Zach Dell - Powering the Future - [Invest Like the Best, EP.434]

My guest today is Zach Dell. Zach is the co-founder and CEO of Base Power Company. Base is a modern power company building a reliable and affordable home energy service powered by distributed batteries. We explore one of the most underappreciated machines in our world: the electrical grid. Zach walks us through the complex world of electricity infrastructure and explains why the 100-year-old grid is woefully unprepared for the explosion in demand coming from AI, electric vehicles, and industrial electrification. Base's approach involves creating a distributed network of home batteries that provide backup power to customers while serving as grid resources, elegantly solving infrastructure bottlenecks that plague traditional utility-scale projects. We discuss energy as the fundamental enabler of human progress, scaling distributed energy assets, and the vertical integration strategy driving Base's unit economics. Please enjoy my conversation with Zach Dell. For the full show notes, transcript, and links to mentioned content, check out the episode page⁠⁠⁠⁠ ⁠⁠⁠⁠⁠here⁠.⁠⁠⁠⁠⁠⁠⁠⁠ ----- This episode is brought to you by⁠⁠⁠⁠⁠⁠⁠⁠⁠ Ramp⁠⁠⁠⁠⁠⁠⁠⁠⁠. Ramp’s mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to⁠⁠⁠⁠⁠⁠⁠⁠⁠ Ramp.com/invest⁠⁠⁠⁠⁠⁠⁠⁠⁠ to sign up for free and get a $250 welcome bonus. – This episode is brought to you by⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Ridgeline⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Head to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ridgelineapps.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to learn more about the platform. – This episode is brought to you by⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠Arcana⁠⁠⁠. Arcana is the world’s most advanced portfolio intelligence platform, trusted by institutional investors managing trillions in AUM — including market neutral, long-short, long-only, and capital allocators. Arcana enables portfolio managers, risk teams, analysts, and CIOs to drill into exposures and idio, construct optimal portfolios, and decompose performance at incredible granularity. Visit⁠⁠ ⁠arcana.io⁠⁠⁠ to request a demo and learn more. ----- Editing and post-production work for this episode was provided by The Podcast Consultant (⁠⁠⁠⁠⁠⁠⁠⁠⁠https://thepodcastconsultant.com⁠⁠⁠⁠⁠⁠⁠⁠⁠). Show Notes: (00:00:00) Introduction and Show Overview (00:05:06) Understanding the Electrical Grid (00:09:10) The History and Evolution of the Grid (00:09:51) Regulation and Deregulation in the Energy Sector (00:18:25) The Importance of Energy in Human Progress (00:28:41) Base's Innovative Energy Solutions (00:38:25) Economic and Operational Insights of Base (00:44:31) Understanding Electricity Market Variability (00:45:01) The Boom and Bust of Battery Economics (00:48:43) Battery Technology and Chemistry (00:50:56) Global Battery Manufacturing Landscape (00:54:06) Capital Markets and Financing Strategies (00:59:56) Vision for the Future of Energy Technology (01:02:30) Personal Journey and Entrepreneurial Insights (01:09:48) Lessons from Influential Leaders (01:16:52) The Kindest Thing Anyone Has Done For Zach

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Patrick O'Shaughnessy?

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• 0:42Patrick O'Shaughnessy?

  draft SIMs, run buyer outreach, and do diligence on data rooms, all with full security and compliance handled. Every action feeds Rogo Intelligence, the firm's context layer, turning years of deal experience into a secure, governed institutional memory that makes each new transaction stronger than the last. To learn more, visit rogo.com/invest. OpenAI, Cursor, Anthy, and Vercel all have something in common. They all use WorkOS. To achieve enterprise adoption at scale, you have to deliver on core capabilities like SSO, SCIM, RBAC, and audit logs. Instead of spending months building these mission-critical capabilities yourself, you can just use WorkOS APIs to gain all of them on day zero. Visit workos.com to get started.

• 1:31Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review, along with all of our podcasts, at joincolossus.com.

• 1:56Speaker 01

  Patrick O'Neal is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

• 2:25Patrick O'Shaughnessy?

  My guest today is Zach Dell. Zach is the co-founder and CEO of BASE. BASE is a modern power company building a reliable and affordable home energy service powered by distributed batteries. We explore one of the most underappreciated machines in our world, the electrical grid. Zach walks us through the complex world of electricity infrastructure and explains why the 100-year-old grid is woefully unprepared for the explosion in demand coming from AI, electric vehicles, and industrial electrification. BASE's approach involves creating a distributed network of home batteries that provide backup power to customers while serving as grid resources, elegantly solving infrastructure bottlenecks that plague traditional utility-scale projects. We discuss energy as the fundamental enabler of human progress, scaling distributed energy assets,

• 3:07Patrick O'Shaughnessy?

  and the vertical integration strategy driving BASE's unit economics. Please enjoy my great conversation with Zach Dell.

• 3:16Patrick O'Shaughnessy?

  So Zach, when we first started talking about everything that you're building and doing, your whole background, it reminded me of this book, I think the book was called The Grid, if I'm not mistaken. And it's one of these books, kind of like The Box, which teaches you about shipping containers, which sounds so boring, and then you dig in and you realize this thing is responsible for so much innovation and infrastructure in the world. And I knew nothing about it, and I'm embarrassed and now interested. The grid feels like something similar, like anyone listening, like, oh, yeah, the grid. I know the grid's important. I would love to actually just begin our conversation with you teaching me and us everything you've learned about this thing that powers our whole life and world,

• 3:57Patrick O'Shaughnessy?

  why it's so important, but what it is, literally, because I think we think of it as this thing that brings us power, but we don't really know what it actually is. So maybe just start at the highest level. There's this interesting thing out there everyone's heard of, no one knows how it works. Explain it to us.

• 4:10Speaker 02

  The grid is one of the most interesting machines in the world. It is probably the most complicated machine ever built by humans. It's a little over 100 years old, so it's not actually that old. And it is something that's kind of out of sight and out of mind for most people until it breaks. It's a real-time supply and demand machine that is held together by a series of participants and technologies and regulatory bodies. That sounds a lot maybe more complicated than it actually is. So really what it is, is three grids, actually, in the US. The Eastern Interconnect, the Western Interconnect, and then ERCOT, which is primarily in the state of Texas. The Eastern and Western Interconnect are

• 4:53Speaker 02

  Split by the Rockies and what you have is really three main components. You have generation, so where power is created, wind farms, solar farms, gas peaker plants, coal plants, hydroelectric, geothermal, et cetera. You have transmission, so high voltage lines that move power across long distances. And you have distribution, lower voltage lines that move power at the neighborhood level. In terms of scale, there are on the order of hundreds of thousands of miles of transmission lines and millions of miles of distribution lines. And I'm definitely going to get this fact wrong, but it's something like if you were to string all the distribution and transmission lines together, you'd be able to go to the moon and back like a number of times. So it's just this massive network of infrastructure.

• 5:39Speaker 02

  And the regulatory component is a big piece here. In about 70% of the country, you have vertically integrated utilities where the generation, the transmission, the distribution are all owned and operated by one company, an investor owned utility. And then you have them broken out into service territories and it's not exactly obvious. Some states have multiple industrial utilities. Some states have municipally owned utilities, what are called cooperatives, co-ops. And there's a bunch of interesting history, by the way, to like how all these things came together and the sequencing of them. But the grid is a real time machine. There's no storage effectively on the grid. That's changing and we're going to talk about some of that today.

• 6:19Speaker 02

  But it's an always on, real time, safety critical machine that is unfortunately not sized for modern power demand. It's really not sized for where power demand is going. And part of why BAC exists is to help scale this infrastructure to meet the power demand that we're seeing today and what we think we're going to see in the future. So I'm very grateful for the history and the companies and the people that have come before us to build out this infrastructure. And it's really been the backbone of the American economy. If you look at the turn of the century, early 1900s, sub 5% of people had power to their home. That changed dramatically through the 30s and the 40s. And then the New Deal brought a bunch of electricity infrastructure to the country.

• 7:03Speaker 02

  The Tennessee Valley Authority, the Hoover Dam were all products of the New Deal. And then into the 50s, 60s, 70s, 80s, 90s, you had the build out of electricity infrastructure across the country. What's really interesting is the deregulation that we saw across the country in that time period. The airlines, telecommunications industry, the trucking industry, the electricity industry didn't really see that until the late 90s. And California was one of the first states to start to deregulate in the late 90s. And very quickly, the Enron situation happened where you had a number of market participants manipulate power prices in California. And that put a real quick stop to deregulation across the country.

• 7:44Speaker 02

  Now Texas ended up carrying the torch and deregulating their power grid entirely. And so now what you have is Texas is this laboratory for energy innovation. Now what we see is Texas is the leader in wind and solar and broadly, energy technology in the country. Now, it also happens to be in the middle of the sun belt, in the middle of the wind corridor. And so geographically, it's a very good place for those assets. But the competitive dynamics in that market have led to a bunch of innovation in technology. That's a big reason why we're based here.

• 8:13Patrick O'Shaughnessy?

