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A curious but orderly mind prepared to take advantage of serendipity has taken Adam de Sola Pool on a remarkable journey during his career.
His father, Ithiel de Sola Pool, the brilliant political scientist (look up Six Degrees of Separation or Convergence) took young Adam to many different countries. These travels sparked in Adam an interest in geography which led to a job on Wall Street. From Salomon Brothers he went to the EBRD to restructure companies emerging from communism. This grew into setting up Central Europe’s first cleantech fund which produced excellent results. Now Adam is an investor and advisor in the Boston area; much respected for his fresh approach to building young companies.
Click here to read full episode transcript.
Topics covered in this charming interview include:
From Geography Major at University of Chicago to Wall Street
From Salomon Brothers to the EBRD
Adam Poole Has a Chance Encounter in the Bathroom & Gets a New Job
Overheated Factories in Poland
Adam Pool Discovers that Local Businesses Can Be Extremely Profitable
How Adam de Sola Pool Got into Angel Investing
Adam Pool Compares & Contrasts Angel Groups in Boston
Adam Pool Talks About Squadle, a Promising Startup Just Added to His Portfolio
Adam Pool Looks for a Defensible Market Position in the Startups in Which He Invests
Adam Pool’s Favorite Pivot
Adam Pool’s Approach to “Inoculating” Startups Against Risk
Adam Pool’s Poetic Statement of the Need for Founders to Give Way to Managers as the Company Grows
Transcript of, "Johnny Appleseed of Cleantech"
Guest: Adam Pool, Cleantech VC & Angel Investor
Saleh Daher: My fellow angel investor Adam Pool was a cleantch investor before it became fashionable. He’s a brilliant guy from whom I’m always learning something and he also has a practical approach to finding businesses that will provide an attractive return. If you care about cleantech, if you like founding stories, if you’re interested in angel investing strategies, portfolios and returns, this relaunch will appeal to you. I hope you enjoy it.
Saleh Daher: Welcome to Angel Invest Boston, conversations with Boston's most interesting angel investors and founders. I am Saleh Daher, and my goal for this podcast is to learn more about building successful new companies. The best way I can think of doing this is by talking to people who have done it, people such as my guest today venture investor, advisor and angel, Adam de Sola Pool. Adam, it's awesome you could be here today.
Adam Pool: It's a great pleasure.
Adam de Sola Pool Bio
Saleh Daher: It's been a really wonderful experience. I've learned a tremendous amount, and I've had a lot of fun. cleantech VC Adam de Sola Pool is the Johnny Appleseed of renewable energy in Central Europe. Adam oversaw, as CEO, the building of what was, at the time, Europe's largest wind park by his portfolio company, Continental Wind Partners. His work has been recognized by the Cleantech Investment Forum with the Pioneer prize. He provides a vital link between the US and Poland on energy matters. Adam brings his experience to bear as an advisor and angel investor to young companies in Boston, Poland, Portugal, and Argentina. Adam is a colleague of mine at Walnut Venture Associates. He is also a member of Launchpad, an angel group, Clean Energy Ventures Group, MIT Medical Angels, as well as Castor Ventures. He also serves on the advisory board of the International Nanotechnology Center in Braga, Portugal. Adam is a graduate of the University of Chicago and of MIT's Sloan School of Management.
Adam, as a way of helping young people starting their careers, please tell the story of how you went from being a major in geography in college to doing project finance on Wall Street.
Adam Pool: In fact, it starts before the University of Chicago geography degree. I actually grew up in Cambridge, Massachusetts, and I'm actually back living in the same house that I moved out of 40 years ago when I went off to high school. My father was a professor at MIT, and he was very interested in doing international research, so I grew up traveling the world.
Saleh Daher: By your father, you mean the prominent sociologist Ithiel de Sola Pool.
Adam Pool: Yes. Ithiel was actual a political scientist, not a sociologist, but his work crossed many disciplines. You may have known that he was one of the authors of "The Six Degrees of Separation", the social networks theory back in the 1950's.
Saleh Daher: Yes. And also the idea of convergence, that all the media converging into one, the cell phone, and eventually it's gonna converge into other things and so forth.
Adam Pool: Exactly. Yes. You've done your research very well.
