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Men in particular are really bad at going to the doctors they hate doing so. They hate pain. Everyone hates pain, right? So a year in non, it’s a noninvasive test kit and the and the and the it let’s people getting an immediate instant result and in an easy to understand words. So people in a binary response to a binary question. If you have I, am I pregnant? Have I got a UTI? Have I got diabetes? Yes or no? And that’s what this does is it tells them.
Jay Clouse: 00:00:25
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: 00:00:52
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 cohost, Mr Korean barbecue himself, Jay Clouse. Jay. How’s it going man?
Jay Clouse: 00:01:07
What’d you think? There’s a first time for everything, my friend and last night it was my first time having Korean barbecue.
Eric Hornung: 00:01:13
I’m glad that I could take your Korean virginity.
Jay Clouse: 00:01:16
What? Well that makes me very uncomfortable. But Korean barbecue uses a mechanism that’s not quite Hibachi, not quite well. It’s nothing like Mongolian barbecue. It’s all very different. They basically say, here’s, here’s some raw meat. We’re going to give you a very hot stove in the middle of your table and the rest is on you.
Eric Hornung: 00:01:42
Right. And they also give you a bonchon, which you thought was pretty interesting.
Jay Clouse: 00:01:45
Is bonchon the little bowls of stuff.
Eric Hornung: 00:01:46
Yeah. Bonchon’s a little bowls of stuff around the outside.
Jay Clouse: 00:01:48
The most exciting part about the bonchon was I’m a, I’m a very much a completist type person. Yeah. Once I started something, I got to finish it and so at one point I saw there was a couple pieces of Tofu bon chon left and I said, I’m going to finish that. And I did. And she said, do you want more? And I did. So she brought more, but I didn’t finish that. I didn’t realize it was a olive garden. Bottomless breadsticks type situation.
Eric Hornung: 00:02:12
Yeah, you’re definitely, you’re definitely just picking at that while you’re also eating your food and you’re mixing it all together. It’s, it’s a good stuff.
Jay Clouse: 00:02:18
That Bulgogi which we didn’t even realize was meat at the beginning.
Eric Hornung: 00:02:22
I didn’t know what that was.
Jay Clouse: 00:02:23
Didn’t know what that was, but once you throw that on the grill, that was good. I think that was the best meat there.
Eric Hornung: 00:02:27
I liked the filet the best, but I’m a filet guy.
Jay Clouse: 00:02:30
Yeah, that’s fine.
Eric Hornung: 00:02:31
What did you think about the Soju?
Jay Clouse: 00:02:33
Soju which is not unlike sake but not sake. It was good. Very smooth.
Eric Hornung: 00:02:39
Yeah. I thought that was pretty good. We wanted to get the premium soju but they were out so we’ve got the standard and the standard was still really good.
Jay Clouse: 00:02:45
Still pretty good. Still better than you’re a well gin and tonic, which is the staple of my alcohol diet.
Eric Hornung: 00:02:51
Yeah. It’s weird that you drink so much well gin and tonic.
Jay Clouse: 00:02:54
Why is that weird?
Eric Hornung: 00:02:55
t’s just like, I don’t know. What are you 22?
Jay Clouse: 00:02:58
No, it’s does the job done.
Eric Hornung: 00:03:01
That’s true. I mean, but after a couple of those you definitely wouldn’t like pass alcohol test or anything like that. I get
Jay Clouse: 00:03:06
Well, most things, unless I’m drinking it neat, whatever it is neat. If I’m just going to get a mixer like I don’t care. I’m going for cure utility at that point
Eric Hornung: 00:03:15
I’m a red wine guy. Yeah
Jay Clouse: 00:03:17
Yeah. We’re talking a lot about alcohol here.
Eric Hornung: 00:03:19
Can you just tuck to alcohol on a piss test?
Jay Clouse: 00:03:21
I think you can.
Eric Hornung: 00:03:22
Jay Clouse: 00:03:23
I don’t know. I don’t know either.
Eric Hornung: 00:03:24
I guess we’ll find out.
Jay Clouse: 00:03:25
Speaking of Piss tests, today we are speaking with Luke Heron, the cofounder of Testcard. Testcard is a medical diagnostic test contained within a traditional postcard. This unique patent pending flatpack product is embedded with three fold out urine dipsticks. The accompanying mobile application turns a mobile phone’s camera into a clinical grade scanner and provides the user with an immediate and accurate result from the test card communicated and easy to understand language on the phone screen.
Eric Hornung: 00:03:56
How am I supposed to conduct an interview and say the words fold out urine dipsticks? I love it. It’s going to be really hard for me. I’m going to laugh a couple of times in this interview.
Jay Clouse: 00:04:06
Have you ever seen the movie Donnie Darko?
Eric Hornung: 00:04:08
I have seen the movie Donnie Darko.
Jay Clouse: 00:04:09
One of my favorite parts of Donnie Darko is when Drew Barrymore says the two most beautiful words in this English language, our cellar door. I would argue that fold out urine dipstick should be in the conversation of the most beautiful phrase in the English language.
Eric Hornung: 00:04:26
I like that. I like that a lot.
Jay Clouse: 00:04:27
The company was founded in 2017 it’s based in the UK. They’ve received almost $2 million in funding to this point and before we got to CES, which is where we’re recording this. We’re here in the blue microphone podcast suite. Before we got to CES, I got an email from Luke pitching us on being on the podcast and we were walking around the show floor yesterday, ran into him and said, hey, I got your email, super interesting product. He showed us a quick demo of the postcard, which is literally a postcard and we said, that’s interesting. Let’s get him on the show. Didn’t ask him a lot of questions. Save those for the interview. Maybe we’ll do a live test on the show.
Eric Hornung: 00:05:05
Jay, are you going to do a live STI test on the show?
Jay Clouse: 00:05:08
I was thinking I would do a live pregnancy tests in the show.
Eric Hornung: 00:05:10
There you go. That one I think we’ll know the answer to.
Jay Clouse: 00:05:14
I Dunno. I Dunno what, what they have available, but it seemed like they have something close to eight different tests that they can provide right now, which it looked like a pretty compelling product to me. The idea that you get this test in the mail, you do your business in a cup, you dip the postcard paper into it, you use your phone scanner to give you an immediate result. I think you’re seeing a trend here of privacy and what people want in their products, especially as it comes to medical related things.
Eric Hornung: 00:05:41
Yeah, I completely agree. Well, let’s learn a little bit more about dipsticks in this interview and let’s hope that Soju doesn’t show up on the, on the test. Okay.
Jay Clouse: 00:05:52
If you guys have any thoughts on this episode, which I’m sure you will, please tweet at us @upsideFM or email us email@example.com and we’ll get into this interview here with Luke.
Eric Hornung: 00:06:04
Hey guys. Wanted 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, Jay and I said that you the listener, will 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 pod co’s. 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: 00:07:12
Luke, welcome to the show.
Luke Heron: 00:07:13
Thank you for having me.
Eric Hornung: 00:07:14
Great to have you here, here at CES. Pretty cool experience thus far. It was awesome. We ran into you yesterday.
Luke Heron: 00:07:20
Yeah, that’s right.
Eric Hornung: 00:07:21
Got To stop by the booth and actually see the cards.
Luke Heron: 00:07:23
Yeah, that’s great.
Eric Hornung: 00:07:24
So on upside, we like to start with the background of the founders. So can you tell us about the history of Luke.
Luke Heron: 00:07:29
The history of Luke? Okay, well I, Uh, I’m a high school dropout. I left school when I was 15. I then ended up stuffing envelopes, the a a investment bank, which got acquired by Merrill Lynch and I ended up spending six years there, ending up on the private client trading desk, which isn’t an unusual way of ending up in a job, which I think most people on my desk had at least one degree. I then felt I’d missed out on university. So they’re very pompous admissions essay and got accepted into an Andrews University in Scotland at the same time. Prince William was there instantly, but I didn’t actually believe he went there for at least six months. Cause here, yeah, I never saw him. The only evidence was this sort of Porsche Cayenne driving around the [inaudible] and now I’ve been involved in a number of startups since then. Really? So I did a fintech startup when I was at St Andrews, which I sold. I dropped out of university. I’m a, I’m afraid I’m a serial dropout really? So as startups
Eric Hornung: 00:08:20
Don’t leave us, don’t leave us man. We need you for at least another hour.
