How a motorcycle company kick-started its shift to be an energy company

In this episode of Decoding Innovation, Scott Colosimo, founder and CEO of LAND Energy, shares the inception of the company and the funding journey.

Key takeaways:

It is important to have sustainable goals, especially during the beginning of your company; start slow and accelerate once you get the basics, such as attainable KPIs.
As using a single manufacturing floor is getting expensive and cumbersome, in-country manufacturing has its benefits for the automotive industry.
Patents are a business tool, but they are getting more complex, and the patent process can be a barrier to the company growth. Developing in-house knowledge and having a team that has know-how are more feasible.

Podcast transcript: How a motorcycle company kick-started its shift to be an energy company

26 mins 40 secs | 22 December 2023

Announcer

Welcome to the Decoding Innovation podcast series, brought to you by EY-Nottingham Spirk Innovation Hub, where we explore the innovative technologies, business models and ideas that are shaping the future of industries. During each episode, Mitali Sharma, a principal in the EY-Parthenon Strategy practice, meets with stakeholders at the cutting edge to discuss innovations in their space, challenges they need to overcome and their outlook on the future.

Mitali Sharma

Hello and welcome. I'm your host, Mitali Sharma. And today, we will be talking about e-bikes with the founder and CEO of Ohio-based company LAND Energy, Scott Colosimo. Scott, welcome to the show.

Scott Colosimo

Thanks for having me here.

Sharma

Let's talk about your funding journey. You started with some seed capital and now you just went through a series A funding. Tell me about this journey and again, lessons learned.

