Value-Driven Category Creation and Strategic Hiring at a High-Growth Startup, with Brennan Spellacy

Brennan, welcome to the show.

Thank you so much, Justin. Appreciate you having me.

Yeah, thanks for coming on. And with Patch, I always like to kind of give a briefing here. What is Patch? What are they doing today? Explain this company.

Absolutely. So Patch is a software company for interacting with what are called environmental markets. So what that means is primarily we sell to corporates or companies that have some sort of climate action strategy or climate goals. They want to accomplish or achieve. And we make it easy to achieve those particular goals by giving them access to what's called the voluntary carbon market. That's the ability to effectively buy and sell the capacity to sequester carbon dioxide. And so what Patch is, is a B2B marketplace for interacting with the voluntary carbon market. And you can interact with it in a couple different mediums across the APIs as well as UIs that we have, but the core piece of value we provide is that software for interacting with those markets.

Okay, and doing my research, I have like 1,000 questions because there's so many different angles to take this. So I want to just like set the scene though, take it back. Why start this company in the first place, Brendan?

Yeah, absolutely. So I initially studied chemical engineering at McGill with the intention of working in low-carbon energy. That's how I thought I was going to help mitigate the climate crisis. That was kind of the one in probably 4 or 5 really big existential problems that humanity faced that I thought was kind of interesting. And so I decided to focus on addressing climate change. And I thought I was going to be doing that through energy. Coming out of school, I only got jobs in oil and gas, which is the opposite of what I wanted to do. It was energy, but not the right kind of energy. And so instead, I put all the chemical engineering on hold and became a software developer at Shopify and then a small hospitality startup called Flapbook, which then went on as Sonder. It was there my co-founder Aaron Grunfeld, he was the first employee at Sonder. I was around the 20th or 25th, and we helped scale that company from a couple dozen people to around 1,500 to 2,000 at its peak. And that actually, Sonder went public earlier this year. It's a really, really fun journey. And back in April, March, April of 2020, Aaron and I started to get the itch to start to do something of our own. We had started a few teams. at Sonder across real estate growth, distribution, and supply chain. I really wanted to see if we could replicate that magic outside of the well-financed ecosystem that was Sonder. And I really wanted to bring things back to climate change. It was the whole reason I got a formal education. And at the end of the day, if we were going to spend 60, 70 hours a week on something, and that something is inherently risky and has a low probability of success, like startups typically are, I wanted to be on a mission that I thought was a little bit bigger than ourselves. And even if it didn't go well, it was still time Well spent. And if we had some important conversations and moved the ecosystem forward, even if the financial viability of our company didn't pan out, it was still effort well spent. Thankfully, Patch is working, and so we're still around. So I don't have to go cross that bridge just yet, but that's the founding story.

Okay, with that too, so meeting Aaron, obviously you worked with him at Sonder, so you had that experience, but take me through deciding to start a company with him because so many times a founder has They're like, hey, trying to find a co-founder is so challenging. It could be a coworker, it could be a random person that you eventually meet and like get to know each other. But through that, like, did you know, what did it take for you to be like, hey, we're gonna actually start a company together? It's one thing starting something within another company, but you guys starting a company together, take me through that, those conversations, what that was like.

Yeah. I mean, I think the biggest piece or our biggest aha moment was actually one particular initiative we were working on, on the supply chain team. At, at Sonder. And so a little bit of like behind the scenes on, on how Sonder as a company came to be known. Those who don't know, it's a tech-enabled hotel. And so there are all these different apartment buildings around the world that Sonder operates, and they use software to make operating them more effectively. You could almost think of it as the residential real estate version of WeWork. And a lot of people know with WeWork, that's an incredibly hard business that would eventually gonna have this like big flare up and flare out moment. That never happened with Sonder in as dramatic of a way, but it was incredibly, incredibly stressful and arduous.

Hmm.

And the situation Aaron and I were actually put in, in that we were actually tasked with this idea of launching the supply chain team where we would actually aggregate furniture in central distribution centers and then ship it out to all of our apartments globally in 6 weeks. The initial plan was to actually hire someone from WeWork who would then kind of, who was a head of supply chain there. They were going to come in and kind of run and build this team and we're going to have 3 or 4 months of lead time. But essentially by the time they ended up starting, they quit after their first week and realizing how insane the prospect of having hundreds and hundreds of different pieces of furniture and SKUs be tracked in many, many different locations. 'Cause the thing that's not like WeWork is that there's actually thousands of units rather than maybe dozens of locations in a city. And so their solution was, well, let's just send Aaron and Brennan to figure it out instead. And so, you know, we managed to actually stand up that team and kind of get I onboard another 1,000 to 2,000 units while we were there. And that was about 3 or 4 months of work. And it was probably the most intensely I've worked where we were actually in the distribution center building the software as well as building the process in order to support that software. And we'd be in the distribution center at like 8:00 AM in Montreal during the winter. So very, very cold.

