Structured Capital 101: Keyframe’s Approach to Climate Finance
John Rappaport is the Chief Investment Officer at Keyframe Capital, a special situations fund manager. They help management teams solve complex asset and corporate financing requirements. In finance speak, this is often referred to as structured capital—the process of separating a company's capital structure into layers, enabling each layer to be fit for an investor seeking that specific risk-return profile.
As John shares, structured capital can often be a good fit for companies in the energy transition, as those in renewable energy and adjacent categories often have high upfront capital costs and a relatively low cost of ongoing production.
John has spent much of his career in financial roles within the energy and transportation sectors. Prior to founding Keyframe in 2020, he joined Cyrus Capital Partners in 2008, and before that, he worked for Sankaty Advisors, a division of Bain Capital. He has lectured on structured capital and economics at Yale University and sits on the boards of many companies in the energy transition space, including Wonder Capital, Utility Data, and Sealed, among others.
So, let's dive into the wonky but important world of structured capital.
Episode recorded on Jan 21, 2025 (Published on Feb 6, 2025)
In this episode, we cover:
[1:57] Overview of Keyframe Capital
[2:52] The origin of Keyframe and a story about Terawatt Infrastructure
[11:25] Understanding structured capital
[17:01] Examples of structured capital: Infrastructure as a service
[21:10] Keyframe’s thesis-driven approach
[25:56] The data center financing challenge
[31:02] When and how founders should engage with structured capital providers
[35:48] Keyframe’s current focus areas
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Cody Simms (00:01):
Today on Inevitable. Our guest is John Rappaport, Chief Investment Officer at Keyframe Capital. Keyframe is a special situations fund manager. They help management teams solve complex asset and corporate financing requirements in finance speak. This is often referred to as structured capital, which is the process of separating a company's capital structure into layers that enable each layer to be fit [00:00:30] for an investor who is seeking that risk return profile. As John shares structured capital can often be a good fit for companies in the energy transition as companies in renewable energy and adjacent categories often have high upfront capital costs and a relatively low cost of ongoing production. John has been in financial roles in the energy and transportation space for much of his career. Prior to founding Keyframe in 2020, he joined Cyrus Capital Partners [00:01:00] in 2008 and before that worked for Sanity Advisors, a division of Bain Capital. He's lectured on structured capital and economics at Yale University and he sits on the boards of many companies in the energy transition space including Wonder Capital, utility Data, and sealed among others. So let's dive into the wonky but important world of structured capital. But before we start from MCJ, I'm Cody Sims and this [00:01:30] is inevitable.
(01:33):
Climate change is inevitable, it's already here, but so are the solutions shaping our future. Join us every week to learn from experts and entrepreneurs about the transition of energy and industry. John, welcome to the show. Great to be here.
John Rapaport (01:55):
Really appreciate you having me on.
Cody Simms (01:57):
Why don't we start off the top, what is Keyframe?
John Rapaport (02:00):
[00:02:00] Keyframe. We are a investment firm focused on a relatively broad mandate for this space, but a narrow space. So we focus on the energy transportation and built environment spaces and in particular where those places increasingly connect and collect and we from a deployment standpoint focus on kind of three products. So we're looking to provide structured capital for firms where that's the right asset for their [00:02:30] business. We're looking to back early stage platforms really where the bulk of what they need is structured capital, but potentially there's also some capital required at the operating company. We also spend a lot of time on businesses in this space that need more of an operating turnaround where capital can solve real problems for
Cody Simms (02:52):
The firm has an interesting founding story I think around solving problems that ultimately became Terawatt infrastructure. You want to maybe give that [00:03:00] story just to orient us on ways that you leaned into different capital structures as that company was getting going?
John Rapaport (03:06):
Sure, happy to. I've been an investor in the energy and transportation spaces for going on 20 years now. First at what's now Bank Capital Credit and then at a firm called Cyrus Partners where we did everything from co-founded Virgin America with the Virgin Group and ultimately took that through to IPO and sale to a lot of investments [00:03:30] in both turnarounds and growth oriented investments in the energy and power spaces.
