Burned Bridges, No Retreats - Shaun Abrahamson - Third Sphere - Episode #91

Good luck. Go and raise $250 million and try and beat this founder. Not gonna happen. Like you can back up trucks of capital. That's not going to, you'll not overcome. These people are, they're different.

Welcome to Not Another CEO Podcast. I'm your host, David Politis. Every week we talk to inspiring leaders and get the true stories, the the ups and downs, the lessons learned, and come away with actionable advice for our own journeys. Today's guest is Sean Abramson. Sean is the co-founder and managing partner at Third Sphere. Their portfolio spans companies in deep tech, climate tech, hardware, and urban infrastructure. They're considered one of the best climate tech venture funds in the world. He has nearly 20 years of experience as an investor and has invested in over 150 companies over that period of time. As an angel investor, he backed companies like Zocdoc and Refinery29, and through Third Sphere, he's invested in companies like FutureMotion, NearSpace, and Reviven. When I asked some of the founders he's invested in to describe him, they said he is exceptionally supportive, calm, and helpful, yet fearless. He backs founders he believes in, even if they're in non-obvious markets. Please welcome Sean Abramson.

Thanks for having me. That, uh, I don't know if I can live up to that intro.

I'm excited to be doing this, Sean. First question I ask all the investors, what is the one thing that you look for in the founders and companies that you invest in?

I think there's, um, we use burned bridges to mean something negative. I think most people do. Um, but I think we try and identify folks who feel like they have no other option except to build. I think as soon as there's optionality, there's loss of focus and those are generally the folks that give up when things get hard. So burn bridges is the shorthand, but basically low optionality or no optionality. And often that manifests, I think, in immigrant founders. There's a reason why immigrants sort of, if you look at the data, over-index. And I think it's not that they're better or smarter, it's that they just, they don't have a fallback. Like there literally isn't another option. So we try and look, it's not all, immigration is one way to not have a way back, but we try and figure that out when we meet.

Yeah, it's interesting when I've asked, I had someone named Adam Bryant on the podcast. He used to write the Corner Office for the New York Times. And I asked him, you know, what makes the best CEOs, you know, not necessarily founders. And one of the things he mentioned was immigrants. You know, one of the things he mentioned was people who've just had some really bad stuff happen in their lives and they just, it's so deeply kind of embedded in them that they're going to not have that happen, you know, kind of for the next generation and for the next. And, but either way, I think that burn, I haven't actually heard that as a way of describing it, but it is, there is some element of that in both of those kind of examples, they have almost no choice.

Yeah. I mean, there's a bunch of military references for burning bridges as a way to either, you know, in some cases it was meant to deter enemies, but in some cases it was meant to signal to the army that there was only one path and going backwards was retreat wasn't an option. Um, I think now it means more negative things fully as in, you know, burned relationships. But it goes nicely with moats, so we like bridges.

All the things. When you meet with the founder and you're meeting them first time, how quickly are you kind of making a decision that you want to invest? And I guess also that they've burned the bridges, like how, how fast can you assess that in someone?

It really varies. And we get it wrong. More than we should. It's probably the hardest thing, I think, for us. We essentially view our— so we invest super early. So the way that I would describe our investment stage, the pre-seed's probably not the right description. Great team, not a surprise that everyone says that. Somewhat working demo, no customers, and generally a bad logo. Because we found bad logos to be correlated with really good technical talent, at least in hardware. Anyway. But because we're investing at that stage, the first check for us very often is buying the right to get to know people. So I just don't think, you know, yes, there's love at first sight, you know, that can happen, but it, but it's not, I, it's not, we haven't found it to be repeatable. So we assume a lot of the time we need people that are different to us. We'll try and cycle through the team and get different perspectives. But often we get to the point where we have a sense that, The person is interesting and may have the characteristics that we want, but we, we often need months and multiple, you know, sort of working meetings. And in some cases, the best thing that could happen is something bad could happen for some reason that, that is like in an ideal world, if we could choose to orchestrate something bad happening, that would be the best way to get to know someone, I think.

And you see how they adapt to that. And I really, I, I've noticed that actually when I meet founders really early and then something derails them or something happens and then you see how they adjust. And it is, it is, it's interesting to see that because some people get so frustrated and they just start to, you know, spiral. And then other people are like, no, okay, I'm gonna get around. I've, that, that was a problem. Now I'm gonna go figure it out.

And it's, it's also interesting to hear people speak through what happened., right? Cause there's some people that things happen to, right? And I, and I think that's a sort of tough place to be a founder. Um, and there are other people who sort of are much more in control or, or, or much more self-aware about what they can control. Um, and that when, when you get sort of a unique difficult event that, that stuff comes through pretty quickly. Um, it's also like, I think people get, are just coached much better. Like I, like I find, let's say YC-coached founders to be completely impenetrable. You kind of have to, you just have to make, you just really have to make a judgment that you can't possibly know them. You have to make some broader, it's not a reason not to invest. We still invest in YC-backed companies. They've been so well trained to like say nothing.