Luke Heron: 00:08:24
Is there anything that I’ve managed to sort of stay at? I mean I’ve had laser failures, you know, I’ve had at least four companies, five companies now that have gone belly up. I think you said SAP, I’m not sure if you can say that on the show and on it. Oh yeah, we got both south. I’m belly out and say I’ve had a couple of small exits, but Testcards is where I’m at now and have been for the last 18, 19 months.
Eric Hornung: 00:08:44
I want to ask a question about, we’ll get to Testcards in a second. You hear about these people who start in the mail room and then make their way to a trading desk and that happens a lot in finance or you hear the story about it, but this seems like it’s actually, it actually happened. I’ve never actually had the, well, what does that look like? Like you just, you’re all of a sudden you’re packing envelopes. Then all of a sudden what you stumble on the desk and you’re,
Luke Heron: 00:09:03
Yeah, I wasn’t just, I wasn’t just stuffing envelopes. I was also Merrill Lynch, you had to, the lessors had to have a signature that looked real. So we had like a hand stamp and I used to take great pride in sort of smudging the, the tail of the signature to add that extra level of authenticity. I didn’t come with it. Someone clearly spotted my, my final sanctions to detail and allowed me to climb the ladder a little quickly, the most people. But no, I did a whole bunch of jobs at Merrill Lynch. I ended up on, it was called the checking desk where you’re sort of checking trades that have happened in the previous trading session and, and making sure that they settle quickly. And then I ended up, uh, on a best execution area and then ended up in private clients really by accident. But yeah, it’s, it’s, it was, uh, an interesting, uh, six year, five, six, five, six years.
Jay Clouse: 00:09:52
What is it about the education system that just wasn’t for you? Why were you like this?
Luke Heron: 00:09:56
I was a rebel. I did, you know, I think, I think education has definitely changed a lot since their mom. I mean, my kids love school, so I’ve got, I’ve got three children, two of whom are school aged kids and, and they, they, they absolutely love going to school every day. I hate it. I thought it was, um, it was a waste of time. You know, I either it was something that was interesting and was the subject, if I wanted to know about it, I’ll go and find out about it myself. And if I wasn’t interested, I wouldn’t pay attention. So I think that that whole one size fits all approach with education has got to change. I mean it’s, I think that it’s going to be the next massive area that needs to be disrupted is, is, is educate kids education. Not, not, not not university, but kids’ education.
Jay Clouse: 00:10:34
So what types of things were interesting to you at the time that you were doing instead?
Luke Heron: 00:10:37
I entrepreneurship, I loved entrepreneurship from a really early age. Um, I, I set up my first business at the same time as I left school. So I set up a company which sold magic coin tricks. There’s a magazine called Abracadabra, which show which sells. I was interested in this sort of thing, but back in those days, but there that, there was an advert where guy was making precision coin tricks. So he was, he was sort of a, um, he had a lathe and even sort of chipping away at these things. So I got in touch with him and, and, and repackaged his sort of wears and started selling those. And when the Internet came along it was, it was, um, open season for, for that and from many other things.
Jay Clouse: 00:11:11
So yeah. Talk to me a little bit about some of the things that went up. It didn’t work out for you. What were you trying?
Luke Heron: 00:11:16
Okay, well, I’d probably most notably, I had an APP called bypost, B-Y-P-O-S-T. So it was a postcard APP. It let you take a picture with you, with your phone and send it as a real printed postcard that got funded. Um, it had incredible traction. It was actually at one point, it was one, 5% of iPhones in the UK had hundreds and hundreds and hundreds of thousands of dominates in any UK. And, and globally. It was number one in 22 countries in the ios, chart. And that’s not in a category, that’s, that’s overall in lifestyle. I think it was number one in 50 countries, so had incredible traction, but I was never able to build a team that was I the one on my side mean unquestionably it’s failure was entirely down to me, but having a cohesive team and making sure that everyone is on the same page and and, and wanting to execute the same vision and grow the company in the same way and shares your ambition is really important and I should have been more ruthless early on. I wasn’t but I mean they’re, they’re, the APP still exists. It belongs to a low note holders as is typical. You can get funding with equity and get funding with lunar holders. So I had secured loan at holders and they ended up owning the assets.
Eric Hornung: 00:12:23
One thing that we hear from entrepreneurs is this kind of fear of failure and that like the idea of failing and I’m like ruining your reputation if you take on funding and fail. But one thing we hear from investors or I’ve heard from investors is that’s not going to hurt your reputation. You took on funding and it went up. What does that mean for your reputation with the investor community in your kind of area?
Luke Heron: 00:12:47
Uh, it’s a great question. I love that question. I’ve never actually been asked that before. Uh, I mean I guess it’s something reputation is something that everyone worries about more than anything else. For me, I still keep in touch with the investors that ended up owning the assets by virtue of this kid. Low note. In fact, I visited them at their office, try and help them with some technical issues any about six weeks go. So and that, that’s that two or three years after it’s its, it’s his failure. So I think people understand, don’t they? I mean there’s, I guess, I mean in the UK we’ve got a completely different ecosystem really. I mean mean America is a far better country to, I’ve got to be careful what I say here. Actually, Americans generally embrace entrepreneurship in, in a, in a far more pragmatic, open minded and positive way than Brits do. Brits are, uh, I think on the whole pretty bad at failure. Generally I think they will say bad success. And by bad it’s success. I mean, we’ve got a terrible history. History is littered with British companies that have x did way too early, this whole forever mentality in the states. It’s my eyes by Zuckerburg really hanging on to Facebook as long as he did, you know, I think that you’d never have had that story out of the UK. I mean, Facebook could easily come out of any university, including a British one, but it would have asked it to Yahoo for the billion dollars. It would never say in terms of reputation in ad. I’m sure if you look on the Internet, I haven’t googled myself in a long while. I learned to stop doing that, uh, uh, a long while ago. Um, but, uh, I’m, I’m sure that there are some, some disgruntled definitely disgruntled customers from cards that didn’t arrive, but I’m not sure about from an investor reputation. It’s not had an issue with Tesco to tool. But this is the first business I haven’t been involved in where I’ve had a cofounder, so I’m not carrying their, the bag by myself. I’m sharing the load. This,
Eric Hornung: 00:14:38
Where are you from in the UK?
Luke Heron: 00:14:40
So I’m originally from north London place called Muswell Hill, but I live in North Yorkshire now. Our business has a small office in London, but you know the thing with startup, especially one that that attracts investment and then it has an ongoing requirement for investment. You ended up spending most of your time traveling anyway to to events like this to, to pitch your product, to, to look for money, to look for media coverage. You’ve got a whole yourself everywhere and in every way you can. So I’m very rarely in Yorkshire.
Jay Clouse: 00:15:08
I s I see a little bit of a tie in and maybe it’s perceived not real of by post involve postcards, test card is on the size and sort of form factor of postcard.
Luke Heron: 00:15:19
Jay Clouse: 00:15:20
was was bypost directly before test card or were there other attempts leading up to this
Luke Heron: 00:15:24
and I, I mean there’s definitely a break between by post and test card, but, but it’s kind of coincidental I guess. No, you’re right. I mean Testcard is effects for their postcard in the mail. So it’s a very, very different product. Test Cards. The diagnostic can buy posters. This sort of a printed photo on a card.
Eric Hornung: 00:15:40
Before we get into test card, I wanted to touch on, we’ve touched on a little bit of the failures, the, you mentioned when you were at Saint Andrews, you sold a Fintech company.
