Alex Pitt – Episode 8 – Green Add Venture Podcast – Full Transcript

Alex Pitt – Episode 8 – Green Add Venture Podcast – Full Transcript

Here you’ll find the full transcript for Episode 8 of Green Add Venture with Alex Pitt.

Listen to the episode available here.

[0:02] Jake: Have you ever wondered what happens when entrepreneurship, environmental sustainability, and venture capital collide? If so, you’re like me, and you’re in the right place. Welcome to the Green Addventure. On the show, you’ll learn from the critical insights of both founders and investors alike, not random advice or generic guides, but real stories born out of their experience with genuine climate action. We aspire to create a network of people collaborating to build the green economy, accelerating us towards this critical target of net zero emissions. I’m your host and founder of the show Jake Woodhouse. For all the notes, links and episodes, please visit www.greenaddventure.com, take care when typing that in addventure is spelled with a double D. Thank you for listening, and enjoy the episode. Today we speak with Alex Pitt, co-founder of Mustard Seed. Mustard Seed work with us stage startups, investing in high growth impact. Listen in to learn how Alex looks for lockstep business models, how to ensure impact is at the heart of a startup, and how critical building an excellent core team is. Alex has founded a very impressive organization, which is helping to develop some extremely exciting businesses. Enjoy the conversation. Hi, Alex, welcome on the show.

[1:24] Alex: Thank you for having me.

[1:26] Jake: Alex, to kick things off, please, can you explain a little bit about your current role?

[1:30] Alex: Sure, I was smiling because I just realized this is not visual to people, this is purely my voice, I can look really stern. Doubt that I will. So, my role, currently, I’m a director of a business called Muster Seed, which I co-founded with one of my closest friends and we focus exclusively on backing really committed, visionary founders with core social and environmental purpose of the heart of what they do. And we use the phrase lockstep, so managing social return, reinforcing each other.

[2:03] Jake: We’ll dig a little bit more into the companies that you invest into, but to take a step back, how did you first get into this space? Please just share a little bit about your personal journey.

[2:14] Alex: Yeah, well, it was somewhat meandering. And I’ve never been sort of one with a grand plan for my life, I must say, it’s been sort of, I guess, connecting the dots looking back. And I could certainly never have co-founded Mustard Seed 10, 15 years ago, there’s no doubt that my prior experience in some way helped me get to where I am today, in terms of experience and network. And I guess long story short, I started Mustard Seed for a couple of reasons. You know, firstly, my very good friend, Henry, and I had always talked about doing something together and I think our friendship has been, you know, a foundation of this business. And we’d always talked about doing something together for as long as I can remember, since we met playing tennis at the LSE, as undergrads. And I guess, you know, took a while to get around to it, but started looking at, initially our own ideas around 2014, you know, businesses that we could then raise capital into ourselves, but never had any good ideas and had about six months of frustrating Skype conversations, I was in Dubai, Henry was here in London.

[03:13] Alex: And eventually, after that period of time thought that we would do a better job probably have more luck finding other people with much better ideas than we would ever have. And, for me, the kind of core commitment to social purpose at the heart of what we do has been as, an eve of evolution, I guess, you know, I didn’t go in with an explicit aim to do that at the beginning. We started looking for entrepreneurs that were doing interesting things and I found myself subconsciously, originally, actually gravitating towards those companies. And we used to host events at leading universities as a way to meet entrepreneurs, we don’t do that anymore now, because we’ve got long-standing relationships, but they need to organize pitch events, isn’t so compelling, given the volume of flow that we get in our inbox for ventures. And Henry might say something different, but I think overlapping in terms of being more explicit from the beginning around social purpose and his frustrations in his prior job, around that, kind of not manifesting itself and what he was doing.

