UP046: MITO Material Solutions // chemical additives for tougher composites

Haley Keith 0:00
We had a technology that was developed back in 2014 that had done some testing in the years to come. So 2016 they’re continuing to test but it hadn’t scaled. And what we basically knew was that it improved toughness up to 100% in the lab, and you only needed to add about a .1% concentration. And just those two sentences combined, made people in the aerospace industry raise their eyebrows. Many people in RV industry, the automotive industry get excited.

Jay Clouse 0:27
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 0:53
Hello, hello. Hello. Welcome to the upside podcast. The first podcast finding upside outside of Silicon Valley. I’m Eric Hornung, and I’m accompanied by my co host, Mr. Smart or funny Twitter himself Jay Clouse Jay How’s it going Man?

Jay Clouse 1:10
Would you say that I’m pretending to be smart or pretending to be funny on Twitter?

Eric Hornung 1:14
I don’t know, man. I’ve looked through some of your past tweets. And some of them are just trying so hard to be funny. And then some of your more recent tweets are trying so hard to be smart.

Jay Clouse 1:24
I don’t think any of them are trying hard enough.

Eric Hornung 1:27
This isn’t trying hard enough. I don’t know what it is.

Jay Clouse 1:33
I do think it’s I think it’s funny. I mean, your feeds probably different because you only follow like two people on Twitter. I follow a lot of people on Twitter, and

Eric Hornung 1:42
how many again, I think it’s 880,000, is that right?

Jay Clouse 1:44
about 1500. And when I look through my feed, it’s either people trying to sound smart, or trying to sound funny. And I don’t know which side of the fence I fall on.

Eric Hornung 1:54
Is that a joke? Or is that a metaphor? I don’t know. If you’re trying to be smart or, funny there.

Jay Clouse 1:58
I’m not.

Eric Hornung 2:00
So you have 19 You follow? 1900 People don’t say I follow 1500 people and make it sound like oh, it’s just a small little handful.

Jay Clouse 2:07
Yeah, but I mean, Twitter has an algorithm now they serve me what I actually care about

Eric Hornung 2:11
the difference between what you said you follow and what you actually follow is more followers than I follow total.

Jay Clouse 2:17
Think of all of the tweets you’re missing out on.

Eric Hornung 2:20
I don’t I have lists and I have discovery. I use both of those very well.

Jay Clouse 2:24
Alright, well, just another opportunity for Eric to brag about how much better at Twitter he is than me.

Eric Hornung 2:29
That’s how I set this up on purpose. Yep.

Jay Clouse 2:31
Oh, my.

Eric Hornung 2:32
Well, you know, my favorite tweet from you is, let’s just keep on going down this rabbit hole.

Jay Clouse 2:36
I can’t wait.

Eric Hornung 2:37
There was a tweet about Steven Lynch. That from like 2012 I think he said Steven Lynch just said I looked like I had a tail.

Jay Clouse 2:48
How do you remember that? Is that something you actually remember? I remember it vividly.

Eric Hornung 2:53
Yeah, a tail. You thinks you have a tail.

Jay Clouse 2:55
So Stephen Lynch, Phil listeners is a comedian who does music. He plays a lot of songs on guitar that are all funny. When I was in college, I went to a Steven Lynch show because I thought he was really funny. And I went alone because either nobody wanted to go or I don’t have friends, I’ll let you decide. And I sat pretty close to the front. Because when you’re going to something alone, there’s a pretty good chance that you’ll find a single chair and just about any row that you go to. And he had a song about dating, and about how all of the people he dated were like, horribly ugly in some way or another. He just made up like these characters that all had weird defects. And at the end, I accidentally heckled and said woohoo standards. And one of the characters he talked about was a woman who had a hairy butt hole. And he made a joke like, oh, that guy sounds like he probably has a hairy butt hole too or tail or something along those lines. Anyway, I remember it pretty vividly because I felt like an asshole.

Eric Hornung 3:55
You know, my my favorite part about this tweet is this was like peak Jay trying to be a comedian on Twitter. And this tweet, got one singular retweet and no likes.

Jay Clouse 4:08
I do believe if you click on it, there was a reply from somebody. I don’t remember there was a reply from somebody who I did not know who found that on Twitter and said I was at that show. Or I just found somebody else who tweeted about the incident independent of me.

Eric Hornung 4:23
Yeah, no, no one engaged with this tweet. I’m looking at it right now. I pulled it up. But you know who’s about to engage with that upside FM, we’re retweeting it right now?

Jay Clouse 4:31
No. Guys, please follow me on Twitter.

Eric Hornung 4:36
He needs it.

Jay Clouse 4:38
Okay, well, let’s get out of that out there. I see the notification retweeted by upside FM fantastic.

Eric Hornung 4:45
Let’s get out of let’s get out of the Twitter hole. And let’s hop over to some materials.

Jay Clouse 4:52
Yeah, let’s get to some other material, not my comedic material. Today we’re talking to Haley Keith, the co founder and CEO of MITO material solutions. MITO material solutions has developed a nano additive named the Mito t series. The T series is mixed in with an epoxy or resin, which then toughens composite parts by 100% while decreasing the chances of mechanical failure by 80%. back into our hard sciences here, Eric. Haley was introduced to us a few months ago, actually by Tony Vova of Mobius.

Eric Hornung 5:26
Yeah, man, I this podcast on average just makes me feel so dumb.

Jay Clouse 5:32
Yeah, I feel I feel that from you.

Eric Hornung 5:36
You don’t feel dumb. You don’t feel dumb that we have all these smart people coming on and just being so much smarter than us.

Jay Clouse 5:41
No, Being feeling dumb requires a level of self awareness that I refuse to have.

Eric Hornung 5:47
Are you complimenting me?

Jay Clouse 5:51
MITO materials was founded in 2015. It’s based in Stillwater, Oklahoma. To date, Mito materials has received 440 thousand dollars in investment from angels in Oklahoma, Texas and impact assets. They were awarded almost $400,000 in grant funding from NASA, the National Science Foundation venture well Oklahoma State University and they’ve won about $71,000 worth of business plan competitions. I love seeing non dilutive fundraising and it seems to happen more in the hard sciences type companies that we talked to.

Eric Hornung 6:26
Yeah, absolutely. I think that’s definitely a trend we’re picking up.

Jay Clouse 6:31
Alright guys. Well, as we go through this interview, we’d love to hear your thoughts. You can tweet at us @upside FM or email us Hello@upside.fm. I’ll get into the interview right after this.

Eric Hornung 6:39
Or if you want to go interact with Jay Clouse and his comedic past. I recommend using the Twitter Advanced Search to search back for Jay Clouse between 2010 and 2013. You’re going to find some real gold.

Jay Clouse 6:54
I’m gonna dig on you, Buddy Guy.

Eric Hornung 6:56
I’ll see what I think up.

Jay Clouse 6:57
It could be good.

But before we do that, let’s bring in Rob McDonald, a partner at Taft Stettinius and Hollister to teach us about private placement and fundraising. Taft Stettinius and Hollister is a law firm known for assisting entrepreneurs across the Heartland. And as a reminder, the following remarks by Taft attorneys are for informational purposes only and are not legal advice. This information is not intended to create and receipt of it does not constitute an attorney client relationship. No person or organization should act upon this information without first seeking professional counsel. Rob, it’s great to see you Thanks for coming in. How are things in Cincinnati

Rob McDonald 7:34
things are great Jay we got baseball season right around the corner. Very excited.

