187. Transformative Tech for Old World Industry (Jim Kim)

187. Transformative Tech for Old World Industry (Jim Kim)
Nick Moran Angel List

Jim Kim of Builders VC joins Nick to discuss Transformative Tech for Old World Industry. In this episode, we cover:

  • Quick Backstory/ Path to founding tech?
  • Big news a few years ago that Formation 8 decided not to raise a fund 3. What happened with Formation 8 – why the decision not to raise fund 3?
  • Tell us about the thesis at Builders.
  • Why do you think these old world industries haven’t been re-invented?
  • I’ve worked in some old world industries myself… that move quite slowly. I’m curious if you think the timeline is a bit longer for tech companies to scale in these industries, if, for nothing else than the decision makers are much more methodical? 
  • What are some of the key technology characteristics you’re looking for in the companies you back?
  • Aside from technology, what are the other key ingredients your hunting for?
  • Vertical integration… building your own brand and own the customer relationship vs. serving many others as a component provider?
  • What percentage of your new investments are serial founders vs. first-time and how does your approach differ with each?
  • You’ve stated that “Synthetic biology will be the most important enabling technology of our lifetimes.” Why?
  • Talk about some exciting innovations in the science and data space and what industries will they be most beneficial to?
  • How do you measure success with the companies in your portfolio and how do you help them get to that place?

Guest Links:

Key Takeaways:

  1. Through the experience of building his own tech startup and raising venture capital, Jim realized that he really wanted to be on the other side of the table – being a part of multiple different companies and learning about how they plan on changing the world is truly fascinating to him.
  2. Jim started out in tech doing early stage industrial and technology investments.
  3. What differentiates Formation 8 from other VCs is their cross border approach, they’ve built out teams in Shanghai, Beijing, Singapore and Korea to invest in the best tech companies in the US and bring them over to Asia for business development.
  4. Using this cross border approach was a key component of their strategy at Formation 8 and helped them get into some very competitive investments at lower prices.
  5. Jim states that you don’t make money by just following the herd, in any area of this industry – you need to find what truly differentiates you to be successful. That was the key lesson he learned at Formation 8. 
  6. At Formation 8 they had a massively successful fund 1 and also fund 2 where they raised $450M. Jim and his partners still continue to manage both high performing funds together.
  7. Jim began Builders VC after he and his partners at Formation 8 came together and decided to take advantage of their varying/unique styles of investing and create their own separate platforms.  
  8. When looking back, they could have gone on to raise a fund 3 and built a mega fund but, being that the bulk of Jim’s experience is in Series A early stage investing it didn’t make sense for him. He states that a mega fund is not necessary during the early stages, in fact it is a detriment. 
  9. Builders VC was created with a focus on being truly differentiated, building a strong team and maintaining a traditional series A approach.
  10. Jim shares 2 keys points on how he was able to differentiate Builders from other firms – 1. Investing where other people haven’t. 2. Looking at the biggest industries where IT spending is low and tech had not yet penetrated.
  11. They found that the antiquated industries where IT is not being utilized to it’s full potential is where they want to invest. Specifically Agriculture, Industrial Tech, Real Estate, and Healthcare.
  12. The reason why these antiquated industries haven’t been reinvented yet is because in most situations a specific business model has been used for generations therefore the willingness to adjust and use tech solutions has been minimal.  
  13. Today, we are beginning to see a shift into the new generation who understand technology more and are willing to adopt new methods or technologies to transform the space. Jim feels it is a great time to get into these old world industries. 
  14. With synthetic biology we are able to develop products that have the same novel properties, that perform better and in a way that is less harmful to the environment. This has the potential to do things that we have never seen done before and provide massive benefit across material science, chemicals, industrial and even the healthcare arena. 
  15. In healthcare, synthetic biology has been used to manufacture drugs and the precursors to create some of these drugs. To be working with entrepreneurs that are creating the platforms that will ultimately lead to these new products being developed is massively exciting for Jim. 

Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the fall ratchet.

Welcome back to TFR today Jim Kim

joins us Jim is the founder and general partner at builders VC, which invests in series A and C technology companies bringing technology and operational excellence to antiquated industries. In today’s interview, we discuss the story behind founding formation eight, the reason they decided not to raise a fund three, the thesis that builders why builders is focused on slow moving industries, if time to exit indoor scale takes longer in these industries, the tech characteristics they look for in prospective companies. Whether a company should vertically integrate and go direct to the customer or serve incumbents. Jim’s take on investing in serial founders versus first timers. And we wrap up with his thoughts on why synthetic biology will be the most transformative tech of our lifetime. Here’s the interview with the great Jim Kim of builders VC.

Jim Kim joins us today from Palo Alto. Jim is the founder and general partner at builders VC builders is a Silicon Valley based venture firm with investments in Bauer Wilkins bolt threads and Skybox among others. Jim began his career with GE Capital structured finance group and grew the energy finance teams portfolio to 15 billion in assets. He then went on to join cm e a Capital Group. He was a general partner at Khosla ventures, and subsequently was founding partner of formation eight prior to launching builders. Jim, welcome to the program.

It’s a pleasure to be here. Thanks for having me. Hopefully, we’ll have a fun discussion today.

