The Cold E-mail and the Crazy Big Idea: Industrial Organic Announces Seed Round

"Hi Charlie,

I've requested a meeting with you during the first week of March. Here are ten reasons why you should take the meeting..."

This is an e-mail I got from Amanda Weeks in February 2014, and the beginning of a two and a half year journey that culminated with Brooklyn Bridge Ventures leading a pre-seed round for Industrial Organic that kicked off about a year ago.  The round, which was raised in two tranches, was recently announced by Inc Magazine.

Amanda and her co-founder Brett Van Aalsburg researched for two years and developed an anaerobic fermentatio process that quickly breaks down food waste in a matter of days.  Byproducts of the process can be turned into other goods like organic fertilizer and natural surface cleaners.  When I funded the company, it was little more than a science project in a garage in Brooklyn and soon, they'll open up a waste processing facility in Newark--one that didn't require tens of millions of dollars to setup and also won't pollute the local neighborhood with odor.  It won't throw off dangerous gases, and yes, the process will make a profit.  

I was once asked by a potential investor what I thought the exit of this company will be.  The conversation went like this...

"Well, acquisition or IPO."

"You think this company will IPO??"

"Can you prove to me that a company serving a market where every last human being on the face of the earth creates organic waste, which they get paid to process and then paid again for what they turn it into, *won't* IPO?"

That's how I think of this company--a huge problem, bet on early, with a solution exponentially cheaper, faster, safer and more urban friendly than the competition, built by scrappy founders knowledgeable enough to be dangerous but not so experienced as to get held up by old paradigms.

You give me 30 opportunities to make that bet at pre-seed valuations and I'll give you a winning portfolio, and a very very interesting set of companies to work with and be proud of.

BBQing with biomass pellets created by @industrialorganic.

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Also, very excited to once again be investing with Nisha and Susan at BBG Ventures in our fourth investment together (goTenna, The Wing, Ringly being the others), as well as Newark Venture Partners, 3G Investments, and several angel investors who are LPs in Brooklyn Bridge Ventures.  

 

My Least Favorite Part of Venture Capital

I'm a lead investor.

That means I'm usually the first person to put down a price on what your company is worth--a dollar value on months, if not years, worth of your work, blood, sweat, tears, stress, etc.  

"Here's a piece of paper that says how much I think your dreams are worth."

The reality is, any price that I put down at the stage that I invest isn't going to feel like enough--and if it doesn't feel like enough, I'm probably grossly overpaying.  But, you don't feel like that as the founder.  

Your company is special, which, I 100% agree with.

That's why, out of the 2,000 opportunities I saw this year, you and your company are one of the 8-10 I gave a term sheet to.  So, congrats!  All the reasons why you think you should get a much higher price for this round are the very reasons you made it past the 1,992 other companies.  

But, at this stage, starting from a Powerpoint, prototype, or even a demo product, you probably have just as much chance of going under as any other company.  It's sooo early in the life of the company that it's nearly impossible to determine if, in 7 or 8 years, whether or not you have a better chance at success than anyone.  

If picking out the winners were so easy at this stage, VCs would be a lot better at it.  

Really, the biggest determinant of price is supply and demand--and so, more so than a qualitative judgement on your worth as a human being, consider this bid a data point.  This is where I think the market is for this company right now.

That other company, I can't speak to what happened there and why they got a $10mm pre-money.  I passed on that deal.  Maybe those investors were smarter than me.  

What they aren't, however, is harder working--and I have to say, it really bugs me when I invest in someone super early and then the next round comes in and the price isn't that much higher than what I paid for it.  It's like, "Why did I take all this risk at this stage if the next round is going to be a $3mm round on a price of $12mm?"  

Makes my $7mm pre seem not really worth the risk in the grand scheme of things.

But back to us.

Look, we're just not aligned here.  I'm just trying to get the best price possible for my investors, and you're just trying to take the least dilution.  

I hope we can meet somewhere in the middle, but yeah, this part is kind of going to suck.  The only thing I can really do is tell you how I came to this price, what other deals I closed with similar pricing, and show a willingness to be flexible if it turns out we underpriced it and the round is oversubscribed.  

