Yeah. Hello everyone. To all my new friends and my old friends, may I please have your attention? Hello everyone. Clap if you can hear me. Thank you. This next discussion has a very, very exciting thing to me. Right now we have Aram and Thomas Healy. They are both very close and very near and dear to my heart. I actually work with Aram at the VC Factory. And Thomas was actually part of my accelerator many years ago. And so I'm really excited to bring both of them up here. This is where you get to hear about the journey of a company who's gone from startup to IPO, and they IPOed with the New York Stock Exchange. And so, Aram here will be moderating Thomas and getting to learn more about how that path happened and hear more about the journey. So, if they could, please have your attention. They really deserve a lot of attention to hearing the story. So, if you pay attention and you answer some really good questions, you might earn a prize as well. So, all right. Please come up.
Hi everyone. My name is Aram Atar. I'm the founder of the VC Factory, and what we do is we help VCs make better investment decisions. And we help them basically not miss the next OpenAI or Anthropic that's in this room today. And I'm very happy to be moderating today, but I'm sure he's going to not need a lot of moderation, Thomas from Hyliion. So Thomas, you founded Hyliion when you were in the dorm room at 28. You took the company public and you became the youngest self-made billionaire in the world and I think you overcame who was it, Kylie Jenner. Okay. And then it all went crashing down. The market turned. You had to do a hard pivot and we'll talk about that. Stock price tumbled down. Fast forward to today, company is doing great. You have a great product. You have a bunch of contracts including government contracts and you also have a lot of cash in the bank. So, what a ride, right?
It's been a journey which we're going to share a lot about today. So, you'll learn that no startup journey is just a straightforward path.
Yeah. And let's start with that. By way of introduction, I always ask founders I meet, why did you become an entrepreneur and what did you set out to do?
I think it really started with when I was young, right? When I was in like elementary school, as opposed to what most kids had, was the school bus would show up, they would jump on it, they'd go home after school and do their homework. My sister and I had it a little bit different where my parents would come pick us up from school and we actually had an office inside their office building. So they were both entrepreneurs. My sister and I had our own office where we'd actually go to their workspace and do our homework and then probably around like 8 or 9:00 at night, we'd go to the Thai food restaurant across the street, grab some food, and one of my parents would head back to work, one of my parents would bring us home. And so just from a very, very early age I was exposed to startups. I saw what it was like. I saw the journey that my parents were on with their companies and I knew that this is something I wanted to do. So then went to Carnegie Mellon in Pittsburgh and started a couple of companies while in undergrad and then when in grad school founded Hyliion, which is now the company that we're running today.
Yeah. And I realized now I mispronounced it, Hyliion, and we didn't prepare that but can you tell us what's behind the name?
So the name is hybrid lithium ion, Hyliion smashed together. As you're going to learn through today's presentation, it's kind of an outdated name because when I founded the company we were producing electric semi-trucks. We were one of the darling companies in that industry. That's when we went public in 2020, raised about 750 million in cash to go down that journey. That's not what we're doing anymore though. As some of you might be aware, that industry has gotten just slaughtered. There are very few companies left in the electric vehicle semi-truck space anymore. And we actually decided to get into power generation. So, we now produce modular power plants for data centers, for the military. Fun fact, the military is building a bunch of unmanned autonomous ships. We are the power plant in those vessels. And then we're also doing kind of the straightforward, as opposed to buy from the grid, make your own electricity on site. So think of like a Walmart, a Home Depot, put a box right outside, make all your own electricity and remove your dependency from the grid. We are that technology that makes the electricity.
So going back to what you said, you did something that's one of the hardest things to do in entrepreneurship, which we call a pivot, going from the original idea to the next. And so many successful companies had to go through a pivot. In fact, I'm not sure I know maybe any one company that kept doing the first thing they started. So can you walk us through that decision because at that point as you said you had raised a lot of money, you had spent a lot of money on that first product and now you're like the market is not here. We have to pivot. How do you do that?
Sure. So to bring you back to the time frame. So, it's maybe late 2023. We're sitting there. We are a couple of months away from truly launching deliveries to customers. We already had our production line set up. We were building electric trucks. We hadn't delivered the first one yet. And we saw the whole tailwind that was happening went away and it was actually moving to a headwind. So, to give you some examples, it used to be mandated that fleets were going to have to buy electric vehicles. It was mandated that emissions needed to get down to a certain level and it was expected that vehicles were going to be a lot cheaper than what they ended up actually coming out to be. So those things that were driving people to adopt our technology and others in the space were going away. And what happened was I was looking at saying like all right well my peers there were other companies doing the same similar thing we were, they were trying to raise money and they weren't successful. Some of them were actually going bankrupt. And so I looked at our business plan, it was like okay well if we keep going down this path why are we going to be different and are we just going to have the same outcome of bankruptcy a couple of years later from what these other companies were having? And kind of bet the house on that that we wouldn't have been successful. We were very fortunate that we had actually acquired a division of GE that was in the power generation sector and so we had two businesses under one roof. We had the powertrain and power generation and then decided to shut down my initial idea, what I had founded the whole company on, and go all in on this technology we bought from GE.
