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Anthony Del Porto: I'm investing pre-seed and seed once my mom's talking about something like it's not the time for me to be looking at that type of solution.

This might save this company a bunch of money, but are we like a top five money savings thing or are we like number 47?

Can you get to a price where you have the ability to wipe out your competition in a particular application before you need to spend like a hundred million dollars billing a plant?

One of the nice things in hard tech if you show up and say, I invest in that, you might be the only person in the room.

When I was a kid, I was the guy that would buy like the eco-friendly sponge, and it would be terrible and it would fall apart. And you'd be like, wow, that was awful. And then you start wondering why is the eco-friendly solution always the worst one? And the answer is, it's not. When the eco-friendly solution is the better solution, that's just what you already do anyways. 

Andrew Kazlow: Welcome to the Diligent Observer, where we help angel investors see what most miss. [00:01:00] I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

My guest today is Anthony Del Porto, Founder and General Partner at BetterWay, a pre-seed VC focused on industrial sustainability. Anthony is a mechanical engineer turned COO turned VC, and in this episode he walks me through why he deliberately targets boring real world startups, how he evaluates whether a hard tech company can survive without a green premium, and why the classic "hard tech is hard" objection,

it's kind of losing its teeth as financing solutions for the space mature. I hope you enjoy learning from Anthony as much as I did.

Anthony, thanks for being with me today.

Anthony Del Porto: Absolutely great to be here, Andrew.

Andrew Kazlow: Okay, so I have to start with my classic first question, and that is, what are you excited about right now?

Anthony Del Porto: I am excited, honestly about, [00:02:00] mostly pretty nerdy, esoteric, nichey things that no one else is thinking about.

Andrew Kazlow: What does that mean?

Anthony Del Porto: Um, my, my usual go-to area are places that are what one would consider boring. Um, and then areas that usually requires some like, level of like physical world, deep tech understanding, uh, engineering background, physics background.

Um. And so what that leads to are areas that no one's paying attention to so you can get into good deals at reasonable prices. Um, what that looks like right now though, the more specific, um, answer is lots of stuff in materials. Um, and then also just generally, um, you know, we look in the industrial space and the, the fact that critical minerals has now taken a, you know, there's rare earth elements, things like that. Um, have become sort of the, [00:03:00] the topic du jour, at least in the world that I look at, um, is exciting because we were able to invest in some things before that was what everyone was thinking about.

Andrew Kazlow: I love the way you describe, uh, boring real world stuff. Not this fake made up, you know, alternate universe that is AI and, and software, and it's, it's the metaverse, you know, all this stuff that's not your, that's not your thing.

Anthony Del Porto: No, uh, it's not for, for a variety of reasons. One, I'm an, I'm a mechanical engineer, so I really don't have a lot to, uh, to add there. But also, um, you know, part of my approach to this is once everyone's really excited about something, particularly as an early stage investor, right? So I'm investing pre-seed and seed once my mom's talking about something like it's not the time for me to be looking at that type of solution.

Andrew Kazlow: So you're making me think of a recent trend I've started to hear about, and it's sort of this counter narrative to the made up AI [00:04:00] universe. And it's this halo concept. Uh, I think it's heavy assets, low obsolescence or something similar to that. Do you feel this counter narrative getting stronger?

I mean, it sounds like this is the world you use swim in, so I'm, I'm curious if that story or that that trend is servicing more and more in circles, you swim in it more.

Anthony Del Porto: It's servicing more and what's interesting is this was one of my original thoughts is that as you, as you, and this was, you know, a couple years ago, as you bring the idea of AI to its sort of full potential. What are the things that go away? And it's going to be a lot of SaaS businesses because I don't need to now hire Salesforce to run my, you know, CRM, my customer resource management system.

I can just ask an AI agent to make one for me, that's bespoke to me. And then I use it for forever, and I can update it on my own. So why do I need to pay for some large SaaS [00:05:00] service? Okay. If that's the case, then what's left that you can actually create or that has some sort of a moat that sticks around.

And the answer is stuff where you have actually really strong IP protection. Um, usually in the form of patents. And that usually means now we're in the, in the real world. So, materials, processes, um, things of that nature where it doesn't matter that AI can come up and invent the molecule that you created, you own the rights to it.

So now you can actually protect yourself.

Andrew Kazlow: So, so how did you develop this? I mean. Obviously people have been investing in physical stuff for thousands of years, but for you specifically, you mentioned you're a mechanical engineer, you've got a background in the space. Talk me through kinda the evolution for how you got to where you are today in terms of your overall strategy.

Anthony Del Porto: Sure. So, originally I was doing industrial process automation. So I actually would get, I worked for a company, we'd drop into a factory, build out a machine that makes whatever they make there. Um, and it was a lot of fun, right? You get to see how all kinds of stuff [00:06:00] is made. You get to peek behind the barbed wire fences at factories.

