Can Climate Tech Change the Economy? | Sergio Carvalho, Partner @ Planet First Partners

Oh, today on the show we have Sergio Cardio. Sergio is a partner at Planet First Partners investment firm in Europe that makes, as you can guess, sustainable investments. Nothing else to be said uh other than two things that we cover in this episode. First, we talk about how to understand capital stacks in deep tech, what sustainable investing

even means to Sergio. Uh but the most important thing that I took away was he has this high level, a very broad perspective on how to grow uh as as far as markets go. So, I had never really uh or I have never really been uh good at dissecting markets, understanding what they uh what they are, how they're

built, but he says something that drives their investment decisions is how well an entrepreneur understands the market that they're growing in. So, that was very uh enlightening for me, inspiring conversation. Sergio brings great energy, so I know it'll be good for you, too. Thank you as always to our sponsors, Clean Techch Girls Lab. If

you're looking to grow in clean tech, they are the people to do it with and the producers of this podcast, Craz Friends. And with that, I give you Sergio. Oh, welcome to another episode of the Grove. Shout out to our sponsors mentioned just before this. Without them, it would not be possible to

interview awesome people doing awesome things like Sergio. Welcome. All right. Thank you. >> What's going on? So, we're just going to get right into it. I'm very interested uh in FirstPlanet Partners and your approach to uh what it means to invest in climate tech space and also uh what you've seen as far as success in your

portfolio companies. Before we get into that, if you could just give a brief introduction of yourself and what you're building. >> All right. So, um I'm Sergio Brazilian. Um, I've been with Planet First Partners for just over 5 years. Um, I come from a slightly different background. I am not a finance guy. I'm more of a

sustainability guy and I flipped into sustainable finance around 2017. Um, I helped develop a ton of new frameworks from green bonds all the way to the taxonomy and other taxonomies around around the world. And I think that um when I joined Planet First was basically to work towards this this idea of um how

to capital to work behind sustainability and the first big challenge in front of us was climate change. So this is what everybody was talking about in 2021. Our mandate is wider than wider than climate change. I think we're still very much hooked onto climate change. If you look at our portfolio, majority of it is is

connected to climate change. We we started diversifying a bit with some exposure on alternative proteins that is slightly different. So we have an angle there on biodiversity, not necessarily climate and also on on health tech more recently. So we can go wide when it comes to sustainability but strict in terms of how we built the thesis. That

being said, we still have majority of our capital built behind climate change and we still think that that's one of the biggest challenges and one of the biggest opportunities uh uh that we have to solve with uh private capital.

>> Great. So you had said you come from a little different background. You said you come from sustainability background. What does that mean? >> Uh it means that I'm trans a biologist and I spent um almost 15 years uh working under the Brazilian Ministry of the Environment uh with all things related to sustainability from licensing

and permitting of energy infrastructure all the way to protected areas. And well at the time when the SGS were being developed, my uh my boss was actually part of the commission that was developing the SGS. So I got some some visibility on how the SGS were being developed from the governance perspective which was fascinating to see

how when it got published the private success slowly encroach and started adopting it on so operations on how to build sustainable investment thesis. >> Interesting. So, so then what what did those 15 years teach you about what sustainability means in practice? So, something that was interesting about when we were discussing whether or not

to do this podcast was a language that you just used and language that comes up in your uh in the content you have online is uh sustainability uh finance or sustainability investing things like this. >> Yeah. And uh and that word can mean so many different things. And so uh I think it's

particularly interesting that uh the background uh the experience that you have um and so what does the sustainability mean to you? I guess given uh given that experience with the Brazilian government. >> All right. So I think that so what for me sustainability is is basically uh societal choice. uh society chooses to to to to push the boundary

forwards in terms of um guaranteeing that social, environmental and economic conditions improve for the whole of the of humanity. So I think that that's the baseline for sustainability and if you combine all those three elements and you integrate those three elements you have the SGS but that's a macro view of how governments should engage with it and