Saleh Daher: There's a lot of brain power in the de Sola Pool gene line here.
From Geography Major at University of Chicago to Wall Street
Adam Pool: I grew up traveling the world, and I was very interested in how each different culture tackles local issues, so that's why I studied geography. After I graduated from geography, I really didn't know what job I wanted. I needed to be open to any fortuitous coincidence that might happen. And it did happen.
A Japanese banker asked me to come and help them set up their New York branch, their first presence in America. I didn't know anything about Japanese banking, but I said, "Sounds interesting", and I did it, and that's what launched me into finance.
I would say to young people, keep your arms wide open and catch whatever comes in, because you never know how that path is going to go forward in your life. And always keep yourself open too opportunity. The way I went to Poland was also a chance occurrence in a rest room that led to my job in Poland.
Saleh Daher: Let's pick that up later on. Give it a little chronological here. Adam makes all of this sound incredibly easy, but people should know that on top of this really powerful intellect, there is a very, very disciplined personality, a person who just does his homework. Young people, the advice Adam has given you is really, really good. Keep your mind open.
But prior to that, he had a really strong, very sound preparation to fall back on when he went into these new challenges, a really strong, thorough education in a place like the University of Chicago. I'm sure you read the great books in addition to the geographical work.
Adam Pool: Yes, exactly. So yes, be prepared, but be open to opportunistic events that you never thought you would have a chance at. Grab them.
Saleh Daher: And that is going to be a theme of careers going forward even more. I have had five or six pivots in my career. You've had bunch of them as well. Going forward, when I talk to my daughters, I talk to my nieces, they should be expecting to have a shift in their careers every four or five years. They should be reskilling all the time.
Adam Pool: Exactly. And that's what I'm doing now, now that I'm in retirement. It's not retirement at all, it's just reskilling and restarting.
From Salomon Brothers to the EBRD
Saleh Daher: So, Adam, I'm curious to hear what took you from Salomon Brothers to the EBRD, the international development bank set up to help eastern Europe's transition to a market system.
Adam Pool: As I just mentioned, I was working at Salomon Brothers, and the head of mergers and acquisitions announced-
Saleh Daher: Excuse me. Please give a little context on Salomon Brothers.
Adam Pool: Okay. Salomon Brothers was a very active investment bank in the 1970's and 1980's. It was one of the firms that inaugurated the mortgage backed securities that eventually led to some challenges on Wall Street. It was an active sales and trading house run by John Gutfreund, and I was a young employee right out of business school, associate working in mergers and acquisitions and also developing new financial products with their team run by John Meriwether.
Saleh Daher: This is not the investment banks of today that are these publicly listed conglomerates and so forth. These were limited partnerships. The partners had their money at stake. They watched the bottom line like a hawk, and these places were lean and mean, incredibly inventive. Not mean in the sense that they were nasty, but very efficient and incredibly inventive. Really beautifully run. Unfortunately, that era came to an end when these entities started going public.
Adam Poole Has a Chance Encounter in the Bathroom & Gets a New Job
Adam Pool: Yes. And Salomon Brothers actually made a big mistake. They tried to corner the US Treasury bond market. It was discovered, and the firm was severely penalized. My big, big, big, big boss in the mergers group, Ron Freeman, decided to leave the firm and go be the number two person at the European Bank for Reconstruction and Development. After he announced this in a big meeting to all the staff, I headed to the loo, and he headed to the loo. We were standing there washing our hands, and I said, "Hey Ron, what's this EBRD thing?" He explained it to me, and I said, "Wow, that sounds really interesting. I'd love to be involved in creating the financial systems of new countries." Actually, very old countries, but newly emerged from communism. And he said, "Well, would you like a job?" I said, "Sure."
And so, a few weeks later, I showed up at his office, and he said to me, "Adam, I want you to take the biggest pile that's on my desk and deal with it." I was employee about number 100, and it turned out that this pile was Poland, and that's how I ended up coming to Poland.
Saleh Daher: Awesome. Awesome. And that brings us to the experience you had with the privatization of state enterprises. Really a singular phenomenon, we're unlikely to see anything like that ever again or in our lifetimes, and certainly would not be the same way as it was done then. What can you tell us about that experience? What did you learn and perhaps what would you do differently?
