This Week in Startups - E1059: The Power of Accelerators E4 Sean O’Sullivan, Managing General Partner of SOSV on running capital intensive accelerators in hardware, life sciences & food science, unique follow-on strategy, cell-based meat going mainstream, China-based vs. US-based accelerators

Episode Date: May 13, 2020

0:42 Jason intros SOSV's Sean O'Sullivan 4:19 How is operating in China during COVID? 5:22 Origin of SOSV, thoughts on in-person accelerators over remote accelerators, why hardware/life-science accelerators need in-person cohorts 9:02 Sean describes SOSV's typical deal terms, unique follow-on strategy & cohort size 14:27 What stage company are SOSV accelerators looking for? Does it vary by industry? 17:58 Sean describes SOSV portfolio company Memphis Meats & how they utilize bioreactors to create cell-based meats 23:06 When will we see plant/cell-based meat being cheaper than the real thing? 29:25 Will the issue of food-availability will be solved in our lifetime? 33:16 Will modern food science revolutionize taste & what is the holy-grail food that will be produced? 42:15 What is being done in the ingredients space? 48:58 How is running an accelerator in China different than running one in the US? 53:39 Embracing hardware, thoughts on Hardware-as-a-Service 1:00:44 Micro-terraforming

This week in startups, the Power of Accelerators series is brought to you by LinkedIn Jobs. A business is only as strong as its people and every hire matters. Go to LinkedIn.com slash power and get a $50 credit towards your first job post. And Embroker. The Embroker Startup Insurance Program helps startups secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off of traditional insurance today atembroker.com slash twist. While you're there, get an extra 10% off using offer code Angel 10. Hey, everybody, welcome to this week in startups.

We're doing a special series, The Power of Accelerators, which an accelerator or an incubator. You may have heard of these things before if you're new to the startup scene. It's typically a 12 or 16-week program. Sometimes you do it 100% in person. Sometimes it's 100% virtual. Most of the time you make one or two visits a week into a space with a bunch of people who are investors and maybe even advisors or mentors. And they help you accelerate the process of starting a company.

So why would anybody do this? Well, most of the accelerators out there in the world give you a little bit of money, somewhere between $25,000 and $150,000 for a little bit of equity. somewhere between 5, 6, 7%, typically. I've seen some do 10%, some of them do 1 or 2%. And they're all over the world. In the 90s, we had incubators. Incubators were slightly different.

Usually it was one person or a team that came up with ideas and then matched management teams to ideas. It never really worked with the exception of an incubator called Idea Lab. But we'll leave that for another episode. And then, Y Combinator and Techstar started over 10 years ago. They each graduate 400 startups a year. They each put in 125 or 150,000 for six or seven percent. And a lot of times this is looked at as going to graduate school or college for venture capitalist and downstream investors.

They look at what's coming out of the accelerators and incubators and take meetings. In other words, it's just like a career fair at Stanford or Harvard or MIT. the companies that are looking for talent to develop over the years to make investment in will look at those places as people who sort through talent and sharpen talent. That's the role of incubators and accelerators. So if you're a fifth-time entrepreneur, probably no need to go. You can fund your project yourself, you fund the building of your team, and you don't need a bunch of blocking and tackling advice.

We have one. It's called the Launch Accelerator. You've heard a Ycombinator. You've heard of tech stars. You may not have heard of today's accelerator. That's because they operate in China and some other places. And they're called SOSV. And they are a global accelerator. And the managing general partner, Sean O'Sullivan, and he's with us today from Princeton, New Jersey.

This is being taped during the coronavirus quarantine. So, Sean, I hope everybody is safe and sound with you. Well, most people are safe and sound. at home, we have a couple of people that have been affected, mostly in our startups, by, you know, being hospitalized or, you know, getting through it. No one, no one. So you've had people in your portfolio business partners who have come down with it and been hospitalized. Yeah, my, one of my partners, Brad Higgins, he was a partner with us in SSV-1. He's a little older and he's in 60s and he was hospitalized. He's in Westchester, or no, he's in Connecticut, you know, just in the New York City

area. And he was in the ICU, but he's been just released the last two days. So he's looking good. Well, that's fantastic. Yeah. And you've operated in China. What's the, has there? Well, about half, about half of our staff is in China. Yeah. How have they been impacted? And what's the, what's the, well, of course. Yeah, what's the feedback there? Yeah, of course, it's much less of an issue in China than in the U.S. because they had 10 times less people infected, you know, by the coronavirus. But they do, you know, they do see, you know, a huge lockdown on their capabilities to work and to move around. And that continues even many months past the peak.

the apex there was, you know, back in late, was it late January? Or is it very first week or two of February? I can't remember. But, you know, months later, they're still really locked down. And that's one of the things I think in the U.S. we're not yet aware of how much longer we're going to be locked down. Yeah. Well, I'm glad your partner's okay. And it seems like we're getting through it slowly, but shortly, surely. Tell me a little bit about the accelerator. You graduated your first class in China in 2010. I know you've been going to China since the 80s or 90s working on software companies. Tell me a little bit about the origin of the SOSV. Am I pronouncing you correctly? SOSV? Yeah, SOSV. That's the name of the venture capital firm. Got it.

And then we have a different accelerator families all underneath the SOSV family. What does SOSV stand for? It doesn't really stand for anything. It used to be SOS Ventures. My initials are SOS. Got it was, I started, Jason, I think in a similar way to you as a sort of a super angel, you know, investing in checks of 50 or $100,000 or $500,000 checks into startups after my first company went public. And then I then progressed to creating this, you know, copying effectively, the accelerator model. I do date it all the way back to the IDEA Lab, you know, sort of as a, as the grandfather. of all these accelerators. But the model that we were sort of modeled after was more the

tech stars model where you have a cohort of people in a community that is working together right in one physical space. So explain that decision because why combinator's always been very firm about, hey, we're not going to house everybody. We think that that slows them down. It creates this like social dynamic. And that's not good. We want people to go back to work and stay home. And then you've chosen tech stars chosen in some cases to have everybody in a co-working space where, and the argument is, they can flourish, talk to each other.