Um, there are definitely a lot of moments where you're like, I can't believe this is actually the best way to do this. 

Andrew Kazlow: Is there, is there a story there? What's the example that you're, you're thinking of? Don't, don't get, don't break any NDAs. 

But what's the story?

Anthony Del Porto: Um, when you're making nuclear fuel rods, everyone's just walking around carrying nuclear fuel rods. Um, and you have these trays that they sit in that they have to cut these holes in the bottom of, because if there's a fire and the sprinklers start spraying water down, everyone's cool until the nuclear fuel rods are in water, that's when they start to create issues.

So if you have a big trough full of nuclear fuel rods, you don't wanna fill it up with water during a fire because it leads to bad things and you're like, wow, that's, here we are this whole time. That's the, that's actually the answer to how you do this. Um.

Andrew Kazlow: I'm glad you're standing before me today to, to share this story.

Anthony Del Porto: Exactly, [00:07:00] exactly. Um, so used to go into all these factories, see how stuff is done, build a machine for 'em, deliver it, um, and then move on to someplace something completely different, you know, so nuclear fuel rods.

Growing crystals for lasers, which I didn't think was real, but that's actually real. Um, brakes for trains, brakes for cars, all kinds of stuff. Then a friend of mine was co-founding a startup in the software space, SaaS, FinTech type stuff, and went into that world and quickly learned how much of a melee that is because you're kind of only limited by ideas.

Um, and sure there are networks effect, network effects and things like that, and big enterprise tiggy contracts that help with, with, with moats, but to a certain degree, um, speed's your, your, your only advantage. You're trying to get there and develop a solution before somebody else can. But eventually they're gonna catch up.

And if everyone's looking and innovating in a [00:08:00] space, probably most of the good ideas are gonna get taken up pretty quick. So just kind of, it's actually a hard place to develop the kind of moat that's really gonna work. And so then as I was looking at investing, I was thinking about what my skillset was more valuable towards.

As well as sort of putting together some of these pieces around. Okay. Interesting. Software used to be you're limited by how many eng, you know, software engineers you can hire. Well now if I don't need to hire them now, what is it limited by? And the answer is essentially nothing. Which means it becomes more of a melee, which means it's really hard to defend yourself.

So now you have to walk somewhere else.

Andrew Kazlow: So keep going. Like, how did this land and develop into, I mean, you were an, an operator for years, you've sat on both sides of the table, you know, working in real world stuff and you know, software land. How did you then sort of come to this focus that you're operating around now?

Anthony Del Porto: Yeah, so, um, so what we invest in is what I call industrial [00:09:00] sustainability. I'm, I'm looking for solutions that are inherently better for the planet from an environmental standpoint, but also and equally as important, um, just good business decisions for the people that are gonna buy these things. Um, the story I tell is when I was a kid, I was the guy that would buy like the eco-friendly sponge, and it would be terrible and it would fall apart stuff.

And you'd be like, wow, that was awful. And then you start wondering why is the eco-friendly solution always the worst one? And the answer is, it's not. When the eco-friendly solution is the better solution, that's just what you already do anyways.

Hmm.

You're already doing whatever that is. I can come up with a million horrendous ways to do stuff that you're not gonna do because it's actually a worse way to do it for you and the environment.

So then the questioning becomes, how can you actually have some impact? So can we find solutions that we haven't started using yet that are inherently, um, better from the user's point of [00:10:00] view and from the environmental point of view. And just fund those and get them to market so we all can start doing things a little bit better.

Andrew Kazlow: So gimme an example of like what one of these technologies or ideas might be, uh, either a portfolio or just a, a hypothetical example of like what you think could be a technology that ultimately becomes the best and most eco-friendly option. Because I totally track with what you're saying. I've had several folks on the show talking about how at the end of the day, the consumer is the decision maker and there's only so much margin to

pay extra, so to speak, for this, uh, green premium, right? And, and so making the actual solution the most ecologically effective one is really the only way to drive this systemic impact long term.

Anthony Del Porto: A hundred percent. Thank you for saying that, by the way. Um, so yeah, well that's part of it right. Like I won't touch stuff with green premium. It just doesn't, it's not going to get adopted, it's not gonna scale. And if it's not [00:11:00] gonna scale, it's not actually gonna have any impact. So why bother? So perfect example.

So, um, Torev is a company we invested in early. Um, it's a electric motor that doesn't use rare earth elements. Um, in fact, it doesn't need magnets at all. And, you know, two years ago, that angle was if you can get rid of air earth elements, you're getting rid of the risk of supply chain problems. From a sustainability point of view, if I have an electric motor that performs the same way, but now I don't need to mine, you know, tons and tons and tons of material to get a little bit

of neodymium or whatever type of magnetic material you're trying to use. Um, there's a huge impact there from a sustainability point of view. And that's actually a theme that we see a lot, which is if we can reduce the resource intensiveness of solutions, right. We're, we're reducing the impact, we're also reducing the threat to your supply chain.

