Startup Series: Brimstone Energy
Today's guest is Cody Finke, Co-Founder and CEO of Brimstone Energy.
Brimstone Energy's vision is to make ordinary portland cement without carbon dioxide emissions for a lower cost than conventionally produced cement. Brimstone Energy is a venture-backed R&D company with the ambition to reduce global CO2 emissions by a couple of percentage points. The cement/concrete industry is a $1T market opportunity responsible for 5.5% of GHG or approximately 8% of global CO2 emissions, the same emissions as cars. They have developed a process capable of producing carbon-neutral Portland cement and supplementary cementitious materials, regardless of the energy source.
Brimstone Energy was founded in 2019 at Caltech and since then moved to the Bay Area thanks to Cyclotron Road and other federal and private grants. Cody holds his Ph.D. in environmental science and engineering under Prof. Michael Hoffmann at Caltech. During Cody's Ph.D., he specialized in electrochemistry and techno-economic modeling, where he attempted to find economically efficient ways to reduce carbon dioxide process emissions.
In this episode, Cody explains how Brimstone was founded, why Portland cement is carbon-emitting, and why it's hard to decarbonize cement. We also dive into the pilot plant the company is working on, what sets it apart, and how to scale its technology. Cody is a great guest, and we have a fascinating discussion.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded October 28th, 2021
In Today's episode, we cover:
A brief overview of Brimstone Energy, Portland cement, and what sets Brimstone apart from its competitors
Why Brimstone's cement production is different from the traditional way that Portland cement is created
What led Cody to found Brimstone Energy and how his personal climate story unfolded
Why cement is so challenging to decarbonize and why Cody is optimistic about our ability to decarbonize it
A discussion on scaling decarbonized cement and the existing cost barriers
Brimstone Energy's funding to date
Why billion-dollar cement giants need the help of Brimstone Energy when they could create these decarbonized products in-house
How Cody and the team navigate risk associated when balancing scale and customer base
An overview of the pilot plant Brimstone Energy has for creating decarbonized cement
Capital raise needed for the pilot plant to become operational and the risks associated with a pilot
Links to topics discussed in this episode:
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Hello everyone. This is Jason Jacobs, and welcome to My Climate Journey. [music] This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Today's guest is Cody Finke, co-founder and CEO of Brimstone Energy. Brimstone energy is a venture backed R&D company with the ambition to reduce global CO2 emissions by a couple percentage points. The cement concrete industry is a $1 trillion market opportunity responsible for 5.5% of greenhouse gases or approximately 8% of global CO2 emissions, the same emissions as cars. Brimstone has developed a process capable of producing carbon neutral Portland cement and supplementary cementitious materials regardless of the energy source.
I was excited for this one because first of all, cement is such an important area for decarbonization. And second, everyone says it's super hard. I mean, gosh, the offset industry oftentimes uses cement as an example of why offsets need to exist, because it's going to take so much time to decarbonize. So I was very interested in learning more about Brimstone, especially because they've been super quiet. And also it's fascinating to look at how companies start in the lab and spin out through wonderful programs like cyclotron road or activate. We cover a lot in this discussion, including Brimstone's origin story, Cody's background, and what led him down the path of starting the company. We talk about the problem of decarbonizing cement and concrete, what makes it so difficult, the best path to solve it, and of course, Brimstone's approach. We also talk about where they are on their journey, where they're going and what's coming next. Cody, welcome to the show.
Cody Finke: Hey Jason, thanks for having me.
Jason Jacobs: Thanks for coming. I'm excited about these ones, companies where there's some R&D involved, you're pretty underground, you're not saying much to the outside world, not necessarily because you're secretive, but just because you're busy and therefore, people don't know much. And I feel like Brimstone Energy fits in that category, so it's an honor to be an early prier of information out of you and the team.
Cody Finke: Yeah, I think you're probably the first. We haven't done much public, as you say. Hit the nail on the head exactly right. We've been busy and hasn't been a focus, but that's changing.
Jason Jacobs: Good timing then. Timing is everything, as they say. Taking things from the top, what is Brimstone Energy?
Cody Finke: We are working on decarbonizing the cement industry. How we're doing that is we are making ordinary Portland cement, nothing really new there. That's what every cement company in the world makes today. We're just changing how it's made, so we are making it in a way that does not emit CO2. I want to be really clear. We're not doing carbon capture and storage play. That's an add on to a conventional cement process. We are just not making the CO2.
Jason Jacobs: Can you talk a bit about the traditional way that Portland cement has made and about how Brimstone does it different?
