Midyear Report for Divergent. Also, Story for some inspiration. Courage, conviction and sausage making.

I am now at 36 total investments, including 3 LP positions and including 3 new commitments.?The first half of 2023 was much like second half of 2022- many companies spending time refocusing and trying to do more with less.?There were tough decisions made, but green shoots have started showing up.?The pace of financing has slowed down considerably.?The time between rounds whether pre-seed, seed, A has gone from months to years.?

Let me put this in perspective.?It should be years, not months.?Also, the less financing you need, the better.??Divergent continued its focus on Healthtech and Edtech but I do intend to look at some other segments like food/agtech (which I know well) and especially where it overlaps with human health. ?

Here are the key themes I would take away from the first half of 2023:

*Almost nobody is in hyper growth or overdrive, outside of "AI" companies

*More modest growth has continued in most firms, characterized by less burn and less rapid hiring

*The late stage company mark downs of value, some by 60,70,80 and even 90% have started to trickle back to Series seed, A, B etc.. Its not a bad thing resetting some irrational market dynamics from 2021 and early 2022

*At least 75% of companies by my estimate are refocusing and allocating money and resources more wisely.?A definite positive.?

*There are some wind downs happening.?There will be more, its natural and ok when that happens. At all scales and sizes of companies.?

The keys to success going forward will be focus. Not to dwell on the path or remember the glory days of 2021. But also not to dwell on the difficulty or the tougher financing environment of the last 18 months. Its all water under the bridge. The company you have now is what you have and if the vision and mission are intact, nothing has really changed. It is really hard to see paper values decline or dream of a certain amount of wealth and not have it materialize. I have been there many times myself. Stick with the plan, manage your resources wisely and have courage and you will be surprised to the upside. There is always going to be another great market and eventually all will recognize your value. Sometimes it happens all at once.

When I was younger I used to let the most immediate market condition or round or good or bad news bother me. What I have learned over time is everything is as a good or bad as you make it. You can take an awful situation and turn it into something exciting. You can also take a great situation and flush it down the tubes. Neither is good. Its better to take things in stride. Play a longer game, in a sense, grind it out one day at a time.

For me, personally, it was an eventful first half. ?I retired from FBN, now over 5 months ago and have transitioned to being only a shareholder. My passion for agriculture, farming and foodtech has not changed. I am especially passionate about solutions that lower cost and deal with the issues of hunger and nutrition among those who need it.

Speaking of which, in terms of what is next, I am not the type to start a venture studio or do dumb crap.?I want to focus in.?I have money to invest and bandwidth but I am the type of person who needs to know exactly what I am doing each day when I get up in the morning.?The purpose matters.??I started Divergent to invest in health and education but also with an emphasis on this space of neurodiversity. I also did it to buy my way into being able to work with all of you which is a just a joy in itself. BTW, I like tough conversations and problems and bad news as much as good news- like 50/50. Just try me, I will help however I can and won't judge.

Here are some of the highlights in the Divergent Portfolio in the first half. There are more than this to share and some can share publicly and some cannot- but I have included below some of the basic commentary from the great entrepreneurs that Divergent has backed that can provide quick updates.? If you have questions or would like an intro to anyone on this site, https://www.investdivergent.com, just lmk. ?On balance, great progress considering a tough market.??

Linus Bio:?Science and technology leader in exposome and environmental biodynamics

CEO:?Dr. Manish Arora

?Key Highlights from FH 2023:

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1) Raised an 8M series A2 with 35% increase in valuation?

2) Tripled revenue to 3M per year

3) Opened new laboratory that is 3 times in size of previous one?

4) Doubled team size

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Begin Health:?Pioneering toddler and kids gut microbiome health company

CEO:?Madeline Lauf

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1. Stated goal to achieve profitability?in 2023 — achieved in February 2023!?

2. 1H 2023 revenue?up 171% YoY?

3. Lean team of 3?

4. Leveraging a 5k+ strong actively engaged community

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Brainkey:?AI for Neurology

CEO:?Owen Phillips

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1)?BrainKey released a new 3D AI tool for identifying problems in the brain’s vasculature

2)?BrainKey’s new AI tool is available at high-end clinical partner sites such as?Fountain Life ,?BioGraph , and?Atria .?

