Brad Chisum - Co-founder & CEO of Launch Factory

Welcome to the Tacos and Tech Podcast, where we discover cutting edge technology and the builders making it happen. I'm your host, Neal Bloom, San Diego's tech ambassador, and together we're going to uncover what technology San Diegans are creating with our own blend of local lifestyle. This podcast episode is proudly brought to you by our friends at Cox Business, the broadband and cloud services provider to the modern tech company. As a longtime supporter of San Diego Startup Week and the San Diego startup community, Cox also puts on top Tech awards. Get started. And most recently, quick pitch with San Diego Venture Group and Techcoast Angels. Thanks again to our friends at Cox Business for their support of the community. Welcome to the Tacos and Tech Podcast. I'm your host, Neil Bloom and I am here with Brad Chisholm, co founder of Launch Factory and previously co founder of Lumadigne. Brad, thanks for being here.

Absolutely. Glad to be here.

So can you give us a quick little Overview of what LaunchFactory is?

Yes. Launch Factory. We're following the Startup Studio model, so we are an entity that creates startup companies and in our case, we focus on business execution. So you can find Launch Factory companies will be better suited to handle the business challenges in front of them.

Okay, awesome. I'm really excited to learn the genesis of that and where it's going, but let's dive back and get to know you a little bit. Where are you from? Where'd you grow up?

I grew up in El Paso, Texas.

Okay, awesome. And how was Texas growing up there?

Oh, I loved it. El Paso was great. If it wasn't for the lack of job opportunities, I'd still be there.

Really? That's awesome. So where'd that lead you? Where'd you go to college and what did you study?

I went to college and my undergrad was Southern Methodist University. Majored in electrical engineering and math.

Okay.

And did the math because that kept my grades up. Engineering I found to be harder than math, so. But graduated with that. And real quick on the.

How did. How'd you know you were going into the sciences and math like that? Were you influenced by family or.

Yeah, my dad. My dad was an. Well, he had an engineering degree. He wasn't engineer while I was growing up, but he was always interested in science and technology, so I was very influenced by that. I had intended to go into physics because that's what I liked. And when I was. When I was entering college, that's when the Superconducting Super Collider was being built in Texas.

Okay.

And then after I started that's when it got canceled. So I had to either switch schools or switch majors. And I ended up switching majors.

Okay, got it. And so what was the plan? Like during college you knew you were doing science and engineering and math. What was the plan for job wise career? Do you have these big aspirations of where you're headed?

Yeah, well, when I started college, I wanted to be a theoretical physicist. So I intended to be in school for a long time. But secretly I never told people this, but in the back of my mind, I always wanted to be an entrepreneur. But yeah, that was, that was my little secret for a while.

Did you get to play on that at all in college or didn't get.

No, there really wasn't anything at school. You know, I did, everything I did was very technical, focused. You know, because of my majors I was able to skip out on all business classes. So I had nothing. Wish that part was different, but that's how it was.

I think you figured it out at some point.

Yeah, some point.

So what'd you do after you graduated?

I. Well, during one of my internships, I had a boss that had. He told me that I should try to live in every major time zone in the United States, just, you know, for a life experience kind of a thing.

So.

So I graduated college and I had grown up in mountain time, was living in central time. And so I was looking for jobs, east coast and west coast.

Okay.

And I ended up having to choose between a job at Newport News Shipbuilding in Virginia or coming out to San Diego to work for ST Microelectronics.

And what did you choose?

I chose ST Microelectronics. That was when I went out to Virginia and they took me out for lunch. We went for. They said we're going for Mexican food and they took me to Chili's. I couldn't handle that.

You can't even from Texas. Yeah.

You can't grow up in El Paso and not have a taco readily available when you need it. So San Diego, here I come.

Got it. So it's the tacos pulled you here.

Absolutely.

On the tacos and tech podcast. It's a beautiful thing. That's perfect. Yeah. So you end up here. What's the business community like? Did you know, I mean, were you kind of aware of what was going on technology wise and development in San Diego when you landed here?

And what year was that moved here in? 99.

Okay.

I knew nothing about San Diego other than it has a nice zoo and there's beaches, you know, that kind of thing. So I only knew the tourist viewpoint, and I didn't know. I didn't know a single person out here.

Really. Yeah. Wow. So on a whim, came to San Diego.

Yeah.

And you're doing. Sounds like telecom or chips.

Semiconductor.

Okay, got it. So not really in the. The tech bubble of the late 90s. You're probably not a parent of that kind of web thing going on, right?

