This Week in Startups - First Citizens acquires SVB, the daunting reality of AI & Refiberd CEO Sarika Bajaj | E1707

Episode Date: March 27, 2023

Jason starts the show by discussing First Citizens acquiring SVB’s assets (2:03) before diving into a Reddit post detailing how generative AI changed a 3D artist’s job overnight (9:09). Jason wraps by interviewing Sarika Bajaj, the CEO, and Co-founder of Refiberd, as she dives into the reality of the recycling process, how they are using spectroscopy to recycle textiles, and more (20:28)! (0:00) Jason kicks off the show (2:03) A breakdown of First Citizens’ purchase of SVB (8:05) Vanta - Get $1000 off your SOC 2 at https://vanta.com/twist (9:09) Reddit Post: A radical change for 3D artists  (18:59) LinkedIn Marketing - Get a $100 LinkedIn ad credit at https://linkedin.com/thisweekinstartups (20:28) Sarika Bajaj, CEO of Refiberd joins Jason  (21:00) What happens to our textiles?  (25:20) Refiberd’s solution (30:31) Solving for inefficiencies in the recycling process  (38:05) Brilliant.org - Get 20% off an annual subscription at http://brilliant.org/twist (39:33) The state of recycling today (49:23) Raising capital in today’s market  (54:25) Navigating gate SVB collapse  FOLLOW Sarika: https://refiberd.com/  FOLLOW Jason: https://linktr.ee/calacanis Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1 FOUNDERS! Subscribe to the Founder University podcast: https://podcasts.apple.com/au/podcast/founder-university/id1648407190

Okay, everybody, we're back today for another great show. First up, I cover the news that Silicon Valley Bank has been purchased by First Citizens. They give you an update on what that means if you have a loan, a mortgage, or a bank account with SVB. Then I cover a sad post we found on Reddit from a 3D artist. They describe how their career has changed overnight due to generative AI. And I talk about the big picture here of how quickly generative AI is going to replace high-end creative artists. and knowledge workers. This is happening faster than we all thought. And then we have a great interview with the founder of Reefi Bird. This is a company that is using spectroscopy, you know, like lasers.

They try to figure out what textile is being recycled. And this makes it possible for us to not throw away all these clothes and fabrics that are being basically tossed into landfills. It's an exceptional conversation about really building technology that is important and that really helps humanity. And that does it at a fraction of the price so it can be a viable business. They also had to navigate the SVB crisis, so SVB is bookending both ends of this show, which is going to be a great show, so stick with us. This week in startups is brought to you by Vanta.

Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC2 report fast. Twist listeners can get $1,000 off for a limited time at Vanta.com slash twist. LinkedIn marketing. To redeem a free $100 LinkedIn ad credit and launch your first campaign,

go to LinkedIn.com slash this week in startups. And Brilliant.org is the best way to learn math, science, and computer science interactively. Try everything Brilliant has to offer for a full 30 days and get 20% off an annual subscription at Brilliant.org slash twist. All right, everybody. Welcome to Monday.

I'm in Tahoe, as you can see behind me if you're watching this. And you're not going to believe that. But that mountain of snow, there's literally 20 feet of snow outside the window. And so the first floor is covered in snow, plywood over the windows. And then there is a snow drip, 20 feet up against the house. And so what you see behind is a wall of snow. Pretty crazy. But there's a lot of news.

as well as a lot of snow. And there was newsbreaking last night that First Citizens, as a bank based in Raleigh, North Carolina, if you haven't heard of it, has agreed to acquire Silicon Valley Bank's outstanding deposits and loans from the FDIC. The FDIC took over Silicon Valley Bank,

famously, like, what is it now, two weekends ago? So, it seems like a lifetime ago that this happened. Class A shares of First Citizens Bank we're up over 50% today. Class C shares were up over 20% and obviously have a dual share class. If you don't know what that is, typically one set of shares have more rights than the others. Could be dividends, it could be voting rights, who knows. Anyway, congrats to First Citizens for having a great day. As of March 10th, Silicon Valley Bank had approximately $167 billion in total assets and about $119 billion in total deposit.

So here's how those assets are going to get divvied up. 72 billion dollars of SBB assets were sold at a discount of 16.5 billion to First Citizens Bank. Okay, I'm guessing those are those treasuries that were time-based underwater. Then about $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC. Then the FDIC also received equity appreciation rights in First Citizen Bank with a potential value of up to $500 million. So the FDIC is going to get equity in this company, which is very smart, so they get paid back some money. That's what I think I was proposing. The public, you know, you and I, taxpayers shouldn't have to pay for bailing out a bank.

And if we do backstop depositors, which is different than the owners, obviously the Silicon Valley Bank management team and the people who own shares in Silicon Valley Bank here are getting nothing, But you want the backstop so that people can make payroll, etc. People put money in a bank account as we've talked about. If you're listening to this podcast, you understand that difference. If you don't listen to this podcast, yeah, maybe you don't. So this means the FDIC is going to get all that equity appreciation. So when you see First Citizens Bank spiking and you're like, oh, the banks win again, the FDIC will win as well.

And hopefully the appreciation in that equity will, you know, make up for the the money citizens, not for citizens, the money citizens of the United States are basically fronting to keep the bank system and the depositors whole. Here's a quote from the FDIC. The transaction is projected to maximize recoveries on the assets and minimize disruptions for loan customers by keeping them in the private sector. The FDIC estimates Silicon Valley banks collapse will cost its depositors insurance fund about $20 billion. As of December 31st, 2020, of the FDIC's deposit insurance fund is $128 billion.

So we've wiped out roughly 15% of that. And some more takeaways are over 6,600 FDIC member banks. They pay into this insurance pool. The insurance pool was there for things like this, so this seems logical that this would happen.

