SPEAKER_00: There are things that have been slotted in pre seed, right, and pre series A or seed extension. So these three terms of how do you do you? Did anybody ever give you a definition of these? I'm wondering, can you define what they are?

SPEAKER_07: No, no. And they're showing up in all the books too, right? Like, and nobody knows. And it kind of is right. The answer seems to be like, we made that up because there was a lot of money around.

SPEAKER_10: Well, here's the thing. The reason I asked you for the definitions is because I don't know them. Oh, man. I've been doing this for 11 years.

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SPEAKER_20: Hey, everybody. Welcome to Sunday. It's VC Sunday School, followed by This Week in Climate. I'm here with Molly Wood, who is in month six of being a venture capitalist, halfway to year one. And every Sunday, if you go through the archive, we do a little VC Sunday School where Molly tells me about what she is working on and maybe some questions or advice she might have or dialogue she wants to have around the job of being a capital allocator. What have you got for me this week and the rest of the audience?

SPEAKER_21: I know. I love this time of the week.

Jason Calacanis: And also, I got to say, I had a funny conversation yesterday a second time. Now I've been here long enough that, you know, founders are starting to boomerang. We're having follow-up calls, like based on to find out where they are with the business now. And it was a very funny conversation because I had talked to this guy in February. So like five minutes after I started. And then yesterday we had a whole other, you know, catch up and he was like, boy, I got to say like, side note, you're like a totally different person. And I was like, really? Is it the power, Bob? And he's like, no, you know what you're doing.

SPEAKER_23: I know what I'm doing now.

SPEAKER_24: I'm getting my, like my mini MBA every day here.

SPEAKER_23: Exactly.

David Friedberg: Well, I mean, there is something to that. This is why I prefer not to say no to founders. I say not yet. No, it's because a lot of times, you know, they might be working on an idea.

SPEAKER_00: Like, let's say direct to consumer that, you know, it's not for me, but I say, hey, let's talk in six months. Maybe you figure something out. Maybe you pivot. Who knows? But we'd love to catch up within six, 12 months. And sometimes I'll even give them a benchmark. Hey, when you get 10 customers, that'd be a good time. You have one customer now and it's your previous employer. Hey, when you get 10 customers and more than half of them are not people, you know, that'd be a good time for us to catch up.

SPEAKER_27: So let me know. And then I'll put a little reminder for myself in my calendar or somewhere. It really works. It's fascinating. People are doing the homework.

SPEAKER_33: I highly recommend the not yet.

SPEAKER_32: Mm-hmm. Agree. And not yet with a, with a milestone or with a goal. Because we have.

SPEAKER_34: An agreed upon, an agreed upon milestone that would make it, give you something to talk about.

David Friedberg: Because nothing is more frustrating than taking that call again. And it's like, nothing's changed. And now you're on the call as a VC. Listen, I'm talking from the VC perspective here. You get on the call and nothing's changed. And you're like, okay, it is six months later. You do realize, um, that nothing's changed in the business. So although we're getting to know each other better, what you've actually proven to the VC, now back to the founder side, the VC feels like their time's wasted and they feel like, okay, this founder can't get anything done in six months.

SPEAKER_34: Because on your side, don't take a follow-up meeting unless you've got major progress or else you will have proven to the VC, I can't, GSD, I can't get stuff done.

SPEAKER_09: I didn't take the note. Way to keep it clean on a Sunday there, J-Cal. I'm trying on a Sunday. Praise the Lord. Praise Jesus.

SPEAKER_39: We're going to get stuff done here.

Jason Calacanis: It's already the most blasphemous segment ever. We're just going to lean in. Okay, so a couple things have been coming up over and over. Obviously, a lot of those things are related to valuation. And what you like to call clearing market in these conditions. And one of them that we've been talking about a lot lately is, of course, valuation and the idea of reconsidering valuation. And we've talked a lot about how valuation is set by the market, but also that it can be estimated as a function of multiples. And you had a really good explanation for this internally that I think our audience will really benefit from. And I would, too. Not that I wasn't listening because I was, but I want to hear it again.

SPEAKER_27: Oh, no, I'm going to go through it one more time. Yeah. So we have a Tuesday investor call. Most firms do it on Monday. We do it on Tuesday. I like everybody to be a little more prepared. So give them that extra Monday and Tuesday morning to get their ducks in a row.

SPEAKER_20: Monday morning is a little intense. Firms that do that, sometimes people are up on Sunday night having to do work instead of watching HBO shows.

SPEAKER_27: I'm trying to take it easy on my millennial staff because I know they're living their best lives on the weekend.

David Friedberg: Um, so if you are meeting with a company and they have three term sheets, well, the valuation for the company has been set. It's somewhere between the high and the low number of those, you know, top and bottom term sheets and all likely. And in some cases, maybe they go get a fourth to beat those three. So you kind of have a range, don't you? And you as the, you know, latest investor don't have too much work to do other than make the decision. Do you want to be in this company?

SPEAKER_00: And then the valuation is going to probably be plus or minus 10% of that collection of numbers. Um, the market has established the price. And again, these are private market companies, not public market companies. Public market companies have shares that trade, you know, typically five days a week. So, uh, you know, every minute, the, the, the value of the company is being evaluated for better or worse. It can be hyped. It could be undervalued. It could be anywhere in between. But you do have, uh, you know, uh, a free freely trading marketing shares as opposed to private companies.

SPEAKER_45: We actually have to negotiate the share of sales, uh, the sale of shares.

David Friedberg: So if you were looking at a multiple, there are a couple of conditions and boundaries we need to talk about. So one of the boundaries in the early stages, yeah, they're going to dilute 20% and they're going to need a certain amount of money to achieve a certain number of goals to reach the next milestone in our industry.

SPEAKER_00: So let's talk about a company. That's a SAS company with a hundred thousand a year in revenue, and they've already gone through an accelerator.

David Friedberg: So they raised money, like a hundred, a hundred fifty K at about a $2 million valuation.

SPEAKER_00: And then they did, let's say, I don't know, they raised $600,000 at a $6 million valuation. They just small round just to add a developer and a sales executive and a product manager for a year or so. Um, so they diluted 10% there.

SPEAKER_45: So now they diluted the company six or 7% in the 7% in the accelerator stage, 10% in the seed stage.

SPEAKER_49: And now they want to do a pre-series A as they're calling it these days. So, uh, or some people might call it a seed extension or a seed plus.

SPEAKER_00: And they value the company at 10 million, a hundred times their annual revenue. So you take, so how do you get to that annual revenue?

SPEAKER_45: Well, if you took last month and you times it by 12, right? You would be taking what's called the run rate this month times 12 months. So you're taking the latest month and times it 12. Some people might calculate the run rate, take the average of the last three months. So if that was, let's say 40, 60 and 80 K, that'd be 180. Okay. You take the average of 180 at 60, uh, you know, and then you times that by 12 and you get to whatever, 700, uh, or so. So there's different ways to calculate that. Some people like in public markets, sometimes we'll look at the forward looking revenue. So they'll say, okay, they're growing 20%. They're at 50% this month. They'll be at 60 next month. We'll be at 72 the month after that, whatever it is, you know, they, they, they start working through that scenario. They build a spreadsheet and they give them credit for 20% growth month over month into the next year, calculate the next year's revenue.

SPEAKER_00: Uh, and the valuation based on that. Hmm. So you divide the valuation by that amount of revenue. Is it the previous 12 months? Well, that's intellectually pretty easy to do 12 real numbers. So, you know, you're doing this deal in January, you just take last year's January through December. And that's your take that and divide it into 10 million. So if it was a hundred K previous revenue, you divide in there, it's a hundred X.

David Friedberg: Now, if you do forward and the company anticipates, it's going to go five X in revenue, you know, in 20, you know, going forward 12 months. Well, you divide that 500 K into 10 million, it's 20 times pause on that for a second. If the last 12 months were a hundred K in revenue, it would be a hundred K multiple. And if in our meeting, somebody said, it's a 37 multiple or something. And I said, trailing 12 months revenue forward or current month times 12 run rate. How did you calculate it? And so I think that calculated on run rate, which is a pretty intellectually honest one to do another bound condition.

