Dec. 7, 2022

Ep109: Ion Yadigaroglu and Dipender Saluja 'Technology Investment and the US Inflation Reduction Act'

Dipender Saluja and Ion Yadigaroglu are Partners at Capricorn Investment Group. Capricorn is a sustainable investment group, one of the largest mission-aligned investment firms in the world, and our sponsor on Cleaning Up.

Dipender Saluja is a Partner of Capricorn Investment Group, and a Managing Director of Capricorn’s Technology Impact Fund. Prior to Capricorn, Saluja was Chief of Staff at Cadence, a global market leader in electronic design. Prior to Cadence, he worked at Data General (EMC), Honeywell, ROLM (IBM), and the GF Energy Research Center. Saluja is an electrical engineer by training, and attended UND, University of Minnesota and Stanford University.

Ion Yadigaroglu has been Managing Partner at Capricorn Investment Group since 2004. Prior to Capricorn, Yadigaroglu was Director of Business Development with Koch Industries, and a Founder and Chief Executive Officer at Bivio, a software startup in Colorado. Yadigaroglu was a research fellow at Columbia University and holds a master’s in physics from ETH Zürich in Switzerland and a Ph.D. in Astrophysics from Stanford University. Yadigaroglu was a founding member in 2007 of GIIN, the Global Impact Investor Network.

Capricorn was born from the desire to demonstrate the huge investment potential that resides in breakthrough commercial solutions to the world’s most pressing problems, and as such is one of the original impact investors.

Apple Podcasts podcast player badge
Spotify podcast player badge
Google Podcasts podcast player badge
Overcast podcast player badge
PocketCasts podcast player badge
RSS Feed podcast player badge

Read:Edited Highlights: CLICK HERE


View: Relevant Guest & Topic Links:

Ion appeared on Episode 89 of Cleaning Up: CLICK HERE

Take a closer look at Capricorn's portfolio: CLICK HERE

Watch Episode 84 with Mark Carney here: CLICK HERE

Watch Episode 48 with Lord Stern here: CLICK HERE




Michael Liebreich So Ion, welcome back to Cleaning Up and Dipender, welcome to Cleaning Up.

Ion YadigarogluThank you, Michael, very excited to be back here with you.

Dipender Saluja Good to be here.

MLLet's start if we might... Ion, you were on Episode 89, which was part of the last series. But if you could just remind everybody who you are, because we've got a lot of new listeners now I'm glad to say. And then I'll turn to you Dipender, and you can give us your sort of thumbnail sketch and bio; I always like to get that in your own words, because I'll just kind of get it wrong. Ion, you start.

IYWell, I'm a partner at Capricorn, and also a co-GP of the Technology Impact Fund with Dipender.

DSLikewise, we're partners at Capricorn, and managing the Technology Impact Fund as co-GPs. I'm based in Palo Alto, and Ion is based in New York.

MLDipender, give us a little thumbnail of your background. How did you get there? We already, for those listeners who want the same for Ion, they can go back to Episode 89 and do a deep dive, but what was your trajectory to end up applying this sort of capital to this particular set of problems?

DSSure. So this September, I just completed 35 years here in Silicon Valley, within a couple of miles of where I'm sitting today. And the first half of my 35 years here was spent in the semiconductor industry. I started working in the semiconductor industry a few years before that, did a variety of things in semiconductor physics, and then chip design, and then software for chip design, and kind of came full circle. And after doing that for, you know, decade and a half, for change, thought a lot about what was next. And we had spent a lot of time having fun building technology companies, for the sake of, you know, technology. And one thing that was glaringly obvious was the gap between what we were doing here in Silicon Valley, and some of the big, heavy industries, like energy like transportation, like space, healthcare, food agriculture. And at the same time, we were seeing these huge problems looming with, specifically, things like energy and food. And there was always a metaphor that was developing here at that time, which was, if we could marry those two, imagine what would happen with industry at large. And Ion and I had known each other for a couple of decades at that point, had known each other for a long time. And when we put our heads together, this idea of investing in companies, in energy, in transportation, and marrying those ideas with semiconductors, with software, with power electronics, with sensors, that whole gamut of technology that we had developed for years in Silicon Valley, and Silicon Valley was very good at, was clearly a big opportunity.

MLWhich year did the two of you combine forces? When did you make the jump into the climate transition, the environmental space?

DS2006 if I remember correctly, I think we started talking in like 2005, and 2006 we started working together.

MLSo now, I go back to 2006, and you are not the only Silicon Valley VC who jumped the divide, who decided they were now going to try and save the world. Very famously, of course, John Doerr, Kleiner Perkins, very famous - and very emotionally - decided that he needed to apply his skills to this space. But very, very few of those people who jumped the divide have been successful. Why? Why was your trajectory.... What was it about your background that helped you to avoid the mistakes that were made around 2006, 2007, when vast amounts of capital was squandered?