And that socialization doesn't result in distraction. It results in collaboration and learning. That's right. How do you execute this with that? And what do you think of why Combinator's position on this? Well, I mean, certainly economically. very easy for them to make that decision. And I think that's a, you know, it's a much less costly way of doing business, especially if you're doing anything like what we do as well. I mean, you know, for what we do at

SOS fee, we run the world's largest and most successful hardware accelerators, life science accelerators and, you know, disruptive sort of food accelerators. And in China and in Asia, we run the software accelerators, the most popular software accelerators in Asia. So, but in terms of the verticals that we concentrate on, the actual physical need is quite concrete. You know, if you have a life sciences accelerator, it makes perfect sense to be sharing that lab space as well as just trying to. So there's some share resourcing that's different in terms of life science or hardware, where

you might need fabrication machines. And Y Combinator doesn't have to pay for, if they have 200 plus companies per cohort, and you had two or three desks each. You're talking about 500, 600 desks facility at 150 square feet of person. I mean, this becomes a ginormous space. Yeah. So, I mean, they can basically have their events as they do. It's kind of like a banquet hall.

They have, I guess, a Wednesday night dinner or something. They have some super famous person who comes in and gives a speech. But it's not that same sense of community that you get if it's a 40 or 50 person sort of cohort that's all working together with some help. you know, with all the mentors and that. SOSV has a very different model than most accelerators because we do, like, you know, we have electrical engineers. If it's a hardware thing, we have electrical engineers and design for manufacturing engineers

and, you know, supply. So let's start with that. What are the verticals that you are focused on? The two biggest ones are life sciences and hardware. And those both require specific hardware to be available. What's the standard deal? Is there a standard deal? put $100,000 in for 5, 6%.

Well, actually, it was interesting when you said that. Like, most of the deals, like, if you look at some of the popular deals, they get 5% or 6% for the common for what's considered their sort of, you know, their intellectual contribution or their networking capabilities or their fundraising capabilities. And then they get, say, that $100,000 or $150,000 note is a convertible note, which then converse at whatever the CLN then converts to later. So if you look at, you know, some popular deal would be say like 6% for common, and then $100,000 at a presumed 10 million cap.

If you end up raising it a 3 million cap, then that becomes whatever, 3%. So actually even that 6% is not really a 7% deal, which is the 7% deal that you hear about, is presuming that all of the startups that come out will get a, $10 million valuation, which they never really did. But, you know, there was always the prospect that you would. So that's why they said that because the safe or whatever was set at a 10 million cap theoretically. But then when you actually get funded, it ends up turning out to be a little bit more than that. So yeah, so we have traditionally, you know, 6% sort of common. And then we have a note

just like the others do. But the note is a little bit more. And so we give the the companies, typically in the hardware space, we give them $250,000. And then we give in the life science as a similar amount. Another difference, I guess, is that we also are very active in following on with our companies. And so it's very, very typical for us to just put the first check is actually only about 25% of the capital that we deploy into all of our accelerated companies. So we save most of the money for follow-on checks, which range from a

couple hundred thousand to a million and a half or even two million dollars. How many companies do you have in a cohort and how many cohorts do you run a year for each of those accelerator programs? It's great. So we run effectively 15 cohorts a year, 10 companies in a cohort. We find the smaller size enables the community to really engage with each other and they become lifelong resources to each other. I mean, obviously there's a larger benefit effect of being in the hacks, hardware community because there's all the different factories, hundreds of factories and whatnot that we work with and the suppliers and the supply chain issues, et cetera. And that goes, sort of crosses the span of all the cohorts. But the biggest relationships that people will rely

in for the rest of their lives are the 40 other, 50 other people that are working together and really are going through the same struggles and the same, the same sort of dynamic. of raising their first rounds, you know, you know, getting their first commercial deals, working with Fortune 500 companies. And that group of people is a built-in sort of peer consulting network. And I'm sure you find the same with your accelerator. All right. When we get back from this quick break, I want to understand the criteria, the Goldilog zone, as we like to call it internally. What's the perfect stage of a startup to join your accelerators at SOSV? When we get back on this weekend startups are special

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Plus, if you need to hire for health care or essential services, you can post your job for LinkedIn.com slash power for $50 off your first job post. That's right, LinkedIn.com slash power, because this is the power of accelerator series. Again, LinkedIn.com slash power terms and conditions, of course, apply because they're giving you 50 bucks. Okay, let's get back. This is amazing episode. All right, Toronto Sullivan is with us. He is the founder and managing general partner of SOSV. Get it, Toronto Sullivan, Ventures. And he has a number of, of different accelerators. One is called FoodX and the other one is called HACS, the hardware accelerator and Food-Dash-X. Where can people find these on the web? They can find everything under sOSV.com.

SOSV.com, nice four-letter domain. Yeah. Yeah. And they can also go to the individual accelerators like hacks.co or Indybio.com or Indybio.com is the biotech. Life sciences. Life sciences one. And so what is the stage of company you're looking for? You're looking for people, with ideas, business plans, prototypes, products in market, customers. What's the scale here? Yeah, it actually varies by the accelerator. So in food, generally we have companies that already have the prototypes and perhaps are even shipping into the marketplace.

But in the, you know, into groceries, chains and things like that, if they're an actual food company, if they're a food technology company, they, they would be at a little earlier stage where maybe they just have a prototype or a few customers but need to scale. And then for the hardware accelerators, we would expect them to have prototypes of working devices, but we'd expect them to be at a point where their industrial design isn't done. Their works like may not really be fully done. So they're not even at Kickstarter level yet.