Cody Finke: Absolutely, so cement's really interesting, especially if you're a chemist, like I am. Most of the CO2 has nothing to do with the fossil fuel. Today, Portland cement is made from a rock called limestone. You quarry limestone, grind it up into a powder and put it into a kiln. And inside the kiln, you heat up the limestone to first about 900 degrees Celsius. At that point, the limestone itself decompose into lime and CO2, so the rock actually turns into CO2. You take that lime and you heat it up further to about 1400 degrees Celsius. It is one of the hottest industrial processes. Then it reacts with some other rocks and turns into Portland cement.
In the cement industry in general, about 60% of the emissions come from the CO2 that comes out of the rock, and then about 40% of the emissions come from burning fossil fuels to eat up the rock. What comes out of that is what's called Portland cement. That's what comes out of the cement kill. There's actually one more step that's required in order to make cement. And that's blending the Portland cement with a supplementary cementitious material. Supplementary cementitious materials are amorphous silica is the general chemical term for them or a pozzolan. They come typically from waste products of burning coal, fly ash from coal fired power plants or pozzolan or slag from a coal powered blast furnace to make steel. That's a pozzolan. You mix that stuff together with Portland cement, and then you have cement.
Jason Jacobs: That's the traditional way. What about the Brimstone way and how it's different?
Cody Finke: All we're doing is we realize that lime is the key ingredient in Portland cement, and there's lots of places where you can get lime. Right now, we get lime from limestone, which is attached to a CO2. We don't. The industry does. We get lime from calcium silicate rocks. These are basically the most common rocks on the surface of the earth. They contain lime, and they also contain lots of silica. We extract that lime via chemical process. We heat that lime up, just like a conventional cement kiln and produce Portland cement. The lime that we source doesn't have any CO2 attached to it, so we don't make any of the CO2 that comes from the rock.
Jason Jacobs: I'm very out of my element here, but I'm going to take a stab just to make sure that I understand. So in the traditional process, you take or they take limestone and they heat it using fossil fuels and then it decomposes into lime and CO2. Did I get that right so far?
Cody Finke: Yep, that's absolutely right. Yeah, great.
Jason Jacobs: Okay, and 60% of the emission comes from the rock, 40% from the fossil fuels. And then you take that lime and combine it with fly ash or slag or something else to create cement. What you're saying is because a big chunk comes from the process of separating the line from the limestone, you're just going to get it a different way. And the way that you're getting it is a lot more efficient and produces less emissions in the process.
Cody Finke: Yeah, we get it from a different rock. So in our rock, there's no CO2 attached to the lime. We just don't make the CO2, because there's none in the rock. The part that is more efficient is instead of buying slag or fly ash from somebody else, the other stuff that's attached to the lime in the rocks we use, we turn into a fly ash or a slag.
Jason Jacobs: I have tons of questions. We should come back to those, because I feel like I'm kind of double clicking what you already said, but I would actually love to take a step back. How do does a company like this come about? And before you even talk about the origin story of the company, how did you end up sitting in the seat? What's your personal story that led you to doing the work that you're doing today with Brimstone Energy?
Cody Finke: I'll start from really the beginning. As a kid, I grew up in Seattle, half Seattle, half in Idaho. I loved the outside. I grew up staring at Mount Rainier. I love snow. I love climbing. I loved all these sorts of things. In high school in Seattle, I started learning about climate change from a pretty early age. And I had this very naive perspective where I was like, "Wow, there's that amazing mountain over there, Mount Rainier. And that thing is going to not be covered in glaciers anymore." That's devastating to me as a 14 year old. So I started a composting program in high school. That was my high school solution.
I went to college very concerned about climate change. Then I actually learned a bit more about what it was and I got more concerned, but also more sophisticated with my concern and I major in chemistry. I knew I wanted do something in science. I knew I wanted do something that was related to the environment. Chemistry was the most interesting thing. It was the subject that I happened to be able to be creative in as well as understand it well. I applied to PhD programs and I got high anxiety. And I thought maybe I wouldn't be able to get a job, because I heard that the job market for professorships was so difficult. So I added on an MD to my PhD and I applied to MD PhD dual degree programs.
I got in and I started an MD PhD dual degree program. And this one happened to be joint between USC and Caltech. I absolutely hated it [laughs], because I didn't like medical school because I didn't actually have an interest in medicine. Within three months of starting the MD PhD dual degree program, I dropped down. I was like, "I don't care if I'm panicky about not being able to get a job as a professor, I'm just going to go to grad school and work on environmental problems, because that's what I want to do."