Colosimo

I would say most of this journey has been learning about the capital markets. I've always worked in a big corporate environment and then I worked in my own startup environment, but we self-funded the first company, so we never brought on investors. This has been the largest learning curve that I've ever been through, which is raising capital.
So, the funding journey was one of — we had Cleveland CycleWerks running. Even though we weren't making products, we had a bunch of products in the warehouse, so we were constantly shipping parts. COVID-19 pandemic was a time where everybody was fixing their bikes, wanted to get out and ride and enjoy. So, Cleveland CycleWerks funded the startup of the e-bike company.
It got to this tipping point, however, where we had designers and engineers, and we were basically running a support business for a legacy gas motorcycle manufacturing company. So, we would spend four to five hours doing this, and we would spend four hours shipping parts, answering consumer issues, and everything that happens with gas — fuel injection issues, carburetion issues, pistons, springs, and all this. So, the journey was — I'm sitting on one side of this. I have a whole team of product development professionals here that need money to exist.
Yet, it's absolutely burning us out, running these two businesses. Being catapulted into the future, thinking about all these things we're going to do and all the stuff we're going to produce and being sucked back into this old gas motorcycle legacy business. The team came to me and was like, “We're all going to quit, if you don't make a decision to end the gas business.”
And it’s been weighing on me for a long time, because I felt like a proverbial chain was holding us back, but it was funding the company. So, I just woke up one morning and said, “Done. I'm going to put a message on the website that the business is for sale. I'm shutting it down. I don't know, but we're done.” And when I made that decision, it was easy.
I owned the whole thing, bought out all my partners. It was 100% my decision. I didn't realize how profound of a shift that was going to be, because literally overnight, I cut off everything that was funding, call it Cleveland CycleWerks electric. LAND wasn't even an idea back then. And I remember within 30 days, my bookkeeper came to me and she's like, “What's going on? There's no money coming in.” And I said, “I know. How long do we have?”
We had about two months of money to make it. I was like, this is real. So, I threw a little bit of money in, went out to friends and family, and we were looking for US$200,000. And mind you back then, that was insane for us — US$200,000 was, that was a whole year of R&D for my other company. So, we got US$400,000 worth of interest. So, we were oversubscribed from that friends and family round, and that's what we're like, okay. It was difficult.
It was a lot, but there was an appetite for it. So, that friends and family round turned into a seed round. So, I think we saw that first seed round was about US$400,000. We figured that would last us 12 months, but we didn't want it to because we wanted a prototype quicker, we wanted to move quicker. We followed that up pretty quickly with a — so, friends and family to seed, seed round was a couple hundred more.
Then I said, okay, well, if we're really going to do this and we see where the market's going, we've got to do a series A. So, the plan was to do a full series A at US$5 million. But then I had some really smart folks come in and say, “Hey, let's do a rolling raise. Let's brand the series A in A1, A2 and A3. Let's pull it rolling. And once we get a significant tranche and we'll close the A1, we'll create some fear of missing out (FOMO) to move into A2 and we'll just keep moving that way.” And then I went out and knocked on every door that I knew.
One of our first funders was a relationship from 12 years ago, someone that I didn't work with back then. But we looked at working together. We kept in contact. We followed each other for years, but we never worked together. That was the first significant investment. And that's where I started to realize when people say a decade old, overnight success, like a lot of these relationships had said no to me 12 years prior or said, “Hey, kid, you don't know what you're doing. You're not going to be able to make motorcycles.” Or a lot of them I went to right at the beginning and they were like, “Get out of here.” Like, this is too smaller. They saw my journey, just pushed through for a decade and just carve out a little space in a really big established industry.
So, they had some faith that, “Hey, maybe he got smarter during that process.” So, those were what I would call high net worth individuals, some family office, no real professional money. And then as the checks get bigger, you've got to find more professional capital. So, then we started attracting early-stage private equity, some venture, some family office. And to date, we've only raised US$7 million. And that's not because I only wanted to raise US$7 million. I would have loved to get US$100 million in by now. But our journey has been, at least my journey in business has been walk, crawl and fly.
You take it slow upfront. And then once you get the basic down, you can start to accelerate. Now look at what we've got as a company. So, we went slow. On about US$5 million, it did what it took all of our competitors 50 to 100 to do and we've only given up that small percentage to the company. We've only raised that small percentage of capital. Our KPIs are very reachable — 30 minutes a month, 100 units a month, one business-to-business (B2B) contract rate. We don't have to all of a sudden produce 100,000 vehicles overnight. It's unsustainable, at least in the hardware space. So, the journey has been — we brought in some partners. They followed us, they made intros.
And keep in mind, I have no idea how to raise capital. I’ve never done this before. And all of the learning has been on-the-job learning. So, now I understand what institutional capital is looking for. I understand what strategics are looking for.
We now have some good contacts in the industry. The EY organization has made some good contacts for us. Just saying, “Hey, there's this group in Cleveland doing some cool things. Would you be interested?” That's been huge. The journey has been again, very much like our journey in starting the business. It's sloppy. There's no level of success. Interestingly enough, what happened at the end of 2022 is we hit what I would call kind of that first wave flop, where if you remember, the valuations of companies were, especially early-stage companies, were out of control. Ten-man operations with US$1 billion valuation.
The valuations and the kind of capital being raised were a little bit unsustainable and the promises didn't happen. So, in 2022, that all came. Of course, the market started to collapse a little bit and that fervor around e-bikes are everything, and we're going to change the way people buy and move. And it's like, this is going to take time. This isn't going to happen overnight. So, these billion-dollar valuations and this idea that we're going to put five million electric bikes on the road, that fervor, the kind of technology entrance into hardware, that hard learning cycle hit like 50 companies all at once.
So now, the failures of others have made it a bit harder for us to raise. But because we have so much intellectual property (IP) and because there's so much value and because we've vertically integrated and we own so much of that stack, the venture capitalists (VCs) and the investors that are willing to scratch the surface a little bit and look at what we're doing. It's by no means easy, but the considered investor, the investor that understands value, especially in hardware platform, digitization, this idea of digital revenue from hardware assets — that educated investor sees the value of what we're doing with the platform.
I'm spending a lot of time talking about this, because it is the hardest thing I've ever done. I've never experienced more nos in my life. I heard people say, “Well, you know, you'll get 100 nos for every yes.” We're probably like 500 nos for every yes. I mean, you got to just take a beating and you got to get back up and say, “Hey, I believe in this. I'm going to keep pushing it.” But yeah, the funding processes, and this is something I am passionate about now, I will say this is something that I'm already thinking there's a need here, what's the next business? What's the next direction? I've always had this like ultra optimistic, pessimistic attitude. I'm able to just keep taking the negative and keep it positive. And if I didn't have that ability, this process would be completely soul-crushing.
But the funding — and I'm sure if there's any other founders listening right now, they're going to be nodding their heads being like — it's brutal. It's necessary, but, I will say I do enjoy it. So, it is an enjoyable process.

Sharma

Thank you for that very, very candid answer. Really appreciate it and I'm sure our audience will, too. Shifting gears a little bit, let's look at your manufacturing and supply chain decisions. Talk me through the journey of what you make. How do you make that decision of what you will make internally or buy or assemble?

