#188 Jonathan Crowder, Partner at Intelis Capital

Jonathan Crowder is a founding partner of Intelis Capital and a member of its investment committee. Jonathan serves in all aspects of the firm’s operations, with a particular focus on developing investment theses, creation of internal processes and systems, sourcing potential investments, providing operational and strategic support to portfolio companies.

Listen wherever you get your podcasts.

Bigger Than Us #188

This transcript has been lightly edited.

Host Raj Daniels 00:05

Today I’d like to welcome back my personal favorite venture capitalist. Jonathan Crowder to the show. Jonathan, how are you doing today?

Jonathan Crowder 00:13

I’m doing very well. I mean, with an introduction like that, how could I not be? And let me just kick off by saying that this is a real privilege for me; you know that I cherish our conversations every time we get the opportunity to catch up, and, and I’m sure this will be no different.

Host Raj Daniels 00:28

Well, you know, you and I go back, I look at the time now it’s been six, seven years, when you first landed in Dallas, I believe, 15, 16. And you know, the work I’ve seen you do and the integrity I’ve seen you aligned with. Anytime that I have a question about the industry, you’re the person I turn to. So I really appreciate you taking the time to come back on again.

Jonathan Crowder 00:47

It’s my pleasure.

Host Raj Daniels 00:48

So I’d like to start with a very broad macro question. Specifically in climate, you know, we’ve seen a lot of activity in climate in the venture industry in 2021, 2022. What do you think, as we said, state of the market, what happened in 2021? Let’s start with that.

Jonathan Crowder 01:07

That’s the potentially trillion dollar question, isn’t it?

Host Raj Daniels 01:11

That’s what I’m hearing what John Doerr said, apparently.

Jonathan Crowder 01:13

I don’t think that he is mistaken. Maybe, let me set a little background context with the listeners who may not have heard our prior conversation. I think it probably is useful to start with a summary of what Intelis’s capital does, what I do. And then I can kind of dive into the the current state of the market, because I think that’ll help should get give people a sense of where my perspective comes from. 

At Intelis, we invest in the world’s most ambitious teams leveraging technology to accelerate the energy transition. And in particular, we’re focusing on technology that accelerates six, what we think of as durable mega trends. And that’s the growth of wind, solar and storage, the electrification of transport, clean energy procurement, deployment of infrastructure, improving grid resiliency, and empowering frontline industrial workforces. And we like to partner at the earliest stages, before it’s obvious, and support entrepreneurs as they go from raising their their seed or series A to a whole alphabet of dollars. 

And so kind of within that context, that’s my lens into this world. And as for the current state of this market, it is I think it goes almost without saying at this point to anyone who has listened to more than one episode of Bigger Than Us, but it’s incredibly vibrant. So in 2021, pretty staggering figure, $920 billion was deployed into the energy transition in 2021 alone. Anytime that you’re seeing numbers that are approaching a trillion dollars, it’s kind of staggering. 

So just to break that down a little bit. That’s $755 billion allocated to what, for the purposes of this conversation, we’ll call energy transition investment — which, by the way, that number has increased three and a half times since just 2013. And this bucket represents mostly deployments of technologies. So renewable energy, electrified transport, and the affiliated infrastructure, sustainable materials, energy storage, things of that nature, but typically excludes capital invested directly into companies. 

And I think it’s really important to note that we’re now seeing global growth in the energy transition. So 2021 represented new sector investment records in every region, including America, which grew 17%, year over year, to 114 billion. But for the purposes of our discussion — and certainly it’s my lens on the world, it’s really about climate tech. So in 2021, 165 billion was allocated to climate tech investments. 

According to PwC, it’s roughly 14 cents of every venture dollar now. And that’s largely 82%, toward energy, which was 68 billion and transportation and mobility, which is 67 billion. These are, again, just staggering numbers over 200% year over year growth. And I think in the more general sense of this of the state of the market, it’s not just about the capital capital that has been allocated, it’s about the capital that will be allocated. And there have been a huge number of funds raised explicitly targeting impact or climate tech as part of their mandate. So there’s a significant amount of dry powder that’s still waiting to be allocated. 

