Terminal Value

Carter Williams with iSelectFund

Doug Utberg

Business Growth Authority | Technology Strategy & Resourcing | Cost Optimization Expert | Business Process Architect | Financial Strategist | Founder - Terminal Value Podcast

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We have Carter Williams with us today. He is an engineer turned venture fund CEO with iSelect Fund. And what he deals with is actually healthcare and agribusiness. This and what we’re going to be talking about is really those interconnected innovations in those two industries because as Carter was telling me in the pre show, currently we’re at correct me if I’m wrong here, Carter, but it’s about $1.9 trillion per year in healthcare costs due to poor nutrition. Is that the number that you’re quoting? If that’s not enough to hook your attention, then I would think that we’re going to have some tough sledding. But that is a whale of a lot of money. Walk us through how you came upon that and what some of the companies that are in your portfolio are doing to address that.

Yes, venture capital is often about looking at disruptions in markets and when things are going to shift and looking at markets in different ways. If you’ve ever heard the term creative destruction, we are the kings of creative destruction. And I will say my boat is named creative destruction

I’m going to say the attributed to Joseph Schumpeter.

Yes. Who’s to say Schumpeter and Hayek are good fans, people that I have a lot of love for. So what we do, we’re a venture fund. We invest in early stage companies through exit. We’ve invested in about 50 companies so far since 2014 and just took Benson Hill public recently. Our thesis is focusing around this point that you make. We’ve observed that we spend in the United States about 1.9 trillion each year on the costs associated with poor nutrition. That’s diabetes, cardiovascular disease. It’s CNS. It is lost life. It’s people dying early because of those things and obesity and comorbidities and not even bringing in covid the cost associated with poor nutrition. And that represents itself most obviously in terms of people being overweight, but affects people in multiple directions.

Well, I was going to say I’m going to get a little nerdy economist on us here. I would actually add one more into there, which is this is a proverbial dog that doesn’t bark is you have the opportunity cost of the lost output from people who are in poor health that could otherwise be doing economically productive activities, some of which are very economically productive, because in a lot of cases, the times when people are in their poorest health are when they have their highest earning potential, they have the most experience and their most economically valuable.

And if you go by the I think CBO and some of them, they believe the negative externality of diabetes is 50 billion in the United States, which is just simply wrong.

They’re scoring low.

It’s super low. And some of that analysis even takes it as low as 25 billion. It’s just whatever. So 1.9 trillion. And then we look at the food industry, agriculture and food in the United States is a $1.7 trillion market. And so when I look at that, I see $3.6 trillion market. And an example is if grocery stores are fighting it out against other grocery stores, why can’t a grocery store take market share from the local hospital? That’s a different thing. I mean, the hospital’s margins are a lot better than that grocery store. So if the grocery store, for example, shifted into a mindset of we’re delivering better food, you can eat better, you’re not going to be overweight, you’re not going to get diabetes. And so there are a whole bunch of complexities in that market. But when we, for example, think about plant based meats, well, what does that mean? Here’s this $3.6 trillion opportunity, and there’s an opportunity to shift it around. It’s almost like PCs coming in when there were mainframes. It’s a complete different paradigm shift.

Yeah. My background is in the tech industry with intel. So that speaks to me because this is the hallowed stories that we all learned as we were new analysts.

So you’ve got this shift in thinking. And when the TRS 80 came out in 1978, I think I was trying to persuade my father to buy one. And he said, why would I need one? And I said, you could balance your checkbook. And he says, I can already balance my checkbook. So obviously the world’s changed, and he used computers a lot down the road from that. And so we’re in that phase with this food health sector. And an example, a simple example is plant based meats. Now many people look at the plant based meat market and say, well, okay, we’re going to make plant based meats and there could be non GMO and we’re going to sell them to the upper east side of New York, and everybody’s going to be happy up there. And that’s cool. Well, when we look at globally what’s going on, there are 3 billion people moving into the middle class globally. When people move in the middle class, they stop eating rice and they want to eat meat. 3 billion people moving into the middle class.

Yeah. Your protein consumption tends to increase.

Their protein, and they actually aren’t married to plant, meaning eating animal based meat. And so 3 billion people is a lot more than in the upper east side of New York. Right. So when you look at that market, you can say, okay, the plant based meat market is, let’s go to the premium corner part of this market that’s looking to solve what’s going on with the environment, what’s going on with a bunch of different things, and then instead say there are 3 billion more people that need to be fed in a more efficient way. Well, that’s a business. That’s a business in which if we can get the cost of plant based meat to be below the cost of animal based meat, people will switch from mainframes to PCs. They’ll improve their health care?

