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Investment Climate Podcast
On Out-Scoping University Research, Techno-Economics, and Avoiding False Assumptions- Elissa, Twynam
00:19:30
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- [00:00]
A
Most deals get killed when we start really diving into the techno economics. There's just usually some assumptions that aren't what we consider realistic. Whether that's on feedstock or energy or some kind of transport pricing that's baked in that we think will break the model. I'd say diligence is the point where we're stress testing everything and really trying to understand what stacks up. But our job is to look for a reason to say yes and not for reasons to say no. Hi, my name's Elissa Glory and I'm an investment manager at Twynum. Twynum is an early stage decarbonization fund and ultimately we back technologies that are better, faster and cheaper than their incumbents. We spun out of a family office so we're a venture fund now raising from externals. But we do carry with us 30 years of venture experience and 50 years of operating experience in hard industries across agriculture, commodities, mining and energy. From that family office into our into our learnings for the VC fund we invest globally and I mean truly globally. We have a separate side vehicle for China but a lot of our investment lies in India, Asia as well as the us. We invest in pre seed to series B businesses with ticket sizes, initial ticket sizes up to 3 million USD.
- [01:17]
B
Amazing. And recently you guys just made a bet as well that it went public. Maybe share a little bit about the investment, kind of what the thesis behind the investment was.
- [01:25]
A
Of course we recently doubled down on Plasma Leap in their series A and they're really excited. They raised a series A led by Gates foundation and Yara who are the largest, I think the largest producer of liquid fertilizers globally. It's a bit of an interesting case of Plasma Leap. Our first investment coming in as the first professional investor when was in 2024 and we did a thesis deep dive on alternative pathways for nitrogen synthesis. We looked at technologies all over the world and also just pure research from universities and we came across Professor P.J. cullen and his research that was probably a year before we invested and at the time they didn't have intention to take on external funding or really develop it into the to the company that it is now. And maybe it was part convincing them and part them realizing the opportunity of this incredible non thermal plasma technology that produces fertilizer will can produce fertilizer cheaper than the existing method. Today with the Harbour Bosch process which is a extremely inefficient using up to I think it's like 1 to 2% of global energy and we just saw a lot of supply chain fragility and fertilizer as well. And we're seeing it now, right?
- [02:38]
B
Yep.
- [02:39]
A
Like in Australia, 80 and 90% of our urea and ammonia passes through the Strait of Pumuz. And I think Europe experienced it a few years ago with Russia and Ukraine as well. So ultimately what we have is a really exciting technology that is not too sensitive to energy price. I mean every, every electrical electrification kind of process is sensitive to energy price. But we're able to, to really dig in and model this at a more realistic price and still believe that they could be, that they could match commodity fertiliser prices and ultimately are seeing a team that is growing like crazy and doing amazing things.
- [03:13]
B
So let's bring break down the investments. I think first of all, I know them personally, they're amazing team. We were together in SVG Thrive this last year. So I, I think they're, they're, they're wonderful. Very deep tech driven team and good human beings. So congratulations on that bet. Take me through. Let's the thesis you guys built like how does, how does even a VC build a thesis? Right? And then the process of like, okay, we know we want to make a bet in fertilizer replacement and then we just go and scope solutions. Is that how it works?
- [03:44]
A
Yeah, of course. Our team gets together a few times a year and we look at what's happening in the world and we try to form a view on a space that we think is, is interesting. As an example, at the moment we're looking at cooling technologies in India because only 9% of residents have a air conditioner and we think that's about to explode. We've also done a thesis recently on refrigerated trucking in cold chain. So we come together and we form a view, like a statement about what we believe in that space and then we go out and see if it's true. We talk to a lot of industry experts, we do some desk research and then we go and find startups and research in the space that used to be just a Google search and now we've built our own AI tools to support us in that outreach as well. We go out and approach those companies ourselves and take them through our process.
