Before we begin, I'd like to share a few words from our
sponsor, Arbonics. Thank you, Arbonics for
sponsoring reversing climate change.
You helped make this show possible.
I'm so grateful to you and you deserve it.
I don't like taking sponsorship from people whose companies I
just don't believe I don't want to work with.
And thankfully I don't have to because they're companies like
Arbonics are willing to come and support reversing climate
change. If you don't know about them,
they're doing amazing forestry projects in the Baltic states in
Europe. Europe has over 14,000,000
hectares of underused land. A lot of its abandoned or low
quality, not a lot is happening on it.
It used to be forced, but it was cleared for farming as farming
intensified. And then a lot of that farmland
was later abandoned as the global food system move towards
lower cost producers. The land just wasn't worth
tending, and certainly not tending in a way that we would
respect as regenerative and carbon sequestering process.
It was just underutilized, maybe unloved Bionics uses technology
to help land owners even find this land, and once they do have
it, how to restore it back into carbon removing biodiverse
forest. If you care about carbon being
removed and you want to see Europe return to the forested
continent that it once was, you should be looking at our
bionics. Go talk to them.
I had Lizette Lewick, their founder, on the podcast.
The link is in the show notes if you'd like to listen to it.
We talk about a lot of the tricky issues that surround
durability and carbon removal and how does forestry fit in.
It's a very thoughtful episode. I really like talking to her.
They made it really easy to pitch our bionics on doing some
business together because I want to see their work be successful
restoring biodiversity and making forestry, especially good
forestry, profitable again. Man that is a game changer and
so important if you can. Pull it off.
Thank you again our bionics. The link to check out our
bionics website is in the show notes.
You should listen to the show if you haven't heard it already
that I do with Lizette. It will teach you quite a lot
about how they think and what they're doing.
And now we will feedback in to the rest of the show.
Thank you for listening. Here it is.
Hello and welcome to the Reversing Climate Change
podcast. I'm Ross Kenyon, I'm a long time
carbon removal and climate tech entrepreneur.
I'm going to introduce my guest. There haven't been that many
exits in carbon removal and Jim Mcdermott's thumbprint rests
upon several of them. Before I get into Jim's
background, if I could just ask you please become a paid
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only do ratings there, but five star rating on Spotify, hugely
helpful. Thank you.
And in any case, let me tell you now a little bit more about Jim.
There's so much to say about Jim.
We don't even talk about it on this show, but I remember seeing
his company's commercials on TV all the time when I was a kid.
He's the founder and CEO of stamps.com.
Do you remember stamps.com? I have such a clear memory of
the commercials airing on TV. That was Jim, very cool.
And from there, he made his way into private equity and the
energy business. And just going through his
LinkedIn, his background is deep.
He is involved in many companies.
He sits on the board of many companies that he invests in.
He's seen some big deals. He's on the board of Carbon
Engineering, which was sold to Occidental Petroleum, which we
talked about in the episode. We refer to it as Oxy.
He was also the founder, CEO and board member of 1.5, which also
sold to Oxy. He founded Avnos, which is a big
direct air capture company that also produces water.
Carbon Ridge. I don't know if you've been
seeing what's happening with decarbonizing maritime vessels.
So much of it takes place inside of his company, Rasheen Capital
Management LLC Rachina invest in these companies, but it's also
involved in identifying early talent and proofing out some of
the ideas. And just it's almost like a
little incubator, a little venture studio.
It's higher touch than a lot of what you see elsewhere in
venture. We talked about what it's like
to exit several companies in carbon removal and to be
involved in those processes. There's not actually that many
examples of companies that have exited.
One of the other big deals just happened was Holocene also sold
to Oxy. And if you're sensing a pattern
here, the specific pattern is that Oxy is is buying direct air
capture companies. The other pattern is that oil
and gas companies will likely be the exit route for at least some
sets of companies within carbon removal.
This is a trend to keep your eye on.
It depends on how you view it too.
This could be a really great thing because it allows the
industry to run things in reverse.
If you're skeptical of it, it's because they are greenwashing
and you shouldn't trust them at all.
I will leave it up to you to to make up your mind on that.
So Jim has a lot of experience here.
He has great advice for companies that are project
developers within carbon removal who are facing turbulent times.
Listen to Jim, I hope you enjoy. Thank you so much for your time
and here is your show. I'm happy to have you here.
You have the distinction of having two full exits in carbon
removal, which is there anyone else that has that record?
Is there anyone else can that can rival your status in that
way I. Don't know I we don't spend the
time and time bringing it out, but I think it's fairly unusual.