Mm-hmm.

And be there till around 1:00 or 2:00 AM in the morning for like 4 months straight. And like, so I didn't see the sun for like 2 or 3 months. And we came out of that being like, well, that wasn't so bad. Like, personally, like, that entire process sucked, but the act of working with one another didn't boil over. I mean, we were certainly direct with one another when things weren't— were not working, but never got to the point where there's any animosity. And in some cases, we were actually kind of like laughing instead of crying through all of this to cope. And so it was kind of coming out of that that we knew that the relationship could handle a huge amount of stress without it breaking. And thankfully I actually haven't even worked that hard since starting Patch, to be totally honest. Like I work a lot, but not that much.

That's not sustainable, obviously, in terms of that level of effort. And you hear those stories about startup founders going through that phase of that, which it can never last forever, that level of craziness, right? I'm curious though, you mentioned it was like March or April of 2020 that you decided to start this, like you actually started. Peculiar time to start a company in March, April of 2020. Take me through the first, Couple months of what you guys were doing with this. Did you know right away that we have to raise funding for this immediately? Did you want to build something out first? Take me through that kind of early stages and what the first iteration of this was even going to be the first few months.

Yeah, absolutely. So it is a funny time to start a company, but I actually thought it was a really great time because that first year at Patch was a real slog from basically March, April of 2020. to April of 2021, we really didn't accomplish much. We put in a huge amount of effort, but not a lot of points were scored, if you will. And the idea of actually having the entire world locked down was actually incredibly helpful in driving out any sort of distraction, right? So you couldn't go anywhere for family holidays, you couldn't go out with friends for dinner or drinks or anything else. And while that is sad and there was all this other kind of crazy stuff and negative things happening in the world. And it was like an absolute catastrophe from like a humanitarian perspective. The idea of like not worrying to like leave your little cube because there's nothing else going out in the cube worth getting into was actually very, almost in a sense assuring because like there was nothing to distract you and you could be 100% laser focused. And I was— when we were talking about not sustainable, I was rolling out of bed at 6 in the morning and kind of my keyboard was right next to me. So I would be programming all day and Aaron would be attempting to sell.

Of course.

And we decided pretty early that we would raise funds to actually start the business. And we raised it probably off of 8 slides and effectively nothing. And the reason we did that was just actually because Aaron and I didn't really have the liquidity or savings to go unpaid. We were both living in San Francisco. It's a very expensive place to live. And Sonder was still liquid and we had spent a lot of our personal savings to actually exercise our stock before departing. And so we were kind of, it was kind of like we, if I had kind of earmarked, I think 4 or 5 months, like if we don't figure it out in the 4 or 5 months, like I have to go back and get a job. Thankfully, it only took 2 or 3 months to raise. But that was kind of the general dynamic.

How'd you approach that in terms of fundraising? Because there's so many ways to go about this, who you want as investors, strategic angels, big VCs, especially when you look at your first round of funding. That's a whole nother thing as well. Because do you have pre-seed funds? Do you have, again, angels that invest early? How'd you think about fundraising? How'd you go about that? Take me through like the first round of fundraising for your company.

So I think it depends on where you're coming from. So for me, Aaron and I weren't coming from, I think, like a tier 1 startup. So we weren't coming from like a breakout hit, like a Stripe or Plaid or a very hot company. And so as a result, the name value of our resume didn't actually mean anything. And so for us, we were not in like a who are we going to pick business. We were in a who's going to pick us business. Thankfully, that dynamic changed as we grew up and became a little bit more self-sufficient. But that That first round of funding, I think we probably pitched 60 distinct firms and got literally 2 yeses and 58 nos over 45 or 60 days. And talk about emotional roller coasters, having to manage your emotion where you'd have 4 or 5 back-to-back meetings and you'd get beaten down and you have to go into the next one still super high and convicted, even though after that last call, oh, that investor had a good point. Maybe this is not a good use of my time, et cetera. And so always having to manage your emotion and managing your energy levels, especially when so many people are beating down on you, is actually quite arduous. So for us, it was actually like, how do we build the biggest list possible and always try to go in warm? I think that's both kind of the good when you're on the inside and definitely bad when you're on the outside of venture, where warm connections and warm networks can be incredibly powerful. But if you don't have those networks, they're incredibly isolating.