Their primary source of funding is the dues that they collect from the member banks, obviously. It was created almost 90 years ago as part of the Banking Act of 1933, just for some background for all of us. and that was passed during the Great Depression to restore trust in the banking system. Okay, so what happens now from the FDIC release,

quote, customers of Silicon Valley Bridge Bank, they added the bridge for the bridge bank, this transition period, should continue to use their current branch until they received notice from First Citizens Bank and Trust Company that systems conversions have been completed

to allow full service banking at all its other branch locations. Okay, so you're going to be able to use both branches. according to NPR regarding the Silicon Valley Bank culture, the 17 former branches of SVB will open as first citizen branches

Monday, which is today. Okay, and so we were trying to figure out what happens with all the apps. We found a publication we had never heard about before today called E.T. Now, it's a publication out of India. I can't verify that any of this is true,

but it looked well written, so maybe it's chat GPT or maybe it's not true, but it said that there will be no immediate changes to customers current accounts, and they'll be able to continue to access their accounts as they do today. Through their current websites, mobile apps, and branch locations, they can continue to use their checks and cards, and we'll still have ATM access.

That all sounds correct. SVB customers should continue to use their current branch until they receive notice. That seems on track, and loan customers should continue making loan payments as usual. Customers notified of any future accountants. So kind of generic, everything is the same until we tell you it's different. Hopefully that information is correct. but it does seem like this is the end of the Silicon Valley brand and culture. The Silicon Valley Bank brand and culture will be no more.

There's no Silicon Valley Bank is basically my reading of this. Y'all are going to be customers or first citizens very soon. And so our loan statements like the small mortgage I have from my office in the city will come from another bank so they can buy and sell your mortgages. I understand. I haven't had a ton of mortgages in my life, but I was talking to a friend who said his mortgage, he had like a 30-year mortgage,

that he's had three different people own that mortgage over time. So I guess mortgages do get bought and sold. I haven't personally experienced that, but RIP SVB. Listen, it's 2023. The macro picture is a little shaky. It's uneasy out there, and tech is getting hit super hard. As such, you cannot afford to lose sales for silly stuff,

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And if you don't have Socto compliance, you can close major customers. One major customer, that can be the difference between your startup thriving or going away. So get it done right now. That is going to give you $1,000 off because you listen to this podcast. Think about it. $1,000 off Vanta.com slash twist. You got to write that down. Put it in your notes.

V-A-N-T-A-com slash twist for $1,000 off your sock tube. And here's a thoughtful post from Reddit. We've been talking a lot about AI and how powerful it is, especially generative AI. Generative AI, very simple. You tell the computer you want to generate something, text, audio, video, images. And pretty impressive, right? If you ask it to write a blog post, chat GPT3, Poe from the folks at Quora, even Bard from Google, we just came out and been playing with at bard.gov.com.

All of these will do a decent job writing a blog post of almost any topic. Now, is it correct? No, you're going to need to edit it and massage it. probably I'd say 50, 60, 70% of it. It's a good starting point, but the last 30, 40, 50% you got to do yourself. And when it comes to art, it's kind of fun to make images of yourself or your friends.

And they come out a little bit clunky as well. I'd say they're 30, 40, 50% complete in my estimation, but they're getting better and better. And we found a post here in the subreddit slash blender. And Blender, so you know, is a free open source software for making. 3D models, animations, that kind of stuff. It's used in the video game industry,

also used by motion graphic designers, which is a fancy way of saying people who make computer-generated motion graphics, you know, characters moving around on a screen typically. And this Reddit user, Stern Safari, posted the following over the weekend, quote, I am employed as a 3D artist at a small games company of 10 people.

How nice. Our art team is two people. We make 3D models, just to render them and get 2D sprites for the engine, which are more easy to handle than 3D. We are making mobile games. Okay, I get it. My job is different now since Mid-Journey version 5 came out last week.

I am not an artist anymore. Hmm, interesting. Nor a 3D artist. Right now, all I do is prompting, photoshopping, and implementing good-looking pictures. The reason I went to be a 3-D artist in the first place is gone. It came overnight for me. I had no choice, and my boss also had no choice.

I am now able to create rig and animate a camera. character that spit out from MJ in two to three days before it took us several weeks in 3D. The difference is I care he does not. For my boss, it's just a huge time money saver. I don't want to make art that is a result of scraped internet content from artists that were not asked. Okay, so this is the core issue I've been talking about. All of these systems were trained on other people's work. There's no citations in it. There's no credit given. And with the exception of Adobe's new image generator. None of them seem to be

being upfront about how they train their data sets for obvious reasons. They're going to get sued. And in fact, there are multiple lawsuits. We talked about the GitHub one, open source programmer suing GitHub because of the co-pilot product and then getting images, which famously had their watermark, spit out during generative images, obviously had all their content stolen. These are going to be huge lawsuits. It's going to be huge

settlements paid. And over time, people are going to pay, I predict, to license Reddit, to license Core. And they're going to pay $100 million a year, $50 million a year. And those will be exclusive to certain platforms. Or those places, if they're smart like Reddit, Reddit, like Cora, will come up with their own generative AI product and they will block chat, GPT, and Google Bard from using it. And then Google Bard and Microsoft will be in a dogfight, I predict, to license for decades at a time, different datasets to do genera of AI

and block the other from using it. Now, will that stop AI? Will it make one person have an advantage of another? Of course, it's going to have an advantage of the other, but if you can license enough, perhaps this rewriting and generative content will all work out at the end. But let's get back to this post because

super interesting, you have an artist who really doesn't want to build off of stolen work. He realizes that this generative art stuff is obviously stolen and then a derivative work, which means you should be giving credit in some way and not confusing users, something that technology is really generally, not all, but most don't care about. However, it's hard to see. Results are better than my work. Hmm. I am angry.

My 3D colleague is completely fine with it. So he's got this other person at the company. So the boss is okay with it and the other 3D artist is okay with it. The other 3D artist prompts all day, shows and gets praise. The thing is, we both were not at the same level quality wise. My work was always a tad better in shape and texture rendering. I was always very sure I wouldn't lose my job because I produced slightly better quality. This advantage is gone. And so is my hope for using my own creative energy to create.

Getting a job in the game industry is already hard. But leaving a company and a nice team because AI took my job feels very dystopian. I doubt it would be better in a different company also. I am between grief and anger. And I am sorry for using your art fellow artists. Wow. This is powerful.

