The Mining Tech Hype Wave Needs to Stop
Let’s start here: I love mining (rocks, not bitcoin).
If you couldn’t tell from the picture, I’ve been obsessed with rocks since I was a kid. I went on my first fossil dig when I was eight years old. In high school, my dream job was to be a paleontologist cloning dinosaurs like Dr. Henry Wu from Jurassic Park. My undergraduate degree is a BS in geophysics (and English literature). I’ve done fieldwork on 3 continents and continue to be obsessed with rocks in every shape and form.
Mining is how I broke into venture capital too. In 2020, Riot Ventures brought me on part time specifically to focus on the mining and natural resources industry. I still remember pitching Jenna Bryant on lunar mining in my interview and presenting on DeepGreen (now the Metals Company) in my second round. The first deal I ever sourced was a mining company, and I’m proud to still be an investor and a part of the journey for Stratum AI and SafeAI.
That being said, the recent focus that VCs have had on the mining industry is unwarranted, and often uneducated. I’ve had more VCs than I can count reach out to me trying to learn about mining or showing increased interest in the space. So let me be abundantly clear: mining should not be the newest hype wave. It should not be trendy at all. And VCs curious about the space need to learn a whole lot more about the culture and nature of the industry before they start writing checks.
Maybe we start though, with why mining is tantalizing this generation of venture capitalists.
It’s not just the American Dynamism movement driving momentum, mining really is fundamentally broken. Much of the technology in the industry hasn’t changed since the 1970s or even earlier. There’s a lot of money on balance sheets, and an increasing demand and an increasing supply gap for critical minerals. There are a lot of problems in mining that can be easily fixed, and a lot of places to improve efficiency or cut losses. Some funds can also lump mining under an “ESG” bucket allowing them to diversify from what is likely the most overvalued industry of all.
All of that should make it an easy place for venture investment. But here’s the core issue. Mining players don’t buy technology like other industries. And they don’t need to.
In November of 2020 I wrote an article for Riot Ventures summarizing my learnings from my first foray into venture capital in mining. I identified two key trends for companies trying to tackle selling into mining: increase productivity, don’t decrease costs, and go medium before you go big. In the two and a half years since, those trends haven’t changed. Let’s break this into three cautions for a VC investing in the space:
- Mining is Slow
Adoption cycles in mining aren’t quick. In-fact, they’re really, painfully slow. Usually there are N layers of bureaucracy that you have to deal with. Why we decided to advise startups to sell to medium sized mining operations. These operations have the most to gain by moving fast and using technology. But generally, you have to fight through 3 or more layers of approval, and you can always have a sales cycle derailed by the board in the last days, or even one geo who doesn’t like that you’re abstracting out part of his job. Startups have to spend responsibly and in pursuit of sustainable growth and eventually break even. Your round might have to last longer, and you can’t move fast and break things because you can’t solve a bureaucratic sales process by throwing money at it.
2. Mining is Old School
Mining isn’t an industry that relies on merit. Just because something makes sense on paper doesn’t mean that anyone will want to buy it. Navigating the sales process is a highly personal process that’s best done in person over scotch or tequila. A classic failure I see in VC are Silicon Valley insiders trying to pitch ideas that hypothetically are aligned with mines, but realistically never sell. Data collection and analysis doesn’t sell. Consulting projects and structures don’t sell. Only real products that make a real, tangible, difference will sell. And even those usually require a free/low-cost pilot. And still can take years to do so.
3. Mining Doesn’t Need Your Tech
The supply and demand economics for the industry are simple. The supply is increasing (although certainly there are locations moving closer to extinction and depreciating in ore quality), but it’s increasing much more slowly than demand. You’d think that that deficit would lead to more production, but realistically instead it leads to an increasing cost. Mines don’t care if they get paid more for doing the same amount of work. Sure, it would be great to increase supply, but your operators are punished far more harshly for any mistakes than they’re rewarded for any supply increases or other optimization. They don’t need your tech, and it’s hard to convince them otherwise.
That’s not to say that VCs should never invest in mining. I think it’s a great space, with high potential for alpha, and a growing ecosystem of technology. I’m an investor in two companies in the space. But many of the mining tech deals I’ve seen get done have either ended up with overblown valuations that fail to account for one or more of these trends or gotten done despite a critical flaw with the business model’s scalability. The best advice I can give is for VCs interested in the space should spend a day on a mine and take a trip to PDAC or some other mining conference. Put your hardhat on and be wary of the wolf in sheep’s clothing that are many mining tech startups.