Cody Simms (03:36):
You and I met in the context of Wonder Capital when you were at Cyrus, I was at Techstars at the time and we were both investors in that business.
John Rapaport (03:44):
Exactly, and so Wonder is a good example of the type of investing we can and could do although with inside of a different shop where they had been a crowdfunded business and at the time they were very focused on lending and they had an opportunity [00:04:00] to grow that business and we provided them their first institutional capital facility that ultimately got taken out with a new facility a couple of years later at a materially cheaper cost of capital.
Cody Simms (04:12):
This was to enable solar financing for folks who don't know the company.
John Rapaport (04:16):
Small scale sub two megawatts solar financing for CNI and community solar customers. So what I was seeing into the middle of the decade was just these two areas. If you go back in time to my days at Bank Capital, I had started [00:04:30] out in the transportation and automotive sectors specifically because they pushed it to be in two places that were unlikely to go through cycles at the same time because they were completely unrelated. Over time, these two sectors that had been completely isolated and siloed and were both knowledge heavy silos started to collide. They also did so in a way that I thought was very well oriented to the types of things that I was excited about. You had these two big industries, both of which had heavy assets, [00:05:00] a lot of infrastructure involved going through structural change, increasingly colliding with each other and not a lot of people who were deeply knowledgeable about both of them.
(05:12):
All this happening in the context in this second trend has continued of firms getting increasingly large, especially on the structured capital side. You had these very successful but firms that had gone from couple billion dollar firms to tens [00:05:30] and even a hundred billion dollars plus institutions where just the size and investment needed to be to move the needle had increased massively. As I thought about where I wanted to spend my next 10 years, I had gotten to know my co-founders, Ben and Ethan, both of whom come from more operating backgrounds. They were approaching the same problem set from a different perspective. We sat down together and said, Hey, this is really exciting. Let's get together inside [00:06:00] of this ecosystem. Let's spend some time and see if we can find a really compelling thesis and we weren't sure if this was going to be a business or what exactly we were going to start, but let's find a thesis because it has all the characteristics that should be a target rich pool for my investment style. So we did that. The first thing we identified was this disconnect between market expectations [00:06:30] for vehicle electrification and availability of interconnect availability of properly cited properties for that use case. And so we stood up with a small land buying office in Topeka, Kansas, a lot of blood, sweat and tears to put together some data-driven metrics to identify properties, a pool of land [00:07:00] that was well suited to future vehicle electrification.
Cody Simms (07:05):
Did you spend a lot of time in Topeka? Just out of curiosity?
John Rapaport (07:08):
I spent some time in Topeka.
Cody Simms (07:10):
I went to college in Lawrence, which is 20 minutes up the road from Topeka, so there we go.
John Rapaport (07:15):
It's a really cool town and I will say I was both impressed by the size of, I think there's something I had down there called a pancake wrap, which is basically like an omelet wrapped in a pancake.
Cody Simms (07:26):
Welcome to Kansas John, welcome to Kansas,
John Rapaport (07:28):
Welcome to Kansas. A lot [00:07:30] of open carry as well, which is always fun for us. Northerners.
Cody Simms (07:33):
My home statement, man,
John Rapaport (07:35):
It's a place I know and love. We still work with some folks from that office. We put together a portfolio property and had gotten to the point where we had a decision to make. One, we had started seeing more and more opportunities where our skillset and our capital seemed to really solve a problem. We weren't looking very hard for them just as part of our overall market engagement and thesis [00:08:00] development. They were sort of coming to us and made the decision that we should start a fund and that we should go down that path as opposed to narrowly focusing. I think we also realized that the opportunity at Terawatt was really more of an operating opportunity than what had originally been structured, which was more of like a covered land play and we had been lucky enough to find really the best CEO in the business in Neha Palmer who had been instrumental [00:08:30] in building out all of the power side of all of Google's data center buildout who was going to make a lot more of that business than we ever could on our own, made the decision that we were better investors than we were operators and we should go and focus and spend all our time on that.
