This Week in Startups - Coinbase cuts 20%, Microsoft to invest $10B into OpenAI & Ascend Elements CEO Mike O’Kronley | E1654

Episode Date: January 10, 2023

Molly and Jason discuss the news that Coinbase is doing another 20% RIF. (6:50) Then they discuss the announcement that Microsoft is investing $10B into OpenAI with some pretty favourable terms. (27:19) After, Molly and Jason chat about Make Sunsets’ plan to cool the planet and Enpal, a German solar panel company raising money at a $2.4B valuation. (46:56) Then we wrap with this year’s first edition of TWiCS featuring Mike O’Kronley, CEO of Ascend Elements. (1:00:56) (0:00) M+J kick off the show (2:10) Atmospheric rivers and the chaos in California (6:50) Coinbase does another 20% RIF (11:56) Vanta - Get $1000 off your SOC 2 at https://vanta.com/twist (13:03) The future of employment in tech (21:50) Mixpanel - Apply for $50K in credits at https://mixpanel.com/startups (23:16) The perfect amount of founders (27:19) Microsoft is invests $10B into OpenAI (32:46) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/TWIST (34:10) OpenAI going from a non-profit to a for-profit + What is roundtripping? (46:56) Make Sunsets raises $750K to do what?! (53:05) Enpal raises at a $2.4B valuation (1:00:56) TWiCS: Mike O’Kronley of Ascend Elements FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Hey, everybody, welcome back. It is Tuesday. We have a big show for you. First up in the Bantu's train. It's the end of the world here in the Bay Area. Monsoon season has hit. We've got atmospheric rivers and cyclone bombs. And the continuation of the Rift train, Coinbase, is on a second major riff, 18% the first time. Now they're doing 20%. We'll talk about that. Yeah, the crypto winter is real. Then we're going to break down the latest in the Microsoft Open AI relationship. Satya Nadella is either. the greatest CEO in tech, or I have a very contrary intake on Open AI. Yeah, and very interesting to think about the relationship between Azure and the billions of

dollars, Open AI. It's apparently spending on cloud computing with Microsoft. We'll talk about round-tripping and some of the back channel there. You know what they say here in Silicon Valley, Molly, no conflict, no interest. Then we'll talk about climate tech. Molly's got a couple of stories in climate. Yeah, we got some good news. Some we're all going to die news and then a great interview with a climate founder, Microcrondly, on battery recycling and creating new battery feedstock for all those EBs and the power wall that I'm going to need any freaking second now when the lights wink out. Stick with us. It's going to be a great show. This week in startups is brought to you by Vanta.

Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sock to report. fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Mixpanel. Mixpanel helps startups find product market fit faster by offering powerful self-serve product analytics. Apply today to join Mixpanel's startup program and get $50,000 in credits at mixpanel.com slash startups and Squarespace. Turn your idea into a new website. Go to Squarespace.com twist or a free trial. When you're ready to launch, use offer code twist to save 10% off your first purchase of a website or domain.

All right, it's Tuesday. Feels like it's like the third Thursday of the week. I mean, it's been a very long week already. You're living every day. We're everybody's living every day twice with these storms in the Bay Area. It's a good day to be talking about climate startups, which we're doing today. People have no idea what's happening here in the Bay Area, but there's a concept of an atmospheric River. I don't know the origin of this word, Molly. I first heard it, I think, last year.

Right. I've heard it in terms of winter storms, too. I mean, it's like when there's a totally, my very base level meteorological understanding is that there's a lot of moisture in the air that's being carried by the jet street. So that, and then it like zones of pressure and warm Amer collide and then you get bad storms and it can produce these bomb cyclone winter storms or in our case, it's producing bomb cyclone rainstorms. And there's a lot of mockery of California happening around the internet. But what I should explain is that we have like a whole bunch of factors contributing to how insane this is.

One, some is some legit infrastructure situations vis-a-vis V-V PG&E not wanting to bury the lines. And like in LA, there's nowhere for the water to go really. We don't a lot of good catchment. But also, it's like we have this new weather pattern of like drought, drought, drought, drought, drought, drought. So the trees die and then there's like fires and there's whole, you know, areas. And then everything is weakened. And then we get all the rain at the same time. So the trees fall down and we flood because there's no way for it to be absorbed.

It's just like too much too soon. Right. So if all your trees are dead or dying or burnt, they usually keep the soil. nice and tight and then you have an atmospheric river or a bomb cyclone. We're having both. We're having both. Yeah. And so it's a result.

I mean, I must have $30,000 in damage to my house and grounds in the Bay Area in the past two weeks. Delightful snow in Tahoe, which is fantastic. But the good news is I guess the reservoirs are filling up. We have flooding in our house. We had flooding down the sides of our house. My neighbor has like a big wrought iron fence and so much water was coming down in the hill. It washed out the, I guess, the foundation of the fence. So anyway, I woke up this morning, no power, internet down, everything.

And then tons of people showing up the house to try to save stuff. It's crazy. It's great. Be safe out there. I think there have been... There have been several deaths, maybe as many as 12, I think. I mean, it's like, it's really bad. People are dying from this, really?

Oh, yeah. Then we had this terrible thing happen in the Bay Area. I'm almost like, don't want to bring it up. But a guy drove his car off of Devils. Slide. Slide in Pacifica. Pacifica for people don't know, you have this beautiful PCH, Pacific Coast Highway. You know, when you see those like car commercials and people are driving on those beautiful

cliffs looking out at the Pacific Ocean. That's the PCH. This guy drove his family off one of the most notoriously dangerous areas, but he literally went off an exit ramp, you know, and then just drove a Tesla down a 250-foot cliff. Everybody survived, but it was intentional. And I guess the way we know it's intentional is the other people in the car, including his wife, must have witnessed it be intentional. It's got a two, four and a seven-year-old kid in it. So that's been spooking me a bunch. I hate to get dark, but I was just like, oh, my God, what is happening in the world?

It just, it feels, I mean, I know I'm trying to have the optimistic note for 2023. Please. Please. But it, do you do, when you have like this many storms and this many stuff and then you hear about that and you hear about, you know, like, people are cracking. There's all these terrible things. And like, randomly, like, I did not know that like the reason you can't buy eggs right now is because the avian flu killed 50. million birds in America. Wait, what?

Now there's an egg shortage. There's an egg shortage. Eggs are like out. And it's because of literal plague. Like, you do have these moments where you're just like, maybe it is the end times. I don't really know. I mean, and. Do what you want to do, people.

No more rules. $5 eggs coming. I mean, certainly in the news, there must be good news. So, I don't know, like, what's our first story? Got to be some great story to kick us off. We are going to talk about some good. We have some great climate news. We have some cool funding announcements.

But before that, we have more layoff news. And I'm so sorry because the crypto, the crypto winter is also a full on bomb cyclone. Wow. That's what I did there. There's an atmospheric river that just took everybody's bags and just flushed him. I think it's possible that Bill Gurley is going to have to, like, raise his riff minimum because Coinbase did. we thought what they needed to do, which was an 18% RIF back in June,

but announced today that Coinbase will cut another roughly 20% about 950 employees. Oh, double, double. Yeah, exactly. A fifth of its workforce. After it did a fifth of its workforce before. Yep. Wow.

Coinbase says, Brian Armstrong told CNBC that there are likely more shoes to drop in crypto and that the company is trying to get ahead of this kind of ongoing crypto winter. And, you know, if you remember back to some of our crypto roundtables, the gray scale Bitcoin Trust is the thing that Sunny Madras pointed to as being a potential, like, major shoot-a-drop or, you know, we have right now the Winklevoss twins of Gemini accusing Genesis of accounting fraud. So you have, you know, and I think the SEC is investigating this DC-JG

company over its lending practices with Genesis. So like you have a lot of big names still unaccounted for. Yes. So this is pretty dark because we thought when this flushing would happen, you know, we saw ICOs go out. Then you saw like the NFT grifts go out. You know, it's like, what's left? Well, it's like Bitcoin's left, right?

Bitcoin's is a store of value. And then there were people who did it right, quote unquote, and they had like a nice trust. And it was all done on the up and up. And these are great investors. And you know, I've been watching now people say like, well, we think Coinbase has got a risk now, which that would be like the Goldman Sachs or Bank of America, the AWS, if you will, of crypto having a challenge. And so we're sort of getting to, you know, last man standing kind of dynamics here in crypto, which city is, which city hasn't crumbled and been washed out to see. And Brian Armstrong has really been trying to reassurep. You know, he's really been saying all the things that you would want to hear, like, we're fine. Also, we've heard other exchanges say that too.

Also, Coinbase has audited financials. Okay. Which is the key there. But 80% of that revenue is still on trades and trading volume. And so if trading volume goes to zero or really, so what you might see is if you might see is, If you see retail investors watch out, like people who, you know, amateurs, then what you're going to see most likely is more serious crypto investors go back to not your keys, not your coin and maybe not want to use exchanges. So there is a really, I think, a high risk if Coinbase has not diversified enough. And by the way, the numbers that they've reported recently that they're kind of basing these concerns on and these layoffs on, like the last quarterly numbers we got from Coinbase are before the FTA.