3)?BrainKey will raise a series A in Q3 24. Reach out to be kept up to date:?[email protected]

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AnswersNow:?Virtual high quality ABA care

CEO Jeff Beck

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1) Partnered with Magellan California to?get access to care for 50+ families in 30-days or less

2)?Closed our Series A? ?with Left Lane as lead

3) Hiring dozens of FT and PT BCBAs?to keep up with demand

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Tiimo: Leading app for ADHD and Executive Functioning

CEO: Michael Juhler

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1)????Tiimo is?rapidly approach 400K downloads in 2023. We have?passed the magic?+1M USD ARR?mark.

2)????The Tiimo app now offers?AI-powered planning: Tiimo's checklists now come with a build-in AI designed to instantly break down task for you with one click. We are receiving great feedback from our users as they find the new feature extremely helpful to support their executive functioning.

3)????We have launched?Brainstorm, Changemakers by Tiimo, a series in which we’re talking to authors, therapists, chefs, and other experts at the forefront of change in the neurodivergent space. People who we believe make a positive difference in terms of a more neuroinclusive world.

o??Our first episode with neurodivergent entrepreneur Ellie Middleton aired last week:?https://www.youtube.com/watch?v=xnvbbMQ5C3g

4)????Tiimo for Business?has been up and running for 6 months as we are getting more inbound requests from Corporates who are embracing neurodiversity as the next (natural step) on their DEI agenda.?

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Beaming Health:?Industry leading website and tool for neurodiverse families

CEO:?Chris Olmanson

1)????Beaming Health is becoming the go-to place for neurodiverse families to find care. In June, we had 70K organic visitors, 12K referrals to service providers, and 1K new accounts created.?

2)????Service providers are recognizing the value of having a Beaming Health profile and are claiming, managing, and upgrading their profiles at an increasing rate. Over 1K profiles are being actively managed.

3)????We're hiring! If you know of a great senior engineer and/or senior product designer who could be interested in working for Beaming Health, refer them our way! Please send to Chris at?[email protected] .?

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Rocket Doctor:?24/7 online virtual care through a network of doctors and specialists

CEO:?Bill Cherniak

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1)????We won Stanford Emergency Department’s?STEMIx pitch contest ?a couple of weeks ago for our virtual emergency department model and preventing unnecessary visits to ERs.

2)????Invited to present at?Virtual First Care West San Diego ?as 1 of 2 start-ups. The problem I got to present was access to care for patients on Medicaid, specifically how to tackle the complex MCO model in California with a virtual-first solution.

3)????We won the?CABHI MC2 Award ?funded by the Public Health Agency of Canada and other Provincial funding agencies for companies building solutions for improving senior and brain health.?

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Teiko Bio:?Teiko is an immune profiling service. We serve drug developers today, and will eventually offer tests for doctors and patients.

CEO:?Ramji Srinivasan

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1)???In 2023, we’re working on initiatives spanning cancer and autoimmune, including:

2)???42 sample, $177K, initiative for a $1B autoimmune customer

3)???36 sample, $100K patient initiative for a privately held immunotherapy customer

4)???25 sample, $80K initiative for a ~$400M cancer customer

5)???27 patient, $93K initiative for a $3.5B cancer customer

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2). We’ve released two public datasets with academic collaborators

· 12 non-small cell lung cancer patients with National Cancer Institute

· 40 urothelial cancer patients with Parker Institute for Cancer Immunotherapy

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Healthy Young Minds:?Healthy Young Minds is a Pediatric and Adolescent Behavioral and Mental Telehealth Company Focused?on Serving the Medicaid Population offering Counseling, Testing and Diagnosing, Speech, Occupational, ABA, Art and Music Therapies

CEO:?Paul Graf

1)????Received a Nationwide Contract with Centene, the largest Medicaid manager in the US with 15 Million Members adding?both Medicaid and Commercial Payer Contracts to bring total to 25 Million Members

2)????Achieved $2M ARR

3)????Now Operational in 6 States with 36% of the US Population

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Soar Autism Center:?Leading Autism clinic based in Colorado

CEO:?Ian Goldstein

1)????Reached the $1M/month revenue mark two years after opening?+ has a waitlist of 50% of their existing client base

2)????Built a?world-class clinical advisory board ?comprised of leading experts in naturalistic intervention for kids with ASD

3)????Laying the?groundwork for multi-state expansion in 2024+

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Learnfully:?A provider of elite Educational Therapy and Executive functioning for kids with learning differences

CEO:?Suchi Deshpande

1)???96% retention continued consistently in first half

2)???YOY growth has been significant, 1M ARR milestone achieved in May

3)???Automated whole child assesments and session collection data for predicting engagement and performance

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?Floreo:?Industry leading VR driven therapy for Autism and other early childhood conditions.