And with recent political and everything else going on, uh, events all of a sudden now that's the front of [00:12:00] any everyone's mind, right? Um, so to a certain degree, and look

if you really start to think about this, environmental problems are ones that are longer term and not quite so in your face. Um, but that actually makes them good places to invest because they're not obvious yet to people.

And so you start looking and finding these solutions that, that are going to become more and more and more advantaged over time, maybe as resources to, uh, get depleted or, um, the, the cost of trying to dispose of stuff goes up because fewer people are willing to accept extremely nasty stuff in their, in their backyards, right?

Um, all those themes are continuing. Um, you know, copper's a great example. Uh, a company DexMat, we invested in, it's a, they're in Texas, by the way.

Um.

It's a carbon alternative filament. What's it great for? Replacing copper and wires. Uh, so copper ore, you need [00:13:00] roughly a ton of material to get like three kilograms of copper. We've found and basically mined all of the easy to extract copper ores that at least that we're aware of. Here you've got a supply constraint, matched actually also with a much stronger demand driver in the forms of electrification and data centers, um, in an area that, you know, for the most part, no one's thinking, Hey, what's the new copper?

Like? No one ever said that maybe until just now. So it's just a good place to be looking and then, you know, these problems sort of service themselves around you, and then you've got the momentum and the, the attention, um, of the broader market.

Andrew Kazlow: So maybe this is a dumb question. I've looked at a ton of, you know, quote unquote climate tech or, you know, sustainability-focused startups here in Houston, uh, Greentown Labs right down the road from me. A ton of stuff coming out. Big fan of what they do. But I've seen a ton of companies pitch and their, their [00:14:00] solutions all sound amazing, right?

Like, all of these people are gonna change the world. Every solution is gonna be the, the thing that everyone starts using. How do you. And like, what's your lens on sorting through the legitimacy of that? Like how do you think about, okay, this is something that's actually interesting. I see opportunity for the green pre premium, quote unquote, to go away over time.

Because as early as you're coming in, obviously none of these things are to a point where they make economic sense yet, and so it's a bet that this could get there. How do you like suss that out? Maybe gimme one layer deeper of your, I don't know, your criteria or like your, your filter. How do you 

think about that?

Anthony Del Porto: Alright, so there's a couple, there's like the, the more the tactical answers right, are things like. Talk to that company, see if they have a tech, a TEA, a techno economic analysis. So what can, 

Andrew Kazlow: A what? 

Anthony Del Porto: Techno economic analysis. Uh, so that's basically, if you build a one ton plant, it costs this much per ton.

If you build a million ton plant, it's gonna cost [00:15:00] this much, usually provided by a third party so that, you know, I have reason to trust it. Um, there's also specialized people that do this. They know what types of processes and what those machines cost and how many square feet you need, and about how much uptime you can expect.

I mean, it's a very complicated thing, but I wanna see when you start doing this at scale of any sort, what price do you get to? And then, try and put myself in the customer's point of view. And by the way, we really look at industrial solutions. So not the consumer for me, but you can try and make yourself think like the consumer as well.

Um, I try and think like the factory that's gonna do this or buy this product. Is this something that actually makes enough sense? And attention is the hard part, even in, in industrial solutions, right?

This might save this company a bunch of money, but are we like a top five money savings thing or are we like number 47 and like, it'd be great, but I don't have time.

I've got a million things to get to before I get there. Right? So that's part of it. [00:16:00] The other thing I wanna see is can you get to a price where you have the ability to wipe out your competition in a particular application? Um, before you need to spend like a hundred million dollars billing a plant.

So. Can you make this in a $20 million plant and beat out the incumbent competition? Um, and one of the good things about doing this in sustainability, particularly if you're looking at solutions, replacing solutions already there, right? In, in startup land, they always say, you know, your number one competition is inertia. 

Well, if I'm going out and selling a commodity product, I already know that my competition is inertia, right? I have to be cheaper than whatever I can do currently to a large degree, and I'm not gonna kid myself about that. Um, the shiny object draw isn't there as much. Um, which actually is a good way to sort of pre-filter, um, startups that, that, [00:17:00] you know, they have a great solution, but it's not gonna go somewhere. 

Andrew Kazlow: Meaning? Meaning like it's unfocused or it has too many things that they're trying to accomplish. Or like, what do you mean?

Anthony Del Porto: Um, let's just flying cars for example, right?

Maybe I want that. I don't know. Do I want a flying car? I don't know. What is the actual market value of a flying car? Some people think it's cool and they'll put money into it and they're gonna go for it, and maybe there's a niche case for it, but the reality is,

I get to most places in my life without having to fly anywhere on a daily basis. So do I really need a flying car? Um, so that's the shiny object approach, right? Of the flying car. It's this cool new idea. Now, if I was like, Hey, I'm gonna get you polyester for making athletic clothes, um, and it's gonna work just like your current polyester.

