UP035: Exaeris // pulling drinkable water out of thin air (live from CES 2019)

Michael Joyce: 00:00:00

It is the number one issue of the world and without clean water and access to it, it affects every aspect of life, your recreational activities, your life giving activities, your industry, your commerce or agriculture. And those interests are competing with each other. And it is truly something that the issue has to be solved in this technology. We believe this is the first major step in solving that crisis.

Jay Clouse: 00:00:27

The startup investment landscape is changing and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to upside.

Eric Hornung: 00:00:55

Hello. Hello, hello and welcome to the upside podcasts first podcast finding upside outside of Silicon Valley. I’m Eric Hornung and I’m accompanied by my co-host, Mr Eureka Park himself. Jay Clouse, Jay. How’s it going, man?

Jay Clouse: 00:01:09

Eureka! We made it science. Is that correct?

Eric Hornung: 00:01:14

Is that, is that what it was going for? Is that the whole idea?

Jay Clouse: 00:01:17

It’s discovery. It’s like Eureka.

Eric Hornung: 00:01:19

Where are you? Go to the discover the new next thing?

Jay Clouse: 00:01:22

That’s right in the Venetian at Las Vegas. So it’s where you go discover the next thing. But yeah, we’re here at CES day to a recording here at CES. Day One was intense.

Eric Hornung: 00:01:36

It was overwhelming. I’ll say it.

Jay Clouse: 00:01:38

Yeah. It felt like a little bit like we were inside of Black Mirror, some, some future casting technologies. We had our conversation with Woobo and Astral AR and Sensors call, which I’m sure it will be published by the time that this is published

Eric Hornung: 00:01:51

And after doing all of those interviews we went down to Eureka Park. We got the check it out there. Her like, what? What do you think? 100,000 booths down there. There are so many. It’s not actually that much, but

Jay Clouse: 00:02:04

Yeah, so many booths. I mean, well things are numbered and the 41 thousands where we’re recording our interviews and I don’t think those numbers are arbitrary. So ton of exhibitors here in small booths, some large booths. I can’t imagine the marketing spend going into this for some of these companies and we tried some, some cool things and we’ve tried some weird things that aren’t necessarily my thing.

Eric Hornung: 00:02:28

What did you think about the sleeping Lima Bean?

Jay Clouse: 00:02:31

I was literally going to speak to the sleeping Lima Bean. So as much as I was not into this product, it is something we keep talking about. But it was essentially a pillow that’s kind of heavy that you hold and it moves around in your arms.

Eric Hornung: 00:02:50

It breathes,

Jay Clouse: 00:02:51

it breathes.

Eric Hornung: 00:02:53

Expands and contracts,

Jay Clouse: 00:02:55

I guess this is supposed to help with anxiety and help you sleep well. I mean I do like holding things. Sure. I mean I, I hold pillows so maybe, maybe I’m not giving this thing enough credit. But you go to the center of innovation on the planet and you’re greeted with a heavy pillow that breathes.

Eric Hornung: 00:03:12

So it’s supposed to be like anti-anxiety and I tried it and it kind of gave me anxiety. I’m not going to lie,

Jay Clouse: 00:03:19

I’m generally, I’m trying to kind of bullish on those technologies. I’m, I’ve been eyeing a purchase of a gravity blanket for awhile. Weighted blanket seems nice.

Eric Hornung: 00:03:27

Why?

Jay Clouse: 00:03:28

I dunno. It seems nice. You don’t, you don’t just like, like being compressed.

Eric Hornung: 00:03:32

I don’t like being held down. No, Jay.

Jay Clouse: 00:03:35

But it’s like, it’s not heavy holding down. You don’t like being tucked in. Coleen doesn’t tuck in?

Eric Hornung: 00:03:39

I don’t tuck in. You know how like people do the the tuck-in? I like rip it all off. I go to a hotel. I don’t get tucked in. No, it’s no way. Absolutely not.

Jay Clouse: 00:03:49

You’re a top of the top sheet type of guy.

Eric Hornung: 00:03:51

I don’t actually like sheets. Colleen like sheets, so we have a sheet, but I’m just a comforter kind of balled up. That’s that’s ideal. W

Jay Clouse: 00:03:59

Well, you know it gives me anxiety, Eric?

Eric Hornung: 00:04:01

My answers?

Jay Clouse: 00:04:02

That and the thought of not having clean drinking water.

Eric Hornung: 00:04:06

Wow. That was amazing transition.

Jay Clouse: 00:04:08

Thank you. Today we’re talking with John Galbraith and Michael Joyce, the Co founders and CEO and COO respectfully of Exaeris Water Innovations. Exaeris developed a patent pending atmospheric water generator that provides a consistent and reliable source of water. This product is called the aqua tap and it captures and collects pure water from the atmosphere. A single unit of the aqua tap is about the size of a shoe box and is capable of producing up to five gallons of clean water per day. Hot take on Exaeris?

Eric Hornung: 00:04:38

Water is really important and having clean water is really important. Maybe not the hottest of all takes, but it seems like if this product works that it has wide reaching implications. I wouldn’t call it a boiling hot take. Yeah, maybe, maybe not even lukewarm. I wouldn’t go ice cold, but it’s the devil. He somewhere in between room temperature. We’ll go room temperature take right there.

Jay Clouse: 00:05:02

Yeah, it sort of bath water. Uh, the company was founded in 2015 is based in Tulsa, Oklahoma, our first Tulsa company. And they’ve raised just under a million dollars in funding. So I’m excited to talk to John and Michael. I like digging into some of the hard sciences. From my understanding, this technology was licensed from the University of Tulsa, which is something I’m sure we’ll touch on in the interview. But water, universal need, universal human need, one of our biggest needs on Maslow’s hierarchy. Is it the biggest,

Eric Hornung: 00:05:33

I don’t think you can do anything without water.

Jay Clouse: 00:05:36

Yeah. So enjoy this interview and as we go through the interview, if you have any thoughts you can tweet at us @upsideFM or email us at hello@upside.fm and we’ll get into that interview right after this.

Eric Hornung: 00:05:48

Hey guys, wanting to cut in here real quick and let you know about something. Jay and I have been getting ready behind the scenes and 2019 when we started this podcast. Jane, I said that the listener, we have an opportunity to learn in real time to think like venture investors with us as we meet a wide variety of personalities and examine a wide range of industries. Well now we’re going to share something new and it’s a little different. This new idea is called the Update. It’s a carefully curated quarterly publication of editorials, trends, and stories happening outside of Silicon Valley. Jay and I will be writing stories about what we’re learning about on the podcast, have guests, editorials on interesting topics and share news and updates from our podcast. In some cases we may even share some exclusive content or first looks. Our goal is to stay at the cutting edge and of course bring you along with us. We’re super excited about it and know you’re going to love it. If you want to be the first to hear about our Q one launch in subsequent letters, go to upside.fm/update to get on the mailing list.

Jay Clouse: 00:06:55

John and Michael, welcome to the show.

John Galbraith: 00:06:56

Thank you. Thanks for having us. Appreciate you having us.

Eric Hornung: 00:06:58

We like to start on upside with a background of the founders or the people we’re interviewing. So John, can we start with you? Can you tell us about a history of John?

John Galbraith: 00:07:06

A history of John? So I’m from Tulsa, Oklahoma, born and raised and went to the University of Tulsa for my Undergrad was in Electrical Engineering and also have an MBA as well. After graduation I went to electrical power and worked at American electric power for about four years and then went into oil and gas for about five years after that. So it started with Exaeris full time in 2016 and yeah, it’s been going from there.

Eric Hornung: 00:07:30

Why did you start at AEP and oil and gas? Was that because the Oklahoma, like that’s, that’s kind of the goto or w w what was it about that that like you were excited about?

John Galbraith: 00:07:41

Yeah so electrical engineering and so that’s kind of some of the, you know, the big, I mean that powers of the world. So that’s why I went to American electric power first. That was my internship out of college. And then that turned into a full time job. So did a lot of electrical design and kind of project management and opposite operation services as well.