And this is something we're going to see a lot of. And this is going to result in protests in the streets. It's going to result in unions forming lawsuits. And just generally, strife in society. Now, if this was properly licensed and the artists who, you know, did the original artwork that this software was building on Tafa, would we have any kind of a problem with it? Probably not. And is this person who's right in the situation? The boss for wanting to make it cheaper,

faster, better, and then pass on that efficiency to customers, they get more games, they get more characters in their games, they get more delight. Well, obviously, those folks, you know, the customers are going to get a better deal. They can pay less for a game, they can get more game for the dollar. This is exactly what happened when robots went into factories and started making parts of cars, the steam engine, etc. Yes, less people were doing.

the work and the prices went down. So technology is deflationary. It lowers the prices of things. If you lower the price of things, you increase access to things. So are we going to sit here and complain about this or are we going to, you know, delight in the bounty of it? Well, for the people who are making it, it's not as delightful. Just like factory farming, lower the price of food or big ag lowered the price of food as well, right? So if we lower prices, that's virtuous, but people lose their jobs. people lose their jobs, you know, who are, you know, picking tomatoes or berries, you know, in the hot sun, on their knees for 10 hours a day, backbreaking labor, we feel pretty good about it.

And we see a robot doing that, emotionally, it feels better. I don't think if I went to the store and they were like, these blueberries, uh, raspberries were picked. And we had a company called Rude A.I that actually did this using computer vision. They would pick berries. If you told me, these berries were handpicked. Somebody suffered to pick them. And these were robot picked.

I would pick the robot picked for a dollar or less, or even the same price. I wouldn't want the human to have that to have to slave away in the hot sun. Seems like not great. But here in the art world, we bring a little bit of bias, right? Oh, an artist is losing their job. That sucks.

And I don't disagree. So now we will be left with bespoke stuff, where maybe you buy a game and it's AI generated. And then other ones are more bespoke. are hand-drawn characters, and you feel better about them because they're hand-drawn. And you will see that out there in life. People will now, instead of buying factory-farm chickens, and now let's do the same experiment with chickens. Okay, these are free-range chickens. These chickens are raised on a free range. These are cruelty-free chickens, eggs, whatever it happens to be.

We feel good about paying extra for that. So there is also a world in which a bespoke artist might be able to say, hey, this game was all hand-drawn, or this movie was claymation, and people did it, not in a computer, but they did actual claimation, or these were marionettes that were actually used, you know, in that famous, from the South Park Correctors,

their marionette movie. So there'll be some bespoke stuff that comes out, but I thought this was notable because it's the first time I've seen a high-end, knowledge worker, I think, lose their job, and be frustrated and angry about it. We're fine.

I think as a society, watching labor that is backbreaking, suffering, menial, not fun to do. But now this is going to be a different theme. We're going to have a theme now of work that people enjoy doing, work that people love doing, work that people were trained their whole life to do, go away because of generative AI, whether that's journalism, poetry, songwriting, making characters in a film, artwork. and it's going to feel different, I believe. And these are also very intelligent people who are going to be able to vocalize this loss for us.

So look for more of this. We'll cover more of it. If you find any instances of this, let's talk about them. Producers at This Weekend Startups.com, you can email all of our producers here at This Weekend Startups and give us tips, and we love getting interesting stories like this.

Okay, up next we have an amazing interview with Sarika Bajajaj. She is the CEO and co-founder of Refiberd. Sarika breaks down the impressive technology that enables them to take old textiles and recycle them with new thread and fabric. They use a process called spectroscopy, also chat about the state of recycling today, as well as raising money in this economic climate. And we wrap up the interview with a brief discussion about how the team there navigated the collapse of Silicon Valley Bank. We're going to be impacted companies. Enjoy this interview. Okay, let's talk about marketing.

senior level executives. They're hard to find, aren't they? But these are the ones that make purchasing decisions. Where are you going to find them? Well, when you're selling business to business products, B2B, SaaS, you get the idea. You want the decision makers. You want the people who are going to sit around the table and say yes or no, or here's the justification for paying for this product. It's hard to find those on social platforms where people are dancing or arguing about politics or whatnot. But I have a perfect solution for you. And you already know that this product exists because you're on it all the time. It's LinkedIn. Now, LinkedIn has, 850 million plus members. They're going to hit a billion soon. But you may not know they have 180

million senior level executives and there are 10 million C level executives on the platform as well. These are the creme de la creme. These are the people who make the decisions. And that's a ton of purchasing power. LinkedIn ads is built specifically for B2B marketers to meet these people and to put their products and services in front of them in the right context. No other platform in the world can get you to these type of eyeballs. And LinkedIn is going to be. help you reach your audience in a very respectful environment. LinkedIn equals business, business equals LinkedIn. Let's let that sit in for a second. Business, LinkedIn, LinkedIn, LinkedIn, business, right? Audience has exposed to brand messages on LinkedIn are six times more likely

to convert above average. So here's a call to action. Make B2B marketing everything it can be and get a $100 credit on your next campaign. Put a LinkedIn.com slash this week in startups to claim your credit. That's LinkedIn.com slash this week in startups. Terms and conditions do apply. All right. Next up on the program, I'm joined by Saraka Bajajaj. I hope I got that right, Saraka. Nailed it. Perfect. Oh, great. And you are the CEO and co-founder of Refiberd. That's perfect, too. Refibird. And you are developing a textile recycling system. It's using AI and a green chemical recycling process. I guess to save the world and save the planet. I guess that is the stated goal here. Is there a business goal on top of that, though?

Definitely. I mean, really when you're talking about the textile space, you know, you have 186 billion pounds being produced each year. All of that is poundage that has value of materials. So there's just basically being thrown away. Like less than 1% actually gets recycled to new clothing. And so for us, our whole effort is really doing proper material detection and then enabling recycling. So that way you can get that less than 1% be overspoken. 70% reclaimed and also thereby make that half as cheap as virgin material.

So what is the process of people send their clothes to, you know, in at least here in California, maybe the Salvation Army or some donation place, they try to reuse it, but then some amount of it's not reusable. Maybe people don't want to wear it. It's too weathered or tattered. Yep. And then they put it in a box and ship it to recycling places. What happens there?

What happens with those clothes? Because I would think most people just throw it in their. garbage, unfortunately. And then that destroys it, I guess, if it's mixed in with garbage. It's a great question. So actually, most people will tend to try to donate it to some level, like you're saying, the Salvation Army's for the Goodwill's. For them, they will often sort out whatever is for resale, like you mentioned.

