In this episode of Founded and Funded, Managing Director Scott Jacobson is talking with CommerceIQ CEO Guru Hariharan. CommerceIQ is a retail e-commerce management platform that automates and unifies category analytics, retail media management, and sales and operations all under one roof. The company secured $115 million in funding in March and just made its first acquisition — e-fundamentals — to expand into digital shelf analytics. The acquisition actually brings the company around full circle in a sense. CommerceIQ was originally Boomerang Commerce, which was a dynamic pricing software for multi-brand retail companies to better compete with the likes of Amazon. But Guru realized that despite the quality of that software and the A+ team he’d pulled together, he was trying to grow a business in an F market. He ended up pivoting the entire company to what is now CommerceIQ, selling the Boomerang business to Lowe’s. Scott and Guru dive into what went into navigating those turbulent times, what it takes to be a vertical SaaS company, and Guru’s realization that he couldn’t solve every problem as though it were a math problem.

This transcript was automatically generated and edited for clarity.

Scott: Hi, everybody, I’m Scott Jacobson, Managing Director at Madrona Venture Group, and it’s my pleasure to have Guru Hariharan, the Co-founder and CEO of CommerceIQ, here with me today.

Guru: Thanks, Scott. Thanks for having me. It’s a pleasure to be here.

Scott: Yeah, absolutely. So, for everyone who doesn’t know CommerceIQ, which is an ever-smaller part of the world, why don’t we start with what your product does? What problems does it solve for your customers? What’s the market opportunity you’re going after.

Guru: CommerceIQ is an AI platform that assists brands and agencies with their digital transformation to essentially help grow their market share and grow sales in a very profitable way. We call it retail e-commerce management platform — REM that’s the category we are creating. We are essentially helping every brand of the planet move from analog to algorithms.

Scott: You and I have had the opportunity to work together for many years. Madrona is a very happy investor in CommerceIQ. And certainly, my experience as an investor is that most great startups have very non-linear paths to success. CommerceIQ has a particularly non-linear path to where you ended up today. I think it’d be fun to unpack that. So, you raised your first round of venture financing, and you were solving a different set of problems for a different customer. Maybe start with who is your original target market? Why did you start there?

Guru: What we ended up starting out with was Boomerang Commerce which was going after this market for multi-brand retail. In fact, even rewinding back a little bit, this was my 18th iteration as a founder. For the first two years, I was iterating with a lot of ideas. I actually had a prototype for what is now Etsy. I had a prototype for what is now Viva — a sales tool for pharmaceutical companies… things like that. I could go on and on. But eventually, I realized that one has to connect the dots, as they would say. There has to be a founder-market fit. And for me, it was e-commerce. And for me, it was machine learning. It was the intersection of those two things because academically, I’m a machine learner and professionally, I’m an e-commerce guy. So, I kind of went back to my roots. Having worked at Amazon for multiple years, I had actually seen the power of algorithms. How algorithms could beat any human-dominated system. And that’s what Amazon did. We did an amazing job, and we got. Market share in almost every category by just putting algorithms to work. So, I kind of went back to those roots, and I said, “Wow if Amazon could do something like that, there’s gotta be an opportunity to go create algorithmic software for retail in general.”

We looked at multi-brand retailers — companies like say, Staples and Office Depot, or even Walmart and companies like that. And there was definitely a lot of room for improvement over that was crying out loud for some sort of innovation. So, I left my day job, and I started the company. And after these 17 iterations, the 18th iteration was a dynamic pricing software, and that hit the mark. And frankly, it hit the mark because I knew what I was doing on that knew what the right after was. And we just quoted up a great solution. And we took it to market. And we had amazing traction. We had companies like Staples, Office Depot, Home Depot, Lowe’s, Target, and Walmart — almost every multi-brand retailer that you know of today, or that you knew of before bankruptcies, was our customer.

Scott: One of Guru and my things in common is we both worked at Amazon, and I think both have this similar insight that you could apply technology, and in your case, machine learning, to great effect in e-com and why not build tech for other retailers? And you got to about $10 million of ARR in that business. You raised venture funding from a variety of funds. And then, we know the conclusion, which is you ended up exiting that business. And you’re in a different business today. Tell us a little bit about that journey. Why did you decide to exit that business — I think you foreshadowed a little bit with your comment around bankruptcy. But even more important about making the decision, how do you navigate that decision with you know, your team, your board, your customers who’ve bet on you?

Guru: Yeah. I think the journey was very intense in that period. It was actually harder for me to build a business, which was slow growing and so tough, than right now. Like in a way, it is actually harder to build a bad business — And that was a bad business because of the market that we bet on — than it is to build a good business.

We started off on this journey with multi-brand retail, right? There was an urgent problem we were solving. Product-market fit was amazing. The product was delivering great value to customers. Our net dollar retentions were off the charts. All that is great. The team was also solid. We had assembled an A+ team to work on it — an intersection of technology and retail and consulting. The problem was, that we bet on the wrong market. And hindsight is 20/20 — I learned the hard way that one could put a B or even a C team in an A+ market and make some hay. But putting an A+ team in a C or F market in our case is not a recipe for success. That is a wave that a founder should never be fighting.

We actually got to $10 million in ARR, and then we saw churn, which was a company filing bankruptcy, and it was a market-driven churn. We went back to $8M, then we crossed $10M again. Then we had this cake we brought in saying, “Hey guys, we crossed $10M” the third time we tried to celebrate, and I could see in everybody’s face that nobody was there for a celebration. In fact, after that, one of my colleagues took me to this restaurant, and he said, “Guru, I’m here for you. I’m here to build this company — this is an amazing technology that you’re building. There’s a lot of opportunity here. But if you look at it, we are kind of a hamster on a wheel. We are going after that $10 million mark for the third time. And this is not a time for us to celebrate.” That was a conversation that hit me hard. Oftentimes as a founder, as a CEO, as an operator, it’s very hard to pull back and look at the broader picture.

I said,” Okay, well, why don’t you be a part of that solution? Why don’t you help us solve that? And so essentially, we decided on that day to do a hard pivot. We were starting to explore what can we do next? And especially this time, we were going to bet on the right market — a growing market, an A+ market. And we started to look at all sorts of different avenues. It was almost like a blank sheet of paper with some money in the bank with some extremely smart colleagues and of course, a very driven board. What the hell can we do?

And so, after a lot of conversations, and Scott, you and I spent countless hours debating all these avenues, much to your frustration going back and forth on some of these things. We could not have messed up on this one. So, I was definitely slow. I maybe took a year more than I should have taken. We sort of did a lot of experiments. We talked to a lot of different types of companies and different types of industries, and it was also important for us to ask the right questions in terms of what the problem areas and things like that were? And that was the time we were lucky that Amazon acquired Whole Foods. And there was a huge rock that was dropped what was a calm pond at that time called e-commerce. And there was a massive tsunami of e-commerce coming up, and we could see it.

I remember getting a call from a top five CPG, a CIO, who we had sold to at Walmart — she had actually joined a CPG company. And she called me and said, ” My CEO just called me. We’re going to take a flight out to our headquarters. They’ve asked us to throw out our three-year vision and create a new three-year vision with Amazon in the center.” Not even e-commerce. She said Amazon in the center. So, this was like, this was crying out loud saying, okay, well, I’m connecting the dots here, not just for myself, but also for the company. We knew how every skew was operating. We knew the P&L of every skew, but we were helping the retailers be successful with that. We said, why not turn around and help the same brands who are actually selling those products? At the end of the day, consumers are not stopping to buy Pampers diapers or Kleenex tissue. They may stop going to a brick-and-mortar store, then they’ll probably go buy from an e-commerce store, like Amazon or Instacart. That’s what sort of was a small seed that we ended up watering and we did some more customer interviews.

And we ended up getting to the right answer, I would say. And that was CommerceIQ.

Scott: Maybe to pop up a level, you know, the belief was you could build technology to help very large enterprise players compete with Amazon. And it turned out that wasn’t enough. And so, when you talk about bankruptcies, it was these very large omnichannel retailers who sold both online and offline being beaten soundly in the market by Amazon. And so, in spite of the quality of the software, when you had to look at companies’ 10-Qs to figure out whether they can keep paying for it or not, I think that was the fundamental challenge. I remember a conversation, or maybe multiple conversations, we had as a board talking about, okay, what did we do about it? And, you came to the board and said, “Hey, I think we should sell this business while we try to go figure out, you know, what’s next.” As a board member that both, in retrospect, gives me a lot of joy and confidence in the outcome but were quite turbulent at the time. Maybe just kind of walk us through that process and where you ended up on the other side.

Guru: At that point, there was a choice to be made that either we could stand back and say, you know what, this was a fine run, let’s go and find a suitor for this and maybe roll it up into a larger company — could be Oracle could be whatever you name a large company, and there’s probably a space for a good dynamic pricing software. We said we could do that, or we could keep going. And for some reason, I was not there yet. Like, I think it was more personal than anything else that I was not there yet to call it a day. Maybe my biggest strength and my biggest weakness are the same is that I never give up. I never, never give up until we get through. I would call board members and call some friends and just talk to them about what was the right thing to do here. And the feedback is always what do you want to do? Where is your mind on this? And the fact that the board wasn’t pushing me towards a certain outcome or to get out or something like that just gave me the license to go back to the drawing board and think big. And that’s where we said, you know what, let’s come up with a different idea. So, we set aside this small team, we went through small product-market fit iterations. I still remember walking into this boardroom, and we were giving two updates. Update No. 1 was Boomerang Commerce. Update No. 2 was CommerceIQ. And one of the board members looked at me and said, “Guru, you’re trying to run a two-headed monster. It’s hard to build one company, and you’re trying to build two companies at once.”

And that was literally the board update. The board update was giving an update on two different companies because when you’re going after two different markets, two different sales motions, two different products. These are two different companies. And so, for us, it was a moment of reckoning. That was the point when we actually said, you know what, the energy and the gut feel, and the excitement is all around this small thing that we were bringing up. And the drudgery and the energy-sapping was this other business where the market was actually dying. So, what is the point? Let’s try to give up our ego on this and try to take two steps back to take five steps forward. And it was a license that the board gave me as a founder to go be able to do something like that, where we might either sell the company or we might bring this new thing up and potentially sell that as a business.

And it was a very personal decision for me that I wanted to sell the business and not the company because I knew that we could take this big, there was a lot of disruption to be made in the retail market. And right around that time, we started to look for suitors and we came across one of our longstanding customers, Lowe’s, came in and said, “Look, we just had a CEO change. And the entire management team is new. We’re looking to build a technology core and we looked at our kind of technology stack or vendors we work with, and you guys stood out. Are you guys looking to exit?”

And this was a conversation, by the way, I’d had six, seven months ago. At that time, we were not doing it, but I actually gave a call back to them saying now is the time to talk, and there was just a strong mind meld. So, we ended up taking our business unit, which is Boomerang Commerce and selling it to Lowe’s. At that time, absolutely, we could have exited, we could have done some distributions. In fact, I remember having a conversation with each of the investors on the board, and I laid it out saying, look, we don’t need all this money. We had raised only $20 million so far. We can certainly take 1X out and de-risks your position and stuff like that. And it was so great. Each one of the board members said, “I’m all in. I have a belief in you. I have belief in your management team. I have belief in the new product that you’re creating and the new market you’re going after. Let’s go for it.” So, we went for it.

Scott: So, you go build this team, you’re scaling up, there’s different capabilities you need when you’re five customers and a million of recurring revenue versus $10 million and a lot more customers. Now you do this sort of, okay — we got a bunch of money, a couple of customers and no revenue. But you had this history, and you had a management team who’d been through stuff. Were there any changes you needed to make in the team to have gone from zero to $10 and then $10 back to zero? It’s like, “Hey, who’s going to be coming along for the ride with me?”

Guru: Yeah, it was not much about the zero to $10 and $10 to zero. It was more about people who believed in the new vision of CommerceIQ or people who did not. Cause building a startup is freaking hard, and every day is a battle. Every day is a struggle. You need that core belief in the vision and the mission that you’re trying to solve for. But Boomerang Commerce was going after a certain market. CommerceIQ was not going after that market; it was going after something else — a completely new company. So, it was a moment where a lot of team members opted out, including management team members and C-level members, they said, look, “I joined you for solving the mission of creating an operating system for multi-brand retail. Brands do not speak to me. They don’t sing to me. And so, it’s time for me to head out.” There were some who I could see that it was not the right space for them, and I had to have the conversation with them and really asked them, are you really in this? Cause it’s okay if you’re not. And it doesn’t have to be today. We can find a good path out and hire your successor. So, there were all sorts of conversations that had to happen with the team.

I’ll say Scott, one of the most profound changes that happened was not with the team, the most profound impact was to me as a human. I came in from this Amazon school of thought. Everything for me was a math problem where I thought that everything could be solved like an analytical problem. You just gimme a problem, whether it’s a relationship problem or a human resources problem, or a market problem, I could apply analytics 101 and logic 101 and solve it. But as I look back and say what we had built as a company and what I, as a founder was, a good combination of IQ and LQ: intelligence quotient and learning quotient. What was missing, what we were not true to, was the EQ element. This pivot gave us the EQ. Gave me the EQ as a human — the ability to lead from the heart. There are situations where it was a bad idea to lead from a brain and solve it like a logic problem. For instance, somebody who had joined me with the vision, and I had sold this person the vision of winning the multi-brand retail market, and now I’m trying to logically explain why this was not a good idea and we had to go. It was not a math problem. It was not a logical argument. What I needed to show was empathy. What I needed to say to him or her in that meeting was that I understood, and I empathized with them, and I was sorry that this ended up happening. I did not foresee this. A lot of smart people did not foresee this, but it is right for the company to take this different path.

When I look at it and as they say, growth solves every problem, lack of growth also magnifies every problem. And there were lots of little problems that I had as a CEO, as a leader, as a human. And it just magnified the heck out of every one of those problems. And it was a very humbling two years in my life where I knew I wasn’t perfect, where I knew that there were lots of things that were wrong more than what were right. And I had to address them. And this was one of them. I had to really add that EQ element to my personality and to my leadership.

Scott: Yeah, I like that. It’s both the challenge of convincing people to come join you on a journey and the reality that that was the wrong journey and the self-reflection that it takes to embrace that and move on from that.

Guru: Now, so Scott, we talked about my journey going through the pivot. I actually was curious now that we are coming out on the green side, and hindsight is 2020, and we are in a good spot. I want to get your thoughts! What was going on in your mind and what was going on in the board’s mind? Outwardly you guys were doing a great job and giving me comfort, but what was going on in your mind when we came out and said, you know what. All the things that we raised money for. Forget about it. We’re going to do this new thing called CommerceIQ.

Scott: Yeah. I’m hopefully not suffering from revisionist or optimistic history. When you and I first got together to talk about Boomerang Commerce, which was the original name for the company, I was very predisposed to the idea. I felt somebody should be building the technology that helps Amazon win for the rest of the market. It’s like our former boss used to say, “Strong convictions, loosely held.” You can believe strongly in something, but if you have information that disproves or gives you doubt about that, you shouldn’t believe in it so strongly that you don’t recognize the opportunity or what you should be doing.

And so, I think like you, obviously, I was super sad when, you know, very large $3 million a year revenue customer turns into zero. Those were certainly scary moments for the company. I actually think the question of whether we exit the market was non-controversial from me or the board’s perspective. And between the conceptual decision, we should not be doing two things, we should only be doing one thing. It is fairly straightforward and obvious to say at a company at that stage, even though it took somebody to say it. Two, let’s go hire a banker and see if we can get full value for this product. And then three, you are having gone and developed those relationships, ahead of that process, resulted in what I would consider a 1-in-a-million type of outcome to sell, as you said, that part of the business and not the whole company and along the way, having done some research, some product-market fit, sort of stuff to say, “Hey, let’s go try this thing.” It’s like you said, what you want is the intersection of an A team with an A market. I felt like I had an A entrepreneur in a C market. I think the A entrepreneurs are harder to find than the A markets. And so, if we wanted to go after an A market, I’m sure we had plenty of good debate. But it was a very straightforward decision.

I did have questions from my partners like, “Hey, gosh, that’s a lot of money that you guys got. Maybe we should take some risk off the table.” And from my perspective, I felt like that was always an option. You and your team were good stewards of capital, which I think is the hallmark of a good management team. And so, whether we distributed cash the day the money hit the bank, or we did it a couple of months or years down the road because we didn’t see the opportunity, that was an option value that was always there. But the bigger opportunity was to figure out how to deploy it, to do something yet bigger. And so, the story’s not over yet, obviously, but I’m feeling pretty good about that decision.

Guru: That’s great. It’s good to understand the board dynamics at that time. Thanks for sharing.

Scott: Well, let’s fast forward to sort of the early innings of the CommerceIQ journey just by saying. You know, this very early idea in a customer to turn into a bunch more customers, your first $10 million of ARR in that business, which is now many multiples of that. And I think somewhere in the neighborhood of $200 million of total capital between the original business and the new business raised. And so, I mean, I think that’s just something fun to reflect on and feel great about. You can look at the last couple of years and say, well gosh, COVID was a big tailwind for e-commerce, you know, in some ways, clearly your customers were beneficiaries of that, CommerceIQ is a beneficiary of that because you, your customers needed algorithms to help scale the business, to make their business more profitable on Amazon and Walmart Instacart other places. And here we are in 2022, and there’s somewhat of a reversion to the mean of e-commerce, right? The growth rate was double. And now maybe it’s back to where it was, or maybe slightly elevated from that. And then you pile onto that the potential for a recession — if we’re not there already — higher interest rates, and that’s potentially having an impact on consumer spend. Obviously, the fundraising environment isn’t where it was a year ago. You didn’t have to navigate that in version one of the company. You’re having to navigate it now. Just tell us about how you’re thinking about it. You’ve got plenty of capital in the bank, you’ve got plenty of runway, but the choppy waters may be here for other reasons.

Guru: Yeah. I think the future of CommerceIQ is very exciting. We are in a very solid spot as a company. Of course, there’s going to be challenging, but one of the things that we definitely got right was the product-market fit on this one. And what we also got right was the quality of the market. Our customers are loving the product. Our net dollar retentions are off the charts in the top decile of our industry. And we also have built a company which has got a great cash efficiency ratio. As we look forward in the business, one of the things that is very exciting is this is a recession — and the recession is definitely going to happen, in my opinion, if we’re not in that already — that this is a recession where there are a certain set of markets which will continue to thrive: low-cost groceries, healthcare, discount retailers, children’s goods, pet industry, these things, usually they do a really good job in recession. We are serving, according to a study that I got the other day, we are serving eight out of the 10 markets that are expected to do well during a recession.

Scott: Yeah. I haven’t heard that stat before.

Guru: That’s a great place to be in for us as a company. We do have to slightly change how we talk about our value proposition. And in fact, even the focus of our value proposition. In a growth market in e-commerce, every brand was looking for three metrics: growth, growth, and growth.

And now, in a recessionary market, they’re looking for three metrics growth, profitability, and cash flow. So, we are having to change our value proposition by, say, 45 degrees. And this is not just marketing messaging and all that. I’m talking about what our customer success teams are working on and focusing on what our product team is focusing on, the product roadmap for the next few months, and stuff like that. We are definitely taking a slight shift to navigate that sort of dance that we have to play with the economy and help our customers win in this market. In a lot of ways, I’m really looking forward to the next two years, whether it’s expansion or recession, because of the strong foundations we have built. And frankly, it gives us a golden ticket for the next two years where new startups are probably not getting funded as fast as they were before. So, it’s a great opportunity for companies like us to deepen our moat, maybe pick up a few companies on the way and acquire them and also hire some great talent in this market. So, it’s actually very exciting. All we need to do is just stay true to our No. 1 leadership principle, which is customer obsession — ensuring that our customers are winning, they’re taken care of, and we are solving the right problems for them in the next two years.

Scott: I think that’s, that’s great. You know, you’ve got great dollar efficiency as a business and a very disciplined management team. I think you’ve got a great product roadmap, as you alluded to. You’ve got the balance sheet to go do some interesting things. You’ve got a very clear vision of where you want to take the product, and now you can go build a bunch of stuff or you can go buy some things as well. And you just closed your first acquisition. So, you know, gone from selling a piece of the business early days to adding somebody else’s business to the platform. How do you as a CEO think about building things versus buying?

Guru: This may not be the answer for every company or every CEO, but the way we think about our business is we are a vertical SaaS company. We are not a horizontal SaaS company. Horizontal SaaS companies are companies like, say a New Relic or Apptio in enterprise or Salesforce is a classic example. Like anybody who has a sales team can use a Salesforce software or anybody that has developers can use New Relic. But for us, we can only sell into the retail market. We don’t sell into the insurance, finance, or government, these are very large markets, which we don’t touch at all. And so that’s the definition of a vertical SaaS company.

And one of the things that I, as a vertical SAS CEO, or we, as a vertical SaaS company, we have to go solve a broad range of problems for every single customer in our market. That’s one of the idiosyncrasies that we cannot take one specific problem and solve it really well and go sell to thousands if not millions of companies, which is what a horizontal task would do. In a vertical, SaaS is sort of taking a slice of the market and going, solving a broad range of problems. Now we cannot be a small sliver for a small market. Then you are just building a small company, right? If you are building a multibillion-dollar company, which we are, then you are to do one of the two, right?

We are certainly not doing horizontal, we’re going vertical. We’re going deep and deep vertical. And what does that mean? That means that. We are not just solving a digital shelf monitoring problem. We’re not just solving a supply chain problem. It’s not just solving the retail media problem. We’re solving all of the above. We have to solve everything for this market.

And another idiosyncrasy of a great vertical SaaS business is that it’s a winner-takes-all market where we have to hurry up and invest strategically and go take the market. One thing we don’t have is time. We are already at a pretty good level of market share. I want to get to a point where we are 60, 70% market share in our market. And frankly, being a product-first and engineering-first CEO, it is hard for me to have that come-to-Jesus moment — that realization of, “Okay, I should go buy a product as opposed to building it in-house.” But one of the things that we do look at is how we can be open-minded to other products that are best-in-class, where customers are loving them, and frankly, can you convince that team to come in and join the common vision. And does it make financial sense for both parties to essentially go do that?

In our case, e.fundamentals was a great marriage from that perspective. The moment I talked to John Markman, who’s the CEO, both of us knew that there was something in this. And we were able to convince both our management teams very easily because we knew that there was value in putting one and one together. We were strong in North America. He was strong in Europe. We are strong in retail operations and supply chain, and retail media. He’s strong in digital shelf measurement, which is also a budgeted software. So, it was sort of complementary in almost everything that we do. I would’ve definitely not gone ahead if I was not convinced about the product if I was not convinced about the team. But in this case, the product is world-class, the technology is world-class, and the team is world-class. That sort of just gave us the confidence to move forward. Very exciting to have done this. And we are really looking forward to a fantastic journey together.

Scott: Thanks, that’s really cool. And maybe a good capstone to our conversation. You go from building a company to selling part of the business, to rebooting, building a new business to bringing in another company. And I know you’ve got a long road ahead and just personally really enjoyed our partnership together over the years, and I’m looking forward to many years to come. So, thanks for spending some time with us today. I know just as your entrepreneurial journey is such an interesting one, I think it’s really helpful to share with others.

Guru: Thank you, Scott. Thanks for having me. And certainly, thank you more than that for a wonderful partnership so far.

Coral: Thanks for joining us for this week’s episode of Founded and Funded. If you’re interested in learning more about CommerceIQ, please visit CommerceIQ.ai. Thanks again for joining us, and tune in in a couple of weeks for our next episode of Founded and Funded with Cresta Co-founder Zayd Enam.

In this episode of Founded and Funded, we stray a little from our typical format to answer some questions that often come up in discussions between founders and our investors. Madrona Managing Director Matt McIlwain talks with one of our Limited Partners — a partner that is not a day-to-day investor — Top Tier Capital Partners Founder and Managing Director David York. They explore different kinds of funding mechanisms and how David is “selfishly optimistic” about the current market environment. And they talk about the history between the two firms – more specifically, why this San Francisco-based firm decided to bet on Seattle and Madrona all those years ago!

This transcript was automatically generated and edited for clarity.

Matt: This is Matt McIlwain. I’m a Managing Director at the Madrona Venture Group, and I’m just delighted to have a longtime friend and special guest here today — David York. He’s somebody that I’ve known now for over 20 years, and his is a really interesting journey going back to what was once called Paul Capital and had a focus on what’s called the secondary market, and how David under his leadership and with this amazing team, has really transformed it into a much bigger set of platforms. David, can you take us back to Paul Capital and how that evolved into Top Tier.

David: Sure, our pedigree actually goes back to the 1980s with the Hillman family, which is also a co-investor with us in the Madrona funds. My co-founder Phil Paul from Paul Capital used to run that portfolio in the 1980s. And at that time, the only investors in venture capital firms, or at least a lot of them, were either corporations like AT&T, which was one of the largest programs at the time, and/or families — endowments for the most part had not started to invest in venture capital and hadn’t really thought of that model. So, our legacy in this industry goes back almost 40 something years. I had the privilege in the ’90s of running a trading desk for a venture capital investment bank in San Francisco called Hambrecht & Quist, and one of my clients was Paul Capital. They, as you’ve mentioned earlier, were focused on secondaries for most of the ’90s. But at the end of that decade, it attracted capital to invest in funds on a primary basis.

Matt: Maybe David, when you say primary and secondary and then for now let’s constrain it to funds and then we can go to direct companies. Maybe we’re just going to break all those down.

David: So, when a fund is getting formed, it’s typically a blind pool. And the investment into that blind pool is usually by an accredited investor or an institution, and they usually are really trusting the folks, like the partners at Madrona, to manage that money going forward over a period of time. That initial investment into that fund is called a primary investment in our industry. You can use that same terminology to be an initial investment in a private company as well, but for limited partners, primaries are buying funds for the first time without any assets in them.

If you look at the contracts that are used to create those funds, things like defaulting on your commitment are very onerous and can be quite penal as it relates to your investment — you can forfeit your assets, you can forfeit a lot of things. And so, it’s not common that investors default on their commitments if they want to get out of, say, a venture fund. But one of the ways they can remove themselves from a venture fund, if they want to invest that money someplace else, is to sell them. And that sale transaction happens in what we call today, the secondary market. Think of that as sort of a tertiary market like used cars. Well, this is used private equity. And that was one of the early inventions that Phil Paul created when he started Paul Capital — that firm was started under the guise of a very large secondary transaction — one of the very early secondary transactions ever done in our industry.

