John Jeffers: [00:00:00] A friend of mine used to say, you know, in the whole energy world, where you stand kind of depends on where you sit.

What does a data center do?

A data center does a whole bunch of computation, right. But when people talk about a data center, they talk about it in gigawatts. They're talking about the data center in terms of the power consumption, as if there's a one-to-one, I consume this much power, I can do this much work. But that's like talking about buying a car in terms of, I'm not buying a, a 6-seater car, i'm buying a 12-barrel a year car. You know, you don't talk about it in terms of the energy consumption, you talk about it in terms of the utility and, I think there's a paradigm there that needs to be attacked.

Energy's basically a commodity. And it's really hard to get people to pay a premium for a commodity just based on some other attribute of the commodity.

Andrew Kazlow: Welcome to the Diligent Observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and [00:01:00] operators.

My guest today is John Jeffers, an energy executive who after 32 years at ExxonMobil, Schlumberger, and Southwestern Energy has become a leading voice in the clean energy angel investing space. As a board member of SWAN Impact Network and an advisor to the Rice Clean Energy Accelerator, John shares with me some of his hard won lessons from navigating recent policy upheaval, explaining why he avoids companies that are dependent on government subsidies, and he shares some practical opportunities in data center efficiency and AI powered energy systems that angel investors can actually capitalize on.

I hope you enjoy learning from John as much as I did.

John, thank you for being with me today.

John Jeffers: Great. It's great to be back, Andrew. It's been more than a year since first time I was on your podcast and happy to come on back and have another conversation.

Andrew Kazlow: Likewise. Well, you are, uh, we, we've not had many two time guests [00:02:00] yet. We're still young in our podcast days, but thrilled to have you back today and look forward to a bit of an update 'cause a lot has happened in your area of expertise since we last chatted in August of 2024. Before we get into that though, I'd love to hear as a starting point, I have to ask him a classic first question, which is, what are you excited about right now?

John Jeffers: I'm excited about a lot of the same things that I was excited about a year ago. It's just that the, uh, you know, it's been a bumpy road between, between then and now. I'm really interested in in where we go, in as, as a, as a country and as and as a world in terms of, uh, energy transition, clean energy. Uh, cleaner technologies, uh, but how to, how to look at that in a slightly different way, uh, maybe than a lot of folks were. Uh, and then I'm really also excited about the world of angel investing. You know, we continue to attract new people to the sphere and those of us that have been in it a [00:03:00] while continue to learn and grow and, hopefully somewhere along the line prosper as well.

Andrew Kazlow: Well, I'd love to hear maybe as a starting point, summarize for me just over the last year and a half, we've obviously got a new, you know, political regime here in the US with a slew of adjustments specific to the clean energy sector.

I wonder if you could just give me an update on your take on what's happened over the last 18 months or so in the clean energy space. Um, so kind of John's state of the, the union. 

John Jeffers: Yeah.

Sure. So, you know, we talked, 18 months or so ago, whenever it was that, you know pre-election last year. Um, you know, we were talking a lot about clean energy and how much excitement there was around clean energy and clean tech, and you asked me then about kind of what my investment thesis was in that space. And not terribly specifically, but generally, [00:04:00] you know, I, I kind of issued a cautionary tale about reliance on subsidies and tax credits and government grants, regulatory preferences, uh, given to clean energy, because we've just seen, you know, just the massive influx of, of, uh, US federal government aid and, and, and, and other jurisdictions as well. Uh, making some fairly, no, not fairly, enormous commitments to, hundreds of billions of dollars of, of grant programs, of open-ended, uh, tax credits. Uh, and, and promised that, you know, that we were gonna build our way to a, a, a cleaner energy system, by basically by brute force of, of, of will, of government, and not for the reasons that actually materialized.

But, you know, I asked you a cautionary note that look. It makes sense to provide some incentives to launch new technologies and to incubate them. [00:05:00] But country, the world really probably can't bear the cost of ongoing, uh, ongoing government spending to take technologies to scale, whether it's in power generation, whether it's on, on, on the utilization side, on the consumer side that are significantly economically cost disadvantaged. And because the public will end up bearing the cost one way or another, they'll end up bearing it at the electric meter or, or, or, or they'll end up, uh, bearing it on their, on their tax bills. And you may ship who's paying it. But on aggregate, you know, there's a pretty great cost. Uh, and energy is a big part of everybody's, uh, monthly bills, whether it's, you know, what they pay for energy or directly, or what's embedded in all the other products they build. Um, and you know, even, even, uh, beyond that, I mean, if you wind all the way back to say electricity, but any, any energy source. [00:06:00] Energy's basically a commodity.