then that gets translated into how each sovereign entity will drive its society which also involves how the capital that belongs to that sovereign entity the private individuals the sovereign entity will engage with sustainability and it can vary widely uh wildly and I think that the point is the idea that none of these dimensions should be compromised

is or should be compromised if you want to take a step forward in terms of sustainability. So we can't protect biodiversity by ruining a community and subtracting their uh uh welfare. You can't guarantee that the community has its welfare and the biodiverse is protected without allowing for their economy to grow because this means that

you're condemning them to know a lifetime of of I don't know palytic existence. So I think it's all these three dimensions. We have to improve all aspects of society together. When it comes to private capital engaging with it, which is what we do in terms of sustainable finance, >> Europe has a more regulated environment

that clearly defines what the sustainable investment means. It has to deliver substantial contribution to an aspect of sustainability, social, environmental, and can't do harm to all other aspects of sustainability. So that's like a broad legal definition that gets translated into each of of of ours and our peers approach and framework to how we realize sustainable

investments. >> So it's kind of straightforward when you think of climate change mitigation because it's basically how do you abate carbon emissions? If you abating sufficient volumes of carbon emissions, there you go. It's a sustainable investment. M >> our portfolio we have green hydrogen data centers all of these elements that have a high footprint with the solutions

from our portfolio companies you eliminate those emissions and by doing so you eliminate one of the most pressing risks in humanity many is facing right now which is climate change. Well, >> so so then uh just one more thing on on your experience in Brazil. Did you feel like that program uh was effective? You

know, did you leave optimistic about the ability to uh do something uh for society in the uh in the face of climate change, do something uh as far as the distribution of uh public finance? Um >> I've always been uh um critical and very annoyed sometimes being called the prick by my part by by my my my

colleagues basically like but also very optimistic because I've seen things that work. So Brazil has had a very interesting um universal electrification program that basically worked with this this public private perspective of the government regulated and forced the utilities which were private companies in Brazil or private cassette like utilities like conceded to to private companies.

Um so basically the combination of of those basically forcing the the utilities the distribution companies to electrify the whole country. If they run at the loss the government will take the fall. >> If they run a net profit there you go the costs are covered. So basically that regulation changed the entire landscape

in the country in many ways. Um I saw communities that uh in one year had no electricity, no commerce, no nothing. A couple of years later, not just the community but the surrounding agriculture area had enough power to have commerce, to have shops, to have refrigeration and for agriculture to basically pump water to the irrigation.

So it changed landscapes and in doing so effectively for those for some communities, not all communities, you actually lower their pressure on the ecosystems because then you can flip the type of of of energy you're using. The economy is growing. You can change the type of activity you engage on a day-to-day basis. So you can move from a

heavy extraction based activity to a slightly more uh uh process but you add more value to whatever you're extracting from the land. So how the public can deploy capital cap in a smart way with full participation of the private sector to effectively do sustainable development.

>> So you improve the economy, you improve social conditions and by doing so you lower the footprint on the overall ecosystem. Yeah, >> there are plenty of examples of like positive examples, plenty of bad examples as well, but I'm I'm always like I think that optimistic like we can engage with the positive examples and do

better. >> Yeah. Well, that's well that yeah, that's that's exactly what I was going to say is uh it that is uh t I guess typically when I hear about the programs where uh public sector and private sector collaborate on something as as huge as the idea of electrifying the country, I usually don't hear such uh uh

success stories. So did that was there anything specific about the experience that led you to did you go directly to Europe and uh first planet partners or was there a bridge you know how did how did that transition happen for you? uh there was an element of of I came to the UK to do a PhD and throughout my PhD. I

kind of slowly moved towards sustainable finance um simply because I was doing the PhD and yes you have your thesis but you end up getting distracted with new things and I basically detached from government but I had a lot of like a heavy day-to-day work and then at the PhD I found myself

with like a sort of a relatively more free time so I kind of moved into sustainable finance so there was a slow creep towards sustainable finance standing more of that world and really seeing that well all the tools that I had in government could be deployed uh in sustainable finance and and this idea