Yeah.

Right. And so I think we pretty much had 2 friends that were founders and a few execs that were investor adjacent at Sonder. And we basically just begged them for any intro they would give us. I don't care how junior the investor is or senior, like anyone who will talk to us, please let us talk to them. And then those people who maybe passed, we're like, well, okay, you're passing, but who would you think would be interested in your network? And they're like, oh, well, I wanna be perceived as founder friendly. I'll make like 1 or 2 intros for you. And it's actually like traversing that graph. Like one of our investors, Pale Blue Dot, who did our pre-seed, they did half a million bucks of our million-dollar pre-seed round. They were like, my father knew a founder in Germany who knew an investor who passed, who then knew Hampus Jacobsson, who did the deal. And so I just kept to keep pulling and pulling and pulling and pulling and pulling on that thread and just kind of being a little bit shameless, candidly, because— You have to. It's either like be shameless or die. So shameless it is.

What are the options? Exactly. It's funny, I have a founder community I run that's like maybe 85 or 90 founders in there. There's so many variances in terms of their fundraising. Like one of them has like one investor, they literally landed one investor to close a million-dollar pre-seed. Now other people have like, again, one investor that went through like hundreds of cold outreaches just to get the one investor. Other ones have multiple investors in there, some angels and some VCs. Like it's It's never the same. And especially if you don't have those networks already, it's just like you find a way in and then you make the most of that money you get to build the company from there.

That's it. You just have to be persistent. Just absolutely persistent. We had this massive spreadsheet and I still look at it every once in a while from like the pre-seed, seed, and Series A raises because our Series A and Series B were preempted. And so we haven't actually had to like go out to raise. For like a year and a half or 2 years. And so like looking at all the notes, all the reasons people said no, it's definitely like, man, it puts it in perspective. It's, uh, we're definitely a little bit more in the driver's seat now than we were, you know, 2 and a half years ago. So.

I wanna, I wanna talk about those raises in a second, but I wanna take this story and continue it on. So you raised a million-dollar pre-seed, uh, you needed to raise the funding early on because that's what you didn't have a ton of capital to, to make do that, to bootstrap. In the meantime, what'd you do with that? What was the use of funds for that million in terms of what that allowed you to get to? Uh, with what, with all you were doing with Patch at that time?

Yeah, absolutely. So really it was just to hire a couple engineers. So I was the only programmer, um, on the team. Aaron was very sales focused, and so he continued with that. And then I went out to hire a couple engineers, um, and, uh, and a designer. And that was really it. So it was really just all R&D. We played it. We actually added one other person to help Aaron sell. That didn't work out, and we quickly made a correction after the first 45 days. And then really that was kind of like classic first-time founder, like adding more sales capacity is helpful, but most salespeople need a playbook. And so sticking to founder-led sales for as long as possible was kind of the model we followed. And thankfully that kind of got us to the point where we actually were getting some inbound interest after we launched, coming off of our September launch of 2020 from Andreessen Horowitz and Coatue. Andreessen Horowitz is the one who ended up doing the deal. Jeff Jordan, who's on the board of Airbnb and Instacart. But that actually happened in October. So it was actually pretty quick where we kind of raised the pre-seed, the $1.2 million pre-seed, and then raised the $4.5 million seed from Andreessen 6 months later.

With that too, so going from that, people are gonna hear this and be like, wait, what? They raised that much that quickly with a tier 1 VC? Take me through what the product even was at that time? Because these marketplaces, double-sided marketplaces, supply demand, you're always trying to figure these pieces out. What did you build out though? Like with that $1.2 million, you hired some people, which was great. You said you had to, you're doing founder-led sales, but like what were you selling at the time? Like what was this platform back then, even in like the, at that time?

So back then it was primarily just an API as a marketplace business. So we actually had no visual component. It was purely a developer tool and we were selling it primarily to small e-commerce brands and ecommerce platforms and 1 or 2 fintechs who wanted to embed some form of climate action into their product or service. The benefit of actually having a B2B motion versus like a peer-to-peer marketplace or consumer-to-consumer marketplace is that B2B marketplaces actually don't have that dissimilar of a sales cycle from enterprise software. And so it makes overcoming that cold start problem significantly easier because you have a pipeline And so you have an idea around who's gonna close when and why and what kind of volumes they're gonna want. And so it's actually really easy that, you know, 2 days before that deal is gonna close, you go and knock on the supplier's door and say, hey, I have $50,000 for you, sign this MSA to get on Patch and I'll give you the $50,000. And, you know, not many people are gonna say no to that proposition. And then once that supplier's on the platform, that's like how you seed the network with supply. So people often are trying to figure out how to overcome the classic cold start problem, which is, okay, do I get supply first or demand first? In our case, getting demand first was much easier because we could effectively slow play the demand until we had the supply lined up. There are some situations in many peer-to-peer marketplaces starting with supply is actually a bit easier to attract consumers. Where am I going to find that aggregated view? That was not the case for us.

