The views expressed in this Member News article are the author's own and do not necessarily represent those of Agri-TechE.
Today is a thrilling day for Stable as we announce a $60m Series B led by the amazing Vishal Lugani at Acrew, as well as our friends at Notion, Greycroft, Continental Grain, Alumni Ventures, Syngenta, Gaingels and many others. I’m hugely grateful for their unfailing support and belief in our team as we continue our extraordinary journey to help millions of businesses around the world protect themselves from volatile commodity prices.
This milestone marks a new chapter in our work to build the ‘Home of Hedging’. We’re a young company, but we’ve already been through a huge amount together as we continue to push hard and try to build something truly extraordinary.
Being a solo founder doesn’t give you much time to pause and think about what we’ve done as a team and the inevitable highs and lows along the way, so I thought I’d share some of that story (before I forget it or block it out!) with the hope that it might give someone else the confidence to take a chance on their own idea and back themselves to build it.
The first thing to admit right off the bat was that the early probabilities of Stable making it to Series B were not great. I knew nothing about commodity markets or insurance, and this was going to be a data science led company, run by someone who just scraped a B in Math. One of the only things I took away from my school days was a sense that every time I asked a question where I was sure everyone else knew the answer, it was amazing how many people then joined in and said they were also struggling to follow along.
As it turned out, the willingness to ask ‘why’ over and over is an essential (if slightly annoying) skill to dig out commercial opportunities that have been fossilized in layers of industry bedrock. As an entrepreneur, it often pays to start digging in sectors that assume significant amounts of knowledge, favor tradition over innovation, lack the power of diversity and mildly resent the emergence of technology in their working lives. The agricultural commodity industry ticks most of those boxes, and yet by any measure it’s a $8trillion dollar industry that’s responsible for feeding a growing global population with a smaller environmental footprint.
I used to walk past the CME building in Chicago on my way to work each morning and it always intrigued me to think what happened inside those four walls.
Growing up on a farm, I was naturally interested in agricultural markets, but anytime I read about hedging commodity prices I got an overwhelming sense that this was a financial world not meant for the likes of a farmer’s son like me.
That changed in 2016, as the price of milk in Europe dropped and thousands of family farms like my dad’s faced a very uncertain future as they became increasingly exposed to global markets. These were hard working family businesses that were periodically exposed to global market events that they couldn’t possibly control. It seemed from the outside that an industry that started in Chicago in the 1840’s to simply manage price risk for sellers and buyers of corn and wheat had forgotten its own roots and lost sight of its own purpose in the world.
Hedging is hard. It can be complex, risky, imprecise, illiquid and opaque. Yet when thought of as price insurance it clears a pathway for a far wider range of businesses to think about its value and application to their own business. If it could be made simple, precise and accessible then the potential benefits for the world’s most important industry would be huge. I became determined to try and find a way to reimagine risk management, so hedging could become a catalyst for change by providing businesses of every size and sector the confidence to invest in their future. It goes without saying that when it comes to food, it really is about all our futures.
So the massive problem that needed solving was becoming clearer, but taking your first tentative steps to disrupt an entire category of finance is always going to throw up some curveballs.
The saving grace in these situations is that true outsiders have a seriously unfair advantage. It’s easy to underestimate how valuable a fresh pair of eyes can be in an industry that they haven’t been involved in for the last 20 years. Stable exists at the intersection of derivatives and insurance and a long career in either one of these fields could have easily created an innovation echo chamber within just one sector. If we were going to create a global price risk marketplace, for example, we needed to reach across two sectors while delivering a product that focused obsessively on just one priority — our customers.
In 2016, I was fortunate enough to be awarded a Nuffield Scholarship. This enabled me to travel the world and ask hundreds of agri-food businesses how they thought about hedging and what changes would make it work better for their business.
At this stage I was totally focused on helping farmers protect themselves from the risk of a price fall.
As these trips continued, I increasingly met cooperatives and even food processors who were interested in what we were discussing. I was thrilled to meet these large food manufacturing companies, as I thought it would be useful to learn from hedging experts with real commercial experience.
In one meeting with a $750m dairy company I was told very clearly that they don’t hedge their input costs and never have. At the end of the meeting, we walked out towards the lift and I casually asked the CEO why they don’t hedge their input costs. His casual answer changed everything for me at Stable: ‘We don’t hedge because we don’t really understand how it works, so it’s easier to do nothing.”
This was like an bomb going off in my head as I realized at that moment that the opportunity to simplify hedging was far bigger than I had thought and that Stable could play a much bigger role in the agri-food industry by helping both producers and consumers.
While an unexpectedly large addressable market was a great distraction, there was an elephant in the room that could no longer be ignored. If we were going to create the home of hedging, we’d need to help clients manage the risk of untraded commodities in addition to the actively traded commodities found on the likes of the CME and EEX.
That meant the ability to price untraded risk was essential, and that was clearly a massive challenge. The price of a financial option uses a formula called Black Scholes Merton and to work properly, that formula requires the implied volatility that you can only get from a traded market. For Stable to succeed, we needed to redesign that famous formula and use machine learning to simulate the implied volatility surface so we could price the risk in a consistent and measurable way.