And in my opinion, it’s probably the most exciting time that I’ve seen so far to be focused on these sectors. But I also realized that the rapid growth here probably begs the question for some people about whether or not we’re in a climate tech bubble.

Host Raj Daniels 04:46

Do you think we are?

Jonathan Crowder 04:47

Well, that’s a — I think there’s some nuance to the answer there. So maybe it helps to signpost a little bit here. So let me let me turn on part of this question on you, Raj. We’ve known each other long enough that I know you have a real estate background. So I think you can probably speak to this a little bit. How do you define a bubble?

Host Raj Daniels 05:05

I think, if I left this conversation, and my neighbor tells me that he or she is buying property in the local area, and they’ve never bought anything before, I think we’re in a bubble. When I used to work with real estate investors in the past, or people that would want to get into real estate investing, I would actually give them a project. I would ask them to log on to Craigslist, buy any item and resell it. And because I would say to them, “Look, you’re gonna invest $100,000, $200,000 into investment property, if you don’t have the wherewithal to do that, I doubt you’re gonna make a real estate investment.” And so, when I step out of these conversations, like I said, this echo chamber with people like you, and someone tells me, “Hey, I’m making an investment into this company that I know nothing about, technology I know nothing about.” That’s when I kind of feel like we’re approaching a bubble.

Jonathan Crowder 05:50

I agree with you completely. When I think about bubble, or what a bubble is, I think there are really two important components. One of them is rapid escalation of market value, particularly the price of assets, and then followed by rapid decrease in value. And, and I kind of come back to this term, or this turn of phrase that I’ve heard like, okay, so what are the what are the specific signals of a bubble in VC? 

And I love the way that storyteller extraordinare, Chris Douvos, of Super LP fame, that he says it, which is, “VC works well, when capital is expensive and time is cheap, and poorly when time is expensive and capital is cheap.” And so I think back on my conversations with other VCs over the last couple of years, and I think there’s a pretty clear trend. So when I would catch up with firms that we regularly co-invest with, or stay in close contact with in 2019, valuation levels were not a frequent or important facet of those conversations. Occasionally, we would have some discussion about a particular company, but general valuation levels, particularly for firms that were focused on the earlier stages, were just not a regular conversation topic. 

Now in 2020, valuations were a major discussion point, maybe half the time. But by 2021, Raj, virtually every conversation I had with another VC in or around our target markets included at least some discussion about valuations. And nearly everyone with a Series A or later stage focus would share stories about losing investment opportunities by being outbid on valuation. And I will say, I think generally, sector focused firms like us that have a strong value proposition for entrepreneurs beyond just capital investment have probably been a little more insulated from that dynamic, but it’s still on most of the investors I know’s minds. 

And so zooming out, where does that leave us? I think most reasonable people agree that we’re not at the end of this opportunity. Are we at the beginning of the end? I think probably not. If anything, I think we’re at the end of the beginning, maybe, and that many of the technologies that are being deployed into these sectors are well understood. They have superior unit economics, or offer superior business models than their predecessors. And and they’re solving and this is a really key point, they’re solving key challenges for the biggest incumbents in many of humanity’s most important industries. But if I want to think tactically, like I think there’s a bull case and a bear case here and so the the bear case is that some climate tech companies are going to fail to deliver on customer and investor expectations. 

As a result, market valuations are outrageous, and they’ll come hurdling back down to earth, and that will damage the sector. And probably the other important systemic risk in the short to medium term is dislocations due to supply chain constraints and limited access to critical minerals. And yeah, I think it probably goes without saying, there are a number of pure digital solutions in these sectors. 

Personally, I’m extremely optimistic about the opportunity for software to make a positive impact, but a lot of companies are either reliant on hardware or sell to customer segments that are and so there’s risks on that side. You know, the other side of the coin is the bull case. So, first and foremost, I think it’s the most important thing thing to note here is that the growth hasn’t occurred proportionally across all stages. So from 2020 to 2021, the average climate tech deal size increased, quadrupled to $96 million. But the number of seed and series A investments in those sectors has been essentially flat since 2018. So I think it’s that there’s clearly a significant amount of capital that recognizes the scale of these opportunities and is motivated to accelerate growth. But in my opinion, the early stage market is still radically underserved. It’s one of the reasons we’re so focused on those stages at Intelis. 

