At Verdant, we love science. Sometimes science confirms our hunches, telling us that yes, work-life balance is important and environmental health goes hand-in-hand with personal health. Other times science tells us counterintuitive things, such as a caffeinated beverage before a short nap being an improvement on a nap alone. As healthcare investors and simply as people occupying a shared global environment, we like to think holistically about what it means to be healthy.

I spent last Friday at Reversing the Tide II at UCSB, a gathering of like-minded investors and scientists interested in sustainable economy in marine environments. It runs a bit long, so here’s the executive summary: Blue Tech (a widely-applicable term covering technology that relates to the ocean in any way) is very exciting to discuss, and there is a lot of early-stage innovation and buzz around it. However, I don’t yet see how it will participate in a commercial economy.

Blue Tech is Just Like Health Tech

Most humans feel a moral responsibility to care for the planet. We see environmental wrongs and we fight to right them. It’s different from a business perspective. Businesses need to be profitable or they will not survive. You have the most amazing technology in the palm of your hand, but if you can’t bring it to market in a profitable way, all the development effort exerted may still result in a commercial dead-end.

One of the first hard lessons I learned in Healthcare was:this: Healthcare providers will not pay simply for better outcomes for patients. However, they will pay to increase or create profit. This cold business reality is directly applicable to Blue Tech as well.

In both industries, revenues largely depend on government grants or large corporate sponsorships. There is a copious amount of data being generated but no secondary customers for it. The aquatic robotics industry wants to sell aquaculture data back to the aquaculture farmers. The oceanic drone companies are expecting to sell monitoring data to regional governments to improve compliance with fishing laws. Two very exciting plastic recycling companies intend to sell their products to energy companies.

The primary private sector play appears to be selling food like salmon, oysters, and kelp directly to consumers or to the food industry. This play requires a solid distribution network.

All of this is pretty exciting stuff. The downside is that almost everything relies on large institutions to participate and accomplish the ultimate monetization of the product. The sales cycles are thus pretty burdensome. Also, some of these technologies exist in the food or other regulated space, so there is a significant amount of legislation that needs to be hammered out in California before the industry can really grow.

Though not represented Friday, the B2C space includes things like apps to tell you if your fish was sustainably harvested, or track your carbon footprint. These are non-essential items and I don’t see them getting much traction. The health analog is Strava, where users can compete while tracking personal fitness. It would be interesting to see a Blue Tech model like that.

This feels, to me, almost identical to having to have hospital, pharma, and insurers in every single Digital Health business model conversation. I don’t yet see Blue Tech as an industry with fast turnarounds. Sales cycles will be 18-24 months with SaaS being initially resisted.

Blue Tech Is Being Born Funded

There are many funds out there with a Blue Tech thesis. Verdant is one of them. It was very encouraging to hear Shally Shankar of AiiM Partners talk about how they are approaching the space. Every VC / Fund tells you how operational they will be, but when you hear Shankar say it, it feels different. I’m hoping I’m not wrong on this.

I met several other accelerators at the event. This was tremendously encouraging. These accelerators are focused on specific business models, whereas our focus at Verdant is on technological innovation.

Computer Vision Rules

Computer Vision (CV) is the stand-out advanced analytic in Blue Tech. Since a lot of CV is now using Deep Learning, it’s fair to call the technique “AI”, but it’s not that interesting. When it comes to predictive analytics, techniques are still rather basic. That’s totally fine from a business perspective, but not as interesting from Verdant’s point of view.

Since Computer Vision and Remote Sensing are a focus of Blue Tech, Verdant is considering looking into Embedded AI. This is another parallel to Digital Health. All four families of sensors (environmental, wearable, embeddable, and implantable) are including vision models for detecting objects in real time. As I mentioned, the business need is what to do with the resulting data. In the early days of online advertising, we were able to detect that a user is into NASCAR, but it took a bit of time to turn those findings into a marketplace for advertisers.

Market Forces Seem Unclear

Blue Tech has funding, innovation, accelerators, and advanced tech. While data abounds, true AI is about as rare in Blue Tech as it is in Digital Health. I’m sure this will change when we find some secondary markets like advertisers, insurers, or futures markets but I don’t know what that marketplace will be. I am thinking pretty hard about it.

During the conference, one person suggested these small companies use SBIR (Small Business Innovation Research, a government grant) money (or equivalent) to get started. I chased SBIR money within the Intelligence Community for years and it was too hard to cross the gap into a true commercial space. I don’t think Verdant will be SBIR-fishing any time soon.

My wife, Jane, laughed when she heard I was going to the conference. We met when I was doing coastal ecology restoration work at UCLA for graduate school. She said it was a pretty transparent attempt to get back into the ocean. Yes, it is. I founded Verdant on the simple principle that we should build cool things that make the world a better place. I hope this letter reminds the readers to do the same. I’d like to ask you to share any thoughts you have on how Blue Tech can go commercial so we can all get back into our wetsuits.

-Brian Dolan

July 2019