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May 28, 2020
Building a startup from scratch is an art. In this episode, we sit down with Swaroop Kittu Kolluri, one of the best early stage venture capital investors, to dive into what it takes to go from an idea to a billion dollar business, with a focus on the ag-tech and climate-tech.
Kittu is the founder & managing director at Neotribe Ventures. He is a serial entrepreneur turned venture capitalist and has both run and invested in several successful startups including well known names like Climate Corporation, Box, Robinhood, WebMD, and Bloom Energy.
Kittu gives an inside view into the journey of The Climate Corporation, one of the most successful ag-tech and climate-tech startups of the 21st century. He also shares some of the key the tips, tricks, and strategies that he uses to coach his founders.
“You need skate to where the puck will be and [your prediction] needs to be something that you were right about and the rest of the world was wrong about.”
Borna (ClimateAi) 0:03
This is Agriculture Adapts by ClimateAi. Every week we speak with industry leading executives and farmers and academics to get a 360 view on how the agriculture sector is innovating to stay ahead of a changing climate. I’m your host Borna Poursheikhani. And I am your cohost, Himanshu Gupta. We’re a team of climate scientists and agriculture entrepreneurs trying to make farming more resilient, profitable and equitable as we transition to a new age of agriculture. This podcast is our journey as we explore the hurdles and opportunities that lie ahead for the industry that feed the world. With us today is Swaroop Kittu Kolluri, Founder and Managing Director of Neotribe Ventures, serial entrepreneur turned venture capitalists so from startup to startup investor, key to a several successful startups that he has both run and invested in, including well known names like Climate Corporation, Box, Robin Hood, Web MD and Bloom Energy. Kittu is also our lead investor and very close advisor and friend to both myself and the entire ClimateAi team. Kittu, it’s great to finally get you on the podcast.
Kittu Kolluri 1:07
Thank you Borna wouldn’t have paid you more to give me such an introduction. Check is in the mail. Check it. Yeah.
Borna (ClimateAi) 1:16
So I’m particularly excited about this episode because we haven’t had the perspective of a full time VC on this podcast yet. And I think that the perspective of a VC is very unique and insightful. Because in many ways, VC is the catalyst for innovation and among the VCs, key to you have a particularly high ranking track record with investing in climate tech unicorns, and that is a startup that’s valued over $1 billion, first with climate Corp, which is both a climate tech company as well as an ag tech company, then with Bloom Energy. And so I’m very excited to dig into the details of how climate change will both impact the technology sector, as well as what makes a good climate or ag tech company, but first key to tell us A little bit about yourself and your journey and how climate change ties into your work and your life.
Kittu Kolluri 2:05
I’m a technologist by training born and raised in India in Hyderabad, India, went to the Indian Institute of Technology in metros for my undergraduate degree in mechanical engineering before coming here to the US for my graduate studies. My initial part of my path was fairly boring. I joined Silicon Graphics as a software engineer, much like the zillion other immigrants here. Out of that experience came healthy on Web MD, got to meet the founder of Silicon Graphics. Dr. Jim Clark, who was the founder of Silicon Graphics and then went on to start Netscape. And then after Netscape, he started healthy on and invited me to join him in CO founding healthy on. So that company we took public and that was a healthcare focus camp. We took that company public in 1999. We started in 96. Then I left it towards the end of 2000. In because I wanted to get back to my technology roots, early 2001 became CEO of Neo terrorists. And that company, which was in the security networking spirits did really well. We ended up selling to net screen technologies, which then got bought within three months by Juniper Networks. And I ended up on the Juniper executive team as the VP, General Manager for the enterprise business, did that for a couple of years before leaving to join an EA. And when I became a venture capitalist, I talked about what I wanted to do and what kind of Mark I wanted to leave. And what was important to me was making money is a necessary but not sufficient condition, to investing in a company. I really felt very strongly and this is I borrowed heavily from my experience as an entrepreneur is really your need to invest in companies that can help change the world to use a corny phrase, but really make a disruptive but positive impact on the world. And that was kind of what drove me. And so if you look at my body of work at NEA and now here at near tribe, that’s what’s driven me it is investing in how I like to describe as breakthrough technologies that stretch the imagination, whether it was as an entrepreneur or as a venture capitalist