In a very short time – six, seven years – we’ve gone from impact investing being referred to as “invest for less” to “companies responsibly harnessing technology to solve big problems will outperform.” In this episode we discuss how ESG has helped to drive that shift and the impact it is having on investing and board governance.

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Links

Gabe Bio: https://obvious.com/team/gabe-kleinman

Quotes

Ev Williams on why he founded Obvious Ventures: “I want to fund the companies that I wish existed in the world.”

Obvious exists to back purpose-driven founders reimagining trillion dollar sectors. We are a multi-specialty firm investing in the fundamental building blocks of life and society: food, transportation, housing, healthcare, and more, investing in companies that are completely reimagining each of those sectors for the better.

For the first number of years at Obvious Ventures, we did not talk about impact. We actually banned the “I” word because the industry of “impact investing,” as it was originally constructed, was not a returns-focused industry. It was an industry wishing to realize some returns alongside some sort of social or environmental impact. There was a general belief that one would have to sacrifice profits in order to get that impact return, so to speak.

We founded Obvious Ventures on the simple belief that the most valuable companies of our time will be the ones solving humanity’s biggest problems.”
For earlier-stage venture, board observers are common, and I think that’s due to the nature of the stage of the company and what they need to do in order to survive, because for early-stage venture-backed companies the fatality rate is high – they want as much good advice and help as they can get.

A colleague of mine has a saying, “Startups don’t die of starvation. They die of indigestion.” And so helping them figure out what to focus on and how to get there really helps, and from a CEO standpoint, the board is an extension of your team.

Board meeting agenda
So many boards get bogged down in the actual board room with these graphs and data and charts and everyone’s squinting and it’s like going through a boring presentation for 80% of the meeting. We recommend that CEOs really anchor their meetings in OKRs, (known as Objectives and Key Results), walking through a literal scorecard of how we are doing. Red, not going so well, yellow, we’re doing okay, and green, things are going really well.

If you’re spending 80% of your board meeting with presentations, you’re wasting your time. The board meeting is not the time to educate the board. That is the board’s homework. They should come to the meeting, having done their homework and be prepared to do exactly what you just said, address the issues that the CEO and/or whatever, the management team is really grappling with to get the most value out of the people that are in the room.

Boring presentations at a meeting can be a telltale sign. Most early-stage startup and venture-backed boards are hands-on problem-solving boards. The nature of the meeting tells you a lot of what’s going on with early-stage boards.

Objectives and Key Results, and it’s a framework popularized by John Doerr, and before him, Andy Grove at Intel, can be an effective way of running organizations from small to large, and especially an effective dashboarding mechanism for board meetings.

Big Ideas/Thoughts

What is a B Corp
What it means to become a certified B Corp is you have to score above a certain threshold on an assessment that an organization called B Lab has created which assesses what are functionally environmental, social, and governance practices of the company. I think it’s a great tool for any company of any size to take just as a reflective tool to understand your operation and how you’re doing.

Refreshing your board
A company is a different company at a Series B stage or series C stage with $50 million in annualized revenue, then when it had a $100,000 ARR and it was just getting started with three board members. So often it makes sense that a CEO may need a different set of directors with a different kind of experience at a different stage, while still maintaining some continuity and understanding of the roots and the original purpose of the organization.

Impact Investing vs Investing in purpose-driven companies
We believe that the biggest challenges that our world is facing, oftentimes highlighted by activists and social entrepreneurs were, in fact, big market opportunities and that companies solving those problems would realize the greatest returns

If you look at both consumer sentiment as well as companies that are trying to attract the best employees, the best employees want to work at companies that are having some sort of an impact, and the easiest way for us to measure that impact is through revenue generated and services rendered. It’s that simple.

For example, if you look at Proterra, every time they sell an electric bus, they’re taking a diesel bus off the road. Every time Diamond Foundry sells an engagement ring or creates a semiconductor wafer chip that is lab grown, it’s hopefully taking a diamond mine, which is carbon-intensive with horrible labor practices, out of business.

It’s everywhere now, and everybody is waking up to the reality of these problems that we have to solve. It’s important to note that we need the public sector. There’s no question about that. Without a healthy public sector, none of these can be solved, and same with social activists who often highlight these areas for us, but we need the private sector to be a driver of innovation and delivering those solutions through the market. We are believers in capitalism. We think we need to change the definition and the practices of capitalism, but that’s kind of happening on its own. Everyone is waking up to these new realities and the role of the private sector in helping solve them.

