This Week in Startups - How VCs size their bets + Ben Birnbaum of TeraWatt and Keyframe | E1620

Episode Date: November 27, 2022

On VC Sunday School, Jason and Molly discuss how VCs size their investments (1:40). Then, Molly is joined by Ben Birnbaum of Keyframe and TeraWatt! (13:17) (0:00) Molly tees up today's topics! (1:40) Jason breaks down how VCs think about bet sizing! (11:43) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist  (13:17) Molly welcomes Ben Birnbaum of TeraWatt and Keyframe to discuss his background and why he started TeraWatt! (27:07) Odoo - Get access to all of Odoo's apps, services, and maintenance for under $25 at https://odoo.com/twist  (28:15) Ben explains the current state of commercial EVs and TeraWatt's progress (34:05) How TeraWatt spawned Keyframe, where Ben is an investment partner (38:20) House of Macadamias - Get 20% off at https://houseofmacadamias.com/twist by using code TWIST20 (39:47) Ben explains how and why he started an investment firm to fund his own startup (and startups like it!) Check out TeraWatt: https://terawattinfrastructure.com Check out Keyframe: https://www.keyframecapital.com FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

All right, everybody, we hope all of you who are our listeners in the U.S. have been enjoying a nice long Thanksgiving weekend. We're back at work with a great show for you. First, we're going to talk about bet sizing on VC Sunday School. How, when you're thinking about structuring your fund, you decide how much to put where and how to maximize, of course, those big power law returns. Then in this weekend climate startups, we've got Ben Bernbaum of TerraWatt and Keyframe Capital joining to talk about how to supercharge. commercial eBs, raising a billion dollars in the Series A, starting a venture capital firm while running a startup, and much more. Stick with us. This week in startups is brought to you by

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of Macadamias.com slash twist by using code Twist 20. All right, everybody. Sunday. Sunday. Time for VC Sunday school because the learning never stops. And today. Hope everybody had a great Thanksgiving. Oh yeah, right. Sunday. Thanks a Sunday. Happy Sunday, everybody. I hope you're just like eating. pie and relaxing and maybe the family. You should be down to the last slice or two now, right? If there's, it's Sunday, you got like maybe one slice of pecan pie, like maybe half a crust of the pumpkin pie. You don't do two dinners?

We do two. There's no mashed potatoes. If you got mashed potatoes or stuffing left, yeah, something's wrong. You should have killed that on Friday Saturday. You should have made that into a proper shepherd's pie by now. For sure. Ooh, strong move. Strong move.

Oh, always. But let's get to work. Let's get to work. You have a question for me. Yeah. Enough goofing off. It's time to get back to work, people. it's Sunday.

I do have a question. Yes. So, yeah, so, you know, I spend the whole first year learning like when you decide, how you decide to make a bet and then where you want a bet and why you want to bet. And then all of a sudden in one of our investment team meetings recently came not just do you make a bet. And if so, how much do you bet, but specifically how important it is to determine how much you bet, this idea of bet sizing. Yes.

And I'm not a gambler, so this is all new to me. Correct. So let me explain it to you. You have a certain amount of money to deploy. And you want to get an idea based on the power law, right? We've had Sebastian on and we all know about the power law, the Pareto principle, 80-20 rule. You know, in our industry, one or two investments will define your career as an venture capitalist, two or three investments or even one will define the returns of your fund, right?

right? That's the nature of our business. You get a lot of zeros. So we were on a call and I thought I would explain this in a Google sheet. So here I'll pull it up. You really need to watch this one, but I'll do my best to explain it, Molly. I have four scenarios. Now, these four scenarios are going to be based upon how many 10x bets you make, how many 100x, 50x returns you get. So it's the same number of bets, right, Molly? 50. 50 times 250K each, right? So you're investing in a company, let's say it's a five to $15 million startup, a value startup in the seed stage. You can put it at, you know, $8 million on average or something. You get two or three percentage points ownership in the company.

And here we have the outcome of zero. So in this scenario, I said 30 of the 50, 60% of the companies would return $0. It might even be 40, right? If you're investing very early, you get a lot of donuts. You get a lot of zeros, what we call a failed experiment. Fair enough? Yep. Pretty straightforward.

Okay, that means... That's what I've been told a lot of baby turtles don't make it. They don't make it, sadly. But we look at them as experiments, and if the founder learned something, we will invest in their next company

and the next fund, right? And that's some of the great investments of all time. Uber was Travis's third company. A superhuman was Raoul's second company. So, you know, second, third, fourth time up at bat, you could hit a big winner. So, here we go.