TX collapse. Yeah. And net revenue was already down 54% year over year over year in Q3. Yeah. There's no consumers right now who are looking at the current employment situation, their 401ks, the value of their homes, and the overall economy, inflation, the global instability in the world, Ukraine, Taiwan, et cetera, and saying to themselves, you know what I want to do?

I want to place a bet on a token. I want to buy an NFT. Nobody in their right mind is saying that right now. What they're saying is, hey, let me take a look at my balance sheet. Let me do a little austerity measures here. Maybe I'll buy a chainser and cut that tree down myself.

Maybe I'll make some cold brew here. Yeah, maybe I'll set up my own lighting rig at home and, you know, not fly out my producers. I'm doing my own manicures, man. I'm going to start. My daughters want me to,

I think I'm going to be the dad with painted nails now because, Oh my God, you had to get this Olive and June kit that I bought off Instagram. It's amazingly as a look, it's got, I did freaking glitter manicure at my own house. I like it. I like it. That would have cost you normally 40, 50, 60 bucks in the Bay Area to go out and get? 70.

70? No, it would cost 50. No. It would have cost 50 because I would have been gel. I might have gone dip. I mean, it would be 40 or 50 bucks though. Like, and I did this at home and I could do it now. Like, it's like got the kit.

Anyway. Anyway. Just saying. Osterity. I'm going to yosification. my jacification my name. Do it, do it. Get that many. Okay, if you're a SaaS or a

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or going away. We all know that. Vanta.com slash twist for $1,000 off your sock, too. Anyway, 20% RIF significant. That's a thousand more tech workers, the white collar recession, surplus elites,

flooding into the market. Now, people have been getting jobs and the jobs report came on. We talked about that yesterday. Mm-hmm. And people are getting jobs. So this is a, like this mixed bag, I think.

Tech companies grew too quickly. They're cutting, but there are apparently some jobs to be had in the world for now. I don't believe a lot of these statistics. These backward-looking statistics feel like we're flying the plane. I feel like we're driving a car on a 90-second delay.

Like, imagine you were driving down the freeway and like your windshield was a projection of what happened 90 seconds ago. I feel like we're making economic decisions that way. both inside of companies, you know, companies aren't being thoughtful enough with real-time data, the Fed is transitory inflation, you know, we can keep rates low forever, we can do all this crazy stimulus, omnibus spending. Everybody, I think, Molly, listen, you spent all these years at marketplace.

Yeah. Would it not be prudent for everybody who's not part of the labor movement, like to maybe increased labor participation to maybe have more austerity measures, do more with less, be more efficient. We had to turn this economy around. This feels like we're going into like a debt spiral now. I hate to be pessimistic, but those thousand people now who are in a coin base on top of the 18,000 losing their jobs at Amazon, 8,000 people at Salesforce, if half of these people get jobs, which I think seems recent, but what are the other half going to do? 11,000 at meta. I mean, this again, I would say, what did I say yesterday? Every apocalypse is local.

Like, every company in the world of any size needs tech workers, not just tech companies. Okay. So I think you, like, if you have a lot of marketing people with tech expertise that get laid off, they can all go work at schools and insurance companies and VC for it, right? Like, all of these companies that now need a level of expertise that comes from the tech industry, they can go back to finance, frankly. Like we had this whole wave of people who of MBAs who would have in the old days gone to Wall Street who came out to Silicon Valley instead. So they can go back to finance because finance isn't going to go away. Like I think there is, I think a couple things. One, you're 100% right about backward looking data and also just the lack of real time data.

And some of that is from this like weird isolation that's happened where you don't know what is actually happening. You just know what people think about it. So like we're making these big economic decisions based on like vines. when we don't have local news or boots on the ground or dinner parties where CEOs maybe were comparing notes for a few years and talking about what was happening. So there's like a real vacuum effect with the knowledge. But also, I think there are other sectors that are stronger than we think they are because tech is sucking up so much of the news cycle.

I mean, healthcare, we need healthcare workers, we need nurses, we need doctors, the shortages there. We need plumbers. We need electricians. There's a shortage is there and professional services there. Desperately. Also, that's a really long cycle that involves a lot of training and schooling. And so that's going to be hard to step up too.

So, like, I'm of two minds about it. There's part of me that's trying to resist the gravity of, like, the tech collapse narrative becoming the whole economic narrative because I'm not sure that's true. But it also does kind of feel like everything's falling apart and nobody cares and I don't know what to do. Like there's not enough vets and there's not enough nurses and there's not in school team. You know, just looking at the job openings, health and education and health services, big, professional business services,

accountants, lawyers, all that kind of stuff. Still, we have a lot of shortages in some of those areas. I think lawyers, we have too many accounts, not enough. So, you know, but are people going to leave Coinbase and take a hospitality job? Is somebody going to leave Facebook and become, I don't know, a teacher, possibly?

I don't, you know, and how do you make that jump from I was in sales or I was in, you know, marketing and I was making 75K, 150K, K, whatever the number is, depending on how many years of service. And now I'm going to go start over and be a teacher at 47,000 or 62,000, you know. Well, but these districts also need IT staff and, you know, I mean, they're sort of, but they don't pay very well. And, you know, the school system compared to working at bed. Let me tell you, my brother does it and not very much.

some of that may change. I will also say, and I'm not trying to only talk my book here, but there's like a new, like I'm talking to so, I cannot tell you how often I get a ping from somebody, like a high level person who's like, hey, can I talk about?

Like, can I have 15 minutes to just talk about making a pivot into climate? So like, there's a new climate tech startup born every minute. Yep. And all of these really highly skilled people coming on to the market. And so I think there's like, the assumption is that there won't be, new companies to absorb these people from big companies.

But in fact, we know that new companies are being formed. And frankly, like either between the burgeoning generative AI startup bubble and the climate tech investing bubble, I feel like there's plenty of startups where people will land at. Maybe, you know, if you're going to work at one of these AI companies, I think these AI companies are going to be relatively small and they're going to be a limiting job. So that's like another one of these like factors. I'm looking at like, oh, yeah.

So 100 PhDs, really high-end, wants big data folks, developers go to, I don't know, some verticalized AI company that's going to work in this very specific vertical. I mean, I think their work is going to result in more of the sort of mid-tier jobs, high-paying mid-tier jobs getting eliminated or one person is going to be able to do the work of five, which we see all the time. Like how many jobs have we seen where one, one person can now do the work of five, whether it's graphic design or marketing or sales or SDRs. And then you have this globalization thing happening where people are hiring because of

remote work, all the managers have learned how to hire around the world. So one of the things I'm hearing, and we talked about this, I think with the union discussion we had, there's a big discussion about stock-based comp, unionization, entitlement, and just general expense in the United States. And then people are like, wait a second, I have an office in San Paulo. I got one in, you know, Manila, I got one in Ontario, wherever it is. Let's start just hiring people there because they also need jobs. And we know how to manage. And those people are half the cost. We get two for one, or we don't have to deal with the union, whatever it is. So the globalization remote work thing, I think is going to raise the average salary up in the world while reducing it in the United States.

So as we reduce to a new level, the person who was working at Facebook or meta, you know, in the Bay Area, Zuck's going to just replace them with somebody in his, you know, Canadian, South American Manila office. And I think that's what we're going to start seeing, whether it's Microsoft and Microsoft has big offices outside the U.S. It's just going to be like, you know what?

You want to unionize? Great. I mean, we just shouldn't forget, I mean, and again, this is sort of where like in tech employees got really over like excessively well treated, if you will, right? Like we have and we have this weird economic confluence of insanely high housing costs coupled with insanely high salaries, tripled with the funny money of stock options where like somebody right next to you is a lottery winner because they got in the right company early at a, you know, and you went to a different one.

Yeah. So it is a totally. distorted market. Yeah. And outside of the Bay Area and outside of tech, you have employees who are the opposite of entitled, right? That's why you have every freaking nurses union on strike and teachers on strike. And like, so it's, there are so many ways in which we cannot conflate the broader

economy with tech. But if tech started to operate a little bit more like the broader economy, then probably the layoffs wouldn't be so big. And the housing market wouldn't be so out of hand because I'm sorry, like every CEO who is now complaining about entitled, you've heard me. say this a million times. But every CEO who is now complaining about entitled employees entitled them. Of course. Yeah. They created it. Two things we always talk about on the show. Number one, how to build the best product possible. That's critically important. You want to have a

great product. It's obvious. But number two, you have to find product market fit fast, right? Speed is what startups are all about. And those things usually go hand in hand. But relying on your gut is not how you should do it. Many VCs, they don't want to wait around for that. It's not about your gut, right? You need to have data. Investors are looking for founders that can use data-driven solutions to find product market fit faster. So you need to check out Mix Panel right now, and they will give you $50,000 in credits when you join their startup program. They want to help your startup find product market fit, and they want to help you do it a little bit faster by giving these powerful pools. Self-serve product analytics.

