January 10, 2023

Neal Dikeman on Energy Tech Startups

Episode 37. Neal Dikeman speaks with Lara Cottingham and Jason Ethier on the Energy Tech Startups podcast.
Jason Ethier: Welcome back to the show. We are here today with Neil Dykman of Energy Transition Ventures. Neil is one of the, what was it, four active investors here in Houston doing energy technology? I tell people it’s 13, but I made that number up. Meaning it’s not very many. But less than around a dozen. And one of the active ones who are investing in energy technology companies.

And one of the things that I think Neil does especially well is he’s seen and looked at every technology company in energy and has seen where all the bodies are buried and also

Neal Dikeman: put a few of them there

Jason Ethier: and has the best experts on any given technology where he can go out and no definitively who is best in hydrogen, who’s best in catalysis, who’s best in battery technologies.

And that really shapes the investments he makes and has a great set of partners as well. So Neil tell us a little bit more about how this came together.

Neal Dikeman: Now energy transition

Jason Ethier: ventures. Yeah.

Neal Dikeman: We don’t use the word clean tech anymore because I wrote the original definition of the word clean tech about 15 odd years ago, And now the world has changed.

The cool kids use the word climate tech. We don’t use the word climate tech. That’s a silly term. Yeah, so we either call it clean tech because clean tech is the imperial term that just keeps changing until it grabs everything that’s interesting this particular year. But the corporates have moved to calling it energy transition.

My pet theory on why? Is that the corporates figured the board figured, clean tech sounds nice and disruptive. As in, I’m not going to have a business, I’m the one going to get disrupted, so I’m definitely not going to make a clean tech strategy, but energy transition sounds just slow enough that I could have a strategy that might survive so I can go sell it to my stakeholders and I’m not going to die now, but for whatever reason, it’s the term of art.

Yeah. I’ve actually got a journal article that’s supposed to come out one of these days on the history of the term energy transition. As a term of art, and we branded our firm around it because that’s what we do. We’re doing the same thing I’ve done for 20 years. My partner is Craig Lawrence. He was doing this at Excel Partners way back in the day.

It’s literally the same type of technologies, the same type of companies. Markets different. Some of the dynamics are different. A lot of stuff has changed, but it’s the same stuff we were doing 20 years ago. Not micro turbines. I haven’t seen a new one of those in a while.

Jason Ethier: Not in a while. It’s so what are the market dynamics that are different today that you’re seeing?

Neal Dikeman: Number one, there’s more cash than God in this sector. There didn’t used to be more cash than God ever. You’d go to these panels and these conferences and venture capitalists would get up there and startups would get up and they would whine about the valley of death, which is code for. At some point, there are not any more investors to put into my thing, and I can’t aggregate enough capital to take the shot on goal for fairly capital intensive stuff.

That disappeared. Nobody whines about that anymore because. It was not really true then there was plenty of cash for the good deals. Today there’s definitely plenty of cash for all the good deals and to put in way too much money to them and to fund most of stupid ones too.

Jason Ethier: Yeah. It’s funny. I remember Valley of Death is code word for I can’t raise money but also

Neal Dikeman: that’s true.

Jason Ethier: It used to be a academically I remember it being about a period where markets dynamic shift from early, what was early adopters to mid stage adopters. Of technology and it somehow got repurposed for for the code. Word of I can’t raise money. Yes. But it’s it’s also we’re in this in, in, in the startup world, you’re correct, right?

Like good deals will get funded. And we’re also in this funky stage now where some deals aren’t good and they’re still getting funded. Some, a percentage.

Neal Dikeman: So to be fair, we’re doing early stage. We’re doing early stage this time because quite frankly, there’s more cash than God and there aren’t enough good companies.

So the later stage, there’s plenty of capital. If you could get a company that was IPO ready and had IPO metrics, you could float that puppy so fast your head would spin. If you’ve got a great looking growth stage company, that’s got good metrics and There’s 85 people that’ll line up to give you a term sheet, but somebody’s got to go build companies here because you have to manufacture the company just like you manufacture the product.

It’s got to get started. It’s got to get founded and seeded and grown up and backed and developed because all these growth people need some product to buy. So we’ve got to make something to sell them.

Lara Cottingham: So why do you care about that? Why do you care about the pipeline? Why, instead of being later stage, instead of making more money.

Then you said, what drives you to be in the front end?

Neal Dikeman: So I’m comfortable across the spectrum of capital. I would be very comfortable. We talked about raising the growth stage fund instead or a project finance fund. There’s a lot of really interesting opportunities in clean tech and climate to go do yet, but you also got to make money and this is a supply demand market.

And what we realized is the hole in the market right now was there aren’t a lot of investors left from the old days that have been through a cycle or two, understand what good versus bad looks and are still wanting to play at a smallish fund. Yeah, early stage where you only are putting a few million bucks into a company.