For you guys too at the time, so you mentioned Aaron doing more of the sales side of it. I mean, what was, what was that pitch in terms of why people were working with you? I mean, was there nothing like this in the market at all out there? Was it you're differentiated in some capacity from them that they chose Patch? Take me through that side of things. I love in the early days where it's like you start from nothing. Like, who are these guys? I don't know who Patch is. And you obviously convinced them to work with you. Take me through that at that time. Like, what was the picture and why were they working with you?

Yeah. So, I mean, there's really like no precedent for a company like Patch existing in 2020, right? It's purely a category creation business, not a category disruption business where we are making the appeal of— there's a secular trend where millennials and Gen Z are some of the most value-aligned shoppers of their— of any generation, right?

Yeah.

Like boomers and Gen X typically had an index towards mass market. We're kind of now moving to the more world of curation, but as well as value-aligned shopping and transacting in general. And as a result, they're going to focus on things that align with their value system. And one of the kind of core pieces of value that they have, or that they care about, excuse me, is climate change. There are other things they care about as well, whether it's kind of social or civil issues. But one of the kind of core pieces is climate change, because those are the first 2 generations who are going to be materially affected by climate change. In their lifetime, right? And so our appeal to them was, well, you should actually embed this into your product or service, not because it's a good thing to do, but it's actually going to help you with customer acquisition and customer retention. And it's going to be a differentiator if you're a credit card company or an e-commerce company. Why should I shop with you versus something else? One of the reasons is we're a more sustainable brand that aligns with your value systems. So that was the actual pitch to suppliers— or sorry, to purchasers.

From that, so crazy. Obviously, they didn't have anything like this in the market, which I'm always perplexed by, like, why now? I guess in terms of the timing and why this is able to happen, I'm always curious about that. But then take me through, you mentioned, you know, Andreessen Horowitz basically came to you. It was because of that whole category creation side of things. They saw that you were creating this whole entire new market, or like, what was their— what was that thought on their side of it? But yeah, like, we have to invest in Patch.

Yeah. So they were developing a thesis around the space, specifically around voluntary carbon markets, which is kind of like the market our software sits on top of, where they actually believe— like most people believe that voluntary carbon market's gonna grow to be around a $100 billion market. Right now it's a $5 billion market. It's gonna grow to a $100 billion market by 2030 and a $500 billion market by 2050. And so this is very much a, how do you find a great winner who is a market leader and then can ride that secular growth curve. That's kind of the underlying piece. They were trying to figure out who's going to be that thing. And so Patch fit that bucket and there were one or two other companies that fit that bucket as well. What actually resulted in Andreessen believing in us, Andreessen Horowitz believing in us, we worked with Jeff Jordan there. He actually just knew both founders from Sonder, actually, from his times at Airbnb. And so he was familiar with Francis and Lucas, and he actually had a huge amount of respect for them as founders because he knew how hard that business was and how difficult it was. And so when they called them to be like, what's the deal with this Brendan and Aaron guy? They were like, number one, we're both invested, and so we're long and we think they're gonna crush it. And 2, they were some of the best folks that we had at our company, and you know how insane our company was and how hard it was to run that business. And so that was actually, that vouching is actually what was the catalyst for us, not so much just our particular pitch or product, but we're gonna— and when you're seed investing, it's primarily market, product, and people. And they were able, they kind of believed in the market already. Product was like, yeah, I think that might work or it might not work, but it was kind of, we indexed really hard on the people and the market front for them. Yeah.

And I wanna go through the, a couple things. One, I wanna go through what's fueled your growth. Come back to that in one second. But then 2, looking at all the things you've done with the product, you said you've launched with the product initially, obviously doing sales with that. Product evolves over time. I wanna talk about the product first and then we'll go through growth product side. Like take me to like what the product's at today. So we're talking, we talked about kind of early stages. This is about 2 years ago, let's just say. And now we're, we're end of 2022 here. What does the product look like today? And I'm, I'm curious about that side of things.

