Catalyst with Shayle Kann - SVB, the banking crisis and climatetech

Episode Date: March 30, 2023

The run on Silicon Valley Bank (SVB) earlier this month was a hair-raising experience for anyone in climatetech. The bank catered to entrepreneurs in tech, especially climate. So when news of SVB’s troubled assets hit social media, startups scrambled to withdraw millions of dollars and draft emergency plans to make payroll. But after the Federal Insurance Deposit Corporation (FDIC) took over SVB and another troubled regional institution, Signature Bank, the dust started to settle. The FDIC announced that it would insure the full deposits at SVB, above the $250,000 guarantee.  But how did this all happen? And what does it mean for climatetech today? In this episode, Shayle talks to Saloni Multani, partner at Galvanize Climate Solutions and former chief financial officer for Joe Biden’s 2020 campaign. She came on the show last May to explain what the economic downturn meant for climatetech. This time Saloni and Shayle cover topics like: What led to the problems at SVB, Signature, and others How trends in the broader banking system signal a new environment for climatetech companies  The durability of climatetech opportunities Whether others will fill the hole left by SVB, which was a critical partner to many climatetech projects, including 62% of U.S. community solar projects Recommended Resources: The Carbon Copy: A bank collapse threatens climate startups Canary: Community solar industry says it can ride out Silicon Valley Bank failure The Guardian: ‘The first Twitter-fuelled bank run’: how social media compounded SVB’s collapse Catalyst: How will the downturn affect climatetech? Catalyst is a co-production of Post Script Media and Canary Media. Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you're a startup, investor, enterprise, or innovation ecosystem that's creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more. Catalyst is supported by EnergyHub. The company’s platform lets consumers turn their smart thermostats, EVs, batteries, water heaters, and other products into virtual power plants that keep the grid stable and enable higher penetration of solar and wind power. And they are hiring! Learn more and see open roles at energyhub.com/catalyst Catalyst is brought to you by Sealed: The experts in home weatherization and electrification upgrades. Sealed is leading the way, with over a decade of experience being accountable to homeowners because they only get paid based on actual energy reductions. Visit Sealed.com/measuredsavings to learn more.

from the studios of PostScript Media and Canary Media. I'm Shail Khan, and this is Catalyst. A 20-year tailwind to asset prices in the form of declining rates. It's my entire career. There's been this wind at my back that I didn't even know was there. And now the wind is kind of going to blow in our face a little bit. And so I think as an economy and as an investment ecosystem, it will take some recalibration.

Breathe in, two, three, four. Breathe out, two, three, four. Okay, let's talk SVB. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility, built for the moments when utilities can't afford. uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their

grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made.

Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Catalyst is supported by Fish Tank PR, an award-winning PR firm focused on climate and energy tech, renewables, and sustainability. Fish Tank is known for generating prominent and effective media coverage for the brands they work with. If you want a PR partner that's thoughtful, shoots straight, and gets results, you'll like Fish Tank PR. To learn more about Fish Tank's approach, visit fish tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. I'm Shale Khan. I invest in revolutionary climate technologies and energy impact partners. Welcome. So if you're anywhere in or even adjacent to the tech or venture,

Intercapital world, then there's a pretty good chance that the three-day period from like March 9th to 12th of this year was one of the more intense periods of your recent professional life. It certainly was for me. On March 9th, it became clear rapidly over the course of hours that something was going seriously bad with Silicon Valley Bank. By the 10th, anyone who was trying to get access to their money in operating accounts or anyone trying to get that money out was stuck as the bank was taken over by the feds. By March 12th, the feds stepped in with a series of measures designed to restore trust, not just in SVB, but in the broader banking system, which appeared under threat of contagion at the time. It was intense, let me tell you. But now the dust has sort of

kind of settled, at least on SVB. The banking sector is definitely not yet back to normal, see Credit Suisse, for example. And the future of SVB under its new ownership remains uncertain, but the most acute risk that scores of startups might not be able to make payroll on a Monday has been abated at least for now. So we could take a deepish breath and ask two questions. First, what the hell happened? And second, what does it mean? For our purposes, of course, we care mostly about those questions specifically in the context of climate tech,

though obviously the implications are much broader than that. So to have that deep breath discussion, I had a great conversation about this with my friend Saloni Multani, who you've heard before on this podcast. Saloni's a partner at Galvanized Climate Solutions, has a long tenured history within the finance world and is a great friend to have, I will say, in the midst of a banking crisis. So here's Saloni. Saloni, welcome. Thanks for having me. Thank you for coming back. I want to start by noting when we're recording this, because one thing that I've learned over the years with regard to financial crises of one counter another is that things change quickly. We've certainly seen that already in this situation. So we're recording this on March 28th in the morning. So if something major happens, if like another... It's not our fault.