Way less exciting, right? Unless I tell you that I'm gonna do it 20% cheaper, then you're like, oh, but there's no shiny object. It's just like the price is lower. That is the very [00:18:00] fundamental, tangible reason the customer's going to do this. Um, and particularly when we're talking in, in, uh, textiles and clothing, a 20% decrease in price is massive, they'll kill for it. 'Cause they're working on extremely thin oceans, right? Um, so that's, that's what I'm getting at. There's no, there's, if you, if you go to these boring places, there is no shiny object illusion you can put on yourself. Not, I don't know, maybe fine cars are great idea or not, but I don't know.

And so I'm not gonna invest 'cause I don't know.

Andrew Kazlow: This is, this is so good. I mean, everything you're saying is like what we see. Nobody wants to talk about saving 3%

on

polyester, but to your point, at massive scale, the the outcomes there could be ridiculous. I feel like in quote unquote startup land, it's way more fun to talk about the new frontier and flying cars and, and that kind of thing.

And so startups in this space that you're focused just don't get as much airtime. How do you like, how do you find them? Because oftentimes they're [00:19:00] boring stuff. They don't really market themselves super well. I mean, God, I, I come from an industrial background as well, and like the marketing strategies for most of these businesses are just awful.

And you're like, this is your website, this is your brand. Seriously? How do you find these, these companies who are often just like innovating in a closet and they find one or two industrial customers through personal relationships and never really go to market like that feels impossible.

Anthony Del Porto: So that's not usually what it looks like. Um, what it usually looks like, because we're in, we're in these massive, older industries, um, usually this looks like someone has some interesting research coming out of a university. Um, we've got new science for a way to do this. Um, and this is part of our, our approach is that,

if you do things the old industrial way, people are like dying, like I said, for a 1% increase in, in profitability or you know, cutting in cost. That's fine. And that's why like the, if you look at like how we make chemicals, for example, I mean, [00:20:00] these are massive plants that have train cars or you know, like hundreds of train cars coming in every day to load in one particular chemical, and then they'll load out some other chemical on the other side and they've squeezed every little bit of margin outta that.

You're not gonna go show up with something that's, you know, a half a percent increase in, in, in efficiency and start your own company now that makes, you know, 

I don't know, pick a, pick a random chemical. By the way, when you're making plastic, you take oil and it goes to one factory and they turn it into something and it goes to another factory in a different state.

They turn to something else there and it goes to another factory, another state. They turn to something else there, and eventually you get something that you're going to use. This is a wild, expensive, massive supply chain, um, with lots of weakness, but it's extremely efficient. Um, and you're not just gonna hop into this game lightly.

So when you're looking at sustainability solutions, generally what you're saying is, can we just replace that whole thing entirely, [00:21:00] um, and just do something totally different? And so that's where you're gonna get these sort of step changes in value. Um, and that's what gets really interesting. Right? So DexMat like I mentioned, didn't say,

let's make copper bend better and make it lighter and make copper, sustain, uh uh, survive at higher temperatures. That is not what they did. They said, we've invented this this thing. 

And you know what it looks a lot like when you look at its physical characteristics, it's a lot like copper, copper, but it's better in all these ways, right?

It's just a different approach. So to answer your question, where do you find these? I love universities. Uh, Greentown Labs, like you mentioned in Houston is a great place. By the time they're there, there's usually an element of, um, uh, filtering that's happened so that, you know, they're a little bit more believable, that they're actually doing a thing they say that they're doing.

There are definitely other accelerators and incubators in the sustainability space and also one of the nice things in hard tech, and particularly sustainability, hard tech and [00:22:00] industrials, which is boring, is if you show up and say, I invest in that, you might be the only person in the room.

Andrew Kazlow: I love it. So you're primarily looking for, I, I like the way you said step changes in value. You're not really looking at, I'll call it continuing innovations or, uh, you know, like small improvement type innovations. You're looking for a fresh, completely new way of doing a thing that, it essentially eliminates the existing supply chain or replaces some part of the existing supply chain.

Anthony Del Porto: Yep. And part of that is there's the sustainability angle and then the, the profit angle, right? Our world's largely built on petrochemicals. It is, you know, I'm, I'm sure there's plastic in this shirt. I know these buttons are plastic. My computer's got plastic everywhere and that all comes from, from petroleum.

And like I said, that's a, that's a system that's been working on ways to solve the problems that it has for 120 years. [00:23:00] Um, so they've, they've really eed out all of the, all of the juice they can squeeze out of petroleum as the solution. However, it's kind of silly to think that this is the best way to do it in all of physics and, and in the universe.

Um, there's a great group called the Biomimicry Institute that says, you know, pretty much every human problem is something that nature has had to deal with and it's had several million years to try and figure out those answers. Um, so can we look at solutions that are there and see if there's anything we want to do?

Um, so.