Overheated Factories in Poland
Adam Pool: Certainly, the end of communism and the beginning of capitalism in these countries was a great moment to earn a lot of money. Communism is really about using as many resources as possible, as many men, as much energy, as many raw materials, to actually produce as few goods as possible for the mass. Capitalism is about firing all those people, reducing the energy, reducing the inputs, and making as many goods as possible for the mass. In that transition between as much to as little, there was great opportunity to make money. And that's one of the things that I focused on there.
For example, one of the things that eventually led me into investing in energy was that when we went into factories, oftentimes the windows in the factories were broken and the heat was going full blast. The employees had broken the windows in order to let the heat out because they were overheating the factory. If they had any excess coal at the end of the winter, they wouldn't be given enough coal the next year, so they had to burn it all and overheat the employees, and they broke the windows.
When I would go into a factory--and the Polish government eventually gave me some factories to manage--one of the first thing I did was invest in thermal insulation and double-glazed windows, and thus I cut down on the energy bill dramatically, improved the cash flow, and used that new cash flow to invest in the operating equipment of the company.
Adam Pool Discovers that Local Businesses Can Be Extremely Profitable
What I also discovered is that local businesses can be extremely profitable. If you have a local franchise, and by this I don't mean franchise in the sense of a McDonald's franchise or a Burger King franchise but franchise in terms of having a market share, and that local business is dominant in its area, it can be extremely profitable. For example, the Polish government gave me a cement factory to manage, and that was very profitable because I never was facing competition from imported cement from far away. It's just not economic to transport it, so I owned the local market. The same was true with a glass factory. Unfortunately, they also gave me a shoe factory and a metal nail factory, and both of those factories I had to bankrupt because shoes can be imported from Italy or China, nails can be imported from any place in the world, and those factories were uneconomic.
What I learned then was that if you have a strong, dominant local position that's defensible, you can make a lot of money, and that's what I've been doing in my angel investments.
Saleh Daher: This is the thesis of Warren Buffett, the moats, a strong business that has a really strong culture of serving clients in a way that is profitable to them, and is protected from competition by "moats" in the long term, except that Warren Buffett looks for national businesses, and you're looking for local businesses because of the different scale. Shall we say a local scale Warren Buffett approach.
Adam Pool: Yes. Actually, it's been quite successful. 16 of the 20 companies that I started still exist, and the funds that I managed have returned rather well to the investors. It has not been like Facebook or an Uber, but one of the funds that I started, I guess let's see ... 12 years ago now, it has had a 19% IRR to the investors over those 12 years after all fees and expenses.
Saleh Daher: That is superb. That is really superb. In the business that I was investing in for about three decades in emerging markets, there were sometimes when I got above that. Sometimes I got below that. Not frequently did I get more than 19% a year for an extended time, so that is really an excellent ... Just recently I interviewed Professor Howard Stevenson of the Harvard Business School who founded a really very prominent investment group here in Boston, Baupost, and their record is 16%, 17% for a long time, and Warren Buffett is in that range as well. You're beating Buffett by playing local.
Adam Pool: Exactly. Buffett has billions. I only had millions.
Adam Pool Starts Central Europe’s First Cleantech VC Fund
Saleh Daher: How did you start Environmental Investment Partners, EIP, Central Europe's first cleantech and renewable energy VC firm?
Adam Pool: It was, as I mentioned earlier, a bit of fortuitous experience. I was managing some companies on behalf of the Polish government, and as I explained earlier, one of the key ways that we were generating improved cash flow was through investing in energy efficiency. In fact, we were doing ESCO type business, energy savings companies. That showed me that there was a huge opportunity to invest in the energy sector. At the same time, a French governmental institution approached me and said they would like to be the lead seed investor in a fund, and they wondered if I would manage it for them. This eventually became Environment Investment Partners one with 22,000,00 Euros, about $25,000,000, of capital, and we went out and invested in energy efficiency and water efficiency. Basically resource efficiency, because as I said earlier the shift from communism to capitalism was all about getting efficiency into the system.
When I had been a manager of Polish companies on behalf of the Polish government, I really wasn't allowed to fire people, but I knew that there was efficiency in the resource use. So, we started investing in local companies and even startups that were individuals who were helping big state owned enterprises implement energy efficiency, water efficiency, resource efficiency.
