This Week in Startups - VC School: Deal Memos + Sphere CEO Alex Wright-Gladstein (Climate) | E1442

Episode Date: April 24, 2022

First, in a VC Sunday School segment, Jason explains his approach to deal memos (01:42) and what parts of a memo are most important. Then, in a This Week in Climate Startups segment, Molly chats with Alex Wright-Gladstein of Sphere (17:06) about offering climate friendly retirement plan options (21:43), financial incentives and more.  (00:00) A teaser from today’s VCSS (01:42) VCSS: Deal Memos (10:06) iTrust Capital - Visit https://itrust.capital/twist to create your Crypto IRA today (11:13) Which parts of deal memos do people really read? (17:06) TWiCS w/Alex Wright-Gladstein of Sphere (20:22) Microacquire - Sell your business with no fees at https://try.microacquire.com/twist (21:43) What makes it hard to have climate friendly options? (30:44) Cyvatar - Get your first 2 months free at https://cyvatar.ai/twist (32:03) How does everybody get paid? FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

rule off was like, here's what I want. And, you know, just why does, why should Uber exist? And I wrote like three paragraphs. And I wrote two paragraphs. And I was like, I don't want to write this rule off. And he's like, well, we're kind of giving you the money to invest as a scout. Can just maybe at least write a little bit. And I was like, I don't want to do this.

You know, it's kind of a deal breaker for me. I'm just like an idiot I am with this like great opportunity to be a scout for squad. He's like, just write anything so it's not empty. And I was like, fine. And I wrote, because, Taxis suck. And then I expanded on that, but because taxis suck, three words, was the reason I said Uber should exist. This week in startups is brought to you by ITrust 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?

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But it doesn't have to be that way. Scivatar is startup friendly, fully managed, all-inclusive cybersecurity subscriptions. Twist listeners get their first two months free at saivatar.aI. slash twist. Hey, everybody, it's Sunday, Sunday. And Molly and I are here. We gave up our Sundays for you. We get up at 5 a.m. every Sunday and do the show.

We edit it, and then we try to get it out by 10 a.m. We give up. We sacrifice, Molly. We do. That's what it takes. That's what it takes to learn. this craft. Absolutely. To get it done. We do not tape this the week before and put it in the camp. But it's Sunday school. People are loving this. We're going to put a compilation together

of all the Sunday school moments, VC Sunday school, I should say, where Molly and I talk about, you know, she's in month four of learning the craft of investing in startups and we're doing our first climate syndicate, the syndicate.com slash climate if you're an accredited investor and want to sign up and see Molly's first deal. But you have questions for me. What questions do you have for this week and let's see if we can hash it out. I do. So on the heels of the first deal launching on the climate syndicate, I have a question about deal memos because that has been a topic of like,

I think there was a part of me when I was reading the books that understood, including your book where you talk about Rolf, both us famous deal memo about YouTube acquiring or about Google acquiring YouTube. I sort of had the sense that they were a big deal. but turns out they're like a big deal and firms do them in lots of different ways. So I want to talk to you about the importance of a deal memo and what makes a good one. Okay. So writing is clarity of thought.

And if you write something on a piece of paper and then you speak it out loud and it doesn't make sense or you read it and it rings untrue, you immediately get that, right? And when you're reading a sentence about what a company does, if you're, You have to construct a sentence about what Uber does or what Robin Hood does, and then you have to write a sentence or two about their go-to market strategy or a sentence or two about the team. There is no way to fudge that. There is no way to, well, you could fudge it, I guess, but it creates a great simplicity in understanding the business. And that's why reading and writing creates clarity of thought. And having really clear thoughts, eyes wide open going into an investment is super important. They also act as a moment in time to crystallize your thing.

So we could sit here and talk about an investment in Uber. But when I wrote the deal memo for that, Ruloff was like, here's what I want. And, you know, just why should Uber exist? And I wrote like three paragraphs. And I wrote two paragraphs. And I was like, I don't want to write this rule off. And he's like, well, we're kind of giving you the money to invest as a scout. can just maybe at least write a little bit.

And I was like, I don't want to do this. You know, it's kind of a deal breaker for me. It's like an idiot I am with this like great opportunity to be a scout person he's like, just write anything so it's not empty. And I was like, fine. And I wrote, because taxis suck. And then I expanded on that. But because taxis suck, three words was the reason I said Uber should exist.

