Episode 175: Gaurab Chakrabarti & Sean Hunt, Solugen
Today's guests are Gaurab Chakrabarti, Co-Founder & CEO, and Sean Hunt, Co-Founder & CTO of Solugen.
Solugen is a venture-backed biotech startup that produces high-performance chemicals from plant-derived substitutes. Our award-winning hydrogen peroxide technology was developed in-house by a team of doctors, scientists, and engineers from MIT.
Before Solugen, Gaurab, who holds an M.D./Ph.D., researched the role of chemicals in cancer progression in medical school when he found an enzyme that turned sugar into hydrogen peroxide. Meanwhile, Sean, a graduate of MIT with a degree in chemical engineering, focused his research on improving traditional chemical manufacturing. Gaurab and Sean met playing poker at the University of Texas Southwestern, and in 2016, submitted their idea for Solugen to an MIT pitch competition. In 2017, Gaurab and Sean were named Forbes' 30 under 30 and joined the Y Combinator accelerator program, one of the rare startups outside software to get in. In September 2021, Solugen closed a series C round.
I was looking forward to sitting down with Gaurab and Sean because I don't know much about the symbio world. Gaurab and Sean explain how Solugen started, the impact traditional chemical manufacturing has on climate, and what motivated them to focus on climate change. We also dive into Solugen's experience with Y Combinator, a discussion on a green premium, and how policy shapes the company's future. Gaurab and Sean are fantastic guests.
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 September 10th, 2021
In Today's episode we cover:
An overview of Solugen and how the company got started
Gaurab & Sean's personal climate journeys
A discussion on how chemicals are made and the climate implications and issues involved with the existing methodology
Key phases and stages of Solugen's commercialization path
Solugen's experience going through YCombinator, especially as a symbio company
What a green premium is and the implications it had for Solugen in the early days
Solugen's process to acquire customers and the existing competitors in the market
The barriers holding back the incumbent players to operate similarly to Solugen
Where the chemical industry is in transition to a carbon-free, environmentally sustainable world
The top priorities for Solugen looking into the future
The role policy places in shaping the clean future and how Solugen plans to engage in policy
Links to topics discussed in this episode:
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Jason Jacobs: Hey everyone, Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey or MCJ, as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a slack community for those people that's now mushroomed into more than 1300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for. Determination to tackle the problem of climate change. Ambition to work on the most impactful solution areas. Optimism that we can make a dent and we're not wasting our time for trying. And a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community. A number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there. A bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members, and some open source projects that are getting actively worked on that hatched in there as well. At any rate, if you wanna learn more, you can go to myclimatejourney.co, the website and click the become a member tab at the top. Enjoy the show.
Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. 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 guests are Gaurab Chakrabarti, CEO, and Sean Hunt, CTO of Solugen. Chemical companies have historically used petroleum, natural gas and phosphates to make their products, exacerbating air and water pollution. Solugen aims to replace many of these ingredients with chemicals using renewable resources like simple sugar. The company recently raised a 357 million dollar venture funding round led by Singapore's sovereign wealth fund GIC and Baillie Gifford, and joined by several other funds focused on solving the climate crisis.
I was excited for this one because decarbonizing the chemicals industry is an area we've not covered a lot here on the podcast and it's such an important one. So I'm excited to learn more about it and to help you all learn more about it too for any anyone that wants to. We cover a lot in this episode, including the origin story of the company, the landscape of chemicals, what's made them so toxic and problematic, what's been difficult about decarbonizing them. We talk about the Solugen approach, how it came to be, some of the twists and turns along the way, where they're at today, where they're going, some of the headwinds and barriers that they still need to overcome, and what changes could accelerate the adoption of their technology and others that will get the chemicals industry to where it needs to be. Gaurab, Sean, welcome to the show.
Gaurab Chakrabarti: Thanks for having us, Jason.
Jason Jacobs: Thanks so much for coming. And you guys just had some, some big news as well. So I would imagine that things are fairly busy for you these days.
Gaurab Chakrabarti: [laughs] That's uh, yes, big news from our side, you know, we, we just announced a pretty large fundraise for the history of our company that's gonna help us, us, you know, continue moving down the path and scaling up our technology.
Jason Jacobs: Awesome. And give us a quick snapshot on that, just for anyone that didn't see the, the press release.
Gaurab Chakrabarti: Yeah. We ended up raising 357 million dollars at a 1.8 billion dollar valuation from, I would say some of the best, you know, long term and climate-focused investors in the world, including BlackRock, Baillie Gifford, GIC, Temasek and Carbon Direct, and as well as participation from Lowercarbon Capital, [inaudible 00:04:09] fund as well. So a lot of folks on there who are very long term, crossover type public market individuals, as well as hyper sustainability focused. So I think it goes to show kind of those worlds are starting to collide a little bit, which is exciting for people like us who are in the climate tech space.
Jason Jacobs: Yeah, totally. We're, we're seeing the same thing at MCJ, and just taking it from the top. What is Solugen?