that well I think I can do well because well my experience as a as a sustainability professional and also this uh notion of if sustainability is not effective and efficient no one's going to do it >> and I've never been an activist as well I've been called a technocrat a bureaucrat by many things but I've never

been an activist and so I don't believe that sustainability will move forward just because we want it. It has to make sense. You have to convince society. You can convince society as a politician >> or you can convince society by being smart about the investments that you pick that will actually deliver financial returns alongside the

sustainability returns. >> So my my transition from doing stuff with public goods where I basically had to earn the trust of the public to deliver the public good of sustainability. Here it's we have to earn the trust of our private investors.

>> Yeah. Yeah. Yeah. >> To deliver on the private goods that also deliver on sustainability. So it's kind of like this different sides of the same coin but always with this idea that if you're not efficient about sustainability. If it doesn't make sense, you should if it doesn't make sense from a private perspective only

makes sense from a public perspective. You you should basically be paying taxes and getting the government to do it for you. >> You shouldn't be investing money on it. >> So >> and it's the other way around. So I in the government I was also thinking like if this thing makes a lot of money it

should be privatized we shouldn't be managing this give it back to the private or give it to the private sector. >> Yeah. >> So this idea of things transitioning from public to private good and back and forth. I was always very keen on it. It was part of my of my PhD thesis as well

this idea of or my PhD research this idea of there public goods they're private goods the private goods the private private market should engage with it >> and yeah so what I do today is this private perspective. Yes. Okay. Very very No, no, no. Just just very interesting that distinction you're making. So, right before uh I I do want

to ask you from with that lens, I do want to ask you um about how that has contributed to uh the the investments you know that that you guys have made, how you've seen certain companies be successful. But a larger question you know before we get there talking about what founders can can use and take away

from this is how do you just I think it's an incredibly interesting topic what should be uh pioneered by the public sector what should be pioneered by the private sector and what needs to be a collaboration between the two so you're speak you know you speak you you I guess one of the things that you'd used is

does this make a lot of money if it does it should be in the private sector and if not you know there should some some public uh subsidy or whatever. How do you make those distinctions? If we're if we're speaking to people that are out uh that are out in the world and have these

great idea or maybe don't have a great idea but have a a really specific problem that they're looking to address and they're looking to to fund it. Um how how do people make decisions about whether to uh pursue public financing, private financing or both?

I think I think it depend on which geography you're you're at and how different different aspects of like how the intensity at which that the particular geography is pursuing climate change mitigation for instance how aggressive you're targeted how abiding they are and uh how that this different because it's hard to say like oh yeah

because it will vary a lot depending where you are if you're in Brazil if you're in the US if you're in Europe the different perspectives on how public and private finance should play should play the role of of um of delivering uh uh uh uh on on on sustainability targets. So if you're in Europe for instance,

there's an element of regulation. Think of hydrogen. I think hydrogen is a great example. >> Okay, >> we need green hydrogen because we consume a lot of gray hydrogen today. It's 90 million tons with a three-fold uh uh uh uh uh footprint. We need to reduce that footprint to be at least uh

u lower than 1 one and thus we need green hydrogen. It also helps with energy independence in Europe, which is a big thing. So if you combine those two things, Europe pushed the regulation for for for for green hydrogen. And by pushing regulation and pushing targets for the industry, it created a market.

>> It created a market because if you mandate that to do it, you're going to present us a demand a demand uh uh for for these projects. >> So it's not necessarily just finance. Was that demand sufficient? No. Europe also came with a slight subsidy to complement and basically create the the the it's the whole idea of of if supply

meets demand, you have price formation. Everything flies. If supply is not meeting demand yet, you need to help those curves meet so that you can have price formation and then the market can can do what it does best which is the efficient allocation of capital.

>> Right? So if you have a challenge that doesn't get resolved because there's no natural market around it, public can actually help create the market by nudging companies to resolve the issues associated with an externality that otherwise will never be captured >> like the emission of CO2. There's no price in CO2 because dispersed etc etc.

