This Week in Startups - Why VCs care about ownership percentage + Flowcarbon CEO Dana Gibber | E1581

Episode Date: October 9, 2022

First, Jason explains why many VCs focus on ownership percentage and maintaining ownership throughout an investment life cycle. (1:40) Then, Molly welcomes Flowcarbon CEO Dana Gibber to break down her blockchain-based carbon credits solution! (23:04) (0:00) J+M tee up today's segments! (1:40) VC Sunday School: Why many VCs obsess over ownership percentage (9:19) OpenPhone - Get an extra 20% off any plan for your first 6 months at https://openphone.com/twist  (10:53) Jason uses a table to explain dilution over an investments life cycle and why ownership percentage matters (21:43) SnackMagic - Get 10% cashback up to $1000 until October 15th with code HOLIDAY, and see more at snackmagic.com/twist (23:04) Molly welcomes Flowcarbon CEO and Co-Founder Dana Gibber; Dana explains how she got involved with Adam and Rebekah Neumann and Flowcarbon's core offering (36:58) MicroAcquire - Sell your business with no fees at https://try.microacquire.com/twist (38:29) Dana breaks down carbon offsets (51:14) Dana explains the blockchain verification aspect of Flowcarbon (58:38) How Flowcarbon plans to make money, why doing this on the blockchain is the best solution Check out Flowcarbon: https://www.flowcarbon.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

Hey, everybody, welcome back to Sunday. You made it to Sunday. First up, VC Sunday School, we're going to talk about your ownership percentage and why certain VCs say, in order to do this deal, we need a certain ownership percentage or else we're out. And then Molly has an amazing interview. I do have an amazing interview. I interviewed Dana Gibber, the CEO of Flow Carbon, the one that is associated with Adam and Rebecca Newman, but they're doing some really cool stuff. It's a great conversation. It's going to be a great episode.

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. Visit openphone.com slash twist to get 20% off your first six months. Snack magic and swag magic are global gifting platforms and the most stress-free and customizable way to delight employees or customers.

Get 10% cash back up to $1,000 until October 15th with code holiday. See more at snackmagic.com slash twist and microacquire. The startup acquisition marketplace. Start the right acquisition conversations at your own pace. Get free and instant access to over 100,000 trusted buyers with total anonymity. Say goodbye to brokers and meet your ideal buyer today. go to try.microacquire.com slash twist. Okay, Molly, it's Sunday.

Welcome everybody to Sunday. I hope you're having a relaxing weekend. And now, just to increase the relaxation and adding a little namaste to your day, let's do some freaking math. Let's do some math. Let's get some spreadsheets up in here, bees. Let's go.

All right. You had a question. I think that came up. So you were talking to some people, some randos, I don't know. I was talking to other inventions. investors in the climate space. You made investors of various stripes and approaches. Yeah.

And I was talking to one investor about this idea of minimum target ownership percentage. And the question was posed like, should VCs even have that? Is there a situation in which you were like, we're going to get a 500 X return, but, you know, we're only getting own 1%. So we're out was part of that question. Is there a deal you wouldn't do because of minimum motorhip percentage? And as a general rule, should VCs have that and why or why not?

Yeah. Which I thought was a lot to impact there. Yes. A lot to impact there. So as a general rule in venture capital, there is the power law, right? Your top investments pay for all the other investments that either fail, go to zero

or return, you know, some small amount of capital back. So we all understand the power law. You can look up the power law. Some people will call this like the 80-20 rule, whatever, 80% of your value comes from the top 20%. It's even more pronounced in venture. So let's all acknowledge that the power law exists. So now if the power law exists, if you know you have a winning company, you want to own enough of it so that you can maximize returns for your LPs, your limited partners as a venture capitalist. And you only have a certain amount of time as a venture capitalist.

Most people would say old school VC firms, you know, they raise this $300 million firm, you got five VCs in it, they're doing Series A investments, or maybe four partners. Okay, they each have to deploy 300 divided by five or $300 divided by $4, $60 to $75 million. So you're making maybe a dozen investments each. Let's just use the number 10. Okay. So if you can only make 10 investments, you know, that's going to be, let's just say, we'll pick a number, 5 million each and then a little bit to go on top

if you have a couple of winners, right? You go 5 million each, you got 25 million left over to go into the winners. Maybe the top two winners, get the extra 25. So if you were to say, you know what, I want to own half as much. And let's say that 5 million bought you,

you know, I don't know how much in a series A, but let's just say 10% or 20%. Okay, let's say they only take $2 million of your dollars, you only own 4%. Okay, now you're going to be, on twice as many boards. You've got to have twice as many companies. And let's say you're stacking funds. So every year you go through three, every three years you go through a fund.

Over 10 years, you got three funds deployed. Now, instead of having just 10 companies, instead of having 10 per fund, you have 30 as a partner. Now you got 60. It becomes overwhelming. Now, of course, some are going to die over that time period and shut down, but this is why VCs and their time becomes the issue. Hmm. Okay. So there is a time issue here. If I'm going to join the board, I'm going to do it. I'm not going to do it.

If I only have two or three percent ownership, it's not enough because I only have a certain amount of time to give to companies. Interesting. So that's one reason. Is there, yes, definitely. Before we get to the math, is there a reason that you wouldn't do a small percentage deal, though? There must be something.

There must be some deals that come along where you're like, yeah, it's worth it to have one or two, like a bite of this. Part of this is posturing. So you want to have the position we're not going to do this deal unless we can get 10% minimum. Okay. So that the founder doesn't say, well, I want Sequoia and Kleiner to do the series A of Google. You can take it or you can leave it.

Either you split it or you don't. And that was famously what happened with Google. If you're a member from Sebastian's book, the power law, he recounts this. Very well known in Silicon Valley that Sergey and Larry said, split it. And if either one of you doesn't want to split it, too bad you're out. And so VCs will take this position. We want the whole thing. If they can't, they'll fall back.

So they just keep that posturing up. So there's a reality to it. But then there's posturing. So, hey, if Elon's starting a new company or, I don't know, Travis is starting a new company, they would get to dictate. And they would tell people, here's what you can have. And all of a sudden, that rule would magically disappear. Now, that rule would appear for our first time founder and be like, we're set in our ways. So there is some flexibility there.

Okay. All right. So that's one number one. Yeah, I'd say that's the number one reason, is it the VC. time. Now, some VCs take the approach to be on board seats and they can take a more, an approach of having three, four, five percent of a larger number of companies, right? So, instead of having 10 companies with 10 percent ownership in each, they could have 30 companies with three, four percent ownership in each. You could take that approach as well.

Right. And then look for the winners and you'd have more diversification, right? But you don't have board seats, which creates a whole other set of problems. And you might, since you own a small percentage, not have what's called major investor rights. Major investors get pro rata, they get to sign off on a sale, they just have more what they call protective provisions, control provisions. So if you start to own under 5%, you have less ownership. This means you lose this collection of protective provisions like preferred shares, pari pari-parseu, the ability to buy secondary shares first if they become available in the market. All of these. collection of things. And you just basically don't have a seat at the table.

