Catalyst with Shayle Kann - The better mousetrap fallacy

Starting point is 00:00:01 Latitude Media, podcast at the frontier of climate technology. I'm Shail Khan, and this is Catalyst. I've watched and talked to dozens of companies and founders, and I think oftentimes making the same mistake as they were trying to commercialize some kind of better mousetrap for energy storage, which is they underestimated the pace at which the cost could come down and the technology could improve, not through some kind of game-changing innovation,

Starting point is 00:00:33 but really just through that kind of incrementalism of economies of scale and learning curves, bigger factories and more factories. This week, how to avoid building a better mouse trap in a market that really just needs more mice, or cheese or something? When utilities need flexible capacity they can count on, they turn to Energy Hub.

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Starting point is 00:02:19 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 Shayle Cod. I invest in revolutionary climate technologies and energy impact partners. Welcome. I think there are basically two different ways to go about new technology development. One of them starts with the problem. So you say, what is the need in the market or what's the need from customers that is not being fulfilled and that won't be fulfilled unless I build something to fulfill it?

Starting point is 00:02:52 And then you go off and develop that technology. The risk with this path is that maybe you identify a great opportunity or a gap in the market, but then you have absolutely no chance of actually solving it. Then there's the other way, which is more driven by the technology. This is the one that at least I often see coming out of academia. It's a little bit more like, hey, I have this really interesting new technology. What can I do with it? And the risk on this side is that you're kind of a solution in search of a problem.

Starting point is 00:03:20 And one manifestation of that latter category, the solution in search of a problem category, at least as it shows up in startup land, is falling victim to the better mousetrap fallacy, which is basically when you are developing a technology that is not really needed in the market that you're going after. My colleague at EIP, Andy Lubreshain, whom you've heard here many times, thinks that this problem, the better mousetrap fallacy, is actually pretty persistent in climate tech, at least in a few specific categories, and it's been bothering him lately. I'm not so sure, to be honest, it's sort of an ongoing conversation between the two of us.

Starting point is 00:03:57 So let's make it an ongoing conversation amongst the very many of us. Welcome to the conversation. Here's Andy. Andy, hello. Hey, Shale. Let's talk about mousetraps. You brought this idea up to me about the better mousetrap fallacy and things that you're concerned about as you watch what's happening in climate tech world right now. So I'll let you define it to start. Define the better mousetrap fallacy. The idea is that there's always a better mousetrap, which basically means there's always some new invention that is going to be the thing that unlocks a technology or unlocks a market.

Starting point is 00:04:32 And I think it comes from a saying a long time ago, I've heard this idea that there's always a better mouse trap or a better mouse trap will open up the industry for a long time. And I think that's sometimes true. There are some instances in which a better technology solution, the next iteration of something is really what it takes in order to open up an opportunity. But I think in a lot of areas these days and in certain aspects of climate tech in particular, the industry has gotten into a bit of a trap

Starting point is 00:05:04 with better mouse traps where we're assuming that a better mouse trap is the thing that is going to solve all our problems when in fact a better mouse trap, meaning some big technology innovation, is not really the answer. And there's a big risk in over-investing in better mouse traps.

Starting point is 00:05:22 One thing I think we should be careful of as we talk about this better mousetrap fallacy is like, this has mostly died down, so I'm hesitant to even rekindle this fire. But do you remember five or ten years ago, there was just this ongoing, never-ending battle between the like innovation people and the deployment people? And they would argue this was mostly like a climate think fluencer battle as far as I could tell. But, you know, the canonical innovation person was Bill Gates, right, who was saying what we need is a series of technological breakthroughs, otherwise we're never going to solve climate change. And then, I don't know, the canonical deployment person was probably Jigger, actually, who was saying, no, deploy, deploy, deploy, deploy, which is still actually his favorite phrase saying, we don't need, or at least it's not as important to see big technological innovations. What we need to do is take the technologies that are mature today and deploy the hell out of them.

