Proud to Lead an Investment in SeedCX

Did you know that it's illegal to trade onion futures?  

You can thank the Onion Futures Act of 1954.  These are the kinds of things you learn when you back founders that are essentially students of agricultural commodities to build a new exchange.

Their exchange will "use the tools of financial engineering to cultivate financial security in underserved markets, where there exists unique idiosyncratic risk. Seed’s focus is on providing innovative means to secure operational stability for hedgers and new investment opportunities. Seed CX operates in areas where there have been recent regulatory shifts, which present the potential to innovate in new or obscure markets."

This will include hemp and related products.  So yeah, let's have *that* conversation.  

If you're a startup investor, you have to take risk somewhere.  No risk, no return.

Some risks seem more palatable than others.  You might take first time founder risk if you think they're coachable.  You might take market risk if you think you're first to something potentially large.  You might take product risk if you think you've got the right team to build and iterate quickly.

Regulatory risk is an interesting one.  

Biotech investors do it all the time.  Their returns are predicated on a government body saying that it's ok to stay in business.

There have been lots of high profile companies on the tech side who have taken regulatory risk.  Some, like Uber and AngelList, have seemingly gotten over the hump on it.  Others, like Aereo, have gotten crushed by it.  Companies like Fanduel are still working through it, but optimistic they will persist under some regulation.  Some on demand companies, given worker classification issues, seem potentially more challenged to make their economics work given new rulings.

What you want when you're taking on these kinds of risks is trust--trust that you're dealing with a team that is eyes wide open on the changing environment and trust that they'll make informed decisions on where to push limits and where to back off.  

I met Edward and Brian from SeedCX last July.  They were introduced to me by Josh Forman, who I had spoken to a year earlier about his own startup.  Some of the best intros I've gotten have been from entrepreneurs that I didn't actually fund, but who felt like they walked away with enough thoughtful feedback to recommend me to others.  That's extremely rewarding.

There are two major bets that Brooklyn Bridge Ventures has made with this investment. 

The first is that there will be enough legal growth of hemp and cannabis to support a derivatives market.  I'm confident that train has left the station and that we're not suddenly going to go the other way on the cultivation of these plants for a variety of purposes.

That is not, in any way, a vote on the ethical issues of it.  It's a pure investment decision.

Whether I believe that cultivation of any particular plant or consumption or use of any related product derived from it should be allowed or not is irrelevant.  It is a judgement on what will happen in the future, which is what I do when I make any investment.  It's the same kind of judgement that any investor in Uber or Aereo made.   

The second bet is that Brian and Edward will conduct themselves in a way that I and the investors in Brooklyn Bridge Ventures will be proud of.  That is something I have no doubt of.  Their plan is incredibly well researched and they're in the rigorous process of getting regulatory approval from the Commodities Futures Trading Commision.  This isn't exactly the kind of thing that most startup founders get really excited about doing.  A lot of people would have tried to get around such a process, especially in this area, but everything this team does is institutional grade.

I'm excited to work with them and I want to thank all of the investors that came on board with us.  It wasn't the world's easiest fundraise, as many investors have to avoid this space entirely.  If they run the company with half the grit and persistence that they experienced during their fundraise, they're going to build a very successful company.  

**P.S. If you're wondering about how I wound up in a Chicago based company, leave it to a couple of MIT guys to figure out a loophole in the NYC-only focus of my fund.  Turns out if you sleep on couches and remain relatively homeless for five months during your fundraise and initial sales development for a fintech startup that could plausibly be in NYC, your lead investor could get so far down the line in helping you raise that by the time they choose Chicago, you're too far in to complain about it.  The Chicago startup community better help these guys--consider yourselves on notice!!