Yeah, tell us sort of the quick backstory of the path to tech. Yeah,

it’s been, it’s been a fascinating road. So started out my career, and went to MIT undergrad study computer science and electrical engineering. And this was kind of the tail end of the first tech bubble. And so everybody was walking around paper millionaires running around campus and joining startup companies, I said, crap, I might as well do the same thing, right. And so I ended up starting a company in the basement of my fraternity house alongside a fraternity brothers and some MIT Sloan students. And we ended up getting seed funding and a fallen venture funding from a MIT based incubator and venture firm. And then the bottom fell out of the market. And so we’re kind of stuck here we have a decent amount of capital and we’re running but at the same time, the interest in tech just cratered, right. And so, for us, we were developing website development tools to make clothing websites more efficient, basically, lowering return rates by creating a virtual model that would tell you a little more about how clothing would fit on you what it would feel like just more information because return rates are so high from ecommerce. And so we ended up basically developing the product, selling it to our first customer and then realizing that, hey, this, this ain’t gonna fly long run. So we just sold the company ended up getting our money back. But through that experience, and that experience of raising venture capital, really made me realize that I really wanted to be on the other side of the table, right? Being being a startup CEO is fantastic. But for me, I had the opportunity to work across multiple companies. And here, some of the smartest people in the world come in, provide presentations and educate me on what they’re doing and how they’re changing the world was absolutely fascinating. So so that put that inkling of getting into venture capital in my mind. From there, I ended up as you mentioned, going to Columbia Business School, and then going to join GE. And within GE I ended up joining the structure Finance Group, which was the large organization in GE that was basically like a private equity shop, doing large scale project financing. So solar project financing, wind project financing, I ended up working on the first commercial, renewable solar project financing that GE ended up doing. And so that was that was really fascinating learning for me to understand, hey, there’s so much capital going into commercializing technology. This is an interesting place to be but my heart was still in venture. And so I ended up approaching Jeff Immelt in the management team at GE about creating a venture capital group that was considered career suicide, because everybody’s like, Why the hell would you do that? You know, we’re working on this major $2 billion powerplant and you want to do it $3 million investment into a venture company. But I ended up getting approval after spending a good six months of my life, six months of my life, reformatting presentations to be in the correct, GE and spirit. But ultimately got approval. And that got me started into tech. And from there, I built up that team, which was focused on industrial and technology, venture capital investments, early stage. And from there, I ended up building that team out investing about 70 million a year and built that team to seven people before coming out to Silicon Valley.

Very good. Out of curiosity, what do you think of GES new CEO lyrical,

you know, they’re in a, they’re in a funky place, they had been historically smoothing out cash flow, right and smoothing our earnings via the finance organization. And when we had the financial crisis, that ended up shrinking that group, that Financial Group, because they had so much exposure significantly. So you had this company, which had been historically known for every year, GE makes its earnings, and makes its earnings number and play pays a great dividend to taking that safety net out. And then all of a sudden, you’re just focused on industrial businesses. And there were some meat, you know, meeting consumer businesses, etc, that are very much beholden to the economic cycles, more so in a way that you were before you remove that buffer. Yep. So it’s tough because you’re an industrial business, and you’re beholden to power plant sales and aircraft engine cells. And I think the right person is in charge now, because it is a bit of a turnaround. But it’s still a core us technology, core US industrial company. Right. And we need you to be successful. Yeah, I

couldn’t agree more. I used to do m&a For a conglomerate called Danaher. My chief executive at the time was Larry, so Oh, right. We’re wishing him the best at GE and definitely rooting him on there. So let’s talk more about your story. So you were a GP at Coachella. I’m sure that was a formative experience. And then you found it formation eight, but you guys at formation eight decided not to raise a fund three. You know, what happened there and why the decision not to continue? Yeah, I

