Episode 174: Ion Yadigaroglu, Capricorn Investment Group

Sep 13

Today's guest is Ion Yadigaroglu, Partner & Member of the Investment Committee of Capricorn Investment Group.

Capricorn Investment Group seeks to deliver extraordinary investment results by leveraging market forces to scale solutions to global problems. One of the largest mission-aligned investment firms around the world, Capricorn has grown to manage more than $8 billion in multi-asset class portfolios for families, foundations, and institutional investors.

Ion is a Partner and member of the Investment Committee of Capricorn Investment Group and a Managing Director of Capricorn's Technology Impact Fund. Prior to Capricorn, he was a Director of Business Development with Koch Industries, executing a range of acquisitions and investments. Before Koch Industries, Ion was a founder and Chief Executive Officer at Bivio, a software startup in Colorado, and an Analyst for Olsen & Associates, a foreign exchange analytics company. He was a research fellow at Columbia University and holds a Masters in Physics from Eidgenössische Technische Hochschule Zürich in Switzerland and a Ph.D. in Astrophysics from Stanford University. Ion is also an early investor in iconic technology companies, including Tesla, SpaceX, Planet, QuantumScape, and Saildrone.

I was looking forward to sitting down with Ion and learning more about his work at Capricorn Investment Group. Ion walks me through his climate journey, what motivated him to focus on climate, and an overview of Capricorn and the Technology Impact Fund. We also dive into capitalism's effect on the planet, the role policy plays in a sustainable future, and the Technology Impact Fund's investing strategy. This is a great episode for investors and founders alike.

Enjoy the show!

You can find me on twitter @jjacobs22 or @mcjpod and email at info@mcjcollective.com, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.

Episode recorded September 7th, 2021

In Today's episode we cover:

The origin story and an overview of Capricon and the Technology Impact Fund
The distinction between Capricorn and the Technology Impact Fund
Ion's time working at Koch Industries and the criticisms of the Koch Brothers as it relates to climate change
A discussion on whether American capitalism can factor in collective good when focusing on profits and shareholders
A conversation about if capitalism and the free market can get us to a sustainable future
The north star for the Technology Impact Fund
How the fund evaluates opportunities to invest and what their criteria are
The various sectors that the Technology Impact Fund focuses on
The stages the fund typically comes in an and the most common check size
Areas of climatetech that Ion doesn't think are ripe for venture capital
The role of capital that the Technology Impact Fund provides and how the fund thinks about things like concessionary capital, policy, catalytic capital, and additionality
The importance of mission alignment with the LP base
Where policy fits into the larger conversation and why traditional VCs may initially be wary of investing in climate because of the lack of policy
Where fossil fuel companies fit in the clean energy future

Links to topics discussed in this episode:

Capricorn Investment Group: https://capricornllc.com/
Technology Impact Fund: https://capricornllc.com/technology-impact-fund/