[04:07] Alex: And so, we started making personal investments, over a period of about a year, it went from being kind of 10% hobby to a very consuming. By early 2015, we’d made three or four investments, our friends were getting involved, and it was always early stage businesses with an environmental or social purpose, for example, and we’ve now got 20 companies. But one of our first couple of investments was a business called Winnow, focused on commercial food waste reduction, and we’re with the lead investor in the company, we met Mark as he was leaving McKinsey Sustainability Group, where he’d been writing about food waste, and the trillion dollars of food wasted every year. 30% of all food produced goes to waste, apparently. Yeah, unbelievable. It is. And he’s sort of sliced and diced that and dissected the problem across, I guess the value chain, you know, waste in our homes, waste in the farm, waste in restaurants, waste in commercial kitchens. And as he thought about, kind of, no longer writing about it, but solving a problem for him, the commercial kitchen was kind of the biggest prize and you know, we met Mark when he was wheeling his first, they have a scale that’s installed on bins and is measuring what’s being thrown away and office cafeterias.

[05:15] Jake: I’ve actually seen him pitch once. It’s a very impressive business and where they’ve come, is, where they’ve managed to get to, is fantastic.

[5:22] Alex: Okay, sure. Great. Anyway, I use that example and there are many others but we met Mark right at the beginning of his journey, he was wheeling his first scale around London, in a suitcase, I remember it very vividly, meeting him and Kevin, the co-founder and CFO in a pub outside London Business School. And so, we’re backing entrepreneurs at that kind of stage really, with, capital of 3 to 500,000 pounds, typically. And I think that’s just the start for us, you know, what we pride ourselves on is the support that our network and our team are able to provide and all the other ways around, commercializing the business, building the team, building the board.

[5:55] Jake: So, to understand that; you and Henry were working together as individual angels initially?

[05:59] Alex: We were, yeah.

[06:00] Jake: Okay. So, it’s the personal journey from that, that I find so exciting. It’s not just a story about hearing, you as an investor, it’s also you as an entrepreneur, and that’s what’s so interested to learn about, for example, someone like Winnow, like trying to help them realize their dreams, it’s such an important part of the puzzle.

[6:16] Alex: Yeah, I mean, we’re living vicariously in a way. You know, we’re finding other people with the ideas that we never had ourselves but it’s immensely rewarding, because the sort of diversity and you know, we also remind ourselves, the word funder and founder only have one letter that’s different. And so, for us, it’s not two different demographics of people, it’s about a kind of fundamental connections between the two and the more proven entrepreneurs that we can get involved in, our investor network, for example, that can come back and invest their proceeds and mentor the startups, you know, that sort of demographic is a lower percentage than they would like it to be, we have about 125 families that invest with us, and probably 10% max that have actually built their own business, there’s this huge value that comes from that. So, that was the journey and I’ve never been very good at looking beyond the end of the week. So, I think I just follow the string, keep, you know, wake up every morning trying to do the best I can. And, you know, I think that a lot of our business–

[7:07] Jake: So, some of the things I’m trying to talk through consistently from investors is to focus on the environmental side of things. You mentioned the pub and finding Winnow, I mean, yeah, generally speaking, how do you find the businesses that you’re looking at?

[7:20] Alex: Yeah, I mean, we met Winnow through a university event, and then we met subsequently after.

[Crosstalk]

[07:29] Alex: I met my wife in a bar. And we meet entrepreneurs through different sources, we get inundated with business plans, which is a great asset, it’s also a challenge. And when you’re a small team of six, the very best ones, I would say now come through really trusted referrals from the kind of inner network. And you know, I think sometimes maybe we rely too much on the strength of the referral but it is an important part of it, you know, much like if one is applying for a job, the quality of the references is important. If an investor in our network comes to us saying, I’ve known this individual for 10 years, I used to work with them, I’m putting in 100K or 10K of my own money, one of the best people I ever work with, it’s a pretty good qualifying lead when it comes into your inbox. Whereas if something is just sent directly to you, especially if it’s outside the UK, it’s quite hard. And referrals from founders that we’ve backed, so we’ve made four investments around this theme of food waste and a couple of those we met through other food waste ventures that we’d already invested in and they refer the other ones, so that mechanisms.