Eric Hornung 7:38
I live in Cincinnati, but I am a huge Indians fan. And whenever I go up to Cleveland, I always meet with some founder friends, we go to a ball game. And one of the questions I always get from them is what should an early stage founder consider when selling equity to investors?

Rob McDonald 7:54
It seems a lot of early stage founders don’t fully understand what it means to sell equity in a business. Obviously, there’s the quid pro quo of trading cash, presumably for equity, or some other instrument. This is a relatively simple transaction understand, but that’s hardly the end of the transaction. The founders will be committing to a lot more potentially, namely, founders will be committing to generate a return for the investors. This can become a very involved and complex relationship over time. founders will have a new obligations like holding board meetings, managing financials, creating investor reports, etc. It’s important for the founders due diligence on the investors the same way the investors due diligence on the company

Jay Clouse 8:33
completely agree. If people want to learn more about Taft or yourself, where should they go?

Rob McDonald 8:37
The best place to go is www. Taft law. com, or my Twitter at @rwm

Jay Clouse 8:51
Haley Welcome to the show.

Haley Keith 8:52
Thank you so much. Thanks for having me. an

Eric Hornung 8:54
upside we like to start with a background of the founder. Can you tell us about the history of haley, oo, that’s alliteration?

Haley Keith 9:03
Yeah, actually, Haley has a history degree. So that’s one thing that we can say. So the history of Haley started in Indiana. So pretty close to where you guys are, I actually grew up in Elkhart where 97% of our V’s are manufactured, which is relevant to my story. So I grew up there graduated high school and was super eager to get out of Indiana, like any other state sounded better. So I went to Arkansas, which is normally doesn’t sound better, but it was. So I went to john Brown University there to study originally Communications it turned into a history degree pretty early on in my freshman year. And so I did history with a minor in business, because I knew that I wanted to get my MBA at some point, and really enjoyed my time there. I actually, during that time worked for a couple RV dealerships back home during the summer, one of those like general rv, and I did a bunch of internships there. taking a look at all of their different dealerships and kind of seeing how they could improve there operations. So I’ve been always looking at a large objective scale, and I had a large history with RV service. So my dad had of the service shop back in the day, I loved that part of the job actually was offered a job there after college and decided to turn it down to because I felt that there was something more for me in Arkansas, and that more for me in Arkansas turned into my husband, who I met on Tinder, not gonna lie. So I met him there. And he was studying at Oklahoma State University to be an engineer. And I had been working in silum springs for a while and decided ultimately, it was time to move down to Stillwater, Oklahoma, where I currently am. After moving to Stillwater, I started a job we’re going through, he was going through college or just trying to make things work. And I decided that I wanted to get an MBA, and I was working at the college already. So I started that program. And the very first class that I took was called the creative, innovative entrepreneurship scholarship. Because I was looking for money. So it was like a $2,000 scholarship class. And you basically we get an MBA in a semester, they give you a technology that they’ve patented at the university. And you’re supposed to work with STEM students from all different disciplines and try to make something of this technology. And that’s kind of where my MITO was born. And so I’ve started that in 2015. I finished my MBA in 2017. My husband finishes engineering degree in mechanical engineering. And we’ve been working and founding and doing MITO ever since. That’s kind of who I am, where I’m from,

Eric Hornung 11:29
what’s your favorite kind of history? Or did you specialize?

Haley Keith 11:33
this college was too small to specialize in really anything but I love ancient ancient Greek, ancient Rome, that kind of stuff.

Eric Hornung 11:38
I just went to Greece last summer. And it’s like amazing being on top of a city that’s like 4000 years old. And you can see the ruins from that long ago.

Haley Keith 11:48
Yeah, I went back in 2008. I was like a freshman in high school. And I just fell in love with Italy and Greece. And my husband and I went to London and Ireland for our honeymoon. And so it was really cool.

Jay Clouse 11:59
You said you and your husband were both at Oklahoma State University. How do you feel about their acronym OSU vs. Ohio State’s acronym, the OSU

Haley Keith 12:09
as I grew up around the Buckeyes, so to me that that was originally the OSU policy of guys have better colors, this town is like riddled with so much orange. It’s, it’s like Halloween all the time. So you know, give it four days. But then we also went out and won a business plan competition out in Oregon. And that was really confusing, too. so

Jay Clouse 12:30
I’m interested to hear more about this creative, innovative entrepreneurship scholarship. Is that what it was called? how did how did that become something you were even aware of? And what was your thought process in pursuing it?

Haley Keith 12:42
Yeah, so at the time, I was working at the college as like an administrative assistant, and they give you some money to go back to school, right, I kept pushing. But I was also like, helping put Kevin through school. And so I needed some scholarships. And there’s not much when you go to grad school, and I was working full time. So I knew I was going part time, so I didn’t even get any full time assistance. So this was one of the only scholarships offered to a part time MBA, who could get it? So I applied for and if I think if I’m going on, like the school’s website or something, and there was only like 13 MBAs that got in, and ironically, my team, so they presented all these technologies, and I basically was presented as something that could like enhance toughness. And I was like, in fiber or in composite. And I was like, well, like fiberglass is a composite and fiberglass makes RV’s and I know RVs laminate and they’re like, I’ve put all of those things together and was like, I could probably do some interviews like that, I could probably get some customer discovery interviews in that industry. And my team had like two MBAs, no, three MBAs and one stem person, like the least group of them all, but actually the one probably the only one that’s still surviving.

Jay Clouse 13:47
How did you learn the concept of customer discovery interviews with with a background in history, and then being an admin? Where did that process even come to you?

Haley Keith 13:57
So I worked. I’ve been working in small businesses and working kind of alongside my mom, who was a VP of customer service in RV manufacturers most of my life. So the idea of business and interviewing and listening to customers was not something that was very new to me, then in the class, creative, innovative, innovative entrepreneurship, we just call it CIE for short. And CIE, they teach you that kind of I core lean Launchpad, lean Launchpad method. So we walked through that. And that was kind of my first introduction to the method. But it was something that I always kind of had been doing,

Jay Clouse 14:29
how much time did they focus on that type of teaching before they presented you with different technologies to choose from,

Haley Keith 14:35
we’re just presented with technologies first. So the technologies were like the first day, and then basically, the second day was okay, you got to get 50 interviews over the course of the semester, you should probably break them down. Here’s the method we’re going to use. And that was the second class. then it was just kind of like walking through every section of the business plan. So start with your industry, break it down, go to market, how would you sell it and your interview should be in your interview should be informing all of the data that you’re putting into this plan. So talk to people that would give you that kind of information?

Eric Hornung 15:06
On that day one? Was it like, Hey, here’s an ala carte menu, or was it like, okay, you sat in this seat? So you’re getting this technology,

Haley Keith 15:13
it was an ala carte, they presented 13 different technologies, it was from the technology development center. So basically, the guys that had helped patent everything, they came in and kind of gave you a very short, I think, one slide synopsis of what it was in very technical terms. And then the MBAs chose first, and then the stem people could go wherever, because you needed one MBA per team.

Jay Clouse 15:33
What was the expectations of that program? For the members of that program? Was this first a learning process? Or were you almost expected when you came in to commercialize this as an entrepreneur? After you took it on?

