How do you use a DTC brand to fund a deep tech company?

Jason Kirby (00:01.314) Welcome back to Fundraising Demystified. I'm your host, Jason Kirby, and today we have Michael Marksberry, co-founder and CEO of Auro's Lab, with us. Welcome to the show, Michael. Michael Markesbery (00:14.67) Jason, thanks for having me. I'm super excited to be here with Jason Kirby (00:18.542) Now I'm excited to have you on the show. You have a pretty interesting background building a deep tech material science company. But where I want to start is I just want to know what your story is. How did you go from building a direct-to-consumer apparel brand to what you now kind of call a materials science company that's raised over $50 million? So just tell the audience a little bit about yourself and then kind of what your journey has been like. Michael Markesbery (00:41.444) Sure. My story's pretty simple. Again, I'm Michael, co -founder and CEO of Oros Labs. When I was in college, I backpacked across Europe, ended up climbing my first mountain in the Swiss Alps. An incredible experience, but one really big problem. I looked like the Michelin Man on top of the mountain. I remember thinking like, you know, this makes no sense. There's gotta be a better way to cut bulk and still stay warm. So came back to the US and with a friend, Ritvik Venna, now co -founder and COO of the company, we started looking into insulation. Not just apparel, but you know, everything from buildings to aerospace, cold chain packaging. batteries, all just to try to find a solution to the Mitchell Man problem that I had on top of the mountain. And what really surprised us was it seemed like all these other industries were struggling with the same challenge that I had in apparel. So as an example, we're both in a building right now. Half the world's energy consumption, 50 % trillions of dollars a year goes to producing heat. The largest consumer of that heat, buildings and structures. Said another way, if you can just improve the insulation in buildings and structures by a couple percentage points, you can save tens, if not hundreds of billions of dollars of energy consumption a year. Cold chain packaging. We shipped so much medication all around the world, especially during COVID. And a lot of that medication like vaccines are temperature sensitive, meaning generally you got to keep them really cold or else they go bad. Well, it turns out we throw out $35 billion of temperature sensitive medication a year just because we can't keep it cold enough or long enough in transport, aerospace, batteries, defense. Michael Markesbery (03:06.116) The point being, Rith and I quickly realized, oh my gosh, the problem's not apparel, the problem is insulation. And if we can solve this insulation problem, we can make a pretty big impact across a variety of different markets. I then got super lucky, ended up getting a scholarship created by the Mercury 7 astronauts called the Astronaut Scholarship. And through the astronaut scholarship, we learned about this pretty amazing insulation called aerogel. Aerogel is this pretty cool stuff that NASA was using to insulate spacecraft. So like all the Mars rovers and whatnot insulated with aerogel. And aerogel, as we learned, is the lowest thermal conductive solid in existence, meaning it's the best insulation. that we know of. And so we're hearing all this and thinking like, well, a minute. You're saying this is the best insulation we know of. We're using it in the most extreme environment in the universe, space, but it's not being used in all these other industries. What are we talking about? This makes no sense. You could hypothetically transform thermal materials. We then got our hands on aerogel. and found out why this amazing material wasn't being used in all these different applications. And it turned out aerogel is super brittle. If you put it in your hands, it just shatters into a thousand little pieces. So we became obsessed with figuring out how do you take this amazing insulation and just make it flexible and durable enough. so that you could use it in whatever application you want. And that launched the of AuroSlabs. So that's super briefly written my story. Jason Kirby (05:19.918) So NASA -inspired installation, but insufficient to be commercialized and you guys made it commercialized. So did you guys start selling your own consumer apparel with that product and then you kind of went into the industrial kind of commercial aspect? Michael Markesbery (05:41.284) Absolutely, you nailed it. So we ended up creating the world's first flexible and durable aerogel composite called Solacore Foam. Fortunate enough to get patents on it, validated that this thing worked, so tested it against over 400 other insulations. Haven't found anything more insulating, and that's great, it's really insulating. The real value proposition though was... Every insulation that exists today needs loft and bulk to work. So that's why your jackets are puffy. It's why like if I were to tear open the walls here in this building, it would be fiberglass insulation. Fiberglass is super lofted and bulky. All these installations need that airspace or loft or bulk to work. So if you compress them, you lose that airspace, lose the ability to insulate. So you have that dependency on