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0:16 show, everyone. Today, we have in the studio with us Mush Khan. He is the co-founder and CEO of Alchemy Industrial. Thank you for being here with us. Absolutely. I'm excited to see you both

0:30 Yeah, happy to be here. So tell us a little bit about what is it that you guys do at Alchemy Industrial. Sure, I'll give you a bit of a background. So

0:40 my whole experience has been in the industrial business leading companies that make industrial related products and services from software to industrial distribution to products, et cetera and one of

0:56 the one of the jobs I had before Alchemy Industrial was leading a private equity-backed business that had most of its supply chain in Asia, primarily in China. So I was able to go to China a few

1:08 times. Not an expert on China, but at least I've been there and was able to see things for myself. Incredible experience. I loved working with the people in China and the factory owner that we

1:23 worked with was incredible. There was an interesting experience that I had The last time I was there, I went to, after dinner, we went to this huge public park. It was massive and just filled

1:34 with people, beautiful evening, and there was something I noticed there that there were two sets of grandparents, one set of parents and then one child, and so the one child policy for me became

1:45 like really apparent in front of my eyes. It's one thing to sort of read about it, it's another to see the dynamic, and so that got me thinking, well gosh, until that time, China's

1:58 primary competitive advantage has had been on low labor rates. So could it be at risk if you have a demographic issue in China? And so that's what got me sort of thinking about this, and this was

2:09 in the late teens. So that led to really digging deeply into manufacturing and the future of manufacturing. And so we began to develop a thesis around reshoring manufacturing back to the US. And

2:23 this is pre-COVID, pre-IRA And frankly, most of it was a guess. But we came up with sort of three things that could drive. And as it turned out, our driving manufacturing back to the United

2:36 States. One is sort of

2:40 the decline of low labor rate economics in China and maybe another parts of Asia. In fact, there's an interesting way that that's playing out today. If you look at direct labor rates in Mexico,

2:52 actually they are lower than direct labor rates in China. So that's an interesting dynamic for Texas, especially in terms of where you manufacture stuff. So that's factor number one. Factor number

3:01 two is the democratization of manufacturing related technology, like robotics, AI, machine learning. So now these technologies are available to sort of

3:14 everyday engineers like myself. 20 years ago or 10 years ago, if you wanted to program a robot, you needed to do code level programming. That's not the case now So that opens up technology in a

3:26 way that was not open before. It makes it much more easy to implement. So that's factor number two. And then factor number three,

3:35 my view is that the world needs a lot of stuff. And if you look at the world as probably several hundred million, maybe a billion people that still use biomass for fuel and heat, et cetera So

3:50 imagine even 20 of those people 30 of those people. beginning to buy at sort of Western economic levels. That's a whole nother America worth of demand. And so that's a massive demand profile that's

4:07 coming. So that's what led us to really think about manufacturing in the US. So we launched Alchemy Industrial almost four years ago with that in mind. And it was really, you know, a PowerPoint

4:19 that said, let's make stuff here. That was kind of, that was kind of it. And I was very, very lucky to co-found the business with a good friend of mine, John Weinserl, who has a family office

4:29 here in Houston. And he supported that vision and he's still a primary funder. So that allowed us to launch Alchemy. This is a really long answer to your question. But, so we found Alchemy with

4:41 the idea of let's make stuff here. And we narrowed it down to two things that we thought would be valuable. One was industrial automation because there's also not enough people in America to make

4:53 all this stuff. automation is not a, in my view, a job killer. It's a job enabler. It's a must-have, not even a nice-to-have. So that was one potential area. The other was in power systems.

5:06 So when we looked at reshoring manufacturing back to the United States, and you look at the existing grid, what we're producing already from generation to transmission, there's not enough power to

5:18 supply revitalizing manufacturing in the US So we thought within that supply demand and balance on power, there was going to be an opportunity. And so we had some progress in both areas.

5:33 The pandemic happened, we sort of accelerated this thesis on, let's make stuff here, because we all experienced it, you know, and critical things too, that we realized, oh my God, this doesn't

5:44 make sense to have everything made overseas. We need some of it made here, it might even

5:50 be more expensive in the short run Um. So, and this was prior to IRA, as I mentioned. So once IRA passed, it became apparent that there was no version of inflation reduction act for industrial

6:04 robotics. And so we decided to focus all of our efforts on that power side of the business. And now alchemy is focused on making energy storage systems or microgrid components for the American

6:19 economy We're now about 18 months into that singular focus. We've now won some business. We're beginning to build and deploy our first systems. You know, it takes a long time to build something.

6:32 And it takes a long time to engineer something. And so now we're at that point where we're just barely, we're like a three year old human in business terms. And like every three year old, you can

6:44 never really leave it alone. And it's gonna run out into the street. If you're not watching it, you know, not quite ready to be fully functional. little kid even. So, so we're at that stage now

6:54 where alchemy, we're really trying to get it to the point where it has some real momentum. And so we feel like we're in a good spot now. So that was an extraordinarily long answer to your very good

7:03 question. I wanted to give you the background. Yeah, no, really good. To kind of see what what are the mega trends that you were seeing in the world and how you were trying to figure out, you

7:13 know, for the future, five years from now, 10 years from now, how can we position the US economy right to take to account for some of these trends that we're seeing that are coming. Can you also

7:27 talk to us about, you know, so you founded alchemy in the pandemic four years ago, break down a little bit that journey from like day zero to where you are today and some of the lessons that you've

7:37 learned and maybe some pivots that you've made along the way. Yeah, great question. You know, I think that it's interesting when you read other founder stories, we've all read them from jobs to

7:49 to mask to all the really pro-lipics. ones, and even some of the folks here in Houston that have really done well,

7:57 we always we always see sort of the end result of where they got to. But in reality, I think the beginning for everybody is super messy. I think you have sort of a guess or an intuition. This

8:10 might be worth building. But until you start talking to customers and building something, you never really figure it out. So we've pivoted quite a bit. We pivoted less today because now we're

8:23 hearing yes from the marketplace, but it took us a while to get there. So I think the zero to one journey is actually quite difficult. It's very high risk.