It's not our fault that this is dated. Given that, let's start. Let's start. Let's start. start by talking about what has happened broadly and where we are today. And then obviously, we want to focus in on the world that you and I inhabit, which is in climate tech universe. But let's start more broadly. So how would you describe in brief semi-layman's terms, what happened to SVB? It's funny. I'm pretty sure the reason you wanted to have me on to talk about this is because I'm like the one person who's old enough to have actually been around in the last crisis and have lived through it.

in a pretty different seat. But I would say, okay, so taking a step back, I think hopefully this is not too kind of rudimentary assault, but I'll spend through it quickly in terms of just what a bank is and how a bank balance sheet works. So banks kind of by design are money multipliers who take kind of demand deposits, essentially, your checking account, your savings account. We can talk several about what the sweep accounts were because those got a lot of press during the whole unraveling. But they take short-term demand deposits. Those are their liabilities. It's an obligation that if I put my money with the bank and then I decide I want it out, I can come get it. And then they deploy those liabilities as assets. Assets are their loans. They lend the money out. People pay them

interest for lending the money out. And again, by design, banks are short liabilities, longer duration assets. And so that sort of, you know, people talked about the duration mismatch, which was particularly egregious here, which is part of what contributed to the run. But that is sort of a, that is a feature, not a bug of banks. And that's how, you know, with a small amount of shareholders' equity, they're able to actually lend substantial amounts of money into the economy. So what happened in the SVB case? I mean, you kind of have to go all the way back. The bank grew incredibly fast. So as the Valley grew, or as the venture ecosystem in particular grew, I mean, I checked these numbers before hopping on. I mean, SVB had 60 billion of

deposits in 19, is that year end 19, 100 billion in year in 2020, 190 at year end 2021. And they were at 175 a year in 22. And so what happened is the bank was growing so fast, and companies were raising venture rounds. Those venture rounds, they would then turn around and deposit that money in the bank. What happened was the asset side of SVB's book couldn't keep up. So they were loaning money out, but they couldn't loan it out quickly enough. So what did they do? They went out and bought other people's loans. Those included the loans of the federal government, included some mortgages. they were exceptionally long duration. They bought those loans, so assets to them in a low-rate environment, when rates go up, the value of loans and bonds goes down. This is happening to every bank.

We currently, the stat I saw that the FDIC had put out was like a $600 billion hole in bank balance sheets across the U.S. It's a massive hole. Everyone has it because everyone was previously lending in a lower-rate environment. Rates have gone up. Everybody's loan value has gone down. SVB undertook a transaction to say, look, we've got a bunch of money tied up in loans that are pretty low rate. We'd like to lend it at a higher rate. We'd like to give ourselves a little bit of a cash cushion, whatever it is. They sold a book of loans. They took a loss. And in the presentation, when they sold those loans, they said, look, don't worry, we took a loss, but we're going to raise some capital with it. They didn't have the capital raised already.

That transaction was going to happen. And basically, and, you know, other folks have been watching this for a while. It was in their 10K. You know, this was not a hidden thing that they had these mark to market. Kind of, I don't want to say impairments, just mark to market effects on the asset side of their book. But when they put that out there and said they were raising cash, we had an old-fashioned run on a bank. And what they had was a level of depositor concentration. Two things. They had a bunch of uninsured deposits. The FDIC insures 250K per account. Of course, most startups are leaving way more than 250k. And the problem with that is you're exposed. If the bank goes under, you lose your money. As my kids asked me, wait, does that mean when you put your money in a bank,

you're like gambling? That certainly is not the intent. Depositors are, they're nine and 12. So take you over when that's worth. There's certainly, we certainly don't think we're gambling. And it's sort of kind of unthinkable that a depositor would have to assess the credit worthiness of a bank when you put your money in it. That's what, you know, you hope regulators have done. But what happened because people genuinely felt like their money was exposed, there was a ton of concentration in terms of venture capitalists with portfolios that spanned a lot of companies. When they told their companies to pull out, it all happened very fast. I mean, and I'd say that for me is the biggest difference between this and, you know, what happened in 08.

