The Exchanges

Q So take me into the board meeting. We were discussing these options. What are, what are the arguments on both sides of the equation? Because this is such a huge challenge that's So many startups are having when it comes to this question around what they do next.

A For context, our commercial pilot system had two racks of six membrane modules, and our commercial first-of-a-kind system has 600, over 600 membrane modules. But the modules themselves weren't a hundred X. They were about twice as large. And so there wasn't a 10 X or a hundred X question on the membrane modules themselves. There was absolutely a 10 X or a hundred X question on, on the number of modules and then the, the engineering around it, the pumps and the pipes and the foundation and the weatherization and the control system. Uh, those things were, were vastly different between the 10 X and a hundred X. So when we're thinking about, uh, in the boardroom, when we're thinking about things, we're thinking about, okay, in the success scenario, we go straight to a hundred X. We start generating revenue. We've Proven both the technology risk retiring and the, and the model, the business model with which we're selling to the customer, or we hedge a little bit and take a 10 X step on the way there. The 10 X step, though, easier engineering was going to take just as long as getting to a hundred X because our lead time was defined by system components. When you purchase an electrical box or purchase a pump or purchase a, A component that has a long lead time, you can't deliver the whole system until after it comes, and so the lead time was the same for the 10 X or the hundred X, bec…

AI assessment note: “in the boardroom, when we're thinking about things, we're thinking about, okay, in the success scenario”

Q also talk a little bit about the financial side of the equation, which as you know is near and dear to my heart. So you're here, you're ready to build a hundred X scale up factory. You've got a partner who's excited and willing to work with you. What were some of the alternatives that you considered around how to finance this commercial facility and where did you wind up?

A Yep. So, um, how to pay for it was obviously very front of mind. We were, uh, at this position, so this would have been summer of twenty-twenty-two. We had raised our Series B the prior fall, so we had a bunch of cash in the bank, a lot of which was earmarked towards the first commercial project, but we did not want to use it all for the first-of-a-kind plant, and so I was kind of pounding the pavement talking to Early of a kind funds, and what I learned was that the project finance that I had hypothesized was out there for, for first of a kind systems was not. Um, that those were truly, and, and probably should be, uh, early of a kind. So maybe you're not meeting your full, um, full IRR expectations, but you're, you're most of the way there. There's enough money to spread, uh, across Across the, across the multiple parties. Uh, this project, uh, was not a good fit for that because we didn't have a full picture of the designs until we were, we were very close to delivering. Uh, we didn't have the contract signed until two months before we broke ground. We did not have the finance cap capacity on our team to Deliver project finance at the time. So there were, there were, there were a number of factors here. And instead, we, uh, started to look at things that were a little bit more corporate focused. So things like equipment loans, things like venture debt, uh, things like additi…

AI assessment note: “we started to look at things that were a little bit more corporate focused”

Q Okay, so now you're getting into the moment where you're building this project. Uh, who is your engineering procurement and construction firm? How are you thinking about the decision around what you own and what you are contracting with others to provide when it comes to actually building and delivering the project?

A Well, we decided to be our own general contractor so that we could stay very close to the engineering, the EPC, the engineering procurement and construction phases of the project. We did that for a couple of reasons. The first is because we wanted to be able to, uh, take those learnings for the future and be able to translate those into cost down, into optimization, into the, the data gathering that, that we were doing. And the second was because we, um, did not have, uh, a partner who could do everything. Uh, there was no kind of one entity that both knew the facility and the customer and, uh, The ways that customer worked, as well as could deliver the things that our team needed them to do, as well as procure, for example, on the lead times that we required. So we did not follow the traditional FEL process for this first-of-a-kind system. We did much more of what's called a design build, and we did that intentionally for speed. We did that because as a venture-backed company, uh, We have a burn, and delaying the construction of our project means that we're, we, we are burning regardless. And this a little bit goes back to the 10 X or the hundred X conversation. In order to deliver a project like this, you need a certain number of skill sets. Uh, you can't necessarily contract all of those skill sets. And whether it's a 10 X system that doesn't generate revenue, or a hundred X…

AI assessment note: “we decided to be our own general contractor so that we could stay very close”

Q So people, so that was one thing. Um, the location, in addition to being a place that was snowy, was also far away, so that was another thing that created some challenges for you, right?

A Yeah, so just like any, any startup, our team, uh, wears a lot of hats, and, um, many people from our team have spent many, many hours both Traveling to and from, and also in the field at the, at the site. It's far enough that, uh, when you go, you want to be there for a little while, but that also means you're, you know, away from your family and away from your, your routine and, and, and your day job, because that doesn't necessarily go away either. We knew this going in, and we decided to take a bet on the team here, but I would be remiss if I didn't mention the toll it took on our team to, to do all of that Travel in the middle of winter. Winter means flight delays. That means that if we had folks on shifts and were relying on them to show up, then we needed to schedule a couple days extra on either side. That was a big, um, big feature of the project for our company.

AI assessment note: “the toll it took on our team to, to do all of that Travel”

Q And so was there a moment where you were asking yourself, is this gonna happen, or is this all gonna come crashing down?

A Yes. But I think the question was, is this worth it? Is this worth the toll on the team? Is this worth the capital that we've raised? I can unequivocally say right now, yes. On the other side of it, I can unequivocally say that when it is successful, and it is running, and it is smooth, and it is working, and we have proved what we set out to prove, or at least the start of it, because time is Time does matter. But I will say that there were, there were moments where we look around and there aren't a lot of first of a kinds. There are, uh, very few climate tech companies who can say they're operating at commercial scale and that the customer is accepting the product. It's a lonely place to be the only one and not know what's on the other side in, in the thick of things.

AI assessment note: “Yes. But I think the question was, is this worth it?”

Q Okay, so you had talked, Shreya, about serving as your own EPC. What about in your next couple of projects? Is that something that you'll continue as a model, or is there a point where you see bringing in someone else ultimately to serve as kind of your general contractor or project manager?

A There are, there are pros to both. Um, when we are closer to the engineering, I think there is more opportunity to value engineer and to, um, uh, make decisions that would otherwise be too, too far, too much at arm's length. But there's a lot of value to wrapping the project with an EPC and with, uh, leveraging the experience and the skill set and the buying power, uh, that an EPC has. In the near term, we are going to work with our customers to see which, uh, which model or where in on that spectrum is the best for them. That will depend on location, that will depend on their relationships with EPCs, and, uh, it will also depend on how we are selling the project and, and how quickly we are looking to deliver it. But we are, we are very much, um, very much open, uh, to and expect to leverage EPCs.

AI assessment note: “In the near term, we are going to work with our customers to see”