And I guess maybe my second point on the bull case would be — and this is every bit as important — is that the opportunity, the customer opportunity is real and massive. You’re solving real corporate problems. These sectors are now backed by not just rising tides of consumer sentiment, although that’s certainly been a meaningful lever over the last couple of years, but by government policy, like the recent passing of the IIJA, and I think most importantly, from my perspective, they’re offering superior economics for their customers. It’s no longer a case of trading value for values. And, and I think that conventional wisdom is, if you’re in the best companies, and the market opportunity is big enough, everything else works itself out. 

And so when I try to think about how fast are these industries changing, how fast is the transition, I actually like to go back to the year, strangely enough, 1935. So 1935 is the year that the Hoover Dam was dedicated by FDR. 10,000 people showed up to hear his speech about it. And it was an incredible achievement. It was one of the largest pieces of infrastructure ever developed, over 700 feet tall, one of the largest concrete structures in the world at that time. If we fast forward to 2021, when we deployed 290 gigawatts of new renewable energy generation capacity globally. That’s the equivalent of 150 Hoover Dams in a single year, which is staggering. And you zoom out even a little further and you think about numbers. 

For instance, there was a recent McKinsey report that suggested that in order to reach net zero targets, by mid century, we would need to allocate 276 trillion, with a T, dollars. Or you could another way to phrase it is the quarter quadrillion dollar problem. I’m not aware of many markets that that have — maybe these days, there are a number of markets that are that are a trillion dollar markets. I don’t know how many markets there are where you speak in fractions of a quadrillion. So you know, it’s an incredibly massive market. Energy, obviously, is key to human thriving globally. And we still see some some important gaps. So I think in the short term, there will be some companies that failed to meet expectations, but on the whole, I’m incredibly bullish on the space.

Host Raj Daniels 12:38

So I think the third point that you mentioned is the one that resonates with me the strongest. So in the 2000s. I didn’t know I needed, let’s call it, I don’t know, Facebook, Twitter, it wasn’t a structural issue. It was something a nice to have, perhaps. But this, I think, is a pull market, like you mentioned, globally, as different countries move towards reaching their net zero goals. This is what’s going to continue to drive. So I do like the way you phrased this the beginning, perhaps the beginning of the end, is that what you said?

Jonathan Crowder 13:09

The end of the beginning.

Host Raj Daniels 13:10

The end of the beginning? Yes, I do like that. And I agree with you. And that third point specifically regarding being structural. Switching gears a little bit here, you said Intelis was a value proposition firm, which is what I love about you and the company. But let’s go to tactical questions. When founders are looking to perhaps investment from a VC firm. What questions do you think they should be asking of the firm?

Jonathan Crowder 13:38

It’s a great question. I think there are really a couple of lenses through which to look at this. The first is actually why am I seeking venture capital in the first place? What is venture capital good for? And I think that my job, essentially, is to sell dollars to entrepreneurs in some sense, and then help them grow their businesses. But it’s my opinion that venture capital is not right for all business models. It’s great when there are inherent network effects in your business, or it’s a winner-take-all or winner-take-most market, and there are significant and accelerating advantages for reaching scale quickly. But it’s certainly not the case for for all businesses. 

My first caveat will be, I think entrepreneurs should think really carefully about why it is that they want to partner with a venture firm. But once they’ve made the decision that they do want to partner with a venture firm or with a venture investor, I really think that entrepreneurs, particularly early-stage entrepreneurs should be looking for for two things and those are alignment and added value. 

On the alignment piece, it’s really what are the incentives at play here? So I have one job. My job is to deliver returns for our investors, and I’m one of our investors. And so I have very meaningful personal commitment to that. And so you know, like I’m eating my own cooking, and the only way that I deliver returns for our investors is to make good investment decisions, and then help those entrepreneurs grow their business, I don’t have any other incentives, I don’t have any other partnerships. That’s the only thing I care about is helping those entrepreneurs deploy their product into market. 