Secondaries today now make up about 5 to 10% of the volume in the private equity industry. It’s a way to invest in private assets, typically companies, in a manager that you might know and trust, later in their life. And so, there’s a lot of visibility on what’s in those portfolios, as well as if you have some insight, you have some visibility on how those companies might do in a way that you can actually generate pretty attractive returns. You cannot generate for the most part the same type of return as if you invested in that fund at the very beginning but depending on the markets and the pricing you can acquire the secondary interest in, once it’s further along, you can generate returns that look pretty comparable.

Matt: So here is this organization, Paul Capital. They develop an expertise for buying these secondary stakes in venture capital funds. So, this is not yet at the secondary stake in an individual company level let’s pick up the story in the kind of the early 2000s.

David: Phil and I spent most of the early 2000s building what’s today our core fund to funds business. It’s 80-90% of what we do and did then — invest in funds on a primary basis, so when they got started. From time to time, we get an opportunity to buy a secondary in one of our managers as we went along, and so we would do that. With the global financial crisis, we started to see more and more secondary volume as an active fund investor in our managers, primarily driven by institutions that were essentially desperate to generate liquidity because of what had happened in the global financial crisis. And that motivated us to look at what was for sale versus what people were worried about and we realized that the worry was much higher than what they were selling, and the quality of what they were selling was quite good. So, we started aggressively buying fund interest in our managers at really very attractive prices.

I mean, think 30, 40, 50% of a discount to what the current NAV was, and that motivated us to really start to build a capital base there. So today about a third of our investment activity is focused on buying these secondaries. About 20% of what we do is then invest with our managers in the later stages of their developing portfolio companies. And usually, that’s in the B to C round, and that’s been a very lucrative investment activity for us as well. Today, we own indirectly and directly about 12,000 private companies. And we also have invested between our secondary purchases and our primary investments in about 500 different venture funds across about a 100+ general partners or managers. And that gives us a great lens on the industry, and that asset base generates quite a bit of interesting deal flow.

Matt: A lot of our audience are entrepreneurs, and what’s interesting from their perspective here is that here you are a great long-time investor — one of our limited partners — buying primary into Madrona. But then you can see through to the performance of our companies and then sometimes be a co-investor with us and a direct investor in them. And I know that you’ve done that both in terms of buying direct primary investments and in some cases, direct secondary, investments. In fact, I think your colleague Garth Timoll and you were champions of Smartsheet relatively early on. And that I think turned out to be quite a successful investment for all of us, of course, but from our perspective, it was great to have our trusted partners that were also interested in investing in our companies. And it’s a nice resource for those companies as well.

David: And we think that’s a perfect relationship with our managers. We want to be a source of capital that, thankfully, we think of as being a good partner. So, we want to help you build companies with our primary investments in your funds and then we want to help you with liquidity if you have an investor that can’t follow on, or somebody’s getting a divorce or an institution gets a new CIO, and they change their strategy, then we’ve enjoyed and had an opportunity to take advantage of those situations by buying funds from your limited partners. And then, you know, we do a handful of deals a year, so we’re not that active from the standpoint of co-investments, and we’re pretty picky, but we’ve enjoyed a great relationship with Madrona around some of the co-investments we’ve done from Qumulo to Smartsheet to Remitly and some others. One of the other things we’ve been able to do in the form of being a good partner is help some of those companies provide liquidity to their employees through tenders, which are actually direct secondaries in those companies. We look at those as a mechanism to provide more ownership to our investors in our programs to that good company. And we think it’s additive and based on the way capital markets are structured today — these companies are staying private longer — and so it gives CEOs and entrepreneurs the opportunity to help their employees get liquidity along the journey of the startup in a way that I think is constructive for everybody.

Matt: So now we’re onto secondaries directly in companies and buying shares, from an employee in theory, you could buy it from a former employee or one of the venture investors, maybe an angel investor. This is an area that I think we both agree the mindset in the venture community has changed quite a bit in the last 15-20 years. Can you maybe take us back to kind of the early 2000s mindset and how that’s changed in terms of secondary sales, especially for current employees at companies?

David: Sure. First of all, if you go back to the late ’90s, the average pre-money for an IPO was roughly $300 to $400 million — I mean, if you look at Microsoft and Amazon in particular, those that’s right in the range of where those companies were before they went public. Today that’s the average value of a Series C or a series D round, depending on how fast the business is growing and how much money they’re trying to raise. And so, the time pendulum of liquidity in the startup sort of model was you got paid enough to want to work there, but you really made your upside with your equity, and you got that liquidity from the companies going public earlier, and that’s kind of gone away. And it’s taken the investor community, meaning general partners and the limited partners, like you said, the last 15 years to get comfortable with the notion that those mechanisms are not going to change much as it relates to employee structure and whatnot. And so, it’s up to the private market investor to try and help with that. And we’ve all gotten much more comfortable in owning common. It used to be that we had to own the preferred to make ourselves feel comfortable, but as companies get big enough, which is usually where they’re typically doing these tenders, the preferred structures really are not necessary because the companies are moving well beyond that in a way that common is actually the same security in some ways.

And so that’s part of the reason we’re so comfortable with tenders is that it gives us more ownership. It gives us a better blended exposure. A lot of times the companies that we’ve done tenders with, if we’ve invested in on a direct basis or we’ll come back and do a direct round a little bit later on, and what we’re looking for is exposure to great companies that we see in our managers’ portfolios and trying to be a good partner along the way. We did one for an ad tech business down here in San Jose that they never raised any money beyond the seed round. The management team wanted liquidity, so they could kind of spend another three years doing their thing. And then ultimately the employee base wanted the same thing. And so, we did a couple of deals with them. Ultimately that company got acquired by Blackstone, and so we all did very well by it, but there was no real liquidity in the marketplace unless you did that for the employees and the management team.

Matt: You know, my mind got changed in this area maybe a decade or so ago in that you’re concerned that if people were selling, especially founders and employees, were selling their shares. They were going to be a little less aligned with the company. But I think they became more aligned with the venture investors because they were able to sell some and that could give a little bit of a release valve.

David: Yeah, Risk office as we call it, so that they can lean in even further.

Matt: And be less tempted if, you know, whether it’s a strategic or a finance — a Blackstone or somebody comes along and is trying to buy you, you can say we’re going to kind of play for the longer term, the bigger outcome. And I think that that does align with, with the venture investors. I mean, you must look through a lot of venture funds. And I’d be willing to guess that 90% of those venture funds end up having two, three, or at most four of the companies that are the ones that really move the needle in terms of the returns on those funds.

David: Yeah, those probabilities haven’t changed. No matter what decade we’re in. What’s changed in the venture capital fund investment universe today is that the dollar losses that a portfolio generates early on have really shrunk. And the reason for that is it just takes so much less capital to start a company. The number of companies that fail in a portfolio hasn’t really changed and it varies. But it over time ends up being somewhere between 20 and 50%. Of the ones that survive, half of those usually return the fund. And then the other half are where the drivers are. And just depending on how many companies you have in your portfolio in general, but that usually is in the neighborhood of two to three on the low end and maybe five or six on the high end. Every once in a while, you get a fund that has outliers in all those places, and they create really remarkable returns, but statistically, if you look at funds in China, you look at funds in the U.S., you look at funds in Europe, that all holds true. So, we’ve seen our loss ratios come down to a level that they’re lower than the buyout industry on one hand. And the other hand getting back to the old adage that you lose a lot of stuff, you do lose the companies. You just don’t lose as much money.

Matt: So, David you’ve been great partners with us at Madrona now for almost 15 years. And you know, that was back when the cloud was just getting off the ground with AWS and then later Azure, which of course are both based here in Seattle. I’m curious what got you and Top Tier excited about the Pacific Northwest as a region for venture capital as well as ultimately Madrona.

David: It’s a great question. Two things, first of all, more and more of our portfolio companies, which early on was predominantly Silicon Valley-based firms, were coming out of the Northwest. It became evident to us that there were essentially good things happening up north. And then we also had this strong belief that the cloud market in particular was going to be a big part of technology going forward. So, we wanted to sort of double down on that by getting more exposure to essentially ground zero for cloud, which is Seattle, in our opinion.

Matt: Well, we agree with you.

David: Yeah – you agree, but I mean, in general, that wasn’t obvious 15 years ago, but that was really the motivation. Seattle’s been kind of an interesting market for technology at a high level because the employment base has been for so long sucked up into a handful of really large companies. There used to be kind of the adage that if you really wanted to build a special business, you went to the big city. And then what was happening — the two things, one thing was the cloud activity that we wanted incremental exposure to if you will. But the other was that we started to see, finally, that the entrepreneurial ecosystem being generated by those large technology companies was really starting to be self-generating. And then what happens usually if you look at all the different regional markets and whatnot in the U.S. or different places around the world, you end up with this sort of flywheel of entrepreneur and startup sort of muscle memory, if you will, that allows both the entrepreneurs to invest in the businesses, but the businesses essentially generate employee capital, employee growth that you can then build upon to build an ecosystem. And so, what’s truly happened in the last 15 years in the Pacific Northwest in particular in Seattle specifically is that you’ve now that market is comparable to any other regional market in the U.S.

It doesn’t attract as much capital, a la the statistics because you don’t have as many firms up there, but I can tell you that the people that are up there think that the investment opportunities are just as good as San Francisco.

Matt: Well, we’re going try to keep spinning that flywheel.

David: Yeah. Well, you guys have done a great job. We spent a bunch of time and really felt very, very confident about where you and Tom and the rest of the partnership were headed at the time, as well as the relationships you had in the community in a way that we thought we’d get a disproportionate view of high-quality deal flow, as it relates to what you were going to look at and then ultimately made its way into our portfolios. And so that was the reason for originally investing. But the other thing that happened is we had an opportunity both to co-invest with you, which we’ve done in a number of companies, including Smartsheet, but then one of our local foundations down here decided to do some secondary sales and that gave us another opportunity to partner with Madrona and buying a portfolio of fund interests in your funds and to the point where now I think we have more exposure with you than anybody else, which is something we’re excited about. We’re big fans of the market. We think you’ve done a great job with the team and where you’re headed. And ironically, it’s probably four or five times better than when we started.

Matt: Well, thank you for all of that. And the feeling is very mutual on the partnership. And yes, you know, we don’t very often have situations where there’s a secondary in Madrona, but that circumstance where they change the CIO at that group. And the new CIO wanted to do some different things. And the great thing is that we were able to work with you all and ultimately own a piece of that ourselves. And so, I think everybody that was on the buy side of that trade was very, very happy in the end.

David: Yeah, it’s been a great transaction for everybody.

Matt: Certainly, the market conditions have changed a fair bit in the last set of months. You and I have talked about this before, and I’m curious as you kind of look down the road a little bit, we’ve got these different strategies — primary investing, secondary investments into funds, into companies directly. What’s your view on the macro just to start? And then we could talk a little bit about where you see more or less opportunity as a result of the macro environment.

David: Well, I’m selfishly optimistic. I think for the first time in probably 30 years, we have a rising rate environment. And I think the markets in general, especially the overpriced technology stocks, or the bigger momentum stories, are just being reset as to how you want to price growth when you have a rising rate environment. And we’re going through this natural churn as we reprice things. What I think, at the end of the day, you have to rely on ultimately is fundamentals. And the fundamentals of our underlying technology companies, especially the ones that have gone public recently, are still very, very strong. So, I think ultimately those prices that have been pretty radical, that declines have been pretty radical. I think they’ll get rationalized at some value that’s different than what we were at in March, for instance, but I don’t think, because the fundamentals are so strong that we’re going to stop pricing growth in those businesses. It’s just going to be at a different, multiple. And so, the market’s trying to figure out what’s a practical rationalization for growth and the value of growth.

Matt: And I think probably a lot of our listeners have seen the charts where the 5-year trend and 5-year average of SaaS companies, for example, was maybe in the eight times their forward 12 months revenue. And it went as high as like 17, 18 times even last fall. And now we’re below the 5-year average, you know, kind of in the six to seven times range and yet a lot of these companies are continuing to grow. I think there’s been one other factor. It’d be interesting to see if you’ve seen this as well, which is there was almost a growth at any cost. You’re now seeing a pretty hard swing back to cash flow break-even or better — control your destiny with positive cash flow as key criteria, at the expense of some growth people are okay with less growth, as long as you’re very close to, and you have a clear path to sustainable cash flow positive.

David: This is the notion of fundamentals. At the end of the day, growth at any cost ultimately gets outpriced in a way that you’re going to have to reset. It’s happened in the late nineties. It’s happened several times in the last two decades. You know, cash flow break-even is obviously the holy grail for these, especially the IPO companies that have gone out in the last two years. It was always the anticipation when the company went on the road that that would happen in a reasonable period of time. I think during COVID, because of the demand for technology and, frankly, those companies’ products, they kind of threw that aside and said, the world’s going to let me get by without having cash flow break even. So, bringing that back, I think, is very constructive. To me, it’s where things should net out anyway. So, I’m not against it. And I think, having a little bit of discipline in your management is not a bad thing. So, I think it’s okay.

Matt: You all you know, invest in primaries and secondaries all over the world. You also have, if I understand it correctly, a pretty geographically spread out investor base of groups that invest into Top Tier. What are you seeing globally if we zoom out from the United States in terms of capital interest availability and how folks are thinking about these changing market conditions.

David: So globally investors started allocating pretty regularly to venture capital, really starting about six or seven years ago. In the last five years, it’s now really cemented as part of a portfolio allocation strategy. If you talk to consultants like Cambridge, or you talk to the endowments or you talk to even the big pension funds. And then ironically the benchmarking that all those places use has a mixture of assets that typically has venture in it. And because venture has performed so well, especially in the last five years, it’s outperformed every equity class there is. People are having their benchmarks start to beat them in a way that they’re starting to keep that allocation and worry about catching up. So, we don’t see any real materials slowdown in venture portfolio allocations. We do see pacing, as it relates to deployment into the asset class, ebbing and flowing really with what is happening at the balance sheet level of the investor. So, think about — I have a blended portfolio of listed stocks or fixed income or whatnot. If those things go up or down then it improves your balance sheet if venture goes up and down, it improves your balance sheet. But all of them have a certain weighting that the CIO typically wants that mix to be, and if they get out of line, then that might slow down or accelerate pacing just depending on where you are.

Matt: Let’s say I’m trying to have 25% of my investments be in private equity and venture, and they’re all still basically at the same values. But my public stocks have gone way down, just mathematically, my private company holdings are going to be higher as a percentage, and I might be out of whack in terms of my percentage allocations that I’m looking to achieve as a pension fund or an endowment or a foundation. Then there’s a whole bunch of things, including this kind of, I guess, leads a little bit into why it might be a good cycle here in the not-too-distant future for the secondary markets again.

David: Yeah, we’re very selfishly bullish about that opportunity. What we do is eat and breathe venture capital and technology, but we’re very excited about the cycle in front of us. And then what we see is especially some of the more aggressive investors, where we think they will have that what you were describing, we call the denominator problem, where the denominator is shrinking, but their exposure to private assets hasn’t really changed. Over time, what happens is they typically are selling off exposure, and we think there’s going to be a lot of very interesting opportunities for that probably after the second quarter. And that’s because of the way the markets have responded and, frankly, the way the private markets respond to corrections. It usually takes two or three quarters for valuations to change. But in the meantime, the public markets have corrected overnight, and so you end up with this disproportionate overweighting in private assets in a way that I think will have investors starting to think about rebalancing later this year and potentially into next year. And so, we’re very enthusiastic about what we see coming.

Matt: There’s also an additional timing element there because so many of these nonprofits, a lot of them are educational endowments, and their fiscal year ends at the end of June. And so, they have their kind of get their final year-end numbers. They have to face the board

David: And the auditor.

Matt: And the auditor.

David: And the auditor is going to make them stay true to their charter. And we expect that market, in particular, to be rebalancing quite a bit in the second half of this year.

Matt: You talked a little bit about the thesis on cloud and that one has been a very strong one. And in Seattle, I think with Amazon, AWS and Microsoft Azure, and even a fairly substantial presence for the Google cloud teams up here has really, you know, is for all kinds of reasons, I suppose, the cloud capital of the world. But what other big themes or thesis, you know, either, in the U.S. or abroad are really on your radar screen today.

David: We think there’s been a total sea change with COVID around the use and acceptance of technology across some very major gross domestic product slices. So, health care is one of them, drug discovery has gotten better and better, but the use of technology in the hospital systems and the medical community, and I don’t know how many people went to the doctor’s office during COVID, but we certainly had Zoom calls with doctors. We just think that whole ecosystem is ripe for innovation and change. Education is another space — all the kids learned how to go to school on their computers. And ultimately, I think that whole space is going to be ripe for change. Transportation, logistics, the whole notion of the fact that you didn’t have to own a car or, frankly, you didn’t have to go to the store because stuff was facilitated for you. I think it’s becoming commonplace in a way that that whole part of our gross domestic product is going to be materially impacted. And we don’t as an economy really understand that yet, but I do think it’s going to change things like insurance, how we ship things and a bunch of other stuff. And so, that’s another slice of the GDP that’s going to change. And then technology continues to always kind of cannibalize itself, but machine learning and artificial intelligence, which are a big part of your effort there, and especially your work with some of the institutions up there in the Seattle area, that’s becoming a more and more commonplace component of software in a way that you can see that there are these big companies like Google and Microsoft, and Salesforce that have a lot of startups that are very interested in innovating or out producing by using machine learning and artificial intelligence. I just feel that’s going to be more and more standard in a way that we’re going to again have another kind of full rotation in the tech stack.

Matt: Well, as you know, I think we had dinner maybe five years ago when this was when we were still quite early in the era of applied machine learning, or we like to call intelligent applications. And I think this is one of the neat elements of Top Tier is you all were curious, too, and wanted to have a deeper discussion. And we got a group of friends together and dug into that topic. And now we’re seeing just a lot of affirmation, whether it’s in industries like insurance that you mentioned or healthcare and increasingly life sciences, it’s going to be very, very transformative in the years ahead. I think I’ve heard you say, ” Technology is business for the future.” When you kind of go around the world, you talk to the folks investing in your fund do they see that too? Are they more and more buying into that as a core thesis of what they need to have in their portfolios?

David: Well, let’s spend a minute on global investors. Yeah. I talked earlier about venture allocations, kind of being a fixed part of portfolios — that allocation typically sits in the equity component of portfolios, as it relates to sort of where the piece is and the balance sheet. Most of the pension assets in the world are really yield-oriented, and that’s primarily because they’re trying to generate 6 to 8% returns to meet their actuary and fixed income could do that for them historically. Today that hasn’t been the case, and so they’ve slowly started to add more equity-like things such as real estate or private equity or venture capital. In markets where you had culturally the ability to buy something and see it go up in value like you do in the U.S., that’s been a very large growing component of portfolios. It’s gone on average from 2 to 3% of a portfolio — venture capital has — to now it’s probably approaching 5, and that’s those are material moves in those programs. In the family office world, it’s now running in the 20 to 30% range. If you go to places like Europe, where fixed income is such a big component of the investor base, it’s slowly getting there. So, some of our larger investors are in Europe, and their blended equity portfolio is now 50% of what they do, and their private equity is now 15, including venture capital. Ten years ago, that number was more like 30, sometimes 20, as far as equity is concerned. And then venture then was a subset of that. So, we’ve seen that growth, but it’s been slower, more measured and more risk adverse. Asia still relies heavily on their fixed income markets. You know, if you think about their traditional pension markets, like Japan is the second-largest pension market in the world and they all follow the large sovereign pension funds there, and those are 80, 90% for the most part Japanese bonds. They’re large pools of capital, they’re trillion-dollar pools, but the ratios kind of dictate the trend and then if they want to do private equity, they struggle to do venture capital, because they worry about losing money. When investing, I’ve started to think about risk and where it lies and sometimes there’s risk of missing the upside. And I do think most of the Asian pension funds have missed a lot of upsides.

Matt: I tend to agree with you there. I mean, there’s some exceptions, of course. And you know, I think the folks in Singapore have done a particularly good job of diversifying into some of these different areas.

David: The sovereign wealth funds have done a better job thinking about equity than the pension systems in those communities. Yeah.

Matt: So, to bring this back to the entrepreneur for a second? What are the implications to them? My macro takeaway is that there is a growing amount of capital from pension funds and wealth assets and then you get the foundations endowments that have done very well. This seems to be generally something favorable to the entrepreneurs and the companies because there’s more capital that’s looking to find its way into private companies. Is that fair to say from your end or do you see it differently?

David: I think the capital will be abundant. But selection and actual fundamental application is still going to be the tricky bit. So that’ll take skill both on the entrepreneur’s side, as well as on the manager’s side at firms like Madrona. What we see today is that there’s an abundance of seed capital, right? So, you can get a company started, but really knowing how to build a business and get it to become successful is a whole other problem. There’s an abundance of series A through D but picking to make that stuff work is still the really, really differentiated activity. You know, most people have networks, and most people have what I would call service activities, but being able to see around corners and pick the right stuff is the hardest bit as it relates to traditional venture capital. In the growth market where a lot of the valuations are driven off of public equity activity. The people that were doing that, a fair amount of them had public equity investment funds, like mutual funds and hedge funds, and things of that nature. I think that stuff will ebb and flow with the public market valuations and the capital there will also ebb and flow a little bit with public market valuations because they too have denominator problems in those portfolios as public stocks come down.

So, we expect that market to slow down. We expect valuations to come in at the early stage and seed stage level valuations, they accreted but I think for the right reason, which was the fundamentals were in a pretty good spot for most of these seed companies. They had some sort of product, so you weren’t really doing a really true raw startup like you were maybe 10 or 15 years ago. So, to me, this is the time where the guys that roll up their sleeves and really do the good work actually are going to be the winners, whether it be an entrepreneur or an investor.

Matt: Well, I think this has been a really helpful conversation. You know, a lot of times the entrepreneurs we work with are very curious about how we get our capital and some of these other mechanisms — the primary and the secondary markets. I really want to thank you for taking the time to walk folks through some of that history. Some of the things that have changed, some of the things that are going on now and how these different parts of the kind of capital world exist and function. So, thanks very much, David, really appreciate it.

David: Matt as always. It’s a pleasure seeing you and a pleasure to spend time.

Coral: Thanks for joining us for this week’s episode of Founded and Funded. If you’re interested in learning more about Top Tier, please visit TTCP.com. Thanks again for joining us and tune in, in a couple of weeks for our next episode of Founded and Funded.

In this episode of Founded and Funded, Madrona Partner Chris Picardo dives into the world of crypto and Web3 with Sila Co-Founder and CEO Shamir Karkal. Sila is a FinTech platform that provides payment infrastructure as a service, which is critical for all companies that need to integrate with the U.S. Banking system and blockchain quickly and securely — while following all necessary regulations.

Sila has evolved since Madrona invested in its Seed Round in 2020, and it is now sitting at the intersection of crypto rails and traditional financial services infrastructure because as much as some people want to get away from the traditional financial system, crypto still needs to be able to plug into it. Shamir and Chris dive into the importance of this infrastructure, the ups and downs of the crypto market, the trends driving FinTech and crypto, and so much more today. So, I’ll hand it over to them to get started.

This transcript was automatically generated and edited for clarity.

Chris: My name is Chris Picardo. I’m a partner at Madrona, and we’re really excited today to have Shamir Karkal, who’s the founder and CEO of Sila. We are going to talk about all things FinTech, crypto and Web3, which I think is largely a first for the Madrona Founded and Funded podcast. Madrona has been invested in Sila since the Series A, and I think that Shamir and I have known each other for a bit longer than that and really excited to have him join. So, Shamir, welcome to the podcast, and I’d love to start off with just a little bit of background on yourself and your journey here. You’ve been in FinTech, I think since before it was called FinTech or had a name. And I’d love to hear a little bit about that journey and how it all started.

Shamir: Thank you for having me, Chris. It’s a pleasure being here and being part of the Madrona portfolio. So, I used to be a software engineer 15-20 years ago, I came to the U.S., went to business school and became a consultant. That’s really kind of where I fell into financial services. Did a lot of work, for banks, processors, central banks. This was the 08′ period where I went from working on cross-sell strategies for North American banks to country bailouts in the Middle East. And then in 09′, a friend of mine from business school sent me an email saying, let’s start a retail bank. You’ll see how crazy I am that I thought that was a good idea in 09′. And literally, my last engagement at McKinsey before that was best described as trillion-dollar bank bankruptcy. So, I had way more experience shutting down banks than starting them.

But he had this vision of how a better financial world and a better bank could help people manage their finances, and I totally got excited about that, moved back to the U.S. from Europe and started up Simple in 2009. Simple ended up being the first neobank, ever. The word neobank didn’t exist. And I think the word FinTech probably didn’t exist. We just called it financial services back in 2010. It took us three years to launch Simple because nobody had ever done anything like that before. And then in 2014, Simple was acquired by BBVA, which is a large Spanish bank. A $117 million acquisition seemed like a good outcome at the time, but now in hindsight, we probably didn’t quite realize how much potential that was.

I then got excited about building API platforms, and I was like, “The world needs API platforms.” And I persuaded BBVa to build a couple of them and built and launched them — one in Europe and one in the U.S., and launched them, acquired some customers as well, but ultimately just got frustrated with the big bank lifestyle and left in 2017. And then started Sila in 2018. Sometimes it feels to me like I’ve spent the last 12-14 years doing the same thing, which is help people, programmers, developers, innovators, program with money. A lot of that was internal. At Simple, we had to build all the infrastructure so that we could use it ourselves because it didn’t exist. Uh, I tried to build a type of bank platform at BBVA and then that’s what Sila does now. We help our customers program with money and build FinTech and crypto apps to do things like crypto on/off ramps, FinTech, PFM apps, savings, apps, credit apps, and NFT apps, all of it.

Chris: It’s an amazing journey. And I think since I’ve known you, I’ve always thought that you were out in front of all of these next big FinTech trends. I think obviously Simple was a good example of that. You’ve been talking about using crypto infrastructure in banking for a long time — I think before that really got particularly popular. If you think back on that, how did you see those pain points? What drove you to, in the case of Sila, say, “Hey, there is a new way to build this, and we should really be out in front of that”.

Shamir: I think it goes back to this fundamental thing — money is hugely important to people. I mean, it’s what drives society across the world now. If you look at new year’s resolutions every year, they kind of fluctuate, but they all come back to one of two things. It’s either, get healthy and that’s usually when times are good, people are focused on getting more healthy and especially in the last two years. And then when it’s a recession or a depression, then it’s all about getting financially healthy. And the prescription for both is kind of weirdly similar. You want to get healthier, exercise more and eat less. And if you want to get financially healthier, spend less and save more, and if you can, earn more.