All right. So that makes sense. Some of it is so it's information. It's the right to keep investing. It's time. It's a little bit of control or insight into the company. And it sounds like there are firms that obviously there are firms that have different approaches that do do more of a scatter shot or even like a money ball approach as opposed to. By definition, you have money ball in a fund, right? Four partners, five partners. You know, doing in a traditional venture firm where it's, you know, the five partner structure and the same five dudes do a fund every three years. And that's what we saw in Silicon Valley, you know, and widely criticized for a number of reasons, but also unbelievably effective. Because you're dealing

with a human dynamic, right? Each individual is making these bets. Each individual is responsible for their book. But you have five individuals who balance each other out. So one or two of them are screwups. And one of two of them are high performance. So you have like, two layers of diversification. You got the five diversification of partners. So if two of the partners are like living in the old paradigm and there's two new ones in the new paradigm, one person's to screw up, maybe the fund can withstand that, right? Yeah.

You know, because you have people aging out. So the, you know, you might have somebody who's a 60 year old VC who just doesn't understand, you know, Web 2.0 or they don't understand the mobile revolution or whatever. So there's like that diversification, hopefully of ideas, thoughts, whatever. and paradigms, and then you have this diversification with 10 companies, so you should have both of those things working there,

but losing those rights. And then if you're a good picker, you know, if you are too diversified, well, then you have to hit a higher multiple to hit the power law. So there is some optimization around there. And that's where, you know, it's instructive to maybe look at

how a percentage ownership gets diluted over time. All right, everybody on the phone today is Open Phones, founder, Derina, Welcome to the program, Doreena. Thanks, Jason. Great to be here. Now, what mistakes do most founders make with phone numbers in their startups? Great question.

First one is they use their personal phone number for their business. And it's an easy mistake to make because you don't necessarily think about it much. You know, you incorporate your company, you put your phone number. There's all these forms you fill out. It very quickly goes from being your personal number to being the number for the company. And when that happens, there are all these data aggregators. all kinds of services that take your number and put it everywhere. Yeah.

Suddenly now there is this uptick in spam text messages. It's the worst. Yeah. And people just wonder, like, how are others getting my number? Well, let me tell you, you put it in different places and it kind of snowballed from there. So that's the first mistake. The second, which is initially as a founder, you're the salesperson. You're the only sales sales rep.

And then you hire a first sales rep. And sometimes founders let that person use their. personal phone number. Oh, no. That number, the data, everything that happens is just fully belongs to the sales rep. And if that person leaves, you lose the entire history with your customers. Yeah. And then what if that sales executive goes to a competitor? Exactly. Yep. Okay, everybody, Twist listeners can get 20% off any plan for their first six months at OpenFone. 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.

Our team made us this nice little chart. And what this shows, we have a seed round in column B here. And then we go to Series A, Series B, Series C. In this hypothetical example, then it goes to an IPO. And then we've shown here because sometimes venture firms hold their shares after an IPO before distributing them, maybe two years post-IPO what happens with the value of the company. Then we have the valuation of the company from $10 million in a seed round to $25 million in the series A, 100 in the series B, one billion in the Series C, an IPO of $5 billion, and becoming worth $10 billion in two years post-IPL. Let's say this is a seed firm like ours.

Let's say the seed firm had incredible conviction in this company, put $2 million into it for 20% ownership. So that's what you see in column D. $10 million valuation, yeah. At a $10 million valuation. So the $2 million bought you 20%. Let's say they raise another bunch of money at a Series A. of 25 million and you maintain your 20% ownership. You take your pro rata, right?

We talked about that. So you put a little bit more money in, so you still own your 20%. Okay, so what's your moik? Your multiple on invested capital, it's 2.5. You turn 2 million into 5 million. Okay, great, looking good.

Let's say you get to the series B, your firm is fully deployed, you don't take your pro rata, and you get diluted 25%. It's a particularly onerous round. everybody gets diluted 25% so your 20% ownership goes down to 15. Then let's say at a billion dollars, they raise $100 million. You get diluted 10%, so minus 1.5.

Then you get diluted again. They raise 20% in the IPO. You get 20% dilution. You have to 10.8. Let's say you don't sell your shares. You're still at 10.8% by the time you IPO. So you went from 20% ownership and at the IPO you had roughly 10%. You can start to get an idea of like what this would actually look like for a

seed fund, you know, you'd own a billion dollars, right? Because you'd still own 10% of the company. Right. Even though you got diluted by half, and most people think you're getting diluted by half. So I could imagine taking from this that a minimum target, like a percentage ownership, would be more important for a seed firm in some ways. Because you know you're going to get diluted, or is it the same? Well, if you jumped in at the Series A, you were a Series A firm, you might not be able to own

20%, let's say you own 10 or 15. So you can imagine if you own 15%, and then you maintain your pro rata, maybe for one or two more rounds, okay, maybe you wound up at 7% at the IPO, 8%. Whatever it is, you're going to get diluted at some amount because you're not going to be able to protect

that entire position in all likelihood because most funds do not have, you know, the ability to do these giant mega late stage growth rounds. Right. That's one of the things that happen with Bill Gurley and they talk about in the power law and benchmark talks about, oh my God,

Masayoshi-San is coming in and taking Yahoo, is taking Uber and putting these big chunks of capital in. We're getting disrupted by these late-stage investors. Yuri Milner's coming in and coming over the top of everybody. So that was part of the tension here in Silicon Valley over the last decade or two is that those big giants, Yuri Milner making billion-dollar investments,

Masi-Joshi-San putting in 2010 10 or $20 billion slugs, all that. Yeah. And a smaller firm just can't keep up. And frankly, isn't expected to, right? Like, there's no expectation that we would participate, for example, as a C to Series A firm in the C or D. Probably not. Or E round, whatever, you know.

You might. Probably not. You might pop up an SPV and then say to all of your LPs, hey, is there any huge LP here who wants to put in a $50 million slug? Okay, so you're a $150 million firm. You obviously don't have the ability to put in a $50 million slug to defend your position, right? Yeah. But there might be one of your LPs who does.

So in this case here with the Series C, you're getting diluted 10%. It's a billion dollar valuation. So that 10% means they put in $100 million for that billion dollar valuation, which means your $1.5 dilution, you know, to be 15 to maintain your 15%. You've got to put in that $15 million. You've got to be 15% of the round. You might find one of your LPs wants to put that $15 million. and you get carry on that. So some people will do these specific SPVs

to maintain those positions at later stages. Right. Because you still have the right. But you might also be selling in that round. You might also be sellers. Yeah, true. You know, taking some trips up the tail. So there's lots that can happen in the later rounds,

but it seems like dilution is somewhat of a given. So would that explain, like, do when you're fundraising, like do LPs want you to have a target for ownership? Yeah. Because of this? LPs want you to own as much as possible in the winners. pretty obvious statement. And, you know, when they look back on my career, you know, when I was a scout, they're like,

why didn't you own, you know, 5% of or, you know, 3% of Uber? And I was like, well, because I was just doing seed investments for Sequoia, that wasn't the nature of the program. They just wanted us to do one bet, not take the pro rata and then move on. So, you know, I did get that criticism earlier in my career. Like, hey, why don't you do multiple investments? Why aren't you following on? Why don't you do more?

