Sophie Bakalar | Partner, Collaborative Fund

Speaker A: Welcome to the Zenergy podcast. I'm your host, Karn Takara. Today I have the pleasure of speaking with Sophie Bacaller, partner of Collaborative Fund, for a conversation about investing in companies that do good and are doing well economically. We discussed what drew her to the intersection of sustainability and venture capital, how she met her partner Craig, and what consumer trends made an impression on them both. Sophie shares how Collaborative Fund chooses which companies to invest in, what she believes a successful pitch looks like, and how they use the villain test for analyzing investments. Sophie gives advice to entrepreneurs about navigating the uncertainty in the world today, and then gives advice to her younger self. Thanks so much for tuning in. If you like today's episode, please subscribe so you don't miss out on new episodes. And now please enjoy my conversation with Sophie. Hello, Sophie. Welcome to the Zenergy podcast. It is a true honor to have you on. As we were just talking, before turning on the recorder, I mentioned how I've been following the work of the Collab fund for several years now, and the fund has orchestrated some really, uh, transformational investments in the field. And, um, also your journey, uh, has been inspiring to read about, which I look forward to, to diving more into through this conversation. So thank you, thank you truly for taking the time and would love to kick this conversation off by diving into your journey. So it's been very, uh, dynamic in terms of, worked across, uh, several different areas from trading credit derivatives, for example, to then co founding Fable, which as I understand it was a cloud fund portfolio company, to ultimately now, um, becoming an investor. So I'd love to kick things off by learning about what drew you into this intersection of sustainability and venture capital.

Speaker B: Thanks so much for having me. It really is wonderful, um, to be here. I'm excited for the conversation. Um, as you alluded to, I had a bit of a windy journey to get to venture, which is not unusual. I think venture is kind of a strange industry in that you, you do see a lot of different sort of backgrounds and pathways to, to getting into an investor seat. Um, I got a very early start in, in finance. I started trading credit, um, when I was just 17. So I was in my senior year of high school. Um, obviously in a very different world than we live in today, uh, when, you know, teenagers were, uh, allowed to sit on trading desks. Um, hopefully that doesn't happen too frequently anymore.

Speaker A: Pre. Pre. Meme. Stocks.

Speaker B: Exactly, exactly. A whole different era. Um, but it was a really exciting way to sort of kick off my career. And, um, I was, I was a Big math nerd growing up. And so getting to work kind of in a, in a more quantitative environment was really exciting and very fast paced and a really quick introduction to um, you know, just understanding uh, important financial metrics of public companies and working in a very fast paced environment and experiencing firsthand the highs and lows of the markets. Um, you know I got to see, see some very extreme scenarios. Uh, during that time period. I spent a while doing that and then uh, towards the tail end ah, started developing some software which was a very um, very rudimentary form of machine learning that reverse engineered chart images. Um, and that was really just to make my life easier on the trading desk. I didn't really have any grand plans for it but ultimately in sort of a um, stereotypical uh, ah, founder story, ended up realizing there was a broader application. This software mostly for management consultants, ended up leaving Trading to launch to co found a company called Digit, had a very lucky run with that company. My co founder Jeremy and I, we, we built it and bootstrapped it and grew it and then got acquired all within a pretty short time period. Um, and that was my first introduction to tech and uh, the startup world. And I thought wow, this is great, this is, this is really fun. Um, not knowing how incredibly unusual that that journey was. Um, and so post acquisition I did the very cliche thing of backpacking around the world for about a year. Just um, picked up a back backpack and started going east and just kept going until I um, until I made my way back home. And that's really when I got interested in not just climate, uh, and sustainability but sort of these really big macro shifts in consumer behavior that I was starting to see kind of emerging globally. There were these consistent trends that I kept encountering on that trip and when I came back to New York I felt okay, there's something interesting brewing here. Um, and that's when I met my partner Craig Shapiro who founded Collaborative Fund and we just really clicked in. Our um, thesis about where the world was heading was very well aligned. And so that's when I joined Collaborative Fund. Um, and I have been here for almost 10 years now. Um, I invest in everything from consumer to climate and everything in between. And so yeah it's been a windy journey but sort of simplified version is I had that institutional finance experience, the startup experience and then the intersection of those two things is sort of venture capital. So that's I guess how I ended up here.