Beyond Meat as a great example of the shift. There were plenty of plant-based options before Beyond Meat, Morningstar Burgers and Quorn, and they were all in the novelty food section of the supermarket. The epic shift that Beyond Meat pioneered was you don’t have to be a vegetarian to love a plant-based product. We are not creating something that is for vegetarians only …we are competing with Angus, and we are going to take them on. One of the big defining moves that Ethan Brown pioneered at Beyond Meat was getting Beyond Meat placed in the meat case alongside Angus options so that everyday people could choose these things. What it really boiled down to was creating a super product that competed with the “original,” and you see this playing out across a host of industries, not just in plant-based protein. Tesla makes the safest, fastest car – which also happens to be the best for the reducing carbon. Nest makes the most beautiful, money-saving thermostat ¬– which also happens to be best for efficient energy use. And so on.

Episode Transcript

Joe: [00:00:00] Hello, and welcome to On Boards, a deep dive at what drives business success. Hi, I’m Joe Ayoub, and here with Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is the place to learn about one of the most critically important aspects of any company or organization; its board of directors or advisors, as well as the important issues that are facing boards, company leadership and stakeholders.
Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Gabe Kleinman. Gabe is head of Portfolio Services and Marketing at Obvious Ventures, a venture capital fund that invests in purpose-driven companies, [00:01:00] re-imagining trillion-dollar sectors. He was previously at Medium where he led people operations, product marketing, and partnerships.
Raza: Prior to Medium, Gabe co-led the design for learning practice at IDEO, helping organizations in private, public and social sectors tackle large-scale challenges in education. Gabe begun his career at Creative Artists Agency (CAA) working across CAA marketing, the CAA Foundation and strategic agency initiatives for over a decade.
Joe: Gabe recently co-founded and serves on the board of US Megafire Response, an organization dedicated to ending the megafire crisis in the United States. He also serves on the advisory board of Marketplace from American Public Media.
Welcome, Gabe, it’s great to have you with [00:02:00] us today on On Boards.
Gabe: Thanks for hosting.
Joe: Let’s start at the beginning. What path led you to working with Obvious Ventures?
Gabe: Well, this is really not a linear path. It’s much more of a zigzagging, squiggly line.
I began my career as a paralegal at a big Wall Street firm, and that led me to the decision not to pursue law school and a career as a lawyer.
Joe: Bravo.
Gabe: Thank you very much. No offense. My father was an Assistant Attorney General and my grandfather was a judge, so I hold no grudge against the legal industry.
Joe: Well, Gabe, let me tell you, my father was also an Assistant Attorney General and I was a practicing lawyer for over 30 years. I take no offense. I give you great credit because where you are now seems like a really great place to be.
Gabe: All right, thank you.
After I left, I ended up leaving New York, moving to Los [00:03:00] Angeles and worked for Creative Artists Agency, which was at the time the largest talent agency in Hollywood, and I worked in the marketing division working with big corporate clients, helping them build big entertainment-based and media-driven marketing programs; music tours, integrations into television shows and things like that. Pretty quickly I wanted to move into the foundation, helping those companies, but also big talents and athletes, help them figure out how to spend their time, money, and influence to make the world a better place, so I had some corporate experience, but also a good deal of work with talent on the nonprofit side.
Then eventually I moved into a role that was much more of an operating role with the talent development program at CAA, the agent training program, which I would highly suggest your listeners research. It used to be a bit of a glorified [00:04:00] hazing program. There’s a book called the Mailroom, which is a fascinating look at how talent agents and movie executives rose the ranks within Hollywood.
I was there for a while, 10 years, spent a couple of years building a sports marketing business out of London, and then moved over to IDEO when my wife and I moved back from Europe and the jump at the time was led by my desire to have a larger impact in the world. IDEO really is the temple of design. It was the firm that designed the first Apple mouse, amongst many other devices and systems that we use every day, and the company at the time was moving into much bigger design challenges, applying design to businesses, to scaling education programs and more so it was really inspiring and we got to work with some amazing clients.
In that process I met Ev and Sarah Williams, and Ev Williams who was the co-founder of Twitter [00:05:00] and they tasked IDEO with trying to improve San Francisco Unified School District’s school food program and taking a design-led approach from the food that was served to the experience, to the backend financial and operational model to make it more solvent, and in that process, I also learned about Medium and what was being built at Medium, which was Ev’s follow-up act to Twitter.