- [04:35]
B
Okay, so how do you form that thesis though initially like was it just five people go into a room, you guys lock yourself up in some Australian mountaintop and then. And those exist by the way, to our listeners, they do exist. And then you just say, hey look, where are the biggest problems that we think exist? And they're Gonna get worse in the next 10 years. And then let's work back and those like, how did you even get to fertilizer? Like, what, what was the thinking behind that? That's okay, this is a problem. And then you go out and you start looking for solutions. Like, why'd you choose fertilizer in the first place? How did that come up as an idea?
- [05:06]
A
Yeah, there's all different things that we collect and it might be statements from people we talk to, it might be facts that we just pick up and, you know, that get wrapped around our brain. Plasma LEAP this thesis came from the realization that the Haber brush process is 2% of the world's emission base. When you add on transport, it adds another percent. And when you add on the nitrous oxide emissions, it adds on another. I think it's like 5 to 8%. So that started there. Sometimes it starts with a problem in industry or a piece of news that something supply constrained or difficult, we try to look in spaces that are a little less obvious. But it ultimately does come down to the team who are in Sydney, Singapore and now Bangalore as well. The team just comes together and has a chat and brings our thoughts on where the world is heading and what we think needs to change in it.
- [05:56]
B
And then to understand to our, to our listeners. Just when you put a theme together, you're probably saying, hey, is it my assumption in the next 10 years and the size of the market, like the how big of a problem this will be? Right? What, what are the, like the elements of what would drive a theme, right? Is it size of market, size of problem? Will it get worse? Is the current solution able to solve for that? Or is there innovation disruption that can happen? Right. Are these fundamentally the things that you're looking at?
- [06:24]
A
They can be, but not always. Sometimes a problem is glaringly obvious and sometimes the solution is. Or like, you know, you think like we need a solution that does X, Y, Z, or we have a market here that is so big that needs disruption that us, for us, is looking a little bit too late. And so we try to get on the front foot and think, hey, there's this waste problem we heard about. Can we start looking at that before the rest of the world realizes it's a market opportunity?
- [06:51]
B
And then with the fertilizer opportunity, like when you started scoping or looking to find out, find solutions. If I'm a startup and I want to make sure I'm found, like, how did you find them? Just curious, like with plasma, how did you even find them? That they exist. If it was also in a research stage or was it still in university? Like what was the thing that helped you understand that was the solution? Because I'm sure there's a lot of people trying to solve this problem globally. And they're like, well, why didn't Lisa find me? Like, I wish she called me. I think we're better than them. Why didn't I ever get an email from.
- [07:22]
A
Yeah, so thesis development isn't 100% of what we do, it's about 50%. If we do develop a thesis, we, we go out and find the companies. In the case of Plasma Leap, we really just found an article that Professor P.J. cullen had had published in. In all other cases, like things do come across our desk, we're a VC fund, we have friends and network and we've been investing in decarbonization since the 90s. Things appear, people reach out to us. It's all the usual channels and networks.
- [07:52]
B
Gotcha. Well, it's interesting. When I was in the previous company I worked was in Cell Culture cocoa. Like we grow cocoa from cells rather than the ground. And when we're looking at the climate or decarbonization, there's always like, how do you measure the impact of a certain problem? Like, is Coco big enough for decarbonization fund? Right. So is there in your mind, hey, here's the percentage of where it's big enough for us to look at and if it's not the amount of percentage that we can replace or change, like that's just not even a big enough problem. Like I, I can understand to a certain degree it's a problem, but from decarbonization standpoint, it's not going to be a challenge. Right. So does your company say, hey, it has to be like, like we did with the fertilizer, say, look, we think it's about 1 to 2, possibly 5% of the whole pie that we could be going after to deal with this issue. Is that where it kind of needs to be to justify the use case? Or if you look at cold storage that you're looking at, I think that's a really good one. So thinking about cold storage as a potential application, like is the idea there usage of air conditioning or cold storage for transport is going to increase carbon emissions to X amount and therefore in the next 10 years and therefore we need to get ahead of it. Is that, is that the concern as well?