Eric Hornung: 00:07:57

And Michael, what about you? Let’s go through the history of Michael.

Michael Joyce: 00:07:59

Well, the history of Michael’s long and complex, being the old man on the team. My background, I’ve, I went to the University of Tulsa, have three degrees from their finance, my MBA and my law degree. I’ve been practicing law as a transactional attorney for a little over 30 years. And in my practice transactions forming companies, helping companies, financing companies. And in doing that, I owned a number of companies myself. So I like to, I’m an entrepreneur and a an attorney that helps entrepreneurs and came across, John was actually one of my students at the University of Tulsa and, and I’ve worked with John as, as student faculty, as friend, uh, his attorney and attorney and the like and, and so we have a history together and, and when John got into this, he, and the, as a founder approached me and said, hey, can you help us with this business? So that’s where I am.

Eric Hornung: 00:08:56

So are you currently still a practicing attorney?

Michael Joyce: 00:08:58

I’m actually leaving the practice of law to pursue this as my full time gig.

Eric Hornung: 00:09:05

You’re teaching position. Are you also leaving that or is that something you’re still keeping?

Michael Joyce: 00:09:09

I was an adjunct professor at the University of Tulsa for about 10 years, from 2007 through 2017 teaching transactional classes to MBA and, and senior level students.

Eric Hornung: 00:09:21

So you’re going whole hog.

Michael Joyce: 00:09:22

I’m going whole hog. I,

Eric Hornung: 00:09:24

it’s a phrase Jay taught me last year

Michael Joyce: 00:09:28

It sounds like, you know, blog. So we’ve got a great team and we’re all whole hog into this thing and uh, we’re having a lot of fun doing it.

Eric Hornung: 00:09:36

What’s Tulsa like? I’ve never been there like what is, I know Oklahoma generally, but I have really no insight into Tulsa. You know, it’s kind of a large, small town. I mean, people are very friendly. You can get anywhere in about 10 to 15 minutes, which is amazing. So, you know, the traffic to us as it was seems bad, but you know, then we go to places like Houston and Denver and other, you know, so yeah, we learned to appreciate Tulsa. And so it’s, in terms of the entrepreneurial community, it’s, it’s growing. So that hasn’t always been a focus for Tulsa. But the city is really putting a lot of focus onto a diversifying some of the industries that it’s in and changing that to help the city and help entrepreneurs grow.

John Galbraith: 00:10:15

It’s got a great supportive environment for entrepreneurs and risk takers. And you know, it’s an oil historically an oil town in, in the wildcatters. So there’s a lot of risks and a lot of money that has developed in the Tulsa community. So we’re, we’re part of that risk taking, uh, wildcatters. Yeah. Yeah.

Jay Clouse: 00:10:31

So John talked to me about your time at American Electric Power. What are some of the trends that you saw or some of the things that you saw there that, that were surprising or that stuck out to you and maybe not necessarily about the company, but about the electric power industry? How much the, the growing demand? Uh, just how much that demand is increasing exponentially. I mean, that’s, you know, we’re, we’re getting all of these new devices, smart devices, electric vehicles and all of that. And, and that’s, you know, that’s going to have a huge impact on the, on the electrical system, which a lot of people don’t really think about. So it’s, it’s interesting to see kind of internally how they’re, how they have to adapt to that growing ever-growing demand as we get all these new devices that are coming into our homes and having a huge impact on the grid so

Eric Hornung: 00:11:14

I’m curious when the idea around water kind of came up, cause we’ve talked about a lot about oil and gas. When did this idea about water as a potential tech solution come up? John may be like, you can talk about that. Does it happen when you were at AEP or when you were in your oil and gas job or

John Galbraith: 00:11:31

yeah, so it really kind of happened when I was at my oil and gas job at Williams. I did my MBA through the University of Tulsa as well. And while there I got introduced to the professor that invented the technology. And so obviously through those conversations with him, you know, just realizing the huge need there is for water and you know, I mean there’s global crises around water. A lot of people don’t realize, you know, a billion people don’t have access to water even today in the world. And so, and you know, even in the US now it’s becoming a huge issue. You know, before a lot of people took it for granted, the access to water, you just turn on your tap and it’s right there. And we in the u s t take that for granted a lot, but it’s starting to become a very important issue to people. I mean you think in Puerto Rico, after the hurricane, some places still don’t have access to clean water and and drinkable water there. Houston was without water drinking water for about a week, I believe after that storm. Droughts in California and places like that. So through those conversations with Todd, just feeling the impact that, that this a device like this could have on the world. I mean that’s

Eric Hornung: 00:12:39

So you’ve found an invention through a professor at University of Tulsa. What’s the process like to get that invention into a company? Maybe this is a question for the lawyer in the room.

Michael Joyce: 00:12:51

That’s a great question. And, and technology transfers one of the most difficult task with universities and, and inventors. So how do you get it from concept and idea to protect a technology and then commercialized? I’ve been involved in a lot of transactions where we commercialize technologies and it’s, it’s a licensing process and I’ve done hundreds and hundreds of licensing transactions. So what we’ve done is the university has developed this. It is patent protected technology and we have also enhanced that with certain trade secrets as well. And through the university’s licensing process, we have a very comprehensive exclusive license agreement with the university. They’re also our collaborator. They are a member of our company as well. So we have this process of conception and development of the technology and that took about three years to actually develop it and fine tune it and get it through that patent process. And then we were very careful on how that whole process occurred so that there are no outside rights into the technology. There no grant backs to governments. There were no grant money used in this technology. And now we’re, we’re out there, it’s licensed and we’re deploying the use of that technology. So we’re transferring it from the university side into a commercialized

Jay Clouse: 00:14:12

is the, is the University of Tulsa of major research institution. You know, we’re in the Midwest and we know that like there’s a ton of research dollars that go into the universities in that area.

Michael Joyce: 00:14:22

The university, you know, they’re not Stanford or MIT, but they have some history of some very significant research project. So yes, they’ve got a great engineering college and, and they’ve largely, and the oil and gas development, cause that’s, that’s Tulsa’s economy historically, but far outside of oil and gas, they do a lot of research projects and you know, this is a water project and it came through the university and, and based on everything that we’ve seen and everyone we’ve talked to, it is the, that’s going to be the first major step in solving the world’s water crisis. So we’re proud of that and we’re proud to be affiliated with the university.

Eric Hornung: 00:14:59

I want to talk a little bit more about [inaudible] relationship with the university specifically. I have a question about licensing and then a second question. So first the question about licensing, how exactly does that look? Is it a license where it’s a percentage of revenues? I’m not super familiar with university licensing agreements.

Michael Joyce: 00:15:17

They’re not much unlike in any other licensing agreements. So I’ve, I’ve done a lot of transactions in Las Vegas where we’ve done dozens and dozens of big commercial licensing transactions with the casinos. So it’s, it’s not much different than those. So you look for, if you’re the licensee, you, you don’t want to spend a lot of time and money and effort developing a business around a technology that’s not exclusively licensed to you. So it’s an exclusive licenses. What you look for in typically you’re going to have some transition period where you’re going to have a minimum royalty. We call it a MAG minimum annual guarantee. So whether we’re selling product or not, there’s going to be a mag in place and that mag is charged against it. Then a percentage royalty, which typically those will increase over time.

Eric Hornung: 00:16:05

Is it infinite in nature, like in length or is it, does it cut off after five 10 years?