They don't even have a product. Definitely not. As a matter of fact, actually, for our teams, we have had more teams that have gone through Kickstarter than any other accelerator program in the world. I think 8% of all the Kickstarter projects of all time that grossed more than a million dollars came out of that HACS program by itself. Wow. So, yeah, it's been a super successful way of non-deluded funding for our consumer companies. And then what about, so that's FoodEx and Hacks. And then the third one is IndyBio is the life sciences one. And so IndyBio is, you know, doing a lot of work now with the COVID-19 crisis in, you know, a whole bunch of different solutions, testing solutions, rapid diagnostics, antibody treatments and vaccines, et cetera.

So we have probably two dozen companies, not just IndyBio companies, but two dozen or so companies that are very, very active in this period trying to put down the virus. But the other, you know, the main thing that IndyBio has been famous for, you know, to date, is, for example, all the cellular agriculture industry, the companies like Memphis Meets or Perfect Day or Jell Tour. These are companies that are receiving rounds of hundreds of millions of dollars. Memphis Meats just closed on $175 million, I think it was, in the last quarter of capital as they expand their meat without animals. But it is animal meat. It's just grown in bioreactors. And the same thing with Perfect Day, producing milk without cows, using that for ice cream and other things. But again, not like a nut milk or a soy milk or anything.

actually cow milk, but without the cow. Those kinds of things. So let's talk about food for a second. I think it's a great jumping off point. Memphis Meets is one of the companies making mock meat or meat. I guess there's two different categories here. You have meat that's made from plants and then meats that's made in a bioreactor. Explain for a lay person, what's the difference in where Memphis Meets falls.

And where did they go through, Indy Bio or FoodEx? Indy Bio. Got it. So the deeper tech life science ones that actually have to grow things in bioreactors and do, you know, genetic engineering work, those would go through Indypio. So the way that it works in terms of breaking out the difference is, number one, you have with a case of a Memphis meats, that's a cellular agriculture field. And most of our companies are cellular agriculture. So what is that? If you were like a neophyte like me, how would you? Yeah, no, I understand. So the Beyond Meat is basically like a veggie burger, really great tasting veggie burgers. I love the company. I love the product. It has a long run ahead of it. It is a really great company.

But it's basically sorry chopped up. Yeah. And it's got all sorts of, you know, formulations. This processed vegetables that make it take taste like meat. And it's a great product. And the same thing is true with impossible. foods with their impossible burger. They throw in a little bit of genetic engineering work. They had this protein called heem that they modify, they basically take that from and they produce that to create the blood-like element of the meat. I'm not, I, I, I, those two are both great companies, but cellular agriculture goes beyond beyond meat and it's more impossible than the impossible burger. The cellular agriculture work actually starts at the cell and is actually creating, you know, from the original cow stem cell or the fish stem cell or the, you know, the chicken, you know, for, for eggs. It's actually finding the proteins that need to be produced in the case of things where you're

just taking output from an animal. Like if you look at milk without a cow, you're not actually using the cells of the cow, but you're using the output of the cells of the cow. So we then take those genes that produce those casein and weigh proteins and the things that are necessary to make milk, and they produce those in bioreactors. There's different kinds. So that's for, that's one type of cellular agriculture. And another type of cellular agriculture is where you're actually harvesting the cells themselves, the actual meat. And then you're producing that at large scale, you know, and all. And is that done in a bioreactor as well when you take the meat sample Yeah.

And then make more? It's a different kind of bioreactor, but yeah. And does that require the slaughtering of the animal or take, and it's kind of graphic, but taking a sample of a cow where do you kill one cow and make like a hundred times? Yeah, yeah. No animals are harmed in this whole process. No animals are killed. You take a sample of the meat from a fish and then duplicating it, essentially replicating it.

You can take, even in your own body, you can create a clone of yourself, but just taking a fat cell, right, right? and just take that out. There's no, you don't have to kill any animals. And there's no brain attached to the animal as it's producing these products. I'm curious what's the, has the, and this is a total aside, but people like the asides on the podcast, has the, the petas of the world, the people who want to protect animals, who feel great empathy for the animals in our factory?

system, have they pass their judgment on the no brain meat cells being replicated in a petri dish and if that is cruel and unusual and horrible? Where do they stand on all this? Are they...

Well, they embrace it as we all are. And generally, you know, vegans and other people that are in it for the ethical purpose of not slaughtering life in order to feed ourselves. They embrace this.

They may not, some people may not choose to eat that meat, but it is vegan meat because it doesn't actually, even though it's the same meat that you would be eating, you know, in a McDonald's hamburger or whatever, it's done without the sacrifice of animal life. So if you objected based on the slaughter of animals, you might accept this meat. if you are against eating meat itself for whatever health reasons, then you're still not going to embrace this, but you might not be protesting outside of Memphis Meets Office or possible burger, which has some of this. And the other people obviously that are affected by this are the climate change people. And they're, of course, hugely a fan of this. Like all the climate change people should be protesting outside the offices of every meat producer on the planet. Why is the impossible burger so much more expensive than a hamburger today?

And when will we have the flip of an impossible burger, a Memphis Meat burger, etc., being cheaper than the actual real thing? Yeah. So, like, if you look at the cost of producing these things, it's actually cheaper. That's why the profitability of, I think, beyond meat is much better than a traditional hamburger manufacturer using the beef process. It does, they're charging a premium for it because they can because it's the beginning of a marketplace and people like to charge a premium for these things.

But the actual cost of good souls is less because it is cheaper to produce the protein from vegetables than it is to produce it from cows. And it takes much less energy as well to produce one calorie of energy. Wait a second. This makes no sense to me. Beyond meat burgers, I'm just reading here from a Bank of America and analysis is from the Washington Post said, Beyond Meat Burgers are $12 per pound compared to $4 per pound for ground regular beef patties. So that is a three X difference. But what you're saying is,

they're just price gouged. They're just taking a massive margin. And it actually is cheaper than beef patties. Well, I think you have software companies that are on your program occasionally, right? So I would say that you can charge more than it costs. And in the case of software in particular, the cost of goods sold is very low. So you would argue, I guess, using that same argument that all software companies are price gouging. And I suppose you'd be right. Let me put aside that language, which I guess is a little bit biased and leading. But wouldn't the better model be should just be comparable price or cheaper if it is in fact cheaper? Like why take the margin when you could scale? Is it just too hard to scale these businesses right now? They are scaling.