Well, I'll put you this way I don't no one's ever told me that
they've sold 2 diseases in in paranoid.
The guy's housing just had an exit, so Keaton has got got one
under his belt. But I but I think, and I'm super
excited for him, but I think at this point, yeah, too, is the is
the the limit? Keaton's coming for you.
I think he's going to take you down, Jim.
That's I, I look forward to that.
I very much look forward to that.
What's the process like of exiting a company in climate
tech or carbon removal? It's fairly rare as we've
mentioned, and I think everyone is looking forward to what their
company statuses will be like in this new administration in the
future. Beyond it, what's it even like
to set a company up for acquisition like that I.
Don't think it's all that different from any company that
you're building, you know, respecting the health planet or
any business. It's fundamentally being able to
position the company in a way that buyer believes that
ultimately under there, you know, I mean, they're single
Ledger ownership. Things are going to continue to
grow. And I think that probably the
biggest difference is because climbing is emerging.
There aren't as many sort of established cash flow stories as
you as you likely see in other markets.
So a big part of understanding and, and you know, when
something acquires is kind of what's the cost of capital and
what is that technology development side to look, you
know, from today forward. And it thinks you have to spend
a lot of time really thinking about how you're going to drive
down cost and how that's going to impact the overall growth of
the business because there's still a lot of cost reductions
required in these markets. So successful acquisitions
usually are predicated on a lot of development to date, followed
by a real credible story on how cost is going to get reduced
over time. With regard to Oxy, who bought
1.5 and Carbon Engineering at least partially from you and
then also Holocene, what goes into an M&A emerges an
acquisition strategy for an oil and gas major.
How did they decide of all the companies in direct air capture
that they want these particular ones?
How does that process even work? I think only once you get to a
certain level of success as an entrepreneur do you even base
that decision. So I think that the the way to
successful oil and gas companies are are prosecuting is that
they're first taking a very broad look at the landscape with
respect to which technologies they think are most likely to
work and which technologies are most likely to work in, in the
regions and areas and climates in which they operate.
So if you're say a Canadian oil and gas company, you have a
different set of criteria for where you might put a DAC plant
in Camden because the operating environment is different than
say if you're only in the Permian Basin.
So I think what you see is the good companies are do a very
judicious look at all of the available technologies and then
they usually select one. In case of Oxendenal, I think
that they they've been clear and and Vicki has said that they
believe in a liquid based Orbin approach.
There are solid servants, there are monstration absorbents,
there are electrochemical processes.
So they make their own decision about which one they think is
most likely to to operate well and within the context of their
operating envelope. Then I think once they make a
platform acquisition on what you then see is a lot of focus on
process flows and and breaking down those process flows to see
where individual technologies can be purchased to increase the
efficacy or the constant action across this point sheet.
And frankly that's it. If you look at Coliseum, that's
very clear. It's when oxygen and then is it,
they said, look, we have a liquid Sorby and branch and
we're pursuing it. We're driving costs out of it.
The, the, the technical approach that Halsey was, was utilizing.
I think I, I believe that Oxy believes that that will help
drive down their total cost of of kind of caching and that's
why they did it. So you see acquisitions first at
platform level, then followed by tuck in and acquisitions that
drive on particular pieces of their of their system level
engineering. Does this surprise you that we
haven't seen more acquisition deals at this stage of maturity
for carbon removal? No, actually I've, I believe
that there will, but, but that said, I believe that there's
going to be a huge wave of them coming and say late 262728.
And that's because when you look at the progression, the the
technology readiness or the TRL levels of the guys who actually
have money, who are progressing through, most of them are going
to be in a situation that around late 26, early 2728, they're
going to have commercial level on products ready to go.
And I believe a bunch of oil and gas and and frankly large
manufacturing players are depriving and shut buying
things. And so it's just that they're
not quite there anymore. I'm wondering how many carbon
removal companies might be able to make it that long.
I think if they have big off takes that are able to be
financed they'll be OK, but the buying environment by then could
be very different. I.
Think that one of the major
questions that every board and every CEO that's in the director
of capture business is asking themselves right now is do I
have enough money on my balance sheet today to get out to the
2627 time frame. And I, I will tell you, Ross, I
have very high conviction that, you know, I think we were
keeping track of somewhere north of 150 companies have been
funded in DAC. I think that the die off rate
between here and 26 is probably 80 to 85%.
I think a lot of companies are going under and that's, I mean,
that's part of the natural venture capital cycle where a
lot of things fail. It's, it's being really
exacerbated, I think by a lot of, from the chilling effect
right now in the US on, you know, from, from a political
level. I think a lot of people are
looking at it and saying, OK, if this isn't working right now or
I don't have ample capital to get myself through the next 24
months, maybe I'm just not going to get any more money.