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 want to learn more, you can go to myclimatejourney.co, the website, and click to 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 guest is Ion Yadigaroglu, a partner and member of the investment committee of Capricorn Investment Group, and managing director of Capricorn's Technology Impact Fund. Ion is an early investor in iconic technology companies including Tesla, SpaceX, Planet, QuantumScape, and Saildrone. Prior to Capricorn, Ion was director of business development with Koch Industries, executing a range of acquisitions and investments.
I was excited for this one because Capricorn and the Technology Impact Fund swing a big bat but they do so quietly. They don't do a lot of podcasts or otherwise talking like this. So, it felt like a special opportunity to get a peek behind the curtain. We cover a lot in this one including Ion's journey, the Capricorn and Technology Impact Fund origin stories. We talk about the evolution of the clean tech landscape, the first wave, key learnings there, and some of the lessons learned and changes that Ion is making as the climate tech landscape continues to evolve. We also have a great discussion about concessionary capital, catalytic capital, we talk about time horizons, we talk about risk. We talk about generalist firms versus specialist firms. And we talk about the Capricorn process and results. I hope you enjoy this one as much as I did. Ion, welcome to the show.
Ion Yadigaroglu: Thank you. Thanks for having me, Jason.
Jason Jacobs: Did I get that right on the last name?
Ion Yadigaroglu: You did. I'm impressed.
Jason Jacobs: I practiced a few times. So, I was feeling the heat as the countdown timer was going. But I'm so psyched that you made the time to come on. I, I've been a fan from a distance for a long time. And it's a big thrill to have you on the show and to get the opportunity to learn more about your work a Capricorn and about you. Typically, we just take things from the top and start with your current employment. So, maybe talk a bit about Capricorn, what you do and the origin story for the firm.
Ion Yadigaroglu: Well, that could be a long one. So, I'll try the short version, and you, you tell me. You know, there's actually two things going on. I'm co GP of a fund called the Technology Impact Fund. And Capricorn is actually a separate company. It's an investment company that has a balance sheet and has been backing impact funds for what will soon be close to 20 years. And that's the balance sheet that was primarily and originally from the Jeff Skoll's, Skoll Foundation world. So, those are actually two separate things, but with really, really close ties and a lot of common history. So, I think here today, I'm probably here mostly because of the Technology Impact Fund, but we do call it Capricorn's Technology Impact Fund. So, you're not wrong about that.
Jason Jacobs: Got it. And just so I understand the distinction, so Capricorn itself is more of an LP in funds, and then the Technology Impact Fund is a fund that does direct investments?
Ion Yadigaroglu: That's right. And the Technology Impact Fund is structured just like you'd think any other, you know, California based LP, GP sort of structure and raises money including from a significant contribution from Capricorn. But raises money like any other venture fund. And was originally sponsored by Capricorn. Just like Capricorn is sponsored by a dozen other now, you know, well known franchises that do something in Impact. And some of us have kept roles on both sides of that. So, it's, it can be a bit confusing from the outside, but they're closely linked. It's all fine to be confused. I just, I just thought I'd clear that up. But they really have a very strong common history. It goes back to a couple of us arriving for graduate school at Stanford back in the early 90s. And I got there in 92 to do a PhD in, in physics, I ended up doing a PhD in astrophysics. But my father, who was a professor of mechanical engineering at Berkeley, head of the nuclear engineering department.
So, I mean, a theme that I've kind of grown up around, right? If you think about how that's come and gone. So imagine being in there in the 70s, and 80s, when all these debates were raging, but my father also taught computer science classes. So I learned to program in the 70s, and back then it was useful skill. So, I've always been employed pretty much full time from being you know, a preteen onwards. And it always had to do with software. So, when I arrived at Stanford in 92 to do physics, I was kind of the software guy, the software mascot of the physics department. And I started using a tool called Mosaic to help run some collaborations. And we forget this, but that's how it all started. It started with the physics community doing collaborations, that's how the whole internet really started.
So, I had, I had nothing to do with the original coding of Mosaic or the server, although I did work on it, but I was certainly one of its first users. And then, you know, Stanford became ground zero overnight for internet, it just kind of exploded around us know. You know down the hall in statistics Jerry and TK were collecting names of websites, and they called it Yahoo, and et cetera, et cetera. And we could all write a book about what was going on there in the early 90s. But for this story, my roommate at the time, a guy called Jeff Skoll, ended up being... He called himself first employee, but you could think of him as the co founder of eBay. And of course, that was a giant success story of internet 1.0. And he overnight made many billions through eBay.
And he had always been really fascinated, had a real passion for the impact of storytelling on society and the world. Like, you know, his view is that everything we do is stories that we tell each other. You know, society is a construct. And so if you want to fix things, you really have to understand storytelling. And you know, the good fortune had put billions in his path and he said, "I wanna spend the next decades investing that money philanthropically into storytelling" And the genesis of Capricorn and my fund was... And I'm, I'm obviously oversimplifying, but was a discussion around, "Hey, Jeff, what are you gonna do with the money in the meantime?" And rather than put it into traditional financial products, this seems like a unique occasion. Why don't... You know, let's create a new investment company, that's Capricorn. And we'll do two things. One is we'll invest it really well, and you know, hopefully, you'll make more money than you would have if you had put it into London or New York. But also, we're gonna try to have real impact with that money.
In fact, I think of it as a competition. I feel like you know, when we're really old, and I'm getting older, so now I have to say like when I'm 80, I used to say when I'm 60, or 70, but I'm getting there, right? I'm 50 something. So, I now say, you know, when I'm 80, we'll get back together and we'll look at what had the greatest impact? Is it philanthropy? Or a special version of that, which is social entrepreneurship? Is it media which can educate and influence and inspire people? Or instead, is it the investment in business tool? And that's the tool that we have at Capricorn. So, that's how this whole thing started. It started with a balance sheet, I think of it as a strategic balance sheet, almost 20 years ago, and a blank sheet of paper, and an aspiration.
Very California kind of thing, an aspiration to make a ton of money, but with a really big impact. So put yourself in our shoes, it's almost, that's what you have, and what do you do with it. And you know, we had grown up in California, we were nerds, you know, science, physics, engineering, software. And we wanted to have this really big impact. And our friends were all doing websites back then, and kept doing websites. And the last 10 years they've been doing apps, right? Mobile, or Android, iOS apps, but because we had that big aspiration, we said, "Why don't we put this into technology?" But deep tech, tech that can, you know, fix transportation, fix energy, fix agriculture, with climate as being this, you know, giant, giant issue that was kind of coming barreling towards us. So, that's how it all started.
And that original big strategy, big love was to put it into the early stages of new technology. That's why we created the fund. And our fund remains kind of the, the flagship strategy, if you like of that whole exercise. Although to do justice to it, Capricorn also seeded and sponsored over the years, many other ways to combine making money with creating impacts. And so we, we started funding, you know, renewable energy developers, and we started funding water infrastructure guys, and low cost health care, things like that. So, so Capricorn became the friend and sponsor, often first investor of many of the impact funds in the last 20 years, including my own, but my fund then really decided to focus on deep tech for big problems with climate as a primary focus.
Jason Jacobs: Uh-huh[affirmative]. And I, I couldn't help but notice that prior to Capricorn, you spent some time at Koch Industries. So, were you at Koch when this all went down with eBay and this story that you're describing, or how did that fit in from a timing standpoint?
Ion Yadigaroglu: Yeah. I mean I was still a postdoc when the eBay thing was in full swing. But there was Koch Industries in between. Yeah, so I had finished PhD and then I did a postdoc after that. And remember the whole time, I'm also working in software and startups. So, I've always had like a foot in the real world. And you know how some people at some points think, okay, I need to go to like Burma, or some exotic place to work. In my career, I just wanna try something completely different. Well, for me, that was Wichita, Kansas. So, joining Koch Industries felt like I was going to a different planet. And I had a good friend from Stanford that had gone off there and was a trader, and seemed really interesting. And frankly, it started with a software pitch. They were looking for some software. And I had a company at the time with some dear friends. And I was the, the only one in the company who wasn't actively working as a software engineer.
So, I was drumming up business. And they were looking for someone to do some software. So, I went out to Wichita. And they didn't hire us. They should have, but they didn't. But the guy who was running that meeting was very senior guy, Koch Industries. And he said, you know, "We'd like to, we're not gonna hire you for the software, but maybe you could help us with some business decisions for a couple of months." And I said, "Sure, why not? This is like going to Burma for me." And I showed up, it was in early 2001, and the world if you remember, this was you know, the bubble had burst, and it was a big, cyclical downturn across the board in different industries. It was an interesting time. And during those three months, the Koch brothers that had famously been fighting for decades between each other patched things up.