Yeah, absolutely. So the way I think about Patch as a buyer is that it's essentially like Lego bricks for transacting with environmental markets. And so what that means is that there are 3 core dimensions on, of this kind of problem. The first is where that transaction takes place. That's the medium. We started with the API. We then would launch a couple months later the dashboard product where basically the dashboard API would have feature parity. And then we also then launched a series of hosted checkout products where maybe you wanted to have some sort of lightweight integration, but you didn't want to be managing things like payment processing, internationalization, FX. And so we're kind of— there's like a happy hybrid model.

Yeah.

The second dimension is the shape of the transaction, right? And so we started with a small— with spot markets where it's primarily small purchases, you know, Hundreds of dollars, thousands of dollars, tens of thousands of dollars, typically that range. We've actually recently just launched a couple weeks ago our long-term offtake product, which are actually multi-year fixed volume contracts that are bankable. So we launched with Bain& Company, the management consulting firm, and they're actually managing their long-term offtake agreements through the Patch product. But that's millions of dollars a year, so that's a much, much larger scale. And then the third and final dimension is what you're transacting. Where today we're working in the voluntary carbon market, but we're— the way we built our product is to actually enable us to grow into other environmental markets as well. And the idea behind Patch is actually, as a buyer, to enable the unique combination of any of these 3 dimensions. So if you want to create an offtake for voluntary carbon UI, you can. If you want to integrate spot market by API, you can. And the idea is the way you're going to capture that $100 billion market in 2030 is by being flexible and by providing Lego bricks to build all these different interfaces and products that map to a really wide variety of use cases that are going to emerge over the next decade.

You mentioned Bain Company. You have some other obviously big customers as well using you guys. Take me through that growth. What has fueled the growth? You mentioned sales early on, founder-led sales is like the early days. Was it like you built a massive sales team? Was it like you got PR? What was fueling the growth of Patch even to this Yeah, absolutely.

So it's been primarily PR and outbound sales for the most part. We've been very kind of PR and sales-led historically. That's actually now beginning to change. We're becoming more marketing and product-led. So like the former you could think of as sales-led growth and the latter you could think of as like product-led growth. And so we actually wanna have both motions to complement each other, but for the most part, Almost all of kind of the big logos you see on Patch's website have come from us either finding a way to the account, us having an intro to them, and sometimes people coming to us because they saw us on a podcast or a newspaper or something like that.

Why was that always a strategy from the beginning? Like you knew that was going to happen, or I'm just curious.

So PR, PR was always the strategy. And the reason that was, was primarily because It's a— we're in the market-making or market creation business. And because of that, not everyone is going to be along that adoption curve at the same time. So you can't— it's not like payments where we know everyone wants digital payments. We're just going to find the people and prove that our product is better and find a way to disrupt them, right? With carbon in general, people are not— not everyone is convinced that they need to have this in their business. And so what's important for us is making sure that when they have that intent, Their mind immediately goes to Patch. And that was why PR and marketing was such an important piece of our strategy, and it continues to be, is because we have to effectively prime the market so that when people get to the point of, okay, I am ready to transact, I am ready to make a decision, well, who's the de facto player? Type in carbon credits and SEO, or maybe you ask a colleague who's launched a product already. Patch is one of the first names that comes up every single time, and that's what's really important for us.

Why the switch then? So you said now you're kind of thinking about this little switch a little bit with a little bit more marketing versus the sales side of things. 2 years in roughly, what is it about this timing that made you kind of switch that and do both?

It's a great question. So it's not one or the other, it's a yes and, and the reason is outbound sales is expensive, right? And if we can find a way to activate and retain customers in a way where we can keep CAC low, Then we're going to, and product is usually a good way to do that. Now, we're not going to be doing a meaningful amount of paid marketing. That is not a— we don't believe that's time well spent today, but content, webinars, events, things like this, as well as actually having kind of growth loops built into the system where suppliers can refer their customers or buyers can refer other buyers, is definitely on the roadmap.

With all this too, so getting funding, growing the company, sales, all this, okay. There's obviously then people that you're hiring at your team itself. Take me through that side thing, like your approach to hiring. I saw there's some questions around like non-negotiables you have. Just take me through how you think about hiring, cuz especially any, you know, high-growth startup, that's a huge part of what you're doing. Your team is everything. How do you approach hiring at Patch?