Which is I think for people who are focused on which
technologies they care about, maybe a terrific buying
opportunity for for folks on the long side of the equation.
And on the other side, it may be a situation where stuff that was
working is just not going to happen.
You know it's going to it's going to die in a month.
Sounds like a lot of the die off rate is just a response to
macroeconomic conditions that are beyond the control of these
individual technology developers.
They might have great technology, they might not have
an off taken hand or or be able to survive and that puts them in
a very dependent position. It almost seems very unfair to
be at the whims of such global world historical moments that
maybe are responsible for your business success or failure.
I feel like a lot of this is luck or timing in a way that
people that are successful entrepreneurs sometimes
highlight that luck played a big role in their success.
And I think we're seeing that a little bit now here too.
Without question. Without question.
I mean, I you're, I think it is so any static visit, this can be
a fearful situation because you're trying to think and it's
brand, you know you and create something that's never been done
before. I think that there are, there
will be plenty of people in this sector who in retrospect, you
know, had great technology and just got treated unfairly
because of the winds in their capital markets.
And then there will be some folks who survive and make it
through with maybe not the best technology and ultimately get to
an exit or becomes part of being a part of a larger entity.
I think, you know, having been to business since the early in
the 2000s, I watched this cycle in software where you know, over
and over again, people with inferior technology solutions 1
because they either got themselves into a large, well
capitalized company or the basically had better financial
backing. So again, I didn't think this is
something that's discreet and we're focused on on climate.
I think it's just the way the natural thing works and and
good, but good entrepreneurs, I think recognize those cycles,
prepare themselves for the ups and downs that invariably come.
And so I think it's both luck that it's also skilled in the
sense that one of my favorite churches is business early with
my dad's kids. Just because you're paranoid
doesn't mean they're not out to get you and and you're running
paranoid in climate about the fact that the capital palpation
swings can be pretty severe. Is is the hallmark and a good
entrepreneur. If they have to stay alive
until, you know, second-half of 2026 for some of these deals or
maybe even beyond that, I imagine they're going to be
cutting costs, going into cockroach mode, just trying to
stay alive. And the old line for this is
that companies don't get sold, they get bought, right?
And I imagine it's going to be a buyer's market.
If you expect 80 to 85% of companies to fold under
themselves, that sounds like a buyer's market to me.
I think it's a buyer's market me and here's why.
Because there aren't that many energy companies to to buy.
So, you know, look, let's say as a as a fun exercise, out of 150,
let's say 20% survive, right? So you got 30 companies that
come out the other side, 2020 to 32 companies, right?
Well, there's only, you know, I mean 50 or 20 major oil and gas
companies slowly they're all going to want to own their own
technology and they're all going to want to, you know, controller
in Destiny, if you've got one of the better answers, I actually
think all you really need is 2 people compete if there's act,
if acquisition is sort of in the offing.
So I'm not totally sure that I think it might be a buyer's
market if you don't, if you're not one of the winners.
But I think if you're one of the winners, it feels a lot like a
winner take most situation to me.
For the folks who make it, make it out into the 2627 point
frame. Do you have any advice for
companies that might hear this podcast, be concerned with these
predictions and want to set themselves up for future success
for acquisition? Couple pieces of advice.
The first thing is right, we've seen this.
We saw this a lot last year. There are times in markets where
raising capital like that, definitions of successes don't
move backward. There were a lot of companies
that we saw last year that were like, well, I had a huge step up
in the last round. I was doing a huge step up now.
And the and then the answer I think to a lot of people is that
you should take money to survive sometimes.
And, and I think we're in an environment like that.
We're just, you know, doing a flat round.
It's not a bad thing because it means you're going to be around
and a lot of other people don't make it across the chasm.
That's one and and two is I think define very carefully how
you're, you're sort of chunking through your milestones and make
sure that the milestone that you've, you know, defined
yourself are ones that people outside your company care about,
right? Because we've seen over and over
again situations where people sort of define metrics and and
then they hit them and then they say, but no one cares.
And they're like, well, that's because you didn't ask anyone.
So I think it's if you're, if you're thinking about, oh, well,
maybe this is ultimately going to end up in the hands of
someone just sort of further up the fleet chain from me, then
you then it accrues you to spend some time thinking about what's
their process? How did they think about things?
And don't try to overlay your preconceived notions about what
value is. Go listen to the buyers and you
know and very concretely, large oil and gas companies operate on
stage dates and you should it behooves you to go learn how
they run their stage gate processes.