One of our companies went into a major factory and found that in a year of sweeping up the waste metal that was on the floor of the factory each night, they got $6,000,000 worth of scrap metal just off the floor of the factory.
Saleh Daher: Wow. That is amazing. Adam, do you think there is those kinds of low hanging fruits in our area here in Boston?
Adam Pool: Both yes and no. The answer is that there isn't the huge amount of waste that you found under communism. We're much more efficient than that, but it is amazing how many local companies are involved in the transition from old historical ways of doing business to new ways of doing business. I can mention companies like Renew Energy Partners or Ecovent. These are companies that are involved in getting your energy efficiency much more efficient and making it more pleasurable to live in your home or go to your business.
Many people even today, like I described under communism where they broke the windows, today in Massachusetts, people open the windows in their apartment buildings in winter because the actual distribution of heat is inefficient.
Saleh Daher: I confess. I confess. I live on the fifth floor of an apartment building, and our windows are frequently open in the wintertime because of that. We do have thermostats, we shut down the radiators, but there's still so much heat in the building that you have to cool the apartment a little bit by opening--just a crack--of the windows to let out some heat. I also own apartment buildings that have that problem in spades. I'm paying for my tenants to send heat out the windows, but unfortunately, we've had people look at it many times over, and with the current state of technology there's no way they can level the heat in all the different floors. It requires many more zones than exist, better systems. There just are not systems out there capable of doing it right now that are industrially available.
Adam Pool: I'd like to be optimistic and say that in the next few months, if not years, those systems will be available to you, Sal. That's where there's a really interesting investment opportunity to make for a person like me in the cleantech space, because your problem is not unique to you. There are thousands of buildings like that, and there are lots of young, smart engineers coming out of places like MIT who are addressing exactly those problems in a cost efficient manner, because you can address those problems even today, but it is not cost effective.
Saleh Daher: Not at all.
Adam Pool: What is needed is companies that will do this in a very low-cost, very efficient manner. One of the companies I invested in Poland did that, and it was a huge success. I can bring that knowledge from Central Europe here and support young entrepreneurs who are coming out of universities while they're coming to address a very common Boston-based problem. And it's not just Boston, it's all over America and Europe.
Saleh Daher: I can't wait. I can't wait. I just kills me to see people with windows open on the third floor. You would not believe how many people we've had people take a look at it, and they just can't do anything about it. It's just really, really frustrating.
Adam Pool: Let me interject for a moment. This is actually just a short term problem that you and I and the world has, because in, let's say, 10 to 20 years, energy will be virtually free. There's plenty of solar energy that hits the earth's surface every day to power all of our energy needs. What we're seeing is that the cost structure of PV and other solar cells and also wind is coming down dramatically. Maybe it's 10 years from now, maybe it's 20 years from now. You actually won't care about wasting energy because there will be such a surplus available to you that it won't really matter if they leave the windows open or not. This will be a huge revolution in our whole economic structure when energy is close to free.
Saleh Daher: Awesome. I can't wait. I remember all the hullabaloo when cold fusion was discussed and that free energy future, so I hope that it does come.
Coming up next, I will ask Adam de Sola Poole, pioneering cleantech VC, how he started angel investing. First, I wish to thank Engineguy78 for this review. "Excellent content. Terrific range of guests and access to experts that can't be found anywhere else." I'm talking to Adam de Sola Poole here, an expert in cleantech and energy with a background that's unique, really. Engineguy78, you've given back by leaving a review and given a great example. The Angel Invest Boston podcast has outstanding guests, such as Adam de Sola Poole, is professionally produced, comes to you with no corny commercials. All we ask in return is for your help in getting the word out about the podcast. Review us on iTunes, tell a friend about us, or sign up to hear about in-person events coming up. Thanks a lot.
So, Adam, how did you get into angel investing?