And so somebody has got to do that job, which means there’s outsized returns to make there. And frankly, it’s fun. I like early stage just because I think I’m good enough to be at any part of the spectrum I want. It doesn’t mean this isn’t fun. I have four deals on our portfolio. All four of them are first time CEOs.

All four of them are first time founders. They’re just right. They’re really cool. And I get, I talk to them all the time more than I should, because they have to go do work. And then I go talk to people that look like them. And then I go cajole investors into joining me in them. And I go cajole people into joining them.

And I go talk to customers and tell them they’re beautiful and they should talk to my, yeah, my little companies. That’s all I do all day long.

Lara Cottingham: So it’s fun. Is clean tech fun? Is energy transition fun?

Neal Dikeman: Cleantech is very fun. Energy transition is very fun. We have a term and it’s like literally posted on our website.

So if you go to the Energy Transition Ventures website, it’ll say, Energy is life and the rest is just details. So basically energy transition means anything that Craig and I like because everything uses energy.

Lara Cottingham: Is it more fun now or when you first started?

Neal Dikeman: Same.

Lara Cottingham: Same?

Neal Dikeman: The challenges are the same. Same.

Challenges are different. Back in the day, we called it alternative energy because it was more expensive than conventional energy, and our rule of thumb was, it’s the policy, stupid. If you don’t have a big fat, honking policy framework to underwrite to, your startup is going to die because it’s not very competitive.

Today that’s flipped. Renewables are cheaper than gas fired generation. We don’t see any floor to how cheap renewables and energy can get. We think energy is basically free and CO2 is basically free and cheap to abate. And so let’s go do some neat stuff with it. So that’s a fundamental flip from what we would have done before.

Does that mean we still like policy frameworks? Look, I’m a libertarian and I was designed this portfolio, assuming that every one of our companies needed to go make money, even if there’s no policy support at all, we just have to get to scale. That is one of the things that’s different. There’s now a lot of private capital that can help get you to scale that might not have been there before, but assume scale.

All of my companies, we fundamentally believe can beat the pants off the conventional technology they’re doing on cost, first cost, life cycle cost and everything else, right? That’s different. 15 years ago, you did not have that, that, that luxury.

Jason Ethier: So first cost is CapEx, installation, and then life cycle.


Neal Dikeman: somebody in this sector tells you, I am cheaper on an LCOE, LCOH, LCOS, LCO, yeah, a average future. Or if I’m a long term energy storage and I say, I’m cheaper if you give me 18 hours of storage. That’s code for my thing costs more than the other guy’s thing. And I got to get some financial wizarding magic in my spreadsheet to make up the difference.

We don’t like those as much. We like things that can drive the ever living costs out of the CapEx upfront and are fundamentally better product. We term advantage technologies. Not microturbines. We’re going to get to your microturbines in a minute.

Jason Ethier: We can get to microturbines when we get to them.

Neal Dikeman: So

Jason Ethier: I want to talk a little bit about stage.

So I think everyone has a different way they define early stage. Correct. You talked a little bit about dollars that you put in, but When you think about stages at market, is there a market stage you look for? Is it a technology stage? Tell us a little bit more about where those bounds are.

Neal Dikeman: Okay, let’s go.

Let’s start with a couple of things I don’t even know how to discuss this. It just drives me up the wall, right? We think people are mispricing risk on a grand scale We’ve seen deals that are like series D and hundreds of millions that we would consider underwrite as a seed stage deal and give it an eight million dollar pre money.

And we’ve seen seed stage deals that are like, oh my gosh, Fisk is mature, this is a tech that can win. And we’ve missed on some and backed some in both categories. Most of these investors today, they have no conception of what real stage is. They stage shift. . They look at it on symmetric or hey, it’s in the energy sector and it’s doing $3 million in a RR.

It must be a big com. No. Energy companies will give $3 million to any dead dog that walks through the door. If some VP gets an idea, they like it. Three million’s not real money and energy.

. Yeah. Cause energy is so big. So that’s why I don’t ask is it series A or series B? What is the, what are the things you’re looking for?

Jason Ethier: You say, this is an exciting early stage company because It doesn’t have these features yet.

Neal Dikeman: We’ll do late stage two. Theoretically, we’re 20 percent late, 80 percent early, but it doesn’t matter. We invest in what we like. We got a couple of seed stage deals, one B and one C when we came in the first round, if that gives you.

It gives you a little bit of insight. Look, our seed stage deals and a serious seed in series a would be the bread and butter if we had our choice, if we can find enough of them. So I’d rather be the first check in. I don’t mind not being the first check. I don’t mind partnering with people as long as the other investors are smart.

That, that shrinks the world a bit. Yeah. But. Look, cause we, we want the deal to be well formed, especially if there’s other bunch of too many, a bunch of other hands at the table. We have a rule. This one’s got too many cooks in the kitchen. We don’t play, there’s nobody driving the ship, so you got to have kind of a cap structure that conforms.

So the, yeah, what we look for is we don’t scale up risk. Yeah. Scale up risk defined is I have a. thing that is 10 inches in size and I need it to go to 100 inches in size or something like that. We like manufacturing volume risk. Which some people call execution risk. Why? Because in energy, tech is cheap.