airspace loft, bulk to That's not true with aerogel, thereby not true with SolarCorps. Meaning for the first time in history, you can now have a thin amount of insulation that actually gives you meaningful thermal value. So that was the really big difference with SolarCorps. Once we created the technology, we then wanted to generate awareness around the technology platform. And we found one of the best ways to do that was to create a consumer apparel brand. called Oros Apparel. So we created Oros Apparel, an outdoor brand all around SolarCore to generate awareness around the SolarCore platform. That was the original way that we generated awareness and traction across our three target industries of consumer commercial government. So you absolutely nailed Jason Kirby (07:32.492) So what was that like kind of like, how did you get that started? Like you're doing this kind of more deep tech, deep science, invention of a new material. And how did you guys raise money for it? How did, how were the early days like, you know, kind of getting that initial product in the consumer sector to market? Michael Markesbery (07:53.006) Great question. So when we started out, it was Rith and me in a college dorm room in Oxford, Ohio. And we had the money from the astronaut scholarship. And that was about it. So it was just us tinkering for candidly two years, from our sophomore years to our senior years of college, trying to figure out, how do you, How do you make this aerogel stuff not brittle? Once we figured that out, it then became about, how do we actually turn it into a product and validate that people would want to buy this stuff? That was a pretty tricky proposition too. But the fundraising side of it, hey, how do you go and buy the product? We originally launched the company, the apparel brand. via a Kickstarter campaign. Are you familiar with Kickstarter? Okay, cool. And our goal was 100 grand. This was our senior years of college and Rith and I decided, hey, know, if we can hit 100 grand, that proves that there's true validation and need for this technology we created. And it's worthwhile to go on this venture after college. So that was our benchmark. Jason Kirby (08:57.42) Of course. Michael Markesbery (09:23.428) and launched the Kickstarter campaign and in the first 36 hours ended up hitting like hundred and twenty five grand more money than than Rith and I have seen before in our lives and closed the Kickstarter campaign at three hundred and something grand, three hundred sixty grand and that that was that was the start of Aorus Labs and that really gave Jason Kirby (09:37.184) Ha ha. Michael Markesbery (09:50.964) not just meaningful capital to go and start the business, but also, I'd argue more importantly, meaningful traction so that we could go out to investors and actually raise an institutional round and things like Jason Kirby (10:09.102) So was a couple hundred grand Kickstarter and you get some traction, get some momentum. You go to market with your apparel brand on the installation type, core. And then how did you go, like what was that journey to and how long did it take in terms of timeline to start attracting institutional investors? You know, cause it totally raised over 50 million, you know, since inception and it's been roughly what nine, 10 years since you guys started. So what was that like getting getting to that point and how did you attract that capital? Michael Markesbery (10:43.044) Yeah. So we, our first round was around $2 million, a seed round, and it was right after we graduated college. So we raised that first round in, gosh, six months post the Kickstarter campaign. And I don't, I don't believe we would have been anywhere near as successful if we hadn't had that traction that we had with the Kickstarter campaign. In terms of the process, know, Rith and I graduated college, two science geeks with an entrepreneurship minor. We didn't know anything about raising money. So that was certainly a learning experience and we were really fortunate to have a really strong group of advisors and mentors around us that several of which have been through that process and were able to really help mentor and guide us through I'm not so fond of this. Jason Kirby (11:45.294) So successful Kickstarter to attracting the right type of mentorship and advisors to come in and help guide you to a $2 million seed round. So this is what 2015, 2016 is around this timeline. know, DDC funding was still popular back then. And so there was still a lot of resources going towards it. Michael Markesbery (12:01.294) Correct. Jason Kirby (12:09.312) At what point did you guys realize that you had a bigger, as you kind of already alluded to, have a much bigger opportunity going after the bigger installation market and kind of divesting from the DTC brand and kind of licensing it out instead of, you know, continue to build that brand. Kind of walk us through that decision flow and that timeline as well. Michael Markesbery (12:31.84) Absolutely. So from the beginning, the whole thesis of the business was to completely transform insulation cross -functionally across all these different markets. And we really broke it down into three different industries. Consumer, which is consumer brands, namely footwear and apparel being the two largest categories