Starting point is 00:06:15 And it was an annoying debate and remains an annoying debate because clearly we need some of both. But I want to make sure that we don't fall into that same hole here. So what you're saying is that there are places where major technology innovation are required. We talk about what some of those are. When you're worried about, if I understand it right, is that there are some other places where major technological innovation is not necessarily required, but we seem to see a lot of people who think that it is. Is that about right? Yeah, I mean, this is obviously a bull-fanned scenario, the scenario meaning the battle against climate change. But there are absolutely places where we need better mouse traps.

Starting point is 00:06:58 And actually, I would say, you know, plenty of areas in which we still need completely new types of traps to trap different types of rodents, right? Go for traps and squirrel traps because there's a lot of problems along the path to net zero that we just don't anywhere close to have the right. technology to solving today. And there are some areas, though, where I do think that the mouse traps we have are good enough and actually are likely to get better incrementally on their own, such that funneling a lot of capital into trying to build a differently better mouse trap is probably a bad use of capital at this point. And in fact, I think, is a little bit distracting, not just for investors, because I'm not so worried about venture capitalists and investors who are putting capital into new tech.

Starting point is 00:07:44 What I'm more worried about is that the proliferation of options in certain areas can almost be paralyzing and lead to the inability to deploy at the pace we need or to focus on deployment in certain instances. So it's not that we don't need new mouse traps and also not that obviously we don't need to deploy those mouse traps faster. It's that we need to do both at the same time and pick the areas in which we need to invest in real fundamentally. innovation and then pick the areas, pick certain areas in which we probably don't need to do so much of that anymore. Right. We'll come back to some of the sectors where we think this might be the case, but I think we could ground it in some history here, which is, if you look at the technologies that are now mature in climate tech, wind and solar being the obvious ones, you could add maybe lithium ion batteries to that, right? What mostly ended up happening for those technologies to get to the point

Starting point is 00:08:40 where they are today, to the cost where they are today, is that relatively early on in the deployment curve, not necessarily early on in the technology development curve, right? Solar was invented by Bell Labs in the 50s, something like that, solar PV. Yeah, 50s. So we're not talking about the 1950s, but come the 2000s and into the 2010s, you know, one technology mostly won, and it was already the incumbent technology,

Starting point is 00:09:09 was Crystal and Silicon. And then mostly what happened is it just scaled and scaled and scaled and scaled and scaled. And as it did that, the cost came down and down and down and down. And you know more about wind than me, but I presume there's a similar kind of a story there. And so I think part of what you're saying is like in order for that scaling and cost decline to occur, at least in some of these sectors, you kind of have to see that shakeout. Because back before, it was obvious that Crystal and Silicon was going to be the dominant winner, there were a whole. hundred technology startups. I mean, literally 100 technology startups doing different kinds of solar cells, lots of different thin film stuff, SIGs, cadmium tell your eye, amorphous silicon,

Starting point is 00:09:49 you know, people who've been around this industry will remember all this stuff. So I guess what you're saying is you want to see that shakeout sooner, or at least less of a proliferation in some of these cases because the faster we get on that learning curve, the faster we come down the cost curve. That's right. I mean, you know, you brought up solar and I think that pattern has repeated itself across most of the kind of core foundational building blocks that are mature and are ready for deployment today in climate tech. Energy storage is the other really great example. I think you and I can talk about this a little more in detail, but I've covered the energy storage market personally for more than a decade now. First, as an analyst, and now from an investment standpoint,

Starting point is 00:10:31 I've watched and talked to dozens of companies and founders. And I think oftentimes making the same mistake as they were trying to commercialize some kind of better mouse trap for energy storage, which is they underestimated the pace at which the cost could come down and the technology could improve, not through some kind of game-changing innovation, but really just through that kind of incrementalism of economies of scale and learning curves, bigger factories and more factories that have been the driving force behind lithium ion batteries, just like they were the driving force behind solar, both of which of course also occurred in China, which is a whole other topic of conversation. But, you know, I think part of the reason China is the world's workshop for

Starting point is 00:11:20 batteries and for solar PV, for all kinds of other stuff unrelated to the energy transition as well, is that China has gotten really, really good at that kind of scaling up of an established technology. And I wouldn't undercount the fact that there's also, incremental innovation going on at the same time. You know, with every factory that's built, there's learning that occurs. And in China, this has been very much the case with lithium ion batteries. They get better. It's not a completely new battery technology 95% of the time. But it's a tweak and, you know, iteration on the existing formula that improves the product. And I think, you know, comparing the U.S. and China, part of the issue with the...

