This Week in Startups - Telling founders "no," Board meeting etiquette (VC School), + Michael Luciani | E1516

Episode Date: July 24, 2022

For today's VC Sunday School, Jason talks about saying "no" to founders (1:20), and Molly asks about board meeting etiquette (20:12). Then, for This Week in Climate Startups, Molly speaks with Michael Luciani of Climate Capital (37:18). (0:00) Jason intros today’s show (1:20) VCSS: Saying “no” to founders (9:20) Brave - Download today at https://brave.com/twist to browse faster, search privately and so much more (11:01) Some VCs give a “no” to gauge a founder’s tenacity (19:08) iTrust Capital - Visit https://itrust.capital/twist to create your Crypto IRA today (20:12) Board meeting etiquette (36:02) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist (37:18) TWiCS: Michael Luciani of Climate Capital (1:02:40) Outro

Hey, everybody, welcome to the Sunday show of This Week in Startups First Up, VC Sunday School, as we do every Sunday. Molly and I are going to talk about first board meetings and all of her questions around those then. She talks with Michael Luciani, a managing partner at Climate Capital. It's going to be a great show, so stick with us. This Week in Startups is brought to you by Brave. Brave is an internet privacy company on a mission to protect your personal info online. download Brave today at brave.com slash twist to browse faster, search privately, and so much more, all in a single click. I trust capital. Did you know that you can invest in crypto through your retirement account and still get the same tax advantages as a traditional IRA?

Visit iTrust.capital slash twist to start investing today. and Open Phone. 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% off your first six months. All right, everybody, it is Sunday, and everybody loves Sunday so much,

not just because you get to rest, but because you have great content waiting for you. And that great content takes two forms every Sunday. You get VC Sunday school where Molly and I talk about her first year adventure into investing. It's been wonderful for me to watch her learn these new skills and get to mentor her on the margins. And then, of course, Molly interviews somebody doing something awesome in climate. So, Molly, here we are another Sunday. It's July. We're in the second half of your first year.

How are you feeling as an investor? Let me start there and then I'll take your question. How are you feeling, you know, confident, enthused? What, what emotions, what feelings do you have, you know, having taken this job and this adventure on? I still, I remain so excited about being an investor. Like, it is just thrilling every time and there's some cool thing to learn. And I am 100% starting to notice the lessons click in and like become more relevant as each week goes by. like the back of the envelope math or the Colombo thing where you're like,

wait a second, you told me your revenue was this, but I added up how much you're charging and the number of things you said you sold. And like, that doesn't totally add up. Or, hey, I figured out that you're going to have to sell this many of this thing, service or whatever to get to $100 million. And that's 6,000 customers. Like, how do you think you're going to get there? And I'm noticing with every meeting a leveling up based on what I've learned from the last one.

It's amazing. Got it. So you feel like you're sharpening your sword each time. You feel like you're in more control of the airplane, whatever, you know, analogy we want to use here. You're just feeling more confident in your ability to assess these startups and then build a mental framework for where they're at, how investable are they? Will they get us a 50 or 100 X return?

And even also, I would add to that, starting to understand the previous knows a little more. Like in the context of each company I meet, right, as they get better and better, or I just see more of them. I realized like, oh, yeah, that thing that I wasn't, you know, that I was like, yeah, I believe you, but I didn't exactly know why. Now I'm like, oh, I see, I believe you and I understand why. And it's this kind of like double. Yeah.

I mean, it's a literally, it's almost a physical process of learning at this point. Yeah. And what's great is when it becomes sort of second nature. So, you know, you're swinging the lightsaber, but you're not even thinking exactly what you're supposed to be doing. You're just doing, right? and so you're asking the right questions, you're building that framework,

just, you know, very organically. It just happens in your brain that, you ever see that Zach Gallifanakis from the hangover where he's like thinking and they show a bunch of math equations go by? Totally. You know that gift? Yes.

It feels like that. That's kind of what happens. Or the Terminator, like that's seen in the early Terminators where he was assessing like, you know, Sarah Connor and he's like, this is a threat, this isn't a threat. Like when I'm talking to a startup, I just see all of the permutations of their life and the life of the startup and where they came from, it just all just appears to me.

It's really a weird thing. It's almost like I think some people who think they're clairvoyant or can predict the future. I kind of almost have that now after 10 years of doing it where I'm like, okay, this person is motivated by these things, this idea has this merit, this execution, is at this level. These are the permutations of possible outcomes in this multiverse, right? because it is multiple paths that could happen. And that's why I love instead of the no, which is the hardest part of the job.

It's the one thing I would notice about your first six months is the struggle with giving the no because you're so enthusiastic and you're so optimistic. It's one of the things I love about you. And it's so great to be partners with you on the show here is because you're optimistic. And you want to believe, right? And that is super important in this job.

That was very ex-files. I have been very ex-files. Like, I want to believe you can do it. You all can do it. Right. And then you start realizing, Even if you do do it, this market is not big enough or this product is not necessary or there's too many competitors, right?

There's all these reasons that you want to believe in the person, but you don't believe in the investment. And that's really hard. I believe in you. But this opportunity as an investor, like, so you have to go from this like radical optimism believing anything's possible than to being cutthroat in your decision making about investments so that the portfolio performs and that our LPs make money and they give us more. Yeah.

And so you know now that we're going to do launch fund for and you've seen some of the metrics, I think you've seen the deck. If you haven't, I'll run you through it. But the reason we're able to do well or you see this reaction when people respond from the syndicate, oh my God, I made so much money with you on this investment or, oh, I'm in launch fund one. I'm very pleased with, you know, how that's worked out so far and your selection of

companies. I'm always thinking, okay, how does this investment give me the ability to raise more money in the future and deploy more capital in more founders? in the early days, I always just, how do I help this founder? Right. And sometimes helping a founder

is saying, not yet. Just like saying to a child, you know, and I hate to, you know, compare a founder to a child, but sometimes they are very young

and they're the first thing in that. Sometimes saying no to a founder and explaining to them why is like saying like, hey, you're not ready to be on the varsity team yet, but you're definitely ready to play basketball and you're ready to do these skills training

but you need to like maybe get 100 practices in and be able to shoot this percentage of free throws before I can put you in the game. You know, you got to show me in the practice. You know, you got to show me in the rec league. So, uh, now you get- It's a really good point too that the context starts to become. There's much more awareness of the context.

