It has been almost a year and a half since Kevin O’Leary’s O’Leary Ventures was chosen by the North Dakota Development Fund to manage the $45 million Wonder Fund North Dakota program.
Since then, the fund has made eight investments—some of which are not public yet. We spoke with O’Leary Ventures CEO Paul Palandjian to learn about the companies they have invested in recently that he can talk about.
Thread
Thread is an energy and utilities asset-maintenance technology startup based out of Grand Forks that has received two seperate investments of $2.5 million, totaling $5 million, from Wonder Fund North Dakota. We asked Palandjian why they doubled down.
Palandjian: When you make venture investments, you are always kind of underwriting the opportunity from the perspective of what the potential return could provide to the fund. This is a business we have a strong conviction could be a fund returner. In other words, that one investment could end up potentially returning the whole amount of the $45 million fund we are managing. That $5 million has the potential to be a 10x return.
That company needed a little bit more capital because of the way they have progressed. And, in our original investment, we had a kind of tacit agreement with them that we would make the initial investment, get to know them better, start to roll up our sleeves, and get active with the company, and we wanted the ability and kind of a first option to put more capital into the business.
That’s also one way we manage risk—by not writing the whole check day one. Instead, we write a check, see how they operate, and develop that relationship. It’s kind of a land and expand strategy—that’s not uncommon with venture funds. This method allows you to double down with the winners. Thread is a company we’ve identified as a huge potential winner.
Since that initial investment, they’ve gone out and locked down some contracts that suggest their revenues are going to ramp up very nicely
They’ve shown huge promise. They’re doing a couple of million in recurring revenue and it looks like they’re going to spike to four or five times that.
We have proof of concept and commercial traction. We were also able to take look to the sovereign wealth funds in the Middle East, which have economies built entirely around oil and gas. One of the applications of Thread is the autonomous inspection of critical infrastructure and assets for large utilities and potentially for oil and gas companies—inspecting pipelines and things like that. So, from the time we made the investment to the time we made the follow-up investment, we were able to use our network to validate interest and demand for the product further. We’re actively engaged in those conversations with some big international investors who are potential customers of the company as well. So we hope to leverage that network to support their growth in the future.
Thread
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Tavolo
Tavolo is a company founded by Fargo native Taranvir Johal. The company is based in Minneapolis and is a a AI-driven marketing solution for restaurants. The Wonder Fund recently invested $250,000 in Tavolo and we asked Palandjian to tell us about the company and the opportunity the fund saw.
Palandjian: Restaurants, many of which are small businesses, family businesses, mom and pop in their nature, are just doing the best they can to serve good food and make sure that logistics and costs are where they need to be. So, they can be kind of weak when it comes to marketing. But, the whole world has changed now. You have to build not only a good business, deliver great food to the customer, and generate this kind of repeat customer base, but you also have to use social media and various forms of distributed digital distribution to build your community.
Tavolo is using AI-generated marketing campaigns and plugging in with these restaurants to give them much more robust insights into their data. They help the restaurant figure out who the customer is and what their preferences are.
In business, there’s kind of an 80/20 rule where 20% of your customers will create 80% of your revenue. So, it’s not always the case that you want to acquire new customers, although that’s very much a part of every marketing campaign. But you also want to have the ability to get your current customers to come in and buy more.
This is a great example of how technology is changing. AI affords you the ability to do a great many things without hiring a lot of people. Right now, the current restaurant regime is all using point-of-sales systems. There are various ones out there and those companies that are providing that point of sales system tend to own and control most of the data and the restaurants themselves are not even really astute in knowing their customers at that granular level. Tavolo is a bridge for that. They’re able to tell you what your hero products are versus the menu items that are selling less. They give these robust insights. They generate marketing campaigns that can improve sales of certain items. They help run specials if certain menu items are not being sold.
The use case that got us very excited was a small cafe in Minnesota that they were serving. The cafe was originally doing $20,000 a month in gross revenues, and once they started using Tavolo, they increased their sales to $80,000.
Matt and I were both mentors for the Techstars Farm to Fork program—we met Tavolo through that program and we were proactively looking for good companies to invest in. Out of the 12 to 15 companies we encountered, Tovalo was the one who kind of checked boxes for us as far as having a great founders group that we thought didn’t know the meaning of failure—they’re just going to persevere and execute. They’re just three young, energetic, smart, visionary guys with different skill sets who work well together as a team, and they have already gotten some traction for their product. We think the product is excellent.
Outside of our North Dakota mandate, we recently bought a franchise business in the food space called Brookly Dumpling Shop. So, we were able to connect them with the CEO of that company and they’re rolling out Tavolo in that company. So, there’s kind of a virtuous cycle where we can get involved with the business, and then use our network, whether it’s a company we own and control or another company.