How many of these return one times your money? So we're going to say 12. 12 of them return one times your money. You get your money back, right? So 12 times 250 is $3 million. So now you've returned $3 million of the $12.5 million in direct seed investments that you've deployed. Okay, you're still $8.5 million in the whole. Now let's say there's a couple of 10xs in there.

Let's say 7. 14% of your companies return 10x. Well, 10 times $250,000 is $2.5, 7 times $2.5, $17,500,000. And let's say you have 150X in the portfolio. Oh boy, yum, yum. You hit some outlier and 50 times $250,000 is $12.5 million, right? It was one of the 50. That's why I did 50x here, right?

So you could actually see one pays for all the principal, which means you had approximately $20,500 in profits. So if we look at the end, you return $33 million, which is a multiple of 2.6x, right? So cash on cash, $12.5 million went in and $33 million went out, right? Extraordinary. That is an incredible outcome. You congratulations. You probably beat the market, right?

Now, if I were to delete this one, that was the outlier, you're now 1.6, right? You barely returned more than you put in, right? So the outlier really matters. In scenario two, we have a very similar setup. 30 companies went to zero. 12 companies returned the amount of money you invested. Six, return 10x. One, return 50x.

Well, we added one. We added a 100x. So, $250,000 investment became worth $25 million. A true outland, right? God damn. Now your fund is at 4x plus in terms of cash on cash return. You're a hero. Now you're like, you know, really top percentage of your industry.

And let alone if we did a scenario where we added a 200x, which does happen, right? And that would put you at 6x. Now, if you happen to hit a 3,000 X, which is what like an Uber or an Airbnb could have been worth, depending on the timing and the public market value. Yeah. You hit two of those, you know, let's say, and you have six of the 200 X is you have some Sequoia-like benchmark. like you could have like in this would be historic but a hundred times cash on cash return not going to happen in all likelihood so i put like maybe one at three thousand zero at 200x but even still if you hit a three thousand xer which has happened with a google and apple a facebook an uber an Airbnb

potentially you could have a thousand two thousand three thousand x return and you could have a fund that returns cash on cash 10, 20, 30, 40, 50, 60 times money. So this is what people are betting on. They're betting as an LP when I invest in funds that I'm going to hit one of the first two scenarios in all likelihood. Maybe I'll even, you know, only return one time my money. I'm fine with returning one times my money. You know, I get my money back.

That's like for me as a gambler, totally acceptable, especially if there's a chance that I could have a 6x or a 10x or more return on my fund investment. Does that make sense? It does. So then how does that impact? What about the, that's the betting, but then what about the sizing part of that? Like, does this concept influence how much you want to put into different companies based on where you think they're going to end up in that column? Well, we're saying here, 32% of the funds, you know, $39 million in deployable capital is going to these first bets. Now, in this scenario, I also talked about our accelerator. I talked about Founding University, one of our new products where we invest small and some money. But let's look at follow-on investment. Here, I've said we're going to leave 38%,

even more for follow-on investments. And in this scenario, we'll do 60 bets, because we have an accelerator and we have Founder University, 60 bets of 250K, which would be 15 million of the fund. And so, if some of those hit, and those ones you should have a higher hit rate on because you know more about the company, it's a follow-on investment, then you're going to start to see another profile of returns that could be very accretive to the fund. fund, right? And that's really my philosophy of early stage investments is place a lot of small bets and then have a lot of cash reserves to bet more. Now, some people might say, hey, you should have, you know, 60% on the first bets, 40% on the follow on, 70, 30, who knows.

And that's where the art comes in. You might have so many companies that are doing so well that you don't have enough reserves. You might have a situation where you have all these reserves, but you don't have any winners, and then you run into a winner that's not part of your existing portfolio and you just bet it all on, you know, what would be Uber's or Airbnb Series B or Series C,

because you're like, okay, we didn't find a rocket ship in our primary investments. Let's go externally find a rocket ship. And so these scenarios can be back tested against your previous funds performance, right? So you could look and say, well, in my first two funds, how did I do?

If your funds are, in fact, seven, eight, nine, ten years old, you'd actually be able to back-test this. And then you would look at your performance in that fund and say, oh, what if I had done more follow-on investing in these, right? What if I had done more primary investments and less follow-on, right? Did I get my follow-ons correct?

And this is where you start to build the discipline of, oh, we really need to focus on, you know, putting more money into the winners. And that's where almost all VCs wind up. We have to have to have to figure out, how to get more money into the winners. Amazing. Awesome.

