you started with security?

Pilgrim Beart:                  Yes.

Peter Cowley:                  So, you had a gateway, which was connected via the WIFI was it? Or the Broadband?

Pilgrim Beart:                  It was connected over Broadband, and it could also fall back to cellular. So, it's quite a resilient connectivity. It also had a battery, so it could survive power cuts. So, those things are important for security, perhaps not so much for other applications. And the reason we chose security is just that there were the likes of AGT selling services in the security space. And we felt they weren't doing a very good job, and we felt we could do a much better offering, very much aimed at mass markets.

                                           So, what we were trying not to do was home automation for rich people and geeks. That had been done, and it would be done for the foreseeable future. But it was a small market. We were aiming really at the mass market.

Peter Cowley:                  Okay. So, let's talk about funding rounds, then. So, you raised some Angel funding to start with, did you?

Pilgrim Beart:                  Yeah. So, we seed-funded it ourselves initially, and then we went out for our first Angel round, and we were looking for a million.

Peter Cowley:                  Right.

Pilgrim Beart:                  We ended up raising a five million pounds in that Angel round

Peter Cowley:                  What?

Pilgrim Beart:                  I know, a bit anomalous, but this was before the credit crunch, when, perhaps, things were rather over inflated. About a million of that came from Cambridge Angels, and the rest came from a US hedge fund that was looking to diversify into things like venture capital, essentially.

Peter Cowley:                  Goodness me. Okay. And then, Adrian left, didn't he? Was that then or before?

Pilgrim Beart:                  So, Adrian left in 2009, and of course, what happened between 2006 and 2009 was the credit crunch. That was extremely challenging for us. Because we were well funded to begin with, we were able to build the team we needed to build, really, quite an ambitious platform. We wanted to be the operators of the smart home, but in order to do that, we had to have devices that would work. And there weren't any. There wasn't anything out there that we could buy, so we had to design and build it and then have it made in volume in China. And that's obviously not a small undertaking.

                                           So, we also had to build a significant team, we had a team of about 35, at that point, because there's a lot of technology in IOT, from the edge devices to the gateways, to the Cloud, to the application, lots of different programming languages.

Peter Cowley:                  You wouldn't call that IOT, I suspect, then, would it?

Pilgrim Beart:                  IOT was a phase that was used, but it wasn't a common one, certainly.

Peter Cowley:                  Yeah, yeah.

Pilgrim Beart:                  So, yes, classic early market innovator play, we had to do an awful lot of stuff we didn't really want to do just to deliver a complete product. We got that product in the hands of B2C customers in the UK initially, which was fantastic for co-creation, we could learn from them, understand what was needed to do to fix the technology and to fix the proposition and iterate and that was growing. Then, we went out for VC funding just before the credit crunch happened and that was extremely painful and for many months, I thought we were almost certainly doomed, but 35 people's jobs relied on us not being doomed. In the end, by the skin of our teeth, we managed to close a series A of eight million pounds from a number of very big and very good VC’s, including index and vantage point. There's a big family fund called Good Energies and a small European VC called SET VP.

Peter Cowley:                  So, where was this in the credit crunch? Was it '08 or '09?

Pilgrim Beart:                  So, we closed the round in April 2009.

Peter Cowley:                  Okay. Right. So, things are stabilising a bit.

Pilgrim Beart:                  They were starting to yes. We won all sorts of awards for Deal of the Year, because that was about the only deal there was that year, and one of the things that I think saved us was that we had started to add the second application, which was energy and the world was really waking up to climate change at that point, including VC’s. And so, people could see that there was a lot of opportunity in all the disruption and change that was going to have to happen as a result of addressing climate change.

Peter Cowley:                  Was there a second round at that point, the Angels? Or was that later?

Pilgrim Beart:                  No. Well, an important thing that happened was that, as we tried to survive, whilst we were raising this round, our Angels did come in and bridge us with an investment, and in fact, the small VC also bridged us because that was their seat to the table with the bigger boys.

Peter Cowley:                  Yeah. Good.

Pilgrim Beart:                  And as a result of that, the Angels did put in some more money.

Peter Cowley:                  Good. And so, this is about '09, and then Adrian decided to make a lifestyle change, by the sound of it.

Pilgrim Beart:                  Yeah. So, I think it had been a pretty bruising time. He'd just had three small children, and he went off to live in Australia at that point. We're still very good friends. I saw him just yesterday.

Peter Cowley:                  Oh, really?

Pilgrim Beart:                  Yeah. So, I hope he'll come back from Australia soon.