Speaker A: In terms of some of the consumer trends that you were seeing take place across the world, uh, during that time, um, could you speak like, high level, what, what some of those, um, key trends were that really made an impression on you and then ultimately led you to talking, uh, to, to your, to your co founder and then separately regarding your journey, as you mentioned, which sometimes is like, pretty common for startup founders where they start, they create a product to make their life easier and, and then ultimately that product ends up turning into a company. Um, would love to hear your reflection on that overall experience and whether you feel like there are some lessons that you've taken out of it which help you as an investor today.

Speaker B: I think maybe the biggest and most important takeaway for me in that experience was that you should talk about what you're doing, you should talk about what you're working on, and even the very sort of minor side projects or side quests that you have going on in your life, you should talk about those with the people, um, in your life because you really don't know where they might lead. I had no idea. I was not a management consultant. I did not know that this product that I was, I was working on just to make my life easier, could have broader applications. But my roommate at the time, Jeremy, who is my co founder in that business, he was a management consultant and frankly, I can't even remember why we were talking about it. But, uh, he was the one who was like, wow, I think that has, has bigger applications. I could see that being really useful for my job. I could see there being these other use cases that you might not have thought of. So, um, I just think, you know, you, you have to, you have to leave yourself open to some serendipity. And the only way to do that is to really just, you know, not be shy about talking about the things that you're, you're interested in or working on and see where those might kind of, uh, fortuitously lead. So that was my, my big takeaway in that experience. There's so much luck involved. I guess that's the other big takeaway. Um, there's so much luck involved in startups, I, I don't think we could possibly overstate that. Um, of course there's tons of skill and there's tons of hard work and grit is very important and all that, but there is a very healthy dose of luck in terms of who and what ends up becoming successful and who and what ends up not being successful. Um, and so we were, you know, just lucky in timing and another of a number of other vectors. So, um, I think about that a lot as an Investor. And just try to keep in mind that there is this very critical, uh, element of luck that you have to. You have to incorporate in your underwriting.

Speaker A: Are there ways for founders, um, to increase their potential for tapping into that luck?

Speaker B: Luck, by nature, is a little hard to game. You have to accept things that they come to some extent. But I think, um, the important sort of foundation to maximize your luck is to just maximize your optionality. And a lot of that comes down to just being really efficient in how you build a business and, um, just being efficient in what you're working on. Because the more cash you have in the bank, for instance, the more Runway you have, the more space you have to give yourself, um, time and room for that luck to hit you. Um, the more you're operating on thin, narrow margins, the less space you have for that serendipity, um, to enter the equation. So it is hard. I think it's more. I think the appreciation for how much luck involved is more important in terms of just not taking everything so personally and also not comparing yourself to other people or situations all the time. Because really, there is a lot that is sort of out of your control. And so just do the best with the things that are in your control when you're. When you're starting a company.

Speaker A: Thank you for sharing. And I cut you off as you were about to tackle the other question, which I feel like has similar threads, very similar threads. And at least from my perspective, it seems like, again, you spoke about your experience, and then it ultimately led to this new opportunity to join the Collaborative Fund. I would love to hear how it all culminated from your side.

Speaker B: Obviously, there's tons of luck in getting the seat that I have, but there was also a fair amount of rolling up my sleeves and forcing that luck to cross my path. Um, I met my partner, Craig Shaffer, who founded the firm because I cold tweeted him. Um, I had read this article that he wrote called the Villain Test. It was a blog post that articulated Collaborative Fund's thesis in a way that really resonated with me and aligned with, again, where I was thinking the world was going and these big shifts in consumer behavior. Uh, he touched on all those in a way that I thought was extremely prescient. Uh, and so I reached out to him cold. I reached out to him cold multiple times, in fact, um, before we ended up having our first meeting. And so, of course, it's lucky that he eventually responded. It's lucky that the timing worked out that he was thinking about bringing on another investment professional to the team that, you know, that we had these similar ideas about where, um, you know, the most important investment opportunities, uh, were. But there was also an element of like, okay, I kind of made that luck because I wouldn't stop until he responded to my messages. So, uh, that's how I originally got introduced.

Speaker A: Wow. Very cool.

Speaker B: A long period of getting to know each other and know each other for a very long time now. But I think that was the. The catalyst was sort of those cold messages.

