EPISODE 1714

[INTRODUCTION]

[0:00:00] ANNOUNCER: Bison Ventures invests in frontier technology companies that use innovative science and deep technology. A key pillar of their investment portfolio is climate technology. Tom Biegala is a Co-Founder of Bison Ventures. Prior to starting Bison Ventures, Tom worked at Cascade Asset Management Company, the investment office that manages the assets of the Bill and Melinda Gates Foundation Trust and Gates family. He joins the show to talk about why he started Bison, the climate tech start of landscape, and much more.

This episode is hosted by Lee Atchison. Lee Atchison is a software architect, author, and thought leader on cloud computing and application modernization. His best-selling book, Architecting for Scale, is an essential resource for technical teams looking to maintain high availability and manage risk in their cloud environments. Lee is the host of his podcast, Modern Digital Business, produced for people looking to build and grow their digital business. Listen at mdb.fm. Follow Lee at softwarearchitectureinsights.com and see all his content at leeatchison.com.

[INTERVIEW]

[0:01:19] LA: One of the hottest areas of technology investment today is in climate technology. My guest today is Tom Biegala, a Founding Partner at Bison Ventures, and we're here to talk about the climate tech startup landscape. Tom, welcome to Software Engineering Daily.

[0:01:36] TB: Thanks so much for having me.

[0:01:37] LA: Can you tell our listeners, what type of companies Bison Ventures focuses in for investments?

[0:01:44] TB: Yeah, absolutely. We are focused on investing in early-stage frontier technology companies. For us, frontier technology means, essentially, anything that's got an innovative science, or deep technology component to it. Typically, these are companies going after physical world applications, but that's certainly not an absolute requirement for us. Also, typically, I would say, there's a hardware or biological component to as well. But again, not an absolute requirement. 

Two of our key pillars are investing in companies that have an impact on creating a healthier planet and a healthier person. Obviously, climate falls very deeply into the first one of those buckets. That's what we'll be talking about here. Happy to dive into some more details there.

[0:02:27] LA: Definitely, a healthier planet, a healthier person, they often go together pretty well as well, too. That's good as well.

[0:02:34] TB: Yeah, that's right. There are things that you can do for both. Absolutely.

[0:02:37] LA: Why did you start Bison? Was it for that reason, or what was important to you that caused you to start Bison?

[0:02:44] TB: Yeah. I saw a general underinvestment in frontier technology across, especially the early-stage French capital landscape. You've got plenty of amazing French capital firms up and down Sand Hill Road, in the Bay Area that invest primarily in software companies that are focused on digital applications of that software, whether it's things like, consumer internet, or enterprise SaaS, or FinTech, or even crypto. Just not that many of those venture firms tend to spend time in more of these physical world applications. That is a huge gap from my perspective, because when you look at some of the biggest tech companies in the world, many of them are hardware first, the Apples of the world, the Teslas of the world. Now, Nvidia being all the rage and TSMC, these are fundamentally hardware of businesses. But 95 plus percent of Silicon Valley venture capital firms don't necessarily spend time in the physical world.

To us, it was just a very meaningful gap in the early-stage funding ecosystem. We thought we were very capable of exploiting that gap and funding some amazing businesses, working with entrepreneurs that frankly solve a different set of challenges than software entrepreneurs, because you have to deliver typically a physical product to customers, which has a whole different set of requirements than software, because you can't just push an update, for example. You have to get it right the first time. This was just the type of skill set that we wanted to bring to the market.

[0:04:07] LA: Yeah, you're right. The typical investor in Silicon Valley really is - these typical SaaS application, they want to find the next SaaS application, whether it's social media for personal use, or enterprise SaaS for some capability. That's the typical use case. You don't see a lot of investment in Silicon Valley companies in hardware, which is odd, considering Silicon Valley was started by HP. Really, HP was the first company that got Silicon Valley going and it's dominated by Apple pretty much nowadays. That is an interesting take.

[0:04:42] TB: Even just looking at the name Silicon Valley, right? It started with the hardware, with the silicon on which companies like Intel were based, etc., some of the companies that you mentioned. Nowadays, there's not much silicon investing going on in Silicon Valley.

[0:04:57] LA: Yeah, exactly, exactly. Is it safe to say that climate tech, was that an afterthought versus the hardware investment? Or was that really still a forefront in your mind when you created this?

[0:05:11] TB: Still absolutely a forefront in my mind. I've spent most of my career, either as an engineer or an investor, taking a look at these frontier tech categories. But climate and energy tech more broadly has been a common theme throughout my career. I spent time in the solar photovoltaic industry as an engineer at a couple of startups that were university spinouts. That gave me the startup experience within the heyday of CleanTech 1.0. I spent time at a venture capital firm that was doing broad energy technology investing and that was everything from renewables work through to innovations in oil and gas technologies, frankly. It wasn't just climate at that particular firm that I was spending time on.