How Adam de Sola Pool Got into Angel Investing
Adam Pool: I saw it when I moved here as a natural transition, because even though I was called a venture capitalist in Poland and I ran three venture capital funds with limited partners, I was really angel investor, because we had a unique methodology in our cleantech space. Most of the companies that we invested in were startups. We had to go out and find the person or persons. We had to build the team, and what we did was we provided them 100,000 Euros as a loan, and we said after six months or a year, you can pay us back this loan. But if you need more money, we have the exclusive right to put more money in. And the terms, we'll work on them, but basically it was known that they would be relatively advantageous to us. Eventually, most of our companies took additional money. Some of the companies paid back the money after six months because that's all they needed and they were up and running. In fact, they became our best brand ambassadors because they said, "Wow, Adam doesn't mess with you. He gives you 100,000. If that's all you need, we can build the business that way, but if you need more, he'll put in another 100,000."
Each 100,000 chunk that I put in, the entrepreneur was required to show how they'd spent the prior 100,000, give me a budget for what they would spend the next 100,000 on. Valuation was pretty much set early on. It would go up over time, but basically the companies would be worth one to three million, let's say 2,000,000. The most we ever put into any one company was 3,000,000 Euros, about $3,500,000, and most companies got roughly 1,000,000 to $2,000,000 in $100,000 increments over time.
Saleh Daher: So, beautifully staged.
Adam Pool: Absolutely staged.
Saleh Daher: 100,000 at a time is beautifully staged, sounds very organized and orderly, reflective of your intellectual preferences.
Adam Pool: Exactly. And so, when I retired, when I closed up the EIP funds in Poland and moved back to Boston, it was actually rather natural for me to write small checks into angel investments. And quite frankly, I had retired, and I was very interested in getting involved in the cleantech system, which is why I joined Walnut and Clean Energy Venture Group and Launchpad because I wanted to be involved in mentoring these companies as well as investing in them. As you saw from our methodology, we wouldn't put much money into companies unless the entrepreneur and our fund were clearly aligned in terms of goals, in terms of strategies. This was not a spray and pray type strategy, this was a very methodical put money in only so long as you and the entrepreneur were working together.
Saleh Daher: Excellent. Excellent. So, how did you connect with Walnut?
Adam Pool: I'm not exactly sure how. In July 2013, when I moved back to Boston, I met some Walnut person at some event, and it sounded really very interesting.
Saleh Daher: Because I came into Walnut just May of that year, two months before. That's really interesting. Now, being the member of a whole bunch of angel groups gives you really an interesting perspective. Compare and contrast the cultures in what you see.
Adam Pool Compares & Contrasts Angel Groups in Boston
Adam Pool: Each of these groups, as you say, has a very unique culture. I think that Launchpad has one of the best due diligence processes, and overall processes, screening and due diligence. And that's partially because it's so big. At 150 people, there is somebody who's an expert-
Saleh Daher: In something.
Adam Pool: ... in something. They look to me on anything having to do with wind or solar. They look to the cancer specialist for the cancer application. I view them as probably the most professional of the groups. In Walnut is a wonderful bunch of people who are extraordinarily experienced, but I would not recommend a startup entrepreneur come first to Walnut. I would recommend that they find a lead investor and set some terms and then come to Walnut for follow on, because the Walnut mentors don't write huge checks like you can find in some other organizations, but they provide huge advice. They are really expert in what they say.
Certainly, the Clean Energy Venture Group has a very narrow focus.
Saleh Daher: Although, from time to time in unexpected areas, Walnut does lead. For example, SQZ Biotech, which is a biotech company, you would not expect Walnut to be leading in that. They did, and so far it's doing quite well. The company had several rounds of venture funding and so forth.
Adam Pool: That's really interesting that Walnut led on SQZ Biotech. I wasn't around at that moment, but yes, there's always exceptions to every rule. And this is one of the things I tell entrepreneurs when I'm mentoring them, which is that the advice I'm giving them may be the most common advice, but they're actually in the business of being disrupting, so maybe they shouldn't be following my common advice. They should be an outlier and do something differently.
Saleh Daher: Well, what you say is generally true, I think. Walnut writes smaller checks, probably, than Launchpad, but they do write, probably, more checks, checks to more entrepreneurs, and they're a little bit more independent minded. Individual members will write a lot of checks, so I think the total amount is maybe a third or a quarter or maybe even less of that than what Launchpad is writing, but it's also there are many more companies that are being invested in. Because I think Launchpad invests in about 8 or 10 companies a year, and Walnut probably invests in, I would guess, something in 15 to 16 companies. It really is a different environment. It also invests earlier on. Launchpad tends to invest later. Very interesting.
