Why Circularity Fuels Started with Diamonds to Scale Sustainable Jet Fuel

Carbon

Sep 16

Dr. Stephen Beaton is Co-founder and CEO of Circularity Fuels, which develops compact reactors that turn waste carbon streams into high-value fuels and chemicals. Rather than compete with fossil fuels from the start, Stephen identified high-purity methane for lab-grown diamonds as a beachhead market—where Circularity’s product is 80–90% cheaper than incumbents while proving the core technology needed for clean liquid fuels.

Stephen earned a chemistry PhD at Oxford and built deep expertise in synthetic fuels during his U.S. Air Force career, including overseeing jet fuel quality control in the Middle East and launching the Air Force’s e-fuels program. His insight: build a fuels company that doesn’t begin with fuel.

Today, Circularity Fuels operates demonstration reactors in diamond facilities and is scaling toward biogas-to-SAF production using the same reactor platform. The company has raised $3M in venture funding, including from DCVC, plus $5M in grants from ARPA-E, NSF, and the California Energy Commission. MCJ is proud to be an investor.

Episode recorded on Aug 12, 2025 (Published on Sept 16, 2025)

In this episode, we cover:

[03:09] Dr. Beaton’s background in clean fuels
[07:31] His work with Air Force petroleum in the Middle East
[10:12] A brief overview of hydrocarbons
[13:08] ESAF as resilience for Pacific operations
[16:22] What e-SAF really means and why it matters
[19:24] Circularity Fuels’ origin story
[21:20] The company’s three principles
[23:04] High-purity methane for diamonds as a beachhead
[27:46] Recycling diamond exhaust with microwave-sized reactors
[30:40] Building a fuel company without fuel as the initial product
[34:35] Hardware sales vs metered methane service model
[39:05] Biogas-to-SAF pathway via Fischer-Tropsch
[42:38] Circularity’s progress to date
[44:01] Competing with fossil jet and carbon removals
[48:41] How Circularity secured non-dilutive funding

Cody Simms (00:01):
Today on Inevitable, our guest is Dr. Stephen Beaton, co-founder and CEO at Circularity Fuels. Circularity Fuels develops compact reactor technology that converts waste carbon streams into high-value, clean fuels and chemicals. What makes Stephen's approach unique is how deliberately he's solved one of the biggest challenges in climate tech, avoiding the trap of trying to compete with commodity fossil fuels from day one. Instead, Stephen strategically identified high-purity methane for lab-grown diamonds as a beachhead market, a niche market where his product can be 80 to 90% cheaper than existing suppliers while proving out the core reactor technology needed for his ultimate goal of clean liquid fuel production.
Cody Simms (00:50):
Stephen's path to entrepreneurship is equally considered. He's a chemistry PhD from Oxford who methodically built expertise in synthetic fuels through years in the US Air Force, including a deployment to the Middle East where he oversaw quality control for all jet fuel burned by Air Force aircraft. He later stood up the Air Force's E-fuels program and awarded their first E-fuels contract. After witnessing the Pentagon's interest in distributed fuel production for Pacific Theater operations, he set out with a clear plan: build a fuels company that doesn't start by making fuel. Today, Circularity Fuels has demonstration reactors operating in diamond facilities while systematically scaling toward biogas to SAF production using the same core technology. The company has raised $3 million in venture funding, including from DCVC, where Stephen strategically interned during his MBA plus $5 million in non-dilutive grants from ARPA-E, NSF and the California Energy Commission. MCJ is proud to be an investor in Circularity Fuels.
Cody Simms (01:58):
From MCJ, I'm Cody Simms, and this is Inevitable. 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. Stephen, welcome to the show.
Dr. Stephen Beaton (02:27):
Hey, thanks, Cody. Good to be here.
Cody Simms (02:29):
This is going to be a fun one because of the many founders we've backed at MCJ, I really love your thoughtfulness in terms of how you have gone to market with Circularity Fuels and from where I sit, how you've done a good job differentiating from your initial go-to-market to the larger opportunity that you see and created a through line between the two of them, and I'm excited to explore that with you.
Dr. Stephen Beaton (02:57):
Yeah, excited to dive in today and I think a large part of that is I've spent so long in clean fuels and renewable energy that I've had a lot of time to think about how the ideal clean fuels company in my mind should go to market.
Cody Simms (03:09):
Well, why don't we start there? Unpack a bit about your background and what got you down the clean fuels path to begin with?
Dr. Stephen Beaton (03:16):
I was born and raised in Atlanta and it all started for me on September 11th. That was, I think like many people in my generation, a pretty emotional day and the wars that followed seemed like they were wars about oil, securing the supply of oil and the region that supplies the world with oil.
Cody Simms (03:35):
Well, they were supposed to be about weapons of mass destruction, but I think we know in many cases what they were really about.
Dr. Stephen Beaton (03:40):
Absolutely. My oldest brother was a marine infantry, deployed to Iraq twice, and I just felt like it was nonsensical that we were spending so much blood and treasure on wars while at the same time giving the regions billions of dollars for their oil. I wanted to invent a way to get the world off of oil. As a 10-year-old that was very idealistic. Throughout high school I worked on hydrogen projects for science fair and then when it came time to choose where I went to college, I knew that I also wanted to serve, so join the military.
Cody Simms (04:15):
Can I back you up? You were a 10-year-old doing science fair projects on hydrogen? You're not building fuel cells at your fifth grade science fair, are you?
Dr. Stephen Beaton (04:23):
No, no. That was by 11th, 12th grade dealing with different types of hydrogen production pathways, not too far off.
Cody Simms (04:31):
Do you remember your fifth grade science fair project? Because now I'm curious.
Dr. Stephen Beaton (04:35):
I don't know what it was. I'm sure it was probably like baking soda and vinegar or something.
Cody Simms (04:40):
Amazing.
Dr. Stephen Beaton (04:41):
I've also always been fascinated with explosions and fire and combustion, so I feel like fuels has been a natural fit.
Cody Simms (04:48):
I love it. I'm sure your first middle school chemistry class was a very enduring moment for you.
Dr. Stephen Beaton (04:55):
I remember it fondly. Undergraduate, I decided to go to the Air Force Academy, which both set up my time in military service as well as the fact that it's a great technical university. The other great thing about the Air Force Academy is it's about 45 minutes down the road from the National Renewable Energy Lab.