And it does, it's true. It does take hundreds of millions of dollars of plant to scale. So that's the reason. They're sort of saving up and getting profitable in order to make the capital cheap enough so that they can continue to scale at the rate that they've been scaling. So the infrastructure cost has not been built out, but you're saying if theoretically the infrastructure was built out, you'd now be competitive or less expensive. Are the governments engaging with these companies with an eye towards reducing global warming at because it does seem like if you want to affect global warming, you could work on getting

people discounts and rebates for their Tesla, which I think have mostly been deprecated by now, but they did have an impact. Why are the governments not subsidizing this or making it otherwise more profitable or helping with the infrastructure in order to reduce global warming? It seems like an easier thing to do, or perhaps the easiest thing in the world to do. Yeah, no, you're absolutely right. And I think it's coming that way. But, you know, it's still very early. I mean, these are these industries, like for example, the Memphis meets thing, the first burger that they produced it at Indy Bio in San Francisco, I think it was like $80,000 a pound or something, which was still an improvement over the theoretical European experiment, which costs like $240,000 a pound. But still, then it was eight, it took him a year to get down to $8,000 a pound. And then it was, it was, another year to get down to 800 and they're still at you know I think their their their goal is to be at eight dollars a pound and in Costco's and I'm not sure what the time frame is but it's pretty it's pretty soon yeah it's pretty amazing how much this has been embraced what I want to ask you because

I'm really obsessed with this food concept is when we get back from this quick break I want you to explain to me if you believe that world hunger and food is going to be a problem that is solved in our lifetime because of this technology. We get back on the swing of startups. I want to take a moment and tell you about the importance of insurance for your startup. And I am an expert at this because I've been doing it for 30 years. I had a magazine. I had a search engine.

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And get an extra 10% off by using the offer code, Joel 10. Right. You may have never heard of SOSV. I wasn't super familiar with it. But producer Nick found Toronto Sullivan based on all these incredible companies that have come out of his accelerators, which are based in largely in China. The three operate? Well, no, we have some in China. We have our indie bios based mostly in the U.S., right? So San Francisco and now New York. Hax has an office in San Francisco, but also offices in Tokyo, in Shenjin, and Xi'an, China. And so, yeah, we're kind of scattered globally. With good reason.

When we went to the break, I'm curious, you know, based on what you know running an accelerator and looking at food, there's been this big concern of, you know, a bunch of societies, China comes to mind, are now moving to more concerns. of meat, specifically cows, and there's a concern, hey, will we be able to keep up with this? What's it going to do for global warming? From where you sit, do you think food as an issue in the world, healthy food being available to everybody, is going to be solved in our lifetime? Absolutely. Yeah, absolutely.

So, I mean, it would have taken if the people in China or India had continued. continued on the path of consuming just as much meat per capita as we do, and everybody kind of likes doing that in the West. It would have taken four planet Earths to support the population of the world eating the same level of meat as we do in Europe and the United States. So we don't have the four planet Earth at the moment. I keep watching all these science fiction. Yeah, we might terraform. We could do some primaeaeaeus. That's one option. Yeah, so that's one option. Sounds pretty costly. Yeah, it's a costly thing. We're actually looking at lots of other things. We're growing algae in the ocean, and we have other projects that are doing that as well.

Okay, I'm going to put a pin in that one, but that we're going back to that one, terraforming. Yeah, well, not terraforming. I know, but speaking of terraforming, it is in a way. Yes, yes, yes. It's taking advantage. We're not. Absolutely, absolutely. And that's been going on for a little while here with all these salmon farms and all these

ponds and all these other sort of ways that they're harvesting at very different rates than you would have imagined previously or was ever possible previously. But at any rate, in terms of the production of this, you can produce at least nine times as much using bioreactors rather than, you know, traditional animal farming, mass animal farming. So we actually can cover these issues even just on that front. And then the other option is I think that plant-based meats are going to continue to be a very viable option. And they're much better for the environment than the actual animal industry.

Let me phrase the question this way as well. So you're really confident we're not going to have any kind of a food shortage or all these food problems will be solved by this technology. I'm in agreement. Ten years ago, state of the art was that frozen garden burger that tasted horrible. Exactly. It was awful. Remember that?

The frozen one in the plastic bag, you buy 10 of them was the most disgusting thing you could ever eat. Like literally the bun and the cheese was the best part of the burger in those situations. But people still ate them, like sadistic, insane people, would eat those garden burgers. It felt so bad for them. And now we have bloody impossible burgers in Memphis meetings and beyond means that if you do it side by side, I think half the people would get fooled. You know, if they weren't expecting it, you could literally swap it out. 10 years from now and 20 years from now, what is the bull case on what those products, forget about society and Pete and all that for a second, the taste, what a gourmand, a foodie is going

to experience with those products. What would those products look like in 10 to 20 years? Well, it's very, very funny because you can actually engineer a much better product once you start engineering it. It's just like if you were, to, for example, have a tree fall across a river and, you know, say, okay, that's a good bridge. Or if you could engineer a bridge across a river, you know, with concrete and steel and things. You know, actually, you can produce better products by engineering it a little bit. So we found, for example, even with Clara Foods, which is the one, the company that produces all these egg whites without chickens, that you can produce.

What's the name of that company? Clara Foods. Clarra. Clara. C-L-A. They are selling to, as an ingredient supplier to to through producers. Yeah. I remember them. Yeah. So they are, you know, so they're an ingredients company. And we have a number of other companies, Jel-Tor, which produces human collagen instead of, you know, using the collagen and jello, you know, gelatin-style products from animals. There's a number of other technologies. Wait, wait, where does the gelatin come from? Well, gelatin is actually just cooked collagen.