Starting point is 00:12:07 the U.S. is, you know, we really do kind of tilt towards this, this mindset of novelty and, you know, boldness and daring and restlessness, which are, which are definitely huge assets and strengths for, for the U.S. But I think in the context of scaling up energy technology, they've also been blind spots. And, you know, perhaps one of the reason that, that our country has become and countries around the world have become so dependent on China, which is really good. at the bigger incrementalism over time. I think we should be clear. I think you agree with this, too, that even in a sector where you've got an incumbent

Starting point is 00:12:47 technology and there's an opportunity to drive down its cost or drive up its performance by scaling, right? If you're building something that you think is a better mouse trap, like 20% better than whatever the incumbent technology is, in all likelihood, your reaction, my reaction, when we see a company that's doing that is like 20% better is not better enough. Because in five or ten years, the industry is going to pass you by, and we've seen that happen too many times. So you have to be 5x better, 10x better,

Starting point is 00:13:15 to build a better mousetrap that actually has a shot. That's right, especially in these areas where technology is still, where the mouse trap we're using is still being scaled up. And that's very much, that was the case for polycrystalline silicon PV. That's the case for lithium ion batteries. Like, those technologies are very much not standing still. and the industries behind them have reached a scale at which it's actually kind of difficult, and especially because this is mostly going on in China in those two cases,

Starting point is 00:13:47 it's very difficult to even understand and to get good visibility into how fast the technology is improving and exactly what is on the horizon, even two or three years from now, and how fast the cost will come down, if you're going to bet against the cost curve for that kind of technology, you have to be making a big, a big friggin bet, right? Like you have to be betting on a technology, on a mousetrap that is so much better that there's just almost no chance that the established incumbent tech is ever going to touch it. All right. So let's make this a little bit more tangible.

Starting point is 00:14:21 Like what is the sector right now where you think we are starting to see or already seeing too many better mouse traps? We've been using storage as an example. So I don't know, let's riff on that for a little while longer. Because energy storage, specifically stationary grid storage, and frankly, I would extend this into next generation batteries for mobility as well. So basically any way of electrochemically or mechanically storing energy, I think is an area where the better mousetrap fallacy has taken hold to some degree. And again, I want to be clear, like, I think there are opportunities for that 10x better solution in some.

Starting point is 00:15:02 areas within energy storage. But that's definitely one where it's kind of amazing now for over a decade. There's almost a continuous stream of companies I feel like I've seen across a wide range of different approaches to building a mouse trap to store energy that have always been in the 20 to 50 percent theoretically better than lithium ion camp and have just gotten repeatedly over time crushed over and over. And, you know, this is an area where I think, you know, I mentioned earlier, I'm concerned that in addition to wasted capital, there's also a distraction effect of having dozens and dozens of mousetraps continuously entering the market in the industry. That's one where I believe I've seen that, especially because in my role at energy impact partners, I work with

Starting point is 00:15:59 lots of large incumbent energy infrastructure operators, utilities, and other companies who are deploying energy storage today, a lot of lithium ion battery storage, and are also considering what the next thing they deploy is to handle other types of storage challenges they're anticipating in the future, especially longer duration storage. And I think there is a little bit of analysis paralysis in the market right now where it's very difficult for for operators who are assessing their options for deploying novel storage technology to pick a lane and try to get comfortable with it just because there's so many out there. Yeah, so there have been over the years many, like you said, many different versions of an energy storage mouse trap for the grid. There's like the mechanical stuff and compressed air energy storage is also flow batteries and all sorts of other technologies, and none of that has really scaled up yet.

Starting point is 00:16:57 I guess two things here. One is there have been technology shifts within the battery world. And one of the things I wonder about, so we have, there has been this big shift, particularly for stationary storage, and now increasingly for mobility as well, from NMC and other similar chemistries to LFP, right? And that's all within lithium ion, but it's a different chemistry. And then now there's this emergent category, for example, of sodium ion, which is sort of just a little further on the spectrum than LFP in the same sense. Like theoretically lower costs for, you know, the lower energy density generally is just kind of the continuation of the same thing.