in any year or now as sort of the founding VC at New tribe ventures. Our mission has really not changed. Now insofar as it pertains to climate change. My first exposure to climate change actually happened even before I became a venture capitalist was when the founder of Bloom Energy chaos leader reached out to me because he was a professor at University of Isn’t it I just want to say to you as you forget which one to us, but he had built the solid oxide fuel cells that he had put on the shuttle to Mars, and wanted to start a business around it and wanted to build a company around it, and wanted my help in raising capital for it. And so I was instrumental in helping him raise his first couple of rounds of capital, then also invested in the company alongside one of those rounds. And that was when I first got exposure to it because what Bloom Energy was doing was it was taking natural gas or biogas and converting it into electricity without burning it. So the fuel efficiency was much higher. I wouldn’t exactly call it completely clean tech, but it was cleaner than burning gasoline or coal or whatever. And it was a chemical process rather than a combustion process. And so that was my first exposure to it and it ended up being The first clean tech investment that Kleiner Perkins had made, ended up being the first in time to clean tech investment that any image so I’d actually introduced it to FDA around the same time. And so that was my first exposure. But then when I joined NEA, I also got exposure to a whole bunch of other clean tech technologies in the solar space. I’d actually also invested in a company called Ernie that was trying to take marginal biomass and converting it into what they call bio coal by burning it in an inert environment. So because there’s a huge problem in the developing world, where you have rice straw or wheat straw, that is burned and rolled into the top soil, and so if you go to northern part of India like Punjab, you will see a fears that are checked that because there is this ash has been rolled into the topsoil. And it completely degrades the deliverability of that top soil, the fertility of the topsoil. And so now farmers have to go put 30 synthetic fertilizer, and now they come in contact with the synthetic fertilizer, they develop cancers. And so it says really a huge healthcare problem in addition to being an environmental problem. So we were trying to solve that problem. And so a series of things that I got involved in and of course, climate CT, which was really sort of information technology meets agriculture, so to speak, by trying to build an insurance company around around agriculture. It was more of an mga in the agriculture space that stopped it and I went on Gramlich for a while.
Borna (ClimateAi) 7:51
No, that was helpful. And yeah, let’s just let’s just dig in there. So what do you look for when you look into these types of companies that might either be in the climate tech space or in the x tech space. It’s not a typical sector where investors or VCs will look to make huge returns. But I mean, you already outlined the fact that that’s not your only goal here. But how do you go about creating an investment thesis? And what are the main traits that you look for in a company if you want to invest the fall into these sectors,
Kittu Kolluri 8:17
make no mistake, making money is a necessary condition, right? It’s just not sufficient. So any company that we invest in has to generate or have the potential of generating outsized returns in what we call venture timescale? Call it you know, 357 years, right? We want to invest in a company if it doesn’t have that potential. But I do think that companies that are doing things that are, whether that’s Building Information Technology, or building agri tech or biotech, for agriculture, through technology, these are All companies that can generate venture like returns, while at the same time doing things that are beneficial to us and have a circle a socio economic benefit to it. So that prerequisite doesn’t change. But what do I look for there? I look for a variety of things, right? One is a look for signs that there is a tug at the other end of the rope. That is when you’re building something. Can you have a must have value proposition to a certain set of customers? And is that a use case that resonates with that set of customers? And there’s got to be some similarity of the use case because you want to build once and sell multiple times. And then are there enough such customers out there that you can sell district so is the market large enough that you can build a decent sized business Right. And does the team have an unfair advantage in helping build that particular business? Yeah. So, team matters, market size matters, what is the technology you’re building it on? And how differentiated is it that matters? What are the competitive landscape look like? In what is a competitive differentiation that matters. We look at what kind of financing, you know, future financing options that are available to the company. Because we don’t succeed till we are able to attract capital into the company as well. So these are some of the things that we look at.
