Podcast Summary
Investing in Pre-Launch Startups: Risks and Rewards: Investing in pre-launch startups carries high risks but potential for significant returns. Angel investors should gain experience with launch products before investing in this space.
Evaluating a startup without a product or traction is a high-risk investment. Seed investors typically focus on companies with products in the market and traction data, but some angel investors invest before launch. However, the failure rate is significantly higher for pre-launch startups compared to those with traction. It's important for new angel investors to gain experience with launch products before investing in pre-launch startups. Despite the risks, some investors still choose to invest in pre-launch startups, recognizing the potential for significant returns. The discussion on This Week in Startups also touched on the topic of Microcycle, a company using mushrooms to remove toxins from construction waste and turn it into new building materials. The show is brought to you by OpenPhone, Masterworks, and helpware.
Founder's track record matters: Understand a founder's role and impact in previous companies for insights into their abilities and dedication to the new venture.
When considering investing in a pre-launch startup, the founder's track record is a crucial factor. Having a successful exit or having worked at a successful startup with a meaningful role are strong indicators of potential success. However, it's essential to delve deeper than just the logos of prestigious companies on a team's slide. As an investor, it's vital to understand what the founder did at their previous company and the impact they had. This information can provide valuable insights into their abilities and dedication to the new venture. Additionally, other factors like unique skills and the potential of the startup idea itself should also be considered.
Identifying unfundable startups and attractive customer bases: Understanding market trends and domain expertise are essential for recognizing unfundable startups and identifying attractive customer bases in venture capital. Investors value progress and are less likely to wait for extended periods without seeing significant improvement in businesses.
Domain expertise and understanding market trends are crucial for success in venture capital. Molly, with her background in sales and experience as a venture capitalist, shares insights into the importance of recognizing unfundable startups and identifying attractive customer bases. Unfunded startups may not be ready for investment due to various reasons, such as poor execution or the wrong team composition. On the other hand, targeting specific customer segments with significant potential can lead to competitive advantages. For instance, recognizing the shift from traditional car rental services to on-demand solutions like Uber can help investors identify promising opportunities. Moreover, founders need to understand that investors value progress and are less likely to wait for extended periods without seeing significant improvement in their businesses.
Dangers of Relying on External Funding and Using Personal Numbers for Business: Founders who only discuss plans without action risk running out of money. Use a dedicated business phone number instead of a personal one to maintain control over customer relationships and avoid spam messages.
Founders who only talk about their plans without taking action and rely on external funding to move forward are likely to run out of money and abandon their projects. This was discussed in the context of meeting numerous founders and observing the difference between those who are actively working on their startups and those who merely talk about what they intend to do. Another key takeaway from the conversation revolves around the importance of using a dedicated business phone number instead of a personal one. Founders often make the mistake of using their personal number for their business, which can lead to unwanted spam messages and a loss of control over customer relationships if a sales representative leaves and takes the number with them. Lastly, the discussion touched upon the challenges of evaluating early-stage companies in speculative markets. In such cases, taking small bets through accelerators or seed funding can be beneficial for building prototypes and acquiring initial customers. However, founders with strong egos and a belief in their own worth may overestimate their valuation and ask for excessive funding, which can hinder their progress.
Navigating the emotional rollercoaster of startup funding: Understanding the value of a startup during funding can impact ownership, leading to dilution. Founders must choose to adjust or stay the course, with patience and resilience.
The startup world can be emotionally taxing and unfair, especially for founders trying to secure funding. The value of a startup at the time of investment can significantly impact a founder's ownership percentage, leading to dilution and frustration. This marketplace dynamic is a matter of choice and competition, where some founders may choose to lower their valuation to attract investors, while others may opt to stay the course. It's essential for founders to understand that the process can be lengthy and requires patience. Some startups may not clear the market and may need to adjust their approach or pivot, while others may give up. Despite the challenges, the competitive and unfair nature of the startup world is what makes the US the greatest country for company formation and capitalism, producing the most successful businesses to date. Founders must be prepared for the rabid and chaotic environment, as it's the system that breeds innovation and success.
Understanding the Limitations of Pre-Orders, Letters of Intent, and Crowdfunding Campaigns: While these indicators can provide insights into potential revenue, it's important to scrutinize the details behind them as they may not accurately represent a company's financial situation. Non-binding agreements like letters of intent can be misleading, and pre-orders or crowdfunding campaigns with lower prices may hide significant costs.
While pre-orders, letters of intent, and crowdfunding campaigns can provide valuable insights into a company's potential revenue, it's essential to scrutinize the details behind them. Letters of intent, which are non-binding agreements, can be misleading as they often don't require any financial commitment from the buyer. On the other hand, pre-orders with deposits or crowdfunding campaigns where the product is sold at a lower price than stated can also hide significant information. It's crucial to consider the full cost of the product, including materials, shipping, and potential returns, to get a clearer picture of a company's financial situation. Ultimately, it's the responsibility of investors to dig deeper and not just rely on these indicators at face value.
Mushrooms: Fascinating Fungi with Unique Properties and Business Opportunities: Explore mushroom-based businesses for unique properties and potential benefits. Diversify investments in uncertain economic times, including alternative asset classes like fine art.
