Speaker 1: Hi everyone, I'm just gonna get right to it. There's
Speaker 1: a lot of money going into the energy transition right now.
Speaker 1: I'll give a couple of examples. There appears to be
Speaker 1: a sort of renaissance in climate tech venture capital this year,
Speaker 1: with according to Pitchbook, nearly fifteen billion investment in h one,
Speaker 1: nearly matching the previous full year record. And I just
Speaker 1: saw being a publisher report on EV related spacks raising
Speaker 1: ten point two billion in the past two months in
Speaker 1: the public markets. But today we're gonna talk about even
Speaker 1: bigger stuff. Asset managers raising huge funds to invest in
Speaker 1: the energy transition, so things like wind and solar projects,
Speaker 1: other renewables like geothermal, EV charging networks, batteries, anything and
Speaker 1: everything zero carbon, as well as investments in the company's
Speaker 1: doing these projects and supplying the kit. Okay, So just
Speaker 1: to name a few of these funds we're recording on
Speaker 1: on July Yesterday, on the twenty eight, Brookfield announced a
Speaker 1: seven billion dollar fund that's on its way to twelve
Speaker 1: point five billion target TPG. The day before announced a
Speaker 1: five point four billion dollar fund on its way to
Speaker 1: seven billion target, and back in April we saw eight
Speaker 1: point four billion from Copenhagen Infrastructure Partners and four point
Speaker 1: eight billion from black Rock. Okay, so, in his latest
Speaker 1: piece for Bloomberg Opinion, Nat Bullard, chief content officer and
Speaker 1: friend of Switched On, talked about this frenzy and fundraising.
Speaker 1: We've gotten that on the show to tell us about
Speaker 1: it and to give us a few frameworks for how
Speaker 1: to think about it. Along with this weekly column, Bloomberg
Speaker 1: users can catch Nat every Wednesday at eleven am Eastern
Speaker 1: where he hosts Asked BANF, a weekly show where he
Speaker 1: gets into it with a BENF analyst on their recent
Speaker 1: work and users can ask questions live. The next ask
Speaker 1: BNF is on August four, where he'll talk with BENIF
Speaker 1: analysts Vicky Cumming and Maya Godamer about the asset owner's
Speaker 1: path to net zero emissions. Register on NF dot com
Speaker 1: or s M and R go on the Bloomberg terminal.
Speaker 1: As always, does not provide investment or strategy device and
Speaker 1: you can hear the full dist claimer at the end
Speaker 1: of the show. Him Mark Taylor, and you're listening to
Speaker 1: switched on the BENF podcast. Now, Welcome Mark, Thanks for
Speaker 1: having me. It's nice to be back. It's always great
Speaker 1: having you on the show. Thanks for coming to Thank you. Okay,
Speaker 1: So we kind of decided to do this one really quick.
Speaker 1: We just started talking about it this morning because there's
Speaker 1: so much going on in this corner of the market.
Speaker 1: Can you get put it in your ownwards kind of
Speaker 1: what's going on in the market and kind of describe
Speaker 1: why you decided to write about it this week. So
Speaker 1: we're recording on Thursday of the twenty nine of July.
Speaker 1: And on Tuesday July, we got noticed that two big
Speaker 1: alternative asset managers, TPG and Brookfield, have closed between them
Speaker 1: just under twelve and a half billion dollars worth of
Speaker 1: climate or climate transition funds, so big private equity funds
Speaker 1: designed to be deployed broadly around the theme of climate.
Speaker 1: Now for reference, those are very very big funds, even
Speaker 1: within the normal realm of like an energy or infrastructure fund.
Speaker 1: They're not even the only multibillion dollar funds that have
Speaker 1: been closed this month. I think I looked back and
Speaker 1: found three or four others, and I found a number
Speaker 1: that are announced intentions to be that size. Those funds
Speaker 1: themselves aren't even fully closed. There at five point four
Speaker 1: and seven billion dollar funds respectively. That could go up
Speaker 1: to seven and twelve and a half billion, So we're
Speaker 1: talking about potentially just under twenty billion dollars of funds
Speaker 1: that have come in. And it's just an extraordinary moment,
Speaker 1: certainly in general, but also I think given the history
Speaker 1: rather fraught history in the last decade of fundraising either
Speaker 1: at the early stage or later stages for anything climate related,
Speaker 1: it just sort of caught our eyes, shall we say,
Speaker 1: not just mine, but pretty much everybody we work with,
Speaker 1: everybody in my guard of professional network. So I figured
Speaker 1: let's put a little more sunlite on this and talk
Speaker 1: about it a bit more. It was so, you know,
Speaker 1: I don't want these ord shocking, but yeah, you know,
Speaker 1: Cutter I such this week that it kind of caught
Speaker 1: caught us off guard. We even stopped tracking these types
Speaker 1: of fundraises a few years ago because nothing was going
Speaker 1: on like it, which just wasn't really happening. We had
Speaker 1: to go through that sad process of what we call deprecation. Yeah,
Speaker 1: taking a taking a product that was that was sort
Speaker 1: of a fallow field within within the larger pasture of
Speaker 1: things that we cover in research, and say this is
Speaker 1: probably something that we don't need to vote a lot
Speaker 1: of time too, because there's just not a lot of
Speaker 1: activity and a lot of inbound interest. And here we
Speaker 1: are and what's the reverse in a direction I don't know,
Speaker 1: right and and now and now we have something. Though.