DSWell, you're right, in that there were a few people doing this. And by the way, you mentioned Kleiner; one of our early investments was, no surprise, a syndicate along with Kleiner, as well. But from a pure focus on this space, it was a pretty lonely world, there were a handful of firms doing it. And we all, you know, we all talked a lot of that time. What you're referring to, I think, primarily, is the fact that there were a lot of generalist VCs coming off of the successes of the .com boom, that also decided to dabble in the space. And there were several who were doing, you know, 80%, 90% of what they were doing, what was core to their thesis, and then would do a couple of investments in the space, because for a lot of people, the opportunity, the big opportunity was attractive. And, and I mean, there was no doubt that yes, if you could, if you could change the automobile industry and build a new car company, that was going to be a big opportunity, it was just a question of what the approach could be, and how do you do it? And Ion and I always thought, you know, coming at it from a technology-centric, technology-heavy, differentiated technology point of view, was the approach, and approaching it with that lens, and doing the work to find those companies and find what would indeed be the special magic, and special sauce that would that would make these companies successful, and do things in Silicon Valley almost for the first time. If you think about it, 15, 20 years ago, and you go back and say, the world needs a completely new car company, very few people would have told you that would happen in Silicon Valley. To us, that was kind of obvious.

MLThat's so funny, because I had a conversation with Ira Ehrenpreis, who was one of the other early venture investors in Tesla. I actually had Nancy Pfund on this show as well. But my conversation with Ira back then was, you're mad. You're a Silicon Valley venture investor, what do you know about car companies? There have been no new ones, this is completely ridiculous... And I had that conversation with him a number of times saying, okay, fine, I was wrong, you were right; sell everything, though, and get out while the going's good. And he always said, no, no, you don't understand. And of course, I was just serially wrong on that one.

DSYeah, and you know, Ion and I spent a lot of time on the plane those years; we made many trips to Europe, to the automotive centres of Europe, to the automotive centres of America, to the automotive centers of Japan, and met with a lot of the senior leadership at the incumbent companies at that time. We even did multi-day off-site in a beautiful automotive design center in the mountains of Austria, with one of the one of the most storied automotive companies. And when we talked about what we were thinking of building; in that case, it was a specific car. After, you know, an hour or two of us presenting our ideas, we got this team glaring at us, and you know, very pointedly - and I won't attempt an accent here - asked us if we were trying to build a car or a computer. And we said, well, it has to be a combination of both. And they said, we build cars, we don't build computers. And that was kind of, you know, that was in 2007, if I remember correctly, Ion. And so, that was sort of the essence of it. And as we met some of the senior leaders, they all said it was a good idea, but you could tell they had no intention of doing it, because why do it, right, if you're in their place? And so when we came back, it wasn't that other folks couldn't do it, or other regions couldn't do it, or other companies couldn't do it. We could just tell that they weren't going to do it. And so, maybe it was, it was Silicon Valley that had nothing to lose by turning that status quo of automotive upside down.

MLThere is such a strong resonance there with the experience of one of the very early guests on Cleaning Up, Bertrand Picard. He and Andre Borschberg were the two guys who flew around the world in the solar aeroplane, and he talks on the show about how, when he first wanted to do this, and he went to see Airbus and said, this is what we want to do, will you work with us? And they said, absolutely not, because it's impossible. And you know, you're just going to crash, and it's really bad, absolutely not. And so, he needed to assemble an alliance from outside the aerospace industry, in order to do this thing that all of the incumbents, you know, thought was impossible, or possibly thought was possible, but had no interest whatsoever in actually doing; now, of course, they've all got these huge programs for net zero aviation, electric aviation, and so on. I still... I'll come to you, Ion. Around that same time, though, what most of the storied VCs did was, they went into things like non-silicon based solar - so companies like Solyndra - and they went into next generation bio-fuels. And you went into... well into Tesla, and a bunch of other things. So there's still... I'm still looking for the kind of... why were you seeing the world differently? What was it that you saw that enabled you to have these very successful, such a successful portfolio?

IYWell, I don't think you... By the way, you asked… you didn't phrase the question right the first time around, because you said, how did a VC get into these things? Neither one of us were venture capitalists - certainly not generalists. So Dipender had, was coming out of 16 years at Cadence, which is, you know, the core tool to design semiconductor chips and lots of other things since. And I was an astronomer who had spent a couple years investing and doing M&A in heavy industry, petrochemicals, things like that. So we had this big pile of money to deploy, and we had been trained and brainwashed in the Stanford kind of area, and with all the entrepreneurs around. But we weren't trying to just find a new flavor of VC, right? This is the plan that we embarked on, and it wasn't... It was, how do we make huge money, huge success, and fix the world at the same time? It wasn't how do I create a better venture fund? And so I think that gave us some insights and some emphasis that others didn't have. And as we've talked about, and many others have, I think, in this space, it's really powerful to marry the technical expertise with the investment acumen; it's very tough to make good decisions if you're a generalist. I'll also tell you, by the way, just for fun, we love Ira, we've invested in quite a few companies with them. We actually invested in, one round earlier in Tesla. We wrote a very similar check; I think it was at Series D. And like all the VC in Tesla, they distributed shares in their entirety, post-IPO. Not necessarily a day after, but let's say within a year. What he was really smart... he's a very smart guy that's done a lot of great things for Tesla and others, but what he did is he never sold his board shares. And that ended up being worth like, I don't know, $700 million, I think, down the road. So that was a really extraordinary record as a board member of Tesla, and of course, all the ups and downs including all the litigation that's ongoing today. So the poor fellow has been drawn in to every problem that the company has faced.

MLHe's not been drawn into the whole you know, Elon does Twitter and etc., problems which...

IYHe's got all that fun; he's handled comp packages, the SEC settlement, he's had to handle all that stuff. So he's been, he's certainly been rewarded for it, but there's been a cost.

