Agtech is back, Importance of networking, if you build it they WON'T come, don't overhire!

Divergent Portfolio Summary:

The big news is agtech.   After ther 2021 bubbles, agtech had been struggling. I have heard many stories.  That said, right now I am seeing legitimate momentum unlike what I have ever seen.  I feel like doing this again from an investor seat I have seen how to avoid nonsense and get to scale quicker.   Conduit (fintech in ag and agtech) is my only board seat outside Axia holdings (seed breeding).   These two are scaling, high margins and profitable.  Axia has taken time to build- nearly 11 years.  Conduit is 120 days in and already has all this momentum.  But I am seeing momentum all around at Compass, Aanika bio, Seso, Amplify and Greeneye.   I expect to make a huge return on this portfolio.  

As for healthcare and edtech, I am seeing green shoots.  I have seen some financings get done the last few months and with clear momentum for certain companies.  I expect 2025 could be a rebound year in these sectors.  

Finally, I was at the Bison Ventures Annual Meeting this week.   Bison is an up and coming firm focusing on deeptech and with some young but very experienced investors.  I strongly suggest checking them out if you are doing something that will be a technical challenge. 

VC insider minute:  Insider financings, pre-emptive financings

This topic continues to come up.  Let me be unequivocal.  Insider financings are incredibly positive for an entrepreneur if they are pre-emptive to a round.   And they are the only option if they aren't.  But there are politics and forces at play in both cases.  

Firstly, you need to understand that VC firms constantly and qualitatively rank their portfolio.  Everyone knows the winners and losers.   If you are a winner, you will get support and if your top of the heap, you may get a pre-emptive insider proposal.   If you are lowly ranked you will probably know it as well in the form of disengagement.   Its the gray areas that are hard and most companies are in gray areas. 

If you get a pre-emptive inside proposal you should seriously consider it.  But realize you are getting the goodwill of a partner likely at a price that may be a bit lower that what you could get but nonethless fair considering the circumstances.  That insider then gets more ownership and its a fair trade off.  The best part is you get a known quantity- a team that you trust and want on board. 

An insider financing where you need it- i.e. you went to the market and nothing came back, is not as good, but if its a supportive situation it can still work.  Just be prepared for the jockying because inside the firms they are all telling their partners that you didn't raise capital successfully.  The natural question is "why"?  If there is a rational explanation you might not get much drama.  If there isn't and its performance related, be prepared for some back and forth. 

Just realize that insider doesn't mean a rubber stamp.  Nor should it.  You need to earn the investment each time.  But in general if you have good insiders and you like them, Its a good approach. Dont be blind to what is being said and discussed internally.  If you failed to raise money and are back for an inside deal, make sure its a proper financing however small, versus a dreaded bridge.  And remember you are always being judged and rightfully so.  Bring yourself up to the top 25% of the portfolio in a VC firm and you will find life a lot easier.  

Entrepreneurs Corner Topic 1: If you build it, they WON't come

This was a clear insight from the Bison Event which I thought got right to the point of mission driven or technology/deeptech entrepeneurs. But also those building anything. It doesn't matter what you build or how great it is. The expectation that your game changing technology or product is going to fly off the shelf is basically misguided.

Yet I see lack of commercial preparedness from almost everyone I invest in. You need to be thinking about how to sell, license, partner, commercialize every day and every waking minute. The naive approach of going heads down and building or saying "your busy" with product or ops or whatever is just a convenient way of avoiding the hardest thing to do which is sell.

There are companies that get this wrong meaning they over commercialize or go to market too soon or with too little. That said, I think the observations here by Bison are spot on.

Entrepreneurs Corner Topic 2:   The importance of networking 

I know many of you are engineers or technical and while you may be social its not your natural instinct to be at dinners and happy hours every day.   But networking is more than that.  Its building relational bonds with your coworkers, and those that you do business with even outside your company.  Some advice- that time invested pays dividends.  Help out, make connections and never view your time as transactional.  Do a favor, do whatever.  Networking is not important in the short term necessarily though it can pay off. In the long term it ALWAYS pays off.   The trouble most entrepreneurs have with it is they view themselves as "busy" and not having the time.  Or they dont see the immediate ROI they seek.   You don't know when its going to pay off.  Remember people are forming opinions of you as you interact with them.  