Like each founder meeting is not a discreet thing, right? It's not a solo event in the universe. It's like, okay, if I do this, I might not be able to do this. There's this money, much money available for this. we might want to, you know, this might only ever make 5x. But if we save that money, like you start to do this mental budgeting. If we save that money and we put it toward a greater stake in this. Right.

Like those kind of contextual tradeoffs are starting to occur inside my brain too with this kind of like slightly bigger collection of knowledge. And it does become like, well, here's the thing. If you eat this candy now, you will not be able to have dessert later. It's the marshmallow test all over you. Yeah. You know, we believe in this founder, but they haven't put up any revenue yet. Or they haven't, they're giving the product away for free.

It's always like the great example. So we're meeting with, you have five companies, you know, in your, on your plate in front of you right now that you're considering. And two of them have products in market and they have a couple of customers. And then three of them either don't have their products in market or they have something in market, but they don't have customers yet. And you're like, wow, I'd really love to compare these, you know, in a really intellectual way, but I don't even know if these people have product market fit because they're afraid to turn on the price. And they have got major companies with billions of dollars in cash in their bank accounts and they won't charge them. Why? What's the hang up here? And you're like, well, I'm just going to go with

one of these two, right? If I have a choice of five, and that's where I think founders sometimes they'll ask you a question, like, why won't you invest in me? You love the idea, you love the team, you think the product's good. And it's like, because I have other opportunities, that don't get to, have a greater chance of return. And that's, I think, one of the unlocks that founders need to have. Remember always the investor you're talking to has five choices. And if you've strategically placed yourself in the fourth or fifth position and somebody else has strategically placed themselves in the first or second position, well, it's kind

of game over, right? Isn't it? It's like you didn't even make the playoffs here. You're not even in the running. So, you know, it's all of those things make the job hard. But if you're disciplined about it, you can just say to people, you know, it's not yet for us, but we would like to talk again when you hit these milestones on this date. And I really try to be disciplined.

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I'll share it with the audience here where we said, hey, let's try when companies come in, just having them, pick a meeting with one of our investment team, and it could randomly go to anybody. Let's just see how that works. And it's worked quite well, actually, because we get back to founders quicker, which founders always appreciate.

And I had my schedule on there. I actually got one of those. I got on the call, and I was like, hey, so how did we meet? And she's like, well, I just applied and I got a meeting, and it was you. And I said, oh, sorry, I thought I was forgetting, because most of my meetings come

as second or third meetings with the firm. And I met with her, and it was such a great idea, such great execution. and I had to give the no. And I don't usually give the no on the call, but I said, you know, given the valuation expectation you have, she wanted to really increase her valuation.

And the fact that the product is in market, but you're not charging, we would choose to wait until you had three to six months of user data. Because when we invested in Com and Steezy, FitBod, musician, and tone-based, she's in the consumer subscription space, they had some data for us, and that really made it easy for us

to syndicate the deal and to invest. best in it. So we'd wait. And I just had this terrible, terrible feeling after the call. I don't know if you ever have this where you're saying no, but you really want to. And I was like, you know, I got to be disciplined here, you know, I want to make this bet, but why would I make this bet at four times the valuation? And I could make four bets of free revenue companies. Your revenue companies, you should go for five to ten million, not 20 to 30 million. So I could literally make four bets for the price of one in equally, you know, competent companies with equal traction.

And so that's the other thing. And I think you allude to that in terms of like the marshmallow test and, you know, how you allocate dollars. But you had a specific question today, but on a little tangent there. But I wanted to just do a little check-in with your sex month mark. Well, and I also do think that the weight no is a real thing, right? Like, I feel like that's important for founders to understand, too, is that when we say, please come back to us or not yet,

that it's not, there are times when it's just like, no, it's not in our, this isn't in our wheelhouse, or you're out, you know, in a different country and we can't operate there or whatever it is, but then it does seem like there are legitimately

a lot of times when it's like, listen, I want this to work, I need this to happen. And that that's true, right? That VCs are not BSing you when they say that. Not at all. I mean, VC's very much, and I hate to say this because I don't want to create

a strategy that is going to work against me because I know a lot of founders listen to this. But a lot of VCs are going to give a no to see how tenacious you are. They'll say no and give you reasons. They might very much, in some cases, want to hear your pushback.

And they might very much want you to come back every three to six months with new information and having hit new milestones. This doesn't mean you send seven emails this week. So just in terms of strategy, It doesn't mean you argue, like, to the point of absurdity, with an investor who's told you not yet. But I do think saying, I hear you, that you want to see revenue. We're going to have that revenue starting in November.

So November, December, January, sounds like we should put something on the schedule for the first week in February. Here are the dates I'm available in February. Now, if a founder did that to me, I'm putting the calendar date in. That's good. And you know why? Because now the founder is pissed off a little bit. said no to them and they want to prove to me that I'm wrong and they're going to give themselves an exploding deadline that they're sure as hell going to launch that paid on November 1st

and they're sure as heck going to come to me on February 1st with some data. That to me is like, whoa, okay, okay, take it easy there, cowgirl, cowboy. We got you. Okay, you're going to prove me wrong. And there is nothing better as an investor, I can tell you, than giving a not yet and then winding up investing in the company. I famously did the scout investment in Thumbtack. Thumbtack then met with Sequoia, Marco, and his partner, Zappa Costa. And Sequoia said no on the seed. I said yes on the seat.