And Charles Koch, who was CEO of Koch Industries, said, "You know, we have billions and T-bills sitting around, now I'm ready for some growth." And he asked the person that had brought me in as a consultant to head an investment and acquisitions effort for Koch Industries. And that fellow turned towards me and said, "Look, I've not really ever done that, neither have you, but I need a slave, do you wanna commit to doing this for a year and come out to Wichita?" And I said, "You know what, why not?" So, that's how that happened. And I ended up staying, you know, three, four years there. And it was really a pretty wild experience. Very, very, very different. So yes, it's all true.
Jason Jacobs: And given how long you've now spent in the climate world, I'm no expert on Koch Industries, but certainly the climate movement has rightly or wrongly demonized the Koch brothers as being one of the largest funders of climate denial and dark money in, in politics and things like that. With the benefit of hindsight, especially now 20 something years later, how do you think about their work? And, and how do you reconcile or process the time that you spent there, you know, given where your career has taken you in the decades since?
Ion Yadigaroglu: Well, some people have told me, "You're now undoing all the harm you did for three years." I don't think that's quite right. I think it's maybe partly right. And probably some of the things that people say are true, that... But look, this comes down to Charles having a very libertarian philosophy, and he's definitely a man of principle. So, you know, when people demonize it because they're secretly doing things and backroom doors and lying to everyone, I don't think that part is true. What is true is that the imperative of you know, success in business and profits and this kind of libertarian ideal, don't leave a lot of room for worrying about things like climate change. And that's been extraordinarily problematic and destructive in our ability to address things like climate change. So yeah, I think, I think the philosophy is really deeply flawed in that way. So, I think, yeah, I think it's a big problem. But some of the caricature that's made of it isn't quite true. And maybe be a bit controversial here. Like, I'm not sure what the difference is between Charles Koch and Warren Buffett.
And Omaha is 300 miles dead north from where Koch Industries is. And I've, I know that because I've driven there. When I was out there I used to go to the annual meetings at Berkshire Hathaway, and it's literally a 300 mile drive, and you don't do a single turn between Wichita and Omaha. And I'm not sure there's a big difference in thinking between most of the people at Berkshire and most of the people at Koch Industries, right? These are deeply American, highly successful business people for whom you know, societal issues, and, and environmental problems, just don't figure in their thinking. And they view them as, as obstacles to just, you know, making money and running their business. And why do we demonize Koch Industries, but don't do that for you know, a Warren Buffett? Some of that's branding, some of that's PR, right? I don't know that they're all that different, frankly.
Jason Jacobs: I mean, maybe... And I guess this is a bit out of order for how we normally do this show. But hey, we're feeling wild and crazy here on a Tuesday morning. But how much of that do you think is just kind of inherent in the American capitalist machine? Or maybe it's even broader? It's kind of a whole, the whole industrial revolution. Is that kind of hardwired in, of just focusing on profits and performance and shareholders without really factoring in the externalities or the collective good?
Ion Yadigaroglu: Yeah, that's what I'm, I guess, trying to say, and you're saying it better. Which is, you know, a lot of what makes these companies so successful is what has made this country really successful. And what we admire here, and it's part of our culture, part of our values. You know, Charles Koch, I found a man of great principle. Now, I think some of the principles are messed up. And no, we can't just run these giant businesses without realizing the environmental footprint and the, these, you know, tragedy of the commons problems, all these other things that capitalism isn't fixing. But like I said, you find the same principles elsewhere. I don't mean to also say that I'm privy.
I mean, although I did work in acquisitions, and I had... Became like I said, originally the slave in a three person team that then grew to seven, and we reported directly to Charles Koch and the president Joe Moeller. So I don't mean to say that I didn't get a firsthand look at things. But I may not have been privy to some of the things that a Charles Koch might be doing personally, right? In terms of funding things outside of the business. That I really can't, can't speak to. But I didn't... Like I said, I didn't see anything really different than you see in so many other American companies, especially in that part of America, right? And kind of in the middle.
Jason Jacobs: So looking at the path forwards, what does that say in terms of how we get out of the [inaudible 00:18:34] that we're in as it relates to climate? I mean, can capitalism take us there, or is it gonna continue to self reinforce on this path that doesn't factor in extra nowadays, and continues to kind of accidentally cause more harm just by omission of priorities?
Ion Yadigaroglu: Yeah. Why I kind of decided that my role had to be an optimist, right? So, I try not to think about anything that isn't optimistic. And clearly, there's a role for the hyper scaling, the just overnight scaling of great new models and great new technology. And so I focus a lot on that and where I can be I try to act as an advocate as a citizen for policy and interventions of all kinds. There's a role for the nonprofit philanthropic world, there's a role for obviously a giant role for governments at all levels. And there's a role for large companies to play, there's a role for small and mid sized companies and there's a role for new technology and startups. Right? All of it has to work in the right direction. We're obviously not succeeding so far. So, can just private enterprise do it on its own? Likely not. But it's got a really important role to play that isn't necessarily dependent on government.
Yeah, as you know, sometimes even well intentioned policy doesn't always work. So, it's a pretty tough... For sure government should be a big part of the equation. And if we're successful, it probably will have been in part, thanks to government. But so far, it's been a mixed record, right? If you look at, I mean, let's face it. Probably still the most impactful policy that we've seen when it comes to these areas that we really care about and think about all the long is still a George W policy, the renewable fuel standards with the ethanol. And look, with very mixed thoughts, right? Mixed success, I mean, it's become a really big business. It's put a big load on farming and, and the natural ecosystems. It's probably helped a little bit on the carbon side of things. And you know, you have to go back, right? Quite a few years to find other policies, which have really moved money in a way that's significant that have started with government.
For sure, some of the clean Power mandates are having some impact. And I could volunteer a few other policies that are having an impact. But it's mostly not been that. Right? It's mostly been the scaling of new options and new technology.
Jason Jacobs: And what is the mission, or the North Star if you will, of the Technology Impact Fund? How do you think about that?
Ion Yadigaroglu: Well, it's called impact for reason. Like we're looking for things that are gonna be incredibly successful. And as they scale, are having a big impact, obviously, positive impact. We didn't label it the Climate Fund, cause we do some things that are maybe not directly climate, we do also some enabling technologies like computation. We've always loved computation. We think the impacts of moving humanity's ability to do computation and data gathering, data insight forward as being really important. And that's a pretty indirect thing when it comes to climate. And so we decided not to back in the day, we decided not to call it a Climate Fund, but we could almost call it the Climate Fund, cause that's clearly what I wake up in the morning as a primary fear goal aspiration, is climate. But we occasionally do something that would fit somewhere else in impact.
And then, you know, a lot of people think about this as, "Okay, I'm gonna go make a bunch of money, and I wanna have a filter on it. I only want to do things that are good." I don't think about it, and my partner Dipender Saluja, they've been doing this since to start. We don't really think about it that way, right? We think of this as really the key insight, the key tool we use to find great investments. To take a mining analogy, just to make it dramatic. If you think there's a really rich gold mine that you wanna go develop, and it's in the middle of some, you know, Amazonian forest and you got to cross the river and go up and down a mountain to get there and then cross another river. And you know it's going to be a real adventure getting there, really tough going. You wanna really know that there's a goldmine at the end, right? That that goldmine is really a rich goldmine. Cause that's the only way it's, the adventure is worth it.
Well, for us, that's the impact, right? If we're not looking at a technology that is, got some real giant promise, why would you embark on the adventure? We've made 45 investments over the last 20 years. So if you divide those two, that's only about three a year, and they're never easy. Like, I can't tell you one that's been easy. And you know, we have the... Some pretty big successes in there, including the, the second investment was Tesla and number seven was SpaceX. And 10 years ago, we did QuantumScape. I mean, again, this, this has been, in many ways, very, very successful. But it's never been easy. And so, I don't quite understand people embark on a new company, new startup, without seeing that like giant impact at the end of it, right? Cause that's what makes it all worthwhile.
If you really know why you're doing something and the big success and big impact you can have with it, then why even get started? So, we felt that over the years, it's really been a great filter at not trying to be too clever about making money. Instead, focusing on things that are really big, really fundamental, that are gonna be tough to do, but in the end they are worth doing.
Jason Jacobs: And so when you evaluate opportunities, what are the criteria you use to know if it passes your test? And are there separate ones? For example, do you look at it with the financial ends and then put that down, and then look at it with a separate impact lens? Or how do you approach it? How do you think about it?
Ion Yadigaroglu: You know, I think we've been doing this for a while. So, it's not like we've got a checklist or a cookbook of things, right? We do all this pretty intuitively by now. But it starts with, like I said, the love of... I mean, we've been around... Our aspiration and those around us of these giant problems like climate. And so we know what we need to do to get there. Right? And so when we visit a new company or hear about a new technology, it's always with that lens of, "Could this be a big part of the solution for something?" And it doesn't matter how hard it is. Right? But is it really like a big thing, a big story that we can do something you know, that has a great st... By the way, storytelling is part of it. Like if it... If we can't tell to ourselves what is the story of the company, and why we get so excited even telling someone about the company, then it's not for us.