SPEAKER_20: If this month they signed somebody and got them to sign a three year deal and took the three years and booked it in an accounting basis all in this month, even though they're going to deliver the service over 36 months, that would be intellectually dishonest. So you have to also dig into that. Right.

Jason Calacanis: There is this new, yes, not to derail us, but there is this new contractual ARR new ish, right? Or that's a big conversation. It seems like in SAS in terms of calculating ARR, because a lot of it is contractual hasn't yet been realized looks good, but doesn't look good.

SPEAKER_42: Some people can play games for that. So if I got you to sign a three year contract, but you're playing monthly, oh, we don't need to give you credit for the three years.

David Friedberg: You know, they can cancel. What's the cancellation term in there? Oh, the cancellation term is 30 days.

SPEAKER_20: Okay, great. Like I won't sign any SAS deals. I have like a couple of companies that are like jumping over my executives heads and coming to me saying like, hey, I really want to close this deal with your team. They won't sign the deal. I'm like, yes, because I told them we only do monthly and like, well, we only do yearly. I'm like, okay. And they're like, okay, you'll do yearly. I'm like, no. Okay. We only do monthly. We win. You're selling the product.

SPEAKER_58: I'm buying it.

SPEAKER_20: Like I get to decide not you. Yeah.

SPEAKER_59: You know, and the situation was reversed.

SPEAKER_10: Like monthly versus yearly is like, it's a bit of a battle.

David Friedberg: Um, I understand some people, you know, if you have like the greatest software, this, this is like software for monitoring conversations by sales executives. Um, and there's like 20 versions of it. So I told my team, like, listen, there's 20 versions of it. The top five are all the same. Pick the one, uh, that we'll do monthly and let's test it. And we'll just month by month determine if we want to make a year commitment, but I'm not making a year, they wanted a two year commitment. I'm not making a two year commitment. Are you kidding me? Like that shows that you're not committed, but you're not confident in your software. And then they use this BS excuse, like, well, we want you to show a commitment. And I'm like, my commitment is using your product and giving you my credit card. And you, I'm paying you every month. Like, I'm not being asked to buy like 36 months worth of cheeseburgers. Like, if your cheeseburger is good, I come back. If the cheeseburger is not good, I'm not coming back. Now you, you know, I want to keep you on your toes. And if a better solution comes out for less money, I want to go to that.

SPEAKER_64: This is man, by the way, we should clarify that we're talking about being a customer as opposed to investor in this case.

SPEAKER_66: And also, that J Cal has had too many salads for too many days. Cause it's like the third day in a row that cheeseburgers have come up. So I'm gonna say Sunday is when you treat yourself.

SPEAKER_32: Yeah, exactly. I had a cheeseburger the other night. It's like the rock says, you gotta treat yourself. Don't treat yourself.

SPEAKER_68: Oh yeah, there you go.

SPEAKER_70: Um, so anyway, that's, that's how you, you, you, you look at the multiples.

David Friedberg: And so the question then becomes, is there, if there's no market, which is what we're seeing now?

SPEAKER_72: Yeah.

David Friedberg: So we're starting to see, uh, you've actually had this happen two or three times now. And I told you this would happen, you know, and, uh, when you were meeting with companies. Because climate companies are new. Yeah. And I was like, be patient. Um, you know, a good founder, like that good SaaS sales executive who keeps emailing me and they're sending me videos, um, like explaining the position. I have to show you these like loom videos. They're nuts. Um, wow. Yeah. They're incredible. I mean, that is hustle. It's, I mean, they're personalized to me and explaining why, you know, like this is a partnership. I feel like I was like being indoctrinated into a cult or something.

SPEAKER_10: Um, anyway, I was like, the person really wants to sell. I know. I'm like, I'm a little like habsies on that. It's, yeah, it's pretty great.

David Friedberg: Anyway. Um, so what will happen in a market is founders will tell you like, Hey, the deal's closing. And nine out of 10 times the deal is not actually close. You'll know if the deal is closing because there'll be another term sheet. They will have sent it to you so that you can review it and request an allocation. If they have not sent you a term sheet, there is no other deal. It is not imminent. It's imminent in my definition when there's a term sheet and the person is signed it or they're about to sign it.

SPEAKER_45: And then you will either not be the lead could be asked to be the co-lead or could ask to maybe put in a smaller amount than the leads. So long story short, now we're going to get to the point where we have to, in some cases, since we are the only funding source, come up with a valuation ourselves.

SPEAKER_20: And that's a whole different, uh, you know, thing we have to unpack. Yeah.

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SPEAKER_66: The other question I have about valuation is that increasingly I'm meeting with a lot of companies that don't have a lead.

Jason Calacanis: That is 100% becoming more and more and more common. So I think us having those valuation conversations is just going to keep being more common. But for the ones who do have a lead, why are they so secretive about their valuation? Even if they don't have a lead and have sort of a target valuation in mind, I have literally encountered like one company that closed around and would not talk about their valuation.

SPEAKER_86: And another that was like...

SPEAKER_88: But they wanted to array. Hold on. Let's just go one by one. That company, did they want to raise more money?

Jason Calacanis: They apparently not. Because I was like, are you interested in raising more money? That would be a conversation I'd be open to having, but I'd like to know about your valuation.

SPEAKER_86: And they were like, we prefer not to share that. So I'm assuming that was a no on wanting to raise more money.

David Friedberg: That would be a no on raising more money. Yes. If you're going to raise money, we're going to, in diligence, see all the documents anyway, and we're going to know it. So, you know, if we're sincerely having a discussion about investing. So that sounds to me like maybe they want it to be on the podcast maybe or they want it to meet you. But you'll get some of that sometimes. You know, people who want to just meet you and they are using the investment decision as a way to meet you to maybe get on the podcast. That happens to me sometimes or vice versa.

Jason Calacanis: That's a good thing to be aware of. That's a good, that's a good note. But then, and then the other was, you know, a company that's sort of super interesting, pre-revenue, trying to determine things like that. Do you have a valuation in mind?

SPEAKER_66: Like multiple times I asked this question. And it's like, we cannot, and it was like, it was a trade secret.

David Friedberg: So they, this is where their target valuation, do they have a valuation in mind for this round? So some people have been trained or have the philosophy, I'm not going to negotiate against myself. I'm going to let the market decide. Yeah. And so then you're, again, patience. That's great. Let us know when you find a lead. Uh, and we will be part of that group of people who will consider investing once you've set the terms. Uh, we're, we're not in a situation where we want to lead the round, but we might want to place a bet, a smaller bet. And we hope you find a great lead who can join your board and help you build the company. And we might be part of the supporting cast and, you know, be, be helping you, uh, fill out the round is the term we use in the industry. And you need people to fill out the round. So now we are part of that ladder group. So then when they go to the next folks in person, they're going to use us and say, yeah, we got like 12 people, 250 K each. We've got, you know, about $3 million and we're looking for a lead to take the other 3 million. Now, what do we know now from being part of that collection? We're not soft circled. We're not committed. We are interested in reviewing based on the terms. And if the terms come back and they're gnarly, we're not doing it. So this is where no lead, um, but you know, X amount circled, really, I would just exit it to zero. Um, I would just assume they have nothing. Um, that's how I would look at it as a founder too. When I'm raising money, unless I've got a signed contract, unless I've, you know, got the money in the bank or it's being wired, you know, nothing actually matters. That's why we did an exercise of tell us what is soft circled, signed, signed and wired money is in your bank account. So we actually came up with a way to let founders be honest, be most honest, because, you know, a lot of times founders are scared, you know, like, oh my God, I, I, you know, have to, you know, dress this thing up. I got to, you know, I got to convince them and actually we don't need to be convinced. We just want reality at least I was speaking for our firm. We just want to know the reality. We might, we might give you an offer, but if we can't get, you know, ground truth, uh, as we like to call it in the business, we need ground truth. We need to know. And man, sometimes we'll be like, I have a million, but I'll be totally honest with you. It's all soft circle and I'm like, great of that million, how much do you think realistically would come in not optimistically, but like just conservatively, realistically, even when you tell them conservatively, optimistically founders are an optimistic group. They wouldn't be starting a company if they weren't. So they'll say 600. And then I just, in my mind, cut that number by half at least. Yeah. So I would cut it to 300, 250, something like that, you know, 25% of the overall number, half of their estimate. And, um, you know, there you are in terms of, you know, creating a valuation, there is a new thing that's happening that I wanted to bring up with you that you might be seeing, which is how do you name these things? We know what an accelerator is.