Then as we were launching Bison, it was just obvious that climate should be a piece of the strategy. I think we think about climate differently than a lot of other climate investors, because we've seen the good, the bad and the ugly of climate tech and more specifically, the CleanTech 1.0 era. We're using a lot of those lessons learned to inform how we invest in climate at Bison Ventures.

[0:06:12] LA: Let's talk a little bit more about that, because I'm not sure a lot of people understand what you mean by CleanTech 1.0 versus what we're doing now. Obviously, we've matured in what we mean by CleanTech, but what was the initial CleanTech and what was wrong with that?

[0:06:29] TB: Yeah, yeah. The initial CleanTech, I would roughly call it the 07, 08 timeframe to maybe 2012, plus or minus. That was an era of a lot of investment, especially venture capital dollars going into primarily, what I would call energy production technologies. The things like, novel solar cell technologies for energy generation, wind technology, biofuels. That was obviously when Tesla was started. There was some EV investing at the time, although less than there was in this most recent wave of climate tech.

You had a bunch of investors, basically investing into these very capex, heavy businesses that in some ways were ultimately producing commodities. I don't shy away from capex heavy investing, as long as the end of the road is very attractive. Going back to your description of current Silicon Valley investing in enterprise SaaS, the reason enterprise SaaS is so wonderful to invest in is that it's not capital intensive and you have incredibly high gross margins. What you saw in CleanTech 1.0 was a bunch of businesses that were very capital intensive and ultimately, had very low gross margins because they were selling commodity products, like an electron that enters the grid at a very known price. Just because your electron is green, doesn't mean that consumers necessarily want to spend more for that electron. There was a whole slew of these businesses that were doing really great technology innovation and did have incredibly technically talented teams. At the end of the day, it wasn't necessarily products that in my opinion can result in eventual return, like the enterprise SaaS business models, for example.

[0:08:13] LA: The problem with CleanTech 1.0 wasn't that it wasn't good CleanTech. It was that it was doing a good job, but it just wasn't very profitable.

[0:08:23] TB: It was hard and at the end of the road, the payoff wasn't necessarily there. These are industrial businesses. You get an enterprise SaaS business off the ground, you get to 10 million bucks of revenue, eventually 100 million bucks of revenue, you're probably valued at 10 times revenue. You look at a big industrial business, let's say you're getting bought by a GE, or a Siemens, those guys are valued on a multiple of EBITDA and they have to justify acquisitions to their board not based on how many machine learning engineers are at the company, but based on how much EBITDA that company is generating and what multiple of EBITDA you're paying for that business.

It's just a very different type of landscape. Frankly, there are some things going on in today's climate tech that remind me a lot of that. There's a lot of great innovation that looks very different than a lot of promise in some of these companies. There is still a little bit of the remnants of the CleanTech 1.0 era. As we think about what we do at Bison, we're way less focused on things like, commodity products at the end of the day, because we just don't think they're very well suited for venture investing, or venture-like returns.

[0:09:29] LA: Let's take a digression just for one second. I think most of the listeners of this podcast are going to be engineers, not necessarily financial experts. Can you explain what EBITDA means to them?

[0:09:39] TB: Yeah. EBITDA is a profitability metric. When you think about startup companies, usually startups first think about generating revenues, generating sales. In order to get customers in the door selling their product, that's what you have to think about first. Long-term, you have to think about profitability and cash flow. EBITDA is certainly one of those metrics and it stands for earnings before interest, taxes depreciation and amortization. You can look it up on Investopedia if you want to dig in deeper to it, but I'm not going to go into the weeds here. Essentially, it's just profit -

[0:10:13] LA: It's basically raw revenue, essentially, is a good way to think about it.

[0:10:16] TB: That's right. Yes, it's a way to think about the profitability of a business stripping out some of the non-core things, like loans, or heavy capex depreciation and things like that. Essentially, the big industrial businesses, when you think about how they get value and how they get acquired, that's the type of metrics that folks are looking at. It's usually at a far later stage of maturity that these companies tend to have. EBITDA. Certainly, takes a while for a startup to get to EBITDA positive and display profitability. It even took Amazon a very long time to get to that point. it's just a very different type of mentality at the end of the day. As you build a business, you have to focus not just on growing top line, but you also have to focus on what is the gross margin of your product? Because if your gross margin is only 20%, you have very little room for error in order to get to any level of profitability on which you'll be valued on.