[8:33] Jake: So, those were 08:33 [inaudible], cover those but–

[8:36] Alex: We’ve met, we’ve invested in, Good Club, Olio. Yes, Good Club is the parent company for FoodCloud and Winnow, so four companies now.

[8:45] Jake: That leads nicely to talk a little bit through the portfolio, then, the likes of Olio, Good Club, etc., these are all businesses that you came across, they in-entry are at the stage where they’re very high risk. How do you look at those businesses to understand whether or not you want to invest? And what kind of impact might they have in the future? And how do you analyze that?

9:07] Alex: So, I think, you know, we were a team and I emphasize the team because everyone brings, different skill sets, everyone brings different weaknesses to the table. We just had a full day, team-offsite last week, which was driven by the personality profiling that we’ve done through MBTI and sort of profiling of team and every everyone’s different. And that’s really important in our process.

[09:28] Jake: Sorry, what is MBTI?

[09:29] Alex: This is a career, a personality profiling tool, that’s been used for 20, 30 years, and you get a combination of four letters, depending, whether you’re an introvert or an extrovert, and various other dimensions. Anyway, the point I’m trying to make is that we will have different ways of looking at things.

[9:49] Jake: So, we were talking about your company, their way and understanding risk and going to then talk about some of your companies.

[9:56] Alex: Yes. So, ways that we look at things. Well, we’re looking at people first and foremost, really high-quality founders, getting to know them, I’d say if I look at our, you know, one or two most challenged investments amongst the 20, there were early investments that we made, where we got a bit overexcited by the idea and did not spend enough time getting to know the founders involved. And so, now, you know, we just made an investment or proves an investment in business we’ve been close to the founder of for four years now. So, that’s a bit extreme but there is now a period of interaction where we realized, you know, we establish an understanding of whether that working relationship is going to be a really strong one, we collect reference points. And then yeah, of course, we analyze in depth the business opportunity, you know, the team do a lot of work around business model, you know, they do the real work, frankly, around due diligence of the companies and we look at the sector and the opportunity, the scale of potential impact, and how do the founders think about their social purpose is really important. So, if they can’t define clearly in no more than three sentences, what their environmental or social purpose as a business is, we’re very unlikely to back them, obviously, we wouldn’t back them. And that’s usually linked a very strong personal, motivational, personal story on why they’re doing something.

[11:09] Jake: And that is an exciting part of it, as well, is always the personal angle on someone’s mission. And someone recently said to me that the likelihood of success of a business that’s driven not just by profit, but actually by a social mission is actually more likely to succeed. And I mean, I totally agree with them, to be honest.

[11:27] Alex: Well, we could talk you know, and others on our team would be able to talk, you know, a lot more around the theory and academic side of things. And, for me, you know, in my very simple mind, and small brain, it’s about the network effects of these kinds of companies, you know, if they’re doing something socially useful and important, the founders are going to be deeply committed, they’re going to stick it out for the long run, through thick and thin, the investors in those companies are going to be highly motivated to help because of what the companies are doing. And we see that every day in how our investor network engages with the companies and we place our investors on the boards, I can give you countless examples of that. And the customers of those products and services are going to be willing to buy more of it or engage more with that company because of the social purpose at the heart. And then the employees of those companies are going to want to stay for a longer period of time because they’re connected to what their business is doing. So, I think for all these kind of related reasons, the stickiness and longevity of these businesses and commercial returns are going to be superior.

[12:28] Jake: Interesting. And we spoke just a little bit about some of those portfolio businesses, so perhaps you can touch on, just for some context, when you invest in the early stage, obviously, you’re looking for really talented entrepreneurs, you’re looking for a journey that you’re willing to be part of. But once the capital is actually deployed, these businesses are having, great effect in their marketplaces, so perhaps you speak a little bit about some of those more environmentally focused companies you invest in.