Borna (ClimateAi) 10:38
Let’s make this a little more like tangible for people who don’t have much exposure to the startup sector. Can you walk us through what this thought process and what this system worked for you guys in terms of assessing the actual company for climate Corp,
Kittu Kolluri 10:51
so climate Park was a very distinct story because where we started off was not where we ended. You know, I I always like to say a startup doesn’t start till you have your first pivot. But when you when you talk about a pivotal pivot really means taking the same thing and targeting a new market, pivot doesn’t mean that you’re changing the very thing that you’re building, because that’s a restart. That’s right. debate is when you have got something and you’re selling it to a new audience. Okay. It’s old wine in new bottles. It’s not new wine in old waters. So we started off with climate carb. The idea there was to use historical weather data, about 30 years of historical weather data in one year of forecasted weather data, which is, by the way, all public information at that time and create a weather derivative model around it so that you could price weather related risk for various types of businesses. For that matter, consumers. In fact, our first use case that we went after, was actually consumer travel. But we also did Golf Resort ski resorts. The United States Tennis Association was a customer because they used to use weather bill at that time, which later became climate Corp as a way to ensure the Opening Day ceremony or the men’s semifinals, women’s and men’s finals, lemans, finals, things like that. But our first sort of strategic focus was and consumer trap and Priceline was a customer that or a travel portal that actually did a deal with us in the early days. However, we didn’t find product market fit in that space. And that’s when we pivoted away from consumer travel into agriculture. Because I’ll throw out some general statements here. When you’re trying to build a startup the opposite of a customer saying yes is typically not know what it is typically apathy. Its indifference it a status quo. It’s whatever they have. So when I map it to say the experience of trying to sell this into consumer travel, Priceline was trying to sell this weather policy at the point of sale, saying, hey, wouldn’t you want to insure your travel from any kind of weather related interference? Well, consumers at the point of sale and i would i really not go on my golfing tip. If it started raining, well, I probably would still go I’d probably be in the clubhouse, playing poker over single malt whiskies with my buddies.
So maybe I’ll pass on this. So it was a nice to have not a must wear, I think It really made a difference to us was on the cloud when when we pivoted into agriculture. We went to farmers and we told them, Hey, you know, farmers were accustomed to buying mpca multiple crop insurance. In fact, the federal government provided that insurance. But that MPC AI was built on a 10 year moving average at that time. And crop yields have spiked significantly in the recent years because of seed technology, coming from the likes of Monsanto. And so that simple moving average was ineffective in protecting that farmer because the yields were far higher. So as an example, say, your simple moving average might say all your last 10 year moving average in terms of yield is hundred bushels per acre, but maybe that fast was producing 160 hundred and 70 bushels per acre. And he was not covered for the 60 bushel 70 bushels per acre extra he was could potentially pre producing, but he was incurring a fixed cost and some variable costs for producing that. But he was uninsurable. So the MPC I was was preventing him from going out of business, but he was not playing. So we came up with a supplemental weather insurance product initially, that the we could sell on top of MPC. Right. And that’s how climate Corp started off and getting traction. Now we had our own set of issues around that too, because farmers would wait until the 11th hour to cancel their policies. They’re working off of razor thin margins. I’m like, Okay, do I want to buy this ancient drone I want to buy to the insurance. So there was an unpredictability to our business, which wasn’t ideal, but at the very least, we believe Have a business and then but on the backs of that, you know, climate Corp also built this climate calm, which was a production planning yield planning tool for farmers on do when do you plan and this was based not just on precipitation but also on agronomy related information.
Borna (ClimateAi) 16:17
I’m curious what the other challenges are that they faced, you mentioned, waiting until the 11th hour to cancel or to sign up for it causing issues with predictability and certainty around the business model. But what were some of the other key challenges that they faced that can potentially be applicable across the board in ag tech or climate tech?
Kittu Kolluri 16:36
You know, I think we had also the issues around regulatory approval, because we had to get approved. Since we were essentially helping sell an insurance product. We had to get approved by all of the 50 states, which a lot of climate related businesses probably have to do not all shop When you’re selling into growers, it presents a different set of challenges there. Because you’re dealing with on the one hand, sometimes institutional growers who are running large operations. And and then on the other extreme, you also have mom and pop shop rows. Right? And you’ve got situations where, you know, some portion of the land that you’re trying to ensure is owned and operated by the owner, some that is leased to grows, and the owner is sitting somewhere else. So the dynamic and determine what kind of crops that you have to deal with is also different. You know, we had to deal with crops like soybean, wheat,
corn, high volume, things like that
high volume months, you know, whereas, you know, for instance, at climate AI, we’re dealing with a broad range of high Value crops. So there’s a there’s probably more diversity in what we’re dealing with a climate AI than maybe what we what we dealt with that climate Corp.