With no money to help solve a big issue that simply had to be overcome, the only option I had was to start looking online for academics who were interested in price risk transfer mechanisms and the actuarial science around commodity price risk.
After weeks of searching papers that only occasionally made any sense, I could see a few well known academics in the US and UK were clearly leading the field in this area. With nothing to lose, I fired off a few speculative emails and hoped they might spark some interest. One was to Harvard University’s Professor Yiling Chen and one was to Liverpool University’s Professor Hirbod Assa.
To my surprise and delight, they both responded and were incredibly generous with their time. We discussed the challenge of pricing risk, but also a simple idea I’d had that might help us manage the future portfolio that was inspired by a very old fashioned farming phrase, ‘up horn, down corn.’
This olde world phrase is trying to explain the natural diversification of a traditional mixed farm producing multiple commodities in order to protect themselves from price risk. I wanted to explore whether this very traditional concept of hedging risk via simple diversification could be replicated and expanded using very modern data science tools across thousands of commodities in over 50 countries. In effect we wanted to build a portfolio that acted like the world’s biggest and most diverse farm!
The result was one of the most exciting professional periods of my life and I will always be grateful for the incredible academic help we received when the project was really at its lowest ebb in terms of progress.
My biggest takeaway for other founders facing similar hard yards was that both of these universities expressed surprise that so few people got in touch and asked them for help! With the extraordinary support of the academic community, the path to pricing the risk became clearer, although it would take another 18 months and the amazing work of a brilliant PhD student called Simon Wang for it to become a reality.
Simon is now our CTO and leads a team of 20+ Quants and data scientists with enormous skill, and together with Rachel and Victor (our Oxford Uni Quants), they hold us accountable to never compromise on our commitment to deploy extraordinary data science.
The unlikely combination of a beef farmer’s son from England and a math genius from China is one that I hope will always remind us as a team to keep pushing hard to seek the amazing alchemy that can happen in genuinely diverse teams.
During this time I was working in an old cow shed on my family farm and using that relative solitude to plan out our next steps and raise a small pre-seed round of capital to enable us to get the licenses we’d need to sell Stable as an insurance product during our soft launch to UK farmers. This successful pilot enabled us to secure the early support of some amazing angel investors, such as Edward Wakefield, Charles Norton Smith, Andrew Petherick, the Mercer family, John de Ramsay and all the team at Cambridge Agritech.
These early first steps simply couldn’t have happened without the help of our friends at the insurers Ascot in London. They had the patience, curiosity and skills to work with a young team of financial engineers and help us establish the framework, validation and commercial skills we needed to operate alongside the best insurers in the world and eventually backed us with our crucial first tranche of risk capital. Andrew Brooks, Mark Pepper, Parth Patel, Rebecca Wilkinson, Ian Thompson and the wider team were and remain outstanding partners who took a big chance on us and proved time and again why they’re so widely recognised in the insurance industry.
Shortly after we launched the pilot — I had a rush of blood to the head and joined Twitter (@fintechfarmer since you asked!) and I think my first ever ‘DM’ was from Matt Jones who suggested we meet up in London. Matt worked for a VC called Anthemis, and shortly after I met the Anthemis crew and the irrepressible Ruth Foxe Blader, Sean Parker et al who became our first institutional investors at a pre-seed stage.
Despite the fact that I think — embarrassingly — I talked about my love of cows in our first meeting, it was clear very quickly that we’d get along and that we shared an illicit fascination for the risk management space. We have been working side by side ever since. After all the work and wrong turns just to get to that point, their uncomplicated belief in not only our potential as a team but also in me personally is impossible to overstate in terms of the confidence it gave us all at that early stage.
It would be fair to say we thought we were about to enjoy a period of plain sailing, but for a group of data scientists this was a terrible forecast to make. During the pilot, we started closely tracking the politics of Brexit and were hoping that this wasn’t going to impact us as a small UK technology company which by that time was also a regulated insurance intermediary. I remember that it seemed impossibly unfair timing, but the eventual vote meant we had to make some really hard choices about how we as a team could hope to scale Stable internationally, as losing the EU financial passport had huge implications in terms of the regulatory costs of selling in Europe.
The models were working, the team was exceptional, we’d been joined by Louise Derbes (who left a senior position at Rabobank to join us) Will Ormerod and Joe Brooker (who joined us from Louis Dreyfus and Platts respectively) and the market was responding well to the innovation we were bringing to the party. Despite this, I knew I had to make a big call that couldn’t be avoided and one that would change Stable forever. London had to become our technology and R&D center, and our sales focus turned west to the US market, where the simpler regulation and a larger market size made more sense financially.
