The following interview is a conversation we had with Sid Jha, Founder & CEO of Arbol, on our podcast Category Visionaries. You can view the full episode here: Over $20 Million Raised to Build the Future of Climate Risk Management.

Sid Jha
It’s great to be here. Thank you for having me. 

Brett
Yeah, no problem. So before we dive deeper into what you’re building today, can we just begin with a quick summary of who you are and a little bit more about your background? 

Sid Jha
Yeah, so I have a very varied and eclectic background in some ways. I was born india, and I spent my first few years of my life around the national parks there. My father was in the forest department, and I lived all over the southern part of the country, next to national parks, tea gardens, and really got my initial love for the environment, forests. From there, next few years was in the capital in Delhi, and then we moved here to the US. When I was around eleven. And it was a very classic immigrant story, leaving your home country behind, coming here and working on sort of building our family here and went to high school outside of Boston was a very interesting cultural difference from coming from India and then going to middle school and high school here, and then went to Harvard University from there. So, over time, I’ve collected very varied backgrounds, very different places I’ve lived in. 

Sid Jha
And after Harvard, I went to Wall Street, which was a very well trotted path at the time. I spent some time interest rates and then really got interested in commodities. And when you think about commodities, it’s oil and gas, corn and beans, livestock, metals. I love the variety of it. I love the physical aspect of it. It’s not just an abstract set of numbers. It is so tied to the real world, how we get food on our plates, how we get gasoline in our cars. And I spent the next ten years in the commodities market in different sorts of roles. And my sort of academic background has always been mathematical supplied math and stats, bachelor’s and masters in college. And so my career as well has been this mix of understanding these markets as well as bringing quantitative tools to understand them better. 

Brett
Wow, sounds like that’s been an incredible journey. Now, two questions we like to ask just to better understand what makes you tick as a Founder, entrepreneur, and leader. First one is, what CEO? Do you admire the most. And what do you admire about them? 

Sid Jha
Yeah, it’s an interesting question. And so I’m an avid student of history. Even though I did math as my academic focus on the side, history has always captivated me. And one of the founders, if you will, that I have great admiration for is Henry Ford. And when you think about what it is about Henry Ford that’s unique, of course, he set up the assembly line. That’s what Neil Hill people say. And he set up Ford Motor Company. And it was a lot of different innovations at the time, like paying much higher wages to his workers than was the norm, basically building a customer base while building cars. But one of the sort of conceptual things that I really liked about reading his story was that he really spent the time building pieces for producing a much greater number of cars later on. So while there was a lot of kind of cottage industry of car making coming up, and most of those guys spent lots of time building each car from scratch. 

Sid Jha
So they would produce one car. It would maybe take whatever time, a few weeks or something like that. He didn’t take that route. He spent a lot of time building the factories, building all the pieces in place, putting every single component in place while producing no cars. But once he was ready, he could produce multiple cars in a day. And to me, that’s always been something I really focus on. It’s been a very big focus for Arbol as well. Instead of just going for the immediate business, how do we put the pieces in place to have a process that can then really change the system? And that’s what I always try to aim for as well. And so I always love the stories of where it’s about almost being patient about how you set something up rather than chasing the immediate revenue. And we’ve seen similar sort of things with Amazon and many other companies, but it’s really that concept of put the right pieces in place to then build a whole new platform, a whole new system. 

Sid Jha
And that’s far more impactful than getting the revenue today. Nice. 

Brett
I love that. That’s such a good example. And it’s not a Founder. We really hear a lot of people talk about typically when we ask that question, people are just repeating the same big tech CEOs or big tech founders that everyone can list off. So it’s always fun talking about these more old school entrepreneurs. 

Sid Jha
Yeah, as I said, I love history, and there’s a lot of lessons we can learn from all sorts of historical figures. 

Brett
Have you watched the documentary series the Men Who Built America? 

Sid Jha
I watched some of it, yes. 

Brett
Yeah, I just watched that recently. And they had one of them was dedicated to Henry Ford. And it’s definitely a fascinating entrepreneur. Yeah. Now let’s talk about books. Is there a specific book that’s had a major impact on you as a Founder. And this can be a business book or a personal book that influenced how you view the world. 