Borna (ClimateAi) 18:10
Yeah. And that grower pieces is a very interesting one. When we first started off, we were trying to go direct to growers as well. It’s kind of an exploratory thing when we entered the agriculture space, and I’m, I’m sure you remember this when we were trying to figure it out. And ultimately, it proved to be an extremely difficult process, because it’s not, you know, for other if you’re working in business development for a tech company, you can largely find people on LinkedIn, whatever it may be. It’s hard to track people down and it’s hard to give them a tool that also works for them there. They’ve been like people have attempted to sell farmer snake oil so many times they’ve been burned so many times that it’s a difficult path to go down. So that is a very interesting point.
Kittu Kolluri 18:47
Here’s the other experience that we had. There is an existing channel that sells to these growers that sells various types of products all the way from seeds to insurance policies. And there is trust relationship that they have. But those people,
Borna (ClimateAi) 19:03
the retailers, the crop advisors, yeah,
Kittu Kolluri 19:05
exactly. So and you can’t just come in and inject yourself and somehow think that you will develop that trust relationship with these doors. Nah,
Borna (ClimateAi) 19:12
yeah, you can’t send an email from San Francisco is a 10 year relationship.
Kittu Kolluri 19:17
So I think it’s earned over a period of time. So that’s something that if you’re a tech startup in the Bay Area, backyards that saying, Oh, I’m gonna go do it. You got another thing coming if you don’t plan for this?
Borna (ClimateAi) 19:33
Yeah, that was one of the lessons that we learned very quickly. I think we did a decent job of adjusting, but that was definitely a learning curve for us in the beginning, because we were like, oh, why isn’t it working? But then, you know, it’s an industry that’s built on relationships. Like you said, You can’t just inject in some sort of tech solution to solve it. There’s a lot of human interaction and understanding of the problem that goes into it. That is oftentimes not such a turnkey solution. And the only other piece that I would add is kind of the data component like, it is very difficult. And this is largely one of the reasons I think why agriculture has not moved from a digital and technology standpoint as fast as some other sectors have is that gathering the data necessary in a format that’s as organized as needed to be able to work with it is very difficult to combine when you start to work with like the funnel points, you know, with people who work with a lot of growers, then you start to get some more accessibility, but going direct to grower can oftentimes be a very difficult thing to do. And that was also one of the reasons why we ultimately decided to go more of this funnel approach for the time being
Kittu Kolluri 20:35
Peck sense makes sense.
Borna (ClimateAi) 20:36
So when you when you’re a venture capitalist, you are looking at different trends that are going to be shaping the world and that will, to some extent, dictate the types of companies that you invest in. And when you think about risks or things that will drive change, climate change, is definitely going to be one of the bigger ones. So I’m curious what you see in terms of climate change, impacting the economy and impacting technological innovation as a whole.
Kittu Kolluri 21:00
First of all, I make a general statement. Again, every startup
that seeks to be successful, should look for some macro trend, some tectonic shift that it can take advantage of. And it’s ideally it should be a non obvious macro trend. Because if it were obvious, everyone else has figured it out. And if you’re, if you are among the first to realize that macro trend, and are able to take advantage of it, you’re skating to where the puck will be tomorrow. And you want to be one of the few people that is right about it, and the rest of the world is wrong about it. And that’s been sort of my philosophy of building companies as well as investing in companies I look for this non obvious insight. In fact, some of my best Entrepreneurs are one that made me feel. Aha, why the hell did I not think that?
Borna (ClimateAi) 22:07
Kittu Kolluri 22:08
You know, when you have that buzz and you say shit, I learned something. And somebody taught us something that’s so insightful. That boy, now you got something very cool, enhance. So engine doesn’t matter when you’re building a climate startup or not, you should be looking for that. If you don’t have that, go back to the drawing board. Yeah. So that’s a general statement, irrespective of whether you’re doing a climate startup or not, you should be looking for the macro. Now, insofar as it pertains to climate related stuff. Look, notwithstanding the naysayers and the people who deny climate change. Climate change is for real and is having a significant impact on us. So share, share. little story with you. We had gone as a team to Napa recently, just as a short off site and
Unknown Speaker 23:10
we’d gone over to
Kittu Kolluri 23:10
TELUS toga and we visited a winery, as you know, I liked my wine. Yeah. And so we’d visited a winery and the guy was talking about how they’re growing the Dinos in a certain part of Napa, which is to the northern part of Napa. And I generally ask them, so, you know, is climate change impacting your business? And the guy was like, emphatic, he said, Absolutely. He was like, we are growing this particular type of grape on the side of this hill, because we need a certain number of, you know, chill days, as you know, and it needs a certain amount of sunlight and certain amount of cold weather and the sun But of children’s is dropping. And so guess what? They’re going to Oregon looking for similar microclimates to go buy land there by a commercial, agricultural real estate and grow their crates there. In the same conversation. The guy says, if you think about how climate change is impacting the wine industry, you probably have never heard of British ones. And he’s like, get ready. Britain is starting to grow grapes and starting to produce wine. Yeah. So that is how climate is impacting agriculture worldwide, and particularly, you know, certain types of high value crops. You know, by the way, it’s the same bread nuts, you know,
in various other types of high value crops like, you know,
Flowers and and fruits. And so I absolutely think that this is here to stay in now it’s a matter of how do you help? When you think about the entire ecosystem, from an agriculture point of view, there’s of course there’s the grower, but then there is the owner of that real estate, and then there is the financing. Right? And there’s could be several layers of answers. There are various types of incentives for each one of them. You know, some of them are trying to make a living, but some of them are looking for a return on capital. The folks who have invested capital are probably have also taken debt that they need to service. So they need a certain IRR on this. And so if you’re able to help build tools that help them make better planning decisions, make better investment decisions, when to buy when to sell. These are all things That could be very useful in building a successful business.