[12:49] Alex: Sure. So, in the moment, and this may evolve over time but for now, we’re not prescriptive around one particular area or social theme. And so, we have a broad-based approach, we’re quite opportunistic in that sense. You know, if we see a really committed visionary founder, it doesn’t matter so much to us whether they have an idea around improving educational outcomes, or an idea around, early diagnosis of cancer or an idea around reducing food waste, and one person’s view as to what’s important relative to the others might be different. And that’s why we have a very healthy debate within our team. So, we’re not comparing and contrasting social outcomes, per se. So, we have invested across broadly five areas, education, healthcare, environmental sustainability, financial inclusion, and family and community broadly aligned to UN Sustainable Development Goals. I would suggest that most big problems in the world sits within those areas, perhaps with the exception of terrorism. And yeah, and then I think, you know, what I said before, we’re kind of getting involved really early and we’re also tracking the impact over time. So, the social purpose we defined in the mission statement, and that’s part of our due diligence. And then also, how do they think about measuring the social outcomes on a monthly basis through two or three KPIs that also get reported and embedded in the articles of the company.

[14:09] Jake: That’s awesome. So, in the articles of the business, you have KPIs for social impact embedded in there?

[14:14] Alex: We have an obligation to report on the social metrics, the metrics themselves can be tweaked, the social purposes in the articles, and then an obligation to report on at least a quarterly basis, if not, monthly basis.

[14:24] Jake: Wow, fantastic. That’s something I’ve really thought about as well, actually, Alex, if you, you know, from when you take the Articles of Association of Companies House, it’s a standard set of articles, etc., there’s nothing in there about the emissions impact you could potentially have or any other social impact that is anything other than protecting shareholders and the rest of the kind of governance of the business. So, fantastic to hear that you back entrepreneurs and businesses that have that baked in at the start. And I imagine that then follows on, so you guys are an early stage investor, what happens when you get to a Series B, C, D, and the businesses revenues are much higher? And do you finding the investors later down the line of following in with the same rhetoric thinking?

[15:04] Alex: Well, that’s a really good question.

[15:06] Jake: Because that would really start to change things, if all startups had this baked in now, in 5, 10 years’ time, agreements are kicking in, we’re looking for real change. And that would make a real difference.

[15:17] Alex: It’s a great question. And that’s in part why we have the social purpose or environmental purpose in the articles because for now, we’re relatively capital constrained, we’ve invested about 15 million in four years. And you know, it is increasing on a weekly basis. But we do not have the capital right now to lead Series C, Series D rounds in our companies. And we’d always want to co-invest anyway but to make sure that that purpose is fully embedded and protected in the company so that an external investor that God forbid, at some stage might not have that, as a core part of why they’re investing, it’s always going to be protected.

[15:50] Jake: Because you wouldn’t want a misaligned investor coming in, putting a lot of money into a business and then wants to target or milestones not hit by the startup, then starting to influence things from a board level and changing the perks of the business and different direction. Yeah, so what an awesome thing to involve in the business. So, we’re a bit push for time, Alex, so I’d like to just focus on the next steps for you guys as a business then. So, you mentioned, impact a little bit, so let’s just take that for the first step, and then talk about the future. So, the businesses you have invested in today, you mentioned the metrics that you’re following, do you have any quantifiable data you could share with us at all about what impact they might have in the future? So, let’s say Winnow for example, in the food waste created by all kitchens, which equals x, many carbon emissions, which equals x many cows, I mean, it’s a really quite complex piece of work. Have you ever looked into what impact you know, your 15 million over these four years, what does that actually mean in the future? I mean, I’d love to hear about that.

[16:50] Alex: Yeah, so, we’ll define the metrics, two or three metrics for every company, as I mentioned, when we first invest, those get met or reported to us, some companies do a great job, others less so, but we work with all of them, to kind of continually improve that. And we’re looking at these lockstep relationships where commercial and social return reinforces each other, this circular link between the two, so the financial reporting and the impact reporting should be completely integrated with each other as well. And I think that’s sort of still a working progress. And, so yeah, they get reported back to us, we then report to the investors who’ve invested with us, you know, and that’s really important because we get a lot of clients who come to us saying, for example, we’ve been giving money to a certain charity for the last few years, and I’m getting frustrated, because I don’t know what’s really happening with that money. So, these investors, you know, that x hundred thousand that are now being invested with us, we need to be able to tell those investors so they can then talk to their children and grandchildren, that in 5 years’ time, here’s what your money did with us. So, we take that really seriously and I’d give ourselves a 6 out of 10 at the moment, it’s still working progress because it is hard work to do it right.