DSOn your brand question, there is one other point to make which is, you know, coming from the semiconductor industry, we were used to chips doubling in performance every year and a half, couple of years; you know, the famous Moore's Law. And, you know, when people hear Moore's Law, they think it's maybe something, you know, that's a law of science; it was really an observation, but it turned into a law, because it was almost that predictable. But if you think about it, when you look at the energy industry, at that time, and most of it even today, if you look at automotive, you know, these were primarily - and this is a much longer conversation, but just, you know, to use a few words - it's bending steel, and combining it with other materials, and then process engineering, all of what goes into building large plants for machines. None of those really had that Moore's Law, approach or benefit. So, one of the things that was really the magic, and that then unfolded over the last couple of decades, and we hope for, you know, several decades going forward, was that marrying of a Moore's Law concept - literally and figuratively. Literally, because you were introducing semiconductor content. I'm sure some speaker on your show has told you the increasing cost of electronics in automotive, and the increasing share of electronics dollars in a car. That's not by accident, that's because of increasing semiconductor and technology share. And that has come in at almost every layer of the car. And there's a bunch of it, that was irrespective of whether they were electric cars, or internal combustion engines. But then the essence of what was in electric car was really the power electronics. And that power electronics, that was introduced in these cars, came out of decades of development in the "pure traditional semiconductor world," and that has almost gotten amped up, you know, several orders of magnitude, since electric cars, and then other electric drive propulsion systems and power conversion systems, whether in automotive, or solar, or nuclear fusion, and on, and on, get developed. And so it was... there was a literal merger of the traditional industries with semiconductor and software. And then there was a figurative one where, once that started happening, people got spoiled by the speed of innovation. And by the speed of all the advantages of that innovation, and having that unreasonable expectation of the speed of how things should innovate. So, that got translated even into unreasonable ways of building cars and saying, you know, we're not going to go in with a piece of paper that has a starting date, today, and an ending date, fifteen years from now, because that's how you start thinking about building one of these products; you took pieces of paper that said, I'll have a starting date of today and an ending date of three to five years, instead of ten to fifteen years. I'm just using a broad brush here, but that change of mentality meant people started thinking about different ways of doing things, and saying, it's not okay to say, just because we've always done it, that it's going to take us as long to build a new car; we'll do it in half the time. Or anything else for that matter, whether it was a power plant, or a car or anything.

MLWhere I came across this... this came home to me when I was on the board of Transport for London, and we were spending plus or minus ten billion pounds a year on everything - capital costs and running costs. And I asked, how much are we spending on IT programming anywhere in the business, and they didn't know. And they came back and they said £300 million, and I said, well, how much are your contractors spending? Do you include that? And they said no. And I said, well, then that's the wrong number. And eventually we found that it was something like one billion pounds; so, 10% of everything was actually IT, and not one person on the board, and not one person in senior management had ever done any programming, or managed any programmers. And so for me, it was the same thing. There's this kind, software eats transportation - software or silicon and software - eats cars, it eats the value-add, you're right.

DSYeah, and I think the whole genesis of software eats was all inclusive; it was all of this approach for technology, because at the end of the day, the software needs appropriate hardware to be able to eat anything. And so, the combination of the two... But in our case, there was an even more direct application of that hardware, right? Because it also meant, what happened to the power electronics, what happened to the drivetrains, what happened to the conversion systems, and on and on and on?

MLI want to get to this hardware question, but to look at it through the frame of the capital markets, the whole capital stack, because, you know, there's the venture investment, but then, in every case, anything to do with, particularly with climate change, it's stuff that emits - it's not the software, and it's not the silicon bit, it's not the silicon value add - it is the infrastructure, the vehicle, the heating system, the industrial system. And those do tend to require - well, they do require - vastly more capital than the VC bit, or the technology development bit. So you need a kind of bucket chain of all the different types of capital, and... I want to talk to how that bucket chain gets assembled, and then we'll get on to how that's now being, in a sense, hacked by the US Inflation Reduction Act, and by other policy interventions around the world. So, if we can move on to how that stack gets assembled, and maybe, Ion, you and I have spoken about this in the context... In fact, on the earlier show, we sort of promised, I promised I'd get back to you to talk about whether ESG is a sufficiently powerful tool to get that whole capital stack realigned around these solutions that we're talking about.

DSWell, of course not. Did you want the long answer?

MLI was hoping you would elaborate rather than give the summary of several conversations we've had...

IYYeah, look, I try to not spend time being negative, but focus on the positive. All these things have some role to play. So, I don't mean to be unduly harsh, but no, the effectiveness of big amorphous frameworks like ESG ideas to actually result in a coal plant getting shut down, is slow, indirect, and very unsatisfactory. Absolutely. And we've been much more excited about more direct mechanisms to get stuff done. And you're right, that this is a... Look, I've been obsessed for, literally for - I don't want to exaggerate - at least 20 years with, okay, we can invent a technology... Look, all of us here are either engineers or physicists; we all love talking about, you know, what new things we can build, and with what new technology, and that's where all the hope and excitement is. But coming from it from the totally opposite side, the world needs to do tens of trillions of infrastructure with this new tech, and needs to do it within 20 year - never been done before. It's a big chunk of all the money available in the world, has to be deployed in a very short amount of time to build new, clean and green infrastructure. And so, yes, our work at the opposite end, it starts in one side with chemistry and physics and engineering in a lab. But it very quickly has to connect with many trillions of dollars of sovereign, retirement system-type capital in the world that needs to go and build tens of trillions of, in the end, low-risk, boring infrastructure. And if you don't understand how those two worlds are going to connect and connect really fast, then we're screwed. Sorry, we're not going to solve the climate problem.