Borna (ClimateAi) 26:03
And that’s one of the things that makes our customer calls so interesting is that there are so many different ways that the the tool and the climate AI insights engine can be used. And it’s oftentimes, it takes a fair amount of research and understanding and conversation to figure out what are the are the places to start? And then where do we need to grow to in the future, but it’s also what makes it a very exciting space. Because once you get in with someone, you know that there’s a ton of room to grow, because it’s a tool that can be used by every team within the company for a variety of different things,
Kittu Kolluri 26:32
as you probably are aware of the process and the methodology that I’ve described to a lot of fun entrepreneurs. You know, you have to start with actually empathizing and looking for that answer in all sorts of non obvious areas don’t have any preconceived notions. So usually, you need multiple conversations, but at some point time, you need to also focus because you got to do everything. You pick the battles you want to fight,
Borna (ClimateAi) 26:59
what about for others sectors key to So you said in our last conversation you were like we invest at the intersection of bits and atoms, which makes sense, but it’s also a very broad category. How do you see climate change impacting the rest of your investments or your broader investment thesis at Neo tribe as a whole?
Kittu Kolluri 27:15
You know, we have invested in a couple of other, let’s say climate related companies that are impacted, that are either impacted by or impacting climate change kind of thing in some way, shape or form. One is a company called Helio Gen, which is using solar concentration to generate very high temperature process heat, and potentially even using that to split water to generate hydrogen as another fuel. Then we have investment in a chemical energy vault that is using potential energy to store electricity and release electricity. So it piles up these blocks, cement blocks, one on top the other create these vectors, but what is interesting is is right When you think about bits and atoms, I’ve seen in the clean tech area, a lot of investments that have gone into solar light and but in within solar, it’s all gone into, you know, silicon, various types of silicon, whether that be, you know, crystalline silicon, Mr for silicon, and then oh, even things, you know, those investments made there. Then when you think about energy storage, we’ve made investments into various types of battery chemistries. You know, you’ve heard a lithium ion there was, you know, we’d made an investment in a nickel Farish kind of chemistry for energy storage, then there was no we taught off clean tech in terms of three legs, energy generation, energy storage and energy management. But my insight here at near tribe was that she looked at the world of atoms in general. It has lag the world of bits in terms of how much capital is it has attracted as well as in terms of the type of returns it’s generated. Because generally the world of atoms has been much more capital intensive, being much more laborious, more people oriented more error prone things like that.
Borna (ClimateAi) 29:21
When you say atoms You mean like science, you mean hardware, you mean that kind of exactly. Something that’s tangible. You can interact with not like a software.
Kittu Kolluri 29:28
Exactly. What do you even take healthcare as an example, like the world of drug development, the world of medical devices, things like that have been much more capital intensive. You know, generally speaking, cash on cash returns have been okay, but the IRR ‘s have been pretty poor. But I think that is changing. And that’s changing because of the Advent and availability of data and data science and new types of engineering. In fact, this interdisciplinary engineering efforts from borrowing from physics and chemistry, influence the world of atoms. That is what is changing the whole complexion of the world of atoms. And it’s my thesis that it’s going to change the capital efficiency of innovation and the world of atoms, as well as the point of inflection of value creation.