But the financial system still operates in this mentality, I think, which is pre-1990s, which is we have a bunch of products, and we are going to sell them to you. I think FinTech is kind of the beginning of it, but especially in the crypto space, folks tend to flip that around and say, “Hey, I’m not trying to build a product and then sell it to customers. I’m trying to understand what customers want. And then I’m trying to build something that solves their problem.” And maybe it does something with money on the back end. But that part doesn’t need to be front and center and it should just be plugged in on the back end. Your access to financial services should be like your access to water. Like you go turn on the tap and it flows and it’s there when you need it. It tends to be a lot harder than that and a lot more complex. So, I think that’s been the driving impetus for me from like the last 12, 14 years is, we need to get the world to that place from where it is today.

And the differences I see between FinTech and crypto — at some level, it’s all just infrastructure. The FinTech guys typically started off by building on top of the existing financial system where the crypto guys are like, “Hey, we are going to build new financial systems, new payment systems around these blockchain economies, these blockchain networks. And some of the major differences I see there is that a lot of the FinTech folks are really very focused on the customer and the use case. And what are the problems you’re solving, which I think is a very good thing to me. The crypto folks tend to be very community first and they’re like, “Hey, we’re going to build a community of like-minded people. And we’re going to use this technology to excite and empower the community. And then the community as a whole is going to tackle and try and solve this problem.” In FinTech, you still see that ” Hey, there’s us, and then there’s our customers.” But in crypto, it’s like, who is a customer? Who is a builder? Those are just roles, which could be the same person.

Chris: I think that’s a really interesting way to put it. And one thing that I’ve always really liked since we first started talking about Sila, probably in 2018, was how you have this really good view of enabling your customers, who are generally developers or companies building new products, to build new products for those customers.

You started with instant ACH and for the FinTech nerds who are listening to this, I think people who spend time in this space know that ACH has been quite a hassle for a long time. And one thing you decided to do early on, which I will admit, I was very skeptical about when we started talking about it, was use versions of, call it early crypto architecture, to enable that. I think Sila at least for us was certainly the first example of a company that was enabling using some crypto infrastructure to enable use cases that may have nothing to do with what we tend to think about as crypto.

Shamir: Sometimes the way I like to think about this is in terms of financial networks. One of the jokes I say is that like old financial networks, like payment systems, just never die. They literally never die. All the oldest payment systems things like coins, cash, checks — anything that was used by a large number of people across a few different geographic areas is still with us today. And so, what ends up happening is, a lot of times in the tech world, you build technology and then you build new technology, and you’re like, you know what, we’re just going to start using the new technology and ignore the old. And you see that a little bit with the internet, like, email was one of the first killer apps with the internet in the ’90s. Email did not need to integrate into the postal service. Right. Uh, email was its own whole thing and it worked great, and it was awesome. And we still use the post. We use them for completely different things. That doesn’t work in financial services every payment system that gets built, gets built as a layer on top of a previous payment system. And then eventually all the users move to the new payment system. And so, when you’re building these new financial worlds, I think A lot of the early crypto people didn’t necessarily understand that they don’t work until they plug into the old — you kind of have to build them on top, integrate them into the old and then build new use cases, new functionality, move the volume over, and then eventually the old will die. You cannot have them exist as two separates — that doesn’t work in financial services. And so, I think the hardest problem in the whole crypto space sometimes is really the infrastructure to connect it into the traditional financial system. Because guess what? The traditional financial system sucks in many ways, and crypto may be way better, but if you can’t plug into the old, then you can’t move the value and the volume and the money. And that’s what we built Sila to do — to be that bridge between payment systems broadly, but especially between, new payment systems and new payment rails, like blockchain ones and the old ones. And to do that well, you have to do both of those well. You have to be plugged into the crypto ecosystem. You also have to have a deep understanding of how to do things like ACH payments and returns and KYC and compliance. Because that is what the old financial system is all about. So that’s what we choose to take on first is to solve not just the pure on-chain problems, not just the pure off-chain problems, but the combination of on and off-chain problems, that is the hardest thing to solve.

And so far, it’s worked. I mean, we have quite a few crypto customers who appreciate that on-chain, they can do lots of things and they can do it really well. But when it’s like, “Hey, how do you build a system and scale it on ACH, and then move that money over into a blockchain?” That’s hard, and they come to us for that. And then we have a bunch of FinTech customers who are like, “Hey, we are a FinTech app and we love being a FinTech app and we are growing and scaling nicely, but we like having the ability to potentially add the ability to buy or sell Bitcoin or Ether, or do NFTs or maybe access DeFi yield somehow.” All of those capabilities are interesting and we see those customers as well.

Chris: I think Sila is a great example, as you pointed out, of sitting right at the intersection of, call it crypto rails and ecosystem and traditional financial services infrastructure. And, to your point, those haven’t talked very nicely to each other, and people have to build the types of products that can reach into both sides of the ecosystems and say, “Hey, I can help you, for lack of a better term, build a bridge here”.

I think one thing that’s always helpful — I’d love you to walk through a customer example that can be hypothetical of what you can enable with Sila. With this kind of approach, you’ve taken that would just be really hard to do in some other way.

Shamir: There’s a few, not all of whom I can talk about. So, I’ll pick one of my favorite customers and they’re not necessarily that large, but they’re really cool and innovative, so I love talking about them. It’s a company called Fabrica and they do NFTs, but they do NFTs for land. So, if you go to www.Fabrica.Land, I think is their URL, you can sign up and they’ll verify your identity, link your bank account, and then you can go and you can buy a piece of land and they have a list of them and you can go buy like two acres of land in Southern California or middle of nowhere in New Mexico or Nevada or whatever. It’s a large country and there’s a lot of land out there. And an acre in Nevada is like, you know, $5 grand or $10 grand. You can buy on Fabrica legal ownership of a piece of land, which is sold to you as an NFT, which I find very cool because there’s this whole explosion of NFTs in the last 24 months. But most of them, when you look at it and you’re like, “Hey, what does this legally give me ownership to?” And it’s not very clear. Does it give you IP rights? Does it give you anything more than bragging rights to a piece of art as an example? And with Fabrica, it does give you legal rights to a piece of land.

They built the infrastructure on the back end, where they create a special purpose trust, move ownership of the land into that trust — the beneficiary of the trust is whoever is holding the NFT. They built all that infrastructure to do that. But on the flip side, when an NFT goes from John Smith to Jane Doe, and maybe Jane Doe goes and builds on the land or sells it onward, that’s her choice. Money has to go the other way, and they use us for that piece of it — for the onboarding, the identity verification, pulling the money out of somebody’s bank account, transferring it to somebody else’s bank account. And now, doing more sort of DeFi-ish sorts of things where it’s like the seller of the land can actually finance it and say, “Hey, instead of paying me $20K, you can do $2,000 bucks a month for 10 months. So, they build the on-chain capability to do that, but use our infrastructure on the back end to do all the money movement and the regulated functions behind that.

Chris: I think that’s a really cool example. And I like that there’s a product that in some ways is extremely crypto in this kind of NFT format. And yet, there’s the realization that you kind of need to use the existing financial infrastructure in an elegant way to be able to do what you want to do here. And Sila really fills that gap and natively can speak both languages. I want to switch gears a little bit here because we’ve talked about Sila for a little bit, but the other thing that you always have a pretty good beat on is the crypto and Web3 market in general. I’d love to understand how you think about the crypto market now and what should we make of the downturn and the noise that’s gone on, and where do you see the category and the overall market going from here?

Shamir: I think it’s actually a very exciting time in crypto. If you look at all the large crypto companies that are out there now and the folks who have real traction, most of them actually got started in the 2017, 2018, early 2019 timeframe. That was the last bust that was the crypto winter in which Sila got started as well. Crypto, especially you tend to see it’s almost like hypercycle, right? Every three, or four years you have a huge boom. And during the boom, a lot of projects end up getting funded — not necessarily from VCs. VCs actually are a late entrance into crypto and Web3— a lot of crypto fundraising has historically been community-driven. But a lot of projects end up getting funded that don’t look like very good ideas definitely in hindsight, but maybe a lot of people even in foresight thought they weren’t in great ideas. And then there’s a market crash and a lot of those ideas end up failing and these projects end up failing. And a lot of people lose money and then a lot of the air, but also a lot of the fluff, gets taken out of the market.

So, I suspect the things that are getting started now and being built now will drive the next boom three, four years from now, or maybe 12 months from now. I don’t know when the next boom will be. I’ve never figured out how to time these things. But we’re definitely in a crypto bust right now. I also am totally convinced that this is the cyclical nature of crypto. It is frustrating sometimes because it makes investment hard — you’re always on a rollercoaster, right. And people are not used to rollercoasters. But the markets will be back, and a lot of good projects will end up getting built now that will drive the next wave. And I think that’s true even in FinTech — the other space that we also operate in heavily. People look at the crypto boom and bust, and I think the FinTech boom of last year was just as big. And maybe the bust is just as big. But I think the same is true for it all. The underlying driver of this is global financial services is something like 20, 25% of global GDP — global GDP is like $100 trillion, a little bit more. So financial services like $20 trillion, and that’s annual revenue. But out of that $20 trillion, it’s like 1 to 2% of that is in FinTech and crypto. I think we are going to see in the next decade, that 1% go to like 10%. Even if you look in the world of the 2030s, like Chase and BofA and BNY Mellon, they’re not going to be gone. They’ll still be giants. They’ll still be doing a ton of business, but more and more of it will move to the new world. And that’s this underlying secular trend that’s driving FinTech, that’s driving crypto and Web3 and driving whole new use cases, products, and industries that we couldn’t even imagine a decade ago.

Chris: That’s a great segue because I was going to ask you on this theme of kind of crypto and Web3 overlapping with FinTech, maybe my personal thesis is: We need to see new and stickier and higher utility use cases emerge so there are good long-term reasons for users to use both of these rails and merge them. One way I’ve thought about it is, so far, the blockchain Web3 ecosystem has come up with one killer use case, which is cryptocurrency. Whether or not there’s volatility, we can say, “Hey, that’s a good use case”. The second use case, maybe it’s DeFi, maybe it’s something to do with NFTs, that’s still emerging.

You are sitting at a great spot where you get to see both sides of this world and your customers are the ones building those use cases. So if you look forward and you say, “Hey, here’s how this kind of crypto, FinTech overlap is going to emerge or going to continue to grow.” You know, what types of those use cases would you be most excited about?

Shamir: I think a lot of what’s going to happen over the next cycle and probably the next couple of cycles is just going to be increasing adoption. So, there was Bitcoin and Ether, and then there was this whole ICO boom, which drove the last boom back in 2016, 2017 — that went bust. And most of those cryptocurrencies went nowhere. Now we can look back on it and a few of them actually survived and built lasting ecosystems, whether it’s, BAND or Solana or whatever, but there were 2,000+ cryptocurrencies of which maybe 10 to 20 turned out to really hold value.

I feel like a lot of that needs to happen in the DeFi and NFT space as well. And when you look at an NFT, it’s like, what is this thing? It’s sort of a programmable token. It’s just a standard — on Ethereum, the ERC-721 is kind of the core of it. It is what you want to make of it. So, you have to really look at each NFT project or issuance and be like, what is this actually getting me? A lot of it early on has been around digital art, because that’s frankly, the easiest thing to move and sell online — you can send people to JPEG. It’s not hard.

The questions around what actual ownership is it giving me? What most people buy and sell in the real world all the time is not digital art. It’s not even physical art, it is phones, cameras, cars, houses, and every other type of real physical asset and virtual asset, whether it’s IP rights, whether it’s music, whether it’s video, all of those things. What NFTs really give you the ability to do is to program with those on a blockchain and build new sorts of applications or uses for them. You could not trade a piece of music across the world a few years ago, right? I feel like it’s those sorts of things that NFTs will get into, but the problem is, the more you get into the real world, the more you run into regulation. All of these markets are heavily regulated. The reason why the internet revolutionized advertising and tech and email is because those were not in regulated markets — it was easy.

All of this, whether it’s Uber with transportation or OpenSea with NFTs or whatever. These are regulated spaces, and if you want to get into them, you have to understand the complex mix of local, federal and international regulations. Because customers —they just want to go online, they want to buy cool stuff and sell cool stuff. And the fact that the buyer is in Nevada and the seller is in Vietnam, they don’t care, they’re part of the same online community — why can’t they sell to each other? The mess of laws between them is the real problem. So I think more infrastructure will get built to solve specific problems that will enable more of these applications and use cases to take off. So, a lot of the future is just more adoption, but what I call real adoption of DeFi and NFTs. I think we’ll see more interesting use cases combining this crypto and Web3-community-first approach with more and more real and virtual communities. Traditional finance wasn’t really designed for that. I think crypto naturally is. I think we’ll see a lot of that over the next, oh, probably 10, 20 years.

Chris: I actually saw a — you would probably know the name of this — I’m forgetting the name of this. There’s a version of NBA Top Shot for Premier League cricket. And I actually went to go try to buy. I was like, that seems like a good idea. I, I take, I own some of those NFTs, and I went to try to buy them, and they’re all sold out and you know, it was like, “Hey, come back at some arbitrary time. And hopefully, we’ll have some more of them.”

Shamir: Yeah, the cricket world tends to be heavily driven out of India. So, you might be in the wrong time zone. You might need to buy those things at like, you know, 2:00 AM Pacific or something and yeah, that’s the thing, right? The cricket following is so huge, but it is global, but it’s not really U.S. centered at all. Who in the U.S. plays cricket or cares about cricket? But a lot of Indians, Sri Lankans, Bangladeshis, Australians, and Britishers — the old British Empire — does.

I think that’s another thing that the U.S. as a country and as an economy is heavily financialized, right? Well over 80% of Americans have bank accounts, and lots of people have credit cards. It’s not like it’s easy to get a mortgage, but you could get one and it’s not super hard either. It’s just painfully processed, and paperwork driven. You look at the rest of the world and 80% of people in Africa or Asia have never had a bank account, and they’re just getting their first smartphones now. A lot of these people have never bought a single stock, never gotten a single loan, and never had a single bank account. And for them, they’re probably going to go straight to the crypto solutions. Because those crypto solutions are designed for them and the communities. They operate in.

Chris: I think that’s a really nice perspective. And I also think it’s good to point out that that’s a huge source of opportunity and can be a blind spot for us in the U.S. where we are so heavily financialized. And some of these tools are very natively, easy, at our disposal, in the traditional world, but for other places or for international things like cricket, that’s not quite the case.

I’d love to wrap up a little bit back on Sila and just more on your journey, which is you’ve been an entrepreneur now for a long time. This is your second, maybe arguably third company, always kind of at the forefront and in these emerging spaces. I’d love to know, if you think back over that career to date, what do you think the biggest lesson that you’ve learned from company building is, or what’s the most interesting thing that you have come across in your journey?

Shamir: I think one of the things that I’ve taken away is that market timing is impossible. I haven’t figured out how to do it at least, but persistence is massively important. Like, you might be a little bit early to a market. You might be a little bit late to a market. Or you might time it perfectly. You don’t know. You only know this in hindsight. Once you go public on the NASDAQ or whatever, you can look back at it in 10 years and say, “Yeah, I really should have started Simple in like 2011, that would’ve been the right thing to do. I’m like — Who knew, right? But if you’re persistent and you keep building and shipping, you just increase the odds of success. And ultimately, it comes down to knowing who your customers are and what value you’re delivering to them and staying close to them. And I try to do that even now at Sila, it’s hugely important because ultimately, that’s what everybody’s here for. They’re here to serve our customers and our customers typically are here to serve their customers. As long as you keep working with good people, doing good things, and keep pushing forward and stay persistent, you are increasing your chances of success. The hard part of it is — I know many people who did that and still failed. And then many people who didn’t necessarily do that that well, but still succeeded. There is a large amount of luck and a large amount of market stuff that drives outcomes in this space. That’s the frustrating part of it. All you can do is just do the things that increase your odds. If you’re around long enough, you’ll get dealt some bad hands, but you’ll get dealt some good hands too.

Chris: I love that. Be persistent, deliver customer value, and increase the odds of your success. I think that’s great advice and feels like a nice place to sort of wrap up. Shamir, I can’t thank you enough for joining the podcast today. It’s been a pleasure to be able to get to work with you for the last couple of years. And I keep looking forward to working together in the future.

Shamir: Same here, Chris. Thank you for having me.

Coral: Thanks for joining us for this week’s episode of Founded and Funded. If you’re interested in learning more about Sila, please visit SilaMoney.com. If you’re interested in learning more about Madonna’s take on crypto and Web3, head to Madrona.com/insights. Thanks again for joining us and tune in in a couple of weeks for our next episode of Founded and Funded with one of our Limited Partners — Top Tier’s David York.

In this episode of Founded and Funded Madrona Investors Aseem Datar and Sabrina Wu sit down with robotics expert and University of Washington Professor Sidd Srinivasa to talk about the technology and sociological trends that are leading to innovation in the robotics space, where Sidd sees opportunities for founders, and why now is the time to pay attention to what’s happening in the space. Sidd also shares why he is what he calls an “accidental roboticist” and some of the hard-learned lessons from throughout his extensive career.

This transcript was automatically generated and edited for clarity.

Coral: Welcome to Found it and Funded this is Coral Garnick Ducken, Digital Editor here at Madrona Venture Group, and this week we are diving into a topic that I think we can agree everyone loves to talk about — robotics. George Devol created the first digitally operated and programmable robot back in 1954. And since then, we have been awed by the likes of C-3PO from “Star Wars,” Tipsy, the cocktail serving robot in Las Vegas, and Scout — Amazon’s delivery robots in Snohomish County here in Washington. Robots are transforming productivity, efficiency, cost, output, and product quality for companies, and many trends are coming together to push the move to automate from the pandemic, of course, which has pushed for a more touchless remote-first way of operation to an enduring labor shortage, to technological innovation in computing, AI, and machine learning to technology, infrastructure and data quality advancements that means the use of computer vision in real time is now possible. All of these trends come together to create almost endless opportunity for founders in the robotics space.

So, this week, investors Aseem Datar and Sabrina Wu are talking with robotics expert Sidd Srinivasa about all of this and so much more. Not only do we learn how Sidd is actually what he calls an accidental roboticist, but he outlines the areas of robotics that he sees are ripe for innovation and some of the hard-learned lessons from throughout his extensive career. With that, I’ll hand it over to Aseem and Sabrina to dive in.

Aseem: Hello everyone. My name is Aseem Datar and I’m happy to be here today with one of my fellow investors, Sabrina Wu and our guest of honor, Professor Siddhartha Srinivasa to talk about our favorite topic — robotics. So recently there’ve been a whole bunch of technological advancements in the field of robotics. That means that the world is prime for accelerated innovation and adoption, especially within sectors like industrial, manufacturing, logistics, and many, many more. At Madrona, we’re excited to see where entrepreneurs take it and the kind of companies that they buried using this technological building block per se. We wanted to bring in one of the foremost experts in robotics to talk about some of these recent trends and why now is the time to pay attention to what’s happening in the space.

Sidd, thank you so much for joining us and welcome to this conversation.

Sidd: Thank you so much for having me, Aseem and Sabrina. It’s a pleasure to be here and it’s a pleasure to chat about robots. One of my most favorite things to talk about.

Sabrina: Yes, Sidd thanks so much for being here. We’re really excited that you were able to join us today. You know, looking at your background, you were previously at Carnegie Mellon University for 18 years, and many of those years you were running the robotics institute. Thankfully we were able to steal you away from them and have you join the University of Washington, where you’re now an endowed professor focusing on human robotics interactions. Uh, You, of course, we’re also one of the First Wave Founders of Berkshire Grey. Now publicly traded on the New York stock exchange after having revolutionized the use case of robotics and AI for fulfillment at scale. So, you know, why don’t we start though with how you really got interested in robotics in the first place. Was there a pivotal moment for you when you were growing up that got you interested in the field or, you know, really what was it?

Sidd: That’s a tough one. I wish I could say that there was some origin story one day in which I had this revelation. But I’m actually a very accidental roboticist. It was in 1999. I was ready to go do a Ph.D. in mathematics at CalTech or in fluid mechanics at Cornell. The then director of the Robotics Institute Raj Reddy, visited IIT Madras, where I was doing my undergrad, and he happened to come home and was talking to us — my dad was a professor there as well. Then he asked me what are you going to do with your life? And I said, “Oh yeah, I’m going to do one of these things.” He said, “Nope, you should do robotics and apply to this robotics Institute place”— that, you know, back in 1999 was fledgling. I said, “Why not?” I still remember after I got my acceptance, my dad sat me down and said, “Son, you know what the future is? It’s turbines. It’s not robotics. Robotics is just a fad.” I still talk to him about that, about how turbines are doing compared to robotics. I’m sure they’re doing really well. But certainly, I’m glad that I pursued robotics. Then ever since, it’s been such a pleasure waking up every morning, working on robots. I just continue to be flabbergasted that people pay me money to do something that I would in a heartbeat do for free.

Aseem: That’s awesome. I thought that there was going to be some, “I was watching “Small Wonder” kind of story'” but maybe now, and who knows maybe your someday going to build robots that operate turbines, and you’ll bring the best of both worlds together. I think we have the most fun learning about backgrounds — these stories that don’t surface on LinkedIn. So, thank you for sharing that. As we at Madrona are thinking about robots, the one obvious question we sort of always come across in our minds as we think about the spaces and build a prepared mind kind of framework is why now? What’s changed in the world — robots have always existed in some way, shape, or form for decades. Following on that question, what are some of the driving factors that you believe are leading toward the acceleration, the investment in the field and ultimately toward adoption?

Sidd: It’s been a slow boil of robotics. I must say. It’s not that there’s been some step-function improvement. One of the things that has actually been hugely beneficial is Moore’s law. Computers are getting faster and faster day by day. Essentially the same algorithms that we used to run 20 years ago when I started my Ph.D., now take seconds to run instead of tens of minutes. I think that’s a huge win because one of the interesting things about robotics is that your clock is set by nature. It’s set by gravity, right? If you have a coffee mug that you’re trying to pick up and it starts dropping, then you can slow down time so that your computation reaches up to it. You just have to make it not fall. You have to grab it. I think the ability of our computing to finally catch up with nature and potentially exceed nature has been a huge tailwind for us. I think additionally, there are a few other factors. One is hardware, particularly perception hardware, which has gotten much better and much cheaper.

Some of that has been driven by the self-driving car industry. You know, back when I started my Ph.D., you had to pay tens of thousands of dollars to get a FireWire camera and then buy a giant board that then you would attach to your computer and have to write like custom software to even be able to grab pixels out of a camera.

That’s no longer true, things are much cheaper now. And that’s super useful. It’s super useful, not just to bring down the bond cost of your product. But it’s also super useful to prototype things. It’s much faster and easier to prototype things when parts don’t cost tens of thousands of dollars. That means that now we can very speedily go through several iterations of a robot or a robotic system, without necessarily having to think too much about like, oh, what am I purchasing right now, so you don’t have to prematurely optimize just yet.

Aseem: Yeah, that’s so interesting and so relevant. I remember the time when I was writing code on embedded systems, and you would think about memory management, right? Like you would think about how much memory is my algorithm using. And now when you graduate from college, you’re just commissioning another VM. You’re just buying more compute at cents on the dollar, right? I think that’s just fascinating in terms of where the world has gone. Sidd, what about networks? What about latency? Is there something to unpack there in terms of 1) time to making a decision getting faster and 2) what about advances in hardware itself — in terms of precision arms, in terms of actuators and so on? Is there something there that’s also a, I would say light tailwind that’s pushing this forward?

Sidd: I think one of the things that we’re seeing recently is that there has been a greater availability of compliant manipulators, you know, things that can work with and around people. We call them human safe, but essentially, they have the ability to feel forces and respond to them just like our arms do. And one of the advantages of that is that it transfers a lot of the complexity from the metal to the silicon. These robots that are not industrial manipulators, but combined manipulators are much more complicated to program and manipulate, but they are intrinsically safe and intrinsically more capable because they are able to feel forces and modulator their forces.

And I think our ability to wrangle this new piece of technology better is going to be a big unlock for the future. You’re already seeing how, if you look at even automotive, a majority of their manipulation or their assembly is done by these giant industrial manipulators that just pick and place. But a lot of their relevant and important manipulation, particularly of flexible things like brake lining or seat cushions need forces and torques and very careful manipulation. And that even now is done by people. That is particularly challenging. I think a future that I can see is the ability for robots to be able to perform those careful force-guided tasks that we humans do so effortlessly.

Aseem: I think that’s a great characterization of what things are coming together. You hinted a little bit at the industrial sectors and so I want to go down that path of how do you think about the market? What are areas that you see are ripe for robotics to play a huge role in? How do you think about industry focus? What are industries where robots are an obvious solution? And tell us a little bit about your thinking around the application of robots to those use cases.

Sidd: One thing I would say is that I have a bias to be a very full-stack roboticist. I like nails and I like to hammer them with whatever hammer is available. I think for me, there are a few criteria that are really important when trying to decide what the right nails are. One is how relevant is it? There are a lot of places where we may think robotics is relevant, but the technology that’s needed to do it is not there at all. Part of the reason for that is that we tend to anthropomorphize. We think, oh, this is easy for me so surely this must be easy for a robot and that’s sometimes true, but it’s more often not true. So, I think being able to find the intersection of something that robots are capable of doing and something that is of value to people is really interesting.

From a sort of vertical point of view, I think there are a few places where robotics has a lot of potential. And I think a lot of that is related to how complexity can be addressed via either changing the process path or changing how the work is done. One of the places that I am particularly excited about is being able to use robotics in farming or agriculture. I think that there’s tremendous potential in being able to merge the way food is produced, the science behind how food is produced, and the way food is harvested, and the way it’s packaged, and the way it’s sold. I think sometimes we assume that, and this is funny because we assume that strawberries have to grow in a particular way. But that’s not even true, right? Like we humans have manipulated the way strawberries grow and appear based on a lot of criteria that we care about. But you can imagine a world where we are optimizing those criteria, not just for our consumption, but also for the ability for robots to be able to pick them. The ability for robots to be able to identify them. The ability for robots to be able to package them. I think when you think about it holistically as my goal is to be able to produce really delicious food and to be able to automate its harvesting and delivery to a person, then you can really think of ways in which you can automate the entire process and think about how you can manipulate the entire process. So that’s certainly something that I’m interested in.