All that to say that, yes, when you start looking outside of this sort of like incremental improvement world and just say, instead of doing A better, let's find B. That might just be a completely different approach to this problem.

Andrew Kazlow: So one of the other things that's interesting to me. I'd be curious, your take on is like as a smaller investor, as a really early stage investor, it's [00:24:00] easy when thinking about hard, hard tech, you know, real world stuff. A lot of angels in particular sort of either are like fully in and they get it and they're on this or they're like, no, I don't do that.

I only do software. It's one of the, you know, you either won't touch it with a 10 foot pole or you, you love it. Um, as a smaller investor, meaning, you know, not institutional, multimillion dollar bets, like building huge things, is there a place for smaller investors in the hard tech world, and if so, like how have you found that to be the case in your journey?

Anthony Del Porto: Oh yeah. Well, so there's a, there's a couple factors here, right? So one is early stage, people are looking for anyone that's willing to join the team, right? Particularly if you have a technical background, um, you can, you can provide value. The thing, the reason a lot of investors don't like hard tech is, and there's a phrase for it, which is "hard tech is hard".

Um, people have been saying this for years. All of the big flash [00:25:00] splashy VC money has happened in the software space. The names that people know, like, Facebook and Google, right? These are things that people use as individuals. Um, it doesn't mean money hasn't been made in these other places, it just looks a little bit different.

And there's a couple factors there too. As a smaller investor, it means you're going to invest earlier, right? We do pre-seed, mostly a little bit of seed. But these are smaller valuations, earlier stages. And one of the things people worried about, it's hard tech. You have to go build this factory.

It's gonna cost a hundred million dollars and you're gonna get diluted to the nth degree, um, in the, in that process. And the answer is you shouldn't be investing in companies that need to do that. Um, which you should be investing in are companies that can actually produce their product profitably at much smaller quantities.

And that's when you know you've got something that's very interesting. There's two reasons for this. One is, great company I love, we invested in, called Ravel's, a great example. Um, they heavy way to recycle textiles. So all of our shirts, [00:26:00] for the most part these days, they're a blend of polyester, maybe cotton, but almost always spandex.

It's really hard to separate these things out profitably. Um, Ravel's come up the way. 

A new way to go about, um, separating these textile fibers. So that's awesome. They can produce polyester at the same price that you can get virgin polyester, but they can use your scrap to do it. So now you don't have to throw your scrap away.

There's basically no, none of your clothes are made from recycled clothes for the most part. Um, if even if you have, even if you have recycled content, if it's polyester, that polyester used to be a plastic water bottle most likely. That's where the polyester came from. It didn't come from old clothes. All right.

Major problem, major industry textiles. You're generally thinking massive plants. Um, but the beautiful thing about what Ravel's done is they don't need to build a massive plant to do it. Um, they can do this very profitably at small scale. So now, instead of having to go build one big half billion [00:27:00] dollar plant, um, I can build one 

one plant, prove that it works, and then I can get financing for plants too through, you know, infinity. So it's a different world, software you're thinking, all right, we're gonna raise money here, then we're gonna raise money at this next much bigger valuation. And it's always gonna be equity coming in. Part of that is because in software you don't actually have like collateral that you can get loans against.

You can have revenue and that's part of growth, right? Um, hard tech, I might actually have actually

assets that are real assets that if I need to, I can go sell to payback my, uh, my financiers. So now all of a sudden, debt becomes part of the problem. So instead of it being series pre-seed, then series A all the way up through H and on through the alphabet, um, it's series, you know, pre-seed series of seed A, maybe B, but then I'm done raising money.

Uh, that's dilutive. Then I start going and looking at debt [00:28:00] solutions. So now I can get the same, um, increases in valuation and do really big things and really big companies, but I'm not getting diluted in the way, along the way I should say.

Andrew Kazlow: Do you feel like exits happen more readily? Like how does the exit storyline play out in this kinda hard tech world versus software in your experience? Um, helpful to hear the financing journey, but like when and how to exits happen. I imagine there's, you know, these massive industrials looking for new ways of doing things, so it seems like they've got giant balance sheets, you know, very, you know, acquisition-focused and just not sexy and splashed all over TechCrunch. 

Anthony Del Porto: Yep, Exactly. Uh, so what you're leaning to is, is exactly right. So you're gonna see a lot more M&A type, um, acquisitions, but these are big, big companies, like you said, with big balance sheets, and they are buying sometimes for the, you know, decrease in cost. But sometimes it's strategic. I'm gonna buy you so that my [00:29:00] competitors can't use your technology. Um, if I'm, you know, if I'm a company that's making chlorine, for example, Dow Chemical might come in and buy me, um, because they might be a, a customer. They also might be a supplier, and that's what's interesting too, in these hard tech spaces where you've got these long supply chains and people are taking item A and turning it to item B, which turns into item C.