Gaurab Chakrabarti: [laughs] It's a fantastic question. Solugen, what are we? We do kind of think of ourselves as a climate tech company, right? Where what we focus on is using renewable resources like biomass or carbon dioxide, which can come from various sources and convert that to fundamental chemicals and materials that we interact with every day. So like the chemicals that treat water that you drink today, or the, the plastics that are being put into our planes and our Teslas and things of that nature, we want to be able to be the company that really redefines the way chemicals are made, and do it in a sustainable way and make the whole industry carbon negative.
Jason Jacobs: Awesome. And gosh, I mean, there's so many different ways we could go from there, but maybe before we get too much into the Solugen story, tell me a little bit about your origin stories. How did you come to be doing this work? Maybe each of you just kind of give the snapshot of your personal journey and how you got into the seats that you're sitting in today?
Gaurab Chakrabarti: Very interrelated, very, very interrelated. I'm actually a physician scientist. I've been studying pancreatic cancer for some time. And discovered a very fascinating set of reactions in cancer cells that make a lot of the chemicals and molecules that we talk about every day. The first molecule that we discovered in pancreatic cancer was hydrogen peroxide. And it was just remarkable how efficiently these cancer cells were able to make the peroxide. And the weirdest thing was, you know, I was, you know, really excited by how this stuff was being made in the cell. Really cool. It's using, you know, biomass to do it in the cell, but then Sean was at MIT. He did his chemical engineering PhD on, he was working on the production of hydrogen peroxide on metal catalyst at massive scales.
Sean Hunt: Yeah. So my background is something called heterogeneous ketolysis. So it's something a lot of people don't know, but actually 90% of all the chemicals, materials, you know, things you interact with every day, at some point they pass through what's called a metal catalyzed reaction. That's something you could think of kind of like classical chemical engineering. And I started my career actually developing fuel cells for the US Navy. And so then, you know, went to grad school and I met Gaurab through my wife when he was at medical school with her. And so it's just kind of very unusual for someone with my background to talk to someone who studies [inaudible 00:06:48].
Jason Jacobs: And so how did the company come to be?
Gaurab Chakrabarti: It wasn't supposed to be a company, Jason, it was like, we were just like passionate about the science, right? So like, what we realized was like, if we can marry my world of biology and enzymes with Sean's world of metals and like industrial scale synthesis, we might have a fighting chance of creating a more sustainable way of producing the chemicals that we interact with every day. And so that really excited us from just like a fundamentally new, cool technology perspective. But on top of that, what was really interesting was it worked. Like, very rarely do you like see a science idea work on the first few tries. And what we decided at that point was like, well, if this is working at, you know, a scientific level, is there relevance to society for this? Can we go and produce these chemicals at scale on our own?
And so long story short, we, MIT was our first check in the company and we, it was a $10,000 check. So not like a whole host of things to write home about, but they gave us 10,000 bucks. We went to Home Depot, bought some PVC pipes and built our first reactor and started cash flowing in a couple of months. And that's when we realized like, well, one, this was done with 10,000 bucks and we're cash flowing 10K a month, you know, in the span of a couple of months, that's pretty cool. Could we do this bigger? Could we keep doing this? Could we start scaling these like mini reactors all around the world and start having a very profitable business?
And that's when we decided that YCombinator was the right place for us to try to learn how to do the company building, because, you know, coming at a, as scientists, we didn't necessarily know how to build companies. And that's where we thought YCombinator could be a really good place for us to be. And Sean, I know, you know, we had debates on, hey, do we want this to be a business? Is this gonna make? But I think ultimately we decided that if we want to see this technology flourish, we have to do it through a private enterprise. We can't do it through academia.
Jason Jacobs: So in a pre-Solugen world, how have chemicals been made historically? And what are some of the issues with the current way of doing things?
Sean Hunt: Yeah, so there's really actually only two ways to make chemicals. So there's petrochemistry, which is my background, but then there's also fermentation. But if you, if you take a big step back and you think about like, what are you actually trying to do in the chemicals industry? All you're doing is you're purchasing some feed stock, putting it through this black box process and trying to make a product, and you want to do it as efficiently as possible. And the problem in the chemicals industry is that we're actually really bad at doing that. [inaudible 00:09:29] have been trying for over a century now. And the problem with petrochem is used really toxic feedstocks, really high temp temperatures. And so your feedstock gets converted into a whole bunch of products. Many of them are toxic and you have to pay to separate them out. And so the economics become pretty poor.
Similarly, on the fermentation side, you know, people look at fermentation as a potentially better way to make molecules, but the problem is that the cells are living organisms like you and me. So 50% of the sugar feed stock in the cells actually gets converted to carbon dioxide via respiration, and the cells do 20,000 reactions simultaneously. So you end up with the same problem where you kind of get this soup of products and you can't convert your feedstock directly to the product. So what's really exciting about Solugen is it's actually an entirely new way to manufacture molecules. It's a third way. We take the best elements of fermentation, which are the enzymes that are within the cells. And we take the best part of petrochemicals, which are the heterogeneous metal catalyst, and we combine them together. And when you combine these together, it's called a chemienzymatic process, and Solugen has created a new asset class called a Bio-Forge.