Haley Keith 15:47
Totally a learning process, Most of the companies, you know, like still don’t exist, it was just could this technology have a commercial application, and you’re kind of helping TDC Technology Development Center, whittle that out in a business, this platform so they could look at it, but most of it was not expected to start a company or go audience, we could participate in business plan competitions, once you had the plan written, which is kind of the next logical step. And we did that. But it’s it’s really rare to do that. I think there’s only like three or four other companies that have done it at OSU.

Eric Hornung 16:16
How did you feel about moving from Arkansas to Oklahoma?

Haley Keith 16:19
No, I wasn’t very excited. Stillwater is like the third largest town. We don’t have a mall, there’s no target. So I was kind of like, Well, I mean, you kind of want to OU but it’s fine. I really love it now. And we’ve been here for four years, and we’ve gotten really entrenched in the community. And it’s been really fun. But we’re also really, really eager to move back up north. So there’s our customers that are up there. And so Kevin, and I really talked about moving back up north towards Michigan, not Indiana, but Michigan.

Eric Hornung 16:49
How about Ohio? there’s a there’s a couple of great cities there.

Haley Keith 16:52
How do I thought about it? No, actually told him yesterday was like Columbus is really big into startups. Maybe we should look there. So maybe.

Jay Clouse 17:00
So you said not a lot of teams continue out of that program and start businesses? Is that a lack of interest in starting businesses on the students front? Or is it a complicated process in licensing that technology from the university,

Haley Keith 17:15
it’s a complicated process to license and a lot of the technologies, some of them, I think they kind of restructured the program. But back when I did it, some of the students were working on the technologies were a part of the class. So they had a personal interest. And those ones would tend to go further. But a lot of them too, are just kind of beginning stages, or maybe later stage. So I think one technology, I talked to like phi IE alumnus, and he had done it like five years ago, and it was the same technology done the same way. And this is different team did it, there was just not a lot of potential there. And so they kept re interviewing kept doing things, and there just wasn’t as much potential. So that’s one subset. The other subset is like mine. It was in the patented process, but it hadn’t really scaled. So if you couldn’t scale it, you didn’t really have anything, but you had a market and you could run with that market. And then there were the people who were working on the technology that needed to get an MBA, but often when you get a really passionate science person who wants to be an entrepreneur and an MBA, there’s a lot of clashing. And so sometimes that didn’t formulate as well, as expected.

Jay Clouse 18:18
How closely did you have to work with the technologists who is bringing that product to market.

Haley Keith 18:24
So our additive was developed at the material science lab in Tulsa, with the oversight and professor named Rhongy body and Nathan. And we work really closely with him. Because he’s amazing. I mean, so he’s a genius. But he is really passionate about student entrepreneurship, too. So we have a really great technical professor, founder. He works with students, students in his lab that we kind of help fund to enhance their knowledge of our product to get it further down the line. So Rhongy is not doing a lot of the development work. A lot of the students are that we sponsor at the university,

Eric Hornung 18:57
are those for you said three MBA in one STEM person, are all four people still working on the company?

Haley Keith 19:03
No, none of them continued after the class. So after the class, it was me. And I looked at my husband or my fiance at the time. And I said, Hey, do you want to do like a business plan competition with me, because you’re an engineer, you’re actually the only engineer that we had. And he had seen me work day in day out on this project. So he had the business plan. We went into the Oklahoma Governor’s Cup, which was just a statewide competition, and participated together got him out of his comfort zone he never really presented before. And, you know, he became really passionate about the project. It kind of melded both of our things together, like he was really passionate about aerospace. So super passionate about RV’s, and together, we ended up winning that competition first place.

Eric Hornung 19:44
Have you ever taken an RV road trip across the country?

Haley Keith 19:47
Not across the country, but we’ve done a lot across Michigan

Eric Hornung 19:51
I feel like RV road trip across the country is like so many people in America’s goal one day? Yeah. Never been in an RV until this last week.

Haley Keith 20:01
Really?

Eric Hornung 20:02
Yeah. I actually really enjoyed the experience, though.

Haley Keith 20:04
Yeah, it’s super fun. My husband’s really into camping. And I don’t really do camping. So he calls what I do glam thing. Like, once you camp in an RV, you don’t really want to go back the other way. So yeah, we grew up around them. And I really want to take a trip up the East Coast, like during the fall.

Jay Clouse 20:22
Can you explain to me the process? Haley, as you go out of this, what did deciding to continue on and build a company out of this class look like? How did that work?

Haley Keith 20:31
A lot of, you know, looking back, and it’s kind of a crazy story. But it was mostly just a lot of doors opening at the right time, I would have probably been fine. After the class, we won the first business plan competition to kind of table it. And almost for a year we kind of did, it was just this thing that we were still working on. And we were getting grants for these, we were really, we were really passionate about bringing the technology out to market, but we didn’t really know what that looked like. So I have a history degree and an MBA. So I can’t work on a material science technology, I’m just not qualified. My husband was getting an engineering degree, but also not a material science. So not very qualified to work on it either. So ultimately, it came down to we kept finding a market and really validating the market and really seeing that it was a big need. And so that kept driving us forward eventually to hire a chemist and a material scientist for us to develop the technology along with what the market was telling us. And so I think as we continued the grant, receiving grants and receiving business plan, competition awards, really helped further the drive that we had to continue going because it was just something that stuff people were so interested in and people really saw a need for. And so that all kind of came to a head in 2017, we got 2016 we got a grant from venture well, which is an amazing place that we work with and love them so much. So we did their stage two program and really kept seeing that there was this really big need. But we also needed a technical founder that we could trust. So in the midst of that we’re like, Well, how do we fund a technical founder, there’s not really enough to raise money for. And so on the way on the drive back from Indiana to Oklahoma after Christmas break in 2016 or 2017. I applied to every business plan competition, I could find, we got into several. And then we won second place at all the ones we have participated at, which turned into a lot of money. So at that point, we, we talked to Rhongy and said, Rhongy, we need to find a mini you. And how do we do that. And he came back to me a week later and said, I have BishMa and now Bishma our VP of r&d. And this was amazing. And he scaled the product super quick and has done amazing things in the lab. So after that, it was just kind of like well, now we have the team. Let’s go and we did.

Eric Hornung 22:46
How does that look from a cash versus equity? When you’re hiring someone that early? Who’s that important to the team without discussing their salary? Straight up on the back?

Haley Keith 22:55
No no no. At the time, it was like nothing, right? Like we had some of the business plan competition money we won was equity. So we couldn’t really get it until we raised. So we had some cash in the bank that allowed us to what we did is we kind of worked with him through the university. So we helped sponsor research that he was conducted to do at the university, which means the university is paying him. So that took a lot of like the admin stuff away from us in 2017, which was good as far as payroll and all that we just kind of went to him and said, Look, you’re going to be a really key part of this company. So equity is definitely on the table. And we negotiated from there. And I don’t really think he understood what he was really getting into at the time. So we were really fair, because we knew that like we were we were overly fair, I think because we understood that

Jay Clouse 23:39
you’ve mentioned a couple times that it was kind of in limbo or almost on the shelf, and you just kept finding this market. So it sounded like product market fit was almost finding you what were the indicators that you guys were receiving to show? Okay, there’s a market over here.