Love it. And you can, you can, you know, bet sizing. Very simple. Not just, not just how much you have, how much of it you're going to deploy the first time, how many companies, how much you're going to save for the follow on. Love it. It's also, it's so many more spreadsheets to learn. Well, the great thing you can do is you can actually then track yourself now.

So this becomes a bit of a plan, right? So this would be as if a poker player said, okay, I'm going to play in this many tournaments. I expect to cash in this many. And then I'm going to play in this many cash games. I expect to have this return profile there. And I expect, you know, this many tournaments, I'm going to go to zero. This many I'm going to return one times my money. And this many I'm going to return five times my money.

Over this amount of time, it's going to take this many hours of play. And they can actually then do what's called bankroll management. You're managing your bankroll. It's the same thing here. This is bankroll management for VCs. Brad. All right, everybody on the phone today is Open Phones, founder, Darina Kuya. Welcome to the program, Durina. Thanks, Jason. Great to be here.

What about the situation where you have, you know, a phone number that's a common number. So customer support number or maybe you wanted people to just be able to call you and generally talk to the sales team. How do you handle that when you have a group number, a shared number? That's actually one of the super unique things about the way we've built open phone is that we allow you to have a shared number for your team. First of all, when you call into that shared number. You can set round robin if that's applicable or by default everyone's phone would ring. The first person to pick it up will be able to have a call. I like that for customer support. Wow. Exactly. Exactly. And also if I am on a call with a customer, I don't want to be interrupted.

There are other people who can pick up new calls coming in. But I also really think what's very cool is that this workflow works as well for text messages. And not only can you just like share responsibility for responding to text, but you can also use this. as a training exercise because the way that it works is that if I am a customer support rep, there is a text message from a customer. I don't know how to answer. I can actually tag my teammates privately on that conversation and get help and say, hey, is this okay to say or how would you respond? Okay, everybody, Twist listeners can get 20% off any plan. For their first six months at OpenFone. Just go to OpenFone.com slash Twist. If you got an existing number, they'll put it right over for

free. Head to O-P-E-N-P-H-O-N-E.com slash twist today for 20% off. And then, of course, it would not be Sunday without this week in climate startups. This is a really interesting one. We've got Ben Bernbaum. He's the co-founder of a company called Terawatt, which is working on these charging locations for EVs that would basically be built around fleets. They would, like, provide massive joltz of electricity to commercial fleets and vehicles that are, you know, and fleet owners that are trying to switch to. ebs. And that is so expensive that the company itself ended up basically spawning a venture capital firm. So Ben is also a partner at Keyframe Capital. Terawatt got over a billion dollars in a series A

to build out its portfolio of these commercial charging centers. One of its investors was Keyframe Capital. And then this other company, Cyrus Capital, it's just a very interesting look at how much capital it's going to take to build out big time commercial EB infrastructure and how sometimes you might need your own VC fund to invest in that and others trying to do the same thing. Here comes Ben Burnbaum. Enjoy. Ben Burnbaum is the co-founder of TerraWatt and partner at Keyframe Capital, which builds, and TerraWatt builds electric vehicle charging infrastructure for fleets, which is the high level description.

Can you break that? Do you have two jobs? Are you also in VC? Something like that. Yeah. Tell me more. Kind of naturally led to the other, but I think you nailed it.

But we'll get there in time. All right. But yeah, thanks for having me. Yes, welcome to the same time start. Start with TerraWat because billion dollar raise is nothing to sneeze at. Yeah, we're excited about that. So I'm a partner at Keyframe.

I kind of have one job, but at this point, because we have a fantastic team at Tara Wat, and it's led by a CEO, Nahap Palmer, who was the ex-Global head of energy for Google. But at a point, it was two until she joined. But, yeah, so I'm a partner at Keyframe, which is an investment firm that me and a couple of the founders of Terawatt also started, but everything kind of happened in order. But we're a, we're a firm that focuses on energy transition. So excited about all the stuff that you're up to. We invest a little bit downstream of where you are. We've got a round of billion dollars at you have. Let's talk offline. Yeah, yeah, absolutely. But we invest sort of thematically across

that. And we grew sort of very naturally out of, out of TerraWatt, which is at, you know, EV charging and specifically fleet charging hubs are kind of at the cross section of so many different energy and infrastructure needs. And I'll tell you about we're building that business, but that business ended up being an invest, ended up for us being, you know, needing to build an investment platform. All right. That is definitely not something that you hear that often. So let's take this chronologically.