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and isn't currently on any of Mixed panels paid plans you're eligible to apply. Terms and conditions do apply because they're giving you 50,000 in credits. Here's another cynical back channel. I like to give people the honest truth about what's going on. Yeah. And this doesn't relate to Coinbase. It's not like I'm back channeling Brian here since people know he's been on the show, a friend of the pod.

And by the way, they have $5 billion in cash. So if anybody's going to make it out of this and anybody did it right, I think it's... Yeah, they might be the last man standing, for sure. Yeah. So let's say you had a bunch of folks you hired. And they were hired in 2020, 2020, 2021. And they had incredible stock option packages. And they had big salaries.

And you know, you got a clear shot to get rid of 10,000 people or 20,000 people. And the 20,000 people you get rid of were the people who were last in. And you pay three months severance or whatever. Now you put those jobs out again and you put them out, work from home, remote, other countries at a third or 25% of the total cost because of the stock-based comp, right? You wipe that out. What you might see happening here is people saying, you know what, let's cut the less 20% in because we overpaid for them.

And now we have a new cost structure of people's expectations. So I hate to sound really cynical. It's 100% what's happening. Yeah. I mean, the corollary is us passing on deals that eight months ago we might have done. Sure. Like eight months ago, we would have been like, this is a normal valuation in this market. And now, with the reset market, we have, you know, frankly, the opportunity to say we don't want to overpay for this last 20% of companies that we were talking to in the like narrow two to three week window right before the economy collapse.

It's nobody's fault. Yeah, it is what it is. It is what it is. But those are 100% the decisions that are being made. Here's the best thing you could do right now. If you hear my voice, you're listening to this week in startups for a reason. Find two other friends who know how to write code, who know how to design apps, who actually have a skill in the world, right?

They're like an actual growth person. Like they actually do work. Three worker bees. Get together. Start a company. Take a, you know, lower your cost, whatever your monthly burn is as much as you can. Go to an accelerator, raise a seed round. Yeah, it's not going to be at 25 million.

Yeah, you're not going to be able to pay yourself 150 or 250k. yeah, you're going to be able to take a five or 10-k draw a month, maybe. But this is when, you know, there's not going to be a lot of competition and you can take market share. So it's the best time ever to start a company. But safety and numbers, three co-founders. I'm literally looking at the founder university cohort. And I ask Kelly and Presh, find me, I want a list of the startups that have three co-founders. I want to meet them first.

Then I want to meet the ones with two. And when I meet the three, prioritize them three developers, two developers, two developers. hers one for and so dig into that a little more why three i think you're going to have a founder quit that's pretty typical right somebody quit they're gonna have to like get a job for example or whatever yeah they move it's not for them and then you have two left kind of like why do you have a spare tire because sometimes you need a spare tire now you have two and one quits okay now we're back to the solo founder problem really challenging so three to me seems like the perfect number four seems okay yeah sure why not um four founders they take 20% each they give 20% to their investors that's

okay company's gonna move a lot faster you're gonna have to have you're not you're not gonna have to raise as much money you have four founders uh and principals in there three seems like the perfect number to me and so i get why y combinator was really a militant about this no solo founders they just know like solo founders is like probably three or four times the chance of failure and not having a tech person on the founding team, a developer means, you know, have idea people and idea of people are not bad or business people or salespeople or design people. It's all great.

Airbnb, two designers. Well, then when you do that, be intentional about the verticals that you choose, right? Like, again, we're going to probably be talking for all of 2023 about the two bubbles that are inflating right now. AI, specifically generative AI and climate. We're going to talk about climate funding in a minute. it's booming.

Yeah. So like, and I guarantee that funding for these AI companies that create utility around AI and we're going to go back to Open AI for just a second are also going to be booming. So like be intentional about the vertical that you choose when you start this company and there will likely be funding for you. All right. Open AI, everybody's talking about this, $29 billion valuation selling $300 million to Jared Kushner and founders fund reportedly buying second. The Derry shares, the cynical take on that is people are, quote, unquote, buying a logo. What's buying a logo? You're a VC.

You want to impress your LPs. You want to impress the world. You have a logo page. You're like, look, I have Uber on my logo page. Oh, I have Airbnb. Oh, I've got com. Oh, I've got Coinbase, whatever. Logo makes you feel good about yourself.

So put in the Open AI chat GPT logo on your page, we'll make Jared Cushner's. I was just going to say that is so freaking Cushner. That is, that is classic Cushner with a K. I mean, people did this with SpaceX a lot. You know, they would buy secondary shares and then I'm a SpaceX. I meet so many people, oh, I'm a SpaceX investor. And then I'm like, oh, that's great. Congratulations.

Like, can you introduce me to Elon? And I'm like, oh, you said you were a SpaceX investor. Like, oh, yeah, no, no, I bought it on the secondary market from this secondary person and this LLC. And, you know, they're eight derivatives away from the company. They've never been to SpaceX. They don't know anybody at SpaceX. They just bought SpaceX and they put the logo on the website. It's a it's a tried and true little hack.

but I think I've seen with open AI is Microsoft seems to be doing the most cynical way of looking at this

is there's some sort of round tripping which is an illegal activity so I want to be careful using that term I don't think they would I want to back up and make you be even more careful one Microsoft is doing a thing

maybe we should describe what they're doing and then go to the cynical take first. Because I'm hearing like lots of weird stuff. You're already like describing the cynical thing, but we don't know. But so let's start with the facts of what Microsoft is definitely doing. Okay. Thank you. And then Captain Allen is going to bring us the bummer take apparently again.

Sorry. Okay. So what Microsoft is doing is this very unique deal. This was recently reported by Samaphore. Okay. So we already know. Sam Bankman-Fried's publication. Right.

Exactly. One of them. One of them. One of SBF's many. One of the bank been free media collection. Pet pubs, if you will. I think he put $5 million in that puppy. We don't know for sure, but that's what we're guessing.

Okay, so we already know that Microsoft invested a billion dollars in cash and cloud credits into OpenAI in 2019. Now we have found out via semaphore. It's anonymous sources, so take that for what it is. Microsoft is in talks to invest $10 billion into OpenAI at that $29 billion valuation. Both of those were reported by the information already, but here's what's new. As part of the deal, Microsoft would get 75% of OpenAI's profits until it recoups its total $10 billion investment. Then after Microsoft gets its investment back, it will own 49% of Open AI. Other investors will own the other 49% in Open AI's nonprofit parent company gets 2%.

it is also not clear whether money that Open AI spent on as a client of Microsoft, as in paying for cloud server, cloud computing services via Azure, would count toward evening its account. We assume that they just mean profits when they say profits. Okay. So this is a smoking deal for Microsoft, begin the cynical take. Yeah, I mean, okay, we don't know the details. So in a event, and this is like, you know, journalists get a tip.

when you get a tip as a journalist, we both are journalists, who knows what the agenda is. This could be somebody who got fired or, you know, from Open AI. It could be somebody at Microsoft who doesn't like the deal

and is trying to subvert the deal. They open up a burner account. They send it to Samaphyr, Samifor runs with it, whatever. So I'm just putting all those disclaimers out there. Journalists, when something is hot like ChatGPT or Sam Bankman-Fried, they get a tip,

they run with it, especially in today's clickbait environment. Now, semifor, theoretically, like a higher-end publication, I guess. Let's just say semifor is new and trying to make a name. Okay. So, okay, on the cynical to generous scale. Yeah, that too. That's an option.

That's a thing. Trying to get people to say the word semifor, Sam Bankman-free production. I say Samapha. The S and Sammaphore is for Sam. Just so you know, the S-A. Sam before. Just saying there was so much. Sam of 4 was, and the F, it's Sam and the Freed is the Sam of 4.

So when you hear Sam 4, that's a Sam and the Freed. Sam Baf 4 is what Nick just been an answer. The S and the F in there is for Sam Beckman Fried. He got to put a couple of letters into the name. Anyway, sorry to the people at Sam of 4 for doing that day. Whatever. They got so much freaking unearned media for their media pub that like, I'm fine with this. Listen, if you want to be an entrepreneur or you want to do a side project,

Square Space is an amazing place for you to start. Why? Well, it's the platform where you can build or sell anything. I've been talking about Squarespace for a decade because it is the absolute best place for you to take that first step in being an entrepreneur or starting a project or even putting up a portfolio of your work. We love it at launch. We use it for all our different projects. When we have to put something up like Remote DemoDay.com, man, we can get it up and running in minutes. The feature train from Squarespace just keeps coming. The product velocity at that company is exceptional. And when they ship, they ship it beautiful, beautiful templates, inventory management APIs, advanced analytics, 24-7, 365 day a year, award-winning

customer support. And, hey, it's going to look great on any device. They also have appointment scheduling. So let's say you're a trainer or something where you're a coach and you need to manage appointments. Great. You want to take payments for content or for a product. You can do that. You don't need to hire an army.