I don't know if you knew that or not. Yeah, no, I did, yeah. Yeah, and so gelatin is traditionally from like animal bonds, right? Right. You know, so. And now there's a company making that based on what? Based off of just, you know, producing it in bioreactors. So anything that can be produced by the human body or animal bodies or by nature,

plants can in fact be produced in viral. Are they producing it for human gelatin then or animal gelatin? For human collagen. You want human you want human collagen if you're going to be doing that for makeup and things like that. So previously that would be cannibalism. We didn't actually have that in the world. No, you did not harvest people for that. We did not. No, I mean, I'm just pausing for a second to even consider how amazing and outlandish this is right now. There are things you cannot eat a human, we would never consider that. Cannibalism is kind of out of favor. But in this situation, you could actually take collagen from humans and manufacture it, and we could actually have the good stuff that we actually need. This is not the first time this has been done.

Oh, really? If you look back to the 1980s, my mom is a diabetic, was a diabetic. She's passed away. Oh, yeah, I know where you're going with that. Yeah, before, you know, with insulin, it was coming out of pigs and cows and it would get infected and, you know, and people would die from using it. It would be put in nice little bottles on the shelf, but it was really just coming out of slaughterhouses and, you know, for harvesting the, harvesting the insulin from the animals. So what instead, you know, what Genentec did is they created, you know, a bioreactor. It cost them hundreds and hundreds of millions of dollars to do that back in the day. and within a few years, they completely replace the entire insulin market from animals.

And that's exactly what's going to happen in all of these other industries as well. It's just going to take a little time. And so the quality of this synthetics goes way up because they're much easier to control in terms of food supply. You don't have the ability of bacteria. Yeah. I mean, if you look at what happens in a cow, I mean, there's a certain amount of feces that are allowed in, you know, the fecal matter.

it's allowed when this cow is ground up. And up to that amount, it's okay. And they can just sell it. But the problem with all that fecal matter and all that bacteria that's in that fecal matter is that that's why meat goes bad so quickly. And that's why people get sick for meat, you know, people. That's why, exactly. Death meal from it.

Yeah. If you grow it in a lab and you don't require the bacteria to be there, then you're in great shape. So in 10 to 20 years, you're saying it's going to be massively safer. But what is a holy grail of? of a product that you think you'll see come into the accelerator that previously has not been able to be made. So everybody's obsessed with burgers and maybe some, you know, General So's chicken.

Yeah. You know, pretty easy to fake the Beyond Meat Chicken when you're breading it and putting sugar sauce on it, right? Kind of takes over. But tell me what's, what are the holy grails of meat production? Because a burger also ground up, you're getting a little bit of mulligan there because it's a ground up thing. You got a lot of cheese.

You got a lot of burger, sauces, et cetera. Yeah, I think it goes beyond, I think it goes beyond just replacements for our existing food supply. I think it goes into designing new food. Really? Yeah. I mean, even the stuff that Clara Foods is doing is they're creating much richer sort of, you know, what's that cream that you get when you whip an egg, you know. Oh, yeah, you're talking when you make the peaks, meringue and stuff like that. Oh, yeah, meringue.

They make some unbelievable. believably great meringue. And you can have fluffier milk than you could ever have before. You know, you can have richer, fattier milk if you wanted. So like these are things that artisan consumers or artisan manufacturers of products are going to look to to produce, you know, finer and better products in the future. But but beyond that, I mean, we're looking at the next generation, right? So we're, we're looking. What's the craziest thing you've seen? What was the craziest pictures or whether you funded it or not? Well, you know, screw the name of it, but one that was really far out there, maybe even unfundable

in your mind. No, we fund things that are completely crazy every couple of... You fund things that are unfundable is what you're about to say, Sean. We fund the unfundable things, too. It's like, we're funding things that other people consider underfundable. What we, what we, exactly, right? At the time. Our motto at SOSV is making the impossible inevitable, right? So just taking something which would have been thought is totally crazy and making it absolutely a necessity for society. So what I'll give you one example in a non-meat way is just, you know, creating, you know, how you have people who take the blood out of a human and then give it to another human, blood banks and things like that. Yeah, blood boys. I think there was a whole Silicon Valley theme of blood boys. Yes, we get it.

Transfusing blood is there's this concept that if you get blood transfusions, this could be an incredibly accretive thing for people who are dying and decaying if young people give them their blood. Yeah. So we just have. had a company, Membio, that just graduated and received several million dollars. That's just producing those without actually requiring a human to do it. No blood boy necessary. No blood boy necessary. But this is mostly for surgery, right? This is mostly for actual medical use, right?

Yeah. So this is valid use. It's not for the, you know, the rich billionaires of the world. Yeah. For me, I'm going to know that you're doing your job when you can get me some Peking duck. that rivals the Peking Duck at like Ma 32 in Hong Kong or Hakasan here in San Francisco. If you can get that level of Peking duck,

how far before somebody can make a crispy skin Peking duck like multi-layered texture meat like that? Is that 10, 20 years out? What do you think? I think it could be. You know, I think the first of this is going to be more the commodity replacement, right? The 99% of the market or the 95% of the market

that people are so boring. I'm waiting for the wagu. Yeah, yeah. I think there'll be some people that will be going up for that artist and stuff. I mean, we have people that make, you know, cheeses, right? So those are going to the next level. Are you constantly... You know, I had this dia cheese.

Didn't like it. No, because you know what? We'd rather have no cheese. Well, no. And I love cheese. Because if they can't replicate the whey proteins and the case in proteins, they're not going to get that stretchiness. that a milk-based cheese has. And we have companies that have figured all that out, right?

So they're working on the next generation of cheeses and they are getting in the market. So we're always a few years ahead. Incredible. You know, I always, when I get the omelet, they say you want cheese. Of course I want cheese and I go for the cheddar blue cheese combo. But I was just thinking out loud here, man, somebody's going to make, instead of mixing cheddar and blue cheese,

they're going to make that into one thing. We're going to make these hybrid designer cheeses that are going to be bonkers. And that's what I'm looking for. I'm not in this for like saving money and feeding the world. Like I know that's going to get done for me. It's like, okay, great. Noble, you're going to get it done. It's kind of like a checkbox for me.

