This Week in Startups - Momentum investing in VC + Convective Capital’s Bill Clerico | E1627

Episode Date: December 4, 2022

J+M are back for another edition of VC Sunday School. This week, they discuss momentum investing in venture capital! (1:35) Then, Molly interviews Convective Capital’s Bill Clerico on investing in firetech startups. (27:58) (0:00) Molly tees up Sunday’s segments! (1:35) VC Sunday School: Momentum investing: fair strategy, or sign of a bubble? (12:56) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist (14:30) Contrarian investing in VC (26:28) Microsoft for Startups Founders Hub - Apply in 5 minutes, no funding required, sign up at http://aka.ms/thisweekinstartups (27:58) Molly is joined by Convective Capital’s Bill Clerico and talks about investing solely in firetech startups (35:30) Bill breaks down the different types of firetech startups that he’s investing in FOLLOW Bill: https://twitter.com/billclerico FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

Hey, everybody, it is Sunday. We hope you had a great week. We're kicking off the next week with our liminal space kind of show, the Sunday episode. We have a great VC Sunday school coming up on momentum investing. This concept is somewhat over now that there's not a lot of momentum happening, but there was an interesting Twitter thread that kicked off this conversation about when to follow the crowd and when to maybe not. Then on this week in climate startups, a really interesting conversation with Bill Clarico of convective capital. a firm that exists specifically to invest in fire tech startups. It's a fascinating conversation. It's going to be a great show. Stick with us. This weekend startups is brought to you by OpenFone. As a startup founder, a lot of mistakes are easy to roll back. But using your personal cell phone number as your company number isn't one of them.

Open Phone makes it easy to get business phone numbers for you and your team right on top of your existing devices. Visit openphone.com slash twist to get 20%. sent off your first six months. And the Microsoft for Startups Founders Hub helps all founders build a better startup at a lower cost from day one. Open to anyone with an idea, you'll get up to $150,000 in Azure credits, technical advisory, access to mentors and experts, free dev tools, and so much more. There is no funding requirement and it only takes minutes to join. Sign up today at AK a dot MS slash this week in startups. All right, Molly, you have some questions.

It's a VC Sunday school. I noticed some fans of the show are making notion instances, code instances, blog posts, medium posts about VC Sunday school. You have my permission to do that. You can even monetize it if you like. Just say you're doing it as a fan of the show. It's fine with me. It's so great, though, because it really is turning into like a little,

as they all put it together like that, it's like curriculum. Look at that. Oh, interesting. Founder University, VC University. Interesting. Just saying, we might be creeping closer to yet another podcast. Just kidding. Sorry, don't panic.

Don't panic, producer neck. Founder University podcast is doing great, by the way. What you want to do a little shout out to producer. I sent it to three people over the holiday who were talking about starting businesses. I was like, oh, if you're going to do it, you got here, you got to do this. Like it's found every episode of Founder University. We're incubating new talent. Yeah.

Kelly did her first episode. Yeah, she's great. We did one on just How to Find a Co-Founder, and that's like something that we get all the time. So we just pulled together all the knowledge. We have other knowledge that we found that was really smart on the web. We just make it to a tight 10-minute episode. Every episode of Founding University is two episodes, two talks. In each talk, you're going to get a minimum of three really solid takeaway.

So that's two times three is six, two ten-minute segments. The first segments by us and the second segments by one of our partners. So we had partners who like to advertise in this program, the ads sell out on this program. That's great. Some of our partners are like, hey, we want to teach people how to use our product. Do you have that? And I said, yeah, I got it. It's called Founding University.

We teach something for 10 minutes. And then LinkedIn or Vanta or whoever our partners are, they teach something. And we tell them, hey, you got to teach something where people actually learn. And so they've taken on the challenge, the partners. And so it's better than an ed. It's like, I want to learn how to use Notion better. I want to learn how to use Coda better. I want to understand SOC2 compliance better.

I want to learn hiring better from LinkedIn. Those platforms, they can teach you a lot. And having them teach you how to use their platforms better, it's like, It's actually really good content. So I like it as a business mom. Yeah. It's super tactical. Yep, check it out.

Founder. University. I am stealing a little bit of BC Sunday school question from the internet because there was this kind of amazing tweet back in February 2021. Sam Parr tweeted about having gotten from the hustle. Which is sold to HubSpot. UpSpot. Yeah.

Tweeted about getting caught in a snowstorm with AC. general partner, A16 Z general partner, Andrew Chen. Sam also hosts my first million. Oh, yeah. As a guest. I was a guest. A good podcast, yeah. So Andrew Chen currently leads A16Z's $600 million games fund,

focused on the future of video games. He ran Uber's rider growth team. And he told Sam during this snowstorm the five tips that he used to become a successful angel investor. This came up because, as we talked about at way back to the beginning of the week, somebody had retweeted this thread in response to the pipe co-founder stepping down and just big bubble evaluations overall. Andrew Chen is, I'll just say, a smart guy.