I think another piece that to me is really interesting that I continue to be fascinated by is last mile. You look around outside and outside any doorstep, there are packages and it’s interesting and challenging to understand how those packages can be delivered faster, better to you. Right now, it’s both labor-intensive and energetically inefficient. I don’t just mean packages, right? Even if you think about food delivery, I think of it as a full stack of how would we imagine the preparation and the combination of the food such that it continues to be delicious.

But also, something that can be automated and delivered on time to us. Some foods are actually very, very hard to deliver as we all know. Getting fries delivered at home or getting a nice, like Indian samosa delivered by let’s still crispy and not soggy is super hard. But I think part of that is because of the way those food items are created — because they were never created to be packaged in a box and delivered to us. They were created to be eaten hot off of the tava or the plate into our mouth. So, I think, thinking through how that entire process might work, I think it would be interesting and valuable.

Aseem: That’s so cool because it’s complimentary to our view we have yet at Madrona around, there’s a strong wave around, you know, COVID start us that, a lot of systems, processes now are moving towards more autonomous touchless, contactless as well as, high-quality outcomes, right? Because the more systematic approach you take, the more consistent quality comes out of it. An area that we’ve not talked about here but it’s interesting to us is also around the smart factory, the autonomous vehicle assembly. I think all these things coupled with the problem of like, you know, an aging workforce slash shortage of labor, we believe are just areas that are ripe for disruption, or I would say opportunity from a robot standpoint.

Sidd: Yeah, I completely agree with that. I also think that part of this might be to rethink. How processes are engineered. As an example, if you wanted a robot that would do your laundry, this is everybody’s favorite robot. Building a robot that like is in your home, that’s loading your washer, pulling it out, putting it into the dryer, taking it out, folding your clothes might be incredibly challenging.

But you can imagine a world where some entity takes all of your dirty laundry, takes it to some centralized location where there’s a larger physical space, which does all the cleaning for you and delivers it back to you as quickly as possible. By changing the way things are processed and turning it from many small things to one aggregated larger thing. I think you can get potentially a lot of wins. That of course demands that we, as humans, change the way we want to live to some extent. But there’s a lot of evidence to that. Right? In that, like, we’re willing to change the way we work, and we live if it is longer term more convenient for us. We haven’t talked about consumer robotics — robots in the home. I find that to be the most challenging market and something that like I haven’t particularly thought about because building something boutique for everyone’s home is way, way, way harder than building something that sits in its own physical space that can be controlled and manipulated by you and everything goes to it and comes out of it.

Sabrina: We have this debate a lot at Madrona as well of just where is the best use case for robotics? Is it in the enterprise setting? Is it in the consumer setting? And I’m curious, you touched upon it a little bit about the different verticals in agriculture and other, but to be a little bit more specific, if you’re a future founder you know, listening to this podcast today, what opportunities are you seeing? What white spaces are you seeing for a founder to come in? Is it specifically within verticals or applications or do you see it more on the hardware or software side? Just curious what your thoughts are around that.

Sidd: I do think that there is potential everywhere. My own personal interest has always been in trying to find a vertical opportunity and then do whatever it takes to solve that problem. Also specifically look at a place where automation is not necessarily a must have but can be a ramp function value add. I think if you start off with,” Hey, if I don’t build Rosie the robot, then I don’t have a business.” Well, then you’re in trouble. I think we want to make sure that there is a business case even with very limited automation. Even there like I would stair-step automation as oftentimes quality assurance prediction is much easier than actual physical manipulation. If you can actually have a value add that’s just about having sensors in your world that help you understand your process better or someone’s process better such that it can make it more efficient. That’s already a big win. And every single motor that you add to your world is an order of magnitude, greater complexity because everything breaks when you interact with the physical world. So, I think even there, when you’re starting to add automation, at first ask the question. Can you add automation that doesn’t move but that is able to monitor and enhance your process path through AI, computer vision, machine learning, and then subsequently use that to bootstrap how you might want to integrate physical automation in.

I think that’s a place where I think that there’s a lot of potential, right? Like even thinking about quality assurance. I think the biggest challenge with just inference and perception as a business is that you might get sharded by so many different applications. You know, someone has a light bulb that they want to assure, someone else has a PCB. Someone else has a salad that they want to know whether any of the produce is old or not. Someone else may have bananas. Someone else may have other things. So, I think the challenge that is in making sure that there aren’t so many different verticals that you’re chasing, that you end up doing a poor job of any one of them. I think this is the biggest challenge that I see in this particular space is that sometimes people either focus too much on a vertical and that’s too narrow. It’s one of the teeth in a comb and it’s too small or they try to build infrastructure and that becomes too broad, like, I don’t want a machine learning model. What I want is a managed service. I want someone not to hand me over like a piece of code. I want someone to solve my problem. My problem might be, I want to be assured that the chicken I’m selling are all of the right shape, or I want to be assured that the fries that I’m selling are all numbered, 37, there are 37 fries in each bag that I’m selling. I think being able to produce value while still being able to not be sharded by too many teeth in the comb is interesting and challenging. I don’t think anyone’s cracked that yet, but I think that there’s a lot of opportunity in that space.

Aseem: Yeah, you alluded to this, but I want to ask you this million-dollar question, or maybe it’s a millions of dollars question these days with how companies are performing and creating value. Hardware, robotics, or software robotics? Let me qualify that a little bit. There’s generally healthy tension on — do I solve a problem using hardware smarts and precision and building more complex arms, or do I actually solve it using the power of software and intelligence and ML models and CV? How should one think about that?

Sidd: I think about this a lot, I must say. The way I think about it is so first of all, I don’t have an answer. I just have a thought about it. I think that the constraints of the built environment often tell us what’s possible and what’s not possible. So, if you look at automating your kitchen, for example, it’s very hard to put belts and pulleys and tubes in your kitchen that plop food on your plate. Just the natural constraints that you created because it’s a kitchen that you want to use — it’s a kitchen that has certain dimensions — makes certain hardware choices possible or not possible.

The fewer constraints you have, the easier it is to solve using only hardware. You can use off-the-shelf mechatronics to solve a lot of these problems. Our beer factories and our Frito-Lays factories are great examples of solving a very hard food manufacturing problem effortlessly because we’ve removed a lot of the constraints that exist there. My personal taste is in looking at spaces where the constraints of the built environment make it nearly impossible to use off-the-shelf mechatronic solutions that compel us to use a combination of what we call robotics. Whether it’s robot arms or more complicated actuators and a lot of intelligence — computer vision, machine learning nonlinear control.

I think those are the spaces that lie at the intersection of things that are very valuable because no one has a solution for it and things that are fundamentally going to get better. Our compute is always fundamentally going to get better. So, I think to answer your question of like hardware versus software, there are many problems that can be solved using just hardware. But I think I gravitate towards problems, which are much, much harder to solve, either constraint wise or from a value proposition point of view, with off-the-shelf mechatronic solutions.

Aseem: That’s very cool. A slightly related question. There’s always this concern around safety, robotic operation, like human in the loop. You know, what happens when a robotic system like Tesla goes off the road and what’s the correction mechanism. I know Sidd, last time we chatted, you had a really cool posture on how you think about humans in the loop. I remember distinctly your comment about these things will fail. We know that they would fail as we are building and getting better. How should you design for that?

Sidd: First of all, I do agree that safety is a requirement. It’s not a nice to have, it’s a must-have. I think also that we have to assume that robots will fail. I always believe that it’s not the happy path. It’s not the YouTube video that you should be looking at. You should just be looking at all the times that the robot fails, right — the unhappy path. And I think that humans also have perceptions of robot capability based on happy path that they see. I think as an analogy if an alien being watched YouTube videos of 7- to 10-year-old children, they would think that their virtuoso pianists, incredible gymnasts, amazing singers, the best at math — can recite thousands of digits of Pi because they don’t see the unhappy path. Which is they’re running around kicking and screaming most of the time. I think it’s the same with robots, right? I think when people look at videos of robots, what they see is the happy path of robotics.

A lot of what I do is anticipate what the unhappy path will be and address it. This is actually hard because sometimes your robot doesn’t know when something goes wrong. This happens commonly, you know, the robot fails to grab something, and it doesn’t know that it’s failed to grab something.

So, there’s an observability question of we need to make sure that the robot knows that something has gone wrong. I think the second piece is around creating exception paths, such that you can gracefully fail. In most situations, you can gracefully fail. There are a lot of opportunities for correction, particularly if you own the full stack. A lot of the design engineering that is needed is to make sure that we are able to identify what the exception paths are and handle them. Actually, if you watch a high-speed video of yourself grabbing a coffee mug, you’ll notice that you’re just fumbling all the time. You’re failing and failing, and then grabbing the coffee mug. But all of that happens in less than 10 to 15 milliseconds. So being able to react to these in an elegant way is important.

In terms of human in the loop. One of the things that I believe strongly in is to be able to leverage human feedback whenever and wherever possible. You always want to build systems where you can either offline or even online annotate data, annotate the robot, such that it’s able to learn from its experiences as well as it’s able to learn from human supervision. I think that we have a lot of tools available now that help us do that. We have the ability to capture large amounts of data. We have the ability to send that data to annotators who are able to annotate it for us. I think that’s, to me, being able to build continual learning algorithms and being able to formalize that is a way to capture human insight without necessarily having to rely fully on it.

Sabrina: That’s fascinating. I’d love to pivot a little bit and have you tell us about your journey at Berkshire Grey? You were one of the first founders of the company, and now they are one of the leaders in providing robotic picking and packing technology used by companies like Target and FedEx. Can you tell us a little bit about how that came to fruition? What were the challenges you saw in the industry at the time? And I would love to learn a little bit more about your experience, scaling the business and ultimately making a bet on the future.

Sidd: I still have such warm feelings about my time at Berkshire. I really loved it. It coincided with my daughter being born. So, it was pretty epic time for us as a family. I see my daughter grow —she’s seven years old now. I can tell how old Berkshire Grey is based on how much Sameera has grown. Obviously, full credit goes to a lot of people. I’m just one of the people who is part of this journey.

But I think the central thesis was always this idea of being able to build a full robotic stack for automation. One of the things that we had observed was that there were some really amazing companies that were out there, but they were providing a Lego block that would attempt to fit itself into a giant jigsaw puzzle. Like Saying, “Hey, I have a nice picking system, or I have a nice system that can move a tote from one place to another.” You realize very quickly that to integrate a picking system with a very complicated warehouse management system that has so many inputs and so many outputs is much harder than building the picking system itself. Even if you have the best picking system in the world, your ability to integrate it with even one integrator is very hard and to think about like having to integrate with 10 or 20 of them, right? Those kinds of businesses were failing. Not because they didn’t have a beautiful, perfectly crafted Lego block, but it’s because it didn’t fit in the house. It was too much work to make it fit in the house. You have to take the house apart and put it back together. The sort of central pieces of Berkshire Grey was, give us an empty space. As an input, trucks come in and as an output, packages come out and, we won’t tell you what’s in this empty space and you don’t tell us how to control that empty space. It was a huge bet for us to think about automation that way. Because we had to believe that people would give us this empty lot. It’s a huge investment on people to give us this empty lot, but the positives were that we could fill this empty lot with whatever we wanted — people, robots, anything — and we controlled the entire experience. That was what we really sought to do. I must say, initially a large part of it was not automated, but still, the input-output relationships were maintained. I think over time as more and more maturity came about — and obviously, since I left Berkshire Grey, they’ve become even more mature on everything that they’ve been doing. I think you fill out more and more pieces of this Lego house, but you control everything that happens in there. So, I think that was a big learning for me. I think another learning is also that you know, when we were four people each one of us had to write code, talk to vendors, be a program manager, weld robots. I really enjoyed that. I really enjoyed that because I just love building robots. As the company grew to like 100 and then 200 people, I think we had to organize ourselves into various roles. A lot of fun too, but fun and a different way and potentially needed a different set of people. Obviously, I’ve done a few things since Berkshire Grey, and I realized that it’s almost like shedding skin. You have to have one skin and then you molt, and you shed that skin and then a new skin comes about. And you have to just accept that the people who were part of the original skin may not necessarily be the ones who are ready for the next one. The one after that. Some people might grow into those roles and those opportunities. But I think just acceptance of that was valuable.

I think another lesson that I learned was customers don’t want to tell you anything. This is incredibly frustrating for us because we just wanted to know what actually they wanted to solve.

If we knew what they wanted to solve, we could do it, but it took us a material amount of time before we earned sort of their trust for them to be able to open the door more and more. I think that was really interesting for us.

Sabrina: That’s awesome. I hadn’t heard that story before. You know, from your experience at Berkshire Grey, and as you mentioned, you’ve now worked with a lot of earlier stage companies and ideas since then, curious to hear what mistakes you’ve seen, people make along the way, and any advice that you have for new founders as they think about their journey in robotics.

Sidd: Oh, boy, I haven’t made a lot of mistakes. So, I think that in some ways the scars that we have are what help us not make those same mistakes again. I think that’s probably the only value that I provide is that I’ve made more mistakes in robotics than other people. So, I cannot just tell you what not to do. I think it’s really important to carefully think about what your minimum lovable product is. I cannot stress how important that is. I think that people fall in love with a certain way of doing something or fall in love with a certain piece of technology, and they forget that in the end it has to be valued and loved by your actual end customer. This was, frankly, a big struggle for me too because I’ve been building robots for so long that I have a way of building robots. I have to unthink that sometimes, because I don’t want to be stuck in that same rut. I think the other thing is that a lot of people who want to build robots come from software or AI or machine learning and forget about, or at least don’t have enough scars from, just long lead times for getting anything. I was actually just talking to somebody who is fascinated by how hard it was to do integration testing in robotics. They were telling me, “Oh, you know, with software, you just click this button and then you can run a, you know, integration tests on everything. How do you do that with hardware?” I was like, “Nope. It can’t be done.” You have to actually have a QA team that goes out and does these tests for you? You have to pay them a fairly significant amount of money to go do that and that takes a significant amount of effort.

So, I think there are certain mental models when you’re only building software that you need to undo yourself of. That said, there are other people who will only build hardware who want to build robots? You know, they build amazing, beautiful hardware systems and there too, there’s a failing because you believe that everything can be done with hardware ingenuity. Whereas, you know, I keep telling them, computers are free and instead of building a mechatronic way of, let’s say isolating a part, “Hey, just put a camera there and then it’ll tell you where it is”.

So, I think that robotics is a funny space, which requires you to know both hardware and software, and I think my advice would be make sure that you have enough people in the room who have enough scars of making enough mistakes in hardware and software and have the nuance to be able to.

Lead them to do the right thing. I think that’s been the biggest learning for me.

Aseem: Yeah, very profound. It’s almost like go hire the people who make mistakes so that the robots don’t make the mistakes. It’s amazing what we take away from this conversation. Hey, Sidd, I know that the only thing between you and dinner is us and ever since you mentioned samosas, I’m envisioning, you’re going to go off to a room it’s a Bat Cave in your house, you’re going to press a button and the robot is going to start frying a samosa.

Thank you so much for making time. I think there’s a lot of aspiring founders that we’ve talked to who are deeply interested in, you know, very passionate about this space and I’m sure they will take a lot away from this conversation. So, thanks for spending the time and thanks to those of you who tuned in.

Sidd: Thank you.

Coral: Thanks for joining us for this week’s episode of Founded and Funded. If you’re interested in learning more about Madrona’s investments in the robotics space, you can check out the show notes for Aseem and Sabrina’s contact information. Thanks again for joining us and tune in, in a couple of weeks, for our next episode of Founded and Funded with Snorkel’s Alex Ratner.

We just wrapped our 2022 annual meeting, which we were able to have in person for the first time in three years. Madrona has worked with many of our investors for well over a decade, and they span all types of foundations, universities, pension funds, and family offices.

The annual meeting, with about 150 attendees this year, was a much-needed dose of human connection that reminded many Madrona investors why they got into this business in the first place — people and more specifically — great founders. During the day’s events, the audience heard about Madrona’s results, of course, but the stars of the show were the founders and leaders at our companies — and we took the opportunity to check in with them on this week’s episode of Founded and Funded.

Full Transcript – This transcript was automatically generated and edited for clarity.

Welcome to Founded and Funded. This is Coral Garnick Ducken Digital Editor with Madrona Venture Group. We just wrapped our 2022 annual meeting, which we were able to have in person for the first time in three years. Madrona has worked with many of our investors for well over a decade, and they span all types of foundations, universities, pension funds, and family offices.

The 2022 annual meeting, with about 150 attendees this year, was a much-needed dose of human connection that reminded many Madrona investors why they got into this business in the first place — people and more specifically — great founders. During the day’s events, the audience heard about Madrona’s results, of course, but the stars of the show were the founders and leaders at our companies. I thought it would be a great opportunity to check in with some of them on the challenges they face last year and how they were able to overcome these challenges. And we spoke about what they’re focusing on in 2022. And here at Madrona, we’re always looking for and working with new founders. So, I asked them for a piece of advice, they’d share with someone just setting out.

Clari

One of the first companies to present during our 2022 annual meeting this year was Clari. Co-founder and CEO Andy Byrne updated us on his enterprise SAS company that arms chief revenue officers with artificial intelligence that allows them to drive more revenue and boost the predictability and accuracy of their forecasts. And while growth is certainly on the agenda for him in 2022, and he has a plan focusing on expanding value for customers, Andy recognizes that 2021 had some growing pains because of the massive growth the company saw in direct response to the COVID 19 pandemic. Companies wanted visibility into their forecast and pipelines more than ever, and Clari had just the tool. But being ready for that growth and required scale at the flip of a switch is not easy, Andy said

Andy: A lot of things broke, and we had to go about moving from what I would call scrappy startup point solving to scalable machine actual system solving. And that’s really a different mindset shift as you get into the level of scale that we’ve experienced. That was probably our biggest challenge. And the graduation from that sort of scrappy startup to machine actual has been really a joy to experience.

Booster

Coral: Frank Mycroft co-founder and CEO of Booster faced another sort of transition in 2021. Not only did the transition from 2020 to 2021 mean another year of unexpected pandemic restrictions and working in a mostly virtual environment for his team, which is re-inventing cleaner fuel delivery services. But he also had a new addition to the family. The birth of his third child came mid-year. While it was a bit more challenging than he remembered. He said it gave him some new perspective.

Frank: I was expecting the baby, I was not expecting how difficult newborns are. They’re really not self-sufficient, are they? And I had forgotten that. I felt like 2021 was a year where it was easy to have short attention spans. And it was easy to have group think because everybody was reading the same things and on the same Zoom calls. So being very intentional about saying no to things you didn’t want to do and carving out time to be intentional first-principles thinking on your own was really important.

CommerceIQ

Coral: Another company that was very intentional in 2021 was CommerceIQ run by founder and CEO Guru Hariharan. Commerce IQ is an intelligent commerce platform that helps consumer brands like Colgate, Nestle and Kimberly Clark grow their e-commerce business. The company had growth goals, but because the platform is only appropriate for certain verticals, identifying expansion, targets was becoming difficult. But by asking hard questions and digging in, the company is better for it. And it actually just announced a $115 million funding round at an over billion-dollar valuation.

Guru: We had to do some introspection in terms of how we land and expand how we provide more value. We had to go back and do some soul searching. The way we did that was actually going back and asking our customers how they thought this market was going to be evolving over the next few years. And they told us “Look, point solutions are not going to work for us. I don’t expect in the year 2025 or 2030 to wake up to say, ‘I’m going to be looking at a supply chain system, taking an Excel file from there and pushing it out into a retail media system, taking an Excel file, from there and pushing into a promotion or a sales management system.’” They told us that point solutions are not going to work. But at the end of the day, we were a point solution at that point. It pushed us to sort of take a step back and really create the right vision for the company.

This is one of those where just using customer interviews, and the ability to work with customers in a way that we understand their problem, but we were not necessarily listening for solutions from them. So, we understood the problem that point solutions was not going to work. We connected the dots and we said, well, we need to then create a platform. And we went back with a vision that was fleshed out, and we showed it to them, and they said, this is perfect. So, our big learning was going back to the roots and trying to understand from a customer perspective what were the key problem areas, and then going back and actually creating some solutioning around it and then creating the vision for the company. It was a phenomenal experience. And frankly, that was one of the key reasons why we were able to raise a billion-dollar valuation round, because now we are making some significant waves by showing that vision to our customers and to the market.

Rec Room

Coral: It was really fun talking with Rec Room CEO Nick Fajt during our 2022 annual meeting. Rec Room, of course, is the virtual reality world where you can create and play games with your friends. And the metaverse is a huge topic of conversation with Facebook changing its name and both Mark Zuckerberg and Satya Nadella not being able to go through an earnings call without saying the word more than a couple of dozen times each, but Nick launched his company a few years before the pandemic hit, and since December 2020, when Madrona led the series C round, Rec Room has raised $265 million and has millions of player-created rooms. Usage also took off during the pandemic and has continued to grow. Coming out of the pandemic, Nick says he is focused on three big pillars for Rec Room.

Nick: The first is user generated content. Everything in Rec Room is built by players, and we’re constantly looking at ways we can improve the tooling and help people build whatever’s in their imagination. The second area we focus on pretty deeply is building a fun and welcoming community for everyone — what are the ways that we can use our unique reach and our unique platform to help people connect across geographies and across time to make those meaningful connections, make meaningful new friends and make memories with those folks. And then the last area we talk a lot about is being a radically cross-platform app. It’s really something that helps both the user-generated content because it means you can create content on any device and it will go to every device, and it means your devices can get out of the way for the social and the community aspect. For most technology, you really don’t want to connect your device to your friend’s device, you want to connect with your friend. So we take this radically cross-platform approach so we can help people connect regardless of what device they have. So, we’ll be coming to some new and exciting and unannounced devices later this year.

SeekOut

Coral: One of the most recent Seattle-based portfolio companies to land unicorn status is SeekOut following its $115 million funding round. Companies are all facing the great resignations, so recruiting and talent retention are top priorities. SeekOut’s intelligent application pulls data from across myriad sources to find companies the best and most diverse candidates. As SeekOut co-founder and head of product John Tippett looks to 2022, he said the company is focused on scaling and applying its considerable success in recruiting to building the tools needed for internal employee engagement and retention as well. I’ll let John explain.

John: The biggest thing we’re focused on as a company at SeekOut is scale. How do we provide more capabilities to more customers, so they can be more efficient and more effective with their talent as we get into this new world of work? So we’re building out all of our teams and we’re building on new capabilities. One of the things we’re also focused on is how can we turn all the things that we’ve done for recruiting new people into a company to helping you retain, engage and grow your internal employees. And I’ll give you an example of how we got to this. SeekOut’s passive sourcing product has the ability to look at talent insights about any talent pool. So, you could say, what do we know about accountants in Chicago? And when we show that to customers, they say, “this is amazing data — I wish we had the same kind of data for our own employees.” And it’s really based on that insight, we decided we could do this around talent insights for companies so that they could optimize where they’re investing, who they’re hiring, even where they’re building new offices when they eventually get back to that.

A-Alpha Bio

Coral: One of Madrona’s investment themes in recent years has been the intersection of innovation. And at this year’s meeting, we heard from David Younger at A-Alpha bio and Jesse Salk from TwinStrand. And of course, we also had the distinct pleasure of having Dr. David Baker from the Institute of Protein Design give the keynote address during the event. The opportunities coming out of combining the power of data and computer science with life science research seem almost endless. And Dr. Baker actually mentioned during his address that the students in his lab used to want to all become professors, and now they almost all want to start their own companies. So, the opportunity for madrona to help founders fund and build up companies in the space will hopefully be plentiful.

David youngers company, A-Alpha Bio actually spun out of Dr. Baker’s lab. The company combines high throughput, synthetic biology with machine learning to dramatically accelerate the discovery and optimization of lifesaving therapeutics by focusing on antibodies and molecular glues. I will let him tell you in his own words, what they’ll be focusing on for the rest of the year.

David: So, antibodies are protein therapeutic, so they’re made of protein and they function by sticking to other proteins. A-Alpha Bio is the protein, protein interaction company. So antibodies are right up our alley. Everything about them is protein, protein interaction. And so, in that space in 2022, we’re doing a lot of work to build and optimize our own internal antibody library and really go through the workflow of discovering novel antibodies for targets that are otherwise very, very challenging to find the right antibody properties for. So that’s a combination of partnering with leading pharmaceutical companies in the antibody space and also doing some of our own internal antibody discovery and optimization to build our own proprietary pipeline.

In the molecular glue space — molecular glues are small molecules, but they function by bringing together by essentially gluing together two proteins that wouldn’t otherwise interact. And this is an incredibly exciting and relatively new therapeutic modality. And what A-Alpha Bio is able to do very uniquely in this space is identify targets that are suitable for molecular glues. And so, we’ve started to do that with partners. Late last year we announced a partnership with Kymera Therapeutics, who’s one of the leaders in this field, but we’re also starting to build out our own internal capabilities to start programs of our own. So that’s a major initiative for 2022. And then all of this kind of falls under the umbrella of generating a lot of data that we can use to train and validate our machine learning models.

TwinStrand

Coral: Another company with a lot of data and the potential to impact a lot of us profoundly is TwinStrand Biosciences led by founder and CEO Jesse Salk. TwinStrand’s technology is working to utilize informatics to make existing genome sequencers 10,000 times more accurate so scientists and doctors can see subtle changes in DNA that are not only relevant to basic science but particularly to cancer patients. But launching its first product into a pandemic was not the ideal scenario. So, Jessie is looking forward to seeing what the company can do with restrictions lifted.

Jesse: We are really looking to get out in the field, work with more customers, work with more of our clinical and research partners, go to more meetings and generally get an opportunity to spread our wings and use all the sophisticated infrastructure we’ve built the last two years while we’ve been a bit stuck at home. This is my first company — I’m a trained scientist and a physician. So, this is my first time doing this, so it’s been a little bit, challenging to be operating with so many different variables, but I think we’ve done Pretty well. And, you know, part of our technology is about, high accuracy, high sensitivity, and understanding evolution of cancer and cancer cells and so we think we also need to be able to evolve and we’ve done a pretty good job.

Advice

Coral: I promise advice from founders who spoke at our 2022 annual meeting. And I’m going to start here with Jesse because while his may seem straightforward, I think it’s something people often forget.