Speaker A: If you could just walk us through what some of these broader trends, um, that you were seeing, that you felt that Craig was speaking to at the

Speaker B: time, those ultimately boil down to where we've been in kind of an interesting period over the last five to 10 years where there's a pretty stark sort of generational shift in, um, consumer purchasing power. You're seeing, obviously, younger, um, younger generations make up a larger percentage of the global economy. Younger consumers have a very different framework for how they shop for goods and think about what brands they want to support than previous generations, which comes down to there's a lot more information about brands available now and products available now than there were previously. There's just a plethora of information that consumers can sift through. And younger consumers are just a little more values driven in their purchasing behavior than, Than previous generations. You know, they want to buy from brands that align with their values, that offer, you know, a similar kind of ethos to their own personal, uh, um, personal values. And so that creates a lot of opportunity. I think it's very hard for incumbents with very entrenched, um, products and brands and supply chains and a lot of inertia. It's very hard for them to realign to, uh, you know, the values of younger consumers. So to me, what it meant is that there were these emerging opportunities in, um, basically every sort of sector of the economy where you could create new brands that just more closely aligned with this emerging consumer behavior, um, which is, you know, across a number of different, uh, vectors, anything from just like healthier, more transparent products to um, you know, more convenience to, you know, again, just brand and values alignment. So that was really the big, big takeaway is that, you know, consumers were making their purchasing decisions based on different frameworks in previous generations which were primarily choosing based on like, just a few, few factors. Price, convenience, quality. Um, there were these new, new uh, considerations that consumers were starting to think about that could create opportunity for emerging brands.

Speaker A: Are there any particular investments early on in your journey at Cloud Fund that you feel like hit the potential for growth metrics, but also the impact metrics. And that sort of you look at as like one of your early inflection moments in the investor space.

Speaker B: We don't claim sort of individual, uh, track records here. We operate as a team. So every investment is uh, made as a team. And so I won't, I won't claim any specific one. Um, and also every investment that we make sort of falls into that bucket because it's very much embedded in our investment frame that we're investing in companies that are doing good while also poised to grow and scale. And so if, if we make an investment and don't have that feeling after the fact, whether it's successful or not, then I think we've, we've sort of failed in our, in our um, in holding ourselves accountable or holding ourselves to that, to that investment framework that we have. I mean one company that comes to mind, which again I will not claim credit for as an individual, but I think is, is very representative of collaborative funds. Sor ethos and thesis is sweetgreen. Ah, it's a quick service restaurant in the US that makes um, salads, among other things. And I think it's a good example of a company that really um, created a superior product that consumers wanted that was very aligned with emerging interest in transparency and also healthier, better for you, uh, food products, um, but also has created a much more transparent and ethical supply chain. And so it's a company that is having a very positive impact on the world, uh, while also just better for the customer. It's something that I think customers um, can really enjoy for their own uh, health and their own benefit. So that's sort of a good articulation of where we like to play is companies that are doing good while also doing well economically. And so every time I see a sweet green, it's sort of like, oh, that's really exciting.

Speaker A: That's awesome.

Speaker B: Good to see them having even more impact in the world.

Speaker A: Mhm. Also, you're partially welcome because I feel like I've driven up their revenue quite a bit by the amount I uh, eat at sweetgreen.

Speaker B: I love to hear that. That's great. Thank you.

Speaker A: That's such a good example. Thank you for sharing. I'm curious given that Sweetgreen, I mean today as we know it of course is like a very popular brand and successful by almost any metric one can point to. However, at the time, was it um, like a pretty safe bet, would you say, when it came across the collab fund desk and like if so I'm always curious how a fund is able to get access into these venture rounds. Um, when and investments growing and is like really hot in the, in the, in the moment. Um, could you, could you speak a little bit to that? And if it wasn't then I'm just trying to figure out what at the time showed specifically that it does have that high potential. If you remember, I know this was probably several years ago, but I think it's just such a wonderful example.