I was always a writer and loved writing, and it was just a brilliant platform to help people share their ideas, ideas of greater import on the internet, and so I went to work for Ev just as the company was coming out of closed beta, and I was there for two and a half years at a number of operational roles; people ops, and you mentioned it at the beginning, Raza, as is typical in any startup on an executive team, you oftentimes bounce between many, many roles. That was also my first experience with venture [00:06:00] investors and my first experience in a venture-backed boardroom.
It really opened my eyes to the ways that companies work and really how difficult it is to build a business from scratch, and so after two and a half years and two children, was a little bit fried, and in that process while I was at Medium, I got to meet James Joaquin and Vishal Vasishth who were Ev’s co-founders in Obvious Ventures.
Ev was continuing to be CEO of Medium, but he co-founded this venture firm at the same time, and the more I learned about the Vishal and James and their worldview and what they wanted to do with this venture capital firm, a different type of venture investing in a different kind of company, ones that were solving big problems, one that looked at their purpose as a competitive advantage, that’s when I got excited about Obvious Ventures and decided to jump in.[00:07:00]
Joe: You shared a quote from Ev Williams about what attracted you to Obvious, and the quote was, “I want to build the companies that I wish existed in the world.” That sounds like a pretty lofty goal. What made you think they could do that?
Gabe: That’s an excellent question. Part of it had to do with their professional track records. Vishal, as an example, Vishal had worked at Patagonia for 10 years. He left as chief strategy officer. Their revenue went through the roof during that period, and they were using business as a powerful tool to really improve the world, and that was just with clothing and apparel and outdoor gear, and so this philosophy applied to huge sectors of the economy and companies looking to transform those sectors for the better, I thought there was extraordinary power in that, and their their early investments we’re [00:08:00] proving that out.
What if instead of mining diamonds, we grew them in a lab, in a plasma reactor, and they were carbon free, not just carbon neutral. What if we were funding electric vehicle startups that were completely transforming mass transit and heavy duty vehicles to electrify them all so that we didn’t have to rely gas-powered vehicles that were emitting extraordinary amounts of carbon. Like all these “what if” questions apply to these major industries that just got me on the edge of my seat.
Joe: Let’s talk a little bit about Obvious and its fund, just an overview, which fund, where are you, how much under management and a little bit more about the categories in which…
Gabe: I think it’s helpful to anchor this part with what our purpose is. Obvious exists to back purpose-driven founders [00:09:00] re-imagining trillion dollar sectors. It’s pretty straightforward. We are early stage investors. We lead the first priced round and often take a board seat or a board observer seat in that process. We have four funds under management, over a billion dollars of AUM and over a hundred companies funded and, as you know, many venture capital firms are either highly specialized or they are generalists, and we sit in between. We are a multi-specialty firm and we’re investing in basically the fundamental building blocks of life and society, so food, transportation, housing, healthcare, and then we are looking at investing in companies that are completely re-imagining each of those sectors for the better. How do we electrify every single combustion engine on the planet? How do we make our food system plant forward? How do we back [00:10:00] and build a healthcare system that is driven more by values and outcomes than by fee for service?
Joe: It sounds fantastic.
One other thing about Obvious Ventures beside everything you’ve already said, which makes it very different from almost any venture firm that I’m aware of, is that it’s also a B Corp. I think most people will know what that means, but tell us a little bit about what it means and why Obvious Ventures decided to be a B Corp.
Gabe: The short story on why, and then I’ll tell you what it means, is that the short story on why we became a B Corp is that one of our limited partners asked that we require all of our companies to take the assessment required to becoming a B Corp, not to become B Corps themselves, but just to take that assessment.
As the gentleman in charge of portfolio services, my job is to help our companies and not pile on more work for them, and so I said, “Okay, hold on, let’s pump the brakes. I want us to [00:11:00] take this ourselves to understand what’s the work that goes into it and to determine its value.”
I took the B impact assessment, and Jack Rothacher, who’s our CFO, he came on board and we did a lot of it together. It was really an exercise in empathy, more than anything, which is why we started it. But as we completed it, we realized that our score was high enough to qualify to become a B Corp certified and we decided to just flip the switch and make it happen.
What it means is, it means to become a certified B Corp, you have to score above a certain threshold on this assessment that this organization called B Lab has created assessing what are functionally environmental, social, and governance practices of the company.