Yeah, absolutely. So I actually think on average, um, and you know, I think we're beginning to see that right now a little bit, especially with big tech. There's been a tendency to overhire, and I think people don't think critically about how much true productivity or effort or impact one person can actually drive within an organization. And so for us, we're taking the strategy of actually having far fewer people at the company rather than more. So our company is about 65 people right now. Other comparable companies at our stage are probably on the scale of 100 or 150. 150. And we actually don't want to do that. One, because more overhead just for the sake of overhead is not particularly useful. And 2, we tend to actually do our best to truly hire the best people, truly hire A players. And the way that folds into the hiring process basically means you're doing probably an order of magnitude more phone screens. And you're really kind of holding out for like the perfect type of profile usually. Yeah. And so that means hiring is much, much slower in the early days because finding that incremental person, like you're gonna get a lot of nos because the truly best people are gonna be like, well, why would I join this weird niche company? That doesn't make any sense. So you really find like a really nice collection of missionaries who really believe in the mission. And then once you have those really great people, then they can refer in Like, what's the— like, every, like, every day, every time someone starts— we had 2 engineers start yesterday— first question is, who are the best 3 people you have ever worked with in your entire life? I don't care if it was the last job. I don't care if you were an intern and they were super senior. Like, who are the best 3 people? I don't care if they're not looking for a job. Just give me 30 minutes with them. I just want to talk to them for 30 minutes and kind of play, make the connection, and eventually they're going to work at Patch. And that's true. Like, we've had people who have said no to us and then come back 6 months later. We've had people that we made offers to 2 years ago in 2020 and they would join 18 months later. And so for us, we're very much playing this multi-decade game to find truly the best people rather than just a lot of people. That's good for our cost structure, but it's also good for the talent density within the organization. It's a very, very high ownership, high performance ecosystem because we hold that bar and we wait.

With your fundraising, so you mentioned obviously Andreessen Horowitz was the seed round, and then you had Coatue come in later, and then you had Series B as well. Those conversations with investors, they're seeing the big tech layoffs, they're seeing that stuff too. Is that also them sharing a similar viewpoint on that? Them saying like, oh yeah, or are they trying to like make you grow faster? I'm just curious on how that's gone between that because, you know, at Vitalize, for instance, we talk to founders all the time. So it's always like figuring out the back and forth and what they're thinking, what we're thinking. Just how's that been with your investors as you've gone through this?

Yeah, absolutely. So our investors tend to be pretty, I'd say nuanced, and it's not actually, and nuance I think is sometimes mixed with like overcomplicating something. And what I mean by that is like, especially in 2021, everyone was like, all systems go, turn it all on, faucets open, go crazy. We didn't, we weren't doing that. Although we were benefiting from the capital environment where we were able to raise a lot of money very, very quickly, we actually weren't Mirroring headcount in that way. We were just kind of building the balance sheet, if you will, building the war chest, because we had a feeling that the party was going to be over and it's going to be over for a long time. That's turning out to be fairly accurate. And so for them, it's really all a matter of if you put in a dollar, does $1.50 or $2 come out the other side? There are very easy ways to kind of make that bet. Like with AEs, are they hitting quota? Are they exceeding quota? Okay, well then— We should just add another one because they pay for themselves and then some. So like, let's keep doing that. That's really easy math. And then you have things like R&D and marketing. You have to be a little more critical, which basically means that you have to probably hire up to a certain point. We actually hire engineering teams in like sprints of 4. So we actually, like an engineering team or a product team at Patch is 1 PM, 1 designer, and 4 engineers. That's it. We have 3 teams at Patch. To build all the product, which basically means we have 12 engineers, 3 product designers, and 3 PMs that builds all the product that gets used by some of the biggest banks in the world, some of the kind of largest private equity firms in the world, e-commerce platforms, et cetera. Nothing's falling over, everything's working great, our SLAs work well. You just kind of have to focus on what's important. And so for us, it's really a matter of, you know, once you've hired those 4 or 5 people, you typically give 'em a, we try to get signal on is this thing gonna work and are we gonna get value in like 1 to 2 quarters? If you do, okay, well then add more or add more additional products. And if you don't, merge them into other things that aren't working. Because the thing, the good thing about us is we're always running a couple bets in parallel and there's always one or two things working. So it's easy to reallocate people internally.

With what you're doing inherently as a marketplace, I'm curious on what that vetting process looks like on the side of where you're looking at like selling carbon credits or other things that those companies that have these different products are doing. What does that vetting process look like? Are you— have to do a lot of outbound to even get them on? People are seeing the platform now. Like, what is that vetting process and how you get those people on that side of things?

