The Exchanges, every show

Q use to ultimately fund that work. That's really cool. Um, okay. Next big question. Uh, it's a crazy geopolitical moment. A lot of fertilizer that traditionally comes from global markets, specifically around, you know, a particular Gulf and Strait of Hormuz, um, is now not coming into the world. So can you say a bit about the global picture right now for fertilizer supply and what that means for you?

A Yes. The Persian Gulf, through the Strait of Hormuz, supplies 38% of global urea, which is the most common form of nitrogen fertilizer used in the world. And because of the closure of the Strait of Hormuz, it is estimated that over the next year, an additional forty-five million more people around the world are going to go into food insecurity. And so that, that highlights that the current market structure Ah, which is hypercentralized and reliant on coal and natural gas, that that current market structure is just unacceptable. And so, um, I, I think the thesis that Nitricity has been, um, working on and sharing with the market is that we need to move towards a more, um, uh, local, uh, production model where we use, uh, recycled ag waste and renewable power and air and water to make fertilizer instead. And we're seeing a lot more, and since the, um, uh, the closure of the Strait of Hormuz, we have seen a lot more interest in, in our company. Um, we've quantified it across, Um, like HubSpot or other, like, channels where we measure the number of inquiries that we get across different forms, including, like, number of people that apply to our open jobs. And, uh, and compared to a baseline from before, we've seen about a 500% increase in the amount of inbound interest in the business.

AI assessment note: “The Persian Gulf, through the Strait of Hormuz, supplies 38% of global urea”

Q So at some point, you did enough work that you had a working prototype, right? And it was time to start thinking about building a factory. Can you talk a little bit about that transition?

A Yes, so we had a working prototype, and then we brought it around with us, and we gave a presentation in Fresno, and a farmer stood up in the back of the room and said, you know, if I buy it, will you install it on my farm? And then we got a contract with that farmer, we went down, we installed it on his farm. Um, and then we got another contract on another farm. So, so those, those opportunities came, uh, first, and then second came, uh, funding, and then third actually came building a, a factory, you know, a couple years later. But we, we were really, um, um, you know, building the product directly on farmers' fields.

AI assessment note: “first, and then second came, uh, funding, and then third actually came building a, a factory”

Q So when you started tinkering with this technology back when you were working on this kind of plasma-based technology that you have, did you know you were going to be making an alternative fertilizer?

A The goal from the beginning was to electrify and decarbonize the fertilizer industry. Today, fertilizer uses coal or natural gas and accounts for about five to seven percent of global emissions if you account for the manufacturing and the field application emissions. And our goal was, you know, hey, can we find a way to produce fertilizer with solar power? So we thought we had the one technology to rule them all and, um, upon founding, and it was a super cool technology. We made molten lithium metal. We, you know, combined it with nitrogen. We made fertilizer that way, and we were very excited about it. And someone who I was house-sitting for in Palo Alto at the time, you know, wrote us our first investment check. And, uh, we started pitching at pitch competitions. Um, however, upon scaling that technology to a reasonable size prototype, um, you know, we very quickly realized that, um, that that wasn't going to be a successful, uh, technology and, and startup. And I, you know, distinctly remember offering to return the money that we raised at that, uh, at that point.

AI assessment note: “The goal from the beginning was to electrify and decarbonize the fertilizer industry.”

Q And so at first, was that your, was that what you thought your go-to-market strategy was going to be, that you were basically building distributed fertilizer production on farmers' fields?

A Yes, the thought was you build an extension of an irrigation pump that pumps water to the field, but then this, you know, there's some solar, and then under it, there's a device that, that produces fertilizer from thin air, and then injects it into the water. So your field fertilizes itself, um, because there's nitrogen available at the irrigation pump, there's power available at the irrigation pump. In theory, you can have your irrigation pump Uh, you know, fix nitrogen fertilizer from the air and send it out to the, to the field. So this was our initial idea. Obviously, uh, we're not doing that today for a lot of good reasons, um, but in theory that, that is possible. Um, you, you need really, really reliable, uh, technology that virtually never needs to be serviced for that to pencil out.

AI assessment note: “Yes, the thought was you build an extension of an irrigation pump”

Q Did you consider building something in other states, or was it always clear to you that you were going to do something in the Central Valley?