I think it’s a great tool for any company of any size to take just as a reflective tool to understand your operation and how you’re doing. But as far as B Corps is go in venture, there aren’t that many. We were the first or one of the [00:12:00] first. There’s another venture firm called Better Ventures in Oakland that they are also a B Corp, but not so many.
Joe: Yeah,
Raza: Venture Capital has the word “capital” in it and they’re not usually associated with ESG, although I think as Joe and many of our guests have pointed out, ESG is now part of the fabric. If you’re not looking at it, working through stakeholder capitalism, you’re probably behind.
Gabe: I think that is definitely true for growth equity and it is moving upstream pretty quickly toward earlier-stage venture.
Joe: But beyond venture and PE-backed companies the entire world of business, whether you’re a private or public company, is not checking the box. It is now, as Raza I think very appropriately said, part of the fabric of what companies need to think about, because it is increasingly viewed as a risk.
If you’re not looking at it, [00:13:00] you’re taking risks with people’s money that maybe makes you less attractive in ways that we’re so focused on before, but we will get to that. I’m going to let Raza take you on a little discussion about governance at Obvious Ventures first though.
Raza: Gabe, you did mention that as Obvious Venture invests in companies, you guys take board seats and board observer seats. Talk a little bit about that. Do you do that for every investment as a condition of investment, or it depends and then maybe in some ways I’ve heard that for venture capital firms, the number of boards collectively that partners can be on is kind of the rate-limiting factor of how many companies the venture fund can invest in.
Gabe: Yeah. When we do lead the first priced round, more often than not, we will take a board seat or a board observer seat, and that often changes throughout the life cycle of a company as it matures and grows and raises additional capital. It’s [00:14:00] always in concert and discussion with the founder and the board about what makes most sense for the company. Oftentimes as the companies do scale, we will roll off our official seat into an observer seat, or just roll off entirely. We’ll maintain information rights, obviously, and we’ll be there for the founder always, but we are critical at the earliest stages from a board perspective.
When it comes to limiting factor, yeah, you nailed it. There are some venture firms that hire partners just as board partners. Their only job is to sit on boards to help expand the capacity of the firm. For us, we don’t have that. Our managing directors and one or two of our venture partners are deeply involved in as many boards as they can handle and not more than that.
Raza: What is that number, like a range, for, per partner or per venture partner? Are they on four to seven boards at a time or [00:15:00] more or less?
Gabe: I think it’s more like five to eight, not to split hairs, but once you get up towards eight or nine, it becomes a little bit less untenable.
Our managing directors and our investment team, they love meeting with new companies and love to be inspired by that, but also that’s the venture capital business.
Raza: Yeah, it is that business where on the one hand you want to find a new investment and it takes a lot of time. And on the other hand, as we know every single one of those is kind of a full-time job of its own and really venture capitalists add that value by being board members.
Gabe, you also mentioned the concept of board observer. Now, I want to point out that maybe in public companies, it’s not as popular, and maybe in certain other private boards, not as common. But what would you say have you observed in terms of venture-backed and PE-backed boards? Is the practice of having board observer fairly common?
Gabe: For [00:16:00] earlier-stage venture, board observers are very common, and I think that’s simply due to the nature of the stage of the company and what they need to do in order to survive, because early-stage venture-backed companies, as you likely know, the fatality rate is very high and so they want as much advice and help as they can get.
As an investor, you want to provide as much as you can give, and so from a governance standpoint for a Series C or A-stage company, it doesn’t make sense necessarily to have more than three board members on the official board, but you want more than three people in the room talking about the most strategic matters for the company, and so that’s why it makes sense to have board observers involved for earlier-stage venture-backed.
Raza: Just to point out to our [00:17:00] listeners, the board observer does not have the vote of a board member. And at least in the startup boards, we say that the board observer earns the right to speak over time. For example, board meetings are not scheduled beholden to the board observer’s schedule, just as an example, but I think you aptly put it that you’re getting all this free labor with experienced folks that know about your industry, your area, your customers, and can help you, the entrepreneur, with strategy, so board observers are actually a really great resource in the board for startups to have.
