Today’s Menu ☕️

• LA Tech Breakfast Club July 11th

• SF Tech Breakfast Club July 16th

• NYC Direct To Consumer Tech Breakfast Club July 24th

• NYC Tech Breakfast Club July 25th

• Member Spotlight: Ben Dusastre, CFO @ Harbinger Motors

👋 Hi, Breakfast Club Members!

Thank you to Erik Stiebel and Space Dirt for sponsoring today’s newsletter - scroll down to learn more

I’m looking forward to seeing a bunch of you tomorrow at the LA Tech Breakfast Club and even more of you on Tuesday at the SF Tech Breakfast Club.

Scroll down to read about how Harbinger Motors is conquering a valuable niche in electric vehicles. Lots of lessons for founders building in challenging markets.

Also, continuing to get questions about the Anti Dilution tweak to the YC SAFE - if you want to read that article on how to fix the YC SAFE, click here

And if you’re forming a company - let me know and I’ll hook you up with the Tech Breakfast Club discount for Clerky formations.

If you’re working on something interesting, I want to hear about it. Reply to this email and let me know how I can help. I love featuring interesting startups and VC’s.

Scroll down for event signups and my feature on Harbinger Motors

Tech Breakfast Club Events

LA Tech Breakfast Club July 11th
Cohosting this with Scott Howard from House of VC. Scott has a fascinating approach. He invests in early stage companies disrupting legacy industries and helps these startups grow by engaging a select network of family offices (and the industry leading, legacy companies the families built).

San Francisco Tech Breakfast Club June 18th
Cohosting with Amber Yang from Bloomberg Beta. She coined the phrase “Cerebral Valley” and has invested in some of the most interesting early stage AI companies.

NYC Tech Breakfast Club DTC Edition July 24th
Cohosting with Zach Cox, DTC Killer

New York Tech Breakfast Club July 25th

Tech Breakfast 🤝 Space Dirt

Shoutout to Erik Stiebel for his support of Tech Breakfast Club and the hard tech community in SoCal.

Erik is the creator of Space Dirt - a monthly hard tech newsletter enjoyed by 1,000+ founders and investors.

You should subscribe 

As the go to commercial real estate broker for hard tech companies in SoCal, he has a fascinating perspective on the industry and how world changing companies get built.

You might have recently seen some of his work when this tweet from Delian went viral with a map Erik created.

Member Spotlight: Ben Dusastre
Harbinger Motors

I had the pleasure of meeting Ben Dusastre (CFO at Harbinger) at an El Segundo Tech Breakfast Club a couple months ago. He was nice enough to offer me a tour of Harbinger’s factory in Garden Grove, CA. I’ll never turn down a factory tour.

Harbinger has kept a bit of low profile. They’re building in the sleepy niche of medium duty trucks (like a UPS or Fedex delivery truck) where a lot of the core technology hasn't changed in decades.

There are a lot of lessons in what Harbinger has done for other founders - everything from how they selected the niche, raised money, and gone about building their product.

Harbinger is unique among electric vehicle manufacturers – I can’t think of a less sexy EV category to build in than medium duty.
The trucking space is segregated between class 8 semis, medium duty body on frame trucks (where we are), and then unibody vans – like a sprinter van. There’s no overlap. To go from a sprinter van (called a class 2 or 3 vehicle) to a class 4 vehicle medium duty truck... you can’t. It’s not durable enough, it can’t last enough years, it can’t carry enough weight/volume as sprinter vans are based on passenger car unibody technology not meant for heavy commercial use. You have to create a separate product. You could of course carry a light load on a class 8 truck but these trucks are very expensive, very heavy and require an expensive driver with a commercial drivers license which is required for class 7 and 8 vehicles.. So taking Class 8 technology down to medium duty doesn’t work well. 

Medium duty is a lower volume space. Tesla wants to go after class 8 because it’s much bigger. They (Tesla) just announced they want to go after the sprinter van/unibody van category, too, because it’s similar to passenger cars and very high volume which is why Rivian picked that space too. There’s already a lot of electrification in the class 1 and class 2 space (21% in California). But in trucking it’s basically 0%. 

Nobody has been making electric trucks. Yet, starting next year, California (and 10 other states) are forcing fleets to have 9% of their vehicles be electric – 50% by the end of the decade. 75% by 2035 providing big regulatory tailwinds.. 

Granted this isn’t the entire country. But it’s 40% of the vehicles sold in the country. 

And, lots of fiscal tailwinds for this segment –
We started Harbinger before the Inflation Reduction Act with the plan to produce them at price parity with diesel trucks while making a healthy margin. But now we’re profitable from day one on a per unit economic basis and at scale it’s more like a 65% gross margin thanks to the IRA. 