8:35 And ironically, my view is that at some point in time, you've got to stop reading the stories about other founders and even business books and like how to start, how to do a startup in 14 steps.

8:49 Like, Now that should ever work, or it worked for them. So like if you put Elon Musk in a time machine with everything that he knows today and put him back when he started the business, he would

9:01 also take a different path because the world was different, the supply chain was different, technology was different, everything was different. So I think ultimately to navigate that zero to one

9:12 journey, and this is why I respect founders of any kind, whether it's a bakery or a technology company or even a parent, you're a founder as a parent when you have your first kid, you're making it

9:23 up as you go, you're going along. Well, and you're onto something, in some ways you, I think it's hard for most first-time founders to realize you have to kind of create mythos in the company.

9:31 And as a parent, I'm sure you have to create the myth that you're all powerful in no way in the same way, right? Because that's necessary and story must be linear, otherwise it's just too hard to

9:42 digest. And I think sometimes we drink the Kool-Aid You assume, these are the 14 steps in this book because that's part of the mythos and you can't, you can't show like that, the disorder, right?

9:55 No, and that's such a great point because I know I think earlier in my leadership career I probably shared too much. And what I didn't realize is that my thinking out loud was interpreted as

10:09 instructions, you know? And in my mind, I'm like, oh, I really don't, no, I'm just guessing. And, you know, what do you guys think? But I think as a leader, that is something you have to

10:19 be thoughtful about, which is, okay, have an internal voice, listen a lot, but probably say less. I'm speaking from my own experience. And

10:31 because you are trying to navigate the chaos and the chaos is not for everyone. It's not for everyone. It's really, really hard, I think. And it, you know, it,

10:42 I remember making a LinkedIn post about three years ago. We're something like being a founder is realizing that no one is coming to the your rescue There's

10:53 no

10:55 call a

10:59 friend. There's no like You know

11:03 and this is why a co-founder is so important I think because I couldn't imagine doing what I'm doing without John as a co-founder And we have different skill sets and different experience spaces, but

11:13 I would say to any founder If you can find a good co-founder like the ideal thing is a technical co-founder and a sales co-founder I don't think it's it's very hard to find that kind of perfect

11:24 package But doing it alone is really difficult. I would not recommend that. There's a reason why Y Combinator only accepts like two co-at least

11:37 Yeah, you're right. Yeah, and I think statistically like they say teams of three to four are like most likely to have positive outcome It gives you that resilience and diversity of skill sets.

11:48 Yeah, because on any given day, you might be down, discouraged, or, you know, there may be a number of reasons why you're not feeling it. There were days when I experienced that, even today,

11:59 not literally today, but, you know, even at this moment in time, there were days where I'm like, What the hell am I doing? This is nuts,

12:07 you know. And so, having someone with you helps. Just accountability too, right? 'Cause, you know, it's not just me who's gonna fail if I don't like to ever do this. Like there's someone else

12:16 depending on this too. Yeah, exactly, yeah. That I don't want to tell my family, I don't want to fail to. So, tell us a little bit on the manufacturing side. Just for those of us who don't

12:27 know how these systems get made, like what's in it? And so you have a power system. You know, and I think for most people, this is like transformers or this is like the widget on the wall that

12:38 takes your solar panel power

12:41 and makes it into useful energy like what's actually in it. And when you say manufacturing, I imagine you're not making the little chips that actually make the power conversion. So where does it

12:49 begin and end? Yeah, so it's a great question. So when we think about an energy storage system it's made up of three or four key components. There's the piece that's actually the battery and I'll

13:00 go a little deeper into each one of those. There's this battery, there's the battery management system and that's what really, or the cells excuse me, the battery management system, that's what

13:10 sort of controls the cells and then power control system and that's what sort of tells it the whole system under 10 on and off and a few other things. And then finally, an energy management system

13:21 that tells that system, battery system, how to work in a fleet on the grid, et cetera. So when you go deeper into it, what Alchemy is doing today is essentially we're integrating components

13:34 together. And we're taking these cells

13:39 from this company, this BMS from this company, et cetera and integrating them together. Not trivial work, not trivial work at all, but easier than trying to build everything. What I would say is

13:51 that directionally, we'd like to build as much as we possibly can, but you're right, Jason, you have to stop somewhere. So we're not gonna own a foundry or a

14:02 steel mill to make enclosure metals. Well, we won't do that. Elon

14:08 Musk probably will, but that's not us The way we think about it

14:14 is, where can we make a difference in terms of cost and quality? Because when you integrate things together, it's never quite right. It could be that dimensionally, it's a little off for what you

14:25 think is a great API, is really a crappy API, or things just don't work well. So what we think about is, can you make a difference on quality or performance or cost if you did this yourself? And

14:38 that's what you're doing. And you say API, so you're actually getting into the digital - And we are. Yeah.

14:44 That's firmware, software, user interface. That's right, yeah, the whole thing. Yeah, and I think the way I think about devices today, let's say 60, 70 years ago, equipment was electrical in

14:57 nature. Well, long before that, it was mechanical. Then it became electrical or electromechanical. Then it became sort of electromechanical electronic.

15:08 And now sort of the fourth addition is cyber, and AI enabled, et cetera So our view is that you have to be able to put all of those value stacks on a device. Because otherwise, it's not a smart

15:23 device. And it may function, but it doesn't function sort of in a network of devices. And so yeah, eventually we'll do just about everything. Like I said, where we think we can make a difference

15:33 on quality or performance or cost, that's when we'll - that's when we'll make it on our own. We were chatting just before we went live. That takes a tremendous amount of money.

15:43 Building a manufacturing business for an asset-based business is certainly not for the faint of heart from a financial standpoint, so you have to raise a lot of capital to do it. It's very hard to

15:55 sort of

15:57 do it on a shoestring budget, so if you have to compare, let's say, minimum viable product for a code-based business, you could have one person and they could probably get there. With an

16:11 asset-based business like ours, the minimum viable product is a physical device, so it takes some money also to get to that point. Executing the road map that I just described is a lot of money,

16:24 you know, and so we're thinking through how best to raise that capital going forward. Yeah, and what you described is, I think what I used to call it was what I was taught was it was value

16:35 engineering. You kind of have the requirements, but the way you create values, reducing costs, managing functions.