Haley Keith 23:53
Yeah, everybody we talked to was really excited and really interested. And we barely had a lot of information, we had technology that was developed back in 2014, that had done some testing in the years to come. So 2016, they’re continuing to test but it hadn’t scaled. And what we basically knew was that it improved toughness up to 100% in the lab, and you only needed to add about a .1% concentration. And just those two sentences combined, made people in the aerospace industry raise their eyebrows, made people in the RV industry, the automotive industry get excited, because the lamination and and toughness leads to less durability in composite materials and the shift, I think we came in at a really important time where the shift for composite materials was growing at an exponential rate, because metals were moving away. And so they wanted these composite materials to be just as durable and just as reasonably affordable as metals and to try to figure that all of that out with science is very complicated. And so we talked to them about delivery methods and how best it could be delivered. And, and as we kept talking to people, it just kept informing the business model that we have all we ended up creating.

Jay Clouse 25:01
What was fundraising like for you as a first time entrepreneur,

Haley Keith 25:05
so much fun. I love fundraising. I know it’s probably weird. I love it, it was really cool, really interesting to get to meet all of these amazing angel investors hear their stories, kind of find out how they got into it, and see what makes them passionate about working with entrepreneurs was really exciting and enticing to me. And because we’ve done so many business plan competitions, the structure of pitching and the structure of like, you know, pitch days or Angel funds wasn’t really different or new, because it’s kind of like a business plan competition. So we just kind of kept going in with that mentality of like, all right, we got 10 minutes. But really, I want to hear your questions. So I’m going to pitch in five, and I want questions for five, too, because I want to give you the information that you know and are aware. So I really enjoy the part of fundraising doesn’t mean I’m very good at it. You know, there’s definitely sometimes a barrier with not having all the technical knowledge and all the technical background or getting into a rabbit hole about your market and your sizing and how you found that because it’s kind of hard to explain. But I really enjoyed the process of it.

Eric Hornung 26:05
How did you strategically think about fundraising and your process to fundraise

Haley Keith 26:11
our process to fundraise and our strategy really like in the contacts and networks that we made with business plan competitions, and the networks we were creating at OSU and from their alumni system. So when we went into the rice business when competition, it’s kind of a whole nother world for business win competitions, as I’m sure you’re aware of her. So that network and that amount of angel investors that were there, we pulled on and we ended up going to visit several of those groups and do pitches with. And then the remaining and actually our lead investors are all OSU alumni who I was fortunate enough to meet as I worked with the entrepreneurship department at OSU. So after working as an admin, the entrepreneurship department kind of caught wind of what I was doing at Mito, and I was promoted, or I moved over into an entrepreneurship coordinator position where I worked with startups and companies who are trying to get up out of the incubator, so I coordinated events and all those things. And so with that, I got to visit with a lot of the major donors to the university and the entrepreneurship program and create connections there, which eventually led to finding our lead investors.

Jay Clouse 27:16
I’m not that familiar with the rice business plan competition. Can you give us a quick rundown of what that’s like?

Haley Keith 27:20
Yeah, the rice business competition is like American Idol. It’s crazy. So we’d been to several business plan competitions before rice, we participated in the Governor’s Cup, which is only Oklahoma based companies. And then if you win Governor’s Cup, you you got to go to tri state, which was held in Las Vegas, and it was Vegas, there was Nevada, Oklahoma and Arkansas teams all competing against each other. So still a very small pool. We participated after that at Baylor, which was one of actually my favorite competition. And that’s where we met Mobius or girl bio, we were second place they came in first because they were amazing. And that competition took people from all over the US and is a Yeah, like 13 teams who compete against each other. And they had a lot of Baylor based angel investors are kind of in that Texas, Dallas area. Rice, though, brings them in from all over. I mean, you’ve got Houston. So it’s an international kind of hub. And you get people with Angel groups and Angel ties from all over the world. And they accept companies from all over the world. So we have like some students from Denmark, who are just studying us and following us because they were a part of a class at Rice that was supposed to like follow a team and see how they do. So that competition brought in such a wealth of knowledge and a wealth of people. And there’s only like 500 people that come to the competition. And most of them are investors, the other half of them are teams. And I think it starts with 42 teams, there’s just a huge, amazing conglomeration of entrepreneurship, and interest in angel investors. And so the networks that you create there are really huge and the prizes are great, but a lot of the prizes go are straight from angel investors. So like we 90 thousand dollars there. And those two prizes, were angel investments into our company. So we have continued network access to them. And they’re really great.

Eric Hornung 29:10
What is Mito materials today, in your own words,

Haley Keith 29:14
I would say mito materials today is a company who started in Oklahoma, but has a far reaching opportunity to impact composites worldwide.

Eric Hornung 29:23
Are you guys in market,

Haley Keith 29:24
we are in the market, we are doing beta testing with a couple customers. So we’ve been in operation for about a year. So we could say that we started the business in 2016, just sure I filed LLC, but we launched in 2018, with the influx of capital through the National Science Foundation through the SPR phase one grant. So that was $225,000 that came in to fund our r&d. So we use that influx of non dilutive capital to drum up angel investment and the amount of $440,000 in 2018. And so we really been a full fledged company, all of us working out, you know, with salaries and everything for a year. And during that year, we focused heavily on scaling the product, because that was one of the big risk factors was we needed to make sure that it scaled, we needed to make sure that it worked in different applications. And so different resin types and different fiber types. And so we did a lot of testing to enhance and modify and discover what those results would be. And at that point, once we realized that we had something that wasn’t degrading results, that was actually improving results. And I think we only maybe two or three technical people. So we have a lot of business push. So I push it out into the market. And I said, let’s see what the market can do with this. And so we began actually selling product almost immediately after we really successfully scaled, which was in late August.

Jay Clouse 30:46
What does scaling mean in this context?

Haley Keith 30:49
Yeah, so we make a nano additive, you can’t see it with your eyes. But when it’s all clumped together, you can so it’s kind of like a it’s a powder. And so scaling, in our case meant in Tulsa, at the lab at OSU, we could only make 10 grams bench top, we procured assets that would allow us to make a kilogram of product. But that scaling process was mostly done on pen and paper. So because we could bench top it at 10 grams, we needed to procure equipment that could mimic the bench shot process, but also combine some of those processes into one machine. So Kevin and Bishma worked heavily together to decide what equipment would work best. We purchased those assets with the use of the investor funding and got them all into the lab, which takes forever, like people always tell you, oh, yeah, budget for this time, and then add three months. So right. So once we got into the lab, at that point scaling looked like, Okay, let’s try 50 grams, like we can make 10 Let’s put in enough product for 50 and see what happens and see what we can do and analyze. And surprisingly enough, Rhongy didn’t believe that this was going to happen. I mean, he he’s been surprised at what mito has done for the past couple of years. But even Rhongy was like, okay, Haley, like chemicals don’t scale that well, like it’s going to take a couple times. Don’t be upset if you fail. And we succeeded the first time. So we tried it again. And we’re like, all right, 50 grams work. Let’s try 75. And it worked again. And so we’ve continued that scaling process, we’re up to about 200 grams,

Eric Hornung 32:19
what is like, where do you need to be

Haley Keith 32:22
so kilogram a day is optimum, but we need the demand for a kilogram day. So I’m not going to put a bunch of chemicals in there to make a kilogram of product and then not have the ability to sell the kilogram. So our equipment can make up to a kilogram a day, we’ve identified some bottlenecks in the process, one of them being like we chose to buy a smaller filter at the beginning to save on asset costs to because we didn’t know if it would work. It did. So now we need to buy a bigger filter at that point a kilogram of day, no problem.