Sequoia said no on the A. And Marco kept going back to him with his co-founder. And then, sure enough, in the Series B, Sequoia led the Series B. So, you know, they got two not yets. And on the third swing at bat, Sequoia backed them. And Jed Katz wound up doing the Series A. So, you know, you got enough. They cleared market with the Series A firm.

It just wasn't Sequoia, but they got Sequoia on the Series B. So this is something for founders to keep in mind. When you get that not yet, that's an amazing thing. That's like getting the silver medal. That's like getting to the playoffs. It's a really seriously awesome moment. You got the meeting. Maybe you got two meetings.

They understand your business. They understand your revenue model. They understand the milestones. They like you. They like the product. They like the market. They just preferred to invest at a different stage of your company. So now you've got a pre-investment locked in or potentially locked in.

Oh, my Lord, that's amazing. That's like, hey, you know, I can't make it to, you know, your house in Italy this summer. But yeah, I'm locked in for the dates next year. Yeah, I'll go to Coachella with you in 2023, not 2022. You know, somebody invites you to something. It's like, yeah, I got that locked in. Yeah, for sure, 18 months from now, 12 months from now, my next round. And you want to build up that energy.

So that's why I tell a lot of founders, like, hey, this firm is asking to meet, but they do series A and we're seed. I'm like, meet with them. You never know they can make an exception. They say they don't, but they could always make an exception. Number two, you never know. You could move faster and they could preemptively give you a series A. Or at the very least, now they're connecting those dots.

So Mark Suster did a very good blog post. It was probably his most famous blog post. I invest in lines, not dots. And he said, over time, I plot you, all these little dots as we connect over a year or two. And then I look at the line. Is the line going up and to the right? So, you know, VCs do track that. progress of building a relationship with the venture community is wise. What I see that's unwise is

some founders get cantankerous or combative when they get a no. A no is just an opportunity to get great feedback. So the other tip I give people is when somebody says no, just reply back, totally appreciate your time. It was a wonderful meeting. I really enjoyed your observations A and B. That shows that you were present in the meetings and then say it would be really helpful if you could be completely candid with me. Now you've given them permission to be candid because they don't want to be candid because they don't want to hurt your feelings. Can you be really candid with me and tell me what two or three things I'm going to face that are going to be really challenging in this business? And then what two or three things are the best things about this business

that I should also focus on? Like, how could I screw this up? And what things should I really focus on? Because I'd like to come back to you and see what the results are. If I come back to you, what results would have maybe gotten me a second meeting or a partner meeting, right? So what would have taken me further down here. And they'll tell you, like, I have a problem with the margin. You know, if somebody comes to me with the CPG product at this point in time, after all my battle scars from CPG, I'm like, ah, it would have to be a product that's super differentiated with some sort of reoccurring revenue. And they're like, oh, okay, yeah, so I make a security camera. You're telling me that it's not differentiated enough from the $30 cameras on Amazon.

Correct. Okay. And you're telling me this is a race to the bottom and there's no margin. So I need a subscription of sometime? Yes, that's right. Okay, I'll come back to you. And sure enough, this company Deep Sentinel that we invested in is doing phenomenal. Yeah. They sell cameras. And I'm an investor in this. And I had previously been an investor called Butterfly, and they were in a race with DropCam and it didn't work out. I like the founder a lot. He worked hard. Didn't end well, but, you know, things never end well when it doesn't work out and you're up against big competitors. But Deep Sentinel was like, yeah, the cameras we don't have to worry about making money on. We charge 500 bucks a month for three cameras to have the security guards

live watching your feeds and then interacting with people who come to your property. And I was like, well, that's a great business. That's incredibly high margin. So, you know, there's all those moments in time. A bunch of asset classes have been hit hard so far in 2022. But of course, that can be where the opportunity is. And if you are a long-term believer in crypto, you need to take a look at ITRST capital. I trust lets you invest in crypto through your retirement account.

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Cryptocurrencies are a speculative investment with the risk of loss. I trust Capital, Inc. does not provide legal investment or tax advice. And you need to consult with qualified legal investment or tax professionals. Anything else on your mind? Well, yes. So at my six month mark, I had a milestone. Oh, which is that I attended my first board meeting. Oh, great. I know. It was really real. This is perfect timing. However, It is perfect timing. It was great. The updates were good.

There were substantial material useful questions posed. Oh, great. You know, it was like it was really more in depth than I thought it would be. Like, I didn't really know I've never been to a board meeting. I didn't know if it was just going to be kind of like, you know, they check boxes and you say okay or how interactive it was. And that and then because. And this was on Zoom. I'm sorry if I just asked that.

You definitely was on Zoom. You're on Zoom. The other board member was in person, yeah. Oh, that's great. It was kind of a bummer. So that led me to several questions. Go ahead. Well, so one is generally about the role, the different roles on a board, right?

Like, I was there as a board observer. Mm-hmm. And I wondered, like, what's the deal with that? How common is that to have sort of a board member, an advisor, a board observer? I assume that impacts how much you talk. In my case, I was like, I'll talk when it seems very appropriate because I'm really new here. but like what does a board observer do versus a and and what's the threshold for that you know yeah so generally board observers um do not vote or actually that's the that's the big difference so when they vote on something you're observing the board so you get all the information you need and you can give as much information as you want you're the same as every other board member in that regard you get all the same information and you um get to participate equally And everybody expects that.

So they're not expecting you to take like a second tier role. You got some concern. You should speak your mind. Got it. Boards tend to get if you, as companies get bigger. So voting is the only difference in my mind. And so when they vote on, say, the stock options and there's, is it a five person board or a three person board? Three.

Okay. So it's three voting board members and one observer or two or something like that. I think it's, yeah, it might have even been. Two and then me or three. You give people an observer when they have. There were not that many people in that meeting, which I also did not expect. I was like, ooh, I'm going to be talking. Yeah.