SPEAKER_106: That's for a company that, you know, either has very modest traction or, you know, in some cases there are some accelerators or incubators that, you know, we'll just accept somebody on an idea very few these days, but they'll look for a prototype, maybe one or two customers, you know, maybe some data. But, you know, very little, um, and then, you know, what a seed round is. Okay. That's around, that's going to be around 10 million bucks, you know, six to 12, six to 15, uh, in the last couple of years. And that seed round tends to be a million to $5 million actually. And that used to be the dollar amount actually of series A's was three to five back in the day.

SPEAKER_00: Then you have a series A that tends to be five to 10 million, tends to be for 20% of the company. But there are things that have been slotted in pre seed. Right. And pre series A or seed extension. So these three terms have come up.

SPEAKER_03: How do you, do you, did anybody ever give you a definition of these? I'm wondering, can you define what they are?

SPEAKER_07: Not, no. And they, and they're showing up in all the books too, right? Like, and, and nobody knows and it kind of is, right, the answer seems to be like, we made that up because there was a lot of money around.

SPEAKER_10: Well, here's the thing. The reason I asked you for the definitions is because I don't know them.

David Friedberg: Oh, man, I've been doing this for 11 years. People started coming to me with a, with a pre seed. And I was like, what's a pre seed? And I think by, based on my definition, a pre seed is a company that doesn't want to go to an accelerator and doesn't want to ask their friends and family for money. But they want to get money from seed funds, right?

SPEAKER_34: They, they want to have accomplished nothing. In other words, they want you to do what friends and family do, but they want to do it at a seed valuation.

David Friedberg: So they want credit for work they have yet to do. And when you meet somebody like that, and they're like, here's my idea. Here's my deck. And you're like, show me the product. It's not built. Okay.

SPEAKER_112: So products not built. Why don't you go to accelerate? I don't want to go to accelerate. Why don't you want to go to accelerate? Well, because I just want the money. I want to skip that step.

SPEAKER_113: Okay.

Jason Calacanis: Or, and I'm encountering a new archetype that kind of like the pissed off founder, like the one who's like, if I, I know what I want to build. And if you would give me the money, I would build it.

SPEAKER_116: Yeah. That's a, that is a delusional.

Jason Calacanis: It's also what I call my son, right?

SPEAKER_118: Like, I'm like, are you 15?

Jason Calacanis: I mean, I understand that they feel like they're in a Mobius strip, right? Like I could do this, but I don't have the money and you won't give me the money until I do it. And I'm like, yeah, I need you to do it.

David Friedberg: A super naive, like approach, which is like, I would like to be different than everybody else. And what it assumes is like, we can read their destiny.

SPEAKER_120: Yeah.

SPEAKER_34: If you were Luke Skywalker or Obi-Wan Kenobi or Qui-Gon Jinn or whatever Jedi, we would sense the Metachlorian and know that you'll be a great Jedi and just give you the lightsaber and you don't have to train.

David Friedberg: It's like, you don't get the lightsaber day one, you know, like, you have to pick up some rocks, you got to try to levitate some stuff, you have to feel the force, like, it's going to be a process here. That's why accelerators exist. That's why going to your friends and family and asking them for the first 50 or 100k. So like, you really have skin in the game, or maybe you work half time, and you work on this with sweat equity. But in a hot market, sweat equity, friends and family goes away. Now that we're going into a recession, you're going to see a level of resolute, you know, dogged founders who either work as a consultant three days a week, you know, 30, 40 hours a week, and then work on their startup 50, 60 hours a week. And they're putting 100 hours in. And that will be the one you're like, wow, they're still doing three days a week consulting for Facebook, you know, doing 30 hours of coding for them, and then they're doing their startup the other four days a week, right? For me, when I meet them, I'm like, Okay, yeah, let's, let's stop the consulting, I'll give you the money to get you those other three days a week back, take one or two of them off.

SPEAKER_45: And then let's put, you know, get you on your startup, you know, 60 hours a week instead of whatever. Whatever. And so yeah, that's what precedes. And it's basically a way to say I don't want to do any work. I want to get money. I don't want to ask. I don't do friends and family. I don't want to do the accelerator or anybody's accelerator. I just want to skip the line, so to speak. I want to skip the training. I don't want to stretch. I don't want to do the weights. Just put me in the game coach. I want to be a starter.

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Jason Calacanis: It's a little unrealistic. It's a little unrealistic. I think unrealistic. We should be generous because it also, like, we want founders to have magical thinking. We want them to believe so much in their vision. You know, it's like, it's a fine balance. And I, so I don't want to suggest that they're also like entitled, right? It could be a combination of naivete.

SPEAKER_03: Let's be honest. Like, it's, you know, we don't have to coddle. Honestly, I don't think we have to coddle anybody. Most of the VCs I know, super entitled. Majority of, majority of founders over the last five years? Entitled. Majority of podcasters over the last three years? Pretty entitled.

SPEAKER_131: Give me a new microphone. I want a new setup. Replace my, you know, I mean, look at me.

SPEAKER_133: I'm hiding my super fancy microphone right now.

SPEAKER_134: Look how entitled I am. I'm like, you know what I want? I want the exact same setup. Go to Tahoe and set me up a second studio. Drive up here.

SPEAKER_135: Drive up here and make me, I mean, I am entitled, right? And hopefully, you know, like I earned it, but

SPEAKER_34: everybody's been a little entitled. So now the, this concept of the pre-seed or the seed extension or the pre-series A, those are bridges, the next group.

SPEAKER_136: Mm-hmm.

David Friedberg: So for the first one, it's a magical term that people use for, I don't want to build a prototype. I don't want to do sweat equity. I want to skip like six or 12 months of work. Now, the other one, a seed extension or pre-series A is saying, I'm too proud to say, I want a bridge. Right. Or I need a, I need an extension.

SPEAKER_135: Or I need a bridge. Yeah.

Jason Calacanis: Because I raised a bunch early and now I have to pivot because my initial thing didn't work out. And so now I'm just kind of like trying to pay for my pivot before I series A on my new business.

David Friedberg: Now there is a way to frame it. So now this one could be two or three different things. One of them is most likely it's a bridge. You didn't hit your target. So you raised 3 million in your seed. You were supposed to use that to get to two or 3 million in revenue a year, or let's say a million in revenue for your SaaS product. And then that would have enabled you to do a five to $10 million series A. And you only got to 300k in revenue. And when you went to get your series A, you weren't growing. You would have a five month growth and then negative five and then 10 and then negative two, and nobody wanted to do your series A. So you need a bridge. You need more time to figure it out. Be honest about it. You know, like if you're a founder in my mind, but they came up with the term seed extension or seed plus or pre-series A.

SPEAKER_139: I've even seen seed two and seed three, like in crunch space. I've seen seed two.

David Friedberg: Yes. And so it's, it's basically a bridge. Yeah. Now there is an exception, which I have seen, which is I've had founders come to me and say, listen, Jacob, we thought we're going to hit one. We hit 1.2. And we are in spitting distance of break even. So you know how we said we're going to burn money actually made money to the last six months, because we didn't find developers to do this stuff and more we land and expanded with this client.

SPEAKER_00: And yeah, things are going really good. We've been really conservative and it's worked out. So we still have some cash in the bank. We got nine months of cash. We thought we'd have three to six right now. We got like nine to 12. Um, what do you think about maybe putting in a half million or a million dollars? Our last valuation was 12, but we hit all our targets. We think we're going to go out for a $30 million, a $30 million valuation from series A. You're interested in putting in a million dollars now at 20 million and buying 5% of the company. Well, yeah, I'd be like, yeah, sorry, somebody's school.

SPEAKER_45: That'd be frack. Yeah.

SPEAKER_00: Sorry, I got a Battlestar Galactica.

SPEAKER_45: Frack. Yeah. Yeah, exactly. No, frack. Frack.