But even without these incentives it would make sense to electrify this segment of the market…
Yes, typically, you’re spending $2,000 a month on fuel per vehicle. When you electrify, it’s closer to $1,000 a month. You’re looking at a quarter of a million-dollar savings for a vehicle that will cost you $70,000 over its 20 year life. Even if you don’t want to electrify and a competitor does, you’ll no longer be able to compete. 

These vehicles drive about 80 miles a day. They’re based in industrial locations with ample access to power. And they have 12 hours of downtime per day to recharge. It’s the ideal set up for electrification. 

We just toured the factory here in SoCal and all I saw were chassis. Can you explain why you’re just building chassis?
So the market is divided between the chassis maker and body makers. Building the bodies is capital intensive. For a paint shop, it’s a half billion dollars. 

Wow, that’s insane
And the market is low volume, high mix. FedEx and UPS don’t use the same bodies. Everyone has their own specifications. 

So, we build the chassis – we’ve built it from the ground up. Then we ship the chassis off to the body outfitters. 

We’re the only trucking company making our own battery packs and motors. This allows us to control our costs and compete with the diesel and gas vehicles that people are buying today. 

Can you say more about how important it is to be vertically integrated?
The benefit is better performance and cost. With the motor, for example, ours is 1/3 the cost of buying from a competitor. It’s 1/3 the weight. It’s twice as powerful and 15% more efficient. That means we need fewer batteries to go the same distance – less weight, fewer batteries, less cost. 

Given the structure of the market – low volume but high mix - It’s a goldilocks market. Big enough that you can build a $10bn company but not so big that it gets attention from the incumbents or the large disruptors who want to sell millions of units. At scale, we think we can sell 50,000 vehicles (just in the US). We’ll be profitable in Q4 of next year. 

So the next fundraising round might be your last
That’s the expectation. We’ve also been able to pretty successfully raise debt. We raised 125 million in equity but have $40 million dollars in debt available to us. All the capex and inventory is financed. So non-dilutive financing has been pretty important for us. 

We have 4000 units on preorder. That’s magnitudes larger than our competitors and it’s mainly a function of price. Our product is the lightest and is high performance – but we’re the only electric medium duty truck that is priced reasonably comparably to legacy gas versions. 

Other electric vehicle manufacturers took advantage of the frothy SPAC market. Harbinger took a different path – how did you leverage your customers to raise your round?
Over half of our customers invested in the business. We opened the series A to customers and got massive strategic support. Money when we were raising wasn’t as cheap as it had been a year earlier so we had to be creative.

Getting validation from our customers in the form of investment was a powerful signal to the institutional investors and family offices that filled out the rest of the round. 

How did the founders get connected?
All three founders worked together at Faraday future, an LA based EV company that SPAC-ed. Phil Weicker hired John Harris and Will Eberts. Phil went on to be the cofounder of Canoo, another EV company that SPAC-ed. John went to a medium duty trucking company called XOS, it’s a competitor to Harbinger, that SPAC-ed. John was the first engineer there and recognized the appeal of electrifying medium duty trucking but left to join Anduril to head up hardware and manufacturing for the sentry tower as one of the first 20 employees. After a few years at Anduril and realizing that no companies had efficiently attached medium duty trucking after he left XOS, he decided to start his own vertically integrated OEM. 

What an incredible time to be at Anduril –
Yes, the company did quite well, but John was watching the medium duty trucking space and saw that since his time at XOS, no one had done anything interesting. There was a massive opportunity to build a vertically integrated OEM with his former colleagues. 

Tell me about Gilbert Passin, Harbinger’s Head of Production
So Gilbert was VP of manufacturing at Tesla, reporting directly to Elon, for nine years. He came from Toyota where he ran the largest North American factory for Toyota and was involved in acquiring the Fremont factory (an old Toyota factory) for Tesla. 

Nine years working for Elon is legendary. Not sure if there are many people with longer tenures. 
Yeah, Gilbert might be second longest. And before Tesla, he was GM of manufacturing at Volvo Truck and Mack Trucks. So he has experience building class 8 and medium duty vehicles.  

About Morgan
Morgan, besides running Tech Breakfast Club, is a Startup Lawyer at Optimal, an elite lean boutique startup law firm repping clients funded by a16z, Sequoia, Kleiner, Accel, and countless other VCs. He works with clients from formation to exit, in collaboration with Optimal’s partners.

Have a legal question? Reply to the newsletter. Happy to chat.