But this is a little bit, this is a mixed bag of advice. It's easy to dunk on. So there's some interesting things. Some of it's derivative from stuff I said in my book, other parts of it. And I know he's a fan. And thanks, Andrew. He's always said nice things about me. And some of it is a little.

a little bit momentum investing. And so it's easy to dunk on now when the market's collapsed. But let's go through each of his points and say which one is a good piece of advice and which one maybe is suboptimal. Great. Because I really want to know about the momentum. But yes, there's lots of stuff in here. Okay. So one, and this was in your book, invest in Bay Area or Bay Area connected companies. Most $10 billion plus companies start in the Bay Area or had a connection there. Companies can come from all over. But for many reasons, Bay Area companies are more likely to have huge outcomes, COVID might change this TBD. Okay, so that is correct.

He got that from my book, I think. In my book, I talk about, hey, here's the Nordics. There's nine unicorns there. And here's the size of those unicorns. Here's New York. Okay, Tumblr, Etsy, Kickstarter, you know, a lot of great companies have come out of New York, historically double-click. And then, you know, here's actually what's come out of the valley.

And when you start looking at $10 billion plus outcomes, and this goes back to the power law, you know, you really get paid when you hit an Uber, uh, where Andrew worked. And, uh, you know, those haven't happened in other places in the world all that often. So you, if you are placing your bets in the valley, the chances of one of these super outliers, like a super power law, a Google, a Facebook, et cetera, is really much higher. There have been, there are notable examples. I just go through this in the book angel. You obviously have Microsoft in Seattle and you have Amazon in Seattle. You have, you know, all kinds of companies, Qualtricks in Salt Lake City. These things can happen in other places. They just happen the super outliers, 10 billion or

plus outcomes most often here. That doesn't mean you can't build a successful portfolio outside of here, but the companies here historically have done unbelievably well. So I'd say that's still good advice. Yeah. I think there are three here that are about momentum investing. So I'm going to read those three. actually I'm going to end on the momentum investing. So I'm skipping ahead to number four. Tip number four. If a big name, nope, sorry, tip number five, aim for quantity.

We talked about this a little bit with bet sizing. If you have $100,000 to invest, 10 companies at $10,000 each is better than four at $25,000. If you do write one winner, this is literally from the book, Angel, yes. You need to have, because 60, 70% fail, I asked all the angels I knew or all the stage investors, you know, how would you do a portfolio allocation and how many investments do you need in order to hit an outlier? Most common answer,

30 to 50. So, you know, for this 100K, it actually might be better to do 20 syndicates at 2K each, get to 40 and then put the 60k into two companies at the end, right? A hundred K is a very small amount of money to have an outlier. You know, you're going to need to hit something, you know, one in 20. So it's going to be hard to hit something one in 10. It's not that it's impossible, but it's going to be hard to hit an outlier only placing 10 bets to hit an outlier. Most people would say 30. What do most venture firms do in terms of bet sizing in their funds? They put in 30 names into a $300 million fund, $400 million fund, and they're hoping one of them returns the fund or more. So I would say 30 is the number. And then before I get to the dishy stuff, there's

number three. Tip number three, look for stuff that's growing at least three X. a year. Literally from my book as well. So I guess he may have read my book right as he was doing this. But I think he also, he was the group of angel investors who came right after myself, Tim Ferriss, Naval. And so in fairness to him, you know, we kind of got this playbook in some ways from Ron Conway. And then myself, Chris Ock, Kevin Rose, and that Sion Banister, we kind of deployed the Ron

Conway playbook. So if you really want to know the history of it, Ron Conway invested in hundreds of companies. And before him, Yosei Vardi had invested in 100 startups. So they were the original OG investors were Yossi, Ron Conway, they figured it out, and then we kind of productized it or perfected that playbook. And then Andrew was like one of the young guns who kind of followed us up the hill. All right. And then here's where the dunking started slash the, oh, this is how we got a bubble comments.

Tips two and four are basically the same. Yeah. Run towards the heat. Okay. If a company has tons of hype and seems overvalued, don't run away, run towards it. Hype is good, meaning that they'll likely raise an exit at a higher valuation. It won't feel overpriced after the startup exits. And, and then in tip four, if a big name investor invests, be a follower and invests.

They've likely done a ton of work to discover, bet, and analyze. Big investors are pouring resources and finding fast growing industries and companies. Copy them. Yeah. So that's something we talk about. you know, in terms of social signal, if Sequoia, and big name investors, I would say, high performing investors, the highest performing investors, the legacy investors, the people who've done this before for a long time. I would not include Andreessen Harowitz in that.

Dr. Rosen Harrodh's a relatively new firm, he's made a lot of big, large bets, like bad bets, right? So if you're running towards the heat of an A16 investment, that might not be the heat you want to run towards. That might be like running into a money furnace, right? Whereas like, Sequoia or Excel or benchmark. If he's talking about those big name investors, see, that's why I wouldn't use big name. I would use historically top performing. Andresen Harwitz is not a historically top performing fund statistically.

