Tom Ferguson (00:00:00):
A lot of funds,
Tom Ferguson (00:00:00):
I think,
Tom Ferguson (00:00:01):
don't take the idea of real support as seriously as we do because it's just,
Tom Ferguson (00:00:06):
you know,
Tom Ferguson (00:00:06):
it's what I learned at Imagineer 12 because I had to.
Tom Ferguson (00:00:09):
And then really the main thing was that, you know, you see an awful lot of stuff go wrong.
Tom Ferguson (00:00:14):
You see a lot of stuff go right, but the stuff that goes wrong is really, really important.
Tom Ferguson (00:00:17):
And then you just start to be able to pattern match.
Tom Ferguson (00:00:19):
What are you actually looking for?
Tom Ferguson (00:00:20):
Like,
Tom Ferguson (00:00:20):
what are the best leading indicators over time of companies that are going to make it,
Tom Ferguson (00:00:24):
especially within an esoteric vertical like Waterhack?
Tom Ferguson (00:00:28):
And that means that the team is really, really important.
Tom Ferguson (00:00:30):
You need to have people that are either through radical founder market fit or a
Tom Ferguson (00:00:35):
radical amount of work who have made sure that there is no gap between the
Tom Ferguson (00:00:39):
perception of reality and the actual reality of the market.
Tom Ferguson (00:00:43):
Enron Energy have got a reasonably long sales cycle.
Tom Ferguson (00:00:45):
It's quite an involved technical sale.
Tom Ferguson (00:00:48):
But when you get to the end of that technical sale,
Tom Ferguson (00:00:50):
you've got a $550,000 ASP with a 55% gross margin,
Tom Ferguson (00:00:55):
50% of which is 50% of the selling prices is taken up front.
Tom Ferguson (00:00:59):
So you've got very, very little working capital needs.
Tom Ferguson (00:01:02):
you've got pretty spectacular overall performance indicators so that actually ends
Tom Ferguson (00:01:06):
up with a really really strong business case both for the customers and for end
Tom Ferguson (00:01:11):
line themselves so it's an amazing value sharing issue and then often customers buy
Tom Ferguson (00:01:14):
more than one so you end up with these huge contracts and so okay if it's you know
Tom Ferguson (00:01:18):
taking anywhere between 9 to 15 some time to the stretch 18 months like what is
Tom Ferguson (00:01:23):
coming off the end of the conveyor belt is worth waiting for
Tom Ferguson (00:01:27):
And then the other thing that we think that we mean by pricing and velocity is that
Tom Ferguson (00:01:30):
often people are like,
Tom Ferguson (00:01:31):
yeah,
Tom Ferguson (00:01:31):
sales cycles,
Tom Ferguson (00:01:32):
energy.
Tom Ferguson (00:01:33):
It really doesn't matter if you've got somebody who really understands how to architect a sales funnel.
Tom Ferguson (00:01:39):
Because what is relevant is not the length of the conveyor belt.
Tom Ferguson (00:01:42):
It's what happens when stuff starts falling off the end.
Tom Ferguson (00:01:45):
Because if you have a really long conveyor belt and then you have stuff falling off
Tom Ferguson (00:01:48):
the end with regularity,
Tom Ferguson (00:01:50):
especially if the unit economics of that stuff that's falling off is really tasty.
Tom Ferguson (00:01:55):
Like what you have is a moat.
Tom Ferguson (00:01:57):
Because it's going to take everybody else the same amount of time to be able to start that engine.
Tom Ferguson (00:02:01):
But once you have that engine started, you have a built-in lead time.
Tom Ferguson (00:02:04):
So not only the time it would take for other people to create,
Tom Ferguson (00:02:08):
in Enline's case,
Tom Ferguson (00:02:09):
an engine functioning at anywhere between 60 to 80% efficiency,
Tom Ferguson (00:02:12):
so the mode is literally physics.
Tom Ferguson (00:02:17):
Like not only do they have to build that thing,
Tom Ferguson (00:02:20):
they have at least a year and a half in the market before they can get to any kind
Tom Ferguson (00:02:24):
of commercial traction.
Tom Ferguson (00:02:25):
That is awesome.
Tom Ferguson (00:02:26):
That's amazing.
Tom Ferguson (00:02:27):
Like you just have to get through it.
Silas Mähner (00:02:29):
If you were forced today to go start your own water tech company, you couldn't be an investor anymore.
Silas Mähner (00:02:34):
You had to go build the company yourself.
Silas Mähner (00:02:37):
What problem would you go and solve?
Tom Ferguson (00:02:38):
I would go and drive a bus through the water testing market.
Tom Ferguson (00:02:45):
It's basically populated by incumbents that take about two to two and a half weeks
Tom Ferguson (00:02:49):
to turn around a water test.
Tom Ferguson (00:02:51):
And when they do, they give it to you to nine decimal places.
Tom Ferguson (00:02:56):
for the illusion of accuracy but it's almost always wrong when you actually hold it
Tom Ferguson (00:03:00):
up to a it's insane but just businesses where people have been able to harvest cash
Tom Ferguson (00:03:06):
for ages while sucking like are really annoying and there are a few examples of
Tom Ferguson (00:03:12):
them but that's the one i would like to drive a coach and horses through as they
Tom Ferguson (00:03:17):
say in the old country
Silas Mähner (00:03:21):
Welcome back to Clean Techies, the number one podcast for climate tech entrepreneurs.
Silas Mähner (00:03:24):
Today,
Silas Mähner (00:03:25):
I had the chance to interview the one and only King of Water VC,
Silas Mähner (00:03:28):
yep,
Silas Mähner (00:03:29):
Tom Ferguson from Burnt Island Ventures,
Silas Mähner (00:03:32):
the leading VC specifically focused on investing in water technology globally.
Silas Mähner (00:03:37):
Tom's career path demonstrates the value of compounding presence, as Soma likes to call it.
Silas Mähner (00:03:42):
He started his career in environmental consulting with ERM, dealing with a lot of water issues.
Silas Mähner (00:03:47):
Then after Harvard Business School,
Silas Mähner (00:03:49):
he ended up landing at Imagine H2O,
Silas Mähner (00:03:51):
the first and I believe largest ecosystem in the world supporting founders in the
Silas Mähner (00:03:55):
water tech space.
Silas Mähner (00:03:56):
Then after that, he ended up founding Burnt Island Ventures.
Silas Mähner (00:04:00):
All of these things have been in water,
Silas Mähner (00:04:01):
leading him to compound his network and knowledge deeper and deeper.
Silas Mähner (00:04:05):
Today,
Silas Mähner (00:04:06):
Burnt Island Ventures has a collection of some of the best water startups around
Silas Mähner (00:04:10):
the world,
Silas Mähner (00:04:11):
and the compounding continues.
Silas Mähner (00:04:13):
So today,
Silas Mähner (00:04:13):
there were a lot of very interesting,
Silas Mähner (00:04:15):
cool things said,
Silas Mähner (00:04:16):
but I think one thing really stood out to me,
Silas Mähner (00:04:18):
and that was his advice on planning for a slow sales cycle.
Silas Mähner (00:04:22):
He said,
Silas Mähner (00:04:22):
if you do things right,
Silas Mähner (00:04:23):
just because the sales cycle is longer doesn't mean the return cycle of the fund
Silas Mähner (00:04:27):
has to be longer.
Silas Mähner (00:04:28):
You just need to plan for it as a founder.
Silas Mähner (00:04:30):
He also talked about how a longer sales cycle,
Silas Mähner (00:04:33):
if you do it correctly,
Silas Mähner (00:04:34):
is actually a huge moat for your business.
Silas Mähner (00:04:36):
So there's a lot of other really amazing gems in there.
Silas Mähner (00:04:39):
I'm really excited to be able to share this with you.
Silas Mähner (00:04:41):
And hey,
Silas Mähner (00:04:41):
before we start,
Silas Mähner (00:04:42):
if you're not already a subscriber,
Silas Mähner (00:04:44):
do us a favor and drop us a follow on Substack and YouTube.
Silas Mähner (00:04:47):
We put this content out each week.
Silas Mähner (00:04:49):
for free so all we ask in return is that you follow yes i know we could seek
Silas Mähner (00:04:53):
affirmation elsewhere but we really really like to get it from our favorite people
Silas Mähner (00:04:57):
climate entrepreneurs thanks a ton and enjoy the show all right uh welcome to the
Silas Mähner (00:05:01):
show how's it going today very well silas thank you so much for having me it's a
Silas Mähner (00:05:05):
pleasure to be here
Silas Mähner (00:05:06):
Yeah, it's a pleasure to have you on.
Silas Mähner (00:05:08):
You guys are doing some really interesting things.
Silas Mähner (00:05:09):
So let's get straight into it, I guess.
Silas Mähner (00:05:11):
Tell us a little bit about who you are and what you do.
Silas Mähner (00:05:15):
Sure.
Tom Ferguson (00:05:16):
So my name is Tom Ferguson.
Tom Ferguson (00:05:19):
I'm from the British Isles.
Tom Ferguson (00:05:21):
I'm the managing partner of Burntisland Ventures.
Tom Ferguson (00:05:23):
We invest in early stage water companies.
Tom Ferguson (00:05:26):
Our job is to find, fund and support the best water entrepreneurs in the world.
Tom Ferguson (00:05:31):
Um,
Tom Ferguson (00:05:31):
prior to that,
Tom Ferguson (00:05:32):
I ran the accelerator at an amazing nonprofit organization called imagine H2O for
Tom Ferguson (00:05:36):
five and a half years,
Tom Ferguson (00:05:37):
which basically gave me the kind of training ground,
Tom Ferguson (00:05:39):
uh,
Tom Ferguson (00:05:40):
to at least I,
Tom Ferguson (00:05:41):
I felt at least have the license to set this up in,
Tom Ferguson (00:05:44):
in 2020.
Tom Ferguson (00:05:45):
Um,
Tom Ferguson (00:05:46):
before that I was a slightly useless,
Tom Ferguson (00:05:48):
uh,
Tom Ferguson (00:05:49):
MBA for hire in a couple of early stage companies did my MBA.
Tom Ferguson (00:05:52):
And prior to that,
Tom Ferguson (00:05:53):
I was a sustainability consultant with the phenomenal group at environmental
Tom Ferguson (00:05:57):
resources management,
Tom Ferguson (00:05:58):
who are now part of the KKR family.
Tom Ferguson (00:06:00):
But yeah, so I chose sustainability very, very clearly in 2008 and have been doing it ever since.
Tom Ferguson (00:06:06):
And now it is as if by magic 2024.
Tom Ferguson (00:06:08):
I don't know how that happened, but it did.
Tom Ferguson (00:06:11):
And here we are.
Silas Mähner (00:06:12):
How do you define water tech or water?
Silas Mähner (00:06:15):
You say you invest in the best water entrepreneurs in the world.
Silas Mähner (00:06:17):
How do you define that?
Tom Ferguson (00:06:18):
Yeah.
Tom Ferguson (00:06:19):
So we sort of think about this a couple of different ways,
Tom Ferguson (00:06:21):
but probably the easiest thing to think about is the water cycle.
Tom Ferguson (00:06:25):
So take yourself back to grade school.
Tom Ferguson (00:06:26):
You know, what is the waterway?
Tom Ferguson (00:06:28):
It comes off the oceans.
Tom Ferguson (00:06:29):
It goes up mountains.
Tom Ferguson (00:06:30):
Then it falls down.
Tom Ferguson (00:06:31):
It's rain.
Tom Ferguson (00:06:31):
Where does it go?
Tom Ferguson (00:06:33):
It goes to the ground,
Tom Ferguson (00:06:33):
it goes to surface water,
Tom Ferguson (00:06:34):
or it goes to reservoirs,
Tom Ferguson (00:06:36):
or it goes straight out to the sea,
Tom Ferguson (00:06:37):
whatever it is.
Tom Ferguson (00:06:37):
Along that road, it gets used for a variety of different purposes.
Tom Ferguson (00:06:41):
Either it is just stored,
Tom Ferguson (00:06:42):
or it's used in agriculture,
Tom Ferguson (00:06:43):
or it's used in water utilities,
Tom Ferguson (00:06:46):
or whatever it might be.
Tom Ferguson (00:06:47):
So if you follow it around, anything that acts on that
Tom Ferguson (00:06:51):
or act within that value chain is something that's within our purview.
Tom Ferguson (00:06:55):
So we invest in anything that allows water and wastewater services to be provided
Tom Ferguson (00:07:00):
at the right quality,
Tom Ferguson (00:07:01):
quantity,
Tom Ferguson (00:07:02):
price,
Tom Ferguson (00:07:03):
place,
Tom Ferguson (00:07:04):
and time.
Tom Ferguson (00:07:05):
Water's a bit of a weird substance in that it is very much place-based.
Tom Ferguson (00:07:10):
It has to be at the right price.
Tom Ferguson (00:07:12):
You can't have water that is too expensive for it to be useful.
Tom Ferguson (00:07:17):
Expensive for people to be able to have access to it.
Tom Ferguson (00:07:19):
It's not useful for anything from drinking to making semiconductors.
Tom Ferguson (00:07:24):
All of these things need to be right for it to be able to be useful in its chosen end use.
Tom Ferguson (00:07:28):
So we really look at that and it covers a lot of ground.
Tom Ferguson (00:07:32):
We're looking at everything from agriculture and aquaculture to drinking water and
Tom Ferguson (00:07:35):
wastewater on the municipal side.
Tom Ferguson (00:07:37):
We're looking at commercial, industrial.
Tom Ferguson (00:07:39):
You know, we do look at oceans.
Tom Ferguson (00:07:41):
There's a huge amount of water, of CDR happening in water.
Tom Ferguson (00:07:45):
So we're bringing that within our cycle of competence.
Tom Ferguson (00:07:48):
So we cover a lot of ground.