I started working on wastewater treatment, actually. I wanted to work on something other people weren't working on that much. It seemed like that was the realm that I could have the most impact if I was just like working on something that other people weren't doing and wastewater really fit that bill, huge environmental problem, huge human problem. And really there's not a lot of money and not many people care. And that was funded by the Bill and Melinda Gates Foundation. My lab actually won this challenge called the Reinvent the Toilet Challenge, and my PI had like shake Bill Gates' hand. And he was super excited. We had a lot of toilet jokes going around the lab. I had a lot of fun working on this project. Spent about two or three years working on the wastewater treatment project.
And then I started looking into the economics of that project and I got pretty unhappy. There was a lot of talk about commercializing this technology. That was the solution. The Gate's Foundation was going to fund this wastewater treatment system. And then it was eventually going to be its own self-sustaining company. And when I looked at the economics, I realized we were just really, really far from that point, so far that I was like, "I'm not sure if that's ever going to happen. And I don't think that I'm willing to take that much risk." Although, I don't think that means it was bad money spent. I think that money should certainly be going into risky things. But I think at that point I was like, "This is too much risk."
So I started working on something that other people were excited about at Caltech, which was water electrolysis or splitting water to make hydrogen. I built catalysts for that. These are the pieces of material that enabled a reaction happen to make hydrogen from water. I similarly had a lot of fun with it and then started looking into the economics and I realized that actually improving the catalyst, no matter what people were telling me, didn't matter too much for the economics of making hydrogen from water. That was like round two of getting burned with techno-economics, my PhD, and I was four and a half years in at this point.
I went through a pretty dark period where I was like, "Wow, nothing I've done on my PhD so far is relevant or matters or whatever." Someone reminded me that the reason you do a PhD is to learn how learn. It doesn't have to be to make something that's impactful. And I realized what I had learned was how to do a techno-economic analysis and how to think about processes to make commodity chemicals. So I started looking at emissions categories that were kind of abandoned, because I still had this idea that I wanted to work on something that was relatively understudied, so I could have an outsized impact.
I actually went to a talk by David Danielson from Breakthrough Energy Ventures. And he talked about the problem of cement and steel. And I was like, "Whoa, that's crazy. I had no idea that those were 5% or 6% of greenhouse gas emissions." I went back and started thinking about chemical processes and starting with the techno-economics instead of starting with years of laboratory research [laughs]. At that point, had the skeleton of couple processes to make something around steel, something around cement, something around hydrogen. I was trying to evaluate what was ideal, applying to Activate postdoc, which I highly recommend Activate, [inaudible 00:13:12] be wonderful. I also started looking for a co-founder.
I had convinced myself that I could create a chemical process that the economics could work for. What I hadn't convinced myself yet is that I could find funding and a co-founder. I started talking to some folks that were in my lab in grad school. There's this guy, Hugo who had worked with a little bit through the wastewater treatment system. And I really admired his work ethic. It was like best I'd ever seen. Started talking to him quite a bit. We'd exchanged some engineering ideas and systems ideas. We started talking together and then we went to a wastewater treatment conference in China and just spent a lot of time together. Ultimately, we decided that we were going to go in on this as co-founders, and then a month later found out that we got the Activate fellowship up, so at least I had a salary. Then we raised a little bit more money and we were able to pay Hugo also and started digging into the research knowing that the techno-economics were decent.
Even going from there, we made a lot of mistakes. Like there was one point where we had made a mistake in our math and we thought that our cement was going to like produce energy in addition to producing cement, which it's not, by the way [laughs], but we're still in a place where we don't believe that the cement industry is going to transition if the product is not cheaper. And we think that our technology is a clear pathway for getting there.
Jason Jacobs: Thank you for that and taking us through those twists and turns. I think that's important to hear that the further down the path you get and the more successfully become, the assumption is that it was a straight line path. And it almost never is. One question that comes to mind is if you talk to people that are working on different offset projects, a big example they hold up of the importance of offsets is cement. And it's because it's such a big source of emissions and it's going to be so hard to decarbonize. Sometimes it almost feels like people think it never will. How do you think about what makes it so challenging to decarbonize and what gives you the optimism that it's possible and possible in reasonable timeframes, where the math works?
Cody Finke: There's a ton of reasons why cement's going to be difficult to decarbonize. There's a scientific reason. The reason that we already touched on which is that most of the CO2 emissions have nothing to do with a fossil fuel. Decarbonizing cement isn't just a cheap, clean energy story. It's a new chemistry story. I don't actually think that changing the chemistry or figuring out a novel process like we've done that doesn't change the chemistry, I don't think that that's especially difficult to decarbonize. I think it's very understudied. People haven't seen the options out there because cement usually flies under the radar. People don't really think about cement.