And it's really hard to get people to pay a premium for a commodity just based on some other attribute of the commodity. Like, lower carbon footprint, or, you know, domestically produced instead of imported, uh, that is. Thus, I think the reason that, the previous administration and, and the, the congress and power at that time thought it was wise to, uh, try to do this by government intervention. so my view at the time was I was really not, terribly interested in investing in technologies that were gonna be perpetually dependent on, on regulatory preferences, tax credits, and subsidies. I wanted things that had value propositions, uh, independent of all of that. Um, my reason was a little different.

I thought that it just wasn't actually long-term feasible to do that at scale. Obviously, uh, political winds shifted and, uh, you know, [00:07:00] much nearer term reasons. Uh, near term things happened that kind of pulled the rug out from under many of the startups in particular and some of the companies that were scaling and even in the market already, that made their businesses a lot less viable.

Andrew Kazlow: So the, the not being deeply in this space, the key things that stand out to me is I know a lot of the, um, inflation reduction act provisions were rolled back or scaled back. There were, there were a number of adjustments there while simultaneously quite a few tax credits and existing like eight. The big, big news earlier this year was like the EV credits have been phased out.

Not renewed, extended. And so there's a tremendous upheaval kind of in the auto space, not being deep in this world. You know, I, I'm hearing all of these headlines to that effect, and it just feels like kind of doom and gloom when it comes to clean energy, just in general right now. I wonder if you feel, uh, similarly or if you've, you know, if the story inside [00:08:00] the, those working in this space is different.

John Jeffers: Yeah. Don't think it's doom and gloom. Uh, at least not for everybody. For some, yes, it probably is. And for others it isn't at all. It's, it's, it's a lot more nuanced story than, you know, the whole sector's out of favor, the sky is falling. Uh, I, I, I just think it takes a little bit, uh, sharper pencil to figure out where the opportunities are and, and maybe where they aren't today.

So, even from the perspective of a, of a US-based investor looking mostly at North American-based companies, there are market forces outside the US that are driving opportunities, uh, even for US-based And it goes all the way to kind of global energy strategy where you have continents like North America that are very well endowed with fossil fuels and pretty much self-sufficient in fossil fuels to and, and. You know, have, have a viable strategic energy security program built around fossil fuels to, you know, go all the way across the, [00:09:00] the globe to China. And, and you know, there, close to being self-sufficient in coal. They've got a stranglehold on a lot of the critical minerals and, industrial technologies required for, uh, renewable energy, for wind and solar and battery storage and things like that.

So, you know, they're in a different world. And then Europe is kind of caught in between where, you know, Europe really isn't well endowed in any energy resource to speak of. I mean, there fuel industry is, Western Europe and, and, and the EU at least, you know, not much of a an indigenous fossil fuel supply. Uh, not much access to critical minerals for, uh, renewable energy. And, you know, significant reliance on nuclear power. But even there, I don't think much of the fuel being used in Europe comes from Europe, it's it's, you know, imported. So they're in a little bit different place. Uh, they're not really, it, it, so, you know, just at the macro [00:10:00] level, uh, it's, it's interesting and different, depending on where you're in the globe.

A friend of mine used to say, you know, in the whole energy world, where you stand kind of depends on where you sit. And, uh, obviously, you know, from a from a geopolitical standpoint, yeah, if I'm China and I'm sitting on, on the keys to the kingdom when it comes to the inputs needed for renewables, I'm gonna be all in on that.

And, and when I'm in the United States, and I am under endowed, uh, in those capabilities, but can get by just fine for, you know, years to come based on, on the current energy supplies, the fossil fuel supplies. My, my political stance and my economics, uh, are, are different. And ultimately, uh, that, that is the framework within which we're, we're working. Uh, Daniel Jurgen, if you've ever read any of his books, uh, The Prize was the first one and [00:11:00] the most recent one is the New Map. And the New Map, came out in 2021 or so. Uh, really lays it out that all these political stances are based largely on, on energy endowment, energy resource endowment, and, quest for security really. So, today, I would say, uh, in, in the US in general, I mean, whether you're an angel investor or whether you're a, you know, an institutional investor. I, I think folks have to be looking at technologies, looking at businesses to invest in that are relatively insulated from the, uh, political headwinds that have strong value propositions

uh, regardless of, of, uh, what happens with government policy. And then that government policy becomes more uncertainty in, in your business than it does a, a, an existential threat.

Andrew Kazlow: Yeah, it's [00:12:00] interesting. As I was preparing for this conversation looking back, one of the key takeaways for me, which I shared with my my newsletter audience is that, it was very obvious to me coming out of our conversation that energy is a commodity, commodity business, and so economics always win subsidies and government support programs are great, like you said, to get it off the ground, but to see something scale requires it to be self-sustaining, at that lowest cost because it is ultimately a commodity.