Speaker 1: There's one thing to say about that, which is that
Speaker 1: this also shows that it was no longer probably running
Speaker 1: through such specialized specialty financial channels too. It was no
Speaker 1: longer potential limited partners coming through a specialty funnel, if
Speaker 1: you will, to then go back out into a specialty market.
Speaker 1: What it was instead is the world's collective pool of
Speaker 1: limited partners going to a pretty well established funnel of
Speaker 1: the world's biggest alternative asset investors. And that's that. In
Speaker 1: many ways, it follows a pattern that we don't really
Speaker 1: need to track because it is already very well tracked
Speaker 1: in general within the world of finance and capital raising.
Speaker 1: It says that this happens to be taking place not
Speaker 1: for a real estate fund, not for an infrastructure fund
Speaker 1: in general, but for specific climate transition. Let me give
Speaker 1: you one more g whiz thought on that is, ten
Speaker 1: years ago, when we were tracking this more closely and
Speaker 1: all this stuff, I talked to a friend of mine
Speaker 1: who worked at a private equity right and I was like, hey,
Speaker 1: you guys should look at renewables. It's getting getting pretty cool.
Speaker 1: And the answer, you know, I talked to him multiple
Speaker 1: times about this, and it was always it's not big enough.
Speaker 1: You know, the funds that would be raised that we
Speaker 1: would do, they don't match them the numbers that we
Speaker 1: are typically used to looking at. Well, this this p shop.
Speaker 1: They are on the list that you mentioned of a
Speaker 1: funds that have announced, you know, and don't even think
Speaker 1: they're gonna be you know, in the top ten of size.
Speaker 1: You know. So like things have changed, Things have certainly changed,
Speaker 1: and we can actually track that change. Weirdly, out about
Speaker 1: the same time that you had prospective fundraisers sort of
Speaker 1: saying that nothing was big enough for us to invest in,
Speaker 1: we saw the assets being created that later on they
Speaker 1: could invest it. In fact, right about the same time
Speaker 1: as when we saw the first multibillion dollar club deals
Speaker 1: for offshore wind in Europe, which actually were a way
Speaker 1: of kind of of kind of kickstarting things into a
Speaker 1: scale of capital that finally mattered. I remember the first
Speaker 1: time I ever talked to sovereign funds, and this was
Speaker 1: even earlier than even earlier than the time that you're describing,
Speaker 1: so let's say two thousand nine. Their problem was being like, yeah, actually,
Speaker 1: you know, the returns profiles are okay for what we like.
Speaker 1: The speed which we can move is also doable, all
Speaker 1: that kind of stuff. Is there anything ten times bigger?
Speaker 1: Like our ticket sizes ten times bigger, because that's the
Speaker 1: weight that we move in, Like our due diligence process
Speaker 1: and our timelines don't really reward doing things this small,
Speaker 1: Like we're going to do the same amount of diligence
Speaker 1: if we're acting in a half a billion dollar genre
Speaker 1: in a fifty million dollar job. So, speaking of deploying
Speaker 1: that capital, right, so we've talked a bit about how
Speaker 1: much it is or how much is going into this stuff,
Speaker 1: but like they're all being described as transition funds. Basically, now,
Speaker 1: what are they going to be spending that money on? Well,
Speaker 1: it's a little bit unclear. I have to say that
Speaker 1: given the general trajectory for a fund that size, it
Speaker 1: almost certainly be tilted towards asset investment, like it has
Speaker 1: to probably flow into assets and infrastructure at that size.
Speaker 1: You do see some general purpose venture funds that are
Speaker 1: in the multiple billions, but they would be probably doing
Speaker 1: later stage software investment. That might still happen, you know,
Speaker 1: fifty million dollar ticket sizes per institution in the fund
Speaker 1: raise at a time, but they're probably you know, they're
Speaker 1: probably not going into like angel round funding, friends and
Speaker 1: family rounds for things that have spun out of universities.
