The Exchanges

Q we can with venture to cover that. But to your point, there's not really enough venture capital. It's not really the right tool, because in order to get these huge projects done, you have to revert yourself to a huge evaluation. There are all sorts of implications about the capital stack and your exit probability, and so we're a little bit stuck here, right? Is that a fair characterization overall?

A I think so. I mean, I think, to be honest, the, the pure play venture model In, uh, particularly applied to some of these, you know, truly kind of longer duration, capital intensive, um, uh, exercises, um, is, is always a challenging play, and, um, even more so then when, um, you know, the market, uh, turns less positive on the broader segment, and so it is a math problem, and I do think that, um, the color and the cost of money, um, At the venture end of the, um, the market is, is not going to truly be the, the vector that can take us all the way through. We need to find ways that we can bring, um, scale in capital allocation and a slightly different return profile in order to, to bridge the gap.

AI assessment note: “I think so. I mean, I think, to be honest, the, the pure play venture model”

Q You mentioned you could argue the optimistic case or the cynical case. How do you feel about it today?

A Um, I am optimistic looking through my cynics, uh, lenses, to be candid. I, I believe that you have to be Pretty cynical in energy. Energy is not a kind of vibes, feel good type, type business. It's a very matter of fact. Does it work? Is it cost effective type solution? With that said, I do believe that we have access to such cost effective clean power today that it is incomprehensible that it doesn't begin to permeate more broadly into transportation, into industrial processes, and so on. We, though, we just, though, have to go through a degree of brain damage in creating some of these new business models and so on, and we have to work hard, and this is probably the biggest challenge, we have to work hard in holding the hands of those that finance these ideas and helping them understand this is an opportunity. The reality here is that everybody in this space that's in the finance, ah, realm wants to be second. Once, once they see it working once, they're going to be there. I have no doubt on that, but we have to find a way to bring one or two of them along, you know, get them in the vanguard, and if we can do that, then I think we crack the code, and I'm optimistic we can do that.

AI assessment note: “I am optimistic looking through my cynics, uh, lenses, to be candid.”

Q a similar conclusion about the solution here, which is basically, Call this our love letter to dear KKR, Apollo, and all the other massive infrastructure investors out there. Can you please just allocate a portion of your assets to go into some of these earlier stage, you know, first of a kind things with a different risk profile in a way that helps bring them up and create strategic advantage?

A We have a, we have a new, actually, we have a new, um, a new paper that we're gonna, actually, it's gonna be released on Monday, um, uh, June eighth, I guess. Um, and which, in fairness, wasn't, uh, this is not coordinated around that, but it just happens to be the case, which is a, uh, a follow on, uh, Laura, on, on a lot of this missing middle. And one of the, one of the points in that paper, um, that, that we take away, or that we, we try to make, is that, um, you know, These larger funds, right, they would be doing themselves a real service by stepping into this gap, because in doing so, all they're doing is they're creating pipeline for their core infrastructure business, and, um, you know, their business is a business about putting a lot of money to work at scale, um, and if they can, you know, If they can create vehicles that are slightly earlier stage, albeit they don't have to be true, you know, risk on, uh, you know, venture vehicles, but vehicles where they're focused on, let's say, less risky growth, but with a little spice on the edge, um, they could be much more effective at creating value, by the way, in that segment, and there's a lot of value to be had in that segment, I mean, on its, of its own accord, but in addition, I think they can, Um, they can create real powerful, uh, channels for new business that can be a new opportunities for real at scale deployment…

AI assessment note: “larger funds, right, they would be doing themselves a real service by stepping into this gap”

Q it anywhere. And I'm especially surprised that in this moment, when you've seen a massive pullback of government funding, and therefore, at least theoretically, an even bigger appetite for some of these bigger checks among companies that at least theoretically, you know, have a good idea. Like, we're still not, we're still seeing so many of them struggle. So can you say a bit more about what's creating that dynamic?

