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hello I'm Cheryl Coleman I'm the
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managing director of the warden social
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impact initiative and I'm here in studio
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with Joey hundred who's the founder and
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CEO of sustained attack
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welcome Joey oh thank you tell us about
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sustained attack what is it
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okay sustained attack is a company that
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produces indoor agriculture facilities
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and spaces so we build modular indoor
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farms to produce crops in places where
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it's very hard to grow crops so think
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really harsh winters dry arid regions
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really hot places we build indoor farms
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typically inside of shipping containers
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that can be put anywhere to grow crops
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successfully where it can be hard to
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grow crops the clients and consumers of
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these crops yeah you got it so in Canada
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we grow lettuces and fresh herbs and the
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clients are the everyday consumer we're
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partnered with food companies whom we
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grow on behalf of we package up the
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produce ship it to them and they ship it
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to the consumer and then one of our
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customers is actually an ethnic group in
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Manhattan who requires produce a
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specific way and so we grow the produce
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and ship it to them and they ship it to
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people who eat it so what are the latest
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trends in indoor container farming I
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mean is it I know there's been a lot of
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discussion about how to make it work
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different approaches etc what are you
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seeing so what I'm seeing is trends in
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indoor farming writ large is it's
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attracted a lot of capital to the space
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because the idea is so interesting it's
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true the idea is unfortunately sexy and
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the reason I say that is I think it's
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it's whipped up a bit of a frenzy of
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interest in international media and in
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the capital markets and it's chased a
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lot of money into the space now you
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might say well that sounds great and I
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am happy about that I'm not I'm not
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worried that's not the part I don't like
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it's I think that there's unrealistic
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expectations of the companies in the
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space I think some of the money's coming
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in from Silicon Valley where there's a
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there's a belief that industries can be
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cornered and that a winner-take-all
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approach can be had but when you when it
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comes to fresh food in agriculture it is
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a hopelessly fractionated and diverse
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space for a reason
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and so I think some of the trends that I
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that I'm can
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turned about with the arrival of so much
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money his companies are trying to scale
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into the hundreds of millions so that
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they can drive out the others pretty
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much and which looks silly but beyond
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that I see core flaws in their
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technology in their whole approach and I
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just worry what happens when you hit
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Carbon Copy 300 million times on
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something and I worry about what the
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failure of some of these larger startups
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is going to mean for the rest of the
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market and so we've been building our
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company in it while keeping in mind that
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this is happening in the market and
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we've been offered like most other of
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our competitors a lot of cash we've been
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very conservative about what we will
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receive and what we will do with it
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trying to build a more durable company
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that's going to last until the market
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economics are proven and that's the real
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critique yeah and I know that even here
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in Philadelphia there's a lot of
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interest in urban farming right just
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sort of adjust the food deserts and I
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think also then the fresh and healthy
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food right it's how nice to get it from
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your neighborhood contain your farm
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rather than shipped from California
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indeed local food is probably what drove
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the initial interest in indoor farming
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however the further you get into farming
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especially in the most developed nations
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in the world if you look past the first
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1/3 a few hands into the food system you
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find a massive industrial scale
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mechanized complex of farms and
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processors whose unit economics are
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amazingly low you know we're talking
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pennies per pound when you know if you
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take a new york city a manhattan based
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urban farm they need five to ten dollars
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per pound just to turn the lights on and
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so I'm worried that those farms that
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need ten times the amount per unit are
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going to have trouble and and I think
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that the industry has chased a few ideas
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firstly the vertical approach from Japan
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we've built vertical farms I've built
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non vertical farms the non vertical
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farms are much more capital efficient
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than the vertical ones if we were
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building in Hong Kong I would totally go
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vertical but the places in the world
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where you need to go vertical are not
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many and then the other piece is
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everybody chased lettuce because lettuce
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and leafy greens grow so fast but it's
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also created a flood of product
