Greetings from Brooklyn,
Time is flying by and we’ve been doing a poor job of keeping cadence with our newsletters. For a quick summary, in the month of June we island-hopped to Maui and Big Island: Maui has the most gorgeous sunsets and Big Island’s manta ray dive was one of Ivy’s most magical nights of her life.
After Hawaii, we spent 3 weeks in California across SF and LA, soaking in time with our friends and reacquainting ourselves with the city we met in. This time had us feeling a bit fonder of SF once again.
Then we pit-stopped in Ottawa to grab Ivy’s mom’s dog and car, and we’ve now driven our way to New York, where we’ll be residing for the next 5 weeks. But enough about us…
This newsletter is focused on some of the businesses that we found interesting in Hawaii. Jump around as you like!
Tourism
We can’t talk about the industries of Hawaii without some representation from the largest industry there — tourism, accounting for 1/5 of the revenue generated in the state. Below are some snapshots from it.
A new way to do shave ice: Gus’ Hawaiian Shave Ice
This may seem like just an ordinary shaved ice shop, but this humble shop is so innovative! Run by a husband and wife duo out of a Volkswagen bus parked next to other food trucks, its size and look really stand out. While regular shaved ice is frozen water chipped into flakes with artificial flavors poured on top, Gus’ is fresh farmed fruit frozen into blocks with juice. I can’t believe I’ve never seen the concept anywhere else, it comes out so fluffy, fruity, and creamy, significantly better than regular shaved ice. We loved this place so much we came 5 times in 2 weeks!
We never saw Gus’ not have a line. By our napkin math, even if they were only operating at half capacity, the truck would be making over 100k/year. Add on the crazy high margins of shaved ice and it being a food truck without expensive rent, you’ve got yourself a pretty brilliant business. Why isn’t this anywhere else?
How does the Art Industry work?: Art Collection
In Waikiki, we stumbled upon the Park West Fine Art Gallery while window shopping. Knowing absolutely nothing about art, we barraged the curator with our questions, which she graciously answered for us.
It turns out art collection is not just the uber-wealthy acquiring the originals of famous dead artists. There are different tiers of collectors, with art sold at different price points to appeal to them.
The highest-priced items are, of course, the originals, but some artists also make limited editions, where a company would reproduce the piece for the artist, then the artist adds on embellishments and signs it with a number indicating which number this piece is out of how many total copies.
Under limited editions in cost are Reproductions, and below that are the posters, prints, etc.
One artist we liked, kre8, had originals going for $5-$10k. Meanwhile, the limited editions were about $600. If an artist grows in popularity, the originals would grow the fastest in valuation, but limited editions would also correlate in price growth, so for some collectors, it may make more sense as a way to hedge or diversify to just get limited editions.
Many artists just want to create and don’t want to think about how to make money, so art galleries sometimes sign exclusive contracts with artists. The artists would only sell pieces through the gallery and their contract may require them to produce a quota of pieces per year. The artists would receive a commission on their pieces sold along with a stipend or salary to have a more steady stream of income. Contracts can vary (some may be predatory) and many artists also turn to social media to promote their own pieces that must be sold by the gallery they are contracted with.
Excited to see how the NFT trends can innovate on different levels of the ladder of art collection.
Business Opportunity: Car Rentals
Renting a car is near impossible in Hawaii right now. No matter the island we were on, cars at all the rental companies were completely sold out. On third-party sites like Turo, there was no longer anything cheaper than $250/day, including cars made in the 2000s. People even started booking out U-Hauls due to the shortage.
We heard that part of this is due to the car rental companies shipping most of their supply to the mainland during the pandemic, causing a huge shortage.
The van owner we rented from in Oahu was a veteran that runs a fleet of 30 cars for rental and is currently trying to buy up any used car on sale under $10,000. He starts profiting off of the purchase within 2-3 weeks after renting a car out for 300+/day.
Does anyone want to co-invest in a car rental business in Hawaii…or anywhere?
Conservation
Protection of the land is part of the culture in Hawaii, most likely due to the Polynesian roots. We have found that most people in tech moving from the mainland came here to study or work on conservation-related projects like oceanography, marine conservation, or climate change. After speaking with a few people, the attitude here for long-term, infrastructure-heavy projects are well supported, unlike in the Bay Area where all the hype startups are lean, high growth, and engineering-driven.
Helping the world plant forests: Terraformation
On Big Island, we got to visit Ivy’s ex-coworker, Yee. He was the CEO of the first startup Ivy joined way back in 2015 and is now Head of Growth at Terraformation, a startup tackling climate change via planting forests.
Researchers have estimated that we need 1 trillion more trees to sequester current CO2 emissions by 2030. These 1 trillion trees mean 3 billion acres of biodiverse forest.
If you’re interested in biodiversity and what it takes to plan a forest, keep reading. If else, skip this section.