Starting point is 00:17:43 And it potentially has a bunch of other benefits, theoretically in terms of safety, not being reliant on the lithium volatility in supply chain. do you think of stuff like sodium, like I understand why a flow battery, for example, runs a heavy risk of being a better mouse trap. Do you think a sodium ion is a better mouse trap, or do you think of it differently because it's like a continuation on a spectrum of innovation? It feels like a continuation. I mean, that's another lithium ion chemistry that, you know, that the existence of LFP as an idea and as something that had been.

Starting point is 00:18:22 sort of lab proven, well predated, any kind of the scale up that we've seen in the past 10 to 15 years and certainly deployment in the field. Sodium ion is probably more of a real deviation, although it's still, I think, you know, a technically fairly close cousin of lithium ion, especially, you know, the way that it's manufactured today and some of the core principles at play. you could see you could very much see LFP as an incremental advancement of the technology. Sodium ion probably, you know, of a different kind, obviously, literally, you know, using a different atom. But I think the fact that it's been largely developed by and is already being scaled up by the exact same large industrial players, battery manufacturers that make existing lithium ion,

Starting point is 00:19:23 you know, means that it's, you know, I guess it's a better mouse trap, but it's a better mouse trap that's certainly not the kind that startup companies are well set up to develop and manufacture. Yeah, it's sort of on the borderline in terms of how you think about it, whether it's just like the next stage of, it could be nothing, but if it's something, then it's either the next stage of innovation along

Starting point is 00:19:49 continuation, or it's its own thing, in which case, you know, that is the question. The other, I guess, storage-related question here is, you know, you mentioned there are some categories that are a little different. We, you know, we, you and I, were investors in Form Energy, which is a stationary battery technology company for the grid. And I think we both agree it is different, but it's an interesting case study in what makes it different because you have a market that is clearly subject to the better mousetrap fallacy with the mire and just keeps getting cheaper and cheaper and probably will continue to do so

Starting point is 00:20:27 and yet we find a stationary storage chemistry that we find attractive so what is it that distinguishes form or just use it as like a way to describe what falls outside the fallacy right i remember having this conversation with you initially probably five plus years ago now and And we've had a similar version of it over time as we've talked to and assess more better mousetraps within the storage universe. And the basic thrust of the conversation was we don't want to be caught investing in a company that is anywhere in the realm of what lithium ion will approach from a competitive standpoint. And so what was attractive about form is that the fundamental cost of the materials that go into their battery and the way that they're building the battery enable them to build this multi-day system at a target cost that is so far beyond what lithium ion has achieved today and beyond what any reasonable vision of the future of the technology would entail that it is, I'd say outside of that

Starting point is 00:21:38 that competitive threshold. It is a different category of product that this incumbent solution, lithium ion, and even steps from lithium ion that are related like sodium ion just won't be able to touch. And another example that's also in our portfolio is thermal storage. Rondo is a company that we've invested in that is a thermal storage technology developer that's pretty rapidly moving into the commercialization phase of its life cycle, which is really exciting. And the unique thing about thermal storage that's distinct from electrochemical storage is that it can produce, it can absorb electricity and then produce heat with such high round-trip efficiency, right? Because you're ingesting electricity, storing that energy as heat,

Starting point is 00:22:28 and then just pumping it out as heat for industrial processes, which is something that can achieve both extremely low cost because, again, the materials involved can be just so incredibly inexpensive if all you're really looking for is a material that can get really hot in a very stable way and then dispatch that heat efficiently. And then also, you don't have to deal with any electrochemical losses. You're converting energy into heat, which is basically how energy is lost and then pumping that heat out to simultaneously create a system that can store electrical energy and then turn that energy into a continuous stream of heat for any kind of process that takes low to high temperature heat in the case of Rondo. So again, it's a category that

Starting point is 00:23:15 it just does something totally different from what lithium ion does. And so while they're both technically storage, I think we were able to get comfortable that it's just a different product. virtual power plants are becoming a reliable way for utilities to manage 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, locational dispatch, and the kind of rigorous verification that holds up when regulators,