Adam Pool: And also, Walnut does have a sweet spot, which you as an older member of Walnut can probably describe better than I can.
Saleh Daher: Older by two months.
Adam Pool: Well. You're certainly wiser. In those particular areas, the validation of Walnut lead is useful with other groups just like the Clean Energy Venture Group, which does not write huge checks, but it has the knowledge base to validate that a technology is good. And once you have a CEVG investment if you're in clean energy, then you can go around to other groups and fill out the round.
What would you describe Walnut's sweet spot as?
Saleh Daher: I think Walnut understands businesses that have to do software and markets. Lately, they've been becoming quite involved with companies in the marketing automation space, the marketing technology space, because that combines a lot of their strengths, software and understanding of certain kinds of markets. Companies in those spaces tend to get a very sophisticated understanding from Walnut. Walnut's not a natural place for biotech deals, although some of the more interesting biotech deals that I've seen have both been funded by Walnut. These are very smart people but with a very strong orientation towards software, telecommunication, and more recently, the whole area of digital marketing and so forth.
Adam Pool Talks About Squadle, a Promising Startup Just Added to His Portfolio
Adam Pool: One of the interesting Walnut deals I saw recently and invested in was Squadle. Squadle is a technology that comes out of monitoring the temperatures in refrigerators, stoves, fryer vats in restaurants, and certainly with my cleantech and energy background, this resonated very much with me because I know how poorly the measurement usually occurs and how difficult it is to report on variances. Squadle solves that problem beautifully.
Saleh Daher: It completely eliminates the problem of people taking measurements all the time because they're taking measurements that are recorded electronically, automatically. The person sticks the thermometer in, and that's logged. There's no person writing things down, making mistakes, forgetting to do things and then later on filling it in and so forth.
I was at a local vegetarian restaurant called Clover, and I saw an inspector from the city of Cambridge coming in with her little thermometer into this and into that and so forth. I was just thinking, "Geez, if these guys had Clover [Squadle], they could show a record exactly. This is the temperature that this particular type of food is maintained at all the time." And it's hard to fake. Tremendous labor saving, greatly improves food safety, and I understand they're in discussion with major groups including groups that have had problems with maintaining the safety of the supply chain.
Excellent. Adam, what do you look for when you're thinking of investing in a startup?
Adam Pool Looks for a Defensible Market Position in the Startups in Which He Invests
Adam Pool: I generally look for a defensible local market position, as we were discussing before with Warren Buffett. If this company is going to go out and compete in the world marketplace and I as an investor can't understand what the technologies it may face from European competition, Chinese competition, then I'm unlikely to invest in it. But if it has a good, local franchise, then I will invest because that company becomes a logical acquisition target for the global player when it wants to get into the local market.
Saleh Daher: When you say you look for a franchise, you expect to have a validated franchise, an established market that you can then test in terms of whether it is defensible and so forth. It precludes investing really in very early-stage companies.
Adam Pool: No, actually, I will, and I have often done very early stage companies where an entrepreneur comes to me with just a business plan but shows that they can establish that market early on and build that franchise.
Saleh Daher: How do they validate that? What kind of evidence do you accept?
Adam Pool: Well, in Central Europe what I used to do was I and the team would go and spend as much as a week with the entrepreneur going around, visiting people who he would consider potential candidates, going and talking to government officials. You validate it through asking people questions, on-site due diligence. You also go and spend a night or two at the entrepreneur's house usually.
Saleh Daher: This is novel.
Adam Pool: This is a very useful thing. I can remember being in Slovakia, and this person was telling me that there was huge amounts of waste solvents, chemicals, paints, that could be picked up, because at the moment they were just being dumped in the forest. If you came and picked them up and re-refined them, you could sell them as second-tier chemicals into this local market. I went with them and validated that the market did exist, the people were illegally dumping them into the forest or the landfills, but they said we have no other way to do this, and if some reputable person comes and picks up our waste supplies, we will be happy to give it to them.
Saleh Daher: I'd like to see you bunking with these crusty New Englanders.