>> We can talk for hours about economic theory on the on on price. Basically you nudge companies or you force companies or regulation to engage with this and decarbonize substitute that is still not sufficient. So you come in with a bit of subsidies. Once you do that, you have this virtue cycle or at least you hope that there's going

to be a virtual cycle that will create price and then you're going to have startups like one of our company Sunfire that will basically take a bite out of this market then you have a viable business without the regulation without a slight subsidies that market wouldn't be born. And once the market is born,

then you have the interesting thing about private markets, which is technological improvement, process improvement, lowering costs, lowering margins, competition. And then you get to a point where you had a really high startup cost for you to displace gray hydrogen with green hydrogen. And eventually that costs plummet to a point where the the market naturally evolves.

And then you can pull away the subsidies and you resolve the issue of a market that operated efficiently but had a ton of externalities and you created a market that operates efficiently and doesn't have those those those externalities.

>> Yeah. >> So yeah. Yeah. Okay. So, so, so then uh follow-up question is that I think a nice success story of what you're talking about is the recent uh plummet in cost of solar for example or batteries. I'm not as wellversed on the details, but that I think is a great example of a market that has been

subsidized for years. And then it allowed um you know the supply chain and the cost of of goods and things to get to uh to get to a cost where now it's economically feasible for uh solar to be manufactured and deployed and all these things uh you know even when 1015 years ago it wasn't. So I think that's a

that's a positive example of what you're speaking to. Now, on the other side of it is uh carbon markets. I think I'm not sold on the effectiveness or the longevity of them. I think they're a great first step, but I think as everything gets more developed, I don't know if they're going to survive. So

what is your you know from from the perspective you just spoke to you know creating markets and then letting the market happen you know how is it that some markets that works for and then I guess some it doesn't or is it even is it even uh uh fair to compare solar with

something like carbon markets or are they completely different things? I mean I think they're different things. Um I think that the they're different things because um if you think of of um I'll put this if you think of a carbon market um and you think of how things are structured um with um with solar you

have very different perspectives. One solar is an industry that uh is a technology that was delivered developed in the west. It was scaled up and scaled up to an insane level in in China which basically a lot of it government-ledd so policy led scale up created a an economics and then delivered a product

to the market that has a cost that is minute today and expanded insanely and basically you can electrify everything with solar to a point where actually the global south is electrifying larger with solar for smaller use cases electrifying a lot with solar So households can become solar enabled because it's super cheap.

>> The car market on the other hand that's a different thing alto together because this is a product sold in the market. It got propped up by the Chinese government but it's a product. It gets sold in the market. You have a union economics you sell it. Carbon is an externality and it's a global externality. Carbon that

gets emitted in the US affects everyone. Carbon gets emitted in Europe affects everyone. Carbon that that was emitted 100 years ago is still affecting everyone. >> Mhm. >> So that's an externality. It's hard for you to come after the player and pinpoint and say like, "Hey, you do pay for that for that carbon."

>> So global carbon markets, which is very much voluntary carbon markets, suffer with this thing. You don't have a global government. You don't have a global tax authority. You have markets, but you also don't have a global market. You have the US market. They have multiple European markets. So if you have an

issue that is global, you can't have a global cover market. Then you have regulated markets like the European ETS which is a whole different thing. Um which is not necessarily a um so the the European ETS is not a a carbon market. Um the European ETSs is the the the the regulated entity. Um,

so it's the European approach for a closed off market that basically caps and trades allowances for carbon emissions, >> but it works for Europe. It's still complicated because we're talking about a global externality, not a localized externality. So, it's less visible. Will be a lot easier for pollution because everybody sees the pollution of use of

effective pollution. So, it's easier. Um but for the sectors that you you're regulated with ETSs there's sufficient evidence that it was effective in nudging the this geography to lower its its carbon footprint. There was a lot of leakage which is basically there's a cost >> throw my industry to India but there's no cost. So there was leakage a lot of

leakage but still it helped to decarbonize the economy whilst the economy grew not at in the same pace but that's not necessarily because of DTS is because of a bunch of other structural things. >> Okay. >> It's an old geography.