Starting point is 00:23:54 grid operators, or leadership, ask, did it deliver? easy enrollment creates momentum, proven performance builds trust. That's why more than 170 utilities rely on Energy Hub to manage over 2.5 million devices delivering 3.4 gigawatts of flexible capacity. See what that looks like at energyhub.com. We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux,

Starting point is 00:24:37 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 delivering? Is your comms team wasting time reviewing lengthy messaging briefs and decks, instead of engaging journalists or producing content? Are you wondering why your competitors are getting press and you aren't? Fish Tank PR is an award-winning climate and energy tech, renewables, and sustainability-focused PR firm

Starting point is 00:25:18 dedicated to elevating the work of both early stage and established companies. Whether you need to position yourself as a thought leader in between project announcements or translate complex ideas and technologies into tangible, compelling stories that resonate with the media, Fish Tank can help. Check out fishtankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. All right, let's move on from storage. What's another category where you think the better mousetrap fallacy is rampant? So I think that in my opinion, the now canonical example of the better mousetrap fallacies in the nuclear fission world, where I think for decades the problem with nuclear power has really not been a technology problem. I've written about this. Lots of people have written extensively about this. And I think it's been a public relations and opinion and regulatory and policy problem. We first built nuclear. power plants starting in the late 50s and through the 60s and into the 70s, you know, that are operating well today. And we built those plants before we had computer modeling software and all the wonderful engineering tools we have at our disposal today. So nuclear technology works.

Starting point is 00:26:38 We used to be able to build it pretty cost effectively. And in fact, nuclear power is still being deployed pretty cost-effectively in countries in which it is still being deployed today in which are ramping up deployment like Korea and China, for example. And so, you know, I see nuclear as a, as a space in which, you know, so-called Gen 3-3 technology or Gen 3-plus technology, which is very much an incremental improvement over the light water reactor designs that have come before, is really, in my opinion, all we need. And at the same time, there are there are dozens of better mouse trap developers out there that have what are probably very clever and very promising,

Starting point is 00:27:24 from a technical standpoint, new takes on nuclear fission with different types of coolants and lots of passive safety features. But ultimately, I think the hurdles to proving out a new, fundamentally new nuclear reactor design, in the vast majority of those cases are just not worth the value that you get relative to deploying the kind of technology we already have and just doing it like we did it in the 60s and 70s where you're deploying a lot of it and therefore kind of get back on the learning curve and also start to rebuild the supply chain in North America and in Europe.

Starting point is 00:28:04 So nuclear is another space in which, you know, I think that the better mousetrap fallacy is distracting at this point rather than having. helping the industry move forward. I think there's a particular risk in nuclear too, which is that, as you said, like to start seeing a true nuclear renaissance in the U.S., there's a regulatory shift that has to happen, policy shift, perception shift. Let's just assume all that stuff does happen and there's an opportunity. It's really a capital intensive to build nuclear plants. Everybody knows that. We're not going to do that many of them right away. But, and the first ones are going to be expensive.

Starting point is 00:28:47 Like, I don't think anybody thinks that the first gen 3 reactor we build in the next decade in the United States is going to be the cheapest source of power, right? You need to be doing a bunch of them and coming down that learning curve. No matter what technology. No matter what technology. But that's the point is that if you're using, if you do one of each of 20 different technologies, you're not really coming down the learning curve. Because these actually are pretty different from each other, a lot of them. And so the way, if you're just like, if you're God in charge of what we do in energy, what you want to do is pick one and then deploy it over and over and over and over again and get it so that's coming down the cost curve until it actually is cost competitive,

Starting point is 00:29:28 which it probably is not going to be on day one unless you're like Amazon and you need clean power 24-7 for a data center and you have high willingness to pay, right? short of that, that's what we got to do, but I worry that because there are so many different options, let's just say the NRC starts licensing reactors left and right all of a sudden would be a total sea change in that market. But now we have 20 licensed reactors. Is that good or is that bad for the future of nuclear in the United States relative to if the NRC licensed like two? I think it's probably bad, sadly, for the future of nuclear in the U.S. I mean, I would obviously love to see changes in the NRC, which made it more efficient and much less costly to license a new design. But I think it's much more important that the NRC process becomes more efficient and less costly for licensing projects as opposed to for licensing technology, right?