Yeah. It also, it wasn't, it wasn't. It wasn't intentional at the very beginning, but I'm excited that it all happened and I'm excited about where both businesses are going. Okay, so it sounds like Tara Wat came first. Terratat came first for sure. So tell me about that and that business. Yeah. So, you know, at its simplest form, I'll tell you what it does and then I'll tell you about how we started it.

So at its simplest form, we buy real estate and redevelop it into charging, hubs for fleets of electric vehicles. We should jump in here. By fleets of electric vehicles, you mean not consumer vehicles? This is like... Yeah, not personal vehicles. And, you know, think very simply like the Postal Service or FedEx or Amazon or bus depots or things like that.

But the reason that we do that, the reason why we feel like it's important for businesses like ours to exist is when you plug any number of pieces of equipment that consume a lot of electricity in at the same time, at the same place, which a commercial vehicle has a much larger battery than a personal vehicle. So think like a picture in your mind, a Tesla semi, or a you know, the Amazon Rivian vans have started to roll off the line and are out there in the world versus your sedan. Yep. They pull a lot more power.

Yep. And plug 200 of that, or a bus, you know, a municipal bus. Plug 200 of them in at the same place at the same time. And you can use, you read, this is not a hyperbole. you can use as much electricity as a skyscraper and not like a baby skyscraper like the like the Empire State Building like the Salesforce Tower. Yeah. Yeah.

Like this actually I have the Salesforce Tower and the Empire State Building are on pitch decks somewhere. And there are many, many locations out there in the world that have 52, four, 500 vehicles. Think logistics centers, you know, or garbage trucks

or taxi depots or things like that. And, you know, those places were not cited for their ability to get that kind of power. And so they were cited for

their ability to to meet the transportation need. Right. And so the very short decision tree that every one of those businesses has to go through is do I develop new infrastructure out to my site, which is, takes a long time because you have to deal with the utility and, you know, is expensive and is a complex engineering challenge? or do I move to a new site that has enough electricity capacity to serve me as a electrified fleet?

The answer is both. Okay. The answer is both. I'm like both of those sound really hard. Yeah, the answer is both. Both of them are not good, are not good options. Right. I mean, they're not necessarily like bad options, but.

They're better options than. not electrifying. Yeah, sure. I mean, you know, if you're the fleet manager of a taxi service, you know, I think you're, you're doing what the company says and you have to figure this stuff out. But they are, they are for sure complex and changing operations is a complicated thing. But Terawatt works with companies who operate fleets on both of those things. We both develop out sites for our.

customers and we are acquiring sites that can be redeveloped with the hardest part is getting enough power to sites. So we're acquiring sites that have the right characteristics from existing infrastructure and ability to bring power there with the utility. So we're both working with our customers on their existing sites and, you know, acquiring sites where we can serve customers on the timeline line that they need. And, you know,

what goes into that? Because it sounds, it sounds like a real estate development business. Yeah. With a specific thesis, but maybe not an obvious venture backable business, which obviously we're going to get. to because it is so much that that it spawned a venture firm.

Yeah. Well, it's venture backable is a, is a, you know, that's a, um, um, term for interpretation. It might be loaded. You know. You know. Yeah. It sounds expensive. I guess is what I'm saying.

It sounds expensive and our business is capital intensive. And, you know, Morgan Stanley or BNEF will tell you that the US needs. somewhere between 500 billion and a trillion and a half dollars of this infrastructure, you know, by 2040. And so that is like a billion dollars is like not nothing compared to the TAM. And our business is to consume, I mean, our business is to deliver infrastructure for our customers, but our business model is to consume capital. You asked two questions, but the second question was, how is it sort of backable as a business

that can continuously scale? Is the venture question? Yes, I think I asked that the wrong way, which is like, what is the technology that goes into it? Is it primarily a construction task? Is there energy management? Are there batteries? Like, what happens at these sites? Yeah. So I think it's, it's, it's, it's separated. it into two things. The first, I'll just sort of finish my thought. Part of our business is to consume capital. And we need to be set up in a way that we can like continuously consume capital at scale.