Sid Jha
Yeah, this is definitely a tough one. I do like to read quite a bit different topics. So one of them continuing on the Henry Ford team is The Dow of Capital by Mark Spitzneggle, who himself is a very interesting trader and has an interesting approach to markets. But The Dow of Capital kind of talks about what I just talked about with Ford, but in even more sort of examples and concepts around this idea that to achieve a global maximum, to achieve sort of a higher peak, you have to make sure you don’t get stuck on the lower peak, right. You have to sometimes go in troughs to climb higher in peaks that might be higher. And so this concept of and he has really interesting examples from all sorts of things, like even nature, right? Like you think about how there are trees that wait for a forest fire and then they really blossom. 

Sid Jha
And it’s this concept that the way you really invest capital, the way you think about investing and building a business, is around finding these patient opportunities and finding arenas where people don’t want to really sort of go into and thinking about why they don’t want to go into it. What are the barriers? And often the barrier is that people want quick wins. And that’s something Buffett always talks about, right? Like the biggest problem is that people want to get rich quick. But this is sort of a common theme, is this idea of how do you optimize any sort of process in life? And often it is not about optimizing the immediate next step, it is about optimizing over time. And that may require you to take a step back. And I’ve had this in my personal career. For example, giving up that Wall Street career to start Arbol was big personal financial hit for a while. 

Sid Jha
Why? Because, of course, you’re not going to be able to match the same thing as an entrepreneur in the early days versus what compensation might be on Wall Street. You have similar stories of a lot of different people who have to basically take a few steps backward to then aim for something higher up later on. Of course you have to get lucky, things have to work out. But that’s kind of this concept around the book and it was a very memorable and impactful book in that way. 

Brett
Can you talk me through your mindset? When you left Wall Street for a startup, was that very difficult for you to do? What was going on inside your head? And did you have family friends asking you if you were crazy and lost your mind or how are you navigating those conversations? 

Sid Jha
Yeah, it was very difficult. I had spent about 15 years building a career, working at different institutions as you do and you’re getting more and more senior, and then to abandon all of that and to start something new is very difficult. But I was always lucky to have a very supportive group of people around me. For example, my wife has always been very supportive of starting a new business and really kind of taking that risk. And that was very helpful to have that support around me, to give me the courage, if you will, because it is quite scary because you’re leaving the networks you have built. It’s not just about the financial aspect. Once you’re 15 years into a career in one industry, you know a lot of people, you have a network you can fall back on if something doesn’t work out. It’s kind of easy to navigate that, to leave that behind and to then start something new in a new industry like insurance, which has some links to the old one. 

Sid Jha
But really a whole new set of people, a whole new set of ways you do things. Whole new set of processes that you have to learn on the fly. So that was definitely very scary. But I also had this recurring feeling that there was an opportunity here precisely because the finance world and insurance world doesn’t really connect too much. But when you look at what Arbol does, it’s really about connecting those at a very conceptual level. And I felt I was in a good position to try to make that happen. Not easy at all, but to try at least, because I had obviously experience in commodities, which are big weather and climate related markets. But I had also been involved in blockchain, been involved in the satellite space, and there was a number of different experiences I had that’s what I liked about Arble was to bring together all these different threads of my experience into one effort. 

Sid Jha
And that’s what gave me some inkling that, hey, this could work. By no means was it guaranteed, it’s always a low probability event when you start. But one of the things that throughout my career I had always strived to do was not just go to the job and come back, really try to on the side, learn new technologies, new things that were coming up. And that helped a lot in bringing all the pieces together for Arbol to happen. 

Brett
Well, I think that’s the perfect segue for us to talk a bit more about Arbol. So take us back to day zero or day one, or the days leading up to the start of Arbol. What is that origin story? 

Sid Jha
Well, the days leading up to it was really about, okay, so I have no idea how to start a company. I have no idea what it even requires because I had been an employee for all my career. I was not an entrepreneur before that. So first it was, let’s just figure out what it is you need in terms of the basic mechanics like, okay, even forming a corporation and all these other kind of more mechanical things. But then the big thing was how do we think about the opportunity here in detail, right? You can have an idea, but then can I write a business plan? Can I write a business plan? And I got a lot of really good input from the people around me on this, without whom it would have been very difficult it was to really make things concrete. So instead of the grand idea, the overall vision, which is important, how do we get the first hundred thousand first million dollars of revenue? 

