B (4:31)

So where are the unit economics today? How close are they to being on par with lithium ion? And how close do they need to be to achieve mass scale deployment?

A (4:43)

Well, first this is what we call challenger technologies. And so maybe I should explain the challenger technologies a little bit first. There are the solutions for decarbonization in a widest range and definition that don't have yet a positive unit economics or competitive unit economics. But we believe we'll get to that competitive unit economics. It needs time to mature the technology. It needs time to get it to scale with the right customers. I think sodium ion is not today at the level of lithium, absolutely not. But we can definitively see the path where it will become competitive, especially for that application. So if you're asking me for timeline, that's probably better for Landon from peak Energy to comment, but I definitively see it probably within three to five years where we can really make the progress. And part of that optimism is clearly assuming first, no grants, no subsidies, but two, I think it's also because we see a huge demand for energy grid storage, which lithium ion batteries cannot just supply while supplying to the rest of the use cases like car and mobile and so on. So I think that scaling will happen no matter what. And that's what helps the challenger technology to get to the right level of Unit economics.

B (6:10)

Okay. Another theory of yours investment case, I guess is that you accept the fact that AI is leading and will continue to lead to increased energy demand like we probably haven't seen in several generations, but that because of that there's a bottleneck in energy delivery. And because of that you think that those who can alleviate some of that bottleneck that have a great investing opportunity. So maybe you can expand on that a little bit and tell us to the extent to which you think your sodium ion batteries are part of the solution there.

A (6:51)

If we look at very high level, I think we have three amazing decarbonization solution today at the right unit economics. Lithium ion batteries like you mentioned, wind and solar. That's our tool set for decarbonizing and electrifications of these hyperscalers and all the electrification. So we have three tools today. We've been investing in solutions that will increase that tool set. Sodium ion batteries is one of them. And it's important because wind and solar are intermittent type of energy supply. Now one thing that we have done is to invest in a company called type 1 energy, which is a nuclear fusion solution that one would be able to provide baseload totally green solution which could power not just hyperscalers, but any type of grids. That's a kind of challenging technologies again because here you have the science, you have the technology, you have the scaling, you have the execution, you have so many things that we need to get to before we get to this positive unit economics. But once you get there, that's one more tool that we would have to supply this growth of AI and all the electrifications we want to see around the world. And so if we think about it from that point of view, we're thinking about how we increase that tool set beyond lithium, beyond wind, beyond solar. And of course there will be nuclear fission. We haven't made a bet in that one, but we've made one on nuclear fusion. And we've looked at sodium ion energy storage. But we've also invested in a company called Verdigi doing green hydrogen electrolyzer again as energy storage from solar, totally green, that can supply in a storage type of capacity. And when we talk about lithium, there are also things we can do to improve the unique economics of our own batteries. For example, we invested in a company called Ascend Elements which Recycle battery from EVs for example, or scrapes from gigafactories and can recycle upcycle actually the lithium, cobalt, nickel and other valuable minerals back to the battery cycles. We invested in a company in Australia, in Sydney, called Novalis, and that one is actually taking lithium from Spodemy and extracting them. So it's a lithium extraction solution. That's extremely positive unit economics. But of course it has to be looked at with a price of lithium, which is why I'm happy to see the lithium pricing in some ways is coming back up.

B (9:42)

In my experience, the capital intensive business of energy storage and for that matter nuclear fission, all these things are really not a good fit for venture capital because they take a lot of money, they often take a lot of time. They are high risk which and high return which probably suits what you're trying to do. But how does somebody like you think about investing in these more capital intensive type businesses where, you know, investing $20 million really is not going to get them very far?

A (10:20)

Actually it's interesting. So when I started TDK Ventures, actually when I was pitching the idea of TDK Ventures to TDK, that was in 2018, one of my slides was showing a company that was extremely capital intensive that was helping the decarbonization of mobility. At that time the valuation was $68 billion. I was telling Tilicay's management, imagine if we had invested in that company five, 10 years earlier, how much more we would have learned about the electrification of vehicles, how much we would have learned about what we need to build into our roadmap to be ready for EV cars. That was 20, 18, $68 billion. You know, Tesla has done much better on market capitalization since. I think any VC who had invested early in Tesla did very well when it went public and if they kept some of the shares, they would have done extremely well by now. I think it's a myth to think that decarbonization and capital intensive companies can't become 10 billion, 100 billion or even a trillion dollars companies. I think the challenge is to make sure they get to the positive unit economics quickly enough and they get what you would call probably escape velocity level.

