This Week in Startups - The Wing shuts down, avoiding pitfalls of success + Tesseract Energy's Alan Chang | E1587

Episode Date: October 16, 2022

First up, J+M discuss The Wing shutting down, where it went wrong, and avoiding ego-based pitfalls. (1:35) Then, Alan Chang joins Molly to break down his idea behind Tesseract Energy! (22:37) (0:00) J+M tee-up topics for Sunday (1:35) The Wing shuts down: what went wrong (12:44) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist  (14:18) Understanding and avoiding ego- and success-based founder pitfalls (21:24) FanDuel Sportsbook - Sign up with promo code TWIST to place a $1000 risk-free bet at https://sportsbook.fanduel.com  (22:37) Alan Chang joins Molly and explains his idea behind Tesseract Energy, his time at Revolut, and more! (35:20) MasterClass - Get 15% off an annual membership at https://masterclass.com/startups  (36:36) Understanding how a token plays into Tesseract's energy platform

Okay, everybody, welcome to Sunday, Sunday, Sunday, Sunday, the end slash start of the week. Basically, we consider it the end of our week, but it's kind of the beginning. Really interesting VC Sunday school, Molly had a question for me about the downfall of the wing, which suddenly went out of business and led to this interesting discussion about founders and maybe their blind spots. And putting when it's our job to put guardrails up, actually, which is a great kind of lesson for us and consumer-facing product builders. And then this week in climate startups, I talked with Tesseract Energy founder Alan Chang about his company's challenging mission to build renewable energy infrastructure, sell energy and sell excess energy as tokens. It's very disruptive if it works. Really interesting. It's going to be a great show.

Stick with us. This weekend startups is brought to you by Open Phone. As a startup founder, a lot of mistakes are easy to roll back. But using your personal cell phone number as your company number isn't one. of them. Openphone makes it easy to get business phone numbers for you and your team, right on top of your existing devices. Visit openphone.com slash twist to get 20% off your first six months. Fan dual sportsbook. Use code Twist during signup to get started with a no sweat first bet up to $1,000 and Masterclass. Learn from the world's best minds. Anytime, anywhere, and at your own pace. Get 15%

sent off an annual membership to Masterclass at Masterclass.com slash startups. All right, Molly, it is Sunday. Good morning, everybody. Good morning, everyone. I hope you're having a relaxing Sunday. Hope you having a little coffee, but you just got that itch to learn. You just want a little Sunday school. We're here for you with VC Sunday school.

With another one, actually, I think we're having a lot of fun with these VC Sunday schools that are based on a thing that is in the news. So there was a really interesting story about the wing, which was kind of like we work for women. It was a very sort of female oriented membership type kind of co-working space slash club, it seems like. Maybe more private club than working spaces the vibe I got having been there once. More like the battery or Soho House than we work, but kind of trying to do both, maybe. I'll give it that. Kind of trying to do both, yes, is a big part of it. And it turns out that the wing abruptly has closed. There was a long article in fortune about how it failed despite billionaire

backers, a $365 million valuation and a 35,000 person waiting list. I mean, the wing was like super flashy, raised a ton of money, and then abruptly closed. And in our group chat about it, Jason made this comment saying it always seemed to be in certain. of the founder's ego, not the experience of the customers. And this seems like a really good prompt, prompt, book club prompt. Sure. For BC Sunday School. How can you tell the difference when you talk to a founder? Yeah. I think, listen, ego is a healthy thing for a founder. Being driven is healthy, but sometimes you can have blind spots. And if you look at this as a product objectively. It was an awesome product. There was market demand. Women in social clubs,

the feedback I got was maybe they didn't always feel welcome. Maybe they didn't feel comfortable and a women first or a women only. Now there's some legal issues around this. They had gotten sued for discrimination because you can, there's always a guy who can sue for that. Like, when they have female poker tournaments. And someone did. Yeah. Who show up for the female poker tournament. And they're like, I'm going to ruin this and you can't me. And it's like, okay, dude, just, we're trying to get more women to play poker. Can you just, it's one tournament. And then these guys would show up, these poker trolls as women, and then still pay. And so they finally came up with, you know, the laws are you can't

discriminate against people by gender, I guess, including private clubs, which seems right. But it also seems right that people should be able to have their own spaces. If they want to, self-organize, I don't know, you know, what I think of this legally or whatever. Well, I know. is if women wanted to have a space for themselves, I'm cool with it, I don't need to troll them. So what they did in poker was those, they could charge men a different price, so men had to pay $10,000 and women paid $1,000,

