How A Former VC Built A Consumer Tech Company To $75 Million Revenue With No Investors

Back in 2018, Michael Segal was working at Bessemer Ventures and building his side business making digital picture frames where families could share photos. With just two people and minimal effort, he recalls, the business reached $2 million in sales. So Segal, now 35, brushed aside any qualms and quit the venture world.

Today, that business, Skylight, is a $75 million (2021 revenue) consumer electronics operation—with no investors. By keeping costs down, selling only online and plowing profits back into the business, he plans to keep it that way, despite inquiries from wanna-be investors. That’s unusual in today’s world where most fast-growing businesses—and especially fast-growing consumer hardware startups, where the costs to develop and launch a product are high—take cash in exchange for some loss of control over operations.

“We’ve broken a lot of rules along the way,” Segal says. “Having seen how the sausage is made, for hardware in particular, for anything physical, VCs pretend that’s their game, but let’s be honest, they’re after the software business.”

To keep growth going, in a previously unannounced move, Segal hired a president, Aviv Gilboa, an early employee at Ring who was its head of product discovery and growth after the Amazon
AMZN
acquisition. Together, the two are planning new products and new retail distribution plans to keep growth going. “Part of the reason I was brought in was to bring it from a speedboat to a ship,” says Gilboa, 31, who had also worked as a VC (at Kleiner Perkins).

Not only does growth get tougher as companies get larger, but Skylight faces increasing competition in the digital picture frame market. Aura, a startup founded by early Twitter employees, raised $26 million in debt and equity for its expansion in November. Meanwhile, Nixplay, which says it reached $58 million in revenue last year, now is trying to raise $15 million through equity crowdfunding. As the category has expanded to millions of users, Segal says cheaper look-alikes have popped up. “There’s a lot of noise, a lot of knockoffs,” he says.

“We’ve broken a lot of rules along the way.”

Segal was born in Moscow, and counts himself lucky that his parents were able to leave with the wave of Jewish emigrants when he was just one year old. They fled to Vienna, then Italy, and settled in Philadelphia in 1989. His parents worked as computer programmers; no one in the house talked about business. “It was the classic immigrant mentality: become a doctor, or a lawyer if you have to,” he says.

Segal was both valedictorian and class president at his high school, then went to Harvard to study biochemistry. Silicon Valley beckoned, and he joined VC shop Bessemer Venture Partners. “He was essentially a lab chemist thinking he was going to work in chemistry,” says Bessemer partner Jeremy Levine. “He didn’t know his ass from his elbow when it came to business.”

Over time he learned about business, then left to launch his own startup, a marketplace for handmade goods. It flopped. He returned to Harvard for business school and to lick his wounds. “I was this golden child,” he says. “The problem with that is you’ve never fallen on your face. With that first failure, I fell pretty hard.”

The idea for Skylight came during a class assignment to create a business. Brainstorming about what might appeal to their grandparents, Segal and his classmates settled on the idea of using technology to share photos as a means of connection. With classmate Ricardo Aguirre, he started the operation with 40 hand-made prototypes. “It barely worked,” says Segal, who returned to Bessemer after getting his MBA.

Then, in 2015, Skylight raised nearly $55,000 on the crowdfunding platform Kickstarter. That gave the company enough money to pay a contract manufacturer to make the digital frames to meet demand. It was only after the business reached that multimillion-dollar sales number that Segal realized he had more than a passion project on his hands.

“Even Apple has to invent a new product every couple of years.”

In 2018, he left Bessemer to become CEO of the startup, bringing in his high-school buddy Jake Kring, previously director of engineering at Scripted, as chief technology officer. That year, Skylight launched its second product, a smart calendar that allows families to organize multiple people’s schedules, shopping lists and the like on one shared device.

Customers for either product pay the same price for the device ($160 for the standard size, $300 for deluxe), and those who use it for photos (beyond very basic functionality) pay an additional $39 a year subscription. Sales grew rapidly, reaching $30 million in 2019, before more than doubling to last year’s $75 million. Meanwhile, Skylight’s user base hit 5 million.

Segal is now planning for new products (perhaps targeting babies), new retail distribution and new marketing efforts in 2023. “Even Apple
AAPL
has to invent a new product every couple of years,” Kring says. “Everything required to get from zero to $50 million is everything you have to throw out to get from $50 million to $500 million. We’re in a little bit of that rocky transition where we realize it.”

While the company has grown entirely from direct-to-consumer marketing and selling through its own site and on Amazon, to keep expanding it will need to get into major retailers, such as Target
TGT
, Walmart and Best Buy
BBY
. As retailers post sales declines and the potential of a recession looms, the timing could be difficult. Segal says that even while the company has sold more than 5,000 devices a day on its best days of the holiday selling season, it’s been a rollercoaster and he’s planning for sales to remain flat this year.

But unlike tech companies that have been forced to slash valuations or lay off staff because they’ve overextended, Segal figures that not having investors gives him a cushion to weather any consumer pullback. “It’s very seductive,” he says, “to stay independent.”