I push back on, "Oh, because it's so many emissions, have nothing to do with the fossil fuels. It's really to decarbonize." I don't know if that logic follows. I think that's just a different dimension of the problem that people are not used to thinking about. We've been thinking about it and we think that it's possible to decarbonize. And we also don't think of ourselves as especially brilliant at anything, so I don't think it's necessarily difficult from a scientific reason.
There's another reason why it's difficult to decarbonize. That's more of a business model reason. So in my view, it's a little bit like the hydrogen story. Cement plants, they are huge and there are not many cement companies. There's maybe five or 10 giant cement companies and that's it. And they own 70% of the cement production in the world. They have essentially regional monopolies. And if you were to go try to be the Tesla of cement or something and start your own cement company, it'd be very hard to fight for market share, because it's almost like I'm going to start a new oil refinery. I have to get to an enormous scale to be cost competitive, because its huge economies of scale. You also have to convince people that your new process is low risk enough to sign a contract and you're going to be around. It's a very risk averse industry. It's a challenge.
We are at this point, pretty certain that our process works. We are building a pilot and we are getting more certain that the engineering works. What we're spending a lot of time thinking about is how can we leverage existing players in the cement industry to work together to decarbonize the cement industry. That's the biggest reason in my mind that it's so hard at this point.
Jason Jacobs: I get the new chemistry thing and the understudied as a point. On the business model reason, I want to unpack that and make sure I understand that a little bit. Are you saying that because there's a handful of players that are very large and because of the economies of scale, that it would just require so much capital to get to a place where you had the infrastructure in place to be cost competitive, that it's a built in moat? Did I understand that? Right?
Cody Finke: That's part of it. So imagine you're a cement company. You have a regional monopoly. Let's say you're Cemex. You have a giant plant in Southern California, which is true. And you own a vast majority of the cement market in Southern California. But also you have an import terminal in Southern California, so you can really, really flood the market. You can ramp up your production and you can also really flood in the market. You have an enormous company behind you that can write off some debt on its balance sheet or write off some losses on its balance sheet.
If a new player were to come in and say, "Hey, I'm going to set up a cement plant, build a new cement plant. That's going to cost half a billion dollars or something. I'm going to build that scale. And I'm going to to make cement the same price." Then Cemex would be like, "Well, that's great. We're going to sell cement for nothing for five years and put you out of business. We are a giant company worth multiple billions of dollars." So you need, not only enough capital to build a giant plant to tip over the economies of scale, you would need enough capital to weather the storm of the incumbents competing directly with you. So we think that's an unreasonable amount of capital to try to compete directly with cement players, so we don't actually see them as our competition. We see as us building a technology that we can supply to the existing players and they can build their new plants using our technology. I think that's the clear solution that a problem. It's difficult because there's a lot of capital and it's very risk averse.
Jason Jacobs: Different type of rock, different process, lower emissions footprint, do it at a small scale, you find that it works. When you go to scale it, everything else down the line, as you look at the plant and the supply chain and the materials and the expertise, does everything need to change to bring this to bear at scale? Or is it more plugging into what art exists? Like how much switching costs is there, assuming it works at a small scale for the existing players to then scale it up?
Cody Finke: This is what we like, which is basically nothing has to change. I shouldn't say nothing has to change. We think the least has to change. So when you talk about cement, it's a huge supply chain. There's the cement producers. And then there's the coal fire power plants that make supplementary cementitious material. And then there's aggregate quarries that mine gravel. And there's concrete plants that put gravel and cement and supplementary cementitious materials together in order to make concrete. And then there are people who have to design in buildings and specify concrete mixes and then pour concrete and then actually frame rebar to pour the concrete over. All of those people, that entire supply chain, is used to working with Portland cement.
If you think about what has to change for us, we use a lot of the same equipment as a plant. We make the same product as a conventional cement plant, but we do that in a different location, because we use a different rock. So the only thing that needs to change is the chemical engineering for the plant, although a lot of the equipment's the same and it has to be in a different location, but everything downstream can be the same. You don't have to convince people to buy a higher price product. You don't have to convince people who pour concrete or lay concrete how to use your product differently. You don't have to have different cement silos as you currently have at the concrete plants. Like all of that infrastructure, which is by far and away, the largest amount of infrastructure, can stay the same.
