When I wrotethis post in August 2021, we were at the peak of exuberance in VC investing and startup valuations. I bemoaned the decline in early-stage investing and feared that innovation would suffer as a result of it.
The VC industry is turning back to its roots of investing at the early stage, although activity is still dramatically lower, with Q1 US 2023 data showing a 53% decrease in deal value and a 52% decrease in deal count at the seed stage year over year. Similarly, we’re seeing a 60% decline in deal value and a 47% decrease in deal count at the early stage of investing year over year. While I welcome this focus back to early-stage investing, I am sorry that it has come at the cost of hundreds of thousands of layoffs and continued challenges for startups.
However, I am sounding another note of caution today. As a pure inception-stage firm that has partnered with founders for more than five decades and guided over 225 companies to successful exits (including 120 IPOs and over 225 acquisitions), I know that early-stage investing is a craft that is honed over time, not a hobby or tourist destination.
Similar to a master chef or carpenter, the ability to work closely with founders at the fragile stage of company formation until they bake the perfect soufflé or build a bespoke coffee table takes time, skill and patience.
It may not be the right mode for every investor and is best pursued by those who believe that company building is a marathon, not a sprint. In an era where everyone’s dollars are green (albeit with fewer floating around today), I believe it is important to help founders with ways to evaluate investors before committing to a partnership.
Let me share some specific examples of what it means to be a “roll-up-your-sleeves” inception-stage investor:
A semiconductor company with a breakthrough chip for cooling devices is evaluating where to establish its first beachhead. Over a multiday whiteboard session, we work with the founders to go beyond the obvious and attractive large market of smartphones to settle on the smaller market of surface devices as their initial entry point. This is informed by our experience in working with other inception-stage chip companies, as we know how long it takes to go from design to tape-out, and then to scale production to fulfill the needs of hundreds of millions of customers.
A consumer fashion marketplace has ignited the love of its community of seller stylists, but its e-commerce infrastructure is breaking down. Its CEO has just raised a round of financing based on growth projections but now tells the board that they need to slow down to strengthen the platform. In a growth-at-all-costs environment, the inception-stage investor, a former three-time serial entrepreneur, knows that the journey often takes a decade or more for a successful outcome. Consequently, we are willing to support the CEO in a slower growth plan, knowing it is so that they can build a sustainable marketplace platform.
An enterprise software company needs to go beyond its known networks to rapidly attract top-tier entry-level talent to scale its business. We design a program for college campuses where we partner with the career centers to host many custom immersion days, thereby attracting hundreds of qualified candidates for consideration.
An inception-stage cloud company needs help refining its value proposition and defining its insertion point to get to product-market fit. We arrange more than 50 conversations with the precise C-level buyer persona to help with this process so that when the company debuts, it does so with early customers and a go-to-market motion that accelerates mainstream adoption.
These are just a few examples of playing strategic sounding board, patient investor and value-added partner, but there are hundreds more from our experience. So when a founder is evaluating an investor for an inception round, here are some non-obvious considerations:
Has the team at the VC firm ever founded a company and nurtured it to a successful exit as entrepreneurs?
Have they ever invested through downturns?
How many investments does each investor make per year? Does every company count in their model?
Can the firm provide you a list of inception-stage founder references?
Does the firm have a few breakout companies with similar characteristics at the inception stage of investment and sector to yours?
How do they specifically add value as board members along with their portfolio services teams in talent, marketing and business development?
Can their founders tell you if they work solo or as a team with everyone available to help you?
How do they act when things are not going well? (Talk to those founders especially.)
Do they take a long-term view and are they patient investors? Do they see company-building as running a marathon, not a sprint?
Above all, try to intuitively assess: Will they watch your back, or are they going to be evaluating you constantly?
While it might seem daunting for founders to question potential investors in today’s climate, remember that you need to build a mutual zone of trust for the long journey.
Equipped with this knowledge, founders need to also trust their instincts when picking their inception-stage investor, as chemistry plays a key role in the founder-investor partnership. With that, we invite founders to lean in so we can build a bright future together.
Chaos is a fact of life for founders. Your daily routine is undoubtedly hectic, and bandwidth is rare and precious. Under these conditions, your ability to communicate with precision is critical to maintaining organizational efficiency.
“Ensure every stakeholder is clear on the problem at hand and the strategy that’s in place to solve it. Then, everyone can understand how that strategy translates into their priorities.”
ASSAF RESNICK
Co-founder & CEO, BigPanda
Building a strong team is one of the most important tasks you’ll undertake as a founder, but once you’ve assembled your people, they need you to lead them. While that sounds intuitive, in practice it’s a balancing act, and it’s not easy.