Speaker 1: They're almost certainly going to be going at that price
Speaker 1: for assets. But the caveat to that is that some
Speaker 1: of the funds have said that they are interested in
Speaker 1: looking relatively early on, like it is sort of an
Speaker 1: early stage growth, So providing the first walk around money
Speaker 1: for a big developer could be one. We definitely saw
Speaker 1: that happen back in the day. The question and we
Speaker 1: can talk about this a little bit later. It's interesting
Speaker 1: is what does that What does that imply for pricing
Speaker 1: of assets and pricing of companies when you have all
Speaker 1: that that capital chasing in something that's inherently smaller perhaps
Speaker 1: than the pool of available capital within a fund, just
Speaker 1: to be clear, for assets, you mean like projects like
Speaker 1: physical stuff things, Yes, you may not be buying them
Speaker 1: at these stage you're commissioning yet, but you're buying into
Speaker 1: a pool of physical assets as opposed to an acquisition
Speaker 1: that is primarily concerned with intellectual property broadly speaking, right,
Speaker 1: it's it's going towards property, plan and equipment if you want,
Speaker 1: rather than intellectual property. Right. Okay. One thing that I
Speaker 1: thought was really interesting looking at some of these announcements
Speaker 1: was I think it was the Blackrock announcement where they
Speaker 1: said that, you know, traditionally our previous two funds in
Speaker 1: this space have been solely on operational assets, but now
Speaker 1: we're going into construction assets and even just announced stuff
Speaker 1: announced projects, so they're going, you know, further further a field.
Speaker 1: I guess you could say. I thought that was pretty
Speaker 1: telling of where things are going. It's a sign I
Speaker 1: think of a sort of collective mass de risking, if
Speaker 1: you will. If an asset manager at that size is
Speaker 1: willing to start to go earlier and earlier in the
Speaker 1: development stage, that implies greater confidence written large across the
Speaker 1: sector and perhaps in the particular operators as well that
Speaker 1: they are investing in. So there's another sign of sence
Speaker 1: if if you're dealing with developers whom you've seen proved
Speaker 1: success in the past, go from dirt you know, from
Speaker 1: basically being a dirt farmer and dealing with permission and
Speaker 1: rights of way all the way towards commissioned assets, and
Speaker 1: you realize that you can invest on long that continuum
Speaker 1: if you will on an asset basis, then then maybe
Speaker 1: you are willing to do that. Also, they may find
Speaker 1: that pricing is more advantageous. Certainly, your spreads are going
Speaker 1: to compress the closer you get towards construction because the
Speaker 1: risks are in turn lower. And I mean this is
Speaker 1: this is kind of pretty familiar credit stuff. Maybe the
Speaker 1: cases that you're finding risk reward tolerance that is shifting
Speaker 1: towards the early stage because you want more reward and
Speaker 1: you're either more willing to take on the risk or
Speaker 1: you think that the risk itself is perhaps miss priced, right,
Speaker 1: so you're you're willing to go earlier, earlier into development
Speaker 1: stage because you see that that's where the value can
Speaker 1: be captured. You know, all these funds are raised from investors,
Speaker 1: who are the parties involved putting money into these funds.
Speaker 1: So the archetypal participants in any kind of infrastructural fundraising
Speaker 1: like this, and generally most of the institutions funding What
Speaker 1: happened this week are what we brought to be called institutions,
Speaker 1: and institutions in this case are endowments from a university,
Speaker 1: they are sovereign funds, they are pensions, retirement funds, things
Speaker 1: of that sort, and they're basically you're saying, well, we
Speaker 1: have two billion dollars of us as under management. That's
Speaker 1: the vote, you know, two tents of a percent of
Speaker 1: it to this fund this year, and maybe one percent
Speaker 1: of it overall in any given year to this kind
Speaker 1: of asset class. So that's pretty typical on the Ontario
Speaker 1: Teacher Teachers Pension Plan or the similar institutions in the
Speaker 1: state of California might be doing something like that. What's
Speaker 1: intriguing this time around is that you find other institutions
Speaker 1: that don't really we don't qualify as an institutional investor,
Speaker 1: and that would be things such as a Nike, Honeywell
Speaker 1: a corporation acting as unlimited partner, which is intriguing that
Speaker 1: doesn't often happen. You see companies of all sorts these
Speaker 1: days setting up their own venture wings, so they are
Speaker 1: sometimes they'll set up a completely separates wherein they have
Speaker 1: hived off and ring fence. They general partner that interacts
Speaker 1: with the rest of the company as a limited partner
Speaker 1: to the general partner, or they might be unlimited partner
Speaker 1: and somebody else's fund is a broader blanket or broader
Speaker 1: umbrella of of corporate venture capital. This is something very different.
Speaker 1: This is like corporate limited partnership in mostly assets based businesses.
Speaker 1: And I think we need to watch very closely to
Speaker 1: see what the intentionality is there over time. Part of it.
Speaker 1: I mean it could be purely financial. I mean it
Speaker 1: could be that the that the companies that are that
Speaker 1: are raising the funds are simply giving an expectation of
Speaker 1: returns that looks very very favorable and very very healthy.