There’s always a better way to do every single thing that we do. Scaling it up and getting it to market tends to be expensive and where the bodies are buried. If they haven’t knocked that, I don’t care how much dollars or. work has gone into the stuff, it’s still seed stage. Yeah. The SaaS world and the venture world today refers to product market fit.

We put that like number fifth or sixth on our list. That’s just dumb, right? If you got product market fit, but your tech costs too much and you can’t scale it up. Yeah. And you got, it doesn’t matter. It’s just because we’re making widgets to go into projects in this sector to sell into commodity markets at the end of the day.

So we underwrite stage completely differently. We don’t use TRL. TRL was invented in people by people in the seventies and eighties to describe all the stuff to develop the stuff needed to go to the moon. But they went to the new moon before they had invented the word TRL. It is really stupid.

Now all the corporates like it. So all the little startups and companies adopt it. It is just. A nutty concept, but we do the same type of concepts, right? Is that what is the core innovation here? Is it new? Have we seen it before? Have they cracked the nut that broke the 15 other people that did it before?

Do they even know there were 15 other people working on this? Did they bother to Google me or are they pitching me a carbon it deal and forget that there were 15 carbon it companies back in the day, one of them was mine. And my name is on patents on the stuff that they were claiming. They’re doing, has this happened?

Oh yeah. Yeah. So I like early, but we separate out early in the company, early from the technology, early from the component, early from the go to market, we tend not to want to take technology and market risk in the same deal in an energy company, you can take one or the other, but it’s hard to take.

So we’ve invested in stuff where the science is mature, a component is very mature, but the system is not because we judge the system risk is something we could handle. We’ve passed on things with huge amounts of maturity and scale that literally had not cracked. They just didn’t realize they had not cracked the core nut.

That was going to determine success or failure on the cost structure. Yeah. We judge everything in terms of what its cost is going to be when we get it to real scale, to energy scale, because there’s no point in playing a small business. Let’s just take hydrogen. For example, it is monumentally useless to talk about hydrogen in a small company.

Hydrogen either blows everything out or it dies. So minimum discussion is gig scale

Jason Ethier: in terms of being a small company. You mean billion dollar kind of meaning billions a

Neal Dikeman: year or bust? Not because I think I want to have binary outcomes. Be great if we could get non binary outcomes, but because that sector, you can’t get costs out if you don’t scale, it doesn’t matter what you do.

So you have to assume scale and then you have to assume everybody gets to scale because there’s enough cash, more cash than God. So everybody’s going. Get enough cash to go do stupid things. So you have to assume you can beat the biggest and the best and the brightest with cash scale with cash when they also have the biggest, the best and the brightest and cash and scale, you have to assume your tech is actually advantaged.

This sector is replete with amazing teams. working in cul de sacs and they or their investors don’t know it. So half my job is just avoiding cul de sacs. We have our rules are team tech traction. And after that you start looking at TAM and a well formed deal. And then maybe you start looking at product market fit after that, product market fits important, but it’s not important if your tech doesn’t work.

If you’re a software company, product market fit is everything because it’s software. I can just make it work. Yeah. Once I know what it is, that’s not true in this sector.

Lara Cottingham: So you say over and again, that there’s more money in climate tech than ever before. Do you think that is going to stick this time around with everything that is going on from an economic perspective, from a geopolitical perspective?

Neal Dikeman: The amount of capital resource flowing into this sector is functionally uncapped. It’s essentially been functionally uncapped for 20 years, but It didn’t all go to the right spots to drive adoption of stuff. But think about Tesla, which is the poster child for, for the clean tech sector.

That deal by itself is probably, it certainly returned all the clean tech sector since the beginning of time. If every venture capitalist in the company in the world in clean tech had invested in Justin Tesla, Tesla’s made everybody money and it might’ve returned the entire venture sector for the history of time.

It’s close, right? And it was half a billion dollars of government DOE loan guarantee, a massive free investment from the NUMMI plant, and probably another half billion dollars or several billion in tax credits coming from the California Emissions Credits from the other automotive companies. That’s what made it, right?

So even back then in this The dark days, there was so much cash and frankly, some of the Tesla competitors also got massive, non dilutive and huge equity cash chunks in. Solyndra, which was a solar cattle guard. And a really stupid product got a billion dollars and then another billion dollars in DOE loan money.

Don’t tell me they didn’t have enough cash to get there. They’re shot on goal. And that was, those were bad times. Those were orders of magnitude, smaller amounts than here. So what happens if it tails off a little bit, some of the bad deals won’t get funded. We’ll have some washouts. I’ll get some stuff cheaper, but we still got to go build some good companies.

We still got to find advantage technology and you still got to get it to scale.

Lara Cottingham: How do you see climate change, interacting with the advancement and progression of the energy industry?