16:44 and finding which pieces on the inside all fit together to get you best performance and lowest price. Yeah, that's exactly it. And it's a never-ending process.

16:55 And part of the engineering discipline that we have is to constantly try to figure out what can we eliminate? Do we really need that?

17:06 And sometimes you eliminate too many things and you realize, oh, it won't work without that thing And so I always found it funny that they call it value engineering when it was really about reducing

17:18 cost. Well, the value goes forward and I can pull out it. Why don't you call it cost engineering? Yeah, we should. I guess that's not as attractive. What is fun to say is value. Yeah. Sounds

17:27 more fancy. Yeah. Like you could teach at a university. That's what you get that MBA prize, exactly. So what would you say is your product then at Alchemy? Yeah. So our product is a, energy

17:41 storage system. So that includes the cells, the BMS, power control systems, and the energy management system. So that set of devices put together is our product. Well, there's physical how big,

17:53 but also is there a capacity people should think about? Yeah, so it really depends on the application. So think about the

18:01 market for energy storage system. So there's probably three ways to look at the market, residential, commercial, and industrial, and then grid scale. A great example of a residential product is

18:12 the Tesla Powerwall. So they've obviously had tremendous success there. That product, I think their minimum-sized product is probably like 13 kilowatt hours. That's the size of the battery. And

18:17 on the other end is grid scale. And we've seen a lot of that

18:26 in Texas. Texas is a very active market for grid scale batteries. And that could be tens or even hundreds of megawatt hours, perhaps even approaching a gigawatt hour installation and these are like

18:40 20 foot container sized devices that you'll see out there. Our focus is actually on the commercial and industrial part of the market. Our view is that that market has not been served yet, very well.

18:55 A lot of activity on residential, a lot of activity on grid scale, but not a lot on commercial and industrial. And that the CI market is the market really that has a lot of costs associated with

19:09 losing power or power quality or a variety of other issues related to the power systems that they use. So that's our focus and the business that we've won has been in the CI market. In terms of size,

19:22 that's in the hundreds of kilowatt hours or perhaps a little bit bigger per installation, no bigger than let's say 10 megawatt hours. So that kind of gives you an idea of what we're focused on.

19:34 Just as an aside, yesterday I got lost at the back of my HGB, and saw the big enchanted rock. generators they have back there. And I'd always heard apocrypha, I guess, not apocrypha, but just

19:45 that all HGBs have backup power in Texas. And I hadn't actually seen the unit and I'm thinking of my supply, aren't they, on battery? And I'm sure there's an economic show when they made that

19:55 decision. But I'm hearing it sounds like there's a little bit of a supply challenge, too. I think that the longer you wanna go with real backup power, the less batteries make sense because the

20:07 size of the battery grows and grows And so in the case of Enchanted Rock and what HEB is doing, it's a

20:13 traditional, as I understand it, a traditional generator, I think maybe either diesel powered or natural gas powered. So for long duration backup, it's hard to get away from sort of traditional

20:25 generators. For shorter duration backup, then batteries can work or perhaps even hybrid systems where you have both. Yeah, that's all the thing is like, why isn't it hybridized? I think that's

20:37 what we're seeing with some of the applications. There are some things that a battery can do that a diesel-generated can't do,

20:44 like managing power quality, like shorter term supply of power. For example, you really don't want to turn a diesel generator on and off, on and off. That creates problems, maintenance issues,

20:58 et cetera. So I think there's hybrid opportunities, there's battery only opportunities

21:04 My personal view is that we need an all of the above approach, especially in Texas because the power demand or the growth of power in Texas is going to be dramatic. So one thing is not going to be

21:19 enough. So it's very application specific, I would say. Yeah, because I'm thinking like first, commercial players like ATB, I mean, if they had solar with battery and like a hybrid option or if

21:33 you couldn't get solar power.

21:37 you know, with something like that work? It could work, I think, and it does work in some applications. I think the, and this also goes to what you just said, is that the battery supply chain,

21:49 at least in the US, is still immature and it's evolving. And that also the grid scale market has sucked up a lot of battery supply coming from China. So in the commercial and industrial market,

22:04 it's been a bit orphaned when it comes to battery supply. So, but some of it is also, if I put my HEB hat on, I'd wanna make sure that I have the most reliable, proven technology it possibly can

22:19 have and diesel generators work, great. And there are tons of people in Texas who know how to maintain them. Yeah, that's right. And that's an important thing too. And so installation,

22:29 maintenance, operations, even financing, all of those things that help to sort of push something in a certain direction. But I think I think batteries and solar and so forth. That's all obviously

22:41 maturing also. The financing regime for solar is pretty well established now for batteries. That's beginning to happen,

22:51 especially with the inflation reduction act and standalone battery system incentives, even though some of those rules are still kind of unclear.

23:01 So as that evolved, I think you'll see more battery installations and for, like I said, for longer term backup, it's hard to beat a generator. So one of the things you've mentioned a few times

23:14 was the doubling down on this market because of the inflation reduction act. So I'm curious, did that, I think we're all surprised I think got passed when it did, whatever, two years ago,

23:25 because it happened fast after I ever went thought it was dead and had come back. And was that one of those things where you woke a couple of week later is like, this is the plan. double down or

23:34 how did that decision making? Yeah, it certainly helped, you know, it's, I would say this, first and foremost, we're trying to operate the business, assuming that it's not gonna be there.

23:45 Because it's a, you know - It's gonna be sustainable. It's gonna be sustainable. I think also it's subject to politics and political wins. And so I think anyone that's building a business that is

23:58 supported by the incentives in the IRA really should sort of ignore it as much as you can. Now that being said, it does provide the opportunity to start things up and de-risk your initial capital.