Starting point is 00:30:26 And I do think that if I were the omnipotent energy czar of the country or the world, I would pick one, two, maybe up to three designs and deploy them serially and say we're going to do 10 of these and we're going to see how it works out maybe 10 of each and we're going to space them a year or 18 months apart from each other and I almost guarantee that that would lead to much faster cost down and maybe even just ultimately lower cost than any of the next generation designs that we're seeing could really achieve. I should, you know, I should soften that language, maybe not any, right? But then the vast majority of the, of the better mouse traps that are out there taking up attention. What about, I guess, the other thing we see is with some of the novel reactor companies,

Starting point is 00:31:21 technology companies, is that the pitch they're making is that they have an inherently safer design. And that should be the thing that allows them to get regulatory approval, get public perception on their side, et cetera. And so, you know, you need a better mouse trap on the safety side, maybe not the cost side, in order to break through the wall that we've had for building new nuclear in the U.S. In nuclear reactor design and construction, superior safety features are better costs in some way, right? Because if you can demonstrate that there's inherent features of the reactor that don't require as much redundant equipment or protective equipment, etc. When you're building the plant, then hypothetically, that does reduce the overall cost of the plant.

Starting point is 00:32:09 So I'm definitely sympathetic to that argument, but at the same time, it could also be another red herring in the sense that nuclear today is already so safe. And especially the incrementally better Gen 3 plus reactors. that a handful of companies have ready to go today would be even safer than the nuclear fleet as it stands. And so I think rather than arguing that existing technology is insufficiently safe, which is, I think, just not true, it would be better for the industry overall

Starting point is 00:32:50 if the public were to understand and regulators were to reflect the safety of the technology as it exists today and regulate it and allow it to be deployed according to its existing safety profile. So again, I don't want to say that we should entirely stop in investing as a society in the next generation, Gen 4 nuclear, but from a commercialization standpoint, certainly from a government policy standpoint,

Starting point is 00:33:20 if you're a government and you want to advance nuclear energy in your country, I think you're much better served by by focusing on the basically proven reactor designs we already have. And this is an area where I'm on the jigger train of deploy, deploy, deploy. As is jigger on that train when it comes to Newk there. Yeah, he's the conductor. As a regular listener, I know he will hear and appreciate this. Let's talk about one more example.

Starting point is 00:33:49 Give me one more sector where you think the better mousetrap fallacy is taking hold. I don't know if we're going to agree on this one. I don't know how much I actually believe this myself, but I think there's a risk of the better mousetrap fallacy in the direct air capture world. In the sense that there are now, I think we found a list somewhere, it's a pretty credible list of over 150 direct air capture startup.

Starting point is 00:34:16 So there are countless mousetraps. It turns out that if you want to suck carbon dioxide out of the atmosphere and then dump it somewhere, There's a ton of different ways to do it theoretically. The problem with DAC, at least for now, is that there's no mice. But that I don't mean there's no CO2 to suck up. It's that there's very, very few buyers for carbon removal at anywhere near the price that DAC is selling it out.

Starting point is 00:34:43 There's actually not that many buyers for large-scale carbon removal period at the moment. I hope that changes over time. There's basically one big buyer in the market, which is Microsoft, and then a long tail of smaller buyers. And so I worry that the race to develop mouse traps in DAC is maybe just 10 years too early. And maybe that's not a problem, right? Because the next 10 years we'll spend proving out a few of these

Starting point is 00:35:12 and hopefully figuring out which is the best mousetrap to begin to deploy and to follow that learning curve downwards for. But at the moment, it's a little intimidating. And even for now, I think that probably the market would be better served by picking a very small handful of solutions that were pretty sure can scale and scaling them up rather than continuing to do one-offs. What do you think? All right.

