This Week in Startups - Understanding capital calls, one-off SAFEs + Transaera CTO Ross Bonner | E1605

Episode Date: November 6, 2022

J+M kick off the show with TWO VC Sunday School topics: understanding capital calls (2:11), and one-off SAFEs. (10:29) Then, Transaera CTO Ross Bonner joins the show to break down why he is building energy-efficient and sustainable cooling systems! (19:54)(0:00) J+M tee up today’s topics! (2:11) VC Sunday School: Understanding capital calls (9:04) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist (10:29) Bonus VC Sunday School: One-off SAFEs (18:32) Smash Digital - Visit https://SmashDigital.com/TWIST to get a free SEO video audit for your business (19:54) Transaera CTO Ross Bonner joins Molly Wood to break down their sustainable cooling systems. (33:21) Dell for Startups - Apply for Dell for Startups and get an additional 10% off at http://dell.com/twist (34:34) Ross explains the role of heat pump technology at Transaera Check out Transaera: https://www.transaera.com/ FOLLOW Transaera: https://twitter.com/transaera 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

It is Sunday. And we have two topics for you in VC Sunday school today because my new thing is I sneak in a bonus and just check them without any notes and he knows every time. I'm just saying. I never, I haven't stumped him yet. Yeah, it was very important discussion today. We're going to talk about capital calls and why do VCs take multiple capital calls when the LPs send a money? And then how does that affect startups and founders during a down market? Yep.

And during a down market, a lot of founders are. are raising on one-off safes, how should I, the new VC who has never seen this before, view that? Is it a red flag or is it a good strategy? We talk about that as well. I'm going to answer that question, very important one as well. Do you go for the price round? Do you go for the quick safe? Very important decisions, both for investors, again, and for founders. And then we have the CTO of a company called Transera, Ross Bonner, joining the show for this weekend, climate startups to talk about transforming air conditioning to save lives. It's both adaptation and mitigation. Save lives as the planet gets hotter, but use less energy.

doing it so you don't contribute to the problem. Amazing. It's going to be a great show. Stick with us. This weekend startups is brought to you by OpenFone. 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. OpenFone makes it easy to get business phone numbers for you and your team, right on top of your existing devices.

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Apply for Dell for startups and check out Dell's Black Friday sneak peak sale at Dell.com slash twist. All right. It's Sunday. It is Sunday. It is Sunday. Day of rest for some people. For some. For some.

Other people might be in the office. Who knows? Yeah. Yeah. A friend of the pod, Sam Lesson tweeted about capital calls earlier this week. We talked about it in our group chat. You had some questions. I do. Well, and it also keeps coming up in our webinars, and it's just sort of like a big question. I think that fundamentally, a lot of people have about BC, which is like, when do you get the money? Correct. When do you get it? What is the mechanism for asking for it? Sure. How does all that work? It's called the capital call. So a venture fund has a bunch of LPs. The LPs are called limited partners. Limited partners tend to be high net worth individuals, family offices, which is a collection of high net individuals in a family.

Right. You know, Walton's or whatever, but there's many of these in the country, like low thousands of family offices. Six trillion dollars in combined capital, I believe. Yeah, you go. Yeah. I'm so obsessed by it as a category. Yeah.

Yeah. And so, and then you have institutions like Harvard's endowment, MIT's endowment, and a zillion other endowments, Ford Foundation, retirement, anybody who wants exposure to the venture category falls into the bucket of an LP, a limited partner. They make a commitment. Let's say their commitment is to put a million dollars into a venture fund. have a venture fund we're raising right now launch fund for and i'm doing another webinar for it by the way calcannis slash four oh launch dot co slash four if you want to sign up uh or if you want to find out more

you can just email me jason at calacanus.com or no calicanus at launch dot co so that person let's say high net worth individual family says we'll put a million dollars into your fund okay let's say it's a hundred million dollar fund they're one percent of the fund the fund is going to be deployed traditionally over three or four years you might do the primary investment in three years and then some follow on funding for a year or two after that Let's just say it's four years for simplicity's sake here. You will do a capital call for that million dollars from that individual. And you say, okay, we're going to ask you to send us 20% of the capital now.