Neal Dikeman: So one of the other things that’s changed in 20 years is Decarbonization is now the driver. That’s actually new first driver in the nineties was gas as a convergence fuel deregulation.

It was Enron driven. A lot of the stuff we’re still microturbines, the hot era for microturbines was driven by that gas was the feedstock.

Jason Ethier: Yes.

Neal Dikeman: We are going to talk about your microturbine company, right?

Jason Ethier: We can get to it at some point.

Neal Dikeman: All right. So then we moved to this clean tech world where distributed generation died because it was gas fired.

Since it’s gotten picked up as a kind of a solar driven, DG world. And for a while in there, the driver were things like energy security. Which is a hot topic now, but that was why we did the hydrogen economy, 20 years ago. That was the kind of the Bush theory. That was all of a billion dollars in money.

The IRA is several orders of magnitude bigger than that just by itself. Yeah, so we’ve moved on to this, decarbonization as a, as the core driver. And I think that has. driven has taken us in a different direction because it’s corporates trying to figure out how to decarbonize their operations.

This is a demand budget from hell that is flowing down into these companies. That’s the big change. So it’s not just the CapEx numbers. It’s real demand budget, but keep in mind, there’s a, yeah, the, a lot of that budget was simply, buying renewable power.

They’re all doing it under bilateral deals that are essentially a decade old. That wasn’t a thing 15 years ago. Yeah. And, but today that’s a, that’s not a renewables thing. That’s decarbonization. They shouldn’t be using recs and renewables to make carbon claims, but everybody is. There was even a great article.

And I think it was at Bloomberg today on exactly this topic that They’re not supposed to be reusing renewables to make carbon claims because those are no longer good offsets. Because they’re already in the ground? Because everybody’s stupid. Look, back in the day, RECs were invented by the Center for Resource Solutions in San Francisco over in the Presidio.

It’s a nonprofit who designed the greenie program to certify good wrecks from bad wrecks basically. And the certification wasn’t hard. You had to have an actual wind farm and actually produce it and demonstrate that you only sold it to one place. It’s just it, but it was a certification and every voluntary credit, because nobody wants to buy a dodgy credit.

Greeny would tell you over and over until they were blue in the face. And the CRS would tell you, look, this is not carbon. It’s Rex renewables. They’re different. Do not use our greeny certified Rex to make a carbon claim. Everybody’s yeah. And they buy them and the company make a carbon claim because that’s the reason they were buying them. Or they would say we’re green or renewable, and then they’d go ahead and make a carbon claim anyway. Today, we’re full circle, people figuring that out. Now, offsets and RECs are good things, and corporates buying that should not be yelled at. The world is driven by decarbonization, right? Today, that’s what corporates are doing.

There’s some company stuff that’s driving policy and money. But corporates are buying things because they’re trying to decarbonize. This is new. Yeah. There are also people buying things because they think it’s just better than what they’re doing before, cheaper, et cetera. Renewables falls into the same boat.

The corporates, however, are using the renewables to make carbon claims, which they’re not supposed to do because renewables are not CO2. CO2 has a different. Constraints, of course, corporates are going and using life cycle analysis, embedded emissions on their product and saying my products better than the next guy’s product because it has a lower LCA.

This also is not what you’re supposed to do because you can’t use an LCA to compare product data, product B. It’s an LCA. The boundary conditions are everything. What’s

Jason Ethier: an

Neal Dikeman: LCA for life cycle analysis. Yes. Yeah. How much CO2 is emitted in this water to make this water bottle that we’re about to drink.

Yeah. You, what LCA is great for is saying, I’m going to change a few things on the supply chain of this water bottle. I’m going Then I’m gonna have one that has lower energy and lower carbon input, or higher energy and lower carbon or something like that. What LCA is not any good for is claiming this water bottle and my phone.

Have relatively different carbon intensities. Mm-Hmm. because they’re just two different .

. And in many ways it’s because it’s fundamentally a model. It’s not necessarily like you’re going in and measuring every gram of carbon.

Neal Dikeman: Correct. I can make the model dance.

Jason Ethier: Yes.

Neal Dikeman: Yes, so we’re in this weird, interesting world where decarbonization is driving stuff. It’s driving a ton of cash, but more importantly, a ton of demand, just product demand of various types, which is new and awesome and cool and is changing things. But it’s being done by people that in companies that are basically that they’re trying to drive an agenda and a business forward.

They’re trying to their stakeholders say, be greener. They’re trying to be greener. Yeah. And policy makers are saying be greener. So they’re trying to, they’re trying to be greener. Yeah. We are not in a world where we have a single price of carbon. We lost that battle 15 years ago at Copenhagen.

So now we don’t have a single price of carbon. We basically have a thousand fractured prices of carbon. So we’ve got this interesting environment that we didn’t have before, which was policy driven and a hope for a carbon market and renewables and everything is so expensive. We were struggling to, there’s a green premium to today.

There are a thousand markets around the world of various products and opportunities, and some of these are really big markets and the customers care. And they care for a variety of reasons. And as an investor, at some level, I don’t even care that I care why they care. I’m just excited that they do because they’re opening up opportunities.