So I commend you on that because there's something psychological, the cost fallacy, and as VCs we also are guilty of it. For example, we invest in companies and they always need more money and then we think shall we keep funding or are we throwing good money after bad? And many VCs make most of their money loss in VC I think is because of that rather than the first money in. So I commend you on being able, because I think you put hundreds of millions.
Yeah, we had invested about probably a little over 400 million into this powertrain technology and it was an awesome technology. But the problem was if people weren't going to buy it because the mandates had changed and the vehicles were costing more, then it didn't matter if we had invested 10 million, 400 million or 4 billion into it, right? If no one's going to buy it, it's going to have the same outcome. And so that's where we said all right well there's a much better market in data centers and powering military vessels and providing electricity for cheaper. I'm sure all of you have heard that major trend going on. AI compute data centers consume so much electricity. This is a better market to be in. And so we couldn't look at what we had done in the rear view and say oh we got to keep doing the same thing. It's what makes the most sense going forward. That's why I think, so I work a lot on founder psychology and I think the most important personality trait of founders is not grit because grit has passion and persistence and if you had persisted you wouldn't be here today. But what you have I think is more important is resilience, and resilience is about recognizing that your idea doesn't work, what you did, and then let's rebound and do something else. And there's a book out there. It's something Relentless, right? And it's just about this mentality of I'm going to win, right? And every day is a new day of all right, what do I need to look at? How are we going to make this company successful? I think founders need to be relentless.
Excellent. So let's go back a few years in the rosy times or you're this young entrepreneur and not only were you young when you took the company public but the company itself was young because I looked at the stat and I think the average time to IPO for a tech company is 12 years, for unicorn now it's like 9 years, but your Hyliion at the time was exactly five, you were 28. So why did you decide that it was the right time to go public?
It was really about the markets, right? And so what happened was there's a company out there that some of you might have heard of, Nikola, gotten a lot of bad press about that company. The vehicle rolling downhill was the story. They were in the same sector that we were and they went public and then what happened was their stock exploded, right? That company became worth more than Ford Motor Company and they had yet to deliver their first product. And so what happened was there was this massive tailwind in the industry to be able to bring electric vehicle companies public. And so we looked at and we said okay if we stay private here's the amount of capital we could raise versus if we go public it was a much larger number. We raised about 700 million through that round. And so it was really about the availability of capital. To be totally transparent and fair though, we were young to go public, right? We didn't have all the processes in place. We had to go re-audit our financials because you need to be held to a higher level if you're going to go public. We needed to go hire a GC, hire a new CFO, build out the team. And that's something that a lot of, I've talked to some other founders that say like, I can't wait till I take my company public. It's like, well, pump the brakes. It's not all this amazing thing, right? You spend so much time preparing for earnings calls. So much more capital is spent on just overhead and infrastructure that you don't need as a private company, right? I mean, you now are working with the SEC, the New York Stock Exchange, and that just requires a lot of resources. I mean, it's truly millions and millions of dollars that you have to spend to be public versus if you were private.
So, you probably have to raise money first to be able to then go public.
That is true. Yes. Because as soon as you're going down the going public path, the bar is held to a new level.
So for you, was it a case that given what you were doing, maybe there's not enough hardware VCs with enough deep pockets to fund? Like what was the business reason to go public that early?
Yeah, I think the funds that are out there that want to invest in companies that are IPOing, they are larger funds than the companies that are normally in the VC stage of earlier companies. Whether it's hardware or software, but there's a lot of software companies with ARR, they're raising big dollars in the private space. But no, for us it was that the funds that would come in and write a check to a public company were a lot bigger funds than if we had stayed private.
So you've been the CEO of a public company for 5 years now. What has surprised you most that you were probably not expecting?
Yeah, I mean we touched on some, I mean there's just a lot of overhead that goes into being a public company. A lot of time goes into reporting your quarterly plan. I mean now you are every quarter, every three months you're out there. Here's what's next for the company. Here's what we accomplished. Here's what we're going to do. And for startups, timelines are very difficult things to project, right? When you're in the development stage there'll be new things that pop up that you didn't anticipate and it's very difficult as I'm sure you've seen for startups to really predict how long things are going to take. And so the thing that changes though is when you're public now you still need to report on that every single quarter. So that's probably been the most eye-opening thing of when you're building a private company you're really just working closely with the VCs who have invested in you and updating, versus now we've got tens and tens of thousands of shareholders that listen in and want to hear updates on where the company's at.
And on the positive side though, tell us about the decision making because you don't have, so you have a board obviously but compared to a private startup that maybe raised four, five, six rounds and has maybe eight VCs and maybe the founders are super minority and have to ask permission for some things, compared to that like what's the leeway you have to make decisions on a day-to-day basis?