And then four other times, you'll ask for 20%, so you'll ask for 200K, five times. And why wouldn't you ask for the million up front? Well, people want to fund their commitments over time because that's more capital efficient for the LP. It's also got a benefit for the GP, the general partner, the partner who's running the fund, in this case me. I don't want, and we don't want, are metrics and statistics of how we're doing counted from when we pull down all that money. Because if we pulled down the million and we were going to put it out over four years, actually, let's say five, because we're making, we're doing this five year kind of thing. Five capital calls over five years, 200K each, and that means 20 million over

five years each year. If we take down the hundred million and we don't deploy 80 million of, it in the first year, that means that money has no chance to grow, and it's counting against our IRR, our rate of return. So what you do is you take down only the money you're going to invest, you deploy it, and that money gets calculated, you return from year one. The money from year two that you take down and you deploy in year two, that gets done in 2023. And then the money you take down in 24, the clock starts taking for your performance in 2024. So it's a very complicated to do in a spreadsheet. You have to take the money you took down and then you say how much it money the internal rate of return over time. And so that's the reason. It's good for the

GP and it's good for the LP. Right. So, but it sounds like that schedule can be variable. And this was what was kind of interesting about Sam Lesson's tweets. He tweeted Tuesday and said, I've gotten a staggering number of VC capital calls in the last week. It seems like, Like everyone has been desperately holding off calling capital and everyone just caved all at once in the last week. And then someone in the replies asked why this might be happening. And he said, I think everybody spent the last six months stretching capital and coffers to not call more because they know all LPs have just lost a fortune in the stock market, we assume. And would appreciate not having to pay out more, but they could only hold on for so long without calling. So they all just folded and call.

Is this a thing? Like are the schedules variable or are they set out at the time that they're raising up? It happened during the dot-com recession. Yeah. It happened during the Great Recession. And now, in our speculative asset recession, that I have dubbed the SAR, we had the DR. Yeah. Dot-com recession.

We had the GR, the Great Recession, and now we have the speculative asset recession, SAR. During each of these, people who are the LPs are licking their wounds. Their portfolio went down 30%, 40%, who knows. some cases 50%. And so they're sitting there going, oh, in order to fund this capital commitment, I got to send cash.

Where am I going to get the cash? Oh, I got to sell my Facebook shares. So let's say this family office was sitting on 25 million of Facebook shares and they just lost 80% of their value because Zuckerberg decides he wants to be the guy who makes Ready Player 1 a reality. And he's just torched.

That $25 million is now down to $5 million. Now you're asking them to sell that at the lowest point it's been in order to fund your stuff and they're bummed. So what you might say is, hey, I'll just take it easy here. Instead of taking down the million in February, I'll take down $250 in September and I'll just take down what I need. I'm not going to slow down capital deployment, which is why in a down market, startups can get caught in this. for this six-month period, they don't have a bunch of cash on hand. Now, they have that dry powder commitment,

but they don't want to call on the commitment. So you have startup founders going, wait a second. I just saw you raised $250 million fund. We're part of a $250 million fund that you just raised last year. Why can't you give us the money? And they're like, well, we're, you know, going to take a wait and see an approach. We're going to stand pat here.

The numbers aren't where we want to see them, whatever. They'll make it a drawn-out process. And they'll just fund the most essential. It was to become very discerning. So they're taking down one out of the $4 they thought they were going to do. Instead of taking down the $20 million, they say, well, just take down five. Just as a courtesy to our LPs, because we know the market's going to rebound and we'll make it a little easier on them. So this is like a trickle down, maybe a second order effect or a third order effect, we would call this in the industry.

The second order effect of the down market, the market collapsing is VCs don't take down the money that they're entitled to, so the LPs don't get squeezed. And then who gets squeezed the founders? Boom. Right. Because the VCs are effectively cash-strapped. And that's why, so even if you see somebody who raised a $250 million fund, it's not like they just have that money sitting there and then can write a check overnight. Listen, a lot of founders are Lucy Goosey with their personal phone numbers.