Yeah. On the hardware side in the old stodgy semiconductor industry.

Okay. And you know, what was that like, Where'd you go from there?

I mean, it was a good experience. The fab I was at didn't last very long. So I think. I think about a year and a half into working there, they announced the shutdown of the facility. So I either. So I had. They gave me the choice. I could move to the fab they had in Phoenix or I could go find a new job. And so that's when I found that spay war.

Okay.

Had a. Had its own fab.

Got it. Okay. So they're doing semiconductors too. So this is by the Navy. They're in, like a research lab right.

Out into Point Loma. Beautiful place to have to drive to every day.

Yeah. Seriously. All right, so that's pretty cool. So what's the environment at Speyware like compared? You're going in private industry, going to government, public.

Yeah. Well, it couldn't have been. Couldn't have been much different. So st. If you worked less than 10 hours a day, you got, you know, kind of looked down upon. And. And so I was averaging, you know, 11, 12 hours a day. You're on call to come in the weekends. And I was single and by myself, didn't know a whole lot of people, so it wasn't that big of a problem.

Yeah.

My first week at spayware, I got in trouble with a guy that I shared an office with because he noticed on my. On the sign in sheet that I had worked an extra half hour one day.

Really.

And he didn't want me raising the bar. Yeah. So that was. And I hadn't. I didn't even notice that I had worked a half hour. So all of a sudden I had all this free time. And we got to do really cool work, though, because we get to do R and D and you didn't have the pressure of manufacturing, you know, just driving everything. So I actually got to start projects and finish them and really, really do some interesting things. So it was. It was a. It was a very neat place to work. The only thing is you do this great Research. And you don't really get to tell very many people because half the time the project's classified and, you know, it's for internal use only or for purposes that you don't get that full visibility to. But still, I got to pretty much. I got. They gave me. They give. They give you a wide. They give you a lot of latitude, so you get to really experiment. And so it's a. It's a fun, fun place to be when you're an engineer.

Yeah, I can imagine. For sure. It was pure R and D. So is this where you met your future co founder, Richard?

Yeah, Richard and I were in the. We worked in the same building. So he was an engineer that was doing design work. And in the fab, we actually would build his products.

Okay, got it. What's Richard's last name?

Waters.

Okay, so Richard Waters, he had a background at spayware for a while or also was kind of new with you.

He joined. No, he. He had been there for a little bit. He came to Spay War straight out of his PhD program.

Okay, got it. And so what year did you guys meet?

Let's see, that would have been 2001 or 2002, I believe.

All right. And then when did Lumadine idea start coming to be?

So at first I had no idea what Richard was working on. I just knew his wafers came through from time to time, but after a while started learning about what he's doing. And he was the only one doing MIMS research. Right. So little moving parts when he made on the semiconductor platform. So I started to get to know him that way. And it wasn't until I started my MBA at SDSU in 2005, he made a comment one time that if his. If this technology works, we could all be millionaires. And that all of a sudden the wheels started turning like, wait a minute, how am I going to be a millionaire if his technology works? So he just made that little side comment, and it was. And then I start looking into possibilities like, well, that means technology can leave. And I found out there's a tech transfer office and started really looking into how you can get a technology to le. And so once I learned about all of those things and I told Richard, hey, we should go get lunch one time. Turns out he had been thinking of trying to license the technology himself and spin it out. So this was perfect. We were both in the same mindset already, and just, you know, he just didn't. He wanted to focus on the technology, and I was interested in focusing on the business side. So it ended up being a perfect fit.

Yeah. And you used. I think you remember, I remember you saying something about using your MBA as kind of a test plan for building your business plan. Is that true?

Yeah, absolutely. So that was. So first we look at this and we think, okay, this is a really interesting product, but is it strong enough to build a whole business around?

Yeah.

And so the professors I had at SDSU were great. They let me use this technology as my class project. And every single class that I asked for, Alex de Noble was the first professor to let me do that. And the class we were taking was the commercialization of government licensed technologies.

Oh, wow. That's a perfect class.

Yeah. Gotten more perfect. So, you know, we take us through and going through all of this, you know, had the benefit of working with a bunch of other MBA students doing market research and everything else. And that's how he validated the business case for this technology.

Okay, I'm curious, how much did the business case change from his idea to flushing it out in business school to eventually starting the company? Just in those three phases. Does business change a lot? The ideas and monetization?