Tom Ferguson (00:07:49):
And that's, you know, this is $3.6 trillion a year worth of activity.
Tom Ferguson (00:07:53):
This is not a niche.
Silas Mähner (00:07:55):
And just to clarify, so this is also across hardware and software?
Silas Mähner (00:07:59):
It's not just software or hardware companies?
Tom Ferguson (00:08:01):
Yeah, this is a physical molecule.
Tom Ferguson (00:08:03):
You're not allowed to be afraid of hardware.
Tom Ferguson (00:08:05):
It's really important that you've got that within your remit.
Silas Mähner (00:08:11):
And you mentioned that you chose sustainability pretty early on.
Silas Mähner (00:08:14):
Can you talk about your reason for doing that or where that influence came?
Silas Mähner (00:08:18):
Because it seems as though you did make a very kind of conscious effort in your
Silas Mähner (00:08:22):
entire career to be in that space.
Tom Ferguson (00:08:24):
Yeah, I used to, like the plan from the age of 10, I'm the youngest kid, so I wanted to be an actor.
Tom Ferguson (00:08:32):
I wanted to be on stage and I wanted to have everybody looking at me and I wanted
Tom Ferguson (00:08:36):
to get applause every evening and read into that what you will about my psyche.
Tom Ferguson (00:08:43):
But I graduated into the jaws of financial crisis very early.
Tom Ferguson (00:08:47):
ironic in that I spent quite a lot of my undergrad studying financial crises and
Tom Ferguson (00:08:50):
sort of failed to notice that one was materializing around my ears.
Tom Ferguson (00:08:54):
It really was very embarrassing.
Tom Ferguson (00:08:56):
It really was very embarrassing.
Tom Ferguson (00:08:57):
And I graduated into it and suddenly everybody in acting moved down two rungs
Tom Ferguson (00:09:02):
because all of the advertising revenue which the performing arts survives on just evaporated.
Tom Ferguson (00:09:08):
And so, like, I got this piece of paper that said I could kind of think, essentially.
Tom Ferguson (00:09:12):
And I was like, well, do I go and, like, eat those two years?
Tom Ferguson (00:09:15):
Or is there actually something that potentially I could,
Tom Ferguson (00:09:18):
like,
Tom Ferguson (00:09:18):
put my shoulder to the wheel of that isn't,
Tom Ferguson (00:09:21):
like,
Tom Ferguson (00:09:22):
someone else?
Tom Ferguson (00:09:22):
I love acting.
Tom Ferguson (00:09:23):
I still do.
Tom Ferguson (00:09:24):
I still love the theatre.
Tom Ferguson (00:09:25):
But I figured that there were other places where maybe I could help.
Tom Ferguson (00:09:29):
And I'd always been aware of climate issues, but I couldn't see anybody that I knew.
Tom Ferguson (00:09:33):
that was going expressly to go and work on climate stuff.
Tom Ferguson (00:09:36):
So I figured that maybe the climate needed a hand and the best way I felt to do
Tom Ferguson (00:09:41):
that was to go and really luck into an amazing job with the sustainability and
Tom Ferguson (00:09:45):
climate change team at ERM.
Tom Ferguson (00:09:48):
And then that three and a half years gives me an amazing vantage point into all
Tom Ferguson (00:09:52):
sorts of stuff within climate change and sustainability,
Tom Ferguson (00:09:55):
but including water.
Silas Mähner (00:09:57):
Hey guys, sorry for the interruption.
Silas Mähner (00:09:59):
I just need a few seconds because Soma and I have two quick favors to ask.
Silas Mähner (00:10:02):
Putting out the show each week takes about 15 to 20 hours between us, so it's a lot of effort.
Silas Mähner (00:10:06):
And it would mean the world to us if you would leave a review and mention your favorite episode.
Silas Mähner (00:10:10):
Secondly, if you're not already, go over and subscribe to the podcast on Substack.
Silas Mähner (00:10:14):
The content is free,
Silas Mähner (00:10:15):
but if you like hanging out with us each week,
Silas Mähner (00:10:18):
maybe we're even the kind of guys you'd like to buy a coffee for on occasion,
Silas Mähner (00:10:21):
consider becoming a paid subscriber.
Silas Mähner (00:10:23):
For the cost of one lavender latte a month, you can help us immensely.
Silas Mähner (00:10:27):
Thank you for tuning in consistently and helping us to share our guests' stories.
Silas Mähner (00:10:30):
Now back to the show.
Silas Mähner (00:10:32):
Yeah, yeah, obviously it's a huge part of it.
Silas Mähner (00:10:34):
I guess I'm very curious, how did your time at Imagine H2O really influence you to go to me?
Silas Mähner (00:10:39):
Because the next step straight after that, at least according to what I can find,
Silas Mähner (00:10:42):
was that you went and started a BIV virtual adventure.
Silas Mähner (00:10:45):
So like, how did that influence you to make that change?
Tom Ferguson (00:10:48):
Yeah, it was an extraordinary opportunity.
Tom Ferguson (00:10:50):
Uh, very kindly afforded me by the excellent Scott, Brian, uh, and the rest of the team.
Tom Ferguson (00:10:56):
I told her, but Scott was a real, uh, it was a fantastic boss for five and a half years.
Tom Ferguson (00:11:01):
Um,
Tom Ferguson (00:11:03):
It was really profound.
Tom Ferguson (00:11:04):
This doesn't happen without my time at Imagination 12.
Tom Ferguson (00:11:07):
The accelerators themselves,
Tom Ferguson (00:11:09):
I think,
Tom Ferguson (00:11:09):
are actually really good training grounds for this business because they force you
Tom Ferguson (00:11:12):
to do a couple of things.
Tom Ferguson (00:11:14):
Firstly, you can't help but have your N get really high really fast.
Tom Ferguson (00:11:18):
I mean, that can kind of happen as an analyst.
Tom Ferguson (00:11:20):
You're sort of crunching a lot of different stuff and you're not actually really...
Tom Ferguson (00:11:24):
You only may be engaging with some of the portfolio companies that are invested in, but not really.
Tom Ferguson (00:11:29):
But when you're running an accelerator, you know, people are there.
Tom Ferguson (00:11:32):
They are involved with you.
Tom Ferguson (00:11:33):
They're coming in and figuring out programs.
Tom Ferguson (00:11:35):
Right?
Tom Ferguson (00:11:36):
All of this stuff that accelerators do forces you to engage with the mode of
Tom Ferguson (00:11:40):
company building in a way that is relatively unique.
Tom Ferguson (00:11:43):
I mean, I was the third hire and then I was kind of the second relatively soon after it.
Tom Ferguson (00:11:48):
Now, hopefully correlation, not causation.
Tom Ferguson (00:11:52):
And so it really was,
Tom Ferguson (00:11:53):
it was Scott and I at the beginning,
Tom Ferguson (00:11:54):
and I was joined by my fantastic colleague,
Tom Ferguson (00:11:55):
Dimitri Mudak,
Tom Ferguson (00:11:56):
who's the advisor for us now.
Tom Ferguson (00:11:58):
And we really just, like, we had to bust our A's to build a product.
Tom Ferguson (00:12:04):
the really top quality entrepreneurs wanted to engage with.
Tom Ferguson (00:12:07):
And so that really,
Tom Ferguson (00:12:08):
like,
Tom Ferguson (00:12:09):
you know,
Tom Ferguson (00:12:09):
everyone always takes the piss out of VCs for like,
Tom Ferguson (00:12:13):
oh,
Tom Ferguson (00:12:13):
let me know how I can be helpful.
Tom Ferguson (00:12:14):
Literally, we only had being helpful as part of our product.
Tom Ferguson (00:12:18):
And we had to take that idea incredibly seriously.
Tom Ferguson (00:12:21):
So what that gave us was,
Tom Ferguson (00:12:22):
again,
Tom Ferguson (00:12:23):
me,
Tom Ferguson (00:12:23):
was I think a kind of really interesting muscle memory about,
Tom Ferguson (00:12:27):
okay,
Tom Ferguson (00:12:28):
there's companies in front of me.
Tom Ferguson (00:12:29):
Like, actually, how do I make a difference in addition to the capital that I'm going to provide?
Tom Ferguson (00:12:33):
So I learned that bit first.
Tom Ferguson (00:12:36):
And then I learned...
Tom Ferguson (00:12:38):
to capital provision.
Tom Ferguson (00:12:39):
Because in many ways, capital provision, it's not easy, right?
Tom Ferguson (00:12:43):
And what's really hard about it is that you only know whether you're really good at
Tom Ferguson (00:12:45):
it many,
Tom Ferguson (00:12:46):
many,
Tom Ferguson (00:12:46):
many years later,
Tom Ferguson (00:12:48):
right?
Tom Ferguson (00:12:48):
The initial structure of deals is incredibly important.
Tom Ferguson (00:12:52):
But a lot of funds, I think, don't take the idea of real support as seriously as we do.
Tom Ferguson (00:12:59):
Because it's just, you know, it's what I learned to the imagination, because I had to.
Tom Ferguson (00:13:03):
And then, really, the main thing was that, you know, you see an awful lot of stuff go wrong.
Tom Ferguson (00:13:08):
You see a lot of stuff go right, but the stuff that goes wrong is really, really important.
Tom Ferguson (00:13:11):
And then you just start to be able to pattern match.
Tom Ferguson (00:13:13):
What are you actually looking for?
Tom Ferguson (00:13:15):
What are the best leading indicators over time of companies that are going to make it,
Tom Ferguson (00:13:18):
especially within an esoteric vertical like water?
Tom Ferguson (00:13:22):
And so it couldn't have been a better training ground.
Tom Ferguson (00:13:26):
The last thing I'll say is that it did provide me a front row seat onto a data set
Tom Ferguson (00:13:31):
that pretty much no one else in the world had.
Tom Ferguson (00:13:34):
at that time,
Tom Ferguson (00:13:35):
which was the number and quality of entrepreneurs that were starting businesses
Tom Ferguson (00:13:39):
within water.
Tom Ferguson (00:13:39):
There'd been a tectonic shift by 2020.
Tom Ferguson (00:13:40):
We were letting, we were refusing people
Tom Ferguson (00:13:44):
into our accelerator in 2020 that probably would have walked in about 18 months
Tom Ferguson (00:13:49):
prior and that to me was the why now that was the why now for starting a seed fund
Tom Ferguson (00:13:54):
in water because other people have have gone for it and it's kind of mixed results
Tom Ferguson (00:13:58):
um and there have always been great founders a lot of them are involved with us
Tom Ferguson (00:14:02):
they've always been great founders but you've never quite had a critical mess and
Tom Ferguson (00:14:05):
in 2020 that changed
Tom Ferguson (00:14:06):
And that's what's allowed us to,
Tom Ferguson (00:14:08):
I think,
Tom Ferguson (00:14:08):
have made a pretty strong start in fund one of building a portfolio that I think a
Tom Ferguson (00:14:14):
lot of VCs would be proud of.
Silas Mähner (00:14:17):
Do you think that that change in 2020 was specifically correlated in any way to the
Silas Mähner (00:14:21):
pandemic or it just kind of happened that that's where the critical mass reached?
Silas Mähner (00:14:24):
No, no, we did.
Tom Ferguson (00:14:26):
I started to notice it in 2019 and I don't have a good reason for why it was happening.
Tom Ferguson (00:14:33):
I think it's just like all things in the world, people often ask us,
Tom Ferguson (00:14:38):
What's the inflection point?
Tom Ferguson (00:14:40):
What's going to really change people's minds about water for us to all get scared
Tom Ferguson (00:14:44):
enough about the Mad Max future that we're really going to finally get it?
Tom Ferguson (00:14:48):
And the answer is nothing.
Tom Ferguson (00:14:50):
Like, if we were really going to get this, we would have got it by now.
Tom Ferguson (00:14:54):
We would have got it in 2014 with Flint.
Tom Ferguson (00:14:55):
We still haven't fixed Flint a decade later.
Tom Ferguson (00:15:00):
But the constant drumbeat, the drip feed, yes, there are lots of water jokes that you can say.
Tom Ferguson (00:15:07):
The drip feed of changes,
Tom Ferguson (00:15:09):
of support,
Tom Ferguson (00:15:10):
of the talent coming in,
Tom Ferguson (00:15:12):
the money that is being mapped with that talent,
Tom Ferguson (00:15:15):
the outsized commercial success that's happening.
Tom Ferguson (00:15:17):
the public dollars that are finding its way towards it.
Tom Ferguson (00:15:22):
Finally,
Tom Ferguson (00:15:22):
the upgrading in the support for the markets,
Tom Ferguson (00:15:26):
even though we're miles behind where we should be,
Tom Ferguson (00:15:28):
especially compared to the kilowatt hour,
Tom Ferguson (00:15:30):
the gallon getting the normal,
Tom Ferguson (00:15:31):
and it drives me absolutely insane.
Tom Ferguson (00:15:36):
It's one step in front of the other and it's like that old Carl What's-His-Face who
Tom Ferguson (00:15:41):
writes for the New York Times,
Tom Ferguson (00:15:43):
who's got the ladder that looks like very small incremental steps and then when you
Tom Ferguson (00:15:48):
look from the beginning of the staircase to the end,
Tom Ferguson (00:15:50):
it's actually a huge change.
Tom Ferguson (00:15:51):
That really is what we're in the middle of in water.
Tom Ferguson (00:15:56):
There's going to be big stuff for sure.
Tom Ferguson (00:15:57):
But they're going to be bigger steps than us for sure.
Tom Ferguson (00:16:00):
But we're just getting it over time because we only have a choice.
Tom Ferguson (00:16:03):
This is too important.
Tom Ferguson (00:16:04):
There's no way we're not going to get it.
Tom Ferguson (00:16:06):
We're just going to get it incrementally.
Tom Ferguson (00:16:08):
We're at a really interesting part of that journey now.