If you're making B, the person that makes item A and the person that buys item B to make item C, uh, are both potential acquirers for you.

Andrew Kazlow: So the vertical integration strategy, I mean, when the balance sheet grows, like where do we, where do we put this?

You can go one of two directions,

horizontal or vertical. Uh, makes sense. So tell me more. I wanna pivot a little bit. You have spent the last couple of years building this approach. You know, first time doing this, I'd love to hear a little bit more

tactically about like what the last couple years have been like for you in the current, you know, [00:30:00] macroeconomic political environment that we are. Um, tell me more about like the last couple years as a first time doing this.

Anthony Del Porto: So there's, uh, this is a funny time to be in venture capital. 

Um. The ability to raise money is definitely constricted. In fact, I just saw data recently that I think fund formation in 2025 was as low as it's been since maybe 2013 or something. Don't quote me on the dates, but, um, very low for, for new fund for formation.

Um, that's been interesting. The other interesting part is people know I'm in sustainability and they go, oh my goodness. Well, they just repealed the IRA, the the Inflation Reduction Act, which had all this money for solar and wind farms and all this sort of stuff. Um, and you go, you know, how are you doing with that?

I mean, that must be terrible. And answer was like, actually, I don't really have a lot of impact from it other than the perception that people have that that means anything in [00:31:00] sustainability is gonna be doing terribly. It's like if you tell people

I'm in venture capital. They're like, oh, okay, therefore he's investing in the next social media company.

I'm like, Nope, nope, that's not right. And you're like, I'm in sustainability. Oh, I got it. You're, uh, you're investing in solar panels. I'm like, Nope, that's,

it's also not right.

Um, so the corner that I'm in, um, has avoided a lot of both positive and negative attention, um, in regulation sphere, but also with tariffs and everything, uh, startups who are inherently going to be making everything domestically and buying things and selling things here are sort of protected.

And then again, if you're in, one of the things I love to find are circular economy solutions. Um, that is taking waste and turning it into value, um, that you don't have to cross borders for that. All of a sudden you've given your customers a lot of protection from supply chain vulnerability by the fact that their own

scrap parts can actually become [00:32:00] their own feedstock for their process.

Andrew Kazlow: So you mentioned to me that previously that um, your space is sort of a skate where the puck is going, type of a world.

Tell me more about where you see the puck going right now that most people like, aren't talking about like there's one person on this puck and everybody else is off doing their own thing, not really playing the game. Like tell me what you're seeing that most people aren't talking about.

Anthony Del Porto: Sure. The, I mean, there's the part it's, there's, there's two where the puck is going and we'll, we'll talk about. One is everyone's thinking about AI and data, data centers, right? So yes, there are solutions for data centers that it's much more picks and shovels type play, um, than doing the AI itself. That's fine, but everybody's thinking about this and the number of deals I see for data centers is, is crazy right now.

Andrew Kazlow: Mm, I bet.

Anthony Del Porto: So that's, that's a, we know where the puck's going, but so does everybody else. 

Andrew Kazlow: Mm. It's a big puck. A giant one.

Anthony Del Porto: Well, it's just, there's a million people heading for it. And so, like, know, again, it's a melee, you don't wanna be there.

Andrew Kazlow: It's a great word, [00:33:00] melee.

Anthony Del Porto: Um, the thing that's quietly happening as it is, particularly around hard tech is, there's always been sort of what they call the valley of death, which is this awkward space where venture capital money stops making sense, and standard institutional debt financing doesn't quite make sense and you're in between the two of them. Because this has gotten so much attention. Two things have happened. One, founders have gotten savvier about that and have realized that it's not practical to say we're gonna lose money until we build a half a billion dollar plant. They're not going down that path as much anymore. Like I said, they're doing the, the modularity.

The other thing that's happened though is that finance solutions, um, for hard tech are getting more sophisticated. Um, company who actually invested in much earlier called tangible that does financing for hard tech solutions in the climate tech space is changing what's possible from a financing point of [00:34:00] view or not, may, maybe not even what's possible.

They're changing the cost of doing it. So now where I would have to go get, um, an investment banker and go do a road tour of Europe to try and get some money for my solution, I can use tangible. They're able to turn everything into something that is translatable by banks. Let's say for example, I'm, I'm making bird scooters, right? If I'm bird, I'm gonna spend VC money to develop the scooter, to design it, um, help me with marketing, uh, get the stations set up and all that sort of stuff. I'm not gonna use VC money, ideally to build a bunch of scooters. Um, what I wanna do is get debt to do that. The problem for the bank is that,

you might be bird doing scooters. Someone else is doing electric bikes. Someone else is making robots for a factory. Someone else is making drones. Someone else is building, um, you know, modular plants that recycle clothing. So as a banker, I have to figure out how to depreciate all [00:35:00] these things, like the risk profiles for all these things.

Tangible allows all these startups to translate that into something that makes sense for the bank. Why do I bring this up?