Again, when it comes to an enterprise SaaS business, which has zero marginal costs of delivering the next piece of software, you've got very high gross margins. You have a lot more room for error and ultimately, a lot more profitability as you see with all the big public companies that focus on things like enterprise SaaS.

[0:11:31] LA: Right, right. CleanTech 1.0, the problem was profitability. Now, we're in, is this CleanTech 2.0? Or are we in 3.0? I'm assuming 2.0 is a good term to use.

[0:11:43] TB: I've lost track. I think they just rebranded it as climate tech and not a dot 0.

[0:11:47] LA: Okay, that's fine. Climate tech then. In the current round of thinking about climate tech, what's different and what things do you invest in that's different than what you did previously?

[0:11:59] TB: Yeah, I'll comment maybe what I'm seeing in the industry more broadly than comment on maybe some of the things that we're spending time in. It's a much broader set of companies and a much broader set of industries. I think, some of the big winners from CleanTech 1.0 were companies like, Tesla and Nest, which had a consumer facing component to them. Similarly, in climate tech, you had some alternative proteins companies. Think about the beyond meets and impossibles of the world that were very much consumer focused.

Some of those learnings on the winner side certainly bled into climate tech as you think about spaces like alternative proteins. What you've also had is just an explosion of demand in electric vehicles, which has obviously driven Tesla up, but it's driven the ecosystem around it. Whether it's battery technologies that go into the electric vehicles, rare earth elements that go into the motor is that power these electric vehicles, there's battery material, recycling, even maintenance around EVs and advanced safety systems. There's a whole ecosystem around the EV transition that I think is causing a ton of excitement. That's a really nice positive development.

Then there's a lot of forward-looking ideas that I think is great. I think they're super hard and super challenging, but I'm glad they're being challenged. Things like, Fusion, for example, big companies like, Commonwealth Fusion, getting 2 billion dollars of funding in one of their most recent rounds is an excellent example of that. You've got some really interesting work going on in geologic hydrogen, which you can think of as essentially, drilling for hydrogen, instead of drilling for natural gas. Some really, really new innovative thinking around these new areas that gets me super excited, frankly.

Where we tend to spend our time is thinking about those new areas that are maybe non-obvious. Areas of climate tech that aren't necessarily a box that a climate tech investor would be checking today if something that they need in their portfolio. I'll give one example in our portfolio. It's a business by the name of Allonnia, that's using synthetic biology, essentially engineered microbes, like yeasts and other things to do a variety of industrial applications. Some of these have massive, massive, massive climate impact. One of them is going after PFAS for every chemicals. These are chemicals that are shown to cause cancer in humans at very low concentrations. It's in 50-plus percent of drinking water across the US. This is a massive climate issue that we are dealing with as a society. There will be regulations likely this year that capture exactly how much PFAS can be in drinking water. This company is ahead of the curve, selling equipment and services into that sector doing really well.

Interestingly, this same technology can be applied to a variety of mining applications, where you've got various materials and minerals that are absolutely critical for the energy transition, whether it's things like, copper due to the massive need for electrification and copper wiring, or iron for green steel, or rare earth elements, and the list goes on. The same type of microbiology platform can be used to make those minerals far more readily available and produce far more cheaply.

This is something that's less discussed within climate circles, but it's one that if you look forward five to 10 years from now, we think a lot of folks will look at and be like, "Yes, this was a very successful business. It's one that maybe at the time, wasn't necessarily in the strike zone for climate investors, but now looking at some of the impacts that it has, it certainly is." The alternative protein sector was like that at first. When you thought about Beyond Meat, when they were first getting off the ground, you look at their advertisements, it was all about being fit and healthy. They had a whole bunch of athletes as their spokespeople.

Then after the company succeeded and you realize that there were actually some pretty meaningful greenhouse gas impacts with eating alternative proteins versus traditional beef, that's when it started becoming branded climate tech company.

[0:16:04] LA: Yeah, that makes sense. It makes sense. Traditionally, think of climate tech, you often think about things like, electrification, right? You're actually investing not only in that area, but in the overall climate improvement, which includes things like, the Beyond Meats of the world and things like that. Are there other categories that are major categories that would fall into climate tech, other than those two? What are some of the other categories? Let's put it that way.

[0:16:31] TB: Yeah, yeah. There's a ton of other categories. Obviously, electrification is a huge and as you discussed. Outside of just alternative proteins, you've got the broader agricultural sector that has greenhouse gas emissions associated with it, but also, a fair bit of inputs going into that segment that have impact on climate, or the environment more broadly. That's certainly an area of focus for us. There's a whole segment of industrial applications and transportation applications that aren't necessarily just electrification. Things like, finding alternatives to the gasoline that we use in our vehicles, or the jet fuel that we use when we're flying around the country, for example, those are all areas of investment in climate tech that people are focused on. The list of various sectors is quite broad, I would say.