so women got paid $10 to 1 for these, you know, guys who came. Anyway, this thing was so beautiful and well-constructed. They understood their customers, and the design was gorgeous. You came to the space, and it felt like your, you know,

best friends, you know, your friend with the best taste who had the best apartment that always hosted the greatest parties or brunches, just really well done. And then they also did amenities that seemed to really appeal to women. They had a beauty salon in it with a shower. You had all the products there for free. So if you wanted to do your hair, you were having a meeting. Just all really good stuff. Now, there seemed to be a leak in their game that came up over and over and over and over again. And I don't know enough about this. So I'm just going based on what I saw on TikTok and in the articles, which was, instead

of having this be run, you know, this perfect product, what I think had perfect product market fit. Yeah. How they applied the membership was to be very selective and people felt like it was run like a sorority where you had to be cool and they had to exclude people and maybe not. not run for the bottom line, the profits of the business, the sustainability of the business. Because the sustainability would say, well, keep raising the prices, have a good profit margin, service the customers. If you're running a hotel, people come in, they pay for the hotel room,

you treat everybody the same. You're not saying, like, oh, apply to come stay at this hotel. And they certainly got this reputation. And you might know more than me if people in your circle talked about this place, that they led in a certain demographic, a certain type of person, and maybe excluded other people. I think there was that. And so there was all of that. There were like a bunch of lawsuits. It sounded like it was like a lot of like yucky rich white women is how it, you know,

ended up feeling to people. And there were specifically accusations about racism and about members treating staff at these places really poorly, which is awful. There seem to be a lot of white women. were the target membership perhaps, and maybe people of color were working at the front desk. Weird dynamic. Weird dynamic. A founder did not, I mean, you need to be, did not get that.

And then you'd have white woman berating person of color at the front desk for the conference room not being set up the way they wanted it to be. I mean, this is where you really have to check yourself and just think about how you're implementing your ideas. You really do, and you have to think about what, you know, it's like every founder at some point has to consider the worst case scenario. Sure. Worst side effects. Worse interpretation, worse side effects. Like, imagine your, you know, that, what is that fat busting drug that gave people explosive diarrhea? I have given, I have been known to say like, what is, what's the explosive diarrhea that could happen?

Yeah, I don't. As a result of your. What, you're talking about side effects. You're talking about side effects. We might call in the industry edge cases. Okay, yeah. Uh-huh. Good.

Yep, like that. They also, it sounded like tried to expand really fast. That's always a challenge. Which is always a challenge. So I wonder like at what point do you as a, if you're on the board, if you're a VC, at what point do you as a VC? This is a great place to start with this conversation actually. In those early meetings, do you ever press found? on what they think is the worst case outcome for their business?

Here's how I frame it. And so this is when you have to give founder some counsel. You don't want to tell them what to do because you hired people who are hopefully leaders and you don't want to be like, here's how to lead necessarily. What you want to do is have a dialogue and say, let me tell you the worst interpretation and how this will be spun by the press. by a competitor, by a disgruntled employee, by an investor who didn't come into the round,

just somebody who's an enemy of yours. And you're going to collect people who are not fans of yours over time. You have them, I have them, everybody has them. You fire somebody. Basically, your Wikipedia page is written by the people you fired if you're a CEO. You know, like, that's basically what it is.

As a journalist, your Wikipedia page, if you are unlucky enough to have one, is going to be written by the people who disagree with whatever you're most passionate about and whatever they hate you for being most passionate about. This is the nature of, you know, being high profile, whatever. So the way to phrase this is, hey, listen, founder, what is our criteria for accepting people?

And they'll say it and say, okay, where is that documented? How do you train people to do that? And if you were to attack yourself, if you were to attack this firm, if you were trying to take us out, if you were trying to lead a misinformation campaign on us, a slander campaign on us, just attack us, what would be the worst interpretation? How would you attack this policy? And that is when I write policies, like I'm writing our work from home policy as but one example here at launch,

because we move from in person to a thing. And so I'm writing this with the full knowledge at some point, it will leak. And I don't want to be perceived as being like crazy for saying you should have an Ethernet cable, should have a quiet room, you know, you should work these specific hours. We have overlapping hours, but of course, you can change them. So I write it in the spirit of, hey, if this was TILIC, you know, somebody would say like, hey, we are on the customer facing business. We're on Zoom all the time. You need to have an Ethernet cable and you need to have a proper microphone and you need to have proper lighting and you need to be in a quiet room where you're not going to have a dog barking,

a baby crying, a roommate barging in because you would look unprofessional. Now, if that happens, it's not the end of the world, of course, people understand. But that's our standard. We should try to hit that note. So you have to write these policies with that understanding. I don't think they had that kind of forethought here. If your email box was public, if your Slack was public, if your texts, I don't know how this would happen, we're public. Would you be able to stand by them?