They are an average fund, but deploying large amounts of money, right? They don't have the returns of benchmark. They don't have the returns of Sequoia. But they're more like an index fund, as Tramont said on All In Pockets at some point, they're trying to be the Black Rock or something like that, like just put tons of money together and just, you know, be the average. kind of return on large amounts of money. So people want to put a large amount of money to work can go to an

Andreessen Horowitz or whatever where he works. But you really always got to think about the person's motivation when they're telling you to do things, right? And I talk about that in my book. Running towards the heat and just following an A16 investment, I would not advise that. I think it's a really bad idea. And so be careful because some firms are playing a different game than you.

If you're playing the outlier game, Indrisen Harowitz is going for average returns or slightly better than average but putting large amounts of money to work, like most large firms, they're not trying to do 100x. Now, an angel is trying to do 100x. A big firm is trying to just do a 3x. So if you've only got 10 or 20 of these bullets and you're two or three X them, that's not going to be good if 80% die. You're going to be underwater, right? You just do the simple math. Yeah. If Indreason or whatever growth fund, that's not a dig to a growth fund, it's not a dig to a growth fund. If you're deploying a billion dollars, you return three, that's two billion

in profits. Right. And you get 20% of that. You make 400 million. Like, that is a specific game to play in Silicon Valley is to be a growth investor and just invest in things that already have 50 million or 100 million of revenue. But if you're mixing that advice with angels, that's a problem, right? And then here's the other problem. If Sequo is investing or benchmarks investing in the series A, there's no room for you as an angel. You're not getting in that deal. So that's a bit of a blocker. So you have to think through this advice. And then looking for things that are growing three X year over year is important, but you have to double click on it. Is that actual profitable growth? Is it bad unit economics? You know, actually understand that. And that's hard to understand.

So if you spent $10 million to triple your revenue from $300 to a million, you lost $9 million to make a million, that's not actually good growth. You want quality growth that's $3x in year over a year. and I actually use that number 3X. In our staff meetings, in our investment team, we actually consider high growth 3x year over year. We consider good growth, you know, anything that's double or better. All right, everybody on the phone today is Open Phones founder Dorena Kuya. Welcome to the program, Dorena.

Thanks, Jason. Great to be here. Now, what mistakes do most founders make with phone numbers in their startups? Great question. First one is they use their personal phone number for their business. And it's an easy mistake to make because you don't necessarily think about it much. You know, you incorporate your company, you put your phone number, there's all these forms you fill out.

It very quickly goes from being your personal number to being the number for the company. And when that happens, there are all these data aggregators and all kinds of services that take your number and put it everywhere. Yeah. Suddenly now there is this uptick in spam text messages. It's the worst. Yeah. And people just wonder, like, how are others getting my number?

well, let me tell you, you put it in different places and it kind of snowballed from there. So that's the first mistake. The second, which is initially as a founder, you're the salesperson. You're the only sales rep. And then you hire a first sales rep. And sometimes founders let that person use their personal phone number. Oh, no. That number, the data, everything that happens is just fully belongs to the sales rep.

And if that person leaves, you lose the entire history with your customers. Yeah. And then what if that's that? sales executive goes to a competitor. Exactly. Yep. Okay, everybody, Twist listeners can get 20% off any plan. For their first six months at OpenFone, just go to openphone.com slash twist. If you got an existing number, they'll put it right over for free.

Head to O-P-E-H-O-N-P-H-O-N-E dot com slash twist today for 20% off. And I have seen us as a team have, I mean, I'm very interested in this be a follower kind of question because obviously a big, like a trope about VCs is that they're lemmings and they all you know and there have been all those jokes lately about all the VCs pivoting from crypto to generative AI like tripping over their own feet headed in that direction. What about this idea that if everybody, I mean, I have a somewhat idiosyncratic financial advisor but he's like don't do you know, whatever everybody else is doing, don't do that. Do the thing that they're not doing. Like is it your opinion that that applies in VC?

All right. You should find the underappreciated opportunities. You have to have discipline is what it comes down to. Right. And you have to evaluate each deal based on some like basic operating principles and process that you have. That process could be, hey, we should look at any company, obviously, Sequoia or benchmark or investing in or any notable investor that we respect. Sure, that's a signal, but it is but one signal. And now is the signal they invested in this company because they raised a crypto or a gaming fund and they have to deploy it. You know, if he's running a gaming fund and Chris Dixon and Drason are running, you know,

this huge crypto fund, well, they're going to invest that fund. They've been paid to invest that fund. They're taking down tens of millions of dollars, you know, in management fees every year. You know, Andrew's $600 million gaming fund is taking down $15 million in fees a year. He has to deploy that money or they don't get that $15 million and they have to give the money back to LPs. Of course they're going to do it. So they might be taking a lot of risk in crypto.

Obviously, they have. we'll see if ultimately pays off. I think it will not. Gaming, you know, wish them the best. Maybe it does, maybe it doesn't. Who knows? But you have to be thoughtful about that. Right.

Who are you following and why? Yeah. Now, if benchmark is investing in a crypto company or Sequoia is, you could look at it and say, okay, well, they don't have a dedicated crypto fund. They probably are thoughtful investors, but they still could get caught up in an FTCS where fraud apparently has occurred. So, you know, just because other people are doing something doesn't mean you have to do it too.