That's a natural thing that occurs. But I'm looking for one of these companies to make me a Kobe, Kobe, Wagu, Miyazaki, that's better than what I'm getting right now. Yeah. Yeah. Well, I'm glad for you. I show me the O-Toro that beats O-Toro. That's what I want.

Okay. Well, I'm less of a foodie. I think we have to address our food supplies in terms of the health of our food supply and in terms of what it's doing to our population. Yeah, that's true. I know you're going to get that done. We're working on that stuff. We're working on making sure that the world has a supply, you know, and that the climate

change issues are dealt with at the same time. This is another silly one. But I'm curious if, in the ingredients, you've seen people working on ingredients that would take an ingredient that was typically causing obesity and not only not have it cause obesity. Like obviously we've had sugar substitutes and stevia and sacchar and all this other stuff. But what if there were things that were traditionally harmful that could not only be neutralized but could become healthy?

So as a thought experiment, a donut or a slice of pizza that was as good as eating a salad. Are there people working on ingredients that could have that level of promise? And I'm asking for a friend, obviously. You want to eat your donuts and get thin at the same time. I mean, I just love a good bear claw. You know, you ever have a bear claw? It's like one and a half donuts. I know it's really great.

Apple stuff in the middle. Apple fritter, you know, it's apple. And I technically don't know the difference between apple fritter and a bear claw because I point to the same thing and some people call them different things. But, you know, like the one and a half size donuts, one of those going to be healthy food. Do you see that? the ingredients that are shifting to be anti-diabetic? Because that is a huge risk factor right now.

Yeah, on the ingredient level, there are a number of things that are being done. We have a company that has replaced the, you know, that actually has a protein that locks into the tongue receptors. And then everything that you taste at that point and afterward is just immediately rich and sugary and really sensual, you know, so it's a, it's something that came from some coffee bean or something in Kenya. It is a natural thing, but it just needs to be manufactured and made stable and self-stable. So we have a company that's working on that technology.

So wait, wait, wait, it primes your tongue and your palate to make what comes next rich or tasting. Now we're talking. You just put it in with the food and you can take us, you know, those kombuchas and things like that. A lot of people don't like them because, you know, they taste like sour. It tastes like the bloodbats. Yeah, they say sour or they take bad or whatever. Yeah. You just put a little with a little fruit in it. Yeah. Yeah, you put a little of this stuff in there and it's the richest, most satisfying thing. It makes terrible stuff taste great, you know. I think it'll be useful for medicines as well. But the thing that you were asking about, I think that is also relevant is if can you take stuff that will absorb the other sugars

and the other things that are in our diet. And we had a company out of the last batch. I'm sorry, I'm not remembering all the names of my great companies. That's okay. I have that same experience that occurs. You have too many. It's terrible. It's like not remembering one of your kids' names.

It's like, hey, here's Susan, here's Bobby, and the third one. But like we're basically this product actually puts, you know, it's a fiber that is put into the food. And then it will, it will effectively. lodge, you know, it comes through your gut and it sort of soaks up all the sugar as that fiber sort of expands and soaks up all the sugar and pulls it through. So what you are, you know, it drags out the sort of the bad carbohydrates from your body as it's going through. So basically, you can imagine there being an ice cream that you eat and it's incredibly sweet and delicious,

it has real sugar in it, but it's mitigated as a mitigation ingredient that then processes the sugar without adding fat to your body? Well, yeah, I think you can do that in two ways. The ice cream doesn't need to have that kind of sugar anyway. Sure. But the idea is that ice cream, you could eat that ice cream, and then it could also clean up all the excess carbohydrates and sugar from the meal that you just ingested.

So literally I just pound a pepperoni pizza, and then I hit it with a Hagenas washer to counter it. I mean, this is, I have been spending my life on the wrong things, clearly. Thank the word that you're out there doing God's work. Yeah, well, thank you. I mean, we at SSV, you know, we're very much focused on hardware, physical issues, these kinds of issues. Yeah, hard. And the science-based stuff, you know, that is less, you know, I mean, certainly like the hardware, for example, all these sensing devices and whatnot, they all have AI built into them because sensors are naturally, you know, made for AI effectively with a huge data

streams that they produce that machine learning is geared towards optimizing. So it looks like the Atlantic is calling this miracle, this miracle, miracle berry, Miraclein. Miraclelex, Miraclex, Miraclex is the name of the company. Miraculex is the name of the company. And miraculin is the name of the protein. Maraculine is the name of the protein. And it comes from that Barry.

Thank you for, you must have had a researcher who's. Yeah, I got researchers live. You know what I do is I just pretend sometimes during the show that I'm like, oh, yeah, I just remembered. like this and then people are like wow Jason's got an encyclopedic knowledge and literally I've got two producers dropping shit into the Slack room while I'm doing

the show and but sometimes the guests get thrown off. I'm like wow you jkow really deep knowledge base across so many topics I didn't do that this time we should have who's funding all this? Who are your LPs and when you have your demo day or people graduate are you bringing them

to Chinese investors American investors and how does that work? Well you know Like our LPs are actually just American LPs. So we have, you know, 700 million assets under management. We have 277 was the fund that just closed in December. And these are American LPs you said? I mean, it's mostly Americans.

Some Japanese, some, I mean, there's a tiny fraction of Chinese ones. We really haven't tapped the Chinese market so much. Maybe, I don't know, I don't know, 2% or something like that. Pretty immaterial, 3%. of Chinese investors. The Japanese are more progressive on a lot of these issues. But I'd say, and there's some European. It's probably 10 or 15% European family offices and institutions.

How is doing business in China and running the accelerator in China different than running it in San Francisco? You know, there's less, we don't understand, I think, here in the U.S., how China has a free market but is not a democracy. It's something else. So how does China work in having this allowing capitalism while not being a democracy? And then how do they look at an American coming in there and running an accelerator? And you've been there for a while. So how has that changed since, I don't know, the 12 years or so you've been running an accelerator in Shenzhen in other places in China. Yeah. Yeah, yeah. We started in Dalian and now we're in Shanghai. Dow yen is the other place?