And so for the first time, what's really groundbreaking is that we can convert a feedstock directly to the product. We don't make side products. And this has really big implications for the chemicals industry, 'cause there's really three buckets of emissions. There's the front end process that I just talked about, converting a feedstock to a product. Then there's all the separations that you have to do if you make a super product. And then there's all the transportation associated with moving those products around. But because Solugen solves that first bucket, converting the feedstock directly to the product, we can also solve the other two. We don't have to pay huge amounts of money, huge amounts of CapEx and emit huge amounts of emissions doing separations. And we can also build smaller plants, which means we can essentially provide our products directly to our customers without having to ship across the world.
Jason Jacobs: So I'm gonna try to parrot back what I think I just heard. And by the way, caveat, this is way out of my element. So I'm really glad to be having this discussion 'cause it's such an important area, not one I have a lot of experience in. But I think what you said is there's two different kinds of processes and each one is inefficient and toxic and emissions-producing and expensive for different reasons, but there's elements of each that are good and you're taking the elements of each that are good and applying them together to form a new kind of process. And that process is both more efficient, it's cheaper. And then it reduces emissions because it can both skip some of the extraneous steps, but also some of the transportation that would be necessary if, if you were including those extra steps, because with those steps comes transportation and other kind of supply chain wear and tear, let's say, that adds to cost and adds to emissions.
Sean Hunt: Oh wow. Jason, you're a really good listener there.
Jason Jacobs: I'm trying, I think I'm stressed out about it because I know so little that I'm like listening extra hard to try to... [laughs]
Sean Hunt: [laughs]
Gaurab Chakrabarti: That was really good. No, that's exactly right. You know, the reality is like I always kind of liken it to like the semiconductor industry back in the 1970s, right? Back in the day you had, like 1970, you had Fairchild Semiconductor, which was really, really good at designing chips, really good at it. But they couldn't produce those chips at scale in a way that was like cost effective, until Intel comes around and says, "Hey, we're gonna take this beautiful design, but we're gonna take the best parts of this process called photolithography," right? And they said, "Let's take this photolithography process and this beautiful design process, marry them and get to a way where we can scale chip manufacturing." And that's where Moore's Law was born, because of that process insight. In a similar way, that's kind of where we are today with synthetic biology, right?
You've got these amazing companies that are doing really good design work on the microbe side. They can make these catalysts, make them cool, but it's really, really hard to scale it up in a way that people are gonna pay money for it. Right? It's just not economical. What we've done is we've said, "Hey, let's take the best of this process called chemienzymatic, right? Where it's like, we're not demonizing petrochemistry, there are things that we've learned from it that we can apply to this synthetic biology revolution." And now all of a sudden we're scaling up, you know, three to five X faster in the competition. You know, traditionally it takes a company to go from bench scale to like commercial scale. It's about 15 years. We did ours in five years, right? A third of the time. And that's precisely because of that Intel analogy. We've got this now cool process insight that we've married with this design insight to actually enable rapid scale up. And so that's kind of how I think about what we're doing, is just a new way of looking at, at the old platforms that we've always had.
Jason Jacobs: So if you wanna kind of maybe step outside of yourselves and go to the bird's eye view of, of not only what you're doing, but also, you know, kind of the, with the benefit of hindsight, what are the key phases that you've been through so far? Like, where does one start once they have that insight, if they're trying to commercialize it and yeah, maybe just kind of summarize those key phases and then bring that back around to where you are today.
Gaurab Chakrabarti: Let me let Sean [inaudible 00:14:34] this one, because we actually did have a phased out plan for Solugen, [laughs] so I'm sure Sean has comments on this.
Jason Jacobs: It's like the Solugen progress today for dummies. That's what I'm looking for. [laughs]
Sean Hunt: [laughs] Yeah. So, so the thing that really changed the trajectory for Solugen was going through YCombinator. It really just changed how we thought about the business. 'Cause one of the things that Gaurab and I did was we went on a listening tour with many of the founders of the Cleantech 1.0 companies, just to understand like, how should we think about approaching the chemicals industry? Like, how should we approach this differently? And what we learned was two things.
So as we are scaling up from bench top, to pilot, to commercial, it's just as important to scale up distribution and supply chain. And so if you look at Solugen from 2017 through today, you know, we started, you know, with our tiny little $7,000 PVC reactor, and we were selling it, a, a product to an end use customer in float spas for like 30 bucks a gallon. And then it's like, okay, well what's the next level of scale? Okay. We scaled up to our pilot plant, which was a 100X scale up over our first PVC reactor. And then we started selling into cleaning wipes, really far down to the end customer. And then we actually entered the water treatment sector. And if you look at where Solugen is today, we've now just launched our first 10,000 ton per year first commercial plant, it's an over 500,000X scale up from the PVC reactor. And what's really exciting about this plant is that it offsets and sequesters over 30,000 tons per year of carbon dioxide equivalence. It's actually a net carbon negative asset.