A It's, um, it's such a painful question for some reason. So, um, we are, are, we're based in, uh, Fremont. That's where our team was at the time, and where our pilot was. And this pilot was pretty hands-on. Um, and I, yeah, so there's two, there's two risks in building the next project. One is operations execution. Um, and if it's, if the project's too far away, I can't, you know, be there, and our team can't, we're not going to just be around enough, and so there's a genuine risk for operational excellence. Um, and then the second risk is price of power. Um, we need a, we need a good price of power, and in most of California, that's hard to find, um, but we stumbled upon this, this, um, Delhi, um, Which is not, you know, Delhi, India, but Delhi is short for, you know, the Delta High Line or something like that, which is Delta High Line Canal. So Delhi, California has a large hydro dam. Um, it's part of Turlock, uh, water and power district. Um, and, um, there's very low cost power. It's, I think, some of the cheapest electricity in all of, uh, California, and it's about a, a 90 minute drive from Fremont. Um, So we found a good facility there, um, that also qualified for USDA Rural Development Loan, and, uh, checked all the boxes. Um, we could drive there, it had cheap power, um, qualified for Rural Development Loan, um, um, it was about the right size, um, good price, uh, and s…

AI assessment note: “if the project's too far away, I can't, you know, be there”

Q Okay, so this was really driven by your need just to produce more fertilizer so that you could actually kind of attain your minimum viable product. Does that sound right?

A Yes, and why I want to keep producing more and more fertilizer is that, uh, we want to reduce greenhouse gas emissions from the fertilizer industry, and every pound of nitrogen we make mitigates emissions. If we do it, you know, how we do it, and to make an impact in the space, one day we need to be producing, you know, a million, millions of pounds, millions of, uh, tons of, uh, Product. So, you know, to displace, you know, we want to displace, like, one or two percent of the market with electrified and sustainable fertilizer. Um, you know, we need to be making more and more nitrogen every year, and so I keep a plot, a graph, and it shows, you know, pounds of N on the x-axis, or on the y-axis, and time on the x-axis, and that's always got to be going up a lot if we ever want to reach our goal.

AI assessment note: “Yes, and why I want to keep producing more and more fertilizer is that”

Q across a huge range of climate technologies and working with you all is that you actually have an unusually close and strong relationship with your customers. So at the outset here, can you say a bit about why you think that is? Is it about your personality? Is it about the technology? Technology. Is it some combination? Like, what do you think has enabled you to really resonate with farmers?

A It's a good question. Ultimately, farmers are who use fertilizer, and so if we're not designing a fertilizer product for them, then what are we doing? And, uh, our business exists to create value for our customers, and so I want to stay close in order to make sure we're making something useful. Um, and that's kind of the guiding North Star, and, and, uh, what I believe is, like, uh, important business principle. And so, uh, throughout Nitricides, and I've also seen it firsthand, the value of that. And so, early in our history, we created a prototype, and we talked about it here in Silicon Valley, and then we brought it down to Fresno County and talked about it. And the, the, the value of the feedback in Fresno County was just much more. And we got contracts, we got, you know, I, I mean, I really think we co-developed the product, uh, with, with farmers in Central Valley and, uh, Salinas Valley. Um, and, um, it led us to, you know, our current portfolio of products, which I think are blockbusters. Um, uh, it took a long time to develop them, but, you know, we were listening to what farmers wanted, and then we worked backwards on how to make it. Um, and so, and then also, you know, on a personal note, I just really like chatting with farmers because, um, they're just, you know, they're super hardworking and, uh, just fun to spend time with. Um, And, ah, I like being outside with …

AI assessment note: “we were listening to what farmers wanted, and then we worked backwards”

Q right, that, like, if it's an industry that's built on this centralized production and distribution, and that's what folks are used to, there's a lot of momentum behind that as a, as a thesis. Um, and so, was it, was it really more that, or was it also kind of, like, the cost and maintenance structure? It sounds like it really was a combination of these things. Is that right?

A Yeah, so, at its core, it came down to listen, and To what farmers needed, and they, they just wanted the fertilizer. I mean, they have a lot of things to deal with managing these farms. Farm managers are really busy people, and they just need to have a tank of fertilizer at the, you're in California at that irrigation pump, um, and they need to know how much, you know, N, P, and K is in that, and, uh, and then they're going to calculate how much they want to apply when. So, um, you can, and they want the lowest possible price. They want the highest performing products, um, And, ah, they didn't really want another piece of equipment to make fertilizer on the field, and so while that is an elegant and kind of exciting tech vision, it's, it's not customer focused.

AI assessment note: “they didn't really want another piece of equipment to make fertilizer on the field”

Q scale up mode felt like in a second, but I think in addition to obviously demand sort of driving this, in addition to the funding that you could bring together on it, You also have a really interesting supply chain on the, on the sort of front end of all of this, so can you talk a little bit about what your main feedstock is and how you chose it?