I'm curious. Yeah. So back in, back in 2020, it was almost exclusively outbound, right? No one knew who we were. They didn't want to— like, this concept of a marketplace was actually foreign to them. There are carbon credit exchanges that allow for speculation on carbon, but the idea of getting incremental demand for the sake of retiring was very, very novel. to carbon credit developers back in 2020. And now that's actually inverted, where it's about 90% inbound and 10% outbound. But there's like maybe 1 or 2 accounts that won't organically come to us that we want to go out to. But a lot of people are coming and knocking at Patch's door because of all the PR and brand marketing and awareness we've done. So that's working really well. As far as vetting, the way we kind of treat the onboarding process of the patches, we have this concept because carbon Software for carbon is kind of like this double-layered abstract idea where you basically have invisible software managing invisible gas, right? So like, how do, how do you make that real? And how do you help people understand, like, am I actually getting the service that I thought I was paying for? And the idea behind Patch is really driving towards a world where trust is enabled through transparency, where we do a huge amount of work quantifying the attributes of the underlying tons of carbon that are sold on Patch. So there are all these different kinds of concepts, whether it's like things more intuitive, like price or geography of the particular project, but then there are things that are more nuanced, like chemical pathway, what's the associated mechanism, or like what's the durability, which is how long that positive environmental effect lasts for. We capture all this information and standardize it and put it into the Patch platform. In order to list on Patch though, you actually have to have a third party, a vetted third party, prove that that data you're putting into Patch is accurate. So that's a very important nuance, which is Patch is not the certifier or verifier. We actually have a bunch of verifiers and certifiers that we work with that then do the work that then allows them to be onboarded to Patch. And the reason for that just simply comes down to incentives, where we'd be highly incentivized at scale to say everything's good all the time because we want more supply, right? So how do you have that structural boundary? It's by working with other parties that aren't incentivized by the same things Patch is incentivized by.

You talked a little bit, like just briefly touching on price, just take me through a business model, how you thought about that. Has it remained the same from the beginning to today? I mean, has it evolved? I've talked to businesses who have gone through a total change in terms of their business model. Some have been the same for like 6 years, just change the price maybe. How have you thought about that in terms of Yeah, absolutely.

So we started out with a fairly intuitive model for marketplaces where you have a take rate where you're basically getting charged somewhere between 10 to 20%, depending on volume usage of the platform, for every dollar you push through. And that's what we started out with, and that's what we had for 2020 and 2021. In 2022, we've introduced something to layer on top of it that we refer to as platform fees, which is really just the idea of some sort of annualized or recurring platform fee in addition to your usage-based fees. And the reason we have that annualized fee is actually paying for other more sophisticated software and tools, whether it's API access, specific rate limits, specific types of information, or different types of transaction types or functionality that you might want access to that otherwise isn't in the base sign-on, transact, and sign-off type model. And so it's kind of more an expansion of the Kind of the revenue model than actually a change within it.

With inherently what Patch is doing, you obviously come across a ton of climate projects and founders doing interesting things. What are some of the most interesting things that you've just personally seen in climate, people working on these issues that we're dealing with here? Because you're in it, you're seeing things like probably every day. I'm curious on what you've seen and what the most maybe interesting projects are.

Yeah, that's a great question. So I think chemically, Like in Patch's world directly, I think something that's really interesting is this company called Charm Industrial. It's founded by Peter Reinhardt, who's the CEO of Segment and has now started a carbon removal company. They're a supplier on Patch and sell through Patch. And essentially what they're doing is they're taking waste feedstock or waste biomass that would normally decompose and create carbon emissions in the forms of both carbon dioxide and methane. And actually, Putting it through a novel process they've developed called fast pyrolysis, which then kind of— it's basically this idea of heating up this biomass that would normally decompose in the absence of oxygen such that it creates this bio-oil, creates this sludge. And then, they actually inject it underground, which effectively takes it out of the carbon cycle. So, you have the photosynthesis of maybe an almond tree or corn and you have all these leftover almond shells and corn husks that would normally emit CO2 and reenter the cycle. But now what they're doing is actually they're breaking the cycle. They're taking those husks and those almond shells and putting them underground in actually old oil wells in some cases. It's kind of interesting. It's almost like reversing the drilling of oil, which I think is fascinating. Interesting.