Besides, the only thing that matters is how big it gets in the end, and how self-sufficient we can make this company over time.  A million dollars on the pre-money now pales in comparison to the dilution of having to take a few more rounds down the line.

Not Just Any Given Sunday #takeaknee

Posted this in what used to be my tech newsletter, and what has lately been about more...

Yesterday wasn't just any given Sunday, was it?

I would imagine most of the NYC-based readers of this newsletter don't take the position that "these athletes should just stick to sports" nor do they feel that way about Jimmy Kimmel and his recent conversations around healthcare.  So, telling you that I support their willingness to share their views and why seems a bit like preaching to the choir.

What I will say is that there's no way either side of this conversation is going to "win" unless both sides start asking each other why they feel that way, and actually listening.  No, I don't mean listening to Trump and asking him why he feels the need to call private citizens SOBs.  Honestly, he's got the least important opinion in this whole equation--it's just the wasted noise of an old racist without any character or class.  

No, I mean that athletes need to understand and listen to people about what the flag and the anthem means to them--and why they feel offended by the protest, as is their right.

And anyone who says anything about these athletes needs to open their ears and listen to their stories.  They need to listen to firsthand accounts of what it means to be black in America.  Go read a book like The New Jim Crow.  Then, feel free to say you disagree with the protest.  

But never tell someone they don't have a right to *peacefully* protest--because then you simply don't understand the basis on which this country was even founded.  

The Lovett or Leave It podcast recently had Normal Lear on--the creator of All in the Family.  He was saying how "in love" his generation (he's 95 now) was with America.  We had not only won a World War on two fronts, but we were successful in helping to rebuild wartorn Europe and Japan.  We had a lot to be proud of.

What strikes me about these protests is what kids and young people likely think about this country today and whose side they're likely to be more sympathetic to.  They see the widening gap between the rich and the poor.  They see our inability to deal with drug addiction and gun violence or our problematic education system--all things other countries seem to have a better handle on.  They see us mired in a war in Afghanistan that, in two years, will start recruiting kids who weren't even born on 9/11.  I have a feeling that the idea that the flag and the anthem is unquestionable in any way isn't something that's going to hit home.

One thing Trump got right in the election is that there are a lot of people who feel like America isn't so great anymore--but what I hope he's wrong about is that the people fixing that aren't turning back the clock for answers.  We're not going to regain greatness by waging war or nation building.  We've got to do it by coming together to solve tough problems like inequality of all kinds.  We've got to get healthier and smarter--and that's going to take creativity and courage to change systems full of friction.  

People wanted change last November.  They didn't get it.  When a politician doesn't listen, that's not change.  That's more of the same.  

When every single NFL game has players protesting in solidarity--that's different.  That's change.  That's going to make an impression that people will notice.  

If they ask why and actually listen, Trumpism is done.

Work Like You Mean It: Why I backed Wethos to change the future of work.

If economists tried to measure the cost of the malaise that the election of 2016 left, we'd undoubtedly see billions, if not more, lost in worker productivity. 

At the same time, I don't think I've ever seen more political engagement in my lifetime--and not just political engagement, but all sorts of action around causes they care about.

These two realities are linked.  If you're not doing something to positively affect the world around you, you've likely been overcome by a lack of motivation.  You're realizing that passing your work hours for pay alone, without meaning and impact, just isn't cutting it anymore.  

We've seen the move towards more flexible work, but I think it will pale in comparison to the shift towards meaningful work.  The best and brightest are going to need a much better reason to work for your company than the perks and benefits--the work itself is going to have to be meaningful. 

That meaning isn't going to be something you search for on a traditional job board branded around impact--it's going to be an inherent part of the way you search.  What you care about is going to be a filter as important as geography.

That's where Wethos comes in.  I met Rachel Renock a few months ago at a SheWorx pitch event.  I got what she was doing right away.  Starting with freelancers, she was creating a place where impact was the guiding principle by which talented people sought ways to share their professional talent.  

It reminded me of when I first heard the pitch for Kickstarter and then witnessed what it would become.  While it may have been the way some bands would start funding their next album, it would go on to affect and inspire a whole generation of not only creative projects, but business plans as well.  Pre-sales would enable companies to exist off the financing of the fans most passionate about their vision for products.  