MLMy guest on episode 84 - so just five weeks before you - was Mark Carney. I mean, he went off to Glasgow, he assembled a coalition of $130 trillion. Then he's just saying, look, Ion, here's the money. These people have said they're going to invest, so why is there still a problem?

IYYeah, so, so he's been very, very visible, very influential, and I've met him a bunch of times, as you know, a very nice fellow. But I think, yeah, I think that effort has not done what it needs to do. And I think it's for really simple reasons. So, of course, the last couple of years, to oversimplify, have really been channeled into this idea of net zero. And then to the idea that if we build this giant coalition of investors, shareholders that ascribe to net zero, and CEOs ascribe to it, that there's going to be some kind of virtuous cycle that makes it all work. But you know, the promoters, the key people behind net zero, are all in the end coming from the financial management of either the banks, or the large sovereign funds, or the large asset managers. And it's really, in the end, a framework designed to deflect from the need for regulation, in my opinion. So, it's designed to be a voluntary framework, so we don't have to get more serious about things that might be harder hitting. And it's very deliberate, in that it has really no impact on money. What it is, it's supposed to be a cheerleading function, maybe a policing function over time, although that's not the case yet, that tells CEOs, you better sign up for net zero by you know, 2050, hopefully, earlier, 2030, 2035, whatever you can do. And over time, we're going to complain more and more bitterly if you haven't signed up to a framework, and if your framework isn't real. But over the next years, it has no real consequence for those who hold a whole bunch of money in their bank account, or it's their job to deploy and allocate that money. It's designed to not have that impact. And so of course, it's not actually in practice moving things forward. And a lot of CEOs that I meet are pretty irate that the trillions of money in the world has signed up to being a cheerleader and a policeman. They're the ones that have, you know, 100,000 jobs each and operating on 3% margins, and they have to somehow magically decarbonize. And there is no real, you know, there's no... net zero does not result in them getting access to cheaper capital, or free technology, or anything like that, right? It's just all supposed to happen magically.

MLWhen you said, it’s a mechanism, net zero is a mechanism to avoid regulation - I think that's the words you used - what is the regulation that fixes it? Is it financial regulation? Or is it regulation in the real economy? Or is that not the right... Are neither of those the right answer and something else is?

IYLook, I think that, I don't want to repeat the thing that everyone has said a thousand times that's very true, that America always does the right thing, after having tried absolutely everything else. But in this case, I think it's true. I think America in the end has figured out that the right way to tackle this is through something that's like the IRA. By the way, there is a definitive answer, which is it's called the IRA and not the I-R-A. I heard you say I-R-A before - I think it's now definitive, it's IRA.

MLBut we also need... I forgot to warn you, before we started, I have an Acronym Klaxon - it's not a real one yet, I must get one - because not everybody will know what IRA stands for.

IYThe Inflation Reduction Act. If you say IRA, is it still an acronym? Because I'm not actually saying the letters.

MLThis is a good and complex discussion because of course, over in the UK, we always hesitate before saying the words, IRA, because of the connotations of the Troubles, and so on. So, I love the idea that I can now call it the IRA, because I don't have to then hesitate. So it's the IRA, the Inflation Reduction Act, and you played a role in its creation, if I understand, at least behind the scenes? And you're now going to tell us why it sort of breaks this deadlock that I posed, the conundrum that I posed, you're saying, no, the answer is something different.

IYYeah. So if you want to do this unnatural act... I mean, the world would end up electrifying, decarbonizing either way, right? The problem is that we have to do it so fast. And the world has never done anything this fast before, not even close. So, again, something like 10%, 20%, 30% of all money in the world has to be redeployed in the span of 10 or 20 years to build new stuff, right? That's just this astoundingly difficult challenge. And it's all possible, it's just that you have to invent new mechanisms to do it. The normal mechanisms weren't going to work. And there are different approaches, but certainly, for instance, Europe has tended to veer towards regulation. That sounds like you know, a bad word - you can write good regulation, essentially, laws that tell people that they have to comply with higher and higher standards of things like carbon footprints, or whatnot. You know, the American approach in the end has mostly been, ever since this was signed, to focus on stimulus in the right areas; subsidy to the right critical industries. And so largely - there's bits and pieces of things everywhere - but largely right now America has a giant subsidy regime for the critical climate technologies. Europe is largely still stuck trying to do some regulation around key industries. And you could have imagined there being - and I still think there should be a role for regulation in how money is allocated and invested - but really net zero has deflected the attention from that. So, largely in the world, there are no regulations related to how money has to be used, even though we know that money has to be used in a way that is completely different than it has been ever, right? There's been no mechanism... There's only $250 trillion, maybe, of investable capital in the world, most of it in sovereign systems and retirement systems, a little bit in insurance float, and even less in terms of family savings, and individual and corporate wealth. And a huge chunk of that has to go build stuff tomorrow, the next 10, 20 years.