think, you know, formation eight was a tremendous experience. But even going back to Coachella, there were certain there’s certain lessons learned about venture capital that I never would have gotten if I didn’t have the opportunity to work with Vinod Khosla and Pierre lawan. They’re two of the giants of venture capital at Kleiner Perkins, Sequoia, coming together to lead a billion dollar fund and a $300 million fund that was more early stage focus. But I you know, I think John John Doerr said it best, right, you’re not really a venture capitalist until you’ve lost a good amount of money. And I think this is also a bit of an apprenticeship business. And so the opportunity to move to see the ups and downs of investing. At that time, there was a very heavy investment focus that close link to clean tech. And so learning about the ups and downs of, of investing with that, but also having massive successes where my partner getting you he, he led the investment of square, the phenomenal company basically return the entire fund. So for me, that was that was probably the most educational experience in my life. And I’m massively grateful to them. And also, there’s a very specific model of venture capital where, you know, Vinod ‘s name is on the door. He’s, he’s the founder and owner, the management company there and just has his philosophy for doing things. And he’s great at it. So I’m grateful for that experience. But for me, you know, I wanted to be part of something that is a broader partnership, right. Sure. And so, so that led me to fund formation eight. And so I had met this guy, Brian, who, whose founding family was was the LG family. And they were, Brian approached me and he said, Hey, Jim, my family wants to wants to do cross border. So we are LSW. We are the Industrial Technology arm of LG. And we believe in innovation coming out of the US and then hopefully implementing it globally. And said, Jim, do you know of any venture funds that would take an anchor investment to help with this cross border idea? I said, Well, Brian, why don’t we start a fund right. And so that led to the anchor investment and Brian’s family was really critical in getting a host of Korean conglomerates to invest in formation and really provide our anchor money that there’s nothing more important in finding a venture fund than having that first investor who believes in you it’s it’s the same thing when you’re raising money for a tech company. Sure, somebody’s got to believe in you and give you that first point of validation. And that led us to be viable and Joe Lonsdale joined and phenomenal and Bester with a Palantir background, so we’re really able to prove this story. Right? And differentiation. Yep. Because ultimately, you know, any, it’s like investing in a company, what’s your moat? Right? What’s different about what you’re doing, versus every other technology company? And so we get that same question from limited partners who would say, Okay, what’s different about formation aid than for us, you know, this cross border story. And we ended up building up teams in in Shanghai, Beijing, Singapore, and Korea, to do cross border, invest in the best tech companies in the US, bring them over to Asia, for business development. That was a really a tremendous, tremendous differentiation, and frankly, helped us get into some of the really competitive investments at lower prices than other venture firms. But that was really the huge lesson, right, which is, you just can’t you don’t make money by following the herd? You don’t make money by being just another venture capital fund. What is your core differentiation? Yep. That was the key lesson or formation eight. And so massively successful fund one, great partners, phenomenal investments, that fund is doing very well, we had surprising very few write offs even this far into the life of that firm. And then fun to comes around, also raised a $450 million fund there, you know, and then the partners, we just sat around and said, look, hey, we have we all have different styles, we have different investing styles, we have different philosophies on life, you know, we’re just at different points in our life. And we’ve kind of all earned the right to do whatever we want to do next. And that led us to just say, hey, you know, we should all take advantage of that, and go on and develop our own platforms. And so we said formation eight is, is dead. So the king is dead, long live the king, right? And so Joe was on a pretty ABC, I ended up creating buildings, VC, and Brian ended up creating formation group. And there’s been a lot of a lot of stories and gossip and whatnot. And I don’t necessarily want to get into that, but I’m grateful for my partners. I mean, you know, we’ve done phenomenally well, and friends and, you know, continuing to manage those two funds, which are, which are great performing funds, must be

hard to move on from that the performance. I don’t know what the metrics are. But I’ve, I’ve heard that you guys were quite successful in those first two funds.

Yeah, I think we probably could have just adopted the philosophy let’s, let’s go ahead and do a fun three and a four and raise a boatload of money and have these mega funds. You know, but we also I think, said, if we have these different strategies, do we want to really shoehorn that into a mega fund? When you when you look at these gigantic, multibillion dollar funds, which we certainly could have raised? You can generate a lot of management fee, and that’s wonderful. But it’s hard to get a multiple Yep. You think about it on a on a billion dollar fund, right? Like, you’re just gonna have to might have to return so. So we just said, Look, you know, for me, I just I’ve done early stage venture right Series A, that’s, that’s where I have a track record of investing. My team is a tracker of investing. You don’t need a mega fund to do that. In fact, that’s a detriment because you end up having strategy creep. So for me, that was a key focus and, and shifting to that mindset was more authentic, and for me more fun than trying to manage something that I’m not sure what it provided the outsized returns in VC, which LPs are looking for? Sure.

Yeah, I think that the pressure to deploy capital has been the the undoing of many of venture fund. But so you’ve partnered up with Paul Lee, fellow investor here in Chicago, where I’m based. Tell us about the thesis at builders.