Cody Simms (05:12):
Colorado Springs, right? Air Force Academy?
Dr. Stephen Beaton (05:13):
That's right. Air Force Academy is in Colorado Springs and National Renewable Energy Lab is in Golden, Colorado. I did internships at the National Renewable Energy Lab throughout my time at the Air Force Academy. Now I started at the Air Force Academy in 2009, so in some ways it was the height of climate tech or Clean Tech 1.0. There was a lot of enthusiasm, a lot of funding.
Cody Simms (05:33):
A lot of biofuel stuff for sure.
Dr. Stephen Beaton (05:36):
A lot of biofuels, a lot of algae, a lot of enthusiasm around oil. At this time we were seeing $140-$150 a barrel, so there are a lot of things that people thought would pencil economically. There was also this theory that we had reached peak oil, that every additional barrel of oil to plug to the ground would be much more expensive and so the price would only go up from $150 A barrel. That's why a lot of this research was happening. Turns out with the fracking revolution and other new techniques to pull oil out of the ground, the price of oil plummeted in early 2011, 2012. So by the time I was graduating from the Air Force Academy, the most common piece of career advice I got was don't go into clean tech. There will never be a future in clean tech. There was a lot of these scientists and former entrepreneurs who were very jaded by the bursting of the bubble from Clean Tech 1.0.
Dr. Stephen Beaton (06:26):
For better or for worse, I ignored them. I got a scholarship to go study at the University of Oxford and I did my PhD in hydrogen catalysis at the University of Oxford.
Cody Simms (06:35):
Your fifth grade self had to be very proud.
Dr. Stephen Beaton (06:39):
Yes. Not only doing science, a PhD at Oxford, my fifth grade self also loved the movie Parent Trap, so the fact that it was in England made it even better. When I went to do my PhD, the Department of Defense was still, I'd say, relatively enthusiastic about clean fuels. Obama used the Defense Production Act to fund three clean fuels companies, Fulcrum Red Rock, and actually a couple of others, giving them multimillion dollar contracts when I was starting my PhD at Oxford. But by the time I finished in 2017, 2018, this was Trump I. The clean tech boom was long over. I still went back to Air Force Research Lab to work at the fuels branch, but instead of working on clean fuels like I thought I would, I worked on hypersonic fuels. Planes or missiles that go over Mach five generate a lot of heat for a variety of reasons, and in order to power those planes, you need a jet fuel that can provide that performance.
Cody Simms (07:31):
Did you expect to go back to the Air Force after your PhD or did you find it as the best place to actually leverage your fuels background from your PhD?
Dr. Stephen Beaton (07:39):
I expected to go back. When you graduate from the Air Force Academy, you owe five years of service. There was no option, they would find me. So I went back to Air Force Research Lab, their fuels branch and worked on hypersonic fuels, inventing novel types of jet fuel for about two years. I then deployed to the Middle East where I led the Air Force's petroleum office deployed lab. Essentially all the jet fuel burned by the Air Force in the Middle East and North Africa goes through a central quality control check lab and I ran that lab for about a year.
Cody Simms (08:09):
Where is most jet fuel produced? I don't know anything about jet fuel refinement or production at all.
Dr. Stephen Beaton (08:16):
You'd think that the vast majority would be produced in the Middle East, but that's generally not true. Some of that has begun to change, but a lot of it's produced in western countries. The US produces a lot of jet fuel. Even countries now like Nigeria will have refineries that produce a lot of jet fuel. Crude oil will be exported from countries that produce crude oil and then it will be refined to jet fuel in the countries closer to where that jet fuel is consumed. There are relatively large refineries obviously in Galveston, Houston, Texas, but also in the UK, in Spain, places that burn that jet fuel.
Cody Simms (08:51):
What is jet fuel relative to gasoline or relative to rocket fuel? What's the spectrum there?
Dr. Stephen Beaton (08:57):
When we talk about hydrocarbon fuels like jet fuel, a lot of it comes down to hydrocarbon chain length. There are other properties of the jet fuel that also matter. How branched those are versus how straight those chains are matter particularly for freeze point or cloud point. But in general, gasoline is a very light fuel, so the hydrocarbon chains will only be between say five and 10 carbons in length. Jet fuel is a longer cut, so typically jet fuel will have hydrocarbon chains between eight carbons and 18 carbons in length, plus or minus one carbon. That's generally the cut.
Cody Simms (09:34):
What does the length of the chain mean?
Dr. Stephen Beaton (09:36):
Essentially the carbon bonds to carbon and then each one of those carbons besides being bonded to one or two carbons bonds to hydrogen, surrounds it. The chain length oftentimes determines things like how volatile it is, so if you leave gasoline out, you can really smell it. You can light it pretty easily with a lighter. If you leave diesel or jet, which frequently have kind of the same hydrocarbon links out, it won't volatilize, it will stay as a liquid and then it's much more difficult to combust. Typically, it requires some form of higher temperature or pressure compared to gasoline, which only requires just a spark.
Dr. Stephen Beaton (10:12):
The Air Force is somewhat of a unique consumer of jet fuel. Most corporate airlines won't store huge amounts of jet fuel. The Air Force does. They always need to be prepared if conflicts break out in certain regions, so they'll have large deposits of fuel and our job is to make sure that after this fuel might've been tanked for 12 or 18 months in a large fuel tank, after you get it, does that fuel still have the same properties that you expect? Does it burn when you expect it to burn? Does it not burn when you hope it doesn't burn? Does it not vaporize too early? And so those were the properties that we were checking of the jet fuel in our deployed lab space.
Cody Simms (10:47):
I can actually envision from my earlier life playing video games, the cylindrical tank things that you would fly over in your video game and try to blow up. Those are the jet fuel storage tanks?
Dr. Stephen Beaton (10:59):
Exactly, exactly. Each one might have between like 50,000 and a million gallons each. They're large tanks.
Cody Simms (11:06):
So you were overseeing this in the Middle East?