24:12 So when we saw that pass that we certainly were excited because we thought, okay, that helps the de-risk some of the things that we're doing, but you know, let's not drink too much of the Kool-Aid

24:23 'cause the Kool-Aid might disappear one day. And so we were kind of joking about value engineering, value in engineering, cost engineering, etc. Our view is we're looking at everything from an

24:34 unsubsidized basis. And it's gonna be competitive at that level. Because then whatever government subsidy is available, that's an add-on, but can't be make or break. So it was great for us to

24:46 have it, but it was sort of a short-lived celebration in a way. We still have to do really good engineering work to make it make sense. And then also the way these systems create value have to be

24:60 sustainable too. And they have to provide real economic value to a customer. And it has to be easy for them. They can't stretch and twist to figure out what the value is. And so it takes them

25:13 discipline too. So who have been the early adopters within this commercial and industrial space for you today? So we've got a few, a small handful of customers. One of them is a

25:27 medical micro-clinic and so they're deploying. several hundred clinics across rural America. So as you can imagine, rural America is underserved when it comes to medical care, but it's also

25:42 subject asymmetrically to power problems. Whether the grid goes down, or the time it takes to get someone to repair it, et cetera, our rural communities suffer the most compared to anyone else, I

25:55 think. And so this is a company that's deploying those systems We have an opportunity to deploy our systems as they grow. So we love that particular opportunity. There's a great economic use case,

26:08 but also for us, it feels great that we're part of that story of bringing medical care or power so that our customer can bring medical care to those communities. Another customer is somebody that is

26:23 a California-based micro-grid company. So they're deploying micro-grids in California And so we've just won the first project. to build a system for them. It's going to be fully US-built system,

26:34 even down to the battery cells. And so they get to experience all the benefits related to the Inflation Reduction Act. And so we're going through the engineering on that. We'll be doing the build

26:49 starting in a week or two and deliver that system in probably late November. So that'll be another live one. And then another one that we haven't talked about publicly, what we will is that we've

26:59 just, and this is not so much a commercial one, but has some other benefits that we're gonna, we're building a micro-grid in conjunction with the University of Texas at Austin. And so we'll be

27:11 collaborating with a group of senior level electrical engineering students. It's sort of capstone project and some of their researchers and faculty there. And so it's gonna be a multi-year effort to

27:21 build out sort of a micro-grid research center And one of the vision, part of the vision we have is can we build sort of this? to Texas University-based micro-grid, consortium, collaboration, et

27:36 cetera,

27:39 so that not only students can learn about how to build these systems, but also can they be a good sandbox for industry professionals too. And so we're really, really excited about that one. My

27:51 business partner, John, is an alum, distinguished alum from University of Texas. So he helped to make that happen. And we're working on with a couple of other universities on similar

28:00 opportunities. So that's an interesting one for us. We've also got a few other customers that I think, they're not customers yet, but I think we'll win in the next 60 to 90 days. That'll continue

28:12 to evolve the business. That was super exciting, and that you already have these customers on board. Can you talk to us a little bit about what is a microgrid and why is that needed? Yeah, so

28:24 it's a great question So, There's so many definitions with certain products, but the way I think about it is that

28:32 we have the grid, the big macro grid, if I can use that term, centralized power generation, long distance transmission lines that get stepped down from substations into our businesses and homes.

28:44 So that's sort of the macro grid, the traditional grid. A micro grid is a system of generation and storage and delivery that's closer to the business, closer to maybe you're a home, maybe it's a

28:58 collection of homes or a collection of businesses. And that typically can include solar. It can include traditional generation, energy storage, and all the power distribution, getting all the

29:09 electrons to where they need to go. That's a micro grid. I would argue that a Tesla power wall is a nano grid. It's a very small grid of sorts that is just for your home. And in that case, that

29:23 can obviously participate in a broader. grid also. That's decentralized. Decentralized. Yeah, and I was actually with Chuck Yates a few weeks ago. We were talking about this sort of a funny,

29:34 not so funny, maybe funny story. My personal view is that when you think about the concept of a decentralized energy storage system or energy system, it's a very old idea. It's not a new idea. We

29:47 used to have way back in the day, we had a fire, our own fire, and we didn't have a central fire where you grabbed a burning log and you traveled hundreds of miles and let your fire. You know,

29:60 there was great sort of

30:03 independence with having your own energy source. So I think that's where we're going back. It's more of a decentralized power.

30:15 Everything seems to be decentralizing, everything, you know, whether it's power or food or knowledge or like keep on listing. And I think that's because at the risk of being overly philosophical,

30:29 I think that's where we're kind of pre-programmed as humans is to have more sort of sovereignty over our own lives. And I think power or energy is just one of those things. So there's this natural

30:40 pull to make that the reality. Economically, obviously it has to work, but what's interesting about all of these systems as they scale is the costs are continuing to come down And so as costs come

30:55 down, then it does become much more accessible to everybody. I mentioned the robotics earlier in our conversation that one sort of a basic cobot or a collaborative robot, you can probably buy for

31:12 like40, 000 or50, 000, okay? And you can program it yourself. Like the three of us get put it on this table and program it. And like in that case, the programming step is Press a button on an

31:23 iPad.

31:24 move the arm from point A to point B, you've now programmed that robot. So with cost coming down and the user interface improving - And for context, what did that use to cost with like these big -

31:35 Oh gosh, like five million dollars. Like five million dollars. So millions of dollars. You needed a special programmer or some of the right lines of code and that's not necessary anymore. All

31:44 that happens with scale. And energy systems or power systems, that's happening too. So it's feeding into this ultra decentralized system How far will we get? I don't know, but I

31:59 think it's entirely possible that the majority of our individual power usage will be sort of ultra locally generated. I think that's where it will be. It's a more natural system. Are you ready to

32:13 lead the decarbonization charge? Energy Technexes is your platform for growth, offering unique resources and expertise for

32:21 energy and carbon tech founders.