I was reminded of that when I interviewed Rachel's co-founder Kristen about how she hired their first two developers on the Startup Recruiting Podcast.  What struck me was how they were bought into the passion of the team so early on--almost in a way that made it seem all too easy to hire them.  That's going to be the case in the future.  If you're not convincing someone of the impact they can make doing their primary job, you're going to have to overpay to make up for the lack of meaning you're providing.  While they're focused on just freelancers today, still a huge market, I'm convinced they'll not only expand to all meaningful work in the future, but they'll help turn more work meaningful by changing the way companies design roles for their talent.  Eventually, they'll impact how companies design their own goals--because otherwise they'll die from lack of talent.  

I look forward to working with the Rachel, Kristen, and Claire, as well as some fantastic co-investors, like Flybridge and Corgin.  Jesse Middleton at Flybridge led their investment--and Jesse knows a fair amount about seeing the future of how people work from his days as the founder of WeWork Labs.  Also joining our round is Fabio Rosati, who was CEO of Upwork/Elance.  Together, we'll help impactful organizations find the talent they need to make a difference--and help talent find work that makes a difference in their lives.

Introducing Petal, Providing Access to Credit to Thin File Consumers

One of the biggest fears about the future of data is that everyone will turn into a number--that algorithms will turn everyone's personal experience into a single score that will decide whether or not you get what you want, a job, a house, a car, financing for a new business etc. or whether you get shut out.

Actually, you don't have to wait for that to happen.  Consumers have been living this reality since 1956.  That's when a company called Fair Issac, or what we now today as FICO, started selling consumer credit data to lenders.  A four billion dollar publicly traded company basically decides who gets credit and who doesn't--and if you don't already have credit and you're invisible to FICO, you're going to get financially left behind.  As they say, it costs money to make money, and without access to credit at key moments in your life, you're going to wind up on the wrong side of the growing gap between the rich and the poor.

Just because you're invisible to FICO doesn't mean you haven't been doing anything financially.  You've been paying your bills on time, socking some money away for savings--you just never had a credit card or took out a loan.  Maybe you immigrated from another country.  Either way, this shouldn't stop you from being able to get credit when you need it.

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That's what I believe and that's what Petal believes as wellBrooklyn Bridge Ventures led their seed round last winter.  

Petal is a simple, no fee credit card that looks at the money you make and the bills you already pay to help you qualify instantly. That means you can get a great credit card and start building your credit history, even if Petal is your first credit card.  You can sign up to be one of their first customers here.  

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It's not only about building up a score--it's about learning how and where to use credit appropriately.  Petal provides transparency to consumers through their technology to help them make smart credit decisions.  What card do you know tells you how much you'll pay in interest *next month* based on what you pay now?

I first got introduced to them by my friend Kevin Marshall back in March of 2016 when they were Creditbridge (Petal is to Creditbridge what Frogger is to Highway Crossing Frog, I suppose).  He sent me a pitch and I didn't quite understand the issue, so I passed.  Undeterred, they kept plugging away, working on the brand and the message.  They got mentioned to me again by Nan Li at Obvious as an interesting team he had just met.  When you start to hear of a team multiple times from multiple people (which is the same thing that happened to me with Canary and The Wing), you take notice.  I don't mind cold intros, but market buzz helps push things over the line to at least take a meeting.  

In our first meeting, which was theoretically scheduled for 45 minutes, I sat down with co-founders Jason and David for more than two hours.  What sold me was their fluency in this market.  It was obvious that they had spent most of the year becoming the smartest possible founders they could in their space--and talking to every founder who had done anything adjacent.  That's important for a VC.  You don't want to be able to be smarter than your founder about a pitch after an hour of Googling around.  

In the last ten months since I've invested, I've seen them execute in the most organized and professional way possible--it's not easy to stand up a consumer credit card company from scratch.  They've gained the attention of large players in the space and attracted some high quality talent to their team.  

As we saw with the Equifax breach just yesterday, the monolithic world of centralized control over your financial life is being disrupted more and more each day.  New consumer friendly brands are being created and new products are coming to market.  It's a dynamic space and I'm excited to have gotten the opportunity to back Jason, Andrew, David, Jack and Berk and the rest of the team in their mission to bring credit and financial opportunity to underserved "thin file" consumers.