You know that can cause chaos. Why? Because now you've got somebody's phone number in some sales documents, in some corporate emails, and then they leave your company. And then what happens? One of your great clients looks in their email. They look in their docs folder. They find the document.

They call that person. Now they've left your company, they're working for a competitor. Or the number doesn't pick up and you look super unprofessional. And listen, you got to grow up as a startup. Nobody wants to spend $100,000 on a phone system in an office somewhere. No, you want flexibility. You want that number to be provisioned quickly and digitally. And that's what Open Phone does so well.

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for the cost of $0.00 and zero cents for free. I want to. want you to head over to O-P-E-H-O-N-P-H-O-N-E dot com slash twist today. Openphone.com slash twist. Go do it right now. Okay, well, that gets me to a bonus question. Can I sneak in a bonus question? Of course. I have recently talked to founders who have said that they closed around and maybe are raising

a next round, but that we can invest or someone can invest or they're asking other people to invest on a safe note, like as a tweener. In between. And so in some cases, and this has come up with several different founders and it made me wonder. And each one has involved a different case. But in some cases, like, it seems like a way to let an investor into a round that's already closed. Yeah. Like, oh, if you just want to put some money in, great.

We'll spin up a safe note for you at our last valuation super. Sure. Yeah. That's happening a lot. That's happening a lot. Or the there's, we will spend up a safe note for you right now because we're opening our next round. but it's taking a while because the term seat negotiations are going on and we're about

to run out of money. So when you're raising around as a founder, let's say you've raised your seed. And let's say for argument you raise a $3 million seed at a $12 million post or a $12 million cap and you know, you gave away 20, whatever is 25% of the company. Now you want to raise again. You say, you know what? I think we deserve a series A. I'm going to try to raise $7 million on a $35 million post.

And you're 28 million pre. We had the $7 million to $35. nobody wants to lead it because maybe they're not leading rounds right now. So you say, okay, but everybody was talking to us. They haven't done their capital call. They haven't done their capital calls. Yeah. And they don't want to take down $7 million to lead your round or five.

They're going to do five of the seven. They don't want to take the $5 million. They don't want to ask their LPs, that family office to put in their money. So they say, yeah, you know, then the founder says, well, wait, I got all these people who are angels or seed funds or, you know, or venture funds. They don't want to lead the round and do a priced round and put in $5 million. But they said they'd like to top off and that $12 million round was really nice. I believe in the company.

I don't want to go to $35 million. So maybe we could do a $15 million note. I put in $1.5. And then I don't have to take that capital call down. Or we passed the hat. I got $500K in the coffers right now. You got two other investors, J-Cal and a syndicate or you're going to do a crowdfunding site like Republic. You think you can get $500k there.

You got five angel friends who want to put $50k in each. and you do it past the hat, what's called a party round, and people will pursue these in parallel. And I advise founders to do this. If they're having headwinds against the price round, start the note and you just do a rolling note. You can leave those notes open for a year if your board lets you. So you can just say, hey, we're going to leave the note open.

If you like somebody, we add them to it, and then we don't have to do additional paperwork. It's not the best hygiene for most VCs. They like to close it quick, so nobody else gets in at the price they did. But we're in a different world now. The reason people wanted to close these rounds is so that the escalation and the markup could happen

so they could tell their LPs, hey, look, we got a markup. Now people aren't thinking about markups. Right. Because markups, people are like over them. They're getting cash in the bank right now. We're into survival mode. Right. We want this company to survive so it's not a zero.

Yeah. So any money in is good. Yeah. You want to come. I've been telling a lot of founders. They're like, hey, we did this last round with you at 20, JCal. You put in a million. You already owned 5%.

You own whatever, 9%. get this other group that wants to put in 1.5 at 20. And I'm like, great, we'll stand pat. We'll go from 9% down to whatever. We'll be diluted a couple points. We'll go to 8.5%. I'm not so worried about the percentage. I'm worried about you still being here.