You just need to go to Squarespace.com slash twist and start a free trial. That's all you need to do. Squarespace.com slash twist. and make sure you use the offer code twist for 10% off your first purchase of a website or domain. You can get your domain there at the same time. We love you, Squarespace. Thank you. On behalf of all the startups, capital allocators and tech enthusiasts who listen to this podcast

for being our longest running partner, it means the world to us. Squarespace.com slash twist. Use the promo code twist, please. Yeah. Anyway, so you have to, as a journalist and just as a consumer of news, understand, like, what is the agenda of an unnamed source? Exactly. What we do know is Microsoft, obviously, in Open AI,

have a deep relationship. It started as a nonprofit. It became a for-profit. It's now one of the largest private unicorns in the world. So that's worthy of what just happened, that like a nonprofit is now at a minimum. Like, whoa, how did that happen? So I don't have any inside information on that.

But that's weird. And then all these weird deals where you're capped at the amount you can get returned and these weird deal terms. Now, let me explain what round-tripping is. When one company invested another company, and then that company does a transaction with that company, one could look at it and say, the money is making a round-trip, just like a round-trip airfare. So I think there was a number that was whispered that they were spending $3 million on cloud computing a day at OpenAI.

Oh, right, right. We report on Microsoft and Amazon and Google. And what is one of the hottest sectors when we do that little ribbon chart? I forgot the name of the ribbon chart. Stanky. The stanky chart, yeah. Stanky. Sanky.

Sanky. Not stanky chart. The stanky ribbon chart. Oh, that's a stanky chart. Oh, it's a stanky one. Anyway, there's always that little piece of the. ribbon, that is cloud computing. And we're like, oh, Azure's growing this amount. Well, I mean, if they're spending $3 million or 10 Azure, that's a billion dollars a year. If Azure, if Microsoft's

valuation is based on that and you've got a billion dollars and chat GPT is open to the public and the more people who use it, the more Google's cloud, I'm sorry, Microsoft's cloud computing revenue goes up. And they're trying to, remember we were saying Azure's percentage growth was greater than AWS's. Yep. One thing that Microsoft needs is to see that cloud computing number go up. ChatGPD is an application that makes that number go up. It costs six cents.

Remember, people were saying, oh, that costs six, seven cents a search. It needs to be like a hundred X cheaper in order for it to be viable. Not for Azure. For Microsoft, it's great that it costs six or seven cents. Right. They're the person who's making this six or seven cents. So Open AI could lose a billion dollars, two billion, three billion dollars a year. of Microsoft's investment money

and round-trip it back to Azure and then SEC gets involved and says, hey, what's going on here? Now, it doesn't mean that they've explicitly said, hey, we're going to give you $10 billion. You have to give us that back in Azure. But this is a related party transaction

if they are shareholders in one and the other. A related party transaction is like a bell that goes off if you're on the board of a company and the founder says, I want to hire my brother and you've got shareholders. Okay, you got a problem. Or you want to, I don't know, I, my brother, let's say my brother owns like a bunch of office buildings.

And then I rent space and I'm publicly traded company and my brother's office buildings. That's a related party transaction. The board has to then sign off on it. So that's what everybody is starting to, that's the back channel in Silicon Valley right now. about this. It's like, what is it? Well, yeah. Right. I mean, this, because somebody put this comment on LinkedIn saying the real story here for VCs is why a company that is positioned itself as primarily a research laboratory for the benefit of humanity is now reorienting itself as the deal of the century. Come on, folks, that's the conversation we want to have. And so then when you look at like

this like incredible, I mean, there's one, the non-cinical interpretation of that is that Satya and Adela remains the freaking goat that Microsoft made this unbelievable mafia deal that is frankly worthy of Bill Gates at his peak in the 90s. Remember that Simpson's episode? Buy him out, boys. Homer starts a internet company, buys them out,

smash it. Anyway, and that Microsoft saw this coming in a way that nobody else did, and it just so happens that, right? Like, that's all possible. But you do have to ask yourself why this thing that, like, as you have said, probably should be open source as it develops.

Like AI at this level should be transparent. It should be available to everyone. It's so transformative that it should probably not be locked up by having help us, even though they seem nice now, Microsoft, top to bottom. That was literally, that was literally Sam Altman's pitch. Was this technology, somebody can pull up a clip of this or, you know, a quote, this technology is so important. It shouldn't be owned by anyone company.

It should be open sourced. And then he flipped that and said, you know what? It is so powerful that nobody should have access to it. And we have to lock it down. I don't want anybody to see the code base. So they have kind of flip- I'm out, boys.

That's how Microsoft gets you. You think they changed, but they didn't. I think, by the way, that person, I don't want to docks the person who made that comment or anything,

but I don't know. I mean, the public comment, so, I think it's fine. I was going to mention where he works, but he doesn't work at Microsoft or an AI company. So just so we're clear.

That's important. There isn't an agenda there. But that is the key question to be asking here. Because it's true. We have focused on the valuation and like Microsoft's making so much money on this. But like what we are now realizing, I think more and more is that this tool is training Microsoft's internal AI. It's operating on Microsoft's cloud.

And Microsoft is going to take 75% of its profits up to 10 billion. then own half of it. That is a big deal. I mean, this is, this is like going to be like, hats off to Sam and the team over there, you know, great dealmaking at a very high price. You know, the company's probably worth two or three billion. And to get 10 times what it's worth and give away half of it, well, if you gave away 20% of it at 3 billion, you know, better to give away half at 30 billion and cash in your chips. I don't know how much of this is going to the founders of the nonprofit or the employees. But this is a huge transaction,

and this is where one of the things you do when you're running a startup is you look for somebody who's got a problem, and then you craft a solution. And this is how great M&A can work. What's Microsoft's problem? Cloud in relation to Amazon. Okay, how do you solve their problem? Okay, make them the number,

make them grow faster than Amazon's, AWS is growing. What would be a way to do that? Create the most intensive application to run on a cloud computing platform that is addicting to billions of people. Problem solved. Now, that doesn't mean

it's round-tripping. That just means they created an application for the cloud that utilizes the cloud in a massive way. And that everybody's enamored with. The non-synical view is that this is the biggest corporate VC deal that's ever been done. Sure. But either way.

haters going on. I think people like probably really hate the fact that Sam Altman's going to make, you know, whatever he owns. And maybe he owns 20% of this. I don't know. I mean, listen, selling out a thing that you positioned as good for humanity and a nonprofit is always going to feel like watching that happen is always going to feel a little icky, especially when you see the numbers go up as fast as they have. But this is also where, like, this is also where the media should start sounding a note of caution. The media in this case being us. Like every other time, that we've seen something hit evaluation

this out of the blue so quickly there have been reasonable questions to ask about how good it actually is or how good it is for right? It's like, when do we start getting we work there and those vibes here? Yeah, I think this is real technology

that is really impressive by really smart people. Yeah. And it's a very conflicted transaction. and as we like to say here in Silicon Valley, no conflict, no interest. And so, you know, the reason this is super conflict is because there's a lot at stake. This could really help Bing compete against Google. It could help Microsoft Office run away with, you know, new features that help it compete against Salesforce and Google, you know, docs and everything.

It's just, it's really groovy technology. Now you have to ask yourself, what the hell is Google waiting for? What the hell is Facebook waiting for? Facebook is on a crazy adventure to spend $10 billion on VR headsets. And, you know, Brad Gerson were saying over and over again, why aren't they spending that on AI? Right. Why aren't they pushing AI? And they have invested a lot in AI.

That's what I'm saying. Okay. So Facebook made the wrong bet. Now, I'm going full contrary. Says, I have this entire data set of human behavior. I'm taking the entire headset business. I'm spinning it off. And I'm putting all of my effort.

This would be the power move for some. I'm spinning out the headset. It's got to stand on its own. Here's $10 billion in cash. Spend $3 billion a year. You've got three years of runway. I'm spinning it out. It's going to be a public company.

And I'm putting this person in charge of it. Spin that shit out. Boom, done. And then put all your effort into AI and catch up to this stuff. I mean, can you imagine what you could build based on the Facebook dataset? I mean, Facebook has been working on AI for years. They were a leader. They're like the silent killer in AI.

So this raises this question. Again, unless it doesn't work. I'm going full contrary for 2023. Open AI is secretly a done. We're going to find out by the end of the year, it's going to be a bust. I also want to know the creators in the dataset. I mean, if Chad GPT was built off of like Google crawling or some web crawling or Bing's crawl of the web. It's Facebook's data.

We all gave it. We all gave it up. I don't know. They're using a bunch of Facebook data. I mean, we don't know what else they're using, but they are training a lot of Microsoft and OpenAI are training a lot. are training a lot of their tools on Facebook's data. Huh. Microsoft is.