Jesse: I think you need to have some humility — be very open with what you’re good at and what you’re not good at and what you need to learn, be willing to recognize that there are many colleagues around you who know where you are and are a few years beyond you and are willing to give advice. I learned a lot, and I had tons of support from Madrona, from our other investors, from colleagues and CEOs of other companies. And, just be very comfortable with who you really are and take stock and use others as resources. And I think I’ve tried, to give back and kind of do the same thing because there are certain things, that are not rocket science, but it’s just, you know, you’ve got to learn it and there’s no reason to make everybody reinvent the wheel.

Coral: Next. We have Clari CEO Andy Byrne.

Andy: Take your idea, get with three to five customers that believe in your idea and your vision that they just fundamentally say, “You build that and I will figure out how to get it into my company, and we’ll try to use it and together let’s go build something great.” And that entrepreneur needs to identify who those early adopters are and then you’ve got to go find the person inside that company that’s also saying, “I’m willing to take a risk. I’m willing to turn it on and be a champion internally for you.” So you find those three to five and then you partner together and you co-design and you never, ever, ever give up. And you listen incredibly carefully not with happy ears, with ears that are like, well, if the customer says, “Oh, I would love you to build that.” You need to say, “Well, hold on. Why?”
“Well, because we might use it.”
“Well, why would you use it?”
“Well, because we…”
“Well, why is that valuable?”
And you get down to the depth of knowing, okay, this is actually something that I can monetize. And if you do that level of work of identifying the logos, getting the people in those accounts — three to five of them — and have all this tenacity and the ability to MVP and exceed the customer’s expectation with a product that blows them away that they got earlier than they thought they would. Then you start to get momentum off of your base foundation of customers that become your key marquees that allow you to then build on top of that foundation and start growing incrementally to your next handful of milestones. So that would be my advice to a young entrepreneur who’s starting out and never, ever, ever give up.

Coral: Finally, I’ll leave you with advice from Booster CEO Frank Mycroft.

Frank: You got to sell the product first before it even exists. Take that time you would’ve spent developing it and get out to your customers. Go talk to them even better. When we were starting out, we lived, we literally lived and worked in offices right next to our first customers. You’ll iterate so fast on the idea and you’ll save yourself so much time. And when you finally get to the build part, try to build on the riskiest thing. First, this is not easy for an early entrepreneur. You want to work on what you’re comfortable with, what you know, really what. But if you want to really win, I think you’ve got to figure out the scariest thing, and go work on that first, because if it doesn’t work, you’ll be grateful. You didn’t waste a lot of years doing other stuff before you figured that out.

Coral: Thank you for listening to this special episode of Founded and Funded. Tune in next time, as we launch a series spotlighting our IA 40 winners.

In this episode of Founded and Funded, Madrona Managing Director Matt McIlwain and Partner Aseem Datar sit down with Qumulo CEO Bill Richter to talk about developing meaningful partnerships. Madrona was an early investor in Qumulo when it launched in 2012, and the company recently partnered with Microsoft to launch Qumulo on Azure as a Service. Startups often partner with large enterprise companies to accelerate growth, but there are benefits to both parties, and in this episode, we take a look at it from both perspectives.

Transcript below

Welcome to Founded and Funded. I’m Coral Garnick Ducken, the new Digital Editor for Madrona Venture Group. And in this week’s episode, Madrona Managing Director Matt McIlwain and partner Aseem Datar sit down with Qumulo CEO Bill Richter.

Bill is no stranger to Madrona bringing 20 years of technology experience to the team when he joined as one of our Venture Partners. Madrona also invested in Isilon back in 2001, and Bill was the CFO when that company went public in 2006 through its $2.5 billion sale to EMC four years later.

Then, of course, Madrona was also an early investor in Qumulo when it launched in 2012. In simple terms — if we can talk about the cloud and data storage simply, Qumulo is a cloud-based data management platform that gives companies more flexibility when it comes to storing, managing, and running massive unstructured data workers.

The company, of course, partners with Microsoft Azure, which is what sparked the idea for the conversation on partnerships today. Yes — we’re talking about partnerships. They are often thought of as an important tool to scale from a startup into a growth phase company and then onto becoming fully mature.

But why partner? What are the actual benefits? And when you do partner, how do you make it work and leverage that partnership to truly bring value to your customers. These are the questions that Bill and Aseem, who was previously an Azure executive, are going to break down for us today.

So, let’s kick it off.

 

Matt: Thanks everybody for joining us for this Madrona podcast. I am Matt McIlwain and one of the managing directors at Madrona, I am just delighted to have one of my fellow partners Aseem Datar here with me as well as CEO Bill Richter of Qumulo. And what’s fun about this conversation is that we’re going to be able to look at.

How companies partner with large enterprises with large platforms and, look at that journey from a couple of perspectives. let me start with Bill. And I think there’s a more abstract question here to ask, which is, why does a rapidly growing private company want a partner? What are the benefits of that to you? Vis-a-vis going directly to market with customers.

Bill: Hey, Matt, for you and the Madrona gang, and Aseem, I just want to say it’s absolutely great to be here with you. I’ve had the distinct pleasure of being able to work across four or five companies now with the Madrona community and it is just, it’s been an outstanding experience.

Okay. For your question, why do it? That’s a great place to start. Look, I think in any successful startup or growth-stage company, like Qumulo, focus is everything. And we constantly ask ourself this question over and over again, inside the company: what are the one, or very small number of things, that we’re going to do better than anybody else in the world. And I think that’s a very wise strategy. The other side of it though, is if you’re doing one, two or three things extremely well, that implies that there are dozens, if not hundreds of other things that you don’t do. And by being able to partner and complement best-in-class capability with somebody else’s portfolio in service of customers, it’s a very sort of simple and sound strategy.

Bill: And that’s really where the notion of partnering comes in for us.

Matt: So within the context of your strategic focus, are there ways to get leverage out of partnering with others – that’s leverage that is mutually beneficial?

Bill: That’s right. Leverage is a great way of expressing the kind of business element of this. And that’s something that’s obviously important. And um, I say customer leverage like customer value leverage. So, we have customers — nearly a thousand that know and rely on us for a very specific set of capabilities and helping them manage their unstructured data at scale. They know that they can rely on us as incredibly powerful, reliable, and capable, and then they have all sorts of other things. They want to be able to create more and more connections with their applications. They want users to be able to harness that information more readily and rapidly. They want to be able to use the environment of their choice. And that’s, I think we’ll get into Azure a little bit later, but a lot of our customers have made the decision to standardize on Azure.

And so, when you think about those things, the discreet capabilities that those customers want, and then the power of choice, freedom, and flexibility to run their applications, where they want. That’s a very powerful value proposition for customers. And then if you take the power of that value prop for customers and work backward to a partnership, things make a lot more sense to both sides, much more quickly.

Matt: Yeah, that customer centricity, I think, we’ll keep coming back in, in our conversation, but Aseem, when you had your Microsoft hat on for many years and you were working with third parties outside of Microsoft, why partner from that perspective? What were the goals of a big company around partnering with other software companies?

Aseem: Yeah, it’s a great question. And I think Bill alluded to some of it, which is, it starts with the customer, so I won’t repeat that point in terms of deriving customer value, but I think two things are super critical. One is, in general, Microsoft has always been a platform-centric company — like the companies built platforms. If you go all the way back to the Windows days, and even with Azure, like it’s a horizontal platform. And from a customer standpoint, platforms are great. But you also need solutions on top of the platform. And that’s when the focus that Bill talked about, that Qumulo delivers combined with the power of the platform will complete the solution in that particular scenario.

And while platforms get bigger and richer, the value that somebody like Qumulo provides is completing the solution, getting deeper and deeper into those verticals. And doing, you know, not just based on the value prop, but also last mile, you know, excellence that creates value for customers.

The second part of that is scale. Microsoft operates at a lot of verticals, a lot of customers and while I think somebody like Qumulo starts off with a deep focus, Microsoft, as a company also sees varieties of those applications applied in different industries.

And so, to be able to use the power of the field, the power of the sellers, the power to transcend industries is what gets you massive scale. So, Bill and team can focus on building great product, and Microsoft can work with them hand-in-hand to go achieve that scale once a flywheel is established.

Matt: That’s really helpful. And maybe we can jump into this actually, Bill, before we get to Azure. Let’s talk about one of your other prior partners. One of the very unique and differentiated things around Qumulo is that it’s a software-only solution that scales across any type of hardware.

Whether it’s a box or a cloud, and a lot of your customers even still today prefer to have their implementations in the private cloud. And so that took you down a path of partnering with some hardware companies. Tell us a little about that.

Bill: Yeah, sure. And this was one of those things that just happened. It started with an individual customer. I’ll tell you a story. We had a customer — it was a well-known animation studio in Los Angeles. One that makes many of the movies that we all enjoy, and they became enamored with our technology. They tested. They loved our software and then they told us, “Hey, Qumulo, we actually have a private cloud agreement with HPE. (Hewlett-Packard Enterprise) That’s the standard that we’ve chosen for our private cloud.” And actually, they put it to us. They said, look, you’re a software-defined. That’s why we bought you. Now. We want you to deploy on HPE. Now what a great way to start a conversation off with HPE. Where one of their large global customers is saying, “Hey, I like you and I like them. I want you to work together.” I will tell you that experience cuts through so many barriers that might entail a partner program and a step-by-step process because it gets the attention and the emotion of senior executives on both sides.

And so we started with that customer. It was an easy certification for us. That’s the value and the power of our software. They deployed it. And then we worked backward from there to start asking, hey, this use case is now established. There are so many other customers, like Aseem mentioned the notion of a flywheel, and that’s what everybody’s looking for in these partnerships. And we began to dominate that vertical of media and entertainment. And then very quickly after we started stacking up the adjacent verticals where we really serve customers, places like life sciences and healthcare organizations and oil and gas companies and research centers.

That was about four or five years ago. If you fast forward today, that is an at-scale partnership that’s been enormously successful for Qumulo. It’s enormously successful for HPE and both sides would say, Hey, we’re just getting started. And maybe one last point, and then I’ll pause is just the strategic fit.

Bill: HP is a great brand. It’s legendary in Silicon Valley. In fact, many would attribute it to starting Silicon Valley. But what they didn’t have is a scalable, unstructured data service, like Qumulo, and they recognize that. And what we didn’t have is global scale with tens of thousands of customers in every country around the world.

And so, you put one and one together and it really does make 11 rather than one and a half or two and a half. And I think that’s the secret to our success.

Matt: Let me pick up on two things there. One is this idea that the partner has something complementary to you and in this case, not only a complementary go-to-market organization, but also an international one, I’d love you to speak a little bit to that, that the leverage that gave you in the company and working with HPE from an international perspective Well, I’ll start there.

Bill: Working with any large organization, the power of their geographic presence is enormous. We have Qumulo deployed today in something like 50 countries around the world, all the big ones that you’d expect, all the major economies, but also some of the smaller ones all across South America, all across Asia into Africa.

And then of course, with a lot of concentration in the economic centers, that’s incredibly difficult for an emerging company to do on its own. And also, not just the logistics of it servicing customers around the world, but the brand recognition. If you’re way out and Chile or South Africa or in Taiwan the brand recognition of a global company, whether it’s Microsoft or HPE or some of the others really matters to those companies, it gives them a sense of trust.

The flip side of it, is you sort of think like, well, what’s in it for the big company or what’s in it for the platform player. I think it’s a real disappointment for customers if they’ve adopted a platform player, even the biggest companies on Earth, and then they get the feeling that they’re in a walled garden and the only services or products that are available to them are branded by that company.

Bill: Because they know that there’s going to be parts of that stack that are either missing or very underdeveloped. And so, it’s the open organizations the ones that open up their platforms and let customers know, hey, when you come here, you’re either going to get the best product that we’ve created that leads the category, or very easily, you’re going to be able to adopt other technologies that are best in their space. And you’ll never have a walled-garden experience. I think that’s very powerful, and we’ve seen that certainly with our partnership with Azure and some of the others as well.

Matt: No, I think that’s really well framed. And the other dimension here is the time and timing. You said, hey, look, we’re four to five years into this HPE partnership. It’s now really at scale. And I think sometimes it’s hard for younger companies to know that something’s going to take, two to three years, let alone two to three months to build out. These partnerships do take time. So, I’d love to hear When are these companies far enough along that they’re ready to actually work with a platform player.

Bill: Look, there’s a, there’s a sine curve of emotions when you’re developing these partnerships. There’s the excitement of getting the attention of a larger company in the early work people strategize together and see the opportunity. There’s a dip somewhere along the way where you realize, hey, there’s some really hard integration work to do or figuring things out there’s commercial agreements and stuff like that, that um, is hard work but necessary.

But then, the real thing that has to happen is you have to find your first customer. One is the hardest one to get. But one makes three and three makes nine and nine make a hundred.

And there is an element of being steadfast about recognizing the strategy, knowing it’s going to take time, knowing it does start with one. And being able to create some repeatability there because especially for a larger company the first thing that their fields will ask is, hey, how many of these have we sold? Or how many customers have we made successful? And so, every incremental win together makes that easier. And then the flip side of that is the early wins are the hardest.

Aseem: My perspective on this is I think it really comes down to two buckets. And I think the first bucket is what gets the technology companies and platform providers interested. And I think it starts with incremental value that you can go create for your customers.

Like the solution that you have as a platform and the solution that in this case Qumulo brings — can that create incremental value for customers that then creates differentiation in market. So, I think, the question that a platform provider would ask is, so why does Qumulo plus Microsoft make it better than any other solution in the market?

And is that something that’s long enduring and can that continue to provide customers the value that they need over time, and can it only grow? So, I think that addresses. The why question? And can we go tackle these white spaces? Which gets everybody interested. And then the how and what of that is really around what I call the Happy Meal Litmus test. Which is, do we have five happy customers using the product day in and day out? And it’s hard to get the first five. And, as much as people think that Microsoft is a very, orchestrated big ship, you know, my boss used to say it the best, which is it’s a bunch of mini canoes all going in the same direction. And to align all those things from the outside in is incredibly hard, but nothing gets the attention more than customer demand and customer usage. And if you’ve gotten a path to get five happy customers on the platform you start to identify all these friction points as companies partner, and then it’s a matter of like, how do you smooth these out over time, one by one. And then the sixth gets easier. The seventh gets easier and then very quickly everybody including engineering, product, go-to-market, sales, like these things start to sing in, in one integrated fashion. And that’s when I think the flywheel gets established.

Matt: Well, That’s I think really helpful, strategically, conceptually. I’ve heard you both talk a lot about, bringing the customers. Bill. Maybe you can talk us through now bringing us forward into the Qumulo, Azure partnership and some of the early days of getting that partnership going and finding that first customer.

Bill: I guess the first thing to talk about is just to spend a little time on the tech. Qumulo has built the world’s most powerful software defined, scalable, unstructured, and file data management service. And what all that translates to for our customers is they have petabyte-scale environments with millions or billions of pieces of unstructured data. It could be a genetic sequence. It could be a radiological record. It could be a PDF document, but they’re at scale. And those customers derive value by being able to consolidate that information into a single place and then be able to reason over it.

And the at-scale part is really hard. In fact, we just won our 35th patent last month as we’ve built this technology. And when you look through the Microsoft catalog, there’s obviously Azure has an enormously powerful services, but in this section, they were missing something. And so, by working together and being able to help customers build these environments in Azure, it’s really win-win-win. Azure will end up allowing a customer to get more out of their services and deploy more applications, more thoughtfully and more rapidly. Qumulo wins for obvious reasons that for us, it’s a SaaS service sale. And these customers, it’s a real problem for them that we solve together. And before we embarked on this partnership, you can imagine that we spent a lot of time interviewing our customers about what they were trying to achieve, particularly in the public clouds. How they wanted to do it, how they wanted to consume our software and then we got a lot of advice from Microsoft as well. Like, Hey, what have other partners done? How has it been successful? What are the pitfalls? And we took all that aggregated knowledge together, and as Aseem said, you always have to start with one. And um, know our first one was one just within the last six months. And when we explained to the customer Hey, what can we offer you together? They jumped on top of it, and that one lights up the imagination of the Microsoft field in our field.

Bill: And we’re able to go to customers that are like for like, and solve that same problem for them. And then the flywheel has begun. That’s a little bit of the journey. And again, it starts with technology and maybe a better way to put that is the unique value on the problem that you’re solving and who solves what problem and who doesn’t. And then that forms the framework for what I’d say is a healthy partnership.

Aseem: If I might add to that. The other nuance to consider is that the first couple of customers you get are more product-led sales versus go-to-market motions. And I remember the engineering team in Azure, leaning into partner with Bill, as we talked to, I think it was Casepoint if I remember right. Leaning in and saying, look what must be true and what must we do in order to make the product deployment super successful for Cause on Azure. And I think that’s an important nuance to call out because the go-to-market, the sales motions are not established because they’re not there.

And so engineering leading in, making sure that, you’re around 24/7 in a services world to make it successful, to get mission critical applications on the platform. It is really the first, I would say P Zero step to success. Once you’ve got that nailed down, then I think, you know that you’ve got a product that works.

And then I think things follow on the go-to-market and the sales side and the partner programs kick in. But that, that I think mindset of product-led sales is important to begin with.

Matt: Yeah, I agree. I agree with that. Go ahead Bill.

Bill: I was just going to jump in because I don’t want to lose this point here. It’s super important and it is a nuance. Aseem is right. We spent a lot of time with really great product folks and engineers inside the Azure organization. And that’s where it should start. If you haven’t solved it there, then it the solution probably won’t get off the ground.

What I learned along the way is that to know the difference between a product sale and a field-led sale and know where you are, as Aseems’ pointing out in that journey, because, the, I think the failure mode here that ought to be avoided is sort of assuming that since you’ve solved the product part this equation with the products in an engineering organization that, “automagically,” the field will know what to do And so there is a sort of a transitional period where you have to move you maintain and continue to invest in your product relationships with these organizations and then know that there’s more work to be done and really accessing, and frankly, making it’s brain dead simple for the field to be able to bring to their customers if it’s even remotely complex, most fields will stay away from it.

Matt: Aseem, you, you’ve got a wealth of experience in these areas, helping, outside companies navigate Azure. What are your perspectives on these topics?

Aseem: Yeah. Great. Going back to that model of, I think once you’ve gotten your first five, I’d entertain that next step and say, okay, you’ve gotten the crawl now let’s get the walk. And how do you go from five to a hundred? And in that sense, I think it’s important to probably pick a few industries to target. And like Bill mentioned, make it super easy to succeed in that industry and you probably have some proof points for the first five, right? So, let’s pick media and entertainment as an example that Bill, you were on, and say, okay, great. Now let’s make every seller in the field, who is a media seller, equipped with what they need to go sell. And it includes battle cards, compete cards, and really compelling case studies of others in the industry like you use Qumulo and here’s why they found success and here’s how it was successful. So that way you start to nail that industry and it’s almost like you’ve got to establish your birthright in that industry and say, Hey if this is an industry that I’m going after, I won’t fail. And every opportunity will be Qumulo plus Microsoft opportunity. So once you’ve established those set of hundred customers, then I think you can say, okay, what are the adjacent industries that are then easier to go into, so then you’ll go from a hundred to the next hundred and beyond.

There is an interesting element here on, even within the hundred, as you’re chasing those, given that these are highly involved technical sales, you’ve got to bet a little bit on the sellers who are very tech savvy, who are forward-leaning and who want to take a long-term bet. Which is not just how do I meet my quota in a quarter, it’s almost like, how do I make my year? Which is, you know, the next year and the year after that. So, I think a colleague of mine put it very well when I was at Microsoft — you’ve got to bet on the heroes. And I think you’ve got to curate the global black belts, as we would call it within Microsoft, which is an elite group of sellers who would be incentivized to not just sell, but also make sure that the deployment is done and there’s high amount of customer satisfaction. So, you’re shepherding, not just the sale, but also the customer experience.

Matt: I love the bet on the heroes, and I think you’re right. Finding these champions that not only are aware of this better solution, but they really want to deliver differentiated value to their end-user customer. And they’re technically savvy enough and they listen to their customer enough to want to be the hero on solving a problem better than they can solve it. Otherwise, which gets into an interesting question, and this kind of issue varies from partner to partner, but oftentimes, certainly in the case of the cloud service providers, they also have their own first-party solution that’s similar to your third-party solution. So, Bill, I think that’s probably an area that you’ve had to wrestle with before. I know that we’ve had across a bunch of our portfolio companies, including the likes of the Snowflakes and Amperities but how has that journey been for Qumulo?

What lessons do you have that you’ve learned there?

Bill: If you put yourself in a customer’s shoes and there is a first-party service that meets your needs and it’s great. And it’s owned by the platform player, you should have a working assumption that will continue. And look, we do everything in service of customers and if I were them, I would probably do the same thing. That’s the easy button. So, understanding that to start off with, I think is really helpful. I meet a lot of fellow CEOs that are like, Hey, why isn’t the cloud provider selling my stuff more — they ought to do that for me. And maybe they should, but that’s just not realistic. So, the approach that we’ve always taken is, Hey, I have to be 10 times better from a starting point against whatever sort of neighboring first-party service might exist. And then I have to continue to be better. And that kind of mentality will solve a customer’s problem in a unique way that’s powerful for them — meaningful for them — and it will enable the platform player to want to take you seriously and move forward with you. I’ll sum that up, have to be wide-eyed, you have to start with the customer, and you frankly just have to be fundamentally better.

One of the things that Qumulo offers is cross-environment capabilities. You can run Qumulo on Azure. You can run it on AWS. You can run it on GCP and you can run it in your private cloud. That’s just a capability that any first-party service cannot offer and that’s strategic for customers and it’s powerful.

Matt: Yeah, that’s a really great point. One of the things sometimes the earlier stage. Get a little bit frustrated with and caught up in is you referenced certifications before and becoming a pro in the preferred program and complying with a whole bunch.

Kind of rules and at some level I think we all get this that, the big companies need to know and be able to be competent in the third-party solutions are recommending. But sometimes that feels like a little bit, being lost in the desert a bit for a while before you’re seeing any of the fruits of your labor in terms of customer wins.

Bill, can you speak a little bit.

Bill: Yeah, and this is I think a really good topic. It’s something that we’ve learned a lot about as we’ve done this over the years. Putting myself in the shoes of the platform player. You’re lending your brand to a smaller company, and you want to have some level of credibility that you’ve vetted it and that you’re willing to put your customers on it, so I completely understand the notions of the certification programs. The other thing is for the big platform companies, there’s hundreds or thousands of ecosystem partners and they need some way to scale that organization or scale those interactions. So, it’s all understandable. I think the mistake is to believe that all those enabling steps are results. The results will come from the customers. And so, if you go through the. 15 step process, and then you’re done. And then you wake up one morning and go, okay, now, great. Where’s all the sales.

I think you’ll wake up very unhappy that day. If you deploy some amount of resource to make sure that you’re partnering well and working with these platform players and the way that they like to work with, but at the same time, making sure that your organization knows their job is to add value to customers and win customers, hearts, and minds.

That is really the best practice, so ones necessary, but not sufficient. And you really have to do both.

Matt: I think we’re getting a little bit more now into some of the, the nuts and. I’m curious in order to build beyond the necessary pieces, the programs and stuff. What’s the cadence and the resources that you would recommend, it doesn’t strike me it’s enough just to have a quarterly business review between the CEO of the company and some key partner leader at the other company, there’s got to be more resources and weekly daily activity going on in the field.

Bill: Hey, Aseem. I’d love to hear jump on this one.

Aseem: I can’t answer the resourcing question, Bill, that’s you, but to the stage of engagement, especially when you’re trying to get your first couple of customers or your first five, I think quarterly is not enough because what typically happens is both teams get together, they decide on some activity, people go and work on their own and they come back in, in quarter and realize, Oh we’ve barely made any progress, even though they’ve been at it. I think, to the extent of setting mini-milestones in saying, Hey, what needs to happen in six weeks, and treating it as a sprint is something that’s really been worthwhile. And what I’ve seen work in really successful cases where you’ve got a customer, you’ve got a three-way essentially between the customer, the company like Qumulo and Microsoft. Because then all three parties are equally involved in all three parties want to make it successful. That’s the recipe for success. And I think faster turns to get to outcome. Is where I would put my bed on versus a quarter cadence. I think once you graduate from first customer to fifth, yeah, you can go to the quarter, but I think the first two or three, like it’s gotta be like a 6-week type of sprint.

Bill: Yeah. I agree with that. I, I would just say in general more is better. You have big company and small company. And one of the expectations of a big company, they know that they might be slow because it’s, there’s a lot of people and organizations to manage. And so on. The expectation is the small company would be fast. That’s one of the reasons why I think some of these larger companies like partnering they learn from startups about how fast things can get done. But that also implies, as the emerging growth company, you have to live up to that you have to be fast. And by the way, our cadence is more like weekly with our partners, if not more frequently. And the idea is to be incredibly responsive as Aseem said, have a lot of turns really quickly because that’s what generates momentum. The thing I wouldn’t do is defer to the larger partner, just simply run at their cadence because they have a lot going on. And um, you know, you might find that in the conversations with them, they’re like, geez, you’re slow. And you’re like, no, I’m working at your cadence. And they go, that’s what I mean.

Matt: well, hey, let me, just really briefly touch on. To two topics that kind of come from the same thing, but from different angles, which is the, how do you approach getting to the contract and the economic alignments in these partnerships, which sometimes feels like it drags on forever. But then conversely, how do you build genuine people-based trust relationships, which I think is the more enduring thing cause inevitably, both sides of these partnering relationships are going to have moments where they surprise and exceed expectations, and there’s going to be disappointments and falling short of expectations.

Bill: Oh boy. Yeah. At least in the first point we, that’s probably another podcast, but look, it’s hard. The large organization has really long contracts that are very often, to Aseem’s point, not Built in is bespoke way. In other words, you look at the contract, you’re like this isn’t even written for me. And so that takes a fair bit of work. At some point, there is some element of holding your nose and, making sure that you’ve protected your organization, but moving on, which is I’d say some science and a lot of art and maybe even some legal fees.

I did model my daughter’s cell phone contract — my personal contract with my daughter about how much he cell phone, using one of these.

It was very one-sided, and I modeled it off of one of these contracts, not actually from Azure, but somebody else. But maybe more importantly on the other point around. Building trust in these relationships because you’re right, Matt. You hope for there to be nothing but a lot of success, but you also have to figure in day-to-day life something, at some point it goes wrong. and I would just say the single most important thing is transparency. It will be okay if you communicate well and you’re transparent, you do the right things. I, my sense is that any organization has seen plenty of challenges and know that you can work through them as long as you’re both sides are being transparent. Where it really breaks down is if somebody is worried about scaring somebody and, tries to sweep something under the rug that almost never ends well. So, if I had one word, it would be transparency.

