The Exchanges

Q start by talking a little bit about the history of Climeworks, I think particularly through the lens of over the years, when you were reaching certain levels of scale, and then along that way, how you were doing capital formation. So maybe just walk me through the quick history of Climeworks, but, but focused on what were you building at any given time, and then how were you capitalizing it?

A So Climworks was founded in 2009 by Jan and Kristof. Basically it was a spin off, uh, out of the university. Um, they both founded the company when they were doing their PhD. Um, and in the beginning, um, actually the PhD was part of the funding, right? That enabled a little bit of a scholarship and, and, uh, access to the labs. And then it was the typical friends, families, and fools, um, who, who started investing in the company at a very small level. And then, uh, For quite some time, the company was funded, um, through, uh, first angel investors and then family offices, because at the time there weren't really any climate VCs, um, over the timeframe. And the, the company built, um, its first sort of deck machine, the first collector, as we like to call it, in 20 14 deployed that. Then in 2017 was the first time that there was a Uh, a commercial pilot plant built a commercial in the sense of actually delivering product to the customer. And at that time it was delivering CO two to, uh, to Coca-Cola into a greenhouse, um, for reuse, essentially recycled CO two. Um, that enabled the company to then fund more and also the existing investors and their network get more funding in place, have access to quite large family offices, which really had that long term orientation, um, to put more money into the company. And then the next big milestone was really starting up orca, the firs…

AI assessment note: “Climworks was founded in 2009... in the beginning, um, actually the PhD was part of the funding”

Q And can you just remind us the scale of Orca?

A So Orca has nominal capacity about 4000 tons. What do we mean with that? That means it's, um, um, that's what the plant was designed to capture at maximum efficiency. So maximum run rate, et cetera. And there's some losses that go away from that. Um, so yeah, on the backbone of, um, of operating Orca, and having that in the field, we then launched a new fundraise, our Series F, uh, already at the time, and that was sort of the first time when, um, large institutional investors came into the cap table, and we managed to raise about six hundred fifty million US dollars, um, I think the largest, um, venture capital type raise in Switzerland, and for sure also one of the largest in the, in the climate tech space.

AI assessment note: “Orca has nominal capacity about 4000 tons.”

Q think my assumption is that one of the purposes and being really transparent about that, apart from obviously you're just telling customers how many tons you're delivering is to just note to the rest of the market, which is coming behind you that actually probably it's going to be harder than you think it's going to be when you start to build these things. Was that part of the point?

A Yeah, I think, look, a lot of the efforts that we do on the market are about education. Um, and we fundamentally think it's important that we as an industry send the right message to our customers and to partners. And that means talking about the opportunity and the need for that and all the super exciting, um, business value that represents. But it also means being real about what are the challenges that you face Uh, because we feel like, um, especially if you're in an environment that relies on a lot of, uh, equity funding, um, you sometimes can get into the temptation of, you know, um, over-promising, uh, on what you can actually deliver, and we just wanna, uh, now, given that over the last three years, there have been a lot of tech companies that have popped up, and there's a lot of new startups, which is really exciting to see, right? A lot of new approaches, but we think sometimes there's a real danger in, The industry over promising on the cost target or on deployment and, and, and, and volumes. And what we're worried about is what's going to happen if, if, if people are not transparent about the challenges is that, that people will lose face at some point, you know, when they say, well, this is just an industry that makes a lot of promises, but doesn't really keep them.

AI assessment note: “Yeah, I think, look, a lot of the efforts that we do on the market are about education.”

Q in, in carbon removal in general that includes some intermediaries, brokers, things like that, also includes organizations that are Focused on measurement reporting and verification, um, so that you have some kind of independent verification of delivery and, and, you know, LCA calculations and so on. How do you see that ecosystem system developing and what do you think is the ideal, like, value chain from, from project to buyer?

A So, look, um, I think the intermediaries are Fulfilling one very important role, and that is making it easier for customers to buy, right? Reducing that friction and that hurdle to put together the portfolio. And in a certain way, we're also playing that role as an intermediary for everything that is not back. Um, and I think they contribute a lot to the education of the market. Um, and it's not like when we started selling these offtakes, there weren't any of these intermediaries, right? A lot, there were already a lot of intermediaries in the market typically focused on carbon reduction, um, offsets. Um, and they've, a lot of them have shifted now to carbon removals, and some of them also to sort of higher duration, uh, carbon removals. Um, and I think they play an important role in, in, in the market. I think for us, it, we, we were always in discussions, but it, it, it wasn't a viable option for the reasons that our capacity is in the end still relatively limited as we scale. And we have to think about, like, what's the best way for us to retail that can pack Capacity and have the biggest impact. And obviously signing these long-term offtake agreements with directly with the, with the offtaker has a lot of benefits, right? Um, you, uh, enable potential resale, uh, or, or, um, uh, further contracts. You help educate that customer for a direct, uh, for direct sale. Um, you, u…

AI assessment note: “I think the intermediaries are Fulfilling one very important role”

Q the Orca phase of, like, trying to get the first few thousand tons per year, or tens of thousands of tons per year. Um, and then meanwhile, the broader macroeconomic environment has changed. The buyer pool has changed, as you said. Is there, is this going to be a boom time for direct air capture broadly? Do you think there'll be a shakeout? Like, what do you expect to happen?

