Energy
Tuesday, September 13th, 2022 1:30 pm EDT
Disclaimer: Interview conducted before the huge Inflation Reduction Act.
Benjamin Schulz: Gabriel, you’ve been investing in cleantech a long time, what changes have you seen from when you started up until today?
Gabriel Kra
Gabriel: We started in 2009, and I worked in solar banking before that, from 2006 to 2009. So I’ve been around what was then cleantech, now climate tech, for over 15 years. And I think that just that change in name is a big thing. Cleantech was really about energy, climate tech is about the realization that everywhere you look in the economy, in our industrialized economy, there is an opportunity to decarbonize things to make them less impactful to climate change. And you can have a huge economic and climate outcome if you find a product or a solution that addresses carbon or carbon equivalents while it addresses an economic problem, while it solves a problem for a customer. So I think in that timeframe, that’s a fundamental, exciting, and important shift.
Another thing I think that occurred, and that’s far more concrete and obvious, is in 2009, when I started at what would become Prelude, the cleantech investment boom was coming to a grinding halt. In part that was due to some investing mistakes that were made, but also in part due to the great recession.
So from 2009 to 2013, sort of arbitrarily, maybe it’s more like 2015, there were very few firms that were investing in climate tech and clean tech. We could get together in a small conference event and the whole lot of us could see each other, and there were very few deals that got done away, or at least that got done without your knowledge, because there were so few folks who were really willing to take a risk on cleantech.
The obvious outcome of that environment is that when you made an investment, you needed to be very conscious and conscientious of where the follow-on capital was going to come — who were going to be your next investors, how much did you have in reserves. All normal concerns when you’re making an investment, but you had to be much more careful and cautious and aware of those things at that time.
Benjamin Schulz: If you do an investment today, you have to be less worried about the follow-on investment in one or two years because the sea changed?
Gabriel: Right, the sea changed. There’s a universe of early stage, mid-stage, and late stage investors in this sector. And that provides great opportunities for entrepreneurs. It also provides better opportunities for investors. It’s really hard to be out there alone or with a very small group of co-investors, because capital formation is a really big worry for every single company. Now I think we’re at a space where we have good high performing companies who have identified good product market fit and good economic opportunity, in the climate tech sector. And if they make progress against their business goals and their technology goals, they can raise capital and raise money. That is a huge change. I think that started in about 2019. I’ll be US-centric, just because that’s where I live. It started in 2019, and it got put on pause a little bit when the pandemic really hit in 2020. But even during the US presidential election, climate was becoming a much bigger issue, and climate tech investing was becoming much bigger. And so, even during the election process, where normally there’s a lot of uncertainty, the momentum started picking up. Then in 2021, throughout the year, the momentum continued to grow. It turned into a phenomenal two year run of real excitement in investment in the sector. The most recent economic environment has slowed things a bit, but strong companies are raising up rounds, even in the summer of 2022.
Benjamin Schulz: Some of these big trends that we have seen over the last 15 years, like electric cars, batteries, renewables, alternative proteins – the pillars of climate tech. There are others of course. Where do you see those big trends going?
Gabriel: You just hit a bunch of maturing sectors that are no longer at the early stage innovation phase. There are now batteries that are sufficient to create electric vehicles to go 300/400/500 miles. Batteries are continuing to improve and they will make EVs cheaper and longer duration, and continue to help improve that product, as will other innovations in the electric vehicle world.
And there still exist early stage venture opportunities in batteries. Maybe not as much as a brand new EV company, that feels like a big challenge at this moment, given there are a bunch of early-stage companies that are somewhat established. But those industries are beginning to mature.
So now, what do people look at? Here’s a few… What are better ways to extract lithium? What’s the supply chain that feeds the battery industry? What’s the supply chain that feeds the EV industry? How can we innovate there?
You mentioned alternative proteins. I think on the plant-based proteins, there’s a bunch of companies that are doing very well and are public or about to be public. And that’s both in the meat alternative as well as the beverage alternative, milk alternative space.
But what’s interesting and what hasn’t yet quite hit maturity, and there’s still a ton of innovation and a ton of growth to happen, is things that are alternatives to making meat. For example, meat replacement proteins through fermentation processes, through lab-grown processes, through really replacing beef or chicken or meat with a product that is the same on a molecular basis, but is not created by growing up a cow in a feedlot and then slaughtering them.
The food industry still has a lot of room for expansion and a lot of room for growth, and a lot of room for actually hard tech innovation.
On the energy side, solar and wind, there are some firms and some companies that are trying to develop new solar technologies. I’m not a big believer in that as a place for venture level innovation to really produce a huge outcome. I’d be happy to be proved wrong there but we as a firm have avoided that.
Wind is also really mature. You can produce energy at cents per kilowatt hour — tens to twenties of dollars per megawatt hour. And that’s just the cheapest electricity on the planet. So now what is it about? It’s about firming that energy with really ultra-long duration storage batteries, things that last for days to weeks, not from hours. It’s about exploring nuclear and advanced fission technologies, and also fusion technologies.