32:25 Join us at energytechnexascom and start building your thunderlisset. And that's, I guess, where you're seeing your market expand, or your energy storage systems. And look, Texas, we talked

32:38 about Houston Climate Week, and I went to this really great event where the speakers taught about Texas in particular and disruptions in power And this is probably no surprise, but Texas has

32:50 probably more, maybe the most weather-related events to its power system. We're on the Gulf Coast. I mean, obviously, and occasionally gets really, really cold. But so the combination of

33:04 weather events, the combination of a growing economy, aging, infrastructure, etc. There's a lot of power disruptions in Texas. We all experienced it with barrel, obviously. And we were at my

33:14 house, we're out of power for six days, and Yeah, I was uncomfortable, but imagine being a person that needs medical care or has a breathing machine at home or whatever. I mean, like this is,

33:26 for me, it was discomfort for many people, it's like a life threatening thing. You know, and so

33:34 I think the need for reliable power that's resilient to whatever's happening, that need is growing. And there was a really interesting study that came out a few weeks ago that at ERCOT and the

33:46 Public Utilities Commission put together covering the value of lost load. I'd never heard of this term until I went to this Climate Week presentation, V-O-L, and it

34:00 talks about how much of that lost power actually costs a business in real economic damage. And I'd encourage your listeners to look at it. Is that like power outage, you mean? Power outage, yeah.

34:12 Okay, okay. So let's say, I'll give you some numbers. You lose power as a business. Sort of medium-sized business, perhaps a restaurant or some more manufacturing business. Let's say the first

34:24 hour of that lost power costs you about35

34:29 per kilowatt. So let's put that in perspective. Let's say you have a business that consumes 100 kilowatt hours or 100 kilowatts in one hour. So that's a3, 500 loss for you in that first hour of

34:44 losing power. And that's a lot of money. If you're a restaurant, if you're a small company, that's a problem. That could be your payroll. And so resiliency has tremendous value. And that

34:59 ignores all the other things you can do with batteries. But power is so fundamental.

35:07 You can imagine, if we suddenly lost electricity, how different would our society be within a week or two, within a month, within a year.

35:17 I mean, it would be horrible. It underscores two things. One, I'm not gonna complain about my electricity bill again. Not even like on the same watermelon too, like my, whatever, 10 cents a

35:27 kilowatt hour is really cheap. But it also implies that we can afford kind of to do the distributed generation now because it's definitely worth it. And honestly, not that much more expensive. I

35:41 don't think it is, yeah. I think you're right And I think that being said, it's uncommon on companies like ours to tell the value story. And it's not always apparent. And we all have experienced

35:55 this. When the power is out, we would do anything for power. And then about a week later, we're like, No, a big deal. And so I think we have to tell that story. Now for businesses, that loss

36:07 of power is residual. The impact is residual. They'll never stop experiencing what happened You could lose customers, you could lose. like a restaurant we met with a restaurant group a few weeks

36:18 ago, they lost a lot of their inventory and their freezes, they lost wine 'cause some of the wine had to be maintained at certain times. Fine, but you get too hot. Yeah, and that was actually

36:27 the more expensive thing for them. And so those losses are unrecoverable. They're always in your PL. So we have to continue to build our story about why that's important. And because the

36:42 opportunity cost is really the bigger cost. Like, what could we have done had we had the power? And I think that's important. So for your current customers and the ones building these microgrids

36:55 or for that medical clinic and rural areas, is it then your battery systems is more for that resiliency or that backup option? Yes, that's right. So in the case of - let's talk about the medical

37:09 micro clinic, micrometical clinic, you know, lose track of the terms, but

37:15 So for them, if they don't see a certain number of patients per day, the way their reimbursements work is that that clinic will no longer be profitable. So they have to see eight or 10 patients per

37:26 day. And so if they lose power, they don't get to see those eight or 10 patients, they don't get their reimbursements and they begin to lose money. The social impact obviously is that whoever's in

37:36 the community can't get the care that

37:42 they need So resiliency for them is a very high value proposition. There's other things that we can do for them, but for them in particular, it's like just keep the power on and because that's our

37:52 core business.

37:54 And which is, so that's true for a lot of businesses where resiliency is really the biggest driver of value. We can offer other value streams, like I said, but resiliency is a big one. So for

38:07 them, I'm just thinking like how often, you know, here we lose power, let's say maybe two, maybe three times a year if something happens. like in other places, how often is that really a

38:17 problem? Yeah, that's some interesting data. And so the frequency of power outages is across the United States. Frequency of power outages is increasing and the duration seems to be increasing.

38:29 The duration per outage seems to be increasing. Obviously in a place like Texas to the extent there's physical damage to the infrastructure then it could be days or longer in some cases.

38:41 The data also seems to indicate that for rural Americans it's even more extreme. That power outage frequency and

38:53 duration is increasing also. And some of this is really directly tied to how old our infrastructure is in the United States. There's not, I don't know what the exact statistics are but the

39:05 overwhelming majority of the power distribution infrastructure we have is stuff we've had for a long time and so all that needs to be maintained It's also interesting that. things like transformers,

39:18 let's say, we make very few transformers in the United States anymore. And if I were going to place an order for, let's say, a transformer for a medium-sized business, it might take me two years

39:28 to get it. So the supply chain also impacts the severity of any damage. So

39:36 someone has a transformer that gets destroyed or damaged in a, let's say, a weather event or something else, then you're even more exposed. So I think there's sort of what do we experience from

39:48 losing power, but also what is the risk? And so, because we don't consciously price in risk, but the risk is there. So when something happens, you're way more likely to experience a severe

39:57 impact by losing power. Can you talk to us a little bit about critical supply So I think one of the things that

40:12 showed up in the IRA, was trying to bring back strategic manufacturing, like opening up these, like lithium mines, we can produce batteries here.

40:23 I guess, were there things that have been coming online that wasn't on the radar for the rest of us that you're aware of where we were insourcing but because it is so essential. And it's like

40:34 transformers is that something that there's a roadmap to have that built? Yeah, I'm beginning to see it Unfortunately, it's a decade long journey maybe longer. So one of the things that I give

40:48 China tremendous credit for is having sort of national policy when it comes to manufacturing. And so you have a lot of sort of vertical integration within China on certain

41:01 pieces of pick your industry, like power industry. So we have to build that here. I do see it beginning to happen Some of it's driven by the IRA. But some of it is also driven by people

41:15 recognizing there's an economic reason to build something here. One of the examples that I've used before has been like the, let's just take this microphone. So the

41:26 microphone is not just a microphone, it's a number of manufacturing activities, supply chain activities, et cetera. And let's say that previously all these microphones were built somewhere else,

41:37 and we wanted to build it here in Houston, Texas It's really complicated to figure out how to do everything you need to do to build that here, from supply chain to materials to labor. Like, do we

41:51 have someone that knows how to build microphones? So it's at that times 100, 000 maybe, what we're trying to do with power systems. So it's a very complicated thing. When I step back, I think

42:04 the number one thing is around a skilled workforce that can build things somewhat engineering, but more sort of just hands-on, skilled workers that can build things.