Starting point is 00:35:45 So on this one, I'll give you two ways in which I agree with you, I think, and one in which I disagree. The things I agree with are I do think that there is a proliferation, this is broadly true across carbon removal, but it includes DAC, of startups, technology startups, that goes well beyond the existing buyer universe. My favorite stat at the moment that I've used a bunch of times now is that I'm pretty sure, depending on how you wanted to find it, I'm pretty sure there are more carbon removal startups than there are carbon removal buyers, at least at any scale. like meaningful scale of buyers. That's not a situation you want to be in long term in the market. And so, you know, some of those startups have to disappear and some of those many, many more buyers have to emerge.

Starting point is 00:36:30 So I agree with you there that like there is a fundamental problem in not enough mice, I guess, in this analogy. That part I agree with. Another thing that I think is sort of mousetrap fallacy related in that space is that because you have so many DACs startups, they're all startups. virtually none of them have ever built a thing, you know, like the number that have built the thing that is in the, can be measured in the tons per year, you know, I could probably fit on my two hands. So instead what you have is a lot of promises. And that can be confusing. If you are one of the buyers in the market, everything is forward contracting. You're at this point, right? You're buying CDR credits for projects that haven't been built yet. And you have to decide. You have to pick and choose what's real, what's not real. That's hard. makes it tricky for the market. So on both of those points, I agree with you.

Starting point is 00:37:23 Here's where I disagree with you. Now, there's debate about what price point you'd have to hit to see really scaled demand in CDR. A lot of people use like $100 a ton for durable, permanent, verifiable CDR as the benchmark. I like an even lower benchmark long term. Like, I want to see DAC that, or some version of CDR that has all the characteristics of DAC in terms of permanence and verifiability and so on, but it's $50 a ton.

Starting point is 00:37:50 for example, right? And it's not clear to me that we know yet. So if you were to just say, okay, I'm going to pick this sorbent, let's go. I don't know that we know we would be there yet. And so there's an extent to which I still want more mousetraps in DAC, despite, I think, what's going to be a pretty painful reckoning in the startup landscape, just because I think we need to find something that is truly cheap enough, if we're going to do DAC at scale, maybe we're not.

Starting point is 00:38:18 But if we are, something has to get really, really, really cheap. And maybe it's one of the more quote-unquote incumbent technologies, but that's not clear to me yet in this sector. Yeah, I think I can get behind that. That makes good sense to me. And yeah, I think it's just a question then of who is the entity that is best suited for sorting through the many, many mouse traps that are out there and trying to pick out ones to pursue and to scale up.

Starting point is 00:38:46 And yeah, I don't have a great answer to that right now for DAC. This is where I think actually Frontier, the Stripe-founded program, that acts as a sort of collective buying pool for CDR, actually serves a really valuable market purpose. First of all, they aggregate demand, and they say, okay, we're going to get a bunch of companies together, and so we're going to have a pool of demand of purchasing power that's a billion dollars plus over eight years or whatever it is.

Starting point is 00:39:13 But also they are resourced with people who, spend time and look at the stuff, they take applications, they sift through them, they have scientists, like they do a lot of work to pick and choose who should be the cream of the crop. It doesn't mean they're going to be perfect, but somebody has to play that role because otherwise, if you're just like an independent buyer in the market and you're like, okay, I want to buy some DAC credits and I'll pay 500 bucks a ton or something like that, and you just put out an open call, you'd get a ton of responses. I think it'd be really hard to pick. choose amongst them. Oh, it'd be almost impossible. I agree. I think Microsoft has a really strong

Starting point is 00:39:52 internal team doing that, too. And they're the single largest carbon removal buyer at this point, by I think quite a, quite a margin. And so they've had to do that. And I think it's a real, you know, it's a real service to the world, really. Yeah, it's sort of similar to, you know, you remember in the early days of corporate renewable energy procurement, right? Like the tech companies were also the early leaders there, Google and Microsoft and Facebook and so on. And they both had enough demand and had enough resources that they built up their own internal teams who would like figure out all the complex contracting structures and how to wheelpower from a project in location X to your data center and location Y. So they could do that

Starting point is 00:40:33 themselves and they were big buyers. But, you know, the question was always like, how do you get the less sophisticated and or just less well-resourced buyers into the market? And that's where you had these intermediary platforms like Level 10 and others showing up to say, all right, like, let us help you sift through this and make it really simple for you to buy renewable energy if you're a big corporate. You know, something like that is going to have to happen. And in DAC world, there are a bunch of different companies trying to be that intermediary. But I think the fundamental challenge is more the one you described the beginning.

