Posted by Weatherflow ● February, 2022

Tempest Innovator: Vilem Fruhbauer on Investing and WeatherFlow-Tempest

Vilem

 

Q: HOW DID YOU INITIALLY HEAR ABOUT WEATHERFLOW-TEMPEST?

A: I saw your campaign on the StartEngine platform.

Q: WHAT INTRIGUED YOU ABOUT THE WEATHERFLOW-TEMPEST CAMPAIGN ON STARTENGINE?

A: My best friend's father was an agronomist, a buddy of mine manages a golf course, and in my plumbing business, we work on new construction houses that don't always have doors or windows, so everything for us revolves around the weather forecast. So here was the WeatherFlow-Tempest campaign right in front of me. I did a good amount of due diligence already during the first few days since the campaign launched, assessed the deal as a solid investment, and pulled the trigger. I was very delighted when a couple of weeks later the KingsCrowd analyst team rated your startup as a "top deal", and confirmed my original assessment.

Another important factor for me in any investment is my personal self-assessment: "Could I do this easily myself?" For startups involved with sauces, cookies, beverages, restaurants, bars, home services, etc. the answer is: "Most likely yes", so most of the time I take a pass on those unless they feature some really significant founders, traction, or differentiators. In the case of WeatherFlow - the answer to this question was: "To program the AI algorithm and design the hardware, I would probably be a very old man, and broke by the time I would have an MVP in my hand, so to invest in your company was a better choice to get involved in this line of business.

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Q: YOU MENTIONED THE IMPORTANCE OF WEATHER CONDITIONS AND FORECASTS TO YOUR BUSINESS. CAN YOU GIVE US AN EXAMPLE OF A COUPLE OF SITUATIONS IN YOUR WORK THAT CALLED FOR A PRECISE FORECAST OR MORE ACCURATE REAL-TIME DATA?

A: The plumbing trade is hard work, therefore I prefer to make it as pleasant and as safe as possible. Whenever planning my work, I try to do any multi-day indoor projects on rainy days, and on days between these bigger jobs, when smaller projects accumulate, many times we have six or more stops to do in one day. Those I prefer to do on nicer days. It's better for morale when one doesn't have to stand outside in the rain with expensive electric tools waiting for customers to answer the door, or clean work boots multiple times a day after working in muddy flower beds while changing outside hose spigots. It's also not very fun falling on a sloped backyard with wet grass while handling top-heavy water heaters. If I have a choice, I get this type of job done before the inclement weather starts and get to those less involved jobs later.

On the other hand, a hot, sunny day can create very harsh conditions in attics, so any work on vents or condensate lines that have to be done during the summer, I try to schedule at 7 AM on cloudy days. When snowstorms are approaching, I might reroute some appointments not only based on priority or a booking order, but to do the furthest ones first, so that in case the roads get covered by snow and ice, we do not have too far to drive back to the shop on poorly maintained back roads.

Q: BEYOND YOUR WORK, DO YOU RELY ON WEATHER FORECASTS OR APPS TO PLAN YOUR OUTDOOR ADVENTURES WITH THE FAMILY?

A: I work 10-15 hours a day, usually inside people's homes, so when I am off, I try to maximize my outdoor experiences. Depending on the weather, we might go at least for a quick one-hour hike just five minutes away from my house before the inclement weather arrives, instead of getting caught mid-way on a ten-mile trail. 

I had a private ski school for over ten years that I wrapped up back in 2013 when my plumbing business started to take off. I used to spend on average 60-63 days on the slopes per winter. I had clients from South Africa, Florida, and the Caribbean who were visiting Connecticut, and wanted to learn how to ski. Most of the time they had limited flexibility and only had that one afternoon or that one evening available to do it. Countless times, I felt very sorry for all of those that underestimated the weather and did not cancel their lesson. These unlucky ones usually did not have much fun and ended up cutting their lesson short, because they could not take being outside during a wintery mix, or close-to-zero temperatures with the wind. However, most of the time it was very rewarding to see the pride and joy of someone who has never experienced snow before master a challenging slope within an hour or two into the lesson.