Speaker 1: And as a treasurer, chief investment officer, chief financial officer
Speaker 1: of any big company, it simply pencils out ideally that's
Speaker 1: the case. Anyways, there's some component of that. You're not
Speaker 1: taking a flyer on it completely. But the rest is like,
Speaker 1: what's the additional gain is it? You know? Is it
Speaker 1: within the broader mandate of e s G of OF
Speaker 1: and its stitution. Is it part of its sustainability strategy?
Speaker 1: Is it part of its talent identification? It's thinking about
Speaker 1: its own investing. I mean that that has often been
Speaker 1: I think one of the complex dual mandates or triple
Speaker 1: mandates within venture capital that companies want to make money,
Speaker 1: identify deals, and identify partners at the same time, all
Speaker 1: equally well, which is I think difficult. One of them
Speaker 1: I feel like has to be sublimated to the others,
Speaker 1: or one rather has to be the first among the equals,
Speaker 1: the chief the chief goal, which personally I would always
Speaker 1: say should probably given the nature of investing as unimited partner,
Speaker 1: be money. But that's not necessarily the way that every
Speaker 1: everybody sees it. In fact, most of the times that
Speaker 1: I hear a corporate fund being described it, it's more
Speaker 1: along the lines of we're we're looking to achieve all
Speaker 1: of these goals at once. So in this case it's
Speaker 1: it's even it's even more derivative, I think, because you know,
Speaker 1: by by being a limited partner in a mostly asset
Speaker 1: and infrastructure bigated fund, you're not sort of getting a
Speaker 1: preview necessarily on a new technology or new market structure
Speaker 1: things like that, I think you would on suppliers, right,
Speaker 1: potentially suppliers and potential developers. Because some of these funds
Speaker 1: were saying, you know, hey, we're gonna be using this
Speaker 1: money for projects like assets and what they were calling
Speaker 1: it growth equity, right, so identifying the what would you
Speaker 1: call walking around money for for a developer. And so
Speaker 1: if I'm like a big corporate, you know, I need
Speaker 1: a developer and to to acquire later, maybe this is
Speaker 1: a good chance to get them up to speed potentially.
Speaker 1: So and so I actually I would actually like to
Speaker 1: see how this plays out and how it's proven out.
Speaker 1: I'm not to say do things one how the corporations
Speaker 1: themselves describe the the initiative here like the prime mover
Speaker 1: of their decision making, and to what they actually do
Speaker 1: over time, and that may be that may be a
Speaker 1: bit of a bit of a data challenge over time,
Speaker 1: because we don't necessarily see any of these things, right,
Speaker 1: they're unlimited partners within a general partnership structure that is
Speaker 1: itself a private entity. And then we may not find
Speaker 1: out a lot, but I think we should. We should
Speaker 1: interrogate this as much as possible because it's actually it's
Speaker 1: fascinating to see, and I think it's very important to
Speaker 1: determine where future pools of capital might go, how how
Speaker 1: how companies themselves might disrupt this this otherwise quite traditional
Speaker 1: flow of capital through the funnel, if you will. But
Speaker 1: let's step back a little bit. Why now, So what
Speaker 1: is going on right now? What is the world telling
Speaker 1: us to say that these funds should be raised at
Speaker 1: this moment? One element is probably policy signal, right, betting
Speaker 1: along the vector that eventually every major jurisdiction in the
Speaker 1: world will have some sort of net zero target. And
Speaker 1: that's when I say major jurisdiction, I think about that
Speaker 1: on the kind of molecul or carbon dioxide basis. Okay,
Speaker 1: every major emitter, if you will, we will have a
Speaker 1: will have some mandate to insofar as possible, decarbonized as
Speaker 1: much as possible. I think that's one. Two. I feel
Speaker 1: like there's there's probably a general awareness in a very
Speaker 1: good way of the competitive or out competing economics these days,
Speaker 1: of doing cleaner types of investment on the assets side,
Speaker 1: and maybe even further upstream of that, you know, investing
Speaker 1: in technology companies, that there's potential there. So you're saying,
Speaker 1: just the economics just makes sense, and that's being recognized. Yes,
Speaker 1: that's being that's being recognized, it's being and it's also
Speaker 1: been priced. And I think on the flip side of
Speaker 1: that is that the the tail risk slash stranded asset
Speaker 1: risks associated with other types of investing may become more apparent, right,
Speaker 1: so that risk premium is probably going up for some
Speaker 1: other types of investing on the other side of the
Speaker 1: carbon ledger, if you will. Now, that doesn't mean that
Speaker 1: those investments don't happen. They just maybe become more specialized.