  I'd love you to do something similar to what you just did for what I'll call like the physical and historical piece of this. It's the three components. It's broken into these things. We can all visualize that the wires going to the moon and back and do it for the flow of dollars. And talk about the regulatory history here. I think it's a key part of this. Utilities that are investor owned have weird quirks. They've got limits on the returns on equity. They've got all this strange stuff that people may not know about. But if I think about, there's this big physical infrastructure, I can kind of imagine in my mind. There's a dollar cost and value to the power that gets transmitted through this system to my house or my office or whatever. I suspect that people haven't thought too deeply about this. So talk about the same system, but focused on the flow of.

• 8:56Patrick O'Shaughnessy?

  Of dollars and returns, I guess, or ownership.

• 8:59Speaker 02

  Well, start with the power bill. So your power bill, and this obviously varies by geography and I'm going to oversimplify here, but is roughly half the cost to generate the power and half the cost to move the power. We talked about how there's a real time system. So you have to get power from where it's generated to where it's consumed in real time. The cost of moving power across the transmission grid and the distribution grid has gone up really significantly in the last couple of decades, primarily because this infrastructure is really aging. The way that this infrastructure is built out and upgraded in the regulated utility markets is utilities will basically propose CapEx to their public utility commission, which then gets added into their rate base. So if I'm a utility and I want to go build out

• 9:45Speaker 02

  infrastructure or transmission or distribution, I say, hey, I want to go build X, PUC approves it, and then X gets added into my rate base, and that number is divided by the amount of rate payers or customers, and that is what you pay on a per kilowatt hour basis for electricity. What you have is this incentive for the utilities to build, not to innovate, because they're actually incentivized not to innovate. If they show up to the PUC with some kind of new technology that's unproven, which is kind of the definition of innovation, the PUC says, well, that's not a very good use of dollars and that's too risky and we're not going to prove that. What you have is this incentive to build, where you're earning a rate of return, a regulated rate of return, return on equity on the CapEx that you deploy.

• 10:27Speaker 02

  The more CapEx you deploy, the more return you generate for the shareholders. And so you've just seen this massive growth in rate basis, but conversely in electricity prices due to this incentive structure. In terms of where the profit pools sit, on the regulated utility side, you have this return on equity concept and rate base concept. And then you have the IPPs and the generators. And these are really a function of the deregulated parts of the market, but also you have IPPs in regulated parts of the market that are able to sell power to the generators. And this is a supply demand game. You build a gas plant, you build a solar farm, you build a wind farm, and you're bidding that capacity into the wholesale markets. There's really two parts of the wholesale markets. There's the real time spot market and then there's the day ahead market.

• 11:12Speaker 02

  There's a future market and the objective for an energy developer is to generate power at the lowest cost possible. Electron is electron. There's no special electrons. So my electron and your electron are priced in the same way. It's a cost game. When you talk about different forms of energy generation, wind, solar, natural gas, coal, nuclear, geothermal, hydroelectric, etc., really what it comes down to is cost. And you hear in the industry, it's referred to as levelized cost of energy, LCOE. That is the core metric. The lower the cost that you can generate in electron, the higher your returns as a developer. And then there's maybe one more component, which is retail electricity. In the deregulated parts of

• 11:53Speaker 02

  the market, the transmission distribution utilities who run the poles and the wires are not allowed to own generation and they're not allowed to own retail. You have pure play generators, wind farms, solar farms, gas plants. You have pure play retailers, which are really just energy brokers. They're buying wholesale power and they're marking up and selling it at retail. And by the way, those businesses are primarily sales and marketing led. They're kind of like hedging energy trading businesses. There's no technology or innovation. They basically have a marketing function, a support function, and a risk management function. And there's a checkered history of those businesses doing really well, doing really poorly, going out of business when they take too much risk and that kind of thing. And they're kind of notoriously not very good businesses. They're 10 to 20% gross margin and not all that profitable, although they can be quite cash generative, just given their

• 12:37Speaker 02

  low operating burden. Then you have what are called gen tailors. People probably know of Vistra and NRG and Constellation and Calpine. And these are some of the more scaled and publicly owned gen tailors. They own generation and retail. Really what that means is they have a long book and they have a short book. Because when you sell retail power, you're taking a short position. You're saying, I will sell you, Patrick, power at 10 cents a kilowatt hour, no matter what. And so if power goes to 20 cents, I'm taking a bath. If power goes to five cents, I'm jumping for joy. Generation is a long position. You own power and if the price goes up, you're really happy. The price goes down, you're really sad. And so the Gen Taylor business is more hedged. It's more diversified and that's been a strong business model. And you can see that in the stock prices of NRG, Vistra, et cetera.

• 13:17Patrick O'Shaughnessy?

  Maybe say one click more about, you've said regulated, deregulated. Texas is this unique innovation, experimental ground. What was the literal regulation that changed in the late 90s? Give us the before and the after and the present state.

• 13:31Speaker 02

  In Texas, it was the early 2000s and the Public Utility Commission basically said, okay, transmission distribution are going to be owned by the utilities. They're going to be what's called TDSPs, Transmission Distribution Service Providers. They're not allowed to own generation. They're not allowed to own retail. They are going to operate like a traditional investor in utility. So they build infrastructure and they earn a rate of return on that CapEx and they're not going to own generation assets and they're not going to be able to sell retail power. Now, it's worth mentioning that actually, first of all, deregulation is kind of a misnomer. The energy space in Texas is highly regulated. There is this market structure dynamic which creates competition in Texas. And that's really the better way to frame it. And also we're mentioning in Texas, 80% of the market is this competitive market and 20% is still regulated.

• 14:15Speaker 02

  So I live in Austin, I'm here in our office in Austin and we're in Austin energy territory. We buy our power from Austin Energy and we don't have a choice. If you live in San Antonio, you probably are a customer of CPS Energy. They're another municipally owned utility. Across Texas, you have a bunch of co-ops like Bluebonnet and Peternalis and Banderas Electric and Guadalupe Valley Electric Co-op that are member owned co-ops. And this is really a relic of the period of deregulation where in the early 2000s, the PUC came in and said, okay, we're going to create retail choice. We're going to create energy competition in most of the state, but not all of the state. And the answer to why not all of the state is probably something I don't fully understand, but I think is politically motivated for the most part.

• 14:57Speaker 02

  And then a lot of it frankly is that many of the geographies where these co-ops exist are rural. You kind of needed this community driven effort to build out electricity infrastructure. And that's why they're member owned. That's why they're cooperatives. So 80% of the state, you have this deregulated construct where you have utilities like Encore, Centerpoint, TNMP, AEP that manage the poles and wires. They charge everyone in a certain rate class, the same rate based on their rate structure, and they earn a regulated rate of return on their CapEx. In those same areas, you have generators, you have retailers, and then you have what are considered gen tailors, which kind of do both sides. And then at about 20% of Texas, you have vertically integrated municipally owned utilities, MOUs or co-ops.

• 15:39Speaker 02

  And those look more akin to the investment utilities in the rest of the country.

• 15:43Patrick O'Shaughnessy?

  Maybe we could take one step back now, having described the physical and dollar infrastructure of the grid and talk about why this is so interesting and important in the first place. Everyone's heard this phrase, "Energy too cheap to meter." In the AI world, this has become popular again because maybe we're also getting some form of intelligence that's too cheap to meter. And the idea that basically any human progress, the core input elements are energy, the ability to like move stuff and do stuff, and design, intelligence. These are two very big concepts that it seems like if humanity is able to produce more cheaper abundant energy and intelligence, a lot of cool things are going to happen. That seems to be what's happening. Talk about the energy side of that equation.

• 16:26Patrick O'Shaughnessy?

  I don't want to take for granted how important energy is to our world. And the fact is, like you said, it's only been around a couple hundred years. It's a fairly novel thing in human history, and we obviously have seen the economic explosion on the back of that. Give us that perspective on this whole thing. What energy does, why it's so important, what it's historically been used for, and then of course, where that's going to go in your mind.

• 16:46Speaker 02

  There's a chart, I imagine many people have seen, which plots energy consumption per capita with GDP per capita. And it is one of the strongest correlations in economics. There is no such thing as a energy-rich poor country. Energy abundance and human prosperity are just inextricably linked. I think that realization was part of why I was taken by the energy industry as a college student and has gotten me so excited to work in this space. One way to think about this is that the viability of certain industries is defined by the cost of electricity. Once you hit a certain cost of power, you're able to do things you previously were not able to do. For example, desalination. It's very expensive unless you have access to cheap power.

• 17:31Speaker 02

  And there are tons of examples of this where heavy machining, manufacturing, industrial use cases, where the thing didn't make sense before power was cheap enough to make the math pencil. Anything that's energy intense, the lower the cost of the electricity, the higher the returns of that activity. Lowering the cost of power at the micro level, at the home level, is a massive benefit to homeowners and people who are trying to make ins meet. And they think about buying my groceries and paying my electricity bill in kind of the same way. Also, at the economic level, it unlocks new technologies. So take AI, for example. In a world where power prices just continue to go up, the cost of compute continues to go up linearly with those increases.