Michael Joyce: 00:16:10

Our license goes through the length of the patent. So there are, and that’s us. So you know there are a number of key issues that you’ll always want to negotiate and a licensed transaction and three of the bigger ones we’ve talked about term exclusivity. And then your mag and your percent royalty. Also in in these license agreements, the license sore, which would be, in our case, the university, they may or may not want to take an equity stake in the entity and our university because we have that ongoing relationship and we’re not just stopping with, okay, we’ve developed the technology, we are going to continually work on this technology and related technologies and fine tune them. So they wanted to become involved with us so they are a member and minority member in our organization, but a a critical member because they’ve helped transfer a lot of that expense that we haven’t had to absorb as a new company. They’re bearing the expense of the research and the development and that saves, you know, potentially millions of dollars.

Eric Hornung: 00:17:08

I’m going to resist the urge from going too far down to this, but I’ve gotten close to the commercialization office at Ohio state over the past few years and it’s been such a huge initiative for Ohio state because they put hundreds of millions of dollars in a research and there’s just been no historical return on that from a commercialization side. And what it seems like it comes down to is a organizational design issue where the faculty are not incentivized to try and go down the commercialization route. So do you find that the University of Tulsa is, do they approach commercialization uniquely or do they seem to be commercialization friendly? Because I know that’s just a huge issue with a lot of these research institutions.

Michael Joyce: 00:17:44

In my experience, they are commercialization friendly, although like many other universities have, have not really focused on it, but they are, they now realize what can be achieved through commercialization of technologies developed at their university. So it’s not just revenue and income for the university, it’s reputation. And for instance, this technology, you know when we push it down the road to changing the world because of the water crisis that we’re going to help solve, that is going to have an enormous impact on the reputation of the university. And that helps generate student interest and faculty interest. And that’s what universities are about.

Jay Clouse: 00:18:23

I’ve heard that Stanford’s commercialization effort is literally, we don’t take any type of like licensing we give it to you just remember Stanford and they’re expecting that the donors come back and just give to the program.

Michael Joyce: 00:18:35

So University of Tulsa, there are our partner in this collaborator, there are member and with that favorable relationship, our mag and our percent, it’s, it is nominal and we’re going to give back to the university and that’s the equity that we’re going to give back. And we’re going to go back. Rick Reputation and assistance and our whole group is involved in, and of course our co founder of our company, Doctor Rotana car is continues at the university as a professor. So our, we have a long involved in very great relationship with our university.
Eric Hornung: 00:19:11

John, I’m wondering if you could like set the table for us. We’ve heard the term water crisis tossed around, you talked about Puerto Rico, you talked about Houston. Why is this pressing? How big is this problem? Really? Like I’m from Cleveland, I live on late or well, I used to live on Lake Erie. To us, like fresh water has never been an issue and so to me it’s a little bit more of a foreign concept, but how big of an issue is this and how immediate is this issue? And just give us a little bit of sense of that. Yeah, I mean it’s a huge issue.

John Galbraith: 00:19:42

Like I said earlier, Americans typically take it for granted our access to clean water, drinking water, and you know, we turn on the tap every morning, brush your teeth, take a shower. A lot of us, there’s huge waste and just showers, baths that, you know, that kind of thing. But just the global, if you take the global view, I mean something like 74% of the earth is water, but only 2% is available for drinking water as fresh water. And even that’s decreasing every year. So it’s becoming a huge problem because obviously the population in the world is growing exponentially and so we’re, it’s going to become a very huge problem if something doesn’t stop that stop that crisis. And the American view, we don’t, we don’t view it as a crisis yet, but a lot of areas of the world, you know, South Africa, they just had to, they’re talking about completely shutting off access to water and rationing it in a way even. But bringing it back here, California did that same thing just a couple of years ago. Rationing the water for the consumers. Not so much for agriculture, but you know, I think, I think it’s, we are on the edge of, of water becoming a huge issue in America today.

Michael Joyce: 00:20:55

And I would add to that from a world view or perspective, it is the number one issue of the world. And without clean water and access to it, it effects every aspect of life, your recreational activities, your life giving activities, your industry, your commerce or agriculture. And those interests are competing with each other. And it is truly something that the issue has to be solved in this technology. We believe this is the first major step in solving that crisis.

John Galbraith: 00:21:24

I’m in Maslow’s needs. I mean that’s your base. Water is your base. You can’t live more than three days without water. And then everything else is built on top of that so

Jay Clouse: 00:21:33

Is that because of growing global populations? Is it that water is becoming contaminated? What is forcing us to become more of an issue?

John Galbraith: 00:21:41

a growing population, water contamination. I think those are all affects, you know, just the, everybody’s consuming that freshwater cause it’s a, it’s a basic human need. And so yeah, as the population grows, it’s just going to continue to dwindle. Those sources of freshwater.

Eric Hornung: 00:21:56

This might be a little ignorant on my part, but 75% of the surface area of the earth is saltwater. Why is creating a technology that converts saltwater and freshwater like not an idea that is scalable or to solve this problem?

John Galbraith: 00:22:12

Because it’s hugely energy intensive and you have just a very detrimental waste product. I mean you’re pulling the salt out of the water, but then you have to do something with all that salt

Michael Joyce: 00:22:23

and then the energy you use to generate the water and desalinize that has its own problems. So in burning fossil fuels, a lot of these plants or natural gas or whatever, so you have the pollution from that as well as the by product of desalination, which is the salt. So if it were easy and cost effective and environmentally friendly, you’d see it all over the place. But you don’t, if you go down the coast of California, you drive through Carlsbad and you see one enormous plant, you don’t see 20 or 30 up and down the coast. And if, if it were easy and cost effective and friendly, you’d see them all over the place. But you don’t. And there’s a reason for that.

Jay Clouse: 00:22:59

Can you explain then the technology that you guys have licensed? Give me, give me the, you know, the explanation of how XRS works, what it looks like, what the form factor is.

John Galbraith: 00:23:09

Yeah. So we’ve developed a small portable and lightweight device that pulls the water directly from the air. And it’s called atmospheric water generation. It’s about the size of a shoe box can generate up to five gallons a day. Yeah, I mean it’s, it can sit on the tabletop. We anticipate modular attachments. So what we really, what we really see is a product that a consumer can take and use in any way they want. You know, so you could, you could have storage bags, modular attachments for irrigation, etc. filtration

Michael Joyce: 00:23:36

And I would add it’s, it’s a technology. So the first device we’re introducing is the small device. It’s scalable. So the small device, which is the, we’re bringing to the market is slightly larger than a shoe box. It can operate completely off the grid with solar module, a foldable or scrollable solar panel. And that small device against slightly larger than a shoe box can generate, you know, depending on environmental conditions, but target wise, five gallons of fresh water per day. And if you think about it, that’s life changing for people in water, scarce regions or regions with no water except the trillions of gallons of water that float through the air and that technology. That’s, again, some of it’s disclosed in patent and other’s trade secrets. So we’re not going to get into the, that it’s unlike anything that anybody else can do. Totally different than what others can do. And it’s scalable, it’s environmentally friendly, it is inexpensive to operate. And, uh, again, we can impact a lot of energy. Dema military recreational lists, a adventurous disaster recovery.

John Galbraith: 00:24:47

The applications are almost endless than me

Michael Joyce: 00:24:49

commercial. I mean it’s, it’s,

Eric Hornung: 00:24:51

is it purified water? Like am I, am I setting this thing outside and it doesn’t need a battery because it’s solar powered and I set it outside and then I come back in however much time and I have like Britta quality water or is this like as their contaminants?

John Galbraith: 00:25:07

Uh, no. So based on some of the trade secret stuff in our, in our products, the water that comes out of this is distilled water. Distilled water is safe to drink. I mean, you could drink it right off of it if you want it to. A lot of humans aren’t. They don’t, they’re not used to that taste. So one of the things we’ve we’re doing is adding a mineralization module so you can kind of re mineralize that water to your taste and kind of customize it how you like.