One key insight Terraformation had was that biodiverse forests can sequester 42x more carbon compared to a monoculture tree farm of the same acreage from the undergrowth, layers of plant life, and the way different plants are able to work together and complement each other. The biodiversity also increases the resiliency of the forest. One bad season, one invasive species, or one struggling tree is less likely to be as damaging.
But as it turns out, planting a biodiverse is difficult, expensive, and may take decades for profitability. If you were like us and thought of planting a forest to be more like sprinkling some seeds on a barren land and hoping it grows instead of gardening - you’re wrong.
It will require 250 million working hours to plant the 3 billion acres with one forester planting 1-2 trees an hour and maintaining the tree with the irrigation needed.
Big Island has 8 of the world’s 13 climate zones so by being based out of there, Terraformation is able to learn about all sorts of different environments. They already have 5 different test sites on the Big Island, testing out forests in biomes like tropical monsoon, tundra, and desert all within an hour’s drive. This helps build their open source database on forests, seeds, and methods that are all open to the public in order to complete their mission of building more forests in the world.
Terraformation is tackling this problem end to end by first finding unused land owned privately, by corporations, and by governments, educating them on how it’s possible to use this land, and then helping them with the knowledge and tools needed to actually grow the forest.
A forest can be profitable with carbon credits, agroforestry, sustainable timber, and more. With every $1 invested in forestry, they believe at least $7 will be created for local economic benefits - think more jobs like people planting the trees.
After convincing the landowner a forest is worth planting and will be profitable in 20 years, Terraformation helps with getting loans to invest in the project, dealing with paperwork, providing knowledge on what kind of forest will best thrive in the climate.
After the project is started, Terraformation can provide “starting forest kits” which are seed banks, plant nurseries, and solar-powered desalination systems (removing salt from seawater) that all fit into standard shipping containers. Basically trying to reduce any friction in getting a forest started.
The long-term play is creating a new asset class for hedge funds, private equity funds, and regular investors to invest in the forestry projects so it’ll be easier to finance the creation of forests.
Previously, we felt really intimidated to tackle the world's most pressing problems due to the long horizon, infrastructure-heavy, and in general, the lack of short term gratification in pay-offs and results means more risk and opportunity cost in time commitment. It’s amazing to see Yee and the CEO, coming from leading positions at Facebook and Reddit dedicating the rest of their careers to solving climate change.
A bit of both
Agricultural Tourism - coffee / chocolate
During our time in Hawaii, we visited a craft chocolate farm on Oahu and a Kona coffee farm on Big Island.
A short lesson on where chocolate comes from:
Chocolate comes from cacao trees which can only grow 20 degrees north or south of the equator. They grow cacao pods
These pods are cut open and the seeds are fermented and then dried so the juices fall off.
These beans are opened and nibs are taken out to make chocolate through grinding.
Chocolatiers can add back the cocoa butter which is also in the bean as well as other ingredients to adjust the taste. For craft chocolate, it’s 70% cacao and 30% other ingredients. Hershey’s can be as little as 10% cacao and 90% other ingredients, like sugar.
A short lesson on where coffee comes from: We toured Heavenly
Coffee comes from “Coffee cherries” which have the bean inside the fruit. The cherry they turn into tea! In Kona, the berries are picked by professional pickers that come from the Dominican Republic each harvest season who pick 200-300lbs/day and get paid ~$1/lb
Fresh berries are laid to dry so that it’s only the bean left, then they’re graded and sorted by size/quality and taken to the roasting facilities for remaining processing.
Consumer education is a huge part of the mission of craft chocolate and coffee. This shows in its business values and the profit-driving activities of the small farms that we visited.
The chocolate farm we toured is making ~4000 bars/year. This means a top line revenue of $60,000 for an average of $15/bar. Even at full capacity, based on the size of their farm, they can make 9000 bars = $135,000.
But the chocolate farm runs two tours a week, a goat yoga session, and Sunday brunch tours. This accounts for another $80,000+/year.
This makes the tourism facet as important to the business as the actual goods produced. The farmers really care about the quality of the cacao and sharing its beauty with the world. A better-educated consumer strengthens the industry evangelizing for product quality, direct trade, and sustainable practices.
As more people start to appreciate craft chocolate and coffee, we’ll see more inclusion (flavoring), artist collaborations, expansion of industry (e.g. CBD, sleep chocolate). It can be an exciting industry to help these creators and artists in the craft space reach a broader audience.
It’s fascinating how the shape and climate of the land we inhabit and the cultures that developed on top of them can have ripple effects on the businesses that thrive within them. We hope to keep learning more in other places along our journey, and we’re excited to take you on the ride with us!
Onwards,
Owen & Ivy
I had seen Manta Rays in big island and yes 10000% agree it is magical!!