There are definitely some changes. The spirit of it didn't it all still focused on building inertial sensors for specific applications, but which application we targeted first, that absolutely changed. We began with going after navigation for airplanes, things of that nature. And we ended up pivoting over to the oil and gas industry after looking. This is resulting from stuff we learned at San Diego State. And that actually ended up being where the business we spent our first three, four years working on oil and gas. Most of our money that we received came for those applications. So the research actually turned out surprisingly accurate.

Interesting. So what point did you take the leap and were all in on this company?

So in 2006, in March of 2006, I had to quit my position at Spay War because you can't negotiate a license with the Navy as a Navy employee, because conflicts of interest. So I did that.

You already knew you were going to go all in then. So it didn't feel as risky. Like what's next? You knew you were doing this company.

Yeah. It still felt risky, though.

Sure.

Because you know, this paychecks are really addictive. And so I was, you know, I had my nice cozy paycheck coming in every month. My wife was in. We just got married and she was in medical school, which isn't cheap.

Yeah.

And so. So, yeah, it was. And I'd been saving up money because I'd Been planning on this. So I had about a year's worth of living expenses all saved up and then.

Yeah.

So the problem was it took nine months to get the Navy license in place and that was with the Navy going fast.

Wow. And you're out of a job in a sense or out of a paycheck.

I was without paycheck.

Yeah. And when did Richard joined? Same time.

So Richard was a. We worked out an arrangement with the Navy. He was able to stay full time at the Navy, but then he worked part time with Luminance at the beginning. That worked out great because, you know, there wasn't. We didn't have funding to do anything major on the technology development side. So it was mostly, you know, business and funding focused.

Okay, got it. And so you bootstrapped in a certain extent until at some point you needed some outside funding.

That's right, yeah. So then I graduated in 2007, took the business through a bunch of business plan competitions which ended up being great because with the prize money from the business plan competitions, that gave me another almost two years worth of living expenses.

Oh, nice. And non dilutive funds too.

Right. Yeah. And that, that ended up being important because it took me. It was. Wasn't until three years that I finally got to take a salary.

Oh, wow. Okay, so 2008 or nine sounds like.

Yeah, 2009 was. Yeah, was when I finally got take a salary.

Wow. Not time wise from what's going on. I mean recession that hurt the business at all based on kind of customers that you had or not too much.

It could have. We ended up getting fortunate in a number of ways. We finished raising our first angel round, a million and a half dollars in the middle of 2008. So everybody was still rich. And then we had applied for this government grant, $1.2 million that we got at the end of August when the cracks were starting to show in the economy. So so we went into the downturn of the economy with almost two times as much money as we intended to have. And then everything went on sale. So, you know, we have a heavy outsourced manufacturing cost. Well, all that went down. Our priority level with those suppliers went up because we were actually paying our bills because we had so much cash in the bank. I could show people when we were looking to hire new people that I can guarantee your employment for two years because the cash is in the bank for that.

Yeah.

And so most people's current employers couldn't make statements like that. So we were ironically the safer choice as a startup company.

That's interesting, huh?

So, yeah, the downturn mostly helped us.

Okay. That actually kind of resonates with a lot of other startups who start around that time too. I mean, Uber, Airbnb, kind of the big unicorn names all started in the 2009-2011 timeframe. Maybe there's something to be said about, you know, having to forge your way through harder times on everyone else.

Yeah, I think so.

Yeah. So at that point, so 2009, 2010, you're still selling into. Selling accelerometers into the oil and gas industry.

Yeah, and to be fair, we weren't. We never. We weren't selling units. We were doing development work.

Okay, got it.

So we, we actually. So we always were. We stayed big R our entire existence.

Okay.

Stayed big out of R and D. We were big R, little D. Got it.

Okay. And take us through kind of. What was that like? Expanding. Growing the team. Where were you guys based? Here in San Diego.

We had an office in Kearny Mesa. And the way we got our initial funding in the oil and gas industry was pretty intense. So we had. We were very fortunate. At the Rice business plan competition, we met somebody named Dan Piet who offered me, out of kindness, CEO level introduction to everybody in the seismic imaging space. Which, yeah, if our business plan had said that, no one would have believed it, but that's what happened. And so, because when we would go. So we were able to go talk to all of these companies about what we had, and we knew we needed them to pay for the development because venture capitalists weren't going to fund this. It's eccentric hardware. We still needed that level of dollars. So what we ended up doing after we peddled our technology around, the feedback we got was, okay, so this looks great. When you have a product ready, come tell us about it and we might consider buying a few units. Well, it turns out that industry, and the reason we picked it was it had a business problem. The future of the industry is supposed to be using accelerometers, and only two companies had accelerometer based products. Everybody else was using an older generation sensor variety. And so we were the third choice. So the rest. So you have two companies that are holding the future. Everybody else is shut out, and we are the solution to somebody's problem or the creation of an issue for one of the existing two companies. Right. So what we ended up doing was going around and telling everybody that we were going to sell field of use exclusivity in exchange for the development funding.