MLIon, every economist - including Lord Stern, who was also a guest on this show, Nick Stern, a good friend, going back many years - every economist will tell you the answer is a carbon price. And the EU with EUETS did a carbon price; Canada has innovated and has got this kind of carbon tax and dividend, which even allows it to be politically acceptable. So why is that not the right answer? Why are you excited about the IRA, but you're not mourning the fact that you don't have a carbon price?

IYYeah, I think that, you know, I'm the kind of person that usually makes that mistake, because we're nerds, we think with our brainy heads, what should it be, as opposed to what actually works? And we've known that the carbon price has been a really difficult sell everywhere, and for a very long time. Now, could that change? Maybe. But when something isn't working for human reasons, political and other human reasons, well... move on. Let's do stuff that actually works. And I think that's where the genius of the IRA has come in. So you, you gave me an excuse to take some credit for it, so I will, but you know, as I said, I've been really worried, concerned about this, thinking about how we can solve this. And to make matters worse... For a very long time, right? Certainly, 20 years, let's say. And when you talk to Stern or other really wise people, and you say, well, they must have a plan - well, no one's had a plan. There's really been no plan. And the bits of planning that might have happened before 2009 were all wiped up out by the financial crisis in 2008/9. After 2008/9, it's become impossible to talk about large scale financial mechanisms to do things, because the world almost disintegrated into protectionist thinking, because, you know, money was going from Germany into Ireland, and from Germany into Greece, and from, you know, certain states in America  into other states that were affected differently by the financial crisis. And ever since then, looking at these kinds of huge flows of capital to fix a problem, has been politically and societally unappealing. People just don't want to do them, and so you have to find other ways. And the genius that we've had here with the IRA - and this was deliberate - was to say, look, we just have to tie it to jobs. And we have to tie it... So, you take a list of where is the world going to create the most jobs? What 5, 6, 7 industries are going to create the most jobs over the next couple of years? Next, let's say 20 years. And they have to be good jobs; they can't just be service jobs or installation jobs. They have to be real jobs, you know, blue collar, manufacturing, bending steel, like Dipender said, kind of jobs. And then we're going to tie all of that flow of money to that. And that is what makes it acceptable and appealing. And even more extraordinary, is that I think it's the only chance we have of tackling the cross-border version of all this, because most of that money, most of those tens of trillions today are in places like America, Europe, in Japan. And it mostly needs to end up in places like Indonesia and Nigeria. And, if you thought it was hard enough to come up with climate finance solutions in our own countries, it's beyond depressing when you think about how to do that, between, let's say, America and Nigeria, okay, or whatever pair you want to take. And so the extraordinary thing about the IRA, is that it also allows for that, right? The IRA subsidizes the factory, and once it starts producing, it subsidizes the products leaving that factory, and does so to a huge degree. Batteries, about a third of what a battery costs today, is just paid for by the American government. And you can just turn around and ship that battery to Nigeria, no problem - you get the money either way, as long as the jobs in America and the supply chain that fed up to that factory is increasingly American. And so this is gonna become the largest cross border financing mechanism ever.

MLThat's a really fascinating insight, that there's going to be, essentially, the US is going to be subsidizing factories and production using, essentially through tax breaks, but the output will go off into the developing world; will go everywhere in the world, frankly, it doesn't matter where it's going to. But it is conditional on the recipient country, for instance, in Nigeria, being able to buy that battery.

IYSure, but if the battery is half the cost, you're helping them.

MLYou're helping them, but the net flow of capital, of cash is going from Nigeria to the US, is it not?

IYAbsolutely. So, you kind of have to divide the world into two types of countries: countries that have ambition to win in these sectors, and countries that frankly, don't. And was Nigeria ever really going to become a global center of battery manufacturing, or EV manufacturing, or solar cell manufacturing?

MLNot batteries or EV, but certainly... I haven't looked at the data, bet I you they have the precursor materials, they've got the minerals, they've got all sorts of things. And they've certainly got the energy required - the wind and the solar and the geothermal, whatever - to supply battery manufacturers elsewhere.

IYYeah. So look, if... Again, you're putting back your engineer's mind on... If you could reorder the world and say, let's be fair, and as efficient, and as optimal as possible, then that's what should happen. I think that's actually the wrong answer. We don't have time to do all that. We have to do unnatural acts.

MLLet me just bring Dipender in. I want to come back to some of these questions, but I want to bring Dipender in... You're working, presumably you work closely with your portfolio companies, you certainly talk to the executives all the time. What has been their response? I just want to get... Have you got any kind of concrete examples of a company that was going to do x, and now because of IRA, they're going to do y? To confirm that it is going to have this kind of open checkbook impact on their investment plans?

DSSo yes, first reactions pretty much across the board is how do we accelerate building? And again, if you go back to, you know, the start of the discussion, and what was happening a couple of decades ago; almost always the biggest risk of any of these new companies being able to progress to the next stage was financing, and financing primarily to cross the chasm - to use another Silicon Valley term - which is, how do you scale from innovating to manufacturing and then scaling manufacturing and delivering the product? And so it's having that desired effect, which is all of these companies are accelerating their plans to manufacture the product, as opposed to wait for years to figure out how all of that patches up, or take baby steps, when indeed the world is ready for the product at scale. And so to answer your question specifically, yes, the executives and the companies are putting their heads together and saying, how do we how do we deploy faster than we had planned? Because that long tail, or the long pole in that tent, of capital, availability to manufacture, may now be available better and faster and frankly, cheaper.