And I corrected that in my game. Later on, I was like, yeah, let's keep investing in these companies. Let's keep putting more money and go pro rata or even super pro rata, try to increase our position in them. Because it's very rare that a great company comes along. So if it is rare, which is the definition of the power law, one pays for many. They don't happen too often. Part of being a great investor is not just finding great companies. It's maintaining or increasing your ownership in great companies.

That is an equal part of the game. if you were to have done, like let's say in this ownership scenario, you didn't defend your pro rata for the first round or two. Let's say you only put in 10%. All of a sudden, you can see what a missed opportunity it was. And the truth is, when you're an investor in a company, you find out in the first two or three years, sometimes four or five, but definitely within five, if you got a winner or not. It's very rare that a company breaks out in your six or seven. Even Figma, which had a slow burn, you kind of got to. the sense that this was a great team. They were getting traction. Twitter had a little bit of a

slow burn. But it wasn't like year seven burn. It was like year four burn or something, year three. These things start to accelerate. So it's super important when you do have a winner to recognize it. And you see on our investment call, a decent portion of our time is talking about in the portfolio, did we get any updates? Is this company 3x revenue year over year? Is it growing 10% month over month, 5%, and we struggle over those metrics in getting them to make sure we understand of the existing bets we placed, how many of them are breaking out. And if they are breaking out, well, can we get more money into that company? Because we know it's a winner.

And always your question, always, every time. Company after company after company and that two are meeting is, what's our ownership percentage? How much do we own? How much do we own? Hard to calculate because a lot of these things are notes. They haven't converted into equity. we've talked about this before.

The convertible note, the safe, these are essentially, we're giving money to a company. We give them, in this case, the $2 million for 20% ownership in this scenario. That might be on a convertible note. In other words, it's a loan

that converts at a $10 million cap. That's the maximum it can convert at. So you find out, oh, you own 20% at this point in time. But you might also, oh, they did two more notes and you got diluted another 4% or 5%. They didn't tell you about those notes and you actually don't own 20%, you own 16.5 because they raise these other notes and you didn't have pro rata on those notes. You had pro rata on the next price round. So, yeah,

there can be all kinds of shenanigans that occur, different interpretations of these documents, mistakes made by attorneys or accountants. You've got to stay on top of this ownership percentage. Maybe they did an employee stock option pool. Maybe they bought some shares back from an employee. Maybe they gave a contractor, 5% of the company and you got diluted 5%, so your 20% went down to 19, but you're like, hey, when did this happen? So even knowing your ownership percentage can be a little bit hard. That's why cap table software that's come out since this time has become super critical for people because they can run their cap table in real time and see it.

It used to have to ask your attorneys, hey, attorneys, can I get my cap table? How much do I own of my own company? And now you just press a button and with modern cap table software, they should run this scenario for you. So fascinating. So good. So good. So interesting. So much awesome math.

But we have to call it there for VC Sunday School because we have a long and really interesting interview today. And I cannot wait for you to listen to this one. I cannot wait for this one. Yeah. Rumors that flow carbon had ceased operation after one of its primary investors launched a company with a very similar name are inaccurate. All right. So I talked to the CEO of flow carbon, the company that was founded alongside what, by Dana Gibber, who is the CEO alongside Carolyn Clatt, Elon Stern, and Adam and Rebecca Newman.

Got it. Flow carbon, of course, came back into the news because there was this big, oh, they have this new company and it makes it easier to trade carbon credits by putting them on the blockchain. And we were already like, what? Come on. And then Adam Newman comes out with this new company, Flow. Same name. Pretty much.

Yeah, similar name. And everyone goes, oh, I guess flow carbon. is no more. But it turns out that's not true. Flow carbon recently raised $70 million, led by A16Z's crypto arm. Got it. Not to be confused again with Klo, who,

flow, who also raised from A16Z. Adam Newman, of course, the founder of WeWork, who then is doing this new flow, which is going to be a lifestyle apartment brand. And there's also Flow Carbon, which is blockchain carbon. So you were talking to the latter, the carbon, blockchain company today with you exclusively here on this week in climate startups.

Exclusively on this week in climate startups. And oh my God, two things happened. One, I've been a skeptic of carbon credits and offsets. And you know I've been a skeptic of putting climate solutions on the blockchain. And God help me if I didn't walk away a little bit sold on both. You're going to love it. Great. Let's roll the tape.

I want to hear this. I'm in. Let's go. All right, listen, I want you to beat the holiday rush this year. with snack magic and its newest partner in crime, swag magic. Yes, snack magic and swag magic are global gifting platforms. It's a stress-free and customizable way for you to delight not only your employees, but also your customers, huh?

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Thank you for having me. Excited to be here. I have to dispense up front with. So you co-founded the company alongside Carolyn Clatt, Elon Stern. Is that right? Yep. And Adam and Rebecca Newman. So we're just going to start with that and then move on.

How did you meet and what is the kind of level of involvement of those two with the company? Yeah. So about two years ago, so very beginning of January 2020, a group of five of us came together. So that's when I met the Newman. for the first time. They had been quietly involved in quite extensive conservation efforts from a philanthropic standpoint. They funded a lot of conservation.

And they had gotten exposure to what's called the voluntary carbon market through their conservation efforts. And essentially, the voluntary carbon market, which I'm sure we will go into, is this phenomenal means of creating a market incentive for scaling projects that have. have real climate action. And in particular, the preservation and restoration of our natural carbon sinks, i.e. conservation in a lot of ways. And so they got exposure to this market and became, or heard about it and became excited about it because it really is the way to scale these kinds of projects. These projects are phenomenal, but absolutely not happening at the

scale that we need to see them happening. And the VCM or the voluntary carbon market is a market that can really, when implemented properly, can really scale these efforts. And so they wanted to dive into this market. I got a call. So Caroline and I previously co-founded a software company together. It was AI-powered chatbot technology. We sold it to a private equity fund in 2020. And we got a call from somebody at Adams' family office to ask if we wanted to do a deep dive

into this market, given relevant background that we both had. and did so, really became fascinated by this market, both in what it could accomplish from an impact standpoint, and also a lot of the key challenges that were preventing it from scaling and continue to prevent it from scaling, although it's been a very, very exciting and frenetic time since then in the voluntary carbon market. And so we saw a real opportunity to do good,

to use technology, especially new emerging technology, blockchain in particular, to address some of the key challenges we saw in the market. And Adam's family office provided our seed check. So they're not, he's not operationally involved at all, but, you know, we're grateful for that investment capital. And then I'm not trying to put you on the spot, but of course then there was this announcement that confutes all of us. I think this is actually how we originally got in touch because now there's the new

residential company called Flow that Adam announced and got a bunch of funding for. And are we cool with that? Like, I think it led a lot of people to think that maybe your company flow carbon had gone away. And so this is our chance to be like, no, no. Right? Both of them still are happening. So we haven't gone away. We're more active than ever.