Now, there were many reasons taxi suck. You couldn't get one. You didn't know where it was. You didn't know what the price was going to be of your ride. You had to handle money. You had to give a tip. They smelled bad. You couldn't rate the person.

They couldn't rate you. There was just all these issues with taxis, right, that we all had. There was a taxi line. There was a line for them. You couldn't get them in certain neighborhoods. So I kind of expanded on that. But when you write that stuff down, my lord, then you have this living document that you can look at and say, what was my thinking? What was my decision-making process? And we are in the

business of making decisions, hard, bold, contrarian decisions. The writing of writing things down in a deal memo forces you to answer the hard questions and then highlight the things you don't know. What are the reasons this could fail? What are the things that, you know, are going to be challenges for the business. Why do you want to invest? So it becomes a better way than a conversation, because in conversation, you and I could talk each other into things, out of things, you have a gut sense, but just writing it down, codifies it, crystallizes it, and that's just the discipline you want to have as an investor. Well, and you raise another, that gets to sort of the other point about the deal memo, which is that it's not, I wouldn't have expected it to be as,

as sort of bluntly straight-point. It is not a marketing document. And I feel like that's an important distinction for new investors to understand. This is not about pumping it up at all. It's just like simply explaining it almost like bums the founders out in some cases, I think, to see how plainly

we're attempting to present this real thing. I think if a founder writes the deal memo of their company, it might be more effusive and visionary. And so for, example, when we do our deal memos at the syndicate, we let the founder write their own deal memo. We look at it and say, hey, can we make this less effervescent and more reality-based? So we'll give them some coaching on that.

But I write an opening letter. And now you're writing them as well. The opening letter is like sort of a mini deal memo for us where I try to explain in the first sentence what the product is, who the customer is, and how much they pay for it. My lord, like, people suffer a whole bunch. But if you can explain this, Com is a meditation app that costs $7 per month, period. Now, the investor who is considering making a bet alongside us,

they don't need to ask how do they make money, what's the product, who's the customer? The customer is anybody on iOS or Android, it's an app. You understand that. You understand the price, $7 a month, and you understand it's a meditation app. Now, do they do other things? They have sleep stories, they have courses.

Of course, you can expand on that later. But I think saying it's simply, and then the bet, I put a, I created my own thing, the bet, I think this will go down as my contribution to deal memos writ large, which is I like to write why I'm making the bet and what the bet I'm making is. So often the bet in an early stage company is, I'm betting this team, which has early product market fit and six customers can continue to build their team, understand their customer,

and get a tighter product market fit so that the cost of acquiring customers goes down. And that really is, sums up a lot of the journey in the early stage that we invest in. You have great product market fit, you get market pull, right? If something like Uber is so good or DoorDash is so good or Instacart.

Like people tell each other about it. They seek it out. They type into Google. I need, I'm looking for, you know, a bet in breakfast in Montana. And Airbnb has Montana bread and breakfast. Boom. You know, they seek it out, right? So that's like a lot of the bet is you're betting that a team can take early product

market fit and make it strong product market fit. Or if you're doing a later stage deal, it's they can continue to scale this. organization and find more customers and not lose customers and land and expand. That understanding the bet you're making, I think is critically important because sometimes people just make the bet and they're like, I'm betting on the founder. It's like, well, yeah, I mean, you could say that about every startup. But let's double click on that. The founder can do what? What are you betting the founder can do? You're betting the founder can find a great management team. The founder is a product-driven founder. They can, you know, make a great product. What are you betting on exactly? Like, let's try to,

think it through. So anyway, I think that's why deal memos are the preferred modality for investors and pitch decks are the preferred modality for founders. Pitch deck, gets you excited, gets you you pumped, tells a story, it's exciting, it's aspirational, here's future projections, and then a deal memo should be a bit more sober, a bit more, you know, just the facts man, as they say in the detective shows, just the fact man. If you're listening to this podcast, you'd probably we already have some exposure to crypto. Well, did you know you can now invest in crypto through your retirement account? That's right.

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Yeah, and it does have a lot of financials in it. I wonder from your perspective, like in our case, it goes to our syndicate investors who are angels, who are getting them an email and reading them in the case of a different firm, it would go to, I assume, investment partners. Yeah, to talk about on the Monday meeting.