Would you feel fine with them? Like, I feel fine with my text. I don't know. Some people might not feel fine with them. I write my text. I write my emails as if they were going to be read. So I think that's what, that's how I. I would explain it to this person.

And I think if they had been more thoughtful about the membership and maybe run the membership for profit and for servicing those people, and then maybe thought about this disparity in the optics, if you will, and what could happen. Maybe the reality wasn't that it was a bunch of white women and women of color working at the front desk. Maybe that wasn't reality. But maybe there were enough instances of it that it felt that way.

Yeah. In which case you would really have to think about that. Like, are you letting enough people of color in as members? Or do you have a code of conduct? Because maybe it was. There were just happened to be some Cairns at the place who just were maniacal maniacs who were entitled. And you needed to say to them, hey, you cannot talk to the staff this way. And the team here that supports you, we expect as part of your membership that you treat them with as much respect as the other members.

They're members themselves. That's what I would have done. I would have made the staff members. and I would allow the staff to use the facility as members and I would have called the staff members and they would have just been employee members they would have been whatever

that's how I would have done the optics interesting and I would have put in the first code of contact we treat the support team at the wing with as much respect or more than fellow members they are members of the community in equal standing to the paying members

then if somebody were to criticize you Molly you could just say hey look number one in our manual is to treat the support members as well I should treat the pain members. All right, everybody on the phone today is Open Phones founder, Dorena Kulia. Welcome to the program, Dorena. 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 open phone, just go to openphone.com slash twist. If you got an existing number, they'll put it right over for free. Head to O P-E-H-O-N-P-H-O-N-E dot com slash twist today for 20% off. When do you, this gets to sort of another version of that conversation? When do you have that conversation with that? You know, I mean, in our case, we're pretty early stage, so it's rare.

It's, we can definitely, in Founder University and the Accelerator, have some of these conversations with people. Like, this is the worst-case scenario planning you might want to be doing. But like, when do you as a VC, like, maybe see this starting to go off the rails? Or you see a couple of, you know, because all of a sudden, this, the wing, which was such a huge deal, had raised so much money, is up and gone? I'll tell you when this happens. Who did it intervene and when? It's when a big influx of money comes in. Because people see that scorecard and in certain people, it triggers entitlement.

When certain VCs raise a bunch of money, when they have a big exit, you see all of a sudden on their, you see this happen with VCs, right? Oh, their company went public It became worth a lot of money Huh, I gotta write a book about it Oh wait, that's me You know, all of a sudden They're a genius And everybody needs to listen

To hang on their every word Because of the third or fourth investor In Uber or whatever it is Or, you know, they start taking pictures Of their jets and all this stuff, right? Yeah. And they just get obnoxious And they get full of themselves

Because in our world, For better or worse, money is a scorecard and that's Siri with that ding telling me I'm correct. That was one ding for correct. It's okay. True. And so it's accurate. And I think that's what happens.

You see it all the time. A founder raises $50 million, $25 million, and they go off the rails. And other ones are just like, okay, I got that money. Let me get back to work. I'm product focused. But it can be a distraction. It can also be an eagle lift. So I think when the influx of money comes in, that's when a discussion should happen

with the founders. I tend to do it as a board member on a regular basis. But I'm actually now thinking maybe I should incorporate this into Founder University or the Accelerator. Like we incorporated planning. We're bringing accounting because we did like two year planning and we realized people don't know basic accounting. Yeah, it's amazing. Yeah. Well, it makes sense, right?

You're starting a company. You're building an app. It's amazing that we have that built and like included because, you know, how would you? It doesn't mean it's your skill set just because you're a founder. So I'm literally going to have one of our portfolio companies come in and teach basic accounting. Just chart of accounting. Like, here's how you categorize bills. Here's why you do it. Here's how you can have a P&L and do reporting. Just so they don't do it, you know, run the company for two years and then never do their accounting right and have to do a big cleanup job later. So I do think maybe talking about morals, ethics, perception, you know, and acting with, you know, a high moral authority.