On the added value piece, the question for me is always, what incremental value can we offer an entrepreneur that would be difficult to replicate with a marginal dollar of capital invested? So do we have some proprietary information or expertise, thanks to our quite constrained sector focus, by having gone incredibly deep researching some of these verticals? And knowing many of the most important customers? Is it that we understand what the sales cycles look like for some of those customers? And so we can help with building sales collateral, or developing financial models that support the growth of the business? Is it that we have a exceptional network of talent who is incredibly excited to be working on the energy transition? And so we can help identify some of the top engineering or product or sales talent? For me it’s really a question of those things is, how can we do something for the entrepreneur? Because it’s a service business? I serve entrepreneurs, that’s my job. 

So how can I serve entrepreneurs in a way that is that is differentiated and adds real quantifiable value? And and I think that the soft skills are important, too. I had a conversation with an entrepreneur earlier this week, who is trying to figure out a strategic question around how they want to move forward in their business. And hopefully, they would tell you, I gave them good advice. And it’s a tremendous privilege to get phone calls like that. But that’s only half the job. And the other half of the job is assigning KPIs. 

So if you tell me that you’re going to hire a VP of engineering, I want to at the end of that quarter, say, “I sent you three qualified VP of engineering candidates. Hire who you want, it’s your business, not mine. But we, in some quantifiable way, made a difference for you.” And that’s the thing that I think entrepreneurs should really care about. And it’s how they should decide what venture firms they want to partner with. Because my dollar spends the same as everyone else’s. And so it’s really a question of, What can we do beyond just the capital invested?

Host Raj Daniels 17:43

What does the conversation look like when you’re trying to convey to a founder that they should not be seeking venture funding?

Jonathan Crowder 17:51

It’s probably unexpected, for the most part being is that I’m in the business of deploying venture funding. I’ll tell a little bit of a personal anecdote here, actually. And it probably comes back to why I’m in business in the first place. I didn’t realize this explicitly until the middle of last year, but my father was a software entrepreneur. He built what I think was a really incredible business for his time. And I saw the entrepreneurial struggle when I was growing up. And I’m grateful to, you know, not just calling my dad, but, but also, you know, a friend and a business partner now. 

But I think to some extent, it was the experience of watching him go through that, that made me want to help entrepreneurs so much. And so I really genuinely care about the outcome of their business. And I think I would be doing entrepreneurs a disservice if I invested capital that I didn’t think could be efficiently deployed. I think I’d be doing them a disservice. And also, I think I would be doing our investors a disservice. And that, generally speaking, businesses that shouldn’t take venture capital won’t grow as effectively with that incremental capital. 

And so ultimately, I think that would be a less efficient capital allocation for for all parties involved. I try to be forthright about that, I’ll say that most of the opportunities we see are a great fit for venture capital. Unfortunately, it’s the nature of the business, we still say no, 99% of the time. But I hope that everyone ends up being successful, even though we only get to invest in a small percentage of those opportunities.

Host Raj Daniels 19:36

So once you do invest in an opportunity — you have multiple companies in your portfolio. How do you allocate time? You mentioned the example with the engineers for the KPIs meet a quarter on a quarterly basis, perhaps you hire who you want, but how do you manage multiple companies within the portfolio?

Jonathan Crowder 19:56

Well, it’s a tremendous amount of time; I don’t sleep a lot. That’s the first thing thing, I think the most important thing that we have to remember is we don’t run those companies. Today we have a we have a portfolio of 10 companies that we’ve announced. And ultimately there are 10 founders or co-founders who run those businesses day to day. And the the way in which we engage varies a little bit based off of the stage that that company is at, the particular day to day, week to week, month to month tactical needs of that particular business, and where we can be most helpful and where it’s most urgent, where we’re most needed. 

I think that we offer a couple of things that are quite useful on a regular basis; we certainly help in terms of business development, and sales, connecting these companies with prospective customers is one of those things and often that effort comes out of conversations that we have on a weekly, monthly, quarterly basis, depending on the company, around “What are you working on? What’s hard?” And for me, that’s really the question is, what’s hard? What’s keeping you up at night right now? Because the thing that I want to spend most of my effort on is the areas where it’s highest leverage for the entrepreneur. And that’s usually around the things that they say, “This is a hard problem, or this is an important problem.” 