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and still competing with the produce
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from the field and from the greenhouses
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is incredibly hard so I think those two
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things vertical growth and chasing
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greens have steered indoor agriculture
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companies after some unattainable goals
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well and you know you're talking about
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them the financing we're on this you
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know yeah venture capital chasing this
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pushing it how else can an entrepreneur
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get the funding to make these these
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ideas happen you got it for farming and
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for other kinds of initiatives yeah so
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you know Silicon Valley has created the
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the well paved smooth running highway of
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capital available to technology-based
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ventures in globally but certainly in
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North America and that is nothing to
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complain about it's made it much more
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affordable for ventures like mine to go
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after capital the agreements are
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standardized the investment tools are
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standardized the lawyers know what
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they're doing and there's many many
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investment shops and that is super cool
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so I think that we've benefitted from
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that will continue to benefit from it
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and I'm glad it's there I'll but I also
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built my company differently before
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heading for equity financing you know
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indoor farming is a very high capital
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cost industry if I was to have sold
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equity from day one I would have three
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percentage points in the company left I
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would have been diluted right out of it
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and so we found other ways of financing
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the company one was we would we the
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first thing we did was sell an entire
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indoor farm on contract so we found a
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buyer of a very specific kind of indoor
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farm and we sold that farm and that
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injected cash into the company and led
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us the first two two and a half years of
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the company were built on just that
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contract and it said let me get into the
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game and really see what was going on
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then we scored a contract to ship
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produce to a company and it you can
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finance contracts if you know what your
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cost of production is if you know you
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can make money at it it may be hard to
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go find a buyer of this produce but is
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it any less hard than going and chasing
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capital when you have no value I found
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it easier to go find a customer for the
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produce that was willing to pay a really
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high price for the quality and we grew
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off for three years on that and so we
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didn't even open up our cap table
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until year five and then we started
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raising equity capital with evaluation I
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could stomach and I and I want
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entrepreneurs out there to know there's
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other types of capital out there
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sometimes countries will fund technology
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companies to make sales in other
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countries sometimes they do that because
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they want the export revenue countries
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love export revenue it's awesome for GDP
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and a lot of countries in the advanced
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world have a terrible imbalance in
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imports and exports and so there are
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funds available to assist in export of
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technology and crops and you know I
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think for me what I would have done
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differently and what I encourage
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entrepreneurs to do I would have gone to
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the major major trade shows sooner to
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find out how specialized a lot of these
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buyers are and that you can get forward
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contracts on a lot of this stuff there's
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it's a different way of going about it
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but I would rather build value and
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ultimately build more equity before
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approaching VC especially in a high
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capital you know high capital
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expenditure business yeah that's such an
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interesting approach because I think a
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lot of the student entrepreneurs were
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seeing and then even the ones we're
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reading about they're going after the
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venture capital right away they're
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meeting like they're sort of thinking
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that that's the you know it's it's a
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long shot but if you get that quick hit
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you're set right you know one of our
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competitors raised a hundred and twenty
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eight million dollars a month and a half
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ago in a series B there was a competitor
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last year that raised 200 million in a
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series d man does that change life you
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know what what life was like before that
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round and after that kind of around that
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is a way different existence and again
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if the unit economics were there great
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but I think an entrepreneur has to ask
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themselves what are they in it for did
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they do it for that to become instantly
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corporate a board filled with very
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serious people and specific goals and
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KPIs that if you don't hit you don't
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have that much time to mess around when
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there's a couple hundred million at play
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whereas you know a twenty to sixty
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million in play I think there's more
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flexibility to go after more profitable
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ends and niches in the market it's a
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global market agriculture fresh produce