Can you tell us a little bit more about how that works?
I imagine that's a new term for many people listening.
Stage gate is, is really just a process when you're doing a very
large end of your project that basically you set up a series of
milestones. And then when you get to that,
that stage gate, you sit down as a group and you look at all of
the various things like generally speaking, it's, it's
commercial, technical, regulatory and financial.
And, and you say, how do we reach the defined stage gate to
move beyond this? So like, you know, one of the
stage gates that you offer now, it's just basically is it, you
know, do you have a, a commercially viable price for,
for what you're about to do, right?
Second one often is you can, you, can you get it financed
right? So oftentimes when you reach a
stage gate and then oftentimes what happens is you with your
stage gate is they start with USA, what's the pricing on the
project? And the first gate gate is ±50%.
The second stage gate when we cost or -25% and the third one
is ±10. And, and so when you move
through stage gates and every corporation has their own stage
gate process. So if you're thinking about how
am I willing to fit into an acquirer's potential, you know,
business reps us, educating yourself on state base is really
important. With regard to.
Flat and down rounds. Do you think entrepreneurs and
founders should feel the amount of shame that they typically
feel around those events? I know it's good to stay alive,
but often times it they don't get announced as loudly as maybe
they should. Even just staying alive though,
is a success, especially in a volatile, strange market that is
still very undefined like ours is.
Oh, yeah. No, I don't.
I don't think that particularly hardware markets because so much
of hardware can be driven and the cost of the hardware when
they deliver in the hardware because, you know, supply chains
are global. There's a lot of, I mean,
there's currency movements, there's tariffs, there's all
sorts of things that can. That they're sort of exogenous
to your activities that can make your life hard.
So I think what we try to counsel everybody that that we
work with is like, just be conservative in terms of how
much money and how much time they think it's going to take.
Because you can't really control.
Like, for instance, you can't control say that, you know, the
Trump administration decides they're going to put 145 percent
tariff on something. It's it's not within your
control. What is it within your control
is to anticipate that there might be a significant price
increase while you're trying to build your first unit right now.
Can you can you pick 145? No, but you could make the
assumption of hey, in a reasonable market or in, you
know, low turbulent market and low volatility market, it's
going to be $100 to build something and plan for it might
be 125, right? But no, I, I don't Shane.
Shane is a, is a is AI think I've certainly valueless
emotion, which what involves clean tech, which is there are
just so many moving parts that you just need to stay focused
on. Like, you know, what can I
control? What can I not control?
And how do I keep moving forward?
One of the long running jokes as a founder is that you know when
times are good you're bored and V CS backing and you will say we
don't care about profitability, just grow as fast as you can and
then exogenous forces will bear down upon you.
Interest rates will change and they'll say cut expenses.
It's all about profitability. Like how fast can you can you
make this work? And getting jolted around like
that is a very common experience.
It is out of your control and that you might try to be
expanding as fast as possible, then get caught out and then
almost get in trouble for doing so.
I think it's really tough to be in a spot like that.
I agreed. I mean, but that's, I mean, I
agree that that happens. I don't agree that that's
necessarily good board management for people acting the
way that they should. Because when you get into a
climate investment and you know, talk about this in the past, one
of the things that you really have to do is understand that
you're involved in a very long time horizon gain.
It means this is not, you know, I, I've taken 1,000,000 bucks
and I get up a product I'm the Internet on AWS and I'm, you
know, and it's up there running and something wants to acquire
in 18 months. Like it's just not a thing.
And so when you invest in a client or however play, you need
to have your head around maybe 7 to 10 years.
And during the seven to 10 year period, it's almost a guarantee
that there will be one of two cycles as you've described,
right. And so the idea, well, all of a
sudden everything is moving the other direction while you're
trying to prosecute a, a sentence 10 year plan is not
realistic. And, and in so far as your board
or your investors are sort of all of a sudden lighting up to
that, that's as much on them as it is on the entrepreneur.
Rasheen has an interesting business model.
To me it seems like you have founded or Co founded several
companies. It almost seems like you
incubate talent and then you send off these, these young or
not always so young entrepreneurs off on their own
company journeys here. How do you think about this?
Why do you do it in this way? It strikes me as somewhat
unusual. Maybe it's not, but why do
business in this way? Three, well three reasons.
Kirsten is Jet and I met have affairs.
I always say, you know, that people used to ask what do you
do? I say, well, I'm, I'm an
entrepreneur and I'm an operator with money.
I'm not a venture capitalist. I, I actually, I come from the
operating side and I firmly believe that operating and and
good operating operators are the people who, who drive things.