We've done a lot of really exciting things recently. And we announce, we make a lot of announcements quite actively. But yeah, the name thing is kind of, there's no real connection between the companies. It's just kind of a naming development that emerged. What's funny is there's also a blockchain called Flow, NBA Top Shots, which is a kind of famous crypto project, is on that blockchain. And when Adam made that real estate company announcement, I think that that token, the flow token that's associated with that blockchain,

moved up by like 5 or 6%, something like that. So, yeah, it's a good word. I think it works in a lot of contexts. It's a good word. Yeah, totally. But it did create. And so I'm really glad that you're here to clear in person, because it really did create this confusion about, like, oh, is that what did

flow carbon become flow? And we're here to say, no, absolutely not. Two separate companies. 100% its own thing. And now, okay, great, now that we've gotten the Newman's out of the way, to be clear, we unironically love them here at this show. True story. But now that we've gotten that out of the way, please tell us what you are still and actively

doing at flow carbon. Yeah, happy, Sue. So let's talk about the market that we are in for a minute, which like I said before, is the voluntary carbon market. So this is a market that essentially identifies projects that have a measurable carbon reduction or removal effect. So think of conservation, reforestation, a bunch of tech projects where you're removing carbon from the atmosphere or preventing it from being emitted in the first place. Now, a lot of these projects are not financially viable. You need a revenue stream going to projects like that. And so what the voluntary carbon market is, is basically a global market created by a bunch of global institutions that basically provides two projects something called carbon credits in the exact amount of the carbon that the project is reducing or removing.

And those credits are this, you know, basically unit that are created. by these global non-profits who evaluate the projects, look at the measurable carbon impact, present them with these credits, and they now can sell these credits into the market. The market is basically the carbon offset market. So the buyers on the buy side are corporations predominantly who have made commitments related to their carbon emissions, which really means quantification and disclosure. So you use, you know, a major accounting for you, you do your carbon quantifications. identification across your direct-indirect supply chain emissions.

You quantify it, you publish it. You undertake reduction measures. So many of them are publicly disclosing their reduction plans, which are often phased plans. We will reduce X percentage of our emissions, you know, until a certain, we hit a certain target. A lot of these are called net zero commitments. So they want to be net zero by 2030, 40, 50, et cetera. Yeah.

And then oftentimes, the last part of this process, is buying carbon offsets. The offsets are where the net comes in. Exactly. You basically pay for carbon reduction or removal. That's happening beyond your value chain, happening in the developing world at a project that is doing this work.

And what's really, really essential to know about this market is as follows. About 23% of our greenhouse gas emissions globally come from nature. It comes from basically clear. cutting, slashing and burning nature for agriculture, for grazing, for timber lumber, etc. Right?

We destroy nature at an astounding rate. The famous stat is one football field worth of old growth rainforest is destroyed every six seconds. So it's an astounding amount of nature and the biodiversity within it that we are destroying for economic reasons. And the only counterbalancing economic model that will prevent this is. this market that basically provides a revenue stream for keeping these natural carbon sink standing and restoring them.

So this is a market that at its core is super, super imperative, important, and has historically had a bunch of issues. So there's a lot of criticisms leveled at this market, rightfully so. And, yeah, I think it would be good to sort of like pause there and explain a little bit about what those are. One of those criticisms has been, even just the existence of. offsets as a way to get to net zero, right? That you didn't decarbonize your entire supply chain or all of your buildings.

You bought offsets. And those, so it's criticism one. And then criticism two is those offsets themselves may be of sketchy origin or hard to verify, which is where you come in. Yeah. That's actually a really nice way of framing the issues. So one is like the very existence, it's a philosophical conversation about offsets in general.

Right. Then if you believe the threshold, like that's the threshold question, right? If you get beyond that and say, yes, we believe that these instruments should exist, then it's, well, okay, let's look at how this market is being implemented and all the loopholes and shenanigans that maybe have historically gone on. And in some small way, there are remaining issues. So the threshold question is really a philosophical one. And you could have a lot of scientists, really science is converging around the idea,

that we need our natural ecosystems for a whole host of reasons, not just for carbon emissions, but for there's major impacts on water systems and food systems and local socioeconomic forces that all center around ecosystems. So we must preserve these ecosystems. And this is really the only way of doing it. So that's, you know, I... Pay people to preserve them full stock. Yes.

I'm not pretending to be, to not have a point of view here. I very much believe in the other. Or should you. Yes, exactly. So, and when implemented correctly, about 30% of the solution to climate change can come from our natural ecosystems. And so in my view and in the view of a lot of very smarter people than me, this market is a fundamentally essential market that has a real role to play in our overall climate impact

strategy globally as a society. And it's really just about getting the implementation right. So I think let's move to that. And so for companies, I'll go back for one minute and say, today, with the amount of oversight on corporations, nobody, the era of greenwashing to the extent it existed is really a thing of the past because you have the SEC mandating emissions-related data and climate disclosures for public companies. You have a tremendous amount of oversight.

in the media, from watchdog entities, from stakeholders on what companies are doing. And from consumers, even. For sure, from consumers. I mean, callout culture has come for greenwashing. Totally. Activist investors. I mean, we see it everywhere. So really what's happening is a responsible and very transparent effort to quantify,

which is very hard. The quantification is super hard. But there's a lot of new tech innovation software products, carbon accounting software that are propping up a lot of consultancies, advisory firms, specializing in this. So the quantification is one. Then you have the reduction measure. So you will not see any corporation really of any size, but certainly one that is at all relevant putting out a plan that says we're going to quantify and then offset the entire thing, right? That would call out culture. I mean, that's a no-no. So they have a very clear phased decarbonization strategy, but there's always

going to be the hard to abate or impossible to abate residual tail emissions. And that's where offsets can and should come into play. And this is all becoming much more standardized. So first, let's start with, what are the parts about the carbon market that are voluntary? We hear this phrase voluntary carbon market a lot. Now we can move into sort of breaking down like the parts of the carbon market that need fixing so that it can continue to be a more and more powerful solution.

So one is, what do people mean when they say voluntary carbon market? Super, super important question. Thanks for asking it. So there's basically two types of carbon markets, a compliance market or a voluntary market. A compliance market exists because of regulation. So in Europe, and that's where you're trading allowances. So in Europe, you have the emissions trading scheme where you trade every company is entitled a certain allowance of carbon emissions. And then they can trade to emit more, basically.

And it's a very, very structured and very mature market. And we have, in the U.S., we have a number of them, most notably in California. where it's a compliance market. Here we call cap and trade. There you call cap and trade. Is the phrase people are familiar with? Yeah. Exactly.