Eric Hornung 32:49
What is a kilogram a day get you? How does this priced, who who’s demanding a kilogram a day? What does that actually do? Like give me some context around what a kilogram a day means?

Haley Keith 33:00
Yep, so over 2 million tons of resin is used in applications per year. The applications for resin in composite materials include aerospace transportation, so RV’s cars now sporting equipment, you name it, like a lot of things are composite materials. And what’s in those composite materials essentially, is like you have a fiber matrix, so fiberglass, carbon fiber, or Kevlar, and then you have resin to adhere those fabric layers together to create the actual composite. Now most composites are like 70/30, some 70%, resin 30% fiber. So to go back to the number over 2 million tons of resin are used per year, one ton is over 907,000 grams of product, we sell our additive in grams. To do one ton would be a million dollars over a million dollars worth of our product, who demands a ton or a kilogram a day of product. You’re looking at people who are manufacturing these in assembly lines are on a day to day basis. So what we do, and resins kind of an awkward thing because I think I mentioned to you guys earlier, our markets are kind of like what I look at as a Venn diagram. So there’s 113 billion dollar composite materials market that’s growing exponentially over the next couple years. 7% cater. so the same thing with the resin market, the resin markets a $14.2 billion industry and the resin market is being pushed by the composite market to innovate and formulate tougher appoxies more enhanced modifier is to create better composite materials for newer applications. So both industries are growing at a rapid rate and you find Mito right in the center where we identify the problems that the composite manufacturers are facing right delamination and cracking in composite materials is a big thing and affects durability you have to pay warranties on it and it causes heart failure which could in some cases cost you lives. So that’s an issue thermal reasons activity in the use of semiconductors and other electronic applications is a really big thing to increase the glass transition temperature but also even an delamination thermal resistive it plays a part so mito can modify and enhance those resin systems to meet the needs of the composite manufacturers. So we go to the resin manufacturers and we work with them to enhance their formulation with our modifier additive. And then the composite manufacturers glean the benefits of all of that

Eric Hornung 35:27
if I was going to just for my own dumb brain, kind of try to clarify that you have like the 70/30 mix you talked about where it’s 70% resin 30% fiber, your additive goes into the 70% resin and then that kind of creates this composite like a stronger tougher composite.

Haley Keith 35:49
Yes.

Jay Clouse 35:50
And you said there 2 million tons of resin use and applications per year. One one ton requires 907 grams of your product

Haley Keith 35:58
one ton is 907,000 grams, total of resin. our additive goes into a .1% concentration of that resin so you need 90,700 grams of Mito to create one ton which equates to over a million dollars of revenue for Mito,

Eric Hornung 36:18
if we multiply that out times 2000 that’s the market for all Mito in a year.

Haley Keith 36:23
Yes, 2 million.

Jay Clouse 36:25
Can you give me an example of who an ideal customer is in what volume they would be buying Mito materials.

Haley Keith 36:34
Yes, right now we’re looking at mid market formulators. So right now our ideal customer is a resin formulators which means they take resin from resin producers like big players, Dao, who actually was acquired by Olin Tachyon to basically make a base resin out of commodities and they use that base whereas in these mid market formulators use that resin or those products to formulate on top of that and modify it. So we are looking at mid market epoxy formulators who modify their epoxy and create a product with Mito to enhance toughness and thermal positivity and composite materials. And they are selling about 10 kilograms or five kilograms a month or needing of that needing five to 10 kilograms a month of Mito,

Eric Hornung 37:22
this is a lot more numbers than we usually get, which I like love. So our deal memo is going to be fuego

Jay Clouse 37:28
fuego. So these resin formulators, are you in talks with a lot of them right now, are they saying hey, can you give me five to 10 grams of this like tomorrow?

Haley Keith 37:38
Yeah, so that’s what we’re working on. Now we’re selling just as you said about five to 10 grams of product and sample sizes, and we’re working with them to conduct testing. So we added a new revenue stream in 2019. That added some testing that we can do as Mito to enhance and clarify and quicken the process. Because sometimes when you give a guy a sample, they’re not going to touch it for a month. So it Yes, that’s what we’re doing. We’re working with these midsize formulators. We’re talking to them about their applications and their products. And we’re saying, okay, here’s what my toe knows we can do. And this is this is kind of the rub that mito is in right now, which is an interesting and good problem. mito conducted a bunch of tests in our lab, we did it with a bunch of different kinds of a proxy. So there’s vital esters and polyester and standard epoxy resins, we’ve tested it, all of them, a couple variants of all of them. And then we tested with different fibers. So fiberglass and carbon fiber, we’ve seen no degradation in any results. But what we were hoping for was one was going to just knock it out of the park. But because we’ve seen no degradation, we’ve seen improvements in all. So we’ve seen anywhere between 20 and 60% increase in toughness and certain applications, we’ve seen anywhere between a two to 10% increase in thermal receptivity or glass transition temperature, which is tg. And we’ve seen storage modules increases from two to 10%. So in those different applications, you’re getting different numbers, because all of the epoxys and vinyl esters are formulated differently. And then they’ll have different means and things that are added into the resin. That’s where the science got really complicated. So yes, we’re working with formulators. But right now we’re really trying to understand how our additive mechanizes within the resin types. Because once we know that we can understand which products to target more effectively, because there’s just a lot more variation than we were understanding in the market.

Eric Hornung 39:22
Are there any challenges with selling to all these people who have different methods of creating their own resins? And are there any like negative effects of adding Mito additive,

Haley Keith 39:35
it is not logistically complicated. So Mito strategically decided to sell our product as a master batch. So right now we disperse the product within resin systems that they’re sending, or that we’re sending a base resin of that part is easy. And that part is useful to them. Because then they don’t have to deal with nano particulates, it’s a lot easier on the safety data, though our our additive is non toxic and not harmful. As far as formulations go, we have not seen it degrade any qualities. So sometimes in resin formulations, you’re used to seeing an increase in toughness, but a decrease in tg, we’ve seen some like one to 2% decreases in tg. But their norm, they’re used to that they’re actually expecting that what they don’t see typically in the market is an increase in tg and an increase in toughness. And we don’t affect the reality, which is like the viscosity of the resin. That’s pretty unheard of as a solid additive. So our additive is particulate, but it doesn’t affect the reality because we go in at such a low concentration. So you need one gram of our product to produce one kilogram of resin,

Jay Clouse 40:38
TG being like that thermo grade is it heat,

Haley Keith 40:41
it is thermo, I call it thermorectivity, I don’t know that that’s entirely too technically correct. However, it’s the glass transition temperature. So think of it like you have a boat. And the boat is made of fiberglass, it’s covered in 70%, resin, epoxy and 30% fiberglass, that boat sits in the water water uses the sun reflects it. And then as the sun is just setting on the boat, your glass transition temperature is increasing. And most residents have a glass transition point where they melt. And so if the sun radiates on the boat, and it causes the glass transition temperature of the resin to rise, so much so that the resin starts to melt, you have an opportunity for bubbling, or delamination which occurs. So it’s really important and really, really effective to increase the tg and increase the toughness.

Jay Clouse 41:33
I wanted. I want to just get a quick note, you said earlier one ton of resin is $1 million worth of mitos product. Is that correct?

Haley Keith 41:43
at the price point? It is? Yes, right now.

Jay Clouse 41:45
And what does that break down to? Is that like a gram price point or a kilogram price point?