And then the other piece is it's got to be really tough on the science and engineering. We don't like underwriting things that, you know, a generalist can underwrite. We like underwriting things where the first couple of meetings are all about the science and engineering of it. If we're talking business model in the first hour of the pitch, then it's not for us.
Jason Jacobs: So, there are certain sectors that you dig into and to invest after you do a deep dive in a sector or do you look across sectors and just dig in on the technology as you're evaluating?
Ion Yadigaroglu: It's really the interplay of both, right? So, I don't believe in sitting around and having big academic ideas about a sector without looking at things you could invest in. At the same time, we never invest in a company without having developed really big point of views around what's going on in that sector. And so it's the interplay of the two. The more people you visit, the more technologies you see, the more people you bring in, the more you learn, and you refine that point of view. And the more refined your point of view, the better you are at evaluating those underlying investible opportunities. So, no, we don't spend any time sitting around, you know pontificating about what's happening in the world in this sector, and you know, top down? Right? But we also don't look at startups grounds up without immediately connecting it with our point of view, it's really the intersection of the two.
And look, there's a lot of continuity in our work. So, it's not like, we set up shop yesterday and said, "What do we do? Right? That happened almost 20 years ago. And we got lucky too, right? That's part of the equation. So the second thing we invested in, was a company co founded by JB Straubel. And I knew JB, cause I was his TA in physics some years before at Stanford, he was a brilliant student in the honors physics program, really liked him. And he came back a couple years later, when we had set up shop. And he's like, "Look at these scaling curves that are going on in the battery sector, and in power electronics." And he said, "Look, people really don't understand this. But if we work really hard, we can make high-end cars that will out compete diesel and gas cars." It wasn't intuitive thinking at the time at all, it was very counterintuitive. And of course, that was Tesla. So, that was investment number two.
And once we got into Tesla, we knew that we would be the biggest buyer of batteries in the world very quickly, bigger than Dell. As soon as we were making thousands of these a year, we were gonna be bigger than Dell. So, we had to go into battery technology. We were also gonna be the biggest buyer of power chips in the world. And by the way, one of the biggest buyers of AI chips, eventually. Controls back then more like controls and then ultimately now, it's veered towards the AI related to autonomy. So we got into those sectors because we saw them as parts of the equation of how you electrify the transportation sector. And then we stuck with them, right? So we've done several battery companies over the years, trying to do very different things in battery. We've done a bunch of power electronics companies, not necessarily just for automobile, like we have a company called Navitus, that today is mostly selling into, you know, mobile electronics.
But we'll also be addressing, you know, solar inverters and things like that soon. And then we got into all these other sectors. So, you, you kind of get deeper and deeper and you expand into the different parts of this whole equation, but it doesn't. Yeah, it's not something you do overnight.
Jason Jacobs: And just practically, where do you typically come in from the stage standpoint and check size?
Ion Yadigaroglu: Yeah. Look, I think because we love the science and engineering, we tend to come in early like the series A, we just don't have the time, the staffing, whatever, to help a really young company that needs hands on help, right? For its first steps, where the team isn't quite there, or the team's really green. So we can't do that. But we like being really early on, on the engineering and the technology. So, if we can we tend to do series A. We do the occasional C, but it tends to be series A, but we also have no ego about it. We've done a bunch of series Bs, where someone else has done the series A. And we also, you know, we do sometimes even start later. We miss something and we decide, "Okay, series C or D is the first time we can really approach it."
We have two flavors of what we do. So we have a early stage fund and we have a growth fund. And so if it's a bit later in the process, it will come directly into the growth fund. But our main engine for learning about new people, new technologies, all that kind of grounds up work tends to be around the early stage.
Jason Jacobs: Uh-huh[affirmative]. And just ballpark, but what percent of the growth fund investments were investments from the early stage fund first?
Ion Yadigaroglu: Nearly all of them. But it's not... I mean, I think we're open minded about that. But I think it will always... It will continue to be more than half, but, but you know, there's so much more going on today than it was 15 years ago. The number of fantastic entrepreneurs coming into the space is totally different than it was 10 years ago. So we can't track it all like we used to. 15 years ago, if you had a deep tech company that was relevant to climate, there was nowhere to go. So, even if we were invisible, people would find us, right? Out of desperation. There were years where I don't think we missed a single opportunity in terms of not having at least heard the pitch. And often, if we said no, it meant that company wasn't gonna exist. I mean more often than not, when we said no, the company would just simply fail to raise funds.
That that's how few options there really were. We weren't the only people, but there were not many. And you know, the world was just so focused on websites, and then iOS, Android, and so much money was being made in those sectors that venture almost completely focused on that. And when someone felt like doing something different, they do like an ERP system, right? I mean, deep tech was far off the radar. There had been also the overhang that I lived through right of the, the clean tech funds from, 05, 06 around then. So, there, there was a burst of activity around then, but then it kind of died completely in 07, 08, 09. It's only the last couple of years that there's been many options. And so the number of companies getting started by great people today is at least 10 times bigger than it was. So, we can't see it all today. So I expect we'll do more and more you know, series C of things that we didn't judge right or that we simply missed earlier.
Jason Jacobs: I wanna pick up on something that you said earlier about waking up every day as an optimist. As a clean tech investor who lived through the last wave, you've seen the different cycles here. And one observation that I have from people that were part of that last wave is that there's a fear from some that the new blood coming in, is too optimistic and too ignorant. They don't know what they don't know, and that they're going to make some of the same mistakes that were made last time around. And some of what I've heard from some of the newcomers coming in, is that they, you know, scar tissue can be valuable institutional knowledge, but can also be shackles in some way and cause people to be cynical in a world where optimism is a requirement for this early stage investing. So, what's your takeaway from the last cycle, and how do you feel as this... As the capital come in and space continues to increase at an accelerating rate?
Ion Yadigaroglu: It could be a rich answer, right? But just to maybe offer a couple ideas. You know, first of all, like obviously for us, the clean tech, one point it was really good to us, right? It's not like we were losing our money, cause we had companies like Tesla and SpaceX that just were compounding at incredible rates. And so, I think you know, too quickly, the allocator community, or the, the rags that follow finance, tend to make these big statements about things without necessarily all of them being true. So, what really happened in clean tech 1.0, it really boiled down to two things that went wrong. One was ethanol, and the other was solar manufacturing. And yeah, both of those were a big deal. A lot of money was blown up in both of those. But that was it, no more, no less.
And so people over learned some of those lessons. Ethanol really has only been a phenomenon in Brazil, but that's kind of been disconnected from the US version. And then in America based on the corn and a little bit here and there in places like Europe, but it's mostly been sort of Brazil, US. And you know, we had this love affair with like I said under the, under the policies that George Bush enacted that created this mini boom in ethanol in America. What we forgot here was that, well, first of all, this was not really tech, right? Because the process, the fermentation process is reasonably simple and fairly low value add. So the machine is not like, super sophisticated. So, it's really a commodities business. And then what we forgot is, we pretended in America that fuel isn't a monopoly. And in Brazil, there's really only one fuel company. So, it was very obvious that fuel is a monopoly.
And so the government brokers, between the makers of ethanol and the distributors of fuel. There's a... The government addresses the fact that there's only one buyer for that fuel. In America we said, "Well, I'm gonna... There's gonna be all these venture backed, independent fuel companies." But regionally, fuel is a monopoly in America. So, it's no different than Brazil. So, it's a crazy thing. But you know, ethanol has always been very profitable. It's just never been a good investment for venture. Now, is it a good investment for the climate? It probably was definitely not to start, it's probably marginally good for climate today, right? If you look at the studies, but it is a big load on the natural ecosystems, and it does displace a lot of food production. So it is what it is. Like, I'm certainly not in love with ethanol. But it's not like ethanol doesn't work, right? It's been highly, highly profitable, it just hasn't been something. There's been no role for venture capital where venture capital could get a return in it.