Aseem: Yeah, I echo that, and we used to call it, embrace the red internally, which means that look, if you’re embracing it, you can own it. The only way to go is up. And, we have this notion around let’s not have watermelon metrics, where they look green on the outside, everything is great, but you ask two questions and it’s remaining red

Matt: Great. Well, hey, this has been fantastic. I really want to thank Bill and Aseem a lot of great nuggets of insights there. And I hope that this is helpful for other folks as they’re looking to partner with the big cloud service providers and other partners in the innovation ecosystem.

Matt: Thanks again, guys.

In this episode of Founded and Funded, partner Aseem Datar sits down with co-founder of Spiceai.io to talk about the power of building tools for developers, the difficulty of integrate AI (SpiceAI is making this easier for developers) and moving from a big company to building a startup.

Transcript below

Welcome to founded and funded, I’m Erika Shaffer from Madrona Venture Group. Today, partner Aseem Datar, sits down with founder Luke Kim of Spice AI. Spice is a new startup focused on helping developers integrate AI into their applications. The founders Luke and Phillip LeBlanc recognized that in order to integrate AI, developers need data engineers which is a high bar for startups, so they set out to build tools to alleviate this requirement.

The first implementation of Spice is focused on their blockchain data platform. This public platform, enables developers to access Ethereum and smart-contract datasets, like Uniswap, across real-time and historical data with a single SQL query.

Spice plans to extend the platform to other blockchains, like Bitcoin and Binance Smart Chain (BSC), and to traditional time-series datasets. It will be available in beta next month.

Aseem and Luke dive into the power of building tools for developers. They talk about the transition from working at a well established company to building a startup and the different skills that are necessary to make that successful and how AI is something developers want to leverage to build intelligent applications – but it’s not easy.

You can learn more at Spiceai.io

Aseem: Hey, Luke. Thank you so much for joining us today. I’m really excited to have you here and get the opportunity to chat.

Luke: Thanks, the same. It’s also good to be here. Yeah, I appreciate the warm welcome.

Aseem: Awesome. Awesome. What part of the world are you at?

Luke: I’m in Seoul, South Korea. And yeah, fun fact about me. The first thing a lot of people ask me about is my accent. I was born in Korea, but I grew up in Australia and spent most of my childhood and University there. And then came over to the U.S. about 12 years ago, spent the last 11 years working out of Seattle for Microsoft, which is of course where we first met.

Aseem: Yeah. It’s amazing that I was just recollecting and counting backwards. I think we’ve known each other for over 10 years now, which is amazing, and I think in cloud world, its dog years, so it’s a great to be reconnected.

I’d love for our listeners to know a little bit more about your background. How the journey at Microsoft? What did you do at Microsoft and what team you’re on? Any exciting projects you worked on? So, it would be great to start there.

Luke: Yeah. For sure. As I mentioned as that 12 years at Microsoft. Even before that, I had done internship and I was part of the student program. But in the last two years, I was in the office of the Azure CTO reporting to Mark Russinovich, which there which is just an amazing experience. I got to build an incubator there where we worked on a whole bunch of interesting projects.

Some have been released. Most of them were open source and some have yet to still be. Just an amazing opportunity. You got to work with people across Azure, the industry, a bunch of customers, and what comes from cool stuff. So, three years before that worked with Nat Friedman, who just stepped down as the CEO of GitHub, and built a bunch of the services and infrastructure behind both GitHub and GitHub actions. Along with a product that we had called AppCenter, which helps develop his build and operate mobile app mobile applications. And yeah, so most of my career been building tools and services to help developers build software be more productive.

Aseem: Well, that’s amazing. I think what a stellar career at Microsoft, working on two big products, of course, GitHub and then Azure. Tell us a little bit more about, what excites you. I know you talked a lot about like working with developers but give us a little bit more color on what is the exciting part, tell us a little bit more on the project you work at Microsoft.

Luke: Yeah, for sure. There are two things that come to mind. When I think about developers in kind of that track, I just think that it’s an amazing way to scale. If you think about the leverage that you have, you can, if you’re a developer, you can build an application. You could build that overnight, and that could affect millions of people, right?

That is there’s very few other places in the world where you could spend a week building something and affect so many people’s lives. I think. Now if you take building tools and services for developers to help them do that, you almost get this double leverage. I just think that’s an amazing way to contribute back to the world.

That kind of leads into the second thing, which excites me is, I think at some point we’re all asking the question, like how can we contribute back to the world? How can we contribute to people? For me this like amazing set of leverage through helping develop is help other people. I’ve been privileged enough to be in my career at Microsoft in positions where I’ve been able to do that and lead teams and build teams. I was literally hired out of a university as a grad hire. It was probably just a year into my career. I was working on visual studio, and I was working on the debugger like some deep level stuff. At the time we were just transitioning to Windows. And that’s a new architecture. So, we didn’t have the tools to write that software productively.

Those are set of tools called ‘system internals’. That helps you do diagnostics and write software. Mark Russinovich at the time, he had just had his company acquired by Microsoft, a technical fellow who had helped write the tools. I was like this grad hire and I was struggling with writing the software.

And so, I emailed him, and I said, “Hey, Mark, are these tools available for this new architecture? Because it would really help us run the software.” He replied, “No, sorry.” But it turns out that I was a little bit bolder and so I replied, and I said, “Hey, if they’re not available, would you be willing to give me the source code? And I will go and convert them and put them over to this new architecture, because it would really help me out my job.” And he said, “that’s an interesting idea.”

At the time, only just a couple of people in the company had access to the source code. So, he emailed me back. There was no Git at that time. So, he literally emailed me, “see files” and I started doing this port and I would email them back to him. I did a couple of tools and within about six months, a bunch of people across the company were using these tools to build windows.

That’s how we first got to know each other. From that point on, I was working. This is internal source for the rest of my career. For like the next 10 years, I was like a pseudo developer or manager for these insistent tools.

Yeah.

Aseem: How wonderful and I think it’s amazing to be a part of such a large enterprise yet have the personalization and the drive. Two things that you said stood out for me. One was the ability for you to work on scale projects. You talked about the two for one kind of thing. When you build tools for developers and when developers build solutions for the world, you get the double benefit and the second thing, which you also highlighted, right? Finding these white spaces, right? These spaces of opportunity that can then be converted into products that many people can use, which is the example that you cited working on working with Mark. So, coming back to what we were talking about, you had a wonderful journey at Microsoft and a wonderful career. You’re moving mountains. Tell us a little bit about this thing called DAPR that you worked on, where we’d love to understand what that was and how that has bearing into what you’re doing today.

Luke: When I first went and joined Mark’s team I said, “what should it work?” And he’s like, “well, there’s a couple of people in my team. They’ve been looking at this runtime that helps develop is build distributed applications.” Because as we’ve moved to the cloud and not just the cloud, but the cloud and edge, these applications have become more and more complex.

So now before you had an application, which was just on a single machine, 10 years ago, now you’re dealing with all these distributed pieces across the different servers, different infrastructure. How can we make that even easier and benefit developers so they can just focus on their business application?

What DAPR does, is it abstracts away a lot of the complexity. So, if you just need storage key value, you instead of going and having to, not only choose a technology if they must choose Reddis or Cosmos or some other store, but I can also just use a simple abstraction over HTTP rest APIs to store my state and focus on my application.

That’s what DAPR does, it provides a whole bunch of these building blocks in terms of state. It has Pubsub, it has Secrets Management, it has a whole bunch of these like basic things that you need to build a distributed application. It lets you just focus on building an application and not doing all the distributed systems behind the scenes.

At the beginning it was called Codename Actions. They’d spent maybe I think, two months on it at the time. I came in and we built an entire team around that and built up this project and released it probably within the first three months.

So, we released like a private preview of it. There’s a whole bunch of lessons from that, one of the things was that it was radical, it seems basic right now, but it was a radical idea when we first did it. We got a lot of pushbacks both internally and across the, I wouldn’t say necessarily across the industry, but a lot of developers ask, like why do we need this?

We just pushed through; we keep kept working on it. After about two years, when we developed it out, we had so many people come back and some of those same people are like, why do we need this? To say, this is a savior. This helps us be so much more productive.

I think as a founder you always go through these moments at the start where you’re doing something just a little bit crazy, just a little bit out there. A little bit beyond what people have as their normal mindset. And you’ve got to be able to see the vision and push through that.

What I say to some of the guys on my team, though, at the very start, they were getting a bit down because, they’re getting not as much of the attraction that they thought they were going to get. Look, I said to them, this seems like a crazy idea now, but wait, in two years’ time, some of these people will be telling us that it was their idea all along.

It was just so funny. Like two years after that we had people come back and say this was like our idea like we believed in this from the start. People will come around. If you truly have something. Yeah, I’ll say, in terms of the fanboy movement, was you just think this is just a small open-source project, but I had the opportunity to be in a Satya a staff meeting, and Satya knew about DAPR and he was supportive of the project. That was just super cool. Like we were part of these massive organization. I think it was like 140,000 people at Microsoft. Yet Saatchi, like he knew about DAPR. He knew how it worked and he knew how it makes life better for developers.

We were able to present that to him. One of my fanboy moments was, I was able to debate with him how we could make applications better in a staff meeting. So yeah, I thought it was cool.

Aseem: No, that’s awesome. I remember being in that meeting and I remember the red side but that’s a story for another day. Hey, as you, one thing I think our listeners would love to hear from you is, a great time at Microsoft. You’re on a meteoric rise as far as career is concerned, but then I think eight months ago you left to go build this thing called Spice. ai. Tell us a little bit about like, how you thought of the opportunity? What you’re seeing in the world.

What are the challenges that developers face today? You talked about building applications for the future, which is a theme. We call it as ‘intelligent applications’ over here at Madrona and we have a thesis around it. We’d love to hear from you on your, in your own words, on what challenges are you seeing today? What are the core value prop that you’re building forward and how do you expect to change developers’ lives in the future?

Luke: Yeah, that’s it. There’s a lot. That is a great question. In terms of transitioning from a big company to do a startup, it’s a journey, right? If you’re in a big company it’s, especially today in tech, it’s such, I think a great opportunity to you. You have the ability, have all these resources at your disposal to really go make a massive impact. Of course, you also have a bunch of the safety and security in terms of just regular paycheck and all that goes along with that. Stepping out into going and doing like into a bunch of ambiguity, a bunch of unknown, and doing something really takes I think, you to be intentional and make a choice about what direction you want to go in your life.

Coming back to what I said about this stuff, to me, you get to a point in your life where you want to decide, like how you want to contribute to the world. For me, I always knew, I had done some stuff like a long time ago, 12 to 13 years ago. I knew for me that the way I wanted to contribute back to the world is in like leaps of innovation, like in ways where we can really move the needle.

To me that was like doing a startup and doing my thing. Honestly, there was a lot of fear that we had to work through to get there. There’s a great book. It’s called Feel the Fear and Do It Anyway. That was the theme. It was like, yeah, it’s scary. At some point you got to choose how you want to contribute.

For me that was leaving the safety net of a big company and going, doing. Yeah, if you can find people to go do it with, I think there’s also something special about the start of a startup. I’ve heard this before in that it only ever happens once.

Like you can never go back and redo like the startup something, it’s like the start. And I think experiences are also even better when they’re shared. If you can go find a couple of your friends or a couple of people that you really respect, you can go and do that style of this startup and do it together and have a lot of fun. I think everyone should experience in my opinion, at some point in their life.

Aseem: That’s great. I’m going to, I’m going to bookmark that reference to that book and make sure I read it. But more importantly, I think what you said is as along the lines of finding your own tribe, right? Like finding the people that you deeply respect that you’ve worked with in the past and who would be allies in going and solving those tough challenges. So, coming to understanding the developer space like a space that, we’ve looked at from close quarters, both at our time at Microsoft and even now, like what challenges are you seeing in the ecosystem? How is Spice. ai positioned to think about solving those. Maybe I think I know the story, but it would be great to learn about how the idea came to you what you experienced in your time and how did you formulate this thinking around building Spice .ai?

Luke: Yeah. So, in terms of in intelligent, like you mentioned intelligent applications and you have a whole thesis around that. Well, it all really ties together with developers. I think there’s going to be a few challenges going forward. One I think a lot of people in the tech space already know, there’s just so much demand for skills. I think it was even back like 2018. I remember Saatchi, one of the conferences saying that more developers were hired outside the tech industry then within the industry. So, people who are lucky in banking or insurance or whatever, there’s more developers outside. That was just a, it was like an ‘aha’ moment to me, an amazing a statistic because if you follow that to directory, then this is going to be more and more demand for software, more and more demand for developers.

If we are going to meet that demand in the world, to make all the software and to make all these applications that people need. Then we’re going to need help to build software. To me, what I saw or both at Microsoft and across the industry, and in my own side projects, that it’s still too hard. One, I think to really be productive and build a software. But also, if you think about that demand for software, we’re going to need help. What I believe is that help can come from AI because AI is not a magic bullet.

It’s not like some magical thing that’s going to solve their problems, but what it does do, and it does do well, is it helps. It basically you write a program that runs program for you, right? So, like you could take a hundred developers in 50 years and do like a whole bunch of image processing and just normal code.

Or you could build an AI model that will go and write that code for you. So, what I believe as a thesis going forward is that intelligent applications are not just going to be a nice to have but are going to be required. It’s going to be a necessity in the next 5 to 10 years to not only compete, but just meet the demand of how much software that we need. Because we’ll use AI to help build software as developers, it’s still too hard to leverage AI, to help build applications and help you build a better application faster.

It’s really the thesis of the company. We want us to go out and solve that problem and solve that gap. It’s honestly a difficult problem to solve, but if we can help developers build better applications faster using AI, then I think it’s going to not only help developers but help us thrive in kind of this world going forward.

Aseem: That’s amazing. Look, and I think we share that worldview. Making lives easier by, by being able to create software at a faster pace. That’s more intelligent and that can self-sustain to a certain extent. I think one of the things that you said that’s most interesting is how you get the scale effect, right? If you’re able to empower developers, then you’re helping them write software faster, which means that you’re getting to the meat of the problem and the solutions faster in whatever industry. There’s a saying where every company is a software company and I see that true more and more in today’s day and age, especially because of distributed computing, because now you have access to all these tools, memory, compute, storage that otherwise you would you’d be hard pressed to get. So that’s a big point of view that I wanted to highlight.

Luke: It’s just like one anecdote on that in terms of scale, like we saw his company and they had spent three years building this algorithm to basically do routing on the edge. Then after the three years, someone came along and said, “Hey, I wonder what would, happen? Just as an idea, what would happen if we tried goodie and our AI model to see if we could do this right. Could we get Cyprus?” They spent like three months on that AI model, and they got better performance. They got like a ten for one scale by applying AI to the solution. Now, of course, like I said, AI is not a magic bullet, but it gives you an idea of just how much faster you can develop some things then just a traditional approach.

Aseem: Yeah, that’s cool. I think that sort of ROI is amazing from a developer point of view and who wouldn’t want that. So, following up on the Spice .ai conversation, tell us a little bit about, potential customers you’re talking to, any lessons learned so far, and maybe just give us a little flavor of the use cases that you guys are finding interesting, especially with Spice .ai at this early milestone.

Luke: Yeah. So, with this Spice the idea behind it was to help developers build these intelligent applications, not just do AI. I think there’s a ton of AI companies out there and we’ve made a ton of progress. But if we can use some of the techniques that we’ve really matured as an industry of the last 10 years, things like I really felt, Dev Loop, we live preview, so the idea is can we take some of these things and help develop is built in an intelligent application, faster, better.

If you think about, what you would do as an intelligent application, like what is the intelligence? For us, it boiled down to basically a decision engine as the main core thesis. If you think about what you’d want an AI to do in your application.

Well, we think it’s to help make decisions. If you think about a couple of use cases around that, we had a food delivery application and Uber Eats and they basically had to, when they got an order, they must decide about what delivery driver to route that order to, like what’s going to be the best. What’s going to get it to the fastest. That’s a decision. When they first started, they just use people, they just hired people. They would get orders and route it to people. Route it to these drivers. If you could take a decision engine and put that there, you can get the order, have AI decide fast, which is the best way.

There are so many different cases like that that you can choose. Everything from even just like retail trading, these days really took off with the things like Robinhood. But deciding like what stock to buy. That’s a decision, right? We had a case around, retail shops where you order online, and you pick up in store. Well, what store do you want to pick up that item from?

Right often it’s not actually the store that’s closest to you. And so, it’s a decision. What we started to really realize is there’s a lot of interesting cases where you can build an application where you’re making these intelligent decisions. We started really working on that, but of course, as a startup, you must really focus and where we started a small team, three people. What we found is there’s quite a lot of interesting use cases right now in the FinTech space. You can imagine there’s also a lot of decisions to be made. So not only just like trading decisions, but for example these days especially in the blockchain space, distributed finance there’s many different exchanges that you could, send your order to.

That’s a decision, right? What exchange is the best exchange throughout my order through. So, there’s quite a lot of different cases around this.

I think going forward into the future, especially around like web three, if you have things like, well, should I interact with this person or not? Does this new token, is this going to be a scam or not? And that’s really what we’re going after right now.

Aseem: Yeah, that’s amazing. I think the way I’m thinking of it is you’re really building out an intelligence platform or a decision engine that can have vetted applications all the way from FinTech to retail. Shopping to food delivery. It’s amazing that, so much of these decisions in the future can be thought of as intelligent and automated, which then saves, whole lot of logic writing as well as like individual point solutions. Which is what, what makes it very exciting. I’m privileged on behalf of Madrona to be a part of this journey with Spice.

So, thank you for that. We couldn’t be more excited to see these come to life soon. One of the shifts gears a little bit, Luke, and talk a little bit about, the journey of the startup and as you’re going through building Spice .ai, like how are you thinking about, building a team? Are you thinking about, any early lessons that you’ve seen and learned so far, that would be good to share with the people?

Luke: Oh, so many. One thing, I think just coming from big company to a startup, that a lesson that we learned, it’s a completely different mindset. So, what makes you successful in a big company often is the ability to be very responsive and very reactive, right? So, a problem comes along, and you go back and solve it, right?

We must respond to this thing in the market, then you go solve it and you can have a lot of success that way. Often the opposite, you must go make things happen. Customers don’t come to you, like you’d go out and make them. In fact, we hired an AI ML engineer. One of our first hires, the way that we found him is I literally went through Reddit posts, and I looked at people who had posted good analysis of deep learning frameworks at the time in the area that we were looking at.

I was like, this guy is he’s obviously written some really good content. I just DM’ed him. You’ve got to as a start, just go out and chase down these opportunities and make things happen. So, I think as a startup founder, that’s one thing that you really must switch your mindset from.

From having stuff come back for you, these opportunities show up and just going in and making things happen, chasing us down. So, we started really building this thing in July last year. When we first started, we knew this general thing that we wanted to help developers, but we had no idea how at all, like we literally had no idea.

So, we started 1st of July, by the end of July, we’d build a prototype. We just liked different ideas and we started showing that prototype around. We didn’t expect to do any funding or early raising at all. We thought we’d probably go for a year before we would have to, or even want to do that.

But we shared around and gelled with different people. We were excited, we have some awesome investors on board. People like Mark, for example. Nat Friedman as well as on board. Thomas Dohmke, the current CEO of GitHub, and these guys all really believe in the same philosophy, which is help developers help people. To what happened was in terms of the fundraising journey, people started asking to invest in. Once they saw this thing and so we decided to do a very small pre-seed round in about July/August and that I’d never raised before. Like I did everything from scratch.

Go find people who are like one or two steps ahead of you. So, we were like doing a pre-state. So, we found people in the seed round and a series A round. Who’d just been through that. Cause obviously things change and got advice for them. So, I have a good friend whose David Siegel, who’s a CEO of Glide Apps, which is like a No Code App platform solution. He’s two steps ahead. In between a seed round at the time. So, he gave me so much advice on how to do it. So as a founder, go find these people to do that. The second thing is, really lean on like a lot of VCs that are investors will come to you and say, look, how can I help?

Take that help, lean on it. So, with Madrona early on and with you, Aseem, it was the same. Also, Tim there at Madrona were just so amazing. So how can I help? And I just leaned, I said, look, this is all the ways you could help.

We need help hiring. We need help figuring out like this direction. We want to decide here and how should I also think about fundraising? Like how much money should I raise, for example. I think that support even for when we first did our PR and the kind of announcement about our raise. Madrona did so much help.

I had no idea how to do a PR thing. I had done some PR at Microsoft, but we had a team. The way I did PR at Microsoft was I go to the PR team and work through them. Madrona really helped us do that. So overall, it’s just it’s been a really been an awesome partnership together.

We have, I think, 33 investors all up and we fit them all into this small 1 million rounds. We were offered a whole bunch more money, but we turned it away because we really wanted to focus on solidifying what we’re building first, before we took a whole bunch of money. I would say, there’s a whole range of people who get really involved and help you out and people who, I’ll give you my money and you go, you run with it type thing.

So out of those 33 investors, I think Madrona just helped us out a ton and it’s clear to see who’s on point and on their game. Tim and you, Aseem, have really helped. So, thank you.

Aseem: I couldn’t be more thankful, thanks for the warm words, Luke. But I do think that you’re right about, it takes a village to go create something amazing and I’m so pumped to be a part of the journey. I’m positive that, we do build something amazing and you’re already on the journey. You’re two steps ahead in your own words on this journey. So, it’s amazing to see the progress that you’ve achieved in shadow such a short amount of time.

One last question before we let you go is, what’s your take on the Seattle ecosystem? We’ve talked a lot about the last 10 years, the growth that Seattle has seen, the Northwest is experienced with, the Amazon, the Microsoft, the Google, being in the backyard and becomes the cloud capital of the world. How are you thinking about hiring? How do you think about adding talent? Then any comments or observations of the Seattle ecosystem.

Luke: Yeah. I often think we tend, I’m not sure it was also developed is like this, but we tend to think things in like binary, like it’s this all bad. To me, I often look to think about things in hands, not ours. To me in terms of a lot of the world going to remote, I think that there’s benefits, obviously, remote there’s also benefits of coming together. I believe, Brian Armstrong from Coinbase has written about this quite a lot, it’s in terms of his transition from going to a remote first company. In that the reality is the chances of getting top talent.

The chances are that they’re going to be within, a 15-mile radius or whatever of your HQ is obviously very low, not true. So, if you want top talent, you’re going to have to go chase them around, chase them down across the world. At the same time, there’s a huge amount of benefit to like human connection, and really being together in the same place. I think there’s so much innovation and creativity. I think we’re moving to a world where you must chase down talent, wherever it is, and enable remote work at the same time, have opportunities for people to get together. So that might be like offsites, coming together once a quarter, meeting people in different places. In terms of this yellow tech ecosystem, I totally believe that it’s cloud capital.

If you want to, if you’re in distributed systems. Also, AI. There’s a whole bunch of AI stuff that happens in Seattle. So, if you’re anywhere in that space, in Seattle, it’s a great hub to do that. So, it’s like you have remote teams, but you also bring them together. I think Seattle is an awesome place to bring your team together. Also connect with other people in that ecosystem that really has deep experience in both cloud and AI.

Aseem: So cool. So cool. The way you think about it. I think what’s mostly energizing is there’s distributed systems, there’s distributed development, and now there’s distributed teams. So, you, I think you summarized it well. Talent first, and I think everything else follows, which is a great mantra to live by.

Hey, I’m so excited to have heard from you and, being a part of the Spice journey obviously, people know where to get ahold of you. I know, you’re hiding in the area and beyond, to anybody who wants to reach out to Spice. I think the best way would be to communicate with you and fill that.

Luke: Yeah, absolutely. So, if you just go to Spice ai.io/team. Sorry, slash career, that is careers. That’s where you can see our job postings. You can also just grab us on Twitter, LinkedIn, all the usual places as well. Yeah, so Phillip and I co-founders, you can search us out.

We have a tech crunch article out there, which also gives a little bit of background on what we’re doing as well. Just search for Spice .ai on Tech Crunch.

Aseem: Awesome. Hey Luke, it’s been an absolute pleasure talking with you and we’ll look, I know, you release updates about Spice on GitHub and that’s another place where developers can go to check you out and see the progress you’ve made. We’ll look forward to continued dialogue with you soon. Hoping to see more awesome news from Spice shortly.

Luke: Yeah, absolutely. Yeah. So, our project, the underlying engine we really believe is build up with the community. We are developers. So, it’s all opensource. You can go grab it, all free, and you can run it yourself. One thing, I just want to encourage founders as a last note is, if you take that story from the start where I was a grad hire, there was a technical fellow, you don’t often like just go email these people. I’ve emailed Saatchi before I’ve emailed all these people. Like I would say, as a founder, you’ve got to go do those things and don’t be afraid, be bold, right? So, if you must go email like a CEO, you must go reach out to somebody, go do that. I really encourage you to go make things happen. Don’t be afraid to be rejected or whatever it is, even if you think you don’t, you’ve got no writer to do this because of your position or whatever, just go after it.

If you email someone like you could lead into a great, like for me and Mark, led into 10 years of development together. Yeah. I just encourage you to go through those things.

Aseem: Awesome. Wise words, Luke. Thank you so much for making time out of your busy schedule. I know you’ve got a business to go build. Thank you so much for taking time.

Luke: Thanks, the same. It was a pleasure. Thank you.

 

 

 

In this week’s Founded and Funded, Madrona Partner, Chris Picardo, sits down with Terray Therapeutics founders (and brothers), Jacob and Eli Berlin as well as Terray’s lead data scientist, Narbe Mardirossian to talk about the power of bringing together transformational wet lab processes with ML and AI to speed drug development. Terray announced their $60 million Series A which Madrona led (and Chris wrote about here) in February of 2022. Terray Therapeutics brings together novel methods of creating vast amounts of data around small molecule disease targets, and then applies ML and AI to map the interactions between these molecules and the causes of disease. This is a company at the intersection of innovations between life and computer science and this was a great conversation. You can listen below or on any of the podcast platforms.

This transcript was automatically generated and edited for clarity.

Erika Shaffer: Welcome to Founded and Funded I’m Erika Shaffer from Madrona Venture Group. On this week’s Founded and Funded, Madrona Partner, Chris Picardo sits down with the team leading Terray Therapeutics. That is CEO and founder, Jacob Berlin, CFO, COO and founder, Eli Berlin, and Head of Computational and Data Sciences, Narbe Mardirossian.