Haley Keith 41:49
we’re breaking it down into grams? Yeah, I don’t think that that’s eventually How will sell it once we get to that point, but it will be close enough to a million dollars.

Jay Clouse 41:55
What is the sales cycle for one of these companies? Like are these long sales cycles? Are they wanting this product so badly that they would move on it as soon as you can prove that you can produce it and scale it,

Haley Keith 42:06
it’s a bit of both, it is a long sale cycle because they have to formulate they have to add it to their product line. And they have to kind of wiggle out all of the the SDS’s and everything like that to get through the application process. So right now we’re looking at it as about a six to eight month product development time per company, because you get in, you start with some small tests, you see those tests are working, then you see, okay, where can we really apply this? And who really wants it? They go talk to their customers, would you be willing to try this new formulated product? etc, etc, etc. So the one of the bigger mid formulated companies were thinking about a six to eight month process to get a fully recurring large scale order.

Eric Hornung 42:46
What is the fully recurring large scale order contract look like? Is it is there a minimum order quantity? Is it like how are those structured?

Haley Keith 42:55
I don’t know, I’ve never done one. To Be quite honest, I’m open to anything? No, I think I think it would look like not necessarily a minimum quantity but a recurring order. So say the formulater has a customer who’s going to use this in a specific application, which is kind of how it works. Like they get certain projects, they need the specs. So they do these projects. And they’re going to do these run times, they would then order based off of that project scope. And we would accommodate that, that contract,

Eric Hornung 43:22
how many total customers are there in the United States.

Haley Keith 43:26
So there are what we’ve identified is around 70, eproxy formulators in the United States, and the epoxy formulaters have, obviously a large portfolio of products, it doesn’t mean that that’s only 70 products we could ever go into. But there are about 70 that we’re targeting. In addition to that, what we didn’t expect is we got international interest really fast. So we’ve been talking to some companies in Taiwan and Japan, and overseas that are very interested in our product and are interested in testing. And so we’re developing those paths as well.

Jay Clouse 43:54
I was reading a press release of one of the most recent grants you got. And it had a line that said expected to grow to 200 to 300 employees in the next five to seven years. What does that projection mean?

Haley Keith 44:07
It’s interesting. So that’s true. So I was listening, I’m going to flip this question on you. I was listening to your podcast the other day and he talked a lot about whether you’re building a product or a company. I think that’s an excellent question. And I think it’s one Mito has gone back and forth on my friends at grow bio are so passionate about growing a company. And I think their their strategy and their I’m sorry, Mobius their strategy and their things are amazing. And I really respect that as we continue on this path of developing Mito, when we look at what’s going on in the market, and we look at our space, I think we’re more into growing a product portfolio. And so the press release talks about going 200 300 employees. And as I delved into that more and worked with investors more, I looked at an investor and said, You know, I don’t know that I’m going to ask you to infuse capital into a bunch of hard assets into the ground to develop an additive, it’s essentially a manufacturing plant. And I just don’t think I’m gonna do that. I think instead, I’m going to develop a product portfolio that has we have two patents around our current formulation, we can develop more around them and they’re two fully granted patents as of 2017. We can develop more patents around this portfolio and become a premium added buyer into different resin types. For weekend custom Formula One for vinyl Esther and a polyester and an epoxy by using elements of our formulation and develop this product portfolio as a premium additive that could be used as to enhance a larger company’s portfolio that has the manufacturing methods to scale and to grow to the one ton a year or one ton and you know, more than one ton of year but and I think that that’s where Mito is, is probably looking to go.

Jay Clouse 45:46
And so that’s to say you’re thinking you would keep a leaner team and build out that portfolio.

Haley Keith 45:55
uh huh

Jay Clouse 45:56
What’s the biggest obstacle for you right now,

Haley Keith 45:59
the biggest obstacle for Mito is getting funding to get the time to get the customers to get to the recurring sale. We are at this awkward cusp where we worked with investors and we talked to them. And our capital influx is running low. We’ve got a million dollars of grants and projects on the line that come in around June and August, we are super hopeful that we get that one of those is the SPIR phase two that we should hear about in August, which is $750,000 of r&d that we could use to develop the additional formulations to enhance the product portfolio. Those are major milestones that we’re our company’s waiting on. As our capital influx is running low, we’re at this really critical point with customers where they’re beta testing, and we’re waiting for some results. And the results are looking good, but they’re not wholly ready to make some recurring orders. And that makes investors nervous about investing at this critical time. So that’s the biggest obstacle we’re facing right now is we’re in this really awkward waiting game waiting for customers to respond to their testing data. We’re seeking more customers. And we’re waiting for these grants to pour in so that we can do some really intense work on developing the portfolio.

Jay Clouse 47:03
Have your existing investors been in Oklahoma,

Haley Keith 47:06
they are in Oklahoma and Texas. And then we have one out on the coast through impact assets and venture Well,

Eric Hornung 47:12
were you picky about which investors you let in knowing that this is a completely different type of business than most angels are used to investing in,

Haley Keith 47:21
we were not picky. Sometimes I wish we would have been because it’s really hard to explain to them. In times like this, where it’s as much as I need to explain as much as I need to explain it. In a context that works for RV’s and airplanes. We don’t go directly into RV’s and airplanes like we’re back in the supply chain. And explaining that process. And getting them to understand it, when they’re not familiar with the industry and they’re not familiar with chemical and b2b is a lot harder than I think I initially intended. I initially expected given that after we raised our round, we were able to find some really, really wonderful advisors who have knowledge of this space and we communicate with actually are on our board and we communicate with them on a weekly basis. And it is we’re so thankful for them, because then they can actually go back to the investors and say, like, Look, and I had this happen to me recently, like where we had a really great we have such a great advisor who’s got experience in the space bringing small additives to the market and the chemical space. And I had a call with our investor group and the investor group was kind of like yeah but like you’re just kind of on that cusp And, and he ended up going to them and he’s like, no, they really got there in an interesting place. Right? Like they really have something going. This is kind of what it looks like in the market. And this is why and this is the way that this market works. So it’s been really helpful to have those advisors,

Eric Hornung 48:39
How big can this opportunity get

Haley Keith 48:41
this opportunity could will be a multimillion dollar opportunity. Our projections, look at 50 to $100 million in sales in the next five to seven years, which I think is a really big opportunity. What I believe will happen is we’ll be acquired before we reach those sales efforts because of the manufacturing constraints that will have as a small company, which would then mean a really great opportunity for investors,

Eric Hornung 49:06
who are the most active m&a candidates to acquire Mito,

Haley Keith 49:11
Solvay, Olin Huntsman, byk, all of those have acquisition, arms, 3m, all those have acquisition arms, all of those companies, we’ve been in conversation with their venture arms already, just because they’ve been looking at the early stage tech that we’re developing. And so a lot of our job is really just de risking it and getting to a point where we’d get customers to buy into it and say, that’s really something, I think all of those companies could glean a lot from adding a premium additive to their portfolio that does this kind of thing. And it’s interesting, too, because when you look at our competitors, as well, those would be almost some of our competing companies. But because of the nature of this space, it’s not very common to see a startup that does just this part of it, most of this stuff is developed in the bigger companies kind of hush hush, and then they push it as a we have a toughening agent, where we have this modifier that does these things. So we’re kind of in this awkward place where we’re, we’re not competing with them, but we have something that they might be really interested in. And so we’re doing a lot of work that way. And that’s part of the struggle too is trying to find companies that want to partner with you when they kind of are doing that same thing. And so that’s some of the things that we’re working with are working through

Jay Clouse 50:19
SPIR phase two is contingent on getting, like a buying or a customer essentially, right?