David Friedberg: Yep. Frack. And in fact, I've done this opportunistically. I went to a number of companies and said, Listen, we read your update. You know, you're up 3.7 times year over year. Now it's a small number, whatever. You were at 300 last year. Now you're at 1.3, but it's still 3.x, you know, you think you might want to and you have 400k in the bank and you're burning 70. Okay, you got like six, seven months. I think you'll clear market. You want me to put in a million now at this valuation just to give you a little extra breathing room and you take your time and maybe get the number up a little bit. Before you raise the 5 million that actually would make more sense, right? Mm hmm.

SPEAKER_10: So anyway, that that's the conversation that can happen. But you gotta you gotta drill down on that. Also founders send your updates. If you're sending up. That's why.

David Friedberg: If you haven't been sending updates, and then you start sending them now in the recession. Um, that's better than nothing. Yes. Because let's say your funding sources dry up. If you haven't been sending updates and you know, you're an investor, your contemporaries have been sending updates. Who as an investor, if you have 20 portfolio companies and 10 have been sending updates, 10 haven't. Of those 10, six are doing, you know, good to are doing great to are kind of struggling. You're gonna and you've only got five more bets to make six more bets to make on follow on. You're gonna bet you know, you're gonna you only have the ability to follow on with one third of your 20. You're gonna pick the seven from that 10 in all likelihood, or you might pick one of the other 10.

SPEAKER_106: And it will be the one that's doing spectacular and claims to not have time to send an update. Um, but you know, you still know the top line revenue number. So yeah, this is where this is the exact moment in time of recession where being honest and writing these updates matters more. So if you've been delinquent in doing that founder to founder, I would do it now.

SPEAKER_157: Do it now. Yeah. Now's a good time.

SPEAKER_128: All right. I think it was a lot of jumping off points.

SPEAKER_160: Great.

SPEAKER_128: It's so great.

David Friedberg: It's a it's awesome. Well, maybe next week, we could do Molly just had a come up with the term sheet if there are no competitors and you guys come up with a valuation yourself.

SPEAKER_106: So maybe you can come up with like maybe three scenarios for me, this level of traction, this level of traction, this level of traction, this level of traction, how would you value, you know, pick a SAS company, pick a marketplace company, you know, just, you know, start with like in a, what they call that a composite of like companies you're meeting with. It could actually be some climate ones, right? Cause some of the climate ones we're looking at. It's like, we have no revenue. We're trying to do this crazy moonshot.

SPEAKER_34: Like, how do you value that? I mean, there's a lot.

SPEAKER_64: There's science, right? There's hard science. There's our commercializing R and D is a category. It's a category.

Jason Calacanis: In climate companies. And it's a really hard one to figure out. And it's very, very, very much in the category of like, but what if it works? A lot of times. So yeah.

SPEAKER_113: Yeah. All right. Well, we got a great this week in climate startups coming up next. So stay with us.

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SPEAKER_170: Who do you got on this week in crime? I really have been enjoying it Molly. What do you got this? I, okay.

Jason Calacanis: I love this kind of thing. Okay. Speaking of hard science. So this week in climate, we've got ether diamonds founder, Ryan Shearman, who is, uh, in addition to founding this company, ether diamonds, um, is a climate tech angel investor in seed companies. So ether pulls carbon dioxide. Okay. You know, the greenhouse gas out of the atmosphere to create lab grown diamonds. Hmm. So, you know, diamonds, uh, other lab grown diamonds are actually produced using petrochemicals, including methane, which is like a terrible greenhouse gas. So, uh, and it's becoming a bigger and bigger deal because people are wanting more ethical, ethically sourced diamonds. They don't want, you know, mining and blood diamonds. So in 2021 lab grown diamond jewelry sales were like $5.9 billion.

SPEAKER_86: What? Yeah. Holy cow. So six.

David Friedberg: Yeah. Well, I was just wondering, are these, um, would a person know the difference between these diamonds? If you were to look at them and are they really good molecularly, they are diamonds, but a diamond expert could tell an organic quote unquote diamond ripped from somewhere with children from, you know, lab grown diamond.

SPEAKER_09: An expert could tell, but, uh, but a civilian wouldn't. Yeah. I think that is a hundred percent the case. Is there a price difference?

David Friedberg: In other words, like if you were to buy a two or three carat diamond, you might be in for 20, 30 grand, right?

SPEAKER_176: Uh, for your wedding engagement ring, whatever, would you save money on this or just save the environment? No, you save money.

Jason Calacanis: Um, there's one, let's see, uh, lab grown diamonds can be as much as 60% cheaper. Oh, wow. Then, you know, mind diamonds. Oh, interesting. And then of course.

SPEAKER_64: So half off, maybe more depending. I don't know if the ether lab grown diamonds are cheaper.

SPEAKER_155: So I guess then the question is, socially.

SPEAKER_14: Yeah. Will people accept these, uh, you know, like, uh, you know, if you ask a woman to marry you or they're gonna throw this in your face if they find out it's lab grown, you're gonna be in trouble.

Jason Calacanis: I mean, I guess it depends on how much, uh, you know, he or she cares about the environment, but I will tell you that the numbers say. Yeah. People are willing to accept them because in prior to 2018, lab grown diamond jewelry sales totaled less than a billion dollars. Okay. There's definitely, that's a pretty good if we were doing evaluation, um, multiple, we would say that was pretty good growth. Yeah.

SPEAKER_64: Yeah. I mean, and 50 to 60% cheaper or 40 to 50% cheaper on average than mine diamonds is also pretty hard to argue with. Yeah.

Chamath Palihapitiya: You know, it's, it's like, like anything that is a business based on scarcity.

SPEAKER_106: Um, you know, there'll be less scarcity, so the prices should go down.

SPEAKER_20: And then it's just a matter of the diamond lobby, I suppose, can convince people to not buy these. Yeah. Uh, but you know, this young generation, they want to do what's right for the environment and certainly, uh, for human rights. And if you think about just those two factors, human rights and the environment, it's a double win. Yeah. So how could you buy a mine diamond? Right. If it's already been pulled out of the ground, that's one thing. If it's, you know, it's your grandmother's diamond ring, no problem. Right. But I don't think this next generation is going to want a diamond that was recently ripped out of a mine by some, you know, poor person or grouch forbid, a child, um, you know, in a, in a, these conflict diamonds.

SPEAKER_199: And this is great.

Jason Calacanis: This is awesome. I mean, it's actually like a phenomenal industry and, and apparently they are, you know, they're way higher in quality than cubic zirconia or something like that. Of course.

SPEAKER_64: They are diamonds for all intents and purposes, but because they're lab grown, they can also tweak other characteristics. Like they can make them shinier, like have more polish. Yeah. They can be more symmetric.

SPEAKER_106: I would think like, I wonder if they can make the Asher cut or the princess cushion cut, whatever these things are. Totally.

Jason Calacanis: They can make any cut. They can actually make more cuts. Got it. Because they're fabricated in a lab. So they can have more symmetry. They can like, yeah, it's, it's super interesting. And then of course. This is going to be like Blade Runner. Where like. Do you like our owl. Yeah.

SPEAKER_204: Deckard. And it's like, oh, of course it's not real.

SPEAKER_203: But we've got an owl that's better than real. Like it's actually going to flip at a certain point. Like the fact that some group of people are accepting these at half price.

David Friedberg: I'm waiting for these to become worth more than the organic ones ripped out of the earth. Like the actual quote unquote real ones. And they'll be better. Just like I'm waiting for an impossible burger that tastes better than a beef burger.

SPEAKER_20: That's, that's the flipping that I'm waiting for. But this is another flipping, which is young people are going to really enjoy getting these. Because they care. They care. I think that's the greatest thing in the world is like people are young people. And you know, some older people who actually care, you know, we saw with Teslas.

SPEAKER_106: We saw with the impossible burger. We saw with people putting solar on their homes. People made those three decisions independent. You know, I think the majority of them made those decisions independent of the economics.

SPEAKER_20: They bought an $18, you know, impossible burger early on. They bought $150,000 Tesla. They could have bought cheaper cars, could have bought cheaper burgers. And they put solar installations on that they could never, you know, in the early days hope

SPEAKER_106: to recoup or, you know, they, they didn't make economic sense. It would have been cheaper to just keep burning oil or gas or whatever.