Well, because I think there’s a couple of dynamics on that that I wanted to let you finish, but I kind of wanted to bring up. So, number one, I think a report that I saw was that if you’re talking about beef in particular, I think it’s around 90%, somewhere between 80 and 90% of all beef consumption is ground beef. And so if you can just replace, say like 90% of that with plant based proteins, you have an enormous win. Because, of course, a big part of, as you’re saying, the combined issue that we run into is that your animal based ground beef is going to be very high in fat content, typically 80% lean, 20% fat, which is pretty high fat content, generally not very healthy. That and the fact that also grazing herds generates a lot of methane, takes a lot of space and requires an unreal amount of water, which is the other looming environmental crisis, which is access to fresh water. And so I think it just makes sense to try to move in that direction. Now, at least the reporting that I’ve seen, I’m certainly not an expert, but I’m not an expert, but I play one on my podcast. The reporting that I’ve seen has been that I think that a lot of the cost disparity right now has to do with scale and distribution. And so really what it’s about is at least from what I can see, is about getting people to kind of come onto the mid adoption bandwagon for some plant based proteins to get it over that critical mass point to where the distribution costs start to get to kind of on par with, say, for example, the beef distribution network on a, say, per pound distribution inventory cost, because the actual unit cost differential. I can’t imagine is that material of a factor, because the overwhelming majority of the cost is an inventory and distribution. So if you can get the two of those costs to be relatively to be at least within range, then you should be getting pretty close to parity. Tell me if I’m off base here.

The system is changing. The system was aligned in one particular way and optimized. For example, in beef, we often call the beef market a refinery process. And an example of that is the single most efficient process out there is oil. There is no single drop in a tank of oil that does not get used for something from diesel to jet fuel to gasoline to very refined chemicals. You can move a gallon of oil around and sell it for less than water. Okay, so the same thing is true with beef. There is very little of a sear that’s not used. Now, as soon as you, for example, say, well, we’re going to disrupt the ground beef market and replace it with plant based meats, all of a sudden the demand for ground beef goes away, and the formula around the refinery model gets skew and you’ll see price. It is complex how that will all move. So then the question is, from a venture standpoint of, well, how do we cause this to change? Creative destruction.

Creative destruction is you had system A and now you’re shifting to system B and classically, what has to happen at that point is the value proposition can’t be 5% better. No, it’s got to be 10-20-30% better.

Yes. And so that’s part of the reason why we tend to talk about health and AG is once people can internalize I’m eating, it improves my health, it improves the environment and innovation as a deflationary force.


So can I innovate the supply chain? So we are very much focused on how do we improve the quality of protein a plant based. But we’re not doing that by buying AG land. We’re doing that by genomics. We’re doing that by financing mechanisms. So I’m a farmer. You’re telling me that I should plant this seed that produces more protein, that’s quality. I should go to regenerative farming practices. That’s a risk. How do I finance it? Okay, well, we’ll put a financing company in place to do that. Then you’ve got supply chain where it’s small. Right now, it’s growing. I’m building this different. Like if you build a different like a non-GMO crop, it can’t go into the same grain elevator as a GMO crop because the dust will Intermix. So that whole supply chain needs to change. Now, if you’re going to make a burger that tastes like a burger, well, that takes some engineering. And that process in itself is very complex. It’s okay. We could keep trying different formulations and giving it to kids and saying, does it taste like beef? So, I mean, there’s like this, or can we put it in a computer and take all of those different and use it like a CAD tool and engineer it? And that doesn’t exist right now. Those software that helps you do the ingredient science that doesn’t really exist right now. And so that’s all new tech. So, like, if you dealt with intel early on, years ago, they used to build chips at intel and there was a 50-50 chance it would fail a thermal test at the end and they would have a delay in chip delivery by six months. Now, when intel says we’re going to deliver whatever the version eleven of the intel, it comes out on the day that it’s supposed to. So all those systems are realigned, and that’s all tech. Our leading firm, Benson Hill, sort of looks like a seed company, but inside its AWS bill is probably about $500,000 a month.