Speaker B: It was a long time ago and so you know I don't think that the uh, the there was tons of certainty on whether the company was going to be successful. It was still just a few um, standalone locations and I think maybe just in one state at that point hadn't even expanded. Um, so it both was not. I mean of course they were showing incredible growth and incredible revenues per, per location, per square footage. Um and so there were a lot of indicators that there was something there. But it's still early enough that you know, could go in any direction. Uh and I think there are a lot of investors who are really hesitant to invest in consumer businesses, whether that's retail products or consumer tech because it can be a little bit harder to underwrite. There are more potential outcomes versus if you're just looking at enterprise software. It's a very clear sort of uh, rubric that you can, you can um, uh, look at that says okay, is this company successful? What is their uh, acv, what is their revenue, um, revenue growth per month. But you know there's very clear uh, ways of determining is this company successful. Whereas with consumer, it can be a little bit squishier, a little bit harder to pinpoint. I think for us, you know, we really do like to take a long time to look at a long time horizon. Um, one of the frameworks we, we use frequently around here is what is niche today that will be mainstream in 10 years. Like what is something that feels like it's just ah, kind of targeting a niche population or a niche um, uh, a niche area that feels inevitable in the long term. And when we invested in Sweet Grain we were starting to see these rumblings of this, this interest in sort of healthier food products and more transparency around um, you know, uh, uh, food for, for consumers. And so that felt like not just a little fad, it felt like a really robust long term trend that we were seeing. And sweetgreen was really, really well aligned with that. It's also just a great product. So we liked the product. We felt like okay, other people are going to like this product and, uh, you know, started it somewhat of a premium price point, but as that price kept coming down and it became more and more accessible to, you know, uh, a broader populace, it felt like, okay, there's an inevitability here where you can create a wonderful tasting product that is priced well and also doing good in the world. There's, there's something that's, um, yeah, maybe not inevitable, but something very promising about that. And then as I kind of hinted at earlier, you know, we, we do use this framework of, okay, we're looking at companies that are at the intersection of for profit and for good companies that are pushing the world forward. Would we want to invest in this company even if it weren't successful? Like, if they did fail, would we look back and say, that's okay, we're so glad that we made that investment because it really aligns with where we see the world going, where, um, where we want the world to be going. And I think swiftgreen falls in that, that camp. Thankfully they were successful, but even if they hadn't been, I think we would have felt good about having made that investment.

Speaker A: That's amazing. That makes a lot of sense. Even if it doesn't work out, still a win in a sense. Um, so what are some of the areas that you're focusing in on today, uh, that you feel like aren't necessarily mainstream currently, but have the potential to be in the next 10 years?

Speaker B: Yeah, I still think we're at the precipice of some really, really interesting, very, very macro shifts in consumer behavior. Um, some of that is driven by those same sort of generational shifts in sort of purchasing decision making. Um, but also of course, AI is enabling a whole new, um, user experience and totally new user behavior. And I think we're still just in the very, very early stages of what that looks like for the consumer. You've sort of seen the large language models in the first wave and then a lot of enterprise applications, but we're sort of still very early in terms of, okay, how does that filter to consumers? How does that improve your everyday life? How does that, um, change, uh, how you use different applications or purchase different products and how you interact with brands. So still early, um, and I'm sort of figuring out my thesis as I go. But, uh, it's something I'm really excited about to see how these big changes in culture end up, um, being impacted by, um, new technology. And I think it's going to be, I think it's going to be very profound. I'm also always very interested in kind of where sustainability intersects with other big tailwinds. Um, one of those being consumer health. I think Sweet Green again is a good example of a company that sits at the intersection of consumer health and sustainability. Um, and I think food is maybe the most obvious and easiest articulation of that intersection. Because often what is better for your body is also better for the planet. And so there's I think, very interesting ways that we can rethink our food supply, but also supply chains more broadly in a way that is better for consumers and better for the world. Um, and then again, where climate intersects with things like AI and the growth in data centers and energy and onshore manufacturing, I think there are in fact a lot of areas where climate is actually, is quite um, correlated with where, where the world is going. So those are just some examples of areas that I'm interested in. But most broadly, you know, we tend to look at where consumer, consumer tech, consumer AI and consumer and climate can all intersect.

Speaker A: And um, as a follow up to that, say, if a company is currently developing some application that fits within your uh, investment areas and they want to pitch you and the rest of the team on investing in them, what does a successful pitch slash strong series A or B pitch look like?