Peter Cowley:                  And he's Andy Philips's cousin, isn't he?

Pilgrim Beart:                  He is.

Peter Cowley:                  Is that right?

Pilgrim Beart:                  Yes.

Peter Cowley:                  So, Andy Philips has already been on the podcast.

Pilgrim Beart:                  Yes.

Peter Cowley:                  So, you had another funding round later. When was that, then? I suppose, what's the date of that?

Pilgrim Beart:                  The series B, I think, was in late 2010.

Peter Cowley:                  Okay. So, this is only 18 months or so, 20 months, after the series A .You've got the team up to?

Pilgrim Beart:                  Yeah, probably about 60 by that point. I spent nearly two years driving on an almost weekly basis down to Staines to try and win British Gas as a customer.

Peter Cowley:                  Right.

Pilgrim Beart:                  And, obviously, that's very challenging to win a very large customer like that. In some ways, there were similarities of what I tried to do in my first start-up. It's very hard to work with very large companies if you're a small start-up. But I think what we ended up doing, and I think this was luck more than strategy, was we were able to use the engagement we had got from our direct B2C customers to prove to these large channel partners, like British Gas, and we also had a large one in the US called Lowes, to prove to them that the technology did work, the proposition did work. People would pay us money, Okay, only at a small scale, hundreds and thousands of customers, but it was the kind of evidence that would then give them faith to go and commit to it, and British Gas, bless them, really did commit to it.

Peter Cowley:                  Right. In terms of bringing it into market before they invested, did they?

Pilgrim Beart:                  Yes. So, we basically did a 20 million-pound framework deal with them, which was a sort of financial deal of two, I think, three years, and then they invested in our series B. And they over invested, compared to all the other investors to bring them up to parity with the VC, so they essentially were on the same footing as the VC from that point.

Peter Cowley:                  So, they then owned, what 20 percent or something or more?

Pilgrim Beart:                  16, yeah.

Peter Cowley:                  16%, yes. Okay. And the 20 million was product, was it? It was pushing product into the market?

Pilgrim Beart:                  Yes.

Peter Cowley:                  Then your revenues would not be anything like that, at that point, would you? I don't suppose doing 20 million a year, were you?

Pilgrim Beart:                  No, not per year, but it was a three year-

Peter Cowley:                  So, six million.

Pilgrim Beart:                  Yeah.

Peter Cowley:                  So, it gives you a great customer, one hopes. It gives you a great investor, one hopes. It gives you the capital, really, to grow properly. So, that must've been exciting, I would suppose.

Pilgrim Beart:                  Yes. It very much felt like a sort of validation of what we thought would happen in the market, and we'd always identified utilities as one of the interesting channels for this kind of mass market owned technology. Perhaps most people wouldn't think a utility would move faster than a Telco or a retailer, the other possible channels, but I think British Gas had worked out that they, strategically selling a commodity like energy in an era of climate change is not a very nice place to be. And it's important to have other strings to your bow.

Peter Cowley:                  Right. Okay. But they wanted, primarily, the Hive, the Nest competitor rather than the home security?

Pilgrim Beart:                  So, we originally British Gas, when we first engaged with them, we just had the security application on the platform, and that's what they originally engaged with. And they pushed that out to a couple of thousand customers quietly, but in a small way, and they do have other business like, Dino, the drain cleaning business, and so on, which aren't immediately connected to energy, so, we thought that might work. In the end, though, it was quite an uphill battle, it didn't resonate very well with the brand, and there wasn't that kind of real product market fit. So, gradually, we focused more and more on energy, we were already moving into energy anyway, so we developed a thermostat option and we eventually pushed out about 10,000 thermostat systems, which was then called remote heating control.

Peter Cowley:                  Okay.

Pilgrim Beart:                  This is before the marketing people had gotten hold of it and called it Hive, but yes, it was the beginning of what became Hive.

Peter Cowley:                  So, that was in 2010, so what was the next move? When you got the series A, you then had Index. So, Saul Klein was on the board at one point.

Pilgrim Beart:                  Yes, so Saul Klein was our investor director from Index.

Peter Cowley:                  Yes. Okay. Do you remember who else was on the board, what mix of people?

Pilgrim Beart:                  Yes. I'm trying to remember exactly who, it's slightly confusing as to who was technically a director and who was an observer, because sometimes our VC’s will want an observer position, and we did have someone who was an entrepreneur in residence at Vantage Point in the States. I think they may technically have only been an observer, but they did come to all the board meetings, even if it was four a.m. their time, also SET VP, our European VC investor.