And so all this stuff today is owned either by the Valeros of the world that distribute and blend a lot of fuel, or you know, the farmers that make the corn. But where do you sit with the venture fund in the middle of that? That was really naive. And then solar, I don't think that was a dumb thing. It's just it was hard to understand and predict, to what extent China would decide that it was strategic to China, and to build a solar manufacturing industry. And in the span of three years, China invested 50 billion into PV manufacturing. About half that in the melting of silicon into back then polycrystalline silicon ingots, and the other half into diffuse junction cell making. And as you know, that created this wonderful outcome for the world, which was the price of PV dropping by a factor of 10, over the span of like four or five years. But it was really, really tough for anyone that was a young company anywhere else in the world in solar.
And you could say, "Well, doesn't that happen all the time? I mean, China's always a factor." But even for China, that was, you know, 50 billion in three years is a lot of money, right? There's very few things that have ever seen that kind of capex cycle, even out of China. And so, that created a lot of graveyard, you know, it filled the graveyard of solar companies in Europe and the US. Why did allocators of capital, you know, that, that lost ethanol and solar react so negatively on the prospects for clean energy and venture? I mean, yeah, they probably over learned that lesson. Uber has burned more cash, right? From venture capital firms, than probably any other venture backed company in the history of venture. And it's still not clear whether that's a good business or not.
But we don't necessarily have that kind of overhang of, you know, "Oh, wow! Well, this is really capital intensive, and really, really tough." So a lot of this stuff is just mythology, right? It's not necessarily based in fact. It's things that emerge in the community.
Jason Jacobs: As more venture dollars are starting to flow into climate tech, are you seeing areas where venture dollars are flowing that venture doesn't belong? Going back to your, your story about ethanol, and how it was naive to look at where venture would sit? Is that happening now? And if so, where?
Ion Yadigaroglu: Well, of course it is. But you, you only know after the fact, right? So, so we have to remain humble that, you know, most of what is going on right now I don't fund. And so of course, I think that most of the money getting allocated is misguided. But I'm happy that it is, right? Because we're not perfect in our judgment, we can't do everything. And it's okay if a lot of it goes bad, because we need a few that don't to really make a difference. So, look, today, we're live in a bit of a party, but there are some reasons for that party. And I think COVID has helped a lot. The world has finally figured out that climate needs to be addressed. And so, it's also a different context, right? We have, like I said earlier, we have a quality of entrepreneur coming into the space that is much greater than it was in the past.
I mean, who wants to go do something... I mean, so many people today wake up saying, "Look, I really need to do something about something meaningful." Right? And meaningful often is in the climate. So, so many really, really fantastically talented people are coming in saying, "I really wanna work in this space." And so they're creating great companies. And as you know, a big, big ingredient in any great company is just a fantastic team. So, that's... It's not just the technology, right? You also need the people to develop it, scale it, sell it, hire the people, do all that. That's why there's a lot of it. One of the reasons why our living a party is a real thing. And then consumers are really eager to make a difference now and governments are eager to make a difference. Look at you know, when we started with electric cars almost 20 years ago, and compare the narratives out there back then to where they are today, right? Politicians falling over themselves promising that everyone will drive an EV in the next 10 years.
We don't even have you know, remotely the industrial capacity to do some of those things. So, so it's not irrational that we're living some version of a party because we need to go really fast, and people are finally figuring out that it's a serious thing and that some of it will get done. But yes, just like there is in every boom, there will be a lot of breakage and a lot of bad dollars. And I shake my head every day when I see certain things that, you know, I know the people, or I know the tech, or I know the space, and I'm like, "Well, that's not gonna work." Sure. But that's okay.
Jason Jacobs: I might get my words wrong here, but I read that with the Technology Impact Fund, you believe that by incorporating sustainable principles, it will increase returns. And again, I might not have got my words exactly right, so feel free to correct me, but I see other firms out there and there's word... Just some word bingo here, but there's catalytic capital, and there's concessionary capital, and there's additionality that comes up. And there's gigaton thresholds. And there's time horizons and betting on future policy. And there's kind of all these factors and lenses and vocabulary that get incorporated. You talked about impact. How do you measure, and how do you think about some of those areas that I said around, around time horizons, around risk, around the role of the capital that the Technology Impact Fund provides?
Ion Yadigaroglu: Well, I, I don't think there's one way to make money. I think there's a lot of different ways you can make money. And you just have to understand your way of doing it and be really good at that. Right? So, this isn't the only way to make money. I think there's lots of great other strategies. But absolutely, in our case, we do only a few things a year, we're very concentrated, we tend to stick with them for you know, 10 or more years. And like I said, we really have to underwrite how important this company, this technology, this team is, to some big problem in the world, right? That's, that's not just after the fact filter. That's the reason for getting involved in the adventure in the first place. And I think that in our way of thinking, that's how we stay out of trouble. That's how we make sure we don't spend 10 years and giant sums of money investing in the wrong thing. Like put yourself back in our shoes, right? In Tesla days just to take an obvious example. We knew cars were gonna electrify. Of course, we knew that.
My father used to put on conferences back in the 80s on electrification of the automobile. And you know, the CTO of Ford, and Toyota and others would show up. And he dragged me there, because I would translate. I knew a couple languages, and I was nerdy, so I could kind of do real time translation for people that... I couldn't do Japanese, but I could do some of the other languages. And they already knew back in the 80s, that the cars were gonna electrify. But it was not obvious how and what the catalysts were gonna be and the timing, the choices. That's how like a JB. You know, when JB, Marc Tarpenning and Eberhard got together for Tesla, right? This was not... They had really fresh, non intuitive ideas about and everyone else was trying to do things to overcome the weight and cost of battery packs. And they said, "No, we got to do the opposite. We have to build a really, really big battery pack.
And we have to wait for the industry to get into a balance of material costs that's compatible with transportation." Which is around $100,000. They had a completely different way of thinking about it. But back to the point I was making. Of course, if you are developing the best electric drivetrain technology in the world, combination of batteries, power electronics, motors, motor controllers, software for electrifying automobile, of course that's worth doing. And you know, we weren't confident in the early days that we would succeed as a car company. But we were very confident that for every 100 million we spent on engineering those things, that we would be rewarded, because the problem was inevitable. Of course, cars were gonna electrify. Now the timing matters, right? If you're five years early, it's a real pain in venture, right? Imagine you sit there for five years. And now you know what? Six, seven years ago, I forget exactly when. We started investing in aviation, the electrification of aviation. We know it's gonna happen.
In fact, we can tell you how it's gonna happen. Like the physics don't lie, the engineering doesn't lie, right? So you can... There's a lot of ways to fail, you can back the wrong team, you can be too early, you can misjudge the industry dynamic. But we kind of know where that's going. Like I can tell you decade by decade, what's possible and where it will be. And similarly, and pretty much everything we've been working on, right? I mean, look at the excitement infusion these days. It's not like some crazy entrepreneur that's come up with one idea. No, these are... It's a result of decades of progress in different fields. It brings you up to a point where certain new things become possible. Look at you know, maybe our most popular theme we've probably invested the most companies into in recent times is electrocatalysis. Right? The idea that you can now use renewable energy to make useful chemistries.
The things that used to come from fossils. The reason it's all happening now, is for really fundamental reasons right around the cost of renewable energy, and the cost of electrolyzers. And those kind of membrane based technologies and the efficiency of them. If you look at those factors and how they multiply, you're doing, you know, one or two orders of magnitude better than you were doing 20 years ago. And so, all this stuff becomes possible. So, again, I think if you marry decade's long point of views around engineering and science, with the very vibrant ecosystem of entrepreneurs and startups, you kind of know what could be important, right? And then you just have to find the right team to go do it. And you're, you're ahead if you can do those two things.
Jason Jacobs: You talk a lot about longer time horizons and sticking with companies. I know that BEV, I believe they institutionalized actually a longer fund lifecycle. How do you think about that with the Technology Impact Fund?
Ion Yadigaroglu: Yeah. Well, you Jason, you're also fascinated with structures, right? Cause you've been pretty innovative in your own fund. And you know, I've always felt lik the structure doesn't matter too much. Because in the end, we're all human, it's tough for any human to do something truly long-term, because you need proof points along the way. You need to feel good about yourself, you need to feel good about your career, you need to make some money. So, you know, people put a lot of effort into, why I have an evergreen fund, or I have a 20 year fund or a 12 year fund or a 10 year fund. I don't think it matters all that much. What matters is, do you have the people, and does your culture or other things that relate to the people, do they allow yourself to do that or not? Like, if you have some GPs who are in a hurry to make some money or need to prove themselves, it doesn't matter whether they're in a 20 year structure or a five year structure, they're gonna do things relatively short term.
And in our case, like I said, we started with a pile of money and wanting to fix big global problems. I guess we were just culturally comfortable doing things that took a little bit longer or a little harder to do. We were less transactional. And so on the margin, I think we are a little bit longer term than most. But you know, it's also [crosstalk 00:47:35]-