So go ahead, go for it. Interesting. Interesting times. So you're going to see people have a different methodology. Right. And they should have had this six months ago. It's just sometimes like people who are selling a home and they think it's worth 10 million or whatever.

They think it's worth $3 million. and they paid two for it. And the market's saying 2.2 and they're telling their broker, I want 3.2. And then I'll negotiate down to 3. And the broker's like, I'll do whatever you want. But yeah, not going to happen. People are offering you 2.2 and 2.3, I suggest you take it.

Or let's say people are offering 2.5. And like, I suggest you take it. And then all of a sudden, the offers go down to 2.2 because the market got worse. And all of a sudden, mortgage is 7%. And then the person winds up taking it at 2.2. They should have just put it out for 2.7, taking the 2.6 or 5. But, you know, people in price, discovery sometimes act irrationally.

Well, price discovery is really painful. It's painful. It sucks. It's good to know, though, that that is normal and does not represent a non-standard term in the sense of being like, well, if you got in now, it's this price. And if you get in now, it's that price. Like, this is different from all of that.

It sounds like. Like, it can cost a messy cap table, but at the end of the day, it gets money in the door. Or creates an opportunity for, like, us to get into something at a seed round price instead of waiting for a series A. I think that's right. I think that's right. Oh my God, VC stuff.

Yeah. I mean, it's a very dynamic industry. And it's great that we talk about it every Sunday because I learn a lot and it forced me to think about this. And, you know, in some cases I don't have an answer in this case. It's pretty simple answer because I've been through it a couple times as a founder. I watch it happen as a journalist covering companies. I watch it happen as a founder.

And now I'm watching it happen as both a founder and a capital allocator. Get the money in the door. Don't worry about valuation. worry about surviving, get through nuclear winter. I have been saying from the beginning, it's going to be six quarters of chaos. Maybe they're not all down in GDP. You have this 2.6% in the third quarter we grew. I consider it like zero, you know, and I consider the negative one like zero.

It's all the same stuff. It's just choppy waters and chaos. So consider it a recession, consider it a six quarter down market, hard market that we are now in the third quarter of. Three more quarters to go. And that analogy we used earlier in the week of this being a tornado. and we just got to the center of it. So you flew through the tornado. You're in the eye of the storm.

You're in the eye of the storm. Your plane is getting knocked all over the place. Now you've got to get out of the storm. Expect it to be as violent or more as we get through the next three quarters. Yeah. All right. All right. What do you got on the show today?

For you in the investment. Great. What do you got on the, what do you got for the show today? Yeah. Ross Bonner is that on this weekend climate startups, the CTO of Transera, which is developing ultra,

efficient air conditioning systems that reduce the impact on climate and grid infrastructure. They raised a $4.5 million seed round in September led by energy impact partners, which is a firm, by the way, that's doing all kinds of interesting stuff in the energy space. The reason this is so interesting is because as temperatures rise, right, the globe gets hotter, we need more air conditioning. But air conditioning and refrigerants are a huge contributor to greenhouse gases and more. warming. And so it's like this mess. Exactly. It's just a mess. It's a mess of cycle. It's a flywheel. It's a really bad flywheel that they're hoping to reverse. Exactly. Because if they reverse it, then you could use the air conditioning and have less of an impact,

which means that maybe the global temperature would start to level off or go down even. Yep, exactly. What if you turn this around? And so these are commercial air conditioners, consumer air conditioners or like some fundamental tech that other people will put into their air conditioners? It's going to roll out probably to residential. It's pretty early. It's R&D stage. It's commercializing now, but they are, they're effectively new technology for heat pumps. So they can be 50% more efficient.