They try to send it to recyclers, but like I mentioned, less than 1% actually gets sent. So what realistically happens, about 20% of whatever they can't resale gets turned into rags and different industrial applications shoddy. So imagine like housing insulation. And the other 80%. Shoddy it's called? Shoddy. Yeah, which is it has a variety of applications.

Turns out so toilet paper is made from something similar in small percentages. How do you spell shoddy? I've never heard that term. Yeah, it's S-H-O-D-D-Y. S-H-O-D-D-Y. Shoddy. Shottie. So like shoddy, like something that's made

poorly, or if that's inferior. But this is, they take shredded fibers from wool and then they make them into mattress stuffing or into... Exactly. Sometimes packaging material. Yeah, exactly. Fascinating. Did not know that.

Yeah. So we are trying, we're attempting as a society to reuse this in some way. And I guess those uses sound reasonable to me. If it's insulation, then you don't have to create insulation. and if it's rags, you don't have to buy rags. Yep. So that's all notable and good. So out of the 100% of discarded clothes, not donated because that gets reused, just the disregarded

and the fabric that's going to be not used as clothes anymore, some percentage becomes shoddy. Some becomes rags. And then some just winds up in landfills, huh? Or maybe the majority. About 80% ends up in landfill or incinerated. And often that is happening offshore. and so different places like India, Bangladesh, Ghana, common places for Dendup. So they will ship it there from what we used to call the first world,

but I guess the developed world is how we say it now. So the developed world, the West will send it to an emerging or frontier market, which will get paid to dispose of it. And we pay them to assuage our guilt to ship it halfway around the world so they burn it as opposed to just incinerating here in our country. Is that, am I being cynical or is that what's kind of happening? It's about right.

You know, I mean, it's just a reality situation. Like it's, and the whole point is in, you know, of that percentage, a lot of that is usable,

not only for shoddy, but for like even higher, like textile to textile recycling. And that's a gap that we're trying to fill, you know, but, um, it's not too cynical.

It's just, we have a lot of waste in the world, you know? Yeah. I know, the cynical part, I think is that we would ship it to another country. only to burn it.

So I'm missing something there? Do we ship it to the other part of the world? And then they re-sort it and make shoddy there or try to find reusable things there? Or is it just like we ship it there to burn it? That would be unconscionable. So all the rag creation and the shoddy stuff does happen there too,

but that still is in the 20%. And so 80% still gets done. A lot of this, the reason why this happens also is because you need a lot of manual labor to physically separate out these clothing. And then, of course, manual labor is cheaper over there. Got it. Fascinating.

So now you have developed some solution here that makes it more sustainable. Maybe you could explain what your solution is and how you discovered it or came to it. Yeah, absolutely. So refibrate specifically has developed our own AI and sensor-based system to automatically detect the material of textile waste. That's the big reason why recycling can't happen today is because mechanical and chemical recyclers need to know the exact percentages of what they're dealing with. Like they can't handle certain spandexes or nylons or polyesters or cottons based on how they recycle. And so we really work on that proper detection and then diversion working with these guys to make sure that, hey, instead of less than 1%, can you get to 70%. This is something that came out of actually all of our master's research.

All three of us had met at Carnegie Mellon. We had done undergrad masters there and then had done a variety of different research that kind of got us in this space. My background was in textile research, had done five years of it. And then my co-founder, Cheshita, had done a lot of AI and, like, even applications of trash sorting before in college. And so it was just kind of like a good synergistic thing that came out of our master's thesis of, hey, this is an industry where technology comes super slowly. And this is something where if we can bring that into the textile and the recycling industry specifically, we think we could at least solve a great economic and then also a sustainability problem.

Okay, so I am using my imagination here, but y'all at Carnegie Mellon figured out how to sort materials. And I'm assuming that happens with computer vision. So it's a little bit of computer vision, but it's mostly something called spectroscopy. Oh, yes, of course. Yeah. So basically in our case, like spectroscopy, it's pretty simple. Basically, you have a laser. The way the laser light interacts with whatever material you put right underneath the laser,

the light particles will interact, will reflect back into a sensor that basically says, okay, this is how the light reflected, and you get a graph. And then the graph has certain peaks and dips, which tell you what material you're looking at. Now, the problem is that's a really noisy system.

And when you're trying to have text outwe specifically, which is, say, like, 95% polyester, 5% spandex, both are types of plastics, and they're both similar. The question is, how can you really sort through, hey, this is just accidental noise or this is actually 2% spandex that I'm missing. And so

that's where the application of AI really came in handy. It's like, okay, we can get that within like 90% accuracy within 1% to 2% material range, which is exactly what they need. And this is like infrared spectroscopy. Is that my pronounce not correct? Spectroscopy. Near infrared and it's spectroscopy, yeah.

Yeah. Near infrared. No one really can sit up. Yeah, exactly. Yeah. So how does that work? Does a human just take it, put it underneath it, and then take the buttons off and the zippers off and then put them in a pile

and you're literally sorting it like that? Yeah. I mean, so there are a couple different packages that we can do. And so one of them, like you're saying, it could be tabletop where we still have some manual input there, where basically things are going faster because you have someone just moving this,

at least know the material and you can separate it. What we really see the end goal of this being, though, is a process that is more automated. And that's partially because even when you're talking about this system happening in places where labor is cheaper, there's so much of this material out there that you're wasting it because there's not enough labor to go around to handle it. And so in our case, it's like having an automatic conveyor belt, like that can actually shred into four inch by four inch sections. So you can automatically use a magnet to remove like zips, buttons, and then also sort by material. That's fascinating. So some jacket or shirt with a zipper goes by,

it hits the near infrared, it tells it what it is, says, okay, we know what this is. Now we're going to rip it up into pieces and then we'll use some sorter to pull off the buttons in the zipper and then leave the fabric. So how far along are you to having this automated process

and take another year, another five years? Yeah. What percentage is automated now? Because I know, you know, it's kind of like self-driving. You can get to 80 or 90% complete, but each of those last percentage points gets really hard with the edge cases. So tell us where you're at. Yeah, so we have a working prototype, a lease of like the automatic detection element. And then we're working over the next year, year and a half to actually get something up and going that should be able to process about a

rate about 1,000 pounds per hour, including disassembly. And so what's great is that like we we've been able to work with a lot of great MIRF manufacturers in this space and then also as pilots come along we can see that okay, people have their own different hacky solutions to this and so it's like whether it's faster for us to integrate with them or for us