Dr. Stephen Beaton (11:09):
By the time I ended doing that, I came back to the US and Biden was president now, and so once again, renewable energy as a solution was possible and there was another driver of needing other kinds of energy. The Air Force was starting to transition away from focusing on the conflicts in Afghanistan and Iraq and instead focusing on near-pure conflicts in the Pacific. The challenge there is a single base is a much easier target than multiple distributed bases, but multiple distributed bases are much more difficult to power. It's difficult to get the fuel and electricity that you need to actually run that base, and so the Pentagon was thinking through how do we actually make this distributed model work? I got pulled from Air Force Research Lab up to the Pentagon.
Cody Simms (11:53):
Distributed in terms of basically the Pacific theater where you've got lots of small island bases, is that the idea?
Dr. Stephen Beaton (11:58):
Exactly.
Cody Simms (11:59):
I used to play Axis in Allies and if you were on the Japan side, that was always the challenge for sure.
Dr. Stephen Beaton (12:04):
That's right. Yeah. That is once again, the challenge today. The question is how are we going to use all these very small islands effectively and supply them with power and with fuel? The Air Force actually hosted their first energy challenge and I got pulled to the Pentagon to help run that energy challenge where we picked different energy solutions that would allow and enable a distributed model. There we invested in different types of energy transmission, but I ended up meeting a core group of people that ultimately led me to stand up the Air Force's ESAF program. Part of what came out of that is you can use nuclear to power the base, but a nuclear reactor might be five megawatts. A distributed base might only use .015 megawatts, so what do you do with the other 4.9 megawatts? And our answer is if you have different types of aircraft, you can capture CO² either from the air with water, you can make fuel, and you could keep planes flying without a fuel transportation chain. We're seeing even in the conflict in Ukraine and Russia, that's one of the biggest weaknesses.
Cody Simms (13:08):
That is the most interesting description of SAF I have yet heard. Sure, it's good because it's not actually based on a fossil fuel, but the driving reason why the Air Force was interested in it was because you could self-produce it out in the middle of the ocean using residual power from the base itself to do so and doesn't require big tanker ships driving materials across the Pacific Ocean to get there. It's not a sustainability story, it's a resilience story really.
Dr. Stephen Beaton (13:39):
It was a resilience story, that is exactly right. The amount of fuel you could produce is still quite low. We're only talking a few thousand gallons a day, but if you look at drones, drones don't need that much fuel. Part of it was leveraging what is the most advanced technologies that we could use to actually enable the concept that we want to help defend the US with?
Cody Simms (13:59):
That's fascinating, Stephen. I don't know that I've ever heard anyone tell that story. Thanks, that's super eye-opening to me.
Dr. Stephen Beaton (14:05):
And we worked with a lot of great companies, some of them MCJ portfolio companies, Air Company was the main performer on that contract and it was really great working with a team. I kind of fell in love with the concept of SAF. There were two things that I thought needed to be solved and one is when a lot of the technology providers we talked with, the value chain was just very fragmented. You'd have one company producing the CO² or getting the CO², one company turning the CO² into maybe syngas another company turning that syngas, which is a mixture of carbon monoxide and hydrogen into Fischer-Tropsch syncrude, and then a whole nother company turning that syncrude into a final sustainable aviation fuel product. Along the way, there were so many inefficiencies, both in terms of cost and energy.
Cody Simms (14:49):
I assume many of our listeners know what SAF or sustainable aviation fuel is, but maybe just describe it quickly for folks who are getting up to speed in that topic.
Dr. Stephen Beaton (14:59):
Sustainable aviation fuel in general, is molecularly the same as regular jet fuel. It has the same carbons, the same hydrogens, the same properties I was just talking about related to jet fuel. Sustainable aviation fuel also has that, but typically it comes from a source that is not fossil fuels. The vast majority of sustainable aviation fuel today comes from used cooking oil that they process and a process that is abbreviated to HEFA and those used cooking oils become essentially equivalent to jet fuel.
Cody Simms (15:28):
For a decade, I drove a Mercedes 300D that actually ran on used cooking oil? I didn't know that the actual HEFA SAF was using kind of the same stuff.
Dr. Stephen Beaton (15:39):
Cody, you were ahead of your time.
Cody Simms (15:41):
These jet planes actually smell like popcorn as they fly through the sky?
Dr. Stephen Beaton (15:44):
By the time the HEFA process over, it shouldn't smell like popcorn, but certainly the processing facilities usually do smell like popcorn or french fries or something. The majority of sustainable aviation fuel comes from those used cooking oils today. Obviously, you can start with carbon dioxide and hydrogen turn that into sustainable aviation fuel. The hydrocarbons are just hydrogen and carbon. Any source of hydrogen and carbon you can make SAF with. You can do that with carbon dioxide and hydrogen or biomethane, any source of carbon and hydrogen.
Cody Simms (16:16):
But ESAF is a different category different from HEFA and is not using this used cooking oil as its base?
Dr. Stephen Beaton (16:22):
That's exactly right, so in general, ESAF stands for electric SAF. The idea is you take electricity, you use that electricity to make hydrogen, and then you combine that hydrogen with either biogenic carbon or carbon that comes from direct air capture. The ESAF just denotes that the majority of the energy in the SAF product comes from electricity in its initial form through hydrogen as an intermediate.
Cody Simms (16:47):
And so for this distributed resilience focused model, the Air Force was more interested in technology development on the ESAF side because again, you're not having to tanker stuff over the ocean to get it to a base?
Dr. Stephen Beaton (16:58):
That's right. We were interested in what could this look like? How much would it cost, how much fuel could you make, how efficient was it? My job was to create essentially gaming cards that you could use in war games and plan future technology acquisitions based on these war games. The organization that I was with at the Pentagon is also responsible for the war games that the Air Force does. And essentially we pretend that there's a conflict in a certain region at a certain time period, and then we use different technologies to see how useful is it, how much more bang do we get for a buck using a E-fuels production platform versus tanking storing fuel in different places and moving it to where we need it? Those are the questions we tried to answer.
Cody Simms (17:42):
One of the challenges with SAF, even most ESAF processes today is you're having to capture CO² somewhere, buy the CO², truck it in. You're not doing all this on-site production, which is exactly what it sounds like the Air Force was trying to solve for, so you have two challenges. One, it's expensive because you have these different supply chain chops that you have to make, and two, it sounds like it doesn't really hit that resilience angle that you are looking for, which is that you can just do it all on site. On the expensive side of the coin, how much does the Air Force care about that? If you're just trying to ensure you have access to fuel for an actual conflict event, maybe cost becomes less of a factor than if you're just trying to solve a commercial problem where you're trying to be a parody with traditional jet fuel? Or not, I don't know.