You’re constantly gathering information, identifying novel problems, making strategic adjustments, and communicating goals in ways that set expectations, down and across the chain of command. You must do all that without falling into micromanagement.
This is why developing strong internal comms is vital; when you give the signal, the whole organization should know how to respond. You create that alignment by communicating often, adapting your style as needed, and continually challenging yourself to be more concise and accurate.
“A founder’s job isn’t just to identify the company’s mission, strategy and priorities,” says Patrick Salyer, who serves on BigPanda’s board and previously led Gigya (acquired by SAP) as CEO for 10 years. “They need to actualize these ideas with consistent and contextual communication. This is why it’s so important to work on conveying your ideas and expectations with clarity. If you can’t do that, you won’t be able to leverage your people, no matter how capable they are.”
Having worked in tech as an entrepreneur and investor for over 25 years, I remember the exuberance of the Web era of the mid to late 90s, which yielded enduring enterprise software companies. The hallmark attributes of many giants were that they had a painkiller value proposition, combined revolutionary approaches that integrated into existing architectures, and enabled enterprises to leverage their current developer resources. Today, we are squarely in the AI-first era, with enterprises rushing to adopt the benefits of AI. With the announcement of our lead investment in MindsDB’s $25 million financing round, I am proud to welcome Jorge, Adam and the MindsDB team to the Mayfield family. I believe that as the industry’s first cloud to serve AI intelligence logic, they will play a role similar to the legendary web application server BEA Systems/Oracle and supercharge enterprise adoption of AI.
To understand the role of an AI intelligence logic cloud, we need to go back in history to look at the idea of a three tier architecture, a well-established software concept that organizes applications into three logical and physical computing tiers: the presentation tier; the application logic tier; and the data tier, where the data associated with the application is stored and managed. During the web era, the presentation tier was dominated by web servers on which websites were built; the middle tier by application logic servers which housed the logic and transaction capability; and the data tier by databases. In today’s AI-first world, there’s a lot of activity on the presentation tier with consumer interfaces powered by multiple AI frameworks; data repositories have grown beyond SQL to include many NoSQL and data lake leaders; but the middle tier of a unified cloud to serve AI intelligence logic is still nascent.
MindsDB, which grew out of an open source project started over five years ago, is growing into the must-have middle tier cloud to serve AI intelligence logic, driven by three attributes:
A framework- and data-agnostic stance (currently supports 10+ front end AI frameworks and 100+ data sources);
The technical breakthrough of adding AI tables to existing databases which enables users to identify patterns, predict trends, and train models;
A data-centric approach that eliminates the need for ETL and minimizes data exposure risks.
As a result, existing developers can grow into an army of AI engineers who quickly deliver production-ready applications, thereby enabling enterprises to generate revenue, but also control costs by leveraging in-house talent.
Building on the momentum of its open-source project, MindsDB has achieved several key milestones:
Adding more than a hundred platform integrations, including with big tech players like OpenAI, Hugging Face, Snowflake, MongoDB, Databricks.
Being recognized as one of Forbes’ Top AI 50 Companies and named as a Cool Vendor in Gartner’s 2022 Data-Centric AI and multiple Hype Cycle reports.
Transforming into a mature open-source project with more than 500 code contributors, 16k+ stars from the community and more than one hundred thousand installations.
Launching a Cloud Enterprise version, proven by tens of thousands of developers.
We believe that MindsDB is well on the evolution path from open source phenomenon to a must have cloud that serves AI intelligence logic to enterprises. This will firmly establish it as a key player in the AI-first landscape, similar to how BEA powered an entire class of web apps. We are excited to partner with the MindsDB team and investors and look forward to their journey from inception to an iconic company.
The founder’s world is function over form, and there is a tendency to prioritize experience, work capacity and resiliency. While this pursuit of performance is understandable, it cannot supersede qualities like empathy and compatibility when it comes to choosing your co-founders and founding investor.
“It’s hard to imagine doing it without co-founders. There’s just been so many ups and downs throughout the journey, and to have people that you can commiserate with and inspire each other and push each other has made a huge difference. Mayfield played a big role in helping us make those connections – it’s hard to imagine Mammoth without their involvement.”
JANICE CHEN
Co-founder & CTO, Mammoth Biosciences
“When it comes to people, I see many founders prioritize performance,” says Ursheet Parikh. “But you need to stop and ask, ‘do I get along with this person?’ You’re going to spend a lot of time with them, and mismatches in temperament are going to show. So try to find people you like, and be intentional about building affinity. If you can do that, you can create a more collaborative and more resilient organization, especially early on.”