Here's my deal memo, you know, send it out on Thursday. We're going to talk about this. We're going to meet the founder on Monday morning, and the founders coming to our partner meeting. Which parts do you think people really read? I mean, I'm saying you should read it all. I mean, it depends on the investor in the stage. So if it was a later stage, you know, people would go right to the performance.

They would look for the churn numbers. They would look for the growth. They would look in the land and expand. Now, if it's early stage, they would look at the team section. Like, who is this team? Like, what gives them the audacity to do this? If it's early to mid, they might look at the market. Who's actually using the product?

How much are they paying? How many employees are that? Okay. So this is Salesforce and what's the largest customer or the largest customer they have? I'm talking about early days of salesmen. Oh, they've got somebody using 20 seats or Slack. They've got some company using 200 seats. Okay.

Can a 2,000 or a 20,000 person company actually use this or is it too unwieldy? Would they have five different instances of 4,000 or 20 instances of 1,000? How would this work inside of IBM if they chose to use Slack? Would they have just a gazillion left-hand channels? I mean, this doesn't make any sense. So they might be looking for those kind of issues. Like what is the market size? So I think market size is one, team is another, performance is another.

I think that's where you're going to generally go. Anytime there's a chart, that's helpful. Product roadmap, I think people generally would ignore because they're like, whatever, product teams are going to figure it out. But other people might be very interested in that if it was, you know, again, on the vertical, you know, you might very much want to look at the product roadmap for Uber and Tesla. Oh, you're going to do a $150,000 car. When are we going to get the $50, when are we going to get the $30,000 car, right? It could be kind of important to figure out. Yeah. Go to market strategy comes to mind too. Right. What should absolutely not be in there? I mean, we talked about the flowery stuff, you know,

but like, is there a version of the vision that's just fiction and it doesn't help anybody? I think, like, history of how you got here is kind of boring. and like nobody cares. So a lot of times founders will be triangulating on some business model and some idea. And they may have some detrius laying around the company that they're trying to shed or wrap up or maybe they're emotionally vested in. So, you know, well, we started with this idea and we still have this product, but we pivoted to this product. Nobody cares.

Just how you got here, nobody cares. like you know but for founders it's a power amount importance because they might have spent two years going down the wrong path and they built a one million dollar revenue business and then they found a $10 million

business that everybody's working on and so famously the company Groupon had something called Point I think was the original name of it and it was like tipping point and it was like you could do what do they call those things petitions so you can do like a petition and the petition would then

drive people, you know, to a tipping point. And people started using saying, hey, if we bought a hundred passes to yoga for hot yoga this weekend, instead of 30 bucks, would you give them to us for 10? And the person's like, yeah, $3,000? Sure. Yeah, I'll sell you, you know, 300 of them for $10 each. If I get $3,000 in advance. Yeah, if you can get me 300 people, yeah, I'll sell those for $10.

Like group buying kind of thing. And that's where Groupon came from. Now, do you need to know that history? Probably not. It'd be more interesting to use that space. to talk about the first three groupons you did and the quotes from the customers. So I'm a big fan of customer love

and figuring out what customers are getting out of this, right? Yeah, super important. We include that on ours too. Awesome. All right, well, that's enough. I don't think we need to do competition. I think we just do the deal memos. We'll talk about competition in your portfolio,

which is a, we'll talk about that next week, but boy, you know when that gets hairy? When one company pivots to an existing one in your portfolio. Oh. Okay. You'll like, you bet on Vision A, bet on Vision B. The people have B, C, A doing really well. And they're like, let's do more of A. And the person is doing A is like, you invested in that? I'm like, I, they pivoted, not our fault. We'll talk about that and more. Yes. Who do we have today in this week in climate startups? I, you know that one of my weaknesses is obscure financial. This is the marketplace showing, right? Like I love the economics of things. things, but I have recently been informed that divesting your portfolio from fossil fuels, fossil fuel companies, is massively impactful. Like one person told me that it could have 30 times as much impact as going vegan for your

entire life. So, yes, today on the show, I have Alex Wright Gladstein, the CEO and founder of Sphere, and then the co-founder of this cool company called AR Labs. First, let's talk about Sphere, which is a public benefit corporation trying to get 401K money out of companies that burn a ton of fossil fuels. They have essentially created a whole new mutual fund and they offer climate-friendly 401K plans and previously she founded this company

that made data centers more efficient by using light to move data between chips founders. So just like, or chips faster. So a two-time climate founder. Love it. Super interesting ideas. Really interesting. Vote with your dollar.