And there are a couple of tangent thoughts that hit because you were talking about increased sophistication. And I think in the early days of Tech, a lot of times what we do is what would happen is when people were testing mainframes, they would do what they call it a smoke test. And that term has been sort of worked into the vernacular of different testing processes, et cetera. But what a smoke test was, you would put a system together, power it up and see whether smoke came out of the box, in other words, whether it ran so hot that it let itself on fire, which is an extremely rudimentary test. And I think it’s kind of funny that a lot of people use the phrase smoke testing without knowing what it means. But I think that kind of portends what you’re talking about, which is that the

Sophistication is getting quite a bit better in a lot of new domains and in a lot of cases. Right. You don’t need to have that much. Sophistication if you’re in a domain where there has been no Sophistication

for example, you’re talking about, say if you’re trying to do a kind of taste formula software, well, that doesn’t exist. So you don’t need to be that complex or that sophisticated in order to represent a pretty significant net benefit.

Correct. And we are seeing that shit. It reminds me a little bit your smoke test. When I was at McDonald Douglas working on the F 18 program in 1990, the ENF program, we were trying to figure out how to save a billion dollars on the what was referred to as the EMD program. And up until that point in an early program, we would build twelve aircraft and destroy them.


We would test them and destroy them.

That’s an expensive test because those are not cheap aircraft.

Yeah. At that point, those were about 100 million a piece and the production versions were about 33 million. But the first vehicles because the learning curve was about 100 million piece. And so that was the first instance where we said maybe we should completely rely on computational fluid dynamics and find out.


I was there at the time. If you think about it, this is a trend. We’re not going to build these twelve claims. Instead, we’re going to do it all in software.

For any younger listeners. Let’s go back in the time machine to let everybody know we’re talking 1990 so this is when a fax transmission was a big deal. And when I think modem speeds, there was no such thing as DSL, there was no such thing as fiber modem speed. If you were going to go onto a bulletin board system because traditional websites didn’t exist yet, if you’re going to go on a bulletin board system, your typical modem speed was around 7 kw/second, somewhere between four and 6 kw/second. And so anybody who’s younger and doesn’t have a first hand memories of 1990 at the time, of course. Right. Physical prototypes and almost everything were necessary because the computational power and software didn’t exist to accurately model these things virtually.

And actually, that time old history. And I’ll bring it back to today. So we were all doing CAD on HP 720s, and someone’s like, well, could we run all the Fem jobs at night? And so we created a software platform, first version of AWS. I guess we’re a platform that took all the computational models and distributed them. We had 20,000 engineers working on that program. So at night we would distribute it across all their workstations and do the computational analysis and avoid building things. That’s the kind of thing that’s going to and up until now, in agriculture, when you think about optimizing a seed or optimizing ingredients and trying to speed that process up, it used to be that you would grow the stuff in a greenhouse, you would plant it in the field, you would test it, and then circle around. You plant in the field, wait a hundred days, circle around. And now what we’re doing is we’re taking all those traits analysis. We’re looking at it all computationally to understand how straight and then getting to a point that we’re like. We like these traits, planting it. And then we have accelerated growth facilities that are indoor facilities that can simulate the outside. They run twenty-four by seven. And we can change the light intensity, the light quality, the frequency, the temperature in the room, the humidity. And we can alter these things and take those cycles and breed things a lot faster. And really, when we’re even breeding them, we already pretty much know what they’re going to do. And so then it’s a function of the speed of biology to accelerate. So the intensity of technology being applied here is removed from a lot of people’s understanding, but is very similar to the very edge of Pharma, the very edge of big data, the very edge of all those areas. And the problem is big, 3.6 trillion, 3 billion people moving into the market by 2050. And whether your concern is I want to make money in this market, I’m concerned about the environment, I’m concerned about my health. All three of those things are on the road map here to get fixed. And that’s a lot of what we invest in.

Well, and I was going to say ordinarily I’d be tempted to say we’re getting close to time, but this is a really fun conversation. There’s another rabbit hole I’d like to explore here, because there’s one thing you were saying earlier. You were talking about, like the grocery store hospital connection that a lot of people don’t get. And the thing that I keep thinking about that I’d love to get your input on is that you think about the grocery store economics and the fresh produce, which is the part of the grocery store where everybody should be shopping, is a loss leader for almost everybody. And like, for example, the way that I was explaining this to my kids is they were asking me how dollar tree can make money when they sell stuff for so inexpensive. And I said, it’s because they don’t carry produce. It’s because almost everybody right. If you go to, say, a Kroger or a Safeway or whatever it’s called, wherever you are, the emphasis will almost always be on the fresh produce, but everybody loses money on the fresh produce. And so there’s this weird economic model inversion where the part of the grocery store that’s most healthy for you that you really need to emphasize in order to stave off these big health problems is a loss leader for the distribution channels. And so that creates a fundamental conflict because anybody who’s trying to profit maximize will deemphasize fresh produce. But in order to stave off things like diabetes, kidney disease, all this bad stuff, there needs to be a more of an incentive push toward fresh produce. I’d love to hear your thoughts there because you don’t necessarily know how to solve that problem.