Mushrooms have fascinated humans for centuries due to their unique properties and potential benefits. From being used for food and medicinal purposes to their role in decomposition and communication between organisms, mushrooms continue to intrigue us. Moreover, the success of mushroom-based startups like Michael Cycle, which uses mushrooms to remove toxins from construction waste and turn it into saleable material, highlights the potential of this industry. Another interesting investment opportunity lies in fine art, an alternative asset class that has historically shown low correlation with the stock market. With inflation at a 40-year high and stock markets experiencing volatility, diversifying investments can be a wise move. For instance, Masterworks' $500 million art portfolio saw a 12.4% growth in the first half of 2022, while the S&P 500 and NASDAQ were down more than 20% during the same period. Overall, the discussion highlights the potential of mushroom-based businesses and the value of diversifying investments in uncertain economic times.
Innovative companies tackling art and environmental sustainability: Masterworks lets investors buy art shares, Michael Cycle uses mushrooms to recycle construction waste and create new materials, reducing landfill waste and creating viable end-use products
There are innovative companies like Masterworks and Michael Cycle tackling different but significant issues in the art world and environmental sustainability respectively. Masterworks allows investors to buy shares in multi-million dollar art pieces, while Michael Cycle uses mushrooms to recycle construction waste and create new materials. Joanne Rodriguez, founder of Michael Cycle, shared how mushrooms are natural recyclers and builders, capable of breaking down heavy hydrocarbons and creating new raw materials from construction waste. This process not only reduces the amount of waste going to landfills but also creates viable end-use products for these materials. Michael Cycle serves as an intermediary to make this process more accessible and efficient, addressing the lack of connection between waste disposal and end use in the construction industry. By focusing on these waste streams, companies like Masterworks and Michael Cycle are making a difference in the art world and environmental sustainability, respectively.
Mushroom-based waste treatment process for new products: The company partners with recyclers and facilities to process waste into new products using a mushroom-based treatment, saving time and resources while reducing environmental impact.
The company is working with construction and demolition recyclers and material recycling facilities to process waste materials like wood, metal, concrete, and asphalt shingles into new products using mushroom-based treatments. They are partnering with these facilities by licensing their process and paying them for the treatment, co-locating, or going mobile to decentralize waste management. The process involves grounding down the waste, blending it with their treatment, incubating it for four weeks, and harvesting a byproduct that looks like styrofoam. The resulting product can be used to create new materials like insulation boards, bricks, blocks, or fibers. The company is also offering outsourcing services through Helper.com to help startups save time on mundane tasks. The mushroom-based treatment process is a simple three-step method that saves time and resources, making it an efficient and eco-friendly solution for waste management.
Mushrooms' Role in Recycling and Reducing Waste: Mushrooms can break down toxins and transform them into less harmful substances, known as mycoremediation, effectively recycling organic waste streams and producing valuable byproducts.
Mushrooms offer a unique solution to recycling and reducing waste by breaking down toxins and transforming them into less harmful substances. This process, known as mycoremediation, is particularly effective for organic waste streams like wood products, asphalt-based products, sealants, coatings, insulation, foam, rubber, and even textiles and face masks. By working directly with manufacturers to design waste out of the supply chain, we can extract less natural resources and divert more waste from landfills. Mycoremediation also has the added benefit of producing valuable byproducts, such as lightweight, water-resistant, fire-resistant, insulating, and acoustically-sound materials. As we continue to explore the potential of mycoremediation, it's important to overcome the phobia of fungi and recognize their crucial role in creating a regenerative society and addressing the climate crisis. Currently, only a small percentage of funding and research is dedicated to this field, but the possibilities are vast and exciting.
Mushroom-based materials from construction waste: Company focuses on waste management, producing mushroom materials from C&D waste, exploring licensing, royalties, and other opportunities.
The company is focused on utilizing construction and demolition waste to produce mushroom-based materials as a beachhead strategy, while exploring other opportunities in licensing royalties, per ton treatment, packaging materials, and environmental cleanup. They aim to stay true to their core and address the pressing issue of waste management, which is gaining regulatory attention and nearing capacity limits in landfills. The business is still in its early stages, with small revenue mostly coming from treatment pilots, and they're currently in their seed round, expanding their team and office space. The mushroom science community is an active and growing network, with conferences, online groups, and various resources available for those interested in the field.
Midwest's Mushroom Industry Boom: The Midwest is experiencing a surge in the mushroom industry, driven by local innovators and companies focusing on myco-remediation, food production, and sustainability.
The Midwest is becoming a hotspot for the mushroom industry, with a growing community of mycologists and companies focusing on myco-remediation and food production. Coined as "Shroomboom," this movement is led by local founders and experts like Joanne Rodriguez of Microcycle and Juliana Fursi of the Fungi Foundation. These innovators are using mushrooms to address various issues, from soil replenishment to creating new food sources. The industry is still not mainstream but gaining traction, with events like the upcoming Congress in Mexico featuring keynote speakers from the Midwest. Overall, the Midwest is emerging as a significant player in the mushroom industry, offering exciting opportunities for innovation and sustainability.