Luke Heron: 00:15:51
Yeah, I probably exaggerated, yeah, what? I was a small success. Um, it was tens of thousands rather than hundreds of thousands and sending out millions. But when you were a student about it, but I, I should put this in context. I went to Saint Andrews after I’ve been to Melbourne, so I’d already had a, a period of time where I’d had a, you know, a decent, a six figure salary at the time I left Merrill Lynch, um, uh, well in the last year, like they’d six figures, which a lot of money 20 years ago, so 18 years ago. So, um, yeah, so now it’s an Andrews. I ran out of money fairly quickly, so, so when someone was offering some money to buy my, it was a faculty, a PHP bulletin board, it was just a, we have a sort of a venture capital retail market in the, in the UK. So there’s sort of a London stock exchange does aim. And then there’s what was called affects at the time. And, and I had a website called [inaudible] x, which has long since been disbanded, got sort of swallowed up and integrate it into other websites. But that I, I built up when I was at Saint Andrews and I was fascinated by the stock market and uh, they got acquired. So that was a success. But I’ve had a couple of other exits. I had a company called green baby, which was sort of an organic clothing company, which I x is to a family office in London. Again, I mean it wasn’t a huge success for me and not, and I, the thing with that one is other people lost money. So say I did well out of it, but you know, the company ended up folding I think two years after I sold out. So it’s not one of these successes where you’ve, you’ve started the company, he built it up, you’ve exited and then is still around and you still sort of bathed in the glory of a company, which is a still trading.
Jay Clouse: 00:17:20
All of these seem like such disparate ideas. So it’s clear to me that you have wide ranging interests and you can pick up and learn something until a pretty high level pretty quickly to do these things. How do you determine where you want to spend your time? Because it sounds like you could probably get interested in.
Luke Heron: 00:17:37
I was highly Opportunistic. So I mean we’re, we’re focusing on a period of my life was about five years. So Finn fo x and green baby, we’re in a five year window that the last eight years has been two companies. One was bypost and now it’s this there to as Testcard. So I think when I was doing green baby, I went through a period of time where I did a number of deals. I was, I think, I guess a little bit confused. I thought I was a, uh, a deal flow guy. But you know, I think in my heart I’ve always been an entrepreneur, uh, and you know, creating something and making something better. It has always been what I’ve wanted to do and I’ve had it, it’s been a fairly convoluted reach coming around to a point where I’ve got a product that actually works.
Eric Hornung: 00:18:17
So let’s talk about that product. What is Testcard in your own words?
Luke Heron: 00:18:22
Testcard is, is the disruption of of health care. It’s a flat pack. You’re in test kit that arrives in the mail and using the technology which all of us carry around in our pockets. So our mobile devices, it repurposes this tech and uses the camera on your phone to read a urinalysis dipsticks. So whether that’s a kilometer tree based test or a tense telemetry, lateral flow test a removes the science and allows a lay person to get a diagnosis. Diagnosis for UTIs, for pregnancy, for diabetes, uh, using urine. Men in particular are really bad at going to the doctors they hate doing so they hate pain. Uh, everyone hates pain, right? So a year in non, it’s a noninvasive test kit and it lets people get an immediate instant result and in an easy to understand words. So people in a binary response to a binary question, if you have I am I pregnant, have I got a Uti? I have, I got diabetes, yes or no. You know, and that’s what this does is it tells them without the science tells them whether, whether or not they have.
Jay Clouse: 00:19:22
I would love to hear how the inception of this came about. How did you say, you know what I think I want to take on diagnostics for diseases, for conditions and in Home Castro.
Luke Heron: 00:19:32
Okay. So my cofounder and this doctor Andrew, both of them is the head of Bronx Science for the NHS in East Yorkshire. It’s a region in the UK. Uh, and his kids go to the same school as, as my children. And we were talking, we didn’t know what each other did for a long time, but then we ended up talking about how bad men aren’t going to the doctor’s and specifically to do with prostate health. And we were both fast approaching 40 and you get a letter in the UK when you hit 40. And it involves a rather the start of a rather unpleasant prostate health examination. So we were wondering how men who avoid this test, how we could create a test that would, I guess get men to be more invested in their health care. And so we created a urine based, so it’s noninvasive test card that measures PSA, prostate specific antigen. I should say that this test kit is not on the market and, and his regulatory route to market is a very, very long one. So the products that we are launching in the U S in July this year, we are, which pregnancy, UTI and, and, and diabetes. There are much simpler process to get through past the FDA than something that’s new like PSA because PSA has tradition had been tested via blood draw. Uh, whereas, you know, we’re doing it with urine. So yeah, it’s, I mean that’s, that was the inception moment has a conversation with a dad at my kid’s school.
Jay Clouse: 00:20:51
And how in your test to this point, how efficacious is urine testing versus blood testing? Like if it could be, if it can be done with the urine, why hasn’t it been done with urine?
Luke Heron: 00:21:02
I guess with the products that were launched in the first instance, we’re only launching products where urine is the standard anyway, rather than blood so pregnancy is not really something you’d have a blood draw, not as UTI, urinary tract infections and, and I, I guess diabetes is, is really the exception, but we’re, we’re not really offering a diabetes diagnostic. We, we received a letter of intent from one of the world’s largest health insurers, Aetna to roll out has called globally. And aside from being an incredibly massive game changing moment for us, they had a very specific want from us and that was a glucose or diabetes screen. It was really glucose screen that they could send out in a cost effective manner in India to screen. A lot of people are a lot of time and what they wanted was absolute assurance about when we say someone is negative, that we’re absolutely sure that they’re negative. False positives are kind of less important because if you’d say something that’s positive that isn’t the worst that happens is they go and take, have another follow up check. Right. But if you tell someone that they’re negative and they’re, they’re positive that that’s a real problem. So we’ve created a test component for Aetna in order to screen lots people in India and, and that’s the intention that we’re doing this partnership with them right now. So later this year will be, they’ll be sending out hundreds of thousands of test cards across India to their, to their customers. They’ve got a v health platform that people will be able to test that home and share those results and get a follow on appointment if they need one with a, with a, with a GP, with a job. Sir.
Eric Hornung: 00:22:28
How would this had been done before? Like if I wanted to get all the tests that come in and test card, what would the process have been for me to go do it?
Luke Heron: 00:22:37
If you wanted to do it, the, the dipsticks that you, that we feature on our card there sort of a kilometer three perimeter pads, which everyone would have seen I guess, uh, in one form or another probably in a doctor’s office, you can buy them on Amazon so you can buy like a part of a hundred for $10. So you can buy these. But at the moment the process is you would take one of these dips out and you had your dip it into a urine sample and then you would hold it up against the chart again of colors to compare using your eyesight about how that, those colors had changed. There’s a few problems with that. One of which is that your eyesight and mine are different, is highly subjective. Secondly, you have to dip it for the right amount of time. You have to let it develop for the right amount of time. So reading it at the optimal time is critical to getting an accurate result. So our, what we’ve done, that sort of proprietary process, which we built within our application has remit. It removes the ambient interfering light so it turns the camera into a clinical scanner and removes the interfering light and then reads the result with zero subjectivity. So it’s giving you a result that is is precise,
Jay Clouse: 00:23:42
but people aren’t typically doing the Amazon route, right? Like I didn’t know that was available to me. Most of these tests in here. I would probably go into a doctor,
Luke Heron: 00:23:49
No, but I guess the most people probably wouldn’t. I don’t think people were to the very reasons it’s just too scientific. The duality is that will, that will weave d scienced it. We’ve embedded these test strips that are available into our own form factor and we’ve made it possible for people to to do at home. They don’t have to have an understanding of [inaudible].
Eric Hornung: 00:24:07
When did phones get good enough to do this? Like Jay has iPhone four or something, the seven whatever.
Luke Heron: 00:24:15
But he’s fine. He’s fine with the seven. It wouldn’t work with the four. So I phone six non words is really the point which test card became possible, which was around the same time as we were beginning to develop this anyway. So, um, but I mean they’re, they’re the ios market. I mean we’re with the device, with a product like this is best to develop for Ios first and then then he bought over to android. And that, the problem you’ve got with Androids is, is there were just so many variables of, of, of android devices. So the problem we’re trying to say, solve by the way is, is, is the inaccessibility of healthcare and that, and that’s a problem globally. So whether that’s a healthcare, people are isolated for geographic reasons, they live in the middle of nowhere. My, whether it’s for social reasons, you know, there’s some stigmas attached to some diseases, whether its frailty, elderly population or, or disability that’s preventing someone from leaving their home or economic isolation. You know, healthcare is prohibitively expensive, especially here in the US so we developed a product that will retail for $3 99 it has three tests. It’s as accurate if not more. So I would say then going to your doctor. And the only reason I say it’s more ses because the doctors are notoriously bad. I think making sure that the dipsticks that are sitting on their desk, are still in date, that’s number one. Secondly, it’s not on the syllabus to become a doctor, to be able to read these, that it’s pretty simple to be able to do it. And that’s what they all think. But invariably they, they, they, they don’t do it properly and they don’t throw them out. After you opened the can, you’ve got to chuck it after 30 days and most doctors won’t get through a hundred dipsticks in 30 days, so they’ll keep them.