Money is not money is a, it's a true, but it's necessary but
insufficient. So I think you start from the
operator side. And the second reason we do this
is that in looking back at all of the investments we made at
USRG, which is the first private equity firm at United, one of
the things that emerged was in almost in every case where we've
done really well, we've been involved very early.
Sometimes we come up with the idea of ourselves, other times
kind of, you know, founder to come in and we'd work with them
surely from inception. And and so looking back on on
check on track record, it became apparent that we're better early
stage people that we are late stage project guys.
Now I I know how to do proper planes, but I realized in my 50s
that I should focus on what I'm going to do, which is starting
voyage. And then and the third thing is
that having built a publicly traded software company early in
my career and having been in the energy business the rest of the
time, the amount of attention and time that's required to be a
hardware company or something that is in the, we'll call it
the climbing space relative to a sound care company.
It's just it's ordering magnitude more.
So you can't have like a spray and prey, which is thinking of
put, you know, 150 investments out and then just start seeing
the chain survive, which does work.
In fact, Germany and start actually a lot of guys have done
that. That does not work in hangar.
And so her model is go in early, do a few things and then working
very hard on them until they started to to really catch.
So get give air under their ways or whatever an LV you want to
use. And then after that we, we tend
to that back and don't play such an activist role.
But it means that we can only do, you know, two or three
things a year, but we really focus on it, which means I'm not
running a $10 billion fund because I can't.
My operating leverage is, you know, putting up 150 bets a year
is not, it's just not. We have not found that it works.
Does your experience lead you to think that the capital
allocation model for climate tech and carbon removal is also
insufficient in some way? This maybe isn't purely
idiosyncratic to you personally. Maybe it's a sign of a larger
dysfunction or inappropriate application.
Yeah. Actually in patch, it's really
there's a perfect spegway one of the things that we have found at
Rashidi and and I that I'm hoping that the world will come
out. But at least my, my view on this
is that there's probably a better capital model than A2 in
20 closed down 10 year fund for climate.
And and the reason that that's the case is that most
investments take much longer than a typical software or life
science. There may be maybe some life
sciences for it, but they tend to be 7 to 10 years.
Every really successful our company we've had has been at
least seven years found in the making, which is a long, I mean,
it's an example coming year in this started in 2009 and the
exit was in 2021. Wow, right.
So then that's the biggest and and there were many years where
David and the guys were and in fact, they were backed by Bill
Gates, who really has no time to rise if you if you stop in
Piccadanga and what what that allows him to do or people like
him, right. So the fundamental problem is
that that the 2 and 20 structure requires you to turn the money
so quickly that often times you exit when when the slope occurs
still pretty steep or you end up trying to do things to make the
slope of the curve, the value curve steep that are really sub
optimal for the long term outcome of a company.
And so I think a much better model would be a formal or
perpetual capital law where you basically take in capital and
you invest it and you don't really have a time to arousal
other than as long as the company's continuing to build
and grow and, and for enterprise value, you just stay with it.
Why did venture capital end up in the 10 year close fund model
as the shelling point? Like surely there's there's
other ways of doing things, but it's just the default for
everyone. Why?
Yeah, I'll tell. You why so the history of
venture capital is largely in the history of Silicon Valley,
right? And venture capital is very,
very good for a software model. And the reason is it's asset
like, you know, you don't need a lot, you don't need a lot of
capital assets to do what you're going to do.
And, and it can be, so it can be very efficient with the mod and,
and the marginal distribution cost of the next unit IS0 IEI
put it on AWS on the Internet and I served it up.
And there's more, more likes, more, you know, CPMS, all the
rest of that. So that model has been by and
large where people make the most money over the last 25 years.
So and and what does net capital like venture capital like large
then in a large can and markets they're like category and
they're like, you know, big demand, right.
So when you look at energy or energy transition prime, it
looks like it's all of those things.
It's a really big end market, really critical.
We've got to have it. The problem with it is that it's
largely infrastructure based. It involves changing
infrastructure, involves hardware.
And so when the idea to start to invest in that, it's starting to
emerge all of the very large capital allocators, the
calipers, the calipers others look to their most successful
venture managers and said, could you like, I loved being Kleiner
5. I did really well.
I was in benchmark, I killed it. So hey guys, we, we want some
energy exposure. And my managers being who they
are, they were like, so you want to give me a bunch of money that
I can go manage. And, and, and so they did that.
And the problem with that was that many of the people who came
into the first couple ways and continue to do this have a
fundamental orientation towards software, which is anathema to
how you prosecute a hardware business much as an
infrastructure business. And so you got a lot of people
raising money. They've told their LP's that
they, you know, something's going to happen.