Okay.

And that ended up being very important because if you. The timing was that we did this, we set up our competitive process with very specific dates, all of that. Well, it closed. We started at the beginning of 2008 and we closed it in. I think it was like October or November of 2008. So terrible time to do this. And that was just to get to a term sheet. Then you have to get to a contract, all that. So if it wasn't for the competitive process, we wouldn't have gotten funded by the oil and gas space. We had to create a situation where there's a sense of urgency and everything else that ended up working out quite well for us. So in addition to having the one and a half million dollars investment, the $1.2 million grant funding, then we went in with. We went into the. We're in the downturn with a strategic partner that our first contract was. The first phase of the contract was on the order. It was just under $2 million. So we were in this really, really good position. Even though they were their partner was not.

Got it. Interesting. It's a great way to get funded though, for sure. Especially to not have to play with equity, right?

Yeah. And since they were paying for development funding. Yeah, there was no equity involved.

Yeah. That's great. So what's the. I'd like to know, just more like what's. Were you aware of what was going on in San Diego then? You have a 99 perspective of being brand new to town. You now have nine years. What's anything different from a technology community in San Diego then? Yeah.

So when we first got started, we ended up with some small grants from ccat, the center of Commercialization of Advanced Technology. That organization is not still around, but it was wonderful. And we were involved with Connect. So Connect was well established and going strong at that point. We were never an official Connect company. I can't recall why, but we basically got the benefits of everything they offer and that benefited us a lot. And com nexus was around, but as far as I was aware, there wasn't much else. Now it's much, much better.

Yeah.

A lot more options and the city can support a wider range of businesses as a result.

Yeah. What about talent wise? Was there all the right talent that you needed for this minute? You guys were in that industry. It was kind of big in San Diego, semiconductors and telecom. But did you find the right stuff that you needed or you have to import talent?

We ended up having to import because most of you know, pretty quickly, in the early 2000s, most of the semiconductor left. And so most of the talent also left, at least as far as the manufacturing side goes.

So.

So we ended up having to hire from out of town about half of our staff.

Oh really?

And, and that was hard. And that's, it's. Especially as a startup company, you're putting up, you, you spend because we had to use a lot of recruiters and then they're very expensive and then you're moving expenses and everything else. So it's very important for us to hire correctly. You hire the wrong person, it's even worse in that scenario. And then our industry was not one that you get a lot of. We were not able to recruit a lot of startup minded people. So we had to offer compensation and benefits on par with a regular company, big tech company, health insurance and market rate salaries and all of that were. Startup companies often can go a little lower. So we had to. Some of those things were much harder for us.

Got it. Okay, take us through kind of the growth. At some point you either pivoted or added a whole new business line outside of oil and gas.

Yeah. So we ended up, for the first number of years, all of our money came from oil and gas and came from. We had a few contracts from the Department of Defense contracts as well. Well, both sources of funding ran out. Oil industry, there's a, you know, for a lot of different reasons, the oil industry ended up having some problems. Defense had issues. And then our primary partner, their business changed dramatically and they ended up not being in the space that we started off with them in. So all of our money left. And in 2013, we had about a year's worth of cash in the bank and no contracts. And so what we did was we raised $5 million that was led by Light on Semiconductor out of Taiwan for the sole purpose of repurposing our technology for consumer applications.

Okay.

Because you do the research and you look around, you know, by that point inertial sensors are in every cell phone. That's where all the money was. And. And so we spent, we spent a year really where we spent 2013 really demonstrating that we could do consumer applications.

Okay, got it. And that's starting to sound like kind of time around time that you're maybe shopping yourself as a company or did interest come from outside of acquisition?

No, we were. Unfortunately for us, we had to do everything. We had to go on the offensive. Right. Or we had to make things happen. So we spent a lot of time really trying to network to the decision maker in various companies. So at that Point, we broadened our markets. We were talking to automotive companies, semiconductor companies and consumer product companies.

So filmmakers. Right.