Eric Hornung: 00:25:48
So when I get this for $3.99, I get three tests, three tests on one dipstick, is it three different dipsticks
Luke Heron: 00:25:56
Three is three dipsticks. See you gotta you gotta test card and it’s got three strips and they they easily pull out and yeah, the, this is, they pull out you, you dip it into a urine sample and then you use your, uh, your, your phone to read them.
Jay Clouse: 00:26:09
And those tests in that car you just showed us, those three tests are which ones?
Luke Heron: 00:26:12
This is a glucose screen. So this is, this was the, the test card that we’ve developed in conjunction with Aetna. And this is what’s going to be coming to homes in, in India, in, in April.
Jay Clouse: 00:26:23
Why three for the glucose screen? Is it like just a margin of error?
Luke Heron: 00:26:28
Well, no, no, is there’s no particular reason. I mean, we could send people one, I guess if they were, I think really the reason is it started with pregnancy, right? So, so the first test that we produced after developing PSA and realizing the regulatory route, so long pregnancy was the first thing someone does when they’re taking a pregnancy test. Let’s take another one. So they want absolute assurance that the result is correct. So we put three tests in there because one, there’s no additional cost for us to make three in there rather than one. Secondly, doing one test, you might as well just do another one straight away afterwards, which most people do anyway. And then just adding one extra is for whatever reason. Now I’m gonna get there. Someone can retest themselves a months later if they will.
Jay Clouse: 00:27:09
Give it to a friend. The FDA route that’s so long.
Luke Heron: 00:27:12
Each will have out for PSA or for anything.
Jay Clouse: 00:27:15
So could you go to market with a product that test this and you say like, Hey, we’re not guaranteeing 100% accuracy, but here’s something that will give you a good feeling of whether you should go to a doctor and just do that tomorrow.
Luke Heron: 00:27:25
Yeah, we’ll, we can launch a drug screen right now. It’s zero regulatory approval. So yeah. Is there, if you’re not asking a medical question, if there’s not a medical outcome, then you know, the FDA doesn’t really care. They don’t really get involved. Um, so there’s a drug screen product that we intend to bring to market much sooner. Um, I mean it’s ready to go now, but that’s, that’s sort of a 12 drug screen bit. In answer to your question, could you, I guess we could do some clinical trials, say you could launch in the US via clinical trials process where people, participants would be generating results knowing that the results were not part of anything larger than a clinical trial there that they’re not designed to inform or an action that they should take, but absolutely where it is right and proper that the FDA does get involved with medical testing because you know, you know, w we have this in the UK, we, I’m used to see him that you need to launch these products in the UK. But I mean it’s absolutely critical that there is oversight. The idea that there’ll be some unscrupulous operator in this space. I mean the US is very famous case of a blood testing company, relatively recent. Neither was making some fairly grandiose claims. And I, and I think, you know, we don’t want to be one of those so we’ll, we’ll play by the rules and we’ll make sure that everything that we say can be validated, authenticated. We don’t want to be a flash in the pan. We want to be around for years to come, so we’ve got to do stuff the right way.
Eric Hornung: 00:28:42
Yeah, I was thinking about [inaudible], which is I think who you just referenced.
Jay Clouse: 00:28:45
You remember the proper noun.
Eric Hornung: 00:28:47
Well yeah, I’m good with company names. I’m terrible with proper nouns. I really like already forgot your name. Just kidding. I didn’t because it’s on the screen over there, but I am very bad about proper nouns but company names for some reason I can remember. So that was great. A quick aside there, this FDA process, I’m still a little fuzzy on what that looks like and is this, you mentioned if it’s a medical decision than it has to go through the FDA. Is this a medical decision like I help me understand that for each of the tests.
Luke Heron: 00:29:16
I’d love to hide behind my usual funny quip, which is I’m the only the CEO, so I don’t know the answer to this, but I think it’s a five zero one k I say my, my colleague doctor, and you’re both miss the guy that’s dealing with the application process, but I’m pretty sure it’s a, it’s a fiber oneK or a five 10 k but, but basically there’s a product of its similar performance on the market already. You can piggyback off the tech that’s already there and there are some people that are doing broadly things in their space. They haven’t solved all the problems that we have. Say the removal of ambient interfering light is the major issue with this. Making sure that when you read a results, the biggest impacts into especially a kilometer you base test is, is if you read it in a bright room or if you read it in a dark bathroom, is the phone going to deliver precisely the same response for both? In the answer with our APP is yes, that I don’t think any other company would be able to say that. So in terms of our route to market with products that have a generally lower level of worst case scenario and worst case scenario is really determined by what is the worst thing that can happen if you give someone an incorrect result. Right? So if you tell someone they’re pregnant, they’re not, or he sells at well the one break and they were, it is not catastrophic there. They’re gonna, they’re gonna know again with UTIs I’m, by the way, I’m not forgiving, delivering a wrong result to anyone. The intention is that Testcard will never deliver anything other than correct results. In fact, what we built into our APP is a mechanism whereby if we’re not absolutely sure, we invalidate the process and guess what? You’ve got another two tests to do anyway, so it’s great. But with the FDA process, we’ve got a fairly good visibility to launch in July through this. Is it five 10 k five one k and that’s just these first products is for UTI for pregnancy. But for other stuff, it’s going to take a hell of a lot longer. The PSA test, prostate specific antigen, you know, that process is unknown there. There’d be utterly pointless for me to guess when, when we’d get approval for that. But it’s, it’s something that we, we’ve got a working product. People can play with it, but it’s not something where we can sell.
Eric Hornung: 00:31:16
Is that ambient light? I’ll call it a competitive advantage because it sounds like that’s what it is. Is that protected in any way or.
Luke Heron: 00:31:23
We fall, we fall patents is a, again, I’m not hugely familiar with the patent landscape in the US, but we’ve, we’ve got US lawyers here. We filed a provisional patent, which then gets replaced by specific designing and utility patents. So yes, I mean it’s, it’s a bit of a scatter gun approach and I think any company that pretends to is anything else is lying to themselves. Really. I mean you’ve got, when you’ve got to, when you’ve developed something innovative at the start, you need you, you want to protect it, right? So the you want to go after anything and everything that you can in order to protect your competitive advantage. But w w with us, we have no idea what we’re going to be able to get through. So we filed a bunch of things. We think one of the most important, the design pattern is really a very rarely worth the paper they’re written on. But I think with this design is important. You know, we developed a flatpack postcard that comes through the mail and it’s got a really easy pullout test strip. You guys have seen it. I hope you think it’s easy. It’s an easy way of of delivering a test card in the mail. So design is important for this, but utility, you know, is what you’re referring to. Removal of ambient light. Yeah, I guess there’s hope. There’s hope we can get something.
Jay Clouse: 00:32:28
If I am a woman who is worried that she might be pregnant or the boyfriend of a woman and we’re both worried that she might be pregnant, we want that pregnancy test like now. Right? So how, what’s, what’s shipping time on something like this?
Luke Heron: 00:32:41
So the idea is that you order it in the APP on the web, we hope to be stocked in Amazon. So, uh, it would, it would arrive the next day. Uh, I don’t see why it wouldn’t, we hope to have some retail distribution and has been acquired by CVS. Right. So I would like to see in the, we could lean on that relationship, assuming we don’t really piss them off. So we’re going to lean on the, and the relationship as much as we can see if we can get, we, if we can get rolled out and CVS well, we’ll be doing that.