Silas Mähner (00:16:13):
When you were...
Silas Mähner (00:16:15):
starting biv like obviously we we kind of know how it turned out we know what you
Silas Mähner (00:16:20):
ended up with essentially but how tell us about the the unsaid things like the like
Silas Mähner (00:16:26):
what were the other things you consider maybe you know different different angles
Silas Mähner (00:16:30):
or just the things that are usually not talked about in terms of actually getting
Silas Mähner (00:16:34):
that started the difficult things that nobody likes to share um
Tom Ferguson (00:16:40):
I think it's a bit of a weird one, this.
Tom Ferguson (00:16:42):
I think this came from a relatively entrepreneurially honest place in that I just
Tom Ferguson (00:16:49):
saw the architecture of an argument that was so obvious to me that it was a
Tom Ferguson (00:16:54):
question of writing it down and then talking to a lot of people and seeing who
Tom Ferguson (00:17:00):
agreed with me.
Tom Ferguson (00:17:01):
And in the end, 99 people did.
Tom Ferguson (00:17:03):
About 251 didn't.
Tom Ferguson (00:17:06):
But that's not a bad hit rate for the first time around.
Tom Ferguson (00:17:08):
Nobody told me I was an idiot.
Tom Ferguson (00:17:10):
which is great, because nobody likes to be told that you're an idiot.
Tom Ferguson (00:17:15):
I think a lot of people raise their eyebrows at it.
Tom Ferguson (00:17:18):
This sounds niche.
Tom Ferguson (00:17:20):
And as I said earlier,
Tom Ferguson (00:17:21):
whether or not you say it's 1.4 trillion in annual spend a year or 3.6 trillion as
Tom Ferguson (00:17:25):
global water intelligence do about the capital employed annually in water security globally,
Tom Ferguson (00:17:30):
this isn't a niche.
Tom Ferguson (00:17:31):
This is water.
Tom Ferguson (00:17:32):
This is the bottom of Maslow's hierarchy of needs.
Tom Ferguson (00:17:34):
It's the number one thing that we deal with, whether or not you are in
Tom Ferguson (00:17:40):
or anchorage, right?
Tom Ferguson (00:17:43):
It's what you deal with.
Tom Ferguson (00:17:45):
This isn't a niche.
Tom Ferguson (00:17:46):
This is profoundly important.
Tom Ferguson (00:17:48):
And in the context of climate change, it is only getting more scarce.
Tom Ferguson (00:17:52):
It's just supply and demand.
Tom Ferguson (00:17:54):
It's inevitable.
Tom Ferguson (00:17:55):
It's just, like, when did we jump on the track?
Tom Ferguson (00:17:57):
Like, what's our timing?
Tom Ferguson (00:17:58):
That is open for discussion, for sure.
Tom Ferguson (00:18:00):
But the fact that water is going to be a commercially vastly important theme for
Tom Ferguson (00:18:04):
the next four,
Tom Ferguson (00:18:05):
six,
Tom Ferguson (00:18:06):
eight,
Tom Ferguson (00:18:06):
ten decades is incontrovertible in my mind.
Tom Ferguson (00:18:09):
So there wasn't a lot of shade thrown at me for that.
Tom Ferguson (00:18:12):
And then the obvious thing for me was that people that could have thrown shade at
Tom Ferguson (00:18:16):
me is that,
Tom Ferguson (00:18:18):
yeah,
Tom Ferguson (00:18:18):
I work for a non-profit accelerator,
Tom Ferguson (00:18:20):
but had I really structured deals before?
Tom Ferguson (00:18:22):
I'd done some personal deals on purpose to be able to do it,
Tom Ferguson (00:18:24):
but nobody really,
Tom Ferguson (00:18:26):
maybe they said,
Tom Ferguson (00:18:27):
yeah,
Tom Ferguson (00:18:27):
we'd like you to,
Tom Ferguson (00:18:28):
you know,
Tom Ferguson (00:18:28):
you're a bit early and you can do the fun two and the fun three.
Tom Ferguson (00:18:32):
And then of the stuff that's ugly that people don't really talk about,
Tom Ferguson (00:18:35):
I mean,
Tom Ferguson (00:18:36):
even fundraising,
Tom Ferguson (00:18:36):
a lot of people are not backed by it,
Tom Ferguson (00:18:38):
but I really like it.
Tom Ferguson (00:18:39):
It's really weird.
Tom Ferguson (00:18:41):
It is weird because, like, I love their story.
Tom Ferguson (00:18:44):
I love their story.
Tom Ferguson (00:18:45):
And you feel like you're working on a secret that's hiding in plain sight.
Tom Ferguson (00:18:49):
And even if someone says no,
Tom Ferguson (00:18:51):
or even if the call is really short,
Tom Ferguson (00:18:53):
like,
Tom Ferguson (00:18:53):
that's one person of means,
Tom Ferguson (00:18:55):
one more person of means who's at least had,
Tom Ferguson (00:18:57):
like,
Tom Ferguson (00:18:58):
somebody with my degree of conviction sit in front of them and try and explain to
Tom Ferguson (00:19:01):
them why water's a good idea.
Tom Ferguson (00:19:03):
Even if it
Tom Ferguson (00:19:04):
changes someone's attitude by one degree or they look at their tap something
Tom Ferguson (00:19:09):
slightly differently the next morning great this is all incremental and good but
Tom Ferguson (00:19:13):
that's not to say it's not wildly difficult and there aren't you know some things
Tom Ferguson (00:19:18):
that you know we'd like to we would like to have done differently but i think we
Tom Ferguson (00:19:21):
were thoughtful in the way in and it in it it's so as well
Silas Mähner (00:19:28):
Is there a particular story behind the name of the fund?
Tom Ferguson (00:19:31):
Yeah.
Tom Ferguson (00:19:33):
If you're doing the video behind me,
Tom Ferguson (00:19:35):
this is a small painting given to me by my parents of the Burnt Islands.
Tom Ferguson (00:19:41):
they are a group of islands on the west coast of Scotland.
Tom Ferguson (00:19:44):
I know it sounds like I'm sort of, oh, the world's going to be on fire.
Tom Ferguson (00:19:50):
It's a useful name in that it begs the question.
Tom Ferguson (00:19:54):
People do latch onto it, and I think that's really important.
Tom Ferguson (00:19:56):
But the reason I chose it is that
Tom Ferguson (00:19:58):
It kind of reminds me of home.
Tom Ferguson (00:20:00):
These are three islands that sit in the middle of my favourite view in all the world, above Tillebrook.
Tom Ferguson (00:20:06):
This is a body of water in between the island of Bute and the mainland.
Tom Ferguson (00:20:13):
And it's stunningly beautiful.
Tom Ferguson (00:20:14):
And it's a rest stop as we go past.
Tom Ferguson (00:20:17):
It's very small.
Tom Ferguson (00:20:17):
It's just a pullover and lay-by, basically.
Tom Ferguson (00:20:19):
But it just feels,
Tom Ferguson (00:20:20):
every time we see it,
Tom Ferguson (00:20:21):
it feels like the gateway to where I grew up on the west coast of Scotland.
Tom Ferguson (00:20:25):
Names are really important.
Tom Ferguson (00:20:27):
You think about them all the time.
Tom Ferguson (00:20:28):
So that's kind of where it comes from.
Tom Ferguson (00:20:30):
So it's related to the sea, even though we don't do a ton of ocean stuff.
Tom Ferguson (00:20:33):
We know a lot of people who do,
Tom Ferguson (00:20:35):
but maybe one day our destiny will be brought together by these islands sitting in
Tom Ferguson (00:20:41):
a body of salt water rather than freshwater.
Silas Mähner (00:20:43):
Now, I think it's quite interesting.
Silas Mähner (00:20:44):
I mean,
Silas Mähner (00:20:44):
a lot of people picking names of things,
Silas Mähner (00:20:46):
it's like they joke,
Silas Mähner (00:20:47):
you just throw it in a cleantech name generator and something comes out,
Silas Mähner (00:20:51):
right?
Silas Mähner (00:20:51):
This doesn't seem like that, right?
Silas Mähner (00:20:53):
It sounds very different, which is why I was curious.
Silas Mähner (00:20:56):
I guess out of all of your experience, what were, maybe you already mentioned this, but
Silas Mähner (00:21:01):
what were the things that you think most set you up to become a good investor?
Silas Mähner (00:21:05):
At least,
Silas Mähner (00:21:05):
you know,
Silas Mähner (00:21:05):
it seems as though,
Silas Mähner (00:21:06):
I mean,
Silas Mähner (00:21:06):
obviously you said it takes a while to figure out if you're good at it,
Silas Mähner (00:21:08):
but it seems as though you're doing pretty well.
Silas Mähner (00:21:11):
What do you think prepared you for this the most?
Tom Ferguson (00:21:14):
This is going to sound like sacrilege.
Tom Ferguson (00:21:16):
But my MBA was really useful.
Tom Ferguson (00:21:18):
I know in the tech industry,
Tom Ferguson (00:21:19):
it's great to hate on MBAs,
Tom Ferguson (00:21:21):
and they all suck,
Tom Ferguson (00:21:23):
and all they want to do is be consultants in a tech company.
Tom Ferguson (00:21:27):
Why would you need them?
Tom Ferguson (00:21:29):
They're all terrible.
Tom Ferguson (00:21:31):
It's rubbish.
Tom Ferguson (00:21:32):
The people I went to my business school with were absolutely phenomenal,
Tom Ferguson (00:21:35):
and they've done an amazing array of really,
Tom Ferguson (00:21:36):
really interesting things.
Tom Ferguson (00:21:38):
And the way in which I was taught to think about businesses and things that were deeply unpopular
Tom Ferguson (00:21:46):
in 2021 and now magically become popular again things like unit economic it's just
Tom Ferguson (00:21:52):
you know like really understanding how to build the guts of a of a reasonable
Tom Ferguson (00:21:58):
business not only that all sorts of different businesses right going everywhere
Tom Ferguson (00:22:01):
from the largest public equities that real estate to uh i spent a lot of time in
Tom Ferguson (00:22:06):
energy i'm just enough to find that i wasn't you know i was a sustainability guy
Tom Ferguson (00:22:10):
but i didn't find energy hugely interesting um uh
Tom Ferguson (00:22:15):
maybe because i thought it was like a little bit played out now that is going to be
Tom Ferguson (00:22:18):
like hugely sacrilegious i think because we were on a scale moment and there's a
Tom Ferguson (00:22:22):
huge amount of work to that to do and i don't mean it in the wrong way and i don't
Tom Ferguson (00:22:24):
want to offend anybody but just on a personal level it just gave me a huge amount
Tom Ferguson (00:22:28):
to to to think about it um but then the other stuff is just like is is reading one
Tom Ferguson (00:22:34):
of my my first job out of um i really had the nba beaten out of me i uh
Tom Ferguson (00:22:40):
My first job out of my fancy business school,
Tom Ferguson (00:22:44):
I had to get up at 5.45 in the morning and hop on my bike down to the bars and then
Tom Ferguson (00:22:48):
go down to South San Francisco by Updale,
Tom Ferguson (00:22:50):
just underneath the South San Francisco sign,
Tom Ferguson (00:22:52):
to a middle school where I did a time and motion study of the installation of a
Tom Ferguson (00:22:56):
12-classroom building by hand.
Tom Ferguson (00:22:59):
So I had a hard hat, boots, the whole lot, high-vis jacket, and I took 11,500 data points by hand.
Tom Ferguson (00:23:07):
um,
Tom Ferguson (00:23:07):
to essentially answer the question of like,
Tom Ferguson (00:23:09):
why,
Tom Ferguson (00:23:10):
why is this,
Tom Ferguson (00:23:11):
why is this taking longer and being more expensive than we think?
Tom Ferguson (00:23:13):
So I had the data points and all of the notes about what happened with each panel
Tom Ferguson (00:23:17):
of the installation of these flat buildings that were,
Tom Ferguson (00:23:20):
that were going in.
Tom Ferguson (00:23:20):
Um,
Tom Ferguson (00:23:23):
And that was unbelievably helpful because firstly,
Tom Ferguson (00:23:27):
it taught me that the world didn't owe me anything at all,
Tom Ferguson (00:23:30):
that actually I can end up doing the least.
Tom Ferguson (00:23:33):
I actually also had a seriously unsexy job in the summer in between my two years of business school.
Tom Ferguson (00:23:39):
I was literally looking for chicken shit in the UK.
Tom Ferguson (00:23:41):
It was awesome.
Tom Ferguson (00:23:43):
I ended up in an abattoir in my last week, literally looking for blood.
Tom Ferguson (00:23:47):
Anaerobic digestion is a very strange business.
Tom Ferguson (00:23:50):
So, but what that taught me was that, firstly, the world didn't owe me anything.
Tom Ferguson (00:23:56):
Secondly,
Tom Ferguson (00:23:58):
the delivery of a value proposition happens at the sharp end,
Tom Ferguson (00:24:01):
that you really,
Tom Ferguson (00:24:03):
really need to understand the specifics of getting the value proposition into the
Tom Ferguson (00:24:07):
hands of your customers.
Tom Ferguson (00:24:08):
And sometimes that takes 11 and a half thousand data points by hand,
Tom Ferguson (00:24:12):
but usually kind of like what's happening in the fancy office and what's happening,
Tom Ferguson (00:24:16):
especially in hardware,
Tom Ferguson (00:24:17):
what's happening in the,
Tom Ferguson (00:24:18):
in the world that is just a question of putting one foot in the other.
Tom Ferguson (00:24:22):
And it's the hard yarns and it's the knife fight in the phone box,
Tom Ferguson (00:24:24):
like whatever it is,
Tom Ferguson (00:24:25):
like the world is really complicated.
Tom Ferguson (00:24:27):
It is meaningless until you get your value proposition actually into the hands of your customer.