You want to have the high ground in how you make decisions, I think is very important. I even think. think you could frame it as just intentionality. Like you're being intentional about how you're building your business and you're considering bad outcomes early so that you can try to head them off, I think is really, really valuable. And it's interesting because that's so every time Elizabeth Holmes comes up and people would interview me as a journalist and now even once as an investor about it, the question was always like, well, shouldn't the VCs have done something?

And no, but also if there has, if, if we make it part of it. our mandate to say, as you're planning for your growth, are you being intentional about the potential bad outcomes? That seems really valuable. Yeah. Uncertained consequences, blind spots. Yeah. Yeah. Just, I think it's, there's a category of things that could derail a startup. And, you know, going down that list of things that could derail it is a nice way to look at a value proposition for an investor. It's like, here are, here are, I always tell people like, I can tell you what's around the tariff. turn and what speed to take that turn.

You still got to drive the car, but I can tell you, like, you're going into a hairpin turn, you know, most people would take it at 30. You want to try 40 or 50, great. You probably don't want to try 60, 70, which you're probably going to slam into that wall or flip the car. And that's typically how I say to people, like, you know, that's a flip the car scenario. You want to burn, you want to have six months of runway instead of 18. Man, you know, there's not a lot of room for error there. So you're going to be taking a, it's like going up the PCH and whipping around turns.

it's like, yeah, could be fun. You could get there quicker. You can get to your destination 10 minutes quicker. You could also go off the rail. And, you know, they don't have guardrails on the PCH. I don't understand this. You ever drive the PCH, Molly? Yes.

Let's be in the guard rails. It's exciting. I'm so sorry. I apologize. He breaks through the, my son is homesick today and it breaks through the Do Not Disturb. As he should, as he should break through the Do Not Disturb. I mean, he should.

He's a priority. I don't drive the PCH. I don't drive it. I don't drive it with my kids. I don't drive it myself. Why? I like to drive fast. I like to take the turns fast sometimes.

And they don't have guardrails up there. And I just don't, every time I drive that thing, especially since I had my daughters, if I'm going up to like one of those beaches in northern California. And there's a way to go up and then over as opposed to go on the PCH. I'm taking the long way. I'm not taking the scenic route. I don't want that scenic route with no guardrails. I got very important people in that car I'm not even thinking about myself

if I was driving up there I'd be in my Corvette with the Tiptronic you know revving that engine but with those daughters in there heck no and honestly that's how you should think of this as a startup founder exactly

if you want to be a solo founder you're a consultant you're a podcast or you want to go crazy feel free but once you've got those passengers in the car you got those LPs money in the car you got your team in the car It's just the higher responsibility. Responsibility, yeah.

Just take it serious. All right, well, we have a great this week in climate startups coming next. Where do you got? Yes, exactly. Sunday show, big Sunday show. This is so interesting. Alan Chang is the founder and CEO of Tesseract Energy. Previously, he was the CRO at the FinTech Company Revolut.

And basically was like, how can I apply my kind of understanding of disrupting payments and finance to energy, which is such a complicated space. involves tons of payments and finance. And this company, Tesseract's goal is to generate affordable, renewable power. So they are actually building, financing through the sale of tokens,

renewable energy projects. They want to generate a terawatt of renewable energy capacity. And then they're doing two things. Where they are allowed, they sell that energy direct to consumers with no middle person. So it's like a fraction of the cost of buying from a utility, where they're not allowed, you can buy the token,

which is a representation of excess energy, and then sell that excess energy back into the grid, so you just offset your power cost at home. Really interesting, very challenging, but super disruptive if it works. And I see they raised $78 million from Excel

and our friend Chris Saka, lower carbon capital, which I'm an LPN. Okay, you know football season is underway, which means now is the perfect time to download Fandul America's number one sportsbook. Check this out right now.

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Previously, a very early employee and CRO at Revolut, the global financial super app that you're all familiar with. Alan, welcome to this week in climate startups. Thank you. Well, first of all, let's talk about how you made this switch from Revolut into the idea of Tessor Act Energy and just trying to tackle the climate problem altogether. Sure.