Cody Simms (08:47):
Interesting. Starting out thinking it was almost sort of a real estate structured company and turned out no, it's actually an operating business that has to acquire a lot of assets in order to run the company, so having this realization [00:09:00] that you could help them essentially finance a flywheel around that, is that what I'm hearing?
John Rapaport (09:06):
We potentially could have just then turned around and taken this portfolio that we had created and sold it to someone who wanted to go and develop and that's a thing people do and I feel pretty confident we would've made a good amount of money on that transaction. It was a much more compelling opportunity for us to bring in the team and electric vehicle charging. This is a very different proposition [00:09:30] than plugging your Tesla into the supercharger. This is a fleet where you are mission critical, a piece of mission critical infrastructure, and so it's got a lot more similarities once you're actually in the business of building and operating the site. A lot more similarities to data centers where this needs to have very high uptime. There's proprietary software to make sure that every time OEM does a firmware update, your chargers don't go down. It's [00:10:00] a sad reality, but as an electric vehicle owner, and I imagine many of the listeners on the pod will have this experience, it is a travesty how often you go to a public charger and it either doesn't work or charges you but charges you at a fraction of the speed that it was supposed to.
(10:18):
That doesn't fly for a contract with a Fortune 100 company where you are the difference between them being able to operate their vehicles and deliver their mission to their customers [00:10:30] or not. We just knew we weren't the team to be able to be credible in delivering that and thankfully we were able to bring on a team that actually can do all those things.
Cody Simms (10:40):
Was there some part of that story where the firm was sort of born of that in some way?
John Rapaport (10:45):
Yes, so that was our first investment that seeded the vehicle that is now and then we had a handful of other investments and ultimately made the decision to do that full time and have that be the core, but it's still [00:11:00] a place that we spend a lot of time. I'm still on the board at Terawatt and it's not like it turned into the fund, but that team that came together for the purpose of identifying one really amazing high conviction opportunity and going after it, which ended up being Terawatt is the core of the team at Keyframe that scours the earth for the best investible thesis areas and then tries to go and solve problems.
Cody Simms (11:25):
One of the reasons I wanted to have you on the show is I think a lot of our listeners are quite familiar with venture [00:11:30] capital and how that space works and I think increasingly people are getting familiar with infrastructure capital and maybe how they raise money for their first facility or this that and the other, but this whole space of structured capital, which is a broad definition I think may be new to folks as they're thinking about, Hey, it turns out I need to raise capital to finance some assets my business needs or I need to raise capital to buy some equipment or do some manufacturing and I know exactly what the revenue's [00:12:00] going to look like. I just need someone to provide the capital so I can get there.
John Rapaport (12:03):
There happens to be a lot of businesses in our space, broadly defined energy climate call it what you will that share some similar characteristics. So there's a lot of these businesses that have a product that they're selling that has a higher upfront cost than their traditional competitor, but a lower ongoing operating cost, so think of everything from solar and wind to electric vehicles [00:12:30] to even a lot of things like energy efficiency that you might not immediately think of when you think of a business that needs structured capital. All of those businesses need to be able to compete for their customers with the incumbent product that's out there. Where structured capital really makes sense and it is defined really broadly. I was a lecturer at Yale University and taught a class on structured credit for a number of years and first the econ department at the grad [00:13:00] school and the way from an academic standpoint I would describe this is when you think about any business, there's different parts of the business that have different levels of risk associated with them or volatility associated with them. If you can do a good job of matching that risk to the person who's best suited to bear that risk, you can put yourself in a better overall position. When you think about venture equity provider, they may be [00:13:30] interested in a relatively low likelihood or hopefully high likelihood of a very high return north of 20 or 25% a year for any investment. Certainly any investment that does well, they need to know that that's what they're able to get.
