Recently from California comes the news that advanced materials wunderkind Checkerspot has closed its Series A financing for $13 million.
A fascinating set of investors came in. There was no Claude Rains announcing “round up the usual suspects” on this one. Fair to say no one is announcing “Play it Again, Sam”, at Checkerspot, either.
Builders VC took the lead seat, joined by Breakout Ventures, Viking Global Investors, KdT Ventures, Plug and Play Ventures, Sahsen Ventures, and Godfrey Capital, among others. And when we mention Builders, you think “Bolt Threads, Skybox, Context Relevant, Climate Corp, Udemy, and Sprout Social”. Jim Kim, the general partner of Builders VC and a veteran of Formation 8, Khosla and CMEA, and at one time the founder of GE’s venture capital unit, will join the Checkerspot Board of Directors.
What do they see? Perhaps something even more valuable than Letters of Transit that cannot be rescinded, not even questioned.
Of all the ventures in all the towns in all the world, this group walked into Checkerspot. Let’s explore why.
The Checkerspot backstory
OK, if you’ve not yet read up on the breakthroughs in recent years in biology, chemistry, materials, data and automation, you can start here with the Checkerspot backstory.
Suffice to say, all those presentations about convergence over the years, and a couple of Hollywood movies, well, the time has come, and advanced materials are perhaps the first breakout anyone will really notice. Because materials are stuff and stuff never passes you without notice in the manner of the data slipstream. So far, Checkerspot’s been active in two classes of materials: polyurethanes and textile finishes, each of which is derived from novel triglycerides (oils) from microalgae. If polyurethane sounds a bit too much like science class, think varnish, paint, adhesives, foams.
If textile finishes sounds a little vague, think how a breathable waterproof fabric can draw moisture away from the body. Wet cotton hangs onto you, making your t-shirt heavy and clammy and — well, think of wet t-shirt contests. Now, think of technical polyesters that pick up the moisture and lift it from your body and transfer the moisture towards the outside of the fabric, bringing the water to the surface where it can evaporate, and keep you cool and dry. That’s called a wicking fabric, and that’s got real value, not by the pound of product but by the peal of performance.
Checkerspot has just such a development partnership underway with Beyond Surface Technologies. But let’s think beyond wicking fabrics. Mattresses, foam insulation for the fridge or freezer, car seats, spandex, adhesives, and shoe soles with performance characteristics you’d know from rubber.
As Checkerspot notes:
Nature has evolved to produce novel molecular building blocks, like fatty acids from triglycerides, that are unexplored or underutilized in materials science. They are overlooked because many of these plant-derived materials cannot be supplied at large scale. The plants that produce them only thrive in growth conditions that are incompatible with commodity scale agriculture. Biotechnology and industrial fermentation processes enable Checkerspot to deliver these unique materials not previously accessible at commercial scale.
What you get for $13M in a Series A
Well, as Checkerspot CEO Charlie Dimmler told the Digest:
“It supports the infrastructure plan, adds a little headcount but not wildly significant’, and supports commercial development. For example, the partnership with wicking moisture management, we continue to lean into that. We will be bringing our first consumer product this year. And the investment is helpful for that and for the business development side. Bottom line, what it delivers is driving revenue as measured by product sales and more JDAs.”
Checkerspot’s development path and the Laws of Bioeconomy General Relativity
Last year, Checkerspot and DIC Corporation announced a Joint Development Agreement to create a new class of novel, high performance polyols. And, if you’re wondering “what’s a polyol”, exactly. For one, it’s a building block to make a polyurethane. But also think of oil-based coatings that you might add on top of surfaces. Those are from a class of alkyds derived historically from plant oils and the triglycerides thereof, which can be of course developed via microalgae.
Specifically, think outdoor recreation, composite materials that have a high strength to weight ratio, good for lightweighting, and for damping, energy absorbing.
