The Exchanges

Q going to need dozens, hundreds of new technologies to get to the The type of infrastructure scale that you're talking about over the next couple of decades, every one of those is going to have to build a first of a kind at some point. Let's get back to why it's hard though. What, you know, their infrastructure finance is very mature. Why has it not solved the folk problem?

A The reason they haven't solved that problem is because folk is at the intersection between venture capital and infrastructure. And these are two asset classes that, for lack of a better word, are not well suited to doing first-of-its-kind. So for VC, it's basically too expensive and likely too large or glute of a check for them to build a first-of-its-kind plant with venture dollars. And I'm saying most first-of-its-kind plants are in the hundreds of millions of dollars. And for the world of project finance and infrastructure, they have a different risk tolerance. So putting on my hat as a debt provider, most debt lenders for project finance, they're focused on credit and risk management. And they're not going to, and their return is getting their debt back plus interest. So if you are investing in the next Tesla, and Tesla is now, you know, what, 708 hundred billion dollar company, They don't see any of that upside. It does make a real difference to them. And, you know, to use that old maxim, you know, you're getting debt level returns for equity level risk. So that's one of the issues. And also, I think there's a bit of a cultural divide. So I think in order to create this bridge between venture capital and infrastructure, and you know, I, I like to call it venture infrastructure at times, you have to be able to translate. And if you look at venture capitalists, and then look…

AI assessment note: “The reason they haven't solved that problem is because folk is at the intersection”

Q Okay, so there's government funding. Obviously, if you could tap into that, that's, that's generally attractive. Um, you also mentioned other sort of catalytic capital sources, like Breakthrough Catalyst, and there are a few others out there. How do you think about them as, as fitting into the mix here?

A I think they're very important, because I think for building these new blended capital stacks, we're going to be looking at, it's going to be a portion of growth equity, It's going to be a portion of strategic equity. It's going to be a poor portion of maybe some debt and kind of credit or structured finance. But there needs to be this, what I call flexible capital that can be equity. It can be debt. It can be something in between. It can be a loan loss reserve that can get these deals done. I think one of the great best examples is Breakthrough Catalyst's program that put in fifty million dollars of grant money to build Lanza Jets Freedom Pines facility. Which I think is, you know, the biggest and first kind of sustainable aviation fuel facility being built out in the US, right? And we need kind of more of that. And, you know, and I give kudos to Gates and Mario, who's running the Catalyst program for running what I think is probably the one of the most important platforms to getting first-of-kind facilities done. There are a number of other, kind of, uh, entities jumping in. I think Just Climate, which came from Generation, my old, kind of, ah, place I used to love working at, was they're doing, you know, catalyzing transformational solutions. They are taking, trying to back early, high-impact climate solutions. And then I'm noticing that a lot of family offices who are leani…

AI assessment note: “I think they're very important, because I think for building these new blended capital stacks”

Q checklist that is pretty universal about the things that make a thing financeable, regardless of the source of financing. So kind of walk me through the high level. Like if you're advising a series, a Technology company. They haven't built a first of a kind yet. They know they're going to need to in the next few years. Like, what are the things they need to be thinking about immediately?

A Okay. Well, I think for the last few years, I've been doing a lot of what I call FOC or Project Finance one-on-one with, uh, this generation of climate tech startups. And it's kind of been refined to this short checklist. I think the first thing you need to start thinking about your FOC project at the Series A. These projects take years to get ready and then take years to build and finance. So you want to start this early. This needs to be part of your business plan. It needs to be part of your board, regular board discussions. All right. And one of the things that I'm really encouraged by is that this generation of kind of climate unicorns are starting to do that. So like my friends at Arbor Energy who are bringing kind of SpaceX technology to biomass, they've already embraced this. And made this part of their strategic plan. You know, as well as, you know, Antora, who's doing really smart industrial decarbonization through heat batteries, is also kind of embracing this type of approach. So I think that's the first thing, is make this a priority, part of your business plan. I think the second thing is that you need to actually get project finance and project development DNA into your firm. Like, I think that old analogy that people talk about, you know, venture capital, it's like, what are the top three things you pick in a, in a, for a venture capital startup? It's team, team…

AI assessment note: “I think the first thing you need to start thinking about your FOC project”

Q which deployed a lot of money as well. So in the U S and in Europe to some extent too, You know, the world of sort of like non-dilutive or mostly non-dilutive government funding is, is richer than it was, but also kind of idiosyncratic and sort of depends what you're doing. So what have you seen as successful mechanisms to use government funding to deliver first of a kind?