I've actually just had my exposure to YC companies for the first time. I never just played in that realm and I've had some meetings recently and That I'd say coach and also just they are trained that they're like the best companies to happen to the world, you know? And it is, it's interesting because a lot of times there's actually a lot of good behind that. But I think there is a, the way they're trained, the way they speak, you, I now start, because I have never had this exposure. Now I see it and I'm like, they're all saying the same, like basically the same thing. You know, and it's hard. Like you said, I, I, I, one time I said, listen, I don't need you to tell me you're the best. I don't really care. I'm not even investing. I'm just trying to understand if I can help. And then finally, like after a long time, I was able to like kind of break through, but, but it's, um, my oldest son, I would describe as like, he's just an infinite optimizer.

So like watching him in situations is like watching someone trying to pick a lock. And that's, that's what some of the discussions feel like. We're like, I'm not having a conversation. I'm just, I literally can see they'll run it through. No. And again, like I know, I totally get it. It just, it makes, it actually makes it harder for us because then we're like not making any assessment of the founder. We're trying to use some other signals to say, this is interesting. Should we buy the rights? And then, as you know, from a valuation perspective, for our model, it's really tough. Right.

Right. When you, when you, so you're so early with the, like you, I think you're the earliest stage investor so far that I've had on the show. And at that stage, are you like, is it literally just talking it through with them? Is there something in there, you know, do they come with a deck still and they're telling you some story that you're keying in on? You know, a lot of people have told me, hey, this is, it's the power law. We're looking for the things that are literally gonna change the world. And you know, we're looking to see in the deck that they can tell that story. Like, are you doing that or literally just, it's a conversation and you're kind of flowing with them and that's kind of how you're doing your assessment. Like, I'm just curious at this stage, it's basically inception. I mean, basically.

So it's a little counterintuitive, but I think we actually don't want the first step to be a conversation. We want to see some work product. And so just how do people communicate other than this? Like, especially given how much of communication is asynchronous today. That's a pla— that's usually where we start. So we'll look at materials, we'll look at, I mean, and everything is a signal, right? I mean, I joke about bad logos, but you can still have really well thought out, you know, sort of storytelling and communication. We also do a lot of hardware. So we are looking for things like, did someone do the techno-economic model, right? So like the SpaceX sort of, Inception story, you know, leaving Russia and being told they couldn't buy rocket engines was Elon doing techno-economic Excel, right? It's like, here are my assumptions. This is how this is going to work. So we look for things like that. It's just, how do you think, how did you arrive at this? Why do you think it's a huge opportunity? You know, the questions of, are you right? Do you have the right background? We'll get to, but just In a lot of cases, the insights are pretty deep, especially again, I think in a lot of the, in hardware, there's a lot of things going on. There's the customer, but then there's a whole tech stack often that we don't know that much about, right? We'll show up and say, hey, did you know that recycled nylon can actually be cheaper than virgin nylon? No, didn't, how do we, how do we, you know, didn't know that. Why, why should we believe that? Well, here's why. Here's, here's the breakdown of how we got to that insight. And actually, this is why it's gonna get better. Those stories sometimes come out in conversation, but we usually get them first through some sort of asynchronous, like, word product.

Got it. And so you, you not only are you the earliest stage, you're also the most focused because most of the funds that I've talked to are just like kind of they go across any industry, any space, and you're, you're really focused. You mentioned you do a lot of hardware, first hardware investor that I've had on. Like, how does that impact how you think about the space, how you think about investing? Like, I, I don't know, for me especially climate tech, when, when I hear that, I, I wonder, you know, that, that the space has kind of changed and evolved quite a bit and What are you having to look out for in this when, when you're doing this kind of, this kind of investing, which is definitely very different than the other investors I've had so far?