John Jeffers: And, I mean, we could, we could, we could modify that a little bit. I mean, there are some consumers that will purchase on, on attributes other than, than pure cost. Um, and obviously, you know, in, in energy we talk about the sort of the trilemma or the trifecta, depending on how we wanna look at it, of, of being, uh, clean, reliable, and affordable.

And affordable obviously is the cost element. Reliability is very important to everybody, but particularly to, you know, customers like data centers that need, you know, 99.99% [00:13:00] uptime. And then, uh, clean is important too, right? We, we don't wanna destroy the planet in the process of, of fueling our, our, our economy.

So, but it's really hard to put a price on that one.

Andrew Kazlow: Okay, so you bring up data centers, and that's something I really wanted to hear your thoughts on because I feel like data centers have come into the limelight over the last. You know, year or two with the, recent massive uptake in, in AI development. Just react to data center and the power draw there, just the 

John Jeffers: Sure, sure. So, so, uh, you know, point number one on data centers is they're for real, right? They're being built, they're being commissioned, they're being put online, and they are increasing our electric power demand in the US. And it's kind of, you know, after years and years and years of relatively slow growth in the US in primary energy demand and electricity demand, uh, which was, you know, mainly kind of following population growth.

Now we've got an inflection point. Uh, just beginning and projected to become even more significant in the future. [00:14:00] So yes, electric power demand is going up and it brings all kinds of concerns. Uh, the, the, the hyperscalers, the people running, the large data centers, the medicine, AWSs, and, those folks, Googles everybody are, you know, recognize that they've got a challenge from a public perception standpoint of increasing power demand faster than supply can be built. Uh, they're gonna drive up the cost of power to average Joe in the US and that's not gonna be taken very well. Uh, yeah, so, so it's created, uh, some interesting dynamics in, in the power world.

Everything from these, you know, large customers wanting to build behind the meter power, whether it's renewable or, you know, talking about, most of it today is building their own natural gas powered fired power plants. But, but talking about wind and solar and talking about modular nuclear and things like that.

So, uh, there's an interesting dynamic there and there's an interesting dynamic around strain put on the grid for, for, uh, you know, power that they're, that they're purchasing off the grid. [00:15:00] So, a lot of stuff going on there and I think it creates problems, but, but it also creates a lot of opportunities.

And we could talk about some of those.

Andrew Kazlow: What do you mean when you say behind the meter power?

John Jeffers: So, I mean, their own power plants basically powering their own data centers so that they're not having to purchase power off the grid that's being generated by somebody else. They're basically generating, generating their own power and, and, and, and consuming it and maybe selling the excess to the grid and maybe, you know, at times when they're not generating quite enough power, buying some from the grid, but the bulk of their power being supplied by them to them, uh, without having to pass through, the public power grids.

Andrew Kazlow: So, one of the things that's fun to me is that at the very beginning, very beginning of our conversation, you said that your excitement, optimism in this space has not waned. Even though the, you know, macro environment has changed dramatically to the degree that you have doubled down, you're continuing to serve in the space actively.

You sat on the board for SWAN Impact Network, as I understand, which I'd love to tell. I'd love to hear [00:16:00] more about. But you are, I mean, you are in it and you are pretty, pretty clearly committed to continuing in this space. I'd love to hear like, what do you feel like most, most investors miss out on in the midst of all this macro upheaval?

What are some of the themes that are really standing out or exciting to you that you, find really interesting?

John Jeffers: Sure. So, couple things, like if we just stick to the data center theme for a minute. One of the things that astounds me about AI data centers, and I understand it from like, the public investment community standpoint, and I kind of understand it because of the, the issues and constraints involved, but we're talking about data centers in terms of, you know, what does a data center do?

A data center does a whole bunch of computation, right. And processes data and everything. But when people talk about a data center, they talk about it in gigawatts. They're talking about the data center in terms of the power consumption, as if there's a one-to-one, I consume this much power, I [00:17:00] can do this much work. So I need, and, and obviously my big location constraint is around how much power can I get to my data center? So, they talk about 'em in terms of gigawatts, but that's like talking about buying a car in terms of, you know. I'm not buying a, a, a, a, a 6-seater car. I'm buying a 12-barrel a year car. You know, you don't talk about it in terms of the energy consumption.

You talk about it in terms of the utility and, I think there's a paradigm there that needs to be attacked. And I think it creates opportunities. So there are a lot of opportunities out there to significantly improve the efficiency of, of data centers. And, you know, the raw computation right now being done by these NVIDIA processors and stuff, that's a big piece of the energy consumption.

And, and as long as that's the core technology, that's probably not gonna change much. But there, there, even, even within that, there's a couple of angles. An awful lot of the energy goes into climate control and data centers. Data centers produce a lot of heat. Uh, they need to be cooled. You know, there are [00:18:00] interesting technologies out there that we've seen coming through accelerator programs coming across the, the wires on angel investing opportunities that can cut 20%, 30%, 40% of that cooling load.