Because I skied so much and have small kids, now I ski with only them. I want to make skiing the best experience ever for them, so you won't see us on the slopes unless it is at least 30F and sunny. So far this winter we hit the slopes seven times. In the early spring and late fall when it's windy, we enjoy some far less cash-intensive activities too. It is unbelievable the joy and fun kids can have just to go flying a $15 dollar kite. My daughter mastered it before she could read or write. When she gets bored, she hands it over to me, and starts doing cartwheels or rolling in the grass - it is great to see kids being kids away from TVs and electronic gadgets.

Q: BASED ON YOUR OWN EXPERIENCE, CAN YOU SPECULATE AS TO WHY HARDWARE AND SERVICES LIKE OURS WOULD BECOME A MUST-HAVE FOR OTHER BUSINESS SECTORS, FOR INSTANCE, AGRICULTURE, LANDSCAPING, REAL ESTATE, ETC.

A: In my home state and my trade, I would imagine that for some problematic homes prone to freezing it could save thousands of dollars in damages to have such devices synced with controls for resistance heating wires to prevent pipes from bursting, or it could save hundreds of dollars worth of fuel and electricity to feed the hyper-local outdoor data into an HVAC system to operate in the most efficient mode.  I would imagine that the cost of your hardware and software should be just a drop in the bucket for all the outdoor cannabis growers in your home state in comparison to the high-value crops being snapped by strong winds and dipped in mud, or getting moldy due to prolonged rains or high moisture in the air around the harvest time.

Q: SEVERE WEATHER EVENTS ARE IN THE NEWS SO FREQUENTLY. HAVE THERE BEEN ANY RECENT WEATHER EVENTS THAT ESPECIALLY CAUGHT YOUR INTEREST EITHER BECAUSE OF HOW THEY MIGHT IMPACT YOUR BUSINESS OR JUST PERSONAL INTEREST? 

A: In Connecticut being a landlord and a plumbing business owner that is consistently overbooked for many weeks out, I must pay very close attention to all inclement weather and its timing. On the days of snowstorms, I always have to shuffle around some appointments. The heavy work van does not handle well in snow, so the roads need to be cleared before I can take it out. In the interim, I load my 4x4 pickup with a snow machine, shovels, brooms, salt, sand, etc., and go to make sure the walkways and sidewalks on all of my rental properties are safe before I do any plumbing work.

When new home builders try to rush me to complete their underground piping in order for them to pour the slab and start building, the first thing I do is check the ten-day forecast. If there is rain forecasted I can advise them to pump out the rainwater if necessary so that it has time to dry before they begin. I think it is very important for high customer satisfaction to set the right expectations,  so I pay close attention to the weather when working on any outdoor projects.

Q: YOU ARE CLEARLY VERY PASSIONATE ABOUT INVESTING. WHILE THAT’S NOT EXACTLY OUR USUAL WEATHER CONTENT, OUR READERS WOULD PROBABLY LIKE TO HEAR MORE ABOUT THAT. HAS THAT BEEN A SIDE PASSION FOR A LONG TIME? HOW MANY CAMPAIGNS HAVE YOU INVESTED IN?

A: I have invested in a magic-looking number of 444 startups on the day of this interview. I swear, I did not make any investments today. I do consider myself a very lucky guy. I am sure, most people will think that this is insane, but I know other investors that have hundreds more startup investments under their belts. Being an engineering graduate from VSB - Technical University of Ostrava, number crunching is not that hard for me, so when I was assessing in 2019 how to play the startup game, where a large number of them disappoint, and only a small number of them deliver, it became clear to me that the safest way to win this game was to invest in a very large number of highly vetted startups.

Compared to playing roulette in a casino, I would compare myself to playing the black and red with having a little advantage over the house due to this radical diversification, while the majority of startup investors who have just a dozen or so investments are playing the single number bets. If they get it right, their one-time payout is way higher than mine, but so is the risk. Just recently an investor buddy of mine sent me an article about this. The findings and the importance of radical diversification are supported by hundreds of thousand simulations.