So take our, one of our latest little companies is a young company named resilient power. We did this one with Amazon. We brought Amazon into partner with us because Amazon happens to be. Basically the biggest purchaser of EV fast chargers in the world or will be because they’re one of the biggest purchasers of EVs in the world.

And our company happens to have its very first product, making an EV fast charger that is about to obsolete everything else on the market. And when we did the deal, another investor was wanting to come in and they’re like, Oh, we need you to fill out the carbon, how many gigatons this thing is going to reduce.

And I’m like, what? And they’re like yeah. And it’s because they’re LPs want it. Cause they got to report it. Yeah. And I’m like, it’s a charger. I’m like yeah. How many gigatons? And I’m like, So that depends on how many we sell. Which it’s pre product, it’s a seed deal. So who do you want to make up that number?

Two, are you going to count the same electrons for the, that the renewable solar guy that’s selling it to is counting from your renewable developer portfolio company and the EV manufacturer OEMs life cycle analysis. And the utility that’s putting it on and the customer is putting it in their building and the end user is like the scope 1, 2, 3,

Jason Ethier: yes.

And this is what you mean about making a model’s dance.

Neal Dikeman: Yeah. This is the

Jason Ethier: dance.

Neal Dikeman: Yeah, I’m like, guys, which there’s only one set of carbon reduction. It’s one of those. And we’re making a charger. It happens to be the best charger on the planet, and we can do microgrids and rewrite the whole grid and do amazing things and enable stuff, but it is silly to make a gigaton claim off of that.

But everybody is.

Lara Cottingham: But you Can’t reduce if you don’t measure, right? So like people are starting to understand that we need to measure something. We want to measure something. Fair enough. It is incredibly complicated. So what do you see? Where’s the right measurement? What should we measure? How do, what did you tell that company?

Neal Dikeman: I told them I am not going to produce that. I’m going to tell my company, do not make up this number. You guys make up the assumptions and you put it in your model. And they said we can’t do that. And I’m like then don’t do the deal. And the founder is much nicer than I am. And he’s been trained Southern polite as well.

And so he’s like just the ultimate gentleman when he deals with anybody. And so he made up some numbers and handed it to him and his numbers weren’t wrong. They just weren’t right. Yeah. But so this is when we get back to some interesting stuff. So why are people, why is Amazon doing this right?

Because they’re one of the, they’re a partner, but they’re also one of the end customers and their customers are the scope two and threes that we’re talking about and they’re trying to decarbonize. So they’ve gone Evie. And they’ve gone EV and what do you need when you have a big massive fleet of EVs?

You need chargers. Half the world is talking about how challenging the chargers is. So great, this tech is rewrite the grid, take care of the EV charging problem. This tech is green as all hell. This tech is like carbon magnets designed to just I was going to use one of my examples again.

Lara Cottingham: To dominate.

To dominate. Yeah.

Neal Dikeman: Not blow a hole in. Nope. The CO2 budget. There you go. Good job. Take massive chunks out of the CO2 budget. But it’s not really fair to say it’s more or less green than the EV. And it would be really silly to go say, Amazon, y’all are just doing EVs because your customers and regulators want you to of course they are.

They’re customers, shareholders, and regulators want them to. So they’re doing it. So they’re buying. And that flows down to build a business around a tech that can also rewrite the grid because this tech’s real value is micro grids from hell. It’s, you can literally rewrite the distribution grid with this stuff.

Why are we not selling it there instead of to the Amazons of the world? Because utilities kill companies on accident by stepping on them like an elephant. And EV people are dying for product.

Lara Cottingham: So I know I’m going to regret this, but talk to me about utilities and the grid.

Neal Dikeman: My partner will not allow me to say the words that I want to say here.

Jason Ethier: What words have been pre approved?

Neal Dikeman: None of them.

Lara Cottingham: But I think that you have a unique perspective on this.

Neal Dikeman: I do. Look, Laura. Dig deep. I believe that, we’ll take solar, for example, and batteries. The native cost structures of a lithium ion battery and a solar module, or solar cell, are already so cheap we’re done.

The world, the game is over, we’re done. Now, you and I, when we go stick that on our roof, whether we’re a business or a house or whatever. We don’t get the doneness because there’s more costs in it. Where do those costs come from? There’s the classic little paper, just go Google it. Australia and Berlin are twice or half the cost of solar on your roof than Texas is.

That is nuts, by the way. It’s all policy, grid, permitting, just stupidness. Right? Renewables are fundamentally cheaper and huge swaths of their market than gas, which is our core marginal of fuel. And we’re putting on as many of them as we can. We should just be doing the long shoulders with gas. And the short shoulders with lithium and shoving ever renewable.

We, we, we can on there, but we don’t

Jason Ethier: tell me what the shoulders are.