Jay Clouse: 00:33:04
So is Aetna and insurance companies, your major customer here, you mentioned $3.99 a pack or are you trying to go directly to consumer for the most part? Are you trying to,
Luke Heron: 00:33:11
It’s $3.99 direct consumer. I can assure you that there wouldn’t be paying anything close to that price. So yeah, especially in India. So yeah, $3.99 is, is the US price. And Yeah, we think that’s disruptive. You know, I mean, I, I can’t remember who it was that said the definition of of it was this, this, this 10 x rule, isn’t it? Is it about making something 10 times cheaper, 10 times better? So we think that what we’ve developed is 10 times better than anything on there. And it an, it may not be 10 times cheaper, but it’s, it’s, it is peanuts.
Eric Hornung: 00:33:39
So that’s a question I had on pricing because when I think of medical devices, I think expensive, right? $3.99 seems really cheap to me. And maybe maybe, I don’t think really expensive. Maybe. I think really big margins in medical devices.
Luke Heron: 00:33:52
Eric Hornung: 00:33:53
And $3.99 seems cheap. So are your costs like, so contained that you’re still capturing a large margin or is,
Luke Heron: 00:34:01
We can talk about that a little bit actually, because I like the idea that we can be transparent. I don’t mean there’s a huge amount of commercial sensitivity in a, in the pricing because clearly, you know, it costs us between 1 cents and $3 99. So to make this product, I say we’re not going to be losing money on it. It there the dipsticks, you know themselves. I mean you can work it out. So you can buy a hundred dipsticks on Amazon for like 10 bucks. So I think you can safely assume that the margins on the dipsticks, I mean it’s possible to make a dipstick for it, for under up under a penny. So in a taking that as a case in point you then all the rest of it is just cardboard. So it’s fairly say, I think anyone that can do a back of the Napkin calculation workout that at scale these things are on costing us more than 20 cents, 25 cents, $3.99 offers, uh, you know, fairly generous margin over 95% gross margin. But for us that profit margin is really going into developing other products that for us, our longevity is going to be based on coming out with new things.
Jay Clouse: 00:34:54
It almost seems that that price point is so low that I wonder if human psychology, you know, a lot of times we use heuristic as like uh, a place holder for quality. In some ways. I wonder if some people will have some trapednce just because it’s so cheap.
Luke Heron: 00:35:10
Well, maybe this interview will come back and haunt me and we’ll end up releasing it at $9.99 I, I mean at the moment we think $3.99 and we are, we think affordability is the critical thing. So especially in the US I mean, so many people get legged over with insurance. Here we are with healthcare and the idea that we can make it accessible to all, I mean that really appeals to me. I mean it may not be, I am, I could be wrong, a complete capitalist through and through, but yeah, the idea that we can level the playing is I think really powerful.
Jay Clouse: 00:35:39
What’s your go to market strategy to go directly to consumers with us?
Luke Heron: 00:35:42
Uh, Carefully. I think that’s probably, yeah, I think I, I mean I have some experience in, in mass adoption with bypost. It was not a commercial success, but it had a million downloads. Those, I think we’re getting traction. It’s one of those products that I think as she would, via social media is probably a really easy sell. Facebook knows everything about us. I think being able to tell, get people that may be interested in testing for a UTI, for, for, for pregnancy, for, for whatever, I think is, is a fairly simple thing to be able to, to, to hone down on people that would be interested. I mean we, if you talk to any UTI as you’d never target men. So that’s immediately you’ve honed down on, on, on half the population and, and thereafter, you know, targeting women, postmenopausal women, you’re going to be giving a market that’s this fairly rife with UTI and, and, and I want to find out. So yeah, I think our preference is partnerships. So the, the channels that we’re going after, a health care partnership, so in the UK, but working with the NHS already. So we’ve, we’ve got a memorandum of understanding with one of the largest trust in the UK and that they’re trialing, uh, uh, we’ve built a test card for the NHS APP, which is being trialed now, but we’ve got a, we’ve got, we’ve got another product the NHS is working on right now and commercial partnerships like with Aetna. So we’ve got a call with Merck. We were approached by it. We, so we were at techcrunch, disrupt and Berlin in November. As result of that, we got into, there was an article, Annapolis cider and then apple reached out to us out of the blue. And in the past I’ve never been able to get ahold of them, get a call with them, and then when they want you, it’s is a, they know exactly.
Jay Clouse: 00:37:08
No, you’re good. We’re going to send you the biggest push notification you’ve ever seen.
Luke Heron: 00:37:13
That’s great. Um, but yeah, so they’re, they’re all over us at the minute. So at the, I think in terms of what that all over us will end up looking like in terms of how helpful they are going to be there at their promising the earth. Right now it’s, it’s fantastic. Certainly one is play around with the product which they’re doing. Hopefully we can leverage that relationship into in sunny release for, I mean apple has been more proactive I think than any other manufacturer on the planet with with with healthcare. I don’t think it, Allie is undeniable is
Jay Clouse: 00:37:38
I was in the healthcare space super briefly and there’s not a tool that has an mass adoption yet or the user owns their health care record and it always seemed to me that apple is in the best position to kind of build that place where you, as you know you, you got to this, this doctor over here, this doctor over here, they all have the different specialties. Do you have a paper medical record and each one of those silos and every time you go you have to update it and ask you have you changed since you’ve been here and you don’t actually know because you don’t remember the last time you’ve been there, you don’t remember what you felt on that piece of paper. You might’ve gone to the dentist so we could go and just fill out your new information. There’s no single thing in your hand with that controls your health information. I think apple health kit is the closest reality to that
Luke Heron: 00:38:18
Apple, I mean I, they haven’t lost aeration, but they’ve certainly not had the that moment. I have days that since the Steve jobs iPhone unveiling, but I do think they’ve got a real opportunity in healthcare and I think you’ve hit the nail on the head, I think. I think healthcare records provided they can keep them safe and secure, which apple has a fairly good record compared to some of the other tech Bemis that they’ve not let people down on a massive scale yet. I don’t think, I mean, correct me if I’m wrong, if I’m, if I’m not,
Jay Clouse: 00:38:43
No, I think you’re right. That’s at least the talking point for them is you know, they take security security very seriously.
Eric Hornung: 00:38:48
They have a poster, they have a poster here at CES that says pretty much like we’re not here, but remember who’s the private who like cares about your privacy.
Jay Clouse: 00:38:55
Eric Hornung: 00:38:55
Yeah. They trolled the entire like Google space here.
Luke Heron: 00:38:58
I’m in it. Yeah.
Jay Clouse: 00:38:59
Luke Heron: 00:39:00
Cool. I mean the other one is Amazon. I think Amazon are unbelievably well placed to deliver healthcare in a way. I mean that they are massive advantages is just the, the connectability that users have or what does it say?
Jay Clouse: 00:39:16
It says what happens on your iPhone stays on your iPhone.
Luke Heron: 00:39:20
I love it. Yeah. Yeah. I mean I di I, Amazon is uniquely placed to deliver consumables, especially like ours because you know, the reality is, I don’t know whether we’re going to get to a point where you’ll be able to do a finger prick test on a, on an apple directly on an apple device. That I have no idea. It sounds mad now, but you never know. Yeah, I think there’s always going to be a consumable [inaudible] and, and uh, I do Amazon. I don’t think apple really strikes me as a business that’s desperate to get into the delivering consumables to put to people’s homes. So whereas Amazon has that,
Jay Clouse: 00:39:48
Eric Hornung: 00:39:49
You mentioned like the whole earth as something that you can tackle. How big is this opportunity? Is as easy as there’s 7 billion people. It’s $4 each. If one person does one test per year, it’s a $28 billion opportunity or is it.
Luke Heron: 00:40:02
Well, it’s full bucks here I there the reality is we built a regulatory pathway document for pretty much every country on earth. We are over 120 countries. We’ve got a, uh, a planned route to market where we are. We’re not in this to be small. We want to be the definitive at home health care company globally. It sounds grandiose, but you have to have, I think as an entrepreneur you, it has to, there has to be an element of delusional ambition and, and where, where delusions stopped somewhere reality takes over and, and, and there’s got to be a crossover at some point. And I, and I, I, I think, you know, we are unashamedly ambitious with, with, with where we want to penetrate, test got into, into markets. We want to disrupt healthcare in emerging economies that cannot afford a $4 price point and probably wouldn’t be able to afford a dollar price point. But you know, the great thing about our product is we can get cost of production down to under 5 cents a unit in some countries. So in India for example, we will be able to deliver this for you know, delivered to someone’s home probably for 20 cents. The, I mean they’re the postal service, the postal system in India is a real problem. But other than that it’s, the opportunity is different in, in, in different countries. We’ve again, with malaria is the biggest killer in human history. We’ve got a provisional malaria urine based test kit. It doesn’t appear in any of our sort of financial information or a our decks that we’ve been showing investors because it’s just too, it’s too early stage. And also it has a 15% failure rate at the moment, but it’s, it’s a urine based malaria test kit. There’s using someone else’s, your analysis test kit but uses our mobile tech and that is a very particular product that has a very specific target market.