Yeah. So So builders, as I mentioned, coming out of formation eight, the the focus really became Okay, where is there? First off, how do we how do we create differentiation? What is so special about our venture firm, which makes it so that entrepreneurs would decide to work with us at a discount relative to other venture firms? Right. So that’s a preview when and you want to get into the very best at investments where where you’re working with the best entrepreneurs. Yep. So you have to have a core thesis a strategy, a different key source of differentiation. The second thing is the team right and so for us as a firm coming on to formation eight experience, Alex Kinnear myself, I’m at meta. We had we have worked together since our Kozel ventures days, where Alex had led the investment in skybox and he led the investment in Climate Corp while at Coachella phenomenal guy phenomenal investor problem the sharpest people I know on the meta was our health IT investor at formation aid and diligence on most of our health IT companies. And so we’re sitting around saying okay, well, well, what’s the future? What’s what’s different Association, we looked at the market and said, Well, everybody’s going up market, right? You have all these seed firms that are now becoming series A’s, you have all these series A firms that are now raising 700 $800 million, and just scaling tremendously. Yeah. So traditional Series A, as we know, it seems to be a whitespace. So he said, Well, that’s what we’re going to do. That’s what we do best. That’s where we’ve made the most money, why don’t we lean into that opportunity? So So that led us to really say, We want a firm that’s going to be focused on traditional series, a bite sizes of kind of three to 10 million bucks 20% of copy, Target, VC, old school VC, the way it used to be done, right. And in the heyday of the highest returns in VC. So we said, like, that’s what we’re going to do. And as far as differentiation is concerned, you know, two key points there first, you want to invest where other people aren’t right? You don’t just want to follow trends. And I’ve never been a phenomenal consumer investor, I think we’ve gotten lucky and some great consumer investments, information, eight that are dragging returns. But you know, for me, I looked at it. And the team we looked at, we just said, Where Where do we see the biggest opportunity in tech. And so we just identified we took a chart, right. And we, we looked at industry verticals. And we said, first off, we want to plant software, right, just because the scalability of software’s, and that’s right. So lean into software, and then identify which are the industries where IT spending is de minimis. Because if you look at those industries, they are the least efficient. Clearly, technology has not penetrated. And there’s the biggest gap between what is technically possible, and what’s currently implemented. And so any industry that was sub 1%, or sub 2%, of revenue being spent on it, we said that that’s fair game. That’s where we see big opportunity, that also just happens to match up where we, where we’ve made money in the past. So for example, let’s take agriculture, less than 1/10 of a percent of revenue is spent in the agriculture space on it. Well, huge opportunity, because they’re still using pen and paper. They’re still making guesses. They’re not using sophisticated data on us, it’s changing, because now you’re seeing an uptick in the amount of investment going into that space. But certainly when we started the firm, we said, nobody’s really investing there. Alex made money, they’re investing in Climate Corp, which is a billion dollar outcome for us. That’s a great place to be. So these unsexy, antiquated industries where pen and paper are still being utilized, and decision making sub optimal. That’s where we want to be. So as a firm, we, this became, we wrote a white paper about this, where we said, our thesis is around the evolution of industry. We’re bringing technology, we’re going back technology entrepreneurs, who are going after antiquated industries. So agriculture, industrial technology, real estate, and just because of the sheer size of the opportunity, even though it’s a little bit more sophisticated, but it’s still pen and paper based healthcare. We said those are the four core industry verticals where we’re going to be focused, and we see the biggest opportunity. The second element of that is, is how do you help? Right? How do you help these entrepreneurs? Because these aren’t the sexiest of industries, you have to have insider knowledge? And chances are you’re going to be working with a technology entrepreneur, plus somebody who’s been in the industry for a while. Right? You don’t solve oilfield services Tech with some kid out of Stanford, you know, oil, right, right. So you want to bring resources to bear to help these entrepreneurs out. And to that end, we have this studio concept, right? Where we have a data scientist, phenomenal data scientist, PR person. Sales. Heck, we even have a shrink on staff. Wow. Yeah. Which is a whole fascinating rationale for doing that. And it’s been immensely helpful and in more ways you can imagine. But to really help entrepreneurs who are founders, co founders, team building, conflict issues, etc. Don’t waste your energy fighting each other. How do you channel that energy towards building a partnership? Because many of these entrepreneurs, while they might have done it once before, but it’s hard, it’s the hardest job in the world. So how do we help? Yeah. And that became the genesis of builders Studios, which is, you know, antiquated industry thesis and then providing real help with functional experts who could jump in and really work with entrepreneurs.

Have you seen this billions program on Showtime where they have

brought psychiatrists the best show ever?

X capital? Yeah, yeah. So this all begs the question, you know, Why do you think these Old World Industries haven’t been reinvented yet? You know, what are the challenges? And what are the headwinds to sort of operating with early stage tech companies in? You know, these glacial pace sort of industries?

Yeah, well, first off, it’s been really hard, right? It’s really hard to penetrate these markets, because there has been so much resistance, it take agriculture, you take a Silicon Valley tech guy, and you throw them out into the, into the agricultural into a farm or say, a cattle ranch. And I say, all right, use my enterprise software. And, you know, I want you to pay 50 bucks a month for my software. The farmer is gonna be like, what, what the hell are you talking about? Right? Like, this is my life. My life doesn’t work this way. Right? I, my cash flow works the following. I buy seed, I buy chemicals, I buy equipment. And basically every year I’m borrowing money from the bank, to pay for the upgrades and to put the dollars into the ground the next year. And so I have a cash flow issue. And now you’re saying you want me to pay a monthly fee for something I don’t quite understand. Good luck, right. Yeah. So there’s a there’s a sales issue there. And certainly a mismatch of business model that there’s now been more education on. And because there’s a bit more, because every industry is a tech industry, you’re seeing increased willingness on their side, because there’s also a generational change that occurs, right where dad might have been running the family farm, but that’s also the average age of a farmer is is getting up in the 60s. So the kids might be coming home to say, alright, I can actually make money in this. And I want to be able to understand the operations on my farm on my iPhone. So that demographic shift is part of it. That’s, that’s now opening things up. But that has been resistant in the past. Also, just the mentality of, hey, I’ve been doing this for 30 years, I don’t really need to change much. And when you also have these industrial conglomerates that have traditionally dominated the space, so take oilfield services, we have a Baker Hughes or Halliburton or Schlumberger, who have not necessarily been the most embracing of new technology and new business models, you’re going to reach, you’re going to reach resistance. Now. Ultimately, you’re gonna get to the point where the where the darn products that are being provided by startup companies are just so compelling, that somebody’s to say, the value proposition is so big, I have no choice but to buy this product from this startup company. Because it’s so meaningful to my savings in the way I run my business, you will ultimately end up winning, it’s just it’s just a bit of a slow road to get there. Fortunately, we’re at a time where even when you look at as a indicator that technology is penetrating these industries, just look at the amount of money that’s going into corporate venture capital. Yeah, yeah, one out of every five investments now has corporate VC, heavily involved. And you’re seeing these old worlds companies create venture capital arms or partner up with, with firms like touchdown ventures to get access to great entrepreneurs, they understand they have to change in order to in order to win because they’re their moat, which was, which was, hey, we’re, we’re so large, and we have such great sales routes that nobody’s going to touch us, that’s going to go away, the world is smaller. So it’s a really exciting time, I think, to go after these integrated businesses.