Jason Jacobs: Do you have outside institutional Lps?
Ion Yadigaroglu: Oh, yeah, yeah. Like I said, although this, the original sponsorship, was Jeff Skoll's, Skoll Foundation, essentially, Capricorn. Many, many years ago, everything at Capricorn is sponsored, the idea was to make it into a successful product, a successful impact fund. And so my fund is no different. And so we decided to take on and raise money into it like you wouldn't any venture fund. And so nowadays, the LP base is no different than you expect from any generalist venture fund. You know, a mix of university endowments, foundations endowments, family offices, and pension funds.
Jason Jacobs: Well, to use a... It's not an exact analogy, because it's a founder of a company and not a fund, but someone who will remain nameless came on the show and talked nothing about climate and all about markets and profits and market size and how many billions can be made and things like that. And then after we stopped recording, you know, what drives you? "Well, climate." Well, why don't you talk about it? "Because when I talk to financial investors, I don't want there to be any doubt that they can make gobs of money. And when you start talking about impact, then they get scared." Right? They get scared that it's concessionary capital.
The same reason why many funds that are investing in this area are allergic to the word impact because they worry that impact is [inaudible 00:48:53] with concessionary, you've got impact in your name, but nothing I'm hearing from you is talking about concessionary. So I guess, coming back around, how do you think about that? Do you worry about it? Is this concessionary capital? How important is mission alignment with your LP base? Like, how does impact manifest as it relates to financial returns?
Ion Yadigaroglu: Yeah, I never felt that you could scale things in a way relevant to say climate or other big problems in the world if you were starting with the concessionary. Now, that doesn't mean there isn't a role for it. I really do think it's interesting to have pockets of money in the world do social enterprises and concessionary capital. There's definitely a role for all that, just like there's a big role for strain on philanthropy. But we were more interested in the giant success of business and the ability of that to fix the problem, right? To really contribute to solutions, to services, to financing, whatever it is that's driving. And so, yeah, we never, at least in our fund, I mean, as a sponsor, as a friend, I've been involved with a lot of different efforts. But in my own work, yeah, we have never chased anything but the highest return for the risk.
Jason Jacobs: If you put up the financial returns, is anyone in your LP base, or I guess anywhere, for that matter, pushing you on impact? Or is it really all about financial returns in the end?
Ion Yadigaroglu: No, it's a mix. You know, because we've had the good fortune of having really extraordinary results. It's not a tough sell for those who want just to access a different way of making money in venture. Right? So, that's part of it. But we definitely have a strong group of LPs also that really are in it because of the hope we bring to how solutions as they scale can really make a difference. So, we have, we have a mix. Now, look, we could talk about the reporting of impact and how that has all evolved over the years. Right? That's... There's a lot going on there and a lot of opinions and, and I have my own. But yes, we have both. We definitely have many people on our network that think of the impact first, and we have many that just think of returns and it's all, it's all fine.
Jason Jacobs: Do you report on impact either to LPs or publicly?
Ion Yadigaroglu: Yeah, we do. Yeah, yeah. Sure. We do. Look, I think where I kind of lead myself into this sorry, this is not necessarily the most interesting thing to talk about. But we've been friends of this movement, right? For 20 years. In fact, the word impact investing, I was there when, when it was invented, the word. And it was over a long weekend in the Bellagio estate that's owned by Rockefeller, where they host kind of these nonprofit groups, and we were there in 2007. So, that's what? 14 years ago. To talk about the nexus of making money, and doing good. And this was just a bunch of friends, I don't know how many we were. Two, three dozen people.
And after a long weekend and lots of wine, we realized we hadn't really cracked the nut. And a young guy at the time called Anthony Antony Bugg-Levine said, "Well, why don't we create a movement? And movement needs a catchy name? So how about impact investing?" And we said, "That's a great idea." And a couple of us threw in five or $10,000 checks to get it started. And then Anthony, fairly quickly got a giant grant from Rockefeller. I think it was $40 million to create the movement. That's how it started. And it's funny cause I still have people walk up to me today to explain to me what impact investing is. And I'm like, "Well..." And I was kind of there. So... And one of the things that I think is misguided is to think that impact investing is an academic theory about the impact of a company.
I've always felt that that's not what it is. It's really about people and people's careers. Why do they make certain decisions? Why are they as allocators of capital, allocating capital the way they do it? And why does it always end up in places that don't necessarily warrant that capital? Like we have these giant problems in the world, right? That need a lot of money to fix them? So, how can we change that? How can we change how people make decisions. But you know, the established industry doesn't really want to talk about that. They want to talk about measurement and reporting, because these are safe topics. And so people will go into infinite loops on measurement. And I think measurement is important. Don't get me wrong. I mean, I've put a lot of hours and we have funded many of the nomenclatures and measurement frameworks over the years, some I'm a friend of all that.
But it's not to me, it doesn't start an end with you know, metrics that you then audit and triple audit. No, it starts with why are you doing the work you're doing? And are you actually allocating money differently than you'd expect a peer working at Goldman Sachs to allocate it? And that's the interesting bit to me. It's the human career decision making bit.
Jason Jacobs: One of the things that I hear a lot from traditional VCs, for example, when, when looking at climate tech investing from a distance, and maybe being climate curious, is that they worry that investing in this area oftentimes requires future policy to come that is not in place yet. So, I guess one question is, do you agree with that? And then a follow up is, would you make those bets in areas where you're confident that policy has to come because it's inevitable, given what's happening with our world and where things are going?
Ion Yadigaroglu: Yeah. No, so I'm gonna completely disagree. In fact, like I said, I think policy has played almost no role to date. And where it has played a role and people have chased it, has typically not worked, right? So, like ethanol, I mean, ethanol wouldn't have existed without those original policy mandates. Even that, I'd have to qualify because if you look at the crush spread, meaning if you look at the cost of corn, and then you go on highway and you buy gasoline, and you look at that spread, ethanol has almost always been profitable, with or without the additional credits, but it would be way, way, way more marginal without the large subsidies coming through these renewable fuel mandates and policies. And by the way, the California one is crazy. Like the amount of money getting thrown at low carbon fuels in California is a pretty crazy number.
And it's creating at times unhealthy side effects. But I mean, in a year's time, I might get three pitches out of hundreds, right? That rely on, "Hey, there's this subsidy, or this money that's available. And if we chase it, right, we can get that money. And that's how our business model works." I mean, it almost never happens. I guess that's in part big failure of government, right? There really hasn't been any effective policy today to scale up these new solutions. Some of it has been, I don't want to be too black and white. Like I mentioned, I think the, the renewable power mandates have been a big deal in America, not necessarily globally. But certainly in America, they've played a role. And we wouldn't have as much wind and solar without them. But that's kind of an indirect effect. Right? Like, we'd have a bunch anyway. And we might have more because some of those mandates have been, you know, pushing the CPUCs and others to kind of do more than they may be naturally would have.
Jason Jacobs: Will we need large scale carbon removal? And if so, who will pay for it?
Ion Yadigaroglu: Yeah. No, I think we do need it. Yeah. We know what to do in power, we know what to do in transportation. Through things like electric analysis, I even think we have big answers in chemicals and manufacturing. But there's a lot of stuff that's hard to get to. And then we've made such a mess of things, that we also have to go backwards. And so syncs are a big deal. And you know, my friends, and the community at large, right? Are I think making a bit of a mess of things of being a little too negative and critical on syncs and offsets. And I think a lot of the issues around syncs have to do with the fact that today they're nothing. Right? It's just like a cottage industry. And so there ain't much going on. And if we were doing billions of that, and then tens of billions and hundred billions, a lot of the issues and debates go away. Like when you protect four trees, what are you really doing, right?
I mean, those four trees probably would have stood anyway. But if you're protecting you know, 10 million trees, it's pretty obvious, you're having an impact. So, whether it's that or whether it's other ways of doing syncs, but I'm mentioning the natural ecosystem stuff, because I think there tends to be most controversial. I think that people need to be less negative and embrace that. There should be enormous sums of money available to do it, even without government creating CO taxes or other things that would make it more formal. I'm spearheading a movement. This is again, not my day job. But you know, Capricorn is an asset manager, right? They're not the fund, right? As an asset manager, even though Capricorn mostly owns companies like Tesla and Joby and QuantumScape, those companies have a footprint. Every company today has a footprint, every single one of us has a footprint. And so we said, "How can we be doing so well and be so wealthy as a firm..." Right? "And as frankly, also as a group of individuals, and in 2021 be contributing to climate?" That doesn't make any sense. So we need to be negative on climate.