Eric Hornung: 00:41:36
This is related to that and related to malaria. And it kind of just sparked in my head.
Luke Heron: 00:41:39
Eric Hornung: 00:41:40
Have you guys had any discussions with like the Bill and Melinda Gates Foundation?
Luke Heron: 00:41:43
No, but didn’t, you know, is you, you mentioning that as an important is an important reminders to make. So I, I do. Yeah, I agree. Yeah. I, and, and, and shame on us for not for not pushing something forward with them cause I totally agree. So absolutely no brainer for us to have a dialogue with them. But. But again, they’re, they’re, they’re not unique. I mean there, you know, I know we should be talking to you and stuff. We should be talking to him as long as on France. Yeah. You know, there are lots of angles for this.
Jay Clouse: 00:42:07
So you, you mentioned investors, you’ve raised close to 2 million at this point.
Luke Heron: 00:42:11
Jay Clouse: 00:42:11
And what does that look like moving forward? Is this something that is an investment intensive business or can you generate cashflow from this quick enough?
Luke Heron: 00:42:19
Well, we will be generating cash for this yet. So I mean, we won’t be profitable this year. And I think it’d be very naive for us to pretend that we, that we would, we would do, but there will be a positive margin on every product we do sell this year. I think the reality with our businesses is that the go big or go home. So we’re, we are going big and you know, we, we don’t have a huge overheads and say right now I think we’ve got like $700,000 in the bank, it $650,000 in the bank. So our burn rate’s fairly modest. We’re burning like $65,000 a month. But we were about to raise three and a half million dollars. So I’d say about we, we’ve just, we’ve just released our debt to do fundraising, so I think we need to raise money now in order to ensure that we’ve got a decent.
Eric Hornung: 00:43:00
How do you come up with three and a half million dollars talking about we got to go big. We got to
Luke Heron: 00:43:05
Just the exchange rate from the fact that Brexit is really [inaudible] our currency. That’s the, that’s the reality. So yeah.
Eric Hornung: 00:43:12
Well how’d you come up with that number regardless of the exchange rate? Like why, why not go bigger
Luke Heron: 00:43:17
As well? And then do you know, someone said that to us yesterday, they, you’re raising two dental, you value your company at, at a, at a, you should be, you should be asking for more to high evaluation. Finding that overlap between the highest price. You can ask in a fundraising and making sure that you, you get the money that those you’ve, you’ve got to make sure that you get the money and there’s a huge amount of time and resource their spend on fundraising. The amount of pictures you have to do in order to find one of us is considerable. Even when you have a, you know, seriously proposition at exactly the right time, you need to make sure that you, you sat there that the price, the point is that you’ll get the job done. So we valued our businesses, I think it’s 12 and a half million sterling, I don’t know what the dollar conversion is. So we’re raising two and a half million sterling at a 12 and a half million pre money and I think we’ll get the job done at that were pre revenue right now. So I think asking for more than that is, is greedy that, you know, I’d, I, I think we’re giving away enough equity that that offers a meaningful upsides. So is, it’s just an equity funding round and we’re not, we’re not doing, I again, I’ve learned that mistake from a, from a past failure
Eric Hornung: 00:44:17
We talked about some of your mistakes and how this one feels different. One way that I think it feels really different is this idea of a cofounder that we’ve talked about a lot. What does it mean to have a cofounder in this endeavor? And how has that adjustment been as you’ve launched? Like six businesses by yourself.
Luke Heron: 00:44:32
Okay, well having a do you know, it sounds really sad and lonely, but having a friend and you know, and the, and the front line he says, yeah, great. Well, there you go, you guys, you guys have each other. Let’s have it less of a less of a hug moment. Um, I, I think, um, I don’t know. I mean I, it’s so light and day. I cannot believe that I, I got to my late thirties before realizing I couldn’t do everything by myself. I look back on how much time I’ve wasted and, and you know, the reality is delegation. When you’re delegating to people that care and actually show your ambition. For us, this is about disrupting health care first. And if we get that right, then we’ll make money. If we, if we don’t, then we fail, so this is not about making money first by offering people a product, especially Jay, we’re not trying to target the worried, well, you know, we’re launching a product to target symptomatic people and provide them with results that they need to take the following action that they need. And having a founder in that whole mix, especially one that has a very specific experience in this space. Dr Andrew both them is a highly regard, is incredibly respects this guy in the diagnostics field. Uh, he runs a very large, the poetry within the NHS. Fortunately he’s only contracts is 40 hours a week so he doesn’t need to sleep. He spends the rest of the time working for test cards. So it’s is great. Is the long winded answer to your question.
Jay Clouse: 00:45:48
What’s the rest of your team look like?
Luke Heron: 00:45:50
I said it’s any six verses. We have Chris Hewitt, he’s our head of Ux Nasco Lance and our chairman George Sutherland and his company cold Sutherland healthcare in the UK, which is a, is this more, is this more a supplier to the NHS? But he, he is, he’s sort of the gray hair in our, in our organization. I say that I’ve got some of them, some of my own, but he, he’s been invaluable to us. But our team will grow over the next few weeks and months. And our IOS team, I mean there’s the six people. I mean there, there are another two developers that we’ve got the Marius and Kris with a K. So we have a small office in software in Bulgaria. And that that was less about costs in, in Sofia, more about actually competence. Uh, we, we were just blown away by the level of, uh, of quality and encoding. One of our lead developers that will serve an incredibly exam is worth God world class mathematicians. So as maths is a fairly critical element in our proposition.
Eric Hornung: 00:46:45
So we opened this up talking about kind of the British temperament that you see this kind of proclivity towards risk aversion. You said that Zuckerberg, if he was British, would have sold for $1 billion.
Luke Heron: 00:46:59
Eric Hornung: 00:46:59
We talked about how you’ve had some exits of your own. My question would be this opportunity seems very good, right? There’s high margins. It’s in a space where there’s a lot of acquisitions happening. Are, is this something you keep on saying, I want it to be big. I want it to be huge. I want it to disrupt healthcare.
Luke Heron: 00:47:18
Eric Hornung: 00:47:18
If you get the billion dollar offer in two years is, is that all right exit time or is it I want to build this thing up until, yeah.
Luke Heron: 00:47:26
The answer to that question has to be, and it should be for, I do want to make it British mistake. I mean the the right answer, the question is, is $1 billion more than the company’s worth right now and more than it’s immediately executable opportunity? If the answer is yes, if there’s disproportionately more than I’m able to realistically execute, I have a duty to my shareholders in order to say the offer. However, if we still see, and I imagine we probably would phenomenal scale opportunities to scale a business globally for considerably and achieve a far greater outcome, then no, we’re not going to, I don’t want, I don’t want to sell for $1 billion in it. You can change it to $10 billion. I mean the reality is $1 billion right now. Of course we’d say yes. You know what I mean? Someone would be stupid to offer that kind of money, but once there’s traction, I agree it will be an interesting dilemma to have.
Jay Clouse: 00:48:13
Great, well thanks so much for being on the show.
Luke Heron: 00:48:15
Thank you for having me.
Jay Clouse: 00:48:15
If our listeners of the show want to learn more about your test card, where should they go?
Luke Heron: 00:48:19
Well, they just need to go to testcard.com. T-E-S-T-C-A-R-D dot com. They can reach out to me at firstname.lastname@example.org and you can find me on linkedin. So yeah, thanks very much for having me. I really, really enjoyed talking to you guys.