SPEAKER_216: Mm hmm.

SPEAKER_64: So good on, good on these folks. Can't wait to hear the interview. That's how markets get made. Enjoy. Ryan Shearman. Thanks so much for coming on this week in climate startups. My pleasure.

SPEAKER_219: It's great to meet you.

SPEAKER_64: And I just have, feel like I have to warn the audience that they're going to be doing a ton of shopping by the time we're done with this conversation.

SPEAKER_66: Um, tell us if you would, uh, just like give us the high level summary. What do you do at ether? Yeah.

SPEAKER_221: So this is a, it's a rather easy pitch. We take harmful carbon that is warming the planet, pull it from the atmosphere and turn it into beautiful carbon that warms the heart.

SPEAKER_223: So diamonds from thinner diamonds from thin air.

Jason Calacanis: This is crazy. Um, give it. Okay. Now let's dig a little deeper. Tell us how it works. It's true. It's cause the air part is a big deal, right?

SPEAKER_224: Not carbon from the ground. Correct.

SPEAKER_221: Now, you know, whether you're talking about a lab grown diamond or mine diamond, all diamonds ultimately source their carbon from the ground. So regular lab grown diamonds in today's market are made with methane largely. Um, some use graphite regardless. It's, it's an extractive process. When you, when you go fully upstream, that's a big part of the narrative that anyone who tries to tout regular lab grown diamonds as a, you know, more sustainable alternative likes to omit. You know, ultimately the carbon is fossil carbon and, you know, we have processes that can use that we can use to turn them into gemstones. We've taken a vastly different approach. We take atmospheric CO2. Uh, we put it through, uh, uh, patented process to convert it into an ultra high purity hydrocarbon. So atmospheric methane, we call it. Um, essentially what we're producing our feedstock is electronics grade ultra high purity CH4. So everyone else gets that from the ground through fracking through the crude oil refinement process. We're taking it directly from the air. We're putting it through, uh, a Sabatier reaction, essentially reverse combusting the CO2 that's already in the atmosphere, combining that with hydrogen to reassemble CH4 and release O2 into the atmosphere, which is good for you, me and anyone else who has lungs. Then we take that and we put it into a chemical vapor deposition reactor and we produce the final gemstone in the same exact manner that anyone else would using fossil methane. And we, we do it with atmospheric methane. So at the end of the day, the diamond is 100% made of atmospheric CO2, atmospheric carbon. Every atom of carbon that makes up our diamonds was previously warming the planet.

SPEAKER_224: Which is why you say these diamonds are carbon negative, right? Right. They're actually, it's a positive. Ultimately it's a net positive.

SPEAKER_225: Yeah. So the manufacturing process is, is net neutral.

SPEAKER_221: And then the carbon that's stored in the diamond, you know, a one carat diamond, people say, well, how much carbon is it in a one carat diamond? One carat. So that one carat of carbon brings us over the threshold. So it is carbon negative by a minimal degree. But what excites us about this is diamonds are this really interesting product to make from captured carbon. Ultimately it allows us to generate orders of magnitude, more revenue on a per ton basis. So it's a force, an economic force multiplier. We can sell that diamond and then takes a portion of the profits from every transaction and utilize that for funding frontier projects in the, in the carbon capture and utilization space. Um, our net impact as an organization, as a company will come through a lot of those external initiatives, as well as other internal initiatives that relate to carbon sequestration utilization outside of just diamonds, other solid carbon products.

SPEAKER_64: So this is an answer to the people who would say, maybe there's better things you could do with direct air capture technology than create luxury gemstones. You're saying I am also, as it happens, a climate tech investor, and this is a great business. That's great for the planet that allows me to reinvest this, this money into other, hopefully net positive projects. Precisely.

SPEAKER_221: I think there's a second side to that coin as well. And it's, it's engagement. Um, and I'm not talking about, you know, getting down on one knee. I'm talking about getting people. Oh, right. I get it. Cause diamonds. Cause diamonds. We're talking about, you know, mobilizing society at large. You know what? There's something special about diamonds. There's something sexy. There's something there. And it enables us to go out and work with today's tastemakers, celebrities, athletes, influencers, and essentially in one small way, make participating in the fight against climate change, sexy, fun, and cool. Um, you know, in bringing what we're doing and, and, and using it as the foundation to make climate a bigger part of the zeitgeist is really important to us. You know, ultimately for me, for our company, we are firm believers that solving, you know, the, the climate crisis is not a technological challenge. It's a people challenge. So if we can come in and, and, you know, establish this, this really exciting, culturally relevant brand work with really great, you know, collaborative partners, uh, top tier, you know, luxury brands and, and, and all of the right people to, to have people talk about this when they're sitting around the table. The first thing you do when you get engaged is you show off that ring and we want to be a part of that story. And, you know, it, it starts small and you build momentum. And if we can use this as an opportunity to bring people into climate in a way that is low, you know, low friction, you're not doing anything different. You're just buying from a different brand and having that real, real great impact. That's something that's special and something that's unique and something that we're very excited about. Yeah.

SPEAKER_64: Um, I have roughly a million questions, but I want to kind of go through a little bit of the process a little bit more. I, one thing I did not realize in reading about your company is that direct air capture exists at a big enough scale to harvest enough carbon for you to do this.

SPEAKER_66: Like where is that happening?

SPEAKER_246: Diamonds are small. So we, we get all of ours from a partner called Climeworks. Yeah. So, uh, they built their first plant in Henville.

SPEAKER_221: Diamonds are small. This is great. See, this is the beauty. Diamonds, if you, if you look at, you know, the carbon capture and utilization space, how are people making money? Right? You can pull carbon from the air. You can pump it underground and mineralize it. And then you can sell carbon credits. And if you're lucky, if you're really lucky, you get a thousand dollars a ton. We take that same time. We turn that in the broad scheme of things, small amount of carbon into roughly about five to $10 million worth of diamonds. So we're not talking about a thousand dollars, $10 million in top line. All of a sudden, you know, that little bit of carbon becomes a catalyst. It becomes a fuel to, to essentially power this economic engine. And that's what excites us.

SPEAKER_232: Kind of like your print. Yeah.

SPEAKER_64: I mean, you're printing money out of carbon in a manner of speaking. Yeah. Amazing. Kind of shocked as you describe it, that no one else thought of this, but your experience here, I think is probably what makes this so successful. Right? Previously, uh, you were with David, your men, one of the original team members on the men's line where you'd already develop new products is my understanding. Right. And product collections that featured materials that weren't necessarily endemic to the jewelry industry.

SPEAKER_221: Precisely. I cut my teeth in jewelry at David Yerman. Wonderful company. Got to work on some really, really exciting projects. Um, that's where I met my current co-founder and, and several members of our, of our team that we've now brought on. And, uh, I was the materials guy. I was the mechanical engineer. I got to, you know, say, Hey, if we're going to make carbon fiber jewelry, I actually have experience working with composite materials. Uh, I can be the guy who goes to the factory and, and is talking to the people who are doing the wet layup and, and understands, you know, at a very fundamental level, how that works. That was really crucial for what we did. We did some stuff with meteorite, really, really interesting, uh, material. It could be a meteorite. It's a metal, um, that comes from an asteroid. It landed in Africa a millennia ago. And if you cut it and etch the surface with acid, it reveals this Weimann statin pattern. It's, it looks like a circuit board almost, but it's naturally occurring really beautiful material. How do you make a luxury product out of that? If it's chock full of, you know, nickel and iron, and if you leave it out on your counter for a couple of days, it's going to turn, it's going to rust. You'll get a little surface flash rust that happens. So can we come up with surface coatings? Can we deal with this through, you know, using sacrificial metals and just, you know, the basic galvanic principle to protect that surface from looking like something beautiful one day and looking like something, you know, horrible the next. And that's just an engineering challenge. That's chemistry. So I got to, I got to do some really cool stuff there and ended up leaving jewelry. I started a hardware company, did that for five and a half years. And that was my first real foray into, into the world of startups and entrepreneurship. We sold that business in 2018. And this was an idea that came out of a, you know, offhand conversation with, with my now co-founder. I had just finished reading a book called drawdown. And at the tail end of the book, it talks about, you know, technologies that are coming. And I'd read about this new facility in Switzerland that was being built. End of talking to, to Dan, my co-founder about two or three hours later. And I said, by the way, have you heard of direct air capture? You know, we have a way of chemically removing CO2 from the air. Can you imagine if we could turn that carbon into diamonds? And that was literally the extent of the conversation. Was that literally it? That was it. A week later, maybe five days later, he calls me up. He says, Brian, I can't stop thinking about diamonds from air. I said, yeah, neither can I. And I held up a piece of paper that had all of my notes. I'd done like 20 hours of research. And I'm like, I think I know how we can do this. And what we're doing today is not exactly what we cooked up in that first week. But it's remarkably close, 80%, 90% of the way there. We had to add in a couple steps in between just to, you know, to get certain elements, certain processes along the way a little bit more efficient and get rid of some toxins that we weren't aware of early on. But generally, you know, what we're building, what we've built and what we're scaling right now is what we conceived, you know, over the span of a week in 2018. Wow.