Borna (ClimateAi) 30:21
You’re saying because things are being digitized, and we’re now able to put virtually everything in terms of data, we have sensors, we have ways of tracking things, ways of monitoring ways of forecasting, because that is the case and the physical world is being digitized, we can now apply the same speed, efficiency and scale that we saw on the bid side, which is like the software side of things to the world of atoms, which is kind of like this world of science and hardware and that kind of thing.
Kittu Kolluri 30:48
You can process that data at large scale and make decisions, ai related decisions. That doesn’t require a whole lot of human involvement at a scale that is unfathomable.
Borna (ClimateAi) 31:04
This is why the world of agriculture technology is so interesting because I would say over the past five years, for some of the more progressive people past 10 years, there’s really been a push to start getting the data. It’s like we need to start getting this was one of the problems that we encountered, I mentioned when we first started off was that the data was a big issue. But now we’re starting to gather the data. And a lot of the companies that we talked to are saying, you know, this is, this is perfect timing, we have all this data, maybe we’re not really sure if we’re making the full use of it. Let’s see what we can do with it. This is why agriculture technology is so interesting, because we’re we’re getting to the point of inflection where there is enough data, but I don’t think it’s really taken off yet in terms of the actual evolution that we’ve seen,
Kittu Kolluri 31:47
because because I think some of the there are some industries in some parts of our economy that are sitting on data, but they don’t know yet the value of the data, but they’re not really applying the data. To me, you know, I’m reminded, if you rewind back to when we started climate calm back in 2006, or thereabouts,
Borna (ClimateAi) 32:09
as climate Corp, right?
Kittu Kolluri 32:10
chemical depot’s the first big data company, before Big Data even became fashion. We were using publicly available big data. And we were not even using any sophisticated AI models or anything like that. It was relatively straightforward stochastic models. But now, first of all, you’re not getting it. If you have building something on just public data. Anybody can do that. Right. So you need to have some kind of differentiation there. Because our atoms have kind of gotten commoditized data is not not gotten commoditized.
Borna (ClimateAi) 32:50
Yeah. Do you think we’re moving in that direction where data will become commoditized? No. And also, can you give an explanation of what that means?
Kittu Kolluri 32:57
What that means is that there’s a period time when people were unwittingly making data available. But now I think a lot of businesses have realized the value of the data they’re sitting on.
Borna (ClimateAi) 33:11
Kittu Kolluri 33:12
So they’re not as forthcoming with parting with that data. They’re like, Okay, what am I going to get 10 data for it. They may not have the core competency to go off and do something about it themselves, they may need help, but it’s not gonna come for free.
Borna (ClimateAi) 33:28
So you talked about, for a company to be successful, it most likely needs to have some sort of non obvious insight or a macro trend, driving it forward. What does it take to go from that macro trend and that non obvious insight as an idea to a company like you have been a founder of multiple companies, you’ve seen multiple companies grow from zero to 100? What does it take to take those first initial steps and to eventually grow it into a large company?
Kittu Kolluri 33:56
Yeah, it really comes down to you know, taking advantage of macro trends. And finding product market fit in the life of a startup. It is not a little bit about finding product market fit. It is all about finding product market fit. There’s nothing more important. Now what does product market fit me? Here’s how I like to define it. Product Market Fit is discovering the non obvious insight into why it would be criminal for your customer not to buy your product. And I’ve chosen those words very carefully. It’s discover it’s not a find, right because the truth is often hidden in plain sight. They say non obvious, it’s tied to the non obvious insight around the macro trend we talked about. And then I say why it would be criminal for the customer not to buy your product. It has got to have that level of urgency. It cannot be a nice to have That is what product market fit is now product market fit is built on two legs, proof of value proof of market and it has to be in that order. You have to first prove value and then you got to prove market you tried to do or the other you’ve been through a lot of cash.
Borna (ClimateAi) 35:18
Yeah. Which is very common also reading club for venture capitalists to get their return to get their money, they usually need to get some sort of exit now either happens by an acquisition or an IPO. How is that different for ag tech and climate tech companies? no different. Is there as big an appetite though, in the world of climate tech and ag tech for Acquisition as opposed to financial technologies or a general software startup?