Vote with your dollar. Vote with your dollar. It's obviously going to have a huge impact. Sounds like a great interview everybody. It's really fun. Stick with us. Alex Wright Gladstein. Thanks for coming on this week in climate startups.

Thanks so much for having me. So Alex is the CEO and founder of Spear, a public benefit corporation that's amplifying a social movement to get 401K retirement savings money out of fossil fuel companies. So first of all, how much 401K money is in fossil fuel companies to start with? Like, this is clearly not something people are very aware of. like. It's true. It's something that most people haven't thought about, but there are many billions of dollars, maybe even trillions in fossil fuel companies. If you look at a single 401k plan at a

company that has a bigger 401k plan, so these are bigger companies that are older, so they've been around for many years with their employees saving, like a Microsoft or an Apple, they each have 10 to 30 billion in a single 401k plan, and about 5% of that is in fossil fuel companies. So if a plan is 30 billion, that's $1.5 billion in fossil fuel companies. It's a big number. It's a big number. And actually, I was talking with the founder yesterday who gave me a startling stat that maybe you can confirm, which was that if you divest from fossil fuel companies, if you just get that

out of your portfolio, that that can be 30 times more impactful than like going vegan as an individual? Have you heard that stat? Because that's bonkers. Everyone measures these things in different ways, but it's true. The carbon footprint of your investments can be enormous. And then I personally think it goes beyond the carbon footprint of those fossil fuel companies. It goes to really sending a message because as long as we're investing in companies like Exxon and Chevron, we're telling them, good job, keep doing what you're doing. That's essentially what we're telling them with our money. And if we take our money out of them, then we're telling them, wait a second. We don't want to give you our money as long as you keep behaving the way you are. And then how did you kind of come

across this and then decide, hey, this is a startup idea? Yeah, I, so I actually started another company that's called IR Labs. And we care about the climate in that company as well. We make data centers and supercomputers more energy efficient by using light to move data between ships. And when we were setting up our 401k plan back in 2016, 2017, I asked our providers for a climate-friendly investment option for our employees. And I thought it was a simple request. It turned out not to be. It took over three years to get a single climate-friendly option in there for our employees. Wow. And I just couldn't believe how hard it was, how long it took. And so I started talking to more and more people in the 401k industry to figure out,

why is it so hard to accomplish this? And I ended up learning that there are some real structural reasons that it's hard to have climate-friendly options in 401Ks in particular. But none of them seemed to be insurmountable. It just seemed like no one had tried to make it easy before. And that's when I started diving into figure out, okay, how can I fix this problem and make it easier for other people like me to have climate-friendly options in 401 faith. Microacquire is a startup acquisition marketplace that cuts out everyone in the middle.

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successful acquisitions so far. So founders can get free access instantly to over 120,000 trusted buyers, and you're going to stay totally anonymous. On the other side of the marketplace, again, buyers are paying that $3.90 a year so you know they're serious. Microacquire will help you find a buyer for your startup. It's as simple as that. Buyers can browse listings for free and the platform is totally free for sellers. Sign up for a premium subscription right now for just $390 a year to access all these great deals at try.com.com slash twist. Once again, t-r-y-d-micr-M-I-C-R-O-Aquire.com slash twist. So why is it hard? Like, in a nutshell. There are a few reasons. I would say one of the major ones is that climate-friendly investment options exist. And, you know, they're amazingly popular. They're really taking off in popularity in the investment market in general, I think, about a third of all investments are in what's called classified by the financial industry as ESG or environment, social and governance style funds.

So those funds tend to be priced at a premium. I think the financial industry has realized, wow, there's so much demand for this that if we create this type of product, we might as well market up, have it be kind of expensive because people are willing to pay. Turns out that's a big problem in the 401K space, because employers can be sued by their employees for having funds that are too expensive in their 401ks. These are called excessive fee lawsuits, and they actually happen all the time

there are law firms that specialize in that type of class action lawsuit. So there's a very legitimate concern that employers have about adding funds that are expensive to their 401Ks. And that concern is what tends to block out climate-friendly funds because they are pretty much all expensive. And if you buy, you know, the way that 401K's work, of course, is you're many, you're not picking individual stocks, right? You're buying sort of a basket of investments. that might be the S&P 500, that might be the, you know, Dow Jones Industrial average. And those baskets sort of automatically tend to include what we have always thought of as blue chip investments, right? Which will be some of these fossil fuel companies.