>> So uh just for fun then what do you think [clears throat] what is what is your take on the future of carbon markets? >> I think they would die. [laughter] >> I don't see a point in I I I never saw a point in carbon markets. I think it's a um yeah I don't I don't think it's I don't

think he makes sense. >> Got it. Hey well that allow >> mostly because of this idea it's a global pollutant unless you have a global entity that can regulate and then people going to say oh but you have the voluntary carbon markets they're terrible because you have so much noise in there. uh most of the products in the

volunteer carbon monox in terms of volume are coming from naturebased products or restoration based projects where you can't assure you can't assure additionality you can't assure permanence and if you don't have additionality you don't have permanence in those carbon credits >> not really solving the problem right >> okay claims >> so so I so I appreciate that just out of

you know curiosity so so then um well shifting a little bit I just wanted to uh I just want to talk about your perspective. >> Uh I I love this conversation like the macro conversation around markets and like how you know how to create them and and and how to operate in them. And so I

if if this is a lens that you take to help make investment decisions, what what is it that uh and you can use a specific example if you'd like, but I'm just curious if there's a founder out there and they're talking about >> um you know, I need to go raise capital.

Let's say they're they're based in Europe or something. I I think it's it's extremely useful to look at it through this lens and say, what is a huge picture of where of within which I'm operating? But how else would you um like what else would you say to a a a climate tech founder as far as thinking

about a capital stack that that they that they should that they should use to to fund their company and at different stages. >> I think that one of the issues that uh we have today is there's a really big activity in terms of trying to translate research uh into into into products that

can go to the market. But I think that like anything with climate change, you have to understand the system you're trying to plug into. It's a system that today is um it's the energy system and it's wholly dependent on on fossil fuels. It's not the absurd discussion you see online of people that don't

understand thermodynamics that like oh it's 80%. It's not. It's not because we have a dependency that is larger than 80%. Today on fossil fuels that basically you need the same amount of energy because you have gains in efficiency with electrification. Think of a heat pump. If you're heating your house today with a a a diesel or or or

or gas boiler and you bring a heat pump, even if you're still burning ga burning gas at a at a PA plant, bring it to your home and using a heat pump and you allow the heat pump to operate inefficiently with a COP of one, you're still more efficient than burning gas at your

house. It might not be the same cost because energy markets are regulated in a wonky way. So the direct cost of burning gas at your house might be still lower than the electricity, but from an system efficiency perspective, electrification will beat burning fossil fuels always. It's always more efficient for you to use electrified system. It

can be more expensive, but it's always more efficient to use electricity. >> Okay. >> So I think that the problem that we have today is a system that is wholly dependent on fossil fuels and it's a big system.

It's the energy systems. We have petrochemical plants. We have few like fuel distilleries. We have petrol stations. We have internal combustion engines everywhere. We have gas boilers everywhere. We have pipelines that distribute fossil gas. So the systems are built and these are big bulky infra.

This is built by big bulky infrastructure. It's going to take a long time for you to cycle through the the the investment and divestment cycles of allowing asset to become avoiding that asset becomes trended and slowly shifting capex and opex towards different things or taking the cost a massive cost of building the new

infrastructure whilst your existing infrastructure is still well into this the the the the years where it's where it operates. So I think that you combine all these things and I think that one of the issues that we have with with with climate tech is that you look at the system and you think like there's a

press emergency we need to solve climate change and then you ignore the fact that this system is incredibly complex and it's going to take a long time for you to basically shift this complexity and rearrange this complexity to allow new technologies to come into the market. On the back of it, you also have

to understand something undeniable is that this system has been allowed to basically persevere in a non-competitive market, which for me is an insult to capitalism >> because you have very few energy companies and the big energy companies are actually state-owned energy companies.