Kittu Kolluri 35:45
Yeah. It really depends on you know, what type of business that you build, right. And and whether you go deep in climate, or you say your you go abroad in an industry That is let’s say you focus on agriculture. You could build tools that focus on climate aspect of things. But then you could also add on other tools, that service, kind of like a one stop shop for that industry. Or you can see I’m only focusing climate analysis service, agriculture, commercial real estate, blah, blah, blah, blah, blah. Right. So the multiple ways of building those kinds of businesses, and there are buyers, depending on the type of business that you buy, the private equity players that will also by the company, you know, at the end of the day, the years one general piece of advice I give companies is whether it be m&a or an IPO. That’s a tactic. It’s not strategy. Okay. liquidity is not a strategy. It’s a tactic. If you focus on building the best business that you can The restaurants take care of itself.
Borna (ClimateAi) 37:02
Don’t build for the exit build build for the good product.
Kittu Kolluri 37:05
If you build a business, let’s call it, you know, hundred plus million dollar business growing at the rate of color 30 40% a year if not higher, and at a gross margin of 75 80%, higher, bloody hell, who the hell cares whether that’s a climate business or whether that’s a, you know, storage business, you know, that’s just friggin amazing business. Anybody would want to get the pay. And if you’re on top of that, you drive it to profitability. You’re putting out cash, even Warren Buffett would want to buy that business.
Borna (ClimateAi) 37:42
You do a lot of early stage investing in q2. I’m curious what you look for as traits in the individual or in the team. In order to be able to accomplish this. I think when you invest in climate AI, the team was pretty early. So what do you look for in the individual or in the people that are really driving that company?
Kittu Kolluri 37:58
I look for people who Who have this intuition around this non obvious insight that I talked about earlier? Because it didn’t like this, right? If you have an intuitive feel for the business you’re trying to make you’re trying to build, you can make decisions and effective decisions based on imperfect data. And in the early stage, it is there is virtually no data. So you have to be in a position to make those decisions based on imperfect data. That’s kind of what I look for. Is that person have that intuition and the feel for it. And it starts with identifying this non obvious insight. Yeah, that’s interesting. And I also, you know, there are times when I might have that initial. No, I’ve been I’ve had the experience of working with some entrepreneurship. I’ve given them the initial idea, but they’ve just run with it. You know, like they’ve come to me with one idea. And I have said, you know, maybe we should go pivoting this way and boom, they’ve just run with it, and then a truck through it. I mean, I, you know, I’ll give you an example of David fried Berg at Comic Con. I can’t think of too many people who are better idea eaters and entrepreneurs than David trade. Well, to be honest with you, that guy was just amazing as an entrepreneur, and look at you know, when you’re building, it’s not like Dimitri buck had any prior knowledge of agriculture as an industry. It’s not like he had a family that mcgriddle background or anything like that, but he made it his business to educate himself on there, and you’re such a fast learner and you really knew could tell what is important what’s not important. And used to be fascinating watching and board at the board meetings, either educate us on it is amazing that you have to have that fast learning ability and be able to apply that knowledge to making some effective decisions. And still you’re and, you know, in building your business, there’s a lot of experimentation involved. In fact, I encourage founders to experiment some because it’s a, you have to walk this fine line between experimentation and exploitation. It is you want to play fast, fail fast. And then once you find something that’s working down, explode,
Borna (ClimateAi) 40:42
yeah, that makes sense. And I want to squeeze in one more question before we let you go here. How has this is a completely tangential conversation, but I would be remiss to not bring it up how has Coronavirus affected the startup world as well as the venture capital world and do you see any permanent change? is happening. So what’s the short term impact? And what’s the long term impact?
Kittu Kolluri 41:03
I think there’s definitely been an impact in the short term because a lot of young startups that are sort of in the process of trying to build their business and acquire customers. For them, the process has slowed down significantly, because a lot of customers, the buyers are dealing with bigger issues because the businesses they’re trying to sell to are selling to some other businesses, which have also slowed down. So there is this cascading effect that’s going on, you know, in general, I’d say a significant number of startups out there have been negatively impacted. Most of them though, I feel has been negatively impacted for the short term to medium term. Okay. But there are some that have been probably permanently negatively impacted. And because there’s some behavior that may change irreversibly, I don’t know sitting here why That could be like, for instance, I’ll just give you a call ask you a question. Let us say, the state of California lips a ban on chested in place, would you fly to New York broken up? Or if even your lips Shelton place would you fly? Probably not. Right. So how long will that general fear stay in us? Right? I mean, there’s nothing like we’ve ever experienced. I mean, we’re friggin locked in our rooms, you know, in our homes. I mean, look at you, you’ve like not even been able to go
Borna (ClimateAi) 42:37
down relocated, Arizona.