Cody Simms (13:44):
The idea that nine out of 10 startups fail, but the one that works works really, really, really well.
John Rapaport (13:48):
Exactly, and so because of that one that works has to have such a high return that it can offset the risks of the ones that may not work and where structured capital [00:14:00] becomes really important is there are a lot of businesses in our space that aren't software businesses or media content businesses or something where the amount of capital you need to make the business work is relatively small, but instead are businesses that share some of those elements of development. I mean solar is the classic one. We think about solar, you are creating a 20 year cashflow stream which is very predictable and that's a great asset for a certain person. You are putting money up at the start [00:14:30] to build the system and to also fund all the costs of selling the person explaining to them what solar is, all of the things that now are a lot easier than they were five, 10 years ago.
(14:41):
And if you have to fund that with venture equity, you need to charge them a lot on that solar to justify the cost of the capital of the venture equity. And so where structured capital comes in is if you can find a slice of your business that has a different risk profile. [00:15:00] That's the concept is how do you take a business that as part of the nature of the business is creating a stream of cash flows that have a lower risk and a lower variability or volatility attached to them than the overall business and how do you get capital to attach to those streams of cash at a lower cost of capital than you would for just a regular venture equity investment
Cody Simms (15:29):
As [00:15:30] opposed to raising a hundred million bucks and funding everything you need with that one slug of equity capital. It feels like that was a big lesson learned from the Cleantech 1.0 downturn was don't fund everything with venture dollars and yet I think we still are seeing companies fall into that trap today.
John Rapaport (15:48):
I think there's some truth to that or maybe at least there was some truth to that in certain prior years. There's a reality that anybody who's out there as a structured provider of capital, it's very difficult to compete [00:16:00] with equity that is taking all the risk of venture equity but is expecting a low return, but that is ultimately not good for our space. It's not sustainable in the sense that people will stop giving those people money.
Cody Simms (16:13):
There are some impact pools of capital that are meant to do that. They're catalytic capital that is backstopping, things that may not drive full market rate return but have some kind of impact metric that they're measuring. To some extent, you're up against that a little bit are you not?
John Rapaport (16:30):
[00:16:30] I wouldn't say that we are. I also think that even for those pools of capital, they get the most leverage solving the things that can't be solved with structured capital. If your goal is to provide catalytic capital and the lever that you're using to provide that as a lower return expectation, then for those projects where the risk of the underlying project they could access debt markets or preferred equity or something more on the structured side, then the catalytic capital would just go [00:17:00] further.
Cody Simms (17:01):
Let's break down a few of these specific types of structured capital just to give all of us a bit of a flavor of some of the options that are out there for entrepreneurs and people building businesses who may realize they're not just an enterprise SaaS company that can scale with incredible margins all the way through to an IPO. I've read an article on your website about something called infrastructure as a service. Maybe start with that one.
John Rapaport (17:27):
At a high level, people looking for capital [00:17:30] think too much about, oh, what are the different slices of capital that are out there and less about the maturity of their business and what they're actually able to support. And the way that we think about this is what's the right time to think about structured capital? Even if you can go and raise equity, if at scale you're going to need a go to market that requires some type of structured capital, then you [00:18:00] are much better off building that into your business early then waiting. I don't know if there are any specific examples I can share from a confidentiality standpoint, but we've seen a number of examples of businesses that have grown with equity knowing that at some point they were going to need to have a structured capital to be cost competitive in the market and then when they'd gotten to a book of $10, $20 million of projects walked into the door at your [inaudible] investment bank and gotten shut down [00:18:30] because they hadn't done the work upfront to design the product, the contract structure, the whole thing in a way that worked for the capital markets.
Cody Simms (18:42):
It's like someone trying to raise a series A when they haven't yet proven they can even take in angel money and generate 18 months worth of progress on the business. You've got to prove that you can do something and my guess is even if you're going to go after some asset financing structure or something [00:19:00] like that, you need to find a capital partner who is willing to take on a little bit more risk for a business that has never done it before, before you walk into a big bank expecting them to lend you 30 million bucks to go buy assets on which you have not yet returned any revenue.