Why these? Bottom line, speed to market. It’s an embodiment that enables a Checkerspot to get commercial quickly. These triglyceride-based materials will have performance attributes that apply transformatively in other markets. We mentioned car seats above, so think “automotive”. But that’s a more complex supply chain, that takes time. And which brings us to:
The First Law of Bioeconomy General Relativity
The nearer you get to supermassive Corporate Partner objects that create their own internal and crushing gravity, the more time slows down relative to Venture Speed. In other words, what seems to be the blink of an eye for a giant multi-national is a venture-crushing delay for a start-up.
And this brings us to:
The Second Law of Bioeconomy General Relativity
Small Venture Objects that come too close to supermassive Corporate Partner Objects get sucked past the Partnership and Financing Event Horizon and get crushed by the gravity of the Corporate Partner Objects. But Venture Objects that arrive at the proper distance from the Corporate Partner Object enter into a symbiotic and mutually beneficial orbit.
So, in the case of Checkerspot and DIC — or others in the future — be mindful that Checkerspot is not a service company but a product company, but will not be a capex-raising, steel-in-the-ground entity we might have seen in the past — and more on that model in a moment. Checkerspot might have a contract manufacturer in the mix or could be licensing the technology to 3rd parties or the joint development partner to manufacture. But what will be important in a partner is not technology — Checkerspot will lead that — or manufacturing, that can be obtained elsewhere. What will matter is application development and the sales and marketing heft to get a product across. So, when a company like DIC expresses an interest in a new polyol and is interested in the commercial rights more than a “we made it here” stamp, that’s the Checkerspot moment. Or, the Checker Spot, if you will.
You Must Remember This: a turning point in industrial biotechnology
One day, we may look back for a turning point in the rise of industrial biotechnology and decide that it was the development of Algenist, the algae-based beauty products unit of the old Solazyme.
Up to the point of Algenist’s development in the early 2010s, industrial biotechnology companies were being formed left and right, as they are today, but they were generally about producing bulk materials for the supply chain, most tried to develop for one market, and most aimed as soon as possible to put steel in the ground and build a first commercial facility. It was proof of concept, pilot, demo, commercial, and then the venture aimed to sell as much of that bulk commodity into the market as possible, to as many refiners and formulators, at the highest price the market would bear.
That was the story of the technologies making renewable fuels, and later renewable chemicals, more or less. When the DOE published its list of hot renewable chemical prospects for the years ahead, every single one was a bulk commodity chemical, often organic acids, that would be made that way. It was the era of renewable ingredients, if you will, and the measure of success was more or less the enthusiasm of offtakers, the force of carbon policy in the absence of that, and above all the pursuit of a drop-in replacement for bulk commodities at a competitive price.
Which of course took the entire 130 year history of petroleum-based refining and sort of tossed it to the side, as if the decades of pursuing scale and perfecting and optimizing the yields could be duplicated in fermenters in a wave of overnight success. Not to mention the cheapness of petroleum feedstocks, which generally if they cost in the $70 per barrel range is a reflection not so much of the recovery cost but the value of these hydrocarbons.
You can sell an awful lot of hydrocarbons at $15 a barrel and still make a profit, and that has been the Achilles heel, always, of industrial biotechnology. So, the purveyors of low-carbon technologies have been intensely dependent on carbon prices — expressed in the various forms of mandates, standards, tariffs, tax credits, incentives, and so forth. The makers of fuels assembled a coalition which erected the supportive scaffolding upon which renewables have flourished, in the name of energy independence, rural revival and combating climate change.
But there wasn’t much carbon help erected for renewable chemicals and materials — despite the higher prices for those bulk commodities sold into the supply chain.
They’ve been condemned to jump out of the frying pan of low oil prices into the fire of formulator indifference to all the wonderful things that might be achieved in the lower echelons of the back label. When companies see less carbon, less greenhouse gas, less rural displacement, and less money, all they are generally structured to do something about is the money, which is to say the avoiding of the making less of it.
Which is to say, no matter what kind of a premium you might pay for a Starbucks grande latte, the buyers at Starbucks pay no more than anyone else for the coffee beans, and probably pay less.
It is the Law of Ingredients: no one pays more for anything described on back of the label, they pay more for what’s described on the front of the label.
People might pay more for brighter brights and whiter whites, but not generally for the same-as choices in ingredients used to achieve those ends.