Shortly after making that decision I received an email from a man called Chris Roeder who’d recently left Cargill and had read about what we were building and wanted to join us. I knew within minutes that he had to be on the team, and he joined us as our first US hire. It was one of the single best calls I’ve ever made in my career. Chris led the US sales effort until he was joined by the one and only Tony Ness, his good friend and fellow Cargill alumni, as well as Jim Sullivan from the CME itself. As the team grew, they were joined by Taylor Coughlin from McDonalds, John Stotts from Belevedere, Erick Rodriguez from Yum Brands and Michael Nepveux from AFM and many more.
With Brexit fading in the rear view mirror and a tight team emerging in the US, we gained the confidence to expand beyond Lloyds of London. To be able to truly scale, we wanted to think big from the start and set up our own risk capital operations (rather than a broker/MGA relationship) in order to innovate wherever possible and to remove any unnecessary costs for our clients.
Other than having a few mates who grew up in Bermuda, I knew nothing about the rocky outcrop that I always assumed was in the Caribbean, and I certainly didn’t realize it was a global hub of reinsurance. If this was going to be a potential new home for our risk capital operations, we clearly needed an expert in reinsurance who would relate to our dream to change an industry and who would genuinely understand how we could create a whole new business line for reinsurers. A couple of people I trusted mentioned a lady called Julia Henderson and thought we’d get along. We arranged a call and spoke for hours about what Stable was building and why it mattered.
It was clear in early calls that while we really did get along, it was also clear she thought it was totally mad, but could sense the potential size of the opportunity. She also had a fantastic job on the island and was enormously respected as a fearless innovator in an industry that is still very pale and very male, and I was determined to bring her onto the team. For Julia to join Stable- a startup with no track record — required a huge leap of faith. It took a while, but in 2021 Julia came on board full time, arriving at Stable like a Bermudian hurricane, and she quickly got our risk capital strategy moving and became our own rock at the center of the team. She was instrumental in getting us regulated as an insurer, getting our local office set up and working with the likes of Brad Adderley at Applebys Andrew Hitchings and Mike Pummel at Guy Carpenter and the ever supportive BMA as we now start to build our own fund (most of which gets planned out in her garden!)
Covid arrived at roughly the same time as all of this was going on, but after all we’d been through and with the team we’d built, I knew we’d be ok once we all adjusted to life on Zoom and the inevitable terrible virtual quiz nights. Our sales team did a truly extraordinary job of launching a new product in a new market during lockdown, and I couldn’t believe how quickly they built the pipeline compared to our more cautious European clients.
In less than 9 months we had over 250 of America’s largest food companies in our pipeline, having spent less than $10,000 on marketing. As things have thankfully opened up, that has continued to grow enormously (sadly, so has our marketing budget!) along with our ability to actually meet up with our partners and clients and the phenomenal marketing and platform teams we now have under Caroline and Karan respectively in New York.
Reminding myself of those early days of working with just Simon and Sam, our first developer, in a free and very small office in Liverpool makes me pinch myself as I now watch 60+ people logging into our all-hands calls from our offices in NYC, Chicago, London, Bermuda and Singapore.
It’s easy to say, but I hope that somewhere within this post you get a true sense of why I feel it’s such a privilege to lead this talented team of people from every corner of the world, who have left exceptional careers at insurers, banks, trade houses and hedge funds to join a small startup and try to build something spectacular. That trust in me personally and the product the team has built is really humbling and not something I will ever take for granted as we look forward to the next stage of life at Stable.
Reminiscing like this is of course hugely indulgent at such an early stage, but I simply wanted to put our reality of life at our startup down on paper to see if it could help anyone else that is wondering if they too should take that leap of faith, so they can better understand how a day like today really happens.
It’s not complex and it’s not about having a great idea, it’s just the logical output of what a small group of people can do when they simply refuse to stop solving the next issue in front of them.
That’s as close as I can get to any advice from someone who’s made every mistake in the book.
What’s next for Stable?
The new investment and upcoming launch of our client platform will see Stable go much further and much faster as we work towards becoming the global home of hedging.
We’re investing in new algorithms to price more risk, new products to help clients visualize their exposures, new partnerships with industry leaders, new research, content and sales pods to help more sectors in more countries (next up South America!) and the launch of our new fund in Bermuda with the help of the amazing risk team of Nikki, Will, John, Gill and Patrick.
There is much to do, so we’re hiring across all of our departments. If Stable sounds like the type of place you could help us build something remarkable, then we’d love to hear from you!
After four years of sitting next to the data scientists at Stable, I’m embarrassed to report that my Math hasn’t improved one bit. However, after 20 years of trying hard to build a business like Stable — one that solves a real problem, at scale, and in an industry that matters — I think I’ve finally worked out one small piece of the startup jigsaw.
Math isn’t the thing that makes days like today happen. Investors and partners are awesome, but they alone don’t get you there. My piece of the jigsaw, like all founders, is to hire the likes of Marco, Julia, Caroline, Louise, Karan and Simon and all the other rockstars at Stable and simply give them a stage and the confidence to shine.
FD Roosevelt nailed the role of a founder (and President) when he reminded us of what he brought to the table:
‘I’m not the smartest fellow in the world, but I can sure pick smart colleagues’.
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