And the LP's have been acclimatized to the idea of
short time frames because of software.
So when they don't see it that in energy, they start to think,
oh, well, maybe it isn't working.
So what is the, what does the GP do?
They kind of try to speed up the cycle and but you get a
mismatch. You get a mismatch in in how the
grades should really occur in versus what you know what's been
advertised. Have you had much success
speaking with Co investors or potential Co investors and LP's
and trying to reframe how they should be approaching climate
investments? Like are you able to pull them
out of that way of seeing things?
In certain instances, yes. And what I would tell you is
where you've seen a lot of people doing quite well and then
within a lot of the listing in family office environments,
right. So it's a, it's a, you know, an
intergenerational wealth, someone has made a lot of money
doing something. And, and because their default
position is that they're quite wealthy, they're willing to take
longer time horizon views on on kind of what can be successful.
And, and so their view is, look, if, if I have like as an
example, if I make an investment and it takes me 10 years, if the
compound of any rate of return is, you know, 0 for a long time,
but then it takes off and it goes to 25.
And my, you know, from beginning to end is 15 or 20%.
I'm happy to wait. The the problem with that model
when you're dealing with pension fund is the pension fund is much
in your return needs. They have retirees who need
money now. And so it's been a very tough
market to convince the two will call it sort of a traditional L
key base that this is a model that they should pursue.
It's been much easier, I think for people who have
relationships with family offices and some of these sort
of longer dated intergenerational wealth
managers. What I think would be incredibly
interesting is if we could build a model whereby it was, it was
available to the general public to do this sort of thing.
And, and I mean, my car was actually in a fair amount of
time thinking about ideas like that.
In a way, like an open-ended fund, like a mutual fund kind of
approach, something else. Yeah.
I think one of the one of the areas that that we've been
investigating and thinking about is I'm going to give you just a
quick fun experiment. I gave a speech to Stanford in
tours of high network conference in Stanford in 2019, where a
bunch of very wealthy and they're called ultra high net
worth families come from which each have a net worth of more
than 30 million. And they said we'd like you to
come up with some ideas to think about how to invest the crime.
And, and what I came up with was the idea that most families
spend between about 1 and 3 1/2% of their paying on net worth on
insurance. So they're insuring, you know,
homes, cars, business interruption, you know, cash
out, hurricanes, all sorts of things because they have a lot
of assets and they're, and they're wanting to make sure
that they have something bad happens.
They can do that. So the idea that the thought
exercise that we went through as we said, well, how many families
are there globally at that point over just about 400,000 families
globally that have a net worth in excess of 39.
And I said, well, how much capital would it take, equity
capital would it take to build enough direct air capture plants
to get from the 420 parts per million that we're up today down
to 180? How many physical plants would
that take? And then based on the learnings
that I amassed from my time at Carbon Engineering and at 1.5
became up with that number. And then we said if all of those
400,000 families were effectively donate a percentage
of their net worth on a manual basis for the next 30 years,
because this is kind of 2020 to it's the 2050 target that you
see people talk about a lot, What percentage of their net
worth would they need to affect themselves, tax themselves?
And it true that it's about 10 basis points and a basis point
for because for you don't know is there's a hundred basis
points in every one percentage. So 10 basis points is
effectively 110th of a percent. So if 110th of a percent of all
net worth for the top 400,000 people globally was just you did
it every year on December 31st and God I a tax deduction to do
it, you'd have enough capital to build every direct air capture
plant necessary to take us from 420 parts per million to 180.
That's a model I think is interesting because it
essentially says to people you insured it all sorts of things.
Isn't it worth some percentage of your net worth to ensure,
again, I mean to future proof the climate so that all of this
wealth that you want to hand out to future generations, it allows
them to live in a world in which things aren't completely out of
control. It's an insurance based argument
and I I liked it. Have you socialized it much?
Do people like it? Yeah, I actually have and I have
5 or 6 groups. I've done a lot of business
here. Sort of think of that and I, I
think it's, I, I, I think it's also a prong up that potentially
is, is, has a mass market reach. I mean, one of the ideas that I
often think I, I learned not too long ago that Selena Gomez has
635,000,000 followers on the Internet.
And I don't really know that Selena Gomez, well, when I saw
her on, you know, whatever the thing something in the building
with Steve Martin there and Martin Sharp.
But I've, I've often thought to myself, what if all of these
people who have all this social attention were to say to their
audience, what if you guys all, I mean, just give you a
sensitive, again, if you have $100 million worth of net worth,
I'm talking about 100 grand a year.