Now that's, I don't know what the percentages are, maybe that's 10% or so, 15% of the power demand, uh, for a, uh, uh data center, but again, big opportunity to cut way into that. Uh, so, you know, those are the kinds of things that excite me longer term. I think there are ways to actually, uh, compute more with less electricity in, in, in a data center, whether it's in novel chip technologies, which probably aren't quite the realm of angel investors or, you know, just, just more efficient algorithms.

Right. Can we come up with better algorithms for training, um, and, and interrogating the, uh, the big large language models that can get same or similar results with a lot less [00:19:00] computational power. So, I think there's some really interesting stuff going on there. We had a company in the, uh, Rice Clean Energy Accelerator that I worked with, this summer called AtmoSpark. AtmoSpark is a novel, technology for dehumidification. Basically, rather than condensing water directly out of out of air, uses an electrostatic process to separate water vapor from air vapor or air. And it, uh, uses considerably less energy than conventional HVAC methods of of dehumidification. Again, giving the opportunity to, to use 30, 40, 50% less energy, in uh, in HVAC for data centers or for anybody using HVAC at scale. Um, relatively simple technology. They piloted it, it's not developed at scale yet. Uh, but stuff like that can have big, big impact on today's power needs. I think there's cool opportunities like that. I think energy efficiency in general, um, [00:20:00] particularly for angel investors who you know, are gonna struggle to invest in, things that require, you know, we, we tend to invest pre-seed stage, early seed stage, uh, and investing, you know, hundreds of thousands of dollars, not tens and hundreds of millions of dollars. 

Andrew Kazlow: Just to double click on that, the, the, the insight there is, hey, like your $25,000 check isn't gonna move the needle on a massive new, you hydro plant development, like that's not the place. But where there is potential opportunity is the supporting technologies, new devices, new attachments to those bigger infrastructure.

John Jeffers: Some, some some of these, yeah, low cost, quick hit kind of optimization things are, are great. And the problem with, it's not that I don't think that some of these, you know, much bigger scale technologies have value. It's just as an angel investor, you know, we may be investing into a round that's raising a million or two in, in a business that's gonna have to raise 2, 3, 4 more rounds. there's just so many [00:21:00] opportunities for us to not get our money back on. You know, if, if you're an early investor, uh, in, in, in, in a situation like that, either, they do ultimately succeed and get to market, but don't have the ability to return all the, uh, all the capital that was invested necessarily, then all the people that invested after us probably get their money back first based on how capital stacks and liquidation preferences work.

So, uh, big risk there. And also a big risk that look, that the small investments to prove the technology sort of at a lab scale and an early demonstration scale can be met. Uh, and then the capital's not there to scale. Uh, so, and obviously, you know, I can write checks in the tens of thousands of dollars, and my groups can write checks maybe together in the hundreds of thousands. We can't write those $10 and $20 million checks or fund those rounds to basically defend our earlier investments. So, we gotta look for things that are, you know, that have a reasonable, stay [00:22:00] reasonable chance of, of, uh, return without requiring, I don't say without requiring any additional capital, but without requiring, just massive amounts of capital from sources that we haven't really identified yet.

Andrew Kazlow: It is interesting. Having done a few of these conversations, I, I see so many similarities as you're talking with the healthcare industry and how, and angel investing in healthcare, right? Because to scale anything in healthcare requires ridiculous, you know, capital to be able to go through all the approvals and, and develop a product at, at scale.

In this case, so many things are comparable there, um, except that, instead of working on human lives and physical bodies we're providing energy to support all of it. And so the, the scale is just kind of boggling to me to, to think about. And I, I've found many individual investors tend to avoid hardtech or [00:23:00] energy tech because of the level of capital that just objectively, you, you know, somebody looking at something in the space, you, it's, it's fairly obvious that like, okay, this is gonna need to raise a ton of money to be able to grow and, and hit the market. And there's just, to your point, so many opportunities to not get that return that many.