Speaker 1: They become the domain of more specialized not so much
Speaker 1: general funds. We go back to me ten a lot,
Speaker 1: I guess, but we kept seeing the boutique banks doing
Speaker 1: these types of deals, right, and maybe maybe we're not
Speaker 1: talking banks, but maybe it flips, right, so maybe it's
Speaker 1: now the boutiques doing the coal plant. Yes, I would say,
Speaker 1: like and actually that is absolutely the case already. If
Speaker 1: you want to do it, call if you want to
Speaker 1: do a coal plant investment in Europe and North America,
Speaker 1: you are almost certainly doing it with at the highest level,
Speaker 1: maybe a special situations group within within an established bank,
Speaker 1: though honestly I doubt it. It's much more likely that
Speaker 1: you're dealing with a specialty private equity fund then looks
Speaker 1: at that type of asset, that type of market, and
Speaker 1: also looks at specific instruments within that there might be like, great,
Speaker 1: we'll take you to our energy Distressed Debt fund, you know,
Speaker 1: as opposed as opposed to our seven and a half
Speaker 1: billion dollar soft clothes or seven billion dollars soft clothes
Speaker 1: on our climate transition fund. I think there's just a zeitgeist,
Speaker 1: the element not to sound too hand wavy about it,
Speaker 1: but there is is, you know, a sense that there
Speaker 1: is a more categorical imperative to decarbonize in more places
Speaker 1: and in more ways. And I think a sense too
Speaker 1: that I'm interested to see how this reflects within climate
Speaker 1: transition over time, that it is about more than the
Speaker 1: electron that it that it, that it starts to go
Speaker 1: into things that are about chemistry and not just about
Speaker 1: physics so to speak, you know, that start to get
Speaker 1: into the difficulty decarbonized spaces that we know very well
Speaker 1: we'll take tens of trillions of dollars, but also maybe
Speaker 1: the sorts of tens of trillions of dollars that online
Speaker 1: with the sorts of things that people already invest tens
Speaker 1: of trillions of dollars in two pipelines, plants for transforming molecules,
Speaker 1: supply networks, things of that sort that better online with
Speaker 1: the expectation of investing, you know, a billion dollars at
Speaker 1: a time. Do you think this is the start or
Speaker 1: do you think this is like, you know, a culmination
Speaker 1: or something like that, Like, what's would we expect going forward?
Speaker 1: It's a it's a good question, Um. I I expected
Speaker 1: to be sort of still within a continuum. I don't
Speaker 1: know when we'll see a high water mark on it.
Speaker 1: We will probably look at and be like, Okay, that's
Speaker 1: it this, you know, this seventeen billion dollar fund that
Speaker 1: was closed in six weeks specifically around I don't know.
Speaker 1: Green hydrogen production in one in one market is probably
Speaker 1: the kind of thing of it that seems kind of
Speaker 1: high water market to me. But I don't know that
Speaker 1: we're anywhere close to that yet, So I would still
Speaker 1: say that it's a continue There's still an awful lot
Speaker 1: of institutional money waiting to go. And this is a
Speaker 1: neutral statement, but there there does tend to be a
Speaker 1: lot of trend following and going along. Like these institutions
Speaker 1: I would say that are doing these fund raises are
Speaker 1: really really apex institutions within alternative with an alternative investment,
Speaker 1: and I think that implies if they're so oversubscribed. If
Speaker 1: they have so much interest from so many different parties,
Speaker 1: it implies a much greater total addressable market to shake
Speaker 1: out over time and perhaps come down a little bit
Speaker 1: in fun size, specialize on a little bit more. I
Speaker 1: think this would be entirely healthy if that was the case, right,
Speaker 1: I mean I I think it's possible we get some
Speaker 1: larger funds beyond this point. It's also possible we get
Speaker 1: we get a thousand flowers blooming of more specialized funds
Speaker 1: with similar enthusiasm. So like the whoever Canadian wind fund,
Speaker 1: Yeah I'm or yeah, I'm raising the mid market green
Speaker 1: hydrogen fund for the Benelux. That actually doesn't sound should
Speaker 1: not sound rather too specific in that sense, given the
Speaker 1: scale of what might be happening right where things come
Speaker 1: in with a much when things come in with a
Speaker 1: tight targeting based on appetite, thun limited partners, specific expertise
Speaker 1: and technology, all that kind of stuff I feel in
Speaker 1: tells me if I can give my my my slight
Speaker 1: take for a second, the NEO, the new energy outlook
Speaker 1: that just came out last week from benf Right, we
Speaker 1: put investment in there required to achieve net zero or
Speaker 1: between our different scenarios out one seventy three trillion in
Speaker 1: the next thirty years. And so I've penciled that out
Speaker 1: and we put capacity you know, for wind and solar
Speaker 1: only like like not even talking about hydrogen and things
Speaker 1: like that, but wind and solar only at eight now
Speaker 1: of capacity and what in right, And so if you
Speaker 1: just use average project sizes, that gives you three hundred
Speaker 1: and sixty six thousand new projects that have to be
Speaker 1: built the next thirty years. And so to me, yeah,
Speaker 1: this might be a culmination or a high water mark
Speaker 1: for this type of fund, but there's still a drop
Speaker 1: in the bucket in comparison to what kind of could
Speaker 1: be expected to be built in time. The headroom within
Speaker 1: the markets in order to reach a net zero energy
Speaker 1: system is so huge that there's no chance on a
Speaker 1: pure capital basis of anybody crowding anybody else out. Exactly.