SPEAKER_263: How hard was the science? Very challenging.

SPEAKER_231: Yeah. It turns out our atmosphere is predominantly nitrogen.

SPEAKER_221: And you can't have nitrogen in your gas when it's going into the diamond reactor. It stops, it essentially arrests the formation of the crystal growth. So you want that crystal lattice to form perfectly. The analogy I've used in the past, imagine trying to nail shingles to a roof of a house in the middle of a hurricane. You know, it's controlled chaos and you're trying to order these carbon atoms and nitrogen will react in that chamber. So you really can't have any nitrogen. So that was a big thing for us is how do we eliminate nitrogen at every step of the way? I mean, this could be even, you know, a fitting that's not tightened to spec, allowing some atmosphere to have ingress. And, you know, we're talking about parts per billion scale here. So we have to be extremely, extremely careful throughout the process to not introduce elemental nitrogen or nitrogen-based compounds. And that underlying technology, that process, that is hard to begin with. But there are certain elements of this that hadn't been done before. So we were, we were really kind of crawling around in the dark, trying to find our way. We had one breakthrough that was, uh, the result of a mistranslation between an English speaker and a non-English speaker. Um, it was kind of one of those, Hey, we spilled something in the lab and we had a breakthrough discovery type of thing. Really? Yeah. Dumb luck probably saved us nine months.

SPEAKER_231: Um, yeah, we, we look back and, and, you know, Will we understand it if you try to explain it?

SPEAKER_230: Um, I don't know that I understand it even fully. Gotcha. Okay.

SPEAKER_231: But, uh, I mean, But the gods were on your side, is what you're saying.

SPEAKER_221: At, at, at numerous times throughout this journey, there have been kind of these moments where the universe tipped its hat at us and just said, here you go, guys, you know, I'm, I'm, I'm, I'm in your corner. And, um, you know, even the, the composition of the diamonds, you know, when you pull a diamond up from the ground, we've been studying diamonds for as long as we've known about them. And we know a lot about diamonds from the ground. We know specifically the ratio of two stable isotopes of carbon that exists in nature and what you typically find in a mine diamond. Carbon 12 and carbon 13 have a very well-defined ratio. When you're making lab grown diamonds from fossil fuels, that ratio is different. So people say, Oh, lab grown diamonds are identical to mine diamonds. Well, yes, they are 100% carbon, but it's not the same isotopic composition. It just so happens that the composition of C 12 to C 13, that ratio in the air after it goes through our process falls smack in the middle of the bell curve of where you would typically find the C 12 to C 13 ratio ratio from a mine diamond. So essentially we are actually producing something that is identical to mine diamonds. Whereas everyone else is getting pretty close. Wow.

SPEAKER_66: Does that matter to people? We, we did a little research and discovered that the lab grown diamond market is on fire as it is, but I wonder like what kinds of questions do consumers ask you about these diamonds?

SPEAKER_230: Yeah.

SPEAKER_221: You know, for a while, I think the number one leading question when it came to lab grown diamonds is like, Oh, what is this real? You know, in the, in the seventies, we had glass alternative simulants like cubic zirconia that were first developed. And now you've got moissanite and there's a, you know, several of these alternatives that are not diamond material. So I think there was an educational gap that had to be crossed. And, and broadly, we see less people ask that question. Now, fewer of your people are, are kind of getting into the fundamentals. They are doing the research online before they're coming to us and engaging with us to learn more. Um, we haven't really yelled far and wide about the, the difference in the isotopic composition, uh, only because we had IP stuff that was, you know, in process. And now that it's all been filed, we can, we can share that a little bit more broadly, but we have, we've yet to start, you know, pounding on our chest to tell that message. But at the end of the day, we do think that it will lend well when it comes to customer psychology and buying something that is, you know, really more identical. Right.

SPEAKER_64: Talk about the process because not only are other, my lab grown diamonds using fossil fuels and methane, uh, it's energy and water intensive. And it sounds like you have, in addition to using direct air capture designed a process that's less resource intensive overall. Yeah.

SPEAKER_221: So the, we actually produce a little bit of water as part of our upfront process, which we then use for, you know, later stages in the process. So we, we, we ultimately are consuming a remarkably small amount of water. So we have no little to no water impact, um, which is great. Um, we don't want to be just wasting a ton of great, you know, potable water and putting that down the drain. Um, I think there are, there are certainly others out there that are using quite a bit more than we are, uh, as it pertains to energy. We have been very diligent about building a power supply chain, you know, that allows us to get as, as many zero emissions electrons as possible. So, uh, right now it's, it's a blend predominantly wind solar. There's a little bit of nuclear peppered in that takes us only so far. Every time I ship a ring, you know, with a beautiful diamond set into it, there's going to be emissions related to that. So anything related to shipping and logistics, we're, we're offsetting through high quality, uh, carbon offsets, everything related to sinks. So we, we're, we're not big on avoidance. Every term we want to bake additionality into what we're doing. Um, we've taken that a step further. We're actually, uh, a financial partner with a group called clear loop, and we are allocating funds for the development of new solar projects in parts of the U S that are underserved from, uh, renewables and, and, uh, low emission, you know, energy standpoint. So, uh, the, the first project was a solar farm in Appalachia, you know, an area of coal country. Um, we, so we got to, we got to do that and bring a responsible, you know, more ecologically friendly source of energy to an area of the country that was underserved. And, and that has absolutely nothing to do with our core business. We're just, we're just happy to drive, you know, impact. And, and this is why we're incorporated as a public benefit corporation. We are the first and only diamond company on the planet diamond producer who's, uh, achieved B Corp certification. You know, so we're putting our money where our mouth is and we're trying at all times to, you know, to do the right thing because it's the right thing to do. Not just to check a box.

SPEAKER_64: Yeah. Um, I noticed on the website when I may or may not have been shopping for jewelry that the, for example, underneath, um, the products you list carbon footprint offset in years or fractions of years.

SPEAKER_66: So I was looking at these $40,000 statement earrings, uh, and it said carbon footprint offset 6.7 years.

SPEAKER_230: What does that mean? Years of what?

SPEAKER_223: So the average American has a carbon footprint of about 16 metric tons per year. Um, I've done a, a pretty deep LCA on my own life and I'm a little higher than that. I'm around 20. Life cycle assessment for those who aren't familiar. Yeah.

SPEAKER_221: Um, so I'm a little higher than the average bear, but we said, all right, based on the 16 ton number, um, we've sold this diamond. This is an amount of profit we can allocate towards all of these, you know, carbon sinks. Uh, so working with groups like charm industrial, uh, they have a, uh, pyrolytic process. Like organic, you know, waste material. And they essentially, instead of burning it, they put it in a vacuum chamber, uh, and they turn it into an oily sludge, and then they can put that back underground. So carbon that would otherwise biodegrade on the surface and vent, you know, likely methane, you know, as, as those, um, as that process happens. Now that's not going to happen. We're going to, we're going to capture that underground. It's a form. It's like an oil that's, that's not combustible. So no one's ever going to want to dig it back up and use it as a fuel source. So this is a really great way of taking, um, you know, material that would otherwise be contributing to global warming and, uh, and, and have it have a reverse impact. So, um, we, we are definitely happy with the way we've been able to work with these frontier projects and, and bring non-dilutive funding. And hopefully as we continue to scale our business, you know, that can scale as well. And, and, uh, when we map that to our jewelry products, we say for every carrot of diamond that we sell, our environmental commitment is to remove 20 tons from the atmosphere. So a one carat diamond maps to about one and a quarter years. So that's the way we've been doing it thus far. Um, we'll see how, how long we can continue to do that with external projects. Spot price in the market today for a ton of CO2 is, you know, tripled in the last year. So, um, ultimately there, there could be constraints where we have to cap it at some reasonable amount, but, uh, that probably hits an inflection point as we start building, uh, our processes to, to produce other carbon-based materials. So our underlying core tech and specialty and area we want to focus is taking atmosphere, gaseous CO2, and turning it into solid carbon. So that's diamond as a starter, it's graphite for use in batteries. As we move towards a more electrified future, we're going to need a great domestic source of graphite. And, uh, we'll be able to do that.