42:19 I would say that if I weren't in the business, what I'm doing now, I'd focus all my time on that one thesis 'cause I think it's massive. It's getting more difficult to solve because people are

42:29 retiring. And the way to think about that is that, let's go back to this microphone. It's not just a person that knows how to build it. It's that knowledge is in their head And when they retire,

42:41 that knowledge has generally not been institutionalized anywhere. That is also retiring. The knowledge is also retiring.

42:50 And so it's a multifaceted problem, but solving that one problem will unlock a lot of value for the US. And one of the reasons why I love Houston, I'm a big fan of Houston, I've been here since

42:60 1990, is that we've got a lot of people here that know how to build stuff of different kinds. And perhaps they don't have all the experience to build what we're building,

43:11 because they already have core skill sets. And I think Houston is perhaps the

43:17 best place in the country to experience America's re-industrialization. I think we're gonna be the epicenter of it, so. I'm curious, who's responsible, or more importantly, who's incentivized to

43:31 pay for that kind of education transfer? And it's not you 'cause you're the startup and that's a big, hairy, expensive challenge And just thinking out loud, just knowing the way like Texas

43:42 politics is, the Texas government isn't equipped to do that. So who picks up the mantle? That's such a great question, Jason. I don't know.

43:53 I'll tell you our story because we have self-interest. Yeah. To solve this problem. I'm not sure what the societal response is gonna be. So we have a self-interest in knowing more and writing down

44:07 somewhere, all the stuff that we've learned.

44:10 the first use case for AI in our business, large language models. So we're using Microsoft Copilot. We

44:16 didn't build an AI. We used an AI that someone else had built. And now we're training it slowly on all of our activities. Totally internally focused. We're not making this data available to anyone

44:28 outside of the business. We can't because we're training it on data that could be under an NDA from a customer. So we have to be super careful about it So this is an example where we're really lucky

44:40 that someone spent millions of dollars, develop an AI tool that we get to buy for like35 a month, you know? And

44:49 so that's how we're trying to address it because our incentive is we literally can't build stuff without getting really good at knowledge. And one of the things that I do at the end of every week is

45:02 I type out a lessons learned email And what did we learn this week? It could be, oh, you know, we learned - this supplier is not available or the supplier is available, or we learn the

45:15 specifications for this particular device, et cetera. To me, that's where the work has to happen. Individual companies have to do it.

45:24 Would it be great to have something more sort of statewide and even federal? It would, it's just that, sadly, I think our history of that kind of stuff has not been great, you know? And I think

45:38 self-interest tends to solve problems a lot faster. Now, I would say I do think there's an opportunity sort of keeping with the local theme that if we got, let's say two dozen Houstonians together

45:52 and said, hey, can we populate an AI or a large language model with certain manufacturing skills? That could probably work. And you could probably even build some economic model around that. So

46:03 like, you know, contribute and you get the results free. I'm just totally winging this, but But. and then sell it somewhere else. LM plus Bitcoin altogether. Exactly. To become this thing, I

46:17 see it. Exactly, yeah. Yeah, it's our next business together guys. So I think you can get people who have a local interest and they see the value of doing that. But I think ultimately it's, I

46:32 think the incentive is at a self-interest level to really get it done. But again, just like with a robot example or an AI example, God, how lucky are we that people have built these tools that we

46:44 can buy for nothing? I mean, 35 a month for Microsoft, maybe 40. I don't know what it does. It's not 3, 000, but for tens of dollars a month, we can get an extraordinarily powerful tool. You

46:58 think about like the other way to think about it. It's like it's a storage of the compendium of knowledge. Like, how much did the encyclopedia of Britannica cost? I know. I had to buy it. look

47:07 it up in the index of your fingertips. So it's amazingly valuable. It is, and I think there's, the reason we're taking this particular AI roadmap is that we have to build sort of AI literacy

47:20 within our organization. I think there's only way to build literacy on new tools is by just fumbling around trying to implement it. And you realize, oh, it can't really do this. It's not really

47:30 magic, you know, but it does do these things really well. So let's use it for that So it's sort of a, it's an iterative process, just like our conversation with starting a business up. It's,

47:41 you kind of make a call and then you do it. You try to do something that doesn't break the entire business that you learn as quickly as possible and then you just keep going.

47:51 I'm curious to learn a bit more on your fundraising journey. I mean, you said you have a family office who supported you from the beginning. You know, what a lot of startups that are working on

48:03 heart tech, find it really hard to get access to. the kind of funding that they need. So what's been your experience and what are you also, what's your strategy as you can expand? Yeah, so I

48:16 think in our case, we are very lucky. And I mean that we have John in our corner that's taking a bet with us. And he's an engineer also and has a lot of experience in the private equity world,

48:30 public company, world, et cetera. So it's sort of a unicorn partner for us to have an up-known John for well over 10 years. So that's not a scalable solution, unfortunately. And so you can't say

48:45 like step one on your 14 steps to raise money is go find your own John. It's not going to work probably. So I think it is difficult. So

48:55 I think fundraising for hard tech or hardware, you just have to go into it with sort of open eyes on how much money it's gonna take. I think the ideal case would be if you have experience in a

49:10 certain technical area, if you've built something before, you might be able to go to, let's say, a customer that takes a bet on you. Or you might find the right, why-combinated type of an

49:23 organization that can help you get things off the ground.

49:28 But it's difficult.

49:30 I think if you look at the history, maybe history provides some lessons, that the history is typically, these businesses are built by builders, like literal builders. Just like literal coders.