A Yes, so we had another pivot in there, and we, we pivoted to the organic fertilizer sector, uh, after some time, and, uh, and, uh, and that was after we built up, uh, our pilot and did some big field trials and got real customer feedback at a meaningful scale. The feedback was, hey, we want, um, you know, it's nice that you're helping us with these products, but what we really want is a good organic product, and so we redesigned the tech from the ground up in, like, twenty-twenty-three, um, with the aim of, of, you know, generating, uh, a liquid organic fertilizer that can be used mid-season, so not like manure at the beginning, um, but mid-season irrigable nitrogen, and, um, And so, uh, as part of that, you, you must incorporate, uh, your biomass, um, and so we did a hunt in California for what biomass we want to use, and we settled on, uh, almond waste, and, uh, we've tried both almond hulls and shells, um, and so we, we produce, uh, organic fertilizer using, uh, uh, recycled organic almond shells, um, and then, uh, air, water, and renewable power today. And so this was a pivot based on another epiphany that we had in the twenty-twenty-three timeline, and I distinctly remember sourcing these almond shells with our, having our agronomists drive all over the state. There's a ton available in California, but it's really seasonal, and, and we were doing tech innovation all year, …

AI assessment note: “we settled on, uh, almond waste, and, uh, we've tried both almond hulls and shells”

Q Yeah, understood. Um, ok, but you got there, and, and you did get enough pieces of the puzzle to put this together. You're well on your way towards building this factory and coming to full operation. What would you say is the biggest challenge that you have now, going from your pilot scale facility to your first of a kind commercial facility?

A Yes, we're, you're catching me in the middle of commissioning, and so we've built a factory, we're on the eve of turning it on, we're turning on the different subsystems, and, um, it's very busy right now. I think our engineering team leader, you know, gave a speech to his team saying, if you don't have actual dirt under your fingernails right now, it's a bad sign. So, like, our engineering team and the construction crew are all over this plant right now, um, and, um, It's, uh, nothing works, like, as easily as, as easily in real life as you, like, conceptualized it. It's like, you, two pieces won't fit together, and you have to go get something fixed in a really quick turnaround. Um, and, uh, and then you have to keep the construction crew fed. So we, we have overtime on construction. Uh, so they're working 10 hours a day, six days a week, and, uh, you need to, you can't have them not, uh, They can't be missing a part, right? If they, if the construction crew needs to install a valve, it's on us to make sure that valve is ready, and so keeping the construction team, like, fed with parts and any questions answered is actually really hard, especially when you pull the lever on, like, very busy construction in an overtime period.

AI assessment note: “keeping the construction team, like, fed with parts and any questions answered is actually really hard”

Q layer in these different kinds of Funding in order to make this moment work. Did it feel like herding cats? Was it really painful? Or did you generally find that it wasn't actually that hard, that once you kind of got a sense for the questions that varied slightly that these folks were, were asking, you had kind of the answers in hand? In other words, how painful was this?

A So to answer this, I have to describe that there's two work streams. One was the rural development loan, which takes, it just takes a lot of work over an extended period of time. And, um, and then the second work stream was, uh, the, the combination of grant, tax credit, philanthropic capital, and strategic capital. And those, those all we, we put together and closed roughly around the same time. Time. And so, uh, for that second work stream, which was the most kind of creative, um, group, um, how I went about doing it is I tried to find a nucleus, uh, of the deal, um, and, you know, share the deal, speak to the credibility of the project, and then try to find a nucleus, and for us that was a philanthropic Capital, uh, to fill the missing middle. And, uh, specifically with, um, this, uh, this, this, uh, facility called the D-Safe that was just developed, um, and work on that one, uh, uh, first, um, and, uh, because it was the most complicated, uh, structure, um, and, um, And, and then, ok, then bring folks in around, around that. Um, and that was a fairly successful strategy. And I, I think the other key thing is just, um, just putting in the work. Just putting in the work. I mean, there were so many applications submitted, grant applications. I didn't talk about the things we didn't get.

AI assessment note: “just takes a lot of work over an extended period of time”

Q perfect world, if you especially have, like, gone through all the struggles and pivots, you get to the point that you're building your first sort of initial scale kind of factory, um, and then you reached into a new challenge, which was a piping failure that was especially difficult to diagnose. So can you say a bit about how you handled that kind of problem as you were Building out?

A Yes, so our technology has these big reactors that help us make fertilizer, and then as we've grown, we've made these modular, and our strategy is to, um, combine these next to each other, and that's how we scale, and it requires a manifold that connects them, um, which is, you know, one of the technical innovations. It doesn't seem like it'll be the challenging part, but, um, lo and behold, as we built the pilot, and as we're scaling up, you know, our manifold design didn't work. And, uh, now we're in a situation where we had to shut the system down, and, um, and, uh, we had, uh, uh, we had to redesign the whole manifold, and, and the, the challenging thing about this is that, you know, it was such a, such a, uh, a surprise at the time, and it was a really perplexing challenge. Uh, the failure mode was non-obvious, and, uh, it took, like, very, Very detailed engineering, and following the scientific method to try to diagnose what the issue was, uh, that it was , it took us, uh, um, months to fix a, a, a manifold design, um, because it failed, and, you know, the root cause was, you know, it's not, a lot of times when you're scaling technology, the easy problems are like, okay, that, you know, that compressor's not spinning, and it's not, it's not turned on, or it's not wired correctly, uh, but the challenging ones are, or when you build it, And what you think should be easy, it…

AI assessment note: “we had to shut the system down... and we had to redesign the whole manifold”