• 18:14Speaker 02

  In a world where the cost of power goes down, the cost of compute goes down too. And that allows us to do things with these models that we wouldn't be able to do if those costs were to only increase. So we are currently in a regime of increasing electricity prices. And those prices have been going up really rapidly, particularly over the last two decades, which is quite concerning. If you look to China, I think we all understand the dynamic there with regards to the race towards AGI or ASI, or however you wanted to find it. They're building out incredible amounts of electricity infrastructure to drive the cost of power down. And that, of course, drives their cost of compute down. So if we don't work maniacally to build out the infrastructure in this country to drive the cost of electricity down, we're going to lose the race in AI,

• 18:58Speaker 02

  but we're going to lose the race in quantum and in biology and the next couple areas of innovation that are inevitably energy consumptive.

• 19:10Patrick O'Shaughnessy?

  If you think about the two chapters here, just to mega oversimplify, there's some of these things you just mentioned that seem to be putting a kink in like the normal curve of demand for this stuff. What historically have been, if you had a pie chart, the uses of power broken into like their major components?

• 19:28Speaker 02

  We can talk about sources and uses. For a long time, coal, steam, natural gas were the sources of power in the US. That has shifted in the last couple of decades. First with wind, mostly subsidy driven, then solar, at first subsidy driven. Now, net of subsidies, solar is the lowest cost marginal source of power. Now, that's geographically defined, to be clear. And I think this is a very important point to make, which is that energy is a geographically defined problem. There are certain parts of the country where wind and solar make a ton of sense. It's very windy, it's very sunny. There are other parts of the country where they don't make any sense at all. There are also parts of the country where things like geothermal and hydroelectric make a lot of sense. Other parts of the country where they don't.

• 20:12Speaker 02

  It's more nuanced than solar is the cheapest form of power on the planet. Now, I happen to believe that that will be the case over the next couple of decades in more of the planet than it is today, based on where the cost curves are going. But back to your question, most of energy use in the US is heavy industry, manufacturing, machining, industrial use cases broadly. Over the last few decades, you've had the build out of the electrification of the transportation industry, which has not really made a dent in energy consumption in a significant way. It's certainly starting to. And then in the last couple of years, you've had the build out of computing infrastructure, which has started to add to that stacked bar chart of energy consumption.

• 20:57Speaker 02

  But a lot of the consumption historically and today is still industrial use cases and home HVAC and commercial HVAC as well. If you look at a state like Texas, it has pretty volatile weather in the winters and the summers. A lot of the swings in power prices are due to home HVAC. Historically, it's been industrial use cases, heating and cooling at the home and at the commercial level. Over the last couple of years, that has started to transition to the electrification of transportation and then the build out of computing infrastructure. What do you think it looks like in five to 10 years? Unfortunately, the answer to that is dependent on what we do with regards to energy infrastructure and technology. If the price of power continues to go up at the rate that it's been increasing over the last decade,

• 21:40Speaker 02

  we're going to use a lot less power than if the price of power goes down or goes up at a slower rate. It's a supply demand market and there's going to be some level of price signal response. My view is that we're really early in the electrification story. Then if you go to a dinner party in the US, in a major city, New York, Chicago, LA, San Francisco, Austin, and you ask a group of 10 people, if you guys had to guess what percent of new cars sold this year will be electric? Most people will guess 20%, 30%, 40%. The real answer is 7%. Europe is closer to 25%, 30%, and in China, it's upwards of that. My view is that that number is going to go from 7% to 30% to 50% over the next five to 10 years.

• 22:24Speaker 02

  That's going to create an incredible amount of stress on the power grid. And things that we talk about less than consumer transportation are things like long haul trucking. And you see the Tesla Semi and other companies that are moving into that space, some more successfully than others. And so I think that's going to drive a lot of demand for electricity. And then the build out of AI compute infrastructure is real and it's here. And you can see it in the interconnection queues. You can see it in the statements of the publicly traded companies that are talking about the partnerships that, you know, you see Microsoft. And through My Island, you see Oklo and some of the partnerships they're announcing. Obviously, the CoreWeave IPO is topical. Companies like Caruso raising a lot of capital. So this build out of infrastructure is coming. And you can talk about model training and inference and the difference in those workloads and how much electricity they consume.

• 23:08Speaker 02

  But I don't have a crystal ball for what electricity demand is going to do. But I think if you look at the last 50 years, you'll see electricity demand has grown at roughly a 2% CAGR. That's moved around a lot. The growth between, you know, 1900 and 1930 was extremely high. And then the depression stunted that growth. And then the New Deal brought it back. And then we had more growth in the 40s and 50s and 60s. And then I think it slowed down a little bit in the 80s and 90s. And we've gone back to growth in the last decade here. But it's been roughly a 2% CAGR over the last 50 years. I think it's broadly consensus that that CAGR is going to go from 2% to 10%. Could be much higher than that. And at the scale that we're talking about, that has just massive implications for the economy.

• 23:50Speaker 02

  And we're going to have to do a lot on the engineering side with regards to the power grid to enable that growth.

• 23:55Patrick O'Shaughnessy?

  That's a massive change, especially off a huge base, like a 10% is like a high rate. But the absolute amount of marginal new demand, just in like electrons or something is crazy. I don't know the consensus super well, but that's mostly from transport and data center. Are those the two biggest contributors to that?

• 24:14Speaker 02

  That's right. You also are just seeing tons of electrification in heavy industry, which is going to drive a lot of that.

• 24:21Patrick O'Shaughnessy?

  Does the grid change or need to look different to address those demands? You said it's 100 years old. I'm sure there's parts of it that are old, aging, suboptimal. If you started today, you would do it differently. Talk about the health of the actual infrastructure itself.

• 24:36Speaker 02

  Something along the lines of 40% of grid infrastructure was built before the 70s. This infrastructure is just aging and that causes reliability problems. And then also just increased costs. If something ages out or breaks and you need to fix it, that gets added to the grid base. What we need is more capacity. This is a supply and demand always on system. As demand scales, you have to build supply. And I think the problem is that we can't bring on supply fast enough. If you look at the interconnection queue, we have basically twice the amount of capacity in the interconnection queue than we have on the grid today in terms of generation. But the interconnection queue, depending on the state that you're in, can be on an order of five to 10 years to get a new grid asset interconnected. Now, that's partially a supply chain problem.

• 25:20Speaker 02

  Transformer shortages have been well documented. It's partially a regulatory political problem. And it's partially just like a blocking and tackling trucks and crews and pulls and wires execution problem. And then there's also some financial shenanigans going on where developers will submit multiple applications into the queue and only be serious about a number of them. They wait to see which one gets through fastest and that's the project that they actually fund. And so there's a lot of people that have done good work to like study the queue and see how much of it is actually real. Especially in Texas, somewhere on the order of like 25% or 20% of the projects that are actually in the interconnection queue end up getting through. Really what we need is more capacity to meet that demand. Right now, that capacity development is stunted by this interconnection queue problem

• 26:03Speaker 02

  and just the cost and time it takes to go build a big utility scale, solar farm, wind farm, gas plant, et cetera. And that's really a big part of our mission at BASE is to deploy flexible capacity to the grid faster and more efficiently with our distributed architecture.

• 26:19Patrick O'Shaughnessy?

  Perfect time to like describe what it is that you're building and why. So maybe start with the basics, like literally what it is that your product does and what you hope the company does over time. We're going to go into lots of detail about it, but maybe just start at the highest possible level.

• 26:32Speaker 02

  We think of ourselves as an energy technology company, but really what we are is a battery developer, an asset owner. So we design, develop, install, own and operate battery storage in Texas. So if you live in the deregulated part of the state where you can choose your electric provider, you can sign up with BASE and we become your power company. We install our battery on your home and you pay $500 upfront, $16 a month. And when the grid's up and running, we use that battery to support the power grid. And when the grid goes down, you get that battery to back up your home. Now, we're also able to save people on the order of 10 to 20% a month on power, primarily because our main business is owning and operating this battery storage and using it as a grid resource. We're not focused on making as high a possible gross

• 27:17Speaker 02

  margin on the retail power. We're focused on deploying as many batteries as we can. And so if the other retailers in the market are trying to make 20, 30% gross margins, we're perfectly happy making a 10 or 15% gross margin on retail power and generating most of our contribution margins through the battery that's installed in the home. The other way to think about it is that we use some of the income that we generate off the battery to buy down that rate for the homeowner. Our customers, of which there are almost 1,500 today, they save about 10 to 20% a month on electricity. When the grid goes down, their power doesn't. So they get all the benefits of home backup without the higher front cost for what it's worth. If you don't live in Texas or not in a state where home backup is top of mind, the options on the market today for home backup are incredibly expensive. You can buy a home battery for anywhere from $15,000 to $30,000 if you

• 28:01Speaker 02

  want to back up your entire home, or you can buy a home generator on the order of the same price and there's maintenance that comes with that and they're loud and they smell bad. And so what we've done is said, hey, we don't want to sell batteries. We want to sell a service. We want to sell affordable, reliable power. And there's a business model innovation behind that, which we can get into that enables this value proposition for the homeowner.

• 28:21Patrick O'Shaughnessy?