49:42 You know, 'cause you can't afford to pay someone typically to go build something for you. You have to know how to perhaps weld or do your own wiring or do some integration work, et cetera. And you

49:53 just, you may even have to find like, this the used thing here or go to the junkyard and find this, like also I've done this before, where the. not in this job, in a prior job, we went to a

50:05 junkyard to find this component. And it's literally like for eight hours, climbing over stuff, like, is that it? No, that's not it. You have to be prepared to do that. It's actually, I think,

50:17 a very low likelihood of success in starting a company in that way. But so I think you have to be a builder. I think if you're not a builder, it's gonna be really tough to do it. You said those

50:31 likelihood of success if you're not a builder. If you're not a builder. Yeah, if you're not a builder. Yeah, if you're not a builder. And in that sense, Houston, I do think, has a lot of

50:40 builders, right? We have a lot of technical resources. We have engineers. And so for this climate tech revolution that's coming where we're gonna need these new technological solutions, I think,

50:53 what do you think? Are we well positioned for that and what's missing? So if you'd asked me this question five years ago, I'd say no way. Not a shot, I don't think we were taking it seriously. I

51:05 don't think we saw the opportunity and the threat or what we're calling energy transition. I think it's so different today. I think people see the economic reason to be a leader in

51:20 energy transition, which is sort of a funny thing 'cause energy is always transitioning. We used to use whale oil, you know, put it on, like, killed a bunch of whales and use that And so, I

51:31 think

51:33 now it's very different. We have the skill set. I would argue that the sort of venture funding in Houston is still a little tough compared to

51:46 other places. I don't know if you guys have this experience or not.

51:51 If you're gonna do a SaaS business in Houston, good luck. Tough, tough, tough. But you could go to Austin and probably find people that understand that like explaining to the average investor.

52:02 for generalization, but I make it. The average investor in Houston that you got to lose money for whatever to build your business, that's tough. Whereas I think Houston from a private equity

52:13 standpoint can't find better places in Houston. So people know how to take cash flowing businesses and turn them into massive globally scaled businesses here in Houston, really, really good at it.

52:24 So it's that gap that I think, I'm not sure we've figured that out yet,

52:30 but I do see a lot of activity I think whether it's the organizations like you guys have developed some of the other incubators or universities, I see these puzzle pieces sort of beginning to come

52:42 together.

52:44 And I think that, so I feel encouraged, so encouraged today versus five years ago that we can actually launch businesses of this kind in Houston.

52:57 The funding I think still has a little bit time to go, a little way to go, but it's coming around. So much, much better than it was. I would say night and day versus five years ago.

53:10 And I think just one of the things that was hard to imagine five years ago was having a climate week. And since we're like, I think two weeks out from it, I'm curious what you went to, what you

53:21 thought of it. It was kind of the first time the city came together to try and do something. Right. Yeah. Yeah, I loved it. I think, I've been in Houston since 1990 It's been a great place for

53:33 me. I think until recently, Houston has not been the place where we get together to do stuff. Unless it's like around an emergency. So we have a big flood event, watch out. 'Cause nothing's

53:43 stopping the city. Yep. From getting back on its feet. But we've not been great in my opinion from in terms of proactively getting together until very recently. And I think climate weak and other

53:56 types of initiatives are beginning to show that we can proactively get together So the, um, I went to a couple of events that were very focused on distributed energy resources because that's what

54:07 we're doing. There were great speakers that came into town. It was

54:12 a very much a working session. So I was able to leave that session with two or three actionable takeaways. And we've all gone to these conferences, et cetera. And I was joking with a buddy of mine

54:27 yesterday that it's kind of like when I was in school and I was in a thermodynamics class and it all made sense while I was in class and I had to go back to my dorm room and work out a problem. I'm

54:36 like, I have no idea what I'm doing. I

54:39 have no idea. I think sometimes conferences can be that way. We're like, oh, I went to this great AI thing. What do I do today about AI? No idea. What I loved about my session was I had really

54:50 good actionable things. I think we need more of that. So I was happy to see that. I think there's a lot of potential for us to do that around manufacturing in particular. You know, how do we,

55:03 for example, how do we embrace new technology and manufacturing, even in existing manufacturing, the current manufacturing in Houston, it can be improved with AI, machine learning, robotics,

55:15 machine vision, you know, dot, dot, dot. Those kinds of things are good. So I was happy that Climate Week was here in Houston. I think the organizers did an amazing job pulling that together.

55:28 And I'd love to see more of that kind of activity And just to help give credit. So who ran some particularly good events? So people know to look far next year. Yeah, so the one I went to was put

55:38 together by Arushi Sharma, who is a former Tesla employee. She lives in DC, but has done a lot of work here in Texas. And she had a couple of co-presenters during her session. She's actually been

55:51 great since the session too and has introduced me to a few people and pointed some resources my way. Like this value of lost load calculation. I couldn't find it She's like, It's public, but it's

56:01 not. I'll send it to you. So she, I think, has been great.

56:08 And so that was a session that I went to that I really appreciated. And like I said, I met a few other people. The worry resulted in two or three customer opportunities for us. It was really

56:16 actionable. Yeah, and I think that's a great anecdote because in some ways we wanna bring people into Houston, but also create that knowledge, transfer that. Right. You know, it's beyond just,

56:28 you know, the city walls or whatever Yeah, well, this was 150

56:34 years ago when I was a baby engineer. There was a Texas AM pumps symposium. And I don't know if you guys remember, it's still another, I don't know what it's called now, but it's whatever the

56:44 current variant of it is. But back then, it was all about pumps. So my very first job as a baby engineer was to fix pumps and compresses. And so I'd go to this and there were all these, also the

56:57 breakout sessions, which were great,

57:00 I'd meet somebody from Exxon, from Chevron, from BP, who had that same pump that I was dealing with, the same reliability issue. And I find that if you tap into the right community, people will

57:17 help you. They'll sort of ignore competitive issues in a sense, but they'll say, yeah, yeah, I just call me up. I had that same o-ring problem on that pump a couple months ago And so that's, I

57:29 think that's what we need in this sort of new area of energy transition, building that network or that informal network of people, of real do as practitioners, you know how to build stuff, you