John Rapaport (19:15):
I think there's some truth to that, although beyond just risk appetite, one of the core things that we do, a keyframe that I think makes us somewhat differentiated from many of the folks out there and certainly from the large capital providers who really [00:19:30] exist in that a hundred million dollars plus check range is a really good product, has to be sort of a three legged stool between the sales team. There's no point in structuring something that you can't sell sell depending on the industry can be defined pretty broadly. The capital markets team. So you need to understand that this stream of cash flows that you're creating, checks all the boxes from a diversification of risk, assignability of contracts. There's [00:20:00] a lot of little things that go into this. And then the operational side of the business and the operational side in particular is a place where we actually see folks fall down a lot, which is if you're not doing this in a thoughtful way, you can end up adding a lot of operating costs to your business model that makes it harder and harder to be cost competitive. So part of the reason that we think that businesses that have a structured capital need should look at how they are going [00:20:30] to access those markets earlier rather than later is because you're making a bunch of choices actually about your product and about how you staff and build your business and your systems that flow directly into have you created a stream of cash flows structured in a way that actually will work for the capital markets.
Cody Simms (20:49):
John, how much of the work that you do is working with founders trying to help them understand why this is a necessary or good thing for their business and how much of it is with lead investors, [00:21:00] board members engaging with them on, Hey, look at this company you're working with. Look how we could help re-architect. Its underlying financial structure.
John Rapaport (21:10):
Structure capital is one tool in our toolbox and we've really tried to align the business to be a partner to the management teams of these companies. So there's a certain type of private credit business that's very sponsor oriented that gets brought in. We're really sort of approaching [00:21:30] the world from a thesis driven space first, so we'll spend a lot of time trying to understand where do we want to be in the market. For example, one of our core thesis is around distribution grid congestion. This idea that as load growth increases that the distribution grid is going to be the first place where you see friction points and where the value to either generation or controllable load inside the distribution grid [00:22:00] should benefit from those trends. That's a thesis and then we'll try to understand all of the companies who are addressing that problem set inside the space and get to know and engage with the ecosystem so that when you hit the type of issue that we're a good partner for, we're someone that the founder is reaching out to and saying, Hey John, is this a problem that you guys can be helpful with or can you at least point us in the direction of somebody who potentially can?
Cody Simms (22:30):
[00:22:30] I'm hearing that as opposed to say a bank who is selling a specific debt product to founders, you're basically saying, Hey, we can do some equity investing, we can do some lending, we can structure a credit line for you. We can do a convertible debt line. What I'm hearing you say is Keyframe is trying to be very creative in terms of how it works with founders to solve problems that are specific to a given business. The interesting thing is you guys have a pretty hefty Swiss army knife in terms of the types of [00:23:00] tools you can bring to bear to a founder that is trying to do something other than just raise straight up equity
John Rapaport (23:05):
Or honestly even if they are trying to raise straight up equity, if they're in a space where we think the right capital structure or there's a better capital structure out there, we love to have those conversations. The whole reason [inaudible] of KEYFRAME was to build a cross-functional team where about half operators, half people with capital markets structured credit backgrounds to go and be creative capital to solve problems [00:23:30] and that's just personally a lot more motivating and interesting to me than trying to build a really scalable business that just deploys the same product over and over again. Although that can be an extremely profitable business for folks who do that successfully. We love complexity and we love the ability to drive transformative change in a business through solving what's ultimately a problem that can be solved with capital.
Cody Simms (23:58):
And I was going to ask how in the world you [00:24:00] then even orient yourselves because you have all these different tools you can bring, but it sounds like you're oriented by being thesis driven, so you have a couple of specific thesis you're investing into at any given moment and you'll go canvas the market and understand companies that are working in those thesis to see where, hey, maybe there's a way to do and unlock for this company that they hadn't thought about yet.