[0:17:21] LA: Yeah. Often, one of the things I think of with climate tech is efficiency, right? The more efficient any business can run, whatever it is, the less impact the has on the environment. That's a very general statement, but that's true certainly from an electrification standpoint, but it's also true in some of these other areas, like, farm tech is a good example. The more efficient you can make that, the less impact it has on the environment and the cheaper it is overall for the whole industry.

[0:17:49] TB: Yeah, absolutely. One of our businesses, coming out of InnerPlant is doing exactly that.

[0:17:54] LA: I was just going to mention that one.

[0:17:56] TB: Yeah, there you go, there you go. It's got really, really amazing technology. Basically, this company has figured out how to genetically modify soybean plants to express the fluorescent protein under certain stresses. You can think of stresses as everything from not having enough water to potentially being attacked by a pest, or a fungal infestation, which could ultimately reduce yield for a farmer, and reduce yield for a farmer ultimately means less money for that farmer at the end of the year, which is a big, big deal. What InnerPlant is doing is collaborating with the John Deeres and Syngentas of the world to bring this technology to market.

What you could see long-term, and this is certainly the company's vision, is that you have plant-by-plant precision medicine, where you know exactly what a specific plant needs. You can have something like a John Deere tractor with a seed and spray system on the back, precision spraying, exactly the formula that plant requires. It's just like a precision medicine recipe for a human, you have the exact same thing for a plant that allows you to use viewer inputs, ultimately results in higher yield, and everyone's happy at the end of the day, and that's a great climate impact. If you translate that into things like, corn, that's wonderful, because you can use far less nitrogen fertilizer, which is a big contributor to greenhouse gases. That's a very, very strong use case for this technology as well.

[0:19:22] LA: Yeah, I imagine even use of pesticides, so you can decrease the use of pesticides by pinpointing when you need them based on what the reaction of a given individual plant is.

[0:19:33] TB: Bingo. That's exactly right. Yeah.

[0:19:35] LA: I mentioned this one to my wife when I was doing research for this. I mentioned this one to her, and she just - her jaw just fell open and says, "They can do what?" I say, "Well, they're going to be able to do that. They're in the process of figuring this out." I love the idea of even looking from high up, whether we're talking satellite or airplane, whatever, and being able to tell areas where there's - it might be more drought issues and need more watering. You can control and reduce the amount of water you use by not wasting it where it's not needed and putting it where it is needed.

[0:20:04] TB: Yeah, that's exactly right. Instead of simple formulas, where you might have either water waste, or you're spending way too much money on pesticides, you can have a far more informed decision-making process for something like this.

[0:20:13] LA: That's great. That's great. I'm glad you brought that one up, because I really - during the reset, I loved hearing about that company. I would love to, no more as we go along here. But let's talk about electrification. Let's get into that category, because I think a lot of software engineers care about that one a lot. Because after all, computation takes electricity. As the industry grows, the use of electricity is increasing more and more and more, so electricity is very important to us as a group of people. Specifically, AI. AI is one of these interesting technologies, where if I ever asked the general question, and I'd love to get your answer to this question, but the general question, is AI good or bad for the environment? That's such a loaded question, right? Because there's pros and cons on both sides of this whole discussion. 

Anyway, I'm going to ask you that question, but love to get your perspective, both on the value of AI for the companies can use to improve the environmental aspect, as well as, we can talk about the second then, the cost of running AI, and the cost of electricity and the environmental impacts of that.

[0:21:22] TB: Yeah, yeah. I think AI is good. I'll give you a few examples of why, especially when it comes to climate tech. I think, ultimately, any further capabilities on simulation, or informing engineers how to make a product better is ultimately going to be better for the world, better for the environment. This could be everything from improving the efficiency of the design process and having less wastage in the system through actually creating a better product that is more efficient in nature, therefore, is less greenhouse gas intensive. All of that is very clearly something that AI can impact in a very meaningful way. My view is that long-term, those impacts will outweigh, potentially the near-term detriment that it is very energy-intensive, it is very expensive, it is going to emit a lot of greenhouse gases. Ultimately, long-term, I think those positive impact will outweigh all of that today.

Maybe diving deep on a few examples. Things like, for example, using AI in computational design to develop new catalysts that can either make the ammonia production process, which is used in fertilizer. It's a very big market, very greenhouse gas intensive, making that more efficient. That is a great application of AI technology. Similarly, you can develop catalysts that help convert CO2 into methanol, which is a fuel that shipping can use and shipping is one of the hardest sectors to decarbonize today, because you use very, very cheap diesel.