Yeah, so I think there's probably a couple of main things. One, the customer signal, let's compare to like, you know, your experience in enterprise SaaS, right? When you go and have a customer conversation, if you get to a certain level in relationship, you can feel pretty good that folks are describing a problem to you and that their intention to buy is real, right? Or at least you can figure out how they're gonna get to a decision, who needs to make the decision. One of the challenges in climate is that there's really good intentionality. So folks will tell you things that you want to hear. Uh, customers will tell you things you want to hear. But when it comes time to get beyond, let's say, a pilot or a trial and the math doesn't work, the CFO has a veto. And so getting clear customer signal is super hard, super, super hard. And, and there's unfortunately like so many smart people who build things that are super impressive in response to being misled by customers. Not intentionally. Like, I think this, you know, there were stakeholders at the customer that sincerely wanted the thing, but ultimately it didn't make operational sense. So, then you're in a tiny universe of companies that do charity, which you can imagine is not large. Right. So, customer signal, I think, is the hardest thing. And then I think there's some structural things. Again, physical world has things like supply chain, it has other constraints. And so we like the sort of Warren Buffett perspective that, you know, if you have a sort of a business for, with a reputation for bad economics or challenging structure and you, and you have a founding team with a phenomenal reputation, the thing that will endure is the bad reputation of the business. It's just, there's limits to even what the greatest teams can do. And so we do pay attention to the operating structure. Where are you buying things from? So your, your, there's your supply chain. What does distribution look like? Are you operating in an oligopoly? Some of the older businesses, like 100-year-old industries, are just super tightly held, right? And so the incentive to do nothing or to resist change is even higher. So I'd say those are the two biggest challenges. It's not like some people, the capital-intensive discussion. I think we are past, like, I think, yes, I would say the better way to think about it is margin for error. So the rate we call it when we think about margins is it's sort of 90% versus 60%. And that 30% difference, it just, that's, that's the difference in margin. If you make a mistake, you have to correct faster hardware company, like, so all things being equal, that's the hardest thing. And so, I think there's some operational differences. And so again, upfront, the more folks have modeled out their business so that you know they have an operating framework, the easier it is to get excited about it.

The climate tech part about the customer's good intentions is one that when you say it like that and you start thinking like, I imagine some amazing technology, amazing, you know, you start going out to these customers and to your point, they're all like, yeah, of course I want, It's gonna make the world a better place. It's gonna make my company a better place. Like, of course, but actually becoming a customer and paying for that thing on a multi-year contract and growing NRR and doing like, I, I can, and I never, yeah, versus just a pure B2B SaaS thing. You have a problem, we solve the problem, it adds value. Awesome. Cool. And so do you find that those, that the climate tech companies you invest in, does it take them longer to get traction or the ones that have traction have it as quick and there's just a lot that have no traction? I'm not sure if that question made sense, but like—

I think we had to, I think we had to learn and I think where we've landed up is a pretty high focus on sort of time to revenue with good margins. They don't have to be totally optimized. And so the sort of rough model we have is about 2 years from the time we invest to revenue, which is relatively quite short for physical things. But I think we realized at some point, this is what NVIDIA did. It's what Apple did. It's what Tesla did, right? But it requires that the founder makes certain decisions. To basically be in the business of Lego building initially, right? So you find existing pieces and plug them together. And so the simplest way to sort of sort the founders for us has become, are you describing a world in which you have to build the Lego so you can then put it together with some other things? Or did you just find the pieces and put them together? Because if you're doing the first thing, like we're talking 4 or 5 years to revenue., right? And if you're doing, if you're doing the, if you're doing Lego assembly and, and I, again, I don't want to minimize the complexity of some of this stuff, but it's much easier if you start with a multinational as your core supplier who's been building the thing for 20 years and that's your sort of most expensive thing on your list of parts versus you saying, oh, that's the thing I want to make. Just give me 5 years. So, so, um, in some ways it, it became really simple, but I think we also just looked at what's worked., and, and there definitely is a pattern. People don't hang around for years building stuff and not worry about revenue, at least not some of the most successful companies in hardware.

Yeah. And on the hardware front, the first thing that comes to my mind is all the tariffs and, you know, I, I'm curious how that has impacted your companies. I'm, I can only, I can only imagine probably a sort of subject, but that's the first thing I think about, you know, and I, Again, I've had so much exposure in the last couple years that I never had before. I never literally talked to a hardware founder, I think literally in my life. And I've talked to a couple recently and it's the things they have to deal with are, I mean, I don't like to say insurmountable 'cause things are surmountable, but sometimes you just like, how do you deal with this?

I mean, there's days where I'm just like, man, I like, this is just too hard, right? You take all the things, you know, about company building and then sprinkle geopolitics just for fun. It's like, it's brutal. But I think that there are a lot of strategies. I think there are a lot of founders helping each other out. It's a pretty collaborative universe. Like if folks are like, hey, you know, we had a supplier in China and we're trying to figure out sort of China plus one, like what's the next place we should be looking? Folks will take the call, they'll share what they learned. Like it, so it's pretty collaborative, but it is, you know, again, if you think of sort of margin for error problem of, you know, 60% versus 90% margins, then this is one of those things in time where you've got this additional time suck, uh, for things that are, I mean, worrying about tariffs is not productive. Uh, it's just not great use of time, you know, revisiting your supply chain, going out and, and retraining people, reevaluating products. Um, so I mean, the effect has been, um, rough in some cases. Companies are just, are not going to make it. Like they can't use enough that will either go out of business or be restructured. So from a sort of, as an investor, and in some cases for the founders, it's meaningful dilution. And, you know, they may still choose to walk away.

And it has nothing to do with what they did. That's the most fucked, that's the part that's the worst. Like made all the right decisions, did all the right things.