Adam Pool: But Sal, the end of that story is that I went and I spent two nights living at this guy's house. I remember his young kid, who was probably six or seven years old, looking at me and saying, "You're the guy who's going to make my dad happy. For my whole life, he's been talking about this, and he's been working in a state-owned enterprise, and you're gonna fund him to do what his passion has been for my whole life."
Saleh Daher: Oh my gosh.
Adam Pool: And when I heard the kid say that, I knew that this entrepreneur wasn't bullshitting me, because a six-year-old doesn't really lie to you.
Saleh Daher: Oh my gosh. Instead of the elevator pitch, it's the lollipop pitch. It's delivered while licking a lollipop.
Adam Pool: Exactly. That's right.
Saleh Daher: That is amazing. What do you look for in a founder? You were saying a little bit if this here already.
Adam Pool: Yeah. I look for real commitment, and I look for the family to be committed. If the wife or the husband is unhappy that the spouse is going to be going away and working 20 hours a day for the next five years, that's not gonna be a good situation. The other thing I look for is alignment of commitment. I remember one of the times I went to an entrepreneur's house, and he had been talking about how he ran such a tight ship and limited budget. Then I walked into his bathroom, and he had Versace gold plated knobs on his sink. He showed me his fancy little sports car in the garage.
Saleh Daher: It reminds me of the gold-plated faucets of Saddam Hussein's palace.
Adam Pool: Exactly.
Saleh Daher: In Baghdad, I visited one of them.
Adam Pool: On, did you?
Saleh Daher: Yes, yes. How much success have you tried with that method here in New England?
Adam Pool: I haven't tried it at all. I haven't had any ability to do that. I try to get to know entrepreneurs as much as I can, most founders as much as I can. I do this through doing lots and lots of mentoring through MIT, Northeastern, Mass Challenge, Cleantech Open. And after I mentor somebody for six months, I begin to see whether they have the consistency and the will to do this, and that's a very good method.
Saleh Daher: That is an excellent, excellent point. I'd propose another method that anytime you want to invest in an entrepreneur, bring him on the show and we'll interview him for an hour and a half. We'll do an hour and a half interview. It's amazing what you learn about people. You study up on them, and then they reveal themselves. It's amazing. People, when they're on the spot like that, they really, really show what they're made of, and you can get a sense. Just as I got a sense for when you recorded that video before, organized mind, 40 something seconds, and you said exactly what you wanted to say and no more. You can tell a lot. For an hour and a half, you can learn lot.
A pivot is when a startup realizes its original plan is not working and comes up with a new one. It happens so often, they've given it a name. Are there pivots that stick in your mind as being particularly interesting?
Adam Pool’s Favorite Pivot
Adam Pool: I'll tell you an amusing story about what was a planned pivot, you might say. There were two brothers who were Polish businessmen originally working in a state-owned enterprise. This state owned enterprise was called RelPole, and they made cash registers. They were the old fashioned sort of manual cash register under communism. The end of communism came, and in the early to mid-1990's, they started making what are called fiscal cash registers, these are ones that tax authorities can check the electronic records on. These two brothers had to learn about software and SIM cards and various other things like that and the sensors that the tax authorities required on the cash registers.
They got interested in sensors, so they pivoted RelPol from fiscal cash registers to sensors, and they used sensors for homes, because homes, as we described earlier, were losing lots of heat under the transition from communism to capitalism. They made, basically, thermostats. From thermostats, they got interested in district heating, and district heating is a concept that is most well known in Europe, but it was in America even when I was a kid, which is that you have a heating a plant for a whole neighborhood. These were incredibly inefficient, and they had one on their factory. They figured out how to use sensors and new piping technologies to eliminate about 40% of the coal use for their power plant on site.
They pivoted the company once again, and they went into buying up state-owned power plants for, usually, one Euro plus investing in efficiency and expanding the network so that the town would sell them this plant because they would promise a 10% reduction in the cost of heat to all the inhabitants in the town, and they'd promise an expansion of the network. That was a win-win for the mayor, so this company bought, under our investment management, 17 different district heating plants, basically for 17 Euro, and we poured another 3,000,000 Euros into the efficiency of the network and installing sensors. Eventually, we sold our 3,000,000 Euro investment probably for about 30,000,000. That was one of our most successful investments.
But it's an interesting pivot from manual cash registers to fixed electronic cash registers to thermal sensors to running heating plants, all in the same company.