Haley Keith 50:26
Yup

Jay Clouse 50:27
And it sounds like you’re doing this beta test is that the path you’re saying? You’re saying like okay, we check this box, we have this beta test over here, that should be a customer that should get us SPIR phase two in August.

Haley Keith 50:37
We have multiple beta customers. So it’s not just one, we have about six that are beta testing. And that’s what we submit when she submitted our SPIR phase two application in February. So yeah, we submitted with those beta testers and said we have and we had contracts kind of coming down the pipeline. So we said, you know, we’ve definitely been increasing our sales efforts. We have a pipeline build out, we have investors, we have the technology that works. And we have the patents that were granted. And so not only we felt like it was a pretty strong application for the phase two. And we’re very hopeful and confident, valuable, that will receive that.

Jay Clouse 51:06
Talk to me about at this point, you know, your husband’s a part of the company, what’s it like working with your spouse on a company like this?

Haley Keith 51:15
It’s amazing. We love it. We love every minute of it. We are very skilled in different ways. So he’s an engineer by trade. And his mind works that way. So he’s really into the numbers, but he also because I kind of snatched him. So early on, in the CIE program, he got a lot into the business as well. And he did all of the pitch competitions with me. And so we basically live and breathe the company. It was essentially our first child like we just had a baby. But Mito has always been our first baby. And so I remember pitching like super nine months pregnant, and telling investors that exact same thing. This is our first child. Yes, Kevin and I work together. But we really do. We really enjoy it because he is, I think one of the most crucial parts of this company, because he can understand the technical portion communicate with the technical guys. He built the chemical lab like he he figured all that out. And so he works with the the technical people, the technical guys that we have on our team, and then goes and talks to customers and creates those project management scopes that looks and say, okay, you need these tests done, we’re going to get you this much additive da da da da da. And then I can go out for strategic partnerships help with the sales and business development efforts, and really kind of keep the ball rolling on the admin side. And then you’ve got Bushma, who just does tech. And I think together that we’ve separated it out, but we work cohesively as a unit. And it’s working really well. I love working with my husband,

Jay Clouse 52:39
what is investor response to a husband and wife team.

Haley Keith 52:42
So we didn’t get very many push much pushback from it, which I thought was good and exciting, that we’re at a time where that wasn’t as much of an issue. But after having a baby, I was really worried that it was going to affect it a lot differently. I think I actually hid my pregnancy from my investors, pretty much until I was having the maybe I was like, I got on a call like quarter four. And I was like, I’m gonna be out for maternity leave, the team’s got it. And they’re all kinda like, you’re pregnant. Yep. Moving forward, but it hasn’t really been that much of an issue. I think in times of extreme cash crunching where you know, the capital is running low, and you’ve got three people on salary, two are husband and wife. That part gets a little hairy because you’re dealing with livelihoods, right? Like there’s no safety net. And that’s a problem. That’s an area where the investors kind of get a little iffy. But other than that, it hasn’t been that that rush.

Jay Clouse 53:36
Awesome. Well, haley, this has been really, really great. Thank you so much for coming on the show. If people want to learn more about you or about mito materials after the show, where should they go?

Haley Keith 53:45
So you can find more information at www.Mitomaterials.com MITO mito materials. We have a Facebook page and a Twitter that are sometimes pretty active and sometimes not. But we would love for you just to reach out via email. I think that’s the best way. So my email is Haley h al e y @ Mito materials. com. I look forward to hearing from you. Thank you guys so much for having me on. I hope this was useful to you guys. I really enjoyed talking about all this stuff with you and all of our all of our adventures that we’ve gone on

Jay Clouse 54:18
All right Eric, we just spoke with Haley Keith, of Mito material solutions. Where do want to start?

Eric Hornung 54:25
Let’s orient ourselves here. I feel like it’s been a while since we’ve kind of described the listener what a what this is, why are we doing a last section Jay

Jay Clouse 54:35
Well, in our final section of each show, which we call our debrief or a deal memo, we are taking a look at this as an investment opportunity. And loosely we’re trying to answer four different questions. One, how committed is this founder to what are the founders chances of success in this business and in life? Three, why has this founder chosen this business? And for what does winning look like in terms of revenue and my return?

Eric Hornung 55:01
Yeah, it’s crazy, because three of those are so founders specific. And we spend about a third of our time talking about the founder, but almost two thirds of every interview talking about the opportunity.

Jay Clouse 55:13
That’s right. So are you saying that you would like to start by talking about Haley as a founder,

Eric Hornung 55:17
I think we do that I think we dive into Haley as a founder. And I’m going to start with the idea of commitment, because I think you have to bring in Kevin here. When you talk about Haley and Kevin, they are doubling down Jay there’s the risk profile of taking on a new business venture by yourself or joining a co founder who is not related to you, there is a double down risk when you both are so tied to one entity. And its success.

Jay Clouse 55:49
That is why I asked her the question because I just genuinely didn’t know, what would the response from investors be of being in a essentially co founding relationship with your significant other, cuz in some ways, I could see it as a positive too right? you know, you’re you’re with the business pretty much all the time, which certainly have its own challenges, from both a business perspective and a relationship perspective. But I could see how it could be seen as a positive.

Eric Hornung 56:14
From a question of commitment, I think I am on the side that it is absolutely a positive. I mean, it showing you have extreme commitment to making this succeed.

Jay Clouse 56:23
And aspect of this interview that I really enjoyed talking about and dig into every time we have the opportunity is technology being commercialized out of a university. And I’m not bringing this up in the form of the opportunity just yet. I want to talk first in terms of the founder, still Haley, she came into this program, looking to get an MBA, joined a program that seemed interesting, and is one of what sounds to be very few people to continue with the technology after that program, and building it out. What I think is interesting about programs like that, is that typically, it’s not the creator of the technology, driving it forward. And as an investor, I don’t know how I’m looking at that. It’s great that the man behind the technology is still so involved, that would be a plus in my mind as an investor. But it does seem, in most situations like this, I might have a little bit of a shadow with commitment. But as you brought up, there is other signs here, that commitment is there.

Eric Hornung 57:23
It’s funny, she came in for her master’s in Business Administration and left administering a business about that.

Jay Clouse 57:30
Wow, wow. It’s a very different background than we see a lot of times, you know, she came in with a little bit of experience in RV’s as she spoke to, but had a background in communications and history, then moved into an administrative role. And now is the CEO of this company, and, quote, loves fundraising. What a wild answer to how’s fundraising going. We’ve never heard anything like, Oh, I love it. I could do that all day. It’s my favorite thing. That’s know insane. I mean, it’s great. But it’s insane. Definitely encouraging. You know, you and I are both working through the release, supposedly working through the venture deals class from Brad Feld and the Kauffman Foundation, and one of Brad Feld frequent quotes, is that in fundraising, do or do not? There is no try. And it seems like someone with an attitude that loves fundraising is has the right mindset for going into a fundraise.