And so what we ended up doing there was trying really hard to get to decision maker level, as many fronts as possible. Once we felt we had a sufficient number of companies, it was on the order of a dozen. Then we launched our competitive process. So mimicked what we did in the oil and gas industry where we went out and we told companies, okay, we're looking for a strategic partnership. We called it that. We knew it'd probably turn into acquisition, but we were also fine with a strategic partnership as well. So we called it that. And we had dates that, you know, we announced it in June and the first of July. They had to state if they're interested at the end of July. Then we needed a memorandum of understanding. So we get a basic idea of terms with the idea of term sheets being due in August.

Okay. That worked out pretty well. I mean, can you dictate terms like that to these, these big players?

Well, that's what made it so nerve wracking. We, you know, we weren't sure.

Yeah.

But we needed to do it anyway. And we put them. The timeline we knew was too aggressive, but we had to do an aggressive timeline because we needed, if it failed, we needed to have enough Runway afterwards to salvage and do something. Right. So it ended up going fairly well. One company that wasn't in the mix from the time we announced was Google. And we ended up. But it was a former CEO of Ion, Bob Peebler, that just by some random social event, I don't know the details, he met someone from Google. Spread the word and Google. I ended up having my first meeting with Google in July, first part of July. And then they gave us a term sheet five weeks later.

For acquisition. Yeah. Oh, wow. That's a big deal. Yeah.

All cash.

Wow.

Yeah.

Not what you were expecting, obviously.

Not from them. No, I didn't expect anything from them. And we didn't. They weren't on a radar screen at all as even a potential. Yeah. So shows what we knew and did.

Oil and gas was completely done. At this point you're purely doing consumer telecom, right?

Okay, yeah, yeah, it was. Yeah. They, we still maintained a relationship with them because they had at that point they also had put in some follow on dollars that did have equity.

Okay.

We still had a contractual relationship with them, but we weren't doing the development work due to lack of funding for it.

Okay, so what is it like to go through a Google acquisition? I mean, is it what it plays up to be in the news.

Well, so it's. It's really intense. I think the. You know that. Because, you know, after you get the term sheet, you know, that's just. That's just the start of the real work. Right. Because then you have to go through all the due diligence.

Yeah.

And, you know, they don't mess around. They're very thorough. They're very. They know exactly what they're doing. But one of the things we had to do. Half of our IP was owned by the U.S. navy. Right. So we had to renegotiate our patent license with the Navy, and we had to do it within, you know, within a very short time frame. As you remember, it took us nine months to get the first license, and now we have to renegotiate the license. And the Navy had to agree to things they've never agreed to before, and they needed to do it in one month.

Wow. How did that go?

Well, it worked out only because of. So the person that ran the technology transfer office at the time was Brian. Suh. If it wasn't for Brian, it would not have happened. He pulled out all the stops. He wasn't. We weren't allowed to tell him it was Google, but I had known by that point, I had known Brian for a number of years, and we had a pretty good working relationship. So. So he knew when I said this was big, you know, he believed me. But at the time, his wife was dealing with some serious medical issues, and so. And at one point, they weren't sure if she was gonna make it, and they had two little kids, and so it was horrible. And then, you know, so I'd be talking to him on the phone, and he'd be in the waiting room at the hospital. I'm trying to negotiate with him. Like, negotiate, you know, like, we need, you know, try to get him to go lower on things. And. And. And he's sitting there dealing with a. You know, with. Maybe his wife doesn't survive.

Wow.

And he still pulled out all the stops for us, so I don't know very many people that would do something like that.

Yeah, he's still at spayware.

He's now at UC Riverside.

Okay.

Doing tech transfer there.

Okay. Yeah. Cool. So still nearby.

Yeah.

Interesting.

But it was that. I mean, there's so many things about that process that were very surreal. So. So Brian does tech transfer, and then legal has to approve within spayware, has to approve of everything. Well, the two. The main. The main attorney there was out for also Very unfortunate circumstances due to health issues with some people in his family. His father was passing away. So very sad. And then another. The second attorney was out for reasons that I don't think were tragic, but he was out. So we get the number. We get the third one down on the list. He was very good, and so we're really working hard to get this done. The week we finished, the weekend after we finished negotiating everything, the attorney we were using tragically died.

Oh, geez.

He was riding his bicycle in Point Loma and, you know, went over the handlebars, wasn't wearing a helmet, and, I mean, just. Horrible.

Wow. Tragic process.

Yeah. I mean, just the kind of thing that you just, you know, you would never. If you saw it, was a movie about it, it'd be some cheesy bad movie because it couldn't. Couldn't be real.