Oh, we don't know about Open AI. Yeah, I don't know if I don't think he would get, I don't think he would give open AI access to it. You know, he doesn't even let Google search it, right? Like he, robot TXTs.

Yeah, that's true. And they don't, they legitimately don't sell it. They share it with partners, but they don't sell it. Yeah, that's their business is to collect it.

So, and then Google, where the hell's Google and all this? Like, Google's going to need to start releasing some product here. And I think the big win here is allowing consumers to play with it. I think, and letting people API it and have fun with it and seeing what happens,

which is what? Every time we play with it, we train it. Exactly. And so, you know, Google's and Facebook being super precious about this and not putting it out in the world, Open AI is kind of blown that open with chat GPT and they're just like, yeah, have that people. We'll lose $3 million a day on compute power, which means Open AI is going to just get more

data like you're saying and they can get more use cases on it. I think they got to open it up. But I mean, where's all the money for the creators that the data, if Open AI sells $10 billion worth of

this to Microsoft. I don't know why you continue to call creators. Like we gave all our data over. We have signed every term of service. Like I'm not, this is my maximum cynical take. We lost the deal.

Yeah. Whatever you put on the internet without reading the terms of service, every time that the terms of service changed to include selling your party to third party cookie collectors or this or that or whatever, we lost the bargain. We are no longer creators. We literally gave up all ownership of everything that we put online. Sorry.

And the machines took it and we're like, thanks. Appreciate you. All right. Yeah, that's grim. That's grim. Hey, let's instead, let's talk about, let's move on from AI bubble to climate, bubble and talk about the ways that very excitable sci-fi fans and tech pros are actually going to just destroy the planet with geoengineering.

Yeah, when people start talking about geoengineering, I'm like, I kind of feel the same way I feel about like gain of function research at the Wuhan lab. I'm like, what's the worst that could happen? Yeah, turns out. Yeah. Okay, so there is this new climate tech startup formed by, a former Y Combinator employee. Luke Eisman.

And he, it's called Make Sunsets. It's raised 750,000 led by Boost, BC, and Pioneer Fund. And the company's mission was inspired by this recent Neil Stevenson book that I read, which was super interesting, called Termination Shock about a Texas, an eccentric Texas-based billionaire who decides to do some rogue geoengineering. Not a good idea. So Luke reads this book. and is like, cool, cool, cool, I'm going to do that and raise some money for it.

And the geoengineering is to cool the Earth's temperature by releasing sulfur into the atmosphere to reflect the sun's rays. This became a concept in the 90s, actually, because after Mount Pinatubo, this big volcano in the Philippines erupted, it sent 20 million tons of sulfur and sulfur dioxide into the air, and that resulted in global temperatures falling by one degree Fahrenheit the following year. So there has been like real research into whether this is a thing. But every time somebody does that real research into whether this is a thing, they're like, well, okay, sure, but how does it affect the like monsoon season in Bangladesh? Yeah, the second and third order impact of a bunch of sulfur being in the atmosphere would be the obvious question here.

Exactly. However, Luke Eisman reportedly, according to the Washington Post, didn't ask any of those questions. He just made a big balloon full of sulfur and released it into the atmosphere and let it pop to spread this sulfur. He took no measurement tools. He doesn't know if it even made it into the stratosphere. He just wants to try it and sell credits, cooling credits as a way to drive revenue. I don't mean to be like $10 a pop. I don't mean to be cavalier here, but is this kid high?

I mean, is everybody? And you blew it up and you're selling credits on the blockchain? I mean, dude. Are they on the blockchain? I don't even know if they're on the blockchain out. I mean, come on. They have to be, though, right? He literally said, he didn't send a balloon up with sulfur and it.

He did. Come on. He did. And he popped it. No. And he raised $750,000. This is talking about a bubble. A literal bubble.

So he's selling these cooling credits. I mean, look, this is going to happen, right? Like, people are going to mess around with geoengineering because Neil Stevenson did all the research for them in his book or whatever, but also because we're going to pretend, you know, I don't know, maybe it's a quick way to make a buck on cooling credits. The market is ballooning.

I'm going to give that one to producer Brian because he doesn't make a lot of jokes. I don't want the air out of this innovation, but, um, um, no. Don't please. I, this is a message to smart people.

please don't do geoengineering or terraforming on planet Earth. Like, do that in a simulation. There's some compute platform where you can kind of just model this stuff out. You don't need to throw sulfur balloons into the air. Also, like with CRISPR, don't start doing experiments on babies. And I mean, unless you're in China and they gave you the okay. Apparently, like, they have been doing some, you know, bioengineering over there. but yeah, let's not, we're going to need some new laws.

I think we're going to need some new rules. Please don't throw stuff into the atmosphere. I do know the idea of mirrors. I think Qatar, I think maybe Qatar and the UAE are already doing this. They're like doing cloud seeding and they're doing some geoengineering. Like, I mean, it's, there will need to be global treaties, especially as climate change continues to get worse. But yeah, I mean, this reminded me so much of, um, fast, Brezlo. you know, like he went on to form that health startup

and he was like, my superpower is, I don't know anything about health. Like, you know what? No. Yeah, I mean, listen, Elizabeth Holmes didn't know anything about blood. Yeah. Reslo is Bolt. Thank you. I just get them wrong.

Yeah, there we go. Dubai is artificially creating rainstorms. Guys, it's going to get crazy. Yeah, you're just going to have to pump the brakes here. Please don't do crazy stuff like this. I do like the idea of the mirror stuff. Like, there was a group that was saying, hey, you know, if we just put reflective material on top of some of these glaciers,

we would reflect the sun off of them, and therefore they wouldn't melt as fast. And I was like, well, there's a simple idea. Sure, why not give that a shot on an iceberg and monitor it? And if that glacier, you know, melts 50% slower, that could be good, I guess. So it does seem like there are going to be some interesting experiments. There's one that's also in Ministry for the Future that's like pumping water from under the glaciers up to the top so it can refreeze like it's a whole circular thing. But yeah, it's funny. I think that the response to this was best summed up by somebody who retweeted it when I tweeted it.

And I think Brian has it queued up. It's just like I love that first of all, this tweeter's name, the Twitter name is Optimistic Nihilis. And he replied and said, this seems like a terrible idea. And I'm certain something is going to go catastrophically wrong if this continues. Yeah. Thanks, Captain Obvious. But yes. I mean, move fast and break things in, you know, social media. We saw what happened, like breaking elections, democracies, people's brains, young girls' body images. Like, that was just software. Like, we move fast and we broke things in social media. And we now have a generation of people who are on SRIs, anti-anxiety medication, eating disorders, like all this crazy stuff. Storming the Capitol. Storming the Capitol.

Misinformation. Election interference, whatever. Like, there will be second and third order effects when you move fast and break things. So move fast. Now, how about break less? Good, break less. Now for the breaks, move fast, pump the brakes. Good climate tech.

Good climate tech. One, we've talked a little bit about up rounds, German-based solar panel startup and PAL. Basic solar panels lets people rent them, put them on their house. Power systems like solar panels, energy storage. batteries and EV Chargers has, let's see, the last time it was valued was in October 2021 at a billion dollars, a raise from SoftBanks Vision Fund 2, is close to closing a deal with a PE firm TPG that values it at $2.4 billion. So almost double, upround.

Just more proof that like there's a little bit of a bubble farming and climate tech. Those valuations are still strong for, and also you can apparently raise $750,000 for your sulfur balloon idea. So. I mean, it only takes a couple of like weirdos to be like, yeah, sure, give it a shot. Yeah, why not? A lot of weird folks. Now, N-A-P-L or N-P-P-L?

N-P-A-L is the name of this company. They provide solar panels. They let homeowners rent them. So it's sort of like the leasing model, I guess, like, well, that became so popular here. It must be a must be sort of like a bit of a financing hack, I think, that makes it more accessible to people. I think what's interesting about this is that one solar is where all of the clean tech 1.0 money went, but we're still trying to figure out how to just get that. I mean, like, when you look at the most simple solution, it's solar. It's the fusion reactor in the

sky. Get it on every house. You know, get it on every building. So anything that like reduces friction for that has become really popular. And then. And second, when you look at the funding explosion, the U.S. invested more climate tech VC in 2022 than in the entire 2006-to-2011 Clean Tech 1.0 boom. And at the current pace of investment, according to the Wall Street, according to global market intelligence company, Holon, Halon IQ, by the end of 2023, the U.S. will have invested over $100 billion in VC, climate tech Bc since then. 83 unicorns.