Eric Hornung 58:26
Yeah, I have very limited doubts about Haley as a founder from a pure energy, commitment, love of the game aspect, she does have her MBA. So I think that those classes probably prepared her pretty well for business, my biggest shadow is probably centered around the industry. When you have an industry that’s only 70 participants. That’s a small network of people. And that means they do things likely a certain way. And there’s insider information. And then there’s general business practices. So learning that inside information is going to be a steep learning curve. And actually, I think I use steep learning curve wrong. I think it’s actually a shallow learning curve. But people use steep learning curve wrong. Anyway, random aside, it’s going to be hard to kind of climb up that hill quickly.

Jay Clouse 59:19
In an old school industry, very old school, an old school industry that is probably slow to adopt new technologies. But you know, something that Haley told us, she’s not directly competing with a lot of these companies. She’s adding to their business. And so she’s in a unique space of opportunity, also unique challenge, but a unique space of opportunity for working and interfacing with these companies and their materials,

Eric Hornung 59:44
I’d push back a little bit on the idea that they be slow to adapt new technologies. I think that this space is constantly iterating on itself. They issue tons of patents, for resins, for additives for all kinds kinds of stuff in the chemical space. You have huge r&d budgets that are constantly churning new technology. I think what the concern is, is an outsider coming in, not the actual evolution itself.

Jay Clouse 1:00:14
So let’s dig into the opportunity in the model here a little bit, because we did get a lot of numbers, which is super fun for us as a couple of math loving guys from the Midwest.

Eric Hornung 1:00:24
Yeah. Well, you know Jay, in addition to getting his venture deals degree online, is also pursuing math school, I’ve heard,

Jay Clouse 1:00:33
I would like to get better at math. I will say that, you know, here’s what really grinds my gears. Let’s go back into my freshman year of college real quick.

Eric Hornung 1:00:41
Yeah, let’s make this let’s make this deal memo about Jay I’m ready.

Jay Clouse 1:00:44
I jumped into a calculus course, which was kind of just prerequisite with the exploration degree that I was doing. I had a professor who only had one arm, and he would take notes on the overhead projector. And it was clear that the arm he still had was not a dominant hand of writing. And the notes that he took, were not the actual math problems. He was he would say a math problem. He would say write this down. And then he would write write this down on the overhead projector, and then he would speak all the numbers and all the things you actually need to know and write down. And I dropped out of that class.

Eric Hornung 1:01:22
Intro math at most state universities is not where the greatest teachers go. It’s where the best researchers go. So they’re only there because they have to be.

Jay Clouse 1:01:36
Well, I will credit that class with part of the reason that I went into business because that is where I could take business calc two, which was significantly easier.

Eric Hornung 1:01:44
The good thing about business calc two is that that is significantly harder than the math we have to do here in the deal memo Jay let’s talk about our inputs. What do we learn in this interview?

Jay Clouse 1:01:55
So here’s what we know. We know that there are 2 million tons of revenues and applications per year. We know that materials goes in at either a .1% concentration, which is what I thought I heard in the interview, or a .01 % concentration point 01 percent concentration, which is what is on their website. We know that there are 70 epoxy formulators in the US might have materials focuses on mid market, epoxy formulators. And those mid market epoxy formulators need five to 10 kilograms per month of Mito materials.

Eric Hornung 1:02:29
What we don’t know is a price point that is probably our biggest outstanding item. We were told by Haley that potential sales for the company projected sales for the company are somewhere between 50 and 100 million in the next five to seven years. We don’t know if that’s cumulative, so 10 million a year or, or something that is run rate that they’re expecting in five to seven years. So Jay we have a lot of breadcrumbs here. And I think what we can do is kind of play with this little bit to say, Okay, what is potential market demand in terms of grams? Can we back into some sort of idea of a price point. And let’s try to do that. So first, we know that that 2 million tons per year, number is solid. What that means is depending on if it’s .1%, or .01 percent, that there are either 200 million grams of additives potential in the total addressable market, or 2 billion grams in the total addressable market. The big difference, obviously, but it gives us some semblance of size,

Jay Clouse 1:03:37
good alliteration,

Eric Hornung 1:03:38
some semblance of size, you like that. So if we’re looking at a particular price point, I am on fire with alliteration, then we can kind of get a broad understanding of what this market is we know from Haley and some research that she sent over at the total additives market is somewhere in the $3.4 billion range, we would expect this specific additive is some subset of that. That doesn’t give us much Jay we tried really hard, we really did, we really put a lot of effort into the numbers that we were given trying to kind of solve this puzzle. Another way we came about it that we didn’t get a great answer for either is taking those 70 customers and their five to 10 kilograms per month estimate and kind of working that out. So 70 times the five to 10 kilograms times 12 months, and you end up with 4.2 million grams to 8.4 million grams. Now, if we take Haley’s 50 to 100 million at face value, and say that that’s a yearly run rate, and these grams are a yearly run rate, we can back ourselves in to a $11 and 90 cents per gram seems high, from my estimation. But again, this is an early company, and prices are going to go down, it’s a commodity, right now, they might have some pricing power. And as they reach economies of scale, in a traditional manufacturing business, that price could shoot down. But that’s kind of what we backed into Jay

Jay Clouse 1:05:12
we tried really hard, guys, as soon as we said that, this is going to be easier than college level calculus, we promptly realized that all the breadcrumbs we received in what we thought was an exciting number of numbers, did not give us all the right inputs that we needed to really come to a solid conclusion, and get some solid numbers here, we spent probably 20 minutes realizing that there are two different forms of the word tons. And that was a fundamental misunderstanding.

Eric Hornung 1:05:39
What I will say though, is when we get to that $11 and 90 cents, price point, and we plug that back into those 200 million grams per year, you get a total addressable market of $2.4 billion dollars, which fits kind of nicely into that 3.4 billion that we got from Haley, maybe a little larger, maybe a little small, to be honest, I’m not sure. I just feel like as a sense, check. We’re not that far off.

Jay Clouse 1:06:08
So Eric, all that said, What are you looking for from vital materials in the next 6-18 months?

Eric Hornung 1:06:13
I want to hear more about the contract negotiations. I don’t I don’t need to see a signed contract. That’s five to seven years of deliverables and a schedule of how many grams and all that stuff, what I want to see is the economics behind the contract I want to hear about, okay, here’s what it looks like it’s a, it’s going to be a three year contract with a decreasing price point, or it’s going to be this price for one year, and then an option or like, tell me more about how the contract negotiations go, that’s going to tell me a lot about the demand in the market. And it’s going to tell me a lot about how the Mito materials team is progressing through customer discovery.

Jay Clouse 1:06:57
I’m looking for a couple of things that were said fairly directly to us. The first being how these continued experiments at scale are going from item materials, if they’re trying to get up to this five to 10 kilograms per month for each of these mid market epoxy formulators. And they’re trying to scale to a kilogram per day of production. Right now they’re at about 200 grams. I want to see how that scaling is going. Because it seems like there might be some concern there. And second, I want to hear how things land with the phase two of the SPIR grant that they applied for that $750,000 hanging in the balance, it seems like they have a pretty good lead on that with some customers. And that could really afford some runway to continue that exploration of scaling, as well as working towards some of those contracts that Eric is talking about. So guys, we’d love to hear your thoughts on this episode. Feel free to email us hello@upside.fm let us know what you think. If you know any other hard science companies, we love talking to hard science companies, you can email those to us as well. We’d love an intro. Of course, anytime you can tweet at us @upside, FM, we’d love to hear from you. Otherwise, we’ll talk to you next week.