B (11:48)

How though? Guess man. Let me ask a different way because I wasn't doubting that some of the decarbonization companies will eventually be some of the most highest market cap companies in the world.

A (12:00)

Consequential.

B (12:02)

Yeah, and consequential too. It's more a question of given the typical investment profile for a vc investment is something where there's many, many times multiples based off of a fairly low investment initial investment, where there's of course a lot of risk with it as well. Where these types of technologies seem like they take years and years to develop. There's not the network effects that you have like with software or something like that. And that if you have the right patent, yeah, they can be worth, you know, these companies can be multi billion, even trillion dollar companies. But that takes years of R and D and development and then you slowly roll out. You can't go from one to a hundred to a thousand to a million. Because it's not just like printing copies of software, I think.

A (12:56)

And I'd frame it within the deep tech venture capital. I'm not talking about software as a service or anything, which has very high capital efficiency and very quick returns. So I'm really talking about deep tech in, in my answer. I think you need to look at first at patient capital. So you're looking at VCs who can invest and expect a fund returner. So companies that can return the full fund within probably a period of seven to 10 years. And seven to 10 years, because typically it's 10 years when you start the fund. But if you have deployed for three years, you're probably looking more for seven years. So you're looking for companies that can do typically a 20x to 50x within 7 to 10 years. That implies first, of course, entry at a good valuation. That's why we like to invest at seed or series A. But two, it has to be a market which at the time, let's say five years plus the time the total addressable market becomes very, very sizable. We like $10 billion plus, but it could be much more than that and it could be a market that's zero today. But we believe that five, seven years from now, it becomes a very big market. And we believe, and this is one of our investment criteria, we believe the company we invest are king of the hill. And king of the hill means that we believe they will become market leader for certain reasons five to seven years from now. So you can see the timeline is really in this five to seven years. But we believe they will become market leader. And once they are market leader, they will be able to secure better margins, the best customers, and as a consequence start to get this public market or even private valuation that allows for a found returner. And so our job is to basically pick the winners, what we believe will be the winners of the future. And that I think is where it's really interesting because when I started TDK Ventures, I had all these questions about are you strategic or are you financial? And that's such a false assumption that you have to be one or the other. Because at the end, if we Pick the winners. If we really pick the startup that becomes market leaders and shake industries, the strategic value is going to be immense because they become the best partners, the best customers, the best suppliers to my limited partners, to my mothership. But at the same time the financial returns will be also exceptional. And so I think that VCs and corporate VCs job is to find the winners. And when I go back to your question about capital intensive type of startups in deep tech context, these are actually the ones with the biggest moat. They are not the ones that are easy to compete with in the future. And if we invest early, before the market has picked up, we have a chance to do really well. I'll give you the example of Ascend Elements as an illustration of what I just tried to explain. EV cars recycling of the batteries was nearly zero market when we invested in Ascend Elements. But we can see, we can graph what is the EV production over time. And it's like an exponential graph. And of course there will be ups and down, but there's no doubt that the number of EV batteries is high and keeps growing. And if you assume 7 years or 10 years cycle for the batteries in an EV to need to be recycled, you can actually already predict nearly mathematically what the demand for recycling of this battery will become. So you can actually with quite high certainty, know what the market size will be at some point in time in the future. And then our job is not to guess the market will be big. We know it will be very big. Our job is to find the king of the hill. Which company are we? Bernie could become the market leader in the right regions.

B (16:55)

Two questions I have based on what you just said there. One is you talked about exit the public markets. How much has that changed? I've seen a bunch of companies now that have stayed in private and still doing big deals and having massive valuations. Has that changed since you started investing? In terms of trying to figure out.