That's nothing. It's, it's literally, it's like
people for coal going to be $100 million and you're growing it at
10% a year, you've made it 10 million bucks and you divide
that by 365 days a year. Just the market movements are
like an order of magnitude larger than what I mean.
It's just, it's literally around the error.
But what if Selena Gomez got on our platform and said I'm going
to commit 10 basis points of my network, then I'd invite you as
all of my followers to participate.
And I've also done that calculation, which is the median
net worth in the United States is about $125,000.
If you and there's about 40% surveyed people in our country
say that they're deeply concerned about comment and
would make a financial decision based on that idea.
See, that's like, you know, 100 million, 100 million people, 100
million people and $125,000 * 10 basis points.
It's like it's about $2.3 billion per year.
So if you were to do that, you'd be the largest climate fund.
Like by any measure you would dwarf what Bill Gates and the
guys at Break Your Energy Adventures are doing.
Dwarf. So the idea is this.
Could you could you create something where the retail small
retail participation rolled up into a larger and the and then
directed at at a perpetual climate problems is a is an
interesting idea. It is an interesting idea.
It's also intriguing to me that you have highlighted DAC in
this. Granted you are a very long time
direct air capture person, but. Why are you?
Obsessed with direct air capture of all the different pathways
now, Seems like you're still thinking about direct air
capture. You're still very much engrossed
in it. Why DAC?
One simple reason if we were to magically turn off all carbon
emissions tomorrow. Then again, I'm not going to do
some megatons. I'll do it in parts per million
because I think most people know about 410 parts per million.
I like that way too, personally. Yeah, it's.
Otherwise it gets a little arcane in the math because it's
volumetric. There is, but assuming that,
that's about 3 PPM per year if we were to turn that off from
the wrong morning. So 0, which is where most of the
capital has been invested the last 25 years.
Win solar on Bizol rest you still are by any measure 140 PPM
too high. So really, and if you want to do
3 / 140, rough math is 97% of the carbon that's causing the
problem is already out there. So it's a legacy problem.
So we need to go back and pull out the carbon that is the
legacy of 150 years. And even if we were to eliminate
all the new private emissions, the inertia like the physical
inertia that's embedded in that, in that 97% is going to make the
problems that we're having today and that are accelerating
continue for some indeterminate me depending on who you read, I
think it's probably 100 years. So we have to be in direct
aircraft business, not to say that there shouldn't be any
other things. But we have to be in direct air
capture business or or or we're not going to get the, we're
going to see the benefit that we're all together.
Relative to enhanced weathering or or some of the other things
that are happening in carbon removal, you're still so focused
on direct air capture. It sounds like that isn't a
criticism either. I'm sure you have good reasons,
I just want to hear more of them.
I think it's, I thought I believe in enhanced weathering.
I mean I believe in all of it. I'm very much in the all of the
about it, but I still believe that as a matter of efficiency
directed capture plants are you could, you know 100 acres, you
can take 1,000,000 tons out per annum.
I, I challenge you to make that equation work at any scale of
that nature without, without land use, water use, there's a
whole bunch of other things. I, I think it's a pretty this
way. We spent 100 years using
mechanical and chemical engineering to get ourselves
into the problem that we currently have.
I believe that the way back out is with chemical and mechanical
engineering. I believe that nature will do
that will fix the problem, but not in a time frame that will be
acceptable to most people. But if you, if you, you say I
have 1000 years to fix the problem, just let the trees
drop, it's fine. But if you're worried about 50
to 100 years, you need a chemical and the chemical
solution and DAC is the best. I, I, well, as a parenthetic
thing, I follow very closely with David Keith and the guys in
geoengineering and, you know, aerosol, tractoric aerosol
injections. I, I very much believe that that
probably will be used and, and I think of that as the Tylenol of
climate change, which is we're probably going to have to take
some Tylenol to keep the fever down, but we're going to have to
continue to use director capture and other mechanisms to reduce
the CO2 overtime and and maybe to bring it all the way back to
where we're starting. And I think that the financial
mechanism to make that latter piece work is much closer to a
perpetual capital model than it is a 2 and 20 closed 10 year
fund. Can you explain more what a
perpetual capital model is? I think that's probably also a
new term. Yeah, a perpetual capital model
is, is pretty simple and it's the way that like a like a
family, right, which are intergenerational family.
So he simply says, as I make province, I, I simply just
continuously roll them back into the vehicle to make more and
more and more and more and fasteners.
So let's say, you know, I'm the patriarch of a family and I buy
a building Freddy. Well, when the debt pays down on
that building and I have lots of free cash flow.