John Jeffers: But I think, I think there's, I think there's a, I think there's a really interesting parallel there, like you, as you mentioned, between healthcare, say pharma and things like that, and, and, energy. And I think, you know, in, in the, in energy world, we could learn from, how the medical world works. If you think about, you know, pharmaceutical startups, biotech, uh, you know, most of the stuff in the medical, it doesn't get taken to market by the startup. It gets acquired somewhere along the way when the company has met some key milestones, usually to do with, with, um, the FDA approval process. Uh, maybe getting through clinical trials, maybe actually, you know, wherever in that stage gate [00:24:00] process. And I think that may be one of the ways that the, that the angel and venture capital world needs to be looking a little differently at energy as well. And that, you know taking, taking a, a new energy technology, whether it's, you know, whether it's, um, battery, you know, grid scale battery storage, or some new power generation technology or some new sustainable chemical manufacturing process, whatever it is, all the way to commerciality and scale by using, uh, institutional finance, uh, and, into the startup, that may not be the way to go. It may be that, that these earlier stage companies really need to look at at ways to exit earlier. And maybe that's through strategic partnerships with, with ultimate end users. Maybe it's securing financing from customers rather than from investors. Uh, so that, you know, if you [00:25:00] imagine you know, an energy technology developer rather than fully commercializing, getting, you know, proof of concept and demonstration, then flipping their business to, you know, a Siemens or a, uh, ABB or, you know, somebody that, that's active at scale and has the balance sheet to be able to, to put the finance in and has, and, and, and will become, if not the, the sole end user.

Hopefully not the sole end user. But, a key end user, um, that may, that may be something that the energy world needs to look at. Whereas a year ago, a year and a half ago, depending on the, uh, loan capacity of the Department of Energy, for instance, to provide hundreds of millions of dollars, maybe in billions in, in financing, non-recourse financing to get over that hump of upscaling. Uh, maybe it really makes more sense as the pharmaceutical companies do. They, they'll, they'll sell to a big pharma company, uh, maybe either selling or strategically partnering with, with, [00:26:00] uh, incumbent companies in the space earlier.

Makes sense.

I think until very recently, the pressure really hadn't been there because for the last four or five years. There's been this spigot of non-dilutive funding and, and government loans available.

So, which has encouraged startups to stay independent longer, see if they can get to scale on their own, get their valuations higher. And I think, you know, the investors have been happy with that because they've been getting non-dilutive dollars alongside their investment dollars. They've had the prospect of seeing the valuations increase as each successive milestone is met. Uh, so I'm not, I don't have a great success story of that, but I, there, there probably are a few out there. But what I would say is, I think as we look to the future and pivot, to the future, that, that, I think startups are gonna have to start thinking that way. That, the, the, the dollars to scale technologies may need to come from [00:27:00] incumbent companies in the space rather than from, um private and institutional in investors.

Andrew Kazlow: John, I wonder if you could give some recent examples or, uh, illustrations of what your community is seeing. You know, you guys, uh, SWAN Impact Network focuses on, you know, many of these types of investments day to day, and so you guys have a special access to what's happening in this ecosystem. I wonder if you could just share what the sentiment is among your community and some of the things that, you've seen get a lot of traction and attention recently.

John Jeffers: Yeah, sure. So let me just a quick word about SWAN. Uh, SWAN is a, celebrating its 10th anniversary as, as, uh, angel Investing network, founded in late 2015, early 2016.

Andrew Kazlow: And SWAN, what does SWAN stand for? 

John Jeffers: It was originally the Southwest Angel Network, and based in Austin. So the, the group was set up in Austin by Bob Bridge and, and some close friends of his. Uh, today, [00:28:00] uh, SWAN rebranded as SWAN, because, uh, the network had grown to encompass, a critical mass of investors in Dallas and also in Houston. Made the decision that, hey, we're, we don't really just wanna be an Austin-based network. We don't just wanna be a Texas-based network. We actually would like to be, uh, you know, a premier, uh, impact investing network, uh, nationally and, and, and even globally.

And we've always looked, We've always sourced deals uh, nationally at least, and we're beginning to look beyond the United States as well. So rebranded as SWAN Impact Network and that way we're able to get impact into the name of the network as well. Because we are an impact-focused investing network, meaning we invest for two things.

We clearly invest for return on investment. We're not in this, uh, as a philanthropic organization. We're looking for return on investment, but we're also looking to do good through, uh, positive social and environmental impact. Uh, so, we have about 70 investing angels now [00:29:00] probably half in Austin and the rest in, in, uh, Dallas and Houston. Uh, a few other places in the States, and we invest in several verticals. Uh, I would say that historically cleantech, climate tech, energy and environment has been, uh, our biggest, uh, but through time we've drifted or, or, or migrated to have a significant, uh, number of investments also in, in health sciences. And then we have some others that are, you know, education tech, things that, help underserved communities help, help with other, other societal needs. But investing with the intent to have a portfolio of startups that, that provide a solid financial return and progress towards, uh, positive social and environmental impact as measured against UN sustainability goals, sustainable development goals. So that's who we are. Um, I'm mainly active in the energy and environment side. I, uh, joined SWAN in 2023. Uh, was asked [00:30:00] to join the board of directors in 2024. And now I'm, really working very hard both to, uh, build our presence in Houston to, to, uh, more than the 10 or so angels that we have so far here. Uh, build deeper connections into the, uh, clean energy, Clean tech, um, ecosystem here in Houston, uh, and then really help the network, uh, you know, source and, and fund, uh, more and better quality deals in the space. So, I guess what I would say is, you know, what I've seen in the last year or so is our existing portfolio has been under pressure.