  Pretty clear value prop to the homeowner. There's a much lower cost way of always knowing I'm going to have power and then my cherry on top is that I pay a little bit less for power. That seems like a straightforward trade off. Say more about the other side of the equation. Like you said, that you use the battery to support the grid. What does that literally mean?

• 28:40Speaker 02

  The way to think about the business at the system level is a distributed battery farm. If you think about battery storage as an asset class, 99% of the storage on the grid is utility scale storage. So think like shipping container battery farms in a farm field somewhere doing energy trading with the grid. This asset class has been a good asset class for the last decade, and you've seen all the big asset managers back platforms in the space. Blackstone owns a business called Ipa Power, BlackRock owns Jupiter Power, Apollo owns Broadreach Power. Tens of billions of capex deployed into this asset class at high rates of return. But the asset class is really fundamentally limited for two reasons. One is interconnection capacity, as we discussed. So it takes five to 10 years to get a grid battery interconnected. And the other is transmission congestion. So where

• 29:22Speaker 02

  you actually need the power, which is the densely populated city centers, is not where you can put these big shipping containers. So you spend a bunch of time and money trying to figure out which node on the grid you're going to place your utility scale battery, and you kind of inevitably get it wrong, because by the time you get into the interconnect queue and the time you get through the interconnect queue, the conditions on the grid changed. And then there's other dynamics at play with regards to transmission congestion that make it really challenging for battery developers. So the insight of base is around this idea of a distributed architecture. Let's go deploy energy technology assets, starting with storage where the grid already exists, so you don't have to wait in the interconnection queue, co-located with the power load, so you circumvent that transmission congestion. Our business is really a fleet of storage assets

• 30:03Speaker 02

  that generate cash flows that we can go finance at the portfolio level that are used to support the grid in times of high demand. So literally what's happening is when power prices are low, we're charging up the batteries. To oversimplify, think about it as midnight to four in the morning, when people are sleeping. And when power prices are high, think about it as 5:00 to 7:00 PM, 6:00 to 8:00 PM in the summers, and then what's called the morning ramp in the winters, we're discharging the batteries. So these batteries are used as a grid resource, 365, charging when the power prices are low, discharging when power prices are high, and then they're used as a local resource when the grid goes down for the homeowner. Now, there's another dynamic here at play, which is called the ancillary services market in Texas, which is kind of like a capacity

• 30:45Speaker 02

  market, where ERCOT, who's a grid operator, basically calls on resources to show up With capacity for different reasons, for voltage, for frequency, or for literal electrons, or I guess in either case they're electrons, but for capacity. And you're also compensated for that. And you have to go through a qualification process to do that. And you have to build a bunch of systems. You have to directly connect to ERCOT's communication systems and we're going through that process now. But the way to think about base as a grid asset is a distributed fleet of storage. It is a utility scale battery farm that is chopped up into thousands of pieces and deployed behind the meter at the home because two reasons. One, we think that this distributed architecture allows us to deploy storage at a lower cost much faster. So literally on a dollar per kilowatt hour basis,

• 31:29Speaker 02

  we think we can get a battery landed on the grid significantly cheaper and faster than utility scale battery. And then two, we think we can generate more value on a dollar per kilowatt hour basis from that battery because we also have the added revenue stream of selling that homeowner retail power, making a margin on it, and then charging them for that resiliency, that $16 a month that we discussed. So as an asset, what we're developing is a cash flow machine. You deploy this asset in the ground at lower dollar per kilowatt hour than a utility scale battery, and you generate a higher dollar per kilowatt hour off that battery than a utility scale battery. And we think obviously the returns will be much higher as a result.

• 32:05Patrick O'Shaughnessy?

  I want to zoom in on the moment where you're discharging the battery. Energy is flowing out of the thing that you've filled up to give power to some other point that's demanding it on the grid. What is the competition for that? So it's coming from there instead of from somewhere else. Talk about the competition for that specific discharge of power. Who's bidding? Who's buying it? How's it determined that they're going to buy from you? In what way do they buy it from you?

• 32:29Speaker 02

  There's two ways this happens. One is by bilateral agreements. So you can think of power purchase agreements as bilateral agreements. I agree to sell Patrick a block of power, a megawatt, 10 megawatts, 50 megawatts, whatever it might be, on August 7th from 3pm to 5pm for X dollars per megawatt. And we have an agreement. That's like a bilateral trade. The second way is in the spot markets, the day ahead market and the real time market. Those are liquid, think of it as the New York Stock Exchange for electricity. And ERCOT is the grid operator that's like managing these markets. We're a price taker in those markets. In a bilateral example, you can structure hedges around your exposure and around when your power is available versus not.

• 33:11Speaker 02

  And so that's why you see solar and wind typically engage in this PPA structure, primarily solar, because they have very predictable generation. When the sun's out, you're generating a lot of power. When the sun's not, you're not generating power. And so you have to like, structure these financial products around your generation profile. Batteries are similar, but for now, we participate mostly in these liquid, real-time markets, the day ahead and real-time spot markets.

• 33:34Patrick O'Shaughnessy?

  When you're marketing these things, the actual service to the customer, you said 1500, I think, is the number of installs that you've done. What is the pitch? How are you positioning this with them? How are you getting it in front of them? What do you think the primary reasons are they're buying? I'm trying to extrapolate this forward. Wherever in the world has one of these batteries on their house? And it's just like a normal part of having a house, like having any part of the house's infrastructure is.

• 33:58Speaker 02

  We think it's really simple. It's about affordability and reliability. That's it. We joke that there are no sexy electrons. People just want their bill to go down and their lights to stay on. Typically, customers are looking for one of those two things. They want to save money on their monthly bill or they're looking for affordable backup. And most of the people who are looking for backup have thought about buying a battery. They've thought about buying a generator and the price is prohibitively expensive. They don't have 10, 20, $30,000 lying around and they come across base because they heard it from a friend or they saw it in an ad or they got a mailer to their house. And they're like, wait a minute, I can protect my home, protect my family for $500 upfront, not $15,000 upfront. And the monthly fee is cheaper than Netflix. It's cheaper than Amazon Prime. It's like a Costco membership. That's a no brainer.

• 34:40Speaker 02

  Those are the two motivations, typically cost savings and backup protection. But the backup is really a savings pitch too, because if home batteries were free, everyone would have one. But they're not, they're extremely expensive. And so we compete on cost. I think this is a key part of our strategy. We're eyes wide open about the fact that electricity is a commodity. And if you're competing in a commodity industry, You have to take a cost-focused approach. You have to have a cost structure advantage. The way I would describe our strategy as a business is developing a compounding cost advantage through vertical integration. Why do we design the batteries? Why do we manufacture them? Why do we install them ourselves from our own warehouses with our electricians? Why do we own them on the balance sheet and finance them at the portfolio level? Why do we sell the power ourselves? Why do we trade the power ourselves?

• 35:24Speaker 02

  Because by doing it ourselves, we can take costs out of each part of the equation, which drives our returns up, which drives the costs that we had to charge the homeowner down. In a commodity industry, your North Star has to be delivering the commodity to the customer at the lowest price possible, and that is our North Star. We want to be in a position where we can land a battery and eventually a solar panel on the grid cheaper than anyone on the planet on a dollar per kilowatt hour basis, which means that we can sell an electron cheaper than anyone on the planet on a dollar per kilowatt hour basis. And that's really the vector on which we compete.

• 35:54Patrick O'Shaughnessy?

  Can you talk about the economics of a battery? I think I saw the V11 in Austin, so I'm sure they look cooler and cooler like that Raptor engine or something that you see from SpaceX. But if you think about the cost to you, the expected rate of return, the variance of that rate of return over time, just talk about what a battery installed is worth to you, how much it costs you to buy it, build it, do it. I'm just curious about like the battery level unit economics of what you're doing.

• 36:21Speaker 02

  Today, it costs us on the order of $10,000 to get a battery in the ground. And that's inclusive of the bomb cost of the hardware. We could talk about the battery, the inverter, all the pieces that go into that, the installation costs, so getting a truck out to the house and having two electricians on site for four to six hours, and then the cost to acquire the customer. So that's today about $10,000. The customer pays $500 upfront, and then we receive a tax credit, and ITC is part of the IRA, for up to 30% of the cost of the project. That goes to 40% in some parts of Texas that are considered energy communities. Most of our installs are in that area, but for simplicity, let's call it 30%. So if it costs us $10,000, we're getting $3,000 back in the form of tax credit. The customer's paying 500 upfront.

• 37:04Speaker 02

  So you have on the order of $6,500 of cost on a totally unlevered basis. The customer then is paying us $17 a month. That comes out of $200 a year. And the average person's electricity bill. Is on the order of $150 a month, $1,800 a year at a 10%, 15% gross margin. That's anywhere from 180 to a little over $200 a year in margin. So it's $200 a year in margin from retail power, $200 a year in margin from the monthly payments. And then the battery is used to do energy arbitrage, as we discussed. And we do a bunch of modeling to figure out what is that worth? In some years, it's worth $100 a kilowatt hour, and some years it's worth $20 a kilowatt hour. Those cash flows are extremely spiky. So in 2023, you had an incredibly profitable year for batteries. In 2024, you had a less profitable year for batteries.