And moving the needle on that is really meaningful to me. And so if they say, “I’m looking to break into this new market segment,” then it’s a question of, okay, who do we have in our network that’s in that market segment that could be an internal champion at one of the biggest potential customers here? And so it varies a little bit. I also will say, I think that we have a macro perspective that is quite useful. We see well over 500, 600 opportunities per year. I speak to literally hundreds of entrepreneurs every year. And we have a portfolio of companies today that are performing incredibly well. 

And so it’s often the case that we can take things that are best practices for one of those companies, and help another one of our portfolio companies deploy a similar practice, particularly in that many of them are serving similar customer segments. I think that’s one of the benefits of being a sector focused firm. And so I think that pattern matching offers us really useful perspective. But at the end of the day, the entrepreneur will or should always know about more about their business and more about their market than than we will and the rare occasions where where we disagree about what the right thing to do, I think we have the humility to recognize that usually the entrepreneur is going to be right.

Host Raj Daniels 22:44

Do you have an identified reporting cadence with your portfolio companies?

Jonathan Crowder 22:49

Yes, but it varies. It varies across company, and it varies across time. So there are there are entrepreneurs in our portfolio today that I speak to on at least a weekly interval. And in some cases, I’m active in their internal Slack channels. And so you know, I have a pretty deep view into the operations of those businesses. And then there are other there are other portfolio entrepreneurs that we have a regular every four to six weeks touch base. 

But it really varies again, it’s really based on what stage are they at? What do they need most? Where can we be most helpful? And for me, the rubric is, I would like to be as hands-on as you want me to be, but not more. And so there is probably some level of engagement at which there would be diminishing marginal returns. And so I want to go right up to that point. But ultimately, where additional engagement with me is no longer offering additional value to the founder, that’s where I think we need to step back. But generally speaking, you know, we try to be really, really deeply involved with these businesses, because we think of them as as partnerships. And, you know, maybe, optimistically, I like to think of myself and our team as a member of their team. And so that can manifest itself in ways that are both big and small.

Host Raj Daniels 24:17

And you mentioned, you asked the founders, what’s keeping you up at night? So I’m going to ask you the question, what’s keeping you up at night?

Jonathan Crowder 24:24

Well, maybe the pithy answer would be the same things that keep our founders up at night. For me, it’s a double edge. There’s probably two pieces here. One is there is so much excitement around the sectors that we are investing in right now. And there’s so much momentum that it’s easy to develop FOMO. But intentionally we have structured our investment process and the firm to resist those forces. 

So I sometimes wonder if we’re moving quickly enough. One of the thought experiments that I’m looking forward to exploring in five years time when we look back is, will the mistakes that we made — and we will make mistakes; that’s inevitable in in any pursuit that’s challenging — will the mistakes that we made be mistakes of omission or commission? And I’m comfortable with the posture that we’ve taken on that today, which is, we have these six trends that we try to really go incredibly — build some deep, institutional, intellectual capital around and be quite thoughtful around what types of opportunities are fit for us. 

And largely, that’s driven by, do we have the intellectual capital, and do we have the relationships to be great partners for the entrepreneurs? But there’s so much excitement, there’s so much momentum, and there’s so much capital flowing into these industries. And so it is hard to look away when when you see some of those opportunities. And I’m proud of the fact that we’ve been incredibly diligent in sticking to our knitting on that. But that’s probably one of the things that keeps me up at night. The other is — and this is incredibly exciting — the competitive dynamic for many of these companies, is becoming more and more vibrant. There are a lot of companies in some of these verticals. 

And so it’s making sure that we partner with the entrepreneurs that we think have the best approach to a market opportunity, and then helping them out-execute their competitors, you know, at the end of the day, those are the two sides of my job is partnering with the best entrepreneurs, the most ambitious teams accelerating the energy transition, and then helping them do just that.