A (17:17)

Where your exits lie, it has massively changed. I think there are a number of things that have changed. First of course we had zero interest. That has stopped, which means that VC have to defend themselves against a 4 or 5% somewhere else. Covid happened. Supply chain was totally disrupted. Clearly geopolitics are changing where we're no longer thinking only about decarbonization, but also about national interest, energy resilience. So there are a lot of things that have changed. But to your point about a company staying private longer, I think what has changed also is secondaries. When I started in 2019, 2018 that was not seen as a positive tool for VCS to use. I think today it's definitely seen as one of the tools you can use very smartly and positively. Two, I think the need for a company to go public is no longer as strong a cachet as it used to be. I think for some CEOs, they actually don't see the need to go public. Some would, some wouldn't and some are proving to be extremely good fundraiser without having to go public. And if you think about companies that have a very long term mission, there's really good rationals to stay private longer as long as you have the right investors along your journey believing in your mission, willing to be patient. And I think the secondary allows for venture capital to bring back some dpi, so some cash back to their limited partners while capturing still some of the upside left in these private companies. I think that yes, since 2019 to 2025 today everything has changed and the context has changed, but also the rationals for staying private is so much stronger because you had new tools that are being seen positively. That was not before you touched on.

B (19:35)

The second question I was going to ask you, which is just the change in overall political climate. Both for example, when we're talking about batteries, the US being much less supportive of EVs than it was a year ago and then two, of course, the kind of, I don't know what the people are calling it now, the onshoring or changing of the supply chains, at least trying to, to create either national champions or at least alliances. And how do you see kind of that those shifting sands there realigning your investment thesis that you had going into some of these investments that you have now and moving forward.

A (20:22)

First, when we make investments we assume no subsidies. So we have to believe the path to positive unit economics is valid without subsidies. So we always see subsidies as a positive after we have invested, but not as an assumption for investing. So that also helps us quite a bit. I think when we look at geopolitics, like I said, our job as venture capitalist is really about backcasting from different type of futures and making investments according to these type of features. And we have to make sure that these features are not correlated but as orthogonal as they can be between them. If we do that job well, when we construct the portfolio, we end up with bets which are orthogonal to each other, which means that as a new administration comes in and propose new type of policies, some of our portfolio companies will benefit and some will not. But overall, as a portfolio construction, we will do well. And if I think about a nonpartisan support of an energy policy today, it's nuclear fusion. There's clearly strong support on both sides for nuclear fusion for extremely good reasons. We're not even looking at decarbonization but really about AI growth, energy resilience, baseload type of energy that you can trust with all the safety that comes with it versus nuclear fission. So I think when policies change and geopolitics change, I think some of our investments will do much better and some will do less. And that's the job of a VC to construct a portfolio that doesn't make all the bets into one direction and one type of future, but really spread the risks as wide as possible.

B (22:19)

So nuclear is interesting because it does seem like at least right now everything's converging very supportive of nuclear. But that seems like the type of technology, one that requires a long lead time and requires hundreds of millions of dollars to develop and get licensed and is the exact kind of thing that I would think would be very difficult for a VC type investor because of the 10 years is maybe nothing the life of trying to develop nuclear, I shouldn't say nothing but might just be, you know, getting it kind of midway through. You're not even going to have your first commercial plant maybe 10 years and second the, you know, hundreds of millions of dollars. So how does like a, an investor like you think about nuclear?

A (23:06)

Actually Todd, let me link back to what we said earlier about segundarids. Ten years ago it would have been very difficult for VC to be able to invest early in nuclear fusion because they wouldn't be able to see a way to return money to their limited partners within 10 years because of the massive market size. If nuclear fusion can deliver on its promises, the market size is huge and we're talking about growing the pie versus just taking away from others. If that is true, you can see how every milestone that a company like Type 1 Energy would deliver would probably create. I'm not saying 10x every time for each fundraise, but probably not too far off from that concept where the valuation would grow quite quickly as they would de risk the science and then the technology and then the execution and then the selling to customers and so on. And if that's true and VCs now have the ability to sell in secondaries, they are capable to bring DPIs to their limited partners along the way. They don't have to wait 10 years anymore. They could decide to sell some of their shares three years, in five years, in seven years in and that's how I think creating some lubrication to selling along the way is such an important mechanism that was not easy to do before and that becomes easier now. And that's why I'm quite positive about this because there are so many solutions that will take 10 years, 15 years to really get to the scale we want. But unless you expect the government to jump in and to help VC is still the best way of giving these amazing entrepreneurs the ability to start and grow and build this technology while it's extremely risky. And so I think that lubrication I just mentioned helps VCs to really play their mission, their roles very early on when no one would be justified to make a risk. And over time you start to have mid stage and late stage and then private equity and maybe at some point public market or not for this type of solutions.