Dr. Stephen Beaton (18:30):
That's exactly right, Cody. So if you're at a home base in Missouri, you're buying jet fuel on the market right now for $2 a gallon. If you were a base in the center of Iraq and you had to convoy that fuel in, the Pentagon frequently calculated the fully burdened cost of that fuel at more than $50 a gallon because you've got to put convoys together, those convoys have to be protected and something like 40% of all casualties in Iraq were due to water and fuel convoys.
Cody Simms (18:59):
You're saying cost on the just traditional jet fuel side, obviously in a conflict zone goes through the roof?
Dr. Stephen Beaton (19:05):
Yeah, exactly, so if you can get that fuel to a place where it's very difficult to get fuel during conflict, the price that they pay to either fly it in via helicopter convoy it in is fully burdened calculated at around $50 a gallon.
Cody Simms (19:20):
So you have a fairly elastic market in which to operate in from a SAF perspective than it sounds like.
Dr. Stephen Beaton (19:24):
Yeah, exactly. You can be more expensive as long as you can make it work on site. That is really what made me fall in love with the concept of ESAF. The other observation is, as you pointed out, Cody, a lot of the technology to make SAF from CO² from direct air capture wasn't quite commercially ready, and so I also was very interested in are there other feedstocks you can use? Are there neglected waste feedstocks that you can use to make SAF that are cheap and won't compete for electricity in a world that at the time looked like was needing more and more electricity for electric vehicles and other things? Now it's clear that the electricity demand surge is mainly coming from data centers. Are there waste feedstocks you can use instead of electricity to make SAF? So that's why I got out of the Air Force, why I went to Stanford Business School to start Circularity Fuels, which is the company that I founded a couple of years ago.
Cody Simms (20:16):
Did you go to GSB knowing that you had a company idea and just went to school basically to figure out how to be an entrepreneur? Was that the idea?
Dr. Stephen Beaton (20:24):
That's exactly right. I had a couple, Circularity Fuels was my favorite. My first week at Stanford Business School I emailed the CEOs of some of the largest diamond growing companies in the world telling them my idea and seeing if any of them would be willing to pay for some of the R&D or the reactor. I thought because I was sending it from a Stanford email, I'd get a response. Most of them ignored me at the time, but eventually they did respond and Circularity Fuels came to life.
Cody Simms (20:49):
Let's go straight there. One of the things I've found fascinating about your journey and Circularity Fuels is how focused you've been from the start on knowing that you can have an initial market that you know can win while not losing sight of the big vision. So you just kind of dropped to this diamond reference on us, maybe unpack that a little bit. I'm sure everyone listening was like, "Did you say diamonds?" Explain that and we'll move into the bigger vision from there, but I think focusing on this initial first market fit philosophy is a really compelling strategy that I love about your story.
Dr. Stephen Beaton (21:20):
Maybe I'll back up and just talk about when I thought about Circularity Fuels, I really had three principles that I wanted Circularity Fuels to embody. The first is vertical integration. You've got to own the whole value stack. There's so much cost and energy efficiency you can gain when you own all the core processes to turn whatever waste feedstock you choose into fuels. That was one.
Dr. Stephen Beaton (21:42):
Two, we need to meaningfully update the reactors and catalysts that we use. A lot of people who are making SAF are buying these reactors from companies that make large reactors for oil and gas companies and essentially they replace the gas-fired burners with resistive heaters and they call it good. That is not the cheapest way to make electric reactors. You've got to rethink the entire architecture. You've got to rethink the fundamental unit size. If you're building a fossil fuels plant, you can build something that's 50,000, a hundred thousand barrels per day. The largest solar and wind farms typically would only create the same amount of energy content of 5,000 barrels per day, so your fundamental unit size has to be smaller.
Dr. Stephen Beaton (22:22):
The third principle, which is the one that led me to diamonds is fuels can't be my first product. As somebody who lived through Clean Tech 1.0 saw so many biofuels companies go out of business, I think I can say lived through most of Clean Tech 2.0, fuel is a terrible first product. Obviously you have the Air Force, which can be a price and sensitive customer at times.
Cody Simms (22:41):
But you'd be building a defense contracting business, which it sounds like was not what you wanted to build.
Dr. Stephen Beaton (22:46):
You are subject to the whims of the White House. No surprise, a lot of that ESAF work under this current administration has been deprioritized. We didn't want to be subject to those whims and so we thought how do we have a first product that is representative of a fuel that uses a lot of those same principles, reactors vertical integration, but sells for a lot higher price? One of the things I found was diamonds. Lab-grown diamonds start with incredibly high purity methane and that high purity methane costs roughly $80,000 a ton on the open market today. So for context, natural gas costs something like $200 to $300 a ton. Jet fuel will cost a thousand dollars a ton. SAF today will sell for between $3000 and $5,000 a ton. High purity methane sells for $80,000 a ton, so a meaningful premium. A premium that can support creating novel reactors inventing a lot of this core technology.
Cody Simms (23:41):
What's the difference between high purity methane and natural gas?
Dr. Stephen Beaton (23:45):
Natural gas is typically 90 to 95% methane. You might have a little bit of ethane and propane, which essentially are your two carbon molecules and three carbon molecules as well as some amount of nitrogen in the natural gas feed. For high purity methane, it needs to be 99.9999% methane, less than one part per million contaminants.
Cody Simms (24:07):
This is not just coming directly out of the ground. You're having to refine it pretty significantly.
Dr. Stephen Beaton (24:12):
Pretty significantly. You'll have to take natural gas which will have maybe a half percent or a percent nitrogen, and you got to get that nitrogen spec down to less than one part per million, which is incredibly difficult because methane and nitrogen are very similar molecules. They both liquefy between negative 180 and negative 210 degrees Celsius. They're both non-polar, non-charged molecules that are very difficult to separate. That's the core challenge that you have to solve when creating high purity methane. I applied to Stanford and one of the reasons was that they've got a world-class lab-grown diamond facility and that was good for two reasons. One, academic lab-grown diamond facilities are much more open about how they grow their diamonds. If you approach other private enterprises, they're going to be a lot more secretive. It's a lot like semiconductor technology. They don't want to talk about how they grow their diamonds, what their pain points are, but Stanford academics are much more open about that.