Eric Hornung: 00:48:31
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Jay Clouse: 00:49:22
All right, Eric, we just spoke with Luke Heron of test card. Now let’s hop into our deal memo here and talk about the opportunity ahead of Luke and his company.
Eric Hornung: 00:49:32
Well how about we start with the founder, which is I think somewhere we like to start on upside. We had a very unique perspective on this founder because it came on the heels of talking with Feng with Woobo, so Feng went to the MIT of China and then the MIT of MIT and he got his phd very academic by nature and then we contrast this with our very next hour, like literally less than five minutes in between. Now we’re sitting with someone who’s a high school dropout and it’s just crazy that entrepreneurship is that far reaching.
Jay Clouse: 00:50:10
For sure. I think you’re drawing a wide chasm between Feng and Luke that maybe not super wide in terms of intelligence.
Eric Hornung: 00:50:19
Right? What? Yeah, that’s it. That’s not what I meant. What I meant is that they’re both founding and creating great companies and on paper it looks like one of them has this incredible like academic resume and the other one doesn’t. And there’s, I think that entrepreneurship levels the playing field, so I’m not saying that Luke’s an idiot or anything, but I think that starting a company isn’t predicated on having the best CV.
Jay Clouse: 00:50:50
Right, totally. Yeah. I mean I was impressed with Luke’s in his own right as far as schooling goes. Sure. He, he dropped out. But to get into Saint Andrews after being a high school dropout because he worked his way from the mailroom to the trading desk at Merrill Lynch, I think that’s pretty impressive in its own right. But yeah, Luke, definitely from a different background than Feng, has a fascinating story though. I was really, really kind of enthralled with him talking about his journey up to this point of test card, going through the story of bypost, taking on loan notes as he said, and then eventually losing control of the asset even though it had pretty major traction even on the website now it talks about I think 500 something thousand orders that have been fulfilled to this point, so he had some level of success there. Things went south. He had to kind of collect himself and and start over again here and he had a series of other failures you mentioned before he got to test card, but very different, very different background.
Eric Hornung: 00:51:51
Definitely. I really like that he has so much experience in building companies. It sounds like it’s something he’s been doing for forever, whether it’s small little hobby companies or large companies. It’s just something that he’s probably learned a lot through. And one thing that’s interesting is that every company he started, he was the sole founder and this one is a little different.
Jay Clouse: 00:52:15
Yes. Strikes me as sort of a classic opportunist and I doubt that he ever thought he was going to start a, what does the medical device company or company trying to disrupt the medical industry. But now with his cofounder, Dr Andrew he’s, he’s doing just that and going through FDA trials, but it’s, it’s definitely a different form factor than you see most medical devices and the level of complexity here. He took what seems like a very complex thing and made it so shockingly simple to the point where he talks about some of the components of this test card or something that you and I could go buy on Amazon right now.
Eric Hornung: 00:52:53
Yeah. Their advantage comes in their software, right? I mean their distribution and then there’s software.
Jay Clouse: 00:52:58
Yeah. Yeah. At this point I think you’re right because it didn’t seem like what they have in the card itself is not something that is patentable by them or necessarily difficult to replicate. I mean, he said these things can be manufactured for 5 cents a unit and mailed for under 20 cents a unit in most countries. So yeah, I think you’re right in that the secret sauce here, the competitive advantage, unfair in the software and that’s probably why apple is actually interested in talking with test card, which is something he mentioned at the end of the interview.
Eric Hornung: 00:53:33
So let’s, let’s kind of turn our attention to the other side of what I just mentioned, which is distribution. It sounds like it’s going to be a partnership model for distribution. Would you agree with that?
Jay Clouse: 00:53:43
I think that’s where they’re going first. They’re definitely, well, it depends how you define partnership because they’re definitely trying to go direct to consumer through places. You mentioned CVS because of the Aetna partnership. I’m sure they’ll probably sell through their own website, but with the Aetna partnership in India specifically, they came to test cards saying, we want to roll a glucose test out through India. We need to be absolutely certain that there are no false negatives, but they were looking to roll that out through the entirety of India, which is a huge, huge deal for a company that is not yet in market to be having that type of traction with Aetna to be having so much interest from apple. And this company launched in 2017.
Eric Hornung: 00:54:27
What does that mean for the market size of this?
Jay Clouse: 00:54:30
I think this gets to one of your points in a previous episode, which is it’s a really big number because they have multiple tests now. I mean right now they have a glucose, UTI and pregnancy tests. They are working on a prostate specific antigen test. They are working on a malaria test. So those are five tests alone with their own different markets, of huge populations that are human problems and not, you know, country specific problems. That being said, they’re going to need to have the user to have a smartphone to use this, so that breaks things down. But whether it’s a cop out because I didn’t find these specific numbers or not. I think the answer is it’s a really big number.
Eric Hornung: 00:55:17
I’d agree with that. I think that there’s like three market sizes and I guess we haven’t really broken this down before, but there’s the under a billion market size, which is like you have to dominate that market. You have to be the leading player in order to get some sort of angel or VC funding or have a path to do that. There’s the one to six billion dollar market size, which I think we see a lot of companies somehow come in with a total addressable market of around $4 billion. I don’t know if you’ve noticed that trend as well, but on upside for some reason there’s been like six companies that have come in with a $4 billion or a $2 billion somewhere in that range market or total adjustable market. Then there’s companies that are in this like nebulous six to $20 billion total addressable market region and those ones are like, okay, there’s, there’s a lot of assumptions we have to make. It seems big, but it’s not immediately off the back of the Napkin. Just monstrous and then there’s the ones that are just so big that putting a to it just feels kind of one impossible and two, useless because the idea is that it’s huge, especially when you’re thinking about it from investing. From an angel perspective, I’m not sure if this opportunity fits in that third or fourth bucket.
Jay Clouse: 00:56:38
I think Luke would say that it fits in that largest bucket at the end because his goal is to just disrupt the accessibility of health care and I think you can say that anybody who is trying to access healthcare is looking for something that makes it more accessible, which is just about everybody. I mean he talks about men being particularly bad at going to the doctor. This creates a whole new way for men to find a binary outcome to a binary question, as he said, as he stated for a whole suite of different conditions and I think that’s super valuable. I think it’s a very compelling value proposition. It’s something I said on the show. I think he’s actually, if he’s really going for a $3.99 price point, I think he’s really underpricing himself to even still be a huge factor better than what is available to men right now.
Eric Hornung: 00:57:27
So I think that that view of the $3.99 price point, like let’s just do some math, let’s do a little bit of back of the Napkin math just to see how big this opportunity is. Let’s say that everybody in the world who has a, an iPhone six or better uses all five of these tests and the weighted average cost of those tests is not going to be $3.99 he said that’s going to be the US UK Western world price. But he said India could get his cheapest 20 cents. So let’s say, and there’s a lot more people in India just in general, but there’s also probably a lot more people have smartphones in the United States will say that balances out 50 50 I think he said they can deliver it for under 20 sets as in like actually distributing it through the mail. I don’t think he was saying that he was going to charge as low as 20 cents in countries like India.
Eric Hornung: 00:58:14
Okay. I had
Jay Clouse: 00:58:15
Although, seemed like Aetna, like the partners where the customer for some of these countries.
Eric Hornung: 00:58:21
Yeah, I had understood that it was going to be a very low margin proposition because of the quantity and traction they would get with using Aetna as a partner. So let’s say that they keep some margin and it’s a dollar instead of $4 so then your average test card sells for $2 and 50 cents. Across the world there are 2.5 billion people with smartphones. Let’s assume all of them have an iPhone, six or better not true, but let’s just assume that that means your market size is 6.25 billion dollars.
Jay Clouse: 00:59:01
If the individual buys one test card.
Eric Hornung: 00:59:03
If they buy one for each, if they buy one test card, correct. So then you multiply that by five if they buy all five test cards, but not every man in the world is going to buy a pregnancy test and that every woman in the world is going to buy a PSA test. So we cut that down and let’s just call it three x that that puts you at like what, 18.75 billion?
Jay Clouse: 00:59:23
Yeah, I’m still sitting in the, I think it’s a really big number camp.
Eric Hornung: 00:59:26
Sure. It’s a big number. I just don’t know how often people are going to take these tests. I guess that’s my biggest question right now.