And it's the first facility permitted in Houston without air and waste water emissions. And so now that we have this even larger asset, you know, it's not just water treatment anymore. Now it's agrochemicals, now it's concrete, we're even working with the Department of Defense. So there's a lot of really new, exciting areas that we can bring that's asset to. And then think about phase four, I'll go back and summarize for you, Jason. So phase one, we have a little PVC reactor selling in float spas. Phase two, pilot plant selling, you know, into the water sector. Now we're at phase three, we have our first commercial plan and we're in a whole bunch of different industries. And what our series C is actually really for is to start doing this phase four, where we have a whole pipeline of different molecules that you can make on the Bio-Forge. And now we have this at scale technology. And so now it's about doing multiple different molecules in multiple different industrial sectors.
Gaurab Chakrabarti: And what's interesting is as you kind of go across this phase plan, the impact the carbon reduction impact, starts having step function changes at each site. So for us, we're now finally getting into the realm where our process and operations are actually gonna be carbon negative for the industry, which is remarkably exciting.
Jason Jacobs: And in the earliest days, when you're just trying to get your stuff to work, let alone to scale it, at what point did you start thinking about applications and where it could be applied, who would buy it, et cetera. And how did you balance spending time with potential customers and potential markets versus making your stuff work in the earliest days?
Gaurab Chakrabarti: Customers are everything. It's a weird thing for scientists like me and Sean to be so customer-focused to the point where we would formulate products for them. Like just to figure out what would work. We would do the, all the heavy lifting on the end product to understand in their system, what would be the best product and the best chemicals for that. And so that for us, that was like before even like building and trying to scale, we were doggedly focused on the customer to the point where Sean was delivering product in his Subaru. We wouldn't ship it. Right? We didn't trust FedEx to get the product to the customer on time. So at the time we just said, "Hey, let's just throw it in the back of your Subaru and let's go give it to the customer." Sean, I'm sure you remember that.
Sean Hunt: Yeah, I think on the early days, the customer focus is actually the most important because you know, it requires a lot of, uh, time and capital to essentially enter the chemicals industry. And so you need customers to help you get there. And I think one of the things that's really important to highlight is the element of luck.
I mean, we did our a $100K, MIT $100K Entrepreneurship Competition pitch. And we were just really lucky that someone who owned a float spa, Gaurab and I had never even heard of a float spa, saw our video, shared it on this forum with 400 other float spa owners. And all of a sudden we were like, "Oh wow, we have all this inbound." And I'm like, "Okay, well, we've got $10,000. I can build this." If we can do this selling price, it's like, "Oh wow. We could actually make money here." And it was kind of like, it's a really niche market, but finding that niche and clinging onto it and using that to kind of start spinning that snowball effect, that flywheel, I think is really important in the early days.
Jason Jacobs: And when you went through YCombinator, how much symbio had gone through there and with the benefit of hindsight, how is it different getting a symbio company off the ground versus say a consumer company or a SaaS company?
Gaurab Chakrabarti: [laughs] I don't think many symbio companies had gone through YC in the winter, 2017 batch. Sean, you can correct me if I'm wrong there, but I'm just thinking of a handful. I think Ginkgo went through, Ligos, iMicrobes, only a handful. So it was still, like, I think fairly new to YCombinator on how to give advice and how to advise business strategy for companies like that. And for us, what we latched onto was less about, let's peg ourselves as a symbio company, and let's just f- immerse ourselves in the world of YC, right? It's all about customers at that point, customer discovery, customer traction, understanding customer pain points and delivering products and applications for that.
That fundamentally, I think was what allowed us to succeed in the early years, was we got lucky because we were so customer-focused. We knew what the customer wanted before we spent all this money trying to build something that no one really cared about. So I think fundamentally that framework at YC didn't matter if we were a symbio company or a software company, that framework was very true to us. And we, we were pretty scrappy in those early days just to try to get revenue going for the business.
Jason Jacobs: And as you have gotten further along and started to scale up your production capabilities and you're selling more as well and into various markets, I mean, is the pitch the same from market to market or does it really depend on the industry that you're targeting and, and what is the value prop that makes people's eyes light up and gets them to, to lean in?
Sean Hunt: Yeah, so the details on the, imagine like the customer has a problem and we're there to solve that problem. We're delivering a solution, not just a molecule. So there, it does change by industry, but I think the commonality across all of them is we do not lead into any customer engagement with some sort of green premium. That was one of the big learnings that we got from the Cleantech 1.0 companies. And that's also like the really critical thing to highlight about the Bio-Forge, is this is about delivering carbon-negative chemistry at a really good value in terms of price and performance. So like when we go to directly to a customer, we go straight to the field, we go straight to the end user and we deliver on price and performance and what environmentally and like sustainability, governance, like what ESG means at the operator level is actually safety.
They care a lot that we're delivering a safer molecule. We don't have to ship hazmat. They don't have to wear as much, really crazy PPE when they're using our chemistry. And what we found, which is really exciting is, once we get that first sale and we do that first field trial with the customer, we can then show the P&L improvement for that customer. And what's really exciting, you know, especially in the era that we're in, and this is even different now than it was two years ago, is the number of corporate sustainability groups. Many of our customers have come out and said, "Hey, we've got this carbon reduction target by 2030 or by 2040." And so what we do is after we do that first case study is we go to that corporate sustainability group and we say, "Hey, look what we did. Look at this value we delivered, come join our life cycle analysis stakeholders group and like we'll quantitate for you." Like if you were to roll out Solugen's products company-wide, what would be that impact to your environmental footprint?
