“Sometimes it is the people who no one imagines anything of who do the things that no one can imagine.” – Alan Turing, The Imitation Game 2014

This week we reached WK522, or week 522 – a decade since we sent our first update. We’ll soon have a lot of Third Sphere updates to share. But the point of these updates was never to talk about ourselves. It wasn’t about thought leadership or email marketing.

After a lot of conversations, we understood that we all had a lot to learn about things like hardware, regulated industries, policy, climate science, procurement and finance. So we chose to share what we’re observed in the hope that we’d hear back from you.

And you delivered! Your replies to these updates led to introductions. And investments. And new insights that have helped shape Third Sphere and enabled us to support founders who lead the way in multiple industries.

So to mark 10 years, we’re sharing 5 startup stories along with our favorite learnings.

Design for Finance

In WK1, we introduced a startup called Radiator Labs. There wasn’t much fanfare since they’d failed at their Kickstarter campaign. But the problem was real and the approach, novel and economical. They’ve since changed their name to Kelvin and, perhaps more than any other startup in our portfolio, maximize use of non-dilutive sources. And so despite some periods of extreme bad luck, they’ve made it and are now growing rapidly.

Kelvin was one of the first teams we met that had won NSF grants. It helps that John K, is a co-founder and professor at Columbia, so he has the grant process down.  They also worked with a core supplier to negotiate terms, when banks were asking for personal guarantees. Those suppliers also became equity investors. Then they used various flavors of debt before arriving at a model that resembles the leasing and financing that drives deployments like rooftop solar – off balance sheet, special purpose vehicles. Or put differently investors started to understand that they could own assets produced by Kelvin and then lease them to customers. And this provides a path to scale without selling more stock.

Main lesson from Marshall, John and Kelvin – cap table math only supports so much capital raising, so to ensure that teams ultimately make money, it’s essential to figure out non-dilutive finance. And that isn’t just about knowing what’s available, it’s about designing a business that fits the needs of grant-makers, suppliers and lenders, not just VCs. And all of these folks are aligned, because they’re all looking for sustainable growth. 

Taking Advice

“Have you thought about a scooter – you could sell to scooter share companies? Maybe outsource everything to China to reduce costs? Why build your own e-commerce operations – isn’t it easier to sell on Amazon?”

All of these seemed like reasonable, even thoughtful pieces of advice shared with Kyle, CEO of Future Motion (Onewheel), over the years. There was plenty of dismissal, too. Some of this feedback came from the most notable VCs who went on to invest in once high-flying companies like Boosted Boards, Bird, or Van Moof.

They were all looking to redefine last-mile transportation and Kyle would listen and reflect and test. But most often, he’d arrive at a well-reasoned, different conclusion. It wasn’t obvious early on, but Kyle was constantly identifying people with experience and expertise he needed. And over a few years, it was clear that he’d found a group of advisors who had built fantastic companies, often far away from the VC ecosystem. And he and the team at Future Motion tested and learned to win unique insights.

There is still a lot to do, but Future Motion has built one of the most loved micro-mobility products with far less capital than 99% of all startups.

Learning from Kyle and Future Motion – it’s easier to get along with investors if you do what they ask you to do. But this isn’t the hallmark of successful founders. There is a fine line between being coachable and too concerned about what others think. 

Bad PR

It was supposed to be the next huge step to convince some very notable customers. Instead it was a fraud accusation. A long form piece in the New York Times casting serious doubt on whether One Concern even worked. Ahmad and Nicole spent the following months trying to address fears from pretty much everyone – investors, customers, etc. It was amazing to see how an anti-tech stance at the New York Times could do so much damage.

They knew there were problems but they had nothing to do with the story in the NYTimes. The most thoughtful customers needed a national scale solution. And the first version of One Concern was designed to answer city or maybe metro-area risk questions. Fortunately at least one customer was willing to work with them. In Japan.

About 4 years after the NYTimes article, One Concern was back. And they were winning bake-offs. Against everyone. We fully expect that over the next 12-24 months, One Concern will become one of standards for climate risk measurement.

Learning from Ahmad + Nicole – It’s so common for founders to misunderstand how PR works and what it can do. Or what founders can do to control narratives about their firms. Media organizations are struggling with their own business model limitations and many are now in the opinion and engagement business because so much of their audience comes to them via social media. And that makes it even harder to understand and manage the potential benefits of working with them. 

Narrative Violation

Rema, Ignasi and Albert had done the math. Even if space launches became cheaper, there was an even cheaper way to get images of the earth, quickly, in high resolution. Space-X has led to an explosion of rocket investments and this is bound to keep driving down the cost of satellite deployments. As such, this was the default response from many investors and some initially-skeptical customers.

In addition to nearly 100% reusable vehicles, Near Space Labs benefits from numerous cost curves, from sensors, to onboard compute and connectivity that has allowed them to build a fleet of stratospheric  robots that keep offering leading performance such as 10cm resolution per pixel and more frequent updates of the same location. Further, the current generation cuts flight planning costs, because they’re increasingly autonomous.

Very few customers were willing to invest or take a chance on the math assumptions. They wanted to see results. And in particular, they wanted to see wins in bake-offs versus other companies and technologies. Now Near Space Labs is looking at some of the largest commercial contracts we’ve ever seen.

Main lesson from Rema, Ignasi and Albert – the logic of cost curves and techno-economic models is very sound, but this isn’t what most investors and customers are buying. They’re looking for outcomes from cost curves as evidenced by reference customers. They often have their own narratives because they’ve likely even made some investments that require those narratives to be true – overcoming these narratives, at a minimum, requires rapidly rising revenue. 

Use AI

Cove Tool sells the leading sustainability software platform for architects. Despite great customers and feedback, it was unclear that what customers wanted was more software. Salesforce famously introduced the world to the idea of “No Software” because firms could skip the part where you had to buy computer hardware, install, and then manage software. The cloud meant you just needed a browser.

AI seems to be doing something similar to workflows. Why learn a piece of software to solve a workflow, when you can have someone or something do it for you? Why access software in the cloud, when you can ask for help via a chat or voice prompt as you do with your human teammates?

Cove Tool has been aggressively testing multiple AI approaches across workflows ranging from customer support to automating specific reports that architects generally don’t love to do. Some customers still want to master and use software, but it seems like many more just want the result from the workflow that the software enables.

Main lesson from Cove Tool – AI, like the web browser, the cloud and the mobile phone, changes everything, everywhere, all at once. It’s essential to make time to understand how you can best use AI across your startup, and what this means for addressing customers’ pain points. Very often customers never wanted to buy, customize and learn software at all. They just wanted to solve a particular workflow. 

If you got this far, we have one ask. Please hit reply and let us know what you think. Nothing is out of bounds – What did we miss? What would you like to see? Who we should meet. Or just say hello. And if you think of anyone who might enjoy this, please forward along, they can sign up here to get future updates.

Best,

the Third Sphere Team

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