Madrona first invested in Terray right before the pandemic hit and all business, especially wet labs, shut down. And we are excited to lead their 60 million Series A. Terray Therapeutics brings together novel methods of creating vast amounts of data around small molecule disease targets, and then applies ML and AI to map the interactions between these molecules and the causes of disease.

Based on research from founder, Dr. Jacob Berlin, the company was formed by brothers, Eli and Jacob to bring an interdisciplinary team, that works together to bring life saving new drugs to patients in need. This is one of Madrona’s intersections of innovation companies. And without further ado here is their conversation.

Chris Picardo: We’re thrilled to have the Terray Therapeutics team on the podcast today and also super excited to lead their Series A, having been a big participant in the seed, which all got announced recently and super excited to chat with Jacob, Eli, and Narbe on all things Terray Therapeutics and combining the wet lab with really cutting edge machine learning. So, before we jump into it, I’ll kick it over to Jacob, Eli, and Narbe to quickly introduce themselves.

Jacob Berlin: Thanks so much, Chris, it’s wonderful to be here today. It’s wonderful to be working with you and the team at Madrona and to be building a fabulous company here together. I’m Jacob, I’m the CEO and co-founder here. My background is all in science and chemistry. I started that all the way back in college at Harvard making small molecules and looking for applications to them, how we could make better drugs.

At Caltech, I also worked again on making new molecules. After a postdoc at MIT, I had done a tremendous amount of design and development of molecules, but also recognized that the way we were doing it as a field was slow and pretty hard. We’ll hit those themes a lot today.

I went to do a second postdoc at Rice University. Down there in Houston, I worked on nano materials and trying to ultra-miniaturized things and dramatically speed up how fast we could do things. That’s really where Terray started to come from, I really built it out here at City of Hope, where I was a professor for eight years. My lab there worked at the intersection of nanomaterials and synthetic chemistry. It’s there that we began the process of building the technology that became Terray. Over six and a half years, we built it before spinning out the company and I’m excited to tell you and the listeners all about it throughout the rest of this podcast.

When we launched the company in late 2018 and raised the seed round in early 2019, I left my tenured job to be here full time. Since then, it’s been a tremendous time with an amazing growth throughout the company. We’re seeing fantastic science and outcomes and excited to talk about it today and wonderful to be here.

I’ll turn it over to Narbe and we’ll close with Eli.

Narbe Mardirossian: Hey Chris, it’s great to be here as well. I’m excited to talk to your listeners. My name is Narbe Mardirossian, I’m Head of Computational and Data Sciences, here at Terray. My background is in machine learning and quantum mechanics, quantum chemistry, that’s what I got my PhD in. After I got my PhD, I moved to Amgen working in the therapeutics discovery organization and small molecule discovery on the computational side, of course, working on physics-based models, machine learning models, and moving all of our on-prem compute to the cloud. So I moved here in November of 2020 and have been here ever since.

Eli Berlin: Hey, I’m Eli, the Chief Financial and Operating Officer here at Terray. My background is all in finance. I did 10 years of private equity and growth equity before joining Jacob to co-found this business back in 2018 and I’m super excited to spend the time with you today, Chris. So thanks for doing this.

Chris Picardo: That’s great to have all you guys on, and I’d say it’s been a pretty awesome time already working together. Narbe remember when we hired you and how thrilled everyone was. So that’s exciting now to all get together. Before we dive in, I think it’s just interesting to note that, Madrona first invested into Terray right before COVID hit.

And I remember that round closed and then the world went into lockdown for two years, in some cases it still is. So it’s been a great time working together and I know you guys have had a lot of creative solutions of how to work through COVID and we to hit a bunch of those today.

It’s been amazing to see the progress you’ve made even with a bunch of unforeseen headwinds from the world in the way. So it’s been fun to be along the journey. Before we jump into the detail, I think it’ll be fun, Jacob, just to talk about how you decided to form a company around the academic research.

You’ve been at City of Hope for awhile and you decided to formerly spin it out and bring Eli into the fold. I’d love to know the motivations behind that.

Jacob Berlin: Thanks, Chris. It has been a wonderful journey and it’s always an interesting question. When is something ready to be commercial? Personally I’ve always been really fascinated and driven to have my work have impact on people in their everyday lives. I’ve been fortunate, as I mentioned in my background, that I participated in the development of a catalyst that is used across the world and saw compounds that I made in my first post-doc become part of preclinical drug development, and then had a lot of my work in my second post translate into start ups. So I’ve always had an eye on having my work have a real impact. I think the way to deliver solutions to make people’s lives better is through commercialization.

This is a project that honestly on day one, when we wrote it on the proverbial napkin, we were like, “Wow. This one is obviously a company someday. We’re building a technology that allows us to screen hundreds of millions of molecules in minutes and record their interactions with the causes of disease. Of course this is a drug development technology. That’s what we should use it for. That’s where it goes. This obviously doesn’t belong in academia because academia is not the place to develop a bunch of proprietary IP protected secret items that have to be developed, commercialized, scaled up, manufactured and sold.”

So from day one, I called Eli and was like, “man, this idea is so cool. This is going to be a company.” Eli is my closest friend and also harshest critic. He was like, “that sounds fantastic, Jacob. But does it work?” And I was like, “nah, it doesn’t even exist, but it’s a really cool napkin and we’re going to get after it.” And so my other co-founder Kathleen, who is still leads a lot of our R and D and development here today got going on it. We started working on it at City of Hope. And, as I told Eli, and I’ll tell everyone, science is hard and it takes a lot to make the machine work that we run today.

We spent six and a half years painstakingly developing all of the technology for it. Honestly, all along the way, I’d call Eli to talk about something and he’d be like, “does it work yet?” and year one, it was like “a little bit” year two is “yeah, most of it is looking pretty good.” Year three is “yeah, we’re starting to apply it” and by year six and a half, it was, “yeah, it totally does. We’re ready to roll. it’s reading out your interesting solutions to problems in academia. It’s ready to go provide solutions in the commercial space.” At that moment, we put our heads together and we launched the company, and we haven’t looked back. I think it’s been a fabulous home for the technology.

We’ve scaled tremendously. We’re using it to develop medicines to treat immunology disorders and bring therapeutic benefit to patients. I’ll kick it over to Eli for his side of that journey, but that’s really how it went from idea to company.

Chris Picardo: Yeah. Eli, before you jump in, I’m interested that you and Jacob are brothers. Obviously being the harshest critic is a nice natural role to inhabit. Then, at some point you guys decided to get together and actually build the company and backgrounds are a little bit different from what you’ve done professionally.

So it would be fun just for everyone to hear your perspective on the story and what has been like building the company together with your brother.

Eli Berlin: Absolutely! Look, for me, Terray is an exercise in, if you can’t beat them, join them. I did a decade of private equity and investment banking before co-founding Terray as I mentioned and the sort of short story here is that Jacob’s the smartest person I’ve ever met, and he’s disarming in his humility, and he rarely shows excitement for any of his achievements.

There’s this one time Jacob was in high school. So, I was in the middle school, and he tells my parents that there’s an award ceremony at school that we should go to. So we go, and he’s in like shorts and a t-shirt and it turns out it’s the Year End Academic Awards. And Jacob wins legitimately every single award that is given that night.

And, at one point, they tell him to stop going up to the podium and back to his seat. And, he had presented it to the family, like whatever, no big deal, I would have been like, I would have probably sent out invitations to my extended family. And, so for Jacob to show excitement about something is a really high bar and Terray, as you mentioned, was totally different from the start.

He was excited about it from day one. He used to say to me, we should make this a business. It took them a really long time to get it to a point of maturation where we could make it a business. I just always felt that Terray was an extraordinarily rare opportunity. If you believe that, you live and you die, this was one worth doing.

I believe that Terray deserved to exist as a commercial venture. And that for all the hard work in academia by the founding team and for all the promise, it deserved a chance. I’m convinced now four years in that the opportunity ahead of us is really extraordinary to transform drug discovery at an incredible scale.

So I think, it’s been there just aren’t that many opportunities in your life where you can work on a business with purpose where the end goal is advancing human health, do it with your brother and do it with novel technology. And so it’s been an extraordinary journey. As regards working with Jacob, there’s no, I just don’t think there’s any way to replicate the durable trust that we have being brothers.

It just drives us extraordinary efficiency. He talked about me being his harshest critic. That’s probably true. And I think the level of direct and honest communication that we can have because of that trust is totally unique. I also think, I’m not sure anybody listening to this would know, but we are very different people and have very complimentary skills and very separate responsibilities here at Terray.

That’s worked really nicely with a ton of mutual respect. And look, he’s my brother. So I know that before we go pitch investors in the morning, he should have breakfast and we make sure that’s on the calendar. So you know it runs the gamut.

Jacob Berlin: We are different. If Eli had won those awards in middle school, he probably would have rolled into the awards in a three-piece suit. But everything Eli has said right there is true. The durable trust, ability to build it together and work in complementary areas has tremendously accelerated the growth of Terray. We’re super excited to be here.

Eli Berlin: That’s just for listeners. That was like Jacob’s funniest joke ever. I’m also much funnier as the younger brother. And Chris, to your question, I don’t know, we’ve learned a lot over the years, but I think for me, this has been about confirming the thesis.

Jacob’s really, truly brilliant. He’s a tremendous listener. He’s a great strategic thinker. Terray is really novel and working together with purpose, is just a once in a lifetime opportunity. I can’t say enough good things about the opportunity to be on this journey.

Chris Picardo: I’ll say just for myself, it’s been fun working with everyone. I can second all of those things that you guys have both said minus the stories from high school. I want to ask you Eli one more thing before we jump into the platform, because I do want to talk a lot about the platform and the Teray difference and how we approach the world.

But I think one thing that’s really interesting for everybody in this kind of hybrid space between tech and software and traditional wetlab as teams are coming together, how do you join a company, or in your case, build a company where you might be the one with significantly less of the technical background. It obviously helps to have a brother who’s a world-class scientist and can talk to you about chemistry, but you and I have talked about this a bunch and I’ve seen your learning curve. I’ve had my own of right trying to just ramp up. How do you think about approaching that?

We talked to lots of more, less science-oriented people who’d love to go join a company like Terray, and they’re worried about the science side of it. So, what was your approach to moving up the learning journey there?

Eli Berlin: Yeah, I think there are two answers. I think it’s really hard to join a scientific organization from the outside without a scientific background if you’re trying to diligence the science, right? If you’d asked me four years ago, when we started this. How good was the science on a relative basis?

I would have said I spoke to a few folks, gray haired folks who spent a long time in drug discovery and development. They were excited about it, but I couldn’t underwrite the technology. I think that was a benefit because it gave me the leap of faith that, I just trust that Jacob is brilliant, the science is novel, the IP is there.

And so I do think that’s a hurdle. How do you get around, underwriting the technology as you’re thinking about joining a company? And what I would say is, I think you can learn a lot talking to a handful of folks in industry and get yourself over the hump. I think the second piece of it is, at its core, Chris, the technology is extraordinarily complicated.

When you get down into the technical weeds, which you’ve suffered through in a few board meetings, it is deeply complex, but you don’t need to know that. And I think that’s true of any Company like ours, you don’t need to know much about those details. You need to know about what it can do, the why in the technology. And I think it’s been a steep learning curve, but one that I’ve been being grateful for where. I understand the differentiation. I understand the competitive positioning and I understand the opportunity that’s in front of us. And none of that relies on figuring out the linker strategy for our core platform. That all is just transferable from one industry to the next.

For folks who are first and foremost technologists thinking about crossing over into a biotech business. I think it’s an extremely exciting opportunity. I think it’s one where you can work with purpose to advance human health, which is totally unique and gives every day new meaning.

I think there just shouldn’t be that hurdle, because I think it’s all imminently learnable, even if you don’t have full command of every one of the details.

Chris Picardo: Yeah, that resonates a lot with me personally, certainly on my own learning journey. I’ve felt that in board meetings, as we dive into the details. I think everything you said there is relevant for thinking about these opportunities. It’s also a perfect segue into kind of back to Jacob and Narbe talking about Terray’s approach itself. I think that the first question I want to ask there is, Jacob, when you think about small molecule drug discovery as it’s been traditionally done, give us the 30 second version of that, and then the slightly longer version of why and how Terray really is changing the game on the core platform.

Jacob Berlin: Yeah, thanks, Chris. I think we’ll spare the listener today the full deep dive into the specific chemical reactions and linkers and the chips and all the various technical pieces that make our whole enterprise run. But it is, I think, really important to spend a moment and think through the current canonical, small molecule drug discovery.

Just for context, when we talk about small molecules, we’re really talking about medicines that can be put in pills, taken orally and are convenient. They’re the bulk of what people take as medicines today. When we use the term, we’re separating them from antibody therapies or things like that. But for small molecules, the first problem is always (and, really, for any drug discovery the first problem is) figuring out the problem. So the biologists work really diligently to find the cause of disease.

What could be a protein or an RNA molecule that plays a role in developing this disease or perpetuating this diseas? We call that ‘target ID’, and it’s a target because it’s the thing we want to then go solve and fix. So at that point, you go into the drug development process where you need to now start to find your starting points.

We call these ‘hits’, which are molecules that do something of what you want to do with that target. So your end goal may be to say fully turn that cause of disease off, not change anything else in the body. An example of this end goal might be a drug with very nice safety thresholds that you can take a big pill of. You can, in some ways, think of those as like antibiotics. We all are familiar with taking those giant pills. They kill the antibiotic, the bugs, they don’t hurt you. You get better and feel great.

The question is, how do you get there? And so we get there by starting with these starting points called ‘hits’, and they typically do one of the things you want to do.

They either interact with that cause of disease very strongly. So they go and stick to it. We call it binding. Or they impact some of its behavior, but they may be lacking in some other property that ultimately you need to be able to put it in a pill and take it orally and have it work. Then you hit the phase of drug development we call ‘hit to lead’, where we’re taking these starting points and we’re turning them all the way into basically nearly candidates for giving to people. So we’re optimizing all the other aspects the molecule needs to do. It needs to be able to be taken by mouth. It needs to dissolve, it needs to go into the bloodstream. It needs to get where it needs to go into the cell where it needs to go. It needs to interact with the target where it gets there. There all these layers that you work through as a drug development company. Then ultimately the last stage is of course, ready for clinical testing, which involves manufacturing, reproducibility, toxicity testing, and a larger scale and trying it out in humans.

Today that process is typically quite long. These are often, ten-year plus development timelines, and it’s also really hard. We’ve done great as a human kind improving human health and developing therapies, but there are also thousands and thousands of causes of disease that we don’t know how to fix.

Also countless failures along that road, where only a small fraction of what we try to test on people actually works. There’s huge opportunity to deliver better solutions faster.

Chris Picardo: So that’s the traditional approach, Jacob, and you laid out the timeline and how long it takes. I’d be curious to hear how you reformulated this problem at Terray and how we’re thinking about solving drug discovery in a totally novel way.

Jacob Berlin: We sit at like an amazing moment in time with the revolution in the biology capabilities and the ability to discover these causes of disease. So things you may have seen or heard like Crispr, siRNA and Gene Knockout have just continued to unveil opportunities to create drugs, but the chemistry side hasn’t kept up.

There’s not an ability to look at enough molecules and diverse enough molecules, fast enough to really address that explosion of opportunities and bring those timelines down. And ultimately be able to go from discovery to therapeutic in a much shorter and much more reproducible fashion. That’s really at its core Terray’s bet.

We’ve built technology that lets us actually measure far more molecules than any other technology out there. We can actually go and build the loosely drawn map of chemical space quite quickly at enormous scale. Then I’ll kick it over to Narbe, because the next piece is that even with all of that throughput, even mapping and measuring hundreds of millions of compounds, there’s still an infinite amount of chemistry to go through.

So, filling in more of it and knowing where to go next and taking an efficient route through this infinite space to find the solutions you need, the proverbial needle in the haystack, we turn to AI and ML tools and computational tools that are the right fit for the scale of data we work with, to allow us to make the next set of compounds that go iteratively back and forth from large-scale chemical measurement to computational prediction and back to the wetlab measurement of that.

That’s what lets us really compress the timeline and deliver therapeutics where otherwise, we haven’t historically. So I’ll turn to Narbe to say a few words about that complimentary side, where we used the design to accelerate the wet lab throughput.

Chris Picardo: This is such an interesting point. You’ve told me before drug development, isn’t just an algorithm problem. It’s a data problem. So talk about what you mean by that and how that is actually executed on a day-to-day basis.

Narbe Mardirossian: Drug discovery is both an algorithm problem, and also a data problem. But I think first and foremost, it’s a data problem and probably the best way to motivate this is that, big pharma sits on tremendous sizes of data sets. But what you really need in drug discovery is the iterative capability which Terray has built and is expanding.

I think, a lot of these models that are very novel today, neural networks and beyond like they only work when they have the proper data, proper amount of data, proper amount of clean data to seed it, to feed it. Historically, it doesn’t really matter if you use traditional models such as partial least squares or random forest.

Like all of these are going to perform probably equivalently on datasets of the size of ten or a hundred or a thousand, which is really what you’re looking at for a specific target that you’re trying to drug therapeutically. The promise of Terray is really the ability to generate data quickly, iteratively, and at scale and at the quality that’s needed to power regressors.

That can truly optimize chemical space and to take a step back and hit on why this is such a tremendous problem. It’s truly a needle in a haystack; the size of chemical space is something like 10⁴⁰ or 10⁶⁰. It is a tremendously large space that you’re trying to explore. You really do need the help of these modern machine learning approaches, plus the data that’s fed into them to traverse that space efficiently. If you look at the traditional process in big pharma, it’s always going to be iterative, but you’re generating about 10 to 20 data points a week.

That’s just not enough to be able to power these models that are improving on a daily basis, and you’re improving because the data is being fed into it. So I think it’s certainly both, you need the data. Only with the proper amount high-quality data, will you be able to unleash the algorithms that are present in probably all aspects of our lives today.

Jacob Berlin: Yeah, I think Narbe is spot on there and we’ve seen this opportunity unfolded across so many other industries that I think everyone listening is probably familiar with. What you should get recommended to shop for on the internet, where are you going to go to dinner, and how to get there. What you’re going to watch a Netflix. All of those algorithms probably started out not that accurate, but they all drew on iterative data sources that are enormous, millions and millions of people clicking on things or driving places or buying things or watching things.

So we have that opportunity in drug development as well, if we can provide the data sets. Drug development is an even harder problem than all of those probably. The key is to be able to be a little bit or even a lot bit wrong the first time, but have a dataset then that gets you going back on track fast and to get better each and every round and run those rounds fast enough.

So that’s really where the compression in development is. It’s where the Terray differentiation is that we build and measure large enough that we can get our algorithm going, get the model going, and then rapidly refine it to really incredible accuracy and precision. And that’s the Terray difference.

Chris Picardo: Yeah, this is a point that I’d love to go one layer deeper on, which is that I think another way to frame that is in these broader machine learning problems, Terray closes the loop on the data side. Not only do we create a ton of data, we then test that and model that, and then we can validate it again with actual physical chemical data.

And I go back to Narbe for a second. When you think about that versus maybe the pure algorithmic approaches are purely in silico approaches out there, I looked at, get your perspective on the importance of being able to close the loops on the models and move as quickly as we can on the data side.

Narbe Mardirossian: Yeah, closing the loop is absolutely essential. Honestly it would be any computational chemists or machine learning scientists dream to be able to develop these models, make predictions, and actually see those predictions tested in real life. That is something that’s different from the traditional process, because, you only have so many shots on goal a week and you need to make, 10 or 20 compounds and you don’t really have that opportunity to make millions of compounds literally in a week and test them.

I think absolutely one of the benefits of Terray is the ability to iteratively benchmark and improve the models that we’re building. I’m not talking about only about machine learning models. Machine learning models are great for learning from experimental data, but even physics based models that are very popular these days in computational chemistry and other realms, these can also be improved by learning about how the predictions are right and wrong. So the ability to have this feedback loop is absolutely essential. Truly, I believe that Terray is probably one of the only places where you can actually test and hypothesize and, validate your hypotheses iteratively within weeks or even days.

Chris Picardo: Yeah, the power of the platform is pretty immense. I think one thing I wanted to ask too, and this goes back to the question I asked Eli earlier, say I’m a computational scientist or machine learning engineer, and I’m really curious about either these types of problems or joining a company like Terray.

What makes this data so special, and why would I get so excited about working at Terray and building the models that we’re building?

Narbe Mardirossian: Yeah, I think Terray is an exciting place for a variety of scientists and people with technical backgrounds. I guess, let me start with computational chemists and machine learning engineers — one, I would say the molecular data, we have at Terray both in terms of the quality and the scale is unparalleled.

Nowhere will you find datasets of size 10 million, hundred million. Where you actually have high quality, believable data that you can model. I’d say from, in those disciplines, the ability to model data and use the feedback to improve algorithms consistently, whether they be machine learning based or physics based is it doesn’t exist anywhere else, but, molecular data, isn’t the only type of data that Terray has.

We have tons of opportunities for data scientists. All of our readouts for molecules come essentially from images. Just the path from going from raw images to processed photometries to the output that is then used for hit discovery, and machine learning models and compchem, is full of custom algorithms that we’re developing every day at Terray.

And I think, beyond that for data engineers and software engineers, the amount of data we generate is tremendous. This year we’re gearing up to hit 20 to 30 petabytes of raw image data, and that doesn’t even include the processed data. So there’s tons of opportunities, whether from the domain, domain specific fields, such as compchem or machine learning, all the way to data engineers and software engineers that Terray offers.

Chris Picardo: Yeah, we talk a lot in Madrona about the combination of machine learning and life science and the wet lab. And I think what’s amazing about Terray is not just that you guys have actually built that and are running it on a daily basis. It’s that pretty much inside to raise. You’ve talked about Narbe.

Absolutely. Incredible data science software in engine engineering, machine learning challenge going on daily, that itself could be right, like a data science focused company. I think when we talk about integrating those two it’s pretty awesome to see how Terray like really fully, is as a data science and wet lab company and that you can’t really pull the two pieces apart.

Narbe Mardirossian: Yeah, absolutely. I just want to add that one of the, to me one of the beautiful parts of Terray is the fact that the wet lab and the computational side are fully integrated. That is also not something you see very frequently in in drug discovery companies. Typically the computational team is viewed as like a support function where they’re contributing maybe 10-15% to various requests or projects. But here, without the computational side, the wet lab would not be able to function and vice versa. So I think this 50/50 integration is truly what makes Terray an exciting place to work for both computational people and wet lab people.

Jacob Berlin: This one will probably make the listeners chuckle if they are in the field at all. We built this from the wet lab side, initially. We wanted to see if the technology could be built and we could make the core of our technology, which is these little chips, the size of a nickel – the world’s most ultra-dense microarray. If we can make them and we can put the compounds on them and we can measure these interactions, which is where our raw data comes from, as Narbe said, it allows us to measure hundreds of millions of compounds.

In the academic lab, that’s where we started and we wanted to see if we could get the chemistry to work. Could we get the microscope to work? Could we get the chips to work? Can we get all the parts of this interdisciplinary process to work? The first time we made it work, we had no data people working with us at all. We were like, oh man, we just measured like a hundred million things, what should we do with that? Maybe we’ll put it in a Excel and filter for the top hundred and then see what we can do with that. Then the next day we went out and looked for someone to help us on the data side.

Now, of course, there’s been many years of working at the intersection of data science and experimentation. It’s staggering, and it’s a cliche that’s true. Working with an interdisciplinary team makes all the difference. We see stuff go back and forth all the time where the data team makes predictions out of the data or identifies things in the data that changed the way we do the wet lab side and vice versa.

Terray wouldn’t run the way it does without the data team, the chemistry team, the biology team, the automation team, the production team. All basically sitting together and talking together each and every single day, and it’s what makes it so special here.

Chris Picardo: That’s awesome. I get to witness it pretty regularly and have been down to Pasadena many times and seen the lab myself. It’s pretty great to just see it in person and see it all come together.

Eli, why don’t you also briefly tell us about the Series A and our big fundraising milestone that we just achieved and who’s been part of that journey.

Eli Berlin: Yeah, I appreciate it, Chris. So we’re super excited. We just announced our $60 million Series A which brings our equity capital raised to date to just over $80 million, including our seed financing. One of the things that’s been tremendous about this journey has been the partners we’ve had in the venture community.

That includes you guys at Madrona. It includes Two Sigma Ventures, Digitalis Ventures, KdT Ventures, Goldcrest Capital, XTX Ventures, Sahsen Ventures, Greentrail Capital, and the folks at Alexandria. As well as a whole host of other folks who’ve supported us along the way. We’re super excited about this moment and the opportunity been supported by the Capitol to massively parallelize our processes and throughput to deliver for patients in need.

Chris Picardo: I want to throw it back now, as we’re starting to wrap up to a couple of broader questions that I’ll pose to everyone, so feel free to jump in and take them as you see fit.

I think the first one is, and this is one that will probably resonate with most people listening, building companies it’s really hard. I think building companies that have complexity on both sides, the wet lab side and the machine learning side and trying to do both of those things is potentially even harder or at least more complicated.

What’s been the biggest challenge so far the biggest set of challenges, maybe Eli and Jacob that you guys have faced, and how have you thought about those?

Jacob Berlin: Chris, that’s always the question that keeps you up at night and everyone asks you what’s the hardest either retrospective or what’s coming next, that’s the hardest. We think about it a lot. I spend a lot of time on it, I don’t know if the answers will be exciting, cause they’re probably the same ones thematically that everyone who starts a business that builds at this interface faces, which is hiring the team. Building the expertise around the table, just always takes a lot. It’s always a tremendous lift to find people who are mission aligned, vision aligned and passionate and, perform at an excellent level.

We’ve been really lucky now to build a team of 50 with a seasoned management team with biotech expertise, as well as ML computational experience. We’re joined by a wealth of expertise now on the business development side, the drug development side, the computation side, but it took a lot to bring that team together and be at this remarkable moment.

I think alongside that, personally going from academia, or I guess it could come from anyone. Back to the napkin sketch; the appreciation for what scaling and industrializing that discovery is like. It is, I think, harder than you would guess on day one, to be able to run the exact same process and a high number of replicates at incredible velocity and scale and know it’s right every single time. We’ve done that, but it took a number of years to really dial that all in. And so I don’t think that part should ever be underappreciated. Eli, what would you say?