Dalien. Dalien, I'm pronouncing correctly. Big, I forget what Liam means. But anyway, so yeah, it's up in the north. It's kind of near North Korea. Factory town? It's more of an IT town. It's kind of like the Bangalore of...

Oh, IT, like information technology. Got it, yeah. Yeah, yeah, no, they, there's 500, all the Fortune 500 companies have hundreds of locations there that they do their outsourcing. In China, Dalian has been sort of like the Bangalore, And of Japan as well. A lot of the Japanese businesses go to Dalian and Russian businesses as well.

But we started there, but we were now in Shanghai and Shenzhen. Did they invite you there? Or did you just show up and say, hey, I'm here. I want to build an accelerator because I know they were courting business over the last 20 years trying to get American companies to set up shop. I'm assuming they courted you. No. I went there because I was running a different company at this. time that was doing ride sharing and things like that. And that we set up an operation, a division

of our company in China, in Dalian. And then when I was in Dalian, I decided at that point, I was also one of the LPs behind Tech Stars. When Tech Stars expanded from Boulder to Boston, I was one of the founding LPs and Tech Stars. And I thought, you know what, like this would be really great to do something in a completely different marketplace with a completely different software marketplace because, of course, behind the great firewall is completely different way that software works in China. And so we started China Accelerator in Dalian originally. And then when we had some hardware companies applying to China Accelerator because there's a lot of hardware in China, we said, well, it doesn't make any sense to have a hardware accelerator and

software accelerator in the same thing because there's totally different industries, totally different investors, totally different, everything. So we specialize, you know, we specialize by going to Shenjin for the hardware accelerator, which we called hacks. We did that in 2012. And then we moved the software. So how is doing business? They're different. I'm curious. If at all. So, well, it is, it's pretty, it's pretty open. It's not as bad as you think. You can't do it. Like, if you have a company, there's certain industries you can't sell into because, you know, media, you can't do anything in sort of public space. Obviously, if you have anything like a search engine, they'll shut you down.

You know, they like to control all the information. So Google had had no chance of ever being successful in China. And frankly, Facebook has challenges. Facebook doesn't operate there at all. I mean, Zuckerberg's been desperately trying to convince them to let him in. And they see what's happening with Facebook around the world. And they're like, yeah, no. that we do not want to hand you any influence.

Sorry, Zuckerberg. Right. And that way you have to respect the Chinese. I mean, honestly, like, you're looking at what the oversized influence Zuckerberg has here. And they're just like, yeah, no. Absolutely not. If you think about Google and Facebook, I mean, they are about sort of access to information or sharing information amongst people.

And China needs to control all that. Yeah. So, you know, from their point of view as a dictator, not a dictatorship, but what do you call it? Authoritarian. Authoritarian. Yeah. Thank you. So if you are selling to the Chinese government, that's where you'll hit sort of bad issues, like corruption issues and things like that.

But if you're not, then you don't have to worry about it. You know, the businesses are free to operate pretty well. You just need to have enough Chinese speaking staff or people, you know, with partners. We have a couple of partners that speak Chinese at SOSV, and that helps. as well. Let's talk, Sean, about hardware. In America, I send a hardware company to a VC. They say we don't do hardware. Hardware too hard. You're right. Embraced hardware. Yeah. Or why the VCs here hate hardware so much? And then why do you love it so much that you would start an accelerator? Are you a masochist? Or are you just? Yeah. No, like in the old days, hardware was even harder than it is today. Now there's

so many frameworks and the cost has come down so much. I think the reason why Silicon Valley VCs stopped backing hardware companies is every hardware company would cost them, you know, $70 million to spin up, you know. And in our case, we're spinning up hardware companies, you know, getting some non-delusive revenue from a million dollar or three or four million dollar Kickstarter projects in the consumer companies. And they're able to get running and financed for, you know, in the small millions, if even that, you know, sometimes we have companies that are getting to be break-even profitable with just one or two million in capital. Normally, hardware costs a lot more. And it takes a little bit longer time. But with the kind of, you know, people pay for

hardware and they don't have a problem paying for hardware. Yeah, they love paying for hardware. The problem is the race to the bottom. So how do you mitigate against that race to the bottom. You know, somebody comes out with AirPods. There's so many competitors to AirPods. Now you can buy $30 AirPods or somebody comes out with. Yeah.

So I think it's when you design your hardware, you have to build a community around it and you have to build the web services into your hardware. And that's where the benefit comes. So like if you're looking at, you know, a hardware device that, for example,

you know, can improve your tennis or something like that. Yeah. Whereas feeding you back. I mean, there's a lot, the software and the updates and the, the, letting your friends know that, you know, how much you've played today or whatever, when you're, when you're hitting that intelligent tennis racket around, those are things that are interesting to people who play tennis.

And for those people that are interested in, you know, sharing their, you know, competing, you know, with some other connected services like running or anything else, you have hardware that appeals to those markets. where it comes in for, you know, industry is when you have internet connected devices that are measuring, you know, patients vital data so that they can discover that this set of conditions and the metabolites in the blood leads to cancer of this type or leads to, you know, some other metabolic problem of another type. And so when the hardware is actually serving as a connected service, then the value of the hardware is massive. So it has to be software and hardware together in a new form factor. And then the value to the customer is huge. And when you look at the relationship.

The copyability. Let me suggest there's an issue with going to China and having everyone. and copy your hardware because that has happened. Sure. And that happens. And actually that even happens in the United States. But the way that you thrive as a hardware company is building a value proposition that says, okay, we're going to actually build in the web services and the software, you know, the community

as part of this hardware. And when you do that. Yeah, I mean, if you look at Fitbit, the Fitbit community and software is so good. I still wear a Fitbit to this day because I like competing with my friends. And I could get any kind of like generic pedometer or whatever they call them and, you know, pay five bucks for it or ten bucks for it. But I want the $150 Fitbit that they break too often. But yeah, yeah.