Uh, many of the companies that we invested in were, you know, dependent to a greater or lesser degree on, uh, a lot of the, uh, IRA and, and, and, uh, Infrastructure Act, um benefits and preferences. So many were [00:31:00] left kind of struggling, uh, earlier this year trying to figure out where they go. Uh, a few of them probably won't survive.

A few of them were so dependent that they probably won't survive. Uh, a few others just had to shift their, their outlook and maybe slow down their growth trajectories. Had viable products headed to market, but it counted on, on, uh, grants and loans and, and, and so on from, from the, uh federal government to get their businesses to scale, to commerciality and then to scale. Um, and then others, I would say were relatively unscathed. Uh, however, maybe finding more attractive markets outside the US than in the US. So we've had a couple, I think I talked about Skyven Technologies when I was here last time, looking at, uh, electrifying, uh, industrial heat.

Well, they had some projects here in the US that were to take advantage of some, uh, DOE funding, not directly to them, but to the customers that were gonna be implementing the technologies that slowed down, they [00:32:00] pivoted and, and, and they're focusing on similar opportunities in, in Europe right now. So, we've seen some, some market shift and obviously Europe. Western Europe is still, uh, probably pursuing, uh, cleantech more aggressively than United States is from a, a, a regulatory perspective. Uh, and then we've also seen, I think, I don't know if I mentioned Capwell, um, Energy Capital Services last year. Capwell is a, uh, methane capture company, uh, focused on recovering methane that's normally, uh, vented or flared at, at oil and gas production sites. You would think that, that, that focusing on North America would have been, uh, detrimental to their business. Well, it turns out the purchasers of North American liquified natural gas in Europe want certification that that natural gas was sustainably produced. So, the producers here, if they wanna sell in that [00:33:00] market, still have to be doing the same kinds of things that they were beginning to do in terms of reducing their methane emissions, uh, reducing the environmental impact of their operations.

So there are market forces outside the US that are driving behaviors, uh, inside the US. Um, what I would say though is I think what we've seen most recently, and I think we're the appetite for, uh, uh, SWAN investors in new startups, uh, new to SWAN portfolio startups, uh, probably shifted towards things that are, uh, maybe a little bit shorter term, you know, easier pathway to exit, uh, things that are less, maybe a little more, uh, capital light than before. There were, we, we did make a lot of investments in companies that were sort of deep, deep tech in the energy space in electrolyzers for hydrogen, other, other, other things of that nature that really were, fairly deep, fairly capital intensive and questionable in today's world, whether [00:34:00] the markets still exist in the timeframe that, that we anticipated when we made those original investments. So today, I think, uh, a lot of what we've been seeing has been, uh, sort of smart systems to improve efficiency, improve power utilization, or reduce power utilization. Things in the, you know, in the built environment that are aimed at, at, uh, efficiency of HVAC systems, for instance, we've got a couple. I don't wanna talk about 'em by name yet, but emerging ones that, that, that do, that, you know, that that's an opportunity for, you know, a customer for investments of a few tens of thousands of dollars to secure, uh, you know, significant double digit savings in, in energy use.

Andrew Kazlow: So if I'm a, if I'm a founder listening to this, what I'm hearing you say is the packaging of the solution matters a lot. Meaning taking this and scaling it to be a mega a [00:35:00] giga thing right, do, do it all is far less interesting right now for your angel community. Then carving out a specific more niche kind of, not less aggressive, but more focused approach that can get to market more quickly. 

John Jeffers: Yeah, I think I, I, I think that's probably right. I think, you know the technologies that, that, that we seem to gravitate towards now are the ones that are developing a technology that fits within somebody else's system so that it's not somebody that's gotta develop a whole system, they've gotta develop a core technology and then the interface management into the system that it's going into. Um, and, and that's probably true in power generation. That's probably true in energy storage. That's probably true in, in, um, uh, built environment efficiency as well. The capital requirements are lower, the time to market is probably quicker, particularly if, if it can be applied as a retrofit. And then it also brings them in contact [00:36:00] with strategic partners and market channels and, and end users probably earlier in their, uh, lifetime than, than maybe happened in the past.

So, yeah, I think that's a, a good way to look at it.

Andrew Kazlow: So it sounds like general outlook, I mean a bit, a bit more cautious, but still optimistic and still, you know, actively, like there's still a tremendous amount of opportunities in this space for those that are looking. 

John Jeffers: Oh yeah.

Yeah. And I, and I think, uh, may, maybe the, the, the qualifier there that, for those who are, who are looking is, is, is a good thing to talk about as well, because clearly we've had investors in our network for 5, 6, 7, 8, 9, 10 years that have made substantial personal investments in clean tech companies, uh, who are anxious about the returns on those original investments.