You know, Jim, I have worked in some Old World Industries, myself, some that move quite slowly. I’m curious if you think the timeline is a bit longer for tech companies to to you know, reach a reasonable scale in these industries. If for no other reason, then the decision makers are just much more methodical and things just tend to, to move more slowly.

Yeah, I would say up until five years ago, I would, I would 100% Embrace that context. And it would be a slower moving industry, you might not be able to get the billion dollar exits, right, because these industries are so antiquated, and your exit path was to run straight to a DuPont Dow, a GE and get acquired, right. And the way they work is they would acquire you as a technology acquisition. But, you know, it’s kind of a sub 100 million dollar acquisition just to buy tech. But you’re you’re now seeing new business models brought into these antiquated industries by technology companies, which could, which can drive billion dollar outcomes, right? And the velocity could be there. But you have to shift business models, right? And that’s, that’s really, the whole name of the game and VC is velocity, right? How can you have an increased revenue velocity, how can you drive velocity to win market share? So the the best entrepreneurs will develop a product that people want, and that address a huge pain point. And then they will figure out the best way to maximize the company value. So traditionally, you might have had to say, alright, let me partner up with GE, because GE has distribution, right, and they have a great sales team, I’m just going to, and they control the market. So I’m just, I’m just going to partner with them. In my antiquated industry, your upside is somewhat limited. But you have, let’s take agriculture, for example, you have this this now. And I think it’s also been enabled by the amount of money that is floating around in tech, but you have people who develop good tech, who are now saying, like, I’m not scared to go challenge, Monsanto, I’m not scared to go challenge the traditional companies in this space, like like a bear, because I think I could raise capital, and I could go do what I need to do to beat them. And so you have a company like Indigo, right out of Boston in the agricultural space, which is saying that I’m going to develop my own sales channel. And it’s going to be expensive, and it’s going to be higher risk, but I’m going to be able to distribute my products through my own hands. And that’s going to lead to the opportunity to build a billion dollar company, because I’m going to be able to not just take this unique product I’ve developed, have Monsanto package it up with 15 other different things in their next generation seed product, and I’ll get a small royalty off of instead, I’m going to own the damn customer. Yeah. So So you are going to get the velocity, you are going to get the speed. So these industries that haven’t evolved, and it’s been very difficult, you’re now able to kind of go in and shake up the way things work, because the customer is now starting to understand the value. Truly still only now, right? Only recently, truly understanding the value of what a group of entrepreneurs could provide them.

Yeah, I you know, I think we’ve seen it ourselves in our, in our own portfolio, a variety of tech companies that have subscription based models and own more of the customer relationship and mindshare. These large, either, you know, corporate VCs or or corporate m&a departments are hungry for, you know, a more robust and more involved customer relationship and, and not for just transactional exercises and, and subscription based revenue that, you know, provides much better forecasting and much better security of cash flow. So, in a variety of different contexts, I think we’re seeing the industry shift is taking some time, but we’re feeling it now. In our portfolio.

Yeah. But it’s it’s a it’s a great time to be in these antiquated industries. You said it, right, Danaher and GE where were we where we came from right at GE had global research and has global research across Albany, New York, all the way to Bangalore, India, Germany, right, where they have these research centers. But how much is really coming out of these, these old world’s Company Research Centers? You know, I’d argue that the biggest innovations are coming out of entrepreneurs, yeah. diversities, you know, and universities rather than just licensing the technology out to GE or they’re saying, Okay, well, this professor wants to start a company. So why don’t you go get funding for it and try to build a business, that’s where the game changing stuff is happening. And that really puts venture capitalists into this unique role of helping commercialize some some really important things. And I think it’s the best job in the world.

So yeah. Couldn’t agree more. So we’ve talked a bit about the the sectors and the industries, and you’ve touched on on the technology? Can we go deeper on that? You know, what are some of the key types of technology or technology characteristics that you’re you’re looking for in these, you know, these companies that you’re you’re aiming to back?