?CEO:?Vijay Ravirandran

1) Selected as World Economic Forum Technology Pioneer for 2023

2) Partnered with Meta for Immersive Learning and launched?headset donation program for public school districts:?https://floreovr.com/immersive-learning-program

3) Obtained first Virtual Reality Behavioral Health CPT 3 code which went live in January 2023

RNAV8Bio: AI-enabled mRNA therapeutic design and optimization.

CEO:?Devan Shah

1)???hired senior manufacturing leader from a Flagship Pioneering RNA company (ex-Moderna Director of CMC and Process Dev) and executed investment/partnership w Mayo Clinic

2)???Signed first biotech partner revenue deal (cancer application)

3)???Engaging with biotechs/pharmas interested in expanding applications of messenger RNA therapeutics

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Stronger Brains:?Digtial platform for improving brain plasticity

CEO:?Cameron Backes

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1)????Brought on 9 new clinics— a 40% increase to our customer base

2)????Pilot of Stronger Brains with one of the three largest US health insurance Providers is in the works

3)????Made our first hire!

Daivergent: Technology for vocational rehab and career and coaching opportunities for those with disabilities.

CEO: Byran Dai

1) Won credential with Optum / UnitedHealth Group in June, making us first company with a Medicaid-reimbursable skills training platform for disability.

2) 280% QoQ growth in our self-pay REACH program, 60% QoQ growth in VR programs.

3) New VR applications submitted to Virginia and New York, which would bring us to 4 approved states for reimbursement by end of 2023 — growth is faster than expected. California in demonstration stage right now, represents enormous market.

Marker Learning: Affordable learning disability support

CEO: Stefan Bauer

1) Raised a??$15MM Series A lead by Andreeson Horowitz ?

2) Partnered with Richard and Virgin to expand access to learning disability services?Richard Branson and?Virgin?Partner with Marker Learning

3) Hired and onboarded former COO of Spring Health?Riley End

4) Established a partnership with one of the nation's leading nonprofits, the Learning Disability?Association of America, to subsidize?evaluations for students across the US (link to release )

Manatee: Digital mental health and therapy for kids and families

CEO: Damayanti Dipayana

1) Completed $5M fundraise led by Grey Matter and with participation from Progression, Re.mind and Graph Ventures

2) Payor contracts with Cigna and Aetna, going live with BCBS Kansas in Q3

3) Grew appointments in Q2 by 30% versus Q1

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Entrepreneurs Corner:?Courage, long term thinking and sausage making

There are companies that have a charmed life and encounter very few if any problems.??But most successful companies have all kinds of points in time where things get sticky.?Some even face demise. And there are so many personal and professional challenges along the way. When I started FBN, I had just left KPCB. Also, my son was being diagnosed with autism. I didn't ask for (and didn't get) a handout. I went forward because that is the journey I have. You deal with whats in front of you and you stick with it. I feel entrepreneurial careers, if you choose to do this type of thing long term, are defined by that.

I will tell a quick story for this midyear report just so you have some inspiration but also so you can see what it takes to be a great entrepreneur or early stage investor (BTW, I view these two skill sets as intertwined).?Many of you may or may not know this given the investment focus of Divergent is mostly Healthtech and Edtech, but I am a well known climate and environmental investor (in a different lifetime now decades ago).?

My approach of considering low cost and considering people as highly as environment is not as popular anymore, as most innovations are targeted towards the wealthy or elite for dinner cocktail party discussion. There was a time when it was novel to back real innovation.?I am twice quoted/mentioned in “Speed and Scale” by John Doerr- I highly recommend reading it or buying it if you like impact Speed & Scale .?That is not to chest thump but to qualify my credentials to comment here.??