Exactly. Okay. And you have, you know, trading desks, these are units that are traded and it's, it's because of regulation. So these companies have to. The voluntary market is, it's some now within the market call this a misnomer because you have so many forces converging on corporations that aren't in a cap and trade environment. So they don't, they are not required to do any of this because of global or national

regulation. It's these ESG commitments that make them quantify, decarbonize, and then sometimes by offsets. They're doing it because of pressure from investors, from consumers, from stakeholders, from peers, all kinds of pressures are converging on corporations that are leading them to be responsible with regards to their emissions. And part of that is buying offsets, but it's not to be compliant with any regulatory or legislative

scheme. And so that's why it's called the voluntary market. And so when they buy offsets, it's entirely voluntary, right? If that money wasn't spent on offsets, it's voluntary. They're doing it as part of a voluntary plunge that they've made. Although, getting less and less

voluntary. Less and less voluntary, exactly. Whether it's because of sort of social pressure, customer base, like on and on and on local regulation. Microacquire is a startup acquisition marketplace, and it cuts out everybody in the middle. This basically means they help startups get acquired quickly and at the best price and do it efficiently if you're a founder. Looking to sell your company, your project, your side hustle. Microacquire is free.

And it's private and it involves nobody in the middle. And in a Dow market like we have right now or a little bit of turmoil, M&A activity, can pick up. People might be looking to do what they call in the industry, tuck in acquisitions. They love your team. They love your revenue, the potential of your product, and you can cash in right now. Michael Acquire has helped hundreds of startups get acquired and facilitated hundreds of millions in closed deal volume. They have over 120,000 buyers on the platform. And those buyers, you're wondering like, hey, how does this work? How do they get on the platform? Will they pay? $390 a year? Now you're like, whoa, that's a lot of money. Not for an acquirer. If they're going to acquire companies,

390 is like that's what they spend on lunch, like a nice lunch with a bottle of wine. There are thousands of vetted startups currently listed for sale on the site, and you will stay totally anonymous. On the other side of the marketplace, again, if you're a buyer, get in there. $390 a year, I pay for it. You can find really great deals. Microacquire once again helps startups find buyers. It's really that simple.

Buyers can browse listings for free, and the platform is free for sellers. Sign up for premium right now, $390 a year to access all the deal info. If you're a buyer, try. fire.com slash twist. Once again, T-R-Y dot, M-I-C-R-O-A-C-U-I-R-E dot com slash twist. Okay, so then we have the question of offsets themselves, how they're created, what, who verifies them, what quality they are, how old or new they are, right? Can you run us through kind of the problems that you're trying to solve with respect to

offsets specifically in the quality of offsets? Totally. And I'll try to do this efficiently while highlighting some of the sort of historical challenges in the market. So if we take the example of a conservation project, because that's an easy use case, right? Somebody will identify an opportunity to do a, what's called a carbon project. It's often in the developing world, if it's nature-based, right? That's where we still have our old growth rainforests and the biodiversity within them. So somebody has to put down capital to secure an area of rainforests.

An interesting stat is, I can't stand behind it because it was told to me. But somebody smart told me that right now in the Amazon, in the Brazilian rainforest, you can buy a hectare of land for about $200 U.S. dollars. The minute you slash and burn it, its value goes up to $1,200. So somebody, yeah, it's, right, that's the economic incentives as they exist right now. So somebody will identify an area of, you know, the Amazon. and will put down capital to secure it. And in so doing, they need a revenue stream.

So what they do is they will, there's a, the way the market works is they will employ an auditor basically, a VVB, a verification body who will review everything about the project, both the carbon measurements, what is the carbon that is preserved within this, this environment that they just conserved, but also what's called additionality, which means if I didn't do this project, this land was going to be slashed and burnt because look at all the surrounding plots. Look at the historical deforestation rates in this area. This concept of additionality is essential for getting carbon credits issued to you. You have to show that the land was really under threat. Fine. So they will put together the whole, all of the data involved in showing

the carbon impact, you know, measurements, soil samples, historical deforestation rates, a lot of national and regional level data about the area that you're in. And then we'll submit it to basically a global nonprofit. There's four main ones that have basically are recognized as issuing credible carbon credits, meaning carbon credits that have credibility. It's a, you know, they have the same credit. I'm using it twice. So they will submit the evidence to the standard.

The standard will review the evidence, certify the project as being a project that meets the methodology, you know, has provided all of the requisite evidence and gets issued carbon credits in the exact amount of the metric tons of carbon that the project is either removing from the atmosphere or preventing from being emitted in the first place, often on a schedule. So every year, that project gets issued its carbon credits, commensurate with that year's impact in carbon. And then they have to sell those into the market. So what has happened historically? This was a tiny market until recently.

So this was a $300 million market in 2018, which is basically not a market. That's fairly a market. It's a $2 billion market this year just about, which is a very, very small market as far as markets go. So still a very small market, which meant you had very little innovation. It was the earliest innings of a market and they were going kind of slow. So you had the opportunity for all kinds of loopholes. mainly in projects overstating the carbon impact that they were having. You know, I'm not really conserving 100 metric tons of carbon.

I'm conserving 200 metric tons of carbon. And you can fudge the data a little bit. And the standards, which are nonprofits in a tiny market, don't have, you know, maybe that kind of thing got through. So those are called inflated baselines. That happened historically. You've had issues with double counting where a project or somebody in the middle, a broker, would sell carbon credits twice, right? And again, the standards that create the credits

are also the registries that track them. And technology has gotten dramatically better and especially technology in a booming market as opposed to a really stagnant, slow, early one, right? And so a lot of the innovation is focusing on preventing double counting, on transparency and traceability for credits, which is where blockchain comes in in a big way.

On measuring, now you have, in the last few years, really the last year, you have a lot of remote sensing and IOT technology, Internet of Things technology, plus LiDAR drones that measure tree cover, a lot of digital technologies that are going to actually oversee and verify, you know, double checking, triple checking the measurements at the project level. So drones looking at tree cover, you know, geospatial satellite imagery looking at tree cover, IoT devices and remote sensing that are on the ground in the soil, all kinds of things. So a lot of the historical challenges, I would say, that have led to a lot of criticism

of this market are being dramatically addressed as we speak. Right. Okay. So then as we kind of continue our story arc all the way to solution, there's also this question of pricing. Like, who sets the prices and what does it cost? let's say you're buying an offset equivalent to a ton. Yeah.

How does that pricing get set so that this is a market that really works as a real incentive? Yeah. So this market is really at an inflection point moment because you have the demand finally lining up where you have corporations that are making more and more ESG commitments, which includes often net zero commitments, which often include or and will include the buying of offsets. So finally, you have the capital ready on the demand side to deploy into these kinds of projects. And what you need to create is an efficient, transparent, liquid market for buying these things

and making sure that they're being traced back to the source, which is the project, that the project has the integrity and the carbon impact that it says it has. But also that the market for these things is transparent and there's price transparency in particular. So right now, the way it works, this market is. 80% or so over the counter through brokers. So if you're a corporate buyer, you've gone through all the steps and you're finally ready to procure some offsets as part of your overall decarbonization strategy, it is an unbelievably opaque experience and transaction.