Look, the flips The flip side of this is I think if you can manage the mentals of being in a world that sort of periodically flips and living in that kind of uncertainty, man, I do not want to compete with the people who make it through that. That's good. That's true. Right. So, cause I have, I now know people that have made it through that. Good luck. Go and raise $250 million and try and beat this founder. Not going to happen. Like you can back up trucks of capital. That's not going to, you'll not overcome. These people are, they're different, right? And it's like, it's different in the way that I don't know if you've met people who have, you know, been in the military or been to prison. They, they're different.

Yeah.

And some things you do not want to mess with them. And I think the same thing happens to your founders.

I think there's actually an entire population of founders and CEOs who have been running companies for the last 5 years that on like a whole— I mean, you have more experience than I do, you know, with across more companies. But at least in my opinion, in the last 5 years, what we've gone through is more turmoil, changeover, crazy shit than probably any 5-year window between the beginning of COVID So I'll mention the Reviven guys because it's on your—

Yeah. So it's public that you worked with them. Yeah. Yeah. That—

good luck. Yeah. No, it's— when you see that and you see it, I've met a couple of CEOs who I didn't know before and have talked through the journey of what they went through. For various reasons over these 5 years. And to your point, they've just figured out how to do a lot more with a lot less. And I don't know that another thing is going to occur. Yeah, that's going to derail them because nothing else is going to come up. That's like, you know, I had one founder went from $200 million of revenue to zero, literally zero overnight, like, like overnight. And now business is back to hundreds of millions of revenue. And you're like, is anyone going to compete? Like, he went through that. Had a 1,000-person team that had to get cut down to zero and then built back up in a 3-year period like that. Like that, I mean, those people, you just, you start to have a different muscle. Yeah.

Is that, there's an interesting interview. I think it's like a Q&A session with Jensen. Maybe it's with an MBA class. And he's like, the challenge for you is you haven't had enough difficulty.

Something I'm not using, I'm paraphrasing.

No, that's okay. Yeah. But that's, I think that's what we've come to believe is that in the same way as we look at the beginning for this sort of no way back, there's a part somewhere in the middle of the journey, which is you need to have overcome a certain amount of stuff and decide you really want to do this. It's not just where you start.. And at the same time, I think it's fair to say, man, I don't, I, this is definitely not for most people. It, it feels kind of irrational to sign up for this. Yeah.

Someone else described to me as like, you know, I think I forgot who said this, but someone, um, I was listening to some panel and this guy was like, it's, you know, it's chewing glass all day long and smiling while you're doing it. And, you know, and I think that he's, I think he called it a chewing, a, a chewing glass contest or something. And, and having to smile at your team, at your investors, at your, at your customers. And yeah, who would choose to, who would choose to do that? You have to be a little bit crazy. And to do it is one thing, then to stay in it, that's, you know, a whole, a whole nother thing.

So, so in the climate world, it was interesting. I think the end of the sort of Biden administration and the reversion of the IRA just broke a lot of people mentally in the startup world.

I'm curious, originally when you started Third Sphere, because your angel investing from the research I've done, it wasn't climate tech. It was like, that wasn't the primary thing.

Yeah. I mean, you're being generous. Yeah. Calling my angel career investing is generous. You know, at that point it's like, you just don't know what you don't know. That's true.

That's fair.

That's fair. I was pretty in New York. You know, our team had an exit at a time where that was an unusual thing. It was relatively easy to meet people. I'm surprised, surprised, you know, you're in a tiny universe of people who's actually allocating money. But yeah, I mean, in the beginning, it was just sort of a curiosity with investing and building companies. So, so I, so like I came to the US to go to grad school. And went to MIT and I wrote a paper on life cycle analysis, which is like the core, essentially organizing principle for carbon accounting. Right. And so that's how I viewed climate. Climate was like this accounting problem that we would just figure out, right? We would agree on some accounting standards. It would become part of the accounting world alongside your financials. And you would, you would have some rules and some taxes, like every in the, in the sort of going into 2000, 2001, that's what I thought. Right. So I didn't, I didn't pay. It was interesting to me, but I was like, this is, this is a solved problem. Keep that to us, my view. And also the internet was happening. So there was a new shinier thing to do. Look forward to yours. But, but by the time, like, you know, 2010, 2011 rolled around, I had a few friends., you know, doing different things around climate. I was like, wow, this is actually pretty insane. Like the repercussions of getting this wrong. Um, and, um, and when we started, most of, there was sort of two groups of people. There was one, one group who knew people who had lost money in clean tech. And there was another group of people who actually directly lost money. Bro, can you imagine going, you're like, oh, we want to work on this. And everyone was free. Like, yeah, some people tried, or I know someone who tried. And that's funny. So, um, yeah, again, like the benefit I think of, of climate has been the folks that bring me to want to work on stuff. I don't want to say it's a higher purpose because it's not fair. There are plenty of people who build companies for lots of reasons. But I, but I think like the, the most resilient founders in our portfolio are really locked in on like the money is going to be a byproduct of this other thing. So, so you can sort of see that of the peripheral vision, they can see the math and they can see that it will be transformative financially, but they're looking at something else. Um, and that's, yeah, and that, and that, that, I mean, that's why I find my job is easy. It's really easy to work for those types of folks.