Jason Jacobs: And you've done this pretty capital efficient, right? You've raised what a few million to date?
Cody Finke: In venture capital. We've raised just over $5 million.
Jason Jacobs: $5 million, and then is there some non dilutive financing on top of that?
Cody Finke: Yeah, there's about $2 million in grant based financing.
Jason Jacobs: Okay, so call it $7 million. We're talking about many billion dollar giants, as you said, and not much needs to change down the line, so why do they need you guys?
Cody Finke: It's a good question. It's kind of along the lines with the question, "Well, why hasn't anyone thought of this process before?" I think that the cement industry, like a lot of big industries, depends on smaller companies to bring new technologies to the table. These giant commodity chemicals or commodity materials, they always try to be as lean as possible because the technology hasn't really changed in a while and it's very slow to change and they need to compete with each other and have larger margins. And they do that often by cutting their R&D department or downsizing their R&D department and those sorts of things, because in general, in cement, it's not common to have big innovations. So R&D in cement don't have a lot of returns for the company. They need us because they have made conscious decision to innovate around what they're really good at innovating around, which is current cement mixes and not innovate around new ways to make the process because it's just not that common.
The other part is this is the, "Well, why didn't they do this before?" The market conditions didn't exist to do this before. Our process only makes sense in the context of selling both Portland cement and supplementary cementitious materials or needing a source of both of those things. If you rewind 30 years ago, supplementary cementitious materials were incredibly abundant because we burned lots of coal to make electricity and we had lots of primary steel production all over the world. Those are slow industries to decline. And it's only been in the last couple decades that there's been a really emerging scarcity of these supplementary cementation materials, which have created the market conditions to think that the new process might actually be interesting. I think that's a combination of big companies very logically cutting out their R&D for very novel processes and then also market conditions that are relatively new.
Jason Jacobs: So your thought is, as you gear up to scale, it sounds like you've got a plant that you'll be building, and I would imagine, is to prove it out and make sure that it's ready for larger scale. And then would it be to go to these big, your companies and try to get them to license it? Is that the thought?
Cody Finke: That's exactly right. This industry is a very risk averse industry. No news there. Makes a lot of sense for a lot of reasons. If you're building a building, then you don't want that building to fall down. It's a lot of human lives and it's a lot of cost. This industry really wants to be certain that process works, so we need to build it out to a scale where we have a very, very high degree of certainty that this process works. And once we're there, we expect to have lots of conversations with big cement companies. They can look at our plant and they can say, "Wow, we would love to make cement this way." It's more cost efficient because you make both the cement and the SCM. And it also doesn't make any green gas emissions and we license it.
Jason Jacobs: So I'm putting myself in your shoes where I'm a small team relative to my big giant competitors. I don't have a big piggy bank. I have a novel process and they're pretty risk averse and stuck in their ways. I think that if we can prove this out, they're going to want it. I would be afraid that if I kept my head in a cave, that when we finally came up and had it, that nobody wanted. I'd be inclined to talk to them early, but because of their big balance sheets and teams and distribution and infrastructure and everything else, I'd be afraid to talk to them early. How do you navigate that chicken and egg and how much you include them in the discussions early on and what kind of risk do you foresee in doing so if any?
Cody Finke: I mean, there's a ton of risk in all those things. And one of the biggest things is that we really don't see the big cement companies as our competitors. We see them as collaborators and customers. As long as we have a really clear intellectual property mode, which we now do, we see very little risk in talking to the cement customer. You have to ask the correlate question, which is how much value is there talking to the cement customers, the big cement companies, we'll call them.
Right now, I think there's also very little value because we like to tell people what we're doing and what we're working on, but no one's going to be interested until they can actually see the pilot for themselves. We have a very open door and we're very excited when big cement companies approach us or when we approach them. And we love the idea of working with big cement companies. So we try to keep everyone in the loop in a certain extent, only because we have a clear intellectual property mode, which is what we need to be careful of.
Jason Jacobs: Are they seeking alternatives to their existing processes with Portland cement?
Cody Finke: Not independently that I'm aware of. Hugo, my co-founder just sent me a annual report from LafargeHolcim or now Holcim, biggest cement company in the world. And their major decarbonization plan was to do what's called clinker substitution, so that's adding more supplementary cementitious materials into their product to decrease the amount of Portland cement that goes into it.
Jason Jacobs: It's like cigarette companies with cigarettes with less tobacco.
Cody Finke: Currently they have 70% Portland cement, 30% SCM. And their plan is to get to 68% Portland cement.