• 37:49Speaker 02

  And so when you think about, we can get into this, when you think about financing this kind of asset with super volatile cash flows, you obviously have to take that into consideration. Our math suggests that a battery in our cut over the next 10 years will average on the order of $40 a kilowatt hour. If we're installing a 30 kilowatt hour battery, which is the form factor of our Gen 2 product, that's $1,200 of trading income a year. $40 a kilowatt hour times 30 kilowatt hours. So you have $1,200 of income off the energy trading. You have $200 of gross margin from retail power, that's $1,400 a margin. And you have $200 in margin from the customer payments. So that's $1,600 in margin on $6,500 of upfront cost net of the ITC. That's on the order of like a four-ish year payback on an unlevered basis with generation one.

• 38:33Speaker 02

  Our strategy as a company is to drop our cost structure over time with successive hardware generations. So with Gen 2, we'll bring more of the design in-house, more of the manufacturing in-house. We'll have better control over the supply chain. And our costs will go from roughly $10,000 to get a battery in the ground to close to $8,000 to get a battery in the ground. That takes the paybacks from four years to three years. I'm using high level numbers, obviously, so people can check my math. With Gen 3, we potentially will build our own factory and manufacture these things entirely ourselves. And we'll take that, what was $10,000, Gen 2 to $8,000, Gen 3 to $6,000. And now the payback looks like a two, two and a half year payback on an unlevered basis. When you introduce leverage, the returns start to get extremely attractive.

• 39:15Speaker 02

  For what it's worth, these are on the order of 10 to 15 year useful life assets, depending on how many times you cycle them. A 4, 3, 2 year unlevered payback on a 10, 15 year Life is a really attractive unlevered IRR. Batteries are quite bankable. Now, merchant batteries are less bankable than batteries that have a contractual offtake agreement. So what merchant means is you're participating in this energy arbitrage where in one year like 2023, you can make a hundred dollars a kilowatt hour and another year like 2024, you can make twenty dollars a kilowatt hour and there's inherent risk in that volatility. Obviously there's upside, but there's obviously downside. And so the loan to value or the amount of leverage you're able to get on a merchant battery in ERCOT is much lower than the loan to value you're able to get on a contracted battery in ERCOT. So you see LTVs

• 40:00Speaker 02

  on contractual battery assets in ERCOT in the seventies and eighties. Now, merchant is probably much lower than that and there are harder precedents to find, but they're going to be on the order of thirty, forty, fifty percent loan to value. If you look at our cash flow stream, the biggest chunk of it, that twelve hundred dollars, that forty dollars kilowatt hour times thirty kilowatt hours is merchant exposure today. Now, we're working on different ideas and opportunities to make some of that contractual and there are interesting financial products you can get involved with that help with that. But assuming that is merchant, the two hundred dollars of retail energy margin and the two hundred dollars of customer payments, those are more contractual because the customer signs a contract with us, they're with us for the life of the battery, they pay us every month for electricity. And if they want to keep the battery in their house, they're going to pay that seventeen dollars a month.

• 40:44Speaker 02

  And so those look a lot more like contracts than the merchant. If we can get our loan to value to fifty percent, those twenty to thirty percent unlevered IRRs obviously go up really significantly. So we think it's a really attractive financial asset. If you're able to do all of the really hard engineering to drive that upfront cost from ten to eight to six, and then also the engineering to be able to monetize that asset in the wholesale markets and support the customer and do all those other things. And then I think there are really interesting adjacencies to go downstream into the home. Solar is the obvious one. We can talk about that. If you've got a battery and inverter on the home, you're selling the homeowner power every month, you've been to their house, you have pictures of their panel and their meter, you're really well set up to go add solar to the equation.

• 41:28Speaker 02

  But they're really interesting home energy products that we're excited about. Smart EV charging, electric water. Heaters, electric heat pumps, other appliances in the home that can be electrified. That when you have a battery on the home, which is really like a computer on the circuits, you can do some really interesting optimizations if you're able to control other electric appliances that ultimately are just there to save the homeowner money. Back to affordable, reliable. That's what matters. Lower the bill, keep the lights on. That's our North Star today. That'll be the North Star in everything we do.

• 42:00Patrick O'Shaughnessy?

  If I had to zoom in on the thing that sounds the scariest to an outsider, it would be the variability of this 2023 versus 2024, $20 versus $100, whatever. Describe more of what drives that and how risky it might be that you could have six straight years that look like 2024, not 2023. And if so, what would explain a world where something like that happens that really throws a wrench in that math? It sounds fantastic on average, but what does a drought look like or something?

• 42:30Speaker 02

  Back to the point of electricity as a commodity industry. Commodities have boom years and bust years. There's a couple of things that drive it. I mean, a big one here is weather, which is kind of notoriously unpredictable. As we discussed earlier, a big driver of power prices in ERCOT is home HVAC. So if it's crazy hot in the summer and if it's crazy cold in the winter, you're going to see massive power demand. And if that weather doesn't show up, power demand is going to be lower. A big dynamic here also is just supply and demand or price signals, I would say. Doesn't always play out as simply as I'm describing it. But in 2023, you had a massive year for batteries. The weather was really intense. Prices were really high. Batteries were extremely profitable. And so in theory, you see a ton of battery build out. Battery developers are saying, oh, batteries are super profitable. 2024, you had the opposite.

• 43:15Speaker 02

  The weather didn't show up. Prices weren't that high. Volatility was really low. You had a bunch of battery build out because the year prior, batteries were incredibly profitable. Now, the actual response is not that quick. We talked about the interconnection queue and how long it takes to get online. And so I'm more speaking at a high level. When batteries are really profitable, a bunch of people build batteries. When batteries are not really profitable, people stop building batteries. And so you have this boom and bust dynamic with the capex cycle, where in really good years, a bunch of battery developers get excited, raise a bunch of capital, build a bunch of batteries and bad years, the opposite. That happens, it's a naturally volatile market. That's something that we've spent a lot of time thinking about. And our view is that batteries have fundamental value on the power grid. Yes, they're very useful for energy arbitrage, but they're very useful for other things, too.

• 43:58Speaker 02

  I think of batteries as more akin to poles and wires than to wind and solar. Poles and wires move energy through space. Batteries move energy through time. And I think over time, what we're going to see is more utilities are going to realize the value of distributed storage. And they're going to tap into opportunities to improve their infrastructure, add additional flexible capacity to the grid and ultimately lower cost for their rate pairs, for their customers by using batteries and particularly at the edge in this distributed manner. We think batteries have fundamental value. Yes, a lot of that value today is in energy arbitrage in Texas, but in other markets,

• 44:38Speaker 02

  it's through things like voltage control, frequency response, capex deferrals or infrastructure upgrades. And I think more of that is starting to play out as the discourse and kind of acceptance of what's referred to as BPPs or virtual power plants becomes more mainstream. We really have two businesses. So we have the core deregulated business where we're your power company, we're the name on the power bill, et cetera. And then we have a utility partnerships business. And we've announced our first partnership with Bndera Electric, who's fantastic in Texas. And they were the first ones to really take a bet on us. And it's starting to really work out well for them and us where we show up and we say, hey, Bndera, you need flexible capacity in your service territory. We can deploy it faster and cheaper than anybody else.

• 45:20Speaker 02

  And so we show up and we deploy batteries in their territory and we hand them the keys to the fleet, for which they pay us for dispatch ability of that fleet. And they're able to use those batteries to lower their cost to serve their customers, but also to do frequency control, voltage regulation. They can defer capex on their infrastructure. They don't need to upgrade transformers as frequently because they can take demand off at the neighborhood level in times of high prices. We're starting to work really closely with them and other utilities in Texas and across the country on creative ways to use distributed batteries as a good resource. Outside of energy arbitrage, price volatility is fundamental to commodity markets. And so electricity will probably be volatile for quite some time. And we think our batteries will benefit from that.

• 46:03Speaker 02

  But batteries are valuable fundamentally as a good asset for many other reasons. And I think that over the next decade, you'll see utilities across the country start to embrace that.

• 46:12Patrick O'Shaughnessy?

  Can you teach us about batteries? Obviously, a very central piece of this is the literal thing getting slapped up on the house. And your ability to build them over time, make them cheaper and cheaper, more and more efficient, hopefully longer and longer lives, more and more capable. I'm trying not to take for granted any of the simple things we've all heard of a battery. Increasingly, I think people, if they've seen a Tesla, know there's a big battery in there. They know about these big battery factories. Teach us about the history of batteries, how they work, concerns we have. Is there a constraint on how many of them we could make? And if so, what are the raw materials that constrain us? Just teach us a bit more about batteries, since it's the central part of the asset.

• 46:50Speaker 02

  The building blocks here are the cell, the module, and then the pack. When we talk about batteries, really what we're talking about is the pack. The pack is a collection of modules. The module is a collection of cells. When it comes to cells, there are a bunch of different cell chemistries that have been commercialized over the last couple of decades. The growth in the EV industry, for the most part, has been driven by NMC chemistry. So there's a lithium ion chemistry that's nickel based. NMC stands for nickel manganese cobalt. That chemistry is very energy dense and has a very high C rate, which means you can charge and discharge it very quickly. Super important for a car, we need to go zero to sixty in three seconds. It's also quite light relative to its energy density, which is also very important for a car.