And then, yes, exactly. They will kind of slowly start to roll out in probably developing countries also where they mean, where it's like getting hotter way, way faster. Like if you look at Bangladesh and India and these heat bulb events, like get that, get that, get that, get that tech out the door, guys. One of the things people we're talking about is, you know, if you move to these low tax, low tax states that a lot of people have been doing or lower cost regions, you might have the cost eventually of them becoming very hot like Texas and Florida. Oh, absolutely. So it's a very interesting paradox there. One of the first things I do before I invest in a company is I look them up and I check on their SEO.

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Ross Bonner is the CTO of Transera, which is developing an ultra efficient air conditioning system to reduce the impact of climate and grid infrastructure, both huge deals. Ross, welcome to the show. Thanks, Molly. It's good to be here. So tell me, tell me about what you're building. You're building good old fashioned, good new fashioned, I guess I should say air conditioners. Yeah. So air conditioning accounts for about 4% of global carbon emissions. And that's a huge fraction. So to give a sense of scale, that's about twice the size of the aviation industry.

So you've probably heard about there are a lot of efforts to make aviation clean, run on hydrogen or bio-based fuels. but you've probably heard a lot less about making clean air conditioning. But it's a really big deal. It's a huge, huge carbon impact. And the industry for the past 50 years or so has been driven by things like cost reduction and not as focused on making AC more efficient. So that's what we're trying to do here. Yeah.

Talk a little more about what a big deal AC is and this kind of like this reality that we're going to also need a lot more. Yeah, yeah. So the current active units out there is about $2 billion. And that's about the same as the total number of iPhones that are in use since the phone was produced back in 2008. So the total number of iPhones ever made is about the same number as the number of air conditioners currently in use.

So it's already a huge number. And what's even more concerning is that number is expected to triple by 2050. So it's escalating, largely driven by the emerging markets, places like Southeast Asia and India, where the climate is very hot and humid and where today's AC traditionally underperforms. Yeah. And where we should be clear, like, it's not a luxury. It's going to be a life-saving situation as these kind of wet bulb heat event. get more common.

That's right. Yeah, we really see air conditioning as a human right and a necessity to continue having the type of developed standard of living that we've grown accustomed to. So tell me about your product. How does it work? How's it different? How's it better? Right. So I'll start with how your traditional AC, what today's AC works.

So a lot of people don't really think about it, but your AC is actually doing two kind of different things. It's managing the temperature, right? That's the thing you think about. You set your thermostat to be a comfortable temperature. But it's also removing moisture to keep the humidity in check. And it's the combination of those two things that result in a comfortable living condition. So your AC has to deal with the temp, but it also has to deal with the humidity. And today's AC removes humidity by bringing the internals of the AC down really, really cold and causing water to beat up on them like water on the side of a cold glass. Right. So we've all had that experience, your outdoor seating in restaurants or whatever, and there's water running down the side of your beverage.

You're getting, you're getting dripped on too from every single AC unit in Brooklyn. Right. Basically as you walk down the street. Yeah. And that's, it's exactly the same physical phenomena going on there. And so it's a big problem for the efficiency of the AC. And it's also just kind of a barrier that, that AC has always had to overcome. How do you get rid of this water?

How do you manage it? It creates a lot of problems. Things like mold growth. they can spring leaks like you talked about and cause building damage really just not pleasant to have to deal with. So what Transera has done is we've developed a way

to pull moisture from the air without having to do that trick of condensing liquid water. And we do this using these really cool new materials called metal organic framework. works or moths. So is everything else roughly equal? Like is the, like what about that is more efficient in terms of the grid and climate?

Yeah. So good question. Like why is the water a problem, you know, other than the drips? Yeah. And the mold. That's a, that's real. So people have probably experienced, say you walk into like a hotel room or a commercial building, shopping mall, whatever.

and I remember this a lot from my childhood. I grew up in the southeast. And I remember like in high school, after class, you know, the bell rings. You walk outside and you realize that you were like freezing in there. And so you step out and it's 80 degrees outside and it feels nice. You're like thawing out. And that always struck me as kind of weird because it was like, well, it's not comfortable inside because it's too cold. And it's not comfortable outside because it's hot.