Jason Jacobs: I was going to say 68, but it was going to be a joke. Like it's actually really 68. That's so aspirational.
Cody Finke: [laughs] It's incredible. Yeah, the funny thing is it seems like it's not quite enough, but this industry is just so flagged as difficult to decarbonize, which again, I don't really agree with, that it's kind of in line with the Paris goals. The Paris goals where, by 2050, we need 60% Portland cement and 40% SCM. There's not a clear plan to how to decarbonize, and we would love to help these companies have that plan.
Jason Jacobs: I would see that as a mixed bag because on the one hand, that's scary to me because when I come out and I've got my pilot plant, they're not looking for the stuff I'm selling, but on the other hand, it means they're probably not working on it either because they don't aspire to move in a different direction. So what gives you the confidence that by the time you have the pilot plant, that they're going to want it given that they're not looking for it?
Cody Finke: I think what they're by and large not looking for is lower CO2 technologies, because a lot of people just given up. But what they are looking for is ways to save cost. I have never thought, at least with heavy industry, that lower CO2 alone would reduce carbon. I've always thought you have to go from high cost to low cost. Energy transitions and industrial transition, they always go from high cost to low cost.
Jason Jacobs: I know what you mean, like lower CO2 will in fact reduce carbon, but what you meant, and I'm verifying, a lower CO2 product will never be widely adopted if it isn't also better economics.
Cody Finke: That's exactly what I mean, but also to be really clear, like we can make all kinds of technologies that are lower CO2. A technology that's lower CO2, a car is a pretty high CO2 transfer transportation technology, but a much lower CO2 transportation technology is a bicycle. Just because we've invented that technology doesn't mean we're all going to start bicycling for all of our transportation needs. Clearly not true. The bicycle's been around longer than the car. We're only going to transition if it is cheaper, more convenient, a better tool for the job. Lower CO2 alone isn't nearly enough for anything. And that's what I mean when I say like lower CO2 is not going to decarbonize. Like lower CO2, if it gets adopted, is going to decarbonize, but lower CO2 by itself is not enough to get adopted, so we think things that allow technologies to get adopted are lower cost, better tool for the job.
And the fact of the matter is with cement right now, the cement industry is challenged because they have for a long time, depending on the coal industry to provide them with a robust source of supplementary cementitious materials. The process that they use for cement is now inappropriate for the energy system that we have, which is dominated by oil and natural gas, which doesn't make fly ash and doesn't make slag. If a cement company were to use our process, it would allow them to produce both their supplementary cementitious material and their Portland cement, which would save them a lot of cost in terms of logistics and would be a more appropriate technology for the energy that's available.
Jason Jacobs: Let's fast forward to the pilot plant operating successfully. First of all, what year are we in, just for context before we do this little role play here?
Cody Finke: I think we're in 2021. Oh, sorry. Well, [laughs] sorry. What year are we in the role play? I thought you were giving me a little quiz. Um, [laughs] let's be conservative. So let's say the pilot is operating sometime in 2023.
Jason Jacobs: Okay, so 2023, pilots operating successfully. You're at an industry event. You see the CEO of Cemex sitting down by himself. You think they'd be a great potential partner to license this technology to and help it scale really big through all the existing infrastructure and relationships and capital sources and everything else that they have, so you sit down next to him or her and you give them the pitch. What do you say?
Cody Finke: I'm going to give some caveats after it, but we'll give you the pitch. So first of all, it's 2023. Let's say Jason, you're the CEO of Cemex. So Jason, you are looking at your supply chain for producing cement, and you have seen for the last 15 years, your supply of supplementary cementitious materials decline. That's causing the cost of your product to increase, also the logistical headache of your product to also increase. So now you have to import fly ash from China for projects in California, or import fly Ash from South America for projects in Texas, which is a huge headache for you. And at the same time, the cement industry has increasingly become a target of governments, because it's such a heavy emitter. And these are all huge problems for you and we all see it. And then there's also a lot of locations where your technology is facings a lot of CO2 taxes, potentially will be borderline illegal based on carbon requirements, like the law that we just saw was just passed in California which says that emissions cement have to be reduced by 40% in 2019.
And we have a technology that could not only allow you to solve all of your supplementary cementitious material woes by producing supplementary cementitious materials onsite where you produce the cement, but it also can solve all of your CO2 emissions woes in that you can produce the same cement without CO2 emissions at the same cost. The reality is once these technologies become widely used, governments are not going to tolerate the emissions associated with cement anymore. It's going to be a huge challenge to make cement the old way. We see this when we think about natural gas and coal. People are happy to use natural gas because it's both lower cost and it's lower emissions. Both governments and people, in general, are phasing out coal. The same story could be true with the current cement process, so switching over to our process is likely inevitable. We'd like to work with you as an early adopter of our technology. Please join venture with us on our first commercial plant.