I am excited to share Windfall Bio, emerging from stealth today.
Windfall converts methane emissions from dairy, agriculture, oil and gas into high grade organic fertilizer. Mayfield incubated and led the inception round of $9M in late 2022. The following are some takeaways from Windfall that can be applied by entrepreneurs fighting climate change.
Solving methane buys decades for us to win the climate war
Josh Silverman holding a methane meter in a dairy barn showing dilute methane measurements
I hadn’t really heard about methane until last year. And certainly not as the molecule with a gun to the planet’s head. Yet I began to learn that around the world, 24 hours a day, a gas known as methane is belched, farted, released and seeped from livestock, chickens, gas generators and pipelines into the sky, where it spends about 20 years trapping 85 times more heat than CO2. These methane emissions are the unknown front line super-villains of climate change. According to a study published in the journal “Environmental Research Letters” in 2021, reducing methane emissions by 45% by 2030 could help to avoid about .5C degree of global warming by 2045 – a significant slowing of the temperature rise, buying humanity decades to win the war on climate change. Well, let’s go after methane then.
Of course, there is a catch. Most methane emissions are 100ppm (parts-per-million)-1000ppm at the source of emission. For contrast, the critical point of runaway global warming is 400ppm of CO2 in our ambient atmosphere. So this methane is incredibly dilute. Because of this, dilute emissions are nearly impossible to capture and cannot be burned off. Trying to use it for fuel is inefficient since concentrating it is far more expensive than using natural gas – which is a whopping 900,000ppm. People have so far focused mitigation efforts on limiting natural gas use and stopping cows from belching methane. Neither work because society wants and needs milk, meat and heat. So the world’s worst greenhouse gas goes up, up and up while we all run out of time.
If we don’t bend the curve of warming soon, widespread loss of life and hospitable zones will occur – from the 2023 IPCC report
Josh Silverman, serial entrepreneur, founder of Calysta, and the world’s leading methane-eating-microbe (methanotroph) scientist had the insight that evolution created a perfect solution for capturing this dilute methane. Methanotrophs, his life’s work. Methanotrophs emerged early in the planet’s evolution as simple bacteria that ate the most abundant energy source, the methane seeping from the oxygen-poor vents and rocks. As methane levels fell, they evolved to capture whatever was available. Today, they efficiently catch stray methane and use its energy to grow – exactly how plants and trees got really good at using dilute CO2 to grow over thousands of years. Together, they form the backbone of our ability to control greenhouse gas sequestration. So back to dilute methane. How can these tiny methane eating bacteria help us?
By literally eating dilute methane emissions at their source. Up to half of methane emissions are dilute forms emitted from agriculture, oil and gas operations. Dairy herds, swine manure piles, cattle, chicken coops – they all produce enormous amounts of dilute methane. Methanotrophs, Josh reasoned, can be harnessed to capture this methane and use it as food to grow, making them our best front line soldiers in the war on climate change.
His proposal was to pipe the dilute methane from the dairy barns and sheds into simple containers and compost that housed the methanotrophs in conditions similar to their natural environment. There, they feed on the methane and pull nitrogen gas from the air to make their amino acids. This process creates a high quality biomass that plants naturally use for nutrients, creating a win-win situation. Methane from dairy herds are destroyed while creating organic food for plants. The wedge market is dairy since they have no methane solutions and the milk they produce can become more climate friendly.
His proposal was to pipe the dilute methane from the dairy barns and sheds into steel containers that housed the methanotrophs.
Make a better fertilizer not a new product
Last summer, on a misty, cold and drizzling day I was walking to the newest volcano eruption in Iceland. It had erupted just a couple days prior, and only a couple thousand people had trudged their way across the virgin Icelandic landscape for almost 10 miles, across untouched lava fields covered with inches-deep fields of moss. I kept my head down during most of the hike to avoid the rain and wind stinging my face, giving me plenty of time to study the narrow path getting trampled through the moss.
It struck me then. The underlying igneous volcanic rock was being pulverized into a mixture with the moss being ground together underfoot, speeding hundreds of years of rock weathering into an afternoon. I was watching volcanic rock become dirt mixed with ground up moss, the nitrogen, phosphate and potassium, amino acids and fats serving as a nutrient-rich base mixed for the volcanic particles. This, I realized, is fertile soil. Primordial soil, the way soil evolved on our planet. And from this new fertility, seeds can gather needed nutrition and become towering plants and trees. And it all started with microbes, lichens, algae and mosses growing on the cooling surface of Earth.