As far as where the puck is going, I think the financing step for hard tech is going to get a lot easier in the next couple years as people start realizing, um, that this is where alpha's being made, um, startups start packaging themselves to make sense for this type of work, right?

'Cause always classically the story has been, you need to raise a bunch of VC money. Why aren't you doing a $20 million series A blah, blah, blah. It's just not what makes sense for hard tech. That's a software playbook. Um, and so a Third Sphere is a fund that's done great work. Um, they'd have what they call the Seed Strapping Playbook.

Um, big fan of them. I'm a big fan of theirs, I should say, to be, uh, grammatically correct, but the "hard tech is hard" statement I think is quickly becoming hard tech is hard, but yes, so is software.

[00:36:00] Um, so

it's a good place to be and I think it's something that the, the barriers that classically have been there are starting to go away and you make most of your alpha when something has changed.

And the, the larger world hasn't quite realized it yet.

Andrew Kazlow: Do you feel like returns expectations are materially different for like a comparable SaaS or you know, AI-focused VC? Like how do you benchmark sort of your objectives and the outcomes that you're looking toward in this space? Is it materially different or is it comparable? And if so.

Anthony Del Porto: I personally, I think it's comparable. I think, and it depends on returns is a funny thing to measure, right? 'cause you've got the total multiple, you've got your IRR, um, you've got, when did you know anyways, which relates to, when did the money show up? I think IRR is going to be very similar, um, for hard tech, but you're also gonna have these big swings that, that went and did something amazing.

I mean, I don't think anyone that invested in SpaceX is upset that they're not [00:37:00] in a FinTech company.

Andrew Kazlow: Mm, that's a good point. Do you see like, I guess I feel like there's been a lot of, uh, let's just say geopolitical turbulence the last couple of years. How do you think that is gonna impact this space, specifically the industrial sustainability? I, I know mentioned earlier the, uh, local, I mean a built local has some unique appeal and some defensibility that it maybe didn't a decade ago.

Like what are some of the other impacts and, and outcomes you're seeing as a result of this.

Anthony Del Porto: Turmoil instability. Um, uncertainty really is what that relates to. And uncertainty's terrible, uh, for working in the enterprise space, but also on the software side. Uh, but the, the reality is that, you know, if big companies don't know what to expect, they're just like, I'm just gonna wait. I am just gonna hold on and see how this shakes out and then I'll make my decisions.

'Cause you know, they're making a decision that might take five years to implement. 

Um, so [00:38:00] they can't quickly spin on a dime. So they have to be a little more conservative. And I've, I've seen that work companies say: We like this, we have the budget for it. I just don't have the manpower right now to dedicate to R&D.

And sometimes that translates into, it's hard for a startup to get involved. Sometimes that translates into, we need to buy innovation because we don't have the time or understanding to do it ourselves.

Andrew Kazlow: Great. Lot of, lot of instability that we can

talk implications for.

Uh, so Anthony, tell me more about the southeast more broadly and what kind of your, your local scene looks like and maybe even beyond the southeast, like within the industrial sustainability world, like where are pockets of particular innovation and, and energy around that category happening? We've mentioned a few already in the conversation, but in the southeast specifically, and then, you know, globally, where do you see, um, exciting stuff happening that most of us would, would [00:39:00] miss? 

Anthony Del Porto: So let's, we'll take a quick snapshot on the southeast. So the southeast is interesting area because lots of manufacturing is moving here. I mean, every day, practically the state of South Carolina where I am is announcing a new factory coming in, and it's some, it's a big one. It's, you know, it's, we've, we've got Volvo and Boeing and BMW and all these, you know, auto and airplane manufacturers, but there's something else getting built here.

It's a place with a lot of, um, population growth. 

Um, it's a place with generally friendly tax structure. So what does that translate into? It translates into a lot more manufacturing happening in this area than there has in the past. Um. I really like actually making connections with any of the sort of, um, geographically focused, um, either startups, uh, startup incubators or, or funds, um, Front Porch Ventures here in the southeast that does just southeast, um, investments.

Those [00:40:00] connections are great because they're finding these opportunities in their geographic area that most people wouldn't take the time to look at. And then you get the ability to then say, Hey, that's actually exactly what I do. Or you know, 'cause we're working together, right? We're, I'm not southeast only investor.

I do US and Canada. But they do know when they see something that's hard tech and sustainability to give me a call, right? So I find that it's a very useful thing because they're trying to make things happen for their region, which means there's more, there's more resources available for these startups.

So sustainability, I see a lot of stuff in the southeast. Uh, I see a lot of stuff in the Midwest as well. Again, large manufacturing area. You've got the people up in like Ohio, uh, you know, really trying to make a startup scene there. Um, so the Midwest entirely is, is very useful. And actually you're, I did, we did talk about Houston, but honestly Houston is one of [00:41:00] my top cities.