- [09:03]
A
It is the concern. It isn't the primary driver. And I think of our decarbonization impact is more of a hurdle. We do like to see technologies with over like 100 megatons annually at scale of CO2 impact. It can be less in certain circumstances, but that's generally what we look for. If we only looked for kind of 5% of global emission based technologies, I'm afraid we'd run out of things to invest in. So that's certainly not the case.
- [09:29]
B
And then take us through the DD process. Right. How do you guys make the decision? Say okay, the thesis in the place you identify plasma, you know, you say, hey, this looks like it could be interesting. What happens next? What is the actual DD process with the business? What are you guys looking at? How does it, how does the company stand out for you?
- [09:46]
A
Yeah, of course when we initially talk to a company we usually have one to three conversations and just make sure we're across a few basic things that we think the team is, is excellent and we have a few measures for that. That we think the unit economics stack up and they can be cheaper than incumbents, that the technology is game changing and that the team is iterating at speed. If we have enough conviction on those things, we can bring it forward to a team meeting which happens every two weeks. Some of our IC do sit in on this meeting, but it's not an IC meeting. The team just bring it forward and we present it to the team to gauge initial interest and flag any kind of hesitancies or things we want to focus on in DD due diligence. Once it gets past that meeting, then we dive into due diligence and we put a lot of focus on the techno economics. In the case of plasma Leap, for example, it was proving that they could match commodity fertilizer prices. And we decided to as energy price was the main sensitivity, we decided to take that right up to about I think it was 12 US cents per kilowatt hour and do a full sensitivity analysis. That was the bulk of our, of our DD process. We in that we write a memo and then we take it to an investment committee meeting. The whole process from first meeting to funds transferred has been as quick as six, eight weeks. But it yeah, dependent on team capacity and founder responsiveness and all of the usual things as well.
- [11:09]
B
Yeah. Okay. Well first of all it's very fast and I love the steps that you outlined there. Makes perfect sense in terms of the way that you're taking gated approaches. Before you take full dive in and looking at the techno economic model, make sure that the economics make sense rather than just focusing on impact, potential impact. But As a business, does it drive it, drive it home for come for fund that's looking at the deal. Are there red flags that you're looking at specifically that will kill a deal? I speak with founders raising every day and they're all telling me the same thing. It's harder than ever to find investors who are actually deploying. And getting access to those leads takes time founders just don't have. Every month fundraising is a month burning Runway. This is why we created FTW Plus, a community of founders actively fundraising the world's most accurate agri food tech investor database. Plus connecting you directly to ideal target investors and a community of support and accountability. Guaranteed results or your money back. Apply today at www.joinftw.com-hub
- [12:19]
A
I mean, there are some red flags. Most deals, I'll just say, get killed. When we start really diving into the techno economics, there's just usually some assumptions that aren't what we consider realistic. Whether that's on feedstock or energy or some kind of transport pricing that's baked in that we think will break the model. Other red flags we look for team dynamics, especially when there's like CTO and CEO co founders. We really like to make sure the CEO has technical knowledge to be able to understand what the CTO is doing and that they're not going off on their own journey. But I'd say diligence is the point where we're stress testing everything and really, really trying to understand what stacks up. But our job is to look for a reason to say yes and not for reasons to say no.
- [13:04]
B
And then from a revenue standpoint, do you guys take bets on companies that's still pre revenue or.
- [13:09]
A
Yeah, we do.
- [13:11]
B
Or does it have to already have commercial traction and have a product market fit proven or will you take risk on technology as well that's still in. I wouldn't say in the lab, but it's still being proven out technologically.
- [13:22]
A
We looked for is ability to move up the TRL curve and then we look at TRL and CRL commercial readiness together. Technology or if a company has largely proven their technology but doesn't have any commercial traction, it is a red flag. But if something is in the lab and doesn't have commercial traction, it isn't a red flag as long as we believe that the team can gain that commercial traction. Typically we do like to see some kind of commercial validation though, or initial pilots or conversations that indicate positivity. Okay.