Eli Berlin: It’s funny, Chris your comment really resonates. It is so hard to build a business. I think back to my days in Private Equity, where, I’d come into the board meeting and have a bunch of thoughts on what needs to get done and I used to walk out of the meeting and go back to San Francisco and it’s so hard. Execution is so hard, but it’s also got enormous joy to it, because you get to work with people day in and day out, you get to create work that is worth doing, and it’s all worth it in the end.

I think for me, the two are recruiting and for us, the recruiting piece is about, attracting candidates and helping separate signal from noise. There’s so many AI drug discovery companies out there, and we’re really different, right? If you believe that the data unlocks the opportunity, we’re the only ones with that capability in the whole landscape. It’s a competitive ecosystem out there, and it takes a lot to recruit folks and get them interested in our technology. We’ve been quiet up until a few days ago. And we have a lot of teaching to do, when we meet folks who are interested in Terray.

The second piece is, Terray is a massively interdisciplinary Company so we’ve got chemistry, biology, machine learning, and computational chemistry with robotics and automation that go to make the engine deliver for us and ensuring cross-functional communication and collaboration is done with excellence and precision to deliver is really hard. It’s taken a lot of work to get us to where we are, and we’ve got a lot of work to go from here, and those are the two for me.

Chris Picardo: That all resonates with me. I t’s been fun to watch you guys solve those challenges and we’ve been along for the journey for part of the way, and we’ll continue to be along for the rest of the way. It will be good to keep working through these together and I’ll go right to my last question.

I like to ask the couple of people that I’ve done these podcasts with this question. If you roll the clock forward 10 years and you’re looking at what we’ve achieved, at Terray, what does the big vision look like? What is success, and what will that look like when Terray is at scale and started to execute on a bunch of this stuff that you guys set out to do?

Jacob Berlin: Yeah, I picked my career, Chris, because the big vision is making people’s lives better. It’s allowing everyone to live healthier, enjoy more. For us, what does it look like for Terray? It means Terray is a drug development company at scale, working across multiple different types of diseases and delivering therapeutics to patients faster.

It is unlocking all of the opportunity in that biology revolution with a chemistry revolution, where we can really go from identifying causes of disease, to people enjoying medicines that make them better reproducibly, reliably, and quickly, so that’s what we’re building.

Eli Berlin: That resonates. I think about the opportunity to build a company is a tremendous opportunity, but the opportunity to build a company where the end result, if we’re successful, and when we’re successful is more therapies to patients in need, faster. It’s an extraordinary vision to be a part of.

It really resonates across the company. Everybody who works at Terray does so with purpose and with mission as their number one. It’s an opportunity to work with world-class science and, deliver the next generation of therapies to patients in need. It’s really a unique opportunity and a tremendous goal as we push everything forward here over the next handful of years.

Chris Picardo: I don’t think I could end our conversation on a better note than that. So I wanted to say that, for us at Madrona, it’s been really amazing to be part of the journey and we’re super excited to continue to be part of the journey. I know it’s a busy time, so I appreciate you guys taking the time to chat with me today and share about Terray for really one of the first times ever. This has been a real pleasure.

Jacob Berlin: It’s a delight, Chris. There are two things along the journey that really make it wonderful. One is the science and seeing what we can achieve and move human knowledge forward. And the second is the people. And so we’re, privileged to work with the people we work with here, you, and the rest of Madrona ecosystem supporting us and the rest of our investor ecosystem. We just want to thank you again for having us today and delighted to tell everyone about Terray.

Erika Shaffer: Thanks for joining us for Founded and Funded. If you want to learn more about Terray, they can be found on the web at www.terraytx.com. So that is, T E R R A Y T X.com. Thanks so much for joining us and tune in, in a couple of weeks for another episode of Founded and Funded.

How do you join a company and lead from the day one? And how do you do that when you come from a completely different work experience than your startup? Trevor Thompson of Terraclear had a 14 year career in the Navy, including a decade as a Navy Seal, and is now president of AgTech company, TerraClear. In this episode of Founded & Funded, he talks to investor Elisa LaCava about the opportunity for companies to hire experienced veterans and how the company is executing on it’s mission to make a farmer’s life a little bit easier with their rock picker robot.

Trevor also talks about the DOD SkillBridge program – https://skillbridge.osd.mil/ which companies can use as a way to access talented veterans.

This transcript was automatically generated and edited for clarity.

Erika Shaffer: Welcome to Founded and Funded. I’m Erika Shaffer with Madrona Venture Group. And today I’m super excited to bring Trevor Thompson, who is the president of TerraClear here together with Elisa LaCava one of our investors. TerraClear is an agtech that is automating one of the worst jobs in farming, rock picking. Rocks rise to the surface each year and farmers most often have to pick them up by hand. And these are not small pebble size rocks. TerraClear’s end to end solution uses artificial intelligence combined with robotics to precisely map where rocks are in the field by size, and then remove them with the precision robotic implement. Today there is a farmer in the cab and tomorrow it is a fully autonomous solution to this age old problem. I’m just going to turn it over to you, Elisa, take it away.

Elisa LaCava : Trevor, thank you so much for joining us today. I’m really excited to have you here.

Trevor Thompson: Well, thank you for having me. Always exciting to talk to anybody with Madrona and talk about TerraClear.

Elisa: I was realizing today, we’ve worked together now for almost two years exactly. You’ve been at TerraClear for a few years at this point, and I’ve been able to join in part of the TerraClear story now for the past two. One thing, I would love to share with the rest of the world is how you got to TerraClear and your amazing background.

For those of you who don’t know Trevor, and you should, he has an incredible history, spending, I think was it 13 or 14 years in the Navy seals? 14 years as a Navy seal and, moved over to civilian life and joined TerraClear, directly after your time of service.

There’s so much in there, how did you think about the transition into startups after your service? What were you looking for? And then, critically for other veterans or soon to be veterans who are listening to this, what are some things that worked well in your kind of learning journey when you were thinking about your next steps?

Trevor: Where to start? I guess, I grew up here in the Pacific Northwest and was really focused on a career of service from a young age, just instilled in me from my family and my parents who had either served in the military or served in medical professions. So, I ended up attending the naval academy with that intent to serve in the Navy.

I was fortunate enough to have a couple of years at graduate school at Oxford, which was kind of a 180 in terms of cultural experience, and then went right back to basic seal training. That’s where I spent the next, more than a dozen years.

In that experience, it was exciting and challenging and what I think the highlights for almost anybody in that kind of environment, is the people and the team. You have this combination of an incredible peer group and talented people, that I got to work with from all different backgrounds, combined with hard problems.

When you can galvanize a group towards these hard problems, that’s really, I mean, it’s addicting, it’s fun and exciting. So as circumstances change in my life and kids started getting born and it was time for us to come back home and leave that exciting, fun world that is not super conducive to having multiple children.

Once we made that transition, that’s really what I was looking for again, that pattern of, I want an incredible team and I want a hard problem. You get the most personal growth from that and the most satisfaction. If you had asked me five years ago, if I would be operating farm equipment in central Idaho picking up rocks, the answer would obviously have been no. but I think—

Elisa: It’s more than that, but we’ll get into it!

Trevor: Yeah, exactly. It’s incredible. So, what I saw in TerraClear as I met the early team was just such a passionate team. A problem that is massive and has been completely underinvested in, and this recurrence of rocks that arise each year in farm fields.

Talk to any farmer and they will immediately smile and make a reference to how bad this job is, but that is such an opportunity to solve one of these problems that most farmers have honestly given up on. There’s a wide variety of solutions, none of which have really answered the call.

Now we’re at a point where some of the breakthroughs in robotics and machine learning technologies allow us to solve this problem in an elegant way. We can be the solution in a giant market. You combine that opportunity with a team that’s done it before and has, immense experience and talent focused on this problem. It’s really fun.

Elisa: I love hearing you talk about the parallels between your life in the military and your life now, and what you love the most, strong teams working on tough problems. How do I replicate that kind of an environment, but just pointed in a different direction? I would love to hear; how did you find TerraClear?

I’m talking to other veterans and soon to be veterans who are listening, what resources did you use, how did you use your network or what was most successful for you in finding what you wanted to do next?

Trevor:

Originally, I had lunch with Mark Mader, who’s the CEO of Smartsheet. I was really excited about the culture that I’d heard about at Smartsheet and him [Mark] as an inspirational leader. As I continued to talk about other folks, somebody said, ‘oh, you got to meet Brent Frei, who was one of the founders of Smartsheet’. So, I talked to Brent, and he said, in a very Brent way, ‘Smartsheet’s really cool, but you’ve got to come see what we’re doing now it’s even cooler’. That was TerraClear, and they were in those early days. So, I met with them early in TerraClear’s period, and got to know the team and grow with them as I was transitioning.

That was the experience there, I’d say, in terms of advice to veterans, there’s almost nobody that is going to be more of an advocate, for you when you come out. Because I think veterans who have been successful in different sectors, they really understand the upside there clearly. Right? So, they’re willing to invest in folks that they see that enthusiasm and humility and talent and say, I know that this, gal or guy can, can do something great, we just got to put them around the right kind of people and get them started on the right foot.

Spending time with those real advocates was incredibly valuable. Some of those came, into new networks that in Seattle were really valuable, like the Dartmouth network or the Harvard business school network, or the Madrona network. Where you meet one of these people, who’s an advocate and then they kind of spin you into a wide variety of different folks.

If I could just add one point to that, there’s two sorts of people. I think that you meet when, you’re transitioning from the military into, some other sector, and that is the ones who kind of shrug and say, “boy, this is really interesting. I’m not really sure what to do with you”. Then there’s the different, group that sort of says, “my God, you could have an incredible impact here. Like we could use somebody that has these skills”.

I think generally you get the people that have more experience and have seen the importance of team dynamics and energy and problem solving and operating within ambiguity. All of these, kind of cliche traits that you hear about. I think they really see those. They’ve seen them manifested and so they see the opportunity and the upside there. So, finding those people is important.

Elisa: It sounds like Brent was one of those people and you two immediately connected. One of the amazing things about your TerraClear journey, Trevor is you’ve like had this meteoric rise. You’re on the senior leadership team of the company in the span of a few years. One thing I would love to learn kind of in that first year of working at TerraClear, just a bit more about that transition.

How did you stretch your leadership capabilities or how did you really lean into the leadership capabilities you had already developed at the military? What served you well, versus what other areas were you trying to grow in most?

Trevor: That’s a good question. I think oftentimes one of the things you learn, or at least I learned in seal training. Is just how we ended up limiting ourselves more than almost any other external factor. That has a lot to do with, self doubt and negative talk and all these other psychological elements, but the ability to overcome those is actually really empowering and have the ability to say I don’t know everything.

I had come from a world where I was often. I was often, theoretically, in charge and responsible, but was not an expert in any piece of the equation. So, when we’re solving hard problems, there was somebody that knew the intelligence much better. There was somebody that knew the tactics much better, et cetera. So, I was pretty comfortable being honest with what I knew and didn’t know, which I think is really the first step in that quick growth period. Being around a team that was awesome, to put it in the simplest terms, that allowed me to grow really quickly in that area and allowed me to ask some pretty stupid questions that was really empowering.

It allowed me to take these really well-developed skills, like team organization, and goal setting and prioritization and all those things and account for some of the gaps, that you might encounter that you would expect and things like finance. Right? Areas that I did need to grow quickly. Having advocates on the team that understood my role was valuable and helpful.

Elisa: That’s amazing. So fast forward to TerraClear, you jumped into a company that has a really dynamic strategy. On the one hand we’re building, rock pickers, this is like metal and steel and, a real physical implement that you attach to, skid steers and different pieces of equipment on a farm. And then also there’s this amazing data and mapping component AI strategy would love to hear a little bit about the evolution of the company and what you think about, this world and ag tech and smart ag tech moving forward.

Trevor: The evolution of the company really started as a problem. Oftentimes in agriculture, what you’ve seen over the past decade is some of the lag on adoption has been the result of solutions looking for a problem. Fortunately, we really started with the hard problem.

I mean, physically in the field, picking rocks by hand, Brent had an epiphany that said, ‘good Lord, like there’s all this stuff that’s been automated. These huge elements of agriculture, harvesting and spraying and seeding and tillage, they’ve been really heavily automated. And then there’s these things that have been left behind that we all have to do as farmers’.

Solving those problems is really exciting. That’s where it started, and the solution really initially came in two areas. One is we’ve got to be able to identify this problem over large acreage. Farms are increasingly bigger and bigger with a smaller or equal labor pool. So, we need to identify the problem and then we have to solve it with a high degree of precision, which allows for really modernized farming, where you’re not digging through the ground each time, you’re just removing the rock. So that’s really where it started, and we had these kind of two parallel efforts to figure out what is the right solution for this, and we continue to iterate on those.

Elisa: I’ll give a fun plug. Earlier this year, at one of the board meetings, so TerraClear has offices in Bellevue, Washington, and out in Grangeville, Idaho. We had a board meeting out in Grangeville and a field trip day, and I had the distinct honor of driving a skid-steer that had the picker attachment on it.

As someone who didn’t grow up on a farm, never driven a skid steer in my life, I was able to get in by myself and I picked up what was it, Trevor? Like 15 or 20 large rocks in the span of two minutes. It was like driving this, Go-kart basically, which the skid steers are fun, but the beauty in what you and the team have created is this incredibly intuitive, very easy to use heavy duty system that is super fast and quite honestly like really fun.

Trevor: I think the important detail that you’re omitting is that you picked about twice as effectively as somebody had farmed for 40 years, right after you, so that was the really exciting part.

We’re really proud of the fact that it can be used by anybody on the farm.

So, a nine-year-old or an 85 year old can use this thing and really contribute effectively not to diminish your performance that day, but that’s really important for us is can we get this to be fun and easy because you take a job that was really the worst job on the farm, or certainly up there and make it the first job that somebody wants to do on the farm.

That’s a big transition.

Elisa: Right! I mean, because you think about some of these eight-inch rocks or 10-inch rocks, they are heavy. You can’t just manually pick those.

Trevor: It’s so fun obviously to get this in front of customers and, at different farm shows and all, but the face of farmers, when they see it just suck in a 300-pound rock, in an instant is pretty extraordinary. I mean, that’s, that’s a rock that is going to take a lot of time to figure out how to get out of there and potentially a lot of back pain as well. So, it is really, every single time we show this to somebody there’s this incredible reaction. That’s really fun.

We just sold this to a farmer, and he said, ‘unequivocally, the best thing that I’ve seen created in agriculture in my lifetime, just the most exciting kind of new thing’.

That is one of these, the ability to create something that didn’t exist that people didn’t think really was possible it’s not even a tweak on an existing product, it’s actually a fundamentally new approach to this problem. That’s something that we feed off of quite a bit.

Elisa: I also think, one of the unique aspects of building in ag tech is, your customers, farmers have these natural, really tight windows when they can be productive and do work on their fields in between all of the things that they do from prepping the field to seeding, across all of these stages over growing season.

I would love to hear a bit more from you on, what are you hearing from farmers in terms of top pain points that kind of surround their natural farming cycles and how does TerraClear fit into that?

Trevor: Those cycles are tight, and risk is really another way to think about that, and we think about it in terms of risks. Just to take a snapshot of, Brent’s family that, when he was a child, was farming under a thousand acres with the same number of people in the family fast forward to today and it’s almost five times that with the same group. So, they just don’t have the luxury of spending time on a field solving problems like this any more. Everybody is feeling that pressure. I mean, there it’s every sector of agriculture, similar to every sector, really across the economy. Really acute in agriculture is how do we then solve these problems with a higher degree of efficiency?

For us the answer is we can solve this problem in a way that reduces your risk during those critical periods. So, whether it’s planting or harvest, these are tight windows where missing a single day can cost you a percent in your overall revenue for the year and that’s considerable. Removing the rocks ahead of time, in a way that’s comprehensive, reduces that risk dramatically. It’s a relatively straightforward ROI for a farmer.

In terms of our actual solution, we’re accounting for that tight window by creating an autonomous tool that allows you to pick in a much wider window. Historically you turn over the soil, you go pick as many rocks as you can, and then you seed and you just kind of deal with them and you pick them by hand, if you can, after you seed. Well, having a tool that’s smart and has low ground pressure and low ground disturbance and meets the needs of the actual problem, widens that window, where we can solve it and transforms the way that, takes this from a problem that’s barely solvable to a problem that is no longer really a thing.

Elisa: Let’s talk about some of the challenges the company has faced. It’s been this wild world over the past year, especially I know as it relates to supply chain and some other issues when it comes to manufacturing a real physical product. What are some of the challenges that you’re seeing in your sector and for TerraClear specifically?

Trevor: In the sector in general, I think there’s so much promise with digital solutions in agriculture but in many cases, they’ve really met their match with the conditions in farming. I mean, you’re talking about low bandwidth areas, relatively, generally very remote areas, very large areas and so often these digital solutions provide that, they’re challenging. How do you transfer high amounts of data to be effective with machine learning tools and computer vision tools? So that’s one of them is how do we figure out how to operate in these remote environments very effectively? I think we’re making the right steps there.

On the supply chain and being optimistic here, but really look at COVID and the supply chains, two big challenges for every company that deals with any hardware over the past year, and we’re just, I think in both cases we’re better for them as a company.

COVID was challenging at first, but farmers are naturally socially distanced and so it allowed us to figure out other ways to reach them and be more effective and really get closer as a company. On the supply chain side, it’s interesting how it’s affected our engineering.

We wanted to build, twice as many units in this fall, as we were able to because of some supply chain constraints. Well, that forces us to look at, okay, what are the items that are holding us back and maybe make some engineering adjustments to get those to be items that are more mass produced, which oh, by the way, reduces your costs. On the supply chain stuff, I think the silver lining is that it has made us more conscious of some of these engineering decisions and frankly, a little bit more flexible as a company.

Elisa: I know you have a really neat program that you’re working with at TerraClear to help with employing veterans who are looking to move into civilian life and work in tech and startups. You’ve been an incredible resource to your network. We’ve talked about potential candidates who are looking into joining VC or joining an early-stage tech company, or even you’ve talked with your friends who are founding companies and being a part of that broader discussion when you’re thinking about hiring, I think TerraClear is hiring veterans too. Is that right?

Trevor: Yes, and just a quick plug and a thanks, from you who have also been a part of a lot of those conversations and Matt McIlwain, who’s on our board, both really active in that world of, helping folks find the right situation.

There’s no shortage of programs out there that help with transition. We had an incredible army captain that came out of Fort Lewis and spent a few months with us and was able to really make a big impact in just three or four months. There’s no shortage of things to do at a startup as everybody knows.

The program that I think is maybe worth highlighting is one called SkillBridge which we’re entering into now, which is an up to six months internship for a transitioning veteran. Their salary is actually paid by the department of defense. The company is not allowed to pay their salary in any way. As long as there is a path to a potential opportunity on the backend, and there’s a good faith effort there, you essentially get this incredibly talented, often times, veteran who can come in and work for free for six months and they get exposure to, figuring out what they want to do and being able to contribute to a company in an exciting way. We’ve got a rockstar coming in in January to do that program. That’s one that I think is available for anybody that wants to look into it. Again, it’s called SkillBridge.

Elisa: Great! The process for startups to reach out, to SkillBridge, it sounds like it’s fairly direct and easy to post a job description and get referrals that way.

Trevor: Nothing’s too easy with the government, but it is relatively easy if you go to the website and that is an area that there’s a little bit of a backlog right now, but it’s all there. It’s all spelled out clearly and it actually is a fairly seamless process.

Elisa: Trevor, as a leader at TerraClear, you have some incredible background and lessons you’re bringing from your experience as a Navy seal over into the startup. What are some things that you’ve directly taken from that experience and applied to the TerraClear team to help with team building, cohesion, getting people on the same page, and things like that?

Trevor: One of the things that is a hallmark of special operations is how close the teams are. That allows you to be resilient and flexible and deal with missteps much more effectively. The why behind that, I think, has a lot to do with how you’re just presented with challenging situations.

Training is artificial challenge and controlled environment that makes things very difficult and what you see time and time again, it’s very evident that when you go through hard things with people, you get much closer with them and you learn about much more.

Figuring out ways, without doing morning PT every day at TerraClear, figuring out ways that we can push through some of these challenging periods and spend a lot of time and really immerse ourselves in this environment amidst some, significant business challenges has really, I think, brought our team closer and that’s nothing that I’ve done. That’s something that was already part of the team, was finding people who are willing to be really pushed and challenged. If folks are looking at a relatively easy, nice little lifestyle job, it’s not the right company because we’re always pushing ourselves. We’re always challenging and asking hard questions to see ways that we can grow.

In training, I guess early on, I learned the value of leadership, which sounds extraordinarily cliche, so let me unpack it a little bit. Everybody kind of believes in this, but everybody has a different definition of what it is. It really materialized for me in a way when we were in basic seal training, you just do a lot of races and challenging group things with the same sized groups.

One example is you’re physically racing with boats on your head. It’s this a perfect team game, because if you pull your head down, the weight increases for everybody else on their team, whereas everybody, stands up tall, then it actually evens out the weight and reduces it. That one weak link affects the other five people on the boat. You just do these for hours and hours and days and days, and things like that, that are really challenging a group.

They do this thing where they’ll take the groups, maybe one group is getting first place every time and another is getting fifth place every time. The only thing they’ll do is they’ll swap the two leaders. So, the boats stay exactly the same with leader swapped. Shockingly time and time again, is that the poor performing boat, all of a sudden is winning races or coming close to it and the other boat drops off. So what is that, right? What are those traits that define that?

I spent a long time thinking through it, and boy, I have evidence that, that exists now, what are those things and how do you then replicate them moving forward? I think there are a couple of things, it’s a leader who is trying to celebrate and identify the strengths of the group as opposed to elevate herself or himself.

The ability to actually just think hard about what does this person want and how can I help them be more successful? That framework I think is what really has, I think, unlocked the good leaders that I’ve seen in the past. It’s a little bit liberating because you don’t have to have all the answers.

You don’t have to tell everybody exactly what they need to do. You just need to identify the things that they’re great at and really help celebrate those things and put them in the right positions to succeed.

An example is when I came in, I think Brent chose to see the upside of what I could bring to a company rather than the downside of what I didn’t know. It’s a great example of that as somebody who’s an enabler and an empower and I think that’s an important lesson.

Elisa: Wow. That’s incredible and then you do the same thing with your teams. That’s an incredible way to think about how do you succeed together? How do you recognize other’s strengths and set them up to be in a position of success to leverage those strengths, knowing that the rest of your team is thinking of you that way?

Trevor: Another exercise that we used to do that I think is a hallmark of a good company and you see it a lot is, the ability to be really harshly, honest with yourself, both at a personal level and at a company level. And so, we used to do, you had a training mission, or you do a real world mission. If something good happened or bad happened, the first thing generally after everybody got a glass of water, was to come back and do what’s called an after-action review. This is a breakdown of every part of it with an eye towards what you can improve. So shockingly little is celebratory, ‘how cool was it when we did this’? Like, there’s not much of that. It’s more ‘hey, it took us 10 extra minutes to get in. Why did that happen? Why did we judge that incorrectly’? What it does is it just kind of breaks down the ego pretty quickly when you’re just used to always talking about what you could have done better.

That’s something that I came into this company and really was looking for was a company that was honest with its own shortcomings and honest with its own degree of performance. I think that creates a culture where you can really get to rapid growth, both personal growth, and also, company growth is we’re just constantly asking how can we be better and trying to look at ourselves as honestly as possible.

It’s hard, right? I mean, we all have ego and it’s sometimes hard to address those things, but at least talking about them regularly and finding people that want to, aspire to that value has really been important for us.

Elisa: Right, and people who want to join that environment and learn how to do that from you and then contribute. That’s exciting.

Team TerraClear is this incredibly dynamic group of people. You have software engineers who have a background in coding and computer development and AI. You have folks with farming backgrounds, yourself as a veteran, all coming together in this world of ag tech and selling to farmers.

What is it like selling to the farmer customer and how do you galvanize the rest of your team to understand the problem sets of the farmer and, and work with them?

Trevor: The best solutions at TerraClear come when you combine, we think about it in three areas, business leaders, farmers, people in farming and agriculture and incredible engineers. The ability to blend those worlds is probably our best attribute as a company, as we’ve got people that have never even been on a farm who just want to solve a problem that affects a lot of people. Then other folks that have never don’t even know what deep learning is. We’ve actually got two glossaries that we have in our onboarding process. There’s the Grangeville, Idaho glossary, and there’s the Seattle Bellevue glossary. Oftentimes people have never heard of a combine or a header or, tillage. That’s totally fine, because as long as there’s enthusiasm and passion for the problem we’re solving that’s great.

On the other side, these are people who have been dealing with dirt and rocks and seed and crops for their entire lives, and don’t have a familiarization with the technologies and so constantly putting people in different environments. It’s the thing that I just love about the company, I mean, even culturally, there’s not a lot of companies out there that have that type of diversity, where you’ve got people from central Idaho and people from Seattle who are constantly interacting and we’re going back and forth all the time. So that’s really fun and it allows us to, I think really have an edge against a lot of other agriculture companies, because we can recruit such incredible engineers out of this region.

On the farmer side, working with farmers, farmers are really multifaceted and what they’re asked to do. They’re managing, budgets and then they’re fixing equipment and then they’re designing new solutions, with steel and welding. Then they’re really CEOs of a larger organization with a lot of employees sometimes. You’re asking so much of them that they can’t really live in the theoretical world. It’s very practical and often very physical.

This is why I said earlier, digital solutions often meet their match in agriculture is because, the idea of an insight for a farmer isn’t that helpful because they just don’t have time. You’ve got to give them an answer. A real practical solution that’s going to affect their bottom line this year. Sometimes, there are things that lag in agriculture because they’re not able to forecast out 10 years because the risk is too high. They need to focus on the immediacy.

The way that’s manifested for us is getting into fields and really understanding the problem firsthand but also understanding that we’ve got to provide real value from day one. That’s how we’re going to really grow as a company.

The rocks as a problem and as an entry point into ag automation, it just think is right on because it’s something that’s acute and visceral and nobody wants to do it and it’s the first thing they would love to outsource. If we can solve this problem for the vast majority of acreage globally, there’s just so much more that we can do in terms of bringing automation that’s practical to farmers.

Elisa: Thank you, Trevor. Thank you so much for joining us. It’s amazing to have this chat and to have you on the Founded and Funded podcast. Thanks again.

Trevor: Really a pleasure. Thanks for being interested in taking the time and for everything that you guys do at Madrona, you’re incredible and a great partner. So, thanks.