Neal Dikeman: Sure. So there’s a little curve, so solar produced sun, solar produced from the sunshines. And so there’s a curve and the shoulders are the edges of that curve. So if you want, more, more green power, you got to flatten that curve, which means you got to store energy.

You got to shift your production somehow. Trackers, bifacials, any number of ways to do it, or just batteries to to store it. And the more that you need to store, the more expensive it is. Because storing things is dumb if you don’t need them and it’s expensive. It costs it’s inventory. It costs money.

And so the best way to do it would just be to do it with gas and then decarbonize the gas and then do the parts with lithium that lithium is good at. And the parts with solar that solar is good at. And if we did it properly, we would take down cost structure for days. There’s no reason any of this stuff costs more today.

It costs less. But remember, we have no equal. Price of carbon. And we have this amazing world where energy customer is really the regulator. The PUCs are essentially the customers in the U S for the power. You and I are not the customer. We don’t buy direct. It’s a messy market. So if the PUC wants to buy and build their grid that way they can, but if they don’t they don’t.

So there’s, we don’t think there’s any real protection for fossil except for policy makers. That’s the only protection left.

Jason Ethier: All right. Let’s I’m going to, I’m going to dip my toe in. Let’s talk about microdermabrasion. Yes. Okay. So we got 10 minutes just to set the stage.

Neal Dikeman: You had a micro turban company? Yes. A startup? Yes, I did.

Jason Ethier: I had a I actually had two micro turban companies. You’ve got to be kidding me. I did this twice.

Yes. So the first micro , sometimes you learn and sometimes you don’t. My first the first micro turban company I joined was working on micro turbans to power these guys. Which one? Cell phones. It was a company called Cappi. Micropower. I don’t remember this one. It’s did it, it lasted a grand total of five months.

Okay and we were gonna make cell phones only for we had incorporation documents. We raise I’m gonna say three I didn’t I was not I was not doing the fundraising. I think we raised three hundred and seventy five thousand dollars. Okay it was technology that had come out of Research funded by the DOE to support the warfighter.

Sure. They wanted 20 10 to 20 watt power system What’s a warfighter? Warfighter is a soldier And then some, I believe. I don’t actually know what the full definition of a warfighter is, but it was a warfighter power. They need

Neal Dikeman: stuff, all that stuff as power. They’ve funded so much interesting research in small power things.

Like your night vision goggles. Night vision goggles need 10 watts to work. So this is real stupid. Back in the day, Batteries were so expensive and lasted so short period of time that we were looking for micro turbines to micro fuel cells because the theory was you couldn’t get the battery there.

Jason Ethier: And so we had designed and developed a little turbine that generated 10 Watts. It was the size of a fingernail. I love it. And ran on ethanol or vodka if you were really, and we went to the bat the laptop manufacturers and they said, fantastic, interesting technology. We won’t buy it because.

ethanol is going to explode on planes and second processors are becoming so low power. We think the batteries will eclipse you in two to three years. And we didn’t go, huh, let’s think about that. We said, no, we’re going to go harder. And that’s when I decided to leave that company because it you gotta listen to your customers and you gotta listen to your market.

But what I, we did hear through a lot of that process was there’s still a need for power in remote places because the batteries and the solar wasn’t quite viable. And the places that were remote included the oil field, included cold places like Canada, cold places, like cold places, the whole

Neal Dikeman: category of cold places

Jason Ethier: because the solar and battery batteries don’t work well when it’s super cold.

And the sun coverage in an Arctic circle was terrible. And during parts of the right and then the third places were developing countries where they had power grid. And we looked at that and said, Oh, who has money, the energy industry, let’s go look at oil and gas. And so started a second micro turbine company to try and solve power challenges.

Neal Dikeman: You realize, The fuse conference, there were a bunch of electric frack things sitting out there. You know those are turbine powered, right? A large chunk of them are. Not all of them. Some of the applications are ICs. But there’s turbines in the oil patch now to do exactly that.

Jason Ethier: But not microturbines, because those are all Define

Neal Dikeman: micro.

That used to be up to a meg and a half.

Jason Ethier: Exactly. I think the frack spreads now are like an LM2500, which is like 40 megawatts. And we were looking at things under a megawatt. Yeah. And some of this is, was hubris and some of it was the resources we had on hand. We knew small turbine machinery because remember the turbine I was working on before was the size of a fingernail.

Once you get large, you start competing with Rolls Royce, GE, Caterpillar, and we didn’t necessarily have a competitive advantage. I knew a lot about small combustion and knew a lot about small aerodynamics. But it doesn’t scale up. This is the scale up

Neal Dikeman: thing. You gotta be careful on that scale up risk.

Jason Ethier: And so the scale up would only get us to about 50 horsepower or 35 kilowatts, which, at the time we were going out to market, was the perfect size to power a single well shale well, and power the pumping unit.

And there was a like brief window of 24 months, probably in 2015, where if we had gotten a product out on time, we could have dominated that market because we could run the pump. We were only micro turbine that can run a pump shack reliably, and we can run mixed fluid fuel, so liquid and gas without any.