MLHas the telephone been ringing off the hook with European companies saying, would you like to finance, we're thinking of actually building a plant in the US, or moving our headquarters to the US, but obviously, that requires another fundraise? Are you hearing those sorts of inquiries?

DSSo, you know, for us where our tool is primarily venture capital - and by the way that includes growth capital - we're not the people that a large, established, industrial tech company will call and say, are you interested, right? So we would hear from startups. And over the last, you know, decade or so, many of the companies that are doing a lot of work in this space that we're familiar with, primarily happen to be US-based as well. And a lot of them happen to be right here in Silicon Valley.

MLThe reason I ask is because, sitting here in Europe, I know of a number of companies that are actually facing that crossing the chasm challenge - or the Valley of Death, whatever you want to call it - moving from innovation to manufacturing. And quite a few of them are wondering whether their future actually is in the US. Sorry, repeat?

DSYeah, no, I was gonna say, to me, actually, one of the better outcomes of this would be every region decides to go forward and accelerate the manufacturing of these technologies in the way that the IRA bill promises to do. And then you even remove the next layer, which is: we need every company and every industry in every part of the world to act and accelerate and scale this decarbonisation, moving to a better product. And so, I don't think any of...  I mean, it's wonderful that we can address this with a bunch of companies. But I don't think our desire is to say, let's address this with companies here within, you know, a 500-mile radius of where we're sitting, and then maybe ten years from now companies outside of this area will start doing this.

MLRight.... But, that brings me to some of the pushback that is now gathering in Europe, saying that these are in some cases, just consumer subsidies that quite clearly are going to infringe WTO rules, at least, or so those people in Europe would say. Isn't there, aren't there a couple of potentially less attractive futures? So, one where this gets mired in a trade war. And the other, maybe Dipender, as you said, that all regions of the world start to, you know, compete for subsidies, and they start throwing money through subsidies at this, but that it's just badly done? I mean, we've seen enormous subsidies thrown at - you will no doubt know the story better than me - the European Mainframe Computer sector, which everybody wanted to win, but didn't win. And so, you know, is this not also, frankly, quite a risky route to go?

IYYeah. Well, being European, having grown up in Europe, I may be more comfortable saying that the Europeans should stop being sissies and get off their rear-ends and actually get some work done on this front. So, the regulatory approach, the cajoling of big companies, all that is just not working in Europe. And on top of that, you have high labour costs, you have this exploding energy cost, all the disruption due to Ukraine. So it's really bleak right now in Europe, very bleak.

MLIon, state-aid rules in Europe, which are very, very stringent, so... And those were designed to stop intra-Europe competition. So, you can't have Germany just saying, right, we're going to just pay this much for somebody to go and make solar panels or batteries or whatever. It is because then that would upset the French, the Italians, the British and so on. So, you're hamstrung by that institutional framework, are you not?

IYSo again, you had told me, you know, what role do we have in this? And so, I kind of never got around to that, but it answers this question. So, during the Biden campaign, I felt that, many felt that, you know, climate was just not strongly addressed. And I started joining every group and committee and meeting I could, and I thought, a lot of the ideas were frankly, pretty junky; I think there's a lot of things that sounded right, in the Green New Deal, and the Sunrise Movement, but when you looked under the covers, they weren't going to get the job done. So, I'm trying to say that there's people like myself, and others, have put a lot of energy and thought into, how do you do this the right way? The biggest piece of the IRA, when it comes to climate, is a new thing that I started evangelizing two years, ago called the Manufacturing PTC. And it was, by the way, not part of the drafts for two years; it got revived at the last minute, when Manchin and a few others, but primarily Manchin, decided to nix most of the other proposals. And frankly, thank God, because a lot of the proposals were really not very good. And so again, I don't mean to be the apologist for exactly how this process works, because the sausage-making is just unbearably hard to follow and to like, but I think the outcome is actually pretty good. And the Manufacturing PTC is very fair. It says... Again, it's a national program, so it's unfair from the perspective of trade, let's say, of open trade, but it is very fair in that if you make a battery, it doesn't matter who you are, and who your friends are, it will pay you $45 for that battery. And if you make a solar cell, it will pay you whatever, right? I mean, the spec of what you need to make, and what you'll get for it, is very egalitarian, very open. So intra-Europe, Europe needs to create mechanisms like this, it can't be this constant horse-trading of, well, I'm gonna put a billion dollars into southern Spain, because you know, you got half a billion for eastern France, right? That's where this all goes wrong. Now, you could also... Look there are for sure dangers with the IRA. I mean, some of the incentive levels are so high that they're very distortive. But we need that, I'd rather...

MLIon, I'm looking at $3 per kilo of green hydrogen, and I'm thinking, why don't we just go and put non-grid connected, solar green hydrogen... We could vent it, we could flare it, we could mine Bitcoin, just don't even bother with grid connection, and we're gonna get super rich no?