Saleh Daher: Amazing. That is really amazing.
Adam Pool: That shows some of the ingenuity that Central Europeans and Poles in particular have in adapting to the different governmental structures that you have. Whether it's communist or capitalist or somewhere in between, over time you still have to run your business no matter who's in power in the equivalent of the White House.
Saleh Daher: Yes. That's really very interesting. Let's make this our last question here. Adam, what's the advice you most wish founders would heed? Back it up with a story, if possible.
Adam Pool’s Approach to “Inoculating” Startups Against Risk
Adam Pool: There are two things that I ask every founder to do when I invest in the company. The first one is that we go for an off-site full day with everybody who's important to the company and we discuss all the possible risks that that company could face from a meteor smashing through the roof of the headquarters to the chief founder getting hit by a bus to various different things happening. In general, I would say that none of the companies that I have ever invested in has gone bust for any reason that was brought up at that off-site retreat. It's kind of like inoculating you against this risk because you've thought about it, and when the risk starts to appear, you've got an idea as to how to handle it.
Saleh Daher: Who participates in that? You and the other investors plus everybody who's important to the company or just you?
Adam Pool: The most important thing is that the people who are important in the company. It doesn't matter how many investors are there. We're just throwing out scenarios. What is important is that everybody, other than maybe one person in the company who has to stay at the company and answer the phones, comes out there, because if the CEO is hit by a bus, you need to have the other people having thought about that risk and be prepared to take action immediately this happens.
While no CEO has ever been hit by a bus, CEOs have been skiing and broken legs, gotten in car crashes. Things have happened, and to avoid that sort of risk crippling the company, this pre-thinking about it is very important. I would say that in the cases where companies have gone bust, that we never discussed the scenario in advance, and the company froze like a deer in headlights and got hit by the oncoming car. By doing this thinking ahead, you give some sort of inoculation against the impact.
Adam Pool’s Poetic Statement of the Need for Founders to Give Way to Managers as the Company Grows
Saleh Daher: This is very original. Very original thinking. Excellent.
Adam Pool: That's just actually one of the two things. Let me just bring up the other thing, which is that I describe to every CEO that their role--this is really for all founders--that their role as founders in the company is like a little fish in a river that runs from the mountains to the ocean. The little fish that is born high in the mountains will have to grow big, go down through the rapids, the rapids being all the challenges that the startup faces, the rocks in the stream, the other big fish that wanna eat it, the logs in the stream. But eventually that fish will have grown big enough to get to the flatlands, and there in the flatlands, the river starts meandering. Whereas it was fast and rapid and you could get things done and move quickly in the mountains once you hit the slow part of this river, it takes a long time, and that's metaphor for being a bigger company and having to change.
Finally, it gets to the sea, and in the sea, it's saltwater. The reason I tell this story to every CEO and every founder-
Saleh Daher: So, is saltwater competition?
Adam Pool: Exactly. Is that the little fish is not necessarily the most appropriate person to run a company in the rapids or in the slow-moving stream or in the global competition that is represented by the salt water, the global ocean. It tell this story to the founders to say at some point in time I'm gonna need to fire you, but it's not because you did something wrong, it's because the environment you operate in is not the best one for you with your set of skills to lead the company. We're doing this together to build a company, not to build a personal fiefdom for the CEO.
I make them buy into this sort of transition so that they know from day one that life for them is going to change and they may not be leading the company. They may have a role in the company, but it isn't because they screwed up. It's because the company grew.
Saleh Daher: Excellent. And done very poetically. Beautifully. I think that really is an excellent way to conclude this really delightful interview, which I wish could have been longer. But sadly, we're constrained with time. Adam de Sola Pool, I'm most grateful to you for participating and helping make this a great podcast.
Adam Pool: Thank you very much. It was a pleasure to be here.
Saleh Daher: Awesome. Awesome. I thank our listeners for tuning in and invite them to leave a review on iTunes. You know, we're gonna be putting up a little thing on our website, angelinvestboston.com, that makes it easy for people to leave a review on iTunes, because I find a lot of people have a hard time with this. And it really does help us.
This is Angel Invest Boston, conversations with Boston's most interesting angels and founders. I am Saleh Daher.
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.