If I have a perpetual view on real estate, I just buy another
building. And, and I never and I never
saw. And if you look at how like as
an example, some of the biggest real estate empires in the world
have been built, is that the family just, you know, when
interest rates go down, they refinance the building, they buy
another building and they just keep building forever.
I believe that that's the model that will have to be used for
director capture assets and other carbon removal assets and
the technologies that go into them.
Because we have to look at this as if this is 100 year problem
and we need to have 100 year or longer time horizon in terms of
how we allocate capital and how we measure progress.
That as long as we're making progress and still relatable and
moving the ball forward, then effectively there's no
distribution, we're just going to grow forever, right?
And that if you look at the way that if you want to think of, I
think of carbon assets as a form of national wealth or of global
wealth, if we want to build the global wealth all counted the
Maple, we need to view it as if it's not just a one and done
thing, which is, you know, campers puts in their money and
take it off and then they go allocate it something else.
If you say no, everybody who's invested in this is simply
saying, I'm going to keep my capital in this lane forever,
right? And that's why a smaller amount
is important because you would never say to someone who's
reasonable, hey, give me 10% in net worth and I'm going to put
it in something you can never take out because you might need
the money. But if you get large enough
group of people with a small enough commitment, that equals a
large number. And then once that number is
into that mode, it compounds and grows in perpetuity.
And, and that, in my opinion, is how we're going to generate
enough carbon wealth, cover mule wealth to just, you know, I, I
see a world when I'm logged on where there's thousands of
carbon assets removing carbon in all forms that they're owned
effectively for the public good in, in, in, in perpetual trust.
And by the way, they're example in this Ross, I mean, you have
families in England and people set up perpetual trust for the
benefit of the fame. I'm just saying let's port that
model for each or being favored like the the family that is
every night. Like the whole world.
Interesting. Well, I hope that works.
It would certainly be better than the pressures that one
faces. 11 takes venture dollars. I have a question about the
future of DAC. One of the old bites I used to
hear a lot about. I hear less about it these days.
I wonder if it's been settled, and maybe I missed it, but do
you suspect that the future of direct air capture is
distributed or centralized? Centralized.
I sort of figured you probably
went that way, the oil and gas. Big is beautiful, big is
beautiful now. Now I will say I think that the
construction of those centralized plants is margin
manufactured, not stable. So small is beautiful in terms
of the building blocks, but the actual configuration of the
plants largely as much better. And and that should it's like
basic unit economics because if I can centralized all of that
collection in a single spot, the shared services, whatever they
are, the electricity, the water, all the rest of that are are
better distributed across now 200 than say 20.
But the manufacturing will be much and in that respect small
will be beautiful. What?
Do you think will happen in the fight between electrochemistry
liquid and solid sorbents? What broad pathways here do you
think are going to be the big winners?
I think OK, so I I seek to leave have been been with the
Charmies. I think they all of them have
their limitations. I think some of the limitations
are are greater, greater limitations than others.
I believe in liquid survey, but I believe that one of the great
rate limiters will be how water is consumed and air produced or
used in in process. So I think one of the great,
great limiters the potentially of liquid challenges is the
amount of consumption of water. People are working on that often
definitely working on that. I think solid servants are
interesting but require a considerable Nike heat.
People are working on that. I'm talking my own book here.
I, I very much believe in moisture sling.
We're investors in, you know, very early investors in a
company called Avnos that basically produces water as a
byproduct of its direct air capture or consumption.
And I think that there are limited places where
electrochemistry will work. I will tell you that we having
built what is invested in creating is now the they're the
first or second largest D set of company membrane company in the
world have real questions about ocean based stuff, not because
of the electric chemistry, but because of the amount of
physical water that needs to be moved.
Again, the electric empty works for sure.
So that's a long way to the answer, but I think all of them
work. All of them have distinct
limitations. I think water and electricity
consumption are the two big ones.
They're probably the the no problematic.
So I think it's probably like Harvin and Winster.
Sonyer, if you put it down and I had those would be mine too.
Those are my 2 bets, yeah. We'll see if someone was
listening and they work at a family office or they're part of
a family that has intergenerational wealth in this
way. Do you want them to get in touch
with you? Are you ready for them to knock
on? Your door?
Absolutely. Jim dot McDermott at
rasheen.com, Jin dot MCDERNOTT at RUSHEN.
Yeah, I'm, I'm very interested in those types of conversations
that people want to have them. Thank you for being here, Jim.
I love being able to ask all these questions of you.
You held your own. Thanks for teaching me all of
those things. Thanks a bunch for having me
Ross. I really appreciate it.