So we said we're gonna use syncs to offset the footprint of those, that portfolio, right? Those, whatever it is. Seven, eight billion of assets. We wanna be negative on that. And so we're doing syncs for our residual offsets, our residual footprint. But you know, we, the more we talk about it, the more we just get attacked for doing it. It's kind of in a... It's not in a fun place right now. Pretty much... And people who were trying to do more, they don't do more, because when they do something, someone attacks him. That it's not perfect, or you're just doing this as an excuse to not, you know, not deal with your real emissions. And I get that. But I do think that sometimes the perfect is the enemy of the good. And yeah, we need to do a lot of syncs too.
Jason Jacobs: So, semi related topic, what does that mean as it relates to fossil fuel companies and collaboration? Friend or foe or both?
Ion Yadigaroglu: Yeah, they're definitely the enemy. But you know, many companies are the enemy in this sense. Okay? Companies, their leadership became managers, right? I mean, it's so obvious. I mean, it's... I'm almost embarrassed to say this, but because so many people have said it so many different ways. You know, the modern day CEO and his or her team, think of their job as managing month to month to create the least amount of surprise and try to eke out a little bit of savings and efficiencies here and there so that profits can, you know, slightly go up here and there. That's what they view their job as. And when you're faced with these giant, disruptive phenomena, they do really, really badly. I mean, there's just a staggering lack of leadership in large companies. And you know, Tesla in its early days, was the most intense, biggest, strongest effort to electrify automobile.
And then, then, you know, under Elon's stewardship, it, it's continued to be outpacing every other car company in the world in terms of raw investment, right? And in new engineering and new IP, new software, new factories. But it's also true today, you know, you could say, "Well, people have learned that lesson." But it continues to be true. Like Joby is.... I don't think... You'll correct me on this. I think it's the most intense best funded effort most people in the world working on electrifying aviation. I, we easily outspend Boeing and Airbus. Like, how can you be Boeing and Airbus and a startup is spending more money than you are on like fundamentally creating new products?" And not to insult them, but think of the people at Boeing, like the decisions they made, right?
They more than 10 years ago, these clever business school types, the board and the CEO got around the table and said, "Hey, you know what? Our most popular platform, the thing we sell the most of which is the 737. You know what? We don't need to design another one. We can just keep using the thing we designed in like the 60s. And you know, we'll put like winglets on it. And oh, by the way, Airbus is doing slightly more than us, so we're feeling embarrassed, right? So we need to do more." So, they call up GE and they say, "GE, you got to save us here. Can you make the 737 look good? And make it more fuel efficient and quieter." And GE comes back and says, "Well, you know, to do that, we just need to make a much bigger fan, right, we need to change the bypass ratio. So the fan's much bigger. And the engine's huge.
It doesn't fit under your jet." Like, "Yeah, but we kind of don't want to redesign it, can you make it fit? Like, well, you can put it in front of the wing." But then the weight and balance is off, so you have to fly with the tail slightly inclined. You're still a stable aircraft, but you're not as stable as you used to be." And they're like, "Okay, and well, that's going to be complicated for the pilots, cause they're not used to flying an aircraft with big heavy engines in front of the wing where they're supposed to be under the wing. So why don't we create a piece of software that tricks the pilot into thinking they're flying the old 737?" This is literally true, like, I'm not making this shit up. Right? This is literally what happened. And these are all these clever types that came out of business school thinking this, this is the right way to go about it.
I mean, how could you think for a second, that a plane that has been your number one seller for decades, and there's been decades of development in new materials, new engine technology, new controls, new, you know, stimulation design. I mean, all that stuff. And you're literally gonna evolve your decades old design, rather than spend a couple of billion dollars designing a new one. And then they kill people, right? Cause unfortunately, it turns out to be also criminal in decision making, not just bad decisions, but almost criminal. I mean, I guess it is criminal. So, they end up killing a bunch of people, they first blame the pilots, and then they realize, "Okay, maybe that was a little easy." And then what do they do? Right?
They, they take the genius board member who was there when these decisions were made, and they make him CEO, and he says, "Well, you know, bad management team." And then they look three layers underneath to the one poor guy that somehow worked with the FAA to make this happen, right? From a regulatory perspective, missing the big picture. Oil, oil and companies are that like day in, day out. I mean, I, I got invited to a call, I don't know months ago with the CEOs of all the big oil companies, and they wanted to talk to the enemy. So, you know, we had Amin something, you know the Saudi Aramco guy, and we had CEO of Shell, Van Beurden, whatever. There was like 15 of these guys.
One woman, by the way. There's one woman running.... I think it's occidental, but... So they wanted to have, you know, an open frank discussion with a clean tech investor. And I realized it was such an odd conversation. And I said, "Well, let's start with so you have collectively overseen the biggest destruction of value, shareholder value ever. When I started in this 15, 20 years ago, Oil and Gas was the biggest part of the S&P 500, out of like 12 sectors or something, they were the biggest, making the most profit. And number two, I think was finance, right? And today, you're actually the smallest." I'm pretty sure these are true statements if you go look up your S&P tables. No one has ever destroyed this amount of shareholder value in this little time. That's never happened before in the history of the stock market. So let's start with why don't you do your effing job? Like, don't tell me... Let's not have a discussion around, you know, ESG. Why don't you start by doing your job?
And by the way, the startup that we invested in less than 20 years ago, Tesla, the market cap is now bigger than every single one of your companies. There was one exception, which was still Saudi Aramco and it ain't gonna last long. Right? Soon it will be worth more than Saudi Aramco. Like what do you think? And you know, what they wanted to do? They wanted to talk about competing ESG frameworks for their drilling operation. That's what they wanted to talk about. I mean, it's, it's a joke, right? So there's just a staggering lack of leadership at big companies, that's why I don't think, you know, in what we do, I don't think the jobs are all that hard, because the natural competition would be the big players in those industries. But they just can't get out of their own way. Right? So time and time again, when we realize, "Okay, something's big is happening."
There's a new emerging technology and it needs five years, and it needs, you know, half a billion or whatever of investment, and it needs a team of 200 people to get it done. There is no competition from the corporate sector, they're just missing an action. Even when they see it happening, they don't they just don't have the tools to do anything about it. So like, I mean, do we really need this talk about fixing oil and gas drilling? No, we know that business needs to go away, right? There's no way to fix it. What oil and gas should have done, is they should have taken some risk and developed some new businesses. There are cases like Ørsted. Like every oil company should have been Ørsted. Right? They should have gotten into a completely different business to the point where their oil and gas became irrelevant.
And so exiting oil and gas becomes a no brainer, because you're doing wind or whatever, you're doing hydrogen, something. But instead, they wanna do like renewable energy, which is really low, low risk nowadays, and very low return as it should be. Why would a wind farm in Germany, in euros with a 20 year feed in tariff and 20 year matching debt return more than 3%? It shouldn't. And that's why it returns 3%. It's basically a government bond. So you can't get yourself out of this problem if you're, you know, the CEO of Shell by doing things like wind farms, you need to take risk and develop a new business. And there, they have no, no support to do so from their boards or shareholders, no skill sets, they have no confidence to do it. They look... You know, they look at you like, "Deer..." What is the expression? Deer in headlights?
Jason Jacobs: Deer in headlights.
Ion Yadigaroglu: They have no idea what to do. Absolutely no idea.
Jason Jacobs: So you said they're the enemy, and you said that they are flat footed with this innovation. And that even if they see it, they're not equipped to go after it. So, if they wanna put none for example, in as a strategic investment in one of your companies, do you have an across the board philosophy there, or is it a case by case? Is that a good thing?
Ion Yadigaroglu: Yeah. Look, and of course, I, I made it a bit colorful to make the point, right? There is the occasional move. I mean, I have respect for Volkswagen. You know, Volkswagen went through a near death experience, right? And because of that, they couldn't just play dumb. You know, they use the diesel thing to trick themselves into thinking they were being very progressive right around climate and emissions. And in the beginning, it wasn't a bad idea. But they were so deep into that, so wed to it, that they just kept with it way too long. And to the point where it became really a lie, right? And so it was such an egregious lie at the end that they got caught. Because of that, the company woke up and they realized, "Well, we really have to do this." And it's incredibly painful. So, I also have compassion for the leadership of those companies.
I mean, put yourself in the shoes of, you know, you're CEO of Volkswagen, you have to tell your people, right half of you, more than half of you are working in drive train and you don't have a future. More than half the factories, we have to shut down right? And we have to replace them with battery packs and electric motors. It's a totally different business. So I'm not saying it's easy. I don't mean to say that this is like, they're a bunch of morons, right? But there has been a staggering lack of leadership, there's occasional signs of something real and I think COVID has helped a lot.
Jason Jacobs: So, do want them on your cap table where it makes sense, or, or is it stay away?