to develop our own system but we're kind of projecting about a year year and a half which will tie us well into our next fundraise which is always important when you're a startup. Yeah I guess this is a John Henry kind of situation like the folk law story of

doing the railroad ties, I think it was. The human right now sorting in Bangladesh close versus your automatic system or the augmented one in between. What would the pounds per hour shift, whatever you track minute, what would it be for a human today? You're a human using your technology

and then, you know, we all with the same output, same accuracy end up but versus this, you know, eventual machine you're going to build. And what, what is your hope there? Yeah, that's a great question. So if you're talking about a human where it's like, you know, in terms of working all the time, how does it look like? Basically, you're lucky if you can get something like 10 garments a minute, you know, like that's just, it's a relatively slow process. People that do this today, it's, it's very slow that sense. In our case, we should be aiming. By the way, sorry to interrupt, are they, are they guessing what the material is or looking at the

label? How did they actually know that it's 5% polyesterome? 95% wool or whatever. Some elements, I guess, is not great. Some elements, they try to use tags, but unfortunately tags are over 40% inaccurate. Oh, great. For a variety of different reasons. Fraud being one of them, I guess. It's a big one because the problem is import, export rules across countries, because we're talking

about a global supply chain. Certain countries will tax polyester and tax cotton, then all of a sudden it's like, that disappears off a label, you know, and so... I am shocked that the labels coming out of China are not accurate. Hi. Holy shocked. Wow. Information coming out of there about a product is not accurate.

Hmm. Okay. So that's the major problem there is. Even though the human can do one every five, six, seven seconds, it's probably not going to be accurate anyway. That's the problem. And so it's like even talking about like a hybrid system where it's even like table top you still have a human, that alone solves a problem, you know, which is just like,

okay, we can actually finally get accuracy. So that means these recyclers aren't petrified to put this into their system because like, I mean. mean, they can't afford any loss when it comes to that. And so that's why a lot of these guys also won't touch post-consumer waste with a 10-foot pole because they can't be sure that this isn't going to mess up their chemical system or their mechanical system and destroy a million of dollars of machines. So in order to recycle, it has to be accurate.

So we're not even comparing apples to apples here. You have one group that's doing their best to sort it, but they have bad data in and garbage in, garbage out. your system, you know, then even if a human's doing it and putting it under the, the infrared is going to be actually accurate.

So then you could actually recycle it. So it's very, that's very interesting. Yeah. So that's step one. And then step two is bringing the faster aspect of it, you know, which is like,

okay, maybe 10 items a minute there. And then for us, maybe we could get to something closer to like 30 or 40, you know, which is just by the fact that you're dealing with conveyor belts

and you're dealing with things that, You don't have to have a human physically pushing something over. Is the nature of this business that your system has to be cheaper than the value of the recycled materials? I'm no economist over here, but it seems that if you can't do it for less than buying new materials, then recycling doesn't make sense. Is that the big challenge here? I definitely think so. And I think, I mean, that should be true for all recycling industries.

You know, like I think we were living at a price point for now that people are thinking this, a premium product. But really for recycling to take off is you need this to be cheaper than virgin material. And that's part of the reason why we get excited about this is because if you're dealing with something that literally people are paying to dispose of right now, then at least you're talking about, and you're dealing with a level of automation where you're just pushing this item through. The cost is the cost of the spectrometer on your conveyor belt.

And so that really simplifies your per unit sorting cost. And then all of a sudden you can get this to be economical. So even if here in the developed world, in the West, where we're obsessed about the planet and rightfully so, even if we want to do the right thing, the reality is doing the right thing and disposing of these is currently without your technology so expensive that there's no reason or there's no economic incentive to do it. In fact, you're going to be economically penalized if you do it. Compared to your competitors, and this is where economics really does. does matter, huh? Yeah, exactly. And yeah, but, and there's some things that do work in our favor, though. You know, like shipping costs are only going up. You're talking about companies here that have to ship that all the way to, you know, like countries halfway around the world, that gets charted into some of the things that are cheaper for us. And then like you're mentioning, it's just this element of automation and admitting that all to happen that you can actually see that that per dollar unit is cheaper. And so that's really what you can push it. All right, well, you have a nice video here. Perhaps you could sportscast this very attractive video here, very professionally shot.

What are we seeing here? I mean, I see some clothes on a conveyor belt. Yeah, and so, yeah, early clothes on a conveyor belt. This is really what we consider like a first-pass sort, where this might be something like color. This is the real breakthrough part of our technology where the part of the difficulty in getting accuracy and sorting actually comes back of this. idea of multiple layer garments. So imagine like a jacket or a blazer that has multiple layers. You can only do detection upon shredding.

And so we can actually do material detection on shredded garments. And then you can see that actually successfully does generate into a new thread from 100% recycled material, which is actually fairly rare. Yeah. So it's been fun. So if you can get the right materials into the bucket and you can shred them properly, they then could be turned into thread to make. a new sweater.

Exactly. That's extraordinary. Now, a stupid question, if the existing stuff was worn and tattered, then because you're recomposing it, I guess, I'm not sure what the technical term is, but it would then create a beautiful new garment, or would it be like a tattered garment with stains on it

somehow with the threading? Yeah. And then you have to re-dye it or something. So that's a great question. and there's two answers. So one, there's a cheaper method of recycling, which is called mechanical recycling, in which case, that's where you really want that higher value output, because this is things where it's like maybe things aren't tattered,

where the color is clear, where there's not as much stainage going on, because they don't require any chemicals to process it. It's basically a physical process to open up the fibers and just re-spin it. In that case, that works fine. You'll end up with a great product. Otherwise, you use a process called chemical recycling, We're actually chemically reconstituting the threads and then regenerating them as such. In that case, tatteredness, all of that stuff works perfectly well.