Q: WHAT WAS THE FIRST INVESTMENT YOU MADE?

A: The first investment I have ever made was in an S&P500 index fund through my 401K account at my first job. My first private equity investment was in a mining company in Alaska that was managed by a friend. I joined the team as an investor and technical director in 2004. My first crowdfunding investment ever was in Mealthy in 2019. The company was sold too soon after the crowdfunding campaign closed to produce a notable ROI.

Q: WHAT KIND OF STARTUPS DO YOU TYPICALLY INVEST IN? IS THERE A CERTAIN INDUSTRY THAT YOU'RE DRAWN TO?

A: I like to invest in startups that are managed by founders with a good track record. I look for strong IP and differentiators, as well as strong growth in users or revenues during the early stages. For startups to grow big, it is very important that they operate within a large addressable market. I try to participate in strong irreversible trends. Being an engineer by education and at heart, I appreciate innovation and the use of AI, robotics, blockchain, nanotechnologies, and other clever inventions. Industries that I am drawn to are medtech, fintech, foods, cybersecurity, transportation, construction, social media, and the metaverse.

Q: ARE THERE ANY COMMON MISCONCEPTIONS OR PREVAILING MYTHS THAT YOU SEE AMONG NEW INVESTORS?

Yes, there are so many of them that one could probably write a book about it, here are only a few that immediately came to my mind:

a) Startup investments are extremely risky and 90% of startups go out of business. Overall, it is most likely correct, but this number goes significantly down if one picks startups that generate revenues, are cash flow positive, or are led by founders who have previous experience starting companies that generated millions of revenues, or sold them for tens of million dollars.

b) Startups should have at least two founders. Yes, it is better if a startup has two founders in case one voluntarily or involuntarily quits, but research shows that 20% of unicorns had a solo founder. For me, a 20% is significant to overlook as a default rule when evaluating the teams.

c) Startups backed by a significant VC or Angel investor are a safer bet. I saw a renowned investor going into a deal with a $100K, so I thought to myself, they must know something I don't, and invested too. Thankfully, I invested just a small amount, because one year later the startup went out of business. I always revisit my successful and failed investments to improve my investment results. During the second examination, I realized that I overlooked some major red flags, and I let a large investment by a significant angel investor distract me, causing me to take shortcuts during my own due diligence.

d) Startup that raised millions of dollars from thousands of investors must be a worthy investment. Jumping on a bandwagon because FOMO is not a sound investment strategy. I frequently see zero revenue startups that are raising sometimes triple-digit million valuations with oversubscribed crowdfunding campaigns. I don't get it, and I stay away from those.

f) This is the opposite of the previous paragraph - campaigns that do not have significant traction or did not raise significant amounts are viewed by some folks as a "waste of time", and they don't even bother to check them out. I am aware of two current unicorns that one raised only around $150K, and the other around $370K during their crowdfunding campaigns. In a matter of a few years, they went from a multimillion valuation to being worth over one billion. This means that 99% of crowdfunding investors took a pass on these two startups and missed out. Believe it or not, most of them took a pass just because their investment strategy was to wait until campaigns approach the maximum limit as some kind of sign of "approval" by other investors.

g) Later-stage investments are less risky than early-stage investments. Overall, this might be true, but I see two problems with these high valuations. Let's say a startup is raising funds at a $40M valuation, the founder might still own 30% of the company after the campaign. He can sell it next month for $30M, and all of these late-round investors will lose money. The founder walks away with $10M from the deal, never has to work again a day of his life, or care about investors. The second problem of investing, let's say at $400M valuations is that even if the startup doesn't exit right away, and becomes a unicorn two years later, one can easily achieve this type of ROI multiple with dividend-paying blue-chip stocks without losing liquidity for multiple years.

h) The last topic to close this chapter would be the myth that the startup founders of SEC-registered crowdfunding campaigns must be solid individuals.  During my due diligence I discovered co-founders and CXO team members that did time behind bars for serious financial crimes or had tens of million-dollar debts, or within one year raised funds for multiple zero-revenue gigs. I dare to say that many bad characters are aware that through crowdfunding they have access to a large number of semi-sophisticated investors ready to open their wallets and invest in hopes of earning an outsized ROI. I personally think that a large number of founders involved in crowdfunding only aim to satisfy their self-interest, and the interests of investors never crossed their minds from day one.