And so the most important thing is to remember like what the board is there to do. The board's primary role, if you just think about functions, is you're acting as a sounding board for the founders in management. Right. and they're going to vet some key issues by you. Key issues, maybe they're going to sell the company or raise money. The hiring of senior people on the team, compensation, any litigation that would come up. These are the major issues with the business. You're not involved in the tactical day-to-day running of the business.

And you might also be focused on the planning and making sure there's some good financial planning and strategic planning. So they might present to you their 20-23 plan. in the third quarter or fourth quarter. Here's our plan for next year. They might even present a two-year plan, and they might share with you. Here's the waterfall of our money. Here's when we run out so we can have a consider discussion about fundraising.

So those are the kind of things that a board discusses. What doesn't a board discuss? It's really up to the founders and the management what they want to discuss with the board. There are things they have to discuss with the board. And so the things I mentioned earlier, like if we're going to sell the company, if we're going to do a merger, those things would be subject to a board vote,

dealing with like serious legal issues, board vote. If there's some minor legal, you know, somebody's upset and I don't know, they want four weeks of severance not to, you know, like the board,

they're even able to bring that to the board. It's when things become more serious and there are some serious damage that could be caused. Now, some people will like to talk with the board about the product, their growth strategy, they might want to show,

they might want to bring their senior person and say, this board meeting, we're going to do four a year. Q1 is going to be about product. Q2 is going to be about sales. Q3 is going to be about our vision and we're going to all get together in an offsite in Montana and we're going to do some activities and build some fabric between the boards. And then four is going to be for next year's planning. So some people

do like to put a theme on each one. Other folks like to have the same format each time. You know, here's our performance, performance, performance, performance. Here's our strategy. Here's what we got done. And the board will then kind of act as a way to hold the management team account to what they say they're going to do. So that's generally the purpose and what happens at board meetings. Any questions about that? No, that makes sense.

One of my questions was about the kind of in-person attendance. Like, I couldn't make this one in person, but there were activities attached to it that had happened previously. You know, is that a, like there's a wine and dine your board aspect a little bit? It was mostly, I think, a field show and tell of the product in action. So during COVID, everything became 100% remote. Before COVID, for a later stage company, and before, you know, there was just a boom in the number of startups, nobody would dial into board meetings.

That was like a very rare thing. Board meetings were very much about coming in person and getting to know each other and building relationships. So typically you might have a lunch, you know, people get to know each other. You can come to the lunch or not. And then at 2 o'clock, the board meeting starts at 4.30, it ends. Then everybody gets together for dinner somewhere at 5 or 5.30. and then you have a dinner. The dinner would be optional.

Lunch will be optional. Some people want to parachute in and out. People understand if you have to call in because people are busy, that does happen. But it was kind of expected that you would come in person. Now people have the exact opposite. We're going to do this in an hour and a half. It's going to be super efficient. We don't want you to come in person because, you know, the four managers of the company

aren't in the same location. But just recently, Density.I.O., which we ceded and then is a unicorn now, as many people know, just had their first in-person board. him again in San Francisco and then we went a person. And then also there could be a lot of cost and time. So this is why VCs used to only invest in companies in their own city. So the idea that like Fred Wilson in New York would invest in Silicon Valley company like Twitter was crazy. And the fact that somebody like Sequoia would invest in a New York company like Tumblr was also crazy. Because VCs did not want to get on an airplane for five or six hours and burn two days.

It was just and most of them have families and are older in their careers. They just didn't want to be Road Warriors. The exception in San Francisco was LA because it turned out. It's only an hour and you could go for a day. And Seattle. So you would have like New York VCs would do Boston and D.C., but it had to be a one day thing.

In and out, you can get it done in a day. So today it's all going to be, my estimate would be three online. It's more efficient. And then one in person a year is what I would expect. Yeah. So that's kind of how it occurs. And sometimes, you know,

the founders want to build. some sophisticated founders, as the board gets bigger and the stakes grow, then they might want to have it to be a two-day board meeting. People come in the night before for dinner. The morning, you know, the finance committee meets or the compensation committee meets. The audit committee is like the finance committee. So I was on the audit committee for a company Dine. And they had somebody amazing on it.

They had Price, Warthouse Coopers or whoever. And they were like, Jake, how, will you do this? And I was like, I've never done it before. if you're fine with me being on the audit committee, even though I haven't done it, and I play second seat. You know, I'm in the right-hand seat to the left-hand seat captain who was our board member who had been a CFO multiple times. I'd love to learn that.

And so it's great learning for me. But I had to get prepared for that. I had to read books. I had to like look stuff up online. They were using jargon. I didn't know. Same with a comp committee. Now I know how to do a comp committee.

I know how to find out salaries. I know how to think about these things. So you kind of learn these like little specific skills. So you have board committees when the stakes grow. That would be for a comp. company with, let's say, 30, 40, 50 million in revenue. In our world, there's no subcommittees. You know, that's when you start to get to a seven or 10 person board. We get to seven, 10 person board. It's like, the compensation discussion, that could be two hours. And the board

meeting's two hours. And the finance committee is two hours. You can't have a six hour board meeting. So you would have the finance committee report what they drill down into and the comp committee report what they drill down to. They would advise the board. The board would then make the vote. right. And so I'm on a couple of boards now where they're just getting to the point where they might say, hey, we need a comp committee because we have so many employees. Would two board members like to splinter out and do this? And so it's quite rewarding. Now, how often you should speak and what you should do in terms of being there? I have a lot of notes on that. You have to come with a prepared mind. This is the number one thing I learned from Jim Gets and the other folks at Sequoia. You've got to be prepared coming into a meeting with a founder. I would talk about this in the book, the one hour rule before, the one hour rule after. In our world for an introductory meeting, it's a half hour, a half hour meeting, and a half hour after. Do your research before.