in consumer. Commercial. which is a much broader spectrum, think more industrial. This is everything from aerospace to cold chain packaging to batteries to buildings, and then government, largely led by the US Department of Defense. Those were the three industries that we identified, and our goal was to completely transform insulation cross -functionally across those. We created the apparel brand to generate awareness around the SolarCore technology platform such that we could generate awareness to eventually sell SolarCore within those industries. That ended up working. So we ended up garnering over that period of time that we had the apparel brand meaningful traction in all three of those industries. So signed our first couple consumer brands, LL Bean, Merrill were some of our first ones, signed our first commercial partners, got our first government contracts, largely all in part due to the awareness that we were able to generate around the Solarcore platform via the Oros apparel brand. So once we had that original traction for us, that was the trigger to go full steam into focusing 100 % material sales of the company across those three industries versus the Jason Kirby (14:32.976) So what kind of what year was that when you guys realized that that was the kind of transition you kind of had enough awareness at that point to make that transition? Michael Markesbery (14:44.548) 2023 is when we licensed the apparel brand to a PE firm and focused 100 % of our energy on material sales and technology. Jason Kirby (14:56.43) Gotcha. And that also coincides with the very sizable recent raise. So I guess give us the history of the capital raising. So it was 2 million about, you know, call it eight, nine years ago. What other capital did you raise and when did you raise it? Michael Markesbery (15:12.164) Yep. So we've raised a little over $50 million to date in equity capital for the business. The most recent round was in April of this year, 2024. We raised a $22 million round, our Series B, led by Airbus Ventures, the venture arm of Airbus. Our Series A and our Seed and C Plus were the prior rounds. So between those three, that was 28 million. Jason Kirby (15:46.706) When did you get your series A? What year? Michael Markesbery (15:50.948) Our series A was 2021. Jason Kirby (15:57.782) And had you started generating revenue on the commercial or governmental side of the business at that point? God. Does that make sense? Michael Markesbery (16:03.276) Yes, yes. That was when we, I would say, we started to generate, when we had initial traction across all three. Some was more meaningful than others, but at that point we had meaningful traction across government Jason Kirby (16:19.096) So, appreciate you giving me some background on the fundraising history and where you guys have been at in the overall development of the business. But I want to be frank here, like a lot of our audience, they're in software, they're a consumer, they probably get the apparel brand, but to understand material science, deep tech technology, I'd like to kind of gravitate towards that area of the conversation to give our audience a little bit more of insight into how these businesses work. You talk about one angle in terms of licensing the technology to a PE firm for the apparel side of the business. So you kind of remove yourself from that aspect and can do books and other things. But when it comes to the deep tech, are you manufacturing? Do you build the actual manufacturing facilities, the machinery, the equipment? or are you more or less outsourcing the development of that stuff? It'd be curious to kind of hear how that process developed and also just what you're using the amount of capital that you raise, what it's going towards. Michael Markesbery (17:26.798) Absolutely. We had two choices when it came to how we thought about manufacturing our technology. The two options are, do we take it in -house and do all the manufacturing ourselves, or do we go contract manufacturing? We ended up going contract manufacturing, at least today. And the reason we picked contract manufacturing was it provided immense scale very quickly, allowing us to grow the revenue of the company very quickly. Compared to if we went in -house, would have taken a lot more capex and a lot more time to stand up meaningful supply of the technology we had just created. That is a gross oversimplification because at the same time, what we really had to focus on in order to make our technology able to be contract manufactured very easily was a lot of process engineering. around, how do we actually take what was historically a pretty hard material to make and make it so that we could walk into foam manufacturers and without them having to invest serious capex into new equipment, just be able to manufacture solar core foam using our IP. So that took a lot of amount of work to make that happen. But the benefit is it created the ability to rapidly scale. manufacturing of our solar core technology. So we go contract manufacturing today. Will we always go contract manufacturing? That could be a pretty heated debate. The only downside with contract manufacturing, I'd say, is the main downside is gross margin. When you bring it in -house, you gain back all those points of gross margin you give to your