And the second thing is, yeah, there's a technology overlay. And that's entirely software based. There's a lot of hardware out there from awesome companies, like everyone from large incumbents that, you know, serve all different types of electronics, like ABB through new folks like ChargePoint and, you know, at a charger and like EV equipment supply level and battery level through like site construction and operations level. it's not really our, it might be just like a solar developer's role is to participate in procurement in some way. It might be our role to help with the coordination of that or have at our own sites some, you know, preferences for engineering design. But we don't have any innovation in that. There's larger companies that are and have invested a lot of.

of money in all the components that you need for sites to operate well. Our technology is fleets need like site reliability and like cost and availability of power. And it comps actually pretty well to data centers. And actually the entire business. business model, comps pretty well to data centers. When you say comps do mean in terms of cost, build out, energy usage, well, all those things. But when you think, when you look at like the answer to your question of like how we set ourselves up and what's the kind of technology that we need to provide, we looked a lot to

companies like equinix, for example, who develops data. centers and then has the technology that keeps, you know, the data centers consume a lot of power and they need to have, like, incredibly high reliability so that when you and I want to watch Netflix show on a Tuesday night, we can and it doesn't have any, you know, buffering or anything like that. And so there's like really high SLAs. Like, it's like when Amazon needs, it's fleet charged, it can't have delays because, you know, there's, and it needs availability of power. And, you know, I don't know how wonky we should go here. But if power isn't managed properly, cost swings can be, you know, can be pretty significant.

So we have to have the software that that manages this stuff across lots and lots of different hardware and complex operations at a site and often multiple. tenants at a site, which is very similar to a data center. And so that's our software overlay attached to a, you know, an asset owning part of the business. Looking for a better way to manage your company without tons of expensive disconnected software, then you need Odo. Odo is an affordable, all-in-one management software with a massive suite of fully integrated applications designed to handle any unique business need. Sounds great, right? Well, it gets even better. Odu is now offering all of their award-winning applications, services,

and maintenance for under $25. That's right. For less than $25, you get 100% of O-DU for 90% less than the average market price. And O-DU is so much more than a world-famous ERP, that's Enterprise Resource Planner. O-DU has over 80 applications for everything your company will ever need. We're talking CRM, marketing, accounting, manufacturing, inventory, you name it. O-Doo's got it. So, as your business grows and your needs change, O-DU will be there every step of the way with dozens of user-friendly solutions to choose from, and you get it all for under $25. To learn more, go to O-D-O-O-com slash twist. That's O-D-O-O-O-O-D-C. Get more done in less time for a fraction of the price with O-D-D. And are you actually in the, I mean, just to like,

walk out a tiny bit. Are you in the energy procurement business? Like when you pop up these sites, you're clearly trenching and, but are you, sounds like you're optimizing the energy use. Yeah, it's a little early for me.

Or you also signing at PPAs or? That's a thing that I, that's, that probably will do. But like, I don't, like right now, um,

we're, that's, we're like in like, uh, a walk before we run situation, but we will do stuff like that to optimize energy costs and as well as help our customers get to net zero. That's not the kind of thing that customers are like really focused on right now.

They're focused on like something I didn't get to say before, but there's been this promise of EVs for since, I don't know, 2012, the 2016, 2020, and now they're actually being delivered. And now people are just kind of scrambling for, you know, oh my God, I need a charging solution. And I need it now. And they're the SLA asks and requirements and contracts are more related to, up time and reliability than they are to

than they really are to you know any any level of they're more transportation oriented than they are energy oriented so far I'm very excited for them to be for them to be any energy oriented but I'm not surprised for them for that to take some time to catch up

but yeah our CEO is the is the woman who took you know Google to to net zero so Right. She'll do it for, she'll do it for transportation as well. Yeah, I mean, not for nothing. That was a huge signal to lots and lots of industries. Okay, so I would, one last question about Terawatt, and then let's move to how it spawned the firm, where you're now a partner.

I would imagine that this has been, Terawatt came out of stealth in 2021. Yeah, that's right. And then infrastructure bill passes, which has lots of climate investment. incentives, IRA passes, which has lots of climate incentives. Like, it feels like you must be thinking it's a great time to be in this business. I mean, in 2017, when we started the business, it was like not consensus that electric vehicles were going to be a thing. Let alone electric fleets.

Yeah. I mean, there's. There are less people that are skeptical now, but there are still some skeptics of that. I have some good investor rejection stories from folks who are now heavily invested in, you know, big EV SPACs and things like that. I see. You know, who are where, you know, big automotive, you know, career automotive folks who are like, this is. a waste of time because vehicles aren't going to go electric. So I don't know why you guys are doing this.