There's a series of unfortunate things happening while you're trying to get something great done.

Right. And, you know, if. If he hadn't finished, we would have had to start all over again because of that, and. And there would have been the time delays, and the acquisition would have failed.

Wow.

It's a very intense process. You're. You know, it's a. It's a very emotional thing to go through, but you have to stay on point the entire time. And then you have these kinds of things happening around you, and it just doesn't.

Yeah.

You know, it just doesn't seem real anymore.

Wow. And by the way, you have a company that's still running. Right. Does not. Like the company shuts down.

Exactly.

So that's still happening. And then you go through the transition of everyone becoming Google employees. Is that pretty much what happened?

Yeah. So not 100% of our staff was taken. Google told us the names they were interested in, so we did have to lay a few people off, which was really, really hard because they were part of the people that got us there, and we had to do it before the close of the acquisition. So what we ended up doing there was we gave them the largest severance package we could, because that was really the thing we could do. It wasn't as big as we would have liked, of course, but, you know, we did that. And, you know, it was. Yeah, that part was sad, having tough, especially since some of them had been with us for a long time.

Yeah, you do the best you can, though, for sure. And Google then ultimately built you a campus. Right. Is that true here?

Yeah. So we. Yeah. Our Kearney Mesa office wasn't up to Google standards. Which we were more than fine with that. So Google opened up a new office. They also brought in a couple additional teams. Google Fiber moved in, and then when Jason Brimner came over from Qualcomm, his group came in, so they ended up opening up. The office now is over near Qualcomm headquarters.

Okay. And they're still a presence there?

Absolutely still.

Lumadiners.

Yeah, former Lumadiners are at work there right now.

That's pretty cool. Probably pretty under the radar. I would say that what Google's office is doing. Because even Google Fiber is gone, I think. Right.

As far as I know, yeah. It's under my radar. I can't. Visible to me too.

Okay. And so you stuck around with Google for a bit.

Stayed with them for just under two years.

Okay. But already we're thinking about next. What's next? Or when did. I don't know when. Could you actually take your eye a little bit off of Google and Lumodyne?

Yeah, so yeah, it was. Well, yeah, so you joined Google and Google's. It's a great place to work, but they also, you know, there's no resting. Yeah, we got right to work.

Yeah.

So then when I did leave Google, it was. I had to. I had to. I think I had to, you know, basically finally take a deep breath and rest for a while.

Yeah. You've been at it for what, 15 years at that point?

From 2006? Yeah, 10 years.

Okay, got it. And so when did was launch? Fast three. The next thing, Once you finally got your head above water or what led you to the next thing?

Yeah, well, I had to. You know, I knew there was going to be a next thing, but I had to figure out what it was. Right. And I've been spending a lot of time thinking generically about why startup companies fail with the purpose of trying to prevent that for whatever my next venture was.

Okay.

And you know, you start. You start thinking about these things, you start doing the research and you start learning things. Like, you know, it's usually not the idea itself that is the cause of failure, and it's not. It's not the execution by the engineers that lead to the cause of failure. You start looking at the major causes of failure and you start realizing that they're mostly on the business side. To me, that's good news because business problems have solutions. They may be hard, they may be difficult to spot, but they do exist. So through the course of looking at that, I started thinking about ways to address these just thought process in the head Kind of a thing. But as you start going through this, you realize that a lot of these solutions can apply more universally.

Okay, in what way?

Well, you know, strategies on funding, you know, even. Even little basic rules of thumb, like how much time should you leave yourself to go raise funding for your next investment round. Yeah, well, I also am involved with a number of startup companies, and that part's really fun. But what you start learning when you talk to a bunch of startup companies is there's a wide range of opinion on these numbers. And then you go look at, you know, some data. And it's quite common for companies to shoot themselves in the foot because they don't leave themselves enough time to go raise money.

Yeah.

Okay, so that's an addressable problem. Right. You can make sure that that doesn't happen. And so there's a whole laundry list of things that are like that that you can do in a preventative way and structured way where the people running the business can now focus on the business and they just. These other things are in the background that it's already part of the plan, so to speak.

Yeah. Okay, got it. And so that started to form into. Did you know a studio model before or did you kind of knock your way into.

Was one of those. So all my. All the ideas that I've ever had that I think are good, it turns out they weren't my idea. Someone else thought of it. So here I thought that I could. Okay, we'll create something where we just. We make startup companies and we do that and we just repeat the process and we put all these things into them, increase their odds of success. And I thought that was my idea, which was, you know, horribly naive, idealized. Been doing it since 1996.