Compromise on performance. And there’s

Neal Dikeman: still only a couple of engines out there. You can run field power off on.

Jason Ethier: Yeah. And the challenge is we entered the market in 2018 and the market changed. It went to multi well pads. So power demands went up where you need a megawatt and drilling slowed. And it’s just just this dynamic of not being able to get the market out the product out into the market.


Neal Dikeman: you bet wrong. And what happened to that company?

Jason Ethier: Oh, it we went through bankruptcy and it was fun.

Neal Dikeman: When are you going to do another one?

Jason Ethier: That one is TBD. I’ll tell you when I was starting the first two companies there could be any risk because I had just finished school without loans.

I got lucky there. And didn’t have the encumbrances of like mortgages and loans and all that. And now that I’m in a mid career, I keep thinking, man, this is a reason people don’t start companies mid career unless it’s super compelling. So we have But,

Lara Cottingham: did you know Neil before? Oh, I did know

Jason Ethier: Neil. Neil told me not to do it.

Lara Cottingham: Oh.

Jason Ethier: I learned so much. That’s why we’re still talking about Mike Dermott. So I was

Lara Cottingham: gonna say maybe he’s your

Jason Ethier: maybe

Lara Cottingham: he can be the one who makes third time the charm,

Jason Ethier: Maybe or not necessarily

Lara Cottingham: charm,

Neal Dikeman: but a different market. One of my goals in life is to get everybody to quit their job and start startups.

They should. People are happier when they do that. The world is happier. Laura, let’s work on you.

Lara Cottingham: So it scares me when Neal says things that I agree with.

Neal Dikeman: Yes.

Lara Cottingham: And while I don’t think everyone should quit their job, I do appreciate I’m not worried about everyone

Neal Dikeman: now. Now we’re focused on you. I do

Lara Cottingham: appreciate so much That you are like dedicated and committed to the pipeline that while you are in it for the money Like you see the long term perspective and that you are trying to find when you’re trying to instill the next New thing.

Neal Dikeman: I think you are avoiding the question.

Jason Ethier: No, but here’s the thing is like we know the successful startups come from market driven products. So you’re looking at the market, you’re looking at technology that can defend defensively. And what was the word you use? It was

Neal Dikeman: we call it advantage,

Jason Ethier: advantaged technology, natively

Neal Dikeman: advantaged.

Jason Ethier: So so part of this would require identifying the market you love. It’s aviation. But then identifying that technology advantage technology. And I’m not sure I know how to do that. I’ll be honest, As a someone who doesn’t necessarily look at a lot of technologies. I don’t know. I would know when I see something and I love it, but I don’t necessarily know.

I have the thought space to say, this is advantaged for a long time. And we’re talking about 10 to 15 years that a technology needs to be advantaged for given it’s commercialization. I’ll give

Neal Dikeman: you a couple of stories from our own little portfolio. So Omium, which is one of our startups, they make green hydrogen electrolyzers was talking to the founder there, Arnie Ballantyne.

Arnie came out of Bloom Energy. He was the, yeah. head of engineering there and doing solid oxide. He’d been a pimp fuel cell guy before, and he basically told us, how do you start the company? Because we like to understand the origin stories. It tells you interesting stuff. And he basically said he sat down and he wanted to be in green hydrogen, just like you want to be in decarbonization of coffee so you can drink more coffee and not feel guilty.

And yeah, he’s what tech is going to win? He said he’d been doing solid oxide for 10 odd years. It’s I just, I don’t think we’re going to get the cost out of it. I think I’m the best in the world at it. I don’t think I can get the cost out. And so he said, you know what? I think Tim’s going to be it for a number of reasons.

And so he said the quote, I sat in a room and started writing IP. The guy’s got 170 patents to his name. And he wasn’t saying he was making up patents. What he was saying is he was reducing the practice, a whole bunch of white boarding ideas to something that he go start working engineering on.

And that’s how he launched the company. It doesn’t take any more than that sometimes. Yeah, we have, I was looking at our portfolio. So I said, we only have four. young companies on our portfolio, and they’re all awesome and they’re all growing very well and making me look very smart.

And I will not trade my four for anybody else’s four on the planet. Yeah, we have half of them have a female co founder. Half of them have a ex military co founder. Very random. None of this was planned, of course. Three of them have a founder over 40 or had when they’re founding. Three of them had a founder under 40 when they were founded.

Lara Cottingham: Where are they geographically located?

Neal Dikeman: One is, two are in California, but one of the Californian ones is pretty disparate in its team. It’s headquartered in Santa Monica, but its people are all over. Another one is nominally in Fremont, but its people are all over. And we have 250 people in India in the plant there with the manufacturing plant.

One of them is in Austin, but when we met them, they were, sitting between Houston, Austin, and Atlanta. And we told him you got to pick, you eventually got to coalesce somewhere. And one of them is in New Jersey. But when we met him, one of the founders was at Argonne and a fellowship. And the other one was at the Rutgers lab in New Jersey.