If they jumped off the bridge, would you jump off the bridge too? Like, you know, mom would always tell you? Like, if Billy jumps off the bridge, are you going to jump off the bridge to? It's like, no, I'm going to think about it. Is jumping off the bridge fun? Did Billy get, you know, hit cement or getting by a crocodile, see crock? Okay. Let's leave Billy out of it.

Poor Billy. I mean, Billy's always doing things you shouldn't do. That's the whole point of Billy. So I would be more thoughtful. We've had these discussions in our investment team meeting all the time. We're like, why is this person investing? We came to the conclusion that this company has, you know, know, real challenges, I wonder why this person's investing.

Okay, they want to take risk. Maybe they've got a dedicated climate fund and they're putting it to work, come hell or high water, and this is the best deal they can find. Maybe we want to be more thoughtful, right? I mean, I've seen companies appear before our investment team, aka you, that have like a bunch of your friend's names on them. Yep. And how do you go, no, right?

Like, I think that there's... We're not yet. I see that level of rigor. I'm trying to have rigor. under like how hard is it not to get caught up? Because and yet there is this lemming effect. Like people clearly buy the idea of momentum investing. I even had investors in one of my first syndicate deal being like, well, hell yeah,

benchmark is in. Like there clearly those signals really matter. They do. To people. And so again, I would never use just one thing to evaluate a company. I would try to put together as much information as possible. to make the most thoughtful decision. It's not perfect. You're going to invest in zeros. So at some point, you're going to put all this information together and you're going to place a bet.

And I call it a bet for a reason because it is not guaranteed. And so with momentum investing, if you were selling your chips along the way, as an angel, yeah, this could work. So to Andrew, in fairness to Andrew's point, which half of them are my point in my book. So I can't disagree with them, right? I'm like, well, I wrote that. I kind of agree. The momentum part is the part where you just have to be careful and be thoughtful. You know, running towards the heat, sure, run towards the heat and check it out.

You don't have to run into the burning building. So I'd make sure that that's like, you know, a productive furnace like that heats the house, not like I just something that's about to explode in your lap. So yeah, sure, run towards the heat, but then make a thoughtful decision would be how I would evolve Andrew's comments here. And I think, you know, this is Andrew as interpreted by Sam. And so he then he tweeted it. He was like, oh, looks like this surfaced again.

I still believe all that. Great. Yeah. I mean, he was like, yeah, definitely. Go for for. But this is also. Yeah. So then he responded and said, I still believe angel investors are better off following rounds from top BCs, preferring San Francisco companies, backing high growth, busy companies and creating a portfolio obviously on top of your own diligent.

Right. So that's the part that's left out of this conversation. And just be careful with. buzzy companies. I think that's where people in a down market looking at everything, they're looking at his advice there and saying, oh, he's talking about just race into pipe or

race into fast.co. Fast.co had all these things. Great VCs. Yeah. Growth, whatever. And then you look, and maybe you're under cover and you're like, oh, wait, but they're burning so much money to get that growth. Maybe this isn't a good one, right? Or Peloton. Oh, wow, this is incredible. All these people are

investing in. Oh, but maybe it's not sustainable growth or maybe they're distracted, right? So, you know, devil's in the details. And not trying to, just in case Andrew even cares, I don't think he cares. Wasn't trying to dunk on him. Just this kind of momentum investing is what creates bubbles. Because people can take this advice. And if you don't have the counter of do your diligence as he's correcting in this tweet

storm with his update, you really want to be thoughtful about diligence. You really want to be thoughtful about looking at the quality of the revenue, right? and don't just, you know, don't just throw money at things because other people are throwing money on it. That's the part of Sam's synopsis. Again, it's Sam's interpretation and that's the part of it that breaks down. And that's momentum investing. And some people make a lot of money in momentum investing. If you have a buyer, if you have a bag holder, it requires a bag holder. Crypto had that. Public stocks have that. It actually requires a bubble. Like in a downturn, yes. Momentum investing makes no sense because there's not going to be somebody to catch

the falling knife, as you often say. Right. It's not based on fundamentals. Momentum investment is based on the next, the greater fool theory. Bitcoin, crypto, trading cards, classic cars, art. All of that requires other people to believe that that object has value in the future. And as we've seen in crypto, that doesn't exist.