So I think some of the, the most? Well, right now, everybody’s in love with platform companies, but I’m not quite sure everybody truly understands what a platform company, a platform technology, technology is. So and I probably don’t even know but my understanding of it, I’ll certainly try to talk through, I’ll give an example. So we’re investors in a company called bolt threads at phenomenal entrepreneur, came out of UCSF, really looking at the materials and textiles industry, which is, you know, trillion dollar global industry. And so there’s been no innovation since the 60s or the 70s, where you had polyester and nylon and nothing has fundamentally changed. You go to REI, right? And you walk in and you say, Okay, what is the difference between a Black Diamond a north face club Yeah, jacket, I have this thermal ball insulating technology I have this this climate cool technology or whatever it might be. It’s really all just branding. Yep, it’s the same material, there might be some slight difference, but it’s not going to fundamentally be different. Because there’s been so little innovation in that space, right? Well, the entrepreneur said, we’re going to develop a platform that is going to be able to, the analogy would be I want to build the goose that is laying the golden eggs. Okay, and I don’t know which golden eggs per se are going to be the most lucrative for the company. But the technology that I’m developing has the ability to spit out multiple ways, multiple shots on goal. So that’s really what they built, right, they said, we are going to develop an engine that is capable of creating products for multiple customers. So I’m going to create a novel material that’s going to be stronger than Kevlar. And I’m going to sell that to somebody like a, like a Nike, and then I’m going to create a cotton or a silk material, that’s going to be so tremendously luxurious and soft, I’m going to sell it to Gucci, or something like that. But for each customer, I can now create a product with the properties that they would find most intriguing. And my technology platform allows me to quickly spin up those products, create samples, I’ll provide them to the customer, tweak them according to what the customer wants, and then also scale up and create mass production. Right? To me, that’s exciting. Because I’m just not a single product company, I don’t have to bet the farm on one particular thing, becoming a home run. Or if something doesn’t work, I’m going to switch gears and focus on the next thing and the next thing but the core thing that I have is the engine, the IP generation engine, and the technology around that. And that’s a phenomenally successful investment and entrepreneur has been great to add commercializing products for apparel products for beauty products, for accessories, they have a really exciting leather product. But you know, any one of those can be successful is not just a single bet. And so things like that are are particularly exciting. We just led an investment in a company called checkerspot, which is also in this bio industrials, bio material space and, and they have a novel product which they’re going to commercialize in everything from moisture wicking for coatings for clothing all the way through, they have a their own polyurethane foam that they’ve created, which is massively high strength and lightweight, which they’re going to apply in skis and surfboards. And they’re actually gonna create their own consumer facing ski brand, which is, which is really exciting. I think there’ll be announcement about that over the summer, which is just massively high performance and, you know, applies this novel technology. So it’s pretty exciting to be parts of these companies that you walk in the door. And the entrepreneur says, Well, I was tinkering with this technology. And I haven’t really talked about it very much. But I was able to now prove I can make it at scale. And the applications are game changing for these five industries. That’s exciting. To me. That’s the beauty and fun part of investing in a platform company.

Love it. Jim, I’m curious, how do you think about technology companies that develop products and or develop components and inputs that they then sell to others, let’s say a brand, like you mentioned Nike before, versus those that ended up using their technology as a proprietary advantage and developing their own brand, which is, I think, what you’re alluding to with the skiing example there. Yeah, you know, those that want to vertically integrate want to, you know, move to multiple layers of the stack, versus those that use their technology and use the products to, you know, empower others and more of them? How does one, we just had the situation. So that’s the reason I bring it up. But it was a company that developed a really compelling technology, and they were using it to become effectively a service provider in the industry, because it was, you know, 10x better than what other players in the industry were using, you know, how do you think about companies and how they make that decision between, you know, vertical integration and using technology to empower as opposed to empowering others? Yeah, it’s

it’s a, it’s a matrix of factors that you have to consider. Let’s, let’s take one extreme, where you’re just you’re a component of a solution that ultimately gets sold to end customers. You still have to work with this partner who’s going to aggregate a bunch of technologies, maybe years plus three or four of theirs and then provide that to the customer. They own the customer. They all similarly, can squeeze you down on price. So that might be great for you. Because you immediately jump into commercialization with a partner who’s going to provide a wrap around the technology working, and they have the existing channel, right, but you’re gonna pay for that because you are a component. And ultimately, over time, they’re going to push you down on price, which is what they’re going to do, your margins will be smaller. But if you strike the right partnerships, it could be high volume, massively high volume. So you have to kind of balance all of those elements there, and your ability to scale and how much that will cost. The opposite end of the spectrum is going direct to consumer where you are vertically integrated, you end up owning the customer. But let’s think about the things you have to get right? Well, first off, you have to reach the customer. And for certain industries, you might say, that’s just too hard. Because they’re already locked into 30 year relationships, and trying to go convince them to buy my technology, versus the incumbent is going to be really hard. So you might have to spend a lot on customer acquisition, you also then have to get multiple components, right? So your manufacturing your supply chain has to be perfect, because if you are screwing up deliveries, if you’re screwing up customer service, if you’re your product has a mistake in it, and then you’re going to piss off your customer base. All of those could be reasons why you fail. So it’s certainly and you have to get the people, I think the most important thing is getting the people to execute on that direct customer direct to consumer model, it’s really hard. So it’s a bit of Go big or take the safer route, which, which I think you just have to look at your team and make a determination, can they get us there? Now, what we found is that you don’t necessarily the two are not necessarily mutually exclusive. But you can create your own brand. Use that to see the market, learn from the market, because you are now facing customers and getting more data on their preferences and what they’d like to see. start establishing your own channel there. But leverage all of that information to then go back to some of the bigger players who are incumbents in the space and say, Well, look, we’ve proven that we can make our own product, we’ve proven that we could reach customers, and customers want our stuff that puts us in a better position than, you know, sitting down with a large, large company and saying, Well, we’re just we’re just a component player, and we’ll never face the customer. Right, all of a sudden, you now have proven you could commercialize. And that volts EU is a whole different layer, whole different level of negotiations, because you’ve proven you can make money. Right? So so that’s kind of the approach that Chuck response taken that bolt has taken, and pros and cons to it. Certainly there are a lot of benefits to adopting that hybrid approach. Right.