Tom Ferguson (00:24:32):
But like, even then I had no idea what I was learning.
Tom Ferguson (00:24:38):
And while I was doing that, I did an awful lot of listening to an awful lot of podcasts.
Tom Ferguson (00:24:42):
And that's where I discovered Morgan Household,
Tom Ferguson (00:24:45):
Tren Griffin,
Tom Ferguson (00:24:46):
and a whole bunch of other people that were just
Tom Ferguson (00:24:50):
They just seemed to me to be really sensible,
Tom Ferguson (00:24:52):
and they were really good at highlighting other people who were really sensible.
Tom Ferguson (00:24:56):
Patrick O'Shaughnessy, incredibly important, a touchstone for a whole bunch of different reasons.
Tom Ferguson (00:25:01):
And I was just opened up to this world of kind of company building,
Tom Ferguson (00:25:04):
some of which I agreed with,
Tom Ferguson (00:25:06):
almost a lot of which I agreed with,
Tom Ferguson (00:25:07):
some of which I didn't think were sensible.
Tom Ferguson (00:25:10):
And it was the beginning of putting in place,
Tom Ferguson (00:25:12):
I think,
Tom Ferguson (00:25:12):
the mental kind of architecture that then I was able to underlay while I was
Tom Ferguson (00:25:18):
working with all of these companies that
Tom Ferguson (00:25:20):
to try and figure out what was possible,
Tom Ferguson (00:25:24):
what was the sensible approach to company building,
Tom Ferguson (00:25:27):
even though sensible amongst the canon of VC,
Tom Ferguson (00:25:32):
right,
Tom Ferguson (00:25:32):
is the enemy.
Tom Ferguson (00:25:34):
Like what you're looking for is unsensible.
Tom Ferguson (00:25:36):
What you're looking for is Uber,
Tom Ferguson (00:25:38):
like the strangers climbing into strangers' cars and that not being a suicidal idea,
Tom Ferguson (00:25:44):
like turning up into someone's apartment.
Tom Ferguson (00:25:46):
to go and stay.
Tom Ferguson (00:25:47):
Right.
Tom Ferguson (00:25:47):
And that not also being a suicidal idea.
Tom Ferguson (00:25:50):
That's the idealism of the, you know, it sounds like a bad idea.
Tom Ferguson (00:25:52):
It is a good idea.
Tom Ferguson (00:25:53):
And then you get a sort of,
Tom Ferguson (00:25:55):
you know,
Tom Ferguson (00:25:55):
a bazillion dollar company,
Tom Ferguson (00:25:56):
but I've always been attracted to the idea of sensible companies anyway.
Tom Ferguson (00:25:59):
So there was like,
Tom Ferguson (00:26:00):
there was kind of a lot to it,
Tom Ferguson (00:26:01):
but I would point to those two,
Tom Ferguson (00:26:02):
like my MBA and then listening to an awful lot of smart people who were kind enough
Tom Ferguson (00:26:06):
to build in public.
Silas Mähner (00:26:07):
Nice.
Silas Mähner (00:26:08):
Very nice.
Silas Mähner (00:26:08):
Okay.
Silas Mähner (00:26:08):
That's great.
Silas Mähner (00:26:09):
Um,
Silas Mähner (00:26:10):
What?
Silas Mähner (00:26:11):
So we understand that Remit is water.
Silas Mähner (00:26:13):
Do you invest in any particular stage of company or throughout the entire lifecycle?
Silas Mähner (00:26:16):
Yeah, we're looking to be as early as possible.
Silas Mähner (00:26:18):
What we say our kind of job is,
Tom Ferguson (00:26:20):
is that we the moment a really,
Tom Ferguson (00:26:21):
really smart person has an idea that has something to do with the water sector and
Tom Ferguson (00:26:26):
they go to their terminal and they say,
Tom Ferguson (00:26:30):
well,
Tom Ferguson (00:26:30):
VC for water.
Tom Ferguson (00:26:31):
We need to be we need to be there about 15 seconds after they've had the idea.
Tom Ferguson (00:26:35):
So we need to be really, really, really early.
Tom Ferguson (00:26:37):
There's a bit of a weird setup in that you can have your cake and eat it too in
Tom Ferguson (00:26:41):
water because nobody gets it,
Tom Ferguson (00:26:43):
right?
Tom Ferguson (00:26:43):
You don't have a huge amount of like price upwards, price pressure.
Tom Ferguson (00:26:45):
You also have to be very careful about pricing when you're getting into deals in
Tom Ferguson (00:26:49):
this for reasons that we can go into.
Tom Ferguson (00:26:52):
But really, that means that we're at the pre-seed and the seed.
Tom Ferguson (00:26:54):
We do a little bit of Series A, especially as you go through the deployment period.
Tom Ferguson (00:26:58):
It can be a reasonable idea when you actually look at the maths to spend a little
Tom Ferguson (00:27:02):
bit of time later in the company lifecycle when you've got a little bit less time
Tom Ferguson (00:27:06):
to run.
Tom Ferguson (00:27:06):
But we're squarely at the seed.
Tom Ferguson (00:27:08):
We want to be as far up the stage as we possibly can.
Tom Ferguson (00:27:11):
But we are also raising an opportunity fund to be able to invest in the Series B
Tom Ferguson (00:27:15):
and beyond just because there is an awful lot of talent that is graduating.
Silas Mähner (00:27:20):
Okay, got it.
Silas Mähner (00:27:21):
And so,
Silas Mähner (00:27:22):
you know,
Silas Mähner (00:27:22):
with most,
Silas Mähner (00:27:23):
I guess,
Silas Mähner (00:27:23):
generally speaking,
Silas Mähner (00:27:24):
VC,
Silas Mähner (00:27:25):
there's a lot of things people talk about is team timing and the technology.
Silas Mähner (00:27:29):
In water specifically,
Silas Mähner (00:27:31):
while doing diligence,
Silas Mähner (00:27:33):
what are the other things that are really particular you have to focus on?
Silas Mähner (00:27:36):
So we've got to think, all of that is important.
Tom Ferguson (00:27:38):
It's funny, people talk about the venture triangle.
Tom Ferguson (00:27:42):
And they're all important.
Tom Ferguson (00:27:44):
They really are.
Tom Ferguson (00:27:45):
We are...
Tom Ferguson (00:27:48):
very, very much focused on the team side of things.
Tom Ferguson (00:27:53):
So water is a relatively esoteric market.
Tom Ferguson (00:27:55):
I actually would argue it's no more esoteric than other verticals,
Tom Ferguson (00:27:58):
whether you're talking about FinTech or InsurTech or consumer,
Tom Ferguson (00:28:01):
or like you're just standardized B2B SaaS.
Tom Ferguson (00:28:03):
It's just other people understand those verticals and there's no one at SaaS.
Tom Ferguson (00:28:06):
Water isn't more complicated than anything else.
Tom Ferguson (00:28:08):
It's just that nobody understands it.
Tom Ferguson (00:28:10):
So people find it hard to wonder, right?
Tom Ferguson (00:28:11):
And it looks scary and terrible and slow and regulated and all this nonsense that people throw at it.
Tom Ferguson (00:28:19):
But you do have to be careful of a couple of things.
Tom Ferguson (00:28:21):
So the bad things in VC happen in the gap between reality and people's perception of reality.
Tom Ferguson (00:28:27):
And again, water is misunderstood.
Tom Ferguson (00:28:28):
The gap tends to be a lot wider in water.
Tom Ferguson (00:28:32):
So people will be like,
Tom Ferguson (00:28:32):
yeah,
Tom Ferguson (00:28:33):
I found out on a podcast that the leakage rate in California out of the pipes is 21%.
Tom Ferguson (00:28:40):
and California is a desert, and I'm going to go and fix that.
Tom Ferguson (00:28:42):
It's like, great, thank you.
Tom Ferguson (00:28:44):
It's awesome.
Tom Ferguson (00:28:44):
There are 124 different leak detection companies out there at the moment.
Tom Ferguson (00:28:49):
You have a really good reason why you're going.
Tom Ferguson (00:28:53):
And that means that the team is really, really important.
Tom Ferguson (00:28:55):
You need to have people that either through radical founder market fit or a radical
Tom Ferguson (00:28:59):
amount of work who have made sure that there is no gap between the perception of
Tom Ferguson (00:29:04):
reality and the actual reality of the market.
Tom Ferguson (00:29:08):
You also have to be very, very careful about the pace of change in a market.
Tom Ferguson (00:29:12):
There are reasons.
Tom Ferguson (00:29:13):
There can be often really quite precipitatory reasons why there is going to be an inflection.
Tom Ferguson (00:29:20):
But a lot of people think that stuff in water is going to change faster than it does.
Tom Ferguson (00:29:26):
I mean, the tricky thing about that side of things is that you need to be...
Tom Ferguson (00:29:34):
Extremely careful all the way down because you can compensate for a slow pace of
Tom Ferguson (00:29:38):
change But you have to compensate through radical unit economics And that could be
Tom Ferguson (00:29:44):
pretty difficult that can be pretty difficult to find the other thing you also have
Tom Ferguson (00:29:49):
to be really careful because And again,
Tom Ferguson (00:29:52):
I think this is probably the same in all sorts of other verticals I just don't
Tom Ferguson (00:29:54):
spend any time on it.
Tom Ferguson (00:29:55):
Like I think we as humans are inertia monsters
Tom Ferguson (00:29:59):
I don't think we want to do anything different ever about anything unless we are essentially forced to.
Tom Ferguson (00:30:05):
And that means that the alternative to what we're doing has to be so good as to be unignorable.
Tom Ferguson (00:30:10):
And especially when you're operating like a wastewater utility,
Tom Ferguson (00:30:13):
for example,
Tom Ferguson (00:30:14):
which is actually as understood as an organism,
Tom Ferguson (00:30:16):
not a machine,
Tom Ferguson (00:30:17):
to change something within that setup.
Tom Ferguson (00:30:20):
It has to be so much better that it has to be borderline a fireable offense not to install it.
Tom Ferguson (00:30:28):
And that's even before you get into all of the challenges around being able to put
Tom Ferguson (00:30:34):
it in place,
Tom Ferguson (00:30:35):
all the complexities around being able to put it in place.
Tom Ferguson (00:30:39):
So it's this idea of the margin of safety on the degree of improvement is a really important one.
Tom Ferguson (00:30:44):
And then in general, we're trying to stay away from things that are crowded.
Tom Ferguson (00:30:49):
We had a really, really fun top of the funnel session this morning, just as the eclipse was going by.
Tom Ferguson (00:30:56):
I didn't have my glasses, so I missed it.
Tom Ferguson (00:30:58):
Isn't that sad?
Tom Ferguson (00:31:00):
But I saw one in 1999, so it's fine.
Tom Ferguson (00:31:04):
So, but we had three companies that were just in a space that we'd never, like, hadn't even thought of.
Tom Ferguson (00:31:10):
And that's where really, really interesting things happen.
Tom Ferguson (00:31:12):
So we're looking for huge, huge surprises.
Tom Ferguson (00:31:16):
But otherwise,
Tom Ferguson (00:31:17):
just,
Tom Ferguson (00:31:17):
you know,
Tom Ferguson (00:31:17):
we're just looking for companies that make a huge amount of sense that you don't
Tom Ferguson (00:31:20):
need to have a leap of faith to be able to imagine them becoming very,
Tom Ferguson (00:31:27):
very large indeed.
Tom Ferguson (00:31:28):
And that sounds an awful lot like the rest of VC to us.
Silas Mähner (00:31:31):
Yeah, I think it's quite interesting.
Silas Mähner (00:31:32):
You touched on a question I wanted to go over.
Silas Mähner (00:31:35):
So maybe just kind of get your final thoughts on it,
Silas Mähner (00:31:37):
which is one of the points that you have on your website.
Silas Mähner (00:31:40):
which is, I think you said, you call it pricing in velocity.
Silas Mähner (00:31:43):
I just found that to be the most, probably the most interesting of those five things.
Silas Mähner (00:31:47):
And you talk about, Hey, how fast are things going to change, et cetera.
Silas Mähner (00:31:51):
So it can maybe talk on that for the water space,
Silas Mähner (00:31:53):
but I think people listening apply this to other things in hardware too.
Tom Ferguson (00:31:57):
Yeah, for sure.
Tom Ferguson (00:31:57):
Yeah, absolutely.
Tom Ferguson (00:31:58):
You know, it's funny, the five things, four of which are boring.
Tom Ferguson (00:32:01):
So yeah, the one that is interesting in this area.
Tom Ferguson (00:32:04):
So, yeah, pricing and velocity.
Tom Ferguson (00:32:07):
Everyone's always scared of slow, and I think that's really dumb.
Tom Ferguson (00:32:11):
Like, infrastructure SaaS is slow.
Tom Ferguson (00:32:14):
You know, people don't bat an eyelid of having a very long sales cycle for software.
Tom Ferguson (00:32:20):
And that's because you're compensated by relatively large contracts when you're done.
Tom Ferguson (00:32:24):
And that's just a fairly universal piece of logic, isn't it?
Tom Ferguson (00:32:27):
It's that if you're going to wait for something for a long time, it better be worth it.
Tom Ferguson (00:32:31):
So if you're going to be slow, what pricing and velocity means?
Tom Ferguson (00:32:35):
A good example is Enline Energy, right?
Tom Ferguson (00:32:38):
So Enline Energy have got a reasonably long sales cycle.
Tom Ferguson (00:32:40):
It's quite an engaged, involved, technical sale.
Tom Ferguson (00:32:44):
But when you get to the end of that technical sale,
Tom Ferguson (00:32:47):
you've got a $550,000 ASP with a 55% gross margin,
Tom Ferguson (00:32:52):
50% of which is 50% of the selling prices is taken up front.
Tom Ferguson (00:32:56):
So you've got very, very little working capital needs.
Tom Ferguson (00:33:00):
You've got pretty spectacular overall performance indicators.