Jason Jacobs: And so I get that you don't wanna lead with a green premium. I think that makes a lot of sense. What objections did you get early on and how have you navigated to get around those over time or work through them?
Gaurab Chakrabarti: Yeah, I think the objection was actually less about the product, it was more of, it actually ended up being more of a supply chain distribution and QA/QC question. So the boring stuff, right? Jason, like, [laughs] this was fundamentally like what customers care about? Am I going to get my product on time? Is the product going to be on spec? Is it going to do what you say it's going to do? And are you going to be able to consistently deliver this product in the future?
And for us, what we did was we very early on built out our supply chain ops team to kind of handle that because fundamentally we're in the chemicals industry and operational excellence is kind of table stakes. So we knew that for us to be taken seriously, that's where we had to be most proficient. It, it's just funny, 'cause it's like the technology matters, don't get me wrong, but like, if you're not delivering your product on time, no one cares. No one's going to like take you seriously. So we ended up investing heavily into our supply chain operations team and infrastructure early in the company's history. Sean, I don't know if you have anything to add to that one.
Sean Hunt: No, I think that's exactly right. I mean, I think people get excited about the technology, but then you end up in the same category as, you know, everyone else where it's like we're in conservative industries and their assets are critically enabled by these types of chemistries. So you have to demonstrate that you can supply, that you can be there on time with the right product every single time. And I think that's something that a lot of people forget when they're building, you know, a technology platform, is that it's something that sounds so basic, but it's really, really important.
Jason Jacobs: So w- I mean, when you go in and you bring on a new customer, typically, if there is a typical, who are you displacing and what are you displacing?
Gaurab Chakrabarti: We're taking market share away from, largely it's distributor companies. So a lot of the companies, customers that we work with, they're not buying directly from the manufacturer, right? They're buying from a middleman, who's buying from a middleman, who's buying from... [laughs] Like, there's a, a whole chain of custody that ends up... We're not really competing at the manufacturer level, we're competing at the distributor level. So fundamentally what we're replacing is a distributor business who may or may not have the ability to have pricing power that we do. And so that's like the beauty of vertical integration to some degree, right? And you saw it with Tesla. There was no middlemen involved in the way they sell their products. And we kind of took the same approach.
So I'd say that's, that distributor philosophy and mentality are kind of what we, we're competing against. That said, I still think there's a lot of opportunities to work with those distributors as well, to provide them our products, to make their operations more efficient. So I'd say, yes, it's competition, but at some point we want everyone to be partners for our business because we think we can provide positive externalities that will be better for, for their operations.
Jason Jacobs: And how hard would it be for the incumbents for these traditional two ways that you described to, to move into the territory of combining them in the way that you have?
Sean Hunt: It would be very, very difficult. So imagine combining a front end enzymatic process with a downstream metal catalyzed process is non-trivial, it took us many years and, you know, we're now supported by over 60 patents, but even in those over 60 patents, there's a significant amount of know-how in terms of how do you integrate these two things that normally don't talk to each other? How do you build teams with very diverse skill sets that can even do that?
Those teams do not exist at any of these incumbents, whether you're on the fermentation side or the petrochemical side, and then the know how to actually go from a 400 microliter well plate, to a 40,000 liter pressurized bubble column, which if you do the math, that's a 100 million X factor of scale-up. So it's very much nontrivial, but then I think what's really exciting is that, okay, it's non-trivial on the tech side, but then what Gaurab was talking about for us in the marketplace is, we're going directly to the end customer.So like the actual incumbents from the molecule side, if you look at who we're displacing in the industry, these are manufacturers predominantly located in China. They're using carbon monoxide as a feedstock. They're using nitric acid as a feedstock, they're using methane as a feedstock, they're using phosphate or rock as a feedstock. Very toxic, very nasty feedstocks.
They make their molecules and then those molecules change hands on average, five times before it reaches one of our end use customers. And there's a margin bump along the way. For us, where you think water, air and corn syrup, it's made in America, and we ship it directly to the end use customer. So like not only do we have this like really exciting technology moat, we also have a really exciting commercial moat, in terms of how we go to market.
Gaurab Chakrabarti: And I'd argue, that's like a knock on effect of the technology. And when you're asking, well, can someone easily replicate this on a technical level? No, but on top of that, there's that commercial level as well. That it's really, really hard to do what we've done and create the network of customers and distribution that we have.
Jason Jacobs: And can you talk a bit about what markets you're in today and also what penetration looks like to date? I guess that's really a question that's both a, a Solugen specific question, but also just to kind of get a sense of where the chemicals industry is in transitioning overall?
