Allen Tsai is well-connected in the startup world. But he still encountered challenges when initially trying to raise money for his company, Pani Systems Inc., which is developing a countertop smart device that will filter tap water and infuse it with flavors and vitamins.
The issues he was running into are commonplace among entrepreneurs: Hardware is expensive. And consumer hardware is a notoriously difficult sector to break into.
Things changed when Tsai, who has a background in consumer electronics and spent significant stints of his career at Texas Instruments and Qualcomm, took a step back and reconsidered his strategy.
"I found a lot of difficulty when positioning this as a tech product, raising tech money from tech VCs," he said. "But really that switch flipped when I started positioning this deal as a tech-enabled CPG deal and finding people in and around that space, especially in the angel community."
Pani announced Nov. 19 a $2.3 million seed funding round. Investors included Blake Chandlee, president of global business solutions for TikTok/ByteDance; Clayton Christopher, prominent CPG investor and founder of Deep Eddy Vodka and Sweet Leaf Tea; Nav Sooch, founder and chairman of Silicon Labs; Brian Sheth, former president of Vista Equity Partners; Matthew O'Hayer, founder and CEO of Vital Farms; Brett Hurt, founder and CEO of Data.world and Bazaarvoice; and Joshua Baer, founder and CEO of Capital Factory.
Tsai said the majority of the capitalization table is made up of individual angels, although there is some institutional money, including from Latin American firm Angel Ventures and a publicly traded water company that he could not disclose.
Chandlee was the conduit to the rest of that list of high-profile local investors. He had previously invested in Tastebud, where Tsai had been co-founder and vice president of product. Tastebud created a dynamic pricing app, allowing restaurants to adjust prices in real time based on the time of day and other factors. It was acquired in 2019 by Austin-based game development studio Cerberus Interactive for an undisclosed amount.
Tsai actually founded Pani in 2018, after taking a trip to Nepal to help install a water pipeline to deliver clean water and sanitation to rural areas.
"When I first got back from Nepal, he was the first person that called and we had coffee," Tsai said of Chandlee. "The various concepts that we had for Pani were literally scratches on the back of a napkin. He wrote the first big check to get the company off the ground, and has just been a staunch supporter since the beginning."
Tsai said Chandlee brought in Christopher, one of Austin's best-connected businessmen, "who brought on his Rolodex of other investors."
Pani currently has five employees, plus a fluctuating list of contractors based on business needs. Two recent additions were Rick Cafaro as vice president of engineering and Pattie Carulli-Hauser as vice president of beverage development. Cafaro previously was VP of engineering at Drinkworks, the joint venture by Keurig Dr Pepper and Anheuser-Busch InBev that developed an at-home cocktail machine, and before that was with Keurig for nearly a decade. Carulli-Hauser was previously an executive at Martin Bauer Group, a premium tea and botanical products company, and Keurig.
"We have folks who've done this before, who built beverage appliances before, who formulated beverages before," Tsai said. "We think we have become the perfect team to deliver on this product."
The new money will be used to fully develop the Pani Source, a device about the size of a regular coffee maker that injects flavors and nutritional supplements into regular tap water. The company is developing specific formulations, such as melatonin and chamomile for relaxation, and electrolytes, vitamin B12 and goji berry for a sports drink. The goal, according to Tsai, is to create "water that's right for you at different parts of the day."
The device has a detachable water chamber that consumers fill from the faucet, although Tsai said future versions could connect directly to the tap. He also wants to integrate more with smart devices.
Tsai addressed sustainability concerns raised about other companies that make drink machines, such as Keurig and Nespresso. They have faced complaints that their single-use pods produce excessive waste.
The Pani Source pods are designed to be reused five to possibly 30 times, Tsai said. He added that sustainability is a core tenant of the company, and the pods will be made from sustainable materials. Tsai said Pani is filing patents for various inventions.
The machine also filters the water and has a built-in water monitor.
"We'll know if your water quality is changing probably before your water utility because we're monitoring these things in real time," he said.
Pani has generated some revenue. A prior product — a smart water meter that analyzed use and provided recommendations on how to conserve water — had customers such as Procter & Gamble. Tsai said his company is now entirely focused on Pani Source and has been approached by others looking to license or buy the water meter tech.
With the Pani Source, Tsai is melding his background in consumer electronics — at Qualcomm he was an early pioneer in IoT tech, helping connect TVs and gaming consoles to the web — with passions for the environment and personal wellness.
"I see it as the intersection of health and wellness, smart home IOT and sustainability," he said. "If you look at our set of investors, they all bring very unique skill sets, and they didn't come together by accident."
Tsai is excited about the possibilities. Now on his sixth startup, he said this one has the most potential yet.
"For whatever it's worth, my wife says out of all my harebrained ideas, this is the only thing that she would buy," he laughed.