57:41 know? And so that's important. I'm curious, does that kind of activity not happen at like an OTC or we had gas tech here also? It happens for sure, yeah. It happens for sure, but I would also

57:50 say this that I'm gonna sound like a total old guy now, but, you know, that, you know, kids nowadays, but I

57:60 I think back then, we had no other choice but to pick up the phone and talk to someone. These kinds of relationships happen in person or on the phone or they're not a text message, direct message,

58:15 TikTok type of a thing. I wonder if there's

58:21 a real question I wonder if today, whether that same level, informal, practitioners network, is there a different way to build it than when I was a baby engineer? It probably does happen around

58:36 things like OTC,

58:39 gas tech, I'm sure it does. But I also think that, for example, you could, if you Google Houston manufacturing today, maybe yesterday, but definitely today,

58:53 our sort of little pretend website on manufacturer Houston will come up as like the third or second search result. How is that possible, you know? I love what we're doing, but that gives you an

59:06 indication that the structured knowledge is not there yet, you know? So look, there's an opportunity for someone, I would help them, if someone wants to build sort of this manufacturing know-how

59:17 community in Houston, I'd happily, happily help them do that. But because right now it's, if you wanted, let's do this thought exercise If someone from outside the city came in and said, Hey,

59:31 how do I get this thing powder-coated?

59:35 That one question is gonna take your while to figure out in Houston. Okay, now if I ask like, some of the guys I know, they'll say, Oh, go talk to so-and-so at so-and-so company. These guys are

59:45 up on 290. Yes. They'll take care of you. They'll take care of you. Don't go to that guy. He'll overcharge you and it'll be shitty work. And so that kind of tribal knowledge system to be built

59:57 around these new new. things like new devices like batteries, solar, et cetera, et cetera, et cetera, et cetera. That's not built yet, but wouldn't it be cool if we built that here? Yeah.

1:00:08 And it's not like a Yelp system. It's completely different. It's completely different, yeah. It's so technical that it's not a fair comparison to say it's like a restaurant review. No, it's not.

1:00:19 It's sort of the anti-social network concept. It's a reputation network. I think reputation networks are only built offline. I don't think you can build them online Because you can never fully

1:00:30 capture reputation, like both of you know who you can count on in your lives. You will probably never record that somewhere, but you know who it is, and so if I called you and said, Hey, who's

1:00:46 a really good banker for a blah, blah, blah, or who's a really good person in this area, this technical area, or whatever, you probably have a couple people you can talk to That network, I

1:00:56 think, has to be built.

1:00:60 You know, there's some interesting parallels 'cause raising venture is very relationship driven. The energy industry is very relationship driven. It's, you know, transactional stuff works well

1:01:11 online. Yes. But it's like that translation, not obvious how that relational

1:01:17 piece will get there. Yeah, it's not obvious. I think also I'm very bullish that Houston will do it. I think only because we're doing it, if you, like I said earlier, compare us to five years

1:01:30 ago, the trajectory is really good in this city. And we have a generational opportunity to build all the products that those 1 billion people need right here in the city. It would be a shame if we

1:01:43 didn't. God knows it would be a shame if we didn't. 'Cause it's, I think America is in a two to three decade long re-industrialization journey.

1:01:55 It's happening already, but wouldn't it be amazing if we were the epicenter as we have been before? This is not a new thing for us. It's not. I think we have the will and the capabilities and the

1:02:06 knowledge we have a shit ton of money in this city. But if we could like all fast forward 20 years from now, look back and say, hey, if you wanna know anything about the next generation of power

1:02:17 systems, you gotta go to Houston. The OTC of new power is in Houston If that is not true in 20 years time, that would maybe be really sad. Yeah, yeah. It would. Those are some great words to

1:02:30 end our podcast with.

1:02:33 Yeah. No, thank you for joining us. Of course. Is there anything we should share with the audience for them to help you in your journey? Well, look, I would turn it around and say, who can I

1:02:44 help? And so I will always take inbound help, believe me, I need a lot of help.

1:02:49 Since I've been in Houston since 1990, gosh, now 35 years almost.

1:02:56 I'll share this one story that I've shared before, and I feel very lucky to be in Houston for this. So about two years into my engineering journey, I had a project which I totally messed up, like

1:03:08 massive, massive mistake, huge mistake. It was literally costing the company like300, 000 or400, 000 an hour, and

1:03:16 I made the same mistake twice

1:03:21 And so this, my boss at the time, his name is Ralph Verleman, Ralph, like a six foot four prototypical Texan, like John Wayne's doppelganger, you know, like tuned tobacco, dribbling out of the

1:03:33 side of his mouth. And he, he gave me the biggest dressing down of every experience to my career in public in front of everyone. Couldn't do it today. He did it back then. So I went back to my

1:03:43 office and I was completely dejected, demoralized, and I thought, oh my God, I'm going to get fired. What am I going to tell my parents? So the plot manager at the time, his name is Doug

1:03:54 Mathera. came into my office and he always called me my last name, Khan. And he's like, Khan, how are you? I'm like, Doug, I'm so sorry. I really screwed this up and I don't know. I'm so

1:04:07 sorry. I was on the verge of tears and Doug never said a lot. And so he looked to me and he said, don't worry, I'd buy Khan stock. That's all he said. That's all he said. And in that moment,

1:04:20 that was out of it And so that's what this city has meant to me. And so to answer your question, I'm willing to help anybody. In the area of manufacturing, et cetera, I'm willing to help anybody.

1:04:34 If it's within my power, I will do it. Sometimes it might be, hey, talk to this person. Or what are you dealing with? I'll spend 20 minutes with you on the phone and see if I can help you

1:04:44 navigate it. So that's what I would say. Reach out to me. I'm on LinkedIn, Mush Khan And if you're in Houston - and you're trying to build something and you're stuck, then message me or call me

1:04:58 and I'll be happy to help. Thank you. Of course. Thank you. Thank you for also for sharing that beautiful story. Thank you, I appreciate it. My favorite story, one of my favorite stories.

1:05:07 Thanks guys, I appreciate the time.