When you say work for them, like what, what is the value that you add to them? I think this is topic, you know, with investors. I have a lot of opinions on this. I'm curious, like where do you at this stage when you're investing, where are you adding value for the, for the, for the founders?

I think very often my kids are now, my youngest is about to finish high school. And it feels a lot like parenting. And I'm not the person you want to ask about parenting, but I do think there is an important part of parenting, which is sometimes you're just supposed to be the person that says, I believe, right? Like you just, and it, because there are moments where there just aren't other folks for founders to talk to, not their parents, not their good friends, sometimes not out of the found— there's just, there's a very short list. And so I think we land up being on the short list of like, you know, we believe. And incidentally, the hard part is you can get 12 months in where you're like, oh shit, this is probably not the right investment, right? This gets back to the, do you know if it's the right person? It's like, sometimes it's like, yeah, we want to believe, but I'm not going to be the person you can call on the weekend and say you can do it. And that's tough. I don't think we have a good way to manage that, but I think that's probably the main, for me, that's the main thing. And then just try and shortcut to reality, right? Like there's a lot of reasons for folks, you know, it's kind of like, is this really a customer? Like sometimes, you know, it's like, oh, I just had this great this great meeting with, for them, the Fortune 50 logo. And I'm like, really? How great was it? Are you sure it was great? Everyone else is like, wants to do, and I'm like, yeah, I'm sorry to be the person, but I, but I think folks mostly come to appreciate that they're, we're a little bit obsessed with, there isn't a lot of time to course correct. So we gotta, we gotta double and triple check that we, you understand reality. If this is not going to be a customer, if this is not a fit, let's move on. Same thing for talent. Um, and so I don't know if we have like special skills. I think like we definitely have spent a lot of time in hardware. And so there's some parts of the hardware ecosystem where I think we just, it's not, it's not that we know anything. It's that we know people who know probably, but we do have it. I think we have a distinct network advantage. And then we spend some time, you know, I would say we are accidental VCs in the sense that we didn't show up and say, hey, VC is the thing that we want to be. You're like, hey, VC is a really good way at the early stage to support climate founders, increase their probability of success. But actually, as you get to growth stage, I'm not sure that's the answer anymore. Maybe private credit is the answer. So we've spent a lot more time on other parts of the ecosystem. Again, not to discount the value of VC, but there are additional things that sometimes are more transformative. And private credit is one of those things.

The— you've said a lot of things here. One of the things that you said though, that I know that I really want to key in on because I've been having this conversation with some VCs recently is I have worked with some companies where I'll meet the founder, I'll talk to the team, I'll come back to the VC and I'll say, hey, these are the things that I noticed. I'm just curious, am I missing something? You know, and they'll say, oh yeah, yeah, we, we feel the exact same way. And I'll tell them, but the founder said you never said any of these things to them. And it's this interesting dynamic. I asked an investor, I was at some event and I had this conversation. I said, Do you feel uncomfortable like giving the real feedback about the team, about the product, about the company, about, you know? And he said, yeah, because what happens in the next round? Like if I'm not the founder-friendly investor, are they? And so when you just said that, you're, I think like, where does that come from that you feel comfortable? Like has that been you your whole career where you, you, you feel comfortable sharing this with the founders? 'Cause I, I actually think it's really important. I wish VCs did it more. My, my experience has actually been that some do, but usually later in their career who kind of don't get— they're like, yeah, I'm gonna tell you the truth. But a lot of early, early people, especially people who've never operated before, they don't feel kind of confident enough to deliver. Yeah. That, you know, message. And I think it's really important, actually. I think that's actually what the VC should be doing. But it feels like that governance is kind of— we're losing a little bit of that.

Feedback, you know, to be founder-friendly. My sort of personal, I would say on the sort of operating side, my experience, the last company that we exited from, I think was a group of people that were very direct. We were all good friends, but very, you know, feedback was fast and was direct. And I think part of it was everyone went through the dot-com bubble. So everyone had a story in some cases about getting through being on a public company, being worth a billion dollars. And the thread in retrospect was that they wish folks sort of guided them back to reality instead of everyone hyping each other up. I didn't understand that at the time, but like that, that was the culture when everyone was recovering from that. That's the culture in the company that we built in like early 2000s. And so my mistake was that I went into angel investing. I'm like, I'm just going to be the direct person. And that's what you find. It was terrible. It was terrible. Like I had one founder who was like, didn't talk to me for 12 months. I was like, I thought I was just being helpful and being direct. They were like, yeah, you're, yeah, fuck you basically.