The cost of solar for your home had dropped dramatically. More than that. Yeah, 6 kilowatt hour residential solar system used to cost 50,000. Now outright cost of a typical home installation ranges from 16 to 22K, average of 62% annual decrease. This was on the Sun Run website. So they're a little biased. Actually, a lot of people, too, say that it should be cheaper.

my first newsletter was about solar financing and how the solar industry feels so sketchy to people. And this is why I think companies like NPEL are able to raise easily because it's less of a, it's not really a product industry. It's a financial, it's banking. Like the money in solar is not from selling panels or creating a beautiful product that makes people happy. It's from getting a bunch of consumers to lease their solar, bundling the leases and selling them. Like it was literally a financial innovation that made solar. more accessible, but now it means that the money that's made on solar primarily comes from

reselling these leases, its asset-backed securities. Solar is now cheaper than everything, coal, nuclear, offshore wind, onshore wind, everything. I think it's now cheaper. It is. It's the cheapest electrons on the planet, solar and wind. So we have this massive win that has occurred, dropped by a factor of like, five since 2010. So we are now in the deployment phase.

I don't understand. I guess it's because of the physical nature of installing these panels on your home, the aesthetics and all that, is what is holding people back. Or the fact that just energy is so cheap anyway, people aren't thinking about it. The only time you really think about it

is when you have some disturbance in your electricity. So this is a tragedy of the commons. It's just easier to keep paying, your $300 a month electrical bill, then to, you know, cut it to 200 by...

Your utility makes it, like utilities make it really hard. Sometimes they actually have these sort of punitive, weird things that make it really complicated. Like, it's not, you don't, it's not as easy as just putting up solar,

which is, you have to be a homeowner. You have to be a homeowner in a place that can get enough sun to justify solar. You have to maybe get permission from your HOA. You have to figure out the utility part of it. Like, Still is there enough barriers that it has impeded adoption and frankly, a lot of utilities are making it even harder than they should.

I think honestly, it's moving a lot faster in Europe. Well, in Europe, like a lot, a lot. I think they charge so much for energy, dependency on, you know, Russia and this war, Russia's absolutely unjust invasion of Ukraine has, I think, opened people's eyes a bit to, hey, maybe being off the grid is a good idea. This is one of the counterbalancing things I think is happening in climate. When you have an atmospheric river or you have an ice storm in Texas and everybody loses power and then people start dying, all of a sudden people are like, you know, it would be interesting if I had power walls and solar or a Gen Tech, you know, natural gas thing or maybe I should start thinking about having a starlink on my roof and having, you know, a wire connection. Like I am, you know, Adaptation.

It's literally climate adaptation. Yeah. Climate adaptation. But the adaptations reduce dependency on the bad stuff by default. I was talking to somebody and they said one of the great joys of their life was building their ranch. And it's not like a super rich person. They're okay. But they have like a ranch.

And they have solar. They have a well. They have starling. And this person was telling me, like, I don't need any connection to civilization. I am, you know, just off on this mountain and this range. And I'm good. Decentralization is the future. I still would like you to come back, Jeremy Renner and play some, what's it, Hawkeye?

Hawkeye. I'd still like you to do some Hawkeye movies, but get better future best. I feel like Jeremy Renner and I are because we're both in Likato. I think we're going to start hanging when he's on the mend. I just so anybody who knows Jeremy, like, you know, let him know, like, we're both going to be mounted dudes and we'll cut some logs together safely and I'm glad he's okay. Oh, my God. All right. Let's let's move on to our this week in climate startups.

Yeah, we have a great super interesting climate interview. Michael Cronley is the CEO of Ascend Elements, which is an engineered material. and lithium ion battery recycling company. And they're recycling the feedstock for lithium ion battery materials. And then actually, and this is super interesting, what comes out is like ready to go cathode material. That's apparently the very hard part. Like people are able to extract the cobalt and the nickel and the lithium from batteries

and recycle those materials. But they don't necessarily just like pop out ready to go new cathode material. And that's what Ascend has figured. out. So it's key to this whole, I mean, you know, I'm like weirdly obsessed with batteries like a weirdo, but they are the key to it all. We had a really fun conversation. Awesome. We'll enjoy everybody. Michael Conley is CEO of Ascend Elements, which is an engineered materials and lithium ion battery recycling company. And welcome to this weekend startup. Molly, it's great to be here. Thanks. I guess tell me, you know, first of all, in your own words, what are you guys doing? Yeah. So at Ascend Elements,

We are a new, I guess, disruptive technology that's coming and bringing this advanced technology to really take new and make sustainable battery materials out of recycled lithium ion batteries. And so it's a new technology, really, that really hasn't been introduced anywhere else in the world. And so it very efficiently takes spent lithium ion batteries. And these could be end-of-life batteries. they could be from even manufacturing scrap out of a large gigafactory. And so we take that, we begin to process it. And it's not just a process of recovering the critical elements that are in lithium ion batteries, such as lithium and cobalt and nickel and manganese, things like that.

That's what a typical recycling process does today. What we do is when we process that, we process it directly back into very high value cathode materials. So this is very, very different in that the economics of this process are very different. So rather than producing a commodity metal as our output product, we're producing an engineered material, as you mentioned in the intro. And so these materials can be sold at a much higher price. And as a result, we're able to really incentivize additional amounts of recycling because our

process is so much more efficient and so much more economical to the point where we're actually able to pay for battery feedstock to supply it. And so that's a little different than what is maybe typically done today, where if you have a spent lithium ion battery, you essentially you give it or you donate it to the little recycling bin. But now we're moving into a direction now where there's a lot of valuable material inside these lithium ion batteries. And now that the scale becomes completely different when you talk about an EV battery. And these EV batteries are, you know, 1,000, 2,000 pounds, not just the little small ones that we're used to in our households. Right.

So this is a big difference. There's a whole lot going on here. And I want to back up to take this like piece by piece. Okay, so one, you're recycling lithium ion batteries. Is it specific to EV batteries at this point? Or is it it's any size battery? So we can take any type of lithium ion battery. Yeah.

And there's different chemistries and different lithium ion batteries. Certainly the chemistry that is in your cell phone battery as an example is different than the chemistry that is in your EV battery. But it doesn't matter. We can take those and process all of them. Got it. And then as you process them, it sounded like you are recovering the materials inside. But what is this sort of new aspect? The creating a new material or explain that one.

Dig a little deeper there. Yeah, sure, sure. So in any battery, there's something that's called an anode and a cathode. This is the positive and negative side in a battery. So these materials that are used in a battery to create the anode and cathode are very specific engineered materials. The cathode material is a very specific material to make sure that you have the energy density to make sure that the battery can charge and discharge at a certain amount or a certain. rate, as well as, you know, it also contains a lot of various metals. So in the cathode material, that is really where the majority of the lithium exists, the nickel or the cobalt or the manganese metals, metals, they're even cathode material. Right. On the anode side, there's different materials that are used there, but predominantly it's graphite or a form of carbon. And so there are different materials that are used, but they're, they're made and generated very specifically to function in a battery.

And so you take these raw materials and you transform them into more of an engineered material. And that's really the big difference. So when you move from a commodity or a raw material and you take it and you elevate that value into an engineered material, that's really what's driving the economics here. Is that that engineered material? And also, of course, you're recovering, I mean, that list of materials you gave us, cobalt and nickel and lithium itself, I guess, right? The big one are hard to come by.

Yes, they are hard to come by. And increasingly in high demand as a result of other batteries. So like it sounds like what you've created is a real value chain, a dual value chain here? Yes. So essentially it's, I like to think of it as really just stacking value. Or, you know, sometimes people refer to as margin stacking. So there's essentially a recycling piece where you recover these metals. But then there's also a piece of where you transform these metals into this higher value engineered material.

And so there's essentially an economic value of just recovering the metals. And then there's an economic value of then transforming these metals into an engineered material. Right. What can you do with the engineered material? So that engineered material is the cathode material that's in a battery. Oh, it is. Okay. Got it. And what our unique technology is, is we've developed a way to take a lithium ion battery and essentially skip that intermediate step and go right to this engineered material, the cathode material. Gotcha. It's a much higher and value material that we're making. And really, it's enabling a lot of or higher amounts of recycling because the economics are just much, much better. And are you then producing new batteries or are you strictly in the recycling business, the recovering and recycling?

So we're actually in the materials business. So our raw materials, and there are many other cathode manufacturers out there, but they make their materials from primary sources or mine doors. So someone's got to dig this stuff out of the ground. They've got to concentrate it and refine it and then eventually make a cathode material out of it. Our raw materials or our process starts a little different, where we acquire. spent lithium ion batteries, and that is our raw material. And we begin to process that into this highly engineered cathode material. Gotcha.