A So I would say right now, what I think the big game changer is that government now has literally hundreds of billions of dollars available for first of this kind, both through the DOE's LPO program, which I helped run back in the day, as well as now new programs from, you know, for DAC hub funding or hydrogen hub funding, which is measured in the tens of billions of dollars. And I think the key thing is that government Is now really just, uh, is viewed as a strategic ally. And not only is government willing to, you know, partner with the private sector, the private sector is willing to kind of partner with government. And I think the two ways that you can really leverage government as your partner for folk is, one, working with OSED and other parts of the DOE to do your pilot slash first-of-kind funding, as well as applying to the LPO. I think the LPO now with IRA money is, you know, has about four hundred billion dollars in resources, and I think they've become, for lack of a better word, must-see TV, or the key stop for any company that's doing an ambitious climate tech, hard tech startup, whether it's, you know, changing mobility, changing hydrogen, green hydrogen, or even green cement.

AI assessment note: “working with OSED and other parts of the DOE to do your pilot slash first-of-kind funding”

Q inherently knew this or figured it out pretty quickly. Then there's the actual, what do you, what do you need to like, what, what do you need to show with regard to your technology before you do the first of a kind? Such that you can do the first of a kind, or such that you can finance the first of a kind. Like, how do you think about that?

A I, I think there are many things to do, but there are two main things I would focus first. Is you at first have to de-frister technology with pilots. And I'm emphasizing the word plural. Um, maintenance projects that I'm looking at are trying to go straight from lab scale to utility scale. So they're trying to scale 30 X, a hundred X. That is very hard to be seen as bankable in the project finance and infrastructure markets. So I think a good example of someone who's done a good job of being a measured approach to, to growth is Climeworks. You know, like in 2012, they build demo. Few years later, they did a bigger demo. 2017, they did their first commercial scale. And now, like a few years ago, they did Orca, and now they're going to be doing Mammoth. So they took multiple steps to get to commercial scale. While a lot of the startups now, they're trying to go straight past go and go from, you know, let's say, use the analogy, you know, a few thousand tons to a million tons. And that's just hard.

AI assessment note: “you at first have to de-frister technology with pilots. And I'm emphasizing the word plural.”

Q Folkers, yeah. Motherfoker. Okay. All right, so, so, okay, briefly, I think it's probably self-explanatory, but you tell me, if not, like, why is folk important?

A Okay, I think the first thing, like, the climate crisis is an existential crisis, and we need to deploy, deploy, deploy to keep ourselves at, you know, let's say two degrees or two and a half degrees Celsius. And right now, a lot of climate tech, car tech companies, Do not make their impact till they become infrastructure, till they start, you know, bending steel, laying concrete. And in order for us to have gigatons of carbon abatement, we need to deploy gigawatts, gigapanels, giga everything. And you can't deploy anything at the scale of the billions until you do the first one. And the first one is by far the hardest. And for me, I've been doing climate for, I would say, 20, 25 years, so I'm really aging myself. And people are talking about, oh, what is the climate solution? All right, and a lot of people just talk about almost as a technology vertical. Is it green hydrogen? Is it green cement? Is it more solar? Is it more wind? To me, I think one of the biggest climate solutions is FOC, which is a horizontal finance solution that can essentially be the one financial solution to help catalyze them all. Because most of these climate tech, hard tech companies, in order for them to start their path to making impact, they have to build their first of this kind factory or first of this kind project. And FOC is a financing approach That's applicable to geothermal, to energy storage…

AI assessment note: “one of the biggest climate solutions is FOC, which is a horizontal finance solution”

Q talk about is customers. Cause the other thing that like your, your future project finance provider, infrastructure investor, whoever it is, cares about is like, How firm is the offtake for the things that you're building, um, and what's willingness to pay, what is the credit worthiness of the offtaker, etc. So, how do you think of, uh, offtake for a first of a kind? Like, what is required there?