Kittu Kolluri 42:40
There we go. You know, here we are. Pretty much about the only there’s only one person or household who is allowed to go out to buy groceries and things like that. And my daughter’s like, you know, she’s handled everything and the rest of us are indoors. So it’s just weird man what’s going on a weird and I sure hope that there There’s a light at the end of the tunnel and you know once we get everyone vaccinated to this till we find some other Coronavirus, we should be good. And at which point um there could be some return to normalcy, but it’s probably a new normal. We don’t quite know yet but that’s an startup that figured out what that non obvious macro trend is could go build some interesting businesses. Yeah, that’s very true. Do you know which is one of the most successful business that has actually benefited a lot from Coronavirus Zoom Zoom for sure. That’s not obvious. That’s obvious words are non obvious one may not be that non obvious. Domino’s Pizza,
Borna (ClimateAi) 43:44
I would have guessed like doordash or Postmates or something
Kittu Kolluri 43:47
like Domino’s Pizza has been killing it. I understand. I was just reading an article about you know, one of the best long term stocks to buy right
Borna (ClimateAi) 43:54
there. One of my favorite pizza is actually I don’t know why like they’re not gonna sell you a high quality pizza, but they’re up there and one of my favorites.
Kittu Kolluri 44:01
I think they have worldwide they have the largest number of stores. That’s interesting.
Borna (ClimateAi) 44:07
What about downturns in general key to how to downturns in the economy in general provide challenges or opportunities for founders. Yeah. So don’t
Kittu Kolluri 44:14
don’t obviously have challenges in terms of, you know, getting commercial traction, getting customers to buy and things like that. But where it could provide opportunities is one as you can drive your cost down. Real estate is cheaper. At a time like this real estate is very cheap, right? In fact, a lot of us are just working from home. If you’re working from home and find a way to operate effectively remotely as a team. While you can play a lot of pasta, that’s true.
I know for instance, as the head of this household, the calorie household, my credit card bills have been in a long time.
I’m not going to say a word about it. And then talent becomes available.
Borna (ClimateAi) 44:58
People being let go from really Good companies and then finding homes elsewhere.
Kittu Kolluri 45:02
And, you know, people gravitating towards the stronger companies I built out in the outer edge, my second startup in the 2000 2001 timeframe during that downturn. When you are one of the few companies that has the cash available, and the capital available, you are King. And you can take advantage of that. When we emerge out of that downturn in 2003. We were pretty much the only sslvpn VPN provider that was viable, and that the exhibit reflected that
Borna (ClimateAi) 45:45
I want to let you go here, but before I do, how can people support you or support your work or support Neo tribe in any way? Just create good companies and bring them to your doorstep?
Unknown Speaker 45:53
That’s right, just generate deal flow for me Borna!
Borna (ClimateAi) 45:58
All right, I’ll leave this one as a personal task.
Kittu Kolluri 46:01
My job is to invest in companies and our doors are open virtual doors. But we just made an investment into a company without meeting the founders physically, really is all virtual. Was that a first first investment in my life that I made without meaning? How does it feel? So it’s doable? Yeah, it’s doable. You know, so we’ll do that. And, you know, look, if there are things that I can help with, it doesn’t have to be companies and entrepreneurs, that portfolio companies in your tribe, you know, as you know, Borna I love to teach, and I’m at a stage in my career when I get joy from seeing others succeed.
Borna (ClimateAi) 46:45
That point really resonates with me and I think it’s an extremely valuable part of having you on the board and having you be the lead investor is that Neo tribe does a great job of working with the companies and with the founders to help guide them. You guys are extremely empathetic Can you understand the problems because you were entrepreneurs yourself. So, just wanted to take a second to give you guys the appreciation for that. Thank you so much for your time today, I learned a lot.
Kittu Kolluri 47:07
Borna (ClimateAi) 47:10
Hey, everybody, thanks for listening if you have any feedback, or you’d like to add your own two cents on the topic discussed today, or if you’ve just got your own ideas about someone that we should discuss in the future, please feel free to shoot me an email at email@example.com. At its core, this podcast is just a way for us to learn and we want to share our learnings as we go. So we’re always open to building on these conversations and hearing new perspectives. Thanks for your support and see you next time.
Serial entrepreneur and venture capital investor