The story ?I want to tell is of an investment in Beyond Meat (back when it was called Savage River Farms), nearly 13 years ago- the best investment I ever made as a VC.??

I became passionate about agriculture 20 years ago in grad school. Being from a city, I never thought the cornfields I drove through mattered. But I fell in love with industry- especially with livestock and farming. It has never left me. To this day, I want to own a ranch. Roughly 14 years ago at Kleiner Perkins I had a boss named Ray Lane (who is now at Greatpoint ventures) who gave me the ability to be creative and use my technical/domain knowledge to think big.?I had worked on an indoor fish farm that was venture backed in grad school and felt there was a huge opportunity around feed efficiency.?Fish is more efficient than chicken which is more efficient than beef.??I love beef the best for taste but we also need efficiency.? At Kleiner Perkins, at least back then, you had to be an entrepreneur to work there so incubation and ideating from scratch was the job. There were no analysts.

My first idea was I wanted to “incubate” and fund a genetics platform that had the most elite genetics in various livestock and would license it to farmers and ranchers.? Yes, there was a time years ago when venture firms truly incubated companies.?Ideas with super high risk, from scratch.?Tom Perkins did it that way.??

My idea was to use data science (an emerging discipline at that time and not even called that) to breed faster and better for cattle, hogs, poultry and fish.??But I was unable to find a great team to incubate with.??

Around that same time I came across an article about an innovation at University of Missouri where they were extruding plant based protein to make texture like that of meat.?Now, to be clear, I love meat.?I eat meat and work with ranchers.?But I thought if they can really do this, maybe its game changing.

I called Missouri and was told a fellow named Ethan Brown was licensing the tech and that I should talk to him.?I met Ethan in Maryland while I was coming through, and I was shocked how visionary he was. I really passionate entrepreneur.??It seemed crazy enough to work.?I brought an incubation proposal to the KPCB partners and with the help and support of Ray got it approved.?I had met a very smart young Wharton grad named Brent Taylor who I also recruited to help me diligence and he ultimately joined as a founder.??

The few years after that were surprising.?On the one hand people were intrigued by the concept.?But there were literally ZERO other alternative meat companies (until pat brown and impossible foods came along, which I incidentally also had a chance to invest in).??There was a lot of skepticism to the point where the company needed extremely forward thinking investors and other successful entrepreneurs like Bill Gates, Evan Williams, and Biz Stone to invest so that the journey could continue and just to survive. Often facing an uncertain future in early years. How many times did they have to beg for anyone to just give the idea a chance? To just see a potential for the future? More than I can count.??I give a lot of credit to Ethan and Brent for sticking with it and also to the great investors who were there to believe when others didn’t.?

Today there are hundreds alternative protein companies and it all seems obvious.?Getting such a company funded seems trivial now. ?There was a time when it was viewed as literally ridiculous.? Things used to be hard. In retrospect, even though it was hard that is why I view the success so fondly for the team. It was earned. At the time I made that investment and the points in time thereafter, I recall how much people used to mock me (no pun intended) for making such an investment. They likely thought I was a lunatic or crazy. They certainly didn't think I was smart or ahead of the curve. ?There is much much more to the story, but the bottom line is the ability to believe when others are skeptical or even punitive is the key to great investments and wealth. Courage is the foundation of making that process successful.

After courage, the key to making those types investments or bets when others are skeptical is deep knowledge and conviction.?With guts you can’t do it but you also can't flying blind. You need a thesis and you need to also be prepared to be wrong. But if you are right, it has to be big. ? If your goal is to hit singles and doubles, or dink around, good luck in venture capital.?Failures will happen but the successes drown those out.?You need courage and conviction to see it through whether an investor or entrepreneur. You need to also be able to deal with the winding road of your personal life along the way. No matter what someone says, you do have a personal life, whether you have kids or not, and that can sometimes be a challenge. ?If you are an entrepreneur make sure you have investors who can see that through. You need real partners in the journey, not people who treat you as a person to be used when necessary and discarded when done. Also, treat others as you would be treated and keep your word. Follow through. It will pay off in the end. ?The sausage making isn’t pretty, but its worth it (plant or animal).?