B (25:24)

All right, as we get towards the end of the interview here, let me ask you a couple of questions in, in conclusion here. One is your job sounds fascinating to me. Getting to look into the future, try to see where things are going and actually getting to actually make investments based on what you think and then see if you're, you're right. So what do you read? What, what do you read? What do you watch? How do you try to figure out where the world's going?

A (25:52)

Well, first I read and watch a lot of blogs and podcasts. But let me correct you on one thing. Maybe I wasn't very clear. I'm not trying to guess the future, I'm just defining a different type of features which is not improbable. And from that back cast into what are the gaps between getting to that future and where we are today. And these gaps typically have amazing entrepreneurs already working on filling these gaps. And so if I think about our investment in auto flight, which is a vertical takeoff and landing, we assumed that there would be a future where EVTOLs would be everywhere and it would be the right unit economics, it would be green, it would be convenient and safe. So we've assumed that future. That's not a guess, that's just an assumptions we make. We went backwards and tried to identify from everyone working on these gaps what was the best company, the king of the hill that could deliver on this. We also looked at future where lithium will no longer be easy to supply. And if that's true, then we have to look at which entrepreneurs are working on it. That's why we invested in Ascend Elements because they were doing the lithium recycling. That's why we invested in Novalis because they do the sorry, lithium recycling and Novalisk does the lithium extraction. We make assumption on the future, back us from it, find the gaps and invest in the entrepreneurs we believe would be successful filling the gaps. But we're not trying to guess a future. I think no one can guess a future. I mean maybe someone, but not me. But it's not very hard to define what the future could look like, make some assumptions and backcast from it. And that's, I think what's exciting about our job as VCs is we, we make high conviction bets based on a future we believe is not improbable. But if it does happen, this is a massive market opportunity and a massive impact. And because of where we invest, typically that impact is a massive contribution to society.

B (28:00)

So you still how one one to me maybe guess is not the way you want to look at it, but you still have to eliminate many different potential futures. Right? Because there's almost unlimited. You invest in everything.

A (28:16)

Exactly. Sometimes we will dream about what would it take to get AI compute to zero cost. And that's why we invested in grok. We assume what would be the ideal state of electrification of a home. And that's why we invested in span. We assume that lithium would no longer be available. We assume that minerals are no longer just materials, they are strategic assets. What does it mean in terms of our investments? So we can dream and design these beautiful features and invest accordingly or really not what you could call dark features and invest in the right entrepreneurs who are building for that. And if you do that well, you end up with a very nice diversified portfolio of bets which assume different type of features and hopefully some of the features that we have kept and not eliminated turned out to be correct.

B (29:09)

All right, well let me ask you then the last question I have for you, which is when you're thinking about these different alternative futures, which technology or trends do you believe are currently either underserved by the VC community or just being overlooked by, by policymakers? Where are you thinking the future lies?

A (29:35)

Well, I think the future. So what's interesting is for the last six years at TDK Ventures, we've invested in both energy transformation and digital transformation. And that used to be two disciplines which were quite kept apart. And with AI we start to have these two beautiful overlap where you need to understand AI and power really, really well. And I feel like TDK Ventures has this beautiful opportunity and we leverage experts from our mothership TDK to really understand this intersection of the two. The AI and the power and so if we think about where there's a lot of attention and yet I still believe it's highly underserved, is how do you power AI and how do you scale these power solutions for AI to leverage for everyone else? So it's not just contributing to AI, but contributing to society because you're allowing for these challenger technologies I discussed earlier to get to the really good unique economics thanks to AI demand, but everyone gets to benefit from it. And so nuclear fusion is the obvious example of the perfect solutions for this type of future, where hyperscalers demand huge amount of power despite any energy savings schemes we might have in the future. But that would then benefit from powering your car, powering your home, powering every type of solutions you want for nearly free. That I think is where I think we should spend more energy, pun intended, I guess for VCs, for entrepreneurs and policymakers.

B (31:22)

All right. With that, Nicola, I let you go back to dreaming up the future. Like I said, sounds like a fun job is probably pretty stressful since a lot of risk, high risk, high reward kind of thing. But it sounds fun to me.

A (31:36)

It's very meaningful because we end up working with entrepreneurs who are building the future we want. So yes, thank you.

B (31:44)

All right, well, thanks for building our future. Take care.

A (31:46)

Thank you.

B (31:50)

You can find us online at www.projectfinance.law or send us an email at currentsortonrosefulbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app. Our show today was produced by Emily Rogers. Stay ahead of the Currents SA.