A I think the first thing, you have to understand what your commercial model is for your, your first of a kind plant, right? You need to go out and get agreements, as you said, you know, offtake. And, you know, I think everyone is looking for the equivalent of a twenty-year PPA, because that is very bankable. So people are looking for that for, you know, direct air capture in their carbon credits. They're looking at that for various green molecules. So that is, that is fantastic. But I think this is where kind of the rub lies. Many markets that need to be carbonized Don't work on long-term contracts. They're spot. They're merchant, right? How do you figure out that solution, right? And this is where I'm, you know, it's great about having entrepreneurs and their animal spirits. They're creative and persistent on trying to figure out how to hack this part of the problem, right? How can we turn a commodity market that is spot and merchant into long-term agreements? And this is like some of my friends at these, some of these green cement companies, they're realizing what they're producing for green cement is a premium product where buyers, especially, you know, a lot of the large tech companies are willing to create, change the, the commercial model of offtake, spot, merchant, to long-term contracts.

AI assessment note: “How can we turn a commodity market that is spot and merchant into long-term agreements?”

Q been pretty powerful with some of our portfolio companies where, like, historically, the first of a kind, they would have had to finance it themselves, and they would have gone through this whole rigmarole. But instead, if they have sufficient evidence and the customer has sufficient need, they're able to basically say, look, you pay for it to the customer. Um, how much of that do you see out there?

A So I think when we're trying to look, you know, at the history of folk, the first few folk deals, um, That we're done. We're done with strategics, right? So to me, I think one of the best kind of climate OGs is Lanzatech. They've been doing carbon value before carbon value was even a term. And they built their first three to four plants by working, by working with strategics, by licensing their technologies with steel companies in China to build real, real projects at scale. And then I think a second example is Strategist can also be, I would say, kind of, the integrated partner. Um, one example that I've used a lot in the past is LNG. So LNG now is a very mature project infrastructure market. But, you know, say 10 plus years ago, it was not that. Strategics came in and where they're both the sponsor, the developer, the off-taker, and sometimes even providing the supply. And this is something, you know, what I've been kind of talking with a lot of these, you know, climate tech startups is that Strategics can be that powerful for you. We've been using this LNG example a lot when we talk about, kind of, green hydrogen, blue hydrogen. Can you find a strategic that can do all those things for you?

AI assessment note: “the first few folk deals, um, That we're done. We're done with strategics”

Q I mean, it, it, it's a good thing. It's also probably a challenge, right? To what extent are you stepping back? Do you see there as being like a, a repeatable playbook versus to what extent is every first of a kind thing for a different thing going to be a unique snowflake? That's going to require a bunch of time and effort and expertise to sort of figure out.

A Going back to, like, my biology roots, I think there's a good analogy from that. There's this kind of concept when you look at biology, when they say it's unity to form diversity of pattern, and I think this is applies to folk, where there are going to be certain guidelines that go across all sectors and all verticals, but how it's actually implemented for each specific folk, whether it's a green hydrogen folk, or a green cement folk, or a green steel folk, it's going to be Specific to that sector and specific to that company. And I think the second thing is that what we're trying to do now is build a folk asset class. And as you get more and more dedicated investors and folk, it'll become easier and easier because they will have their own pattern recognition of what they're looking for. And, and to me, like, one of the things that I'd like to add is an important part of the checklist for being Making your projects folk bankable is that a lot of these CFOs and CEOs of these new climate tech startups have to learn the language of infrastructure and product, project finance. And specifically, they have to be able to code switch from speaking VC language is disruptive innovation, home runs, you know, power log to saying it's, this is proven off the shelf technology. There is no binary technology risk. Oh, we're totally investment grade. Who will pay back the loan and have a debt s…

AI assessment note: “certain guidelines that go across all sectors and all verticals, but how it's actually implemented”