This week I attended the Bison Ventures annual meeting. They are an investor in my new still stealth venture.   Bison is run by Tom Biegala and Ben Hemani .  Tom and I worked together (although not at the same firm) when I was at KPCB and he was at Bill Gates Investments.   He was only right out of college a few years at that time.  I was a partner at KPCB albeit a younger one. 

We had fun nurturing investments- sometimes success and sometimes painful.  But stayed in touch.  

Recently, I left agtech and decided to join the deeptech/Healthtech world.   Tom was one of brightest people I knew over the years and I also knew how he approached companies and both good and bad situations.  It was a no brainer to do something together again, I think all around. 

But if you would have told me 15 years ago this would be the situation, I would have not predicted it.  

Just as your career grows, others grow as well.  Success of others means you may have opportunities to work together.  Never take partnerships, friendships or relationships of any kind for granted. 

Interestingly while at that same event I ran into an old friend in Michael Linse, a former KPCB partner who has also gone on to great success with two sizeable new funds at Linse Capital.   This is someone I had always liked and thought highly of and we had stayed in touch over the years.

Finally, I did a podcast recently with Neil Devani , which was great for exposure of Divergent and all I am working on. Yet another example of someone who has built up Necessary Ventures from scratch and now is becoming a force in early stage investing.

Seeing and interacting with all these old friends and being in situations where there is opportunity to work together is what business is all about.  I hope 15 years from I experience these same things. 

Entrepreneurs Corner Topic 3:  Don't overhire, especially when you can

I wrote earlier in a post that the riskiest thing to do is aggressively overhire and the riskiest time to fall into that trap is right after a fundraise.  The reason is simple- you need to be able to hire to do it.  When things are tough, capital is scarce, you dont hire much.  Its hard to get over your skis.  

The riskiest time is the 3-6 months post a fundraise.  You will find people constantly wanting things and thinking they need to allocate that funding.  You need to take a step back at that time. It isn't that you should just say no all the time.  Instead you just need to take your time and assess.   A fundraise brings pressure to grow and you will feel it.  But the last think your investors want is for you to get over your skis.  In early stages they will be in for 5-10 years so don't overhire- intead take stock and do it methodically.  This will save you trouble down the road.  And most importantly recognize that the aftermath of a fundraise does seem very safe and positive but in fact is when you are prone to make the worst decisions. 

Parents Corner:  School feedback, dont open the door to complaints

Firstly, I love teachers and schools.  But as a parent, sometimes they like everyone will use your goodwill against you.  

I am sure as a parent, especially of a neurdiverse kid, that you often get calls from the school.  Even if its a school which caters to neurodivergence.  As an aside I find that ironic. You send your kid there and they still complain about the same things.  BTW, you will often get positive feedback as well but its never out of the blue.  They will tell you at a semester meeting that things went great but they dont call you one day and say "wow your son was a star today.".  Yet when something happens like they misbehave or have a tough day, you will get the call. 

Here is the reality- if you let people take you on a roll coaster they will.  When I was growing up there were many things my teachers could have complained about.  But my parents for better or worse never opened the door to complaints from teachers.  So they never really heard about it except for a very few instances when I really screwed up.   Parents who are engaged will often tell teachers they want the blow by blow.  I dont think that is healthy.  Checkin maybe once per month instead and then assess the kids for yourself at home.  Meaning are you seeing quality behavior and work trends there?  If you are maybe its not the kid, its the school. If you are seeing issues at home with the kid and their work, odds are the same issues are popping up. 

As a parent you need to realize your mood and attitude projects on the teachers.  If you are accepting negative talk or negativity then they will project that on you.  And the consequence will be a tougher slog for your kid.  Be their advocate and hold the kids accountable but dont open the door to negativity or unrealistic expectations of your child.   And definitely don't pick up the phone right away for every last last complaint.