- [13:54]
B
And then take us just through the last step of, you know, what kind of, you know, as much as you could share what areas you guys are looking at now and why. Okay, just give a list of themes of. And maybe a founder would be like, oh, I think I'm trying to solve this problem. Like I think I want to maybe call Lisa, is there as much as you can share about your. Your way, which areas you are curious to? You mentioned cold storage, obviously, cold chain. Anything else that kind of keeps. Keeps you up at night and you're thinking, well, this is interesting.
- [14:21]
A
Is it okay if I talk about a few that aren't specific food tech or do you want me to keep it to.
- [14:25]
B
Yeah, yeah, yeah, absolutely. Because I think this will give us understanding. Like, okay, this is interesting to us. Yeah.
- [14:30]
A
When you look at decarbonization, the biggest thing that needs to happen is electrification. And so we look along the chain of electrification from how an electron is produced to how it is transported and the significant energy and thermal losses along the way to what an end customer does with that electron and how we can be more efficient with that electron. We do invest primarily in deep tech, but we do some software and business innovation type business models as well. So at the moment we are looking at electrification in India. I think I gave the cooling example before, but we're seeing a lot of development in that market and a lot of really exciting opportunities to electrify processes and also to modern, modernize the grid. That's also coming from an Australian lens because Australia has the highest uptake of rooftop solar in the world and an incredibly impressive grid. It's another space we're looking at is cooling. Specifically globally. We do have one investment in that space and see potential for more as well that might be more geographically diverse. We're looking closer into metals and mining. One of my colleagues has just done a great dive on green steel, which hasn't led to an investment yet. I've just done a big dive on copper which has. Copper is the one thing we need for every industry to electrify and for every, I guess electrification process to occur goes in every wire that transports those electrons. The last area that we're looking at is related to compute, but maybe not where everyone else is looking. We're looking at gpu, CPU and abuse, reuse and recycle and also how energy is optimized and the grid is optimized to support data centers goals going forward. So we're wrapping up most of those theses and as we head into the second half of the year, we'll be coming back to the table and thinking about what we, what we want to think about for, for the next six months.
- [16:23]
B
Amazing. Lisa. Well, I, I think all of our listeners got in a real deep look into how you're making decisions, what's driving it, how the team is making bets. Like I found. I've, I've learned tremendously from you and I know there's things I'm going to cooperate in our process. How can we thank you for what you share with us? Is there something specific, I mean, besides the areas you just mentioned for deal flow, anything else that you think this community can support you or reach out to you for any purpose?
- [16:48]
A
So, three things. The first is if anyone is building a startup that is doing something better, faster and cheaper, we'd love to hear from you. The second is we're raising our second fund. So any LPs that are interested in looking at a, at a fund like ours. Our first fund is tracking in the top decile of all VC funds for its vintage according to Cartadata. And we look at continuing that strong performance in our second fund. And the third way is we have a few food and ag companies. So Plasma Leaf, I mentioned Vertical Oceans who have indoor autonomous aquaculture farming with an absolutely incredible data and intelligence layer. They pretty much create digital twins of biological systems, which is absolutely insane. And then the third company we have is Hoofprint Biome who are increasing yield and decreasing methane in atl. If anyone has any connections or customers or opportunities for any of those companies, we'd love to hear from you.
- [17:49]
B
Amazing. I'm sure there's gonna be a lot of calls and emails coming from this, especially after everybody has gained so much from your insights. And thank you so much for being here and excited to come visit you in the mountains of Australia.
- [18:00]
A
Yeah, I think if anyone can help any of our portfolio companies, I know your, your network is largely food and ag. Any way anyone can support Plasma Leap, Vertical Ocean, Hoofprint and yeah, I think those three are primary kind of food and ag focused opportunities. If anyone has any way to support them in decarbonizing our food and ag systems, it'd be great for. Great to hear from you. And otherwise we're looking at launching our second fund in the coming months. So if you have any spare cash, we'd love to. We'd love to hear from you.
- [18:34]
B
Amazing. Well, at least thank you so much again for sharing and then I'm sure you're going to get a lot of outreach from this conversation, so thank you so much.
- [18:40]
A
Thanks so much Alex. Take care.
- [18:42]
B
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