>> Mhm. >> That sort of IPOed but still controlled by the state from Petro Brazil, Brazil all the way to Ranco. If you think of the oil companies in the US, they're big enough to exert sufficient power against the government. So that you can understand that they don't operate necessarily in a highly competitive

environment. >> And because they have this non-competitive pressure in the population, they've been allowed to extract and do rent from all of us. >> Okay. for decades, for 40 years, which means that they have lobbying capacity and lobbying power to also make a pix of the discussion and delay the decision to phase them out.

>> And this is everywhere like and this this just to to illustrate one point. >> Yeah. the UK went through a small scandal where the the the the industry association that owns the gas pipelines in the UK um purposely misled the public with a slander campaign against heat pumps because if heat pumps become a

thing their their assets are stranded >> immediately stand stranded because you can electrify your stove top your stove and your oven and you can electrify your heating no need for you to consume gas anymore. So they've actively this like elilluded the public and kind of like lambasted heat pumps.

>> So So how how have you seen uh founders be successful within this uh this >> when they are when they're ultra pragmatic. You have to be pragmatic. You have to be transparent. You have to talk to your investor and say like look you're investing me my my my technology will slowly mature and it's going to

take 20 25 years for it to actually go into the market. is going to be always like small scale deployments until the this complex system is ready for me to deploy at scale. So it's going to take a long time or something also complicated which is once I mature you're gonna have to accept the fact

that I'm going to shift from this nice tech company to a tech plus project company which means that the profile shifts from this venture tech approach to well actually I need a lot of infrastructure type of capital because when I grow when I deploy I actually need to plug myself into infrastructure-like investments which

means that your return profile might be slightly different from where you came in. So if you came in selling yourself as a tech company and on the hype of a tech company, you might be um convincing yourself and your investors that you will exit with tech multiples whilst you actually grow into um an infrastructure

type >> company or an OEM business that commands different returns. So I think that there's this element as well of >> founders not being fully keed in investors not fully understanding the thing and then you have these mixed bag of results and then climate tech is a bad investment right now. Climate tech

is not a bad investment. It just it just potentially takes a bit while longer than you expect. >> Yeah. and it doesn't necessarily mature into the type of returns that you're expecting because it matures more in these project type uh uh companies with heavy capex etc etc >> then >> like pure tech.

>> Yeah. Yeah. Yeah. So um what other so if we're talking about first of all that's a that's a that's a great point I think from an investor standpoint um and and just a a critique on on the the environment as a whole. What what would you say about I think VC funding gets a

lot of press, you know, because of like Silicon Valley and then like tech and SAS and all this stuff, >> but it's not it's it's actually a very small portion of the type of investments that um that founders can get. So from from your perspective, if there is a founder out there and they have uh a

company that that they're developing in one of these types of really complex deep tech areas, what other types of financial vehicles should they be thinking about or acquiring? I I think it's important for them to understand um beyond the VC who's downstream from the VC because then you can get a a war

perspective of you got a lot of capital from a VC that expected to have tech returns and they really understand that your company matures into an infrastructure type of of company or an OEM. So it's an exciting business and it does deliver returns and it's important for you to have them in your portfolio

but it's not what you came in. So then becomes the the the challenge between founder and investor that the founder wants to keep the company alive and is not necessarily expecting to have tech-like returns but your investor came in expecting techike returns and then you have this stress between the the the the the two sides. I think it's

important for the the the founders to understand what is the future trajectory of their company for them to own this information for them to be honest with themselves and with the investors saying like well if you're coming in with expecting these multiples just I know that you want to do it but that's not

where we're going to mature into. So understanding a bit more the distant future of of of of of your company and how you can help yourself and help your investors have a more honest discussion which I think was it's it's kind of challenging when do you have a lot of hype and we did have a lot of

hype after co >> not just from governments basically throwing a lot of money and then interest rates being very low so the cost of capital was very low as well >> so understanding also that things change in the in the near future and I mean I come from to a place where the cost of