A I think, honestly, maybe a little bit of both. Um, I think The direct air capture industry still lives off a lot of promise. Um, we are on the one hand fortunate, on the other hand, also a little bit suffering that today we're the, um, we're the only one with a commercial facility in the field. Um, we are actually very much looking forward to some of the other players starting to deploy the commercial facility going through the learning curve as we have. I think that will bring a, an important dose of reality into the Market. People see what, what, what, what can, what can we, um, what, what can we actually deliver and what is necessary for the next step? I think at the moment there might be a little bit too many unrealistic promises in the market, and that might also mean that some of the companies will not make it to that next stage. Um, however, we think it's exciting that we can potentially benefit also from some of these shared learnings and don't have to, um, um, sort of educate the market ourselves. Um, I think in terms, if you look at the market, I think that, uh, we, we think it's quite likely that we'll see more industries come into this market, uh, especially when there's more reasons, um, to do so, um, from institutes like SBTI, right? The SBTI guidance, uh, hopefully will include much more concrete steps on short-term targets for carbon removals, and we see the fir…

AI assessment note: “I think, honestly, maybe a little bit of both.”

Q thinking process went and, and kind of basically what you needed to do. Why do you need that much money? Is that, is that going to capitalize additional, you know, order of magnitude larger projects? And, and what were the other options you considered to do that? Because this is a challenge that many climate tech companies ultimately face as they start to get into the real commercial deployment world.

A Yes, absolutely, Sheld. So, It, we are all agreed that over time, um, you need to have a fully, um, diversified capital stack, uh, that goes into these projects, right? You need to have it diversified across, um, potentially some government grants, right? Which help you on the deployment across, um, project finance, both project equity and project debt, um, potentially some tax equity and other instruments, um, and Some amount of equity, but you wouldn't expect to fund these projects, all of these projects just with TopCo Equity. Um, however, um, To, for these projects to be profitable, they need to be at a certain scale. Um, and you need to wake, um, make your way towards that scale by subsequently larger deployments. Um, we are of the fundamental opinion that it doesn't really work to, uh, you know, deploy in the lab or at very small scale at pilot scale, and then go from that straight to the size that is required for the plant to be profitable, because that's a huge technological risk. And if you look at sort of what happened during the deployments of our plants, um, that was a good strategy to have. Because if you can de-risk the technology over time, as you scale and you build subsequently larger ones, but in digestible steps, so five to 10 X, um, you can scale the market better. You can de-risk the technology at lower amounts of capital deployed. And to do that, that just…

AI assessment note: “to do that, that just requires a higher degree of equity”

Q dollars a ton. But even if you just Take, you know, bottom of the market of, uh, quote unquote, durable stuff like biochar, maybe in the low hundreds. So it's, it's a really wide range. How do you set pricing? Like, is there, cause there's no market price. So is it cost plus, or like when you're talking to a customer, what determines the price that you are selling at?

A Yeah, it's an, it's an excellent question. I think it's, uh, to finding the balance of eventually making these projects economically viable. Right. And that the sizes that we are now building it, they have to be economically viable. Otherwise they just won't get built. Um, so that's the, that's the cost plus aspect, but also meeting the market where the market is at. And one of the things that we have been doing in, in determining that is starting to not just offer customers direct air capture, um, um, agreements, but also structuring portfolios for customers. One to make it easier for them. To, to do that, because as I mentioned, that's, that's, that's quite a hard job. Um, but also to allow them to have a portfolio that's kind of aligned with a scientific, uh, glide path, right? You do a bit more lower permanence, uh, lower additionality in the beginning, and over time you shift to higher additionality and higher permanence as the cost of these solutions come down.

AI assessment note: “finding the balance of eventually making these projects economically viable... cost plus aspect, but also meeting the market”

Q well, what hasn't gone well, what, what the challenges have been in scaling. Can you talk a little bit about that? Like, what are the learnings? What has happened as you've deployed Orca and, and look to deploy additional projects beyond that? How have they performed? And then You know, what are the broader lessons that you would take from that from a sort of company and capital formation perspective?

A So When we turned on the switch in Orca after sort of a two year build time, um, and as we went into the first weeks and months of operations, um, we figured out a lot of things that, um, we didn't know before. Um, and this is despite us already having commercial scale planned in Switzerland. This is despite us having run a smaller scale pilot, uh, unit in Iceland, but there's just many things that you only really experience when you deploy at scale and you deploy In an, in an operating environment, when you deploy an environment where you need to run the plan, 2407, where you need to deliver to the customers. Um, and that has been a pretty steep learning curve, to be honest with you. And it's one of the reasons why we're very happy that we made the decision to move in these smaller and faster steps so we can learn along the way. Um, so what did we learn? There's also an article on our website, which goes into quite a lot of detail, um, on this.

AI assessment note: “There's also an article on our website, which goes into quite a lot of detail”