Q: WHAT TIPS WOULD YOU GIVE SOMEONE JUST STARTING TO INVEST?

A: Educate yourself - there are a lot of great resources about startup investing, I would like to mention at least some names that got me started and helped me tremendously with some of my great investments early on.

  • Check out KingsCrowd - a startup rating company that offers a lot of great resources. I have invested in KingsCrowd at a $4.5M valuation, and they are currently crowdfunding at a $45M valuation. You can check out this link to an interview they did with me, but more importantly, click in the top menu on "Crowdopedia" and explore the tabs "Education" and "Podcasts". There is an incredible amount of free education and great information about the crowdfunding area. I recommend to everyone to at least sign up for the free KingsCrowd membership, because it allows you to track your investments, and also every week you'll receive an email newsletter where they present some new noteworthy startups that just launched their campaign, as well as highlight a handful of them as "Favorite Deals". I personally invest in about 30-40% of these "Favorite Deals", because their analysts, I think, do have a very good eye for picking prospective winners from the hundreds of startups that are currently crowdfunding.
  • Check out SeedInvest. It is one of the dozens of crowdfunding portals I use to invest in startups. This great brochure from them gives a good overview of startup investing and crowdfunding. I am also very thankful to them for offering an "auto-invest" feature that allows us, regular working-class investors, to invest in startups with just $200 that would otherwise require $1000 minimum investments to get in. I think the auto-invest deals are well-curated, most of them have reasonable valuations, and just like with the KingsCrowd deals, I probably invest in 30-40% of them. I am aware of at least one startup for that raised funds at SeedInvest later became unicorns.
  • Invest only in SEC-registered campaigns, start with small amounts, focus on startups in areas you are familiar with at first, and only invest whatever you can lose or live without for a very long time. Diversify, diversify, diversify. If you only invest in 10 startups - most likely, a couple will go belly up, most of them will break even, or deliver a minuscule ROI, and one or two might deliver a single-digit or low double-digit ROI multiple. On the other hand, if you invest in one hundred or more carefully curated startups, and you do a good amount of due diligence before investing, you might have a chance to land some unicorns in your portfolio. If you identify them at low single-digit million valuations, and they get to the billion-dollar valuation, this can be a life-changing event. The math behind this is incredible. Hypothetically, if someone invests in 1000 startups, and 999 go out of business, it takes just 1 startup investment at a $5M valuation, if it a few years later IPOs at a $5B valuation to entirely cover the loss of those 999 investments with just this one hit.
  • If you like to watch TV, check out Shark Tank, Meet the Drapers, or other similar shows. It has a good entertainment factor, but it is a great way to learn that if you snooze, you lose. One can get a good sense of what type of startups these billionaires drool for, which ones they stay away from, what type of founders to look for, and what type of founders to stay away from.
  • Don't rush into late-stage crowdfunding campaigns because of FOMO. I see it very often, and unfortunately sometimes with some of my own investments that within a few months after the IPO, some of these stocks go down 50-80%, and at that point, if you still like the company, you can scoop up these shares sometimes at the same or lower valuations than what they were during the crowdfunding, and without losing liquidity for many years.
  • Join an investor group to learn from experienced investors and boost your deal flow.
  •  I post frequently on LinkedIn about startups and investing. It's a good place to forward me pitch decks or crowdfunding links of any SEC-registered crowdfunding campaigns for review. I have reviewed a few thousand campaigns, so I could offer some input on these activities to founders who are interested in raising funds this way. I would be interested to become a lead investor of a campaign on Wefunder if there is a strong mutual fit. At least a couple of companies that used Wefunder for crowdfunding later became unicorns, and I have invested in Wefunder itself too.
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