IYYeah and my battery memo from two years ago, I sent to everybody at the campaign, had said $25 phased to zero for batteries, over ten years. The current legislation says $45 fixed for ten years, so I'll agree with you. And certainly, hydrogen is the most offensive one at scale. There's some offensive ones that are small, but hydrogen at three bucks is really, really too large. And certainly keeping it there for ten years is downright insanity. But look, I'll take that, right, I'll take that over nothing. And the fact is that, you know, I went to the party where this thing was signed, after this thing was signed, and there was a few thousand people there; we all single-handedly believed, each one of us, that we had made the IRA happen, and there was a few thousand people. But you know, I think in my case, it's true. No... I say that tongue-in-cheek... No, I do think that there were a lot of big moments that could have killed this, and I think putting the right idea forward and sticking with it for two years... And we used a young, really talented lobbyist called Isaac Brown, to kind of shop this, explain this all over, and he did an extraordinary job. And we did it really because we felt it was the right thing, right? We're not like one company with one agenda, trying to make a buck here. We spent that money and time because we think that this was the best way to do it. And I think, like Dipender said, we're hoping that this ignites a global arms race on subsidies for climate tech. This is the only way, Michael, that we're going to get tens of trillions spent with most of that money getting shipped in this strange, indirect way to places like Indonesia and Nigeria, because it's coming with a European job, or an American job, or an Asian job in China or Korea. This is the only way that it's going to happen that I see.

MLThis is fascinating, and I kind of get an insight as to how... You know, I have this image of you Ion, working on trying to get IRA doe, and Dipender quietly sort of running the business in the background. Maybe that's not accurate, but I like to think it's like that. How do we move forwards; I also have a role...

IYMichael, if I can interrupt, because I just want to give one more piece of colour. I mean, you cannot underestimate how there's been no answer, especially when it comes to cross-border climate finance. It's not that we're almost there.... Without a global arms race that resembles IRA. We are so far from solving this problem, and we have no time left. And there is not even a catalyst for it to get solved; it's not like the politicians are getting better and better at talking about how we, as rich countries, should subsidize where most of the energy and fuel growth is, which is in poor countries. So, until we had this tool, I was unbelievably bleak in my mind around the options we had. And it really, to me, it's been like a revelation the last two years to realize, you know what, if we tie it in the right way to jobs, it becomes acceptable. And to illustrate this, imagine shipping even a billion dollars to a place like, you know, Bangladesh. Remember, you're not just shipping the money there, but it has to be almost free money. People brag about you know, I make 11% in a wind project - 11% return. What that means is that, if it's compounding at that rate of return for ten years, which is not even enough for wind project to work, right - it's got to be 20 or 30 years - that means I'm getting three times my money back. Do we really think we're helping Bangladesh, if we ship them a billion dollars, demanding three billion back in ten years? It's a joke, right? And it just doesn't work. So, we have to find ways to not just ship trillions into places like Bangladesh, but we have to do it with essentially free money. And anyone's reaction, who is an investor like us, when you say, I'm going to build permanent green infrastructure in Bangladesh, that I may or may not get paid for, over the next 20 years, immediately reacts by saying, okay, I'll do it, but if you pay me 20% return. So, those problems have been totally disconnected. And politicians, big bankers, sovereign managers have all been going to conferences - no solution, absolutely no solution. That's why... Look, in the end, I do appreciate Mark Carney and others, I mean, look, they all have their heart in the right place. But all this talk is just deflecting from real solutions. And the IRA, in the end? You know, the cycle of that government money is like 60 days, so you get real money to ship a product right now, starting January 1st, and that money is gone, it's free. No one's paying it back. We as a society might, but we're okay with that.

MLI see the impact of the IRA in terms of driving manufacturing... well, driving the investment in manufacturing, and then the manufacturing. The stuff about Bangladesh, though, I think I need to think a bit harder about the flows of cash, because what you're doing is you're reducing the cost of that wind farm in Bangladesh, but somebody still needs to put in the capital earn their whatever, whatever. So, I think you've made the problem easier, but you haven't provided the capital for the wind farm in Bangladesh, which is what the kind of 100 billion Copenhagen commitment was supposed to be.

IYLook, being 20 years in physics, prior to this kind of work, I kind of know the difference between real science and pseudoscience; a lot of this economic stuff is pseudoscience. People oversimplify the problems, right? So, it's really hard to actually get to sound conclusions in economics, right? And a lot of this stuff are abstractions that can be helpful to understand a problem, but don't answer it. And so you know, how a country... Again, countries like Bangladesh, they have a real economy. They're able to afford power, if it's affordable. They want the power, a lot of people can pay for it - it just can't be three times more expensive than burning coal, right? It's got to be as cheap or cheaper. And when you lower the cost of the products that build that infrastructure by half? Well, that power becomes twice as competitive. In my view, really that's the dominant simplification. And those countries actually have the ability to pay for a lot of stuff, if it is priced right.

MLAnd I buy that, I buy that. I want to move on, we're coming to the close of the time slot. I just want to... I have a role as an advisor to the UK Government on trade. So, I'm an advisor to the UK Board of Trade. And I'm just wondering, whether, coming back to his question of whether the next step is going to be to apply that same young lobbyist, to the Global Trade Organization, to make sure that what you get, is this kind of constructive race to clean technologies, rather than just, you know, ten years of litigation through the WTO, just grinding everybody down, as it would do...