After we invest, we’re able to use Kevin O’Leary’s platform to tell the story of a company when the time is right. It’s got to be carefully curated and coordinated with the company to meet its marketing needs. Sometimes companies like to stay stealth while they get to scale and not necessarily prematurely invite competition to what they’re doing. We respect that. But once the company says, ‘Okay, how do we work together to really get the word out and get more customers?’ That’s when we leverage Kevin O’Leary’s network and social media presence to help that company.
Drut
Drut, a company that recently received a $1 million investment from the Wonder Fund, is pioneering a new approach to AI data centers by using a photonic mesh application, which aims to decentralize and improve the efficiency of these centers. We asked Palandjian to explain further.
Palandjian: What’s happening in the world of AI today is that you have new chips that are being developed with enormous processing capabilities and there is an unmet demand for AI compute data centers as well which require an enormous amount of energy to drive them. Cooling them is also an issue. The GPUs themselves suck up a lot of energy so you have a number of companies that are trying to innovate to create a more efficient way for those data centers and those GPUs to operate.
Drut is using a photonic mesh application… that will decentralize data centers, and allow them to operate more efficiently and also be upgraded over time in a more efficient manner. Right now, every four years, you have to rip out the racks and the GPUs and there are new computers and different sizes which have different requirements and all of that costs an enormous amount of money. It’s almost a complete rebuild of what’s inside a data center.
Just for some context, a modern day AI data center costs about $10 million per megawatt, just for the building. And that’s before you even put the racks and the computers in. The reason for that is because you need an enormous amount of power brought to the site. You need redundant fiber optics coming in all four corners of the building. And you need backup power. It’s almost like building four in one. It’s nothing like the past generation of data centers. One of the reasons for that is because the large mega scalers have a requirement that you have to be up and operational 99.999% of the time, which equates to only 26 seconds a month that you can be down.
Otherwise, their large language learning models get thrown off. So, there’s a huge cost if a data center fails and can’t support the power requirements and the operational needs of that end user. So, you have to kind of account for all of that when you build it. And then on top of that, the minimum requirement today by those mega scalars is 100 megawatts. So, what you’re trying to deliver to them is an enormous undertaking. It’s $2 billion just for the building. Then, they’re spending $25 million plus per megawatt, just for the racks and the GPUs. And then roughly every four years, those all become obsolete and you have to rip them out and turn them over.
So, what Drut is attempting to do is create a photonic mesh, decentralized method of stitching together a data center network. By doing this, everything requires less cooling and there are lower switching costs. This could allow you to pop out the old chips and put in the new chips—it could be revolutionary.
Now, you can have the best product in the world, but you need the industry to adopt it. This is a company that was founded out of MIT and is very well venture-backed by some of the smartest VC investors. We have very high hopes that the industry will adopt it, but it’s the early days.
Herddogg
The Wonder Fund recently invested in HerdDogg, a company using bluetooth-enabled smart tags to continuously monitor animal movement and temperature to give realtime health alerts. With a number of cattle monitoring solutions on the market, we asked Palandjian why they chose HerdDogg.
Palandjian: It’s early days in the industry. There are only a handful of companies doing tagging and realtime data analytics. It’s about herd health, ultimately. Their software gives you pre-emptive capabilities to be able to detect if cattle are in distress so you can separate them from the herd. If they’re in distress, that might be indicative of an illness that you don’t want to spread to the herd. So, this is a space that we believe will be huge and ubiquitous.
It’s an industry that’s slow to adopt new technology.
We think the product and science is good. The CEO who came into the business has a great track record of having built and sold businesses. The big acquirer of these businesses is the animal science division of big pharma companies and he has a demonstrated track record of doing that. He is also a cattle rancher. His family is very prominent in the National Cattle Association. They have a substantial herd of cattle
Because of his connections within that industry, they have a very low cost to test and develop the product. We like the investor group and we like the valuation that we were able to invest at.
Palandjian: We’re coming up on a year and a half since our program began with the state and we have been blown away by the quality of the talent within the state and the efficiency with which the state operates to make resources available to support small business and startup activity within the state.
We have professional management and investment discipline that we have a conviction will enhance outcomes for the state over the long term. Our only constraint at this point is capital. We want to do a lot more. There’s more opportunity than we have the funds to be able to deploy right now. So, we’re already thinking about what’s next.
What you’re going to see from us in the coming years is that we’re going to actually grow the nexus of everything that O’Leary ventures does in North Dakota. We opened an office in The Hive in Grand Forks, and we’re going to open an office here in Fargo. We’re going to start to scale management and a lot of our back-office activities—accounting, compliance, and legal—in the state as well. We’re going to build something that we think we can all be very proud of. We’re seeing a lot of opportunity throughout the heartland. Our business vision is to focus on North Dakota and beyond, where these state economies have similar core attributes and where we can support them… We’re just getting started. We’re super excited about what we’re seeing. We just want to be thoughtful about how we grow and expand.