Come into that board, come into that founder meeting or board meeting, having reviewed the deck, having looked at your notes from the last meeting. So those two things will create a prepared mind. So hopefully you took notes during this one. If you didn't, take a bunch of notes. The way I, you know me. I'm basically, you're a note taker. Yeah.

So the way we like to take notes is I take each slide in the deck. I put each slide into my Notion page, and underneath it, I write my notes. If I have no notes, I put NC, no comment. Then I will look at my notes before the next board meeting. Then I'm the guy in the board meeting when they say, like, hey, you know, we're working on this issue. I'll say, that's great.

In the last meeting, you mentioned this person we were trying to hire. Is there an update on that? It's like, yeah, we lost out on that hire. So now you're like the thoughtful board member, and I got this from Rulovboeuf Bofa, who's running Sequoia now, But when I raised money for Sequoia for Inside.com, he was the new kid on the block. And he was just writing in his notes constantly.

They'd only ask one or two questions, but they always the best questions in the board meeting. And then the next year, he would mention something from the previous year. So in his notes, he had all of his notes dialed in from the past years. You can't have your laptop open to on a in-person meeting. People don't like that.

Sometimes I'll ask people if they're okay with it and I show them what I'm doing. I'm taking notes based on the slides. other times I'll just print out the board deck, write my notes, and then I transfer them over. I assume, obviously, you could have the board, everybody's going to have the board deck open. So I highly recommend doing that, taking the notes, but you're not there to direct them. You're there to ask, I think, questions that are thoughtful and make observations that are thoughtful and maybe give them things to think about. You'll also find as an investor, you'll learn things in these meetings that'll inform your thinking about investing.

So you might say, wow, this is incredible. This company, I just made a note in a board meeting I was in yesterday, as a matter of fact, that there's no breakout company I've ever been involved in that did not have world class design for their products. And so I was like, wow, if you don't have world class design, something's wrong, right? And so it was just an observation I had. And then I had another observation about startups. The world class startups I've invested in not only know all that. their metrics cold, they start making their own metrics. So an example of your own metrics would be when somebody like Travis at Uber knew the number

of drivers in a city, the wait time, the percentage of surge time, and the number of drivers who were active this week out of their total pool of drivers. So these kind of metrics became key at Uber. I don't have all of them at my fingertips here, and I wasn't on the board of Uber, nor do I want to disclose anything, but you could make your own metrics for Airbnb. How many Airbnbs are on the site in Paris? How many of the Paris Airbnbs had zero bookings? How many had one booking? How many had two to five and how many had six plus? And how did that change over time? In other words, how many of these were highly utilized, not utilized, or medium utilized? You can be certain

that the people at Airbnb would look at that by city and then determine strategies based on that. So it was just another weird observation I had. So I had these two observations during the board meeting. I was like, you know what, that's something I'll carry with me to other boards. And I started thinking about the other board meetings I've had recently where they didn't, they weren't doing that yet. They weren't even talking about their metrics, let alone creating new metrics based on the old metrics. And a company that's nascent, like the one you're on that has a handful of customers,

but growing, they may not be at that stage yet. But at some point, they'll have enough customers that they'll be able to do very interesting things in terms of building metrics. And that's where you start learning how to be able to be. a great board member, but you say less, I think. And there's always a person in the board meeting who talks too much. They have too many opinions. They want to talk about the product.

They're late for the meeting. I always tell these stories like their wife looked at the website. They have some feedback. Their spouse was like, I literally was in a board meeting. I'm like, this guy's from Malibu. He's already made all his money. His wife is like a yoga instructor. And we're in a board meeting for another site.

And he's telling us some anecdote about what his wife thinks of this. after he showed up 15 minutes late, sweating with a star ice coffee, and I'm just like, can we? That's amazing. Bring this meeting in here. Like,

you didn't even read the documents, and then it just flies into a tangent, and the CEO hasn't even gotten through setting the stage. Yeah. I like to wait until the founder pauses and says, are there any questions? And then I say, yes, I have three.

The other thing I'll do is I will write notes to the founder, QQ, and I tell them I'm going to do this. So this is a Zoom adaptation. I came up with, QQ, colon. You'll see me do this in meetings internally, too. I don't want to interrupt the person's flow, but I'll say, quick question, colon, is that monthly users or daily users?

Is that total users, like if I need a clarification? And then the person goes, oh, and I see JCal, put in a note, yeah, just so you know, that is our monthly active users defined as somebody who logged in and used the site, not somebody we sent an email to, you know, or whatever. Right.

So, you know, there are little adaptations you can, but you can do. but I think saying less and listening more, big ears, small mouth is what a famous venture capital. I wouldn't say who said to me. But that was his advice to me after a board meeting. I was in where I talked too much. He said, big ears, small mouth. And I was like, okay.

The person's got 25 years of experience. I had two. Fair. Noted. And it was just noted for me, which, you know, I like to talk. Here we are on the pod where, you know, like, I can just talk for 10 minutes about anything. So further questions? And your team is like, we have a million things to do.

I will have, to wrap this up. I will have many more questions for you, hopefully as I'm in more board meetings, but this is a good start. We're going to do professional development internally, by the way, because I wrote a bunch of notes on it

on my board meeting yesterday, how I'd like us all to be in sync with, because I'm really thinking about the partnership here and the growth of the team for us, a standard for us each in terms of our note taking and then reporting to each other, what happened in the board meeting, and then a decision.

Are we, you know, Is this a high performer, underperformer, or average performer? And if it's a high performer, can we put more money in? If it's an average performer, is there things we can do to help? If they're a low performer, do we need to send a SWAT team in? And, you know, like, do we have to take some serious action? So just keep that in mind and I'll bounce.

And we'll next up on the program is Molly's climate interview. Molly talks with Michael Luciani, a managing partner at Climate Capital. It's a great conversation. Stick with us. Listen, lots of founders are Lucy Goosey. with their personal numbers. They put them in company documents, they use them for sales calls, all this stuff.