John Rapaport (24:21):
That's right, and one of the factors that goes into where we focus our time is, is this a market where we think our Swiss army knife [00:24:30] is likely to be effective? So there are places that will not be amenable even if we thought it was a great thesis. Our skill sets are not well suited to the problem, so things that require really deep tech R&D oriented investment, certain types of software are just not going to be spaces where we're going to be very active because we don't bring anything differentiated from what a lot of other people can do.
Yin Lu (24:55):
Hey everyone, I'm yin a partner at MCJ here to take a quick minute to tell you about the MCJ [00:25:00] collective membership. Globally startups are rewriting industries to be cleaner, more profitable and more secure. And at MCJ we recognize that a rapidly changing business landscape requires a workforce that can adapt. MCJ Collective is a vetted member network for tech and industry leaders who are building, working for or advising on solutions that can address the transition of energy and industry MCJ collective connects members with one another with CJ's portfolio [00:25:30] and our broader network. We do this through a powerful member hub, timely introductions, curated events, and a unique talent matchmaking system and opportunities to learn from peers and podcast guests. We started in 2019 and have grown to thousands of members globally. If you want to learn more, head over to mcj VC and click the membership tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (25:56):
I want to pull on a thread. You mentioned the data center financing [00:26:00] problem and that feels like an area where everything you're describing could be on target. For you it's energy, it's about demand and load growth. It is ultimately an asset financing business. Is that a space that you're spending time on?
John Rapaport (26:15):
I think anybody who's in energy who isn't being really thoughtful and I think it's broader than data centers. I think for all of the noise around the IRA and now the reelection of Trump and his executive orders, [00:26:30] the big story, at least for the things that we focus on in energy is this return to load growth and data centers is a big piece to that, but it's much broader. I mean, you look at warehouse automation, you look at Onshoring manufacturing, you look at a lot of these emerging technologies in the energy space where take something as simple as steel where you've gone from in many cases blast furnaces where you were using fossil fuels directly as [00:27:00] heat to electric arc furnaces where you're consuming huge amounts of electricity. That move, that return to material load growth in the developed world is a big deal. A hundred percent,
(27:11):
we are very focused on that. I mean in terms of are we the right people to go out and finance a data center? There a lot of specialist firms in the digital infrastructure space who we try not to compete with places where we're the tourist around the margins and the impacts of what happens when you [00:27:30] start adding a lot of load to an already stressed grid where you have very old transformers. I mean, it's crazy to me that we have no embedded intelligence in really any of our electric infrastructure. There's no other device that you interact with that has to make these split second decisions that is controlled completely centrally with very little low latency visibility [00:28:00] into what's happening at each one of these endpoints even touches. We were talking a little bit before the pod about fire risk and it's clear that one of the things that could limit some of these utility fires is the ability to have more information about what's going on into the distribution grid so that utilities can shut off electricity preemptively with higher confidence and higher fidelity than they do today. It's an area we spend a ton of time and if you think about the next decade [00:28:30] electrification of everything and AI load growth and manufacturing load growth and automation, those are going to be the core stories around at least the electron side of the energy ecosystem.
Cody Simms (28:46):
John, when you are out raising capital for your own firm, how do you pitch prospective LPs when you aren't necessarily saying, this is our product, this is our return profile. [00:29:00] It's sort of like, Hey, we have a creative problem solving team that is going to be able to get access to economic products that most investors aren't getting access to because they can't see it in the business model. That sounds like a tricky pitch.
John Rapaport (29:17):
It sure is. We have a relatively small number of LPs who are in general large, sophisticated institutional investors. It's a harder pitch for a certain type walking into a place that wants to pitching hole you into [00:29:30] are you private credit or are you infrastructure? Are you venture capital? And the answer is like, no, we're really none of those things.
Cody Simms (29:37):
My experience as LPs generally want you to be one of tools in the Swiss Army knife, not necessarily the entire thing.
