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