And to make matters even more messy, when you do that, you don't know who's calling. Is it a sales prospect? Is it somebody you're trying to hire? Or is it somebody from your kid's school? I don't know. It could be anybody. It could be an old flame.

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That's the way to do it for customer service. This isn't like the old days. We have to buy a bunch of hardware. No, this is all done in software. And that's why it's so affordable. Open phone has a starting price of just $10 a month. I kid you not. But Twist listeners can get 20% off any plan.

for the first six months by signing up at openphone.com slash twist. If you have an existing number, they'll port it over for free. O-P-E-H-O-P-H-O-N-E dot com slash twist. Openphone.com slash twist. Michael Lutiani, managing partner at Climate Capital. Welcome to the show. Hey, Molly. It's really great to be here.

Thanks for having me. Thanks for emailing me. I think you were, I was saying, actually, before we started recording that you are among a long and illustrious list of people who were left hanging in my inbox. And then as soon as I got to your email, I was like, what is wrong with me? This guy looks amazing. Well, I like to hear that. You know, that's what you always hope is going to happen with your cold emails.

Yeah, exactly. It worked. So tell us if you would, actually, let's just start like all the way at the top because then it sounds like we can drill down into your role. But talk to me about climate capital at the highest level. So climate capital is really something that my partner, Sandipa, Hoosha, started. in 2015. And he was one of the first syndicate leads on Angelist. And so it was a big climate-focused syndicate and still has a big climate-focused syndicate.

So over the course of time, I think climate capital in both the syndicate and now we have funds, has invested in over 200 different climate tech startups. And on our syndicate, we've got, I think over 2,000. And we're largely focused on making early stage investments, obviously climate focused or climate exclusively. And I started working with Sundeepe in 2020 after selling my company, which was in the political tech space. And I wanted to kind of follow this threat of impact-focused entrepreneurship and work with early stage founders. And I wanted to get into being part of the solution for climate change. And so Sandeep and I have been working together and we've really expanded from just the syndicate, which we call climate capital collective, to having a dedicated early stage fund, a dedicated growth fund. And we're now launching a dedicated frontier tech fund. So we've got lots going on.

Yeah. So I guess let's go through sort of each of those and end with the newest. What are the the theses, I guess, behind, man, that was. and that is an awkward word to say out loud. And yet, I think I've pulled it up. What are the theses behind each of these funds? Yeah. So, you know, climate capital, starting out as a syndicate, is very network-driven. And all of our syndicate LPs are willing and able to get involved in helping the portfolio of companies. So there's, you know, something to be said for really casting a wide net in terms of

of people that can help when founders choose to work with us. And then, you know, the syndicate has really become a place where people can, a whole variety of people can run deals that they're excited about and the syndicate can decide, you know, what they, on a case-by-case basis, you know, what individuals want to invest in. So that one is very agnostic, right? The only thing that limits it is just size where we're usually investing around a pre-seed or series A size check. The climate capital early stage fund, which is run by Sundeepe, is precede seed. And it's not thesis specific, but is just really focused on co-investing with top-tier investors and investing in founders and business models that we have really high conviction on,

both from like a background perspective, a personal perspective and attraction perspective. The growth fund is taking into account the fact that we've got now over 200 companies in our portfolio. And they're growing and they're succeeding and it's great. And we want to be able to exercise our pro rata and the ones that are really taking off. And we want it to be an easier process for us and for the companies to do that. And so we've put together the ability to do that. And then climate capital frontier is my baby. So myself and my partner, Jenny Kahn, have been running deals on climate capital collective collective,

and we have a small rolling fund called Exponential Impact that's kind of like been a proof of concept for our thesis. And our thesis is really that we think synthetic biology is an extremely high leverage climate solution set. And, you know, one example of that is about 60% of the physical things that go into the global economy can be created more cheaply and carbon negatively with biology. And right now we make all those things with fossil fuels. So as we look at- Give us some examples just in case people aren't familiar. I'm assuming you're talking about, like, I don't know, textiles is one really easy example. Textiles is a great example.

Textiles is a great example and so is industrial chemicals, right? You can engineer microbes to make different sort of precursors for industrial processes so that those can become carbon negative rather than carbon positive. You know, we have invested in phytoc mining companies using plants to mine like nickel and cobalt out of the ground. We have invested in also companies that are, you know, looking. at food, right? And food is a very obvious example where its agriculture is a huge amount of our emissions. And even if it wasn't, like the population's growing and we're not making more farmland

unless we're cutting down rainforests, which we're, you know, hopefully avoiding. And we know that there's a whole spectrum of food innervation, right? Everything from like growing a piece of steak in a lab to the kind of genetically engineered fruits and vegetables that people have been eating for the last 10 or 15 years. And there are lots of efficiencies that can be brought in terms of how do we eat really great food sustainably that hopefully can be offered to a consumer at a price that's at parity or cheaper than, you know, the carbon-intensive product that they might be eating today or drinking, right? We've had some cool investments in coffee and chocolate as well. How far along do you want the science to be? I mean, right? It's frontier investing. Certainly,

I have met with companies that are in this space that are almost all, let's say, pre-commercialization, maybe pilot stage, in some cases, still R&D. How do you slice and dice these conversations? Really good question. Well, as one caveat before I answer that, my partner, Jenny, is a PhD from Cambridge in chemistry. She was the lead protein engineer in Francis Arnold's lab, who went on to win the 2018 Nobel laureate in chemistry.

and she was the first American woman to do so. So Jenny is absolutely our person who's able to do due diligence in a way that's far more sophisticated than I am. My experience is more as a founder and as an investor. Right. So like step one, you have to have somebody on your team who can go like, this science is real or not real. Yeah, exactly.