John Rapaport (29:45):
And frankly, look, if we were focused on asset accumulation, then we would need to productize our business in a very different way. At the end of the day though, while the precise structuring varies, the shape of trade we're looking for is really consistent. [00:30:00] We're looking for something where there is real downside protection. One of the things that people ask us sometimes is how are you going to provide structured finance to first of a kind projects? And the answer is things that have a lot of binary risks are actually just not appropriate in my opinion, for structured finance. They're appropriate for equity and so what we're looking for is a very consistent shape of trade where we have some level of downside protection, we have some level of contractual return. In an ideal world, we also [00:30:30] have a real amount of right tail upside participation if and when the businesses where we're investing, and this is partly why we are very focused on the quality of the underlying business, the quality of management team, all of that where they succeed. The way I sort of think about that is a really well structured investment. You should have great risk adjusted return, but also a really solid absolute return across a portfolio because your hit rate should be a lot higher than [00:31:00] a venture capital investor.
Cody Simms (31:02):
How should founders start to engage and think about these opportunities? There's not a lot of content out there for founders thinking about alternative ways of financing aspects of their business. You can read a lot about convertible debt. You can read a lot about equity, you can read a lot about venture debt. It starts to get trickier as you move beyond those things.
John Rapaport (31:27):
I'd love to say, well, I have this book of amazing resources [00:31:30] that we can go and hand out and it's something we've thought about actually creating and probably should. My short answer for you is that anybody who recognizes that they have that shape of cash flows, that means that some sort of structured capital is going to be a requirement for their business and by which I mean the way that they get paid is that kind of razor, razor blade model, for lack of a better word, where they're either putting capital out in exchange, getting a long-term stream [00:32:00] of cash flows or a barrier to them selling is the fact that their product has a higher upfront cost than the alternatives, even if it has a lower operating cost. Those people just need to really engage with their ultimate capital markets providers at an early stage.
(32:18):
You may not be able to go into a Blackstone or an Aries or a Goldman Sachs, JP Morgan and get a facility for them until you're at a pretty [00:32:30] late stage. There's also folks like us, Spring Lane has a business that is somewhat similar. There's a handful of folks in ecosystem. Engaging with those type of people and trying to understand whether you actually are a good candidate for that type of capital or not is I think something that all founders should do sooner rather than later. It's really easy for me to say, well, okay, have you thought about X, Y and Z? Or how [00:33:00] are you structuring the legal side? How are you documenting these? Are you checking all the boxes? It's also a really dangerous thing, and we've seen this a bunch of times for a founder to go out and build a business that requires access to the capital markets with equity only to get to the series B stage and realize that the capital markets are just not going to be there for them for some reason, that probably was identifiable at the start. There's a number of recent failures in [00:33:30] our space, including some pretty big name ones where the ultimate issue was that they funded a lot with equity and when it came time for them to go to the capital markets, they were either completely dependent on some sort of government subsidy that took too long to develop or we're just unable to access at a reasonable cost to capital markets at all.
Cody Simms (33:51):
Well, and for the last four years now, we've had the Loan Programs Office able to step up and provide large facilities for companies [00:34:00] that may not be there for the next few years, at least for companies at a similar stage, there's need for companies to start to prove, I guess, their ability to generate positive returns even earlier than maybe they would've planned for. Is that how you would frame it?
John Rapaport (34:18):
That's a hundred percent right, and I think it's also important, again for people to match their operational maturity with their capital partner. So one of the things that we're excited to do is work with [00:34:30] your CFO and work with your head of sales to help think through what are the changes that you need to make to your product to actually make this workable for someone in the future
Cody Simms (34:42):
Would the goal for you be that after you fund a first go at a facility with somebody that the next round, they could go to a major lender or major structured finance provider and create an evergreen product. Would that be the idea or would you hope to be that evergreen product that grows [00:35:00] with the company over time?