Dr. Stephen Beaton (25:05):
And second, Stanford is really pioneering what a lot of people see is the next generation of demand growth for diamonds and that is diamonds and semiconductors, diamonds and power electronics. So diamond is the best thermal conductor known to humankind. People can use diamond as a backing for say a next generation AI chip. That chip will create a lot of heat and one of the big challenges with those chips is you got to disperse that heat and using diamonds for that is incredibly useful. So going to Stanford was an intentional choice because I could work hand-in-hand with that lab-grown diamond lab to understand what are the pain points, how can I solve something?
Cody Simms (25:44):
I don't think you need to justify to anyone why you would go to Stanford, but that is a helpful additional bonus point.
Dr. Stephen Beaton (25:50):
I said I grew up in Georgia and Colorado weather is great, but I was not ready for the cold. I joked that my final degree would be a degree where weather was nice all year round. Stanford certainly fit that bill.
Cody Simms (26:03):
Amazing.
Yin Lu (26:05):
Hey everyone, I'm Yin, a partner at MCJ here to take a quick minute to tell you about the MCJ 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 MCJ's portfolio, 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 (27:07):
You went to school, you had access to this diamond facility. You were going in intentionally to build this business. What did you come out with?
Dr. Stephen Beaton (27:15):
So ultimately we came up with two products. The first product was one that both captured CO² and then converted that CO² to methane, so supplied that methane to the diamond grower. We've seen demand from that. We have had many conversations around that particular product, but where we found a much sharper pain point for a lot of diamond growers is actually in recycling the exhaust from a lab grown diamond machine. Right now, I'll talk primarily about academia. Most lab grown diamond machines, they use less than 2% of the carbon coming in the form of methane ends up in the diamond. The vast majority of that carbon is exhausted out of the lab grown diamond machine, which is crazy because they're paying $80,000 a ton for that carbon, but it comes out in a form that they can no longer use. Instead of methane, it's now a bunch of short chain hydrocarbons, methane, ethane, propane, butane, which are the one through four carbon length hydrocarbons.
Dr. Stephen Beaton (28:14):
A lot of those hydrocarbons, particularly in small lab grown diamond companies can be vented. Larger lab grown diamond companies might choose to capture or do other things with that carbon, but in all cases that carbon is being wasted. That carbon that's very pure is actually not being utilized to its fullest extent. We came and we said, "Look, we can take those carbons and turn all of those carbons back into methane." So essentially we capture all of those hydrocarbons. We first turned those hydrocarbons into syngas, so a mixture of carbon monoxide and hydrogen, and then we turned that syngas into methane, which sounds simple, but there were really five things that make it very challenging. So the first is the reactor we designed had to be well suited for very small gas flows. Most big oil and gas companies make these huge reactors. We needed something that could be scaled down. Second is the reactor had to be small, it had to fit in existing lab grown diamond facilities. That was a challenge.
Cody Simms (29:12):
You couldn't build the equivalent of a giant gasoline refinery right next to this existing diamond facility.
Dr. Stephen Beaton (29:18):
Exactly. You couldn't build a five-story reformer, which is how most people would turn these light hydrocarbons into syngas. There are some small reformers that exist that might be two or three shipping containers. We needed something the size of a microwave. The third one is the reactor had to allow for dynamic operations. These lab grown diamond tools will ramp up, ramp down. You might have a hundred tools on a single exhaust line. Those tools will be coming on and offline and so you've got to handle all that intermittency. The fourth is that the process had to be robust. Each company, each lab, each academic group has a slightly different diamond growing recipe and we had to be able to tolerate all those differences.
Dr. Stephen Beaton (29:56):
The final process needs to create this incredibly high purity product, which is very challenging. We needed very high conversions so that we could get to that 99.9999%. I hired a great team. Cody, you've met my two other co-founders with strong engineering backgrounds and catalysis backgrounds and we invented a reactor that is commercially deployed today doing exactly that. We take this exhaust in a reactor that is roughly the size of a microwave and we recycle all of that exhaust first to syngas and then to methane for lab-grown diamond companies and the lab-grown diamond companies pay us meaningful amounts of money, more money than we can make if we weren't making fuel. That is the technical approach we took to engaging with these diamond companies.
Cody Simms (30:40):
So this is how you build a fuel company without making fuel your initial product.
Dr. Stephen Beaton (30:45):
That's exactly right. We love this because as I talked about the challenges, those five challenges are the same challenges that exist when you're using renewable energy on a farm or next to an ethanol plant to make SAF. Those five challenges are the same core challenges you have to solve with a reactor system, whether you're recycling diamond exhaust or whether you're actually making SAF, and so we thought this was a great way to deploy our reactors. In the world of SAF, financing those plants is incredibly important, and so being able to put the reactors in the field and show that they work in a customer's hand is so important.
Cody Simms (31:21):
So before we dive into how you decided to go attack the SAF space on the synthetic diamond space and you talked about they're currently buying native high-purity methane for $80,000 a ton. I don't know if you want to or can share where you come in from a price point perspective there, but assuming you are at a lower price point for the initial methane that you produce and you're doing the recycling, are you going to put all these high-purity methane providers out of business? Is that a market you can just go win?
Dr. Stephen Beaton (31:54):
That is a market we can definitely go win. The vast majority of people selling high-purity methane are like your Air Liquide and high-purity methane represents such a small business that they don't care, but that is a market we can win. We will be, with both of these products coupled together, 80 or 90% cheaper than high-purity methane derived from fossil fuels.
Cody Simms (32:13):
And is this a big market?
Dr. Stephen Beaton (32:15):
It's a small market. Right now, roughly 30 to $40 million a year of high-purity methane is sold in the entire US.
Cody Simms (32:23):
That's where you said an Air Liquide or whatever ultimately may not even care.
Dr. Stephen Beaton (32:26):
They don't care.
Cody Simms (32:27):
Well, they're going to care. It's still money, but it's not a core business of theirs.
Dr. Stephen Beaton (32:31):
It's certainly not a core business. They might care a little, but it's not enough for them to really fight back. And if they wanted to, we are so much cheaper than any other production process that we have costing power in this market, which allows us to really take the market by storm.