Yeah, that's exactly right. The government puts the responsibility in the hands of each employer, each company, to make sure that their employees only have smart investment options available to them, where, you know, they can't lose their life savings. if they invest in these options. And the way that is usually interpreted by employers and investment advisors is that options should be well diversified. That's one way to make sure you protect your retirement savings. And the diversified funds that exist, like the S&P 500, for example, they invest in every industry.

And that includes the fossil fuel industry. And it tends to be about 5% of the total portfolio. If you look at any average portfolio that's invested in fossil fuels. not to derail us, but it sounds like you've also described, you know, there's been a lot more light on the kind of structural issues around ESG funds and ESG investing. It seems like what you're also discovering is like, maybe those things shouldn't be priced at a premium, particularly since their returns are not always guaranteed to be as carbon-friendly as they're saying or climate-friendly. Side note, I know, but I wonder what this also says about ESG funds. It's true. So there are a lot of ESG funds out there that I wouldn't personally think. of as climate-friendly, but it's not a judgment on whether the portfolio manager is doing a good

job of making an ESG portfolio. It's actually, I think, a disconnect between, you know, when I would ask for a climate-friendly investment option, you know, I think of that as, you know, I don't want to invest in Exxon and Chevron, who are actively lobbying against climate legislation that would keep us safe. But when a more traditional financial advisor or portfolio manager hears, oh, climate friendly, that means that person wants ESG. And they tend to translate that into ESG, which in their mind means something entirely different and doesn't necessarily mean that you're avoiding investing in fossil fuel companies. Oftentimes it means governance is good or social equity is a consideration. Every ESG strategy has a different focus. and oftentimes it has nothing to do with climate change.

And that's where I think the disconnect happens. So what you're saying is not like give me an option that's all ESG funds. You're saying let me take tomatoes and onions off my burger. I want an option that does not include these two things. That's right. That's what to me is one important aspect of climate friendly investing. And it turns out I'm not alone. So I've ended up getting plugged into a lot of social movements at companies,

especially big companies that have these billions of dollars in their 401Ks, like the apples and Microsofts and Googles and Amazon's, where there have been employees asking for climate-friendly investment options for years. There are hundreds of employees who've written into HR asking for this. And those employees, it turns out, think about it similarly to how I do. And something we've all really leaned on as a great resource is a nonprofit called As You So runs this website called Fossil Free Funds.org. And you can plug in the ticker for any fund you're invested in. So you can see, oh, you know, I'm in the Target date 2050 Vanguard Fund. You're going to plug in that ticker and see how many or how much of your money is invested in fossil fuel companies. So it turns out a lot of people who are looking for climate friendly investment options are using that lens of, hey, I don't want to be investing in fossil fuel companies. Got it. All right. Well, now that we have set up kind of the problem and the complexity, tell me about how sphere tax. this? How do you turn this into a tech business? Yeah, so we explored a bunch of different options,

and I wasn't even convinced at first that this needed to be a tech business. I thought, is there a nonprofit that has a role to play here? It seems like there's a social movement aspect to this. Where can I help? And what I ended up realizing was that the company aspect of this is in the fund option itself, because it turns out there are 401K platform providers that are focused on green investing. It's possible for me as a startup CEO to go and find a company that will build a green 401k option for me. Those companies tend to be on the smaller side. So I think the problem is actually that an enormous company like a Microsoft or Apple won't hire a kind of smaller 401k advisor to run their 401k. They're going to hire Fidelity or Vanguard. And I wanted to be able to address

where the big money is. So those big companies are. companies. And it turns out you can add climate-friendly funds to a Vanguard or Fidelity fund lineup. But the problem was all the climate-friendly funds were expensive. And so we decided to start a company that offers financial products that of Fidelity or Vanguard can offer on their platform. So our first product is a mutual fund that's actually designed for 401Ks. And that means it's inexpensive. So it's not priced in line with other green funds, which tend to be at 0.5 to 1.5% in terms of annual fees. And instead, it's priced in line with S&P 500 index funds, which tend to be priced around 0.04 to 0.09% in annual fees. Wow. That's a side note. Big difference. Like, that is a hell of a green premium right there. It really is. It's a 10x premium.