You are basically using consultants who are getting in touch with a bunch of brokers who have relationships with other intermediaries who are going to projects. the pricing is absolutely non-standardized at all. Now, it shouldn't be 100% standardized. There's different project types. A conservation project is different than a tech removals project, is different than a landfill gas project. Like, there's different project types. Right.

And there's other variables that should. But there's not even standardization within the project types. Nothing. Nothing. And then isn't it the case, just to throw a quick wrinkle, isn't it the case that some of the brokers are also the verifiers? that there's some conflict of interest that occasionally happens in this industry? So sometimes, well, there are project developers who do their own sales. So you're the project developer.

And instead of transacting with intermediaries, you're doing your own sales. But you might also be using a broker. Like we have as flow carbon, we're very active in the market as we try to, you know, innovate in this market. And we've seen the same credits on the same day being sold by, you know, different intermediaries at different prices, for example. And with wildly different spreads, by the way. The value extraction from project developer to buyer can be as high as 30%. And that's not uncommon. So the project developers who are actually doing the great work on the ground and should be able to expand their projects, invest in the local communities on the ground.

They're often in the developing world. They are losing a lot of value to this web of really inefficient intermediaries until you get to a buyer. So what flow carbon is doing is really two things. One is what we're really known for, which is advocating that these carbon credits that reside with project developers in their registry accounts but have to get sold to corporate buyers, that these be made into tokens. That basically a token functions as, let's call it a warehouse receipt or a depository receipt of these carbon credits that are very hard to move around and have no transparent or

liquid trading environment right now. And that, once you have basically the warehouse receipt or the depository receipt, I sometimes explaining as a dry cleaning receipt for the carbon credit, but that can be grouped together with other similar dry cleaning receipts or warehouse receipts so that you get liquidity within certain kinds of carbon that can trade at a transparent price. So you get liquidity, you get price transparency, you get the ability to access a lot of new buyers. So you, Molly, me, Dana, we are not going to buy, you know, 10 carbon credits from a broker to offset our, you know, the flight that we took or the vacation we just took. So retail individuals have been totally, the market has been totally inaccessible to them. Same for SMBs, even mid-sized

corporates have a really hard time navigating this web of intermediaries. There's, you know, no contract standardization. There's a lot of counterparty risk. It's just a really messy market. Whereas a tokenized representation solves all of these issues because a token plugs immediately into blockchain infrastructure that hundreds of millions of people already access. So if you can go and buy one carbon credit on Coinbase, a tokenized version of a carbon

credit on Coinbase or on an exchange, at the same price as everybody else, all of a sudden you start to have real price transparency, liquidity, a lot more access for segments of the market that aren't participating at all. And we think will help scale the market significantly. Amazing. Okay. Let's break that down now. This is like, this is my dream conversation, by the way. We have such a logical, no pun intended flow to. It's a good word. I told you. It's just like, it's all coming together.

Okay, so in theory, a couple things here. One, I could have my warehouse receipt, my dry cleaning receipt for my mangrove preservation project. Beautiful project type, yes. And then I could combine that with a bunch of other receipts for the exact same type of project because I know that those would have similar impact and therefore pricing. And then I could be, and then that. basket of tokens representing multiple mangrove preservation projects could be sold.

Exactly right. Fundled and sold. And then a company of any size or even me, Molly, because I'm going to fly to Europe, could buy that on an exchange that's just consumer facing, retail facing? Exactly right. So small project developers have to sell bilaterally. It's very difficult and challenging for them. So this allows different project developers that have the same kind of project.

I think the example you gave is great. Blue carbon is in very high demand in the market right now. So you could group together a bunch of blue carbon projects, maybe put some geographical constraints on it or issuance year constraints on it. Every basket or bundle gets its own design. And this is all part of flow carbon's token architecture. And then they all trade together.

So instead of this small project developer needing to shop his piece of paper around through a bunch of intermediaries to find some buyer on the other side, and pay a lot in legal fees and lose 30%. Instead, exactly, he's accessing the market directly, he or she, I should say, is accessing the market directly through a crypto exchange

that already has adoption, right? Hundreds of millions of people have access to these exchanges and have wallets where they can custody the asset. Okay, so then is there a blockchain verification part of this? So the token is a big part of what you do. Is there also validation built in? Yeah, so this is a major movement in the voluntary carbon market as we speak. I just last week was Climate Week here in New York City.

We Flow Carbon hosted the first ever Climate Week blockchain summit and then spoke at the AIDA, which is the International Emissions Trading Association, had their two-day annual Climate Week summit where this was a major topic at all of these things. So what you're talking about is as follows. using digital means of verifying these projects as part of the certification process. So basically, project developer uses all these tech tools to aggregate the data about what's happening on the ground, the ones I mentioned before, satellite and drone and lighter,

and IoT and remote sensing, all of it. And this has historically been done on PDFs and Excel spreadsheets, right? So this is really new. Using these devices on the ground, having the data from them be submitted as part of, or almost the entire application to the standard. These standards are, Vera is the most well-known one. The gold standard is, you know, the other major one. And this data then results in certification, right?

So now the certification process is data driven through technology as opposed to PDFs. And the carbon credit itself could be issued the way it is now, which is as a as a line of code that goes into this registry account and we meant to token backed by that line of code. Or it could be issued as a token in the first instance. That's a big topic in the market right now, native tokenization at the standard level. And then those can trade. And you can trace each of these tokens back to its source carbon credit.

And then from there, the data can go back to the source project. So you can see all of the data associated with the project. Where is the project? the documentation associated with it, et cetera. Is that what we were suggesting? Yep, yep, exactly. So that you could say, we know this project exists. We can actually keep tabs on it, like adopt a forest.

We can verify that, for example, the credit's still valid, the project that, you know, the rainforest or the mangroves had not been cut down in the interim and nobody noticed, right? Is that what we're talking about in terms of traceability? Exactly right. Yeah. And it's amazing how much technology can come to bear in this market to, create a really close connection between the buyer and the source project and the very credit from that source project. Now, again, it's not a today thing, but incrementally, it really can be tomorrow and the

next day and the next day. A lot of this is ready to deploy, and it's just a matter of the sort of governing institutions in the market, getting together and creating the frameworks for doing it. in a way that maintains integrity and especially environmental integrity. So before I ask about adoption, I want to ask about retiring credits because that's a big part of this conversation too. And I would imagine you're not building your business necessarily on the active trading of offsets in an ongoing way, right?