So I mean I think from actually running the day-to-day it hasn't changed too much, right? I mean, have an awesome team around you. That's number one. I've been super fortunate with that. Got amazing people that are smarter than me making the decisions in their departments of what they need to accomplish. And then from a CEO's perspective it's driving the culture, driving the intensity of we need to go do this. We're set out to change the world. Let's go do it faster than someone else has. What has changed though being public is there's people out there that are much more eager to go sue public companies, right? We've been very fortunate to not have that issue. But that obviously stems a level of diligence in all your decision-making, extra level of diligence because you don't want to be in a shareholder litigation, right? And so as we make these big decisions as a board, it is management bringing ideas to the board, the board going through okay is this smart, what things should we go look at. When we made the pivot from powertrain to power generation we hired bankers to go try to sell the powertrain division that was unsuccessful because the whole industry was going down. But you have to build those kind of data sets of like no we really did look and explore and try to make, you know, this is the right decision for our shareholders because of X, Y and Z. If you're a private company, you could go have lunch with the VC that invested money and say, hey, I think I want to do this. And the two of you by the end of the lunch could say, sure, let's do it. And then that's your new journey. That's not the way it works when you're public.
How about clients though? Is it easier when you're a public company to, you have the clients, some of them are government related. Is it easier than being a small private startup like to have a, you know, public because there's more scrutiny? It's reassuring that there's so much level of governance.
That is true. And so we've been very fortunate, like to paint the picture here. We're working with the military. We talked about the autonomous ship a little bit earlier, 200 ft vessel, right? It's this big unbelievable piece of equipment that the military is building. We are the power plant behind that. And so you're working with the army, the military, the navy, and they want to see a new level of, it's tough for them to work with a private startup, right? If you are kind of living paycheck to paycheck as a company and every couple months you're going to your VCs trying to bring in more money, that's usually a tough environment for the military, the government to work with a company like that. We've been very fortunate, as we talked about earlier, we've got a strong balance sheet. We've got 150 million of cash sitting on our balance sheet. And so that's enabled us to really go get some of these military contracts. And what they've also said to us is they love the fact that we are not just a supplier to the military, right? They want to see us also commercializing this technology and selling it to data centers, selling it to commercial buildings because they know that'll not only add resiliency, but it will also drive the cost of the technology down as well.
Yeah. And I'm an optimistic guy because that's why I'm an investor. But the positive side of all the overhead you talked about is also that those government, they ask you, I've had a lot of startups trying to work with government or large companies and actually they ran out of cash before finishing the contract. It takes 18 months, but you have the infrastructure to be able to negotiate those contracts.
And then I've heard from other founders, they say, well, I'll just go to the military and get some money from them. It takes like, once you know that you're going to win a contract, it takes about 9 months to actually get that contract executed, right? So you're not going to just out of the blue go get some money from the military, right? We started with like a $3 million contract. Then it became a $20 million contract a few years after that. And then a few years after that, now we're projecting about 40 to 50 million in contracts this year alone. And so it's a journey that the military, the government is not moving on the same pace as a lot of VCs and startups are. And so they're probably not going to be the safety net to come fund your company.
So if we do the plus minus, of course what I loved about what you said, and I don't know if you have many entrepreneurs here who want to go IPO one day, is that you have to be prepared, you have to spend money to get that, you have the scrutiny and so on. On the good side you have what we said about, you know, you could probably get those large contracts, you could get access to funding maybe also easier, cheaper because VC as you know costs 25% in a way because that's what the IR that people want. So all in all, if you think about your experience the last 5 years, if you had to do on the financing side something different, would you do something different or not?
I think any founder can sit where they are in their journey and look back over the last, for me 10 years, and you can nitpick galore things that you would have done different. But I, one, I try not to do that, right? Because you are where you are, you should only look forward, learn from your mistakes in the past but look forward as to where you're taking the company. But the other thing I'm a big believer in is like you cannot project the journey you're on, right? When I founded this in my dorm room at Carnegie Mellon I thought I'd be sitting here 10 years later and we would be selling electric vehicles and building semi-trucks. I could have never guessed that we would be a power generation company. And so, how did we become a power generation company? Well, we started working with GE on co-developing this tech and then ultimately we acquired it and then now that's our business model. Well, if I had done something different 7 years ago, would GE have ever seen us? If I didn't take the company public, sure there's a lot of benefit of being a private company at an early stage but if we didn't go public would we have ever had an opportunity to work with GE, then acquire that division? Probably not, right? And so that's where you've made these decisions that then you just need to see what you can create out of them. Because I also believe like have a lot of doors open, have a lot of opportunities of like okay we could do this, this or that, and choose the path and then keep opening more doors and figure out where to take it from there.
So before we give the mic to the floor to the audience for a few questions, you went public with a specific method, something called a SPAC. And this SPAC, can you tell us a bit how it works and also why you chose that route?