Gaurab Chakrabarti: Yeah. I can take this one. So for this one, we sell into a multitude of markets today. We sell into water treatment, we sell into agriculture, we sell into concrete. So like infrastructure and manufacturing, we sell into energy. And so for us, we don't see... What we do is we understand a market as deeply as possible. So we don't see ourselves as just an ingredient supplier.Like I said, about the vertical integration, we really understand the customer in a market, because even though it's the same product, Jason, it could be a very different way of thinking about how it's used, even the terminology is different. I'll give you an example, and this is kind of technical, but in water treatment, our product is called a [kilet 00:29:07], but in agriculture it's called a complex. Kilet, means something totally different in agriculture.
It's almost like there's a history, history with each of these markets and, and these products. And like we have to understand them very, very deeply. And so that's one. I think an interesting way that we've approached it as a company is we go super deep into a vertical, which is not really seen with a lot of the manufacturers, because again, they're trying to play a volume game, right? They just want to sell as much of the product as possible. But for us, we believe that because we can be profitable at smaller scales, we can have a more intimate relationship with the market and, and customers.
Jason Jacobs: And when you look back to the earliest days, how have you gone about capitalizing the company to date and specifically, it'd be interesting to understand the mix of equity capital versus any non-dilutive capital, if there was any, versus things like project finance, just to kind of understand one, how does this kind of business scale? Two, what choices have you made? And then three, how has the landscape changed or how do you hope it changes so that more Solugens can emerge?
Sean Hunt: Yeah, so we focus predominantly, you know, equity financing, right? In terms of, you know, series A and the series B and now the series C. But each time we did that, I mean, we are a fairly capital intensive business. But I think what's exciting is that in terms of like CapEx per like tons per year, that we can produce, we're about five X cheaper to build a plant than a traditional chemical plant. And so we've actually been able to leverage things like equipment loans as a way to help finance our plants. We've also, we have raised debt as well to help project finance this, and then the other one is actually reverse financing after the plant is built. So there's a whole bunch of really interesting finance structures out there.
There's also a really interesting one called the new market tax credit that the NMTC... So there's a bunch of government programs as well. And you see more and more of those things popping up where, you know, the US government wants to find green manufacturing technologies and bring manufacturing back to the US.
Gaurab Chakrabarti: Yeah, I think that's a huge tailwind for us is that with the infrastructure bill, with a lot of the supply chain disruptions we've seen, what I'm hoping is future Solugens can kind of leverage some of the capital that's being created in this space to not just have to dilute themselves with equity dollars in the future.
Jason Jacobs: It's a weird analogy, but you know that we have this little climate tech fund and we use the AngelList Rolling Fund Structure, and you can talk about the structure and the pros and cons versus a traditional fund in a vacuum. But then when we go and talk to a lawyer, for example, that works with a lot of traditional funds, they're like, "What the heck is this?" When we talk to an accountant that's used to doing accounting and tax planning for traditional funds, they're like, "What the heck is this?" So things like that, right? Or institutional appease that are used to looking at performance in a certain way, they're like, "What the heck is this?" Right? And it's not necessarily that rolling funds are bad, it's just that there's a learning curve because it's a different kind of structure than has existed before. I'm curious, since this is bringing that back around, since this is a different kind of structure than has existed, is that kind of stuff rearing its head or has it along the way, and if so, where?
Gaurab Chakrabarti: Yeah, I think a lot of the, again, if we come back to our industry, right? Our industry is very much a project-financeable type industry and venture in the chemical space is few and far between. Obviously there was some of this stuff happening in Cleantech 1.0, but I think where we're trying to be innovative is not just on the technology or the distribution side, it's how we think about capital, like rolling funds.
And these are all amazing opportunities that chemical companies cannot take advantage of because it already so big and have so much red tape associated with them. Us, on the other hand, we don't have that kind of red tape, right? So we can take advantage of things like AngelList. We can take advantage of a lot of the democratized fundraising platforms out there that allow us to be able to get capital for not just Solugen but projects that we're working on as well. So I think for us, we would recommend a lot of these new companies look into funds that are doing what Jason you're talking about on the rolling fund side, because that opens up a much bigger opportunity for continual fundraise for us, not just you as a fund manager.
Jason Jacobs: What I've heard from some other non-symbio startups, since I haven't talked to too many, to be honest, this is a new area for us and it's a super important one. And I feel like I'm starting the black diamond bringing you guys on honestly. [laughs] But what I've heard is that sometimes they'll need to manufacture at a certain scale from a plant standpoint, but because it's a first of a kind, there's more risk. And so traditional project finance, it's too risky. And then there can sometimes be a capital gap, right? Where it's too expensive or maybe not the best use of equity capital, but it's too risky for project finance. Did you guys find any of those kinds of chasms along the way? Or has it been a non-issue?
Sean Hunt: Yeah, so there, I think there's some perverse incentives in terms of traditional project financing. And what I mean by that is, if you look at like project financing in the energy sector, like the oil and gas sector, there it's set up and they expect you to have a 10-year off-take contract with your counterparty. And that's not really customer service. A 10-year off-take contract that's taker pay is not customer service. And what you're doing is you're incentivizing the construction of mega plants, where your customer is somewhat the enemy.