Jay Clouse: 00:59:33
And that got to one of my shadows that I think I’ve talked myself out of being too concerned with and that is the real life accessibility of getting one of these things right. So you mentioned retail distribution into places like CVS because of an Aetna partnership being something he’s pursuing. He said we could probably next day ship it, but if your next day shipping something, you’re probably not doing that for the 20 cents that he talked about. You know, it really changes the value proposition and the price. But some of these things, you know, like a pregnancy test, I’m going to want to know now and so whether it, I think that test card is more convenient or not, am I going to wait a couple of days if I can’t find retail distribution to get the pregnancy test, test card? I don’t know. On the other hand, things like the prostate specific antigen test, if they get that through FDA trials, that’s super, super valuable and compelling to me to wait a couple of days because you’re probably a waiting a period of days, if not weeks after going to the very uncomfortable visit of going to the doctor for things like that. That being said, it might be something where if it actually is $3.99 for a pregnancy tests, that can give me a binary result right now that I believe to be very, very accurate. I might stock up on that. You know, I might have one of those on reserve.
Eric Hornung: 01:00:45
You just keep pregnancy tests, like in your closet?
Jay Clouse: 01:00:48
You know, I think, I think there’s a generation that would.
Eric Hornung: 01:00:50
Are you part of that generation, Jay?
Jay Clouse: 01:00:53
Eric Hornung: 01:00:53
All right. All right. I guess I can see that. I mean, I do think that the, the undercutting of cost is like insane, especially if it’s as effective as Luke claims because of pregnancy test right now costs, it’s got a cost. I dunno what 10, 15, 25 dollar somewhere in there.
Jay Clouse: 01:01:14
Yeah. I don’t recall, but it’s more than $3.99.
Eric Hornung: 01:01:18
Yeah, so I think that that market is, is one that they could break into pretty easily pretty quickly. The other ones I think are slower penetration and that’s kind of getting your doctors on board, that’s getting people educated that’s not like need base or not urgent need based. They’re more, Hey, we also have this, well, I think that the STI test, again, I think there’s a generation that would really use that and probably again might even hold some of that on reserve. That with the STI is you could partner with colleges with their health services and just have those things ready. Because I feel like that’s where most people go to learn about, right. How do I even get tested for this stuff that I’m hearing so much about?
Jay Clouse: 01:02:01
I think we’re asking some of the wrong questions though or considering the wrong opportunity a little bit because the use cases that he’s talking about, the STI, pregnancy, UTI, maybe even the glucose screening, I don’t think that’s as big of a disruption as the prostate specific antigen that he was talking about the PSA test, which is not being done with year end now. I think that the real opportunity for test card is if you believe they can hit that, get that through FDA trials and have a whole different method entirely for something that is a very invasive test right now that is long and drawn out and expensive and not fun to go through. I think that’s a much bigger innovation and a much bigger value proposition in probably what you’re betting on if you’re betting on test card.
Eric Hornung: 01:02:46
I had 100% agree with that. I think it’s funny cause I think our brains were both going the same way as we were kind of walking down the paths of the different tests and I completely agree and I think that the PSA test is an indicator for other types of tests that can be in this same vein down the road. So as they get this one kind of figured out and if it works then this kind of becomes the same value prop as a medical, a drug company where all right, we can roll out some R and D to find a new test that is right now very hard for people. But we have distribution through our pregnancy, glucose, STI. So we’ve created the distribution networks. Now all we have to do is fund R and D to The point that we can get to a test that provides similar efficacy or better efficacy to what is currently being done in a painful or intrusive way and then roll that out to a wider audience so that they could do it in the comfort of their home with their smartphone. I think that that is definitely the value prop here. So you use your first tests to get distribution and then your later tests to get penetration.
Jay Clouse: 01:04:01
Luke is the first founder and company that’s been based in the UK that we’ve talked to. Really kind of a geographical stretch for us, but also something that he gave a perspective I hadn’t heard before on English, we’ll call it perspective versus American perspective. He said Americans embrace entrepreneurship and a far more pragmatic and open minded way than the Brits do. You said Brits are bad at failure and success and so he, he had this, you could almost like see it playing out in real time. This dichotomy of wanting to go bigger and also being rooted in this culture that doesn’t think that way because you know he’s saying where this is a really go big or go home proposition. We’re raising three and a half million dollars or this is a really go big or go home proposition. We have a 12 and a half million dollar valuation right now. You could see like this dichotomy playing out, even though they’re only burning, you know, they’re burning $65,000 a month, which for a medical device company with two adult entrepreneurs, one of which is a doctor, pretty low burn rate. It’s good to see that capital efficiency, but at the same time you’re saying, well why not bigger? And we explicitly asked that and it seemed like his answer was, we don’t think we need it. It actually feels a little bit greedy. And I want to hear, you know, after the interview your take on that.
Eric Hornung: 01:05:17
So I’m gonna address the first part first, which is this idea of American entrepreneurship, which is so funny because the idea of American entrepreneurship is essentially Silicon Valley entrepreneurship and I feel like that’s what he was referring to. Whereas the culture of the English or the British feels a lot like some of the things we hear around the Midwest where it’s more reserved, less bold, less, I don’t want to say ambitious because I don’t think it’s less ambitious. I just think that there is a layer of risk mitigation on kind of everything from investors to entrepreneurs and maybe that’s smaller in the United States, but I think it still exists. I think I still feel that culture in the Midwest as opposed to it when you’re thinking about New Yorkers, silicon valley, and it’s okay to fail, it’s okay to be successful. It’s okay to be a billionaire and it’s okay to have eight failed companies, but I think it’s a little different in the Midwest.
Jay Clouse: 01:06:17
So what are you thinking about six to 18 months from now?
Eric Hornung: 01:06:21
I want to hear more about the partnerships that test card is entering into and if those have gotten to market, it sounds like if this Aetna thing clicks, that’s going to really challenge them operationally to make sure that they can get this large volume of test cards out delivered, make sure that their software doesn’t crash when hundreds of thousands of people are running tests, likely within the same week or two, it’s, you’ll probably find some kinks and some bugs and being able to work through those operationally. I think that that’ll be huge. So I want to, I want to hear more about the partnerships that are, that they are creating and the operational fixes that they’re putting into place because of those partnerships.
Jay Clouse: 01:07:06
Well Eric, I’m going to surprise you here. I’m not looking for revenue.
Eric Hornung: 01:07:09
What? Jay, that’s your thing.
Jay Clouse: 01:07:11
That’s not what I’m looking for in this case. I agree with you on the partnerships. I’m looking to see specifically I would like to know the progress on the FDA approval for the PSA test. I would also like to do a reevaluation of the competitive landscape to see have there been copycats, what type of traction do they have? You know what is test cards moat here and it may be that they form partnerships faster and Aetna says, nope, we’re going with a test card and apple says, nope, we’re going to the test card but I’m not sure what is at the end of the day protectable here versus trying to employ the technology, do it really well and be the first one that comes to mind for consumers. And I think that if we look six to 18 months from now, it’s important to see if anything else has kicked up.
Eric Hornung: 01:07:57
Love it. So Jay, if people want to interact with this episode, if they want to find or talk with us where they go, I’d love to hear your thoughts on his episode. Guys, if you have thoughts about test card tweet at us @upsideFM or if you would like to give us some feedback directly to Eric and I, you can send an email to email@example.com. And if you enjoyed this episode, go leave a rating on iTunes. That helps us bring on high quality guest to the show 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 at firstname.lastname@example.org 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 interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion 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 the show. Thanks for listening and we’ll talk to you next week.
Debrief begins: 49:20
Luke Heron is the co-founder and CEO of Testcard.
TestCard is a medical diagnostic test contained within a traditional postcard. The unique, patent-pending ‘flat-pack’ product is embedded with three fold-out urine dipsticks. The accompanying easy-to-use mobile application turns a mobile phone’s camera into a clinical grade scanner, providing the user with an immediate and accurate result from the TestCard, communicated in easy-to-understand wording on the phone screen.
This episode was recorded at CES 2019, where Testcard was named a Top Emerging technology by Digital Trends.
Testcard was founded in 2017 and based in London, UK.