Michael Joyce: 00:25:29

So it’s distilled and it’s free of contaminants. So a other technologies that might be available or if you get it through just the municipal water supply, you might have metals and other contaminants in the water. So it’s, it’s distilled and it’s based state. And then again you can have fun with it. Uh, you can, you can mineralize it, you can add taste or flavor to it to make it more like what you’re used to or frankly you can customize it so that you have a continuous same taste, same effect. So in you think about restaurants and, and other commercial applications where it’s critical that you have the exact same water time and time again, whether it’s breweries or wineries or hydroponic growers, this can provide that exact water based on modules that you could add back into it.

John Galbraith: 00:26:20

Sorry to add to a question that you asked earlier about the growing crisis. I mean the tap water in the United States is becoming increasingly, I don’t to say toxic, I mean you think of Flint, Michigan that had, that has full infrastructure with lead in the pipes and it’s causing huge, huge effects to children and people and in that city. But you know, that’s, they’ve done, they’ve done a study and Flint is not, that’s not a unique situation. There were over 2000 municipalities in the United States alone that have similar situations. So that that’s potentially going to be a huge crisis.

Michael Joyce: 00:26:55

I’d like to add to it, if you walk around ces, big, big topic. He was smart cities and cities are looking for a reliable, credible, safe protectable water supply. So in the United States saw, you know, we have aging infrastructure all over the place in our budgetary constraints are, there’s not enough money to replace those. So this technology can take a lot of reliance and a lot of strain off the existing infrastructure and complete, frankly, you can go completely off the system with this technology, whether it’s commercial or home or recreational, which it’s a game changer.

Eric Hornung: 00:27:34

How much water is in the atmosphere at any given time? Like if every home in America had one, had one of these right now, can we be pulling, well how long does it take to get the shoe box full? I’m just gonna call it the shoe box box, the shoe box full of water. And then like could all of them be acting at the same time and there’s still plenty of water leftover? Or is it like

John Galbraith: 00:27:55

So to, yes, to answer the first part of your question, depending on environmental conditions, you know there has to be water in the air for you to be able to pull it out, obviously. So arid climates present. Another challenge is, you know, we can talk about later, but the five gallons that we said that’s, that’s over a day.

Michael Joyce: 00:28:08

There are trillions, trillions and trillions of gallons of water floating around in the atmosphere. I mean the Earth’s coverage, 74% by ocean. So there’s the continual process of evaporation. And maybe I’ll just go straight to the point. If every home had one of these in every commercial business, whether they need five gallons or the larger device, they need thousands of gallons per day. That is not going to have a significant impact on other water supply. So the rivers aren’t going to run dry and the legs aren’t going to decline in in a level, it’s going to have really no impact on those. So it’s, it’s great.

Jay Clouse: 00:28:48

So you have the technology. What is the state of the product itself in terms of going to market? Is it in market and if not, when it goes to market, what does that first form?

John Galbraith: 00:29:00

So no, it’s not in the market yet. We are currently, we’ve developed a prototype and we’ve tested that and so we are currently designing for the commercial product and we expect that to be available in Q four of 19 early in Q four so, and who is the customer of that first version? That very first version of what we’re looking at is probably outdoor recreation, survivalist and that natural disaster recovery. So, oh,

Michael Joyce: 00:29:25

for instance, Fema, American Red Cross, the United States military on a disaster recovery side would be in that first group. So that, that, that five gallon a day device, again, that’s a game changer for the military, for disaster relief or nonprofit organizations like the American cross, people like live in Puerto Rico, you know, you don’t have to have, well, so that product should be available to market. We think sometime around the end of this year.

Jay Clouse: 00:29:51

Totally. The user could be anybody, especially people in these disasters, downs. That’s the user who’s, who’s the customer? Is it the government agency? Is that Fema, is it the Red Cross

John Galbraith: 00:30:01

In a, in a situation like that, it probably be a government agency like FEMA or the Red Cross. Yes. And NGO. So,

Michael Joyce: 00:30:07

so it’s, it’s really a multi-pronged customer though. So it, it, it may be the larger organizations, but if you think, uh, places like Houston or all around in Florida, what happens when a hurricane comes through? You lose power and water supply for about up to two weeks and you look, think about the home depot type stores, Lowe’s, what’s the first thing that disappears off the shelves? The generators, the water, the ply wood. So we would also see this as a device that people are truly preparing that are adequately prepared for disaster. This will be just like a generator that they’re going to keep at their home to ensure that they have life sustaining water for whatever period of time, whether it’s one week or two weeks, like in Houston or Florida or frankly over a year now like in Puerto Rico. So there’s still a lot of areas of Puerto Rico without water.

Eric Hornung: 00:30:56

I have a question regarding like how you’re going to price this. And my thought around it comes down to like every, the story that you do after every bad storm where there’s no water available and some convenience store jacks up the price of water and then all of a sudden they’re like, the bad guys are like when Uber’s surge pricing kicked in in the middle of a storm and people had to pay like hundreds of dollars right? So there’s like this taking advantage of people when times are bad and

Jay Clouse: 00:31:24

Maybe not intentionally it just by like by design because of scares.

Eric Hornung: 00:31:26

Exactly. So how do you wrestle with like the moral quandary of pricing this appropriately and where you guys are making a profit since Europe or for profit company and giving people something that is seen by I think most people as like a fundamental human right that people should be solving for in a nonprofit basis.

John Galbraith: 00:31:47

Sure. And so right now we’re still looking into pricing and how we’re going to ultimately price the product. But to your question, what I would say is we can have this product in a store like Mike was saying, like a home depot or a place like that where the people that can’t afford it and want to prepare, you know, just in general they can do that. And then for the people that are not able to afford it or they’re in those disastrous situation, active, disastrous situations where they need that lifesaving ability. That’s where collaboration with a government agency like FEMA or the Red Cross come really comes in.

Michael Joyce: 00:32:19

Again, that’s the, the big human question is what are we going to do to help our fellow man and, and we’re going to be a very responsible, we’re an LLC, a Delaware Limited liability company. We’re going to be very responsible and you know, we are going to look at ways that, you know, through either foundations or give backs a certain percentage. We, we are going to support good human causes and we’re not going to go out and overpriced the thing. We’re not going to say, Hey, we’ve got all these, you know, patents and trade secrets that we’re going to, you know, Jack not going to price gouge, reasonably priced. It’s going to be fairly priced. And you know, we are for profit company, so we have to make a profit. But what, we’re going to be good stewards and good citizens globally. It’s not just a US deal, this technology, we’re, we’re taking it around the world.

Eric Hornung: 00:33:06

Right. I see huge implications in like Africa and India where they’re having really bad problems with water.
Michael Joyce: 00:33:13

I’ve spent a lot of time in India and let me tell you that there’s a lot of water and there’s a lot of bad water.

Eric Hornung: 00:33:20

Do you ever drink any of it? Uh, I have. Don’t do it.

Michael Joyce: 00:33:23

I’ll tell you, I may not want to hear that. After One, two month stint in India. The, the first place that I ended up was on my way back home was in Europe. In the hospital. Wow. Yeah. And, and in Mexico City, I’ve, you know, I’ve traveled all over the world and in my business, same issue. There’s, there’s water, but it’s, it’s not friendly water in, in many instances. And I nearly died in Mexico City from water contamination.

Jay Clouse: 00:33:50

Is that, do do people’s bodies who live in that area become tolerant of bad water or they just rolling the dice every time that they take a drink there.

John Galbraith: 00:34:00

I mean, there is some, some of that tolerance and build up the that can occur. Uh, but yeah, I mean you hear a lot about in Africa about deaths related to contaminated water and that’s, it’s, it’s a real issue.

Michael Joyce: 00:34:11

You’re rolling the dice every day. So I mean, you can’t build up resilience to it, but it’s a risk and it’s a problem all over the world. So whether you’re in a third world country or a fully developed economy, water’s a problem.

Eric Hornung: 00:34:23

How long does one of these, I shouldn’t keep calling it a shoe box. What should I call it? I’m sorry

John Galbraith: 00:34:29

A device. It’s an atmosphere of water [inaudible].