There are a couple of companies that are doing very well, at least on paper, especially the fusion segment right now. I would love to see more innovation in nuclear fission — traditional nuclear — or advancements in fission, be it better light water reactors, modular or fast reactors, or salt reactors. Just that whole innovation landscape in fission, I would love to see more activity. I think there’s some real room for innovation and growth there.
And then the places that you didn’t mention, where there’s, I think, phenomenal and huge opportunities – agriculture, fertilizer replacement, getting rid of Haber-Bosch based fertilizers. Cement is a huge climate problem and a huge market. So if you can innovate and create something disruptive there – great. Steel – and how to make steel and other structural materials. Or either make them in a much greener, lower emissions way or make replacements for them that can actually have mass adoption – those are massive opportunities.
Benjamin Schulz: What do you think are other new topics — new cement, alternative steel production, something else?
Gabriel: So the other one that we’ve looked at for years, since 2013, when one of my partners who joined right when we formed, is direct air capture companies. There’s a lot of activity there and I think that’s a market that needs to exist. It’s a whole separate conversation as to who pays for it, but the market needs to exist, and we finally made some investments, both on direct air capture as well as on the nature-based solutions side. There’s some innovative stuff going on there — there’s going to be a lot of progress over the next five and ten years.
And then there’s also carbon accounting and carbon measurement. That is a huge area of innovation. The built environment, the embedded energy in our buildings and structures — not just the energy consumption once they’re built but the embedded energy it takes to build them. If you think of what’s got to happen as we develop and industrialize parts of the world that want the same living standards that we have in the United States and in the west, if you think about the construction that has to happen to accomplish that, that’s a ton of carbon and a ton of energy, so innovating there is very important, and a huge opportunity. And those of some of the other things that we’re spending a lot of time on.
Benjamin Schulz: If you look back, what was the best or the most exciting investment you did, or didn’t do? What story comes to your mind — the investment that you think about, created a lot of joy, or that you now think, I shouldn’t have missed out on?
Gabriel: I’ll talk about a few that created joy in different ways. I met Mateo Jaramillo of Form Energy when he was an entrepreneur in residence at Activate, which is a non-profit that supports entrepreneurs – supports academics mostly to become entrepreneurial. He wasn’t in that boat but he was kind of working there and helping out there, and I got introduced by my good friend Ilan Gur, who was the Executive Director of Activate. And I was just incredibly impressed by Mateo as a person and by his vision for what a long duration battery needed to be able to do and how it fit into the energy ecosystem.
He was forming a company but then he also connected with two other entrepreneurs – Ted Wiley and Yet-Ming Chiang. Yet is a professor at MIT and Ted was a battery industry veteran already from Aquion. And they – Yet and Ted – had formed up a company around some of Yet’s work. And the three of them came together and I had the opportunity to lead the Series A investment into Form Energy. And there were two other co-founders who joined the team – Marco and Billy.
The joy of working with those five people from the earliest days and the other two investors who joined in that A round, Katie Rae from The Engine and Dave Danielson from Breakthrough Energy Ventures. The joy of working with that committed team that just did everything thoughtfully, creatively, methodically. Customer discovery, technical discovery, facing hard problems and challenges and being able to be a part of that from its formation stage – that’s what you’re doing, that’s what you’re in this game to do. You’re in it not just to invest money and watch it do well, you’re in it to invest money and help support a team that’s doing world-changing things. That’s a phenomenal one to remember.
There’s another one – it’s a teeny little company that was called Plant PV – and we invested a very small amount of money in it, and it didn’t need a lot of money, and they eventually had an exit after a lot of hard work that doubled or tripled the money. But the two founders who I worked with, Brian and Craig, are now two of my closest friends in the industry. And again, working with them, helping support them through good times and bad, figuring out the pivots and the product and the market, and supporting them in doing that – because they were doing the hard work – but being there to support them is also a joy and pleasure. And now I continue to work with Brian on one thing, my friend Craig went and joined another one of our companies that’s doing fantastically well. Those sorts of things, developing the relationships and helping people become lifelong climate tech entrepreneurs – those are the things that I think are really exciting and really valuable, for me personally in this job.
Benjamin Schulz: And a different topic, if you could enact one piece of policy, maybe in the US or globally, what policy would you enact?
Gabriel: That’s a great question. One piece of policy. I’ll be a little bit vague, but I think my mind went immediately to the answer. So how to enact it is a good question, but CO2 and CO2 equivalents in the atmosphere, that’s pollution. And when you pollute a river or when you pollute a piece of property with contaminants in the ground or in the water, you’re responsible for that. We need a policy that puts a price on the pollution caused by our activities. And I would do that. Obviously what I’m saying is a price on carbon. If I could have one magic wand, that might be it, and it has to be done thoughtfully and it has be done carefully. But when did the industrial revolution start? When was the steam engine – the 1800s at some point? Since then, everything we have built hasn’t priced the fact that putting carbon dioxide or the equivalent into the atmosphere has a cost to society. We need to recognize that and put that price on it.