Tom Ferguson (00:33:03):
So that actually ends up with a really,
Tom Ferguson (00:33:05):
really strong business case,
Tom Ferguson (00:33:06):
both for the customers and for Endline themselves.
Tom Ferguson (00:33:10):
So it's an amazing value sharing issue.
Tom Ferguson (00:33:13):
And then often customers buy more than one.
Tom Ferguson (00:33:16):
So you end up with these huge contracts.
Tom Ferguson (00:33:18):
And so,
Tom Ferguson (00:33:18):
okay,
Tom Ferguson (00:33:19):
if it's,
Tom Ferguson (00:33:19):
you know,
Tom Ferguson (00:33:19):
taking anywhere between nine to 15,
Tom Ferguson (00:33:21):
sometimes a stretch,
Tom Ferguson (00:33:22):
18 months,
Tom Ferguson (00:33:23):
like what is coming off the end of the conveyor belt is worth waiting for.
Tom Ferguson (00:33:27):
And then the other thing that we think that we mean by pricing and velocity is that
Tom Ferguson (00:33:30):
often people are like,
Tom Ferguson (00:33:31):
yeah,
Tom Ferguson (00:33:31):
sales cycles,
Tom Ferguson (00:33:32):
energy,
Tom Ferguson (00:33:32):
so it doesn't,
Tom Ferguson (00:33:34):
it's not,
Tom Ferguson (00:33:35):
it doesn't,
Tom Ferguson (00:33:36):
It really doesn't matter if you've got somebody who really understands how to architect a sales funnel.
Tom Ferguson (00:33:42):
Because what is relevant is not the length of the conveyor belt.
Tom Ferguson (00:33:46):
It's what happens when stuff starts falling off the end.
Tom Ferguson (00:33:49):
Because if you have a really long conveyor belt and then you have stuff falling off
Tom Ferguson (00:33:52):
the end with regularity,
Tom Ferguson (00:33:54):
especially if the unit economics of that stuff that's falling off is really tasty.
Tom Ferguson (00:33:59):
Like,
Tom Ferguson (00:33:59):
what you have is a moat,
Tom Ferguson (00:34:01):
because it's going to take everybody else the same amount of time to be able to
Tom Ferguson (00:34:04):
start that engine.
Tom Ferguson (00:34:05):
But once you have that engine started, you have a built-in lead time.
Tom Ferguson (00:34:09):
So not only the time it would take for other people to create,
Tom Ferguson (00:34:12):
in Enline's case,
Tom Ferguson (00:34:13):
an engine functioning at anywhere between 50 and 60,
Tom Ferguson (00:34:16):
sorry,
Tom Ferguson (00:34:16):
60 to 80% efficiency,
Tom Ferguson (00:34:17):
which,
Tom Ferguson (00:34:17):
so the moat is literally physics.
Tom Ferguson (00:34:22):
Like,
Tom Ferguson (00:34:23):
not only do they have to build that thing,
Tom Ferguson (00:34:25):
they have at least a year and a half in the market before they can get to any kind
Tom Ferguson (00:34:29):
of commercial traction.
Tom Ferguson (00:34:30):
That is awesome.
Tom Ferguson (00:34:31):
That's amazing.
Tom Ferguson (00:34:32):
Like, you just have to get through it.
Tom Ferguson (00:34:35):
And on the other side of things,
Tom Ferguson (00:34:36):
if things are really quick,
Tom Ferguson (00:34:37):
yeah,
Tom Ferguson (00:34:37):
you can be much more permissive about it.
Tom Ferguson (00:34:39):
But, like, of all of the rocks that people throw at the water sector, it's like, oh, slow.
Tom Ferguson (00:34:44):
Actually, slow can be a real advantage as long as you think about it correctly.
Silas Mähner (00:34:48):
I mean, does that affect necessarily how you invest or the fund size?
Silas Mähner (00:34:52):
Because,
Silas Mähner (00:34:53):
I mean,
Silas Mähner (00:34:53):
typical life cycle,
Silas Mähner (00:34:54):
maybe you have to invest,
Silas Mähner (00:34:55):
they have to have a longer runway or they have to extend the money they've raised
Silas Mähner (00:34:58):
for a longer period of time.
Silas Mähner (00:34:59):
Like, does it actually have any material effect on how they run the company?
Tom Ferguson (00:35:03):
Yeah, you would think so.
Tom Ferguson (00:35:04):
And it's a good question.
Tom Ferguson (00:35:05):
I mean, there are two sides of it, a material effect on how they run the company.
Tom Ferguson (00:35:08):
Yes, absolutely.
Tom Ferguson (00:35:09):
You need to organize yourself around this fact.
Tom Ferguson (00:35:12):
Right.
Tom Ferguson (00:35:12):
You have to make sure that this makes sense.
Tom Ferguson (00:35:14):
Then you are turning it into an advantage.
Tom Ferguson (00:35:16):
And for us, OK, if you're going to have a really long sales cycle and we've got a, you know, our our our.
Tom Ferguson (00:35:25):
liquidity window is opening in seven to ten years' time,
Tom Ferguson (00:35:28):
and you've got a relatively short window to be able to really get yourself into a
Tom Ferguson (00:35:36):
commercial momentum that somebody's going to really sit up and take notice of,
Tom Ferguson (00:35:41):
whether that's from the energy or the infrastructure,
Tom Ferguson (00:35:44):
private equity side of things,
Tom Ferguson (00:35:45):
or whatever it might be,
Tom Ferguson (00:35:46):
you've got to be careful.
Tom Ferguson (00:35:46):
You don't necessarily want to invest in that company too early at the end of your deployment period.
Tom Ferguson (00:35:51):
Because then you've only got like four years of runtime until your window opens.
Tom Ferguson (00:35:56):
And that's not quite going to be touch and go that you're going to be able to get that revenue up there.
Tom Ferguson (00:36:02):
So when you impose a multiple on it,
Tom Ferguson (00:36:04):
you're going to be able to get the MOIC that you're really looking for.
Tom Ferguson (00:36:09):
So there are some things that imposes it on the kind of fund structuring.
Tom Ferguson (00:36:15):
And then, yeah, in terms of running the company itself, it has to be built around that fact.
Tom Ferguson (00:36:18):
If you're going to be selling a complex product, you better be looking at that straight in the face.
Tom Ferguson (00:36:24):
But like Endline did, 9.5 million in bookings last year.
Tom Ferguson (00:36:27):
We think they're going to be touching 18 to 20 this year.
Tom Ferguson (00:36:31):
And you don't have to go too far to be able to extrapolate that out to some really,
Tom Ferguson (00:36:36):
really interesting portals.
Tom Ferguson (00:36:37):
I'm just very, very glad that we got into it when we did, which was relatively early in 2022.
Silas Mähner (00:36:42):
So just to clarify, your fund time horizon is not different than most funds?
Tom Ferguson (00:36:47):
No.
Tom Ferguson (00:36:48):
No, we've got a, it's essentially a 10-year fund.
Tom Ferguson (00:36:51):
And then, you know, we want to have the trust with our LPAC.
Tom Ferguson (00:36:53):
And so they,
Tom Ferguson (00:36:54):
for every year extension,
Tom Ferguson (00:36:57):
we have a,
Tom Ferguson (00:36:58):
it's just with the agreement of the LPAC,
Tom Ferguson (00:37:00):
which is a very standard fund structure.
Tom Ferguson (00:37:02):
I mean, other people want to do like 14 to 16 years, like whatever it is.
Tom Ferguson (00:37:05):
Look, first-time fund, first-time manager.
Tom Ferguson (00:37:07):
Okay,
Tom Ferguson (00:37:07):
I was raising in 2021,
Tom Ferguson (00:37:09):
which is basically about the only time that like a first-time fund,
Tom Ferguson (00:37:11):
first-time manager would be able to raise a fund in water.
Tom Ferguson (00:37:14):
And that fact is not lost on me.
Tom Ferguson (00:37:16):
But I also wanted to make sure that basically the most interesting thing about the
Tom Ferguson (00:37:20):
fund was that we were investing in water.
Tom Ferguson (00:37:22):
Everything else I wanted an off-the-shelf LPA.
Tom Ferguson (00:37:24):
It was basically the most boring thing that anybody had ever seen.
Tom Ferguson (00:37:26):
And I wanted to make sure that the ELPAC,
Tom Ferguson (00:37:28):
because they were taking a chance on somebody who's relatively unproven,
Tom Ferguson (00:37:31):
that if we're going to get out there,
Tom Ferguson (00:37:34):
that they had the wherewithal.
Tom Ferguson (00:37:40):
to be able to,
Tom Ferguson (00:37:40):
you know,
Tom Ferguson (00:37:41):
to work with me and for me to work with them in terms of,
Tom Ferguson (00:37:43):
you know,
Tom Ferguson (00:37:43):
how much time we need to,
Tom Ferguson (00:37:45):
uh,
Tom Ferguson (00:37:45):
for,
Tom Ferguson (00:37:45):
for this to,
Tom Ferguson (00:37:46):
to go.
Tom Ferguson (00:37:46):
But as we,
Tom Ferguson (00:37:47):
you know,
Tom Ferguson (00:37:47):
our company's made did 54 million in bookings last year,
Tom Ferguson (00:37:50):
27 million in revenue,
Tom Ferguson (00:37:51):
you know,
Tom Ferguson (00:37:52):
like we're,
Tom Ferguson (00:37:52):
especially for 30 million funds,
Tom Ferguson (00:37:54):
you know,
Tom Ferguson (00:37:54):
depending on where you put the multiple.
Tom Ferguson (00:37:56):
there are different flavors of revenue within that,
Tom Ferguson (00:37:58):
whether you're looking at software multiples,
Tom Ferguson (00:38:00):
hardware multiples,
Tom Ferguson (00:38:01):
whatever it is,
Tom Ferguson (00:38:01):
it's not perfect.
Tom Ferguson (00:38:03):
You know,
Tom Ferguson (00:38:03):
this isn't a 250 million fund like now,
Tom Ferguson (00:38:06):
but it's exactly where we would,
Tom Ferguson (00:38:08):
it's exactly where we would want to be.
Tom Ferguson (00:38:11):
Yeah.
Tom Ferguson (00:38:11):
There's no reason why, you know, I need to march up to my LP and say, I need a 15 year fund.
Tom Ferguson (00:38:15):
Like the tons of businesses be built in water that can make sense on a seven to 10 year timeframe.
Silas Mähner (00:38:21):
So I'm going to combine a couple of other questions I had, which is,
Silas Mähner (00:38:25):
Around the value you bring to your portfolio companies,
Silas Mähner (00:38:28):
I guess,
Silas Mähner (00:38:29):
having done this,
Silas Mähner (00:38:29):
I mean,
Silas Mähner (00:38:30):
previously you worked in an accelerator in water and now you're building a fund in it.
Silas Mähner (00:38:33):
Can you just speak a little bit to the compounding effect of being kind of very,
Silas Mähner (00:38:39):
very particular in this space?
Silas Mähner (00:38:40):
And obviously there's learnings you come along the way,
Silas Mähner (00:38:43):
network,
Silas Mähner (00:38:44):
et cetera,
Silas Mähner (00:38:44):
that you're probably able to add other value.
Silas Mähner (00:38:46):
But can you just talk about this broadly speaking,
Silas Mähner (00:38:48):
the idea of compounding when you really focus on one thing for a very long time?
Tom Ferguson (00:38:53):
Yeah, it's really a two-question.
Tom Ferguson (00:38:56):
Nobody's ever asked us in the context of compounding, but that really is how we think about it.
Tom Ferguson (00:39:05):
So I'll come at it from a slightly different angle.
Tom Ferguson (00:39:06):
So when you run VC through, like, Helmer's seven powers, and I much prefer that to...
Tom Ferguson (00:39:12):
uh the five forces it's user-friendly uh the sort of understanding of i always get
Tom Ferguson (00:39:18):
confused between how to supply a pound by a pound might be because i'm not very
Tom Ferguson (00:39:21):
smart but like but how much how much seven power is the way in which we we use it
Tom Ferguson (00:39:25):
right when you run it down vc is not great isn't it
Tom Ferguson (00:39:27):
It really isn't.
Tom Ferguson (00:39:28):
There's not a huge amount to sort of stop you waiting.
Tom Ferguson (00:39:30):
Everybody's green looks very green, similarly green to other people.
Tom Ferguson (00:39:34):
So you've got to understand upon what business, what basis are you going to differentiate?
Tom Ferguson (00:39:40):
And you kind of end up on brand, right?
Tom Ferguson (00:39:43):
And for an early fund,
Tom Ferguson (00:39:45):
The reason why there are such entrenched incumbents,
Tom Ferguson (00:39:48):
and sometimes people can come in usually by using another one of the Helmer's set
Tom Ferguson (00:39:52):
of powers,
Tom Ferguson (00:39:52):
especially counter-positioning.
Tom Ferguson (00:39:54):
Hello, Andreessen Horowitz.
Tom Ferguson (00:39:57):
Especially counter-positioning.
Tom Ferguson (00:39:58):
But really, brand is what?
Tom Ferguson (00:40:00):
Brand is what it is.
Tom Ferguson (00:40:00):
Sorry.
Tom Ferguson (00:40:03):
Brand is seriously important.
Tom Ferguson (00:40:05):
And in the end,
Tom Ferguson (00:40:05):
brand comes from DPI and outrageous success,
Tom Ferguson (00:40:08):
and that's why you have the top table and tier one firms.
Tom Ferguson (00:40:11):
It is what it is.
Tom Ferguson (00:40:12):
It's because the results have been said.
Tom Ferguson (00:40:15):
That's great.
Tom Ferguson (00:40:16):
On the way there, you have to be very clear about how you want to be perceived by your target audience.