Joe: Well, one of the things you said, Gabe, when we talked last week, was that the right to vote is not as important as this stage as business and operational strategy, and that’s where board observers can still be very impactful. As companies mature, that changes obviously, but I think it’s really a great observation that the actual voting is not so critical. [00:18:00] It’s really getting the best input you can from the people that know your company.
Gabe: Yes, don’t get me wrong, voting matters, especially for critical or contentious matters that do require the vote. However, on the whole, you’re going to want the right people around the table to help with exactly what you just outlined, how do we build the business and scale it, how do we find the best people, how do we choose what to do, what not to do.
A colleague of mine has a saying, “Startups don’t die of starvation. They die of indigestion.” And so helping them figure out what to focus on and how to get there really helps, and I will say from a CEO standpoint, the board is an extension of your team. They’re just a very special team and how you manage that team and how you manage that time in that room matters critically.
So many boards get bogged down in the actual board room [00:19:00] with these graphs and data and charts and everyone’s squinting and it’s like going through a boring presentation for 80% of the meeting and instead we recommend that CEOs really anchor their meetings in an OKR, in Objectives and Key Results, with like a literal scorecard of how are we doing. Red, not going so well, yellow, we’re doing okay, and green, things are going really well. To the extent that you can as a CEO, and I’m assuming there are some CEOs listening, you want to give all the data and the reading to your board members in advance and give them notice and hold them accountable too. You’re managing them, and so if your board comes unprepared to a meeting, then you can say, “I’m sorry, we can’t talk about this. You needed to read that. I want to talk about the three most pressing issues that are facing our company and I want to [00:20:00] use this group around the table to give me ideas and direction for how I move forward.”
Raza: Gabe, very well put. We’ve seen that for early-stage boards. Boring presentations is a very telltale sign. Most early stage in startup and venture-backed boards are hands-on problem-solving boards, as I call them. The meeting tells you a lot of what’s going on with that company.
Joe: But before you go on, I want to say, Gabe, what you just said is not just applicable to venture-backed and PE-backed boards. What you said is applicable to all boards.
When I work with companies and their company boards, I tell them exactly what you just said. If you’re spending 80% of your meeting with presentations, you’re wasting your time. The board meeting is not the time to educate the board. That is the board’s homework. They should come to the meeting, having done their homework and be prepared to do exactly what you just said, [00:21:00] address the issues that the CEO and/or whatever, the management team is really grappling with to get the most value out of the people that are in the room. You couldn’t have said it better. Thank you. That’s great.
Raza: And for reference to OKR, Gabe, that you mentioned for our listeners, that’s Objectives and Key Results, and it’s a framework popularized by John Doerr, and before him, Andy Grove at Intel, and it’s a very, very effective way of running organizations from small to large and a very effective dashboarding mechanism for board meetings.
Gabe, I want to move on to a little bit on the evolution of how the board grows. You mentioned initially it might start from a three-man board. What is the typical composition of that board, and then how does that grow over time as more investment comes in? And we can talk about kind of how off-boarding happens in venture- and PE-backed boards.
Gabe: The typical three-person board is not going to [00:22:00] involve independent directors. It’s going to be the CEO and then likely two investments. There are definitely variations on a theme with that, but that’s a typical construct, and obviously, a mix of common and preferred. As it grows, I will admit, I’m not an expert at inflection points or when to grow a board and what those look like, but I do know that with a number of our companies and especially our CEOs, a number of them when we do give up a board seat, they do request that we stay on as an observer because they like that continuity and also, if they value the input from the investor, they’ll want to keep him around.
Raza: Yeah. We’ve seen it go from three to most typically five, and the five has the very typical composition of what we call two-two-and-one board, two preferred, two common and one independent selected by both or nominated and agreed by [00:23:00] both, preferred and common, and then that may evolve to seven, but oftentimes I think that’s where new investor coming in want to replace the preferred board seats and, as you were mentioning, either they become a board observer or get rolled off the board. And Joe, often we mention that offboarding is hard, one of the hardest thing that most boards are, but I think in the venture and early stage world, it’s actually fairly common, fairly accepted, and it happens fairly regularly.
Gabe: It makes sense, the company is a different company at a Series B stage or series C stage with 50 million in annualized revenue, then when it had a 100,000 ARR and it was just getting started with three board members, so it makes sense that you want a different set of directors with a different kind of experience at [00:24:00] a different stage, well, still maintaining some continuity and understanding of the roots and the original purpose of the organization if you can.