Cody Simms (32:47):
As an early stage startup, obviously gives you a great beachhead to build off as long as you don't get distracted by it, right? If it's not a super big market, you could just cycle and continue to optimize this market and ultimately spend many years owning a market that's not very large and ultimately not building a very large company. You have to find this balance between this first market fit and where you're ultimately going and why and how you're leveraging this first market to get you to the ultimate summit that you want to hit.
Dr. Stephen Beaton (33:16):
That's exactly right. We spend a lot of time thinking about what about this first market aligns very well to our final market and we want to spend a lot of time on, put a lot of attention in. We're talking about getting reactors in the hands of our customers, getting time on stream, getting data from that reactor so that we can show to future finance institutions that this reactor actually works.
Cody Simms (33:35):
You can actually do this with a microwave sized reactor is what you're trying to show.
Dr. Stephen Beaton (33:39):
Exactly. The reactor works and it works for a long period of time that if we have a long-term optic agreement, we know that our reactor works, so that's very much in scope for us. Some of the requests we get from different companies around, "Well, can you make this process tweak or adapt your process to a certain particular peculiarity of our process?" We say, "No, we're not interested. We'll provide the reactor and then you can build what you want around that." Because we're really focused on proving out that reactor providing value with the reactor and showing that it works in route to our long-term market.
Cody Simms (34:12):
In the high purity methane market that you're in today in the syn diamond market, are you just a hardware sales company, you're just selling the reactor to them or are you actually getting into the economics of the fuel that you're creating?
Dr. Stephen Beaton (34:23):
We entertain both models, so we either sell just the hardware or we create the reactor and we put the reactor on site and then we get paid per amount of methane that we provide to the facility.
Cody Simms (34:36):
You can have an offtake if that's the way the partner wants to structure the deal?
Dr. Stephen Beaton (34:40):
Exactly. If they want a CapEx Lite version of their solution, they say, "Hey, we're already paying this much for methane a year. We'll pay you this much for methane a year with a meaningful discount." We can provide that service as well.
Cody Simms (34:51):
Super helpful just to understand the unit economics of the current existing business. Now let's talk about the next summit in front of you.
Dr. Stephen Beaton (34:57):
One more thing on diamonds is it's been really great to for the technology, but it's kind of also a lottery ticket. If diamonds really take off as a thermal conductor for all next generation AI chips, that market grows from being 30 to $40 million a year in the US to maybe 300 to $400 million a year. You've got a real meaningful business in addition to the long-term market, which we think is also an interesting perspective.
Cody Simms (35:19):
By the way, before you go there, just basics of chemistry, E-methane is a gas. SAF is a liquid fuel. They're very different chemical structures.
Dr. Stephen Beaton (35:29):
We thought for a long time about how do you move in the commercial market to methane or renewable natural gas? Do we want to stay making methane at large scale and I think when we initially met, Cody, that was something we were still very much considering. But ultimately what we found is again, the price difference between fossil natural gas at $200 a ton and fossil jet at a thousand dollars a ton was just a meaningful premium that exists for liquid fuels. If we're going to chase a fuel market for our second vertical, that fuel market has to be one where we can come close to competing on cost as well. So that's why ultimately we landed on liquid fuels as our second market and it also helps that if you're going to make liquid fuels, the first step is almost always making synthesis gas or syngas, which is a mixture of carbon monoxide and hydrogen, which is exactly the step we're doing in that second product for diamond growers.
Cody Simms (36:23):
The recycling of the exhaust fuel.
Dr. Stephen Beaton (36:25):
That's exactly right. We go through a synthesis gas intermediate and that's what has given us so much comfort with, "Hey, we can actually go do this. We have a reactor now that's been proven to work for tens of thousands of hours in demanding commercial environments. Let's go chase SAF."
Cody Simms (36:40):
What have you decided to do?
Dr. Stephen Beaton (36:42):
The reactor can start either with carbon dioxide and hydrogen and the reactor could do reverse water, gas shift to make syngas or we could start with biogas, which is a mixture of methane and CO² to make syngas. Right now we think the best market is for biogas. Biogas comes from food waste, from landfills, from dairy manure, from cattle manure. All of this off gases, this methane, which for most of the US it's simply vented into the atmosphere.
Cody Simms (37:14):
Is biogas and RNG or renewable natural gas, the same thing?
Dr. Stephen Beaton (37:18):
Typically biogas is the intermediate, so you have manure that goes into an anaerobic digester that digester puts out biogas, which is 65% methane, 35% CO². Today the vast majority of monetization of the biogas is through RNG, so you take that biogas stream, you separate out the CO², and then you inject that methane into the pipeline and you simply vent the CO².
Cody Simms (37:42):
And you've told me before that the market for RNG is mostly in California. Is that right?
Dr. Stephen Beaton (37:47):
That's right. The vast majority of value for RNG comes from using that RNG in buses and trucks in California and that's because if you use that RNG as a transportation fuel, you get an incentive from the California Air Resources Board CARBS LCFS program, so low carbon fuel standard program and you get an incentive from the Environmental Protection Agency EPA that counts as a biofuel, but it has to be used as a road transportation fuel.
Cody Simms (38:15):
I thought that RNG was blended in with fossil methane for powering heat in homes, et cetera, kind of all over the country. I assume it is, but I didn't realize that the transport side of RNG was this essentially behemoth market for this space.
Dr. Stephen Beaton (38:30):
As the bus and truck market is becoming more saturated, people are moving into the market you're talking about, so blending methane with regular natural gas and using it as if it's regular natural gas, but in general right now the premium for that market is roughly $12 in MBTU, whereas the premium if you can get it onto a bus or truck is something closer to $40 or $45 in MBTU.
Cody Simms (38:53):
You and I are both California residents, we see where our state taxes are going to fund RNG use for transport, which is good. It's clean fuel, but it sounds like California is happy to pay a penny for it.
Dr. Stephen Beaton (39:05):
Yes. The system in some ways has worked because the price of those credits of those incentives is steadily going down as more and more people make RNG. More and more people are trying to get in the market and so they're saying, "I'll sell it for $30 for $25," and so that premium continues to decrease, which was the whole point of the California program to begin with is that as the market becomes saturated, price will go down.
Cody Simms (39:27):
You identified this market opportunity with biogas in terms of who the ultimate buyers of this product are today. Where did that lead you?