Peter Cowley:                  And do you remember those board meetings fondly? Did you they feel like they were contributing and unanimously moving in the same direction?

Pilgrim Beart:                  They were fine. I think whenever you get a large group of VCs around the table, you can count on things being interesting. At that point, our chairman was George Quailer, who was another of our investors representing Good Energies, this large one billion family fund and he was a good chair. I think, looking back on the kind of advice we got from our larger investors, you always hope you're going to get added value from investors and there definitely were times of significant added value. There was one time when a large US company called    O Power was trying to sell their energy analytics products to British Gas and Saul said to us, "Look, they're parking their tanks on your lawn. You cannot let this stand." And so, in a very short time we had to set about generating our own product that basically countered that and made sure we got the business, and that was very challenging. It was only thanks to Saul really, stiffening our spines that we did that, and I look back and think on that as very, very important strategic input.

Peter Cowley:                  Good, okay. But there were occasions where the VCs wouldn't necessarily agree with others, no doubt.

Pilgrim Beart:                  Right. It's no secret that VCs tend to be quite fashion driven, so one month, software will be the greatest thing since sliced bread and in the next month, hardware will be the greatest thing.  It was quite interesting to see the dynamics of that versus what happened with British Gas when they became in, because they were a much steadier investor. They knew why they'd invested, it was quite clear what they were trying to do, and so they helped to steady the ship.

Peter Cowley:                  Because they'd done it partly for a financial reason, probably more for strategic reasons, I should think?

Pilgrim Beart:                  Yes. So, about five years prior to that, when home insulation became a big thing and became government-funded, they had put a lot of work the way of the Mark Group, which was an insulation company. Then they'd noticed that the guy who ran the Mark Group had become number 27 in the Times Rich List, and they thought, "Hang on. We've helped this guy get to this position, so next time we do this, we need to make sure that we've got some skin in the game, we've got a slice of the pie." So, yeah, they could also see that they were building their future on top of a platform and that it was important that they add influence and visibility into the company.

Peter Cowley:                  So, did you have a series C or was next exit?

Pilgrim Beart:                  We didn't really have a series C. There was, then, a bit of venture debt from Silicon Valley Bank, but not really a series C.

Peter Cowley:                  And then it sold in about 2015, didn't it?

Pilgrim Beart:                  March 2015.

Peter Cowley:                  Okay. Some of that will not be in the public domain, and I don't want you to say something that you don't want to say, but could you just describe the point of exit, the process and the outcome?

Pilgrim Beart:                  There's always this question about when to exit, and sometimes that will come very much from the investors because their fund's reaching the end of its life or whatever it is. And that's often not a very helpful dynamic, in our case, that wasn't particularly the case. The investors were up for funding it further, and so, it was a decision about what was the best roll of the dice, as it were. The market was changing quite fast, players like Nest, who came into the market was a great help to us, big competitors can be a big help. They can create and establishing value and so, a lot was happening. I think we kind of felt like we'd probably, done enough roles of the dice.  It was probably time to find a home for it, especially as a large number, of players were emerging, who also wanted this kind of technology. So, British Gas was one of them obviously, but there were plenty of others, and so, it felt like there was now a market for the company where as there hadn't been previously. The whole process took about a year from the decision to selling the company.

Peter Cowley:                  And did you get a corporate financier involved?

Pilgrim Beart:                  Yes.

Peter Cowley:                  Okay. And was there a bidding process? In other words, British Gas didn't get it just because they were on the cap table?

Pilgrim Beart:                  There absolutely was a bidding process, and obviously in terms of the original investment terms, we had to be careful that they didn't end up having to wear hats on both sides of the deal as it were.

Peter Cowley:                  Or to block a deal?

Pilgrim Beart:                  Exactly. Exactly. So, they sometimes had to recuse themselves from discussions, and so on, that's a little bit delicate. It's both a help and hindrance having an incumbent in place like that, you know, there probably is a customer at least for it, but on the other hand, they were by then our biggest customer for the product. And so, that's obviously a slightly interesting dynamic.

Peter Cowley:                  Yes. And that must've been difficult at times. And so, again, you might not want to say this, but British Gas bought the business did they also offered the best deal in terms of price?

Pilgrim Beart:                  Yes. It was a financial decision at the end of the day for the investors.

Peter Cowley:                  Good. Okay. And are you happy with that?

Pilgrim Beart:                  Yes.

Peter Cowley:                  So, you started to think about device problems? Let's talk about that from the beginning, obviously the relationship with Alert Me, or Hive as it's now called, and where you got to with the company now?