contract manufacturer. So that's the debate over time between the two. Jason Kirby (19:28.544) Yeah, and you get to a certain scale where, you know, certain level of revenue and profitability and you can run the math and when it makes sense to kind of transition and bring it in house. But it's also like it's a huge CapEx investment. So, know, it's basically what Tesla does is for an easy reference, like they're building everything in the end and look how much money and time it took to do that, to reach that kind of scale. Michael Markesbery (19:52.896) Absolutely nailed it. That is exactly the equation. Jason Kirby (19:57.279) And when it comes to the contract manufacturing relationship, mentioned all the process engineering. Now, are you hiring all the engineers? Are you staffing up a large team of engineers to be able to solve those problems and then hand over those instructions to contract manufacturers? Are you relying on those partners to do it for you? Michael Markesbery (20:15.81) The former. That is a crucial part of the company. So at the end of the day, what does Auro's Labs do? We create novel thermal insulation solutions, and then we sell those solutions to our partners. That creation portion includes the process engineering behind how do you actually make the stuff and how do you make it scalable. So we have an incredible team of engineers that I'm honored to work with. spanning everything from chemical to mechanical to textile engineers that really lead that process and make that happen. Jason Kirby (20:55.018) Because effectively this solar core is going into apparel, it's going into tents, it's going into buildings, it's going into trucks and delivery, it's going into just about anything and everything you can think of that needs to control temperature of some kind. Now is the material that you're developing, it a one size fits all, then it's just a matter of fitting it in to those materials? Or do you have to have like a completely separate manufacturing process for each deliverable? Do you have to kind of seal it and size it up and send it to the customer that way? Or do you just going to say, hey, here's gallons of it, or I don't know what form of it it's in in terms of liquid or foam or not, but how is that kind of decided? And like, how's that sales process as well? Because I imagine you also have a pretty sizable sales team going out, educating the customer on the benefits, cost savings, performance, things of those sorts. Michael Markesbery (21:58.358) Absolutely. So our goal was to make it as easy to adopt as physically possible. And what our first technology was is solar core foam. And the technology is just that. So taking a step back, how did we make aerogel not brittle? Well, all we did is we just created a composite out of it. So solar core foam is part foam, part aerogel. You get the flexibility and the durability of the foam. You get the insulation of the aerogel. Gives you the best of both worlds. That was our first patent. That was our first technology, Solicor foam. And if you look at all the industries we serve today, they all used insulation prior to using Solicor foam. But guess what type of insulation they used? They used the foam. So in our consumer's mind, All they need to do is just swap out their existing solution with our solution. It doesn't change their manufacturing process or assembly process in any way, but gets them all the benefit of the technology, which is drastically increased thermal performance without any of the Jason Kirby (23:13.4) So when it comes to the application, just, you try to, again, fit exactly what already the market does today and allow you just to kind of slide in with a higher performance. From a pricing perspective, how do you think about setting the price of this material? Is it a application -based, do you do value -based pricing? Do you do cost plus pricing? How do you guys think about it? Michael Markesbery (23:41.742) Great question again. we're upper middle market, so we're premium, not luxury. You can find more expensive insulations than Solocor foam all day long. Goose down, to name one. Vacuum insulated panels, to name another. But you're also going to find things way less expensive than Solocor foam. These are things like generic polyfills. for example. The difference is cross -functionally, we're going to be beating all those installations from a thermal performance perspective and a lack of bulk perspective. So that's our general thought process on pricing. I will also say, historically, aerogels are incredibly expensive. So in order to make aerogels accepted in the commercial market, We also had to focus a lot on how do we cost engineer our solution to make it price competitive. And that was also along with that process engineering that we talked about earlier, a lot of our work upfront in order to make SolarCore. priced appropriately for the market. Does that make sense? Jason Kirby (25:07.82) Yeah, no, does. And I think, you know, at this point, you got to hit on a lot of the consumer applications and uses and stuff like that. you know, the whole other animal is going after, you know, government contracts. I think it's easy to understand commercial cost benefit analysis, you know, pretty easy, but going into, you know, breaking in to government, getting