Sid Jha
What is it that we have to do? Where is the market opportunity? Why would a new product work? Am I even displacing existing products? Or am I selling something that’s totally new to most of these customers? Which customers are the low hanging fruit? When you think about what Arble does, which is okay, climate insurance as a very broad term, well, almost every industry on the planet is affected by climate. It could be an oil rig that’s facing possible hurricane. It could be a ski resort facing a warming winter with no snow. So the applications are endless. But really the work is in figuring out where is the low hanging fruit, which segments, which subsegments as specific as you can get, would buy your product and be willing to pay for it. And the extra tough thing with something like insurance or financial product is we are not selling a physical product. 

Sid Jha
So when a customer pays us, it’s extra difficult because they may not get any benefit out of it, right. They pay premium and then let’s say the weather is great. Well, they didn’t get anything out of it. So how do you conquer that mindset that this is not just a gamble, this is necessary for your risk management? So there was a lot of that kind of work and obviously like networking as much as we could, bringing together different networks of our team members. Bringing together a team was a big one. This was not possible as a one person company. There’s too much complexity with regulatory, with analytics, pricing, actual platform building, niche, knowledge about derivatives and insurance, all these things. So I was lucky enough to have a great team that coalesced early. And we’re very dedicated. We all worked without salary for a year and change. 

Sid Jha
And it was about getting this thing to the finish line without any distractions. 

Brett
And as you brought this to the finish line, what were some of those hardest moments? Can you recall any specific times when it just felt like it could be impossible or things just got very difficult? 

Sid Jha
Oh, yeah, absolutely. There’s like so many of those, it’s really hard to list them all. But going back to the fact that you’re selling a financial product, the first thing is, well, it’s extremely regulated, this kind of stuff, right. You can’t just up and start selling insurance. So you have to first find out, how do I kind of even get the first transactions going? What do I need to do in terms of licensing and the correct regulatory stuff? And each jurisdiction is different and all these different things. And you don’t want to spend hundreds of thousands of dollars getting all the licenses before you even know what the market is. So I remember it taking almost six months to arrange the first transaction, which was a grand total of $3,000 in gross revenue. And it was good to get the first thing done, but it also was deflating that this was this much work for $3,000 of gross revenue. 

Sid Jha
But you learned a lot through that process. Like, how do you streamline? What are the kind of types of things that we spent extra time on? Then I remember we also put in an application for a government program, and it was over a year’s worth of work, hundreds of pages we put together. We got to the final stage, and then it was rejected, and went to Washington, DC. And it was a final meeting, and it looked like it was going to happen, but then it didn’t. So things like that happen all the time. And this is why it’s a cliche to say you fall and you bounce back easier, much easier said than done. One of the things that is truly hard to convey is how often your early efforts fail, partly because you don’t know the full info. You haven’t been in these things for a while, but partly because you’re just smaller and you don’t have the staffing, you don’t have the resources to put to bear on a lot of this stuff. 

Sid Jha
So you try 20 things, 30 things all try to be cohesive. You’re not trying to just do 20 random projects. They should be cohesive. They should be among the same kind of theme. But you have to put a lot of threads out there. So that because 19 out of 20 of them will likely not get anywhere. And especially in these industries that are dominated by huge players, it’s difficult to even get a conversation at the early stages. It’s difficult to set up a meeting. And what happens is you get stuck in the bureaucracy because you don’t have the size and the cloud to be able to sort of break through these barriers. 

Brett
And in terms of breaking through those barriers, are there any numbers that you can share with us that just highlight how successful you’ve been there and the gross interaction that you’ve seen so far? 

Sid Jha
Yeah, so when I set $3,000 in gross revenue, that was 2019. In 2020, we did about a couple of million. In 2021, we did 770. And in 2022, we closed out with 171, 70 million of gross revenue. So things have grown very rapidly. It’s really because you start to unlock a lot of areas of the market which have a growing need for climate coverage and they’re being underserved or not being served at all by the traditional markets. 

Brett
What are some examples of those markets can you share and why do you think that no one’s really focused on them? 