Right. And the reason, it turns out that today's AC has to bring that indoor temperature down too cold to the point that it's just not comfortable is because they need to remove moisture. And because the only way to remove moisture is to get the coil really, really cold, you're left with unpleasant conditions indoors and outdoors and a huge energy bill to boot. Right. Okay. I get it. So did you invent this technology? Yeah, so Transera has developed a way of incorporating these special materials into a device that lets us cool the air and pull the moisture out actively. This is like, you can think of it like a sponge. It's pulling the moisture out of the air, but it's not condensing it as liquid water.

So there's two benefits, right? There's the benefit. in the efficiency because you no longer have to, we call this overcooling. You no longer have to overcool the air to wring the moisture out, but you also don't have to deal with liquid water and all of the bad things that come with that. Right. So then how do they work?

Are they like a window unit? Do you install them as central air conditioning? What's the actual mechanism here? Yeah. So the great thing about this tech is it applies across the spectrum, different types of units, window units, portable units, central units can all benefit from this. We are actively developing for the residential market, but we're also running a demonstrator for the commercial market.

So we're developing this technology in parallel, and the goal is to just continue iterating and and improving on the product to get to the point that it's ready for commercialization. Gotcha. So you're in sort of R&D stage now, it sounds like, in targeting this eventual rollout. Tell me where you are as a company. You've raised $4.5 million as a seed round from energy impact partners. How long ago was that and what does the path to commercialization look like? How long do you think it'll take? Yeah. So we raised this summer. EIP was our lead. We raised about 4.5 million.

And that was our seed round. We are right now developing prototypes. And I would say our step now is really aggressively trying to scale up. So we're going from sort of lab scale, testing, benchmarking, things like that to now can we put this in a product that would go on a roof and actually cool a large, large building. How hard is it? Like, how long has this journey been? You're obviously super qualified to do this. You have a master's degree in mechanical engineering from MIT or a mechanical design engineer at GE Aviation. So I'm assuming like however hard it is for you is. Yeah. So it's it's been, um, it's been quite the journey. I'll say so from my side, uh, the way that I sort of

got into this is I went back for my master's. at MIT, and I took a class where it was like a design and build class. So every year, they give out challenges, and then there's a semester of design work and a semester where you actually go build the thing. And the challenge the year that I went was, how do we make air conditioning carbon neutral? So that was a very difficult problem, very high bar. And I worked with this awesome team at MIT and developed this contract. that was kind of awful looking, but it actually did achieve the efficiencies

that we were aiming for. Could have been powered by a solar panel, but we built it out of plywood. And through that project, I got connected with Serene Grama, the CEO here at Transera, and he was looking at the same problem. He was looking at how do we improve air conditioning and specifically looking at, is there a place for these new materials,

these metal organic frameworks that could really change the game for air conditioning and how might that work? So Serene is an immigrant from Romania and linked up with Mirjadinka, who's a professor of chemistry at MIT, who has been working on these moffs for about, 20 years. And they got together. They said, okay, here's the problem. Serene previously had a startup that was in refrigeration in India. And so he was very well aware of the scope of the problem and really motivated to try to find a solution to it. And meanwhile, Mircha was working on these new

cool materials that can pull moisture out of the air. And they said, wait a minute, we might have something here. A big part of the inefficiency of air conditioning comes from how it deals with moisture. And here we've got these new materials that can solve exactly that problem. So that was the spark that really started the company out. And then like I said, Serene connected with me through my work and on my master's degree and then hired me right at a school. Wow. You guys are the dream team. How big? Is it still just the three of you? Is the team? The team must be bigger now. Yeah, the team's grown and we're growing rapidly. We're about eight people right now and we're trying to basically double in size next year.

And is it carbon neutral air conditioning? So it's not quite carbon neutral in the sense that it still requires electricity. Yeah. But we see it as trying to, we're working against this upcoming energy crunch of demand for AC, spiking in developing countries, places where the grid is particularly dirty, and we see it as trying to offset the alternative, which is building new coal-fired power plants. And does it still involve the same? I'm sorry. Chemicals? Like, what's the sort of chemical mix here?