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is massive and you can even process the
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produce making in the central oil or a
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tea or a dried herb or a nutraceutical
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it opens up global markets
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so the further I've gone the more happy
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I am with the choice not to play in the
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commodities of these farms well and I
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think you've been come visiting us as
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the Nazarian innovator-in-residence this
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year it's official but you've been with
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us for seven times yes yes so we've seen
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your development along the way and the
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one thing I know about you is you are at
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your core somebody who likes to make
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improvements right so the last thing I
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could see why you would say I'd rather
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have the freedom to continue to change
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explore and develop rather than get the
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money that forces me to scale in a ways
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that I'm not I'm not comfortable exactly
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right
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if I if I had an opportunity a year ago
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to take on lots of capital and scale
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massively if I had scaled with those
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ideas I'm sure we could have pulled out
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the win of some kind
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what we broke through to technically in
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the last nine months even the last six
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months it is amazing what we've done and
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I'm some thank gosh I can head after
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those opportunities now we're already
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writing contracts on them the margins
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eclipsed that which we were doing before
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it also embeds more of a purpose piece
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and what we were doing it's it's
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continued to change the nature of the
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company and we're in the millions it's
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not like they're small opportunities
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it's that if I like some of my
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competitors had to just scale what I was
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doing a year ago I wouldn't be anywhere
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near as confident as I am today that the
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profitability is really there and that
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gives you a great deal of flexibility in
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thinking about what you're gonna do next
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who you're gonna approach and and how
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you're going to structure your next you
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next rounds absolutely right and it
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changes the type of investors that we're
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approaching and making sure that we're
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you know as exciting to those investors
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as we've ever been
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but if anything our investors are
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feeding back that they get confident
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with the more clarity that we're seeing
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the global market with it so what kinds
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of trends are you seeing in investors I
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mean you've I know you've funded your
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first initiative the sustainable
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carnival through more traditional
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nonprofit grants and kind of
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sponsorships right and so how are you
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seeing that transition going is there
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more blended capital more venture
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capital yeah so I would say that
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Capital is incredibly mature at this
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point it's also a great time to be
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raising money a lot of these funds are
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flush sure there's there's a concern out
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there about a coming recession
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however there's funds that have just
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closed their rounds they have three and
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four and five years of dry powder to
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spend so I'm seeing lots of capital I'm
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seeing new private equity shops pop up
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every day that I didn't know about a lot
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of them are getting even more
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purpose-built for food for robotics for
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tech for pharmaceuticals like they're
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there or even the venture arms of big
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corporates there they're going at a
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purpose and there they've got these
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sidecar funds of 50 100 million dollars
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to go at a purpose the the the ecosystem
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is so differentiated and flush and but
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beyond that I think that some investors
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are wary of the companies that say we're
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gonna lose money for 15 years and you're
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gonna need to pour in 10 billion dollars
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but then boy are we gonna boil the ocean
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I even seeing some skepticism about that
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now there's no question that some of
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these unicorns have blit scaled to the
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50 billion dollar mark and everybody
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looks at uber and looks at Airbnb and
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looks at Amazon and says see you can do
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it right but what about the 30,000
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ventures that didn't get anywhere close
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to that and and what's wrong with a 10x
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or a 30x why does it have to be a 700 X
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I'm seeing some skepticism in the
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capital markets about companies that say
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what we're tackling is so huge and
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fundamental for society some day we're
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gonna make money and just bet on us and
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keep betting on us I'm seeing the
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preference for some investors to see
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some business savviness along the way
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can you cash flow the venture is it
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profitable when are you going to reach
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profitability can you do it a bit sooner
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can you access traditional bank
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financing these are questions that are
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being asked to us and something that
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I've been seriously considering because
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for a high capital cost business if I
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can get bank financing that's the
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cheapest non-dilutive capital that I
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could ever hope for so I've been working