And then go back to, that was another chunk of that big first answer, where you get those batteries. It's to the point you said where people are paying you to take them? Yeah, yeah. So there's, you know, looking at the size of batteries, not all lithium ion batteries are the same. So there's, you know, there's, I'm sure there's, there's batteries in your drawer at home in old cell phones or tablets and things like that. Yeah. So there's a lot that's in there. And it's, you know, it's effectively not being recycled because nobody knows really what to do with these

things. So that is a source of lithium ion batteries and actually the collection and return rate of those, call them consumer electronics batteries, is not very high. You know, there's some estimates that it was around 5% and maybe it's it's creeping up around 10% now, but it's still relatively low. Those, those batteries, you know, are weigh a quarter of a pound maybe or even less. You know, they're measured in grams. That's very, very different from an EV battery. So, an EV battery is much, much bigger. And like I said, it's a, it's around, you know, they could be a thousand pounds. Some of the bigger ones are even up to 3,000 pounds. So these are massive batteries. Yeah. And so they all need to be eventually recycled when they hit their end of life

and they all need to go somewhere. And we certainly don't want to let them go into a landfill. That's actually the worst thing we can do environmentally or even economically. We don't want that to happen. So we have to develop a way in a system of bringing back all of these batteries into a processing facility that can process it and use that as raw material and make something much, much more valuable out of it. And are you at the stage where you are also dealing with EV batteries? Like, is that part of, yep, your facilities? Does it require a separate facility or just separate kind of machinery within because of the dramatic size difference? No, actually, it's the same type of facility. It's actually the same

process equipment. So the process that we've developed is able to take any type of lithium ion battery, whether it's, you know, a small cell phone battery or a gigantic EV battery. We take it in and process sit the exact same way. Gotcha. What percentage would you say in terms of the processing is like smaller, I mean, not that many EV batteries. It's my understanding are coming out of spent vehicles yet. So what does the percentage look like now?

And what do you think it'll look like in the future? Yeah. So there's actually the majority of the batteries are coming back are EV batteries. And as it's not measured on not a battery level as a tonnage level. So remember, there's a massive size difference here. So, you know, you need roughly around 10,000 cell phone batteries to make up one EV battery. So you need a lot of cell phone batteries to come back and have the same weight or same mass coming in. So on a mass basis or, you know, a weight basis, we're actually bringing in a lot more EV batteries.

Okay. And yes, you're right. This is more economical for you too. Yeah. Yeah. Just one battery coming in, you know, on a palette is, you know, equivalent to all of this collection point from, you know, think of, you know, 10,000 drawers and 10,000 homes that are someone's going to return their cell phone or their battery back in. So it is much more economic to think about and focus on the EVs and the EV batteries because they're just, they're just larger. Right.

Totally. It's more efficient. Do you want to take a drink? You got time. I guess just to, and then just to put a really fine point on it, we jumped right into the technology because I'm, or, you know, the process a little bit. Obviously, we can go a lot deeper into the tech, but just to put a fine point on it for people who may not realize what is the problem that this solves. You know, what is the profound climate impact that this has and why it's so necessary? Yeah, so we're actually in the midst of an energy transition.

And so the energy transition, and it's been talked about a lot, what really is that? And that's really to address a lot of our climate issues. So the backbone is really climate change in ways that we get and we consume energy is dramatically shifting not only in the United States, but throughout the world. And two industries are being dramatically affected by this. And it's really energy and how we consume energy. One is in the transportation industry. So, you know, this is when we're talking about EVs now. So we are slowly starting to transition our entire automotive fleet from fossil fuels to using electricity and preferably renewable electricity.

So, you know, tailpipe emissions really are going to be going away. And so many governments are behind this, OEMs are behind this. and really consumers, whether they're slow adopters or their early adopters, it doesn't matter. Eventually, they're part of this transition and it's going to take time. So that's going on and it's really to address climate change. The other industry that's massively affected by this energy transition to help and improve climate change is really the way that we receive electricity. The way we generate it and really store it and manage it. So if you look at the number of coal-fired power plants or the use of coal in the United States or anywhere else, it's dropping.

And it's being replaced by renewables, particular solar and wind. So both of those combined are on the dramatic increase, whereas coal is decreasing dramatically. So that's part of the energy transition. With that, you know, unfortunately, unfortunately, it's just the way it is. the wind doesn't always blow and the sun doesn't always shine. So what's being used and being deployed are these massive, massive lithium ion batteries. And so they're as big of a house or as big as a very large commercial buildings. They're just packed with batteries.

And that's essentially the storage that is being placed on the grid. So really at the center of this energy transition in the automotive space and also the, you know, the utility grid scales or industry is really lithium ion batteries. Yeah. And so that's really what we're helping to solve. And so we're going to have a lot more batteries now. Yeah. And then we have a massive shortfall of, it may not seem like it from my early

questions, but I did a whole narrative podcast before becoming a climate tech investor on, like, I became obsessed with batteries and the technology that we need and the, you know, materials that go into those batteries. The lithium shortfall in particular, I think is something people don't understand, right? This entire transition rests on batteries. And we are not pulling anywhere near the amount of materials out of the earth or other sources that we need. Yeah, exactly. So, we'll just use lithium as an example.

You're exactly right. So to make these batteries, because they're at the center of this energy transition, to make these batteries, you need a lot of materials. lithium, cobalt, nickel are three of the the most critical minerals in that transition. So you can throw copper in there as well

in the dramatic increase in copper. But if you just focus on lithium for a second, all of our lithium sources essentially come from the earth. You know, we have been mining metals out of the ground since the dawn of man. So that's nothing new. Just what we're mining out of the ground is

different shifting over time. And now there's an focus on lithium as opposed to maybe iron. So that's our new iron is lithium. And part of the problem that we're having is there's this now dramatic increase in demand for lithium ion batteries. And we as an industry are not able to supply enough lithium. And so what we're seeing is a huge spike right now in lithium prices. So as an example, lithium has jumped up in price almost.

10x in the last two years. And it's going to stay elevated for a while. Part of the reason is the demand is growing a lot faster than our ability to mine and refine the lithium. And so we need ways to kind of offset that. And certainly recycling the lithium, once you spend all that time and effort to try to get the lithium out of the ground, certainly don't want to put that in a landfill. And also with it being so valuable, you want to be able to process it and put it right back

into the supply chain to make new lithium ion batteries. And that's really the part of the problem that we're solving. There's another part of the problem we're solving is essentially, as this new industry is growing, lithium ion batteries and or the refining of these critical minerals, it's highly, highly concentrated in East Asia and specifically in China. And so now you're starting to get governments involved, certainly in the United States, also in the European Union, very same. regulations, incentives to really diversify that concentrated source for all of these minerals

that are in China. So, you know, you see some new recent legislation that's happening with the infrastructure law that was passed last November in the United States. Also, the Inflation Reduction Act had a lot of provisions in there to really help build a domestic U.S.-based lithium ion battery. supply chain all the way from for mines to refining to batteries to everything. So we're, we as a country are not so reliant upon places like China for these critical materials. And that's you. You're part of that supply chain. Yes, we're right in the middle of that supply

chain. So yeah, so it's a it's a it's a great time for this technology that that has started that, you know, this industry and really to kind of enable all of this energy transition. we're right in the middle of all of that. And then back to your business more specifically, who then ends up being your customers? Is it other battery manufacturers? Are they domestic? Who do you sell these materials to?

Yeah. So battery manufacturers is the short answer. It gets a little more complicated than that because these materials could be introduced elsewhere in the whole supply chain. So it could be at another cathode manufacturer if they're going to take one of our precursor materials or, you know, that's made slightly before cathode active material.

So it could be introduced there. Also, increasingly, our customers could be in our OEMs. So EV manufacturers that are now investing in and becoming battery manufacturers. So you've probably seen a lot of the announcements that virtually every single OEM is now getting into battery manufacturing because that's such a vital part. You know, every one of them always used to make their own engines and transmissions. Well, they no longer need that, but they need things like batteries in order to make their EVs work.

And so they've been investing very heavily on the scale of billions of dollars, each of them, to build out their supply chain and their capability to manufacture and assemble batteries. but these huge gigafactories need materials in order to make them. And that's really where we supply the materials directly back into them. So how might that work in the case of an OEM? Let's say Ford wants to create. Like, are we to the point yet where some of these manufacturers can really create a closed loop system where they're off, you know, they're recovering EVs at end of lease or end

of life, sending the batteries to you, getting the materials back. like is that the kind of ideal ecosystem that you want to create? Yes. But they wouldn't set it up themselves. They would contract with you. They would contract with us or someone else in the industry to do exactly that. There's a lot being written about circularity of materials, you know, essentially closing the loop.

This helps everybody's sustainability goals. So there's a lot of ESG type requirements that, that exists now for public companies, they all have to be making steps to become more sustainable. A way of doing that is recovering materials, processing and reusing them. And so that certainly transcends into EVs and EVV batteries. So they're incentivized to do this. It helps with not only their sustainability goals, but it also, it really helps with economics as well. So the ideal state, and we are very close to doing this, I'll say as an industry, is closing the loop.

So OEMs and battery manufacturers have access to and can acquire lots and lots of batteries through end-of-life vehicles or, you know, various buy-back programs. There's there's complete, I guess, reverse logistics companies that sometimes the OEMs have control of, sometimes their partners have control of, but they're able to bring these vehicles back. at end of life and then process the entire vehicle, but then pulling the battery out of it. But there's also another source that they have much more direct control of. And that's in the manufacturing process itself of lithium ion batteries.