And it seems like it kind of an appropriate discussion point in debate when we’re talking about these Old World Industries. Because often, some of these industries are not designed and not ready to accept new tech and or new business models. And they need a little more in terms of proof points or more time to kind of adapt, you brought up ag tech before you know, if you develop some technology that increases crop yields by 10x, you could sell it to all the industrial farmers out there, you can go create your own industrial farm. But creating your own industrial farm is very, very complicated endeavor on multiple different levels. And it’s a more complicated business. So yeah, it’s kind of an interesting debate, I often don’t see entrepreneurs that are doing this, you know, highly vertically integrated approach. But on occasion, you’ll find them and it takes very thoughtful approach in a pretty dynamic team to pull something like that off.

It also takes a lot of money. Being able to raise, it’s a skill all the great entrepreneurs have, which is the ability to tell a story and raise capital, because if you’re gonna go that approach, where you’re going to try to vertically integrate, it just requires a lot of money, you’re gonna have to spend a lot of time and effort building up a team to go after that, that approach to to win the customer. So it really varies, I think for us well, we’ve been very fortunate to have you know, not only have we been in these industries for a long time, before other venture firms have found them to be sexy. You build up some industry knowledge and understanding of how things work, which has been helpful. But secondly, in each sector where we we’ve been active so for example in agriculture, we we have as a strategic investor, Wilbur Ellis there are the second largest distributor of agricultural products in the US number one on the west coast. So you know, if you have a avocado farm or if you have an almond farm, you’re buying your product from Wilbur Ellis. Those salespeople at Wilbur Ellis have 2030 year relationships with the farmers. Right? It’s such a close relationship with the farmers like Hey, Bill, you know, I gotta buy my fertilizer for from you forever, because you’ve just been so we go to church together, we just our kids play together. And so for us to be able to leverage what Wilbur Ellis has, which is industry knowledge and customer relationships, were able to sit with an entrepreneur and say, in this instance, you’re better off going the whole hog, vertical integration strategy. Or in this instance, rather than spend all that money, just strike a partnership with the with the folks who own the customer. Because that will save you a ton of heartache and hundreds of millions of dollars in capital you’d have to raise. And chances are, you wouldn’t be able to displace these relationships anyway. You’re better off partnering and striking some type of a deal. It’s it’s definitely case by case and industry by industry. But fortunately, we have a lot of learnings and relationships to lean on.

Out of curiosity, what percentage of your new investments are serial founders versus first timers?

I think once you find a founder who, who has a history of success, it’s kind of latch onto them and grab them and you’ll find anything, anything they ever do, right? If you’re fortunate enough to have a relationship like that, you treasure it and keep it like gold. So we’re investors in a company called carbon health where the founder, Aaron, Bali, was the founder of Udemy. So he knows how to do it. Right? He’s done it once before. Yeah. And then without an entrepreneur walks in the doors, like a blank check, right? We’ve been very fortunate in that, I think that you just have to be part of the entrepreneurs that matter that entrepreneurs that have learned enough to create a successful company, it’s so hard to just come out of school, for example, and start a company and be successful, we try to find entrepreneurs who are either serial entrepreneurs, or entrepreneurs who have come out of successful factories, right, where they’ve learned, they’ve come out of Google, and they’ve been really great and successful at developing products, or they’ve come out of, you know, another high velocity startup company with a lot of lessons learned, or just failed, right, because you learn a lot in trying and failing, and then taking those lessons learned. And maybe you have a chip on your shoulder now, and going forward with your new effort. And you’re immensely motivated to be successful. So it’s very rare that we back a first time founder with more than a, a seed investment, where we’ll just kind of participate and throw 100 grand at an entrepreneur for a Series A investments, we want to work with people who have been part of startup companies done it once before, may not have run the whole show. But but certainly were involved in key decision making the ups and downs of entrepreneurship. But we want to make sure that they either come from that industry where they’re trying to bring new technology to bear or their partner with somebody who really understands the space.

Got it? Jim, you’ve stated, we talked a bit about material sciences and some other types of technologies and even data science earlier in the show. You’ve also stated that synthetic biology will be the most important enabling technology of our lifetimes. Why?