Starting point is 00:41:05 Like there's more sellers than buyers, sellers who theoretically will have something to sell, but generally don't have anything to sell yet, than there are buyers. and the costs are just too high. Yeah, so I guess the lesson from all that is the internet is very profitable, and it's great that very profitable internet companies are some of the early buyers and sifters in these markets and can help move the industry at large down the learning curve.

Starting point is 00:41:32 And actually, maybe this is a good time to talk about just the macroeconomic picture, which I think is relevant to the conversation about better mouse traps, because we've definitely been through a period, especially in climate tech, in which there was a lot of money available for better mouse traps. And, you know, an amazing period, I would say, of innovation in the climate tech universe, really in the last five years. And it was really, I think, driven in part by the macroeconomic policy of zero interest rates that has really been around for the past, you know, 15-ish years at this point.

Starting point is 00:42:11 until very recently, and was a big driver not just of climate tech and all the better mouse traps we've seen in our sector, but of the search for better mouse traps across everything in tech for the past 15 years. And I do think that the end of zero interest rate policy or ZERP, the end of ZERP is an important inflection point in our market. And one that is probably going to make it harder to get capital to just try to design more mousetraps moving forward. What do you think? Yeah, I think the capital drying up to some extent, it's not dry, but drier than it was, capital drying up to some extent, it just acts as a filter earlier in the cycle for new markets and new technologies. Like, when you have, when you're in ZERP era and there's a lot of capital flooding

Starting point is 00:43:06 in, like a lot of different ideas are going to get funded. Many of those ideas are going to get funded for longer than they otherwise would have. Now, the filtering process just occurs earlier and earlier. And that's both good and bad, as we've said. There's some ways in which that can be good. And you don't end up with this complexity and proliferation of ideas that can complicate and muddy the waters for a new market. But obviously, you just get less shots on goal to solve big problems as well. So I do think it cuts both ways here. Yeah, I think altogether, I think at this stage in the market, it might be a net positive. But that's provided, that's, that's the capital that's out there is still looking for those opportunities where, you know, in particular,

Starting point is 00:43:46 where there is no mousetrap, where there's no lithium ion or no silicon PV that can just be, you know, incrementally improved upon and where we do need, you know, truly foundational five to 10x innovation in order to solve one of the bigger problems on the route to net zero. But I agree with you, It means that ideas that are starting to look like just 1.5 or 2x better within the first couple of years of their development, I think those are going to get nipped in the bud sooner. All right, Andy, final question for you. Do you have actual mousetraps? I know you live in, you live in like an old house in Maine, so I would guess that... I live in an older home in Maine. I live near some woods. And so, yeah, I know my way around

Starting point is 00:44:34 mouse traps, real mousetraps. And in the world of actually, actual mouse trap technology, by the way, we basically don't have better mouse traps. Like the mouse traps that have been around for, I don't know, forever, are still the best mouse traps on the market. That said, there is a 10x solution. I encountered this recently because I've had some mice in my basement. I've been catching a bunch of mice in mouse traps, which sucks. I hate to do it. I don't want to do it over and over. And so I found a better mouse trap, which is gap filler that I actually went around my house and filled holes with. So the better mouse trap is to not have to trap the mouse at all.

Starting point is 00:45:09 There you go. Very, very zen. All right, the better mouse trap is having no mice at all. On that, we'll end it. Thanks, Andy. Thanks, Hale. Good to talk to you. Andy Lubershane is my partner, EDIP, and our head of research.

Starting point is 00:45:24 This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Pralud Backs Visionaries, Accelerating Climate Innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Markwan,

Starting point is 00:45:46 theme song by Sean Markwan. I'm Shao Khan, and this is Catalyst.

Catalyst with Shayle Kann - The better mousetrap fallacy

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