It's like, "Hey, I'm building a million tons per year. You better take 500 million tons per year." They're only going to agree to do that if you give them this incredible price point. So now your margin has shrunk. So there is this type of legacy project financing that's not well-suited for innovative technologies. And that's also, I guess, not well-suited for first of a kind process technologies. The real benefit about Solugen and kind of how we get around this is that we don't have to build mega plants in order to build a profitable plan. We can actually build these smaller facilities. And that's actually been game-changing in terms of enabling us to scale and scale quickly.
Jason Jacobs: So if you look ahead at say over the next 12 months, 24 months, what's 12 times five? Six, uh, 60 months, what are the key priorities for the company?
Gaurab Chakrabarti: Keep building plants. It's really funny because like everyone's like, "Oh, like, what are you telling your employees? What do you tell to investors? What do you tell the press?" And we're like, "Guys, this is the same thing," right? Like this is the easiest thing that you could do as a founder or a CEO or whatever, is to be like, have one true north and communicate that to every stakeholder.
For us, that true North is, let's build more plants. If we're building more plants, necessarily, we're having a significant environmental impact. We're reducing carbon, right? Each of these plants is a carbon negative sink. So for us, by doing that, not only are we hitting our bottom line goals, we know each of these plants is hyper profitable, but we're also hitting our social mission. So for us, whatever it allows us to build more plants is the thing that allows us to effectively create value. So there's no question on, well, what should we be focusing on now?
Sean Hunt: Yeah. It's more Bio-Forges, launch more molecules on Bio-Forges, sequester more carbon. That's the game plan.
Jason Jacobs: And you talked about the importance of, of no green premium. Where are you on cost relative to competition today? And where do you hope to be looking forwards or aim to be?
Sean Hunt: Yeah. So today we compete in the specialty chemical sector and especially chemical sector, what that's defined as, you know, average selling price of 1000 to $5,000 per ton. And we compete at or below standard incumbent pricing for, you know, these vast majority of molecules that are made foreignly and then imported. And that's, I think what's so exciting about the technology is that we compete on price, it's price and performance first and foremost.
Jason Jacobs: So if you look at the chemicals industry overall, where are we in terms of adoption of these cleaner chemicals and what are some of the barriers that are holding back everybody else?
Sean Hunt: Yeah, we're at like the day one, essentially in the chemicals industry. I mean, the chemicals industry, it's going to be interesting because they have trillions of dollars of installed capital. And that installed capital is really good at converting petroleum into a whole bunch of nasty things. But I think the reckoning for the chemicals industry as you progress forward is their customers have made all of these carbon neutrality statements.
And then the reality in the chemicals industry is that, and I think people overlook this but I think it's so important, is how dangerous chemical plants are. You know, 30% of Solugen employees have actually been affected by a chemical plant explosion. That actually happened very frequently in Houston. Gaurab and I have had black smoke over our house from the ITC fire.
And when you look at that from a profitability perspective, a chemical plant today is three times more expensive to build than it was in the 1970s, even adjusting for inflation. And that's because as a society, we demand safer chemical plants. So there's this reckoning coming where customers are demanding net carbon neutral, net carbon negative molecules. And people also don't want chemical plants to explode, which makes them more expensive to build, even in countries like China and Russia, you're seeing safety standards improve. So like the development of these types of technologies that Solugen has developed and the scaling up of them is like really critical. And we're, I think we're in a great location to have a major impact.
Gaurab Chakrabarti: And also it's probably like, there's a philosophy aspect of it too, where it's like, if it's working, you know, why would you fix it? Right? If it's not broke, well, why would you fix it? Where it's like, these assets are going to not be so profitable for these individuals soon. But I think that philosophy, people don't want to accept that, because that means that their whole CapEx structure and strategy was, was flawed.
Jason Jacobs: And so if you look at the things that are outside of the scope of your control, what are the big levers that if moved could have the biggest impact on accelerating this transition and what would you do to those levers to, to most impactfully bring about change? Like where are the blockers?
Gaurab Chakrabarti: Yeah, I think the blockers are just, it goes back to, this is a slow industry, Jason, like to qualify a new product, to qualify a new material or plastic, it's a lot of work. And I think understanding what those pinch points are and how we can hack our way around them or make them happen faster, that's where we're going to find success. I hate to say it because it's like people often think that it's just a better mouse trap. It's not the case. It's proving that it's a better mouse trap. So it's a lot more communication, trust building, really, I mean, anything that's true for any fundamental old industry, you have to be able to understand where things are. And then simultaneously use that as a judo move to start moving it forward, but it takes time. It's not going to happen in a couple of years. It's going to take a couple of decades to be frank.
Sean Hunt: And an example there, Jason, is like, we serve as power plants, right? And like a power plant should be conservative. They should be slow to adopt. I think it's really important, right? But when I think about external factors that could enable companies like Solugen to grow faster, I do think sort of a rework to how the Department of Agriculture, Department of Energy do their project financing loans. You know, more innovative structures, the ability to do it for first of a kind plants, I think would be super helpful. And then of course, for companies like ours, a carbon tax obviously would have an impact. I mean, people move when they see compelling value. And so the more compelling value that we can deliver to a customer, the faster that customer's incentivized to move and to adopt our technology.