Speaker 1: That's that's the point of trying to make yeah, exactly
Speaker 1: totally yeah, Like like none of these funds are saying like, well,
Speaker 1: that said, I've stitched up the opportunity and the resident
Speaker 1: can go get stuffed. Like that's not that's not possible.
Speaker 1: There's a different there's a different thing to be said
Speaker 1: about what it means for valuations, what it means for
Speaker 1: sort of distribution of distribution of interest in investment types.
Speaker 1: But that's you know, that's that's perhaps a different conversation
Speaker 1: before we go to break though. Let's do one one
Speaker 1: last one on that, like if everybody wins, who loses?
Speaker 1: Like if if it seems like there's room for everyone,
Speaker 1: you know, who are the winners and losers here? I
Speaker 1: don't necessarily think of it in winners and looses losers,
Speaker 1: but I can think of it in terms of vector
Speaker 1: and that is that you may have a very stiff
Speaker 1: competition that pushes valuations up for certain asset types that
Speaker 1: could make it that can make it challenging, especially the
Speaker 1: early stage like wind lease offshore wind leases in the US, right,
Speaker 1: and I'm but also also on the company level, like
Speaker 1: if you know where in these where in these institutions
Speaker 1: are going to participate in say a Series B or
Speaker 1: C round, which I think some of them probably will.
Speaker 1: They're going to be competing with each other and with
Speaker 1: general venture funds along the way that have in many
Speaker 1: cases a history of bidding extremely aggressively and being very
Speaker 1: very founder friendly. So soft Bank of course, is well
Speaker 1: known for this sort of behavior, so are so as
Speaker 1: Tiger Global Um and when you could have a sort
Speaker 1: of miniaturized version of that within the funds that we've
Speaker 1: described right now, and you could also have external non
Speaker 1: specialty funds at the Series B and C level doing
Speaker 1: that same competition, and it could be a pretty aggressive
Speaker 1: bidding up, could be very founder friendly. It could be
Speaker 1: challenging for some of the long term really expert investors
Speaker 1: in early stage climate tech investing, of which there are
Speaker 1: now a number. There are plenty of veterans that that
Speaker 1: that are around and are raising new funds, and it
Speaker 1: could make it very challenging in that. In that element,
Speaker 1: I feel like I find it unlikely that a very
Speaker 1: large alternative investment manager is going to be doing seed
Speaker 1: round funding. It's just simply not worth the trouble and
Speaker 1: it's not you're not really set up to diligence things
Speaker 1: like that. But you might find it competing in a
Speaker 1: B round or a CE round against you know, a
Speaker 1: fund that has been raised specifically for climate tech two
Speaker 1: or three years ago and is doing its own follow
Speaker 1: on investing with things that it is sort of carefully
Speaker 1: nurtured from seed on up, so that will be that
Speaker 1: will be interesting to see. There is also the worry,
Speaker 1: as always, I think that there are certain asset classes
Speaker 1: that still proved to be too challenging to invest in
Speaker 1: for any number of reasons, Like would any of this
Speaker 1: funding end up devoted to newer nuclear power technologies? I
Speaker 1: don't know, Like tickets size wise, they should be perfectly suited,
Speaker 1: but are they within the risk profile direct air capture
Speaker 1: or something like that exactly? Um So I think there's
Speaker 1: always that, And then there's always things that might have
Speaker 1: a sort of regulatory brittleness to them. Be very binary
Speaker 1: if you will, which is I would enough to invest
Speaker 1: in that hydrogen network, but only if you know, only
Speaker 1: if something is backstopping it, and what is that thing.
Speaker 1: You don't need to back stop doing rooftop PV almost
Speaker 1: anywhere right now, but you do probably need to do
Speaker 1: it to build a green hydrogen network Without that, and
Speaker 1: without that happening, it may be very difficult. This This
Speaker 1: is a It could be a virtuous cycle. The back
Speaker 1: stopping institution, whatever that might be, is willing to do
Speaker 1: it and therefore capital flows, or it could be a
Speaker 1: vicious cycle in which is neither one, neither one commits
Speaker 1: because neither one is committed. Thanks. Now, when we come back,
Speaker 1: we're gonna get a little bit more into NAT's recent
Speaker 1: piece talking about networks in all of this, stay with us.
Speaker 1: So this week we had CEO of A Yes Undressed,
Speaker 1: Glue Sky on the show. He talked about how he
Speaker 1: got his start in telecoms in the nineties and how
Speaker 1: the changes he's seeing in the power sector now remind
Speaker 1: him a ton of telecoms. Then, So that reminded me
Speaker 1: of your piece today. How you saying these changes related
Speaker 1: a lot to networks. Can you kind of describe the
Speaker 1: concept you're setting out there. I'm often looking to analogize
Speaker 1: what's happening in our sector to other sectors, and I
Speaker 1: think that there's something both both very beguiling but also
Speaker 1: potentially a bit dangerous and saying everything is networked now.