Is this played out at like warp speed? It's like the lightning. fast-forward button. Like, it was bonkers. It happened in a matter of hours. Yeah. I mean, it was people called it the first bank run of the social media era. And like, that's very true, right? You said there's high concentration. So Silicon Valley Bank was particularly exposed to this group of, like, high-tech startups who are all super plugged in for first place. And second of all, you know, ultimately are all in like kind of one sprawling web and so we're highly connected to each other. And so where you couldn't have this like, it's a wonderful life, like lying out the door one by one pulling money out of the bank.

What you had instead was this like rapid fire 24 to 48 hours of sort of everybody catching on to the same thing happening at the same time. And then once the momentum builds on a bank run, like it's kind of impossible to stop. You did an incredible job there of actually encapsulating what happened into a brief span of time. I'll maybe add one additional layer of detail to one of the things that you said, which I think is sort of the key point on how this all came to be, which is that SVB was new, everybody knew SBB was sitting on these out-of-the-money loans, right? They bought loans with low interest rates, interest rates in the market went up. That means the value of that loan book goes down. However, they didn't have to mark that decline if they were going to hold those loans to maturity. So if they were just going to sit on those loans. Yes, there's two categories. There's available for sale and there's held to maturity.

Very clearly on the held to maturity, it tells you, like, it's written out. Here's the fair value. So you know there was a $15 billion hold in the book. But what they carried them at, yeah, what they carried them at was the $15 billion higher. That's right. So they're saying, we're going to hold these to maturity. We know they would be, we would take a loss. If we sold them, we don't intend to sell them.

Then suddenly they needed cash. They had to sell them. they had to raise cash to pay for it, and then that triggered this whole thing. So here we go. Now we have the bank run, the Fed steps in, guarantees the deposits. Now SVB or the big portions of SVB have been sold. So the sort of SVB portion of this story will come back to it in terms of the ramifications on the climate tech world.

But let's move on from SVB because the sort of bigger, broader impacts are the question of what are the reverberations from SVB, and is there a contagion? effect. Obviously, we started to see this happen pretty much immediately with Signature Bank and then first Republican some others. Since then, now we've had Credit Suisse go down. Seems related, but somewhat distant at the same time. So just do the same thing you did a minute ago with an amazing brief explainer, only tell me what happened after SVB. I mean, essentially what SVB did in my mind was highlight this inherent dynamic in our financial ecosystem, which is you have demand deposits and longer duration assets. And again, on the SVB side,

you have particularly long duration assets, but they weren't risky assets to your point, right? They were. And by the way, that was another difference in 08 is we had subprime mortgages on the asset side. So there was true impairment of principle, even on held to maturity instruments. I think what started basically after SVB was everyone started looking around and saying, wait a minute, obviously, is my bank next? You know, and what characterizes? as a bank that could be next. Is it the nature of their asset exposure, how long they went out? Are they too big to fail or not?

Did they take crypto risk? Do they also have exposure to an analogous community? So in the case to First Republic, you know, high proportion, I think north of 70% of uninsured deposits. So depositors who are, you know, savvy, connected, live in the same place that the SVB folks lived in many cases, the secondary bank for someone who banked at SVB was FRB, so they immediately just were so spun up about, you know, making sure they understood where their cash was. They turned their sites to, you know, their next institution. And so I think

essentially we just, again, highlighted, if everyone did what they had done before, which is just sit, you know, only go to the bank and get their deposits. Again, SVB had this particular dynamic where the reason that deposits were declining, right, is because the venture capital ecosystem had really slowed down in terms of new funding. So cash deposits of venture companies were declining. These other companies didn't necessarily have that same dynamic, but they had some version of exposure and any exposure now made people really nervous. And everyone, you know, I think JP Morgan account openings were through the roof. You know, the big four top banks perceived as too big to fail. And candidly, from a risk perspective, with more diversification in their