Host Raj Daniels 26:33

So earlier in the conversation, you mentioned the durable mega trends. And then you mentioned sectors and trends, again, just now. Are there any particular trends or technologies that are of great interest to you right now?

Jonathan Crowder 26:45

So maybe this is a slightly unusual take: I don’t think of it as much through the lens of particular technologies in the sense that we are really focused on business challenges. And so if I zoom out to that macro level you mentioned or that I mentioned, the trends. If we say to ourselves, in 2030, we believe that there will be significantly more wind and solar generation and energy storage on the grid than there is today. 

Or that in the year 2030, there will be a dramatically higher number of electric vehicles than there are today. What has to happen, what will be the challenges, both tactical and strategic, for the biggest stakeholders across the energy value chain, if those things are true? So in the case of electrification of transport, it’s changing demand patterns, and its deployment of new charging infrastructure. And there are a number of sort of sub-challenges within that. And so my perspective is mostly anchored to not so much particular technologies, although I will say we tend to invest in what we perceive to be relatively well-understood, well-proven technologies that are now being applied to these verticals. 

And those are things like machine learning, and specific sub-verticals of that machine vision, IoT, because you’re looking at the reduction of in size and cost of sensor technologies. There’s a variety of technologies that have been really well-proven in other verticals that are now being applied to an increasingly digitized energy value chain. And so those are kind of the the primary technologies, the primary sorts of technologies that we’re excited about, but from my perspective, at the earliest stages, we’re spending a huge amount of time validating the market opportunity, like the opportunity quality and the team quality. And to some extent, I think those are the things that are more knowable at the early stages. 

When I think on what would be the cardinal sins for us to commit, one of them would be investing in a company that was building a product for a market that turned out not to exist, that the whole point, in my view, of being a sector-focused firm, is to have an incredibly deep, deep knowledge on what are the challenges that that sector is likely to experience? And I don’t have the hubris to believe we won’t make mistakes, I’m sure that we will make mistakes. 

So far the signs are quite encouraging. And I’m incredibly excited about the the existing state of the portfolio, but I also am approaching this with clear eyes and know that we will certainly make mistakes over the course of the years to come. But one of the mistakes that I feel like we’re not allowed to make is failing to accurately validate whether or not a market exists for this. Is there a really large set of corporates that are meaningful stakeholders across the energy value chain that we know for sure are having conversations about this problem in the C-suite? 

If the answer sort of that is yes, then what is the best approach to that problem? And how can we leverage technology to solve it? And those are the things that excite us. And technology is a byproduct of the corporate problem that’s meant to be solved.

Host Raj Daniels 30:11

I think the corporate problem is a great place to go to the next question. You and I had a conversation, I think, Q4 of last year. And one of the things you drew my attention to one of the trends is clean energy procurement. And it’s been percolating in my mind since we spoke about it. But can you speak about the clean energy procurement trend that you’re looking at?

Jonathan Crowder 30:32

Absolutely. So I guess there’s a couple of facets here. And it probably makes sense to first speak about what a PPA is. So a PPA is a financial instrument. It’s a power purchase agreement. And it enables a buyer of energy to purchase power on a given negotiated set of terms, often fixed over some duration from a generation project, or a portfolio of projects. So when we speak about corporate renewable procurements, we’re mostly speaking about PPAs. And corporate renewable procurements hit a record in 2021. 

So new global PPA capacity, topped 31 gigawatts in 2021. And I think roughly, if memory serves, roughly 65% of that occurred in the US. Clean energy contracts were announced by tickets over 130 corporations in 32 different countries. And the signed volumes here were equivalent to more than 10% of the renewable energy capacity that we added globally in 2021. So the thing that has been really interesting is, in my view, a few fold. One is I think corporates have seen that PPAs are an effective mechanism to do a couple of things. One is, of course, to reduce their emission footprint, a number of PPAs are with renewable generation projects like wind and solar. 

And for corporations, like many of the big tech companies, Amazon, Microsoft, Meta, that these are meaningful levers to decarbonize their electricity supply. And that’s very powerful. But I think the other side of the coin here is that it’s also a mechanism by which they can stabilize input costs for for certain goods, whether you’re a tech company and you own data centers, or you’re an industrial manufacturing company. Electricity is a important cost of goods for many of the world’s largest corporations. 