So I think, you know, like for me, I would consider myself like a problem solver. So I've always loved to solve, you know, big, very heavy problems. So, you know, Revelo was a great, great platform for me to do that. And, you know, essentially, in last few years, I've been thinking about, like, you know, you know, Rivers, you know, went very fast, is making a lot of money, it's profitable. there's over 20 million people using it. So I've been thinking, you know, what is next? What is the next biggest problem to solve?

And, effectively, I actually accidentally stumbled on energy, right? And it was, I think it was, we looked at the battery company that was, battery trading company that was making a lot of money, right? And my first question was, whoa, why are they making so much money? That doesn't make sense. And then it was sort of boring. Yeah, exactly. Like, how do you have money in batteries?

And it's the same battery as you know, you find in your iPhone, right, and your Mac. So we started digging and digging deeper and deeper, and then we just realized actually, you know, energy industry, there's a lot of broken things, things that don't really make sense, right? And also, we're not doing so well in the, you know, our net zero target, right? And decarmerization, we'll say we're pretty behind target. And also, I don't see a lot of innovation there. And another thing we found was there's a lot of these solar and wind, right, which is the cost of, you know, the levelized cost of solar and wind have been, you know,

dropping rapidly in the last, you know, 20, 30 years. Actually, if you compare to, let's say, one of the biggest drivers of energy production today, which is your gas, right? Renewables actually four times cheaper already compared to gas. So what you have today, right, is the cost of energy production is actually going down, but the price of energy is actually going up. So something really doesn't make sense, right? I think it's a classic example of market failure.

So, yeah, so effectively, I decided to, you know, to do something about it. And that's how a test run was born. And when was that again? So I had this idea maybe, we started looking to it maybe two years ago. But formally, we decided to do it maybe, yeah, sometimes this year. So it's pretty tricky to find details on what you're doing, but I've seen it roughly described as D to C kind of virtual energy, maybe brokering.

Tell me to the extent that you can what you're building. Sure. So let me start with a very, very high level. So high level, we're trying to build, effectively, a community-driven renewable shell, right, in one sentence. So let me break it down to two parts. First part is an energy part. So we are, we're building a fully integrated renewable energy company. So that's buying and building, you know, solar, utility scale, solar wind batteries.

And we sell directly to energy consumers, right? When I say energy consumers, I mean, people actually consume energy. By full integration and, you know, bypassing the brokers, we can effectively improve. proven margins, and we passed some of that margin improvement as savings back to the customers. So you are not a broker. You are in the construction business. You're actually financing and developing renewable projects yourself? We'll build those projects. Okay. Well, we'll also buy, right? We'll option seeing buying projects that, you know, makes the economic stack the work out, but we also build them as well. So we start from scratch.

We do anything from, you know, sign from scratch like Greenfield, trying to get the permits to the grid connection all the way to construction and energization to, you know, buying, you know, a project which has permits, what the industry called like shovel ready, right? Literally you can put a shovel, ready to shovel. So we look at all stages of projects.

Okay. So you're not, I thought maybe you were selling renewable energy credits or similar, but you are actually selling electrons. Yeah, we are. producing, producing, or converting electrons rather. Yeah. Producing electrons and slaying those electrons. Okay.

And then, but it's direct to consumer. And that seems to be the big unlock in terms of pricing. Correct. Exactly. So the reason why we go direct to consumer, right? So if you look at the energy economy, right, there is, like, you can kind of break down to several buckets. So the first big bucket is actually retail.

So actually retail is about approximately 30% of the energy economy, which is much bigger than most people think, right? Most people assume it's a big industry that consume most energy. You actually retail is a pretty big part. And actually, it will only grow as we electrify, you know, transportation. If you compare, let's say, what individuals or SMBs pay compared to, let's say, the Amazons of the world, right? The difference is very, very drastic.

So, I mean, this is also news, right? For example, I saw news on AWS signing a big deal with some Californian solar farm. a couple of weeks back. So what they do is they go directly to these solar farms, these generators effectively, negotiate very, very good rates. And if you look at, well, I don't know the details of unit rate, but I'm pretty sure it's a much better rate than what you and I pay.