Eric Hornung: 00:34:32

I’ll call it the aqua tap, I’ll call it by its name of it.
John Galbraith: 00:34:34

That’s our trademark name.

Eric Hornung: 00:34:37

So how long does an aqua tap last? Is it like every two years? You have to replace it. Is it 20 years? Like how long does this product last?

John Galbraith: 00:34:45

Yeah, it has a very long lifespan. There’s only one moving part in it, which is a fan. So you know, it has a very long life. We could expect five to 10 years. So we haven’t done any of that destructive testing yet to really get the lifespan out of it. But yeah, years.

Michael Joyce: 00:34:59

So there are a lot of people that the disaster preparedness people, they’ll spend $2,000 a year stockpiling water or devices related to water to prepare for that disaster, the hurricane, whatever that might be. So if you think about it, 2000 a year, over five or 10 years of a, of a product, there’s a lot of of leeway there that it provided an enormous cost savings for a lot of people. But yeah, I think you’ll see at least five years of life.

Jay Clouse: 00:35:27

What are you projecting the unit cost of an aqua tap to be?

Michael Joyce: 00:35:32

I, I would say that we’re not there yet. So we’re working with our manufacturing partners and we just don’t have a final price yet on what it’s going to be when we finally roll out the small device. And again, it will depend on the size and the application. So if we’ve got a commercial device that’s producing 5,000 gallons a day, it’s obviously going to be a lot more expensive than the shoe box sized device that’s producing five gallons in it.

Eric Hornung: 00:35:53

So, but ballpark for like the aqua tap, is it going to cost like zero to a hundred dollars to make? It’s going to cost a hundred to 500 like

Michael Joyce: 00:36:00

again, we don’t have a final price yet, but I would expect that it, again, it’s all on volume and in that light, but the retail cost might be around that 1500 for full accessories.

Eric Hornung: 00:36:11

Tell me a little bit more about these accessories. So you guys mentioned the modules up front and you just mentioned the batteries. Like what? What other kind of modules are there? Is there a list? Is there like two to three is they’re like 20 can I really customize this thing? Can I go cammo like what, where am I going?

John Galbraith: 00:36:25

That was, we haven’t done anything. We haven’t done any color customization. Uh, although there are recreational, it’s not just the camera. So it might be a camera. Very rugged and, and uh, that’s, that’s an interesting thought. Maybe v2 we can, uh, we can roll out some, some different customized colors for, for people. So just swap it out like a phone case

Michael Joyce: 00:36:45

You might think you walk around here and so there’s the hydroponic gardening here at the show. So there will be a home and garden irrigation device that if you have a pump in a drip lines, you could take care of your, your home garden, your patio garden, your pots. So that, that’s an accessory. So we’re an agriculture or home and garden accessory. The mineralization module that we talked about, there’ll be storage module. So you take lay flat bags, whether you’re a prepping, you know, the hurricane’s coming in, let’s produce 50 gallons and store it in the basement. Or if you’re out, if you’re the fissure or the hunter, I mean, from a recreational standpoint, it’s a game changer. So we’re a recreational society and people like to get out off the grid and for now you can only go as far as your water supply last. So whether it’s bottles or the tap that you got to go hook into or the RV park where you got to fill up your, your storage tanks. Now you can go wherever you want to go. And that’s because of modules like the storage bags. Some people will say, well is it safe? Well yeah it’s safe, but some people would want additional filtration. So we’ll have a, a small filtration module, leaf if you want to do that won’t be necessary.

John Galbraith: 00:37:53

Not necessarily, but yeah, some people want that extra piece of mind.

Eric Hornung: 00:37:57

And you guys are going to craft and create all of these accessories and modules or is it going to be like a cause they’re going to be a third party ecosystem that where people like partners create them.

John Galbraith: 00:38:06

Initially we’ve, we planned for proprietary design of the modules, but future there could be,

Michael Joyce: 00:38:11

it’s you need to go. So we’re, we are collaborating with some partners in this as well. And when I say partners, it’s a very loose term. We, we always say partners, the dirty word from a legal standpoint, but you talk about commercializing technologies. One of the big problems is if you try it yourself, you’re going to go really slow and, and the world’s going to change before you know at the end you’re sitting there going, hey, what happened to us? So we currently collaborating with a number of people so that we can take this around the world in a, in a very rapid process. And those collaborators, some of them have the capability to manufacture as many as we need as well as these modules, you know, with their armies of engineers and their facilities and good responsible partners we can as a company and with our collaborators bring all this to the market.

Jay Clouse: 00:39:04

Are you guys going to be approaching, I mean we talked about a couple of segments of customers. You have the agencies, you have the people who are going out and just going off the grid themselves. What is your, at the Q for lunch, which one are you going to focus on more and what is your strategy for that?

John Galbraith: 00:39:19

So initially at launch, like you said, we’re, we’re focusing primarily on outdoor recreation and the, the natural disaster preparation.

Michael Joyce: 00:39:27

So the really the, the recreational lists in and those that are preparing for disaster

Eric Hornung: 00:39:32

individuals preparing for disaster.

John Galbraith: 00:39:34

Yes.

Eric Hornung: 00:39:34

Okay. So, so with individuals you have a shorter like sales cycle, right? I would expect, and then you get bolstered by the agencies. Is that the game plan you get enough of those kind of individual direct consumer sales? Is it going direct to consumer or is it going through Amazon? How are, like, what’s the mechanism

Michael Joyce: 00:39:51

It’s going to go through retail channels? So we’re not going to a lot of companies that were like, hey, we’re going to be everything to everybody. We’re not going to be everything to everybody and we’re going to have a very channeled market of distributing through

Eric Hornung: 00:40:03

like the Dick’s sporting goods, Cabela’s, things like that. Yeah.

Michael Joyce: 00:40:07

Rei Wise, we, you know, we don’t have those agreements in place, but that type of retailer, Lowe’s, home depots [inaudible]

Eric Hornung: 00:40:14

Yeah. Outdoor.

Michael Joyce: 00:40:15

Yeah. Outdoor.

Eric Hornung: 00:40:16

How hard is it to get into those stores?

Michael Joyce: 00:40:18

Well, in one of my lives I’ve, I’ve taken hundreds of SKU into retailers. Uh, my, my largest customer in, in a, in a past life was Walmart. And sometimes the process takes a long time to get through those buyers and the channels. And other times it happens overnight when they find you. And we think this is a technology that they’re going to find us and we have to be prepared for that in. And you can’t say, Hey, I’m, I’m going to be controlled by the monster. The dog’s not going to wag the,

Jay Clouse: 00:40:51

it’s, it sounds like it’s ripe for PR as a, as a marketing strategy, you know, like it’s getting, it’s going to be a novel, unique thing.

Michael Joyce: 00:40:59

It’s not a novelty item, but it will be very unique and disruptive.

John Galbraith: 00:41:03

Yeah. And we’ve already started some of that. I may not see it because this is a podcast, but you know this, you know, some of our, we’ve just launched our website recently, which has a brief explained video on there. You know, we have some of the artwork which displays kind of our primary focus for our initial markets.

Jay Clouse: 00:41:19

Yeah. Before we got in the mix you guys mentioned, you know, when we, when we interview companies in the show, we look at crunchbase data a lot and a lot of times that data is far behind. So you guys mentioned that at this point you guys have raised in the ballpark of $1 million. What are your bigger biggest cost drivers now? Is it just headcount for you guys? Is that the development? Is that the legal work?

John Galbraith: 00:41:37

Well, the biggest costs in the problem with small companies is how do you get this thing to the market? So it’s, it’s not a uh, oh, let’s just go fold up a piece of paper or something device. It’s, you have to engineer this and you have to manufacture that. So there’s two laying and, and a injection molding, you know, for the casing. So the most expensive piece of this is going to be the engineering and the and the manufacturing. So that’s why we, again, we’re not going to go build 100 million or $500 million manufacturing plant where we’re collaborating with partners out there in the business that have that in place. But still our biggest expense as a company is going to be bringing it to manufacturer through the the specialized tooling and you have to build an inventory.