Yeah. So just, you know, yes, excited about the things that have happened over the last year, but relative to 2017, like, we were buying property where that had good interconnect. And some people were like, what are you doing with your lives? So, you know, the last year, you know, turns out. Yeah. I think the IRA is so exciting for energy transition in a lot of ways. But I think for vehicle electrification, specifically for fleet electrification, it's kind of more like a rising tides thing.

There's a, there's a couple of tax credits that are nice. But we're already moving at max velocity because of what I said before about the timeline for infrastructure development. It takes 18 months to two years to develop anything material. And the RA has not addressed anything about, you know, permitting or didn't give any additional resources to utilities to work on, you know, interconnection queue backlogs or anything like that. And, you know, I think having.

more public charging stations out there and more people driving EVs will bring positive sentiment to the fleet manager that I mentioned earlier who might, you know, not have been that interested in the conversation earlier. But there's a lot of, there is, there's significant blocking and tackling that has to happen. So yeah, I mean, it's a, but it's, it's such a, it's, it's early days in a market that is just like so big and exciting. So, yeah. Yeah, I'm, I feel lucky and excited. And it's a really fun team to be to be working with. Yeah.

So I don't know what's EV in the right place, right time. In the climate syndicate yet, but hopefully you have some fun things as well. Yeah, exactly. It's still early. Okay, well, talk to me about speaking of our future co-investments, how TerraWatt spawned keyframe capital. A lot of things were happening simultaneously. Um, so this is a little 2020 hindsight, but, you know, our first three years, we were, we were buying property around the country with a, with the thesis that I described that, you know, it was, there was going to be, um, you know, constraints and, you know, where, and there was going to be a real need and there was going to be a real benefit to being able to deliver that, uh, quickly. And so if we could get a head start on, um, things.

like preliminary designs and getting site control that we would be able to, you know, be in good position for the, you know, market opportunity when it presented itself. And so, and we weren't exactly in stealth, but, you know, we, there weren't really, like, really customers to talk to. Like, we were going to all the conferences and we were telling people, we're buying property and we're interested in fleets and they're like, you're doing what? I don't understand the connection.

And so to our to our investors perspective, as you kind of rightly noted, there's obviously there's a corporate element to what we're doing, but there's also like a real estate, you know, acquisition and development angle to what we're doing. And so to our investors perspective, you know, we're purchasing some assets with a thesis around energy transition, which, you know, and we had to raise. appropriate capital from the appropriate sources to be able to do that. And so they were interested and, you know, would keep tabs on us and keep tabs on market opportunity.

And they would, you know, had kind of seen us as folks in the energy transition space. And we're kind of pushing us on, you know, what other kinds of assets are out there like that. And then simultaneously, we're having these conversations with fleet operators. and we're talking to a Fortune 10 head of transportation operations. And the properties were buying where, like, metaphorically think like the property next to an Amazon distribution center. And imagine if Amazon came and said, hey, can you give us a proposal for what charging

infrastructure, like what a turnkey charging infrastructure would look like on the neighboring property, this sounds really interesting. And at the time, our team was just, I didn't get to tell you my, and my team's full background, but our team was just pretty lean and mostly just focused on acquiring real estate until the market opportunity really presented itself. And it was at that point that we felt like, wow, we really have like product market fit with just like the land that we've bought. Or we kind of called it land market fit.

And we felt like, yeah, absolutely. We'll like bring you a proposal. But then we came back with ourselves and we were like, wow, to be able to deliver a proposal that scope, we're really going to need to build out the rest of the company. And that's when we, you know, we sat down with our investors and talked about what that was going to what was going to look like. and also sort of talked about what I said before about, you know, their interest in the work that we had done over the past couple years, acquiring, you know, assets with this differentiated point of view. And that's when we made the decision to recruit a team with the capabilities of like delivering on that technical vision

while we continued to build the fund and be able to back them in building the business and ultimately invest in other businesses like it. All right, listen, my favorite nut, macadamia. My favorite chocolate dark. Now I have in my office. Nice box of macadamia bars and dark chocolate and I got dark chocolate covered macadamias. A perfect snack for J-Cal. I get a nice cup of black coffee and I treat myself.