John Rapaport (35:02):
We have the capacity to grow with companies, but it's extremely important for us. The only way you create value is for you to have helped a company create a product that is financeable by scale providers of capital. In an ideal world, you're talking about a business that should be able to really grow and be a large asset provider, and then you do need to think about who's the plain manila bank or private credit fund who can step into [00:35:30] that.
Cody Simms (35:31):
One last set of questions for you, which is are there any specific areas that you're looking forward to or digging into right now, topic areas, thesis themes, beyond the big themes you called out at the start of the show, anything right now that you're particularly really excited to dig into?
John Rapaport (35:48):
We've touched on a couple of them, and so load growth is a big thesis. That is maybe a pretty obvious thesis, but it ties into a lot of things including distribution, grid congestion, but also [00:36:00] we think this asset category of clean enough or ideally very clean, dispatchable power is a place where we're pretty focused and so it can be controversial, but we believe really strongly in the sustainability characteristics. A couple of investments in the woody biomass oriented space where we think as long as you do it right and are thoughtful about the whole ecosystem, that you can actually provide dispatchable power to people who are looking for dispatchable [00:36:30] power in a very sustainable way, cost that's a lot lower than a lot of the alternatives. Anything that lives in those inters species between transportation and energy is in a really exciting area for us. So in particular, fleet expect continues to be a focus area.
(36:45):
We think multifamily is increasingly going to be a place where the value proposition for electrification and the need for a built to suit product offering is really important. So anybody who's got exciting [00:37:00] technology or go to market there, we're always excited to talk to. We didn't talk much about it, but as much as on the structured side, I actually spend probably half of my time on what I call brown to green or repurposing assets and infrastructure. This tends to be more on the turnaround sometimes actually via bankruptcy side, but one of the things we're really passionate about is when you can take assets that have been undermanaged but have potential [00:37:30] use cases in this kind of emerging ecosystem and engage there, whether that's co-locating. For example, we have this investment in a woody biomass manufacturer of pellets, and there's some really exciting opportunities. I'm speaking as myself here, not as a company representative, but I think it's clear that anybody who's got the infrastructure for woody biomass, there's an interesting opportunity to co-locate folks who need to use that infrastructure but maybe [00:38:00] aren't of the same scale or size to have a standalone facility. So how can we go and do that? How can we go and repurpose folks who have existing substations that are underutilized by co-locating batteries or things of that elk? And so that's the place that we spend a lot of time and have a couple of big chunky investments.
Cody Simms (38:21):
John, anything else we should have hit on today?
John Rapaport (38:24):
No, thank you for not asking me about my predictions of what policy changes or tariffs are coming [00:38:30] through. I certainly don't have a crystal ball.
Cody Simms (38:32):
We shall all see, I think is the answer there. I don't think any of us could possibly know.
John Rapaport (38:37):
Really appreciate you having me on and one of the things that we didn't exactly touch on, but one of the things that leaves me really excited about this space, our core focus has always been on places where just the economics work and the fact that there's so many places where the unsubsidized economics of energy efficiency, solar, wind, electric vehicles [00:39:00] in many use cases are just better. Gives us a lot of excitement about the ability to grow and continue to support businesses that have really great returns from here.
Cody Simms (39:12):
Well, I appreciate you coming on and sharing a bit about the uniqueness of what you're trying to do at keyframe. Hopefully it's helpful to people listening who are realizing that they have aspects of their business that could benefit from some capital acceleration that isn't just equity [00:39:30] dollars. And with that, go check out the folks at Keyframe. John, thanks for your time.
John Rapaport (39:35):
Thanks, Cody. Really appreciate it.
Cody Simms (39:37):
Inevitable is an MCJ podcast. At MCJ. We back founders driving the transition of energy and industry and solving the inevitable impacts of climate change. If you'd like to learn more about mcj, visit us@mcj.vc and subscribe to our weekly newsletter@newsletter.mcj.vc. [00:40:00] Thanks and see you next episode.