Dr. Stephen Beaton (39:37):
Ultimately we saw a lot of biogas developers are looking for another outlet for their fuel. The people who are building the digesters on farm, they want to find a different use case for their biogas besides trying to get RNG into buses in California, and that's where we come in. We say, "Give us your biogas," again, that mixture of methane and CO², "We'll combine that methane in CO² into syngas. We will then make a jet fuel like product in a process called Fischer-Tropsch, which takes that syngas and turns it into a jet fuel like product and we will sell that jet fuel to airlines. Because a natural premium exists between gas and liquid fuels, you're less dependent on the incentives. You're less dependent on the subsidies because we are turning your gas into a more valuable product, which is liquid fuels."
Cody Simms (40:25):
Going back to your initial thesis when you were at the Air Force that got you into SAF in the first place, it sounds like this wouldn't solve the on-base resiliency problem that got you initially excited. It's just that you've now found what you believe to be, I guess an even larger market, which is commercial airline travel.
Dr. Stephen Beaton (40:43):
Yes and no. You're right that most bases don't have biogas, though most large bases do have a wastewater treatment facility that does create a lot of biogas and my head of business development who was in the army previously, he is very interested in saying, "Can you take that biogas and turn it into fuel for tanks and other things?" But more importantly, the same architecture that takes biogas and turns it into jet fuel can also take CO₂ and hydrogen and turn it into jet fuel. The technology is essentially the same.
Dr. Stephen Beaton (41:10):
What we like with biogas is one, there's an even bigger climate impact. We're taking methane that would've otherwise been vented and we're turning it into jet fuel. The actual fuel in many cases is carbon negative because that methane is no longer ending up in the atmosphere. The second is in a world where AI is buying electricity all over the country and driving up the price of electricity, we think biogas is still an underutilized resource. If you look at the price we're paying for the energy content in that biogas and the price for the carbon in the biogas, it's relatively cheap compared to any other source of CO₂ and electricity today.
Cody Simms (41:46):
It's an undervalued fuel source right now in today's market.
Dr. Stephen Beaton (41:49):
Kind of, I mean we also value both components of it. If you're a power plant, you only care about the energy content of the fuel, but we care both about the energy content of the fuel and the carbon content of the fuel because we would have to buy those separately if we were making E-fuels. The best use for any energetic hydrocarbon waste is to turn it into a hydrocarbon fuel rather than just simply burn it for electrons. We can get clean electrons either through nuclear, through wind, through solar batteries, a lot cheaper than burning biogas. Our pitch is give us your biogas because we care both about the carbon and the energy content of it.
Cody Simms (42:25):
Where are you in the rollout of this particular product line?
Dr. Stephen Beaton (42:29):
We started the evolution from just a diamond industry provider to looking at SAF in February of this year. So we designed and built our own Fischer-Tropsch reactor here headquarters in March and started producing our own SAF here on site back in March of this year. We've partnered with a local dairy farm here in California, a dairy farm that was venting their biogas before and right now they compress that biogas, they bottle it and they ship it to our facility where we've demonstrated on real raw biogas from a dairy farm here in California that we can use that same technology that we were using in a diamond context to convert biogas into syngas incredibly cheaply and incredibly efficiently, and then separately show that we can convert that syngas into SAF via Fischer-Tropsch.
Dr. Stephen Beaton (43:17):
That is where we are right now. We have a small demonstration unit that can do up to a half gallon per day here in our facility. Right now we're coupling the syngas generation to the Fischer-Tropsch. From there, we scale up. By December of next year, we'll essentially have a five gallon per day demo, and then from there we'll scale up to 50 to a hundred barrel per day SAF plant in the beginning of 2029. So that's where we are in that product roadmap.
Cody Simms (43:43):
A market question on SAF that I've been trying to understand a little bit. I think you said earlier on jet fuel was roughly where per ton?
Dr. Stephen Beaton (43:51):
A thousand dollars a ton.
Cody Simms (43:52):
And SAF is a couple thousand dollars more than that. Does SAF ever need to hit parity with jet fuel or will the market tolerate SAF being more expensive than traditional jet fuel?
Dr. Stephen Beaton (44:01):
Our goal is to hit parity. The reason why circular fuels exists is that we want to compete with fossil fuels on price. The market question, our belief is that the market will probably always support the cost of fossil plus the cost of high quality carbon removals. The two options you have if you're an airline is we could burn SAF or we could burn regular fossil jet and then pay somebody to capture and permanently sequester that carbon. And the price that I've heard generally floated around is somewhere between $200, $300 a ton is the price of very high quality carbon removals that airlines are confident or permanent, and so if we can be cost competitive with the price of fossil jet plus $200 to $300 per ton of CO² emitted from burning that gallon of fossil jet, we think that the market will always support that price.
Cody Simms (44:51):
That's such a fascinating economic equation for folks to understand, for me to understand, which is you don't have to convert the entire market to a hundred percent SAF if you believe carbon removal can get there. As a SAF provider, you're actually competing against a legacy jet fuel plus carbon removal.
Dr. Stephen Beaton (45:08):
And we think there's a little bit of a premium on that certainty is valuable. And if you burn SAF, you know that that carbon is forever removed. You took a gallon of fossil jet that will never be burned because you burned a gallon of SAF. So we think that our carbon removal equivalent is worth even more than the highest quality carbon removal because you are certain that it's permanent when you don't burn a gallon of fossil jet.
Cody Simms (45:36):
When you burn SAF, you're still re-releasing the emissions back in the atmosphere, but it's a true net-zero. You're not adding anything.
Dr. Stephen Beaton (45:42):
Exactly. It's a true net-zero.
Cody Simms (45:44):
One of the things we've uncovered in this conversation, I think, is you approach these problems with a significant amount of intentionality to them. One item that we didn't talk about was the internship you had while you were in business school, which ultimately led you to finding your initial lead investor. I don't know if that was also intentional or not, but is a pretty clever hack for those who can pull it off like you did.