them to get approved as a vendor and selling to them. How has that been? Looks like you worked for some of the military branches with your products. Did you just hire the right talent? Did you do it yourself? What was your process to kind of get your foot in the door there? Michael Markesbery (25:51.448) Yeah, great question. You know, when we first took a step into government, I didn't know anything, we didn't know anything about working with the government. And so for us, that was a pretty clear sign that while we knew it was the right market to be in and something that we were also personally excited about doing and believe was the right thing to do. we needed the right experience around the table. So the first thing we did is, and part of that mentor advisor group we talked about, brought in some government experts that really knew that space better than us, that could help guide us to how we get into the market. Once we did that, via a lot of their guidance, we then brought in a consultancy firm that focuses Michael Markesbery (26:52.986) contracts within Department of Defense. That consultancy firm was super helpful for some of our original contracts with the DoD, spanning everything from cold weather apparel to tactical shelters to pipe insulation, our first three programs with the DoD. And then from there, once started to grow those programs and get to the stage of procurement. We knew it was time to start building some internal team that really could lead that initiative going forward. So from there we hired our head of government. His name is Dale Suzuki. Dale's absolutely incredible and has been in the government industry his whole career and built a team, you with Dell to support the procurement initiative with NDOD. Jason Kirby (27:50.906) So basically going out, finding that you have a market opportunity, accepting the fact that you're not maybe qualified to go and address that market yourselves and sourcing the right talent, pulling on your network to kind of bring those people into the position to go and execute for you. So again, just being able to attract top talent, which I think from your mission and your product and what you're doing, I think it's an easy mission to get to buy into and attract talent, which often attracts capital. So transitioning back to your most recent round, when you went out to raise, at this point you had some traction, people probably know who you are. What was that experience like? When did you say, I wanna go out and raise more money? And what was your process from there to go out and raise this most recent Series B? Michael Markesbery (28:41.668) Great question. So when we knew we wanted to raise the series B, we were in 2023. And I think all in it took us around 12 months, maybe a little longer from first pitch to close. So that was, I think, a little longer than the standard nine months from pitch to close. Definitely, I think a tougher economic climate in 2023 than prior raises. our general process was, hey, and our whole philosophy for the series B was we wanted to bring in value -add capital. So for us, that meant that while all money is green, we wanted entities around the table that could help us scale. help us scale the business. And that really showed up when you look at the cap table today. So really honored to have Airbus Ventures having led that round. Again, Airbus Ventures is the venture arm of Airbus, the large aerospace company. The value add there is pretty innate. Some other investors around the table include REI's venture arm. REI is one of the large outdoor retailers here. Jason Kirby (30:09.123) Yep. Michael Markesbery (30:11.01) in the US. Goldwyn's Venture Arm. Goldwyn is the largest outdoor apparel conglomerate in Japan. So they have the licenses in Japan to the North Face, Helly Hansen, you name it. Crumpton Ventures, founded by Hank Crumpton. Hank is the former deputy director of the CIA. Incutel. a bunch of really great investors that were honored to have around the table, all of which kind of lived up to that fundamental thesis or ethos of value -add capital. So that was our whole theory for the Series B. Jason Kirby (30:51.662) How did you get in front of those investors? You mentioned it's 12 months from maybe your first conversation to checks at the bank, but how did you get in front of them? Did you cold email them? Did you beg your advisors to find a path to an intro? How did you navigate the path to those investors? Michael Markesbery (31:14.156) It was a super surgical approach generally. Some cases we just got lucky and we got intro'd. That was the case for Crumped Inventures for sure. But for the most part, it was a very surgical approach. So what we did there was we started by looking at companies similar to our own in some regard that had recently raised rounds and looked at who they were raising from. to then identify, hey, who are the right venture firms that'll be interested in the deal? And then we screen those venture firms for, who do we think could be value add? So from there, if you look at 10 companies similar to your own, you can probably find 100 venture firms. Screen those venture firms then against value add, you're down to like 50 or so, and then you can tier those out however you want into A, B, and C groups or whatnot. But