Which is to say, the hard yards of commercialization notwithstanding, the most difficult two inch journey in the history of the world’s economy, the means of its transition forever from the bonds of petroleum into the sunny uplands of a circular economy, is the two inch journey that renewable products must undertake from the back to the front of the label. That’s where the mainstream is, that’s the money, that’s where the battle to do good and do well, at the same time, will ultimately take place, for some things now and for all things in the fullness of time, when carbon prices are just a memory kept in the places where we keep the red flags that used to have to be marched by walking pedestrians down the highways in advance of motorcars.
Solazyme for a number of years found itself trying to some close the gap between algae fuel and petroleum fuels prices to a narrow range that they could fill in the gap with existing carbon prices and take off on the race for world domination.
But in its IPO, investors craved some specific revenue generator and proof of performance from Solazyme, and Algenist was essentially born, in terms of the drive and commercial focus that Solazyme poured into that product, out of the lens of the IPO investors and their very special cravings. After all, the Navy, Chevron and others weren’t asking for Algenist, they wanted fuels. Unilever wasn’t asking for it, particularly, they wanted alternatives to virgin plant oils.
I came to Casablanca for The Waters: The Vital Matter of the Front Label
What was Algenist? Two things really.
First, it was “the anti-aging breakthrough ingredient alguronic acid”. Second, it was a skincare line, with major agreements in 2011 with beauty retailer Sephora and multimedia retailer QVC. It was a global launch in multimedia and a US launch that expanded to other retailers and countries in retail stores.
We learned a few lessons from Algenist.
First, as Solazyme vet Charlie Dimmler explained to The Digest, “the pace from idea to reality would have been significantly greater if we had tried to sell the active ingredient”. Instead, they invented a product line, which allowed Solazyme to access capital in a differentiated manner, and circumvented much of the time it takes to commercialize a product with a major, given the testing, the formulating, the layers of meetings and OKs and approvals and the negotiations over money and distribution and everything else. It’s that First Law of Bioeconomy General Relativity at work.
And, speed has value, and the front label matters far more than the back label.
With Algenist — and with nothing before it, hardly — the ingredient was on the front label and the label was on the front of the website. In the past, almost all bioeconomy products were sold on the back label, some were essentially communicated via a warning label (WARNING: This product contains up to 10% ETHANOL, and so forth). And even where there was a product that made it to the front label it was usually buried under a hundred other things that Supermassive Corporate Object was doing. The closest thing we have to an exception is NatureWorks, but even that spent many years in comparative obscurity because the huge wattage of the Cargill and the Dow brands made the small Venture Object, NatureWorks, very hard to see, so close it was to the massive object. Almost too close, NatureWorks had some rocky moments, we’ve been told.
The Delusion of Focus
Usually, we are told that when a company is developing its one big launch product — be it a fuel molecule or a chemical or a material, we are told that “it has focus”. The reason that we have small venture-backed companies, we have been told often at the Digest, is that these companies do not suffer from the dilution of focus. ‘
And everyone who has ever worked at a multi-national giant knows about the dilution of focus and that big companies are working on a zillion things at once and focus is a precious resource and that is a driver for the First Law of Bioeconomy General Relativity and, to some extent the Second Law, as well. Time slows down at giants because of the dilution of focus, and small ventures get crushed in the Second Law when the slowdowns cause them to be unable to deliver the high rates of return that justify technology risk. Time is the killing factor, it is rate of return not return that investors measure, in the end.
But, there’s the problem of Delusion of Focus. Which is to say, the first Law seen in reverse. If I am dependent on a Supermassive Corporate Object to get my technology to market, am I not subject to all the forces and pressures that beset those companies? The closer I have to sail to my partner, the more my time scales become impossibly warped and I become crushed by my inability to provide venture rates of return.
The Small Venture Object? It’s focused, all right. So focused, in fact, that it has the delusion of focus. The delay of my close partner is my delay.
Never send to know for whom the corporate delay tolls, it tolls for thee, no venture is an island, entire of itself, each is a piece of the continent, a part of the main, to make an observation that John Donne came up with four centuries ago. Friend of the newfangled venture, he.