Colosimo

Sure. Well, let's talk about geopolitical first, or we could talk about global trade first. It's become increasingly difficult to rely on a very dispersed supply chain, whether that's in Europe, in China or in India, it's become increasingly difficult to do global sourcing. It's getting easier again. But I don't think the golden era we had, leading up to 2020, is going to come back. There is definitely the geopolitical role, which is very clear to us, which is this weakening or this direct split between the US and China. It's palpable.
We work with the Department of Defense (DOD) and the Department of Energy (DOE). It's clear that this is going to become a reality. There is a desire not to have the entire world's manufacturing floor in mainland China. So, we can just be clear about that. There's no hyperbole. These are just facts. Add on top of that, what we call the Chinese tech transfer, which is anything that we've ever made there gets rapidly copied. It doesn't just get copied — it gets copied, copied, copied and copied.
You can either choose to work in that environment and say, “Hey, I understand that this is the culture.” Or you can say, “I don't agree with that.” We had IP theft for almost 15 years — complete and whole IP theft from our Chinese partners. So, starting a new company, saying, “Okay, there's this problem, there's this problem.” I'm like, “What's the benefit anymore?” What is the benefit of us designing a product, using China as our kind of manufacturing floor, having all the IP stripped out of our company?
There's no benefit, and it's getting more costly. It's more difficult. The timelines are growing. We looked at this from a — “How do we control our supply chain? How do we control our IP? How do we work with factories we trust?”
And again, there's this, “Okay, if we're going to assemble them here, it doesn't make sense to ship all these big bulky parts. So, we increasingly leaned toward advanced manufacturing in the US to help us scale up production. And being in this business now for 12 years, producing in-country just makes sense. So, global tariffs don't allow us to produce a product in the US and ship it to Southeast Asia, ship it to China, ship it to — well, India is still friendly with us, but there is a tariff now.
The way the automotive world typically will work is you make it in-country. The product we're making in the US, yes, we're going to export it, but that's not a global plan. We will have to manufacture in Southeast Asia, if we want to sell in Southeast Asia. We will have to manufacture in India, if we sell in India. So, knowing that, what do we do? Again, some insight from EY, reading some of your reports, we digital-twinned our factory. We became smarter. We digitize a lot of what we were doing. So, if we need to quickly prop it up, let's say south of the border or in Southeast Asia or India, we've got a whole digital blueprint for how to do that — what machine to buy, where to put it, what the throughput is, tag times — all of that.
Maybe I went bigger with the answer than you wanted. But, you know, all of these things have become increasingly important. So, we didn't set out to do everything in the US. This wasn't a focus. It was, “Hey, how do we get a product that's relatively easy to make as close as we can and shorten that the supply chain thing from four months to 15 days again? How do we shorten?” We've increasingly looked toward technology. We stopped doing a lot of stampings, and we went right to laser cut and computer numerically controlled (CNC) bending. We've got some of the newest machines here in Cleveland that are feeding the auto industry, and they're not 100% used.
So, there's a lot of new factories, highly automated, popping up in and around Ohio that have the ability to do the most advanced manufacturing. And when you're looking at under 30,000 pieces, some of these techniques, they're less expensive than the traditional stamping techniques or some of the traditional forging or forming techniques. And that's really how the whole thing's developed.
It's been — we have a need. Let's look at the market, the shipping, logistics, geopolitical and let's figure out a way to do it smarter. I didn't want to recreate all the old problems we have had and that that formula served us well. You have a problem. You try to solve it. You can't solve all of them.
That's one thing I will mention is everyone tries to look at this transition to electric cars or electrification is like a political thing. It's really a transition in technology. It has nothing to do with us with products. We're moving from an economy of things that move, things that are powered by fossil fuels to a compute economy. Cars are mobile computers, and it's a logical transition. You're going from moving things to solid state. So, the way we're looking at this is — it has nothing to do with — the green aspect is important to us. But I don't think we're there yet. To us, this is a technology play. In the US, right now, has some of the most advanced manufacturing technology in the world.

Sharma

You talked about protecting your intellectual capital. So, tell me your philosophy around patents.

Colosimo

Patents to me are nothing more than a business tool. It allows us to create and protect, and kind of wall our garden off, right? It allows us to say, "This is what we're doing, this is what we've created and you shouldn't enter.” I will say patents are getting more and more complex, especially when you get into digitization, and they have less and less value. And I firmly believe that we are in a business cycle right now that is so quick and it's so rapidly evolving that know-how is the new patent — having a team that has know-how, having the ability to quickly move and quickly change — that the know-how to me is everything.
The patents are a business tool. It allows us to own a very specific portion of what we want to own, especially what we've created. And that's maybe where my thought differs from a lot of the leaders I talk to in this market. I've seen patents bankrupt companies — this obsession over patenting things, bankrupt companies.
Being a designer, I can't tell you how many college Joe Schmoes come to me and say, “I'm waiting to release my idea to get this patent.” And you know, I spent US$25,000 on this patent and I'm like the commercialization is the hardest part. The patent processes, that's not that difficult.
So, yeah, we're very clear on, at least I'm very clear, with our my team that the know-how is everything in developing our in-house knowledge, especially on the high-IP items is very important.

Sharma

So, tell me a little bit about your capital allocation strategy, because like you said, patents can bankrupt a company, not just pursuing your own, but also making sure you're not infringing on somebody else's. Then you've got manufacturing, you've got R&D, obviously, you've got all the personnel cost. How do you make sure that the right allocation is provided to whatever you're trying to do?