Sid Jha
Yeah, some examples are, for example, Agribusinesses. A lot of stuff we do is focused on supply chain coverage. For example, so imagine you have cotton gin or ethanol plant in the agricultural sector. They need coverage if the local crop fails. But the insurance industry doesn’t provide those services because the way insurance works is you have damage. Some guy comes to your farm or business and makes a subjective assessment, and that process is filled with delays, disputes and sometimes fraud. And so if you’re a business, it can take you sometimes a year plus to collect your insurance check. And after a climate disaster, you may go bankrupt while you’re waiting for insurance check. That’s how the traditional insurance model works. What we do is with data, right? So the payouts are linked to data. That’s what parametric insurance is. So it could be crop yield data, it could be wind speed data, it could be temperature data. 

Sid Jha
If it’s too hot for 20 days in a row, here’s your payment. No ambiguity. The payout is one week after the data comes out and you’re done. And so what this does is it transforms the way that the whole insurance model works. And so imagine a power plant. Think of what climate risk they are sitting on. So if suddenly there’s a heat wave, they have to supply their customers, homes and businesses who are now running a lot more air conditioning, but they only generate a certain amount of power. So now they have to buy power to meet that difference to keep up with their supply contracts. In a heat wave, power prices can be ten times higher, 20 times higher than regular times, because everyone is running more air conditioning. So they can buy a temperature contract from us and get paid to make up that difference. 

Sid Jha
So if there’s a heat wave, they get the payout and they can use that money to make up the loss from buying electricity in the regular markets. That’s just one example. We do a lot of stuff around hurricanes. We do wind speed for wind farms. So imagine you run a wind farm if suddenly for the next two, three weeks, wind speeds are very low. Now, you’re going to have a revenue shortfall. And you have lenders, you have banks who don’t like that volatility, who don’t like revenues going up and down based on wind speed. So we can sell you a wind speed insurance or wind speed contract to keep your revenues stable. And that helps you get a lower cost of capital at the bank. That helps you to keep your loan cost low. So there’s myriad examples here of different industries facing climate risks. 

Sid Jha
And we started out with a focus on energy and agriculture, and now we work with insurance companies as well on climate risks that may be sitting on their home insurance portfolio, like from hurricanes you could imagine, like hotels and many others are faced with different climate risks, like too much rain in the summer or hurricanes again. So we’re expanding into different industries. But I would say that the big ones so far have been agriculture, energy, and the insurance sector itself. 

Brett
And can I ask what role does Blockchain play in all this? 

Sid Jha
Yeah, so Arbol is unusual in many ways. Like, weren’t insurance guys. The original core group and the original vision was a peer to peer insurance marketplace where a smart contract would read the data and determine the payout to the customer and it would read the data from decentralized open source network. And that’s what our white paper was way back in 2018. And these smart contracts at the time was ERC 721. Now they’re called NFDS, basic idea being the same. You have code that executes, right? So some of it was not feasible from a regulatory standpoint. Some of that vision, though, we continue to move towards it, but what was feasible was, okay, let’s build a big open source data network that will enable teams from all over the world to contribute data, to contribute models without needing to go through intermediaries. And of course, we have lots of big agencies and government institutions and all who also have a lot of climate data that can be used to make contracts. 

Sid Jha
And then behind the scenes in Arble, the entire process can be automated. So once a customer does a transaction, let’s say we go back to a power utility, you get paid if in July, if ten days are above 90 degrees, let’s just call that a simple contract. The smart contract will be monitoring the temperature data and then if we hit the trigger, it says, hey, pay this customer this much. At this stage, what it does is it adds tremendous amount of efficiency in the background. Right? Like when you think about how much staffing an insurance company needs just for the claims process, for the payouts process we have, it almost entirely automated. And so that keeps costs low for customers. It again helps us grow the market. Now, as our contracts get more complicated, like when you have, let’s say, a contract with an insurance company, and it’s not one weather station, but it’s on 300,000 different points for every single home they might have insured. 

Sid Jha
This now creates even more scale for something like Blockchain, where it’s really about having a shared ledger and different parties who may not trust each other to agree on that source of truth. I e how much the payout should be to each customer. When you think of an insurance contract, there are probably seven plus intermediaries involved in many of them from the brokers, to the agents, to the insurance company, to us, to the risk capital provider. Reinsurer, there might be multiple reinsurers. It’s quite complicated. Where blockchain can excel is by having this shared source of truth where everybody can agree on what the payouts were without any one party controlling the data or the calculations. And so that’s sort of the were working towards that. And by later this year, we’ll have some really exciting stuff along those lines. We have just been quietly building a blockchain insurance ecosystem over the past four or five years. 