I mean, some of the companies have, have, or in the process of folding and others, their prospects look dimmer. So yeah, there are some people that are, myself included, kind of, kind of, you know, a bit, a bit gun shy in the sector, but I [00:37:00] think it's causing people to refocus and think about, okay, in today's world, what looks like the smart way to go about this and trying to be, you know, trying to walk in lockstep with something like, you know, somebody like Bill Gate's, Breakthrough Energy Ventures, who will place bets on, you know, blue sky technologies that may not A. may not pan out at all, or B. if they do maybe, you know, 15 years, 20 years before they're, uh, exit ready. That's just not a space that makes much sense for for angels to be playing in. 

Andrew Kazlow: You know, it's always interesting to, I, I always get excited about conversations like this when the macro narrative is, um, down on a space, because it's the classic, you know, when everyone else is investing, get out and when everyone else is 

out, that's the time to go in. Right? So, um, it's always fun to think about.

John Jeffers: Yeah. Warren Buffet, right? When, when, when, when everybody else is fearful, i'm opportunistic. Whatever else is fearful. He said, I'm greedy, but I like to say I'm opportunistic. Uh, and, and when everybody else is, is overly opportunistic, uh, I'm fearful.[00:38:00] 

And I think, you know, I think AI today is one of those areas, right, where, I mean, there is a, there is an AI bubble building. I think nobody would argue with that. But within that bubble, there's some things that are really, really interesting, really, really encouraging. Uh, I think, you know, a lot, some of the things we talked about, like, uh, you know, power grid management and energy efficiency and, you know, any number of other things are just ripe for AI disruption.

Andrew Kazlow: So, that's something we haven't really talked a whole lot about it. I'd love a couple words from you through this concept of applied AI and some of the nuances within the energy space. I recently did a series specifically focused on angel investing in nuclear energy, which was super fun. We had six guests on the show, you know, specific to that topic.

And one of the things that, one of the guests, I forget who it was said, was along the lines of, we have to be very careful about AI in nuclear because in this case, like if you make a mistake, people die. [00:39:00] Right? And so it's similar in the me, in the medical space, right? This reticence to aggressively adopt AI technology.

I wonder if some of that applies, uh, in the energy space. Curious, you know, where you're seeing AI applied effectively now, you know, in some of the startups that you're working with.

John Jeffers: Sure. So, I mean, you gotta be careful when you talk about AI too, because I mean, most people like me, I love playing around with ChatGPT, right? And, and I'm doing all kinds of cool stuff and it's saved me a lot of time and effort in, you know, doing, doing research, synthesizing things. But it's also given me some really squirrely results from time to time.

You know, uh, having experienced this morning that just blew me away, how wrong it was on something that I thought was a pretty simple question. Um, but not all AI is large language models and, and, and GPTs right? A a lot of AI is neural networks, control systems, things like that, that are, that are proven again and again to increase safety and reliability, not, not detract from it.

I mean, if you think about [00:40:00] airline safety, when's, when's the last time that we've had a a, a major aviation disaster? Or how much less frequent are they now than they were 10, 20, 30 years ago. And most of that is because of the flight control systems on the planes are so good. Uh, and that's all, you know, AI in a way. Uh, so, yeah, fearful that, that AI, the wrong AI and the wrong application, the wrong level of readiness, yeah could be disastrous. I think in general, um, AI for optimization control of, of complex systems with the right safeguards is probably what we're gonna see more of and, and, you know, uh, power grid management. It's an incredibly complex problem. Uh, and it's not something that I think you can probably write a series of equations to solve. I mean, there's too many, too many variables and too many equations and too many uncertainties in each of those variables. You know, it's a bit like, uh, honestly, It's a bit like climate modeling. How do you [00:41:00] calibrate the thing, right?

How do you calibrate the thing and then you, you know, it may perfectly match history, uh, that you can get a model that, that, that, that, you can, you think you're calibrated on, but you're calibrating by tweaking knobs that you don't really understand, uh, completely. And the measurements that you need to continue to use it as a, as a operating model, aren't there.

So, what I'm saying is I think there's a lot of opportunity in these very complex systems, uh, to make better use of AI. Um, and whether it's power grid, whether it's load management in businesses, commercial buildings, whatever, I think there's just huge opportunity. The question is, you know, what kind of businesses can you build around that? And, and how can businesses, startups build truly competitive moats around, uh, an AI implementation?

Andrew Kazlow: Well, and getting to that level of complexity requires stair steps, right? We don't just wake up tomorrow and AI is running the grid, right? That's a, there's a massive series of changes that need to happen [00:42:00] to get to that level, if ever. I'm curious, like where you're seeing. You know today, like what are the things?