And any one more? I'm just curious because you come across—

Yeah, totally. I think one that I actually have a really big affinity for that I think is gonna become an absolutely massive— I mean, it's already a big business, but it's gonna become an absolutely massive business, is Arcadia. So historically, Arcadia, founded by Akira, who's a good friend of mine, was a community solar business where it basically allowed consumers to procure renewable energy or develop community solar in kind of wherever they live to get access to renewable energy. They've since evolved that model actually into a B2B business platform or B2B data platform that enables primarily software companies to get access to enterprise kind of quality and clean utility data to then build products and services on top of. So it's almost kind of like the— I don't like these kind of Xs or Ys, but it is kind of very much like the Plaid for energy or utility data where you then as a carbon accounting platform, maybe as an engineering consultancy, are able to actually get all this utility data from your customers and then build insights and information on top of it. For those who don't know, utility data is an absolute disaster. There's PDF parsing and information downloading and CSV cleaning all happening behind the scenes. So if you think about like schlep factor of startups, like this is a very high schlep factor business. Like no one wants to be doing this highly, highly unsexy work and everyone wants to be interacting with Arcadia. It's really nice. I love that.

That's awesome. I mean, there's so many opportunities with that still today. I mean, I look at ones in like construction where they're doing again, PDFs and that sort of thing in that industry, which is insane, like bonkers to me that it's still the way it goes. One of the last questions I have, I'm curious about, is just recently you did like a new brand identity, which looks amazing by the way. I'm curious as to how you approach that and the timing on that. Obviously you raise a bunch of funding, but it's like, how do you approach that?

Yeah.

At what point do you rebrand? Because we just saw another company, PartyRound, rebranded as Capital. I know Jordy Hayes, so I've talked to him a bunch. I saw their rebrand after they, I think they've either raised more money or something happened. For you guys though, at Patch, rebrand looks great. How did you decide to do that timing-wise and why it was like now?

Yeah, absolutely. So I can't speak for PartyRound specifically, but typically a rebrand typically comes at a moment where you want to go through some sort of maturation within the business, in my opinion. And so for them, they might've decided, okay, this is the time where we maybe the idea of party rounds is very in vogue in 2021 and now it can't be perceived as that in 2022. So we need a more refined look to it.

Yeah.

I'm not super sure. In the world of Patch, for example, we had actually been kind of building upon the brand foundation that my wife and I had done back in 2020. And so we were really building on a foundation that, and brand assumptions that really didn't exist anymore. And like the idea of Patch had really dramatically expanded to become far, far more ambitious, but our brand didn't really tell that story or embody that. And in many cases, people were coming to Patch thinking that we were one thing or thinking we were only something else. And the idea of this kind of much grander future that we were trying to build for really wasn't encapsulated with that brand. And so when we had raised that Series B, it kind of felt like the time where, you know, really good branding agencies— we worked with this one called CODO, absolutely phenomenal firm. They did Airbnb's rebrand. That's kind of one of the things they're famous for. But they're very expensive, right? Hundreds of thousands of dollars.

Yeah.

And so because of that, like, you have to make sure that the kind of investment you're making makes sense at the stage of the business. And for us, we really wanted to have a brand where, you know, we can grow in sort of the next 4 or 5, 6 years. And I think we really can with this. And we really need to make sure that we're upleveling the aesthetic of our brand to make sure they map to the enterprise clients that we're selling to.

Yeah, I see that evolution for companies and I'm always curious about the timing in terms of why they decide to do it when they do it. But it does give you this whole new feel and look. And especially if you have all these people doing sales, you're doing so much marketing content, all of that comes back to people seeing your brand, your story, all those things, which makes it in theory worth it. years and years from now. But as wrapping things up here, I'm just curious as to like what's next for Patch and then any way people can get involved if they wanna either join the company or help out in some capacity as well.

Yeah, absolutely. So if you want either access to the platform or to join the team, we're still hiring for a couple of roles this year. So head over to patch.io, P-A-T-C-H dot I-O, and there's both ability to request access as well as to apply for some of the roles we have open across engineering and go-to-market. So come on down, we'd love to have you. As far as what's next, it's kind of doing more of the same where we actually feel really great about a lot of our products that we built this year, especially in Q3 and Q4. And as we head into Q— sorry, 2023, it's actually going to be more a matter of how do we focus down on the verticals we're selling into and really kind of go from maybe 1%, 2% market penetration to like double digit, mid double digit market penetration in the same markets we're selling into. So it's gonna be more around, okay, we've kind of gone the 0 to 1, how do we go 1 to N in 2023?

Brennan, what's the best place for people to contact you, get in touch if they'd like to as well?

Absolutely. So probably most responsive on Twitter actually. So I'm East Felicity and then an underscore on Twitter. LinkedIn is a bit of a graveyard at this point, so I'd recommend not going through that route.

Perfect. Brennan, thank you so much for the time today. Really appreciate it.

Awesome. Thank you so much, Justin.