So many people don't know that when you make a battery, there's a lot of considered manufacturing scrap that comes from these large battery factories, anywhere from 8 to 10% of everything they produce, ends up in the scrap hopper. And some of that is, you know, there's manufacturing scrap, which is just truly scrap, but also there's a portion of it that is by design, they essentially, there's certain cutoffs or stampings that they cut out.

And so there's a lot of material that they generate themselves that also needs to be recycled. So 8 to 10% of their total output needs to be processed and recycled, even before it makes it into an EV. So we help them with that. And that material is available today. Or when every single battery manufacturer starts up, they need a recycling partner to bring all that material in, process it and return it right back to them. And so as new battery factories are coming online and starting to produce, they need a partner. And to the point where every single battery manufacturer or every single battery plant, and these are very, very large plants now,

They need a recycling partner or company that's almost right alongside them and starting up the same time they are. So, you know, the number of battery factories that have been announced in the U.S., there's a lot of them. And we're going to need just as many recycling plants in the United States to just keep up with that. And then it's going to need to be multiplied again when we start to get serious amounts of end-of-life EV batteries coming back in. So those are the two main sources of feedstock that come in to one of our facilities. But then, you know, we're really working with primarily battery manufacturers and EV manufacturers to help them close that loop. And how many facilities do you have?

So right now we have four facilities. So two are at a smaller scale that are doing a lot of the piloting and R&D in development of our critical materials. And the other two are... facilities are operating more at a commercial scale. So one is one's operating and the other one is actually under construction. When did you start? How new are you at this? So that's a good question. So the technology dates back about a decade. And so the technology itself was a spinout of Worcester Polytechnic Institute. So it's a technical university outside of Boston. And there was a

Battery Lab there and a few professors that had developed this process. And so, you know, our intellectual property and the process is, you know, date back 10 years now. The company itself was, uh, was incorporated and started back in 2016, but it was operating more in a stealth mode for, uh, you know, for about four years, further developing the process and in getting it right. And we, we essentially came out of stealth mode beginning of 2020 and really started going out, more funding because the technology was at mature enough point where we could, you know, raise the funds and then start opening and constructing facilities to process, you know, very large amounts of batteries.

And by very large, we should say there's a very, there's a correspondingly large amount of money that has to go into an endeavor like this. So you raised it looked like a little under $500 million in grants and then a $300 million Series C, right, led by Fifth Wall? Correct, yes. So, yeah, that was what we did in 2022, so this year. So it was a very good year for raising money. So this business that we're in.

You got in just under the wire and then. Yeah. Yeah. So, but it is a very capital intensive business. So it's not like we're a software company that needs development time. And then once you've got it developed, you can replicate it. it's, you know, I call it a hard tech or deep tech type business where it takes a lot of capital. But on the flip side, what we're really doing is we're building infrastructure that's needed for the long term.

And so this is, you know, it's a very sustainable business. It's a long-term business. And so those are the type investors that we look for. It's the whenever I get on a phone call with an investor that is, you know, used to developing and investing in software, companies. It's usually not a good fit. So we have to find the right investors. And there's plenty of those out there that are interested in clean tech or the deep tech. They really understand it and get it. And they're in it for the long haul and helping us build this infrastructure. And now the fact that we're getting the support from the U.S. government in these Department of Energy grants is very,

very helpful. But they're also making a long-term investment in building this infrastructure we need in the U.S. Yeah, talk to me more about that landscape. Have you been there since 2016? I've been involved with the company since 2017. Okay. So I've been around a long time. And so you must have seen, because there's been a bit of a shift in climate tech investing toward a greater willingness like you described.

There are more investors now who are saying, we'll take this longer journey and, you know, potentially lower margins for a longer more, like you said, sustainable in all the sense of the word, business. Have you seen that shift? It sort of feels like now all of a sudden there's like a bubble in a really good way around making these type of investments or firms that are specifically focused on frontier tech or hard tech or deep science. Yes. Yes, exactly. So there's a lot of funds and that's really, I think, a lot of the deals that are actually getting done, the companies that are getting funded these days. Of course, we're not in a very good economic environment right now. But the companies that are involved with climate change or

climate tech or deep tech, they're the ones that are really, they're still progressing because there's a broader thing that's going on. And yes, we have economic ups and downs or the market goes up and down. But this climate issue is not going up and down. It's only continuing to get worse. And so there are a lot of people really investing in this because they know it's, it's, it's something we've got to do something about. And so that is more or less staying fairly steady that people are still doing deals and getting deals done, making those investments. So I see that. Tell me more about the, speaking of the hard tech, tell me more about the technology, because it's my understanding, you know, battery recycling technology exists. It's my understanding

that you're able to recover 98% of the materials within the battery. Talk to me about that technology and why it's better. How are you so awesome? Yeah, how are we so awesome? So there's several technologies that actually will recover high amounts, 98% of some of these critical metals. What is truly different, though, is our output product. Our output product is very different from other methods.

And so there are other methods that exist. such as a smelting process or, you know, they refer to it as a pyro-metallurgical process. This is actually a very, very old process that dates back, you know, thousands of years to smelt metals and refine them. That doesn't essentially just melt them down. And so that's the most crude, basic way of doing it. It's not very environmentally friendly. It takes a lot of energy to do that.

But so it's, that's a process that has been adapted to recycle. lithium ion batteries of recent. There's another process that's more of a chemical process. It's referred to as hydrometallurgical recycling. But what that does, and it's a process now that's going on 100 years old. Again, that process has been used extensively in the mining industry to essentially refine certain ores that come out of the ground. And so that process has also been adapted to recycle lithium ion batteries.

But again, the output product of both that smelting process or that chemical process only recovers the metals itself because that's what those processes were designed for. Okay. This process that we have, we actually call it hydro to cathode. And so it's a brand new process. And what that process actually does is it starts out with these spent lithium ion batteries and goes directly to this high value cathode active material. that's what's very, very different. So we're not just recovering those metals. We're going directly to this highly engineered material.

And this is a process that was uniquely designed to recycle lithium ion batteries. So there was a problem that the professors at WPI were trying to solve. Back when we just started making EVs and putting them out on the road back in 2010, 2011, nobody was thinking about recycling these things. And back at that time, we had these older technologies that, okay, they worked, but they weren't very economical. And so if you don't have an economic process to recycle and it's a cost, then that's going to be a problem for broader adoption. So they set out to find a more economical way to recycle these batteries. And really what their answer was is they wanted to make the most very very very important.

valuable product possible from spent batteries. Yeah. And their answer was the cathode material. Right. And so the cathode material in a battery is important because that's about half of the cost of a total of a lithium ion battery is all in one material in the battery. So everything else, all of the energy, all of the labor, everything else is the other half. And so if you can synthesize that really expensive material that's in a battery from spent batteries,

so making something really, really valuable from trash, that's, you can make some margins, you can make an economic case for recycling. And that's exactly what they set out to do and they've developed that process. They've patented that process. And like I said, it was uniquely designed to recycle lithium ion batteries. And really, nobody else is doing it this way

and as efficient as what Ascend Elements is doing. And so in that way, we're bringing something new and transformative to the industry. Gotcha. So it's more than it's urban mining in the sense that it is some metals recovery, but it sounds like what you're saying is what your competitors are doing is they're recovering metals. But if you want to make batteries, you still have to engineer that cathode material and then process these metals, these recovered metals into new batteries.

You are purpose built for recovering battery material essentially in, it sounds like almost the same state. So that you can just pop, I'm obviously dramatically simplifying. But like, pop it right into a new battery, ready to go. That's exactly it. And so I'll say it is that simple. You know, the PhD chemists that are standing behind me wouldn't describe it that simple. Somebody just had a heart attack, I know. They don't go like, you just pop it over.

Yeah, and there you go. Yeah. But that's exactly it. And that's how we help battery manufacturers and EV manufacturers close loop. We get the material from them, we process it, and we deliver material they can use right back to them. Awesome. MicroKronly, CEO of Ascend Elements, thank you so much. My obsession with batteries will never die. I couldn't have been more excited about this conversation. Thank you, Molly. He's great talking to you today. Appreciate the time. We'll see you tomorrow on

this week in startups. If you love the show, well, you're welcome. I'm glad that you're here. Follow Molly Wood. I mean, what do you want me to say? It's freaking awesome. I'm going to say that every day. Thanks. Can we just make that the new? Can we write that into every outro for the all of time?

We're here. We're here for the show. We're here for the show. Producers at this week in startups.com. You have ideas for the show. Follow Jason, follow at Mollywood. And calicanus. That substack.com.

I'm going to try to keep writing. You just wrote a nice piece. Are you Mwood or Mollywood at? Mollywood. That's substack. Yeah. If you sign up for hers or mine, I think we co. We have a circular economy going.

For sure. Yeah. That's, I think this is the best part. I'm going to, I invited the, where I asked the producers to invite the substock founder back on. We've done a really good job of this like network effects. I got a lot of people recommending our stuff. And so I was kind of liking it. All right.

We'll see you next time. Bye bye. Bye, bye.