Sure.

Right. So, you know, since before I was even working, this has been in existence and not even that far away. They're based out of Pasadena. So, yeah, so there's. And now there, I think there's. On the order of, you know, according to Wikipedia, there's, you know, approaching, I think, 80 something, you know, startup studios. So really. So we're not new by any means.

But you thought it was novel, your own idea, you know, and that's validating.

Yeah, yeah.

That there is a. This is a thing and there's a.

Market, In a sense, 100% agree. The fact that other. Because one of the one things I wrestled with for months was, why isn't anybody else doing this? Yeah, because it seemed, you know, well, so the fact that other people are and is successful is extremely Validating.

Yeah, definitely. So how did you. So when did you kind of form the entity and when did that all kick off?

I needed to get the right co founder.

Okay.

There's certain, certain skills I have and certain skills I don't. So I needed to get the right co founder. And so James Hereford, who's somebody I worked with at Google and even prior to that as well, he was the person I needed. He's very, very good at operations.

Okay.

And that's one. If you're going to be good at executing on the business side, you also need to be really good at operations.

Yeah.

So I really needed him or somebody like him to join me. The problem was I didn't know anybody else that had his level of skills, so. So it kind of seemed like, well, he's the only choice. When I first approached him about this, he turned me down.

Really?

Yeah. Because he, at the time, you know, he has his, his trajectory at Google was, was. Was very much a hockey stick. So. So he's doing great at Google and he actually moved from San Diego to the Bay Area. He joined us after the acquisition, but. But he moved up to the Bay Area because that's what you do if you really want to get promoted at Google, and ended up being chief of staff in the hardware group. But then I refined the idea, addressed some of the things he saw were problem areas. I addressed those and I approached him again. And in the fall of 2018, finally got to a place where it's like, you know what, he started getting excited about it too. And then of course, he starts helping me with the idea and we start making it better together. So in the fall of 2018, that's when he committed to it. Now he had to write out certain things at Google, come to bring his projects to a nice clean stop. So for all intents and purposes, officially we started in 2018, but for all intents and purposes, January of 2019 is when we formed.

Okay, that's great. Well, walk us through a bit of the vision. I mean, there's a few moving pieces with it between starting companies, but also scouts and other things that you need. Walk us through those aspects of Launch Factory.

Right, Absolutely. So our main focus, we need to have better execution on the business side. And there's a lot of things we do for that. But at the end of the day, the people are the most important thing. So they're more important than the idea, they're more important than your strategy and everything else. So we spent a lot of time developing what we call Our founder selection process, which is a means by which we can identify the correct people to run our companies. It's not a traditional hiring process though. It's more involved, it takes a longer period of time. But we designed it that way on purpose because we needed to be a two way street. The founders that we're hiring also need to be on board with the idea that we're asking them to be, you know, the founders of. Right. So we come up with the ideas they. So we need some time for them to get to know the idea and some time for us to get to know them.

Yeah.

So we have this. It's, you know, four phases. There's a description of it on our webpage. We're very confident it will select of the candidates you put in. It will select the best candidates to come out. One thing is also different about our process is we hire pairs. Now people don't have to apply in pairs, but we actually hire a pair of people, a CEO and a COO coming out of this process.

And this is when you say our companies, you're coming up with the ideas and you're finding someone to run build a company around those ideas in a sense and you're going to help mold that, right?

That's right, yeah.

Okay.

And we've also tried to lower the bar of what it takes to be a founder. So no one that starts a company that comes out of launch factory is going to have to go three years out of salary.

Okay.

So we're putting $300,000 of money into the company, seed money in the very beginning. And two thirds of that is meant to, to be used for salaries.

Okay.

So our founders will have salaries. They will start off with office space. All the things at the very beginning, we're going to start them off with that. You would get at most incubators, we'll be incubating our own companies, but there's quite a few other things that we do. We're highly involved with our companies. So when it comes to planning and strategy, we have a lot of things that go there. So we're trying to lower what it takes to be a founder so that creates a larger pool of strong candidates. At the same time, we, and we, and we have confidence in our founder selection process, but we also need to get people into that. You know, the funnel doesn't exactly. Our process doesn't make you good.

Right.

It just identifies if you are right.

So you gotta fill the top. Which, how do you do that? How do you find good potential founders of companies? That they didn't come up with their own idea.