Ion Yadigaroglu: No, I mean like, you know, on a case by case basis. Sure, we absolutely. I mean, almost all of our startups have one or two strategic relationships that really, really care about. I mentioned the Joby, right? It has... The C round was, you know, 600 and something million C round was led by Toyota. Of course, if we go to things like electrocatalysis, the building blocks that we're getting from fossils today, right? The hydrogen, CO, even things like iron ore, et cetera. All these things we're getting from nature in the reduced state by using or directly taking from fossil fuels, we need to make useful through renewable energy and completely rebuild that whole chemical manufacturing chain. Of course, big companies have to be the partners of those things. And there's an openness today that didn't exist two years ago. I'm probably more optimistic on this than I've ever been. But if you look the last decades, it really is staggering how companies have failed to really take any risk and build anything new across the board. There's exceptions, but they are truly exceptions.
Jason Jacobs: And we talked about competition from the big strategics, and we also talked about how in the early days, you were king and queen makers in the sense that if you didn't choose to go forward on an investment, then oftentimes these companies wouldn't get off the ground because the capital just wasn't there. Now that it's starting to change, and you've got the Sequoias, the Andreessen Horowitzs, the Tiger Globals, there's all this more generalist technology money that is moving in this direction. What are the implications for you and the Technology Impact Fund in terms of how you carry yourself and to the extent that there is competition in a deal that you're pursuing with more generalist investors? Does that make you more interested, less interested? Or how do you carry yourselves when, when those situations come up?
Ion Yadigaroglu: Well, definitely not less interested. I mean, how could you be less interested in climate today? Right? Or whatever other big problem-
Jason Jacobs: Well, also like the catalytic capital for example, might say, and I won't mention any names. But catalytic capital providers might say, "Well, if market based capital is there, then, then it's covered. So, we'll, we'll go somewhere else."
Ion Yadigaroglu: Yeah. What I would say is a bit different. First of all, it's still a fraction of the money in the world that is available for this. Okay? Tiny fraction. And to fix climate in power and transportation alone, we need to deploy something like 10% of all investible money in the world into these sectors, and we need to do it in a couple of years, right? This is, this is still like, way, way outside the boundaries of what people have ever seen before or known or know how to do, right? So we're still in the first steps of this, even if it feels like we're living a party versus 10 years ago. So, that's one answer. The other answer is, look, it's uncomfortable to be where things are today, it was more comfortable 10 years ago. I mean, of course, we're a little bit out of our comfort zone, the pace. When you say competition, I don't think if is really negative per se, it just means that there's an abundance of choices and sources and options.
And a lot of that's good frankly, it's not all bad. But it's really the pace and scale and interconnections with other things and other people. All that's become complicated, right? Intense in a way that it wasn't. Like we could be quieter about things, slower about things. So I would say it's out of our comfort zone, but you know, life has always been out of our comfort zone. So, it's just a new version of that. Yeah, there's the cheap of, "Oh, well, you know, it's over done. There's nothing to be done." No, I think that's completely flawed. I think more will happen now, and there will be more money made than ever. There will be more breakage than ever, more stupid things than ever, but there also be more opportunity than there's ever been. So it's just for us to navigate.
Jason Jacobs: In a weird way, this is kind of the Boeing question where you talked about Boeing, how they had their flagship plane, and for decades, they kept it and then its bells and whistles, but they don't want to muck with it. So, you guys have done things for certain way for a long time, and you've been extremely successful at it. As the landscape changes, how are you thinking about change? Are you going to continue to do what's been working historically or are you gonna make some changes if you look at the next decade and beyond?
Ion Yadigaroglu: Yeah. We... Like everyone, we, we try to reinvent ourselves every day. And there's a right amount of that, right? There's things like even in the themes. Sometimes you do something and it starts to feel old to you, right? And you say, "Well, I don't want to do that anymore." We've mentioned you know, electrification and transportation. Right? That's been a theme for almost 20 years now for us. And so you know, you do cars and you do airplanes and what else are you gonna do? Right? Boats and motorbi... Yeah, you do. And frankly, there's more stuff coming into cars. We invested in, in Redwood, right? Which is, it was emotional for us cause that was JB Straubel, right? The, the same JB that co founded Tesla. And you know, he came out of Tesla, what?
Two, three years ago now, to do Redwood, because he saw the opportunity to make a really big difference in the whole EV sector by working on the supply of material, not just on the giga factory that makes the very refined manufacturing that you need. But also, you have to kind of keep all that material in the system. And with as little money and energy as possible, put those materials back into the manufacturing system, right? You really have to close the loop. There's huge leverage in that. It's not just about the footprint, or making money. It's also a really big lever on competitiveness for EVs. And so, like today if you were founding Tesla, I'd say, "Look, that's, that's a 2010 plan." Right? That does... Or whatever, a 2005 plan, but there's more new things to be done in old themes like that. And then there are new themes. Like I mentioned, you know, we looked at electrocatalysis 10 years ago, and you're just too early. Like we would have just sat there for years not knowing what to do with it.
And I think now is really, really big. And not just in hydrogen, right? But in CO2 to CO and iron ores to iron. I mean, in a lot of areas, electrocatalysis looks really, really exciting right now. We used to do like computation, right? We've, we went after data center 10 years ago, we said, "What are the three kinds of silicon that we need to supply data centers with or four? CPUs, terabit switching, memory chips, and power supplies? Right? Those are kind of the, the big four. We did three of the four. Now we're doing you know, quantum computing, right? Things evolve. But we evolve in our people, on our interests. Yeah, yeah. Even the fund itself has evolved, right? In terms of some of the sizing.
We used to not do growth fund, now we do that, because like I said, the pace of things is quicker. And it's more important to be able to do 100 million out of a series C, that wasn't so, so important back then. Now, it's, it's more important. How we do co investment with change. How we intersect with CEOs, like we used to do the CEO thing of big companies really more out of you know, we did a bit of that, right? And it was occasionally interesting. Now, it's becoming like I said, more relevant, because the CEOs actually need to do something. And so they're more eager to actually do something material. So, we spend more time on that. Of course, we're reinventing ourselves. But it's evolution, right? It's not, it's not like irrelevant.
Jason Jacobs: I know we're both coming up on a, on a hard stop here. So, last question, which is just if you could change one thing outside of the scope of your control that would most accelerate the clean energy transition, what would you change and how would you change it?
Ion Yadigaroglu: I can give you so many answers to that. You know, I'm gonna give you an answer, which really has got very little to do with my day job in the fund. Right? But I really think, I don't think people truly understand how the availability of really inexpensive money has enabled most of what has been scaling, and is giving us some hope, right? The infrastructure, the solar, the wind, the battery systems, even frankly, some of the industrial systems behind electrification of transportation and other things. That availability of money has really been key. Money is almost free. And so that's really, really important. The biggest risk is that that goes backwards, right? The interest rates globally go up. And that's, that... I mean, we do our magic in technology, but if the cost of money goes against us, we're in big, big trouble. So the thing I'd like to change is, as you know that money is available only in the currencies that represent a small amount of the world's population, a relatively small amount of world's population.
And frankly, it's not where it's most needed. It's most needed in places where the country's sovereign systems and currency systems are pretty messed up. And the cost of money is pretty high. And nobody's correct as politicians are too afraid to deal with it. Because countries have become so protectionist and focused on their own, that the idea of shipping, you know, trillions of dollars to poor countries, it's just not even on the table. And I just don't know how we, how we truly get that next scale, 10X scale in what we need to do here without getting trillions of capital at very low interest rates into places that have weak currencies. If I could do something magical, allowing for us to export you know, one, two, 3% cost of money that we have in our countries into the rest of the world, would be the most important ever that we could, we could have.
Jason Jacobs: Yeah. Anything I didn't ask that I should have, or any patting words for listeners?
Ion Yadigaroglu: I think we'd enjoy multi-hour discussion on a lot of topics, but what can you do?
Jason Jacobs: This was already our longest one yet. And I, it feels like we were just getting warmed up. So, it's almost an hour and half-
Ion Yadigaroglu: So, we'll have to do a part two. How about that?
Jason Jacobs: [Laughs].
Ion Yadigaroglu: A couple of months from now we'll do part two.
Jason Jacobs: We may. Yeah. [inaudible 01:20:25] seem like there's a lot of ground left to cover. But I, I can't-
Ion Yadigaroglu: You didn't get me going-
Jason Jacobs: ... thank you enough-
Ion Yadigaroglu: ... on anything... You know, I like talking about specific technologies and companies. That's always a lot of fun. And you know, I have colorful views at times around the right technology or how to use it. So, we'll leave that for another time.
Jason Jacobs: Sounds great. Well, hey, thanks again for coming on the show. We covered a lot of ground here and wishing you and the whole Technology Impact Fund and Capricorn team every success.
Ion Yadigaroglu: Thank you. Thanks for all your great questions and your discussion.
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 to .com. But right now, .co. You can also find me on Twitter @JJacobs22, where I would encourage to share your feedback on the episode, or suggestion 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

Climate Investing

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Episode 174: Ion Yadigaroglu, Capricorn Investment Group

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