And effectively, if we look at, you know, in the energy economy, right? So if you look at, you know, SMBs individuals, they pay a much, much higher rate. then they're these guys, right? So that's number one. Number two is, right now, most of these projects are owned by big private-ty firms and big energy companies. And they're also financed by, you know, big project finance banks. And these energy are sold by, you know, by some brokers, right? Then eventually gets to the hand of the customers, right? So effectively, so many, you know, so many people have made the slice of the cuts before it gets to the, gets to the,

gets the customer, right? So, effectively, I mean, I just don't think it makes sense, right? I don't think that it's very fair either, right? And I think there should be a way for people to have exposure to these, you know, pretty profitable assets, right? So that's essentially what we're doing, right? We basically giving exposure to all our customers, right? You know, power, renewable power, and allow them to offset the energy bill. So explain to me how that works. That sounds like now we're getting into the token territory, because it's not as simple as you don't become my utility, right?

That's not what you're saying. We actually utility. You're actually my utility? Wait, what does PG and Egan have to say about that? Because I'm pretty sure I'm not allowed to disconnect from them as much as I want to. Yeah. So let's take a step back, right? So, yeah, so we're building a fully integrated renewable energy company from buying,

building assets, renewable assets, utility scale, sell directly to retail and SMBs. So that's the first thing we do. And we want to sell it 10% cheaper. The second thing we do is we, if actually one, allow our customers to capitalize energy bill. So what we call like virtual power generators, right, or virtual rooftop solar. If actually the problem of rooftop solar, right, is a, you need a rooftop and not everyone has a rooftop.

And if you live in the city, that's even more difficult, unless it's like Uber wealthy, right? Number two is the economics for utility scale, you know, generators are much, much better than rooftop, right, on retail scale, right? Approxment translation is about 2x, right? 2.3X, depending on technology you're looking at. Third is, there's no liquidity for rooftop solar, right? So if you want to sell, let's say, if you need some cash in hand, right? and you will sell part of your rooftop solar, you can't.

That's not really an option. No one's going to buy off you, right? Unless you sell the whole house. Yeah. And even if you do sell the whole house, right, there's no guarantee the new buy actually values, right? Your rooftop solar, there's no, like, let's see you put, you know, $15,000 in, right? There's no guarantee that the new buy would actually value your rooftop solar is $15,000.

Right. Right. And on top of that, most people lease their rooftop solar. So they don't own it in the first place and there's a whole. the black-in thing there. And then there's a fourth problem, which is, effectively, the solar technology itself, right? So, solar, the peak production for solar happens around,

you know, during the day, right? At noon, well, depending on angle of the panel, but around, let's say around noon, right? Whereas the peak demand for most people, right, it's actually from 6 to 9 p.m. When you come off, when you get off work and you turn the TV on and we put the, put the kettle on, right? you know, from what we see, well, from analysis we've done,

solar can only cover up to 30% of your demand, right? And even with batteries, like, that's, um, that can increase by maybe 5%. So the rest of the time, right, from 60, 7% of the time, it basically becomes a financial product, right? So what happens is you exporting, during the day, you exporting your excess solar back to the grid, right? And you get a very, very bad rate, usually.

for what you get and at night you basically importing, right? So 30% of the time, it's basically like an energy hedge. 70% of the time, it's like a financial product. It's like a savings account, right? So, an up in our opinion is not that effective, right? So what we want to do is we want to take, effectively, a hybrid technology of utility scale,

of wind, solar, and batteries, and in the future, you know, more renewable technologies. And we want to tokenize it, and then basically give like a virtual solar panel to the customer. With 50% better economics and rooftop solar, much better UX, so you don't have to get some money to install it, right? It's hassle free, just press the button, right? You can buy and sell anytime.

So if you don't have, let's say, $15,000 up front to set up a rooftop solar, that's fine. You can solve as little as $1 and then you can build it up, right? you can swipe some of your money from payday, right, every two weeks to this virtual generator and then you can start building up more and more over time, right? And offset more and more of your energy bill over time, right? I mean, we've seen this in a lot of fintech players, right? It's, you know, we can do exactly the same. And then let's say, for whatever reason, you need some liquidity, right?

You can sell immediately and then cash out and then later you can build it back up again. And most importantly, if you, let's see, decide to move house, right? I mean, a lot of young people like to move house nowadays, right? If you want to move, that's fine. Like, you take your virtual rooftop solar with you, right? You don't have to sell your house and then, you know, install rooftop solar again, right? And in theory, you could also double up, right? If you end up in a house that has rooftop solar or a house where you're allowed to buy energy directly from you, you could still, you can still engage.

in this sort of token arbitrage, if you will. Exactly, exactly. And token is for us a way to do really accounting, really, you know, who owns what, as well as facilitated liquidity, which is, you know, helping if people want to buy or sell in the secondary market, they can, right? So that's the reason why we use token. So, and that's also how we finance, you know, to build more net new renewables, right? So our goal is to basically raise as much money as possible, right, to build as much renewables as possible, right?