• 47:33Speaker 02

  The dominant chemistry and really what we've seen over the last couple of years take over in energy storage is also lithium based, but it's lithium iron phosphate, LFP. This chemistry is much heavier. It has a way lower C rate, so you can't charge and discharge it as quickly, which is not as important if you're not in a car. But it's a lot safer. It has lower energy density and it's way less prone to thermal runaway, which is a fancy way of saying fire. You're seeing interesting R and D happening in sodium ion chemistries and iron air chemistries for long duration energy storage and in things like thermal batteries. There are pros and cons to all of these different chemistries and their relative applications, but I think we're going to see continued innovation on this front. I'm very excited for what's happening with regard to cell chemistry.

• 48:17Speaker 02

  I think sodium ion is super promising and there are a number of startups that are working on novel sodium based chemistries that we're keeping a close eye on. The truth is though, that the Chinese and the Koreans have been on the bleeding edge of battery chemistry for a long time. Interestingly, for a long time, it was really just NMC chemistries that were getting built at production scale and the Chinese made a bet on LFP much quicker than the Koreans did. And so now companies like Samsung and SK and LG are trying to catch up with regards to LFP capacity. And the Chinese companies like Paddle and BYD and Goshen are far ahead in LFP production capacity. So if you want to buy an LFP battery today, you basically can't do it outside of China.

• 49:02Speaker 02

  Now that's changing. A bunch of companies have gotten started in the US over the last decade to spin up LFP capacity and basically all of them have run out of money before getting to production scale. Obviously, the Northvolt unraveling has been well documented now that that's not a US based company. Other companies, Arnech Energy, Core, American Battery Factory, there's kind of a graveyard of businesses that have tried to get this kind of manufacturing capacity off the ground. The reality is building an LFP factory, and I've been to many of them at this point, they're not quite semiconductor complexity, but they're pretty darn close. So they take billions of dollars in many years to get up to production scale and the Chinese are really, really far ahead.

• 49:45Speaker 02

  There's some really incredible engineering at the Korean companies and they're working fast and they're making good progress. And you're seeing a bunch of JVs with the auto OEMs that are plowing CapEx into the supply chain. So that's a trend that we benefit really strongly from, which is that all the auto OEMs are investing super heavily in the battery value chain. That's driving the cost of these cells down. If you look at the cost curves of LFP cells and NMC cells, they've come down extremely dramatically over the last decade. And now you're seeing these auto OEMs and some of these Korean companies and the Chinese companies form JVs to build factories here in the US.

• 50:24Patrick O'Shaughnessy?

  Fascinating, which I would sum up as you're going to have more and more control. You're not particularly worried that like a vector for failure here is the world ceases to be able to meet the demand for new batteries. There's enough innovation and manufacturing know-how distributed around the world and that can be brought here to like solve that problem. Is that like a fair summary?

• 50:46Speaker 02

  That's fair. I think that the materials problem is one that people like to worry about. They're like, oh, we don't have enough minerals to build all these batteries. And I think that's just fundamentally untrue. I'd point people to Tesla's master plan three where they address this head on. And that is a really clear documentation of the abundance of these minerals in the Earth's crust. Turns out there's a lot of lithium, a lot of iron, a lot of manganese, a lot of cobalt. A lot of it's not been mined and the cost to mine it is high. And there's complexities and nuances and it's not easy, but these minerals exist in great abundance in the Earth's crust. And I think that is not a real constraint. Now, getting them out of the ground is a constraint and there are certainly hard problems to solve there. But yes, we will not live in a world where we're unable to building from a battery capacity

• 51:29Speaker 02

  because of some kind of mineral constraint or unsolvable engineering problem.

• 51:34Patrick O'Shaughnessy?

  Can you also say a little bit more about the capital markets component of all this? On the one hand, you've got this one compounding story of vertical integration with the physical stuff that you're building and the teams you need to install it and the smarter and smarter systems overlaid on top of that, that's all super exciting and hopefully just keeps getting better and better. What's also interesting about what you're building is that it seems as though you require almost as much innovation and scale and vertical integration on just the pure capital side. Most startups raise equity capital and that's the story. And they raise more equity capital if they're successful at lower cost of capital and they scale up and whatever.

• 52:14Patrick O'Shaughnessy?

  This has way more complicated capital markets requirements, I guess is how I'd put it. Talk about what those are, how you're thinking about it, what the innovations could be there. It's like a twin part of the story that seems almost as important as the part we've explored so far.

• 52:30Speaker 02

  One way to think about what we're building is battery storage behind the meter at homes in Texas. Another way to think about it is a yield curve. It's just a cash flow stream. I'll just simplify it here. It's matching that cash flow stream to a cost of capital that has the appetite to underwrite those cash flows. And so we put money in the ground and then money comes out of the ground towards us at some frequency and we have to find the capital provider who's willing to underwrite that amount of money and the frequency by which it comes relative to the amount of money we put in the ground in the first place. And there's volatility and predictability and unpredictability in each part of it. And so on one hand, it's complicated asset-backed financing and people have to go underwrite batteries and their salvage value and the volatility of the grid and all that kind of stuff. On the other hand, it's just cash flows. If you understand how the capital markets work and how lenders think and how

• 53:15Speaker 02

  to communicate with them, you can finance these assets in a super capital efficient way. There's a pretty mature industry out there for what I'll call tax capital, tax credit transfer vehicles and then tax equity, what are called partnership flips. So basically ways to monetize tax credits if you don't have a large tax liability. So unfortunately, we aren't insanely profitable and generating tons of taxable income. And so we have all these tax credits that we can't monetize. So we have to either transfer those tax credits to someone who can monetize them or sell them in a tax equity partnership structure to someone who can monetize them. These tax credits have been around for some time. There's precedent for this and there are structures in place that firms and companies have used. You've seen it in residential solar. I think Sunrun is probably the best example of a

• 53:58Speaker 02

  really mature capital markets team that has nailed the securitization and tax equity playbook. And we'll talk about securitization in a second. So that's the tax side. On the debt side, you really have two flavors. You have project finance and you have asset-backed securitization. Project finance is typically taking a bunch of assets and putting them typically in an SPV and then lending against the cash flows that go into that SPV. There's a bunch of things to consider here, which is the kind of asset, is it wind, is it solar, is it storage, the geographic diversity, is it all in Texas, is it across a bunch of different markets? And then the quality of the cash flows, is it merchant, is it contracted, how much of it is merchant versus contracted? That project finance world has

• 54:38Speaker 02

  financed the solar, storage, wind build out over the last couple of decades. On the other side of that, you have securitization, which is basically defined the scale up of the residential home solar companies, notably Sunrun, who's done this most successfully. Of course, there are examples like Sunpower and Sunova who have done this less successfully. That's kind of all unraveling, where you develop a bunch of projects and then you securitize all of those projects. You basically capture value today for access to the cash flows later. And that's just like a financial engineering product. And securitizations are done in all kinds of different industries. And they're typically the largest, most liquid and lowest cost part of the capital markets.

• 55:21Speaker 02

  Where we are today is we do finance our CapEx with debt. And most of that debt has been raised on the back of large equity fundraises. And those lenders, which are more into venture debt lenders, are really looking at the cash on our balance sheet and looking at our ability to raise incremental equity capital and saying, okay, we can get comfortable with this amount of debt. As the fleet grows, and as you know, it's growing quickly. The amount of debt that we'll need to raise and deploy is going to be way greater than the amount of equity we have on the balance sheet. And so we're not going to be able to collateralize that debt by cash on the balance sheet. And so we'll have to go into more creative structures. Where we're going long term is almost certainly the securitization market. Like I said, it's large, it's liquid, it's low cost. And there's precedent for these kinds of assets being securitized.

• 56:02Speaker 02

  If you actually look at the models and understand the numbers, they're just cash flow streams. And so if you have transparent and predictable operating history, we have almost 1,500 of these things in the ground. We're deploying 20 a day. That number's going to go to 50 a day over the course of the next couple of months. You can say, okay, well, dollars go out at this time and they come in at this time. And there's a process by which you underwrite that and apply a risk premium to it. And then the lender has their cost of capital and we have the cost of capital of our equity. We think that we can access the lower cost of capital through debt. And so we think that there's a path to scale this business in a really capital efficient way, leveraging the capital markets with some combination of asset-backed financing, tax capital, and of course, equity, which we've raised to date.

• 56:42Patrick O'Shaughnessy?

  If I think about one version of this story, you could just say, okay, you've walked us through the unit economics of the individual unit. The gen four is way cheaper, the payback period is way shorter. There's one of these things on every available home. You do that math, I think everyone would have a victory parade. Great, awesome, incredible job, great business, cool innovation, supported the system, value delivery, blah, blah, blah. What parts of the vision have we not talked about that you've thought about that excite you? You talked a little bit about other things you could sell into the home because of your unique positioning there. That's one dimension of other things that you could do. What other things does this give you the right to win in this big story that's so captured your imagination?