SPEAKER_223: Um, and then other carbon morphologies, graphene, uh, carbon nanotubes, things like that. Interesting.

SPEAKER_66: So that's the, so the longer term play even within ether, it sounds like is to develop those materials, not necessarily as an outside frontier investment. We'll see. Yes.

SPEAKER_258: Uh, we'll see how far we take it internally.

SPEAKER_221: Um, you know, maybe we evolve into some type of hold co where we've got a jewelry brand and then we've got, you know, other, other products, technologies, uh, or companies we spin out.

SPEAKER_223: So we'll have to see how that kind of unfolds over time. It's too early to say.

SPEAKER_66: Interesting. How it looks, the business model is designing and selling jewelry. Is that right? Like, do you sell to wholesalers or is it all, you know, direct to consumer effect?

SPEAKER_221: So at the time of taping, we are two days ahead of our, uh, our wholesale launch. So we've, we got you just in time, just in time. We announced this, uh, you know, to the world in the fall of 2019 that we were doing this. Uh, and then we formally launched in the week between Christmas and new years. Cause you know, it was, it was more about catching people in their home with their families and having a cool story to say, Hey, you know what I saw on Reddit today? Um, and, and that worked really well. We were able to go and build up a great base of, uh, pre-orders from consumers and everything's been DTC focused thus far. So our bread and butter is custom engaged earnings. That's really, we didn't expect it to be that way. We didn't look to position it that way, but. Um, the kids are still doing that, huh? Yeah, they're still doing it. Um, you know, on average, you'll get between, you know, 1.9 and 2.2 million marriages in the US every year. Uh, there was a slowdown during COVID, but that was a slowdown in, in the weddings. It wasn't a slowdown in proposals. Proposals spiked. Um, so broadly speaking for bridal jewelry, for jewelry as an entire industry, uh, and lab grown as a subset of that. The last couple of years have been really exciting. Hmm.

SPEAKER_94: I would not, I guess it was like you either broke up or you were like, we're in. It was an accelerant for sure.

SPEAKER_66: Yeah. Seriously. Um, there are, you know, other materials and of course the jewelry that you're designing like gold. And I noticed that those have a lower year score, but they say they're fair mind. How are you sourcing those metals?

SPEAKER_221: So fair mind gold is emphatically the most responsible source for gold on planet Earth today.

SPEAKER_231: And I say that confidently because when we talk about other alternatives that are positioned like it, what does that mean? Fair mind. So, so the fair mind organization or a, oh, it's an organization. Yeah.

SPEAKER_221: So I think fair trade coffee, um, you know, fair mind gold, it comes from select or generally more artisanal gold mining operations. But there, you know, a lot of this happens in South America and other parts of the world. And, uh, the fair mind organization comes in and establishes childcare opportunities for, you know, oftentimes it's, it's not like, you know, one of the parents in a family goes off to work. Both are both the mother and father, both parental, uh, figures are, are working in this mining operation. What's going to happen to their children during the day? Well, we've got childcare opportunities, educational opportunities, uh, you know, plans to, to graduate some of their laborers into other more specialized roles. Uh, they do all of these things to build a better quality of life, um, to impact the environmental footprint of those mining operations. So they'll say, as part of this, you can't engage in harmful extraction methods. Um, there are a lot of ways we can, we can pull gold out of the ground. Uh, it's not just, you know, digging up, uh, nuggets and sifting in rivers. It's, it's a lot more complex. There's a lot of chemistry that's utilized, but a lot of that is, it's really harmful. So they come in and they, and they, they ban those practices. So at the end of the day, you're paying a markup for that gold and we're happy. We are absolutely happy to pay that markup knowing, you know, that our source of gold is beyond reproach. Other companies like to lean on recycled gold as, as a, you know, a really great thing that they can talk about. But if you understand the process by which we recycle gold, it's not environmentally friendly. So for us, you know, to say, Hey, this comes from electronic waste. Um, what happens to, you know, all of the really harsh chemicals that are used as part of that extraction process, you know, and how are they disposed of? And generally speaking, we're not so confident that there's a better path. Fair mind, we can rest easy knowing that it's been sourced responsibly. And even our, our, our plain gold styles on the website, there's no, there's nothing that would just be gold. Every one of them. And the reason you'll still see a small amount of, of offsetting associated with those products is because every, every piece has at least one ether diamond in it. So we'll, we'll tuck one away. We'll put it on the inside of a ring. You know, it's our little nod to the consumer. So even our, our, our, our quote unquote, plain gold styles aren't actually just gold.

SPEAKER_64: Yeah. Um, well, and speaking of paying more, I mean, these aren't, we should be clear that mind die lab grown diamonds can be 40%. 50% cheaper than mind diamonds.

SPEAKER_66: Where does your pricing fall? It certainly is luxury. There's no doubt about it.

SPEAKER_64: Yeah.

SPEAKER_221: As of right now, we're priced in the market just about on par slightly under the cost of a mind diamond. Um, so depending on, on what we're talking about here, um, it, it can range, you know, that it's not that we are completely pegged to it. But pricing in the diamond industry is, is generally compared to what's called, uh, the wrap net index. So when you're, when you're in the industry, you, you trade in terms of percent back or, or the percent off wrap, which is kind of the industry-wide MSRP, right? So, uh, wrap net or rapid poor, this organization goes around and they talk to jewelers. They talk to jewelry brands and different companies in the trade and find out what they're selling things for on a given weekly basis. And then publish a new report. This is this, you know, this is the kind of going rate this week for a D color VVS diamond. And, uh, and the diamonds that we're bringing to market are extremely high quality. Um, I would say they're better than the vast majority of what's available in, in the regular lab grown side of things. So, uh, between that and the complex process that enables us to do what we do and the added impact that the consumer gets with our products that they don't get elsewhere. You know, that all kind of drives to seeing that price where it's at.

SPEAKER_225: Yeah.

SPEAKER_64: I mean, honestly, if you're talking engagement rings, not to be cliche, but I'm sure that people are like, I did not want the cheap knockoff.

SPEAKER_66: Like I want the perfectly, you know, equivalent luxury item. That's also better in every other way. Yeah. Is there stuff that you can do? And I use the term stuff very scientifically with these diamonds that you couldn't do with a mind diamond.

SPEAKER_64: Like, can you cut them with less waste? Do they have any special properties?