And we really set a precedent in offering a green fund that is offered at 0.07%. Got it. So you have curated this fund. Tell me about the mechanics of that. And what kind of, what goes into that from sort of a legal and regulatory perspective? Like, you can't you can just do that? You can just make a mutual fund? Good question. So I actually should clarify, we ourselves are not offering the fund. We're not managing the fund. We were able to partner with companies that are, companies and people that have decades of experience in sustainable investing and in fund management.

And so we sponsored the creation of this fund. Our partner, Reflection Asset Management, manages the fund. And the head of Reflection Asset Management, Jason Britton, has decades of experience in sustainable investing. most recently he was running the sustainable investments at Bank of America, Merrill Lynch. So just really great background and depth and experience that there's no way I could have developed that with my background in tech over a short amount of time. So really valuable partnership. And so we created an index and then we sponsored the creation of that fund.

And by the way, while you're reminding me of this topic and the mechanics, I should mention that none of this should. be interpreted as investment advice. And anyone who's thinking about investing should talk to their financial advisor. I bet you have to say that a lot, such as in every interview and meeting. Yes. Exactly. We're just talking options here. We're just talking options. Here's a problem a lot of startups face. They need cybersecurity, but they don't have the staff to implement it or to manage it. So if your startup is overwhelmed with thousands of different services and you're looking for a simple and cost of effective starting point, Saivatar makes cybersecurity effortless for startups and SMBs.

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But if you want to upgrade, you can get your first two months free at Scivatar.aI slash twist. I'll spell it one more time for you, get your pens out, get your phone out, and get ready to type. C-Y-Y-V-A-T-A-R dot A-I-S-T-T-A-I-S-T-T-E-R. So you have partnered with this other company that has created this fund. You've sponsored it. What does that mean? Like you, I mean, clearly you have a business relationship, right? Like, who, how does everybody get paid here?

So sponsoring means that we cover the costs of the fund. And, and, and then, yes, some of the profit is. comes back to our company. So it's a profit sharing model. And then something else worth mentioning is in creating this company, I really cared that we could make decisions where we didn't always have to, well, basically I decided to make this a public benefit corporation

rather than a standard corporation. Because a public benefit corporation, for your listeners who aren't familiar, is a newer type of corporate structure where rather than just having a singular goal in the corporate charter, which is to maximize shareholder value, a public benefit corporation can have a dual goal or does have a dual goal, and you define a social good goal in addition to the financial one.

And in our case, that's educating the public about climate change. And so that was really important to us in setting up this company. And then who, so then your customers are these big, like the vanguard's and the Fidelity's, the 401K, issuers? You know, I would actually say our customers are people like you and me who are investing in a 401K and decide to invest in this fund in particular. Okay.

And that isn't to say that those, you know, the Vanguard and Fidelity, et cetera, platforms aren't important. They're more like gatekeepers. So we have to get their approval, their thumbs up, to get listed on their platforms before the regular, person can invest and make their own decision to invest. And there are a few gatekeepers like that. The other big one is the employer. So if somebody wants to invest via their company 401k, their company has to decide to add this as an option into their 401k lineup.

Got it. So there's a couple steps that you have to go through before this is available to me, the 401k consumer. I can't, for example, go to your website. Well, let's say I had an Ira, right? If it's a self-directed retirement fund, can someone just add this themselves to their portfolio? Yeah, I'm glad you asked. They absolutely can. And this is not actually a 401k product in particular. So anyone can invest via any vehicle. It could even just be, you want to transfer some of your money from your bank account into it. You can do that. So it's just a mutual fund, which is for people who are more familiar with ETFs, it's not too different. And, and, uh, and, uh, anyone can invest. And it turns out what makes it attractive in 401ks, especially that that low fee and also that diversification, also makes it attractive to a lot of other people outside of 401Ks. So we are seeing traction outside of 401Ks as well. Gotcha. And so then that's great for you because the fee structure means you get paid whenever anybody invests in this fund, right? That's right. Yeah, exactly. So the fee structure is that 0.07% that I mentioned. Yeah. Got it. what how are you approaching the gatekeepers and what kind of success have you had there in terms of being listed on those platforms and getting employers to want to offer? I know you're fairly early in this journey, right? Yes, we're brand new. Um, but it's exciting to see how many people are really excited about adding this to their 401ks or we're investing. So, um, we're getting some decent traction already. And, um, the most important part in getting the gatekeepers to add this. an option for people is for people to ask. So it turns out, you know, I learned this from