Icelandic rock and moss turning to soil while hiking to Geldingadalur
Methanotrophs, Josh realized, can do the same job as the moss. By using methane as the carbon and energy source, Josh’s proposal of growing methanotrophs in dirt would create high quality organic fertilizer while eliminating the methane from our atmosphere. It happens like this. As the methanotrophs eat the methane, they double, and double and double. Every time they double they are pulling nitrogen from the air, and tearing it apart to make amino acids. These nitrogen-rich amino acids enrich the dirt and become readily available as food for plants.
The resulting fertilizer is different from the synthetic pure ammonia used today. It is organic biomass and so resembles pre-industrial age soils, which are healthier and more fertile than those of today.
Farmers buy fertilizer, so the best product to sell them is a better fertilizer, rather than something they are not used to buying. Farming is a very low margin, difficult business so farmers want to minimize risk. By offering them a replacement product rather than a new one, Windfall will shorten the sales cycle, and provide a faster go to market strategy.By offering them a replacement product rather than a new one will shorten the sales cycle, and provide a faster go to market strategy.
Great people want to work with other great people
The early Windfall team onsite at a dairy farm
I got to know Josh through my friend Tom Baruch, legendary climate investor and senior advisor to Breakthrough Energy Ventures. He introduced us knowing Josh wanted a partner to work through commercializing his methanotroph idea. I was game.
The first step was really understanding the problem and its extent. The second was examining the proposed solution and the bench scale prototypes that gave us confidence in the technology. Together we worked on the business assumptions, and the go-to-market strategy. What emerged was a simple pitch deck, compelling enough to get good people excited. We funded Josh to build Windfall in October 2022. Things went fast after that.
Recruiting the best team to execute the vision was next. The steps to build the team were in two parts: first, identify the core skill sets needed for the seed milestones, then find the best people with those skills.
Josh at work on methanotrophs
Jordan Smith, an engineer with decades of experience designing anaerobic digesters (bioreactors for organic waste eating methanotrophs), signed on first. Carla and Judy, both previously senior scientists at Calysta, have spent their careers becoming methanotroph whisperers. The yin to Josh’s yang arrived in Frank Crespo, former Chief Procurement Officer at Caterpillar and former Chief Supply Chain Officer at IndigoAg as Windfall’s COO to make sure the operational plans were focused and realistic. Steve Chu, former secretary of energy and Nobel laureate, joined the advisory board along with top USDA/EPA regulatory expert Daniella Taveau. Louis Stenmark, their marketing associate, is also an Olympian track athlete, competing for Australia in the 2024 Olympics. Tom Baruch joined the board. As the team came together, the agricultural industry started hearing about Windfall. Cavallo, the VC arm of Wilbur Ellis (largest agronomy company in the country) invested. TetraLaval, the world’s manufacturer of milk cartons and dairy equipment, invested. SOSV/HAX invested to enable mass manufacturing of the sensor enabled steel boxes. The company, advisors and investors are aligned and committed.
The best sustainability company is the best product company
Rendering of the simple container fertilizer bioreactors
Josh worked out a critical insight early on. Synthetic biology fails when you try to use high tech to build a low tech product. His answer to make a better fertilizer was less technology, not more. Scaling up synbio companies requires a cathedral of steel and pipes hooked up to cauldrons of bubbling bioreactors, engineered to get organisms to make something they normally don’t. In contrast, for Windfall he designed a box filled with dirt and bacteria, and that’s about it. This creates high gross margins since there are few costs. With the price of dirt being cheap and organic fertilizer being around $900/ton, there is a lot of room to build a profitable business.
The farmer wins. They get methane free milk. See, they want to sell their products to consumers who have woken up to the carbon footprint of dairy. Dairy is under attack, from almond milk, oat milk, and more. A carbon friendly seal of approval on cheese and milk products will help win those consumers back. The farmer wins again with access to a more natural, lower cost, live organic fertilizer. And the planet wins. It gets primordial soils back, land that is more harmonious with nature and a reduction of methane, cooling our planet and buying us time to win.
Concept art of a label communicating the value of methane free milk
The long term vision of success is a decentralized manufacturing network of live fertilizers across the country which creates a resilient food supply chain, impervious to regional or global disruption. Which is important because when food does not cross borders, armies will.
The idea that capitalism is required to fight climate change may seem odd. Or even inflammatory. But customers will buy products based on self interest. So the best sustainability companies are also the best product companies. Which is why Windfall is focused on innovating and delivering better fertilizer for farmers.