In art, it still exists, you know? So you can look at the history of something and determine if exists. Homes in a city in America have a certain. certain value because those cities are vibrant and will they continue to be vibrant? A thousand years from now? No. In our lifetime? Yes. I don't think New York, Austin, Bay Area, California, Florida, real estate's going to be worth less in the next 10 or 20 years. Could go sideways, but I mean, I think it's a pretty safe bet. Maybe just the one. Well, San Francisco, but the rest of the Bay Area has been surging. Oh, no, I'm talking about Florida. I don't know, man. With the tax situation.

ready underwater. I'm literally just talking about climate change. I don't know about those people buying those Venetian islands. Just talking about climate change. Like that's bananas. I see those, I see those multi-million dollar skyscrapers going up on the water in Miami. And I'm like,

yeah, you know. Right there. Hope is not a plan, people. Well, I mean, and they do seem to have built that. This is the thing I had a question about it. And maybe you can have an architect. This would be like an interesting spin for this week in climate,

would be to have actually both sides of that debate. because if it does have flooding condition, it hasn't gone underwater at the pace people thought it would, but there are more floods. What I'm trying to figure out is if there are two floods a year, and those homes are built on stilts, those apartments, homes, whatever, the bottom floor is built to park two cars

and for a flood to go under them. And you have Starlink and you got backup power or whatever on the roof. Is it that bad of an equation to live in those weather-resistant homes, have they adapted enough with that technology or not? I mean, that's what we're assuming, right, is that they're being built with resilience in mind and not all of them are, yeah. That's actually, you know,

they are still doing the How We Survive podcast at Marketplace and the season is all about Miami and real estate and climate change there. I might have to listen to it, and then I will have the answer to that question. Do those homes on stilts work or not, you know, like those elevated stilt homes? It depends.

I mean, they work in a flood, but maybe not a hurricane. Okay, but aren't they building those to be hurricane resistant as well. In other words, I think there's a lot of, there's definitely a lot of interesting architecture. That would be a great. There's a lot of interesting architecture questions about adaptation and resilience that yes, like, right? And here we're built, there's like fire resistant materials. I visited a house in San Rafael that's, you know, it's like an expensive. It's like a $5 million house, but it's built to be as close to fireproof as it can be. And I think insurance is going to drive a bunch of that. It's a really interesting conversation.

about where to build and how. Yeah. For sure. I was obsessed looking at those. I remember New Orleans and some other places were putting those up. The hurricane proof houses are a thing in Florida. This week's, this week in climate startups is actually super related to this exact idea of building

and resilience and like changing the way we do things. And it's actually a not a start, well, it's a startup fund. So this company, this new venture fund, Convective Capital, was launched by Bill Clarico, who was the former co-founder and CEO of that FinTech We Pay. Convective Capital has raised $35 million for its first fund to back early stage startups, specifically focused on detecting and containing wildfires and being more adaptive and resilient to wildfires, fire tech startups, literally. I love that. Yes. I think, you know, every, I'm a little concerned with any vertical venture fund because there could be things outside the vertical that they meet. So hopefully they don't meet something that's adjacent that they, you know, will keep from going after.

But having a thesis in climate is good and, you know, narrowing it. I'm like, hmm, it's a really narrow. That's why. Yeah. This is very narrow. Yeah. But it's a small amount of money. I was like, they're going to invest in roughly, this is also interesting, 15 companies with

seven figure checks. Okay. Yeah. So they put a million into 15. That's 15 million. Just talking about bet sizing, which was last week's episode or the week before. Let's say they put a million into 15 companies. They have 20 million left.

Let's say they take the best three companies to put another seven million approximately into each one of those. That means they have eight million in each of their three winning companies, which means they probably have a 10% ownership in those top three winning companies. If they have 10% ownership in those three winning companies, and any one of them becomes a $500 million company, how they make $50 million, if one becomes a billion dollar company,

they make $100 million, now they have a 3x fund, right? There you go. That's how venture works, is the bet sizing matters. So hopefully they hit a winner. And if they're doing seed rounds of $7 million, they get probably 5% to 10% ownership for those companies.

Yeah. Great job. Super interesting. It's an interesting interview. All right. Enjoy. All right, everybody. I want to take a moment to

thank our friends at Microsoft. Today we have Lahini R. Natchelum with us. She's a senior director of platform and growth at Microsoft. She actually created the Microsoft for Startups Founders Hub. Welcome to the show. Thanks, Jason. Thanks for having me. So tell us a little bit about the Founders Hub. Why did you create it? Yeah. So we built Founders Hub based on the feedback from hundreds of founders. We spoke to founders at all stages of their journeys. So ones that were just starting out with an idea to those that had actually built successful companies. Just to better understand what? their challenges and pain points were as they were building their businesses. And we found three challenges that kind of rang true regardless of where they were in their journey.

The first one was that founders need access to coaching and advice to get to that next milestone. The next is that they need to accelerate the time it takes to actually build an MVP or their second product or their next set of features. And of course, founders need capital to actually keep them afloat as they continue to build their companies. And so Microsoft for Startup's Founders Hub is a digital platform built to help founders with these challenges. Thanks so much, Lahini. If you would like to check it out, go to the Microsoft for Startups Founders Hub, and they have no fundraising requirements. Open to anybody. If you're a founder, they want to support you. It takes five minutes to apply, and startups can get up to six

figures of benefits instantly. Sign up for the Microsoft for Startups Founders Hub today at a.k.a.m.S. This week in startups. Bill Clarico is a former co-founder and CEO of of the FinTech We Pay and has now launched convective capital, the first fund that I know of, devoted to backing early stage startups creating tech to help detect and contain wildfires. Bill, welcome to this weekend climate startups. Thanks. It's great to be here. Thanks for having me.