And in light of the volatility of markets over the last 2, 3, 5 years, particularly I think, demonstrated by the price volatility in Europe thanks to natural gas last year, I think that more and more corporates are seeing the opportunity and becoming increasingly sophisticated buyers of energy. They’re engaging with this in a more meaningful way because some of these contracts are quite complex. The third piece here — and this is the thing that I think I find so interesting — is that we spent much of the middle of last year really focused on PPAs, PPA marketplaces, the project development lifecycle, because also PPAs offer — you’ll be more familiar with this than than I will, in many respects, thanks to your role at Nexus PMG — but it’s an off taker agreement for project developers. And so it’s incredibly important to make a project bankable. And I think something that was interesting that we started hearing when we would have come conversations with corporates last year was many of them said, “We now want to sign a PPA with a renewable energy project, even if we don’t save money.” 

And I’ll say that, despite maybe my optimism about the energy transition, I am incredibly jaded when it comes to consumer sentiment. I always tack back to, are the economics here superior? And I think that that is the most important driver. 

But I think there there has been this shift and that many corporates, whether they are large enough that they’re exposed to customer to retail investor sentiment, someone like an Amazon or Microsoft, or if they’re in mid-cap or even quite a bit smaller than that. Many of them are saying, “We want to reduce our emissions footprint regardless of whether or not we save money so long as we don’t lose money.” And if we look at the radical decrease in the cost of both solar and wind electricity over the last decade, in many cases, that it is the case that wind or solar or other forms of renewable generation will be the the lowest cost energy supply, but corporates are increasingly excited about going that route. Whether or not it is the least expensive. So I think it’s an ongoing and rapidly evolving market, you know, I think we really are just scratching the surface in terms of corporate energy procurement of clean energy.

Host Raj Daniels 35:09

I agree with you after we had that compensation, like I said, mind was racing quite a bit, I was imagining some of the challenges or opportunities that are going to be in the corporate PPA market. One, for example, I’m going to just use, let’s say there’s a fast food chain that has multiple locations across the states, different municipalities, how they arrange the purchasing of clean power across the different entities they have. 

And the other I was thinking about was with, let’s say, a large mall operator, or even a strip mall operator, where they can now perhaps use the fact that they’re using clean energy as a additional value proposition for their tenants. So let’s say for example, you have a socially conscious retailer who is looking for a new location. And they have the opportunity to decide between two almost identical locations, but one is using clean energy, I see that as being an additional poll for them to decide where they want to set up shop.

Jonathan Crowder 36:09

I completely agree with you. And I think we’re really seeing the beginning of that playing out in real time. It’s strange to think back just a few short years ago, and realize that this was not a conversation that was happening in boardrooms at all. But now, it is a consistent theme in the C suite of most medium to large sized enterprises, and people are increasingly driven to make more sustainable choices. And I think that the most powerful aspect of this is that we have reached a moment in history, where the optimal economic decision is closely aligned with the optimal ethical decision. And that’s the reason that I’m so bullish on the energy transition more broadly. And and this segment of it more specifically.

Host Raj Daniels 37:04

Now, earlier, you said something, you said, before it becomes obvious. And what I don’t want to you to give away any of your competitive advantagesm you’re looking into your crystal ball, if you were to, let’s say, look out 10 years into the future, it’s 2030. What’s the one, I’m going to ask you to stay to one, perhaps technology or sub-sector within this energy transition, that you think is going to lead all others?

Jonathan Crowder 37:30

So interesting, it’s such a difficult question. I’m not sure if this is a precise answer to your question. But I’ll say, I think that when you and I are having coffee in the year 2030, and we’re looking at all the progress that has been made, many people will be most surprised by the impact that purely digital tools had. You look at the over 90% declines in the cost of solar cells over the last 15 years. And similar in storage technology. 