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less carbs. Every product is vegan, keto, and paleo. Since you probably have two or three of those on your list. Take it for me. I eat this macadamias all the time every week. Two three times a week I eat them. They're delicious. My little treat for myself. And again, for me, it's dark chocolate. For you, it might be one of the other flavors. They got spicy nuts. They got sweet nuts. They got everything. They got ones that are spicy and sweet. Here's what I want you to do. Go to house someacadamacadamias.com. slash twist right now. Get 20% off by using the code twist 20. That's code twist 20% off at house macadamias.com slash twist. Wait, I still don't totally understand though why the how the fund became necessary. Was it in order to at least partially, like raise money from LPs in order to at

least partially fund tarot? Yeah, that's right. Okay, got it. Yeah, so we worked on the capitalization up through the financing with Vision Ridge. And to get all of TerraWatt's capitalization done, we kind of formed into Keyframe as a fund, and TerraWatt became what was like our sort of first and one of our marquee investment positions. And then how much did the fund raise? Our first fund was around 250.

And we now have a little over a billion. Okay. And they're continuing to invest not exclusively in Terawat, like other EV infrastructure businesses? We have like over 20 companies in our portfolio. And we're broadly focused on energy transition at this point. We have like specialists in a couple of areas. I would say where we spent the most time are building automation and energy efficiency,

grid edge, carbon capture. We've made a number of investments in an EV charging. We just made an investment in a multifamily EV charging. business. Oh. We also were investors in EV Connect that exited last year.

So it sounds like part of the thesis is the tolerance for hardware. Let's say. We're like we're, you know, we definitely

lean into the complexity of the capital needs of of energy transition. And I think maybe it was lost in part of my explanation, but something that our LPs really push us on and like is,

you know, not necessarily to go out there and find assets, but it's impossible to deal with infrastructure out there in the world and have that not be related to your business. in some way. And so whether we're a venture investor in a SaaS business or like David Energy or a passive logic or a couple of companies in our portfolio or, you know, or we're something more or in Arcadia is another example. Or we're doing something more asset intensive with like a C&I solar business like Wonder

Capital or an HVAC retrofit business. like redaptive. We try to, you know, be more focused on thesis and thematic development like we had around, have had around fleet charging and why that matters and less focused on, you know, does it fit neatly within traditional, specifically traditional. you know, venture sort of checklist might look like. Mm-hmm. Just because, you know, it's, that's, that can be very difficult with, um, with energy

and infrastructure. Just, you know, assets are, it's impossible to avoid assets. Right. Right. Um, well, then tell me the, the background to like, what is the origin story that you alluded to? Where did this team come from and how did you get interested in this specific problem? and then end up recruiting Neha to run it.

Yeah. So I was the head of strategy at a company called MV Transportation from the look on your face. I can tell you you're very familiar. That is my polite, interested. Tell me more face. Yeah. Yeah. So they are one of the largest public transit operators in the world.

Okay. And I joined. I think I am the luckiest person in transportation I joined what was a a unique business in

they operate the public transit services in 250 or so cities in the U.S. and Canada so that means cities outsource to a third-party operator like

you know Dart in Dallas or the MTA in New York or whatever in a 10 to 30 year contract paratransit or their fixed route bus or school buses or whatever it is like the labor the CAPEX the facilities the technology all of it

the maintenance services all of it into a contract and companies like mine or trans dev or first group. There's a few big ones in the world. Bit on them in a thousand plus page RFPs responses. And they're complex and a bit thankless of operations, but they could be 100 plus million dollar contracts.

And I joined to not for a deep passion of transportation, nor infrastructure or sustainability, but like a private company with an interest of selling itself into private equity. My interests have evolved, but I was... I was pretty mercenary for a guy doing.

I was like, I was, you know, in my mid-20s, and it was just like an exciting business opportunity. Honestly, I wish I had been that strategic at that age. Yeah.

And, um, but I joined and it was like, I started, I started to work on the assignment that I just described to you. And private equity firms were questioning, we had a $5, 600 million dollar paratransit business. And private equity firms were questioning,

it was like 2015 or something, and they were questioning, this company Uber is growing like crazy. Are they going to just like replace your entire business? And so I was having to learn those things for private equity firms. and then go work on, okay, I got to do a deal with Uber to prove to these private equity firms that we have a right to exist in the world. And that was, I don't know if you remember this, but that was like the time when mobility

VC became a thing and it absolutely exploded. And anybody with a PowerPoint tech that said mobility, AI, autonomous, electric vehicles, like I get $5 million and start a company. And when I began to look at like vehicle electrification for our business, it was like kind of a little bit into Pro Terra's life. And people were starting to buy electric vehicles. I and our, my job was kind of like as had a strategy was meet with mayor's offices and departments of transportation, understand their needs and

figure out how to get them into that thousand page RFP response in a way that brought in new technologies and fit the business model. And they started to ask for electric vehicles and I realized, you know, it was just going to change every aspect of our operations, change our maintenance operations, change what our drivers needed to do,

change our site operations. And then I started to meet with people at contemporary companies, not competitors, but like just other fleet operators, they also had no idea what to do and their staff had no idea what to do. And then I started to talk to a friend who is another Terawak co-founder. His name is Ethan Goldsmith, who was one of the earliest Rivian employees. And the two of us were, you know, brainstorming a little bit about, and so he was obviously very bought into electrification as a concept. And I'm easily excitable, so it got me even more bought in.