Because it seems like there's this, it feels like when Google buys an offset, they retire that offset so that no one can keep claiming this climate benefit. it. Yeah, exactly right. So one thing I want to note, I think it's important, is that flow carbon's tokenization protocol, which really means we can warehouse the underlying carbon credits, mint the tokens backed by those carbon credits, create the bundles that allow them to trade together with liquidity, and then plug them into an ecosystem of a lot of use cases. So we've announced a lot of partnerships with other protocols about what you can do with a tokenized carbon credit. Like, you know, we have an EV charging company that's using it in their loyalty rewards

program, offsetting transactions as part of their rewards. We have NFT platforms offsetting every drop, things like that. So all of this architecture, we don't really make money on. We charge a 2% tokenization fee to essentially cover costs. But we plan to, this is an open source protocol. Anyone can use it. There are small fees for doing transactions with. it to cover the costs of maintaining it.

But we plan to build businesses on top of this open protocol. So tokenizing carbon credits, not a great business. At least when you don't charge any money to do it, which we're not. Because we want project developers to be able to tokenize their carbon credits with

basically no cost to them and to utilize this infrastructure so that more money goes back to them, more projects getting done. But I bring this up because of your question. So retiring carbon credit. is the whole purpose of this market, right?

These units are bought by end buyers. They can be traded, but ultimately, they are retired, which means the token is burned and taken out of commission, right? It no longer exists. And the underlying carbon credit is retired, and that's when the buyer can claim the offset. You don't claim an offset. You have no right to claim an offset until you've retired the carbon credit.

And so the tokens, yeah, the token. immediately trigger an actual retirement of an underlying carbon credit in, yeah. Okay. Great. So the idea that's, this seems good, this is very good to clarify because the idea is that we're not creating an active trading market for the same credits to go back and forth. They're bought, retired. More tokens are created as more offset projects are incentivized. Yeah, I think that it's definitely more complicated at that. When you create, when there's a demand, When there's a growing market for what is essentially a commodity, right? There is going to be trading.

There's already, every, most of the major financial institutions and banks were in touch with a lot of them have trading desks. All of the oil majors have trading desks. There's a lot of trading that happens in this market. And as this becomes a commodity that's in more and more demand, there will definitely be active trading that happens. What's good is that there is a shelf, there is a shelf life on these in that their value really goes down over time.

So the market is sort of cohering around a five-year shelf life, which was driven by an exchange that created a five-year futures contract. But basically, they retain their value up to a point, and then as they get older, they lose their value. So they're likely will be trading. In some ways, some of that is pretty healthy for growing this as a commodity market. But then they will be retired and must be retired. And we are very active in finding these use cases with loyalty rewards programs and NFT platforms and all kinds of protocols, a bunch of DAOs that want to use them to offset their historical emissions.

Like we are very active in finding end users of these things, but that doesn't mean that there won't be a trading environment in the middle. There already is and there will be as this market grows. Okay. This is so complicated and I'm glad you're so good at explaining it. Talk to me about these other businesses that you're going to build on to. top of this protocol. Like, how is flow carbon going to make money? Yeah, great. So a couple of ways. First, so there is some small fee revenue. I don't, I want to be really clear about that. There's a two percent fee for tokenizing. There's a fee for, you can take the, if you buy the

token, you can pay a fee and actually collect the carbon credit if you have the ability to custody it. So it's a on-chain, off-chain architecture, which maintains that the connection between the on-chain and off-chain trading environments that's, you know, imperative for a healthy, a healthy market. But what will flow carbon do? A few things. One, we are getting active and are active and helping finance new projects. So we are finding great projects around the world, doing really high quality work, whether it's nature-based or not.

But we believe in our quite passionate, or at least I am, in the nature-based projects. And so, like you said, there's a lot of new blue-carbon projects, main grove restoration projects. We should be clear as ones that are related to water. Water, yeah, exactly. Totally. Just making crystal. Easy color by numbers. Yeah, exactly.

No, I mean, I think this phrase has started popping up, but I've seen a lot of people on Twitter being like, I don't know what you're talking about. So it seems good to. Yeah, super morning. Blue carbon is really in really high demand because mangroves, I don't want to get the science around here, but basically something like sequester more carbon per hectare

than by an order of magnitude more than anything else. So there's super effective. I can't remember the exact science either, but yes, mangroves are the ish when it comes to sequestration. Totally. Mangroves are awesome. Yeah. So, um, and blue carbon is in really high demand.

So you're trying to find and finance. Yeah, exactly. We're fine. Not just blue carbon projects, but great projects all over the, all over the world that, um, we think have really high integrity. Um, and, our great projects. We are financing projects. So that's one. We're also, and that's a big one. And we actually did something really cool where we helped finance a forward contract on chain a few

weeks ago through a partner protocol called centrifuge. So we think that there are ways to bring blockchain structures and sources of capital in to invest in new projects. That's another opportunity that we're, it's a related opportunity that we're marrying. So investing in traditional ways. And then do you get like a fee? Do you take a portion of the financing? Like how does that generate revenue for you? Yeah. Any of it's any of the traditional ways. There could be an origination fee. We could be part of the investment pool where we identify the project, syndicated on chain, allow on chain investors to come in and we either take a fee or we participate in the investment. We would only be putting in investments that we think are good investments. And so we, you know,

we participate in the investment. So a lot of helping originate and finance new projects is one. Two, is we have a very active corporate sales team. So corporates are increasingly need a lot of assistance in navigating this new era of quantifying, decarbonizing, and possibly buying offsets. And a lot of them are putting together carbon portfolios, but absolutely don't want to subject themselves to reputational harm. So want to do it in a way that has the utmost integrity and, you know, is basically, identifying high quality projects. So we are active in working with a lot of corporations

on these efforts. And so is that consulting? It's a lot of carbon portfolio management. So we help them identify offsets and provide the offsets to them. A lot of them are interested. They are blockchain curious. Yep.

And, you know, getting their feet wet, some are more intrepid than others. And so a bunch of them have innovative uses for tokenized carbon that they're exploring that we're thinking about with them. So I think the next like 12 to 24 months we'll see not only a lot of activity in the carbon market in general, but a lot of corporates waiting in more in designing their own bundle, for example, that sets the standard for their industry in making tokens available to their

end consumers. So like a B2B to C model, things like that. And when you say you'll help them design that, Will you, I mean, are you creating financial products for these companies or? So mostly it's the technology layer, right? So the tokenization layer and the carbon procurement to go into the token. So it's that. But certainly we play a role in the financing and bringing in partners, whether they're corporates or other investors or financial institutions,

is definitely something we do. So I would say, yeah, structuring investment opportunities. Yeah. And then let's talk about the kind of the token and blockchain part of it, Because I will confess that when we first met, I was like, this is the part I'm skeptical about why is this better? You know, two questions. One, why is this better on chain than off chain?

Like, what is the singular benefit that could not be accomplished without the blockchain and tokenization behind this? Singular. That's very hard, Molly. There are so many benefits that you can't even list them all? Yeah. Well, I can. There's like 10 of them.

So basically, I think, probably the most important one is this. I mentioned our Climate Week blockchain summit that we put on on last Tuesday. We opened the day with Congressman Richie Torres, who actually, he's a congressman from New York. He's really phenomenal, very articulate, and has like taken up this idea of tokenizing carbon credits in a big way. He wrote a letter to the main standard, Vera,

advocating for them to release their framework allowing this. And why, as he explained at our summit? because he said, this market is a market that needs to scale by something like 10, 15x, really, really fast. This is a market. We don't have the luxury of time with this market, right? I mentioned the astounding rate that we see deforestation happening. We are, like, quickly headed to the disaster zone from a climate standpoint.