The solution lies not in separation, which you might long for but you will never get it, it is the Age of Partners and victory goeth to those who navigate their partnerships to greatest effect, even the very digital content you is formed and distributed by a thousand partners who have never met, ships in the internet night responsible for apps and bandwidth and storage and databases and so forth, and so it is with physical objects as well.
Nothin of great value will come from the vacuum of space, nor from a merged slurge of partners crushed under their collective gravity — planets, not space time or black holes are the distributors of intelligence and the harbors of life — planets in their appropriate spheres and keeping the right distance from each other, though tangled in gravity and all deriving essential energy from their parent stars.
We’ll Always Have Paris: What have we learned of separation?
So far, we have learned that the model that appears to work best is the separation of distribution and manufacturing. Companies that license technologies (even if they finance and assist in the development) and aim to use their distribution networks to get the product out — why, it was the very approach that Solazyme used with its partners Sephora and QVC.
It would have been crazy for QVC to development alguronic oil-based skin care, even Sephora shouldn’t be in that business, And crazy for Solazyme to build out a global distribution. Finding the most efficient route to market and cutting out a s many middle partners is what matters. Not just because of value capture — though investors like to hear about capturing more of the product value. It is more about speed to market, and about getting to that front label.
If there had been a complex supply chain in the case of Algenist, and active ingredient sold to a middle party — who knows what the front label might have read? There might have been little mention of it, effectively, at all. There’s a Naked boosted Smoothie Green Machine Product and the front label tells you that it is packed with vitamins B12, and Cm that it is based in 5 juices, is non-GMO, has no sugar added and contains 270 calories per 15.2 oz bottle. It’s only on the back of the bottle, the back label, that you find in tiny type and without any supporting detail, that it contains blue-green algae, a/k/a cyanobacteria.
That’s Naked’s decision to make as the marketer, but it does not much good for the Small Venture Object, selling into yet another commodity market, more about the lowest cost producer than the highest value creator.
The more simplicity in value chains, the better, it appears. Though the experience of creating a B2C product from lab to home may be rare — Amyris’ Biossance, and Algenist too, and there will be others. But all ventures can measure themselves against the task of how simplified they have made the chain from lab to end-use customer, and in this digital age it is becoming easier though never easy, and where fully direct is not possible there can be less complexity. Even Algenist was sold through partners — you could buy it on the website, but also through the store and via TV, and after all, websites as we know in DIgestville have oceans of partners underneath them.
Less is more. Make complete technologies, others can manufacture, others can distribute. Find performance advantage where possible. Size matters, but even more so speed, and managing aggravation is of benefit too. One app bad, every app worse, find the middle between all eggs in one basket and one egg in every basket in the world. And watch out for those Laws of Bioeconomy General Relativity. Those are lessons we might draw from this story, so far.
More to come from Checkerspot, little doubt there, we’ll be watching.
The stakeholders, as they said it
“Checkerspot is differentiated in its approach by focusing on more rapidly bringing to market high value materials with unique properties presently unavailable with traditional manufacturing processes. At Builders we partner with companies that are developing real solutions to modernize antiquated industries. Checkerspot’s approach of integrating biotechnology and materials science, then demonstrating the value of rapid prototyping and applications development, is exactly that,” said Jim Kim of Builders VC. He continued, “We fully expect that Checkerspot’s platform development and expansion into a wide range of industries will usher in a new way of thinking for how product designers apply and source performance materials.”
“Driven by consumers, many brands recognize market demand continuing to increase for new materials and ingredients that deliver novel performance, and are also more sustainable. Suppliers to these brands are responding. We’re pleased to welcome new investors that share our conviction on how we are prioritizing our market entry points, demonstrating our capabilities and creating value quickly,” said Charles Dimmler, CEO and cofounder of Checkerspot.
“We are breaking new ground at the intersection of molecular biology and materials science, and this financing will allow us to continue to build out our existing materials and products while at the same time allow us to further expand the application of these materials across multiple industries. Fundamentally, we see microalgal triglycerides as scaffolds upon which to build entirely new classes of materials,” said Scott Franklin, CSO and cofounder of Checkerspot.