talking to lots of 401k advisors is, I would always ask them, how do you decide what options to give employees in the 401Ks that you manage? And they would always walk me through the process that they have. And then at the end, they would say, or if our customers ask for a specific option, oftentimes, you know, usually we'll add it. We can't. We want to keep our customers happy. So then I would go to their customers, which to them, that's the head of HR, the benefits manager at a company. And I would say, hey, have you ever requested any specific funds be added to your company 401K? And what made you decide to do that?

And most of the time, they had made that type of request before. And the reason they did was because employees were asking for it. So this really is an area where grounds up movement of, you know, end users wanting to be able to access this. Just making the request really makes all the difference. getting added to platforms. And so that's why you describe this as a movement in addition to a company. Yes, absolutely. What are the criteria for companies to be in the fund?

Because, you know, clearly in addition to leaving off the tomatoes and onions, you're curating a specific collection of companies. Like, are you vetting them for greenwashing or, you know, how do you decide who's there? Yeah. So for this first product, it's a super simple approach. and that was really critical for being able to offer it at a very low fee that 0.07%. And so we're not doing any active vetting of companies. All we're doing is leaving off the worst offenders.

And the way our strategy is very simple. All we do is we take the top 500 U.S. companies and we exclude the fossil fuel companies, of which there are about 40. And so the remainder are all still there. And it's, it's that 5% that's excluded. So we're still invested in 95%. So it's like the S&P 460. Exactly.

Okay. That's, that's pretty much what, what it is. And we benchmark against the S&P 500 index type ETFs. That seems like it should be reassuring to fund managers, too, because you're not, you know,

you're like, look, this is not concessionary. We're choosing effectively the blue chips that you would already be invested in minus companies that, you know, in addition to perpetrating great harm to our planet and the people on it, also haven't been performing that well.

Exactly. It's true. That is the reaction we've gotten from financial advisors and 401K advisors. It's, oh, okay, just excluding 5%. Isn't doesn't sound too risky to me. It sounds like you're still well diversified, and you're right. They haven't been performing too well. And there are studies showing that going back 40 years, funds that excluded fossil fuel companies

performed as well as or better than funds that included them. And we did a 10-year back-test of our index, and that turned out to be true for our own back test as well. So if you had followed this strategy for the past 10 years, you would have done better than if you had invested in the S&P 500. Tell me about the company. When did you form? Have you raised capital? Like what sort of stage are you at as you're building this as a second-time founder? We formed just a year ago. Exactly. And we raised a seed round of $2 million this past summer slash fall. And that was led by a great VC firm called Pale Blue Dot that focuses entirely on climate investments. And then we had participation from a whole bunch of different great investors. So it's been really wonderful to have that team on board. And then we just launched this index and this first index fund that we sponsored. a few months ago. And we're now just getting added to platforms so that we can be available in 401 case.

How big do you think this opportunity is, like in terms of, you know, a conversation about a venture-scale business? I think it's a big opportunity. And, you know, I think that because I've talked to so many people who've been looking for this, there are so many conversations I have where people say, oh, my God, this is what I've been looking for for so long. I'm so frustrated by the financial system as it is now, and that it's been so hard to invest in this type of strategy. And then looking at the 401k market, you know, it's clear that there are many billions of dollars that could transition into this type of strategy. And I think the key will be getting some big customers transitioned in.

So, you know, once we have customers who already have sustainability mandates like Microsoft, Apple, etc, clearly care so much about climate change. And once they move into this, then I think it will make other big companies who maybe aren't so much at the forefront of the green movement realize, oh, this is something we really should be offering our employees to. Yeah. one, I mean, one thing that I'm loving about this space and all of the different companies that exist in sort of the big climate tech bucket is that 401Ks, I think, would be an easy to overlook part of your climate strategy as a company. And what you're describing is so easy now that you have created it for them, right? Exactly. But it's sort of like, oh, here's this incredibly impactful thing that probably the vast majority of companies, and even employees have not even considered.