That's a bit of a problem. What do you think of this new trend has? Hardware as a service. You have companies charging for SaaS software. It kind of relates to this. We have one called density. That's hardware as a service. they have a hardware device, but they're really charging for the software to do people counting

in spaces privately with privacy without like video cameras on people. So what do you think of that trend? Is that a real trend? Very real trend. It's a massive, massive benefit to people and they like paying for that way. We even have one of our companies is the Nura, the spectacular headphones that were personalized to your personal ear drums. I don't know if you've heard of it. But you basically take a mold and send it to them and they make you... No, you just put on their headphones. They have inner sensors that send out signals at various frequencies. What?

And then it will listen to the way that your ear sends these silent responses through like the... I forget what it's called. I'm totally messing this up, but the cilia of your ear canal. And they send like these microscopic sort of messages that it listens for, and then it fine tunes your hearing, you know, personalizes the hearing of the left and right ear are different.

And that's why like you get people like Stevie Wonder who, you know, once he tried these on, he was like, oh my God, he went out and bought three, went down Santa Monica, Apple store and bought like three. What's the name of it? Neuraphones. Neuraphones.

I got to get those. Yeah, NURA. Yeah, they're spectacular. I promised I would hit the terraforming. But anyway, so, but when, you look at that, like, you know, that responds to the question, what, I forget, what was the question? Well, no, we were, we were talking about hardware as a service and defensible in general, and it's super defensive. If you wear these headphones and it makes this profile, heck, you know,

if I could have that same profile put into my AirPods, I would pay whatever it is, 50 bucks a year to just have the profile tweaked in real time. Yeah. Well, Nura actually sells now even on a per monthly basis, right? Wow. It is six or seven dollars a month or eight or nine bucks a month, depending on what the headphones are. And that makes total sense. That's just a different way of selling, but it makes it's comfortable for the consumer.

And this is what you're doing with the Apple phones anyway. Like I don't know. Some people are buying Apple phones on a monthly basis and they just always have the Apple phone. Yeah. I mean, people love the idea. I mean, layaway plans, subscription service. It's always been a really great way for people to lower their upfront cost.

become addicted and just pay as they go. And I think Apple has something where you get a new phone every two years or every year, 50 bucks a month or something. That's exactly the thing. Yeah. They're just like, we know, let's just stop this farce of like, you know, we're releasing new ones and doing a big keynote and getting you excited. Like you're going to want a new one every 12 or 24 or 36 months.

It's sort of like a car lease. Like either you love cars or you want to get value and you're going to pick how long you want to have the old one. But tell me a little bit about this terraforming, this micro-teroforming of people doing algae. I've heard about this before, people creating new ways to go vertical in farming, people doing algae, people doing this kind of stuff in oceans, doing it in lakes. What's the state of there and why is it important? Well, we have companies that are doing, you know, that are doing basically like, what do you call it,

containers that are filled with shipping containers. Shipping containers like things, but open so you can receive sunlight that are then, you know, basically using the sunlight to grow algae and little microscopic plankton and things like that, which then feed fish in another one of the tanks, which then go on to, you know, recycle. It's like this internal system that just uses sunlight to grow the biology, which then is to produce the output fish, all without requiring any other inputs. You have other companies that are just basically using like the swamp lands that are

estuaries so that they have too much salt so you can't actually grow farm crops on them. Yeah. And they're just modifying the seeds so that they can actually grow, the plants can grow in salt water. Rackish, probably even, yeah, like half, what do they call it, brackish? Half salt, half fresh. Yeah. And then other, another approach is to just have these like big sort of circular,

semi-circular, you know, things in ponds or bays where inside that you're growing and harvesting the algae as a product for generating protein. Amazing. So we can literally just in a pond create a bucket. Yeah. And in the bucket, we can create a bunch of protein. Yeah. Yeah, there's a lot of wonderful work that's happening right now.

And there's a lot of people investing in this space. I mean, we invest $65 million a year or so into the companies that are going through our accelerator programs. Maybe it's a little bit more than that. And then other investors invest between $500 million to a billion dollars a year. They're coming a little later into the same companies that came out of the exceptional. accelerator. So it's really-

Tell me about Jump-bike. You had Jump-bike go through the program? Yeah, Jump. Well, actually, Jump was a hardware investment that we made even before Hacks was around. And so it didn't go through the program officially, but we've helped, you know, we've helped with them over the years in a number of ways, both on the hardware side and on the business side. So we were a lead investor in them for the first five years, the lead investor in them for the first five

years of their operations. Yeah, it seems to me like that's going to be a great adjunct to the business. the Uber business, the lift business of just making it a subscription. I don't know why people are even paying for that on like a usage basis. Why is that not a subscription where you just, you pay in 30 bucks a month, you can use the scooter unlimited, you know, or up to X number of miles. I think they've been a little bit smarter about how they're doing it because, you know, you don't want to give someone unlimited. You say up to X number of miles. That's fair enough. Yeah, you don't Well, you know how these kids are, these millennials and Gen Z are going to share the account like they do with their Netflix.

But if I said, 30 bucks a month for 30 miles, you're going to think about it. What they're doing already is they're saying, okay, this is your commute, right? Between, I don't know, Pallas Ferdes and whatever else. And then, so for this commute, if you subscribe, this is what your set fee is. And they are doing that already, I think, in some geographies. Oh, that's pretty cool. Yeah. So you're just like, hey, here's what you would pay.

on mass transit, we'll just buy that and you're all set for the month. Yeah, it's like your monthly rail pass kind of thing if you're on the East Coast. So smart. All right, listen, continued success. Thanks for spending the hour with us. Yeah. Yeah, send me some good companies. And let's get on that Peking duck, okay? Let me know when you find that company. They're going to show up, I'm sure. At some point when the Peking Duck or the ice cream that negates the pizza, I have a personal vested interest in investing in those. So let me know. All right. All right. Continue success and stay safe. We'll see you all on this week and startups next time.

Bye-bye.