And so this is a market, the VCM. It only exists to, like for climate impact. It's a whole market that has been created to effectuate, climate impact, right, whether it's nature-based or others. And if we don't do it in the time period that we need, we might as well not do it at all, right? And so blockchain immediately allows you to scale a market really quickly. Blockchain is great for building markets. You have hundreds of millions of people and entities that are already connected to exchanges and to wallets where they can custody these things. The technology around other use cases can happen instantly.

So we in the last year have about, I don't know, 30 partnerships with other protocols that want to take tokenized carbon and use them in a variety of ways. So I would say that the speed at which you can scale this market is probably the thing that I think makes blockchain the best underlying technology infrastructure for improving the market. Is it the only one? No. But I think it's the best one because of that. There's a lot of other ones. Like, how hard is it for a project developer to onboard? You know?

What do they have to do on the back end to make sure that they are participating in something that will create a token, that their data is like on the blockchain? You know, what are the, how does this appear to the end users? Yeah. So on day zero, right, it's nothing. So on day zero in flow carbon's architecture, again, the market is like, kind of, of figuring out the frameworks for doing this. But just with you.

Yeah. Right, with us, on day zero, basically a project developer signs a contract with us. It's the same contract for everyone, which makes us able to receive their carbon credits into our registry account, basically our warehouse. You drop the coat off at the dry cleaner. We hold it.

We then mint the, and that's it. That's all they have to do. We then mint the token that represents those carbon credits, and it gets listed on exchanges. And they just receive payment, basically, when the carbon credits are bought. You said to, like, deliver the carbon credit in the coat. How do they get the carbon credit?

How do they, like, make the coat in the first place? They do it the exact same way they would. Yeah. Uh-huh. Yeah. As- They preserve the mangroves. They get the certification from Vera.

Mm-hmm. And they bring that. And they just sign up on your app. Yeah, yeah, yeah. Uh-huh. Yeah. On our website. Yeah.

Great. Yeah. You have projects ongoing now. the market, forget the blockchain piece, given the boom in the market, meaning all the corporates that have made these net zero commitments, it has galvanized a lot of great new projects to get started. Again, there's a financing bottleneck that has been a big challenge in scaling the market also, because until you get your credits, it could be two, three years. And there's a bunch of challenges. But nonetheless, in the aggregate, there's a bunch of new projects that are coming

up and in the traditional way. I'm assuming you're going to mint financing tokens at some point, right, so that I can buy a token that will help to finance a project? We, so that was what we, like the, the pilot that I mentioned or the project that I mentioned that we concluded a few weeks ago, did something like that. So it took a forward contract and basically allowed accredited investors on a fully compliance platform to basically buy parts of the junior or senior, this was a collateral instrument. So it was more of a debt offering. But yeah, there's a lot of financing that you can do on chain, whether it's an equity investment using these carbon credits or forward contracts on, you know, projects that haven't reached issuance yet.

You can use them as collateral and allow the project developer to borrow against them at favorable rates so that they have a little some cash earlier on. That was the, that was what animated this particular pilot. And it was very successful, sold out, you know, very quickly. And we see expanding that in a real way. So there's ways to leverage blockchain to finance projects earlier so that you see more and more projects happening. But that's the sort of animation and scale and activity that this market needs all with transparency. So I don't want to downplay the challenges in this market. This market rests 100% on integrity.

If people don't think that this market has integrity, meaning that the climate impact is real, and there is no market. And so the number one most important thing for anyone in this market is to maintain integrity, which itself rests. on transparency, making information available, you know, doing a lot of oversight, using all the tech tools available to us to oversee projects, make sure that they're doing what they're supposed to be doing, make sure that risks that are like force major risks. So like fires, et cetera, are being mitigated. So there's new insurance products that are coming up the pike. The standards always like reserve a bunch of credits as like an insurance pool.

It's called a buffer pool. There's integrity is absolutely like without fail. the number one most important thing in this market, but I think that there's a lot happening to address the integrity-related challenges. And blockchain helps with a lot of it. And then finally, what super energy efficient chain are you using to mint these tokens? Great question. So we're in a post-merge world, which is a great world to live in. Exactly. Now you have two options, right? Solana Are you? I love this world. Now we're launching on a blockchain called Sellow. So Cello is a, it's a

blockchain, it's a layer one that's been carbon negative since its inception, which means it's always been on a proof of state consensus mechanism. It has very, very low emissions and has been offsetting whatever emissions it has more than its actual emissions. So that makes you carbon negative. And they actually bought $10 million worth of our token, so $10 million worth of tokenized carbon offsets, essentially. And they're phenomenal because they have a whole ecosystem of what's called the ReFi movement, Refi Projects. So it basically means blockchain companies focused on climate. And ReFi stands for regenerative finance,

but in my mind, what this group of companies has in common is an emphasis on climate. And Sellow has done a lot to support these companies. So it has what's called the Climate Collective. It's a bunch of companies on this blockchain, all focus on using blockchain to effectuate positive climate solutions. Fascinating. I have no more objections. I can't believe this.

I'm so happy to hear it. No. Where are you now? Where can people find you? What's the sort of status of your projects? Yeah. How can people get in touch? Awesome.

Our website, flowcarbon.com. Anybody can email me at any time. Dana at Flowcarbon.com. We're on Twitter, where we announce all of our everything we have going on. And we're doing a lot. We're very actively involved in all of these various policymaking conversations. in the voluntary carbon market at the standards, in particular around tokenization, but we're also financing projects, both on blockchain and off, and getting ready,

really helping create or helping the market identify the most secure and effective tokenization architecture, which we think is what we've built. Amazing. Dana Gibber, CEO and co-founder of Flow Carbon, thank you so much for the time today. is really going to go a long way toward demystifying big chunks of this topic. I hope so. It's a big one. It's a big one. The voluntary carbon market is a great market, and it's all about proper implementation,

integrity. But when those things are there, this can be major. It can help us go a major step of the way towards the climate impact that we need to see. Love it. Love it. Thank you. Thanks for having me. All right.

Thanks for listening, everyone. Stay tuned for next week. We'll be back with another crypto roundtable with Sunny and Vinny and another episode of the next unicorns. Tons of stuff going on next week, huh? Who do you got for next unicorns? I have been, if you'll pardon the language, kind of ballin in the interview department

because I got to interview the CEO of Liquid Death. Oh, yes. Which seems to be on its way. Of course, this is the awesome canned water company that raised $70 million at a $700 million valuation. This is a great interview. This guy is right on brand for Liquid Death. You're going to love him.

It's going to be a great, great week. We'll see you tomorrow Monday when I'm sure the deluge of news will continue. Until then. Get your umbrellas out, kids. Bye-bye.