• 57:25Speaker 02

  I started the conversation by saying, we see ourselves as an energy technology company. This strategy of compounding cost advantage through vertical integration. Is defined by engineering. We are building the most efficient grid resource on the planet in the form of battery storage. We think there are equivalent engineering problems to solve that will create cost advantages with regards to residential solar, but also other products like commercial batteries, commercial solar, EV charging at the home level, EV charging at the commercial level, things like electric key pumps at the residential and the commercial level. As you mentioned, going downstream into the home and into the built environment. So I think gas stations, grocery stores, quick serve restaurants, small commercial office buildings, these are massive consumers of power.

• 58:10Speaker 02

  They should also have onsite storage and solar, and they should have smarter controls around charging and HVAC and those kinds of things. So we think about the business as a technology company that is developing solutions to electrify the built environment. We're starting with the home. We think the commercial space is really interesting. We're starting with storage. We think solar is really interesting. We think some of these other downstream products are really interesting. But then if you look upstream at the utility and you look at substations and transformers, back to this utility incentive question and problem, the utilities have no incentive to go innovate on transformer design. They're not R and D led businesses. The percentage of employees at a utility that work in R and D is sub 1%. At the average tech company, it's 20, 30, 40%.

• 58:54Speaker 02

  And the reason is because they're not incentivized to spend money on R and D. They don't earn a rate of return on it. They earn a rate of return on CapEx. We think there's a ton of R and D that should be happening at the utility level, whether it's the transformer or the substation or the software by which they manage all these systems. And as we partner with these utilities, Bandera Electric and Texas and some others that we're working with in the state and some that we'll announce across the country over the course of next year, we're learning a ton about how they operate. And we're seeing massive opportunities for R and D in a place that's never seen it. And we think that we can build some really interesting solutions upstream, and we talked about downstream, we think we can build some really interesting solutions upstream of the home, upstream of the building to serve these utilities in the modern electric era.

• 59:36Speaker 02

  We see a really big opportunity to partner very closely with utilities outside of just deploying distributed storage at the home, basically being their R and D function. There's a play here to kind of be the palantir for utilities where you go in and you bring a bunch of world-class hardware and software engineers who really understand the systems that they're working with, and you help them solve problems that they're not well positioned to solve.

• 59:59Patrick O'Shaughnessy?

  Can you talk a little bit about your personal story that's arrived you at this specific topic area and source of motivation? Why you doing this thing? What the formative experiences or lessons have been that got you to here?

• 1:00:14Speaker 02

  When I was younger, middle school, high school, it never occurred to me that there was anything interesting to do in the world other than being an entrepreneur. My dad was an entrepreneur. I looked up to his friends that were entrepreneurs. I saw company building and problem solving as synonymous. And the heart of the problem, the larger the economic outcome downstream of the solution. And that was something that just kind of struck me as a young person. I kind of knew that I wanted to build companies and solve hard problems. And I experimented with different things in high school and college and building things and with some really awesome people. And in college, I kind of was struck by the energy bug. I alluded to this chart of energy consumption per capita and GDP. I just kind of had this obsession of creating opportunities for people to get access to

• 1:00:57Speaker 02

  affordable, reliable power is the best way to improve their lives. And long story short, I spent most of college trying to develop systems to do anaerobic digestion in rural parts of the world, particularly in India, to turn human waste into biogas. So basically kill two birds with one stone. You know, in the order of a billion people in the world who don't have access to sanitation infrastructure and then also don't have access to reliable, affordable power. And so if you could build these systems to allow them to process waste into compressed methane, they could power things like lamps and stoves and lights, et cetera. And I spent basically all of college working on that. And about halfway through college, I realized, you know, after some long sweaty summers in New Delhi, this isn't a business. This is like a cool project, but this is not a company.

• 1:01:38Speaker 02

  I don't actually really know what excellence and true high performing businesses really look like. And that was what I wanted to learn. I went into finance because I wanted to see what that looked like and learn how to analytically dissect a business. And I was always really interested in markets and investing and studied the great investors. And that was always a hobby for me. And I figured like, okay, I'll just go study in finance until I find the pitch to swing out. And at the time, Blackstone was one of the only firms that was hiring undergrads right out of college on the buy side. I really wanted to work on the buy side. So I applied for an internship there. I got the internship on the private equity team. And when I was an intern at Blackstone, one of the guys on the team was working on an opportunity to carve out a lithium mine from a public company.

• 1:02:23Speaker 02

  And I went up to him and I was like, hey, Sam, awesome guy, Sam Young, super sharp investor. And I was like, hey, Sam, I want to work on this with you. I think lithium is interesting. I think energy is interesting. There's an opportunity in battery storage, this is 2018. And he's like, okay, yeah, sure. This is like not something the firm was super focused on. It was a project that was getting tossed around. And long story short, when I came back full time the next year, the project had become real, basically. I became the analyst on the deal. If you're going to buy a lithium mine, you have to take a view on the price of lithium because you're going to own a lot of it. I spent a couple of months trying to figure out what is lithium going to do? What's the price of lithium going to do over the next decade? And in doing that, it just became obvious to me that battery storage was going to be this incredible source of growth, really for no reason other than the marginal cost

• 1:03:06Speaker 02

  of solar plus storage was just going to be lower than the marginal cost of coal and natural gas. And so incremental capacity on the grid was going to largely be solar and storage. And it was clear that we had really underbuilt the storage. So we started looking at distributed storage platforms. And after I left, Blackstone ended up buying Ipa Power, which is one of the largest utility scale developers in the country. Around that time, I kind of had this insight of these two constraints, the interconnection constraint and the transmission constraint that utility scale storage faces. Towards the end of my time at Blackstone, I was introduced to Kareem, who you've had on the pod, who's a partner at Thrive Capital. Him and I hit it off and he introduced me to Josh and Josh introduced me to Vince and Vince introduced me to Gorav. And I started meeting the Thrive team and I was just struck by them as people and their strategy as investors.

• 1:03:51Speaker 02

  The way that I saw it was high conviction, high concentration, high involvement. To make very few investments, have very strong conviction in the business. And then when needed, actually really help move the needle for the company. That was the kind of investing that I always wanted to do. Partially because I really wanted to be an entrepreneur and I wanted to be close to entrepreneurs and I wanted to actually help entrepreneurs, but partially because I think that diversification is the enemy returns and all that matters as a growth stage or startup investor is like identifying which companies are actually going to be part of the S and P 500 and then owning as much of those companies as possible and not selling. I ended up joining the team at Thrive and I was there for two years and just have a ton of admiration and respect for the people there

• 1:04:32Speaker 02

  and really grateful for the time that I spent there. And really in the second year I was there, I spent most of the year picking this battery storage thesis back up with the idea in the back of my head that I might start a company in this space. As I picked the thesis back up, we made a large investment in Andorol and I went down to do a factory tour. As part of diligence, my tour guide was the head of manufacturing at the time, who's now my co-founder, Justin. We sent a day together. He showed me around the factory. I was peppering him with questions all day long. And the other day I was like, man, that is one of the smartest people I've ever met and he is a machine. And so we hit it off and we exchanged numbers. We started texting and we started talking about big ideas. And a couple of months later I called him and I was like, hey,

• 1:05:12Speaker 02

  and I think the line I used was, I want to start a company. And I think that if you built a really high quality battery pack assembly business in the US, it'd be really hard to lose over the next decade. And he was like, yeah, that I agree with. There was so much demand coming from batteries. It is really hard to do really high quality pack assembly. There's not enough supply here in the US. And that was where we started. I had this core insight and then together, we kind of pulled the idea out of each other. And for the next three months, we would get on the phone basically every night at 9:00 PM and just kind of bad ideas back and forth. And the thesis really evolved over time. At one point we were like, oh, we're going to do neighborhood batteries or we're going to sell directly to utilities first. Yes, we want to be a retailer in Texas. No, we don't want to be a retailer in Texas. We're going to start in California.

• 1:05:55Speaker 02

  We're going to start in New York. And we just maniacally researched the opportunity until we crystallized this more platform-like approach, vertically integrated approach, which to both of us just felt like the holy grail of company opportunities. Justin, before Andorol was at SpaceX and he led manufacturing at the Starbase Boca Chica site down there. And I think what SpaceX did to aerospace, what Andorol did to defense, Base wants to do to energy. Go after a really large industry with a bunch of entrenched incumbents that are not engineering-led, they're not technology-focused, and they're not R and D-driven, and build the engineering-led, technology-focused, R and D-driven company in that space. And that's really how Base was born and what Base is designed to be.

• 1:06:37Patrick O'Shaughnessy?

  I want to ask you about engineering culture, pace, quality of people, like all those kinds of things. I think it's more interesting to hear what the examples are that you've seen firsthand of extreme excellence in business. I'm looking for stories, anecdotes here. The things that have made a lasting impact on you, like you saw it with your own eyes, someone did something, and that changed what you thought was possible in terms of quality standard for thinking, operating, innovating. What are the formative anecdotes or people that have informed your view of how culture can and should be at a business?