I believe that. I believe that's what I'm asking.

Like that. But I think that that as time went on, in general, I think like you're not gonna get 100%, but it was more than 50% of folks who were like, actually that you, the person like this made a difference 'cause you were direct about this. So I know, I think once you understand that you're just gonna, you can't, there's no way you're gonna be a bunch of people who just will write you off. You'll miss the next round. But I think it's the next best thing, right?

Given time, most folks appreciate it. I think literally right now, like in the market at this moment, this is exactly what needs to be happening more because there are founders I've talked to who are doing half a million of revenue, a million, whatever. And they're raising at $200 million valuations and they're walking. I've talked to them. Yeah, I'm crushing. I'm crushing. I'm like, you have half a million of revenue.

Like, let's be like, The fortunate thing about climate is before you can say to a founder, let's talk about you, you get to talk about whether their customers are bad because they're not being totally honest with them. And it doesn't, it literally like the, I feel there's no animosity. It's just like, here's the structure that you're in that causes this person that your customer to behave this way. You can't be mad about it. And I think for a lot of founders, that's the same type of feedback is like, I understand why you're making this decision, right? Like who, I had a group of founders that I talked with yesterday, two founders, and they do this thing where they survey their investors and they try to get people to vote on what to do. And I'm like, no, this is, you need to rate the votes, right? You can't, not every vote can count the same. P, S. And here's how I would think about weighting. And so in some cases, in that, like in that case, I don't have to, the feedback is not directed at the founder. The feedback's directed at, hey, would you consider a different process? Because you'll probably with the weighted voting system get a conclusion.

You, you mentioned another thing, the private credit thing. Um, there's another area where there's a boom right now. I mean, the amount of private credit that's available is crazy. Was that, since I don't know the hardware business, was that not always the case? Is that a newer, I mean, I know it's been around, but is the availability a newer phenomenon?

Yeah. So, so, so what happened, you know, sort of, I think the startup world pre-Great Financial Crisis had more active bank participation. So we would know about SVB and venture debt, but there was a much larger universe of sort of banking relationships where it really was a relationship where someone would be like, hey, I noticed that you, you know, we've watched your bank accounts, some interesting things are happening. We mean, maybe we can get you a line of credit. And that, a lot of that just sort of went away. Regulatory risk, a bunch of things. And the way that it came back was effectively a whole bunch of everything, family offices, hedge funds, um, in the PE world, I think the big PE folks are managing more private credit now than they are private equity. But so everyone was like, hey, we can be banks. We don't have the same regulations. And actually banking can be good. There are some real challenges with, with like shopping around to build like a, a capital stack where you've got sort of VCs playing over here and then a feeder fund for Blackstone and then a bank. All right. Like now you, there's actually a lot of overhead in trying to manage all those things. Um, but it's a different type of capital. And in a lot of cases in the physical world, it's better capital from an underwriting discipline perspective. And what I mean by underwriting discipline is I have a pretty good sense of what those folks want at a moment in venture where I couldn't tell you what growth metrics are for Series A. I don't know. I used to know, but I'm not sure anymore. But I can tell you roughly what it would take to get an asset finance deal done or project finance or line of credit. That stuff actually is easy to understand right now.

And there's a lot of that money in the market. There is a lot.

I mean, a lot looking for homes. So we changed like our investment, like we changed how we do early stage investing. Like we, we want plan A to be break even by series A because we know if you can hit that, if you can do, if you can sort of get to revenue, decent margins, that's enough. Like you could, you could then just like literally plug yourself into Shopify, right? Direct most of your sales activity through Shopify and they'll give you, they start to calculate loans based on your sales activity. Yeah, you just like, you hit a button, working capital.

Yeah.

So, so there's, there's a bunch of interesting hacks, but that's what I mean by underwriting. Like, I understand that, like if a certain amount of cash is coming through the door, I can get a certain amount of working capital. Right. And I think the other thing that's happening is more of that underwriting, AI is going to automate more of that underwriting. So the time to make decisions and the transparency about decisions. And I don't know that VCs are getting faster. We certainly are doing a lot of AI things, but I don't know that it's actually sped up our decision-making or made it more transparent to founders. Definitely not the latter. Yeah. Which is why I say like, I used to feel more confident about what a Series A milestone is, but now I'm actually super nervous that I, we don't really know.

Hmm. Um, when you think about working with founders and you have a bunch of companies that you work with and founders at different stages. And how do you like to be communicated with? Is it— it's because you're early? Is it— is it board meetings? Is it just informal? Is it on text? Is it on Slack? Is it once a week to talk to them? Like, how do you like to understand where the businesses are and, and what's the best way to communicate with you?