Sid Jha
And when I think about the blockchain market, it’s unfortunately there’s a lot of distractions around the crypto side of it and things like that. But what I see is in the background, there’s a lot of interesting things being built at different entities and we are one of them. Where we are now at this point, we have the longest background in the blockchain insurance side to be building solutions that actually are needed rather than being a solution, looking for a problem, because we have seen what’s needed in this market. 

Brett
Yeah. And in terms of solutions that are needed, as I was doing research for this call, I was obviously going through your website. First, I just have to say you guys have done an incredible job on your messaging. It’s so clear and crisp what you’re doing. But what really surprised me was I didn’t see the word blockchain on every single part of the website. I’m very different from, I think, the approach that many other startups in this space follow where blockchain, blockchain. It’s really like the core of their message. But from my experience, buyers don’t really give a crap about the technology necessarily. They care about the benefits that technology can bring. So for you, does blockchain really come up a lot in those conversations? Like, do you talk about it as a feature or a future feature that’s going to be rolled out eventually? 

Brett
Or do the buyers not even really care about how things happen, they just care about those benefits? 

Sid Jha
It’s exactly what you said, the buyer does not care. And we never talk unless it’s a buyer specifically interested in that aspect of it. We don’t really talk about it because for us, it’s more important to make sure the customer pays premium and then gets what he or she expects for that premium. That when there’s a climate event, they get paid. They really don’t care how it happens. And this was something were very clear on from day one, that blockchain is just another tool to get efficiencies and transparency into this market that desperately needs it. If you look at our tech stack, blockchain is one aspect of it. I would say our artificial intelligence is another one that we don’t talk as much about. But our entire underwriting is AI based and we account for hundreds of millions of inputs to assess where weather might be headed over the next few months in different parts of the world. 

Sid Jha
And by weather, I mean it could be assessing where temperatures might be going to, or rainfall, or soil moisture, or ocean water temps, et cetera. So what I see Arble’s tech prowess being, it’s not on any one of these tools, it’s how they all come together. And that’s why we don’t fixate on the blockchain aspect. We don’t see it as a fundraising tool. We actually see it as a tech tool. And my view has always been, let’s build well, let’s show that this is actually necessary. And once you build something well and it comes out in the market and customers really like it, then it’ll have proven itself. We don’t need to have any marketing around it. So that’s how we approach all of these tech tools and certainly blockchain as well. And we have really stayed away from a lot of the hype that kind of tends to saturate the blockchain space. 

Brett
Yeah. I didn’t see chat GPT anywhere on this website. 

Sid Jha
It’s funny, we have talked about whether it could be useful for our customers to be a structuring tool. Like, you tell it what weather risks you’re worried about, and we have a lot of products for a lot of different weather risks, but again, we would only talk about it if we actually see customers loving it, like actually using it rather than it becoming, yes, yet another hype tool for fundraising. 

Brett
Well, I think there’s many founders and many companies out there that can learn from you. So I hope they hear this episode and take some of your advice there because you guys are really just doing an incredible job there. Now, to wrap up the interview, I know on the website it says the future of climate risk management. So we’ll talk about that in a second. But before we do, can you just describe to us what’s the state of climate risk management today? What is the status quo? What does that market look like? 

Sid Jha
Yeah, it’s in its infancy, to put it very simply. So where we are is when we started Arbol, there was discussions around climate risk and climate change. And sometimes the thing is that a lot of these things get conflated. And one thing we are very clear on, that we’re not making any sort of political statement either. The issue is that regardless of your views on the causes of these things and what’s actually happening, the data shows that the loss amounts are growing rapidly. More than that, different industries are now starting to see how vulnerable their supply chains, their businesses can be with climate stuff that can happen around the world. Right? So when you think about, for example, there was a flood in Thailand that really had a huge impact on auto part supply chains. There was a drought in Taiwan that had a huge impact on the. 