Pilgrim Beart:                  So, I suppose a lot of start-ups happen from somebody wanting to scratch an itch as it were, seeing a problem that needs solving. The biggest surprise in the Alert Me journey, which was nine years, end to end, was that I had originally thought of it primarily, as a development challenge. We knew we would have to develop a lot of hardware and software, develop the proposition and so on, and I thought once we got over that big hump, which would take a lot of time and money, then we could just scale.

                                           I thought of scaling as just something that would sort of happen, but as we got over that hump and we started scaling, we discovered that surprise, surprise, when you have a connected product, it becomes a service. You are a service provider, and the product is just a way to deliver the service. And if you're a service provider, then the day-to-day challenge is whether you're doing a good job of delivering that service. Are your devices all working? Your operations team, your customer support team, will all, be focused on that challenge. That's what your money will be spent on, that's where your attention will go.

                                           So, this doesn't happen overnight, it is a transition, from R and D, which amortises against eventual very large scale, to operations, which doesn't. Operation, costs grow in tandem with the number of devices, and it's very easy with a connected product to end up in a situation where, as your number of customers grow, so do your losses. You can end up in a situation where you're doing far too much manually, people are expensive, and therefore as the number of devices grows, you end up making a bigger and bigger loss. It's quite hard to dig yourself out of that hole, that did happen to us in about 2010 at Alert Me, and because you've asked me not to swear on this, I won't tell you exactly what we call this moment, but it's the "oh something" moment.

Peter Cowley:                  Okay.

Pilgrim Beart:                  And so, it was when we realised that we had migrated from R and D into operations and now the game was scaling, and that we hadn't invested nearly enough in the tools we would need to help us do operations well. So, that was my big learning from Alert Me. So, as I started to get free towards the end of my time at Alert Me, I went and talked to lots and lots of other companies that are doing connected products, in all sorts of other markets, so not just connected home, but smart city, medical, connected office, you name it. And we kind of heard the two stories again and again.

                                           The first was that people who hadn't scaled, just didn't get this, they didn't understand that this would happen. But, with the few that had scaled, there was lots of eye rolling and recognition of the fact that yes, as you start to get to scale, then day-to-day operations becomes the challenge.

Peter Cowley:                  Your margins gets eroded by support, I suspect, doesn't it?

Pilgrim Beart:                  Well, you start to confront the true economics of your business at scale, how much money you make per month, per customer, your MRR, and how much you're spending per month, per customer, and whether one is bigger than the other.

Peter Cowley:                  Yeah, yeah.

Pilgrim Beart:                  Also, whether you're delivering a good experience to your customers. If you've got a one percent problem, and you've got a hundred customers, well it's just one slightly weird customer, who knows whether that's a hardware problem, or a software problem? But if you've got a million customers and you've got a one percent problem, that's a Daily Mail front page problem, and so, as you grow, your quality needs to get much, much better.

                                           Which means, not only your hardware and software has to get better, but your process must get better too. Devices will go wrong in lots of different ways, they are being deployed into the real world, which is an uncontrolled place, so that's just inevitable, and so, your processes for dealing with things that are not working and getting them working again become everything.

Peter Cowley:                  Okay. So, you funded it yourselves, I think, with a bit of custom money to start with, because the first time we met you were going out for funding, about two years ago now?

Pilgrim Beart:                  Yes.

Peter Cowley:                  And you raised some capital, not from me I must say, I turned you down, I hope I've actually missed out on it for your sake.

Pilgrim Beart:                  Let's review that in a few years’ time and see.

Peter Cowley:                  Yes, exactly. You've had a couple of funding rounds, and where's the business got to now? So, staff size, customers, etc.

Pilgrim Beart:                  Yes. So, we are still at a relatively early stage. We did start a company in 2013 before I had left Alert Me, but we didn't really know what we were going to do at that point. We were still trying to understand the market, trying to understand what the gap in the market was and that really had happened by the end of 2015. So, in 2016, we raised our first angel round, and we named ourselves Device Pilot. And that was really the beginning of the Device Pilot story.

                                           2017 was our first year of commercial sales, and we ended the year with five paying customers. So, companies all doing connected product, in all sorts of different markets, and all basically buying the same thing, Device Pilot, and using it to help solve their operational problems.

Peter Cowley:                  Good. Okay. So, Pilgrim, great journey. I noticed on your company's house, you've been director of another three or four companies, and we haven't even got time to talk about those, do you want to talk about market development here?