You won't be able to tell at all at the end, including for polyester and solilose. And people have proved that again and again. You know, like this is something that the industry can use if you can get to that stage. The only thing that you really want to watch for when you're dealing with chemical recycling is don't put in materials the chemicals will react with. And that's where the spandexes come in. that's where the nylons come in. So that's where when we sort, we want to be really careful for that. If you're listening to this podcast, you clearly have an interest in startups and technology,

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brilliant together. Brilliant.org slash twist for 20% off today. Fascinating. And so is this the best use of this technology right now in terms of recycling and are there other efforts in recycling that are going on that you considered

in terms of being able to examine materials and where do we think recycling is going to get to in the next five or ten years? Because here in the Bay area, we had this hilarious slash horrific moment where they were having all of us very preciously sort our garbage at our homes and then dumping them all back together. Yeah.

And this came out in news reports, etc. Where I was like, it's just not worth it because we can't find people to buy the recycle stuff. So we're now just dumping it on a barge and sending it somewhere, dumping it in the ocean or whatever it was. Yep. This is just absolutely heartbreaking. that all these human hours are spent recycling in people's houses for not.

So what is the state of this recycling today? Yeah. And then how did you pick this over other ones and other ones that people are working on that make you excited as well? Yeah, that's a great question. So basically, I would say in terms of art. You made me feel very good, by the way, about doing my job since I've asked like four or five good questions in a row. I appreciate that. You know, I mean, we get a lot of questions.

there are, you know, like, at least... Not all of them are good. You know, sometimes I'm like, oh, did you listen to what I said? But no, this is... Yeah, we just came out of fundraising, so... Yeah. Oh, right. Let's talk about that.

Let's talk about that process next. But for this one, how did you... Were there other ones that you could have picked? And the other ones that are making you excited when you see people who are also passionate about this doing startups. Yeah. Educate us. Yeah, what I think is really...

So when you're talking about different types of waste streams, there's the reason why pick textiles is just because, like you're describing collection. So for most waste streams, you're talking about, like, things that go through garbage, things that go through, um, collection in terms of the recyclables and stuff like that. And those are very specific challenges where suppose you're getting like a gatorade bottle or, you know, like a water bottle here. If as long as someone can tell that is a water bottle, you know what that material looks like. Um, and you might have some things where it's like you'll have organic contamination. and stuff like that, but people can relatively clean that material off so you know that, hey, this is

mostly dealing with the plastic, oh, you're dealing with an organic that can be composted. What made the application of our technology interesting in textiles is that the collection, like we described, mostly happens through the thrift stores. You know, like there is still a presence in landfill, but, I mean, that's maybe 7% of landfill versus all of it is getting isolated into Goodwill, where or other similar companies where basically you have a lot less contamination. And then you have a very specific material identification problem because three shirts look the same could all be made from different materials. And so it was like, okay, this is where specific material identification really comes in handy. Now, yeah, and there's

certain industries that still, like, this could work well for. And it's just, I think that's where it kind of gets deeper into what people are calling like secondary MRFs versus the primary MIRF. So like the primary MRF is where you'll get all of these recyclables in and then you'll have, like, you're kind of just using, you're trying to bring in more and more robotics to pick and place out certain materials to that way. You know that, okay, this is all water bottles. Oh, okay, this is textiles. This is organics. And then you'll have a secondary MRF and that's what people are trying to build right now. And that's where I think is actually the most exciting stuff going on is like, okay, can we divert the same material and same waste stream and then sort that even better? And so in terms of where I think our technology could also go, it's in that aspect. So it's like, okay, you're somehow able to separate out like tires. And we're trying to see like, okay, tires all have this similar type of blend and issue. So at this point, you can detect, we have this contamination. At this point, we can detect we don't.

In terms of other things that are exciting, I think definitely. What is the word MRF mean? You said primary and MRF, secondary MRF? Yeah. That is a great question. Let's see if I don't mess this up. So it's definitely. Is it M-U-R-F or?

For M-U-R-P-H, like Murphy? It's MRF. I think it means material recovery facilities, but please someone double-check me on that. I'm literally doing it while you're saying it. Materials recovery facility. Okay, so a MRF is MRF, materials recovery facility. And so a primary MRF is, hey, here's your garbage, we're going to sort it, first-level sort. Exactly.

A secondary MRF would be it's coming in sorted, so there's less work to do. I think tires comes to mind. And it might be that secondary MRFs are objects that we all know probably have some resale value or some use. So we treat them a little differently. Electronics probably falls into this, clothes falls into this. And obviously, like, tires, furniture probably falls into this. Yeah.

So this material recovery facility concept is really, I think, the game changer in recycling. Because if the people who are about to toss it in the garbage, can instead bring it to a mature materials recovery facility, well then it doesn't get contaminated with your coffee grinds and eggshells. Exactly. And at least at that point, it's been a level of clean and contamination isolated that you can handle it. And then also when you talk about interesting things is people are being a lot more creative

about having higher value output based off of what's coming out of these MRFs. So for example, like people are, you know, cellulose is the big topic that everyone's talking about right now, which is it's a building block of anything leaf-based or organics-based, right? Like, it's all made of the same cellulosex.

And so people are able to make, like, nanoselluloc fibers that are, like, harder than steel. Or people are using it to be like, okay, let's regenerate furniture from this or in our world, regenerate textiles from this. And so I think there's a lot of explosive work happening there. And I think, as we just talked about, recycling is mostly an economic problem. And so if you can solve it to have higher value economic output, rather than just, hey, we need to shred this, grind this down, and basically this is used as fluff,

then all of a sudden, this can start replacing the virgin material costs, and then we see something more, which is a circular loop. This makes total sense to me, and these material recovery facilities are just such a game changer, and they sprung up organically in the form of thrift stores because they had some value. And I guess you, I remember when I was broke at Brooklyn in the 90s, you could either go to a new tire shop or you can go to a tire shop where people who replaced their tires and maybe these tires had another 5,000 miles left in them. You could buy a solo tire that's been used and they would kind of tell you, yeah, you probably shouldn't be driving on this, but I'll give it you for 30 bucks to get you through the day.

Yeah. And when you're talking about also like the biggest impact that consumers are the normal people, you know, like when you're not talking about the company, resale is it. You know, like, I mean, I'm talking about the lowest hanging fruit of that's possible. Like that, in many ways, that is the first-hand solution that we could all be taking. That doesn't depend on other people. Yeah, in some ways also like Craigslist and Facebook's marketplace are also kind of acting as a version of this, where instead of people throwing away something they bought on Amazon six months ago for $30, they don't need it, But it's barely been used.