IYAgain, it's not like Dipender and I spend our time going to WTO meetings or anything like that. But I think the WTO has essentially become irrelevant to this. Look, most American companies right now that want to build billions of dollars’ worth of batteries, or solar cells, don't really care if they sell any in Europe, for any one of these products, in the same way that the tens of trillions are going to Bangladesh or Nigeria or India. That's where you want to sell this stuff, that's where you're gonna end up selling it, right, it's the same problem. So Europe is... I don't mean to say that.... It remains a significant market, I'm speaking in black and white terms to make the point. But Europe cannot get out of this issue by huffing and puffing and talking about how pissed off they are. I mean, if instead of subsidizing a trillion dollars, a trillion euros’ worth of high energy prices overnight, to keep the politics intact, half of that money had gone into a first version of an IRA bill, we'd be way better along in Europe, right? Europe is just failing to....

MLTrade wars are not just between Europe and the US. I mean, I've been doing this for 20 years, and I've seen the solar trade wars between China and the US, China and Europe, we've had a number of very damaging things that really push up the costs, things that really stop companies from succeeding. We had the rare-earth wars, where China refused to sell rare earths to Japan. These things are really damaging; if we go down that route, I don't think that the industry just kind of flies through it without problem, given how international these supply chains are.

IYBut that's why I think, as I said, I think that... It's obviously more complicated. And for sure, there are huge risks and pitfalls. And that's why we need fantastic leadership. But it is worth it. You know, taking the... I think the estimates for what IRA is going to cost are vastly, vastly underestimated. I think it will end up costing, you know, trillions of dollars, and America can afford that. And those trillions are largely going to get shipped to countries that need those products. And it's going to create millions of jobs in America, which is what we need here. Now, every country needs them. But realistically, most of these countries that need all this vast, vast green infrastructure, never had a real chance at winning, and [creating] the manufacturing jobs in some of these things that remain really difficult to do. Now, are they going to be suppliers of certain things? And does the IRA try to sort of bias that towards American? Yes, it does. And by the way, it does great things like focusing on recycling of those primary products. But we will find bilateral ways to work with the largest off-takers of these products that have, for instance, the right minerals that go into them. So yes, there's a very stark... I mean, the biggest version of the negative here is the anti-China aspect to this bill. And so that's obviously the biggest opportunity and the biggest risk is that that gets out of hand. But as you know, there's also deep, deep alignment between the countries and what needs to get done. And China wasn't exactly playing fair until now. Unlike Europe, they have huge advantages to bring to this. So it's not as black and white as it seems. So, Americans are not immediately going to eat the lunch of every Chinese company as a result. I think Europe really needs to react much, much more strongly than they have, and not in negative ways; in ways that favor its own industry.

MLFascinating, because one of our last episodes was with Nobuo Tanaka, who's the former executive director of the International Energy Agency. He was talking also about this, what I call the Great Clean Energy Acceleration, the fact that we're now moving to great bloc competition to deliver these technologies, to move faster. And he was extremely bullish, sitting not in Europe, about Europe's prospects in this new competitive environment.

IYLook, again, I think we have real advantages in Europe. Again, being born and raised there. We have incredible educational systems, we have extraordinary infrastructure, educational infrastructure, cultural infrastructure, industrial infrastructure; we have lots of great things to rely on. But it's hard not to be critical of recent leadership coming from the government, political system and large corporates. And so much of the time and money is being spent on just kind of keeping things together. And on all this horse trading of well, you get this because I get that, as opposed to sound objective, large programs that would help all industry where it merits, to move forward and compete with America and compete with China, Korea.

MLVery good. Now, I want to wrap up. Dipender has been listening to the to and fro on this, and I'm just wondering if you had any closing thoughts for us there, Dipender?

DSNo, I mean, we covered some very, very broad topics today, and so I don't know if connecting them is that important. But some of this has happened before, right? So I mean, you brought up computing, and I think computing is an area where it's very clear how prices globally, and access globally moved faster than any industry had before. And it's almost become a cliché and a metaphor for how, you know, people are used to products costing them half of what they used to [after] a couple of years, or if not, costing them half of what they used to, getting twice the capability or, you know, just this steep curve of improving both features, and access. And I think there's a chance we could do that with things like energy, and transportation, and industries that nobody had ever imagined could move at that pace. And over the last 20 years, you've seen that happen with solar. As we sit here, and we look at the most optimistic forecasts - whether it was price, or scale, or extent - some of those forecasts that were for 2050, or even longer, have already been blown away. Some of those forecasts that said it would take - again, just restating the obvious, again - decades have happened in just a couple of years. And so that's a beautiful thing, right? When you think about it, and at the end of the day, consumers all around the world have benefited from it. Consumers all around the world are benefiting from first order effects, of getting that cheap electricity that Ion just talked about. And now consumers and people are going to see the benefits of the second order effect of that, which is making everything that uses electricity is going to get dramatically cheaper or has gotten dramatically cheaper. And making things in ways that were just physics experiments before because the cost of electricity or energy to use those techniques to build products in that way, were prohibitively expensive, and now it opens up a whole new economy and a whole new way of doing things, hydrogen being one. So, I think there's a lot of good that comes out of getting a lot of the world to focus on how to accelerate and build these things. And our hope is that that's what happens with all of this.

MLThat's a great summary. So much resonance there, so many things that I would love to chase and continue on, but we are out of time. I very much hope that our conversations will continue, and I'd like to thank you for spending time here today with me on Cleaning Up.

DSGreat to be with you. Thank you.

IYThank you, Michael and sounds like we're going to shut the camera off and have a strong debate that continues.