And if we think back to total lifetime costs of projects, 10–15 years ago, a massive share of those were capex, they were hard costs and and now, that’s changed, where 30, 40 50% of lifetime costs for many of these projects can be soft costs. And one thing that we’ve seen play out over and over again across industries is that digital technologies are excellent at mitigating soft costs — operations and maintenance, project planning, whatever the case may be. And so I think it’s a maybe a slightly broad answer to your question. But I think that people will be surprised by the impact of digital tools. 

Now, that doesn’t mean that digital tools are the only important facets of the energy transition by any means. And we have invested in both software companies and also companies that have a hardware component, but where the business model is software-like, so deploying a piece of infrastructure, helps them capture a very high quality revenue stream that has software-like margins. And there are also a number of investors that are in and around the sectors that we’re excited about that are much more deep tech focused and are investing in fundamental technical innovations. And I have huge admiration for the work of those firms. 

But I think that generally, digital tools probably aren’t getting the level of excitement relative to the impact that they can have for some of these for some of these sectors.

Host Raj Daniels 39:41

Can you give me an example of a digital tool?

Jonathan Crowder 39:43

Yeah, absolutely. So I think a good example is our portfolio company Amperon. So Amperon offers mission critical energy demand forecasting for a variety of different types of power market participants, whether they are grid operators, utilities, power traders, retail energy providers, any number of different types of customers there. And we’ve seen that, in the short term as renewable penetration in a particular market increases, price volatility, at least for the medium term, tends to go up until a certain level of penetration. And that makes it very challenging for for companies to operate profitably in some of these markets and and forecasting demand. 

And by proxy, price is incredibly important. And Amperon is an incredible machine learning tool that, in our view, is the market leader in this. They’ve served now many of the largest power market participants in a number of American markets and Australia as well. 

I think that smoothing participation in power markets as prices in the short term become more volatile enables increasing penetration of renewables; or rather, it mitigates a potential barrier to the penetration of renewables into the market. But there’s a variety of others. We invested in a company called Ensemble Energy, which has since been acquired by by Spark Cognition, which uses machine learning to optimize wind turbine operations and maintenance, and that they use machine learning to predict and make recommendations to prevent the likelihood of catastrophic equipment failures. So essentially reducing the long term maintenance cost and total cost of ownership for some of these wind turbine assets. So there’s a variety of different segments where we see opportunities for digital tools to improve important existing workflows.

Host Raj Daniels 41:50

I appreciate the example. Last question, and it’s usually a broad question regarding advice or words of wisdom recommendations. But I’m gonna ask you, perhaps specifically, if there’s a founder listening right now, is considering raising money from venture capitalists, what’s one or two questions that they might not know to ask that you would perhaps recommend they ask?

Jonathan Crowder 42:11

I think that more founders should diligence the investor, where possible. And what I mean by that is ask for the opportunity to speak to or just reach out directly to one of that investor’s portfolio companies or some number of that investor’s portfolio companies, I think the thing to remember is that, in our view, these are intended to be very long term partnerships. 

So we are expecting to work with entrepreneurs, four years, five years, eight years, 10 years, possibly more. And anytime that you’re building a long term partnership, I think you have to approach that with a certain level of thought fullness, and enter that relationship with with open and clear eyes. And so probably my most important piece of advice would be to really spend the time to understand the strategy and the approach of the investor but also the mindset of the investor, who they are, what they are like as a partner. And one of the best ways of doing that is actually speaking to some of the existing entrepreneurs that the investors already partnered with

Host Raj Daniels 43:26

Jonathan, I really appreciate speaking with you. I love the idea of diligence in the investor. And I look forward to your continued success and catching up with you again soon.

Jonathan Crowder 43:36

Thanks so much, Raj. This was so much fun.

Thank you for listening. If you like our show, please give us a rating and review on Apple Podcasts. And you can show your support by sharing our show with a friend or reach out to us on social media, where you’ll find us under our Nexus PMG handle. If there’s a subject or topic you’d like to hear about, send me an email at BTU@nexuspmg.com, or contact me via our website, nexuspmg.com. And while you’re there, you can sign up for our monthly newsletter where we share what we’re reading and thinking about in the cleantech, green tech sectors. Bigger than us is a Nexus PMG production.

---