I find myself in that position all the time. And I'm like, I bought this thing. It was an impulse purchase. I needed it for one time or two time use. And now I'm going to, I don't need it. What do I do with it? Yep. And it really is like the movie Wally, where people are just consuming and consuming and consuming

and you're just, gosh, what do I do with all this stuff? Yeah. And it's just great that you're building this. Yeah. And at the same time, I think it's really important to think about us that like, we will always need access to cheap materials. Because I feel like one thing that always comes up. And the industry is like, oh, we should only buy things that will last 100 years.

But the problem is like a lot of that stuff's really expensive for the average person, you know? And so I think resale and this recycling aspect of it really could get you, could get it for the common person, you know? And I think that is the real also crux behind recyclability because that also ties it in well with affordability. There is a movement in terms of people buying something once. When I hit a certain age, I was like, wow. I'm 40-something years old, 50 years old. I should just buy everything for the last time. And so I just started doing research.

But you're right. You do need to be well healed in some of these cases. Like I wanted to buy boots. And they're like, oh, Danor boots will last 30 or 40 years. I'll say, well, that's what I got left on the planet in all likelihood. Yeah. At least in this form, biological, it may upload ourselves. But so I bought down our boots or I bought a lot crusay.

Because I was like, well, they say these lock crusay, you know, pots and pans will last 30, 40 years, right? Exactly. And you can get them re-skinned or whatever they do if you want to. So you're saying that this is a, what you're doing is a cure for fast fashion in a way. Yes. If people are buying fast fashion and you're a young kid, if I had that in my 90s,

I probably would have done that if I'm going to Lollapalooza or people are going to Coachella. Now they buy outfits that they just wear for one or two music festivals. Exactly. So it solves that problem, huh? If that's coming in from resale, that's coming in from recycling, then all of a sudden that at least it works a lot.

better, you know, like, and of course we can always do our efforts to decrease consumption in general, but for the need of cheaper items, like this is, this is where it should be coming from in terms of feedstock. Fascinating. Hey, so you were raising money for this. It's really hard to raise money for any kind of hardware solution, recycling. It's not software. It's not going to be considered high margin out of the gate or easily scalable.

Now, you're doing something that's important. and obviously could be a good business. So tell me about the fundraising process. What was the reception like from VCs? And can they prioritize something like this reasonably over marketplaces, software, video games, whatever, that don't have any hardware component. And then how did you overcome that?

It's a great question. Yeah, raising in 2022 was fun. We finished it in January. Yeah. And so I think there definitely is an appetite for this now, which is nice. I think there is, all of a sudden, for the first time we are seeing movement, the first time I'm going to say, I should say in a long time,

that we were seeing real movement in hardware investments, partially because I think people are seeing, there's more opportunity for differentiation there. You know, like, it's just in terms of software in many aspects, there's, you know, there'll often be a lot of startups all working in the same space, trying to grab the biggest portion of the pie. And even places like in our space or others who are also working in hardware, you're talking about a brand new market,

which, you know, could be. like literally $100 billion that there are very few people working on. And so I think at least that vision makes things very attractive to people. And I think people are seeing a real movement also, as I'm sure you know, like in the climate sustainability space. And so I think with those two hand in hand, at least we were able to really bring on the right investors that have experience in the space, that I've been working in textiles, that have seen what hardware startups look like.

And so that was a relief. But I think what we really want to be careful about is a lot of this. this in terms of like making money and showing that this can be like big value propositions for people do exit well, do IPO. Like people, we're proving that for the first time. And so, but we're really also hoping for as other startups that we see, especially in our space, like they also see a level of success, you know, because that only keeps bringing money into the space. And so, so far things are going well. You know, like, I mean, a couple of people have lent some pretty major contracts last year. So, oh, that's great. Did you wind up raising money from

dedicated climate slash sustainability, ESG style funds, or, you know, did you get, you know, non-specific ESG climate or sustainability funds to invest as well? Yeah. I would say it's a mix. Like I would definitely say our leads and like the people who've been with this longer are much more like climate impact focus. Like two of the funds that we've been with the longest is true wealth ventures had led our seed around and then better ventures were our first check and both them are fairly impact focused. But at least we're, we were able to bring on some follow-ons that are much broader. And so that's always a relief as we're talking about, like, at least for a seed, I think that's okay.

You know, and for a series A, I really want to make sure we're capturing a more generalist audience where there's more money behind that, too. Are the, I've heard both things. The climate or sustainability funds are doing this for a dual purpose. They want to make the world better. So some rich people put a bunch of money together. Or LPs and, you know, big endowments want to have some percentage be really for doing good for the world.

Totally. And so they aren't as return. focused. And then I've heard, oh, well, a lot, which then makes some of these climate or sustainability startups overpriced because they're dealing with investors

who maybe aren't investing in a cutthroat way like, I might or another venture firm might, but they're just like looking strictly at returns and they think entry price matters, which it does in the software business, or SaaS business, consumer. Or was it the opposite, like,

because your hardware, because it's sustainability, you're just not going to command the valuation that a pure play software company would. I would probably say it's more of the latter, at least in our experience. You know, like I think they're just like you're saying, the nature of being hardware, but the nature of being into an industry that isn't typically more, you know, software VC, then valuations do tend to look lower.

People might be raising like a couple of seed rounds and then doing a series A. And so you're taking on more dilution. And I think, you know, it's true. And I think you take it as it is. You know, like, I mean, I think at this stage it's really about like just keeping alive, keeping growing. And then if this really does success, succeed and become a big company, then everyone will be happy anyway, you know? And so small size of a large pie is better than a large slice of a pie that never actually gets finished, which we see all the time. I'll see founders who are optimizing for their ownership.

And they wind up with 60 or 70% of a company that does not change the world or does not ever get bought. So they have 60 to 70% of nothing but a cap table. and then I see people people will criticize what happened with box.net Aaron's company and oh,

he only had 6% ownership at the end. It's like, of a multi-billion dollar company he did better than 99% of entrepreneurs out there. You got caught up in the Silicon Valley Bank

disaster from two weeks ago, three weeks ago. Tell us what happened to your firm. And, you know, obviously I think all as well.