Dr. Stephen Beaton (46:08):
It was not super intentional for it to end up how it did, but I've really enjoyed my time at DCVC, which is the investor you're talking about. So between the summer of my MBA one and MBA two year, even though I was confident that I wanted to do entrepreneurship, I knew that I wanted to do a venture capital internship during the summer of between MBA one and MBA two year because in a lot of ways VC for people who don't come from the VC world is a black box. It's very hard to know what goes inside, what conversations are had, what criteria actually matter, and an internship at a venture capital firm is a moment to kind of peek behind the curtain, but also then politely close that curtain and go back to your normal life.
Cody Simms (46:48):
You just decided we're all a bunch of jokers is what you just decided.
Dr. Stephen Beaton (46:52):
Certainly there are a number of great jokers that I really appreciate in the VC community. No, I feel like when you're young, it's a great time to build a business. I knew that I wanted do entrepreneurship, but I knew that I would be on the other side of the table from a lot of venture capitalists, venture capitalists that I really respect, and one of those firms is DCVC. When I was at the Pentagon, we worked with a lot of companies that were DCVC backed companies. I really admired the investing approach to actually walking the walk, investing in real hardware, investing in people who put steel in the ground, which is for people who are unfamiliar with the venture capital community, I'd say relatively uncommon. There are ebbs and flows where a lot of VCs say we do deep tech and then maybe not so much, but DCVC has always stood by, they do deep tech, they invest in hardware startups, and so I wanted to see what that investing attitude was like.
Dr. Stephen Beaton (47:39):
I really enjoyed my internship there working with the whole DCVC team, specifically the DCVC climate team. At the end of my internship, we both really wanted to continue working together and DCVC said, "Well, hey, why don't you stay on as an entrepreneur in residence? We'll write you your first pre-seed check. We'll start paying you a full-time salary to help us with technical diligence around different climate companies. We can keep this relationship going." They've been incredible backers since day one. They're also very familiar with a lot of the advanced semiconductor work going on in the diamond space, and so they were relatively bullish on that market as well, and so it's been a very natural fit. They've been great partners.
Cody Simms (48:18):
That's great. Well, I had Zack Bogue on the show a few months ago, so for folks who want to hear more about what DCVC does and how they approach deep tech, particularly on the climate fund side, definitely go listen to that one. The only other thing I think I would want to dig into a little bit is you've also done a pretty bang up job securing non-dilutive funding for Circularity Fuels, and I'm curious how you've seen that evolve as the federal government has changed around us too. I know there've been some challenges there for who have relied on federal funds in some cases. I think you've done a good job also unlocking state funding and some other grants, so maybe share a little bit about that side of the journey for you.
Dr. Stephen Beaton (48:59):
So we've raised about $3 million in venture capital money and received about $5 million in non-dilutive awards from both federal entities like the National Science Foundation, we were announced as a selectee for an ARPA-E award, and also an award from the California Energy Commission. From our perspective, we always thought that was going to be part of the plan. We think it's hard to scale a deep tech company well with just customer revenue, particularly at the beginning. You need those grants. We think two things have helped us be quite successful. The first is we have this dual track. We have both the climate impact where we can apply for climate grants for the climate technology and the application thereof, but we also have a non-climate related diamond story. Diamonds, a lot of people think will be that thing that unlocks next generation semiconductors.
Dr. Stephen Beaton (49:50):
And so as the administration switches, the climate story starts to become deprioritized, it's more about how do we actually help American lab-grown diamond companies lead the world in semiconductor technology. Because there are some real unlocks that can happen for a lot of very important companies, very important mission sets within the US if we can lead the world in diamond semiconductors and we see our technology as a core enabling component. And the ability to switch between those vocabularies has been very helpful as we write grants between administrations, and that was always part of our strategy is can that first market serve both as a way to prove out the technology but also to serve as a counterpoint for people who don't care about the climate?
Cody Simms (50:35):
How have you avoided getting pulled in too many directions?
Dr. Stephen Beaton (50:38):
We like to focus on one thing and win there. For the first year and a half, we were very focused on winning in the diamond market. Our head of business development probably knows more about the diamond market and a variety of growers than anybody else in the world. Really trying to keep our heads down, work with academic labs, and oftentimes investors would ask about the future and we might not have great answers because we were very focused on that first market. And we were able to tie a bow on that. We know all that we want to know, we're engaging with the customers we want to engage with, and now we're a hundred percent on SAF, engaging with airlines, engaging with different potential feedstock providers for biogas and really becoming a part of that community as well.
Cody Simms (51:18):
From a customer discovery and learning perspective while you're still able to execute the diamond business is what I'm hearing.
Dr. Stephen Beaton (51:23):
That's exactly right, and in terms of technical, a lot of our technical folks know the big picture, but it doesn't impact them on their day-to-day. When they're making a reactor. That reactor could go to a diamond customer or that reactor could go to turning biogas into syngas. That doesn't impact how they do their everyday work, and so that minimizes the impact of this dual track strategy on the core engineering team that's actually doing the work.
Cody Simms (51:48):
And to go fully circular on our conversation about Circularity Fuels, is there a DOD pathway for you? Will you build for the Department of Defense in the future also?
Dr. Stephen Beaton (51:58):
We will certainly build for the Department of Defense if we feel like there's a good fit. One of the things that we also explore is rocket fuel RP-I, which is the rocket fuel used for Falcon nine for a lot of ULA launches is very similar to synthetic jet fuel. So the main difference between jet fuel and rocket fuel is some of those branches in the hydrocarbon chains that jet fuel naturally has and rocket fuel doesn't want to have as well as how much sulfur is in the fuel. But our synthetic fuels are clean and close to rocket fuel to begin with. So that's one way we think that there could be a natural fit in the short future, and certainly in the long-term future as we compete with fossil jet on price, we would love to engage with the DOD some of my old former colleagues and provide jet fuel because fighter jets are probably one of last things that will go electric.
Cody Simms (52:49):
Stephen, anything else we should have chatted about today?
Dr. Stephen Beaton (52:52):
It's been a fun journey. We look forward to holding some really cool carbon negative diamonds in our hands and decarbonizing some flights.
Cody Simms (52:59):
Well, we are proud to be investors in Circularity Fuels. Appreciate you for joining me on the show and explaining a little bit more about what you're doing and looking forward to those milestones too.
Dr. Stephen Beaton (53:08):
Appreciate it, Cody. Thanks.
Cody Simms (53:10):
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 at mcj.vc and subscribe to our weekly newsletter at Newsletter.mcj.vc. Thanks and see you next episode.