SPEAKER_221: So diamonds from the ground are imperfect. Diamonds from a lab are less imperfect. You know, I talked about that storm and hammering shingles to the roof. Essentially the conditions are still somewhat consistent inside the reactor. So there are less soft spots in the crystal matrix. So it's a, it's a more consistently hard material throughout. Um, depending on how it's made and how many post treatment that it goes through, uh, it may or may not have certain internal stresses that could be the same or could differ. So it ultimately depends on, on whoever's making it, what they choose to do with the stone, how they, how they choose to, to treat it in, in the mind side of the business. Post treatment is looked down on stones that are post treated. Uh, you can put a diamond through an annealing process. So you heat it up and, and cool it down slowly. Uh, essentially what, what that does is help kind of reorder some of the imperfections in the crystal lattice and that might improve its color. So you take a diamond that's a lower color and you can improve that. Um, when it comes to lab grown, we don't think that that negative needs to apply necessarily there. Everything happens in the lab. Anyway, you know, what is one additional process? Why should that be? That's my personal opinion. We don't have a stance as a company. Most of our stones go untreated. It's only on the off chance. We, we have a batch that comes in. We're like, have, you know, be great if that was a little bit nicer and color. And sometimes we will do some post treating, but that's really, you know, one of the only major differences from a material standpoint. At the end of the day, what we're producing is, as I said before, identical to the material that naturally occurs in the ground. The process, you know, that a diamond is made on the ground can take a very long time, billions of years, right? So diamond production from the ground is, is going away. We hit peak diamond in 2017. So every year from 2017 forward, fewer diamonds are going to come out of the ground. You know, it's crazy. What blew my mind when I, when I first learned this a couple of years ago, when you open a new diamond mine, you've done your geological surveys. You know how, how big the kimberlite deposit is. Uh, kimberlite is, is the igneous rod formation that diamonds are found within. And, uh, and they came up old, old volcanic shoots essentially. So there are cylindrical deposits that go straight down. And, uh, it's only economically viable to pull that material out at such a depth. Uh, eventually those mines close. When you open your mind, you know, when it's going to close and you, we have not seen a large scale industrial diamond mining operation open up since like the late 90. So by 2040, 18 years from now, 50% of the production of mine diamonds is going to disappear. Wow. So globally, half the supply is going to disappear in the next two decades. Wow. We're only going to be able to backfill and meet demand with man-made diamonds. So our goal is to get out there and commercialize the best man-made diamonds on the planet.

SPEAKER_66: By the way, those listening should not take this as like a incentive to go hoard mine's diamond diamonds. Cause I'm sure someone is out there listening. Like really? I'm going to buy a bunch. Um, which is not the goal of this conversation necessarily. Talk to me about the, um, the investing side. Like, do you have a, you, are you investing yourself as an angel? Do you have a fund? Is it attached to the company? How does this all come together?

SPEAKER_221: Yeah. So when we talk about non-dilutive capital, um, this is us acting as a customer essentially. Okay. Right. So, yeah, I mean, are, we do have aspirations for eventually, you know, if this, if this business can generate the type of liquidity, we, we, at this point almost know it can. Um, we'd love to be able to get into that. Uh, we, we'd love to be fairly acquisitive as well. And we'll see, you know, kind of where that takes us. I am personally, uh, climate angel investor. Uh, but that hasn't really. Are you in my syndicate? Yeah. I'm not in your syndicate. I'm in, I'm in several syndicates, but, uh, I'll have to check yours out.

SPEAKER_64: It's new. It just launched. Okay. So I'm sorry, I interrupted you. So at this point. Yeah. Those worlds are two, two, they're, they're two things. They're pretty far apart.

SPEAKER_292: Yeah. Totally separate.

SPEAKER_221: Who knows where things will go someday. Um, you know, we, we have kind of wonderful purviews to things that are coming down the pike in climate. I think what we're doing is it's cool. I am biased, right? I'm going to say it, but I think what we're doing is cool. So people reach out to us quite a bit and, uh, and we hear about stuff when it's really early. Um, and, and that kind of visibility has been great. And I think hopefully someday it's something we could use as an advantage and just having great deal flow.

SPEAKER_231: Um, but we're, we're way, way, way, way down the road from that. It's cool as hell.

SPEAKER_66: I think I'm just going to go ahead and I'm going to punch that up a little bit. Do you imagine it? I'm a big sci-fi fan. And actually one of the things that got me thinking a lot about climate and adaptation

SPEAKER_64: and resilience was this kind of offhanded reference in a Kim Stanley Robinson book to diamond coating around the bottom of buildings when New York was totally submerged to keep it out. And I wonder, like, do you imagine a world in which this process or something like it could be used to create other materials? Like, could you upend some sort of manufacturing?

SPEAKER_86: I know it's maybe not your goal right now because jewelry, but. Yeah.

SPEAKER_309: I mean, so for us, at least for our trajectory, gemstones for jewelry, that's our business today.

SPEAKER_221: Right. Uh, there are many, many, many, and a growing number of industrial applications, high and low tech. Um, any, any quantum computing researcher worth his salt is utilizing manmade diamonds as part of that. Um, it's used for advanced medical research and procedures and diamond blades, not even diamond tip blades. I'm just talking about diamond blades, engineered blades that are 100% made of diamond. We can get really, really thin, um, and they're super sharp. So it's better than metal. It won't dull over time. So there are a wide range of applications. And then obviously just, uh, you know, from an abrasive standpoint, diamond is the hardest material on the planet. So it's, it's a great cutting and polishing agent or medium, I should say. So that's where we're going to focus. The challenge in going really, really big is a power challenge. So when it comes to chemical vapor deposition, the process by which you can deposit these carbon atoms on top of one another, you, you need a ball of plasma. And every time you want to double the diameter of that ball of plasma, you're, you're squaring the amount of power consumption that's required. So you want to go from, you know, 50 millimeters to a hundred millimeters, whatever your power consumption was, multiply it by itself. So now if you wanted to do something as big as like an iPhone screen, all of a sudden your power consumption is now through the roof. That does not yet make sense depending on where we go in terms of, you know, further electrification. Yeah. We'll see. Um, I I've heard some really interesting things about, you know, where we are with fusion and, and, you know, what that'll look like from a, from a both kind of research level demonstration versus, you know, full commercial scale. I think we'll probably have it before those diamond mines all run out. So, um, who knows where we'll get.

SPEAKER_230: Yeah. And then finally, what, what got you into this, the climate aspect specifically?

SPEAKER_221: Oh, that easy answer. 2017, uh, we had several hurricanes that hit the Gulf coast and, and, uh, you know, the Caribbean and, um, you know, South American Southeast. And for the first time, climate wasn't this esoteric concept. It was, Hey, my, my neighbor in college, his family's house collapsed and the roof, you know, collapsed on his grandmother. She lost her life. Um, or the restaurateur who, you know, was a family friend of my father's who I'd been visiting his restaurant for 20 years. It was completely taken off its foundation. Uh, or my friend who moved his all's worldly possessions to his family's home in Texas and stored it all in their garage, including his, you know, his new motorcycle. And all of a sudden that was underwater. And this happened in quick succession. I was, I was running my last company. I said, what can we do to, you know, help out? Uh, JJ watt from the Houston Texans was raising, you know, this, this, uh, capital to, you know, go towards disaster relief. I had a high school classmate of mine who was on a Texans with JJ. I, you know, I reached out and said, Hey, we've got, we've got an idea. We want to put together kind of a distributed motorcycle ride for charity. And that's really what it was. And we, we raised thousands of dollars for disaster relief. And at the end of the night of this event, um, you know, we did an award ceremony and I was standing up on a, on a table, you know, with a mic and did my spiel. And, and as I was walking off, I, you know, we had just kind of shared with the group, how much money we had saved. There was, it was so poignant. Um, it wasn't a moment I was going to forget. It was like, after that company sold, I did a post-mortem on like the best things that happened in the entirety of my five and a half year adventure with that company. And, and, uh, that's kind of the one, one or two on the list. You know, we had a, we had a customer write us a letter saying our product saved his life. I think that probably takes the cake, but, uh, but I felt so fulfilled. I've kind of been chasing that high ever since. So when the company sold, I said, I need to get into the world of impact. Like it's just unabashed capitalism is a great thing, but free market capitalism probably doesn't exist. And if I'm going to have, uh, my way, my legacy is not going to be how many zeros having to impact my bank account. It's going to be the impact that I can help kind of bring forth in this world. And I wasn't sure what that was going to take, what form. Um, I just knew I wanted to do a climate generally speaking. So I had some, some time to kind of look at the problem. And, and like I said, I was, I was out there kind of casually looking for a project I could, I could get behind. And then that one random conversation with Dan and, uh, you know, we came up with the idea and I just, once, once I picked it up, I couldn't put it down. Amazing.

Jason Calacanis: Brian Sherman is founder and CEO of ether diamonds at ether diamonds.com spelled with a E go look, go look, everybody.

SPEAKER_66: Just go, uh, plow your savings. I'm just kidding. Don't do that.

SPEAKER_64: Brian, thank you so much. I appreciate it. This is just tremendous. Every disaster is an opportunity for hope. There's no doubt about it.