All right. So tell me about this fund. You raise $35 million and plan to, it sounds like, do a pretty strategic, like a targeted investment strategy, big checks to just a few companies. First of all, what made you want to do this? Yeah, well, I think, you know, I was a technology founder and started a company called WePay. So we were an early FinTech company. And we built that up over the course of about 12 years and sold to the JP Morgan and had a grand old time and a ride with lots of ups and downs. And I think one of the things that really benefited us there was we were early to a market that wasn't obvious.

You know, FinTech in 2008 when we were starting, you know, a lot of feedback I got from investors was, you know, hey, you know, the banks own this space. It's the middle of the great recession. like why are you doing stuff in finance? This is highly regulated. Like, why don't you just go build software, photo sharing, or social media like everyone else? We call that a challenged vertical sometimes. Yeah, exactly, exactly. But I think what ended up playing out was that over the next 10 years,

that became one of the most exciting categories of venture. You know, FinTech today is the home for many, you know, 10, you know, multi-billion dollar companies. And I think it was the companies that sort of cut against the grain early on that benefit from that tailwind in the market. And so we see a really similar thing. in climate resilience and specifically in wildfire today where there's a lot of early signs that this is a market at a really big inflection point. And it's the early folks that really

specialize that are going to benefit from that. So we built the firm as sort of a highly specialized venture firm to invest in climate resilience and specifically wildfire in order to in order to capitalize on that. Talk to me a little more about the resilience thesis. Like do you consider this adaptation? Do you consider it, you know, sort of we live in this world now where mega fires are a regular occurrence, heaven help us, and we're going to have to survive it. Yeah. So what got me into this and really opened my eyes to it was my wife and I have a place up in Mendocino County, a cabin. That's actually what my backdrop here is from. And, you know, we spent a lot of time up there over the last five or six years. And we've had a number of

run-ins with wildfire. So we had a 90-acre fire burn on our access road, kind of our one-way in and out of the property. We had a neighbor's property catch on fire and we can see all the flames from our front door. And it was just a really big eye-opening moment that like climate change is not like some faraway thing happening at the North Pole in 20 years if we don't get our act together. It's like literally happening on my doorstep today threatening the safety of kind of me and my family. And that was like a big eye-opening moment for me. And so and thinking that, you know, we have to invest broadly against climate change and think about decarbonization and all that, but the sad reality is that there's a lot of those negative impacts of climate change are

already here today and are only going to get worse. And so things like resilience are a really important part of that formula. And so, you know, fire, in my opinion, is one of the tips of the spear of climate change. You know, it's here today. It's on our backdrop. It can really threaten things. And so, you know, it's a really important thing to think about building resilience to. And so how did you go from thinking about that threat, that opportunity in terms of resilience to the technology opportunities. Like what, you know, what made you go, okay, I bet there's tech for this? Yeah, so I was, you know, literally looking at my back, out my back door watching this all

happen. And I was like, I got to figure out what to do here. You know, I got to get smart on this issue. And so I went and volunteered with the Anderson Valley Fire Department, which is up near our place. And then I started just talking to anyone that would talk to me about wildfire. You know, I went and talked to firefighters and foresters and utility executives and insurance companies.

And, you know, one of the constant themes that I saw both in my work as a volunteer and also hearing from other folks was just like it's kind of underinvested in as a space, particularly where it comes to technology. And so a lot of the tools that were being used had been around for 20 or 30 years and really hadn't benefited from the huge groundswell of innovation that we've seen, you know, on mobile and on the web over the last 10 or 15 years. And I lived and breathed as a technology entrepreneur. And so I started to kind of seek out tech entrepreneurs that were kind of building in this space and making, some angel investments and, you know, started to realize that there was just an enormous market opportunity here and that, you know, there were some early but really promising technology companies that could have big impacts on this problem. And so I started to fund them personally. And as I got more and more excited about that and saw companies start to take off, you know, decided that we could

really scale it up and build a fund and a business around it. And so that was sort of the beginning of connective capital. And we went on to raise, you know, $35 million. And now we're kind of early stage, you know, pre-seed and seed fund, focus on wildfire. We write kind of one to two million dollar checks into really early stage companies working on this problem. That's a pretty big seed to precede check. Is it pretty, do you, are you finding that, tell me about some of the investments. Like, are you investing in hardware? Are you investing in software, you know? Yeah. Yeah. Our belief is that since we're so specialized, we should be able to really understand the market and put our capital behind, you know, the companies that we think are going

to make it. And so, you know, relative to us, other 30 to 40 million dollar funds, we actually are pretty concentrated. You know, a typical seed fund at our size might write a $500,000 check into 30 companies or 40 companies. And so we're, you know, we're writing a much bigger check into a smaller number of companies thinking that we can really sort of catalyze, you know, innovation and company building in the companies that we think are the most important in our space. So we've made, you know, a number of investments so far. You know, I might start by talking about a company called Overstory. And so Overstory provides software to utilities to help them monitor their power lines and transmission networks. You know,

utilities cause 11% of fires, but they cause a much higher percent of the really bad fires because the same high winds that cause electric line failures also cause really bad fires. And so Overstory helps utilities manage that risk. You know, they spend billions of dollars a year trimming power lines and doing inspections. And so Overstory helps them see via satellite imagery what lines might be at higher risk versus lower risk and really prioritize a lot of those efforts. So, you know, It's a really exciting company actually based in the Netherlands and growing really fast, helping these utilities better manage their networks. Wow.