A I think that, um, yeah, uh, my, the analysis we've carried out would kind of suggest the following. The die gets cast very early. So, if you're a, because, you know, within the space, there tends to be some follow-on, or often quite a lot of follow-on. Um, so, um, If a true early stage first check is quite a large check because the opportunity demands it and so on, and there are certain categories of, you know, tech development that require that. Um, if you as a founder, and by the way, there's a dynamic here that's very important, you as a founder, you kind of want to ensure that your earlier rounds are supported by one of these vehicles that can write you that initial larger Initial check, and then can come and follow you through. And so, what I tend to see, what we tend to see in the analysis, candidly, is that, um, the die gets cast very early. Those subset of companies that get that bigger early check from those bigger funds, they are able to continue to, to raise quite a lot of capital. By contrast, others that may have only gotten a smaller check from, you know, one of the, The quite long list of smaller funds. Um, those smaller funds, they don't have the capacity then to do that next large follow on, but they may be competing directly or indirectly with one of these others that already has, um, has that kind of deeper pocketed investor behind them. And, um, and once you…

AI assessment note: “once you're in that situation, you, you become to a certain extent kind of stranded”

Q and money to build, but have real value, and that hopefully more than one of them will get where they need to go, and you'll ultimately wind up with some decent returns, but it might take more time like sort of admitting some of these things. Is that Is that you think what part of the ask is, or what else should change in order for this to work better?

A Yeah, I do believe that's the case. I mean, I think that at that allocator and LP level, they really need to, you know, ask more of those fundamental questions about, um, you know, what actually makes sense here. This is a different segment. Like, there is, it is just not, I mean, there may be some attractive software elements to it, but at the harder, like, you know, at the kind of steel and concrete end of things, It's just a different, a very different business. But it's not, that doesn't mean it's a worse business. It's a different business. It has a permanency and so on that's entirely different. And I think, you know, in many instances, much more, um, uh, has, has much more kind of, um, durability and all of that good stuff. So I think we kind of have to alter those mindsets A little bit. And if those mindsets can be altered, expectations around what makes sense, what doesn't make sense, and how to approach it, um, you know, can be, can be better balanced with what's feasible. When again, you're ultimately building, you know, thinner gravel pits as well. You know, that's kind of, again, very crude.

AI assessment note: “Yeah, I do believe that's the case. I mean, I think that at that allocator”

Q So it's less about the companies, like, you know, not being there and available. It's more that, like, once that early stage bet is made, then the investor has every incentive to kind of pull the other sort of billion dollar-esque funds in with them. And so you wind up with the haves and the have-nots. Is that right?

A Yeah. And I think, like, this is, I mean, this is a very interesting, this is a very interesting element, right, in everything that we're talking about. Because, like, There's the market, and then there's adequacy of capital at the market level, but it's really like the, I suppose, the industrial economics and industrial organization, um, around how our businesses work that, that shapes then that next stage. So right from the get-go, if you, um, if you find yourself on, on the, the path of the haves or the path of the have-nots, it's very, very difficult indeed to To bridge from, um, well, certainly it's very difficult to go from being a have-not to being a have, actually. Let me put it like that, at least.

AI assessment note: “it's very difficult to go from being a have-not to being a have”

Q So do you think that, that venture capitalists kind of as a whole need to reset their expectations and invest on different terms? Or is it about just adding more to the growth capital stack or some of all of the above?

A Yeah, I do think that I mean, this is very hard, right? That's a kind of a hard question to, to answer, because I think we need a lot of, uh, you know, venture capital, because there's a huge spectrum of innovation out there that, um, needs early support. Um, however, I, I think that, um, In particular, and I'll say this, in particular for, um, opportunities that are very large in conception and in potential impact, you know, so I mean like true kind of commodity market moving concepts. The real challenge for businesses like that with venture, um, you know, that are kind of growing out as a venture space is that, you know, there's a mismatch between timing, uh, capital intensity, and relative return expectations. And, you know, we can, you know, we can pretend that there are hockey sticks till the cows come home, but ultimately many of these businesses are, Most of these businesses actually at that end of things are my, uh, my very crude, uh, analogy is, um, they're just in the business of quarrying gravel, right? Um, we are, our, largely energy is just a, it's just the raw commodity input, right, for the rest of the economy. Um, there are a very select number of, um, of buyers for colored gravel out there. Uh, but, um, And so if you've got colored gravel in your, uh, in your quarry, great. But, uh, most quarry gravel, uh, most quarries, uh, are just in the business of competin…

AI assessment note: “there's a mismatch between timing, uh, capital intensity, and relative return expectations.”