capital has always been gigantic. Brazil is very expensive for entrepreneurs. Cost of capital is very high because we have have very high interest rates to kind of combat inflation blah blah blah doesn't matter. But the cost of capital is always very high. So whoever whoever is building something in Brazil is keenly aware of that. I think that

because the cost of capital was so low in the 2020s and 2019 2020 2021 we didn't really factor that in. So a lot of startups came in and came in hot with a lot of money but with insane valuations and then immediately after you have a flat round or you have a down

round and that kind of bums out your initial investors. the founders kind of like uh no one is happy and then as the company reaches either the technology reaches that maturity scale the value of DAFF of of innovation between TL 4 and six either they reach that and the technology kind of starts uh uh tapering

off and doesn't really deliver what you expect or you're actually successful but then your scale means that you're not selling a consumer product that is repeated and you sell like a million you're selling a piece of infrastructure, a massive kit that has to be built on the balance of plant and it has to be sold. And then

once you you're building it, you actually go through have to go through licensing and permitting because even though it's a module within um an industrial site, it's a module that consumes a lot more electricity >> or you're coming in with an approach to to a particular system that has never been deployed at scale, which means that

one of your components, one of the critical components of the system you're trying to tackle is not warranted to operate in the conditions that you offer. Which means that even even if you have the best technology out there, no one is going to buy it because one of your key component suppliers simply doesn't offer any warranty and

you're not going to take that risk. >> Right. >> Yeah. >> And this is across the board. There's so many cool technologies that and founders that fail to understand the system they're engaging with. >> Yeah. Yeah. Yeah. Yeah. And if the system is not ready, you're going to have to >> force the system to get ready. And that

might either take a lot of time or take an exorbitant amount of capital and if it takes too much time, your investor is not going to wait around. And if it takes an exorbitant amount of capital, it's not available unfortunately. I wish it was because then we could transform transform society. Not >> there. Okay. So, [clears throat] so, so,

so two two final questions for you. One specifically based on that. So, I think you make two great points as far as what you're looking for from a founder when they're coming uh to raise investments. First thing, and they're related, but the first thing is the amount of honesty that they have about what kind of

company they're building and what investors can expect. And that's tied to the depth of understanding that they have not only about the system that they're that they're looking to grow into, but uh the type of company that they based on that system can become. So uh outside of these two things, are there any other things that you that you

look for in a uh in a in a company or founder relationship before you make the investment? I I think that a good a good grasp point on on your ability to manage things um and and and the team you surround yourself with because I think that something that VCs do really well. We do growth so or just

mature VC so right after what the VCs did with the company. Um I think it's it's impressive to see that sometimes these elements of of the managerial capabilities of the founding team are not really considered as a factor and also the team that they built. So you might have a a great manager that

actually hired a a CFO that is his friend or his buddy and the CFO is up and then the company is kind of a mess or the other way around. You have a great team with a founder that's incapable of of really stepping up. So I think these elements of understanding the capabilities of the founders and

this is where I think honesty and understanding of the founders have to understand their own capabilities cuz sometimes you're a great founder and you're the best CEO up until the company reaches B or up until the company is actually about to enter the growth stage. At that time you need to take a

step back allow professional CEO to come in or somebody with way more experience to come in and drive the company forward. Pay him well. remunerate him appropriately and rest assured that you will be part of the company either in the board or you will be a CTO or something. So you'll be part of the

company. You're no longer the one driving the thing because driving the thing the company in this new terrain at this scale. So it's no longer a beetle driving a very safe road. Now you're talking about uh uh a lorry driving through unpaved roads >> because that's the the next challenge that we have that you're going to have

as a company. So having visibility on that and also having an understanding that >> your team will also have to go through those those challenges. The founding the the founders the founding team and initial setup might not necessarily be the best team for a company that is moving from a plucky startup into more

of an institution. Yeah, >> with governance with heavy-handed governance that you're going to have because the four the closer you get to an IPO granted the IPO market is kind of going AWOL now with some uh prospectives coming out with companies that are not necessarily fully mature um very large companies are not

necessarily fully mature >> but as you get closer and closer you need to be submitted to scrutiny that you're not expected you as a startup >> right >> so the initial team might not be the team to take the company across the board from to the CFO to the the CEO to the CTO. Everybody might there you need

to have this understanding that >> I took the company from A to D. >> I'm going to need somebody else to take it from B to I don't know F >> and then immediately afterwards because from F4 onwards >> it's a it's a listed company then it's definitely not for anyone that did this.