So if you start thinking about it and you do, you know, you look at how. Where do the best employees come from? For any company, it's almost always through a referral. That is what has the best odds of success. Now, you put yourself in a community like San Diego, where you have a lot of highly experienced people in a wide range of industries, strong startup community. And so we have a lot of people here that would know talent if they saw it.

Totally.

And that could make good refer. It could make good refer. It could refer good people to us. And so looking at that, we thought, all right, so the most important thing for us to get correct is these founders. We live in a community where there are people that would know such talent if they saw it. And so how do we encourage them to refer good candidates to us? And so we came up with our scout process. And so that works is you register to be a Scout, which is basically just put your name and email address into our webpage and you refer somebody to us. If we hire your candidates that you refer to us, then we will give you 100,000 shares and in the new company.

Wow.

Big deal. Yeah. The idea is that, you know, that's equity well spent.

Yeah.

If we get the right people, then that equity becomes valuable. If we get the wrong people, that equity is going to be worth zero.

Right.

So if you help us find the right people, then everybody's equity benefits.

Yeah. Good incentive.

But we also want to have it such that not only do you tell us the best candidates you have, but you, our scouts, are motivated to tell other people about this, to be Scouts. So if you refer somebody to be a Scout, that scout identifies the candidates that we hire. They get 50,000. So the referring scout gets 100,000. Then the scout that refers. The scout gets 50,000. And it keeps going backwards like that. So if you refer the Scout who refers a Scout who refers to candidates, and it's 25,000, you divide by two as you get one layer removed. Oh, wow.

You don't actually even keep splitting the pie. You just add on, in a sense, more equity, the more scouts that refer other scouts.

Right. But because you're dividing by 2 of the number, then it ends, and there's two candidates total. So what it means is the total amount of equity that we'll be prepared to hand out is about 400,000 shares.

Okay.

Which is quite a bit. But again, that's equity well spent to get the right candidates. And so we're in addition to our founder selection process. We want to leverage the local community and the connections and expertise they have.

That's great. That's a really cool program. I mean, talent scouting is what it's all about, right. It's whether you're looking to invest, looking to hire, or looking to start your own company, or always looking for talent.

Absolutely.

Those people who get that will get this. So up and running now. Right. Or in a sense, ready to be taking applications and scouts at this point to help start filling the funnel.

That's right. So everything, our webpage, everything's ready to go. If you're interested in being a candidate, you register there. If you know of a good candidate, you register to be a scout.

Cool.

And it'll be in June that we start our founder selection process. And first company will be up and running by the end of the summer.

Okay, that's awesome. Well, really cool to hear that. Growing in San Diego, obviously, tacos brought you here and tacos keep you here. Do you have any favorite taco spots now?

Yes. Tacos El Gordo is hands down not only the best tacos in San Diego, they're just the best tacos ever. Yeah.

Yeah. Oh, I hear that a lot. For sure. Yeah. And there's a few of them around, so you don't have to go to one spot for them.

Yeah. Which is nice.

Yeah. What about local beer? Are you a craft beer fan or craft alcohol of San Diego?

Yeah, I definitely like the beer scene. You know, when I first got here, it was, you go wine tasting, Temecula, and that was pretty nice. But then Stone showed up and they just really made San Diego a special place for beer. So. So they're my favorite because they, you know, for all intents and purposes, they created what we have here. And so many of the other breweries have some pretty outstanding beer.

Yeah.

But part of the reason I get to taste that beer is because Stone created the, you know, the beer community that we have.

And good chance. A lot of people worked at Stone and then went and started their own. You know, there's a bit of a trickle down, too.

Absolutely. And they don't mind promoting other people's beer. Right. They really. So they had this community mindset from the beginning. I like that a lot.

Yeah, yeah, that's pretty great asset to have here in town for sure. Well, how can people learn more? Is it the website LinkedIn? Is that how they can find more about Launch Factory?

Both are Good. Website's great. LinkedIn. You can follow us. Launch Factory on LinkedIn. You can also come find me on LinkedIn and get information that way.

Awesome. Well Brad, thanks so much for telling us your story. We can't wait to see a bunch of brand new companies pumping out of Launch Factory, which is great for the community. So thanks so much for being on the podcast.

Yeah, thanks for having me.

Thanks for joining us on the Tacos and Tech podcast with Neil Blum. Thanks again to Cox Business for helping make this possible by expanding the reach of the San Diego tech ecosystem. This has been a partnership with the San Diego Venture Group and the San Diego Regional Economic Development Corporation's SD Life Changing Campaign. You can find find Neil Bloom on Twitter eelbloom and on LinkedIn.