That's a great question. We get asked a lot about refrigerants, right? Because refrigerants are a big contributor to greenhouse gas emissions. To give you a sense, the one that's pretty much ubiquitous today is called R410. And it's about 2,000 times like gram for gram as harmful to the climate as CO2. So we are working towards better refrigerants with, They call that global warming potential. So global warming potential is the scale of like how bad it is relative to CO2.

R410, the one that's used today is about 2000. And we're currently using one that's about one third that impact. And we're actually looking ahead to future refrigerants, which are, there's a class of what they call natural refrigerants where there's no scale factor. They're just about as harmful as CO2, so like a GWP of 1. All right. Listen, everybody, big news. Right now, Dell has a sneak peak Black Friday sale going on with up to 50% off.

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Why aren't those in wider use? I know this is not the core of your business, but I wonder, like, how hard was it to find that? Is it more expensive? That has always felt like one of those problems that feels like we should have been working harder on the refrigerants. Yeah, yeah. I would agree broadly.

It's an industry that's hard to implement changes in. And so developing and enacting those new refrigerant standards has been kind of a slow road. There's a large installed base, and so it's difficult in some cases to transition over, and the already installed hardware works with the refrigerants that are out there today. And honestly, we're sort of playing catch up. A lot of this is we didn't realize the scale of the problem until it was sort of too late. And now we're kind of playing catch up against that. But the hope, of course, is as you roll out new technologies like what you're building,

it will have better refrigerants in it and it can solve maybe two problems at the same time a little bit. Exactly. Yeah. And to give you a sense, right now about two-thirds of the carbon footprint of an AC comes from the power consumption over the course of its life. And about one-third is the refrigerant. So if we move that to maybe now it's only a tenth of the total and at the same time we increase the energy efficiency, we can pretty dramatically reduce that carbon footprint. That's the goal. Okay.

That's good news. That's good. That's all good. talk to me about deployment. Like what is the, will this eventual product that you're building, whether it's for residential or commercial, will it cost less?

Like, what does deployment start to look like in places that, where you're facing competition from, you know, I don't know, traditional crappy incumbents, I guess. Yeah, yeah. So that's a big problem for trying to innovate in this industry,

is there are a lot of really great solutions out there that have great energy savings potential, but they're very complex. And those always butt up against the realities of the market where the consumers are very sensitive to first cost. And so our goal is we want to significantly reduce the power consumption of AC, but at a cost that is comparable to the incumbent. And the reason we think that's possible is we're using a lot of the same commoditized equipment that is already deployed in today's AC. The high efficiency compressors, the heat exchangers, all of the internal circuitry and components that make up today's AC are essentially shared with our technology.

and what we do differently is we just apply these metal organic frameworks as a coding. And so the development work that we're doing right now is how do we take these moths out of the lab that are just a powder dust in the wind and turn them into a robust coding that we can apply into a device and have it last the full life of that device. Right. Got it. So really, in theory, you could take what looks just like a regular window unit, for example, quote all of the guts with this moth and have it cost roughly the same, a little bit more, but be way more efficient. That's the goal. The goal is roughly the same. The goal is cost parity. In reality, that might end up, you know, 10, 20% over. but the goal is we want it to be equivalent to today's AC. And yeah, like I said, it's a lot of the same components that are used in today's AC. And the fact that it does use a lot of those same components means that it fits into the same boxes that today's AC fits into.

So window units or rooftop units, a lot of the same equipment can be used. And it means that we can fit into those same form factors and be installed into existing installations. Could it be used? This might be a dumb question, but could it be used with heat pumps? Oh, that's a great question. Some heat pumps do heating and cooling, right? Are they all sort of, I have one for like a pool that just outputs a crap ton of water and

cold air? Yeah. So now I'm thinking like, how do I get that powder in my heat pump? Yeah. So super good question. Our technology is heat pumps. And I think we sometimes do ourselves a disservice because we call it air conditioning, because the energy savings come from that air conditioning side or cooling.