So we do that by, you know, two simple things, right? Number one is making more money per unit energy we generate. Number two is, in fact, you know, crowdfunding, right? Right. All right, listen, Masterclass is the best way to learn from the world class instructors at the top of their game. I love the product. It's some of the best stuff you can get on the internet, including amazing sessions, like the greatest shooter of all time.

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Just go to masterclass.com slash startups. Once again, masterclass.com. You know how to dispel that. That's easy. Slash startups for 15% off the Masterclass annual membership. Is it your intention that the value of the token itself will go up or will it be tied to the kind of kilowatt hour price? I mean, obviously, I don't know. I don't know how these things will get valid, but I would imagine it would be, yeah.

I would imagine it will be, you know, tied to the future of power prices, right? and, you know, if the passes any indication of the future, you know, this probably will go up. And the, but the idea is that ultimately what the token represents is a new version of something like a renewable energy credit. It's excess storage that you are able to sell and get liquidity because other energy brokers need. Think of as a, you know, are there actual kilowatt hours attached to the token? Yes.

Or is it a representation of a credit? So one token represents... Energy is so complicated. I just want to tell our listeners is so complicated. And you're making it way easier, but it's still complicated. Yeah, I think an easiest way to explain is one token is one water power. Right. And that power generates energy over time.

I think I got it. So where you are allowed or where it's... Because there must be some places where you can't sell directly to consumers or small businesses, right? So where you are allowed, you could become a direct customer of Tesseract. Correct. Where are those places? So we know UK and Europe is possible, right? We know in some places the US is possible, but we are aware like some markets, you know, where, for example, it's completely monopolized by the government.

Yep. Right. It is not possible. So I think the market is where this can work is basically privatized markets. Are you attaching like a movement to this at all, which is, you know, the idea that is more and more people become aware that we could be buying power directly and more cheaply. they'll start to agitate for it a little bit more? Yeah, for sure, for sure. A happy side effect if it happens.

Yeah, exactly, exactly. Like, renewable power is just fundamentally cheaper. It's better for the environment, right? And there's no reason why people shouldn't buy this, right? There's just so much barrier to entry to rooftop solar, right? We just want to remove all those barriers. Also, improve on the economics. And it's one one for everyone.

How do you look at the market size for this? I mean, since anybody could buy the token, infinite, infinite, Tam. Yeah, I mean, so the way I think about it is right now, globally there's approximately 10 trillion, so 10 terawatts of power, including non-renewables, right? So it's just global power supply to replace it with, you know, 100% renewables, you approximately need, you know, $10 trillion.

Right. So that's a pretty big market. It seems like the, I know, I love this business. It seems like the hardest part of your job might be the projects themselves. Like, how have you found that? I know a couple solar developers, and it is certainly portrayed to be not an easy business to be in. I think that's correct, but probably the biggest challenge is permitting, right? Like, for example, one problem we see, right, is a lot of people living in those communities

where the projects are being built in, right? They just don't want those projects to be built there, which kind of makes sense, right? It's if you don't really want something near your backyard, right? That is nothing to do with you, right? And, you know, you don't want it there, right? However, the good thing of being fully integrated and being community first is like imagine people can actually vote, like people using our products, right, in those communities. They can vote whether they want those projects or where they want to put it. And actually, there is a financial incentive for them because if they, you know, want, if they promote, you know, they want this project to be built there, they can actually save more.

more money and energy. So I think if, yeah, so the classic way to do these projects is, you know, if the private equity fund did it, all the money, all the financial upside goes to the private equity, right? And the banks are financed. It doesn't benefit the community, right? However, if it's community driven, right, and has direct benefits to the community, that's a very different story.

So I think that's one of the strategic advantages we have over, let's say, private equity fund doing this, right? Is there an example? Is there a community where this is happening? Have any projects been built? Yeah, yeah. So there is actually a lot of examples where, there's a lot of examples where, you know,

projects being, you know, built by community. For example, there's some wind farms in Scholar, which is community-owned, right? And I want to be clear. When you're saying community, you mean the actual local community, not the Web 3 community.