Yeah, I'm looking at a little bit of the portfolio. And it sounds like there is a lot of, and listen, I am a fan, right? There's a lot of data gathering, measurement, monitoring, but also looks like you have BurnBot, robotics and AI to scale safe, clean fuel treatment. Yeah, absolutely. So BurnBot is a really exciting company. they are building, you know, with their first device is a robotic device that can actually, you know, drive along the ground and burn control lines and do prescribed burning underneath

this device. And so, you know, if you've been looking at the news around fire, you've heard about prescribed fire and controlled burns. And every now and then they can escape and they can be quite controversial. But it's a really important tool for forestry. And so what BurnBod does is make that process a lot safer and more efficient. It happens in a really controlled way under this device. And so that helps us, you know, do more fuel treatment in areas where you might not be able to do it historically. And it's a great application of robotics to this problem.

As you did all of this research and you're choosing these companies, what did you find? Because there's sort of this, there's like a whole layer of technology that it sounds like can make a huge improvement. And then there's just the ability to like put out of fire. Yeah. Yeah. Yeah. And do you feel like that?

technology layer can make that big a difference. Like, is the goal to stop the fire in the first place? Yeah. So we kind of use a framework of three big buckets. You know, we have to manage our landscapes better, which means removing fuel and wood and unsafe conditions long before the fire starts, just to make it so that what a fire does start, it's not happening in these severe explosive conditions. The second bucket we invest in is community resilience. So it's how do we help make our towns and houses and buildings and infrastructure more fire resilient. It can be new building materials for homes, new services to help homeowners upgrade their

homes, new types of insurance to protect homeowners. That would all be sort of in scope for our thesis. The last category is what you mentioned, which is, you know, how do we intervene when fires do start? There's good fire, which can be low severity and helps remove a lot of that fuel and is a really natural part of the landscape. And then there's really bad extreme megafire where we want to intervene and we want intervening quickly and aggressively to stop that. And I do think technology can help on that.

You know, it can help in detection, for example. We invested in a company called Pano AI, which builds a camera-based system that monitors for fire starts and uses AI to detect smoke. And then it can actually dispatch firefighters, you know, much faster to a fire. And then we also are investors in a company called Rain, which is building autonomous drones to actually go fly to that fire start and go put it out, which is super cool. And so, you know, I think there's lots of, you know, ways you can think about applying to technology to this problem, you know, in these various buckets. And the exciting thing for us is that a lot of this technology is proven in other markets. It just hasn't been applied to fire.

So cameras exist. AI to analyze imagery exists. You know, autonomous drones exist. You know, but none of these technologies have been sort of applied to wildfire or climate resilience in a really concerted way. And so that's the opportunity for us is to sort of take these proven technologies and apply them to this problem. And then talk to me about the buyers for this technology.

This is obviously a huge ecosystem with a ton of money in it. Every time we read that a fire cost $2 billion or $3 billion, like that money was spent on suppliers and helicopters, but a lot of those are incumbents. And so I wonder, like, how are you thinking about how companies are going to be able to sell into utilities and public agencies and maybe insurance companies that are sort of slow moving and have a lot of existing constituents, let's say.

Yeah. Yeah, you kind of hit the nail right in the head. You know, the ultimate buyers in this space are really large. They have enormous budgets, but they're incredibly slow moving. You know, it's the federal government, it's utilities, it's insurance companies, it's timber companies. You know, these are sort of large incumbent players that have huge amounts of assets but are typically a little bit slower moving. I think the bad news slash good news is that these entities are all in crisis.

You cannot have consistent million acre fires happening without some sort of response. Citizens really are demanding this of their government. Utilities are losing tens of billions of dollars a year in liability. So are the insurance companies. Landowners are really afraid. And so I think we're at this unique point in the market where these really large, large, you know, institutions are having to adapt and having to invest in new solutions and having to do it in a really serious way. And so, um, I think that, you know, bodes well for our

companies that are, um, that are building solutions for that, um, because it's kind of created this unique window where, you know, these institutions acknowledge, they have to try something new. They have to do something different. Um, and I think that's creating opportunities for, for new solutions. And I don't think that opportunity existed five years ago, you know, it's only really after the really bad run of fire seasons that we, um, and I think that's really bad run of fire seasons that had and hitting this sort of tipping point that we're seeing these sort of economic buyers change their thinking. Yeah.

This is very much kind of a fascinatingly fast moving industry. And I want to explore this sort of specificity of fund concept. Like, do you think that there is a universe in which you would spin up a similar fund for flooding or that that could, that what you're doing at convective could become a model for other funds that are sort of trying to take a, you know, break this problem down into its component parts and tackle a specific chunk of it. Yeah, I think if you zoom out and think about what's happening in the venture market, at the high end of the market, you've got like Andresen Horowitz and Sequoia raising multi, multi-billion dollar multi-stage generalist funds.