Yeah. And that's part of our thesis for the fund, to be frank, we think that there's a lot of biotech investors who have mandates to invest in therapeutics and human health. And someone can come along with, you know, a way to create carbon negative textiles. And they'll say, that's super cool, but, you know, not for us. And a lot of climate investors are not technical. They're not lucky enough to have Jenny Khan on their team and someone can come along and say, we can make carbon, you know, neutral textiles. And like, yeah, that sounds good, but I don't know how to diligence that.

I'm not saying I've been in that precise position, but I have been in that precise position. So I'm just going to send you this company later. Right. Yeah. Please do. And so we want to be leading those kind of precede rounds. And what we've seen is that the ability for, especially in synthetic biology, preseed companies to have proven science at a low cost point is gotten so much higher. Right. And this is actually the case across a lot of frontier tech. If you wanted to sequence the human genome in the 1990s, you were going to pony up about like $3 billion and 10 years. Now you can do it with less than 100K and a couple hours. And that's going down fast, faster than even Moore's law. So now we have a lot of very successful proofs of concepts coming out of generally academic labs that we can do.

diligence from a scientific perspective and understand that there's execution risk, but not scientific and technical risk. And we can actually, founders can give us that confidence and can model out, you know, whatever it is they're working on digitally now, rather than needing, you know, millions of dollars in lab space to create a proof of concept. And what's more interesting even is that it continues to be way more cost effective than ever. has been for these companies to get a product out into the market, right? Where all of a sudden, like, you don't have to have a $100 million lab to make molecular honey or coffee.

You can do it on a relatively normal, you know, seed and pre-seed funding round. And that is leading to this explosion of people working on amazing climate solutions. When you say accessible seed and pre-seed round, what is you? your general check size? So we're usually investing between 100,000 and 500,000. Okay. So really not. So that suggests to me that, right, not huge, but also it sounds like not, you know, places with a lot of CAPEX or the need for that facility, right? So are you looking for, it sounds like you might be looking for a little bit of a Goldilocks zone that includes the ability to maybe do some digital modeling of your science. Absolutely. Yeah, that's very true. And what's

also I think exciting about this space is we're obviously believers that synthetic biology will grow as it's projected to from a couple billion dollars to trillions of dollars in the next 10 or 20 years in terms of total market cap. So we also think this is a really cool time to be investing, or a really opportune time to be investing in kind of the picks and shovels. So operating systems for this kind of modeling, modular bioreactors that can be affordable for the startups that we are funding and for them to be able to use and to scale up how many they use as they grow. Another good example is even outsourcing, right? Like we've invested in companies where their fermentation and precision fermentation as a

service. So, you know, someone can say, here's my strand, here's my DNA, here's my microbe, you know, this is going to produce cheese. here's all the data. You send it over in an email and they can print out a molecule and put it in their precision fermenter and you can do that without buying a whole lab, which is pretty cool. How, and I ask this with pure ignorance and no judgment, how big a market is there for fermentation as a service?

Well, it's obviously completely dependent on the growth of synthetic biology. Yeah. Okay. So fermentation is a key part of synthetic biology. And so if you could offer that, you could help enable the whole ecosystem. Yes, exactly, exactly. So when people talk about lab-grown whatever, right, lab-grown coffee, chocolate, cheese, meat, they're often like using a process that is similar to the process, if way more complicated,

but similar to the process that we use to make normal cheese or normal beer. right now, right? Like, if you've ever been in like a brewery, they have those big fermentation tanks, not dissimilar. In this case, you're just using an engineered microbe to do a purpose that's different than

fermenting beer, right? And that could be chosen by the engineers and how they're changing the DNA sequence and what they're doing with it. Let's talk about timelines because, of course, some of this stuff is R&D. Some of it is pre-commercialization.

And BCs love to say this sounds like it's not going to commercialize on the timeline that I need it to. Do you operate on, you know, a 10-year time horizon or are you, you know, choosing best that you think will ferment a little faster? I'm so sorry. I'm sorry. No, that's okay. We have a 10-year time horizon for our investments. So we're not specifically looking for things that will ferment faster. that. But things do. And, you know, what we've seen is we'll make pre-seed investments,

depending on the company, especially if they're trying to create a consumer product. And they will have samples and they will have pilots and they will have coffee in stores or chocolate in stores, honey in restaurants, or, you know, industrial chemicals being used or textiles being created by the time they're at seed stage, and their Series A will be, you know, looking at scaling up. So this can be fast. Like this can be, you can go from idea to product in a year. And we've seen that. And so it's, I think, a great place to be investing because it's changed so rapidly that

people still expect the timelines to be much slower than they are. And that's good arbitrage as an investor. Right. It's a good opportunity for you because you realize, I mean, we're sort of putting your secrets out there in this podcast right now, but it still is, you know, there's what you know on the ground, which is a competitive advantage. And then there's people's willingness to believe that, right? I mean, there's because there is still a barrier to entry around diligence and just getting your mind around the idea that when someone comes and says, oh, yeah, we're going to try to genetically engineer this bacteria to like consume carbon and poop out textiles. Right.

You know, that's not insane. Like, that could work. It's not insane. Right. It could take a lot. It could take only, you know, 18 months rather than 18 years, which is amazing. So how did you come to this? You were, like you said, in government before and, and, you know, doing sort of political tech. Like, how do you go from there to not just climate tech investing? That sort of makes sense as an evolution of a person who cares about stuff. But then there's this additional leap to synthetic biology and you're like, that's my jam. Yeah, well, you know, I started working with Sundeepe and had a generalist climate focus. And over the course of seeing so many different deals come across our plate and doing due diligence, and I just found that the synthetic biology and frontier tech solutions more broadly were what I was most excited about. And, you know, I think that it's not a full solution to. every single climate problem by any means. But it certainly, I think, is one that can allow really

large industries. We spend $4 trillion a year on chemicals, right? And it's very dirty. It's an extremely high emitting sector. And it's pretty hard to decarbonize. So I see this as a solution set that is high leverage and can solve problems that were previously kind of unsolvable. And so I think kind of going from zero to one in parts of the economy that are ripe for change is really exciting. It's what I like to do. And so that got me to be interested. And I really became a believer, right? I think this particular branch of science, synthetic biology is at an inflection point. And I think climate change will only serve as a tailwind. And so I think it's a perfect place to kind of specialize and to be. And I was

lucky enough to find a partner in Jenny who can complement my background on the founder and investing side with real technical know-how and make us, I think, a very credible partner to the early stage companies we invest in. How do you, if at all, measure or think about measuring impact in this particular arena? It's hard, right? It's swishy. It's like precede. Right, and it's precede. Right.