Speaker B: There's a general, general uh, um, theory that you should only reach out to investors if you have a good warm intro and you can uh, find someone who you both know in common. And of course that always helps because there's a good anchor for understanding uh, the context of the introduction that way. Um, but I am a big fan of cold outreach. I do my best to respond to every cold message I get that is an authentic one. I think when you get dozens of messages that are clearly spam and uh, generated and uh, auto generated for a very wide audience, that's different. But if somebody is reaching out directly to me and wants to have a conversation, I generally try to respond to those. Um, so, you know, don't, if you can't find a warm intro, don't be afraid to reach out to investors. I think it, it can work. Um, and then in terms of the pitch itself, for me, the thing obviously the founder is, is such a critical part of assessing whether or not we think a company is going to be successful and the team more broadly, but maybe the founder, most most importantly, and not just the sort of quality of the founder, how good the founder is, but how well they um, fit with the pain point they're trying to Solve or the product they're trying to build. Like how natural is it for them? What do they bring to that, um, solution that others couldn't, um, is what we sort of call product founder fit. Um, how strong is that? Uh, the other thing that I'm really looking for in pitches though is to really focus on what is the benefit that you create for your customer. Um, it's, it's kind of surprising to me how often that gets lost in a pitch and how much focus there is on oh, we're creating the coolest technology or we're creating the best, you know, the most impactful, uh, you know, best, uh, decarbonizing, um, uh, system that you know, exists in the market and totally gets lost. Okay, well, what, what does the customer think? What do you, how do you pitch to the customer? Um, often how you sell to a customer is also how you should sell to an investor. Because that ultimately I think is what is the difference between a company that you know, stays in the lab or stays, you know, in a, in, in pilot scale versus one that can really um, you know, get to get to large scale commercial traction. It's like you really need to offer something to your customers that they can't get elsewhere and that they're really excited about.

Speaker A: Could you give us a sense of how you spend your time across a typical month? Like how many deals you review, very general numbers, how much time goes to portfolio support, and how you prioritize internally.

Speaker B: It really fluctuates. Um, you know, it's very different than when I first started out. Uh, partly because we have a great team that can all share in the um, workload. Uh, but it, it's sort of fluid between looking at new investments and meeting with, with um, founders to board meetings and working with our existing portfolio companies to you know, working with the team. And um, one thing that I, I really try to carve out time for is I think of this like thesis building, you know, I think of Collaborative fund is a very thesis driven um, investment institution and we do want to spend time thinking about where is the world going? Where do we think those inevitable long term trends are? And so um, yeah, just making sure that we have a good handle on what's going on in the world and where we think, um, where we think those consumer trends are evolving too is really important.

Speaker A: Speaking of what's going on in the world, there is by several accounts much uncertainty right now, uh, where on one hand there um, is a new tax bill that was recently proposed. Uh, we're speaking on A Thursday it got approved on the uh, or passed the Ways and Means Committee, uh, just, just on Tuesday and yesterday. So I would love to hear how as an investor, just given all of the fluid developments that are underway, how you're uh, currently viewing the situation and what your orientation is in this current moment.

Speaker B: We have this framework at collaborative fund that we call the villain test. And it's a really simple framework. Uh, you know, we're only meeting with companies that are pushing the world forward and having a positive impact in the world. Uh, but before we make an investment we ask ourselves, would a villain use this product or service? Would someone who's purely self interested want to buy this product or use this service? And that's our way of ensuring that we're only investing in companies that are poised to scale, that do offer benefit to their customer, that is going to be resilient to whatever volatility or whatever noise is happening in the rest of the world. Um, and so I just flag that because you know, we've for, we've always operated under the assumption that things like federal subsidies or grants, those are tenuous, you can't rely on them. And so we only invest in companies with business models that are not dependent on, on things like subsidies. You know, I think it's a really tough thing for the market when there are these big grant programs that are considered and then revoked and then it's uncertainty about which dollars are actually going to be deployed or not. Um, I think companies need to really build their business models with blinders on without all of that noise. And then of course if it ends up being kind of upside in that you're able to access some um, non dilutive funding through things like grants or subsidies, then great. But I think it's a really hard thing to rely on because it is not persistent and um, it's not guaranteed. And so we're looking for companies that can operate independently of um, all that noise, that are offering something to a customer that a customer wants to buy. If you can achieve that, it doesn't really matter what else is going on in the world. Of course you have to be very thoughtful about things like where you're sourcing your products from and how resilient and diversified your supply chains are because things like tariffs can happen and then everything's thrown into chaos. But in some ways tariffs are actually better for startups than they are for incumbents because it's the very entrenched, uh, incumbents with a lot of inertia who have trouble just shifting supply chains at a moment's notice. Whereas startups are generally a little bit more nimble. So in some ways it should actually be quite good for them. Even though I think you have a little less uh, um, uh, margin buffer to operate when pricing pressure gets too volatile. But uh, I think again, if you're creating a product that customers want to buy, that should be pretty uh, resilient to whatever else is going on.