And they have, you know, amazing brands and really talented people and they're, you know, getting bigger and bigger and bigger as investors. I think in doing that, though, they have to have really broad coverage and it's really hard for them to specialize in anything, right? They are kind of a marquee generalist investor. And I think that's created a huge opportunity at the other end of the market, which is, you know, really specialization and investment is incredibly valuable to the founder and the entrepreneur, but harder and harder to do as everyone gets bigger and bigger. And so I think one of the really unique things about our approach is that we're intentionally small, we're intentionally highly specialized. You know, we can sit with a CEO building a fire tech

company and immediately introduce them to the utilities they need to talk to, the insurers they need to talk to, immediately, you know, the fired agencies they need to talk to, understand their business at a much deeper level. And that lets us compete against the best investors in the world or collaborate with the best investors in the world that that might want to participate here. And I think that's the beginning of a much longer term trend. I think we're going to see more and more of these specialized small firms that pick a market that they have a strong, you know, thesis around and go really deep and, you know, be the, the investor of choice in that space.

And so, you know, I would argue we are the market leaders in fire technology. Now we're the only ones in it, but, you know, kind of by default, that makes us the leaders. And I think over time, you know, we could build a very meaningfully specialized fund in fire, or maybe there's some specialty adjacent spaces like flooding or other types of climate resilience that we move into as we scale, but we have a lot of work to do in fire for the foreseeable future. Yeah. And how about your, you know, you don't have to give me a bunch of information about your LPs, but the people who invested in convective, the agent, the whatever, the institutions or the individuals.

Sure. Like, there's a lot of money and a lot of VC activity in Northern California where there have been a lot of these fires. And I wonder, what do LPs say to you? Like, clearly everybody believes this is a market, but is it also a market that's kind of, I guess I'm sort of wondering about what other things will be inspired by the personal experience of climate change. Right.

Yeah. I think there's going to be lots. Certainly on the East Coast, even just a couple of weeks ago, we saw, you know, with the hurricane down in Florida, you know, we saw, you know, I'm originally from the New York area. We saw, you know, Superstorm Sandy. So I think it is a very personal, visceral thing when people experience these impacts to their, to their lives directly and certainly informs the way they think about investing. And I think that's going to be a broader trend.

You know, why is climate sort of on the upswing right now? I think it's because we care about this future where. where we want our children to live in a world that's as great as the world we live in or better. And I think we're seeing signs pointing to the opposite around climate. And that inspires people like me to go spend our time on this. And I think investors also think about spending their capital on that. And so we have a kind of broad swath of investors that range from a foundation that really cares about this and is investing out of their endowment to individuals and entrepreneurs that

that have experienced this firsthand or lost a house. And then we have other folks that are just sort of believe in the financial opportunity and just say, you know, hey, this is a market at an inflection point. And, you know, we want to invest in this because we think that it's a really compelling economic opportunity. And so, you know, I think for fund managers like me, you know, we try to have a big tent, you know, as if people want to invest with their financial hat on, that's great. If they want to invest with, you know, an impact hat on or a personal head on,

that's great too. And I think we're just going to see increasing demand for these types of funds over time. Yeah. And then finally, as you look across this landscape and you talk to all these different people and agencies in this specific field, what's the tech they all need? What's the thing? Is there something out there that they all have consistently said, we need this one thing. Oh, my God. And you would spin up a startup and a dime.

Yeah. I think a lot of it is around landscape management. You know, it's when we say fire tech, everyone thinks about firefighters and going to put out fires. And that is definitely an important part of it. But some fires are just unstoppable. You know, if you have the right fuel and the right temperature and the right wind at the right time, it's just, you know, the physics of putting those fires out are extremely difficult.

Yeah. And so, you know, how do you stop those fires? You have to treat the landscape before they start so that when they do start, it's a lower severity burn and that it is, you know, stoppable, you know, or it can burn in a way where it's not as damaging. And so, you know, we're spending a lot of time thinking about. what are new technologies for landscape management? You know, is it analysis via satellite to help think about what vegetation needs to be fixed?

You know, companies like BurnBot helping actually do the fuel treatment. Can robotics and autonomy be applied to logging and forestry to kind of help do that? How can we bring carbon credits into the equation to help fund some of this work? So we're very excited about that as a category. And I think it gets a lot less attention than suppression in some ways, but is potentially even a bigger market and more exciting. So fascinating. Please like,

please just come back every six months and tell us what you're working on. Like, this is so interesting. I'd love to. Love it. Great. Bill Clerico is the general partner and founder of Convective Capital, a $35 million fund to back early stage startups working on welfare tech. Thank you for what you're doing and for coming on.

Thanks for having me, Molly. All right. That's it for Sunday. We'll be back tomorrow. It's going to be a great week coming up. The crypto roundtable is back. We have next unicorns. Stay tuned.

and enjoy the rest of your day.