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with banks to start to line that up
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because every dollar I borrow for our
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systems is a dollar I didn't have to
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raise your equity capital so I think
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that the high of we'll make money
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someday is actually behind us and I'm
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seeing more value consciousness amongst
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certain VC shops institutional VC shops
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well I'd like the point you made about
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purpose oh yeah and more entrepreneurs
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and investments going towards that we
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have a radio show on Sirius XM dollars
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and change and we've been doing it for
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about five years and one of the things
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that we continue to see and our
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hypothesis is that the more funding that
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can go towards these purpose companies
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the more likely entrepreneurs are to
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think about that as an opportunity you
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know it proves that the concept that you
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can have a business that has a purpose
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you know makes it positive social impact
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and can still make money and as you show
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that that's possible I think that
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inspires more the entrepreneurs to think
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about how to make that happen it's more
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fun to solve problems oh yeah it is I
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think it's in the heart of people and
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when I come to Wharton I always like to
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take the pulse on what I'm hearing
00:14:03
around here what's clear is the concept
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of impact investing itself has matured
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here people are looking at Wharton and
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looking at W SII they're coming here for
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that I've talked with a couple dozen
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students that came here because of W SII
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and I love hearing that it's amazing you
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know I didn't use to hear that and they
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came here to learn about impact
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investing I've even heard students say
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I'm going into X big firm big banking
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big consulting firm and I want to take
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these methodologies with me I want to
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promulgate these ideas instead of large
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global firms and that's exciting and you
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know Wharton's one of those schools
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where that can actually come from and
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and students can carry it into those
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industries I also yes I'm hearing a lot
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of the desire to blend purpose into
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venture more and more and but more
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sophisticated than I did in the past
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it's more concrete and they in our
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company yes we've had purpose on our
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minds the entire time and there's that
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terrible tension between making the
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company work and float and staying at
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the purpose and one needs the other and
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sometimes you prioritize one of the
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other and I admit much of the last six
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years was just making this thing
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technically work so that I could again
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point back more directly at purpose when
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we could afford it but most importantly
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when the purpose made money to focus at
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and to me that's the most virtuous blend
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if you can get the purpose to make money
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and actually be inspiring from a
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profitability standpoint that's Maximus
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right that's that's the best collision
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and so when one isn't taking away
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from the other I admit that is very hard
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and we've done things just for
00:15:37
profitability while I've had some
00:15:39
purpose on my mind and this year we've
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begun to redevelop those programs and
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they're global in nature they're big
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it's a big lift
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but we've restarted those programs that
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have purpose and profitability baked
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right into them it's great to hear so
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what kind of closing advice would you
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give to an entrepreneur in this exciting
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you know innovative flush time for them
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to think about how to be most successful
00:16:03
yeah I would actually report on
00:16:06
something I've seen here at Wharton
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which I'm inspired by I've been coming
00:16:10
for eight years and I would say this
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year I'm hearing the most likely
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candidates for success in venture than
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I've heard in years past specifically
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because somewhere somehow feedback came
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back to the cohort of students here get
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more specific niche out pick a niche and
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pick a product that is specifically
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built for something I used to come in
00:16:33
here it's the uber for this
00:16:35
it's the Airbnb for that and while there
00:16:38
was lots of passion and energy that
00:16:39
would concern me because they you cannot
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boil the ocean and make your way this
00:16:43
year I'm hearing about b2b plays on the
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most obscure things switches in and and
00:16:49
SAS services for categories I didn't
00:16:51
even know existed how students are
00:16:53
finding this within weeks and months it
00:16:55
tells me something's train them to look
00:16:57
at the problem more carefully and to
00:16:59
look deeper into the market to find real
00:17:01
problems instead of reading Fast Company
00:17:03
being like I want to be like that I'm
00:17:05
heartened to see this shift towards more
00:17:08
specific niche high-growth opportunities
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and that's my advice back to
00:17:12
entrepreneurs that might listen to this
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pick Anish pick it carefully you're not
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expected to know right away go deeper
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into the field deeper into the market
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meet players at trade shows stay curious
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ask tons of questions eventually those
00:17:26
apertures of real pure opportunity are
00:17:28
going to open up and they may had not
00:17:30
have been visible to you in the
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beginning they may even be totally
00:17:33
uninteresting to the general population
00:17:35
but they could be super profitable and
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easier to build a moat around and easier
00:17:39
to capitalize and I like that movement I
00:17:42
like the movement towards specificity
00:17:43
niche based high profit opportunities
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00:18:00
[Music]
00:18:05
you
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