Sunday, July 17, 2022

2 Questions To Ask Every Startup

From watching her first startup implode to selling her second startup, to starting a web3 focussed venture capital firm investing in some of the country's top startups - this is Julia Lipton.

Julia Lipton

General Partner at Awesome People Ventures

Hey, Hey 👋!

The best way to learn is to get hit hard in the face (metaphorically, of course). 

That’s what happened today's guest.

Julia was employee #3 at Quixey, a startup that grew from 3 to 500 employees in record time before falling back to earth just as fast.

That experience taught Julia some key lessons that we explore in this chat. 

Today you’ll meet Julia Lipton, the General Partner at Awesome People Ventures, a crypto venture fund investing in the country's top startups and web 3 projects. 

If you like learning about frontier markets, you’ll love this one.

Let's get after it!

 

In Today's Expert Session:

  • Meet Julia: From watching her first startup implode to selling her second startup, to starting a web3 focussed venture capital firm investing in some of the country's top startups - this is Julia Lipton.
  • Investor Toolkit: Look for these 2 specific things before investing in any startup - a unique insight and an inflection point.
  • Personal Capital: Hedge your portfolio by investing 25% into alternative, non-correlated assets via this investing platform.
  • New Markets: Are the carbon credit markets here to stay? It’s a 10-year bet, but Julia is betting to win big. 
  • Business Idea of The Week: This is a billion-dollar business opportunity for the right founder - let's explore fertility data.

Guest: Julia Lipton, General Parnter at (Twitter: @JuliaLipton)

Video Length: 30 minutes

2011 to 2014 - A $700m Failure: Julia started her startup in college. She’d go to classes in Los Angeles on Monday through Wednesday before flying up to San Francisco, where she’d spend Thursday through Sunday working at a startup.

The startup was called Quixey. It was a pioneer in mobile search, powering the search functionality behind many major app platforms.

They were flying high - raising $165m at a valuation over $700m+. 

Julia was employee #3, and as it grew to over 500 people, she rose with it, becoming the Director of Marketing.

But there was a massive problem…

Google and Apple were developing superior applications. And to make it worse, Quixey didn’t have product-market fit.

 Soon after reaching its peak of a $700m valuation, the company imploded. 

After this, Julia had some health scares, got sick, and burnt out.

From that moment on, she decided to only work on things that make people happy and healthier. 

2014 to 2017 - Winning By Making People Happy & Healthy: With her new focus, Julia joined Rise as its Head of Growth.

Rise matches you with a dedicated nutrition coach to help you achieve your health goals.

This company grew to over $1m in annual recurring revenue (ARR) before getting acquired by One Medical, a $2B telemedicine company. 

After the acquisition, Julia ran One Medicals telemedicine practice for a year before taking a sabbatical.

2017 to 2021 - Becoming a Digital Nomad & Launching A Fund: Julia learned about lifestyle design during her sabbatical.

She met some digital nomads - people who conduct their life in a nomadic manner while engaging in remote work.

She learned that there are many ways to design a career and accompanying cash flow to support an optimal lifestyle.

From this insight, Julia decided to start advising companies, taking her startup skills and consulting companies on go-to-market strategy, team building, and hitting revenue goals. 

Julia loved it…and she was good.

She started to meet exciting companies. She liked them so much, that she started investing in them. 

$5k here, $10k there.

Over time, she’d built a portfolio of some amazing companies.  

The challenge was, that she ran effectively at cash flow breakeven. She’d earn money by consulting companies, then take that money and invest it into a company she loved. 

It was not sustainable.

One day a friend, Lars called her out - he said she was being stupid and that a lot of other investors would want to invest in these great companies with her.

He told her to start a fund. 

That friend was Lars Delgard, the founder of Success Factors, which sold to SAP for $3.6 Billion. At the time, he was a General Partner at Andreesen Horowitz, a top Venture Firm in Silicon Valley. 

Julia launched her first fund, Awesome People Ventures, a $1.5m fund. This felt like a big win and got the snowball rolling for Julia. She invested in 35 companies at the intersection of Future of Work and Modern Wellness. 

 

2017 to 2021 - Becoming Web3 Obsessed: Julia quickly realized that some of the best companies to invest in were B2B SaaS - companies selling software to businesses on a recurring license.

It's a great way to get returns, but to Julia, every company started to look the same. Over time she stopped loving her day-to-day.

One day, she decided she couldn’t bear to look at another B2B SaaS deck.

She took a 1-year break after investing the $1.5m from Fund 1. During this break, she fell down the crypto rabbit hole.

She fell in love with the idea of decentralization and ownership and how she could give more upside to her network around Aweseom People Ventures.

In 2021, she started investing in crypto full-time and hasn’t looked back. 

Julia's fund is backed by some of the best investors in the game - folks like Marc Andreessen, Chris Dixon, Multicoin, and founders of top crypto projects.

She’s also spent a lot of time investing alongside top venture funds like Floodgate, where she learned this framework.