Jason Jacobs: What are the biggest risks between now and that first pilot working?
Cody Finke: It's all engineering risk, just like any new technology. We've got to put a bunch of stuff together that hasn't been put together in this exact same way before. I sit in my office as a scientist, and I say, "For sure, that can all be done." [laughs] And I don't know how it can be done. We've got a great team of engineers that are working on figuring that out, but it's a risk just like any risk.
Jason Jacobs: Would this plant be considered, a word that I've heard again and again or a phrase, but would it be considered first of a kind?
Cody Finke: Absolutely. There can be different definitions of first of a kind, [laughs] as you point out. When I think of first of a kind, I like to put my banker hat on, which is not a hat that I've ever actually wore in real life, but I try to role play as a banker because we're going to need financing from banks in order to scale this and build cement plants. What a banker means by first of a kind [laughs] is, "Has a plant that does exactly this in exactly this way of this exact size [laughs] ever been done before?" And I can argue with that banker and say, "Well, all of the unit operations are done in other processes," and the banker will be like, "Well, great. [laughs] I'm going to go invest in those other processes." [laughs] Absolutely, it's first a kind. At this understanding, all of our unit operations do in fact come from other processes. So there is reduced risk because of that, but it's definitely first a kind in terms of a banker.
Jason Jacobs: How much do you estimate it'll take to get the plant built?
Cody Finke: If we're working with Cemex, for example, or Holcim or Heidelberg or any big cement company, we're going to want to build a big plant because the economy of scale is what allows you to get the cost of cement down. So we're going to build a plant that makes one million or two million tons per year of cement, and we expect it to cost a similar but somewhat increased amount. So a conventional cement plant that makes between one and two million tons of cement, depending on where it is, maybe cost $500 million to build fully installed and ours maybe would cost $600 million to build fully installed.
Jason Jacobs: And that's the next phase for the company that to raised $5 million inequity and $2 million in non dilutive capital is to build a $600 million plant?
Cody Finke: No. [laughs] I'm talking about our commercial plant. I'm not talking about a pilot plant. Are you talking about a pilot plant still?
Jason Jacobs: I was. Yeah, but that's fine. So now we have earmarked the commercial plant. So let's talk about what needs to happen between now and the pilot, what the biggest risks are there. And then let's talk again about, okay, so you've got the pilot, you just kind of answered that second part, but let's go back to the first part. How much capital does it take to get the pilot?
Cody Finke: For now, it's all engineering risks to get to the pilot. We've drawn down our scientific risk. We've shown that we can do the things that we want to do. Now we need to optimize these things, find materials that are compatible, and all these things that you need to do to scale up from the bench to the pilot. We only want to build one pilot in our life. We don't want to be a company that builds pilots, so we need to build a pilot that is representative of the plant that we ultimately want to build, which is our commercial plant. And that means the pilot has to be pretty big because cement kilns don't get very small. We are actively working to figure out what the size of our pilot can be or needs to be, but it's going to be multiple millions of dollars to build the pilot.
Jason Jacobs: Are you thinking that that is equity or debt or project finance or grants or philanthropic capital? How do those pilot plants tend to get funded?
Cody Finke: We would love to use as much non dilutive funding as possible to build the pilot, but we also want to go as fast as possible. And the fastest possible way is mostly going to be equity. If you know any bankers who want to give us debt at this stage, please introduce them. I'm all ears.
Jason Jacobs: A lot of them listen to this show, so I don't have to introduce them. If they like what they hear, they'll be in touch.
Cody Finke: Love that. But yeah, we are expecting mostly equity, and then if we are lucky enough to get some more grants, hopefully we can do a significant amount of grant funding as well.
Jason Jacobs: So the valley of death that people talk about, is it the first of a kind pilot or is it the first of a kind commercial plant?
Cody Finke: I've heard a lot of valley of death. So for big industrial processes, I think the valley of death is wide and it is deep. You need to start making money and to make money in a big commodities industry, you have to make that commodity and you have to make it at cost. And in order to make it at cost, you have to make it at scale. In order to make it at scale, you need a lot of money. So you need to do exactly what you thought I was talking about earlier is say, "Well, you're going to go from this much money to that much money. That sounds insane." I would define the valley of death as the period between pilot, which is like typical reasonable step to scale up and first commercial, which is an enormous behemoth of a plant that makes millions of tons of product per year.