Tom Ferguson (00:40:23):
And because we're so focused,
Tom Ferguson (00:40:24):
we're not trying to be perceived in one way by a battery company or a consumer SaaS
Tom Ferguson (00:40:28):
company or whatever it is.
Tom Ferguson (00:40:31):
We need to be perceived in a way by water companies.
Tom Ferguson (00:40:33):
And that is people who take the water incredibly seriously are deeply knowledgeable
Tom Ferguson (00:40:36):
about the water sector and are deeply knowledgeable about company building.
Tom Ferguson (00:40:40):
Is there room for improvement in all of those things?
Tom Ferguson (00:40:42):
Yes, absolutely.
Tom Ferguson (00:40:43):
We are still surprised every day by a whole bunch of different things.
Tom Ferguson (00:40:47):
But we are really committed to learning.
Tom Ferguson (00:40:50):
But then we also have the focus also pops up in a couple of other places, like cornered resource.
Tom Ferguson (00:40:55):
Now, I am not a cornered resource.
Tom Ferguson (00:40:58):
I am underwhelming and British and have less hair than I did.
Tom Ferguson (00:41:03):
And I don't mind humiliating myself on stages, which is actually quite a useful thing.
Tom Ferguson (00:41:09):
But we have some really interesting cornered resources in our firm.
Tom Ferguson (00:41:11):
My two partners are both called cornered resources.
Tom Ferguson (00:41:14):
They are...
Tom Ferguson (00:41:15):
Well, not to dehumanize them, because both Christine and Steve are awesome.
Tom Ferguson (00:41:19):
But Christine built and sold by the Warner of Water Analytics to Xylem.
Tom Ferguson (00:41:22):
She's an exited digital founder.
Tom Ferguson (00:41:26):
PhD in data science is radically awesome and understands everything digital inside out and back to front.
Tom Ferguson (00:41:36):
And then Steve has been at the cold face of hard tech in water for many a decade
Tom Ferguson (00:41:42):
and is the highest regarded hard tech mind,
Tom Ferguson (00:41:46):
I think,
Tom Ferguson (00:41:46):
in water.
Tom Ferguson (00:41:48):
And they work for us.
Tom Ferguson (00:41:49):
They don't work for anyone else.
Tom Ferguson (00:41:51):
Our venture partners,
Tom Ferguson (00:41:54):
Wayne and Paul,
Tom Ferguson (00:41:55):
Wayne Byrne and Paul Hoffman,
Tom Ferguson (00:41:57):
both similarly actually excellent,
Tom Ferguson (00:41:58):
both exited founders from Oxfam and Cedaroo,
Tom Ferguson (00:42:03):
respectively.
Tom Ferguson (00:42:04):
So we're doing a little bit of that.
Tom Ferguson (00:42:06):
But then also the other one is network effects.
Tom Ferguson (00:42:08):
Now, it's not the same as the classic network effect, but we are a group of people.
Tom Ferguson (00:42:12):
I really do think the Burnt Islanders,
Tom Ferguson (00:42:14):
which is what we call our portfolio,
Tom Ferguson (00:42:15):
a Burnt Island is a group that other founders want to be a part of because they're very,
Tom Ferguson (00:42:19):
very,
Tom Ferguson (00:42:20):
very strong.
Tom Ferguson (00:42:21):
And frankly, they can be more helpful to each other than we can be directly.
Tom Ferguson (00:42:25):
One of our most important metrics that we reported to our LPs at our AGM the other
Tom Ferguson (00:42:32):
day is that we had 1,000 direct messages
Tom Ferguson (00:42:36):
in Q4 of last year that we don't see.
Tom Ferguson (00:42:40):
This is just communication that's happening without our knowledge.
Tom Ferguson (00:42:43):
This is just our portfolio working together, sharing information, and that is unbelievably powerful.
Tom Ferguson (00:42:48):
And I really learned that through IH2O.
Tom Ferguson (00:42:52):
But otherwise,
Tom Ferguson (00:42:52):
I wish I had more,
Tom Ferguson (00:42:53):
and I'm still feeling very guilty about not having more kind of war stories at the beginning.
Tom Ferguson (00:42:57):
Hopefully we can come back to the stuff that is nasty and horrible,
Tom Ferguson (00:42:59):
and I got extremely wrong before we finished.
Tom Ferguson (00:43:02):
But...
Tom Ferguson (00:43:03):
But what we do is we really think about network introductions,
Tom Ferguson (00:43:09):
so customer,
Tom Ferguson (00:43:09):
investor,
Tom Ferguson (00:43:10):
and then smart people who understand water and have been through what people are
Tom Ferguson (00:43:13):
going through before.
Tom Ferguson (00:43:15):
We think about marketing invisibility,
Tom Ferguson (00:43:16):
so being able to shout into a market louder with us than they're able to on their own.
Tom Ferguson (00:43:22):
And we think about entrepreneurial process,
Tom Ferguson (00:43:24):
like don't tread on landmines and especially don't tread on landmines that other
Tom Ferguson (00:43:27):
people have trod on and that we've told you not to tread on.
Tom Ferguson (00:43:29):
And then when you do, it all gets very frustrating.
Tom Ferguson (00:43:31):
That does still happen.
Tom Ferguson (00:43:34):
But focus helps all of that.
Tom Ferguson (00:43:36):
Our network is deeper.
Tom Ferguson (00:43:38):
Our understanding of who is going to be like a more productive target in terms of,
Tom Ferguson (00:43:42):
you know,
Tom Ferguson (00:43:43):
filling out a round or doing follow on funding is more productive.
Tom Ferguson (00:43:46):
We know more people who could be potential customers.
Tom Ferguson (00:43:48):
We understand more about the entrepreneurial process in water than anyone else.
Tom Ferguson (00:43:52):
And that's only going to get that's only going to get more true.
Tom Ferguson (00:43:55):
So you are absolutely right.
Tom Ferguson (00:43:56):
It is it is an exercise in compounding.
Tom Ferguson (00:43:59):
And, you know, I'm the huge believer in limiting your denominator just means that the numbers are higher.
Silas Mähner (00:44:07):
Yeah, I do think it's I think it's very
Silas Mähner (00:44:10):
I really like this,
Silas Mähner (00:44:11):
especially because you brought up one of your kind of differentiators being people
Silas Mähner (00:44:15):
who have deep expertise in a space and they don't work anywhere else.
Silas Mähner (00:44:19):
Obviously being a talent, that's always my objective for startups to hire the best people.
Silas Mähner (00:44:24):
But there's actually,
Silas Mähner (00:44:26):
I didn't think about this before,
Silas Mähner (00:44:27):
but it's very fascinating that if you're just kind of circling in a particular domain,
Silas Mähner (00:44:32):
a VC can have the opportunity to be the person who attracts some of those top kind
Silas Mähner (00:44:37):
of advisors.
Silas Mähner (00:44:38):
So you don't,
Silas Mähner (00:44:38):
You know,
Silas Mähner (00:44:39):
each startup doesn't have to go find those advisors if they're all kind of
Silas Mähner (00:44:42):
conglomerated in one particular place,
Silas Mähner (00:44:43):
right?
Silas Mähner (00:44:44):
Yeah, I think that's fair.
Silas Mähner (00:44:45):
But it's one of these things that is actually probably if I mean,
Tom Ferguson (00:44:47):
if I was underwriting us,
Tom Ferguson (00:44:49):
then maybe I shouldn't say this out loud,
Tom Ferguson (00:44:50):
especially on something that's going to be released into the general public.
Tom Ferguson (00:44:52):
But it's what is it a very interesting place.
Tom Ferguson (00:44:55):
So we are at the bottom of our S curve.
Tom Ferguson (00:44:58):
My people always like show me where the exits are.
Tom Ferguson (00:45:01):
We've had some really interesting things.
Tom Ferguson (00:45:04):
exits, including three onto the public markets.
Tom Ferguson (00:45:07):
Cambrian just raised $200 million and Gradient raised $275 million.
Tom Ferguson (00:45:10):
We have our first unicorns and all the rest of it.
Tom Ferguson (00:45:14):
But we are at the beginning of our escrow.
Tom Ferguson (00:45:15):
In terms of the really major exits,
Tom Ferguson (00:45:17):
they're going to make this market and they're going to make water obvious because
Tom Ferguson (00:45:20):
water is going to be obvious.
Tom Ferguson (00:45:22):
Fintech was treated as a joke in 2008.
Tom Ferguson (00:45:25):
Nobody remembers this.
Tom Ferguson (00:45:26):
Everyone assumes that fintech's always been an awesome market.
Tom Ferguson (00:45:28):
One of my LPs was a YC founder in 2008 and was talking to a very major YC founder
Tom Ferguson (00:45:36):
in 2008 who runs an extremely large fintech company.
Tom Ferguson (00:45:40):
And they were laughing that everybody thought fintech was a joke in 2008.
Tom Ferguson (00:45:44):
Same thing's going to happen to water.
Tom Ferguson (00:45:45):
Will it happen on the same timeframe?
Tom Ferguson (00:45:47):
No idea.
Tom Ferguson (00:45:48):
But we're at the beginning of our S-curve and part of the S-curve journey is going
Tom Ferguson (00:45:52):
to be some really quite interesting exits.
Tom Ferguson (00:45:56):
But what comes from the exits is not just proof points in terms of water being a
Tom Ferguson (00:45:59):
productive market from the venture side of things.
Tom Ferguson (00:46:01):
It's also incredibly important in terms of talent in the people who have gone through that process.
Tom Ferguson (00:46:06):
then recycle themselves into the startups of the they also become useless things
Tom Ferguson (00:46:13):
like vcs and whatever right but like they they recycle themselves as the role so
Tom Ferguson (00:46:18):
the cmo that did that thing is now the cmo that people who were part of the
Tom Ferguson (00:46:20):
marketing operations then go and do the next one up in terms of marketing marketing
Tom Ferguson (00:46:24):
operations whatever it is um in terms of the companies that are coming up the curve
Tom Ferguson (00:46:28):
behind so you get this incredibly important cycle of talent that comes through that
Tom Ferguson (00:46:33):
really only explodes when you have
Tom Ferguson (00:46:36):
the largest exits, like coming out and coming out relatively rapidly.
Tom Ferguson (00:46:39):
It builds that ecosystem of talent and people who have been there and done that in
Tom Ferguson (00:46:43):
terms of building companies from zero to exit.
Tom Ferguson (00:46:47):
We don't have a zillion of those people within Water.
Tom Ferguson (00:46:50):
We've got incredibly talented people, but we're just this is the Vanguard.
Tom Ferguson (00:46:55):
This is the Vanguard of the people that are coming up.
Tom Ferguson (00:46:57):
And it's a really exciting time to be a part of it.
Tom Ferguson (00:46:59):
But it does make a slightly trickier term.
Tom Ferguson (00:47:01):
It does make a slightly trickier term, right?
Silas Mähner (00:47:04):
Yeah,
Silas Mähner (00:47:04):
this is part of the reason I also got pretty bored with renewables because doing
Silas Mähner (00:47:08):
recruitment in that space,
Silas Mähner (00:47:09):
it got to a point where it wasn't actually that hard to find people.
Silas Mähner (00:47:12):
It was just hard to convince them to change jobs.
Tom Ferguson (00:47:14):
Yeah, totally.
Silas Mähner (00:47:15):
Yeah, exactly.
Silas Mähner (00:47:16):
Right.
Tom Ferguson (00:47:17):
No, we can't hang on the energy people.
Tom Ferguson (00:47:19):
Thank you, the energy people, for everything you do.
Tom Ferguson (00:47:21):
I much appreciate it.
Silas Mähner (00:47:23):
Uh,
Silas Mähner (00:47:23):
what are the,
Silas Mähner (00:47:25):
being in this space,
Silas Mähner (00:47:25):
what are the biggest problems within kind of water broadly that you would bring
Silas Mähner (00:47:30):
attention to most people that just the average person is not aware of these,
Silas Mähner (00:47:33):
these problems in the world?
Tom Ferguson (00:47:35):
Uh, I mean, water is so underappreciated that, I mean, the, the,
Tom Ferguson (00:47:41):
It boggles the mind.
Tom Ferguson (00:47:43):
It boggles the mind.
Tom Ferguson (00:47:44):
It is absolutely fundamental to our existence, especially in the Western world.
Tom Ferguson (00:47:48):
We do not care at all.
Tom Ferguson (00:47:51):
And it's insane.
Tom Ferguson (00:47:52):
So...
Tom Ferguson (00:47:55):
I mean,
Tom Ferguson (00:47:55):
if there's stuff that's coming around,
Tom Ferguson (00:47:56):
it's hard to get,
Tom Ferguson (00:47:57):
especially in terms of our home market,
Tom Ferguson (00:47:59):
it's hard to get past contaminants.
Tom Ferguson (00:48:01):
So just to choose two, PFAS, lead.
Tom Ferguson (00:48:05):
If you're not aware of those stories, become aware of them really soon.
Tom Ferguson (00:48:10):
It's really important that you understand what is going on.
Tom Ferguson (00:48:14):
out there in terms of the quality of the water that,
Tom Ferguson (00:48:17):
especially the most vulnerable people in your society are kind of being forced to ingest.
Tom Ferguson (00:48:22):
It's not, it's really not good.
Tom Ferguson (00:48:27):
But it is getting more visible, which is incredibly important.
Tom Ferguson (00:48:31):
What's very rarely talked about is that we're really interesting,
Tom Ferguson (00:48:33):
that there are very much kind of parallels with the telecoms world and that we're
Tom Ferguson (00:48:37):
going through our own leapfrog moment in water,
Tom Ferguson (00:48:40):
especially for the global south,
Tom Ferguson (00:48:43):
which is decentralized water and wastewater infrastructure.