Sid Jha
Semiconductor chip sector because those factories, a lot of them are in Taiwan and they use up a lot of water. So if you are a company that relies on that for your supply chain, you don’t need to have business in those countries or those parts of the world to be impacted and the list goes on and on. I trade it a lot in the energy markets. For example, the energy supply chains are extremely fragile in many ways, right? You can have a drought in China that reduces their hydroelectric production that then they need more gas shipped from Liquefied natural gas. Now Europe is going to be short and when the Texas freeze happened, the freeze event, I think 2021, you had multiple utilities either on the verge of bankruptcy or go bankrupt because power prices went from $30 to 9000. There’s a lot of interconnections now in these industries and any sort of climate event, seasonal weather event that happens in one part of the world can have cascading effects. 

Sid Jha
So when it comes to climate risk management, people are only starting to now understand these linkages and that the sort of stakes are a lot higher too because things are a lot more interlinked and at the same time there’s a lot more pressure from investors, from regulators to assess climate risk. And so that’s the phase we are in. You’ll see a lot of companies are working on assessing what their climate risk is. You have central banks like the Fed here in the US is going to be stress testing bank loan portfolios for climate risk. What does that mean? Well if you have a million farm loans in the Midwest or a million mortgages in Florida, you are carrying drought risk on the farm loan side and you’re carrying hurricane and flood risk on the mortgage side. Well in the past that was just risk that was taken as okay, well it’s just an act of God or whatever. 

Sid Jha
It’s just going to be something we can’t do anything about. That’s not true anymore. And companies like Arble make it possible for you to also ensure that away. And now there’s more and more pressure from regulators and others to measure and analyze this and soon to start insuring it. So we are sort of at this stage where a lot of companies are starting to explore how much climate risk they have and then how do they deal with it. And as this process evolves, as this industry starts to really grow, we want to be there to help customers offset that risk. 

Brett
And if we zoom out into the future here, what excites you most about the vision and everything that you’re building? 

Sid Jha
What’s really interesting here is that we are in the process of creating a whole new asset class at a scale that has not been done before. So when you think about what Arbol is doing, it’s really about connecting two very different groups together in a platform. So one group, the clients are the ones who need the climate insurance. Again, that could be a small farm, it could be a seaside restaurant worried about too much rain during the summer hurting their business, or it could be a mega energy company that has courts all over the US and worried about the hurricane season. Or it could be a bank looking at, okay, well, I have a million mortgages in the Southeast. What’s the flood risk look like? And can I insure that? So the whole scale of it, and that’s what’s fascinating, is we get to work with such an amazing variety of clients, from the large to the small. 

Sid Jha
On the other side is the question of okay, but it’s all great to have the product, but how do we write this insurance? Who’s going to make these payments? And on that front is the other exciting part, is there’s a lot of capital that wants to invest in uncorrelated markets? What do I mean by that? Markets that don’t just go up and down with the stock market or the Federal Reserve. Well, these are excellent examples of that. Wind speed in Texas or heatwave in Paris, or typhoon risk in Hong Kong. None of that is linked to the stock or bond markets. So you’re opening up a whole new asset class for the investor side to bring new fresh capital in, because the insurance industry does not have enough capital to meet the challenges. You have $200 billion of annual climate losses now and over half of it is uncovered by insurance. 

Sid Jha
Partly that’s because the old model of subjective loss assessment doesn’t work, but partly it’s because there’s just not enough capital that the insurance industry can bring to bear to cover these damages. But there’s a lot of capital outside the insurance industry that’s really looking for interesting opportunities. So what I think about the three year vision is really to bring together a growing number of industries one side and growing number of capital providers from all types of different capital pools to fund these insurance products. And US in the middle, utilizing blockchain, utilizing artificial intelligence, utilizing the best technologies and data sets to have a vast array of products for different use cases. 

Brett
We’re exciting and I could probably keep you on for another 3 hours and ask you more questions about this, but unfortunately we are up on time Sid, so we will have to wrap here before we wrap up. If people want to follow on with your journey as you continue to build, where’s the best place for them to go? 

Sid Jha
Our website arbol.io and then our social channels are there, Twitter, LinkedIn, we are quite active on those. 

Brett
Awesome. Well, thanks so much for taking the time to share your story and really talk about the vision and everything that you’re building. This is incredibly exciting and hope to have you back on in a couple of years. To talk further about all this and talk about all the progress you’ve made. 

Sid Jha
Thank you so much for having me here. It was a pleasure. 

Brett
Take care.