It's a separate thing and everybody benefits from the company growing. >> Right. Right. Right. So having this understanding as an investor learning that eventually you might have to convince the founder to let go of your baby and let it grow into the world but also the founder themselves >> to have the sensibility of like I will

take this thing until >> that point and from then onward somebody else needs to take over because >> I do not like bureaucracy. I don't want to have an HR pestering me. >> Yeah. Yeah. Yeah. >> About protocol and blah blah. So good.

>> I think I think those those those three things are really powerful. It's the and they're interrelated. The honesty, the the deep understanding of the system that you're growing into and then the capabilities of the team at uh at the different stages of growth. So we're we're we're we're coming up on this time

here and I want to leave you a few minutes, but I have the last question and it's uh with all the stuff that you're doing uh the you know the work that you're doing in the space, everything you're facing, what inspires you?

Ah, just the the the the I'm always I'm always impressed with human ingenuity. Um, we can still create incredible things. Um, I prefer to bank on that. I'm impressed by human ingenuity. I don't trust humans. I know that we as a collective, we're not that nice. Uh, we can elect monsters to to to govern us. We can uh

slip into the darkest sides of our of of of of our behavior as a species, but we're also capable of glorious things from art all the way to tech and innovation. And if you look at the stuff that's coming out in terms of innovation, I mean it's it's it's it gives me a lot of hope and and

whenever we pull our resources to push forward um I prefer pulling our resources to push forward in a democratic and free and open society and you can see breakthroughs like um fusion fusion seems to be finally almost there happening quantum computing and we're exposed to quantum computing invested in quantum computing. It's fascinating to

see how fast we're getting closer and closer to a level of of of of quantum computing capabilities that would unlock a lot of things, >> a lot of innovation. So that for me is super exciting. I prefer to operate in that. But I do also pay respect to the centrally controlled less democratic

approach, not to say something else that you have in China. They basically amassed I don't know almost 100,000 people to develop batteries. This is why we have EVs today cuz >> they didn't invent the technology, >> but they did take it to the next level and because they're like, "Oh, they're just repeating. They're not they're not

they have >> I don't know 100,000 or nearly 100,000 people working with batteries. I mean, you look at the battery companies by CL, they have more people working with this thing than anywhere else in the world." So you you I think we have to respect uh that approach to like >> very cool.

>> It's like hacking. You can be very smart on hacking or you can just do a brute force approach to it. >> If you have enough resources or if you have a quantum computer, you can brute force through anything. China's brute forcing in a very smart way and getting to a point where they don't need to

brute force anymore or they don't need to copy anything. they actually innovate and they've been innovating and we have um what's the final point if California and Texas both very different states in the US are now deploying grids scale battery and getting to a point where they might actually tip the balance in terms of

who's contributing to electricity and being a lot more they're having a lot more renewable penetration because a battery a grid scale battery bank can out compete a gas pickup plant both of doing that they are doing it because China brute forced its way >> through solar and through batteries and now the cost of solar and batteries is

compared to what it was two years ago. >> Well, that's very inspiring. I'm also inspired by that. Don't trust humans, but I'm very inspired by ingenuity. [laughter] It's great. >> Yeah. No, no, don't trust don't trust collective, but trust individual.

>> Got it. Well, Sergio, this has been an awesome conversation. Thank you so much. Um I look forward to the next one. All right. It's a pleasure, Blake. >> Right.