One of, let's see, so DexMat's in Houston, um, three of my portfolio companies are, are Texas-based. Texas has a lot of reasons to look there from a hard tech point of view. You've got engineers. You've got machine shops, you've got low cost of land, um, you've got a lot of money coming out of the oil industry.

You've got research universities like RICE, um, and you have incu, uh, you have, uh, nucleation sites like the Ion and Greentown Labs. So the startup scene actually has something to, to form around. So anyways, I think in 10 years people would be like, oh yeah, of course, of course there's, you know, tons of tech and startups there.

It only makes sense.

Andrew Kazlow: You're speaking my love language, talking about Texas. Keep going. Tell me more.

Anthony Del Porto: Well, it really, I mean there's, you know,

the other, the, the flip side of that is in hard tech, I really, I mean, it's different if you're trying to do, actually, well, not really anyways, A lot of people trying to do drones in, in the Bay [00:42:00] Area and all that, and that's fine, but like Space Tech, um, you're probably gonna do that out of Texas, right?

Or Florida. Those are the big, the big areas. New York. Boston, San Francisco Bay Area. Those are very expensive places. Um, and so if I don't have to be there to find a bunch of software engineers, I should probably be somewhere cheaper. My dollars go farther, right? It just makes sense to get out of those when you're getting to more of these, these hard tech, um, type solutions. 

Andrew Kazlow: Which I think is fascinating because, you know, over the last decade I've, I've had so many conversations on this show about like, do I have to move to Silicon Valley or can I build elsewhere? And obviously the answer is, it depends on your industry and what you're trying to do. And et cetera, et cetera.

But everything you're, I'm saying, I'm hearing you say now, is that, you know, for this space, you probably don't need to be in Silicon Valley or, or Boston or any of these other major areas. 'Cause it's hard to build up a plant and, uh, you know, [00:43:00] industrial thing in that area.

Anthony Del Porto: Exactly. Well, you know what, what industry are you playing in? And does it have a connection to that area too? Right. I mean, If you're, if you're, if you're doing anything that relates to oil, I just don't see, I mean, you know, there is oil in California, but it's not, it's not like Texas is, you know, if you're doing anything that touches on, on, on that, I would probably wanna be in Texas.

Andrew Kazlow: Yep. That seems wise. Anthony, any other takeaways, uh, final thoughts you'd leave our audience.

Anthony Del Porto: Um, for, particularly for people who are, are looking at getting involved in, in tech investing, especially when it comes to hard tech, I would say do lean into your network of people that you know, maybe if you've already worked in the area. 

The next big thing that happens in whatever industry you're in is not gonna be painfully obvious to everyone.

It's gonna be something that someone invented somewhere in a university, probably. Then they said, [00:44:00] Hey, this actually has applications in X, Y, and Z places, and let's try those. And maybe it takes off in one of those three. Um, but you know. 

Don't, I don't know, my relatively contrarian approach is everyone's talking about something that means you should have been investing there seven years ago.

Andrew Kazlow: Okay. So I have to ask about this, the tech transfer problem. 'Cause we've done work with, I've talked with university leaders to just have this pile of stuff coming out of their university and there's entire offices

dedicated to this problem.

Anthony Del Porto: We're not gonna get into all of it. But you seem obviously a particular fan of the research that's happening in the university ecosystem as a VC tell, like quick comments on what tech transfer done well looks like and how you.

Tech transfer done well, the university needs to recognize that if they want this company to get venture capital style investment. They're going to have to make room for the founders to [00:45:00] have a significant ownership stake. That's the one part that really gets messed up, um, is the university says, well, you made it in our lab, so we get 50%.

Well, your broken cap table day one, so good luck. Um, so the really good university recognized that you know what they need to do, streamline the process, um, and recognize it's better to have 5% of something than 50% of nothing. 

 So that's like on the broad side. The other side of it though, is I like to see patents.

I want to see ownership. I really actually like when a university owns the patent. And startup that's two people has the exclusive license to it. 'Cause they developed it and they've got the deal with the university. Reason is now, if someone infringes on that patent, I've got an 800 pound gorilla known as whatever it is, University of Texas, um, that's going to defend their, their IP rights instead of my two person company that's got $600,000 in a bank somewhere that we now have to spend litigating IP.

Good luck. You know? [00:46:00] so I really actually like to see that in the early stages.

Andrew Kazlow: Okay, so don't take 50%, uh, and be like, make sure that the patents are owned or managed or licensed from the university

Anthony Del Porto: I mean, it doesn't have to be, but it's just, you know, it's, it's actually probably a good thing.

Andrew Kazlow: mm-hmm. Love it. Love it. Anthony, this has been a blast. Thank you for the masterclass on hard tech and industrial sustainability words that I did not understand nearly to the degree that I do now. Thanks to an hour with you. 

Anthony Del Porto: Andrew, really appreciate it. Thank you.

Andrew Kazlow: Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you never miss a thing.

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