Jay Clouse: 00:42:23

Yeah, holding inventory. What was the feedback from when you guys were raising investment? Did the arrangement with university have a positive or negative effect on those conversations?

John Galbraith: 00:42:36

It actually had a very positive effect because you know some of that, there’s a lot of validation there from the university is sponsored the technology and just kind of develop that technology and plus you have a lot of that development cost that is offset from the university itself rather than us having to pay that out of pocket. So that’s been a very, we’ve gotten positive feedback in terms of that. Obviously we have a global exclusive license to the technology, so that’s a comfort to an investor and obviously now that we’re patent issued that’s off is obviously a a comfort as well. So,

Eric Hornung: 00:43:07

so this Q four launch that is going to be in retailers, you’re going to have to hit minimum orders for a lot of these retailers and for like the Walmarts of the world, that could be 25,000 units,
Michael Joyce: 00:43:20

so it’s not going to be in Walmart in Q four. I you know it as you deal with these large retailers, I mean often you’re, you’re six months out or nine months or sometimes a year old, you’re working on a plan to gram or whatever with their buyers. So we’re, we’re going to have a controlled launch expected in Q four

Eric Hornung: 00:43:39

it makes a lot of sense. And my question was around financing. Going off of Jay’s question, if you get a, you have your Q four kind of strategy set up with whatever potential partner this is and following that launch, if you get another one, likely cash is going to be tight, tight, tight. Yeah, sure. Is that a scenario where you go more equity or do you go to some sort of credit fund? It cause it’s something we haven’t really talked about here on upside is credit funds. But it seems like a scenario where that would be in play.

Michael Joyce: 00:44:11

Financing is tricky for most startup. Most startups fail because of lack of financing or insufficient financing so beautifully with our relationship with the university. Literally I would say millions of dollars of value is, has been put into this that small companies would otherwise have to pay. So that relationship’s great for us. Our company has no debt, we have cash in and we have good relationships that we’re working on. So, you know, we, we want to have sufficient cash. We’re planning, we’re sufficient cash. And again, you know, I doubt we’ll uh, go to uh, to credit fund, but we leave all things on the table.

John Galbraith: 00:44:50

Well obviously evaluate more as we get to that point.

Eric Hornung: 00:44:52

Right. I’m just curious on like what growth looks like. Does it look like there’s going to be more fundraising in 2019 does it look like there’s going to be like ahead of the launch after the launch because you have to, I would I would expect you’re expecting more retail partners down the line and to date you’ve raised a little less than a million dollars I think is what you said. So current burn, if any, I’m not sure if you guys are taking salaries right now, but current burn plus the hardware costs and the payback. I’m just curious what that future of financing looks like.

Michael Joyce: 00:45:20

We and as again a company struggle, so we looked at this going into this of hey, do we want to go out and try to raise a lot of money or do we want to take a really controlled approach to this? And we talked to a lot of big houses and in it’s like, Hey, do you want him to go out and raise 20 million, 30 million or do we want to start slow? And I think the sage advice that was given to us is go in small and start slow because you may not need to do it beyond your initial thing. Right. I expect that we will go beyond our initial offering in, in, again, there are regulations, so we comply with the federal and state securities laws and there are a lot of rules and regulations on what you can and can’t do and when you can and can’t do it. So we’re compliant. But I would expect in our group does that in in 2019 we may go out with a second round based on our projected cashflow needs,

Jay Clouse: 00:46:14

what needs to go right for Exaeris to hit it big?

John Galbraith: 00:46:17

You know, getting that customer buy in and getting it to really penetrate in those markets that we discussed earlier. I think the need is definitely there. You see, you see it all over the world. So getting the message out there and making sure that it’s a very targeted message and making sure that people know about it. And then, yeah,

Michael Joyce: 00:46:34

And proper deployment too, we, we’re, we’re gonna, we’re not rushing to the market. We’ve been working on this for years and it’s quality. So our device, if it’s going to solve a problem, it has to work right? And it has to be quality. So we’re not going to sell a piece of junk that’s not going to function. And if, if we don’t deliver it right, the deliverable, then it’ll be a problem for any company. So we’re going to deliver it, right? And when we deliver that product and we have a quality manufacturing that’s capable of meeting our expected needs, that’s what needs to happen. And then, and we’re working very hard to make sure that they,

Jay Clouse: 00:47:09

is that the, is that the biggest risk then? Cause that’s the second part of that question that’s going to ask. It’s like, oh, okay. I said, well that needs to go, that’s what it needs to go. Right. What’s the biggest risk? Do you guys at this point,

John Galbraith: 00:47:17

that’s the biggest risk too, if you can’t supply, if it’s home depot says, Hey, we’ve got 2000 locations and we need 10 of these devices in every store and we need this, we’re going to do two deliveries in. Oh the way we may call up and need more. So if we don’t project and inventory and we’re not able to supply, I don’t know if you’ve ever dealt with like in Walmart retail link and they monitor your performance and in in my prior life we were 100% we never failed in the ability to deliver a quality timely product and there are big companies in the world that fail in delivering a quality timely product. So the risk is you over promise and you’re not prepared to deliver or you’re not prepared to finance the delivery.

Jay Clouse: 00:48:02

What does we start off the interview, and Eric talked a little bit about Tulsa. Besides the obvious university connection, which birth this technology now that you’re continuing to develop it and getting ready to go to market with this technology, does being in Tulsa or in Oklahoma generally, are there any benefits that are specific to that geography? They’re are helping you guys at this point?

John Galbraith: 00:48:22

You know, in terms of our product, it’s a good environment for testing in in that sense, there’s a lot of, there’s a lot of money in Tulsa that I don’t think a lot of people realize. So that’s, and you know, some of their views tend a little more towards oil and gas. So some, sometimes it’s, it’s tricky to get them to look at some of these alternate technologies. Right. But, uh, you know, there’s a, there’s a huge resource of money or huge source of money and funding in Tulsa that’s, that’s been invaluable to us.

Eric Hornung: 00:48:46

Did you guys raise your first round completely in Tulsa?

John Galbraith: 00:48:49

Yes.

Eric Hornung: 00:48:50

It’s pretty cool. That’s awesome.

Michael Joyce: 00:48:51

Through just a very, uh, you know, we’re, we’re seasoned professionals, all of us, and we have a network that we’ve used before and all of, all of our money came from a very limited group of seasoned investors that are local to Tulsa.

Eric Hornung: 00:49:07

We started this off with talking about water and the water crisis and how it affects everyone. It’s that base level of Maslow’s hierarchy of needs, which means like this product, the total adjustable market is literally the world. How much of that is realistic and attainable?

John Galbraith: 00:49:28

I mean, you obviously can’t, he can’t swallow it all at once. I mean you have to, you have to kind of break it down into chunks and find the right partners to go after those different avenues because we’ve identified multiple verticals, multiple markets that this could go into, but it’s finding those right partners and collaborators to really address all of those. So it’s not a everything all at once obviously. So it’ll take some time to kind of penetrate into those, into those various markets. But I think we’re off to a great start in finding the partners that can help us get into into that and start and start getting some traction in those markets.

Michael Joyce: 00:50:06

We’re not Naive, we’re not going to be everything to everybody immediately. So like any other business, smart businesses look to grow through innovation and through innovation through, they do that through collaboration. So if we’re going to slay Europe or Africa or whatever with this product, we’re smart. We’re going to go find the partners, the collaborators in Europe, the collaborators that have the infrastructure, the capability, the marketing, the financing in place that we can do it together. So geographically, you know, whatever those channels, channel partners that and you know, hey some, some are great in the outdoor area. So yeah, we’ll team up with them.