Benjamin Schulz: Looking into the future, what do you think are dangers that are on top of your mind, in three to five years, that are very important to you to recognize or that you think are not talked about enough?
Gabriel: That’s a tough question. I don’t quite know how to answer it, but some things that I think are just important to face, I’m a venture investor, I’m a tech investor, I’m optimistic by nature, I think you kind of have to be. You can also combine some optimism with some cynicism and pessimism about how long and how hard things are, while maintaining that fundamental optimism. I think in some way balancing that is part of the job. But I think, in my community, in that venture climate tech community, we have to recognize, in a fundamental way, that we alone can’t solve this problem. This problem, this challenge, is a challenge of collective action, and that collective action needs to be taken, not just by the early stage or late stage venture, or even corporate or for-profit community, it has to involve meaningful governmental regulatory policy action and support.
So that’s one big thing that I don’t know if many people recognize. Sometimes I hear conversations in our business community that says we could solve this on our own, and this is bigger than that.
Then I think you used the word inertia. I think it’s so easy to underestimate the inertia of the energy system. We have to recognize that oil and gas are cheap. You dig oil out of the ground or coal out of the ground and you burn it to make energy because it’s cheap. And it does things that people want done and it does it now at a massive scale. And you have to recognize how hard it is to disrupt and replace that. It’s really hard. It is now doable but I think the difficulty and the magnitude of that task is often lost on a lot of people. The sheer scale of what we need to accomplish, sometimes I think gets lost on people.
Benjamin Schulz: You see a lot of young and growing companies, so you also see a lot of hiring going on inside these companies, do you have any advice for young professionals that come out of university that are looking to join climatetech companies ?
Gabriel: Well, it’s funny, I get this question often and I hear conversations in group discussions that I participate in. There were these conversations where young people say, “I don’t know how to get into climate tech,” “I don’t know how to get into clean tech.” I think the answer for one, is if you want to have a meaningful career and an impact, software, hardware, engineering talent is always in short supply. And so I would say if you want to affect a big problem or affect change on a big problem, and you have the aptitude for pursuing one of those academic disciplines, just build a great foundation, a great base in whatever technical, scientific, engineering discipline you like.
But then, I think it’s not so hard and getting easier to find companies that are doing things, creating products or services that are actually climate positive and the company and the product can be a lasting company or product – it can make money. In the for-profit sector, if you don’t make money, you’re not going to last and you’re not going to have that impact.
And then it just becomes simple. If you’re 22, 21, maybe one of the easiest things to forget is you’ve got a lot of time to have a great and awesome career. And also, you can work for a company for two or three years, and if that company doesn’t succeed, you can switch. And as long as you’re a talented, productive, hard-working person, you will find another job. It is a job seeker’s market right now. So go out and ask about the product, ask about the service of your employer-to-be, and verify for yourself that it is actually something that you’re comfortable with having a climate positive impact when it scales, when it’s successful. That’s language from the venture community, but if you’re going to a more mature company that is doing that thing. And if it turns out that you’re wrong, you will be able to find a new job. So I would say, don’t be afraid, get out into the workforce, lead with your skills and your talents, and also lead with your ideals, as you search for a job. And you will find multiple awesome opportunities.
And so I wouldn’t limit it to saying you should go to Activate, because that’s where you can have the biggest impact, you should find a cement company because that’s a huge impact. There will be companies that have a match and requirement for your needs and talents that are within that broad climate tech umbrella. It’s not one place to look, it’s every part of our economy and if you make a mistake that you want to switch jobs, that’s not a problem. We’re not in a world where you have to stay with one employer for 20 years anymore.
Benjamin Schulz: Are there, companies, persons, and organizations, which are a particular personal motivation for you?
Gabriel: That’s a funny, awesome question, and I guess I said funny because I always think of my first answer. Whenever I make an investment, it’s because I fully and committedly believe in the team I’m investing in. And so the people I look up to most at this point, I think, in that regard, who are my inspiration, are the entrepreneurs who I invest in. Because I think my job is both exciting and fun and rewarding and hard and difficult all at once, but I think theirs is harder and more difficult on many levels.
So I think it’s the entrepreneurs, the people who are on the front lines building these companies who are the heroes and people that I look up to a lot.
Benjamin Schulz: And last question, what would you pursue if you weren’t investing in climate tech companies at Prelude?
Gabriel: I’d be a ski bum. I’d go back to my 20s and go back to my roots and just get a job in the mountains somewhere. But I’m not going to do that anytime soon. This is too exciting and too important.
Featured image by Mick Haupt.
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