Look for two keys: Unseen Inflection Points & Unique Insights

Startups have several distinct stages. There’s the value-seeking stage, where the company is trying to answer questions like what is the product? How do we price it? Who do we sell to? And then there's growth mode, where they build systems to catapult their solution into the market.

Look for two things across these stages of a companies lifecycle:

1) Unseen Inflection Points: It's very difficult, if not impossible, to build a billion-dollar business without riding massive, exponential curves that allow the businesses to grow sustainably and scale. 

An inflection has two parts: cause and impact. The causes are generally either technological (cloud, 5G, AI, VR, Drones, etc.), regulatory (GDPR, AV regulation, Weed Legalization), or societal (New belief or behavior shifts - e.g. short-form video). The impact, or result, may be that products and distribution become cheaper or faster, there are new use cases or customer types, or even something impossible is now possible.

Before Julia invests, she must answer the question,”Is there something coming in the world, market, tech, or regulation that will cause an inflection point where if this company is on that wave, it’ll take off.”

But identifying an inflection point doesn’t mean you should create a business.

2) Unique Insights: What founders must do after identifying an inflection point is determine if the insight is right and nonconsensus.

If everyone believes an idea is right (consensus thinking), and the market does materialize, then any potential upside will be eroded due to massive competition. It will be impossible to break out. 

You need to be non-consensus (against the grain) and right. This is where breakout companies live. 

A Case Study: Investment in SolidWorld.Dao

Before reading this case study, you can get up to speed on the carbon credit markets by reading our New Markets section below.

What is Solid.World Dao? More and more companies are pledging to help stop climate change by reducing their greenhouse-gas emissions as much as possible.

Solid World is a crypto company driving investment into the carbon credit markets to help stop climate change. They do that by building the world's first public-good infrastructure for transparent and liquid forward carbon credits. 

This infrastructure creates a futures market that helps carbon investors de-risk their deals and make them liquid, enabling them to earn a yield, become more capital efficient, easily rebalance their portfolio, or collateralize their forwards to take out loans against them.

Inflection Point: To invest in this business, you have to believe that the carbon credit markets are real and that the price of carbon will go up over the next 10 years. 

This inflection point is driven by societal pressure and supporting regulation to create a net-zero world. Most notably, the 2015 Paris Agreement.

The Paris Agreement is a legally binding international treaty that entered into force in 2016. 193 Parties (192 countries plus the European Union) have joined the Paris Agreement, which sets long-term climate goals to guide all nations.

The Unique Insight: The Solid World team believes that the number one thing we can do to improve the climate is to increase the supply of things that improve the climate - like building solar projects, hyro-power plants, and planting trees. All of these projects create carbon credits.

You can’t create more supply without figuring out how to finance more projects. So that's what they’re building - a financing and lending solution for carbon projects, as well as a futures market so you can underwrite these projects effectively.

Vehicles:

  • Awesome People Ventures: Julia manages a $5M-$10M venture capital firm that invests primarily in Web3 businesses. The fund collects a 2% management fee and 20% as carried interest. 

Venture funds, like hedge funds and private equity funds, are the original asymmetric business. They collect 2% on funds managed each year and 20% of any upside (profit) when they surpass a pre-set return (hurdle rate) - leaving room for the potential to capture profits in 10x, 100x, 1000x outcomes.

  • Consulting: While Julia no longer consults, she greatly advocates for it. Julia created a consulting business called Soundboard, where she offered high-touch advising for venture-backed startups focused on go-to-market strategy,  team building, and KPI tracking.

This path opened the door for Julia to start angel investing and ultimately run a fund while simultaneously honing her operator skillset.

Investment Holdings:

  • “Safe and normal”...aka public markets (25%): While it earns very little in return, Julia forces herself to invest in a basket of money manager approved stocks and bonds. She does this out of an abundance of caution and likes the mental security knowing she’ll always be ok to pay the rent. 
  • Non-correlated alternative assets (25%): According to research, professional investors, like Family Offices and Endowments, generate returns 4x greater than an average US investor’s. Julia invests 25% of her investable assets into non-correlated alternative investments via a startup called Eqie (the founder is a friend), which helps you invest as if you were a family office.
  • These investments can be incredibly unique: 
  • Low-Income Housing: The lower-end of the real estate market is incredibly profitable and typically performs well during recessionary periods, given increased demand.
  • Stable Lending: Novel financing instruments for niche and stable markets like funeral homes and dentistry practices. 
  • Startups & Crypto (50%): 
  • Startups: Julia has a handful of angel investments and carried interest from Fund 1 - a $1.5M vehicle invested across 35 companies.
  • Web3: Today, Julia spends most of her time investing in crypto companies, personally and via Awesome People Ventures. 

These investments could be in the form of equity, equity + token warrants, or just tokens - But what matters is the lock-up period. Time to liquidity has historically been 2 to 4 years in crypto (web3), as opposed to the 7-10 we see in traditional (web2) startup investments.

 

The Trend: The demand for carbon credits is projected to increase by 15x by 2030 and 100x by 2050.