Yeah, and that people want. The thing is once people realize that this is an option, it's one of those things that they can't stop thinking about, you know, because it's amazing how many people are worried about climate change these days. And these numbers have really skyrocketed, especially in the U.S. in the past five years. We've gone from, I think about 30% of Americans were worried about climate change five years ago to over 80% now.

It's something that a lot of people have honestly a lot of anxiety about, and want to know how they can help, how they can make a difference. And it's really easy to feel powerless with such a massive scale of a problem. But in my opinion, money is one of the most important things. You know, money talks. If you want to create systems change, one of the best places to go create that change is by moving your money. And so this gives people a really proactive way to make a real difference in climate change. And when companies offer this, it shows that they're employees that they have an authenticity around their climate commitments.

And that can make a big difference in keeping their employees happy in both recruiting and retaining employees. So I think it'll become kind of table stakes if you want to be able to claim that you're a green company. You're going to have to let your employees avoid investing in fossil fuel companies. Yeah. Recycling alone is not going to do it. Well, and your sort of benefit, I mean, there's been a lot of noise about this lately, this idea of divestment on college campuses. And even as we're seeing in big funds, big investors saying we're exiting this space altogether. So you're riding a wave of momentum that it sounds like just needs like a little extra push in terms of awareness.

It's right. And I mean, the movement has been incredibly powerful. And actually, the reason I even became aware of the idea of divesting from fossil fuel companies was because I was at MIT as a student when we were pushing the MIT endowment to divest from fossil fuel companies. And that got me thinking about my own money. And I thought, oh, my gosh, I do have retirement savings from my prior company, which was a climate tech company. Am I invested in fossil fuel companies? And that's what started me down the rabbit hole of figuring this all out. So you're right. There's been this incredible movement over the past decade of students getting their universities to divest. And it's expanded beyond university endowments, it's even gone to pension funds. The biggest pension fund in the world, I believe, the New York State pension fund decided to divest from fossil fuels, as did the New York City one. And some really big endowments have decided to divest. A big one was the Harvard endowment. The University of California system endowment has also decided to divest. And all of these entities that have made this decision are referencing not just the ethics of divesting,

and climate change, but also the financial aspect of it. They are doing it because they need to protect the financial returns of their portfolios. And so it's really wild if you think about how those entities which are big can do this, but individuals don't have that option. We don't have that choice to protect our retirement savings from potential huge swings in that industry. So it's a great movement just to get us that option. When you describe this, impact, right? As you're building this movement, like, we've described the financial impact, which is real. But how do you quantify this for people? When you go out and you say, like, you should really care what's in your 401K. How, for example, when we talk about the carbon impact

of your divestment, like, how do you think about those metrics and explaining to people, this is the direct impact that you can have? Yeah. We explain it just, in dollars. So the average person has $6,000 invested in fossil fuel companies via their 401K. And if you work at a big company like Microsoft, you could potentially move $1.5 billion out of fossil fuels. So we're quantifying it in terms of dollar impact because ultimately we see this as a social movement where moving dollars out of fossil fuel companies isn't just about affecting the stock price. It's about sending a message. And we'll be sharing a message with fossil fuel companies telling them, hey, this is what you need to do if you want to get on the path

towards investability again. So it's as much about capturing the attention of the public and of the fossil fuel companies as it is about, you know, dollars and cents impact on stock prices or measuring carbon footprint specifically. So we, you know, moving forward when we start to make more products available. We'll start looking at, you know, carbon footprint analysis, gender equity, rainforest, not cutting down a forest, prison industrial complex. They're all kinds of investing with our values, topics,

that people should be able to have those options in their 401Ks, and this is just the start. Love it, love it. While I have you, let's do like a climate tech startup toofer, because as we have mentioned a couple times, dire labs. Your previous startup is making data centers and supercomputers faster and more energy efficient. And that company still exists, right? You have handed the reins over to another CEO. It does, yes. Charlie Wischpart is a fantastic CEO and he's doing a really stellar job growing

that company. Awesome. Double a two-time climate tech startup founder, Alex Wright, Gladstein. You can find this existing product at OurSphere.org. Where else can people find? you? You can find us on Twitter. At Arsphereorg. We're on LinkedIn as well. Awesome. Yeah. Alex, thanks so much. Nice to talk to you. Thank you so much. It was fun. Hey, everyone. Producer Nick here. I want to tell you about the SaaS Syndicate. If you're a founder of a SaaS company with a product and market, our investment team wants to talk to you.

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