John Galbraith: 00:50:48

It would be a very challenging issue too for a startup to tackle by itself. So

Michael Joyce: 00:50:53

there’ll be a lot of licensing involved in sub-licensing involves, so the beauty of our license in, in having done hundreds of these transactions as license or in Licensee, we have the flexibility in our license and that’s one of those key terms that we don’t have to go out and do it ourselves. So we have the absolute right to go out and sub license our technology to collaborators that will help us take that around the world efficiently and timely. Okay. That’s a, that’s a long answer to that question.

Eric Hornung: 00:51:24

Yeah, it’s awesome. Well all I heard was partner,

Michael Joyce: 00:51:28

I’ll be careful, butt not in the wheat. Not In that legal standpoint. You’re Parker’s.

John Galbraith: 00:51:33

Here’s the, the lawyer comes out every year. [inaudible]

Michael Joyce: 00:51:36

you use the term partner in this interview because he’s, he’s, I always cautioned him. I said, do not call anybody our partner because that’s a illegal thing that we don’t want to get into, so I, I said I’ll fall on the [inaudible]

John Galbraith: 00:51:47

Don’t worry about it.

Jay Clouse: 00:51:47

We’ll be looking forward to following your guys. It’s progress here over the coming years. If listeners to the show want to learn more about Exaeris after the show, where should they go?

John Galbraith: 00:52:00

They can go to our website, exaeris.com that’s e x a e r i s.com. If they would like more information, there’s a contact form on there or they can email info@exaeriswater.com

Eric Hornung: 00:52:15

Did you have teachers growing up?

Jay Clouse: 00:52:16

Yes, I went to school. Okay, that’s good.

Eric Hornung: 00:52:19

Did your teachers ever have parent teacher conferences?

Jay Clouse: 00:52:22

First of all, my parents were teachers. Everyday was a parent teacher conference.

Eric Hornung: 00:52:26

Wow. That is intense. Well, when my parents went into pretty much every one of my parent teacher conferences, they always said one thing. What do you think that was?

Jay Clouse: 00:52:34

Eric needs to slow down on the glue.

Eric Hornung: 00:52:37

They never once suspected me as a glue huffer. I was way more into sharpies. Instead what they said, they’d always say to my parents, they always say that Eric, he is unlike the rest and I don’t think they meant it in the way that RNSD mean it. Cause RNSD said that upside is unlike the rest upside brings a fresh take on the startup podcast seen further proving their point that you don’t have to be from Silicon Valley or Boston to make waves. That’s right. There are plenty of waves in Columbus. Jay.

Jay Clouse: 00:53:07

Just a couple of dudes from Ohio being unlike the rest

Eric Hornung: 00:53:10

Unlike the rest invested in the best. We don’t really wear vests

Jay Clouse: 00:53:14

But we had to get this review off our chest and if you guys want to leave a review for us, we’d really appreciate it. Put It on iTunes and we just may read it here on air.

Jay Clouse: 00:53:30

All right, Eric, we just spoke with John and Michael, uh, Exaeris. Where do you want to start first? You want to talk about the founder? [inaudible] to talk about the opportunity?

Eric Hornung: 00:53:38

Let’s talk about the size of the market, which is something that I left the interview a bit gray about. I couldn’t figure out where was it, how was it? Does it evolve over time? Help me understand that. Their intro market, they say is recreational and disaster relief, but what does that mean in terms of size? How many recreational lists are actually taking this thing? What’s the competitive landscape like? I had so many questions leaving this interview about the competitive landscape that I went out and did a little bit of research. I figured based on our conversation that this technology was not too common. We didn’t really hear much about atmospheric water generators being a thing. So my initial research started with, okay, what’s a comparable thing that people buy that provides one of the necessities of life in disaster situations and potentially recreational area. So where did I start? I started with residential diesel slash gas slash electric generators. Okay. And I could find nothing. There is one from in the world that puts out one report a year and gives no market data. In that abstract of the report you have to buy, it’s $595 I didn’t do it.

Jay Clouse: 00:54:57

You were looking for market size data for generators?

Eric Hornung: 00:55:01

Yes. I wanted to proxy in is this for residential generators because commercial generators, massive market, but for residential generators I wanted to understand like how much are people spending on this, how big is this? Couldn’t find anything, so I happened upon a report for atmospheric water generator market size.

Jay Clouse: 00:55:22

How do you just happen upon that? Is this like, is there a stumble upon that? You’re just like, I just got to keep clicking this button until it gets me to atmospheric.

Eric Hornung: 00:55:32

My method of researching is mostly just Wikipedia linking out until I find something and it says that in 2015 the amount spent on atmospheric water generators, it was $800 million, so now I have a concept in my head of, okay, how big is this? That’s globally. It says it’s growing at 15% a year and if that’s going to continue through 2024 so now my question is, wait a second, there’s a market here that I didn’t know existed. I thought this was a new product. So then what did I do? I went to Amazon and I was like, all right, figure out Amazon. Mr Bayzos, please tell me are there any atmospheric water generators for sale? Turns out there are, but all of them, I have tons of moving parts. They have to be plugged in. There is a, if you could see my screen right now, you would see that I’m looking at effectively looks like a pitch book for putting this thing together and how it works and how the ionizer does this and you plug it in and it heats up this and cools down that. And what I realized from doing all of this is that the Exaeris product, the aqua tap, what I informally called the shoe box in the interview is a technological advancement that makes this whole market simpler. It also seems that atmospheric water generators that are residential are price somewhere between $1,500 and $10,000 today. So that’s what I did. That’s my background. That’s what I researched.

Jay Clouse: 00:57:07

Is that $1,500 price point something you’re seeing here on Amazon or is that tied to the $1,500 price point that they gave us an interview.

Eric Hornung: 00:57:15

It’s on Amazon. It’s actually like $1,413 or something.

Jay Clouse: 00:57:19

Interesting. Amazing research my dear Watson, I did not find those things. That’s very helpful cause I also left the interview thinking this must be a completely novel new technology in a lot of ways it still is. And I think you know that was one of my biggest takeaways from the interview. I really enjoyed talking about the university licensed technology side of this, which you know is the birth of the aqua tap. This university research from the University of Tulsa that led to this patented technology that they have a relationship with the university to commercialize. Took a little bit of a side there. So where does that land you in terms of thinking about total market opportunity here? If it was $800 million globally in 2015 with a product that does not sound super out of the box user friendly for a lot of the areas that would need it, what should we, you know, extrapolate from that.

Eric Hornung: 00:58:13

Yeah. I’m not sure how to quantify market size from this. What I can qualify is that this product, sorry. Let’s look at the way that it’s currently set up. I think that there are significant limitations on atmospheric water being used in crisis situations and for the outdoor types when you have to plug something in, imagine going on a hike and having to find an outlet on a mountain. You’re just not, it’s not going to happen. Or all the electricity grid is down in Puerto Rico, so what do I do? How do I plug in an atmospheric water generator? It doesn’t seem like it’s directly competing in those areas. What it seems like is atmospheric water generators generally exist around houses and office buildings as ways to, I’m not really sure their purpose to be honest. And you’re talking about existing tech. Correct, but the aqua tap can serve those markets because it doesn’t have to be plugged in. It has one moving part, which is a fan and it creates five gallons of distilled drinkable water per day. I think that is a huge differentiator. I don’t know what it means for market size.

Jay Clouse: 00:59:22

Yeah. It didn’t seem like it was going to need a lot of instruction comparable to what you’re talking about for existing products either. And my assumption would be even if a lot of the areas where this is sorely needed, our developing countries where they’re not going to have access to an outlet, they’re probably not going to be able to follow those instructions and make this easy to use. So I would agree that the aqua tap expands, maybe not expand because the market probably exists. It’s just not being served, but it serves a market that’s not being served by existing tech. So that’s a difficult market size to understand. Right. Because even if we start looking at global populations and countries that need this, it’s hard for me to wrap my head around the price point and the model for this. You know, they talked about government agencies and FEMA being customers as opposed to direct to consumer necessarily. Those customers are going to be able to pay a much different price than somebody in Africa is going to be able to pay or somebody in India is going to pay

Eric Hornung: 01:00:25

Or someone at home depot is going to be able to pay.