Pilgrim Beart:                  Yes. I think if you do something again and again, you start to learn patterns. You start to see patterns that are not unique to the start-up or as a result of luck, they're systemic things. Something I've noticed again and again now, is that if you're an innovator, you're delivering a new product to a new market, you're probably going to be a bit early for market, so the question is, how do you survive? That is another topic.

                                           But the second thing is, where the market will start to really happen and start to take off. There's a massive opportunity for you there to grow as the market grows, but what of the dynamics of that? And I think, for me, a key thing to point out is that in the early days, you will have to do all sorts of things that you don't really want to do, and that perhaps you're not very good at.

                                           Alert Me is a classic example. We had to design and build hardware at scale, in order to deliver a complete solution to our customers. We didn't want to be a hardware vendor, so, the important point is that in the early days, there's no one else to work with, but as the market takes off, there are other people to work with, and it's really important that you do start to work with them, and that you partner with people. You can offload parts of your solution to them, bits that you didn't really want to do anyway, like hardware, in the case of Alert Me.

                                           But also, you'll find increasingly that you can buy a piece of your solution from other vendors like AWS and so on, it's really important that you re-engineer to ensure that you can ride on those scaling curves as well, because if you don't do those things, you'll end up trying to be good at everything, and nobody can be good at everything, not even Amazon or Apple. And so, it's important that you focus on the piece you're going to be good at, make sure you are world class at it, and that you are very good at working with others.

                                           And that kind of dynamic is what makes eco-systems happen. But it's very important to understand when that's happening in your market, and to proactively divest yourself of all the bits that you had to do for practical reasons, but which are not really core to your excellence.

Peter Cowley:                  Yeah. I mean, it's a failure of many engineers unfortunately. Must invent it here in the UK. If it hasn't been invented here, they don't want to get involved with it. Controlling that sort of CEO, and particularly a CEO is really important, isn't it?

Pilgrim Beart:                  Absolutely. I live in Cambridge, I love Cambridge, but I slightly feel like I have a love/hate relationship with it. I think the wonderful thing about Cambridge, obviously, are that people can just do things that other people thought were completely impossible, and that's amazing. I think the darker side to that sometimes, is that sometimes people do things from scratch just because they can, and they go, "Oh, A database, I can make a database." And they write a database, ignoring probably thousands of man years of investment in how to get that stuff right.

                                           You asked me right at the beginning about Silicon Valley and the culture there. I think that's something that Silicon Valley is often better at, which is that classic engineering, standing on the shoulders of giants, and making sure that you're just adding that unique piece of value on top. You're not trying to invent the whole thing from scratch. Another problem with inventing everything from scratch, apart from all the money and time it takes, is that when you're finished, your thing will not work with anyone else's, and you won't be able to ride off anyone else's scaling curve.

Peter Cowley:                  That's right. Proprietary, when that started coming about, in the 80s, it was important to be proprietary. Because you would protect your margin that way.  Very specific non-standard networks they couldn't buy from anywhere else, but when they can, they dump you, don't they?

Pilgrim Beart:                  Exactly.

Peter Cowley:                  They rather have open standards?

Pilgrim Beart:                  Exactly. That's the history of many, many things, including networking, yes, lots of proprietary stuff, and then suddenly ethernet just came and everyone else was dead overnight.

Peter Cowley:                  Exactly. So, one or two more tips for entrepreneurs?

Pilgrim Beart:                  I think the most important one, probably, is to try and learn from other people's mistakes. That's why I'm here today. I want other people to learn from my mistakes, and I'm very happy to try and help other people do that. From my point of view, I think there is so much talent out there, so many experiences, and a sort of network of people who know people, who can find you customers, who can find you people to solve problems, who can find you great staff, and you really need to kind of tap in to all of that.

                                           There's this sort of joke that in Cambridge you're never more than one pint away from the answer to any problem, take someone out for a pint, I think that's a great approach. And I'm often surprised how generous people are prepared to be in helping you if you've got a problem, and really take advantage of that.

Peter Cowley:                  Excellent. Really interesting, Pilgrim. Really enjoyed it. People have learnt a lot from that. You've had more entrepreneurial journeys than, I think, anybody else we've interviewed. And I wish you so much luck and success in the future. Thank you.

Pilgrim Beart:                  Thank you.

Peter Cowley:                  Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website Invested, or, via a number of podcast platforms online. Remember, you can order our book online and be sure to follow us on Twitter, LinkedIn, and Facebook, to get the most up-to-date, interesting, and insightful content from the Invested Investor.