Tom Ferguson (00:48:48):
much more on the on the on the on the drinking water side of things wastewater is
Tom Ferguson (00:48:52):
okay sanitation has proved to be extremely difficult um there are people making
Tom Ferguson (00:48:56):
some really interesting uh progress against the sanitation side of things but it's
Tom Ferguson (00:49:01):
really really tough bill gates is really smart and people who work for him are
Tom Ferguson (00:49:04):
really smart but the reinvent the toilet challenge hasn't yielded the results that
Tom Ferguson (00:49:09):
maybe it could have done um and that's no shade on anyone um
Tom Ferguson (00:49:15):
But there are,
Tom Ferguson (00:49:17):
there's these markets that operate according to a set of fundamental economic
Tom Ferguson (00:49:22):
assumptions that make business models quite tricky to build.
Tom Ferguson (00:49:26):
But we're seeing some really interesting companies emerge, which is great.
Tom Ferguson (00:49:32):
I think people underestimate how heavy water is.
Tom Ferguson (00:49:34):
So a meter cubed weighs a metric ton.
Tom Ferguson (00:49:39):
And just get out a meter ruler.
Tom Ferguson (00:49:41):
It's not that big.
Tom Ferguson (00:49:43):
A metric ton is really heavy.
Tom Ferguson (00:49:45):
And we move an awful lot of water around.
Tom Ferguson (00:49:47):
And it means that everywhere water goes, there is embedded energy.
Tom Ferguson (00:49:51):
And so there's a huge amount of embedded energy use, which obviously usually means CO2 emissions.
Tom Ferguson (00:49:57):
But even going beyond that, the water emissions nexus is really important.
Tom Ferguson (00:50:03):
So we think the water is at a minimum about 10 percent of global emissions and
Tom Ferguson (00:50:08):
everybody within the emission side of things doesn't.
Tom Ferguson (00:50:10):
care about water.
Tom Ferguson (00:50:11):
And it is annoying, they will, and this is a theme, I'll shut up about it.
Tom Ferguson (00:50:16):
But the,
Tom Ferguson (00:50:18):
especially in terms of fugitive methane with a carbon factor of 24,
Tom Ferguson (00:50:20):
I think it's been a little bit of time since I did it,
Tom Ferguson (00:50:23):
and then a nitrous oxide emissions factor of 300.
Tom Ferguson (00:50:26):
So nitrous oxide, laughing gas, comes off almost all wastewater facilities.
Tom Ferguson (00:50:33):
And it's 300 times as potent a greenhouse gases as carbon dioxide is.
Tom Ferguson (00:50:40):
And then the last thing is that people really don't understand is that water vapor
Tom Ferguson (00:50:43):
is an incredibly potent greenhouse gas.
Tom Ferguson (00:50:45):
Now,
Tom Ferguson (00:50:45):
I wish I had the carbon factor to hand,
Tom Ferguson (00:50:50):
but as the world heats up,
Tom Ferguson (00:50:52):
probably the scariest feedback loop is that the higher the amount of moisture in
Tom Ferguson (00:50:58):
the air,
Tom Ferguson (00:50:58):
not only do you get more extremes of precipitation,
Tom Ferguson (00:51:01):
but also drought.
Tom Ferguson (00:51:03):
is that that water vapor itself is incredibly effective at trapping heat.
Tom Ferguson (00:51:09):
And so there's kind of a feedback loop between water and climate that we're only
Tom Ferguson (00:51:13):
just starting to to get to grips with,
Tom Ferguson (00:51:17):
though.
Tom Ferguson (00:51:17):
I mean, on the problems like
Tom Ferguson (00:51:22):
Flip them and you've got opportunities, right?
Tom Ferguson (00:51:25):
There is an awful lot of stuff to be solved.
Tom Ferguson (00:51:28):
And this is why when GWI estimate that,
Tom Ferguson (00:51:31):
you know,
Tom Ferguson (00:51:31):
3.6 trillion in water security today is going to become 12.4 trillion dollars a
Tom Ferguson (00:51:36):
year by 2030.
Tom Ferguson (00:51:41):
It's not an outlandish statement in the slightest.
Tom Ferguson (00:51:45):
Then WWF assessing that about 60% of global GDP is predicated on water and its
Tom Ferguson (00:51:52):
associated ecosystem services.
Tom Ferguson (00:51:55):
60% of GDP on something that is completely ignored by the private and frankly, the public market.
Tom Ferguson (00:52:02):
It's just a wildly exciting opportunity.
Silas Mähner (00:52:06):
Yeah, that's why I always ask people, what are those problems?
Silas Mähner (00:52:08):
Because you need more builders in that space.
Silas Mähner (00:52:11):
We're getting close to the end.
Silas Mähner (00:52:12):
One thing I like to advise candidates I work with when they're kind of picking
Silas Mähner (00:52:17):
where they want to work and just career advice is,
Silas Mähner (00:52:19):
if they know an industry they want to work in,
Silas Mähner (00:52:21):
go to the center,
Silas Mähner (00:52:22):
near the epicenter of that place.
Silas Mähner (00:52:23):
Where do you see globally the most innovation happening,
Silas Mähner (00:52:27):
if it's conglomerated in one space,
Silas Mähner (00:52:29):
in water tech or water broadly?
Silas Mähner (00:52:31):
So if somebody really wants to work in this space,
Silas Mähner (00:52:32):
they're going to go move their family or move their life there so they can be part
Silas Mähner (00:52:35):
of it.
Tom Ferguson (00:52:37):
Yeah,
Tom Ferguson (00:52:38):
I was going to say something trite,
Tom Ferguson (00:52:39):
like Brooklyn,
Tom Ferguson (00:52:40):
where I live,
Tom Ferguson (00:52:41):
because it's very selfish and I would very much like it.
Tom Ferguson (00:52:43):
Though actually, New York City is doing some really, really interesting stuff.
Tom Ferguson (00:52:46):
They are the first city that is actually taking, I mean, they call it the blue economy.
Tom Ferguson (00:52:49):
It also happens.
Tom Ferguson (00:52:51):
They're actually taking that idea relatively seriously.
Tom Ferguson (00:52:53):
And there are going to be some quite interesting announcements over the next two to three years.
Tom Ferguson (00:52:57):
And it's great.
Tom Ferguson (00:53:00):
But there isn't one.
Tom Ferguson (00:53:02):
Like everywhere else in technology,
Tom Ferguson (00:53:03):
we've got the highest concentration of the burnt islanders that live in the Bay Area.
Tom Ferguson (00:53:09):
But it's only three out of 18.
Tom Ferguson (00:53:13):
We have five companies that are ex-US.
Tom Ferguson (00:53:16):
The others are scattered across from Pittsburgh to Kansas City to South Carolina to
Tom Ferguson (00:53:24):
Boston to,
Tom Ferguson (00:53:25):
well,
Tom Ferguson (00:53:25):
New York.
Tom Ferguson (00:53:26):
So all over the place.
Tom Ferguson (00:53:27):
There really isn't necessarily a place to go.
Tom Ferguson (00:53:31):
And there isn't one that I would point to.
Tom Ferguson (00:53:32):
Yeah.
Tom Ferguson (00:53:35):
maybe on balance just about the Bay Area.
Tom Ferguson (00:53:38):
And then I would say if people are just interested in the science of company building,
Tom Ferguson (00:53:43):
we left the Bay Area about 18 months ago after eight and a half years.
Tom Ferguson (00:53:47):
And I cannot tell you how profoundly grateful I was to that time in San Francisco.
Tom Ferguson (00:53:53):
Everyone is like pailing on San Francisco.
Tom Ferguson (00:53:55):
There's a nonsense and everything's open air sewer and all that stuff.
Tom Ferguson (00:53:59):
Does that draw back?
Tom Ferguson (00:54:00):
Sure.
Tom Ferguson (00:54:01):
As a British person who,
Tom Ferguson (00:54:03):
when I graduated from university,
Tom Ferguson (00:54:04):
the idea that I would be doing anything to do with startups,
Tom Ferguson (00:54:07):
let alone starting a fund to support,
Tom Ferguson (00:54:10):
we're so far away from anything that would be possible.
Tom Ferguson (00:54:17):
But there is a generosity there.
Tom Ferguson (00:54:19):
about the place that I would absolutely not be sitting here without it.
Tom Ferguson (00:54:23):
And I think it has to be seen to be believed.
Tom Ferguson (00:54:25):
And I think it really does have to be lived to be believed.
Tom Ferguson (00:54:28):
It really is profound.
Tom Ferguson (00:54:30):
But the most important thing is the tacit expectations of while you're there.
Tom Ferguson (00:54:36):
And it's that everybody's sort of expecting you to be doing your own thing.
Tom Ferguson (00:54:43):
And sometimes that can come across as patronizing and also very annoying when
Tom Ferguson (00:54:46):
people are just talking about startups and VC and all this kind of shit.
Tom Ferguson (00:54:49):
It can be really annoying, right?
Tom Ferguson (00:54:51):
And it's not the most diverse place in the world,
Tom Ferguson (00:54:53):
not only in terms of the gender and racial makeup of it,
Tom Ferguson (00:55:00):
but also in terms of just people's outlooks.
Tom Ferguson (00:55:03):
It can be annoying in that sense.
Tom Ferguson (00:55:07):
But just living that sense of expectation that
Tom Ferguson (00:55:12):
it's only risk it's only building something it's only starting something it's not
Tom Ferguson (00:55:16):
this big monster where if you fail you've got to crawl under a rock for the rest of
Tom Ferguson (00:55:20):
your life it's like failure is like celebrated and there is something unbelievably
Tom Ferguson (00:55:24):
liberating about it but new york is getting there but this is like that is san
Tom Ferguson (00:55:30):
francisco's real secret source uh yeah that has to do with the generosity of the
Tom Ferguson (00:55:34):
people that's why i would recommend it to him
Silas Mähner (00:55:36):
Yeah, that's quite interesting.
Silas Mähner (00:55:38):
I've never been to SF yet,
Silas Mähner (00:55:40):
but I know that a lot of people were souring on it over the past months,
Silas Mähner (00:55:43):
but it seems as though it's...
Tom Ferguson (00:55:44):
They're all coming back from Austin and Miami now.
Silas Mähner (00:55:47):
Exactly.
Silas Mähner (00:55:48):
It seems like SF is on the rise again.
Silas Mähner (00:55:50):
And it's something quite interesting.
Silas Mähner (00:55:53):
Being somebody from the Midwest,
Silas Mähner (00:55:55):
with none of this kind of exposure to startups,
Silas Mähner (00:55:58):
I feel quite lucky to be working with founders in this space.
Silas Mähner (00:56:02):
But I think there's something very powerful to it.
Tom Ferguson (00:56:05):
Crazy awesome Ziptility.
Tom Ferguson (00:56:07):
Tyler's in Pittsburgh.
Tom Ferguson (00:56:09):
Absolutely phenomenal.
Tom Ferguson (00:56:10):
We just see absolutely amazing founders from all over the place.
Silas Mähner (00:56:16):
Awesome.
Silas Mähner (00:56:16):
Well, we're almost at the end of time here, but I think probably just maybe a self-indulging moment.
Silas Mähner (00:56:21):
I'm an innovation junkie is how I call myself.
Silas Mähner (00:56:24):
Can you talk a little bit about just like really quickly,
Silas Mähner (00:56:26):
rapid fire,
Silas Mähner (00:56:27):
some of the companies that you work with that are doing really cool things,
Silas Mähner (00:56:30):
just like the TLDR of what they're doing in the company name?
Tom Ferguson (00:56:33):
Well, I'll give you the first three investments coming out of Fund2, which may not sound cool.
Tom Ferguson (00:56:39):
They are cool.
Tom Ferguson (00:56:39):
And if you don't think they sound cool, then you're wrong.
Tom Ferguson (00:56:42):
So the first one is a heat pump water heater company.
Tom Ferguson (00:56:46):
I'm not actually allowed to name it, but it's from Boston.
Tom Ferguson (00:56:49):
The structure of the heat pump water heater market is really interesting because
Tom Ferguson (00:56:52):
it's been owned by a duopoly,
Tom Ferguson (00:56:53):
a collusive duopoly,
Tom Ferguson (00:56:55):
that own 90% of the market,
Tom Ferguson (00:56:56):
the water heater market.
Tom Ferguson (00:56:57):
And so when the heat pump water heater came out,
Tom Ferguson (00:57:00):
essentially what they did was put a crap piece of plastic on their existing design
Tom Ferguson (00:57:03):
because they didn't want to rewire their production lines.
Tom Ferguson (00:57:08):
They only pursue incremental innovation and...
Tom Ferguson (00:57:11):
That leaves them vulnerable.
Tom Ferguson (00:57:12):
If you actually organize around the heat pump,
Tom Ferguson (00:57:15):
there are so many things,
Tom Ferguson (00:57:16):
up to and including making your water heater a battery and make it eligible for
Tom Ferguson (00:57:24):
load management credits from the grid,
Tom Ferguson (00:57:25):
which completely transforms the economics of it.
Tom Ferguson (00:57:27):
Anyway, this company is going to go after that.
Tom Ferguson (00:57:29):
And I think we think that the heat pump water heater market doubled last year to 2 billion, 100% growth.
Tom Ferguson (00:57:38):
And that really is at the beginning of its S-curve.
Tom Ferguson (00:57:41):
And then it just happens that this water heater reduces household water use by 20%
Tom Ferguson (00:57:45):
because of the quality of the interface between the water heater and what they're doing.
Tom Ferguson (00:57:48):
But they're going to be launching in September.
Tom Ferguson (00:57:49):
Wildly excellent team coming out of the energy efficiency market.
Tom Ferguson (00:57:53):
The second one is a phenomenal company called Hope Hydration,
Tom Ferguson (00:57:56):
which is a really,
Tom Ferguson (00:57:56):
really good example of business model innovation.
Tom Ferguson (00:58:00):
So water access, huge problem all over the place.
Tom Ferguson (00:58:03):
People, it would be really great if we could provide water for free.