depositor base and a higher proportion of insured deposits in the depositor base makes you feel better about being a part of that deposit base, you know, even if it costs you, you know, some basis points on interest relative to being in, you know, what candidly are these banks that were wonderful institutions that were higher touch on service that, you know, were really parts of the community. And I think, you know, signature is another regional bank kind of had some of those exposures as well. So the result of that is that there's been, to some degree, a flight of capital from a broader array of smaller regional banks toward, as you said, the J.P. Morgans and Bank of Americas and Merrill's and so on to the world. And then we've had this sort of other thing going on

in Switzerland, where Credit Suisse, which had been, you know, sort of teetering a little bit for a while now finally toppled and had to get acquired for a... song as far as I can tell. To what degree do you view... Three billion dollars, a couple songs. Yeah, right. I mean, I guess it's a big song. It's a, like a, I don't know. It's a really like, it's an operatic. Yeah, sort of an epic song. To what degree is that related, caused by what, you know, the spark that was SVB or to what degree is it just sort of like a broader function of what's going on in the macro world and things specific to Credit Suisse? Yeah, I mean, I think what's, what is emblematic about what happened is

you can't necessarily predict what will spark a bank run. I mean, in this instance, it was, you know, certainly if they had known in hindsight that that presentation was going to spark a bank run, they wouldn't have done it. They didn't think it should, you know, in fact, they had come out with the capital plan to, you know, kind of fill the hole. And by the way, they weren't telling folks anything new about, you know, sort of where the available for sales securities were trading relative to,

anyway, so it was, it's hard to know what's going to spark it. I'd say on the credit suisse, it did seem like it was primed. It was sort of a dried out forest waiting to see like what was going to light the spark. You know, they had material weaknesses that they had had to correct over time and announce, you know, there were sort of perpetually, there were the trading losses from that hedge fund years ago. And so there's just sort of been, you know, perpetual questions, I'd say, regarding bank management. And I think that. That is kind of one of the underlying kind of messages from this whole situation as well, which is bank management around risk posture, around how they are even appreciating and

internalizing the risks they're taking, whether they're duration risks or trading risks or reporting risks. It's, look, again, it is far too much to ask for depositors to do this type of work on an institution they're going to leave their deposits with. So in an environment where you have questions regarding bank management, I would say, this spark from SVB that turned obviously into a fire, I think just caused everyone to say, you know what, my tolerance now for taking any level of risk around where I'm going to leave my capital is extremely low. And these things happen head-spendingly fast. And so I think in that case, I don't know, some said, the regulator stepped in extremely quickly. They made the, you know, they made borrowings available to the bank, but then the UBS deal was

brokered pretty darn fast. Like, you don't want to wait too long because then you're left with nothing because all the capital has been pulled out of the institution and the franchise value has been deeply damaged. So definitely related, but also definitely primed, in my view, for a spark to kind of ignite. Virtual power plants are becoming a reliable way for utilities to manage companies. capacity. But enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched and being able to prove it from the control room to the living room. Energy Hub's platform handles the full picture, from near real-time forecasting,

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It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. Are you tired of overpaying for big-name PR firms, but not really knowing what they're

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Check out Fish TankPR.com. That's F-I-S-C-H-Fish-Tankpr.com. All right, so let's talk about the impact specifically around climate tech, starting with SVB, I guess, going back to SVB, because SVB was the primary de facto bank and lender for startups, period, certainly in Silicon Valley, but I think more broadly in the U.S. actually increasingly as well,

that includes climate tech, but it's not specific to climate tech. So, you know, putting on your sort of climate lens, do you think that there's any difference in the impact to climate tech versus tech? Oh, lots of thoughts on that. I would say, so yes, I mean,

they were just unbelievably embedded in the ecosystem. I'm a big believer, and I say this in the context of the climate transition as well a lot, which is, you know, ultimately, this is about people being willing to do the work to take certain, like, risks or invest their time in an ecosystem. And so I thought what was unique about SVB is they had really taken the time to do the work, to understand what are the needs of young companies, what are the needs of a founder? And then also very specifically, there was that Times article on how SVV was, you know, in many ways, a climate bank. I mean, they had really taken the time to understand the climate ecosystem, understand the transition, understand what are the different kind of unique challenges of climate companies.