Jason Jacobs: Now, when you look at the stuff that keeps you up at night, I'm sure there's a million things that keep you up at night in terms of what you need to do to get this to work and to work cost effectively and to work at the quality and to work with the right emissions footprint and everything else, what about the stuff that's outside of your control? What is the biggest thing that you worry about that could kill the company that is outside of the scope of your control?
Cody Finke: Luckily, I control everything so, no, I'm kidding. I'm trying to think of the biggest things. There's a lot of things [laughs] that go outside of the scope of the control. One of the biggest things is this is a conservative industry and the worse the economy is doing, the more conservative this industry does. And also the worse the economy's doing, the less access to capital we're going to have. We want to partner with a big cement company. We want to partner with every big cement company to start building every cement plant this way. And in order to do that, to convince these companies, we probably have to build a full size plant first to convince people that it's real. In order to do that, we access to a lot of capital. In order to have access to that much capital, we need a strong economy or a strong context that we can be raising capital in, or maybe we just need low interest rates, I'm not sure.
What keeps me up at night is for whatever reason, let's say we have pandemic round two or three, I don't know what we're on right now, and the economy tanks, or let's say we have another housing bubble in the economy tanks, suddenly we don't have access to capital to build a plant. We're going to need to figure out a different way to convince the industry to scale quickly. And that definitely keeps me up at night.
Jason Jacobs: I think you answered this earlier, but I just want to press on it just to make sure I understand what percentage of the company's times that could be you, that could be anyone in the company, is spent focused on the industry, the market, external versus internal? And what advice are you getting, assuming you don't have ahead of commercial in place already, on how quickly and how aggressively to scale that function and when?
Cody Finke: I want to make sure I understand your question. When you say scale as in like?
Jason Jacobs: Scale the resources in the company that are focused out versus focused in.
Cody Finke: Right now, the company is almost all scientists and engineers. Hugo and I are the main people in the company that are focused outward towards building customer relationships and raising money and that sort of thing. We actually think that we're at an inflection point right now. We, as of very recently have drawn down our scientific risk. That means we can start sending samples to customers. We've actually done some of that already. That means we can start having early conversations with folks that we would want to license the technology to. And again, please reach out if this is you, if you're a cement company or a big engineering firm, we're interested in those conversations.
Now that we're in the engineering stage, we need to start ramping up our external facing and start building a room of customers who are interested in us. The advice that we've gotten from our group of advisors, who are awesome, is that these conversations take a long time and these partnerships take a long time, so you need to be doing it as early as possible. And then with every step in risk reduction, you need to ramp up the external facing, because these conversations will get more serious. We've just gone through a big step in risk reduction, so now we need to raise and go up a step in business development. So we'll probably hire a full-time business development lead after series A. And then once we build the pilot, there'll be another step change, and then we'll really bring on a team.
Jason Jacobs: Got it, so what are your key priorities as a company in the next 12 months? And for anyone listening that's inspired, where do you need help? Who do you want to hear from?
Cody Finke: If you are a concrete company or a cement company that's interested in testing our product and interested in either buying our product or partnering with us to build a plan or licensing our technology, we definitely want to hear from you because the earlier we can show your support, the easier it is for us to raise money. If you are a chemical engineer or someone who's especially skilled at just building things and trying things in the lab and being creative in the lab, then we really want to hear from you. We're hiring a bunch of chemical engineering folks to build our pilot and test some stuff. If you're pretty clever on the finance side and have ideas around business model, then we really want to hear from you, because we want to think very creatively about how we can really decarbonize the industry.
We are very sincere about decarbonizing the industry and something that will not decarbonize the industry is only allowing one company to slowly roll out this technology, so we want to partner with lots of different companies. We want to partner with everybody, or we want a very sincere partner that wants to really quickly roll this stuff out. We need to think creatively about how we can do that. And we also want to work with partners, whether you're a cement company or somebody else that are also very sincerely interested in decarbonizing the industry, so if that's you, please, please reach out.
Jason Jacobs: Cody, anything I didn't ask that I should or any parting words for listeners?
Cody Finke: I think you covered it. Thanks so much for your interest in cement.
Jason Jacobs: Thanks for coming on the show. Awesome discussion, best of luck to you and the team.
Cody Finke: Awesome, thanks Jason.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note, that is .co not .com. Someday we'll get the .com, but right now, .co. You can also find me on Twitter at JJacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you. [music]