Tom Ferguson (00:58:07):
What else do we provide for free?
Tom Ferguson (00:58:09):
Like social media platforms, search.
Tom Ferguson (00:58:11):
What pilots it?
Tom Ferguson (00:58:12):
Advertising.
Tom Ferguson (00:58:13):
So what happens if you can overlap clean,
Tom Ferguson (00:58:17):
reliable,
Tom Ferguson (00:58:20):
just freely available water,
Tom Ferguson (00:58:22):
but just associate it with an advert?
Tom Ferguson (00:58:27):
That's as powerful in Times Square,
Tom Ferguson (00:58:29):
which is like Hope Hydration just sold its second really quite lucrative contract
Tom Ferguson (00:58:34):
for Times Square.
Tom Ferguson (00:58:36):
You can go to the bleachers in Times Square and just to the left,
Tom Ferguson (00:58:40):
if you look at them,
Tom Ferguson (00:58:41):
there's Hope's unit.
Tom Ferguson (00:58:45):
But they also just did the first F1 race of the season.
Tom Ferguson (00:58:47):
They're doing Coachella.
Tom Ferguson (00:58:48):
They've got deals with some really, really interesting people.
Tom Ferguson (00:58:51):
But it's as true for New York as it is for New Delhi.
Tom Ferguson (00:58:54):
And that's what's really powerful about it is that it could potentially be the
Tom Ferguson (00:58:59):
engine for a huge amount of water access worldwide.
Tom Ferguson (00:59:04):
And Jorge is just doing an absolutely extraordinary job.
Tom Ferguson (00:59:06):
They did 500K in revenue in the first quarter of this year without really thinking about it.
Tom Ferguson (00:59:11):
It's awesome.
Tom Ferguson (00:59:12):
And then the third one is a fantastic company called Subeca.
Tom Ferguson (00:59:16):
This is one of those water companies that we love where their first market just happens to be in water.
Tom Ferguson (00:59:20):
One of the water's crazy guarded secrets is that while everything else is throwing
Tom Ferguson (00:59:24):
off data,
Tom Ferguson (00:59:24):
55% of the water meters still have to be read manually.
Tom Ferguson (00:59:29):
in the US in 2024.
Tom Ferguson (00:59:31):
It is absolutely insane.
Tom Ferguson (00:59:33):
And Suveca's kind of core IoT unit,
Tom Ferguson (00:59:36):
which actually is applicable to a huge amount of a whole bunch of other use cases
Tom Ferguson (00:59:40):
where it is also insane that this is the case in 2024.
Tom Ferguson (00:59:43):
This should be thrown off data.
Tom Ferguson (00:59:45):
It doesn't because it's actually really complicated to be able to do what Suveca has done.
Tom Ferguson (00:59:50):
the first market they're going after is is is water meters but they've also got a
Tom Ferguson (00:59:53):
huge amount of adjacencies uh just from their core technology um and they're going
Tom Ferguson (00:59:57):
to be the first uh technology uh first outside technology on a very very large
Tom Ferguson (01:00:04):
company's connectivity platform um which is going to be uh and that uh pie up is
Tom Ferguson (01:00:09):
going to be announced relatively relatively soon
Tom Ferguson (01:00:13):
Huge potential company in the IoT side of things.
Tom Ferguson (01:00:15):
We're looking at another company in AI.
Tom Ferguson (01:00:17):
We're looking at another company in stormwater.
Tom Ferguson (01:00:20):
There's just a ton of really interesting stuff.
Tom Ferguson (01:00:23):
But much more importantly, there are a ton of problems to work on.
Tom Ferguson (01:00:27):
And it's still relatively low hanging fruit.
Tom Ferguson (01:00:29):
Again,
Tom Ferguson (01:00:30):
whether you call it 1.4 trillion or whether you call it 3.6 trillion,
Tom Ferguson (01:00:33):
you just throw a cat and you see a market that is big enough and filled with dumb
Tom Ferguson (01:00:37):
stuff that needs to be fixed.
Tom Ferguson (01:00:38):
So we just think that more and more people should come and join in.
Tom Ferguson (01:00:40):
Yeah.
Silas Mähner (01:00:42):
I guess the last thing would be if you were forced today to go start your own water
Silas Mähner (01:00:46):
tech company,
Silas Mähner (01:00:47):
you couldn't be an investor anymore.
Silas Mähner (01:00:48):
You had to go build the company yourself.
Silas Mähner (01:00:50):
What problem would you go and solve?
Tom Ferguson (01:00:55):
There are a lot of quite interesting ones here.
Tom Ferguson (01:00:58):
I would go and drive a bus through the water testing market.
Tom Ferguson (01:01:06):
So the water testing market, and it's basically populated by incumbents that...
Tom Ferguson (01:01:18):
take about two to two and a half weeks to turn around a water test.
Tom Ferguson (01:01:22):
And when they do, they give it to you to nine decimal places for the illusion of accuracy.
Tom Ferguson (01:01:27):
But it's almost always wrong when you actually hold it up to a... It's insane.
Tom Ferguson (01:01:33):
But the thing that annoys me most about it, and it really does suck, is that...
Tom Ferguson (01:01:38):
If you're getting water samples back only every two and a half weeks,
Tom Ferguson (01:01:43):
if you're a water company,
Tom Ferguson (01:01:45):
you can only really run 26 experiments a year.
Tom Ferguson (01:01:47):
Now, that's not quite right for the same reason as stuff falling off the end.
Tom Ferguson (01:01:50):
But the feedback loops need to be much, much, much, much tighter.
Tom Ferguson (01:01:54):
But just businesses where people have been able to harvest cash for ages while sucking
Tom Ferguson (01:02:02):
like are really annoying.
Tom Ferguson (01:02:04):
And there are a few examples of them,
Tom Ferguson (01:02:06):
but that's the one that I would like to drive a coaching horses through,
Tom Ferguson (01:02:10):
as they say in the old country.
Silas Mähner (01:02:13):
Very nice.
Silas Mähner (01:02:13):
That's probably the best answer we've ever had in terms of that question.
Silas Mähner (01:02:18):
Normally it's very vague, but that's very good.
Tom Ferguson (01:02:21):
Yeah, there's all sorts of stuff that I want to go after.
Silas Mähner (01:02:24):
Very nice.
Silas Mähner (01:02:25):
Well, awesome.
Silas Mähner (01:02:26):
This has really been a pleasure.
Silas Mähner (01:02:27):
I actually really, really enjoyed this episode.
Silas Mähner (01:02:29):
Where should people reach you?
Silas Mähner (01:02:30):
Any calls to action?
Tom Ferguson (01:02:31):
Yeah, sure.
Tom Ferguson (01:02:32):
So I'm embarrassingly easy to find just Tom at burntislandventures.com.
Tom Ferguson (01:02:36):
But, you know, you will see on our website, really easy to find us.
Tom Ferguson (01:02:40):
So if you're a founder or anybody that's interested in knowing more about what we do,
Tom Ferguson (01:02:45):
do just give us a shout.
Tom Ferguson (01:02:47):
And then in terms of the call to action,
Tom Ferguson (01:02:49):
I would just ask people to notice that in the $1.4 trillion of the IRA,
Tom Ferguson (01:02:58):
which excludes the $250 billion that was given to the loan programs office.
Tom Ferguson (01:03:03):
Water was almost entirely excluded.
Tom Ferguson (01:03:06):
And we need to understand why.
Tom Ferguson (01:03:08):
And it's because water story is really not told well enough.
Tom Ferguson (01:03:12):
And it starts with people noticing that.
Tom Ferguson (01:03:15):
So when you go to bed tonight and you're brushing your teeth or you're having a
Tom Ferguson (01:03:19):
shower or whatever it is,
Tom Ferguson (01:03:21):
or you're going to the bathroom,
Tom Ferguson (01:03:22):
toilet humor,
Tom Ferguson (01:03:23):
one of the advantages of working in water,
Tom Ferguson (01:03:27):
just be grateful because the ability to do that is the result of a phenomenal
Tom Ferguson (01:03:33):
amount of expertise that hides in the science of our society,
Tom Ferguson (01:03:38):
never noticed.
Tom Ferguson (01:03:40):
And they allow this society to exist.
Tom Ferguson (01:03:43):
And I think the more that we think about
Tom Ferguson (01:03:45):
role of water in what we do then all sorts of good things happen we become more
Tom Ferguson (01:03:49):
receptive to storytelling and hopefully we can change our votes um we can change
Tom Ferguson (01:03:53):
the pressure that we put on our on our elected representatives and then obviously
Tom Ferguson (01:03:57):
we buy more cool stuff which will help the burnt islands um but yeah that would be
Tom Ferguson (01:04:01):
the one call to action it's just notice
Silas Mähner (01:04:05):
Very good.
Silas Mähner (01:04:06):
That's also a killer call to action.
Silas Mähner (01:04:07):
So thanks.
Silas Mähner (01:04:08):
Thanks for that.
Silas Mähner (01:04:08):
This has been a pleasure.
Silas Mähner (01:04:09):
We'll have to have you on again and definitely send us some of your portfolio
Silas Mähner (01:04:13):
companies and we'll get them on the show.
Silas Mähner (01:04:15):
Certainly will.
Silas Mähner (01:04:15):
Thank you so much, Silas.
Silas Mähner (01:04:16):
It's been a real pleasure.
Silas Mähner (01:04:17):
Thank you so much for having me.
Silas Mähner (01:04:19):
Welcome to the takeaway section where we ramble on about the things we are just
Silas Mähner (01:04:24):
obsessed with and try to make it interesting.
Silas Mähner (01:04:27):
Let's get into it.
Silas Mähner (01:04:29):
So really hard to pick the best points from today because there were so many good things that Tom had
Silas Mähner (01:04:34):
But I think I must give the first place to how freaking funny Tom is.
Silas Mähner (01:04:39):
As he mentioned, he has an interest in theater.
Silas Mähner (01:04:42):
And I feel that to some extent, this is a huge advantage to him
Silas Mähner (01:04:46):
and may be a big contributor to his success.
Silas Mähner (01:04:49):
I mean,
Silas Mähner (01:04:49):
when people are likable,
Silas Mähner (01:04:51):
self-deprecating,
Silas Mähner (01:04:51):
and kind of give you a laugh,
Silas Mähner (01:04:53):
it makes you someone that others really want to be in business with.
Silas Mähner (01:04:57):
And perhaps some founders will take notes and maybe join their local Toastmasters
Silas Mähner (01:05:03):
or try some stand-up comedy.
Silas Mähner (01:05:04):
Maybe you should practice before you try that.
Silas Mähner (01:05:06):
You don't want to be scarred for life if things go poorly.
Silas Mähner (01:05:09):
You know,
Silas Mähner (01:05:09):
I certainly feel as though I should take some of these lessons afterwards because
Silas Mähner (01:05:13):
Tom is just,
Silas Mähner (01:05:14):
his interest in kind of that side of things,
Silas Mähner (01:05:17):
I have a feeling has been a really big kind of point as to why he succeeded in this regard.
Silas Mähner (01:05:23):
I certainly am drawn to Tom.
Silas Mähner (01:05:25):
I want to work with him.
Silas Mähner (01:05:26):
You know, I want to be part of his circle, essentially, right?
Silas Mähner (01:05:28):
After this conversation, especially.
Silas Mähner (01:05:30):
Second point is his point about the moat.
Silas Mähner (01:05:34):
that comes from a longer sales cycle.
Silas Mähner (01:05:37):
So first of all, as he noted, the need for founders to recognize that things take a long time in water.
Silas Mähner (01:05:44):
But if you listen carefully,
Silas Mähner (01:05:46):
you'll see that they don't change their fund return horizon and they don't tell
Silas Mähner (01:05:51):
their portfolio companies to drag their feet or to anticipate a longer,
Silas Mähner (01:05:54):
I guess,
Silas Mähner (01:05:55):
time horizon before raising their next
Silas Mähner (01:05:57):
the next round.
Silas Mähner (01:05:58):
They just tell them to be aware of it and proceed accordingly,
Silas Mähner (01:06:01):
proceed as if every step matters really,
Silas Mähner (01:06:04):
right?
Silas Mähner (01:06:04):
And in the end,
Silas Mähner (01:06:05):
when you're super successful at this market,
Silas Mähner (01:06:08):
when you land and deal with these lead times,
Silas Mähner (01:06:11):
you end up with a moat because of how difficult it is to get these sales,
Silas Mähner (01:06:16):
right?
Silas Mähner (01:06:16):
And on that point, he pointed out a huge secret about hardware.
Silas Mähner (01:06:20):
When you land the sale, the sales are usually huge, right?
Silas Mähner (01:06:24):
This leads to the final point.
Silas Mähner (01:06:26):
the importance of unit economics.
Silas Mähner (01:06:28):
So without the right understanding of the lifecycle of the sale and the unit economics,
Silas Mähner (01:06:35):
none of this would work.
Silas Mähner (01:06:36):
You need to build in the process so that you win and the customer also wins.
Silas Mähner (01:06:42):
He cited several times where the companies do have huge ticket prices on their products,
Silas Mähner (01:06:46):
but going back to what he said at the beginning,
Silas Mähner (01:06:49):
it must be affordable because it's water.
Silas Mähner (01:06:51):
And if it's too expensive, it's a non-starter.
Silas Mähner (01:06:54):
To try to bring this point home,
Silas Mähner (01:06:55):
I'll just re-highlight what he said,
Silas Mähner (01:06:56):
which I just thought was quite funny,
Silas Mähner (01:06:58):
honestly.
Silas Mähner (01:07:00):
It has to be a borderline fireable offense to not install the solution you're making.
Silas Mähner (01:07:05):
That's how good it has to be.
Silas Mähner (01:07:07):
Okay, enough for me.
Silas Mähner (01:07:08):
Enjoy the rest of your day, and we'll see you next time on Clean Techies.