Colosimo

That's a really important question. What I did was bring in an expert. My CFO has scaled five companies, some startups, some kind of middle market, and one went to IPO. They've all been digital, tech-focused or hardware-enabled products. So, because I am not an expert at balance sheet, I brought in someone that could really help for me on where the buckets needed to be, helped keep us within those buckets and then been flexible enough and entrepreneurial off to say, "Okay, well, we need to spend a little more here. So, allocation-wise, in the beginning, we spent a big goose egg on marketing, because we had to get a product to market. The first year and a half of the company was 100% R&D spend. We did organic stuff, anything social we did, but it was us putting out what we were doing, inviting people in.
And we are almost 100% R&D. That switched to 50–50 R&D manufacturing, because we built a factory, we had to tool up and staff up. So, that then moved to getting the factory built to make the things that we were going to sell. Then we did an organic launch to launch some presales, to get some investor confidence that we were going to do what we said we were going to do. That cash then went to a marketing expense. Marketing has been the biggest thorn on my side since we started the company.
I've come to the realization that I can't do everything. I can't do all the marketing, I can't do all the design, I can't do all the sales. So, I've had to bring people in to assist us in certain areas. And for 12 years, I ran all the marketing at my other company. So, that's been the hardest thing to hand off, because we're spending probably four times what we were before.
I really wanted to quickly get our benefits package up for our employees. That was really important to our team here to make sure we can attract top talent. So, for the first year, we had no benefits, which was difficult. If you're coming from a corporate job to a startup with no benefits, that was difficult. So, we had to allocate quite a bit of capital to get all that up and running for our employees. If you go to any venture site and say how should a startup spend money, we're pretty close to this kind of startup paradigm right now.

Sharma

This has been a fascinating conversation and I could talk to you for another couple of hours, but I know you got to go. Before we leave it off, what are your words of advice to an entrepreneur maybe dreaming about creating something new or somebody wanting to leave their corporate job?

Colosimo

Well, it's like anything I've done — do the hardest thing first. And if you do the hardest thing first and you get through that, everything else is a little bit easier. And still to this day, I spend more time lamenting over the hard thing. As soon I make that first step, it's infinitely easier than it was in my head.
And as complex as the world seems right now, it’s hard as it seems to cut through it all, if you've got an idea and you firmly believe in it, just take the first couple of steps. That's the one thing I have to keep reminding ourselves — we don't have to follow the path that you see in the media. This idea of bringing in US$150 million and overnight valuation of X amount of billions and this huge exit — that's not real, just like everything else that you're seeing.
LinkedIn's the business version of Tik Tok, nothing on it is real, right? You've got all these influencers on there, trying to show you that, “Hey, I scaled my business from nothing to a side hustle of a million a month and in six months. And I've never had a business background.” That's kind of discouraging a whole generation of entrepreneurs. Just making that first step and starting small and getting a little community around you, doing it organically and stepping in a little bit bigger.
You don't have to make the sweeping gesture of quitting your job overnight. It took me a year to start my first company. You know, I iterated on the business model for my first company for a year. I was laid off, I like saying fired, but I was laid off. So, that thrust me into entrepreneurship pretty quickly. But just taking that first step, and actions are everything. The reason that we quickly wanted to get a product to market is because we knew we would learn a lot getting product out.
We learned much more than just keeping kind of stealth mode and keeping quiet. So, having a real goal, right? Getting a product out, whether it's digital whether it's hardware, whatever it is, getting something out there. And if people hate it, great, awesome feedback. Make it better. If people hate it, make it better. The process is just one of doing.
And I've spent years lamenting over things that I thought were going to be hard. And then I started them, I'm like, “Okay, this first step in, it shattered that illusion of how hard it really was.” So, the encouragement is just try it and hey, if you fail, that's entrepreneurship, right? Think like if one out of every 50 things I try really works, one out of 20 kind of works, so failure is just a part of it. You got to embrace the failure.

Sharma

Thank you, Scott. This was a fascinating conversation.

Announcer

The Decoding Innovation podcast series is a limited production of EY-Nottingham Spirk Innovation Hub, based in Cleveland, Ohio. For more information, visit our website at ey.com/decodinginnovation.
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Presenters

Mitali Sharma
Former host, Decoding Innovation podcast

Scott Colosimo

Founder and CEO, LAND Energy

Podcast

Episode 23

Duration

26m 40s

In this series

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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How a motorcycle company kick-started its shift to be an energy company

Key takeaways:

Podcast transcript: How a motorcycle company kick-started its shift to be an energy company

26 mins 40 secs | 22 December 2023

Announcer

Mitali Sharma

Scott Colosimo

Sharma

Colosimo

Sharma

Colosimo

Sharma

Colosimo

Sharma

Colosimo

Sharma

Colosimo

Sharma

Announcer

In this series

Presenters