Jason Jacobs: Given the role that potential future policy could play in accelerating the efforts of Solugen and others like you, is that an area that you've been building out muscles and investing in? Do you plan to in the future? When you think about [crosstalk 00:40:58]-
Gaurab Chakrabarti: We are. And we're, we're quite open about this and, you know, obviously it's public, but we, we do, do some work on the hill. We have lobby groups that we work with to, to get the dialogue going, right? There's no specific like, "Hey, we want to sell this product." It's more about how can we talk more about some of the stuff that we're doing in this industry that no one really, politicians don't talk about? Right?
And that's not the fault of politicians. It's just people aren't aware of it. And so for us, it's more of an awareness play at, at the congressional level, where we can start saying, "Look, there's all these really amazing infrastructure deals, you know, climate change things that, that are being discussed. But what we need to put into those discussions is that this industry that we're working on, the materials and chemicals industry, is a significant contributor to a lot of the things that these policies are trying to fight."
And so for us, it's we want to understand what are the alternatives. And it may not be Solugen. We may not be the only alternative, there might be other companies, but that needs to be at least a talking point at the table with these politicians. And that, that is where we put significant resources behind.
Jason Jacobs: So if I went to a wedding this weekend and happened to be at the table next to the CEO of one of these big incumbents, and I said, "Hey, what do you think about Solugen?" What would they say?
Gaurab Chakrabarti: One, it'd be a compliment if they knew who we were. So [laughs] I think there's a, there's a humbleness to it, right? Where we're talking, you know, 100 billion, $200 billion companies, we're small-
Jason Jacobs: No, in this latest financing, you're not exactly, you know, young YCombinator kids anymore.
Gaurab Chakrabarti: That's fair. That's fair. So, you know, maybe, maybe that first hurdle will be gone, but I think the second one is just like, we're not like looking at this competitively, right? We're looking at this as how do we partner with the incumbents in this industry? They're the incumbents for a reason. They did something right. So clearly there's a lot for us to learn from that. And what I would try to like get the dialogue going [laughs] is, hey, how can you guys work with a company like Solugen for the betterment of the industry and for society, versus having a zero sum mentality? I think that the pie is massive. This industry is $6 trillion. So there can't just be one winner. We have to be thinking about how do we work together to capture that $6 trillion in a sustainable way. So I, i would say, what are the partnership ways? How do you guys think about working with a company like Solugen to make your business better?
Jason Jacobs: And does the lobbying and the entrench interest in the chemicals industry works similar to how it does in fossil fuels?
Gaurab Chakrabarti: I don't think it's as politicized to be frank with you, because it's not as obvious that the carbon emissions are what they are. I'll put it that way. That said, I think once these conversations come to light, it could become a contentious point.
Jason Jacobs: So for anyone listening that's inspired by what you're up to, where do you need help? Who do you want to hear from?
Sean Hunt: So for us, right? We're going to be launching a new product later this year to essentially help make concrete more sustainable. We can reduce the amount of cement required by over 10%, we're really, really excited about all the infrastructure happening in the US and we think it's a huge time to have a massive impact on infrastructure.
Even building materials like, this will sound really boring, Jason, wood glue. It's got a lot of formaldehyde in it and we have formaldehyde free wood glues, right? We've got a whole suite of, of products coming out. The other one is on the hiring front. We're looking for the world's best enzymolgists and strain engineers to come and join Solugen.
And then lastly on the government side, I'll do another plug on the EPA for TSCA. I think it comes from a good place to, you know, regulate new molecules. But I think there's some unintended consequences where a lot of these new molecules are bio-based and they're low carbon, and they're, they're being regulated in ways that these more toxic molecules have been grandfathered into that never were subject to this regulation.
Gaurab Chakrabarti: It's unfair. It's unfair. Yeah. It's very unfair.
Sean Hunt: It's something, we're working with Solugen and companies like Solugen to, you know, do better regulation of how do new, you know, low carbon or carbon negative manufacturing assets get permitted? I think will be helpful.
Jason Jacobs: Guys, anything I didn't ask that I should have, or any parting words for listeners?
Gaurab Chakrabarti: We're always here to, to chat and figure out with listeners. If anyone is interested in an entrepreneurial journey in the climate space, how we could support from, not just from a Solugen perspective, but from a personal perspective. You know, I think a lot of people forget, you need a lot of compassion, a lot of compassion, not just for the environment, but for yourself while you're going through this journey, [laughs] particularly the climate journey, because there's going to be points where you're just like, "What am I doing? Like, I'm I really making a difference on a personal level?"
And I think having some compassion for yourself and being able to talk openly about some of the challenges that go into a climate journey like this, you know, we're always here to chat about that, 'cause we've, we're going through it right now.
Jason Jacobs: We're definitely rooting for you guys and thanks so much for making the time to come on and educate me and listeners on Solugen, but also on, on the chemicals industry and on scaling in symbio startups. So I learned a bunch on a, on several different dimensions and wishing you guys every success.
Sean Hunt: We really appreciate it, Jason. Thanks so much.
Gaurab Chakrabarti: 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 @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.
