Today, the early-stage, mission-focused, San Francisco-based venture firm Obvious Ventures released a very readable overview of how each of its portfolio companies is benefiting the world in its own way.
Its report shines a light on the grocery deliver service Good Eggs, for example, sharing that roughly 70% of the products sold by the company are grown or produced within 250 miles of its food hub in Oakland, California. That matters because fresher food is more nutritious. The electric bus company Proterra is meanwhile starting to save cities millions of dollars in diesel fuel costs while also eliminating thousands of tons of carbon dioxide.
It’s the kind of investing to which more people are gravitating, says Obvious’s co-founder and managing director, James Joaquin. We talked with him last week along with one of his firm’s co-founders, the serial entrepreneur Ev Williams. You can find part of our conversation with Williams here; below, we talked mostly with Joaquin about how Obvious is thinking about 2021 and what the team finds most interesting these days. (Hint, hallucinogens are now in the mix.)
TC: For founders reading this, how many companies is Obvious talking with on a weekly basis right now?
JJ: Annually, we look at or consider about 2,000 investment opportunities. It’s obviously not completely linear distribution, but in terms of incoming investment opportunities that we track, it’s a very large number. Most of those get filtered right up front as either being in a geography we don’t invest in because we’re focused on North America — we’re not focused on Europe or Asia — or maybe they’re what we would call world-neutral or world-negative [so] outside of our thematic areas. But then a subset of those our team will meet with, and the bottom of that funnel is that we make between 10 to 12 investments per year.
TC: At some firms, everyone is a generalist. At Obvious, each partner seems to have a specific focus, like your focus in part is on plant startups. Is this correct?
JJ: That’s one of the areas that I focus on, for sure. I mean, we’ve got five investing partners in the firm. Within food, I lead our work in plant-based protein and plant-forward food and consumer products companies. Thanks to work that Ev and [Twitter co-founder Biz Stone] did, we were very early investors in Beyond Meat. We’re also an early lead investor in Miyoko’s Creamery, which is a plant-based butter and cheese company that is one of our fastest-growing portfolio companies right now.
TC: How do deals get green-lit?
JJ: The inside baseball is that we tend to form two-person teams on a given deal when it reaches the due diligence stage. So there’s always a lead partner or managing director who’s championing the deal, but there’s a second person from the investment team working on it, too. Then, ultimately, a CEO or a management team presents to the full investment committee before we make a decision to issue a term sheet.
The process isn’t quite unanimous, but each managing director at the firm has the power of veto, so if someone feels really strongly that Obvious shouldn’t make that investment, they have that power to stop an investment, but that rarely occurs.
TC: Who are you seeing that’s newer to the table? More firms say they are paying attention to the themes on which you’ve been focused from the start.
JJ: I would say there are a number of new firms that kind of are similar age to us that have also been investing in some of these frontiers. Firms like Lux Capital have done a lot of co-investing with us in the computational biology space. Data Collective is a firm that we’ve co-invested with in some of the full stack healthcare work that we do. S2G Ventures is a great plant-based protein food firm that we’ve co-invested with, so those are some of the new faces that we think are part of this world-positive generation of investors trying to solve big problems with startups and with cutting-edge tech.
TC: Are you interested in hallucinogens?
JJ: It’s absolutely a theme where we’ve been doing research. I should say we’re interested in it specifically for medical use, but we think that these former Schedule 1 drugs like ketamine, MDMA [commonly known as ecstasy] and psilocybin have great potential to solve the mental health crisis that not just the U.S. but that the world is seeing ramped to be a top-five human health issue. In the early trials around treatment-resistant depression, PTSD, suicidal ideation, these molecules are showing great promise.
We think there’s an opportunity to create a full-stack healthcare company similar to what we’ve done with Virta Health for [type 2] diabetes, or the work that DevotedHealth, one of our portfolio companies, is doing for seniors in the Medicare space. We think there’s going to be one or more new mental health companies built around this new kind of drug-assisted therapy that these molecules will enable.
TC: Ev, you’re an investor in a company that last month announced a small seed round called Sanity, a platform that helps users build and manage content flows on sites, which seems like a perfect fit for you. When is a deal an Ev Williams deal versus an Obvious Ventures deal?
EW: That was one of the rare deals that I did separate from the firm. I used to do a bit of angel investing before we formed Obvious and one of the great reliefs for me has been to just send all my deal flow to James and the team. However, as James described, there’s a focus at Obvious both in deal size and area that doesn’t include everything, so Sanity is basically an enterprise product and the reason it was interesting to me is because of the future infrastructure of how content is [distributed] is super interesting to me for Medium’s purposes. I liked what Sanity is doing. I was really impressed. It just didn’t align necessarily with the focus areas of Obvious, so that’s why I did that deal. But it’s really rare.
TC: What percentage of the firm’s deals are inbound versus outbound?
JJ: We make sure we have the bandwidth to do both. We call it hunting and farming. Farming is farming the inbox, [and reviewing] all those introductions from our networks that come in. Probably 60% to 70% of our investment portfolio came from that inbound, but 30% to 40% came from hunting, which is building a point of view around a theme that we care about, then going out and mapping out who are all the entrepreneurs who are doing work in that area, and who are the angel investors and pre-seed funds that are doing good work in that area, because those are important relationships for us as well.
TC: What’s your position on Bitcoin?
JJ: We definitely did our research and we tried to answer the question: are there world-positive applications for blockchain writ large and then specifically for Bitcoin as a blockchain cryptocurrency? We haven’t found any that we’ve made an investment in yet, but we’re open to the idea and we continue to research that space.
TC: You recently added Tina Hoang-To to the team; she joined you from the late-stage and crossover fund Technology Crossover Ventures. Will Obvious be making more growth-stage investments?
JJ: We’re known for our early-stage work, but from day one, we crafted a barbell strategy where we said, because we’re thematic, because we want to find the best plant protein companies, find the best electric transportation companies, we knew that some of those companies that we would be hunting might already be at the growth stage. So we architected our funds to be 75% early stage and 25% emerging growth, roughly. Now, with the addition of Tina, we’re basically increasing our horsepower [on that front]. We’ve got someone better and smarter than us who knows [growth-stage companies] really well.
TC: Might we see Obvious form a special purpose acquisition company, or SPAC, around a growth-stage company?
JJ: Ev, I know you’ve gotten incoming about SPACs. Our take at Obvious is that we do not have any plans to create an Obvious Ventures SPAC. We tend to stick to our knitting. I will say that a number of our companies that are at the growth stage, [meaning in the] $50 million to $100 million dollars [range] of annual revenue where they’re thinking about public markets, they’re being approached by a number of SPAC [sponsors] as interesting targets. So we’re seeing that, and it’s really up to our founders, not us [if they move forward with these]. But we certainly have a voice on the board and we’re considering in some cases, our portfolio companies going public via a SPAC.
EW: I haven’t looked into [SPACs] seriously yet. I think liquidity can be a good thing, and hopefully many of these SPACs will work out, but I’m kind of in a wait-and-see mode like a lot of people.