Well, just it’s a really fascinating area, because you’re now able to do things and develop products that you never thought were possible. And when you look at the advancements to the core technology, to modify the genetic code of an organism, and have that organism, create a product or create a precursor to a product that never existed before, that’s really exciting. You’re able to say, wow, there’s this massively harmful and expensive and difficult process currently in existence, which spits out a product that is the same every single time. And, you know, it’s based on petroleum and lots of iron in the ground and, and just environmentally harmful versus, say, being able to modify a yeast which is going to via fermentation, create a product that is a tweaked version of that commodity that has these novel properties, performs better, better, faster, cheaper, etc. And do that in a way that does not involve all of those things that I discussed with the traditional process. That’s really exciting. And we’re now going to start to see the commercial zation of things that we never thought possible before, but that are going to provide massive benefit across, as we said, material science and chemicals, industrial. But also, that applies to the healthcare arena where synthetic biology has been used to really where people have made a lot of money and said that biology is a manufacturer of drugs, and the precursors create some of these drugs. That’s a really exciting space to be, and to be working with the entrepreneurs that are creating the platforms that will ultimately lead to these new products being developed. That, to me is massively exciting. It’s more exciting to me than creating a novel messaging app, which I mean, honestly, you still need to invest in those things, because to be part of some of them, which are high velocity and big winners, you have to as your obligations as a VC, but we also see this opportunity around this, this theme. That is really exciting. And we fortunately made some good investments in the in the space, and we continue to learn. And we just love hearing from entrepreneurs who see it, who see the opportunity to do some pretty cool things. Super exciting

stuff. Jim, if we could cover any topic here on the program, What topic do you think we should address? And who would you like to hear speak about it?

Well, I think you’ve had a phenomenal list of speakers and folks who have come in, you know, from from the VC side, from the entrepreneur side, it’s the discussions I learned a lot from every every one of these that I’ve listened to, you asked the question about successes and failures. And I thought it might be kind of fun to have a group of entrepreneurs on who could relive some of those experiences and just focus on that, right? Because if you’re an entrepreneur, if you’re a first time entrepreneur going through it alone, and I think entrepreneurs are smart in forming these networks in certain venture funds, like first round, for example, where they have their community is really phenomenal. But for those entrepreneurs who are not part of that community to be able to just hear some other experiences about craziness about dealing with an employee, who would they have to change out or having to live through the process of investors saying, hey, I want a new CEO. I know those experiences, I think are invaluable to entrepreneurs who haven’t necessarily been through that or seen it. And so maybe a session where you have very have some entrepreneurs have lived through some of those crazy experiences, or recapping them and providing some lessons might be beneficial.

It’s great, Jim, what investor has influenced you most pure

Lamont was managing partner at Sequoia was he taught Gordon Moore semiconductor design, which is absolutely fascinating. But I would say the the rigor that he brings, and the care that he takes in being a board member is absolutely fascinating. And I learned a tremendous amount from him. And making sure that I’m not the VC who’s going to go into a board meeting, and be on my laptop, you know, doing emails, but I’m actually going to ask as many questions as possible and challenge the entrepreneur, challenge the entrepreneur not to tell them that they’re doing the wrong thing, but to challenge them and say, Okay, why did you make this decision? Did you look at it this way? Tell me what we could be doing better. asking those provocative questions to make the entrepreneur to help the entrepreneur think and see different sides of the coin. He taught me that. And I’m eternally grateful for that. And I would say Vinod, as well, right Vinod, phenomenal guy willing to take big swings, willing to shoot for the moon. And will, you know, he has a saying, where I will take technical risk or market risk every time the man has a tremendous amount of courage, and I’m grateful to learn from him. I’m also too grateful have been partners with with Brian Kulu. And Joe Lonsdale, I think Joe is just a phenomenally hard worker, Nobody works harder than that guy, and phenomenal networker, and, you know, working alongside him was wonderful. And we still work together on formation aid, you know, the funds, and, you know, my partner, Brian, with his international reach just his network is tremendous. So I guess I’ve just had the opportunity to work alongside great people and learn different things, and hopefully, in my way, also pass along some of the knowledge that I’ve gained from this industry for from being in it for so long.

That’s great. And then finally, what’s the best way for listeners to to connect with you?

The best way to reach out to any VC is to do it through CEOs, that that VC has already backed, right? Because if you think of venture capitalists gets a whole bunch of things over the transom, which we try to look at. But when you’re getting, you know, 100 a week, right? It’s hard to sort through them all, especially when you’re also dealing with legacy companies and working with entrepreneurs that you’ve backed. So whenever a Dan Widmer from both threads kicks a company over to me. I’m like, damn, I have to look at this. I have to look in depth and so I think any VC that you want to reach out to as an entrepreneur, try to find a CEO that that VC has backed work with that CEO to kind of refine the story, get things right and then use that CEO work with that CEO to as assistance right to, to reach out to that VC, because we’ll always will always our CEOs are our lifeblood. Right? So the reason why we’re here and so we ultimately will always, always respect their opinion.

Well, Jim, it’s been a huge pleasure having you on I think it’s refreshing to see somebody you know, run a firm that’s, that’s different. That’s going after Old World Industries and is not just you know, another carbon copy of a of a Silicon Valley venture firm. So, I appreciate you sharing your thesis and going a bit deeper with us today.

Excited to be here, it was a lot of fun. I really enjoyed the conversation.

That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us