And so I think, yes, you know, generally there is a profile of capital consumptive company that had access to, you know, debt capital to effectively lever, you know, kind of a later stage round and excessive company. and runway. You know, I've heard so many stories of companies who are like, nobody else would let me even set up a bank account. You know, just the KYC requirements, the way to navigate the system is so onerous. You know, getting an account set up at one of these large institutions that isn't as service-oriented can feel like a total labyrinth can take much longer. And so I think they just were, they had invested the time in both startups and in climate in particular in a way that I, I haven't seen other institutions do as deeply. And I think that will, you know, it's impossible that that will not have an impact. Yeah, no, I mean, I think one of the things that I think a bunch of folks

woke up to in the wake of the SVB collapse was how embedded it was in many different ways. I mean, yes, obviously it was a lot of startups have their deposits there. A lot of other startups had venture debt agreements with SVB, but also SVB, for example, was a major finance of community solar projects. Right. It's like 60% of community solar projects. Yeah, that was in that same article. I think it's, it's, it's sort of, uh, sort of like a remarkable stat because it's such a huge. And again, I'm sure a lot of it is in this area. So some of it has to do with geography as well, but it's just a, and they know those companies who are doing that work and doing that project development. And so they, they're able to kind of understand the holistic profile of the risk in a way

that a lot of banks probably look at it and say, what's that? To what you do you think, you know, nature abhor is a vacuum. This is an opportunity. Climate tech, I mean, again, stepping back, I think climate tech has been, at least on a relative basis, more resilient as in early stage tech sector than the broader tech world, certainly than the sort of enterprise software world has been over the past couple of years. So if you're looking at this and you're an enterprising young bank and you're saying, wait a second, like, there's a market here to be tapped. This is not what took. SVB down. It wasn't because they had a bunch of deposits from tech companies or even climate tech companies. Maybe I should step up and, you know, try to figure out how to embed myself in this ecosystem. That could be the new iteration of SVB under its new ownership. It could be other banks. So I guess the question is, do we think this is a, is this a gap that will remain to be filled for a while and it's going to make it harder for early stage climate tech companies or those trying to finance community solar or whatever it might be?

Or is this really just, you know, the opportunity is going to shift from SVB to SVB to 2.0 or from SVB to some other bank? I think, so first of all, you know, that's the beauty of capitalism. It's an opportunity. I'd say, you know, there's a technology. There's a role it played in the technology and innovation economy writ large in climate in particular. That is clearly an opportunity for someone to step into. Well, it look exactly like what it looked like in 2021. I think that will take a very long time.

I don't expect we'll go all the way back there. But in terms of an institution investing into this vacuum, it feels primed for it in my mind. And you're already seeing it start, right? I mean, the outbound calls came, the like, bring your money here. The like, and so in my mind, that's already happening. People are stepping into the void. It's a little bit of a fray right now. Everyone's like, is that a safe institution?

Is that a safe institution? Everyone's still sort of trying to kind of, things will take a while to settle, but that will happen. I think part of what made this business an exciting business to be in, again, the innovation economy writ large, kind of the venture-backed economy writ large, was because it was working. You know, my understanding of sort of that lending side, the venture debt lending side of SBB's business is, you know, it wasn't a loss leader. It wasn't super profitable. It was really just a really powerful way for them to develop a partnership with these young companies. So then as they scale, you know, you heard stories about

large public companies with hundreds of millions of dollars sitting in their account at SBB. And that, you know, they had laid the groundwork for that many, many years prior. And so I think on the climate side, the thing I always feel about our markets and this opportunity is it's not going anywhere. Right. This wasn't like a flash in the pan. This isn't a, oh, you know, tonal, a lot of people were doing this in their homes back during COVID and now they're not. You know, this is not a fleeting opportunity, you know, sadly, you know, candidly. The physical manifestations of climate change are getting worse and worse and worse. Yeah, I think that, in fact, it may be the only category where the less of it we do, the more of it we need.

That's a good framing. And it's not, you just can't put, you can't, you can't kind of undo the problem, you know, at a, pace that would eliminate this opportunity again, if only we had a silver bullet. So yeah, so I sort of feel like that's part of what's driven the climate funding ecosystem to be more resilient. We also didn't have as many incredibly stretched valuations, I think, in our ecosystem as well. You know, we certainly had some. I know you're saying both as both of us doing investments. It certainly was, you know, there was certainly, it was stretched, but I'd say, you're seeing, you know, what happened in the general tech ecosystem, just maybe it's the numbers,