Speaker A: So essentially you take the long term view and look at policies as sort of, if they're there and they help, that's great, but if they're taken away, then your business can still operate regardless of whether that policy is in place.

Speaker B: Exactly. Yes. Great.

Speaker A: Um, is there just one quick follow up on this? Because I know it's on a lot of people's minds and as someone who uh, has the opportunity to engage with entrepreneurs pretty consistently, uh, like what, what are they feeling right now from your perspective? Do you feel like they've been adapting and like making pretty large strategic changes on their side and like are able to handle all this uncertainty? Or is it like pretty uh, I mean, not to get too intense or extreme, like somewhat terminal Love to just get that on the ground perspective from your conversations.

Speaker B: I think, you know, of course it's um, whenever there's volatility and chaos in the world, it just creates an extra um, strain that is, I think, you know, there's already so much stress and strain in building a company that uh, any additional um, points of friction can be very stressful. But uh, I do think we're seeing, obviously that's a key quality in an exceptional founder, is sort of adaptability and um, being able to adjust strategy depending on what's being thrown at you. So um, when uh, Liberation Day happened and the first round of tariffs were announced, my advice to most of the companies I worked with was don't overreact. Like, give it a second, let's see where things net out. Um, and I think that was generally the consensus. You can't just completely change your strategy on a dime. But for a good long while, I think the best companies have been thinking about, okay, how do we diversify our supply chains? How do we operate under the assumption that there will be some sort of tariffs, whatever the final numbers end up being. And so I think adapting to that has been important. Again, we've always advised that companies not rely on things like subsidies. So um, whether they go through or whether they're pulled, it shouldn't really affect whether, whether uh, these companies are successful. Uh, but I do think to your earlier point, one of the big advantages in this environment is that there is a lot less friction to actually getting projects deployed. It is a very pro business environment in that regard. And so you got to take the silver linings where you can. I think there's more, you know, uh, dirt moving right now, which is, is a net positive, I think, for, for a lot of the companies that, you know, we work with.

Speaker A: Well, thank you for such an incredible conversation. I have one final question reflecting on the lens, through the lens of your, your career, which has been super inspiring. Do you have any piece of advice if you could go back in time to give your 25 year old self? Is there anything come to mind that you, would you tell your 25 year old self?

Speaker B: Yeah, I mean the best piece of advice I've ever received in my career and my personal life, it comes from my, uh, one of my best friends, Olay, who has always said, since I've known her this phrase. Someday you'll miss today, uh, which is just a way of being appreciative for whatever is going on in that moment. Even if you don't feel like you have everything figured out and even if a lot of, uh, the future seems uncertain, it's like one day you'll miss today is I think an important, uh, mantra that I live by. It's like I, when I, and I, I appreciate that a little bit when I was 25, but maybe not entirely. And you know, I think there's so you're so stressed out, you feel like, oh my gosh, I don't know where I'm going, I don't know what I'm doing. How am I ever going to figure all this out? Um, but there's something kind of beautiful in the chaos too. It's just like, enjoy, enjoy it, um, to the, to the best extent that you can because you know, you don't get to be, you don't get to be 25 forever. So the very least, enjoy, enjoy that part of it.

Speaker A: Well, thank you again, Sophie for this conversation. I really have appreciated all of the insights that you've shared and uh, grateful that you're willing to take the time to speak to us today. I know a lot of people get a lot out of this as I have, so, uh, thank you again, really appreciate it.

Speaker B: Of course. Thanks so much for having me. It was really fun.

Speaker A: Thanks so much for checking out the Zenergy podcast. If you enjoyed today's episode, please take a moment to rate and subscribe to the podcast. It would mean so much to me and the rest of the team. We release episodes every Thursday, so stay tuned. Tuned for all new episodes featuring industry leaders building a cleaner, greener future for us all. See you next time.