Speaker 1: So I've I've been hesitating for a very long time
Speaker 1: to kind of work that angle, if for no other
Speaker 1: reason than duh, like they have network in their name,
Speaker 1: like electricity network, a vehicle charging network. It runs the
Speaker 1: risk of being not terribly insightful. But I was doing
Speaker 1: a little bit of reading and I came across one
Speaker 1: of Chris Dixon's essays. Chris Dixon is now at Andries
Speaker 1: and Horowitz, and he has this brief but really fantastic
Speaker 1: essay called Come for the Tools, Stay for the Network,
Speaker 1: and he talks about how, in the case if his
Speaker 1: example was Instagram, something that began as a pure tool
Speaker 1: add a filter to your photo, became something that could
Speaker 1: create a network. It attracted people for its utility. It
Speaker 1: becomes sticky because it has an expanded utility, and then
Speaker 1: it becomes insentially embedded because other people are using it
Speaker 1: and you can share within it, and you create value
Speaker 1: for users, you create value for investors instead of doing it.
Speaker 1: So I thought, this is actually an interesting, potentially fruitful
Speaker 1: hook to use from looking at what might be coming
Speaker 1: next in the broad bucket of climate tech investment. Is
Speaker 1: it it's too easy to just say everything is a network.
Speaker 1: We have to we have to sort of think about
Speaker 1: how they start. And so I took that logict from
Speaker 1: from Dixon's essay and I wanted to look at it
Speaker 1: across the world of coming TECK. I probably could have
Speaker 1: dozens of examples, and in fact I put out an open,
Speaker 1: open outcry in the bottom of my column. Send me
Speaker 1: a note with things that you can think of as
Speaker 1: an example of tool becoming network. So send them to
Speaker 1: me if you have them, and I will happily read them.
Speaker 1: And I came up with three. I came up with three,
Speaker 1: which was the first one was looking at energy storage.
Speaker 1: So a battery is a tool. Battery my phone is
Speaker 1: a tool. I use that to charge up my thing. Right,
Speaker 1: it provides power. I charge it up. It provides power.
Speaker 1: That's a tool. If you have a hundred thousand of
Speaker 1: them connected together, being at the home scale and a
Speaker 1: grid scale or whatever, that's a network. They begin to
Speaker 1: interact with each other. There's there's differential values distributed over
Speaker 1: time and space that therefore of now people to arbitrage,
Speaker 1: to trade, to transact. So that's a perfect example. I
Speaker 1: think of wearing like a tool that I have becomes
Speaker 1: a network. We all have them and we put them together,
Speaker 1: and it's not just that they're connected, it's that there's
Speaker 1: greater value to be derived too. I think that that's
Speaker 1: actually the most important part. That's that's the part that
Speaker 1: I want to make sure it is always emphasized. When
Speaker 1: everybody says, well, like this reminds me of telecoms, or
Speaker 1: there's a network that's being created, is it needs to
Speaker 1: be also a creation of value, not just of connection.
Speaker 1: It reminds me of one of those fascinating essays I've
Speaker 1: ever read. Actually, Lewis Thomas wrote an essay a long
Speaker 1: time ago. He was a biologist physician about ants and
Speaker 1: how an individual ant is a neuron but simple oversimplifying
Speaker 1: many ants, becomes a brain that can build structures, can
Speaker 1: transport goods, can do all kinds different things. They become
Speaker 1: a network and isolated on its own. That aunt is
Speaker 1: it's it's strong, but not particularlyly capable, he said. Aimless.
Speaker 1: Aimless is a very nice way of saying it, right, Um,
Speaker 1: not not directed. I mean in the case of ants,
Speaker 1: they require a pheromonic connection. Like, they don't actually do
Speaker 1: anything without a connection to each other. They don't they
Speaker 1: don't act as, they don't really act um even if
Speaker 1: they are out, even if they are out foraging scouting,
Speaker 1: they're only doing so in connection to a larger group
Speaker 1: of entities that's connected behind them. Okay, So from entomology
Speaker 1: to to what I will broadly call climate intelligence. That's
Speaker 1: everything from measuring deforestation and afforestation two emissions two um
Speaker 1: carbon footprinting different objects to what I use as my
Speaker 1: more specific example, carbon accounting and accounting up for and
Speaker 1: around climate risk. And I said that these things. The
Speaker 1: reason I think about these in particulars as being networked
Speaker 1: in value is that if we can, if we continue
Speaker 1: to accumulate individual tools, we will have dozens of standards
Speaker 1: for doing these things, which means we don't have standards
Speaker 1: right We have two ways of doing accounting in this
Speaker 1: in the world right now, very roughly speaking, gap and
Speaker 1: non gap accounting, so we we sort of probably want
Speaker 1: to there will be a taxis towards having only a
Speaker 1: few standards for all of these things of her time.