Ultimately, batteries are not energy-dense enough, they're not cheap enough, that it's just very difficult to electrify something like, marine shipping. Creating catalysts that can convert CO2 into the methanol that a marine vessel can use is a fantastic application. There's other approaches, like using AI and computational design for optimizing battery materials. Batteries is one of those things that are incredibly important in electrification. My high-level of view is that there's going to be a lot of incremental improvements that all get batteries to a very, very efficient state, whether it's from an energy density perspective, cost perspective, efficiency perspective, whatever it may be. It's going to be AI tools that help you get there. There's going to be fundamental scientific innovation that humans can do. Then there's going to be AI assisted scientific innovation that's going to eventually make its way into the system. Those are a few examples of what really excite me around AI within climate.

Then there's other folks that are thinking about using AI for weather predictions that's potentially applicable and things like, adaptability studies, or if you think about the insurance business being able to model dramatic weather events in a far more accurate way, that's going to help those businesses in a meaningful way. There's other knock-on effects to AI that are much more on the adaptability side, I would say, and not necessarily on the initial greenhouse gas climate side of things. But those are equally important, because we're already feeling the effects of climate change and we need to start learning how to adapt and simultaneously, start addressing the greenhouse gas emissions and frankly, address them in a lot more rapid fashion. I do think AI will help that.

[0:24:41] LA: You mentioned battery tech and spent a fair amount of time thinking about battery tech. I know battery tech is one of those interesting things where there's been massive upheavals in the industry and massive amounts of incremental changes that have made things a little bit better, but in large quantities. I'm not sure if this is a fair statement, but the last massive upheaval in the battery industry was lithium and the addition of lithium as a source for creating batteries. Is there another massive upheaval like that in the future? Or everything we're doing now is these incremental improvements that will have huge impacts, but are still incremental.

[0:25:19] TB: Yeah, it's a great question. Unfortunately, I can't fully predict the future here, but I'll tell you my personal perspective on things and what I've seen historically. When I started off my career as an engineer in the solar industry, there was a lot of innovation going on around new solar technologies. Everyone thought they had the latest and greatest in solar that was going to improve efficiency, decrease costs. All of the technologies were disruptive, VCs were backing in some form of fashion, or so they believed.

Ultimately, it was a very inexpensive Chinese manufacturing of silicon solar cell technology, which is probably today's lithium-ion equivalent. That ultimately won out at the end of the day, and a vast majority of solar panels are manufactured in China today because they can do it very efficiently, very cheaply. It was just a bunch of little incremental innovations along the way that helped them get their plus massive scale. You see the same thing in lithium-ion batteries today. China is investing a lot of money in lithium-ion batteries, specifically in LFP chemistry, which is very inexpensive. You're seeing some pretty attractive pricing coming out of these Chinese battery suppliers. That is very much a headwind for any new battery technology company that's out there today.

Now, that doesn't mean that new technologies aren't going to take hold. I think there's a lot of excitement around things like, lithium metal battery technologies, which should be far safer, which should charge a lot more rapidly. There's companies in the market that are collaborating with very large auto OEMs doing exactly this. That is more than an incremental innovation from my perspective, but it still does fundamentally use lithium, just in a very different form. It results in a very different product that has probably a 2X performance advantage, obviously, if it plays out according to plan over existing lithium-ion batteries.

[0:27:13] LA: Of course, one of the downsides of lithium, lithium is absolutely essential for climate tech, especially the electrification side, but in general. Lithium also does have a big environmental impact of its own as well, both in the cost of mining, as well as the cost of recycling and the ability to recycle and what happens when you don't recycle, etc. Can you talk a little bit about that and what your thoughts are about how that might be improving?

[0:27:38] TB: Yeah, yeah. I mean, there's a lot of innovation going on there. There's definitely companies. Lilac is one that comes to mind. That's a technology out of Northwestern. They're trying to, essentially, separate lithium from less productive resources in a very cost-effective way. There's companies like that that are trying to make the lithium extraction process more efficient, less expensive, less environmentally damaging, etc. Unfortunately, it is the name of the game. When it comes to climate change, it really is the greenhouse gases, ultimately, that result in the climate change that we're seeing.