So, like, there aren't any gigatons to count just yet. So when we look at impact, what we go back to are, you know, the highest level pie charts of like, where do global emissions come from? and you can you know you can read things like john doer's great book speed and scale or look at project drawdown and you can come to understand is x industry how dirty is x industry right so if we're looking at something that is you know addressing the textile industry we can try to say is the textile industry a net greenhouse gata submitter and we can learn wow like yes the textile industry actually is much more destructive to the environment than we realized. We are, I think, you know, throwing away like 50% or more of all clothing created every year. And most of that is shipped across the world

at least once. And most of it is not at all recyclable, nor will it break down. And so there's lots of ways that that can be reformed. And so we'll first say, you know, is this the industry that if a company was successful in, you know, would have a large, emissions reduction impact. If the answer is no, then we're just not interested in it. So it's really starting with kind of a total addressable market analysis, but from an impact side rather than just a financial side. And often those are, you know, overlapping, right? Like, textile industry is also very big. Right. Right. Totally. What, um, I just kind of want to geek out on CINBio stuff for a moment, if I may. Like, what are, do you think?

think some of the super exciting things that you're seeing. For example, I recently got a pitch on microbes you mentioned earlier. That seems microbes seem like kind of a big deal. Microbes are a big deal. Microbes are a really big deal. Help explain why. Not, you know, with due respect to Jenny. Give us the like the high level. Like what's interesting starting with microbes? Well, I think I think a good way to, a really high level way to. get excited about synthetic biology is that biology is the most advanced manufacturing system known to man, right, by orders of magnitude, right? Like, you cut yourself, you heal.

You drop your iPhone, that does not heal. You know, we grow from embryos and into fully grown adults. Like, for all manufacturing, we're kind of completely. putting together a complete product. It doesn't grow. It doesn't change. It doesn't self-heal. And even when we talk about data storage, right?

DNA is the most effective physical data storage that we know of. If you think about data storage, I think we use 8% of global electricity on keeping databases online, hard drives and computer centers. You could take all of that. the entirety of everything that's put on the internet, and you could fit it into about a shoebox size of DNA. So what we have learned and what synthetic biology really is, is all of a sudden biology

has the, is evolving from an empirical science where we're saying like, okay, you know, we're looking at this plant, how does it work, poke it, you know, do an experiment, great, to an engineering discipline where we can say, great, we've sequenced this plant's genome. We want it to glow in the dark now because we're going to replace our electric lighting with bioluminescence. Here's the genes we can swap out. And we can now read, write, and edit DNA. And so the implications of that are profound in terms of, you know, I think it will touch every aspect of our life from how we make our clothes to the food we eat to a whole bunch of things in human health that we don't. we don't really deal with, but it's inherently sustainable and often carbon negative, right?

A lot of these systems are photosynthetic or they're eating methane and carbon dioxide as feedstock, and it's incredible technology that we're just now learning how to harness. And I think it's going to really allow us to be less dependent on global supply chains, create more things locally, create foods and products that are not only, you know, better for the consumer and at a better quality at a lower price, but also, you know, better for the planet. And that's kind of a solar punk vision that I really get behind. Solar punk. Nice. Is that yours? Did you coin that one? No, no, no, no, but it's a good one. That's a good one. That's excellent. Do you think of these solutions as, like, do you think of this

the evolution of what we used to call nature-based? So I think to a degree, right? Like nature-based solutions are often saying, hey, you know, there's a wisdom in the millions or billions of years of evolution that have created X, Y, or Z, right? And so then we learn like, okay, if you're farming, you should really have some crop or plant matter on top of topsoil or be rotating your crops. You're not decreasing the fertility of your topsoil. And this is great because then your top soil doesn't blow away and cause some sort of like, you know, 1930s dust bowl event.

So it's certainly an extension of that logic where we're saying these natural systems are incredibly good at what they do. And we should be paying attention to that and learning how to harness them. But it's a huge step further because now it's like that. It's also like, okay, so nature could do this. What if we made it do this? Exactly. Exactly. Exactly.

Or, well, no, let's leave it there. That's perfect. Okay. Great. Well, so where can people find you? What's the status? What's the mechanism? Are you like still rolling fund or you're about to close out and then rename to frontier?

Yeah, yeah. So you can visit climate capital. dot com. There's a section on, you know, the frontier work that Jenny and I are doing. You can find some information there that will lead you to our rolling fund, you know, check it out. Amazing. Michael, thanks so much for coming on and let's co-invest and or I'm going to send you all the companies I don't totally understand. Please. We would love that. Amazing. Okay, everybody, thanks for listening. We're going to have a really fun week. I'm going to be on a rafting trip. So Molly is going to have some special guests on to join.

her and break down the news. Alex Wilhelm from TechCrunch is going to join us on Monday tomorrow to go through all the earnings reports. You're not going to want to miss that. And full contract, Deirdrebosa is back. Debo, back in the building on either Tuesday or Wednesday. She's going to break down the news with

Molly. And we have an amazing interview with the CEO of Mark Cuban's new drug company, which is called Cost Plus. It's going to be an amazing week. Tune in tomorrow Monday.