then from there, we looked at all the partners at the firms and cross -referenced those partners on LinkedIn to see, who do we have mutual connects into? Are we connected to any of them directly, any of them not directly? And then establish who we had connections to. And when it was time to raise, we then asked our connections to those individuals to do a warm intro in. And what we found is that warm intros are generally a lot more successful than cold emails. VCs, my sense is VCs generally don't respond to cold emails. And so that's how we really kicked off our initial conversations and kicked off the process with VCs was a very surgical approach. And that was the overview of our approach. Jason Kirby (33:08.716) And so a lot of these relationships I imagine were brand new. Like you kick off the pitch and then, know, first time meeting these people, there's a misconception in my opinion, in the market where founders are like, we can raise, we need money in a month. Let's go and start raising money. Or like, like we had a bunch of meetings, but we didn't, no one invested yet. It's like, you know, it takes time to kind of nurture those relationships. like, you know, for example, I'm not sure if Airbus is the best example, you know, from one of the kind of main investors that came in this round, from the point that you met them and the amount of touch points that you had before they gave you a term sheet or agreed to invest, how many touch points do you think it was? Michael Markesbery (33:52.028) my gosh. That's a great question. Easily over a dozen. A dozen meaningful and then probably way more smaller touch points as well. know, quick text or phone calls. But at least a dozen meaningful touch points. Jason Kirby (34:15.992) And that's before they commit. And I just try to remind founders on a regular basis that they think that they're going to do an intro meeting. They're going to do a data room deep dive, and then they're going to get a term sheet. And it's just, it's so not the case. You're building this, you know, at least from the outside of what we're sharing, like what could be a very world changing product. You check all the boxes for, for venture scale. You know, I'm not looking at your financials or anything like that, but let's just assume they're, you know, they check the box. And it still you know takes you 12 months kind of the market wasn't great, especially for series B I think would generally was in a harder, you know spot than most But you grind it out you planned accordingly. It looks like you manage your cash position to be able to withstand a 12 month capital raise So one I just want to Give you a little kudos for you know being surgical being you know kind of doing what I try to project as like the right way about you know, trying to get capital in the door is, you know, don't do it when you're absolutely desperate because then no one wants you, you know, start it well in advance and build those relationships over time. so I think that's great to hear on how you manage that process. So, you know, now that you kind of shared all this, what would be your advice to founders out there that are building their companies that might be in, you know, deep tech or somewhere in an adjacent space? would be your advice to them? Michael Markesbery (35:45.646) Jason, I think you just nailed and summarized the major takeaways we had from that fundraise. Leave yourself meaningful cash runway before you start raising. Be very surgical and thoughtful in your approach. I'd say one thing that we could have done a little better. that I would do differently is foster those relationships early, even before you start your formal fundraise. I think that'll save you a lot of time in your fundraise and also give you the opportunity to really understand who you're partnering with as well, all of which are massive benefits going into a fundraise. Jason Kirby (36:41.902) Yeah, I agree. think that's very insightful and wise, sage advice for someone that just went through it, you know, just a few months ago from you guys closing your round and you just came out of the thick of it. And I would say one of the tougher markets specifically for kind of the later stage capital round. So, you know, well done. So for founders that might want to learn more about you, your technology and what you're up to, where should founders go? Michael Markesbery (37:10.604) Yeah, our website is aureoslabs .com. My email, if you ever want to reach out to me, is michael at solarcore .tech. So feel free to ping me at any time or check out our website, LinkedIn as well. Jason Kirby (37:28.442) Be careful sometimes there's like a reports of founders reaching out, know, sending out requests and just be thoughtful. Don't send them a cold email if you're listening. You send them a cold email, just be thoughtful and personalized. Don't just add them to the list of spam. Unfortunately, I've seen that happen. Well, Michael, it's been an absolute pleasure having you on the show. We'll make sure to get those links in the show description down below. It's been an absolute pleasure having you, and you look forward to sharing your story with our audience Michael Markesbery (38:01.56) Jason, thanks for having me. It's been an absolute blast. Thanks Jason Kirby (38:07.16) All right.