The reality is people sort of like, well, just create subsidies or create these other kinds of prices.

That’s not solving the problem.

The fundamental truth that we operate on is that 60% of people make their decisions based on price. That is a very durable decision making process. And so we also know that innovation is a deflationary force.

Okay. So we need to come up, put innovation in to reduce price. You can improve quality a little bit and fresh vegetables, so you can do a little bit. The price elasticity varies around there. But if you look at the food supply chain, the fresh food supply chain, there’s a 40% waste chain. Okay. If we had zero waste, the price of that would come down. Right? So that’s an example of there is a very distinct cutting that in half might be possible, and that all of a sudden you’re closing the margins. The other thing that gets a little bit controversial about what we talk about is the practical reality is that scale, ultra process, food is shelf stable, cheap. It’s got a lot of distribution. And when you’re feeding 9.8 billion people around the world, which is the target, there’s going to be some component of that. So that we are doing different things to both say, can we use indoor farming, can we use better genetics? Can we change things in the supply chain to eliminate that weight stream? And then we are also looking at are there in the ultra process, which often is the center of the store and the dollar tree, is there something we can do at that level? For example, sugar. Sugar is a very consistent input into that. We’ve got an investment in a company named Bingo’s. Bingo produces tagatose. Sugar. Tagatose has long been known to be a good sugar, but it’s $14 a pound. We find you most has figured out how to get that down to like $3 a pound. It has one 10th of the lipemic index. Normal sugar, we’re doing it in both directions. We’re looking at both directions, but always around price from a venture capitalist standpoint or from we can yell at them and say, boy, I wish you would make these better decisions. Your decisions are costing society more. We could do that all day long and get nowhere from a policy standpoint, from an economic standpoint, we know that people will buy things that are cheaper. And so then we back solve to say what technologies will reduce waste in the fresh food system and what technologies will make ultra process more healthy.

So that second thing you said right there, I think, is people should pay attention to that, because like you said, if you’re feeding 9.8 billion people, you’re not going to get away from processed foods.

You’re just not right.

It’s not physically possible to create a perpetual fresh food supply chain for 9.8 billion people. You’re going to need some kind of processed food. So instead of saying nobody should eat processed foods, maybe we should be saying, how can we make processed foods more healthy? Because as you said, there’s a backside benefit too, which is that as you reduce the health care costs associated with things like diabetes, obesity, et cetera, et cetera, then of course, your health care costs come down, but then also people’s ability to be economically productive goes up and stays there for longer.

Correct. It’s a complex system. It’s a little bit troublesome because there are different peoples in those camps that have very rigid positions. And so we sort of got to steer our way around it. But I do think that what we will start seeing if the landscape is we will, for example, see more precision fermentation. So we’ll make more protein through fermentation processes. We’ll probably see the augmentation of that in with animal based meats and plant based meats. And then certainly as we look at younger generations, they are more aware of this health food connection. And then the one final bit that will cause us to tip the creative destruction. The final tip is the degree to which gen z can educate the boomer generation, which is happening. We’re seeing kids influence their parents, that accelerates, which it’s starting to and Kobe started to accelerate. If that accelerates, we should see this sort of Lane change shift where people will, in fact, when they go to the store, make decisions, they do start to bring in the externalities and say, you know, I really should eat fresh vegetables, even though a little more expensive. We’ll work through the price elasticity equation.

Yeah. No, that’s excellent. Wow, this is a content packed episode. Well, I give everybody a last couple of thoughts to take home and then let people know where they can learn more.

Yeah. So I think I select as focused in this area of impacting this market. We see a lot of new technology. We’re a private investor. We don’t really talk about it out loud, but all of our investors get a chance to see that. And that affects both their private market investing and their public market investing. So as a venture capitalist, the people who bring money to me, our job is to give them good opportunities to invest in and then also give them the information to understand where the world’s going. So anybody who’s interested in that iselectfund.com, please reach out to us and I’d love to hear more about it. And anybody who’s doing startups in this area, we’re always glad to talk to all right.

iSelectFund.com Carter, I really appreciate your time today is great conversation.


All right. Thank you much. Bye.

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