Lithium in and of itself doesn't create those greenhouse gases, but part of the extraction process, the energy intensity and the processing and all of that obviously does. If you look forward to a steady state scenario where you can get industrial heat and industrial electricity all powered by renewables in a very cheap way, then there's at least a pathway to decarbonizing that. I contrast this with things like, oil and gas where it's the material itself that is being burned and releasing that greenhouse gas, that inherently will not be net zero greenhouse gas emissions, because you need to physically burn it and converted into CO2 in order to create the energy. Whereas, lithium that enables electrification, that enables the broader use of renewables and steady state long-term, you should be able to get to a place where you're net zero GHG.

[0:29:10] LA: One of the things we haven't talked about when it comes to those beyond just environmental tech, but it's very much related to environmental tech is the geopolitical impact of energy. Technology in general is maybe the more generalized approach. Certainly, oil and gas is dominated by geopolitical interests and has been for many, many, many, many decades.

[0:29:34] TB: Maybe from day one, arguably. Yeah, yeah.

[0:29:36] LA: One of the advantages, presumably, of clean tech, such as electricity is it's a lot easier to get locally and therefore, it's less of a geopolitical risk. Yet, we're also talking about things like, battery technology, which requires things like, lithium, which is now a scarce metal. Technology, you mentioned, solar panels built in China and China is, of course, a perfect partner when it comes to energy consumption, or energy usage within. That's the country that we want to be dependent on for our energy needs, certainly. I say that sarcastically. Are we changing the geopolitical issues, but not getting rid of them? Or is there really a end where the geopolitical issues that are associated with oil and gas today aren't going to be the dominant factors in our technological choices?

[0:30:33] TB: I think in some ways, we're perpetuating different geopolitical issues. In some ways, we're also able to get rid of those geopolitical issues. Think about solar panels, right? There's nothing that would prevent the US from manufacturing a massive amount of solar panels if China tomorrow decided that they no longer want to sell to the US.

[0:30:55] LA: Other than cost.

[0:30:57] TB: Yeah, it would take capital, of course. It would take training up jobs, but it's not like there's a scarce resource that only exists in China, or one of China's political allies, for example, that would prevent the US from doing that. Even things like, rare earth elements, which is used in everything from wind turbines, to the motor's electric vehicles, primarily in the magnets, these are resources that, even though they're called rare earth elements, are abundant in the US. You can mine them in the US and they are doing that today. It just happens to be that there's a lot of refining capacity for these rare earth elements in China, because there's far less environmental restrictions around industrial processes in China, and refining these rare earths is pretty nasty stuff.

Again, if tomorrow the US decided they wanted to have a fully US supply chain, because China was no longer going to sell rare earth elements, you can do it. The capabilities exist, the capital exists. It's just that it would be difficult. It would take time and it would cost a lot of money and you would have to train up a whole skilled labor force in order to be able to do that.

[0:32:05] LA: It's got the potential of being less geopolitically sensitive, even though it's still reliant on many technologies we are relying on other countries for. It's just less of a reliance, because we have options that we don't have with oil, gas, and other things like that. Or not as many options, I should say.

[0:32:23] TB: I think that's potentially not as many options. I mean, oil and gas is a very unique beast, too. Because last I checked, I think the US is producing the most oil out of any country in the world on a barrels per day basis.

[0:32:35] LA: I find that amazing to think about. Yeah.

[0:32:37] TB: Yeah, we've got it pretty good here from an oil and gas perspective. Then if you factor in Canada and Mexico, or two neighbors, you've got a ton of oil and gas production here. It's not like we're lacking oil and gas here either.

[0:32:50] LA: Not like the 70s and 80s, when it was much more of an issue. Yeah.

[0:32:54] TB: Correct. Exactly, exactly. Yeah. Europe, now Europe is a different story. Europe's got a lot harder, because they get a lot of their imports from Russia. Due to the war in Ukraine, that creates a whole slew of geopolitical issues. In the US, we do have it pretty good. We're fortunate in terms of our natural resources here.

[0:33:12] LA: Yeah, that makes sense. Let's start talking about incentives. Obviously, there are many companies and many investors and companies who care about the environmental impact and invest around that, and I'm including you in that. There's other companies that need to be incentivized in order to make climate tech important. What are we doing and what more can we do from an incentive standpoint to encourage more climate tech?

[0:33:41] TB: Yeah. I think incentives are incredibly important and the US government is doing a lot. Frankly, governments on the world are doing a lot. One of the things that I was super impressed by is a regulation called the 45Q. This is essentially the US government saying that if you use a technology like direct air capture and you suck a ton of CO2 out of the atmosphere, pump it into the ground and permanently sequester it, the government will pay you for that ton of carbon dioxide that you just pulled out of the atmosphere and buried underground. That's an amazing regulation. It's absolutely going to spur direct air capture technology in addition to what's going on in the voluntary carbon markets that are adders to what the government is doing on the 45Q side of things.

