How EcoATM Became San Diego’s Hottest Startup Deal, If I Say So Myself
For a company that was founded by three wireless industry veterans only about a year ago, ecoATM ended 2009 with some pretty impressive results. If there was a yearbook for San Diego startups, you could say we were voted most likely to succeed:
Out of more than 100 local start-ups that entered the San Diego Venture Group’s 2009 PitchFest, ecoATM was voted winner—which included a $20,000 award—during the group’s annual dinner in December. EcoATM also won the $10,000 award that Bellevue, WA-based Coinstar offered at its KioskCom Self-Service Expo in New York for the best new concept in retail-based kiosks. We won Connect’s 2009 “Most Innovative Product” award in the cleantech category. We won the “Best Content Pitch” in the TechCoast Angel’s QuickPitch competition and second place in Qualcomm’s Q-Prize competition. Our startup was among the first handful of companies selected for EvoNexus, the technology startup incubator formed last year by the local telecom industry group CommNexus. Our company was featured on ABC News, and in Inc. and Fast Company magazines.
Today we even have some news to announce: At a time when the capital markets have nearly dried up, San Diego’s Tao Venture Partners is leading our first round of venture funding. Our investors include Jens Molbak, Coinstar’s founding CEO.
We started ecoATM with the idea of rewarding consumers who recycle their “retired” mobile phones by providing an automated kiosk that makes it easy for them to get a “trade up” discount coupon, gift card, or to make a charitable donation to certain organizations.
Our momentum has snowballed very quickly since October, when we conducted a field trial of our first prototype kiosk in Omaha, NE. Our kiosk immediately created a sensation with consumers and the press. Consumers were so eager to use our machine that they waited up to 45 minutes to get their turn. We were completely surprised by the response, and felt like we had definitely turned the corner.
It would have been hard to imagine such enthusiasm when it all started in late 2008.
It began at the Starbucks in Del Mar, CA, where I met daily for two months with Michael Librizzi and Pieter van Rooyen. We would sip coffee and contemplate ideas for our next venture. Surrounding us at other tables were other groups of unemployed techies who also were carefully scheming their next moves in the wavering economy of 2008. The three of us were all 15-to-20-year veterans of wireless, mobile, and semiconductor technology start-ups. Between us, we had started nearly a dozen companies, raised several hundred million in venture capital, and had been through some huge financial exits (and a few not so great). Even though the capital markets were in a full-scale meltdown, we were all still committed start-up junkies—entrepreneurs—the most honorable profession in the world. We all craved the excitement and adrenaline rush of creating jobs and wealth for ourselves, and for other folks. But most of all, we were addicted to the process of conceiving and building products that other people would want and pay money for.
I vividly remember the moment when Librizzi mentioned a Nokia survey he had come across—out of 6,500 households surveyed, only 3 percent had ever recycled a handset. Wait a minute! There are a billion mobile phones shipped every year! What’s happening with the other 97 percent? This could be it! How do we solve the problem of collecting and recycling these devices? Of getting the working ones back into the hands of folks who want them? We all instantly liked this problem and wanted to solve it. It was fresh and contemporary. We had spent our careers building the technology that had created this accumulating mass of cell phones and other electronic devices. Now we had a chance to help solve it in an environmentally responsible way. We could do well, and do good at the same time!
Our initial research indicated that there is an average of six used phones per household in the U.S., and we discussed many ideas for getting them recycled. What about charity groups collecting them door to door? What about having the post office pick them up when they drop off your mail? What about a better approach to the so-called “charity boxes” in wireless retail stores? What about a specialized web buy-back engine dedicated to used phones?
We spent the next month scouring the web and contacting folks in the industry. As we refined our thinking, we used Survey Monkey to test a few ideas on about 1,000 folks from our own address books. A clear picture began to emerge; consumers would participate in a mass recycling program if they had three things: a financial incentive (immediate, if at all possible); convenience; and personal data security. Whatever solution we came up with had to provide an answer to all three concerns, or we weren’t going to solve this problem.
Then one day at Starbuck’s, van Rooyen sat down and said, “Hey, I saw some people using a Coinstar machine yesterday; what about an approach like that”? That was it! We could address all three issues if we could build a machine that could accurately evaluate old phones, erase the memory, and pay consumers on the spot.
We spent the next several months investigating visual recognition technology, phone erase software, and kiosk business models. We talked with anyone familiar with the kiosk or used phone business who would give us their time. We leaned on our attorney, Jeff Thacker at DLA Piper, to investigate environmental and pawn-shop laws. We also asked DLA to help write our patent filings along the way. We were confident our idea would work, but we needed to build one and test it before we could validate it in the market. We also wanted to affirm that the capital markets would even fund a deal that was as far off the beaten path as this idea.
So, we pooled our resources, and with the help of a local engineering firm called DynaPac, we cobbled together the first prototype machine last summer. We started looking for retailers willing to give it a try. We also ran the pitch past a dozen or so Silicon Valley VCs to do a laugh test. They didn’t laugh, and in fact seemed open to the concept as long as we could get some strong market validation. Retailer response was also positive, but the first one to say “roll it in and give it a try” was the Nebraska Furniture Mart in Omaha. A few weeks into the trial a perpetual line had begun to form and folks were waiting up to 45 minutes to get their turn at the machine—ecoATM was a hit.
Since then we have performed more pilots and are launching 10 more machines immediately. We have customer contracts in hand and more pending with some of the largest U.S. electronics retailers. Some are planning full-scale national roll-outs for this year. We were also able to attract Tom Tullie to take over as CEO. Tom has run several public companies including Applied Micro Circuits Corp. (NASDAQ: AMCC), where he was president and COO.
EcoATM is not disclosing financial details about our current round of external funding, but we are announcing that Molbak, who took Coinstar public, also has joined our board of directors. The list of investors interested in our next financing is extensive and we are building out the team and the technology as quickly as we can. The adrenaline rush is back!
Now the challenges we face are about executing this vision in full scale. The casualties in the kiosk space are generally failures of execution. It’s no trivial task to build a network of kiosks robust enough to withstand the demands of the public and the retailers who host them. Part of that challenge stems from the capital requirements, but it’s also about avoiding big mistakes. With retailers demanding large scale roll-outs, we will need to learn how to run fast without tripping—and it seems like we just learned how to walk.