Speaker 1: And in so doing, two things are working at the
Speaker 1: same time. First is that they are attracting. As they
Speaker 1: become more powerful, they attract more people to them, more
Speaker 1: entities to them, which makes them more powerful. And they
Speaker 1: consolidate around a shared set of standards that makes them
Speaker 1: lower in cost and more useful and attracts and turn
Speaker 1: more things, more things, more entities towards using them. So
Speaker 1: I was thinking about it that this is a place
Speaker 1: where the tool measuring your emissions gains intense value from
Speaker 1: becoming part of a network when everybody's doing it the
Speaker 1: same way, there's a huge amount of shared learning and
Speaker 1: a great deal of shared expertise. And this was actually
Speaker 1: something one investor wanted to emphasize to me in writing today,
Speaker 1: to say that you know that the fourth fourth tool
Speaker 1: that becomes a network is people ourselves. You know that
Speaker 1: we that we individually are a tool for climate tech
Speaker 1: and collectively we are an instrument for a network work
Speaker 1: for changing the climate. So that I think it's actually
Speaker 1: very well spotted to go along with that same with
Speaker 1: that same notion, and then the third one I said
Speaker 1: was seven renewable power that we could probably expand that
Speaker 1: zero carbon power sort of broaden the brush a little bit.
Speaker 1: And the reason I said that is, like, Okay, the
Speaker 1: the classic instrument for reducing my my emissions as a corporation,
Speaker 1: my electricity emissions at least is I sign a power
Speaker 1: purchase agreement with a wind or a solar farm that
Speaker 1: has reduced my emissions commensurate to x percent of demand
Speaker 1: for something. Usually I'm offsetting the emissions from the data
Speaker 1: center by acquiring wind. That's great, but we've seen Google
Speaker 1: and we've seen some other institutions as well go about
Speaker 1: the process of essuch as saying I actually wanted to
Speaker 1: meet all of my demand seven by doing that, and
Speaker 1: that necessarily requires looking generally beyond one particular region for
Speaker 1: sourcing electricity, one particular technology, one particular market approach. All
Speaker 1: that's sort of thing, and it again necessitates interconnection and
Speaker 1: requires it in the process. So you know, I closed
Speaker 1: it off by saying a wind power purchase agreement is
Speaker 1: a tool and zero carbon powers and network. So that's
Speaker 1: that's the case again, like where they they have an
Speaker 1: a creative value of things coming towards them and coming
Speaker 1: into them. That creates value for everybody involved as well,
Speaker 1: and then ideally has virtuous cycles. I suppose within it
Speaker 1: things that get cheaper and better, shared learnings, shared expertise,
Speaker 1: shared knowledge, and so as more of these funds that
Speaker 1: we you know, open the show with, get raised and
Speaker 1: get deployed, we'll have more of these networks seven zero
Speaker 1: carbon power ideally, yes, And what I would hope is
Speaker 1: that those those funds, when they're deploint capital, are asking
Speaker 1: questions about where what additional value beyond the internal rate
Speaker 1: of return they're going to generate over time and where
Speaker 1: that might where that might have knocked on for other
Speaker 1: stuff within their portfolio, and where it might might be
Speaker 1: creating durable competitive advantages over time for the companies that
Speaker 1: are making those decisions, not just for the assets, but
Speaker 1: for the companies that are making those decisions as well. Nah.
Speaker 1: Always a pleasure having you on. Thanks, Mark, It's a treat.
Speaker 1: Let's let's do it more often. Definitely, Well, you're probably
Speaker 1: saying me by this point, but no, any any any time.
Speaker 1: I'm happy to I'm happy to hop on and thank
Speaker 1: you for reading. Thanks for grabbing me on short notice.
Speaker 1: I like doing stuff like this. It's a it's good
Speaker 1: for everybody, and just for everybody. Where can they find
Speaker 1: you on Twitter? Nat, It's pretty easy and a T
Speaker 1: b U M L A r D. In the spirit
Speaker 1: of deprecation, I have long since deprecated my very industry
Speaker 1: specific in joke of a Twitter handle, unlike somebody I know, well,
Speaker 1: I was in a new gold rush. I'm embarrassed. I
Speaker 1: was embarrassed about the New gold Rush for a long
Speaker 1: time because I put it up there, like because you know,
Speaker 1: I thought, like God, this is happening, renewables is happening.
Speaker 1: But guess what like now it actually kind of makes sense.
Speaker 1: I don't know, you weren't wrong, Mark, just there you
Speaker 1: go on that note. Thanks a lot that Thanks Mark,
Speaker 1: take care of This week's show was produced by Ava
Speaker 1: Gonzalez SLA and edited by Rex Warner of Grace Took Media.
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