Joe: I would say that also applies to boards that are not venture and PE backed because companies change all the time. Someone sitting on the board for 10 years, well, 10 years ago that company needed certain skills and experience and attributes. It probably needs something else now. The difference is that in the venture and PE world, people are very focused on those needs and once it gets outside of that, it becomes more difficult, but I think it’s the same issue. Companies are changing all the time and need to look at their boards and change the boards to reflect the initiatives and the needs of the company.
Raza: Gabe, another thing in that evolution off boards for venture-backed companies that is worth kind of talking a little bit about is, even though all board members are [00:25:00] fiduciary to the company and shareholders, yet some board members are representing Series A investors and other board members are representing Series B investors, and it turns out that the Series B investors fund is that you’re in a pretend and really needs to close, and there is an acquisition opportunity for the company, and now the Series A investor has very different incentives than the Series B investors. Have you seen that play out in boardroom drama or ways where there is tension between various stakeholder, and of course, common has a different view where the founder is either do want to sell at that exit opportunity and how does Obvious Venture and your board members kind of deal with those situations?
Gabe: Yes, we have seen that. I think any venture investor would see that type of activity happen at some point, and this happened recently, which we talked [00:26:00] about a little bit last week, but ultimately we really want to be aligned with the founder, and if the founder is still in the CEO seat and we want to ensure that we are doing what is our fiduciary responsibility, yes, with respect to investors and if that’s able to align with really what the founder wants to do, then we’re going to back the founder.
There was a company of ours that recently exited, and we thought there was extraordinary growth ahead as an independent company, like incredible growth ahead. The founder really wanted to sell because he wanted the outcome, but also as he articulated it, he felt like he would be able to move his company and its mission forward even better by working underneath and with the acquiring company, to be able to leverage their assets and their resources [00:27:00] in addition to the team that they had built, and so we supported the founder. That’s how we roll.
Raza: I think starting from maybe even Peter Thiel’s Founders Fund and others before him, we know that these companies are led, built and really made successful by the founders. And if they’re not in it at any point, you can’t really force it any other way. They got to build that.
Gabe: Yeah, because that’s ultimately a fiduciary consideration. We see tremendous growth ahead. No, you cannot sell, we’ll vote against it, and then all of a sudden you have a CEO who’s not so happy and maybe even disincentivizes some of the other team members, so you got to make sure to take the long view on all of this.
Joe: Gabe, you referred to Obvious Ventures as investor in purpose-driven businesses. A lot of people know the term “impact investing,” and I noticed you did not describe it that way. Share [00:28:00] with us if you will, what the difference is or what the connotations of impact investing at least used to be.
Gabe: Yes. For the first number of years at Obvious, we did not talk about impact. We actually banned the “I” word as we refer to it. Because the industry of impact investing, as it was originally constructed, was not a returns-focused industry. It was an industry, and many of the early players would talk about, wishing to realize some returns alongside some sort of social or environmental impact. There was this general belief that you would have to sacrifice profits in order to get that impact return, so to speak.
Over the years we believe that has changed. For Obvious, we never set out to become an impact investing firm. We believe when the firm was founded in [00:29:00] 2014 that the purpose of a company and the impact that it would drive were a competitive advantage. We believe that the biggest challenges that our world was facing, oftentimes that were highlighted by activists and social entrepreneurs were, in fact, the biggest market opportunities available and that company solving those problems would realize the greatest returns.
If you look at both consumer sentiment as well as companies that are trying to attract the best employees, best employees want to work at companies that are having some sort of an impact, and the easiest way for us to measure that impact is through revenue generated and services rendered. Like that’s it.
If you look at Proterra Electric Bus Company, every time they sell an electric bus, they’re taking a diesel bus off the road. Every time Diamond Foundry sells an engagement ring or creates a semiconductor wafer chip that [00:30:00] is lab grown, it’s hopefully taking a diamond mine, which is a filthy and horrible labor business, out of business.
You see these one-to-one corollaries between the positive impact driven by a business and its revenue in ways that I think previously it was people kind of tiptoed around, but now it’s exciting to see more and more people and investors waking up to this reality.