Yeah. But that cycle can be reversed the same way that it's reversed in a heat pump and used the same way that heat pump is used. I don't understand. How are you not? Then you are a heat pump. You are like a heat pump, but you're not a heat pump. Thank you, by the way, for just engaging in HVAC 101 here on this weekend start-ups. Yeah.

So our device is a heat pump. Is a heat pump. Okay. And so here's the 101 part. But with much more effective moisture control. Yes. Yeah. So the HVAC 101 part is the difference between a dedicated air conditioner and a heat pump is the heat pump can reverse the flow of the refrigerant so that what was the cold side becomes the hot side and vice versa.

And so the part maybe if you've got like a mini split, the wall unit that's indoors, in air conditioner mode, that coil is cold, but then you switch it, it goes to heat pump mode, reverses everything, and that turns hot. And our technology does that by default, so it is a heat pump. Got it. Okay, which is why it can be so.

We all know that technology to be super energy efficient, and this just fits right into that category. Okay, I got you. Thank you for your patience with all of that. And then as you think about this technology rolling out, and maybe you haven't thought about it that much, but I'm sort of interested in this intersection of like adaptation and resilience and mitigation. And some solutions are one or the other,

but yours is really, really bold. That's the goal. Yeah. So we really see it as like the intersection of efficiency and affordability. And if we can't achieve both at the same time, then we're doing the wrong thing. So we're driven by that impact that we can have and really driven by those emerging markets where the demand is going to be big enough to have significant climate

climate impact. And then finally, what will the business model be? Like, will you be licensing this technology or will you be selling actual air conditioning devices? So little column A, little column B. We are working with industry partners to get to scale very quickly. And we're also working to internally develop and potentially, sell our own devices. In residential AC, maybe portable ACs, we're developing our own residential

products, which would likely be sold through a white label agreement. And then on the commercial side, we're working with our industry partners carrier to develop commercial R2 use. Can you give me a sense of eventual cost, let's say the individual unit? If I were to buy one for like my garage office here. Yeah, so I won't give you a sticker price just yet. I think we're too far out for that. But I will say, again, the goal is cost parity. So if you see our product in Home Depot and you see the competitor next to it,

sticker price should be roughly equivalent. And then how will I know? Like, what do you think of what do you imagine, you know, because clearly, based on my stupid questions, it's a complicated topic. I wonder what does that education, that customer education and eventual kind of branding look like? Yeah, so our model, at least for the residential products, is we'll brand it as like TransZara inside. So Transera enabled technology and probably a big bright sticker that tells you how much energy you can save. So then hopefully the decision point for the customer is I see product X on the shelf and it says,

it says nothing or it says whatever. And I see this Transera inside that's the same price, roughly the same first cost, and it says it'll save me 50% energy. So that's the point that we want to get to to really define success. And then give me a sense of, I will not hold you to it, but give me a sense of timeline.

Like when might I see this in Home Depot? Yeah. So our focus for this, the near term, say the next 18 months, is proving out our tech with these demos and working with these partners trying to line up those commercial agreements to scale. And then getting to the next step

then would be actually getting those products out there in the market. I would say that's probably on the three to five year horizon. All right, great. Good. Get to it. It's heating up out here. It is. His CTO of Transera.

Thank you so much for the time and the patience. I appreciate it. Thanks, Molly. All right, everybody, that's Sunday. Thanks for watching. Tomorrow's Monday. And the craziness starts all over.

Yes, it does. Who knows what this week has in store, but, man, if this past week is any indication, my lord, it's going to be pretty entertaining next week. Well, next week, just side note, election day. So. Oh, is that what's happening this week? My lord, I forgot about November 8th. It's going to be a thing. You know what?

I just had a lot of press asking me to talk about a varying array of topics. And one of them was, can you come talk about the election? It's like, okay. Just not from a social media angle. Some things happen sometimes on platforms that are relevant to this. No changes have been made from what I've read. So, that's a week. So anyway, it's coming up.

We'll see you then. Get your rest while you can, folks.