[17:53] Alex: For example, in our healthcare companies, we are measuring and improving patient outcomes and lives saved now and two of those three cases, the companies are in clinical trials, so they’re not saving lives yet. So, it’s a big fat zero right now. But we would think at some point in the next couple of years, it will go from zero to a very large number. And whereas in the case of our food waste companies, it’s taking up really strongly and Winnow is reporting the co2 emissions reduction, dollars waste saved, dollars of food waste saved, metrics, and I’m not going to give you the number because I’ll give you the wrong number.

[18:27] Jake: That’s okay but it’s very impressive in the picture.

[18:31] Alex: And it’s all in the public domain and in the website. And it’s a part of how, for all these companies, they’re attracting customers, they’re attracting investors, you know?

[18:40] Jake: And so, yeah, so 10 years from now, then Alex, so Mustard Seed, as it is today, what’s the vision? Where would you like things to be, if you could ideally get that?

[18:48] Alex: Well, yeah. So I mean, again, I’m not good at looking beyond the end of the week, but–

[18:53] Jake: Okay, in two weeks’ time?

[18:56] Alex: No, I think, you know, we want Mustard Seed to be a fully viable business, you know, we’re not quite there. But we almost are, we’re almost a breakeven business. And, you know, we want the kind of commercial model to really work fully, and which I think, fundamentally will come down to proven commercial returns from our businesses and we’re almost there with that. And we’ve had four offers now to sell our positions in businesses, which we’ve said no to each time, which was quite difficult, because you know, for a lot of institutional investors, they are not allocating with us yet, at least they tell us because the commercial, the realized returns aren’t coming through. But we have paying clients, who have family offices, and we thought there was a much longer-term opportunity for holding our positions there and so, we’re working really hard on that. You know, team is everything, as I said before, and, having made one or two hiring mistakes, I would say, since we started Mustard Seed, we’re really focused now, and the team we have now is exceptional, working on culture, bringing the best out of everyone, making sure that if we hire, which we will, one or two new people this year, we’re hiring for cultural fit, getting that right, so that people will be with us for a long time.

[20:01] Alex: And then continuing to grow the investor network, you know, that’s been a hard part of our business, I would say, we’ve been quite relentlessly focused on building up the kind of individual family office network, and we have 125 families now investing with us, which is great, but that has not been, you know, to give you a crude reality, I guess, you know, 4000 business plans now in our inbox every year, from all over the world. I can probably count on two hands; the number of inbound inquiries we’ve had from investors. Just a simple fact, I guess. And so, it’s all been through referrals from our existing investors, referring other investors and a lot of one to one conversations, but getting our assets under management from 15 million to 100 million within the next 18 months to 2 years and we think we have a pipeline and a portfolio performance that justifies that. So, we’re in this for the long run.

[20:52] Jake: Well, it’s extremely exciting. Thank you so much for sharing your time.

[20:55] Alex: My pleasure, Jake. Thank you for asking me.

[20:56] Jake: That was the Green Addventure, thank you for listening. If you enjoyed the show, then please help us out by sharing this episode with your networks and rating us on the platform, wherever you may listen in from. For any questions at all, we’d love to hear from you, so please reach out on social media or email. Whether you’re wondering about a technical term that’s being discussed, would like an intro to a guest from the show, or even perhaps feature yourselves, we’re here to help. My Twitter handle is @JakeWoodhous, spell as it sounds, but drop the final e, my email Jake@Greenaddventure.com. Remember that add spelt with two D’s. Finally, for the notes, links and episodes that will be coming, visit www.greenaddventure.com. Remember, that’s add, with a double D. Until next time, we’ll be back soon. Thank you and goodbye.

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