you know, or kind of maybe less, less out of whack, although certainly room to recalibrate. So I think folks will step into the void, but I do think we need to recognize that it's not going to, oh, SVB's fixed, we're just going to snap back to what it used to look like. And cost of capital is going to go back to what it used to be, you know, the ability to access capital in the form of, you know, debt lines and the ability. to sort of your expectations of, you know, the level of service and, you know, you're going to get from financial institutions. I think, I don't think we're just going to snap back just because SBB has been bought. Can I run a theory that I heard a couple times by you in terms of a potential

net positive impact that this whole thing could have on climate tech, which was, this is a bit of a bank shot. Lay it on. Yeah. Well, okay, so the theory was basically like this whole financial shock would cause the Fed to raise interest rates at least less than it otherwise would have, if not stop raising interest rates. That would be good for climate tech. That'd be good for tech in general, probably, but be good for climate tech in particular because the infrastructure side of climate tech is capital intensive and really sensitive to interest rates. So there would have been, you know, there's an argument that if that were true, it would have at least a marginal positive impact on climate infrastructure. What we've seen since it happened is the Fed did continue

to raise interest rates by 25 bits. Yeah, they raised 25 bibs, yeah. Maybe this has already been disproven to some degree, but how do you think about sort of the relationship between this financial crisis, whatever we want to call it, interest rates and climate tech? So regulators have an objective in my mind, right? Their objective is to tame inflation. It's the dual mandate of unemployment and inflation, right, that they're constantly trying to manage. And right now we have pretty full employment. It's obviously not uniform and not consistent, but relatively full employment and inflation is high and we're trying to get it in check. And so how do you get inflation in check? Well, you tighten. And so that is what the

rate rises are. It's tightening. Is there some amount of tightening, which is really a contraction of credit, a contraction of like the money multiplication that goes on via financial institutions that might now happen naturally because banks might decide to hold, I mean, naturally is the wrong word, but like might happen as a consequence of this event, which is banks will hold more cash. They will be more conservative in their lending. They may have a less risk-on posture. So the Fed doesn't have to raise rates as much. But the ultimate implication of credit availability for projects, like, and the, you know, it's sort of

six to one, half dozen of the other, maybe seven and five, you know, but it's, ultimately for the infrastructure projects you described, we need available credit, right? We need, or available capital, but, you know, low-cost capital, so hopefully a fair bit of credit in addition to the equity capital. And so I guess could it result in the Fed needing to raise rates less in order to achieve its inflation objectives, maybe. I do think they have said nothing to cause me to question their commitment to the inflation kind of reigning in inflation mandates. Right. So you're basically saying maybe that could be true, but in the event that it is true, it's because there's lower credit availability anyway. And so that's maybe not a scenario you want to wish for. Yeah. I mean,

I think, look, this whole like monetary policy trying to rein in inflation, it takes time and there's a lag. So I think this is one of those consequences of the policy. It's not just like hiking rates and hiking rates and hiking. It's when you hike rates, there are reverberations, right? People are more inclined to save than to spend. You know, there's, so you trade, when you change the cost of money, there are tons of ripple effects and sometimes those turn into a tsunami, which is what happened, you know, or is kind of worth a little bit still, maybe. in the middle of. And so to me, it's all sort of one big to say, like, well, this thing happened. And so they'll stop this over here. To me, it's all part of, you know, sort of the series of actions and consequences related to rate heights necessary to tame inflation. Okay. Do you think there are any other sort of key areas of impact specifically on climate from what we've seen so far over the past three weeks that are worth talking about? I think we, I think that we've

covered most of it. It's, you know, debt for infrastructure, climate infrastructure. It's, you know, general climate tech for innovative companies cost of capital going up. The community solar thing is another flag. I think we'll continue to see it just given the capital intensity of the transition. Yeah. Okay, so then stepping back again from climate tech to the broader world. So let me mix and probably totally ruin two metaphors. So you talked about the forest version of this. I'm going to switch to a different natural disaster. So let's imagine that this was an earthquake.

Either, right now, we're having some aftershocks, right? Like, the earthquake happened. There have been a number of aftershocks, large and small. Maybe Credit Suisse was a big aftershock. But they're getting smaller over time, and everything is kind of settling down, and now we'll go back to normal.