I really like structured updates that I can get and review before we chat live. I'd like to just be able to show up and be like, here's a bunch of stuff I'm not worried about. This seems like the main sort of blinking red lights. Here we can do the high fives all around for the green lights, but like, let's use the time to just do this, you know, this one thing. That takes a bit of coaching to get folks And it's, it's not that folks can't do updates. It's that you have to have a certain amount of trust to be like, hey, here's the actual thing that I'm worried about. Let's say, and then to write that down and describe it is like another whole level. But that's when we get to that point, it's, it's, that's sort of the preferred place. And in fact, if we, if we cannot get to that point, it's one reason why we'll, we'll probably not continue investing. It just becomes really hard then to figure out how to help.

I actually had this advice from one of our investors and he said, it's great that we talk every 2 weeks, but I'm going in blind basically into the conversation and I don't— like, give me some context of what we're going to talk about. And then I started doing that. Yeah, I'm sure you know exactly who that was. But I get, you know, I get— and actually he all— I mean, even the board decks, he's like, more information. Yes. Yeah. I, I, I want more because then I have the context of where I can help you, where we can go. You know, if you're giving me nothing or one-line thing and, and actually now as I work with companies, it's the same thing. Like, I'm like, if you give me enough information, I can process it. I can think about it. I can go try to get help.

I can go, you know, and, um, yes. What I say to a lot of founders is I like, I don't, I, I have my, I don't remember what I had for breakfast. I mean, if you forced me, if you made that a priority, I would try. But what I kind of want to frame the conversation is what did we say we were going to do and how are we doing versus those things? Just remind me what we agreed to and then how are we doing? And then we kind of unpack like why are we missing? So we're going to be missing some. And so it's, I don't even know if it's so much about the writing. It's just like you can be prepared when you get into a meeting if you just have that and it will make sure that the miss is the thing that's top of the agenda, which is what it should be.

I had a founder tell me actually that they did this and they were really good at it. And he was explaining to me how he did it. And he said that in a period where they were running out of cash, all of his investors bridged him. He said almost with no questions asked, like in a very bad time. And he said he believes in his, the feedback from the investors was because he was doing this for a couple of years. And he said, literally, they put the money in. He said, almost no questions asked because they trusted me. They trusted me that everything I was, I was telling them the good, the bad. I was giving them a real picture. And it's kind of what you actually just said. Like, if someone's not doing that, at some point it becomes hard to continue to put money behind that.

So we eventually, we built a tool. Actually, we've automated a lot of it now, but 'cause it was quite hard to do. So we basically take in all of the updates for how we get them, transcripts, et cetera, et cetera. And we basically just build an assessment of like, you know, how close are we to doing the things that we said we're gonna do for every company in the portfolio. And then we try and parse out like, is this an execution-driven thing or is this a headwind-tailwind problem? Like, is it an external, like tariffs? Yeah.

Yeah.

Right. Um, cause, cause sometimes you can get lucky. And so there's still work to do. Uh, you just may be in the right place at the right time. And other cases, the opposite is true. You may be temporarily just in a really hard place. So like, I don't want to ding founders who had like a shitty year of tariffs, right? Like there's plenty of great businesses that people are going to give up on because they didn't have the patience to wait out tariffs. The tariffs will settle down. Right. It may take another 6 months, right? Right. Like trying to parse that out, which again, I think for founders is a huge lesson. If you, if you can, if you can just communicate regularly, like here's what we said we're going to do. Here's how we're doing most of those things. Here's roughly why we think we are ahead or behind. I like, I would just wire money if she needs it, Bridge.

Like it's so easy at that point. Yeah. Yeah. Um, what, what do you think that founders don't understand about what's happening on your side of the table? Misunderstand or just don't understand about the job of being an investor?

I think it, I think it's, I think it's what we just discussed, maybe more than anything. Is that we have a portfolio. The math is brutal. Portfolio math is brutal because it basically says that most of the companies don't matter except for one, maybe two. And I think that's a very, like, it's very easy to say. It's very hard for founders to accept that there may not be that one or two companies. But, you know, one way to take yourself out of contention is don't send updates or send shitty updates. Like, because I'm, because like the correlation with success is, is not high, right? Like if you, if you can't actually communicate, which is, I think again, the, the, the, the desire to just know more and have transparency so that you can help. It's like, okay, so let's have two teams in a head-to-head. Here's one team that's getting lots of help. Low friction raise when they need it, low friction bridge when they need it. Here's the other team that didn't, that's now stopped doing everything to run around and try and motivate the investors. Like, no, the second team's a loser. I would, I would make that bet every day over and over again.

You know, when you, that, that whole commentary hits hard, cause actually I think about my investors and I had some investors where I think I, well, I not, I think I know I was that one or had one or two of in their portfolio that was the, the returner of the fund. And then I have somewhere other investors where we were not in the top 100 companies, you know, different, different kinds of investors, whatever. And the difference is so clear. Yeah. When you're one of those one or two and when you're not even in the top whatever, and the difference in attention, the difference in, in help and the difference in everything. But it is hard to admit, you know, this investor didn't even put me on his LinkedIn because I'm not even like in the, in the vicinity.