That ends well, I hope. But did you miss payroll? Did you have, you raised small amounts of money, so I assume you just had it all in Silicon Valley Bank? Yeah, it was all in Silicon Valley Bank. But, you know, thankfully, it all worked out. It just ended up being a very stressful weekend. Tell me about it.

What did you do? Did you wind up trying to get the money out on Friday? You heard about the stuff on Thursday, I assume, and tried to exit on Friday? Yeah, we were hearing all the rumors on Thursday. We were kind of getting, I mean, especially from the advice and everything, we had gotten, and people were saying that, oh, pull it out, oh, don't. And it just, it was not really obvious what to do. So Friday, at least, I woke up at 6 a.m.

Because my husband shook me awake. And he's like, you should probably check the news. Here we go. All that was happening. Exactly. And so then, you know, tried to do a wire. It didn't work out. And so at least for us, like, you know, our team's still small.

We haven't, like, done the massive hiring that we were in planning to do in this raise, well, massive for a very small startup. Yeah. Significant. Yeah. Exactly. And so we were in many ways okay. Like I think the only thing that really ended up besides just frantically checking what was happening Saturday, Sunday and then getting some measure of release on Sunday, the only really thing that happened was it to take like a quick founders loan just to cover payroll, but then we were able to like access all the funds on Tuesday,

get that paid off. And so still get everything done. So you dipped into your trust fund and just grabbed a couple hundred grand and paid everybody, no problem? Well, thankfully your payroll is much lower. Yeah. You went to your, and you just, yes, the investors for a loan,

and then you would return it when the funds were released. Exactly. It was totally fine, yeah. It was a scary weekend for a lot of companies. I had companies that had much larger footprints in terms of team size than a seat stage company. And it was a little dicey,

yeah, a little crazy. And now going forward, what is the best practice as it has been explained to you by your board, investors, etc.? Yeah, definitely. I mean, diversifications on every.

everyone's mind right now, obviously. You know, it's like, okay, let's figure out at least several set of bank accounts. Like, let's talk about, like, insurance level. Let's talk about sweep accounts and see what we can do to really at least diversify this risk and then have. I mean, I think for the longest time, which was, I mean, I guess in some level, it's good to somewhat course correct. You know, a lot of startups are just having all for money in one account. And it's like, if those are personal savings, we probably wouldn't be doing that, you know? And so I think it's just good to use some of that sense also in business applications.

But, yeah, we're still trying to figure out, like, the best plan moving forward. At least for now, we were like, okay, we hit stasis. Keep working on your jobs and stuff like that. Seems like three different bank accounts, which I know some of my banker friends are like, oh, we'd like to keep it all here. I think defensive position, which I've always had is I've always liked to have multiple relationships with different banks in case one of them can't give me a mortgage or a loan or I can't get in touch with them and I need something. you know, it's just nice to have relationships with multiple parties. Totally.

And that's worked out really well. And then you have it in three different accounts. You mentioned sweep accounts or there's automatic sweep accounts. Those will allow you to put money into five different FDIC insured accounts and load balance automatically. So if you had, you know, a million dollars in three different banks, each one of them could have three sweep accounts

and you could be load balancing to 12 different or, you know, accounts and be FDIC insured or the FDIC could. simply make it a $1 million limit and update the $250 limit and we could all not have this many shenanigans going on. Yeah. It's just one of those things where I just did not expect

that was going to be the problem of the week. Welcome to entrepreneurship. And you're forming your company during a down market. So it's always going to be a bit more challenging. But I applaud you for doing something important in the world and for doing something that is really hard. You know, doing hardware is hard and working in a space like recycling is hard.

But you will have the benefit of, you're not going to have a lot of competition. A lot of people are not going to come into this space. You might be one of, you know, a small handful of companies who decide to work on this. So when you do get product market fit, you get all the customers or the majority.

So that's absolutely fantastic. Continued success. And you're hiring now, I take it, or now that you've raised the money, looking for a couple positions. So this is where we can be helpful. What are the positions you're looking to fill right now?

Yeah, that's a great question. So I think we're still trying to figure out like sometime over summer, but someone definitely on the commercial side who can really help, like, read that a much more experienced lens onto our team to really facilitate some of these more commercial contracts is our first target. So someone may be more on that lens. And second on like,

and just machine learning engineers. So it would be a business development person who can do consultative sales. Yes. Who is fearless about cold calling people and passionate about the topic. so you can transfer that enthusiasm to a potential buyer who doesn't currently buy this product. Exactly. I've been to this before.

You need a certain type of person. Exactly. There's different types of business development sales executives. The ones that get you from zero to one who can listen deeply to the customer need and then relay that to the founders and the product team and can do that consultative, deep listening sale and really get people enthusiastic about trying to support something new,

Yeah. They are very different than the second and third stage folks. The second stage folks are really kind of explorers in the world. Yeah. And, you know, it's a, and then the third ones are just dialing for dollars, picking up, doing orders, and it's a more rote numbers game, right? You're far off from the numbers game. You're very deep into the product, discovery, and enthusiasm transference game. Exactly.

Definitely the first one you described. Yeah. All right. So the website is, R-E-F-I-B-E-R-D dot com. Yep. What does it mean? Is this,

what is the origin of this name? We wanted to redo fiber, so refibored. Refibered. Okay, I love it. And the domain was available. Yep, exactly. So we actually had to drop an E to make the domain available,

but, you know, we made it work. Oh, I like it. Listen, a great job and continued success, and we'll be rooting for you. And if you are that person listening, you can reach out and get the job.

Yeah, that would be great. All right, we'll see you all next time on this week in service. Bye-bye. All right, that's all we have for you today. Folks, tomorrow, Rachel will be joining us. She'll be reading the news for another great segment. And later on this week, we're having another pitch competition. Y'all love the pitch competition I did last week

where I had four companies battle out for 25K. You can go watch that show last week. And this week, three founders, once again, are going to pitch me live on the show, We'll debate it. And I'll come to a conclusion and give one of them $25,000. Also, don't forget to check out Founder University at founder. University slash podcast.

This is the podcast that goes with what we're doing at Founder University of the 12-week course. Just blocking, tackling, tactical, and strategic talk. So our latest one features Shen C. Ding of Merge, where she breaks down how to implement a product-led growth or PLG strategy. Okay, we'll see you next time. Bye-bye.