What the hell are carbon markets? Increasingly, companies are pledging to help stop climate change by reducing their greenhouse-gas emissions as much as possible.

Yet many businesses find they cannot fully eliminate their emissions or even lessen them as quickly as they might like. 

This challenge is especially tough for organizations that aim to achieve net-zero emissions, which means removing as much greenhouse gas from the air as they put into it. 

This is where carbon credits come into play.

A carbon credit is a kind of permit that represents 1 ton of carbon dioxide removed from the atmosphere.

Carbon credits are typically created through agricultural or forestry practices, although credits can be made by nearly any project that reduces, avoids, destroys, or captures emissions. 

Companies looking to offset their greenhouse gas emissions can buy those credits through an intermediary or those directly capturing the carbon.

In the case of a farmer that plants trees, the landowner gets money; the corporation pays to offset their emissions; and the middleman, if there is one, can earn a profit along the way.

This creates a market between carbon credit producers and consumers.

Why is demand increasing within the carbon markets? There are a few reasons: 

  • Growing Pressure: Changing consumer sentiment toward climate change and continued regulatory pressures are forcing many companies worldwide to adopt new emissions standards.
  • Solutions Take Time: Companies readily attempting to meet lower emissions criteria find it challenging to do so at the pace necessary to meet regulatory requirements. 
  • Market Inefficiency: The market for carbon credits is new and very inefficient. There is a fundamental lack of infrastructure, tools, and systems in place to allow companies to adequately track their emissions, the quality of carbon credits available, and transact efficiently in a liquid market. 

3 Opportunities For Investors and Entrepreneurs:

1) Develop Financial Infrastructure: It's impossible to further invest in carbon credit-producing activities without the adequate financial infrastructure.

Companies like Solid.World, a startup we explored earlier in this report, are taking on this challenge by building financing and lending infrastructure. It does this through blockchain and web3 technologies. In doing so, they derisk forward carbon credit investments and make them liquid and transparent.

2) Create Efficiencies Through Technology: There is a lack of systems, software, and tools in the carbon credit space. This makes it incredibly time-consuming and inefficient for companies to take action. 

Companies like Pachama are attempting to solve this problem by building a B2B focused API so businesses can easily integrate Pachama’s exchange with their services or products. With Pachama, businesses can offer their customers and partners quality credits from forest projects verified by Pachama’s remote sensing and machine learning technology.

 This San Francisco company was founded in 2018 and has raised $79.3m in funding.

3) Build Consumer Friendly Solutions: The carbon challenge is not limited to companies alone. Consumers also create carbon emissions. 

Startups like Wren.co provide an approachable on-ramp for consumers to tackle climate change. First, it enables individuals to understand their impact. Then Wren helps them reduce and offset their carbon footprint while pushing the surrounding systems to change. This San Jose-based company was founded in 2019 and has raised $8.2M in venture financing. 

Julia believes that there are several multi-billion dollar business opportunities in the fertility data space and is actively looking to back founders solving this big problem. 

The Context: Women under 30 have become much less likely to have children. Since 2007, the birthrate for women in their 20’s has fallen by 28%. The only age groups where birthrates rose over that period were women in their 30s and 40s.

The Problem: There are real consequences around pursuing kids later in life - pregnancy rates drop with age, and complications during pregnancy increase

As career opportunity increases, people delay having children. And this trend shows no sign of slowing down.

The Idea: Create a medical research DAO (Decentralized Autonomous Organization) where patients are incentivized to share their fertility data to create more effective treatment plans, and contributors benefit from any upside in the revenues generated from it.  

If you believe that patient-owned data is the future, the backcasting would have to start with a patient group that is sufficiently incentivized to share their data to access others - Julia believes these conditions could exist with: A) Patients with chronic conditions and B) Patients during their fertility journey (e.g., IVF, freeze eggs).  

In both patient segments, the value of seeing other people's data is very high, increasing the likelihood of patients contributing their data. 

The process could look like this:

Step 1: Collect Fertility Data

At this point, you’d need to determine the right distribution channel to aggregate the data. There are many paths to do this, and it would be critical to think them through, but initially:

  • Partner Organization: Work with a partner that already collects such as Patient advocate organizations, research groups, Hospitals, medical societies, data vendors, etc. 
  • Direct To Patient: Collaborate with patients directly via an owned distribution strategy

Step 2: Standardize the Data

Once you aggregate the data, you’d need to leverage your big data skills to normalize and standardize the data to make it usable for people to manipulate it. When aggregating patient data, it's critical that you develop the infrastructure to handle it appropriately.   

Step 3: Determine a Go-To-Market Business Model

Once you’ve built the infrastructure to source fertility data reliably, there are countless business models you could choose from, each with its pros and cons: 

  • Sell data to pharmaceutical companies
  • Patient Recruitment for clinical trials 
  • Develop better care plans services:
  • Build A Health Plan

If you succeeded patients that share their data would have better care and benefit directly through earned ownership in the data network, ultimately creating better and more transparent care.

I hope this got you thinking. See you next week! ✌️