And then this one is like, put it at the top of my LinkedIn, you know, like laugh. At one point on Twitter, there was an account that did like change tracking on bios, uh, to figure out which companies were in and out of like Very, very far. But exactly, exactly right. Like you're either going to be in the storytelling. It's like, you know, you said to me in the beginning of the call, who do folks know? Who will they recognize? I mean, it's all the same calculus. In 150 companies we mentioned so far, how many? 5 or 6?

Yeah.

Yeah. I mean, it's rough. So, yeah, I mean, I think that's probably the hardest thing to understand. And then I think Thinking about it from a founder perspective is, do you want investors to have a referendum on whether you get to continue building? Because the other reality is that yes, you, you can cycle through the bio, right? It's easy to get in. It's also easy to get off. And there are plenty of folks that get in and then go off and then still make it. Right? So like remembering that it's like a very lumpy thing. And so like, don't, don't over, you know, figure out VCs have a role, um, and figure out what we can do to, to help. Don't over-index on how important we are. Like we're not, especially, I mean, just in simple math of like who has money right now, like private credit's like 100. You're right. It's like we are very, very small players in the capital markets. Um, but, but also in terms of like building a business there, I think we had the hardest conversations at the moment, you know, like the Series A, one of the metrics question is a hard one because you can go for it, right? And it's like you grab onto your rope and you start to swing and you hope you can let go and grab the next rope. It's like, is, do you really want to do that? Or do you want to build in a way that is maybe not that dependent on getting the timing perfect?

I'm not, I don't know what the answer is, but we talk a lot at the moment. What is, what is, to switch gears just for a second, what is the deal that you missed that you regret the most? I mean, I have a list.

You actually keep a list? Yeah. Yeah. No, I mean, I have, in my head, I have a list. I think like the one which is probably the most errors is a company called Glovo and they're based in Barcelona. They were acquired for like $2.5 billion. It was co-founded by someone that I knew. Who had already had multiple exits. So it should have been like a no-brainer. But we sort of looked at the market and we're like, man, there's like 3 or 4 delivery companies, you know, a lot of them are already expanding. They raised a lot of money. They're expanding into the EU. Like, how's this team couldn't figure it out. And what the team wound up doing is they went to like the smaller EU markets and then went to Latin America and Africa. You know, at some point it's like, yeah, you can be too clever second-guessing great founders. You know, that's the, that's where I think like the, the caveat on there are some bad businesses can get you in trouble, right? Yeah. You got to be sure that you're talking about the business being bad versus some other imagined thing like being outraised.

Last question. What excites you about the next 5 years or 10 years as an investor?

I mean, I, because we do so much in the physical world, robotics is just sort of mind-blowing, like what the options, what the possibilities are. Coupled with non-dilutive capital. Like they were made for each other. It's just, it's a bunch of new assets coming online that are quickly getting due risk from an underwriting, like capital markets perspective. And there are a lot of folks in the capital markets who miss things like batteries and solar. Who are like on the lookout for what's the next thing that I could deploy a lot of money into. So that's, that intersection is sort of super interesting. And then within climate, it's sort of a relief to not worry about, you know, people who want to save the world because climate now is basically just it's just tech. It's just better, faster, cheaper. So we have like a full-stack trucking company that only uses EVs. You know, good luck. The math is not in your favor if you run a traditional trucking company. So if these guys make it, I mean, they can barely keep up with demand currently. But the only thing between them and being the largest trucking company in the US is the asset finance piece, which is pretty much in place. And probably the main constraint is, can you buy enough trucks? Like, literally, can you get enough electric semis? But it works phenomenally well. And there's a lot of other businesses that work like that where the tech stack for low emissions or no emissions tech is phenomenal. So that's interesting. And then the last thing I'll say is like the climate resilience part of the world, the lines with defense and public safety are pretty blurred. So the way into those deals, there's just a lot more people, a lot more interesting customers. So, you know, in many ways for us, climate got more interesting despite the sort of rollback on the policy front.

Sean, I was really looking forward to this and you did not disappoint. You're always, uh, you're transparent, you're, you're always real talk all the time, which I appreciate, and very thoughtful. And, um, definitely in a space I don't have a lot of experience in, so I appreciate you sharing all this and, and just for you doing this with me.

So thank you very much. Well, and thanks for— I, I think at this point, yeah, you becoming the go-to resource.

Hopefully this adds a little bit Even if it doesn't, thank you for what you do. Awesome. Thank you, Sean. And for those listening, I hope you enjoyed. I'm sure you learned a lot. If you did, share this out with your networks and we'll see you for the next episode of Not Another CEO Podcast. That's a wrap for this week's episode of Not Another CEO Podcast. Thanks for joining. For show notes and more, please visit notanotherceopodcast.com.

We'll see you next week.