Or we were in a building. There was an earthquake, and what it did was sort of crack the edifice of the building a little bit, and now we're kind of waiting to see what happens, but at some point there's going to be more damage of one sort or another. Where do you feel like or... Those are two different scenarios. Are we in a building, or are we just living through earthquakes and aftershocks, but like not underneath heavy. I feel like those were pretty close to being one good metaphor with two. We were in a building and there was an earthquake. Apparently we're still in that building.

Still in the building. There's heavy stuff that could fall on us. We're really holed up in this building. No, the point being like, is it over? I don't think the impact of rising rates on the innovation economy and climate tech is over. I think, again, I don't think we can expect that this will pass and we're going to go back

to what it was in 21, early 22. Are there going to be other sort of punctuated events that kind of smack you in the face with what the implications are, I would be surprised if there weren't. I think, you know, this rate rise is dramatic. We're basically in a declining rate environment for like 20 years. You know, there was sort of a run-up and then, you know, down, you know, and they eased during the 08 crisis. But a 20-year tailwind to asset prices in the form of declining rates. That's my entire career. There's been this wind at my back that I didn't know was there my entire investment career. And now the wind is kind of going to blow in our face a little

bit. And so I think as an economy and as an investment ecosystem, it will take some recalibration as we internalize what that means for the cost of capital, particularly for capital consumptive companies. But then on the larger, you know, in my prior life, you know, for larger companies with leverage, you know, that also introduces, you know, really meaningful impacts on your cost of capital and the decisions you make around, you know, when and how and how much to invest in your businesses. And then all of those decisions have consequences. And so I guess of your two analogies, I would say you're in the building. There's not like necessarily crazy heavy stuff that's going to knock you out sitting on the shelves, but there's going to be

things falling. And as the aftershocks happen, it's going to prompt, it's going to shake some things loose. So is it both? Can I combine them? You're in the building experiencing the aftershocks. Yeah. See, the building thing works. You'll make it through. You're going to make it through. You're going to make it through, but it's going to require an adjustment period. And I don't know. I mean, I certainly feel like we're feeling it in terms of just kind of everyone finding their footing as we're all adapting to a completely different context. And it's not just a temporary change in context. I don't think that it's like a blip that will pass. It is a it is an enduring, you know, in some subtle and in some really dramatic ways, just, you know, new, you know,

new sort of new backdrop to the work we do. I'm going to further extend and just like completely ruin this metaphor, which is, I feel like what happened to a lot of companies is they were in the building, the earthquake hit. They spent, you know, a few days to a week, basically just like, oh my God, you know, everything fell and everything is broken and I got to put it all back together and like get the shifting things to the wall. Yeah, exactly, bolting things to the wall. So like that was the immediate impact three weeks ago.

And then they got through all that and they looked out the window and the window and the weather had changed, right? And so now we're in kind of a scenario where we are not back to pre-SvB days. It's not like it was before, but it's not quite as immediate for most companies as it was in the like 72-hour period from March 9th to March 11th or whatever it was. Yes. It will not feel as acute, right? There was an acuity to that weekend, like those few days that weekend that was hair on fire, you know, payroll on Monday. I mean, it was truly you know, it felt existential for so many companies and so many of us, I think it will be kind of a steady, it will be just a steady, and we'll all, we'll all sort of, you know, muddle through

together, I think. All right, Solony, timestamp, it's 844 a.m. on March 28th, as of this moment, all the things that we said are current. We'll see when it becomes stale. I'm hopeful that this will be true for a while, because that'll mean that nothing, like, like crazy happens. What's your over under? When do you think the next after shock happen? I don't know. I honestly don't know.

I'm, I can't be in, like, Macrox. Did you feel the actual earthquake last night, by the way? I know I read that there was one, but apparently I was sleeping.

Oh, my gosh. You're a very heavy sleeper. You felt it? I mean, oh, my gosh. I, like,

we all, you know, my kids, like, we all, we all like jumped out of bed. Oh. I have a young baby.

And so when I am sleeping, I'm sleeping hard. I will say, that. Fortunately, he is, too. It's a very good quality. Yeah. Survival. All right, Solony, really appreciate you coming on. Thanks for doing this. Soloni Multani is a partner at galvanized climate solutions. This show is a co-production of PostScript Media and Canary Media. You can head over to canarymedia.com for links to today's topics. PostScript is supported by

Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and ag, transportation and logistics, advanced materials and manufacturing, and advanced computing. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I'm Shale Khan, and this is Catalyst.