That is essentially a government-backed guarantee that there is product market fit. I'm sure you've talked about product market fit in some of your other podcasts, but this is a scenario where it's ultimately the best definition of product market fit. If you do this, the government will pay you for it, and they will pay you a lot of money for it and they will continue paying you for it, as long as you continue doing it. I think that's a fantastic regulation. There is a ton of product financing going into various climate sustainability technologies. There's a company by the name of Brimstone that's trying to do low CO2, low greenhouse gas cement. They just won a big, I think, nearly 200-million-dollar DOE grant to build one of their first facilities. I think that's a fantastic way for the US government to support these types of new climate technologies, because getting the capital to build those first of a kind facilities is really one of the hardest things for these companies.

If you have to build a brand new 200 to 500 million dollar, to even billion dollar commercial facility to prove out the economics of the commodity that you're ultimately producing in a low greenhouse gas way, it's really hard to find that capital, because traditional project finance lenders are not going to lend to you. You need the US government, or governments around the world to do things like that. I think that is a fantastic mechanism that the US government has showed.

[0:35:47] LA: You mentioned a voluntary carbon market and I'm intrigued by that. But how effective that is. Has that been effective? I mean, the most part for me, the involvement I see in a voluntary carbon market is when I get on an airplane, I have an option to pay for my carbon impact. That's the way I normally see it. Obviously, it's a lot more involved than that. How successful has the voluntary carbon market been and what's the future look like?

[0:36:15] TB: Yeah, I think the jury is still out is my takeaway. I think there are a select number of companies. I think about Microsoft, Amazon, Stripe, companies of that sort that are participating very aggressively in the voluntary carbon markets. If you talk to those companies, I'll tell you, they're doing it to spur climate innovation. They're willing to pay a little bit more upfront for these CO2 credits in order to spur that innovation of technologies that they ultimately think will be very scalable and very inexpensive long term. I think that's a fantastic approach.

My big concern is outside of the select few that are doing it right now, unless the companies that are benefiting from these carbon credits today, get to scale and get to a point that they find a sustainable business model, it's going to be really hard to scale on just voluntary carbon credits. I see lots of startups and talent, the fact that they have X millions of dollars of carbon credit purchases from the Microsofts and Amazons and Stripes of the world. But where do you get that next 100 million dollars of revenue? Where do you get that next billion dollars of revenue? I think those are all open questions still.

I don't think the voluntary carbon markets, at least today, have solved how you get to that 100 million dollars of revenue, or a billion dollars of revenue to create truly a very large, successful and sustainable business long-term. That would be my biggest unknown about the voluntary carbon markets today.

Outside of that, they are voluntary in nature. The tech companies that I mentioned are doing this, because they're voluntarily doing this and they think it's good for their business, they think it's good for the environment, they think it has a positive impact. I would be super curious to ask those companies, what is the economic ROI for you? Maybe a company that's sitting on billions and billions of dollars of cash can do something like this, but far leaner, even Fortune 500 organizations that aren't sitting on that much cash on their balance sheet, they're going to be far less willing to participate in voluntary carbon markets, because the economic ROI for their respective businesses might not necessarily be there. That's where the math sometimes falls apart on the voluntary carbon markets for us. That's where things like the 45Q come in, which get me excited.

I would much rather fund a business that's getting US government dollars via 45Q, than I would a business that's getting voluntary carbon credits, even if the voluntary carbon credits are worth five times more than what 45Q is worth, because I have certainty that 45Q will be there and will be there at scale for the foreseeable future. You don't have that certainty in voluntary carbon credits.

[0:38:59] LA: Of course, the third way is creating products that are competitive in price that are environmentally sensitive. We've still struggled with that as a world economy as well. Do you see any changes coming there? That's a matter of scale is what the issue is there, correct?

[0:39:15] TB: Scale is a huge, huge, huge, huge part of it. Every once in a while, you come across some businesses that have very unique approaches and can actually get a product to market that's low, or zero greenhouse gas in nature, or sustainable in nature at a price that's lower than competing technologies. Sometimes it's about finding the right market, or competing in the right beachhead that is very high value in nature and therefore, very highly priced, and using that beachhead as a way to gain initial scale. Then, eventually with more and more scale, you can go further down the price curve.

I think Tesla pulled this off incredibly well. First, they had the Roadster, which is super high-price sports car, then they went to the Model S, which was a very expensive sedan competing with the BMWs and Mercedes of the world, more so than a Honda Accord. That allowed them to get manufacturing scale, start getting down the cost curve, start seeing those economies of scale, to the point that they could release the Model 3 at a very reasonable price point that's much more mass market in nature. The same scenario can exist across a variety of other companies, or a variety of other end products within climate sustainability for sure. Not everyone, but a lot of them.