Joe: There’s a quote on your website that says, “We founded at Obvious Ventures on a simple belief that the most valuable companies of our time will be the one solving humanity’s biggest problems.”
Great quote. Kind of does summarize it. What I’d ask is, what drove the change over six, seven years from “invest for less” which is how some people have described impact investing, to we can make money and save the world. How did that happen?[00:31:00]
Gabe: Well, I wish I could say it was from people becoming more enlightened, but I think it’s really from a lot of clear and present dangers that used to feel far off that we would read about in newspapers and in magazines that people began feeling at a visceral level. If you look at our social unrest and you look at real environmental catastrophe being driven by human-caused climate change, we’re all now feeling this at a visceral level in ways that we hadn’t previously. If you look just at the past six to eight years, I mean, especially look at something like this mega fire crisis, I’m not going to go off on the organization that I created, but the largest fires in the history of the nation have all happened in the past eight years.
A mega fire is defined as a fire that’s over a hundred thousand acres. You’re now seeing the effects of this play out in New York and [00:32:00] Boston. I was in the Berkshires in Western Massachusetts last summer and I was smelling fire smoke that was coming from Washington State.
It’s everywhere now, and everybody is waking up to the reality of these problems that we have to solve and that we can do so with a combination of, yes, definitely, we need the public sector. There’s no question about that. Without a healthy public sector, none of these can be solved, and same with social activists who often highlight these areas for us, but we need the private sector to be a driver of innovation and delivering those solutions through the market. We are believers in capitalism. We think we need to change the definition and the practices of capitalism, but that’s kind of happening on its own. Everyone is waking up to these new realities and the role of the private sector in helping solve them.
Joe: Why do you think it is true that these companies that are changing the world [00:33:00] that are addressing humanity’s biggest problems, now many people believe can be the most profitable companies? What changed to introduce the fact that they could be the most profitable and therefore attract investors? Because none of this works without the money you’re raising.
Gabe: Well, I would look at something like Beyond Meat as a great example of this. There were plenty of plant-based options before Beyond Meat, Morningstar Burgers and Corn, and they were all in the novelty food aisle, the novelty food section of the supermarket the epic shifts that Beyond Meat pioneered was you don’t have to be a vegetarian to love a plant-based product and we are not creating something that is for vegetarians only and going to be in the novelty food section, we are competing with Angus [00:34:00] and we are going to take them on, and one of the big defining moves that Ethan Brown pioneered at Beyond Meat was getting Beyond Meat placed in the meat case alongside Angus options so that everyday people could choose these things. What it really boiled down to was creating a super product that competed with the “original,” and you see this playing out across a host of industries, not just in something like plant-based protein, but. Elon Musk never says with his product, “You’re saving the world by driving a Tesla.” No, nowhere in Tesla’s go-to-market strategy was anything other than “we’re going to create the best car. It’s the most beautiful, it’s the fastest, and it’s the safest.”
That’s what it is. These products are now competing on par with their dated dirty originals, [00:35:00] and they’re winning. I mean, look at the market cap of Beyond Meat compared to kind of like big food companies that have optimized for shelf stability and an ingredient stack that you need a PhD to understand what’s in it.
It’s the same thing with Tesla compared to some of the older automotive manufacturers, and many of them are now waking up and you’ve seen this shift to the point where in the Super Bowl, every ad from an automaker was from an electric vehicle with the exception of, I think it was Nissan and Toyota, and all people were talking about after the Super Bowl was, “Whoa, Nissan and Toyota way out of step. Why are they gas-powered cars?”
Joe: Great observation. It’s so true. Gabe, that was a perfect example and it really does highlight how, as you said, you can be a capitalist and still want to save the world, and that is a [00:36:00] powerful combination.
It’s been great speaking with you today. Really, thanks so much for joining us.
Gabe: Thanks for hosting. It was really a pleasure.
Joe: And thank you all for listening to On Boards with our special guest Gabe Kleinman.
Raza: We have a request for our listeners. Please take a moment to rate and review On Boards on Apple Podcast app. If you enjoyed listening to it. It really helps others discover our podcast. Also, you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. And we’d love to hear your comments, suggestion, and feedback.
Joe: Please stay safe and take care of yourselves, your families and your communities as best you can. Raza, you take care too.
Raza: You too, Joe.
Joe: Thanks.