'Cause I think it's easy to just think, oh, that's gonna happen in the future. And I think many of us, myself included, miss some of the ways that AI's already being leveraged today in more practical. 

John Jeffers: Yeah. Yeah. Uh, great, great example because I, I'm, I'm with you. I mean, the grid is something so large and complicated. I can't get my mind around even what it is, let alone how you'd manage it. Um, and, and there's so many players in it, and there's so many. If you think of it as a complex system, there's so many nodes and all, all this stuff.

So how do you, how do you dial that back to something that can be done practically today? Looking at, um, a, a really interesting, uh, startup in, uh, SWAN right now that, uh, was in our pitch night. Um, they're called Variablegrid, they're a consumer technology, a home technology to assist with power load management for EV charging. I don't own an [00:43:00] EV, but if I did, I think the first thing I'd have to do probably is go out and install a home charging station because I don't wanna pay the commercial rates and I wanna be able to charge overnight at home. Well, most people, uh, don't have sufficient electric service in their house to actually rapidly charge or reasonably rapidly charge. At home and the cost to upgrade is tens of thousands of dollars. So if I were to go buy a new Tesla and bring it home and, and, and want to actually be able to, you know, get my 80% charge in four hours or whatever, I'd need to upgrade my electrical service and I'd have to call and wait, get permits, uh, pay a lot of money. Uh, what Variablegrid has done is they've developed a really smart load management system for home. For your electric box that basically monitors in real time the loads, uh, to on, on the rest of your service. So that can divert absolutely as much as possible to charging your, your EV I mean, normally you'd have a, whatever a, you know, a 10 amp or 20 amp circuit dedicated to charging your EV and everything else would be [00:44:00] doing whatever everything else was doing. And most of the time you'd be using far less than what your service would allow you to do. So they've developed a system that that allows, and it's an AI based system, monitors and predicts the active loads in your house so that it can divert as much power as possible to charge your EV and allow people to own, own, own an EV and charge it at home with, um, you know, without having to make that $10,000 plus investment in, in, in home upgrade. And, and their system, you know, sells for hundreds of dollars, not, not thousands. Um, and then there's a, a modest monthly subscription fee, uh, for, for the AI. It's Canadian based company. Uh, they're, they're, currently going to market in Canada through largely through one of the EV manufacturers, uh, looking to come to the US and scale here. So even though, you know, EV uptake is kind of slowing down here a bit in the US uh, cool technology, it's, it's, you know, capital [00:45:00] light from the customer standpoint, um, and solves a real world problem that's, that's been inhibiting, uh, EV adoption among a lot of people. That test drive and they describe the test drive you. They got test drive the EV. I love it. I love it. I love it. And then the salesman tells you that, well, before you buy it, be aware. If you want to charge it at home, you're gonna have to do this and that and the other. And now that salesman can say, you know, you, you, you know, for whatever the price is, I don't wanna quote their price, but it's hundreds of dollars, Uh, you, you, you can purchase this accessory, which, uh, can be easily installed at home with no permits. And, and off to the races, you can charge your EV at at home electricity rates rather than public charging station rates.

Andrew Kazlow: Love it. Love it. Great example.

Well, John, as we come up on time, any final thoughts you would leave our listeners with, state of, you know, angel investing in in cleantech, clean energy.

John Jeffers: Look, the challenges have not gone away. How we're gonna meet these, those challenges have maybe, maybe shifted a bit and, uh, [00:46:00] you know, angels play a really critical part in getting small startups going. You know, I just encourage folks that are interested in this space and are maybe interested. Or think they might be interested in supporting startups as an angel investor, but as a, as a mentor, as an advisor, just as someone that somebody can have a quick conversation with. Maybe you're on the customer side and you can give them insights into the real world needs. Uh, do it, engage. Uh, engage because you can make a difference. You will make a difference. Um, and, you know, if you wanna know. You know, Think about ways to engage. Feel free to reach out to me. I'm always happy to chat with people, answer questions, uh, point you towards other people that I know that know a lot more than I do. But yeah, it's been a great time for me for the last five or six years that I've been in this space.

And I, I tell you, incredible progress has been made. Uh, the setbacks of the last 12 months are, are temporary [00:47:00] bumps in the road. Um, maybe have awaken some people to the realities of, of, uh, macroeconomics and customer preferences and things like that, in ways that they probably should have been tuned into, uh, all along.

But, you know, we all, we all learn from our missteps and, and, uh, I'm learning from mine. So, no, it's a great place to be. Great time to be here. And Andrew, I can't thank you enough for being such a champion of angel networks and angel investing, uh, through this podcast and through everything else you do.

Andrew Kazlow: Of course. Well, thrilled to have you today, uh, and look forward very much to our next conversation. Thanks, John.

Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you never miss a thing.

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