And, you know, so we started making one of those slide decks, putting those words, those buzzwords on there. And we were like, we could, maybe we could start something. And then we, we meet a, uh, we meet our third co-founder. or his name's his name's John Rappaport and earlier in his career

he had had brought all the capital together to start Virgin America and under that name's out of familiar

and yeah and he had done a number of things like that afterwards in transportation and energy and

And we weren't sure why he was so excited to have conversations with us, but hey, we just, we started brainstorming further with him. And Ethan and I had this absolutely horrible idea. We were brainstorming with, uh, with John about it. And, and it was going to be a transportation service of like autonomous electric vehicles. And we were like, it was going to lose a bunch of money for a long time. which is not a thing someone should do for a business. And we were... I don't know. Ventra doesn't seem to hate that, but okay.

Yeah. Yeah, for sure. For sure. And we were drawing out the infrastructure, like the hubs that these vehicles were going to need to, need to, like, charge at and depot at, and what services were going to need to be there and where they were going to need to be. and why that's where they were going to need to be. And then we started doing some math around what the charging needs were going to need to be.

And then we were like, oh, whoa, that's way too much power. Right, right. Where could we possibly put this? And, you know, for a little while we, that was a big light bulb. And then for a little while, we, we sort of continued on with that plan. We were like, you know, couldn't figure out how to how to execute it. And then, you know, it just clicked one day that we should, we could just buy the real estate and wait. And if vehicle electrification never happened, we could just sell the real estate.

You'd have good commercial real estate. Right. And, you know, no one would be that mad at us. We might have just wasted some time. And, you know, then it did happen. Right. So. Fascinating.

All right. Well, before I let you go here, I've taken up a lot of time, but what's next? What comes next for either, keyframe, terawatt,

both? Yeah. So we have six, nine months of runway. So, you know, that's a, a billion dollars

will get at you with as much inflation. Yeah. We should say that, the, I don't think I specified this upfront, but the,

the billion dollars was the series A raise. And that was completed. I'm looking. A couple of months ago. A couple of months ago. Okay, yep. Yeah.

That's what a billion dollars should get you. It's an expensive business. Yeah, this is a grenades, not horseshoes thing. So it was at some point in the past couple months. It's hard with the press releases versus closing. We're really growing alongside of our customers in what their needs are. And that's what's happening right now. So that's really what's next is executing on.

development. Where are the customers? Like where are the sites that exist now? Our sites are fairly national. We own property in 18 states, but most development is happening where you would expect it to happen

on the West Coast. And we made a public announcement about a corridor we're developing on I-10 from Port of Long Beach in L.A. to El Paso in Texas. Nice.

Every 100 to 150 miles. There's kind of two kinds of sites. One with proximity to customer locations like I described before. And then, you know, it's two between customer locations, more highway oriented. And ultimately, it's not just like home base charging. It's on the way charging. Yeah, there's. Yeah.

Yeah. Ultimately, we'd love to have. great density in as many places as possible, but that's a long-term vision. In the short term, it's focus on those couple of places where we have, you know, solid anchor customers and develop and try to deliver a good customer experience for them and high reliability, which is, you know, both physical development and the technology that I described earlier. Yep. Amazing. All right, Ben Burnbaum, co-founder of Terawatt and partner at Keyframe Capital, just doing it all in the infrastructure department. Ben, thanks so much for the time.

Yeah, really nice to see you, Molly. All right, thanks for listening, everybody, and thanks to Ben for joining us. And again, I hope you had a nice, long Thanksgiving break. We will be back on Monday with the news. And by that, I mean, tomorrow. We'll be back tomorrow. We'll have news for you. And if you haven't already, by the way, go check out our new podcast and search for founder university in your podcast feeds, especially if your New Year's resolution is going to be make a new startup. This is what you want to listen to first. These consist of 20 minute episodes with super tactical talks. We're talking accounting, SEO, how to make a proper blog post. It's really, really, really helpful. And we hope that every single episode makes founders say, huh, I need to show this to

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