So they’re all over the map. So to challenge the assumption that we know where startups come from. I know where I think startups are supposed to come from, but startups come from founders. That’s where they come from.

Lara Cottingham: I so appreciate that you care about the semantics of things, just in general.

Words matter. And you started off talking about why your company is called Energy Transition Ventures. Very specific and intentionally, right? And so I care so much about the phrase energy transition and how and why we have settled on that. Because I spent six months of my life debating over the word decarbonization.

Or energy transition. Do

Neal Dikeman: you want me to send you the journal paper?

Lara Cottingham: I’m, I do. I’m excited about this, but I want to hear your take on where, what, why energy transition and where is it going?

Neal Dikeman: Is it going to stick? Yes. Why

Lara Cottingham: the term? Cause I agree that there’s like a political

Neal Dikeman: but. On one hand, the terms matter, because they tell you something about what’s happening.

On the other hand, it really doesn’t. In 2025, 27, there will be another term, and the cool kids will be using that. Hell, half the cool kids today want to use climate tech, which is just a dumb term. It’s just, it’s literally people that just are too cool and too good to use clean tech, because they don’t like that term.

It’s the same stuff. Yeah. And back in the day, there was green tech because there’s a whole chunk of venture capitalists that did not want to call it clean tech because they wanted their own term, very high power venture capitals with a lot of money. So they were trying to popularize their own term.

It doesn’t matter.

Jason Ethier: I remember in 2014 I was raising money and I was told, do not call yourself clean tech. Of course. Because clean tech 1. 0 was terrible. For the investors. It wasn’t. For those who did not make

Neal Dikeman: it. for the dumb investors who did not make money. Yes. Yes. Yes. When I went to Shell, and I spent several years helping launch Shell’s latest venture fund, nine years ago or so now.

One of the ways I got there was they had hired my firm to go advise them on strategy and stuff and venture and that sort of thing. And one of the big questions was, Have and where has anyone made money in cleantech as an investor? So I wrote what was one of the very first research reports on this topic.

And yeah, it was skinny. We had at the time, I think 30 odd MNAs and 30 odd IPOs with greater than 50 million exit. Not like investors made money. That’s the universe from which investors could have made money. This is about a decade ago. Many of those companies are orders of magnitude bigger now than they were

Jason Ethier: then.

Neal Dikeman: The venture returns just. Had a longer tail

Jason Ethier: and you had to hold,

Neal Dikeman: you had to hold. Yeah. So the, the interesting thing about clean, and the reason they were asking was exactly what you were saying. There was a perception for about five or seven years that clean tech was a place where people went to lose money as an investor.

That was never true. It was only true for some Valley cool kids who invested badly in mispriced risk because they didn’t understand energy. And you know what? Guarantee you climate techs are going to see the same thing. There’s going to be so many busts. It’s just, yeah, and we’ll probably change terms again.

But it doesn’t really matter what the term of the day is. It matters that there is a term of a day. And it matters why people have picked that term on this day rather than are we still going to be using the same term?

Lara Cottingham: And it’s a bit of a rallying cry and it gets people excited and it’s bringing unlikely partners together.

Neal Dikeman: But startups never called themselves cleantech startups except when they were raising money because cleantech was the. Umbrella asset class term. We called it the Imperial term that would go suck in all new little mini segments and sectors to aggregate capital, but you’d define yourself as a micro turbine company or distributed generation company or a solar company, because that was the industry you sold product in energy transition, decarbonization.

These aren’t industries. These are themes. These are waves. Climate tech is just the cool kids version of clean tech. There are funds jumping out that call themselves any random number of things. And what matters is where they’re putting their cash. And it matters what kind of product is coming out.

Lara Cottingham: And you are timeless. You will surpass all of these buzzwords. I am

Neal Dikeman: old and crotchety. I, when I started, I was young. You do have a good use

Lara Cottingham: of the word crotchety. Can we have that be

Neal Dikeman: our last word on this?

Lara Cottingham: I know. We are far over time. Thank you. Is there any parting words for our illustrious audience who hopefully will stay with us after this episode?

Neal Dikeman: Ouch. Same as we started on energy is life. The rest is just details.

Jason Ethier: Thank you, Neil.

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About the Author
neal dikeman

Neal Dikeman


Author Neal M. Dikeman is the Chairman of online network and cleantech think tank, and a partner at early stage venture capital fund, Energy Transition Ventures. He has cofounded half a dozen cleantech and energy startups, previously worked in venture capital at Jane Capital Partners and Royal Dutch Shell. He has been one of the most prolific writers on the subject of cleantech, as chief blogger for, named a 50 Best Business Blog by the London Times. He authored What is Cleantech?, the first brief history of the term cleantech,, 2008, What is the Energy Transition?, 2020, author of a book chapter on cap and trade in The Green Movement, Greenhaven Press, alongside George Will and John Kerry, and a former cleantech columnist for CNET/, Christian Science Monitor, and Sustainable Industries Magazine.