Yes, it's local community. But maybe like a little bit of both. Well, I haven't seen any Web3 projects. Right. Okay. So the local community. Literally very local. Like, literally, in that town.

Yep. In a small Scottish town where everyone owns a little piece of it went from, right? Amazing. Yes. And, you know, what you see is, if you look at the duration for the permitting process, community-owned ones, much faster than non-community-owned ones. Right. So it's not something we've invented, right?

It's just something we see, oh, this is much faster. This kind of makes sense. Right. And everybody saves money and is happy. Exactly. And then tell me about the private token sale. It sounds like that process, you raised $30 million in traditional equity, right, from VCs. And then $40, $48 million through private token sale?

Yes, that's all right. And that just happened? Actually, it happened a couple months ago. We got announced recently. Great. And so then that is. all going into project development and token sales. And like, what's the, where are you at now?

Kind of what's your stage? Yeah. Yeah. So, yeah, we deploy some of that capital in hiring, hiring talent. So we're about 25 people now in team. And obviously, we deploy majority to the capital in building, you know, building and buying these utility scale projects. How many are there? In the pipeline.

So we have over 100 megawatts in the pipeline. Wow. And we should, I don't think we clarified, you're based in the UK. So when you say you're working in these European markets, that's why. Yes. So I'll, yeah, our first markets in the UK because, yeah, the quite a retractive market to be in. But yeah, our ambition is global. We want to be where, where this problem exists.

So what are the next steps for you as a company in terms of getting the word out, other than this podcast, obviously? So next steps is, so we're building the product. So we're entering closed beta by in one or two months time. And we'll enter the public launch sometime next year. You know, you're a very matter of fact speaker. And I think it would be easy for people to, underestimate the kind of the scale of what you're talking about here. I mean, energy is such a

profitable market for many. It's such a deliberately opaque market. It has, it is, you know, at least in the U.S., pulled by lots of different regulated monopolies. Like, the scale of what you're proposing here, it sort of sounds so simple and obvious, but I have to imagine you're going to run into some buzz saws of institutional opposition? Yeah, I understand. But I think the key is a high great people, right? And what I find is the more ambitious, the more ambitious you are, the bigger, the, the bigger, the more hairy problem you're trying to solve. The, you know, the more the best people want to join you with.

So I think in my mind it's kind of the harder the problem is the easier it is to to some extent to hire better people that can execute better. So I think it's it's pros and cons. Right. You have a mission. You have a great big battle to fight. What is your biggest obstacle? In terms of over, what is the part of this industry that you think will be the hardest to disrupt?

Yeah, that's a good question. I think it's honestly I think it's the whole part of the value chain I'll say every single value chain we've seen so far has many problems and probably I'll say probably the biggest challenge right is our alliance in China because China produces

you know majority of the utility scale batteries used right produces most of the you know even the PV panels or the wind turbines right so I think whilst renewables can help any country to get, you know, energy independence, reduce the reliance on imported fuels,

I still think, you know, on the manufacturing side, we're so rely on China, right? So I think that's a huge challenge. And I think at some point, you know, someone, if not us, needs to have localized manufacturing, right? I mean, taking a page off, Tesla's paybook, right? They make cars where they sell them, right? which kind of makes sense, right? I think we need to take manufacturing locally

where the energy is generated and consumed, right? Yeah. Right now, you know, these batteries, these solar panels travel halfway across the world in not-so-renewable container ships. Right? Right. And it just doesn't make sense.

No, it is what it is today. And, yeah, I believe power should be manufactured locally and generated and consumed locally. I think that's a future. Love it. Alan Chang is founder and CEO of Tesseract Energy, which you find at, there are a couple out there, right? So you're at Tesseractenergy.

X, Y, Z. There it is. I had it open in a tab, and I found like another blockchain project into this and that. Tesseractenergy. That's the only one you want to find. Yes. All right. All right.

Amazing. Well, we look forward to the beta launch. I can't wait to hear more. I'm going to be stalking you from across the pond. Thanks so much for the time. Thank you. Thanks for having me. All right. Thanks for listening, everybody. It's going to be another great week. I already know in this week and startups coming up. It's going to be a great week. Enjoy the rest of your Sunday and we'll see you tomorrow morning. I'm sure there's going to be no news. I'm sure it'll be a quiet news week.