#178 Investing in Water, IRA's Missing Link, Long Sales-Cycles, Network Compounding, & More w/ Tom Ferguson (Burnt Island Ventures)

What do you get when you put Chris Rock, Timothée Chalamet, Greta Thunberg, & Marc Andreessen together? -- You get Tom Ferguson! The King of Water VC!

(Warning! Tom is hilarious, so cancel your comedy cellar tickets because you won't need them)

Today, we had the chance to speak with Tom, the founding partner of Burnt Island Ventures. They are the leading VC investor in all things water.

They became this by compounding their network for years with some of the best water networks, including Imagine H2O.

One notable thing he pointed out is, the IRA didn't include any investment into water infrastructure. 🤯

Tune in to get the whole thing today! 🌱🌎

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Topics:
**5:00 Introduction
**8:10 Why Sustainability
**10:34 Time with Imagine H2O
**16:13 Other Considerations for BIV
**19:27 Story behind the Name BIV
**20:55 MBA and Business School
**27:22 Focus on Building Team
**31:32 Pricing in Velocity of Sales Process
**38:35 Compounding Network as a VC’s Moat
**47:24 Biggest Problems in Water
**56:17 Companies that BIV work with
**1:00:42 Startup Opportunity; Water Testing Market
**1:04:19 Takeaway

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Links:
**Tom Ferguson | Burnt Island Ventures
**Follow CleanTechies on LinkedIn: https://www.linkedin.com/company/clean-techies/
**@Silas & @Somil_Agg on X 

Transcript

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):
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Silas Mähner (00:10:06):
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Silas Mähner (00:10:10):
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Silas Mähner (00:10:14):
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Silas Mähner (00:10:15):
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Silas Mähner (00:10:18):
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Silas Mähner (00:10:21):
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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.