Jay Clouse: 01:00:27

Yeah. So this is my biggest question mark from this interview is understanding still. Okay. I understand that this has implications for people all across the world. Who pays for it? What’s the model for Exaeris? Because how much does it cost to manufacturer? I can’t think it’s, you know, it’s, it’s not your test card level cheap of manufacturing. So that’s my biggest question leaving this interview

Eric Hornung: 01:00:51

Your biggest question is unit economics

Jay Clouse: 01:00:54

Unit economics and ultimately what level of scale that works for Exaeris. I still didn’t, you know, I didn’t even, yeah, unit economics and then what does that opportunity then mean for them? What size of the market until they have to capture for this to be a investible opportunity. That being said, it does seem to me that I don’t see a world where it’s not profitable. I don’t see a world where they can’t find some segment of the market that they sell this thing to for more than they produce and make good money on that. I just don’t know what that level is and I don’t know what the profile of that investor is. How much of it is a pure financial return play and how much of that is a social impact play because there are investors that care about both. This doesn’t seem, it seems to me like it’s pretty straightforward in terms of what the model will be at his don’t know that you can unit economics

Eric Hornung: 01:01:42

So before we dive into the technology licensing and the founders, which I know that we both want to talk about, I want to talk about their go to market strategy, which is effectively Dick’s sporting goods, Cabela’s, Lowe’s, home depot, REI, anywhere where their target recreational user might shop. It is a model that we haven’t really discussed except for tangentially via wicked sheets on upside. This idea of going into a store, a large chain of stores and saying, we will give you this many week, we’ll sell this many, here’s the price point. We think that you should retail it at $1,500 like that is different than most of the companies have been on upside thus far.

Jay Clouse: 01:02:31

I agree and I think this is one of the more compelling size of this opportunity because it ties into my feeling about the founders as well, which is I love that Michael has a background in law and that he also has a background in forming these relationships with these retailers and big box stores. So not only does he have the relationships, but he’s seen what those terms look like. So I think that the reason we don’t hear a lot about this strategy on upside is because those are heavily sought after guarded, difficult relationships and gates to cross. And Michael having insight into the process as well as what sounded like some strong relationships in the industry already is a compelling reason to believe that they can use that distribution channel.

Eric Hornung: 01:03:20

Yeah, I would agree with that. I like that. Take. All right, let’s pit it. Let’s go technology and then we’ll finish off with the founders.

Jay Clouse: 01:03:28

As we kind of already touched on, it seemed to me that this is one of those 10x improvement type technological advances for this type of product. I thought they were going zero to one. It sounds like it’s already existed in some forms of man. It might not. May Not be zero to one, but still a 10 x improvement over what’s out there. Tech commercialization at a university level is super difficult and there aren’t a lot of models in the United States where it’s been done well really at all. You know, being here in Columbus, Ohio state is a huge research institution that spends hundreds of millions of dollars on research per year and commercializes almost none of it. It’s super difficult. They’ve struggled for years. They brought in a guy who ran the research commercialization office at the University of Utah. He came in because he had a lot of success at Utah actually when urban Meyer was there and just did not turn things around. And as I started pulling back the layers, it really came to be a organizational design issue with how universities incentivize researchers to research and what they incentivize them to do with that research. So I was really interested to hear about this relationship with Tulsa because it seemed fairly founder friendly. The other, the other struggle with universities is sometimes they are way too onerous in my opinion, on the strings attached with trying to commercialize university research. And it makes it very difficult for an entrepreneur to want to take that on and do that because the relationship is either strained or too onerous. Like I said, I know that the University of Stanford, or at least I guess, I don’t know, I’ve been told the University of Stanford’s commercialization policy is they just give the rights to technology to founders they believe in and say, remember Stanford and hope that it comes back that way. So from Michael standpoint, from what John told us as well, it seemed like they have a very good relationship with the university. They have a technology that has strong potential to be patented and protected and it seems like a 10 x improvement over what already exists.

Eric Hornung: 01:05:26

And what do you think about John as a founder? We’ve talked about Michael a bit, but what about John?

Jay Clouse: 01:05:30

John’s got the background in energy, which I think is helpful for this opportunity. I didn’t necessarily get the tie in from John that we get from some founders where it’s just so clear to see how he came to this opportunity and why he’s running this company. I don’t think that’s necessarily a bad thing, but I think that is something you look for in founders or appreciate when you find it’s like, okay, it’s, it’s so clear that this guys, 20 year career has led up to this specific opportunity and that’s why he’s doing it. I see a little bit of a tie in with a GP and the electrical industry. He has a background in electrical engineering. I honestly kind of walked away from the interview with without a super strong sense of John. We talked to Michael a lot and John had a lot of, you know, answers about the model, but I didn’t get the strong conviction from John than I got from some other founders.

Eric Hornung: 01:06:21

That’s fair. I would agree with that. And I think part of that can be attributed to, this is our first interview that we have done live with two guests. And I think that that is hard because once you kind of start clicking with one of the guests, this is might be an interview thing. This could be on us, right? I think it is. It probably is. Like if it was just us with John, I think we would probably have a very different take here. But we had one question that came up that kind of clicked with Michael and the interview kind of drifted towards us having a conversation with on Michael’s expertise and interests and kind of following that rabbit hole. So that’s probably on us to be better interviewers so that we can have a better take on founders going forward. But it was our first time live with two guests, but I definitely left with the same kind of feeling.

Jay Clouse: 01:07:14

Yeah. For the listeners to pull the curtain back a little bit, this is why Eric and I try to interview one founder on the show most of the time, as much time as we spend on the guest’s background in the beginning of the interview, it’s extremely difficult to do that with two guests and still get through the level of detail we want with the opportunity in the company in an hour. So I didn’t have any red flags, I just didn’t get all of the answers and points of data on John’s background that we would typically get four from a founder. All right Eric, so looking forward 6 to 18 months, what would you be looking for from Exaeris?

Eric Hornung: 01:07:52

Let me see those agreements. Let me see Home Depot, let me see. Walmart. Let me see some trial agreement. Some, some something signed, documented dated that has terms of sale that has minimum order quantities like let me see in agreement that says we’re getting into these stores. That is what I want to see in 6 to 18 months. Bring them out. Bring ’em out.

Jay Clouse: 01:08:14

Yeah, they, they said they planned for a Q four 2019 launch. So I’m looking at how that launch went and I’m also looking at what that means for their unit economics and their continued go to market strategy. I’m with you on the agreements. Let’s see them. Let’s see if they’re in those distribution channels because that could have a huge impact on their ultimate sales. And you know, I love sales.

Eric Hornung: 01:08:37

You do love sales, Jay loves revenue. Jay Revenue Clouse, Jay Topline Clouse. Man, I’m giving away nicknames that I can use on future episodes. Jay, if people want to learn more about upside or they want to interact with this episode, where would you send them?

Jay Clouse: 01:08:53

Yeah guys, we’d love to hear your thoughts here on this episode. If you have thoughts you can tweet at us @upsideFM or email us, hello@upside.fm and if you enjoyed this episode, please leave a rating on iTunes. It goes a long way in helping bring on high quality guests do the show. Thanks and we’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest, so shoot us an email@helloatupside.fm or find us on Twitter @upsideFM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know and make a good guest for our show, please email us or find us on Twitter and let us know and if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continued to help bring high quality guests to the show. Eric and I decided there were a couple of things we wanted to share with you at the end of the podcast and so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording, we do not own equity or other financial interests in the companies which appear on this show. All opinions expressed by podcasts. Participants are solely their own opinions and do not reflect the opinions of Duff and Phelps LLC and its affiliates Unreal Collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on this show. Thanks for listening and we’ll talk to you next week.