[0:40:31] LA: We're almost out of time here. But I'm wondering if you could end by telling me about a couple of companies. We've talked about InnerPlant. Tell me about a couple of companies that either you've invested in, or you're thinking, or however you want to - obviously, not ones you're thinking of investing in, but once you've invested in, or ones you wish you invested in, or companies that you think are doing things that are truly innovative and we should pay attention to them, because they're going to be changing the climate tech arena.

[0:41:01] TB: Yeah, yeah. That's a great question. The area that I continue to be really excited about is this AI-designed material space, AI-designed and product space. I think we've talked about it quite a bit on this podcast, and I think it's one that I'm going to continue to track. That's everything from AI designing better chips to handle AI workloads in a far more efficient manner, to PCBs, so you don't have to do multiple iterations and multiple spins to the catalysts that we talked about. I think those are areas that are on the next frontier that are going to drive massive efficiency gains and have massive impact across the board.

I'm super jazzed up about this geological hydrogen concept. I think there's some really interesting work going on there, because theoretically, if you could drill for hydrogen instead of natural gas, hydrogen is going to be naturally low/no GHG in nature. There are some groups that are working on this that have been talked about in the public domain. That's one that I think is super, super interesting. Given the fact that I had worked in broader energy technology, including doing some things in oil and gas, I think there's some natural learnings that you can bring over from an industry that's highly scaled into that.

Similarly, geothermal plays into that as well. There's some companies working in geothermal that are trying to utilize things like, horizontal drilling and fracking technologies, which are seen as very environmentally damaging. If you utilize them for things like, geothermal energy production to create higher surface area of this hot rock with the water that you're trying to convert it to steam and ultimately, into electricity, that is a very beneficial use of a technology that has been proven at scale by the oil and gas industry and can be pivoted, obviously, with a lot of work, but can be pivoted into low greenhouse gas applications.

[0:42:55] LA: Interesting. Using tech developed for non-green industries to help green industries. That's an interesting way to think about the future use of older technology.

[0:43:07] TB: Yeah, yeah. Absolutely. It requires some modification, of course, and new processes, but the concepts remain similar. Just like, you can use geologic exploration tools to find the next gold reservoir, or oil and gas reservoir, you could do the same thing for copper, which is obviously a material that's highly, highly in demand for electrification. Other technologies exist like that within the geological space that you can certainly retrofit, or pivot into more greenhouse gas neutral applications.

[0:43:41] LA: A company I know you've invested in is Allonnia, and they're in chemical cleanup. I believe, they use microbes for chemical cleanup. Imagine that technology might have other uses in the future besides just chemical cleanup.

[0:43:53] TB: Absolutely, absolutely. There's a ton of uses for that within the mining industry. There's a ton of uses for that within the material space, whether it's upcycling plastics, or other applications. The power of biology is something we very much believe in. Biology is very challenging to master and harness, but if you can do it well, it's a ultimately a very scalable technology.

[0:44:19] LA: Imagine some of that can be usable for things like, food preservation, which also is not only an environmental impact, but if you can make food last longer and require fewer restrictions, like refrigeration, you can distribute it much more broadly and help alleviate hunger and other non-directly environmental problems, but still earth problems.

[0:44:39] TB: Yeah, yeah. That's right. That's right.

[0:44:41] LA: This has been a great conversation, Tom. Thank you. Is there anything else you want to end with, or any - maybe advice for would-be entrepreneurs that are looking to start a climate tech company? What would you like to say to them?

[0:44:53] TB: I would say, if you're going to do something hard, which I think starting any business in climate tech is fundamentally challenging, because you are working in a physical world, do something that is really impactful and really moves the needle by an order of magnitude or more. Because ultimately, if you can move the needle by an order of magnitude or more, that means that you're going to create a ton of value for your customers, that means you're going to create a ton of equity value for yourself, hopefully, for your investors, and ultimately, that makes your time worth it, because these are very long journeys.

Starting a company is always very challenging. I think starting in this space is extra challenging. Just make sure you're doing something that is worth your time, because you might spend the next 10, maybe 15 years working on this, so you got to hope that at the end of the road it's all going to be worth it. Choose your battles wisely is what I would say.

[0:45:47] LA: Makes sense. Thank you, thank you. My guest today has been Tom Biegala, who's the Founding Partner at Bison Ventures. Tom, thank you so much for joining me today on Software Engineering Daily.

[0:45:57] TB: Thank you so much, really appreciate the time and great questions and thoughtful discussion.

[END]