• 1:07:17Speaker 02

  As you and I have discussed before, I love this concept that everyone's definition of good is just the best they've personally seen. And I've been very fortunate to witness some really exceptional business cultures firsthand. At Blackstone, where I started my career, I saw how process orientation and analytical rigor could become competitive advantage. So the leaders at that firm had a way of encouraging teams to turn over every stone, really break businesses down to their atomic units, and deeply understand the core questions that truly mattered when evaluating companies. Witnessing that level of disciplined analysis, thoroughness, and clarity of thinking taught me that excellence often lies in how deeply and systematically you can think through complex business problems, which, in this context, at least at Blackstone,

• 1:08:01Speaker 02

  usually required deep knowledge in domains like accounting and capital markets, et cetera. At Thrive, where I went after Blackstone, I learned a very different but equally powerful form of excellence from Josh Kushner. Josh has a remarkable ability to think clearly far into the future. Recognize exceptional talent early and see opportunities for what I'll call deal making where others can't. Josh's approach to, and air quotes, deal making is very unique, I think. He's not penny wise and pound foolish. He doesn't optimize for the last dollar. He really optimizes for the next deal. So when you work with Josh, you leave the interaction wanting to work with Josh again.

• 1:08:44Speaker 02

  He's creative, he's fair, he's extremely intelligent, and he's a lot of fun to work with. He also has totally unmatched ambition, which has been incredibly inspiring for me. And we often talk because he's the first person I call when I have a really crazy idea, which happens frequently. And I know that I can count on him to push me to think bigger, which is a lot of fun. Now, in building base, I'm honestly continually learning from the people around me. So my co-founder, Justin, he's really taught me what true ownership looks like. So taking accountability end to end without excuses. He's mastered the concept of extreme ownership, a skill that I think he developed working for Elon at SpaceX and leading the manufacturing efforts at Anduril.

• 1:09:27Speaker 02

  Cole and Jared, who are two of our first hires, who both came from the Starlink team at SpaceX, have really taught me how speed can become a strategic weapon. So even when urgency doesn't feel necessary, it almost always leads to better outcomes. They've really helped me understand this idea that speed and rapid iteration unlocks new problems that the team earns the right to solve, which moves us forward. So said differently, if you do 10 of a thing, and then 100 of a thing, and then 1,000 of a thing, there are new problems that you get exposed to when you go up in orders of magnitude that you wouldn't be exposed to if you didn't reach that new level of volume that are really worth solving. And so running from 10 to 100 to 1,000, in our case, that thing is installations of batteries,

• 1:10:11Speaker 02

  it just speeds up that learning so dramatically. And that's been incredibly valuable lesson. And then Dana, again, one of our first hires, our head of deployments, who worked with Justin at Anduril, has really taught me the importance of process orientation in an operational context. Honestly, she brings a Blackstone-like attention to Detail to day to day operations and has really leveled me up in a big way in this regard as someone who's come from a finance investing background and doesn't have a lot of operational experience. She's helped really bring that to life for me and bridge that gap. And then finally, Dino, our head of hardware, who led powerwall engineering at Tesla, he was there for 13 years. He worked on the original Roadster. He's really brought all of us up to a new level of, I'd say,

• 1:10:54Speaker 02

  clarity of communication. So his ability to communicate complex ideas in simple terms is truly world-class. He just has an incredible ability to drive clarity of thought and quick decision-making in highly technical contexts, which has been a secret weapon for us as we develop the next generation of our technology. And then honestly, most formatively, I've learned so many lessons watching my dad run Dell over the last 20 or so years that I could really tell what was going on. I'm almost 30, so until about middle school, I was pretty in the dark, but there are so many lessons that come to mind from watching him operate over the last

• 1:11:34Speaker 02

  couple decades. I'll just name a few. One thing that has always stood out to me has been the tenure of the top leaders across the company. Dell has a lot of employees who have been at the company 10, 15, 25 years. I've always really admired this, and I think it's really showed me how important it is to build a company around a mission, a vision, a strategy, and a culture that is really built for the long term. And that's really the only way that you get these long-tenured leaders is you set the company up to be oriented around a 10, 20, 30-year vision. Another thing I have learned from him is deep, open-mindedness and the value of rigorously challenging your own ideas. I don't know that he's ever talked about this publicly, and hopefully I don't get in trouble

• 1:12:17Speaker 02

  for doing so, but he's done something in the past, and I think probably still does it, that I think is just so cool, where he'll actually invite a sell-side analyst or an equity research analyst into board meetings every once in a while to basically pitch the bear case on the company to the leadership team and kind of Red team, the business from an outside in perspective, someone who's deep in the industry, studies the space intensely. And the objective of that person is to come and highlight all the things that they might not be thinking about, that they might be struggling with. And my dad has told me, he goes to the person, whoever it might be, and asks them, like, don't hold any punches,

• 1:12:57Speaker 02

  give us your best shot, be as negative as you can. And I think this concerted effort to constantly question the work that your team is doing and challenge the assumptions is super, super powerful. And I think finally, above all, his genuine love for the game has just shown me the immense power of intrinsic motivation. I mean, he wakes up every single day so excited to go solve the next big hard problem. He's 30 years in, he's still running towards problems, not away from them. He's having a ton of fun doing it. So I really could not ask for a better example than that.

• 1:13:34Patrick O'Shaughnessy?

  This has been so incredibly fun to hear. It's crazy. I actually, when I was in your Austin office a year and a half ago, or something like that, to hear the progress, not just the business progress, but also in your understanding and your thinking, in your ideas for where this could go in the future. There's nothing like having a couple data points rather than just one. I can certainly say, having those couple data points, it's amazing how quickly you've come up the learning curve and how impressive the output of the team has been. It's such a cool business concept and such a great way to teach us all about a critical thing that's lurking there all day, every day, that we don't think too much about, that we sort of take for granted. And I feel like I know a lot more about the grid and its future now. It's been so much fun to have you.

• 1:14:16Patrick O'Shaughnessy?

  I think you know my traditional closing question. What is the kindest thing that anyone's ever done for you?

• 1:14:21Speaker 02

  I can't help but think about my parents when I think about this question. They are incredible role models and have led by example in an incredible way. I'll start with their relationship with each other. It's just the most amazing example of a partnership and commitment. They've been married over 30 years. And I feel like every time I see them together, they're a little bit more in love. Seeing that has been Incredibly fun for my sisters and I. You've talked about this concept of born rounding third and I feel like I was born sliding into home base. I feel just incredibly lucky for the environment in which I was raised, but there are a lot of challenges in raising a family in the spotlight when your name is on all the computers that you see walking around.

• 1:15:06Speaker 02

  And I think they've dealt with that in a really impressive way, in a very humble way, in a way that's very genuine and true to them. And I'm just very grateful for the way that they carry themselves, the way that they treat other people, the way they've decided to spend their time and money helping others. I look up to both of them in a lot of ways and I'm just very grateful to be their son. I've thought about different ways to answer this question and I can't really think of any other way than talking about them. I'll say a couple of other things. One is that there were a number of people, I'll call them in air quotes, adults in my life as a young person, that I won't name individually, but they certainly know who they are, that were quite hard on me when they didn't have to be. I'm really grateful for that.

• 1:15:50Speaker 02

  And I might not have been at the time, but when I look back, I think that tough love is really valuable. I had some people in my life early who really were tough on me. I think that was really important. And then the last thing I'll say is my fiancee Emily, when we met, I was working at Thrive. We were living in New York. I worked a ton, but life was pretty fun. And over the last two years, life has been a lot harder. I kind of approached her, I was like, hey, this battery thing I've been talking about, I'm gonna go for it. And we gotta move to Austin. You've been to Austin twice and your whole family's in New York and you work in New York at Google and you're gonna have to leave your job. And there was never a minute of, well, what about me and my life and all my... It was just immediate support from day one. Of course, we're a team, we're gonna do this together. And by the way, this is before we were engaged.

• 1:16:36Speaker 02

  There was no commitment from my end. And she's just been 110% supportive every step of the way. And the last two years have been super hard. I'm in the office seven days a week, 12 hours a day. I spend a lot of time here. I've thrown my life at this thing. She could have complained and put up a fight and she's just been insanely supportive and I'm so grateful for that. So I feel like a very lucky and grateful person generally. And I don't have one kind thing that someone did. It's more of reflections on all the people who have been really a huge part of my life to date. So thank you, Patrick, for the opportunity to do this. Like I said, this podcast has been an incredible gift, I think, to young people like me who want to be learning machines and want to understand that psyches and the mindsets of a lot of great people.

• 1:17:19Speaker 02

  It's an incredible honor to get to share my story and Basy's story with you. So thank you.

• 1:17:23Patrick O'Shaughnessy?

  Zooming in on the parents thing, you said what I say all the time, which is like, I was born on third base myself. I know a lot of people who have been born in all circumstances, who have succeeded or failed from all starting points. But there's no doubt that the advantage that you had that I had growing up, forget about magnitude or degree. The reality is it's a very lucky, privileged starting point. Nonetheless, in many ways, I hope my kids, that's even more true. I don't want that to be a thing that they have to feel bad about. I wanted to create opportunities for them to make more impact, do all sorts of things. And so I think endlessly about, my kids are younger, of course, but the ways in which I engage and interact with them and the world that I show them and the parts of my world that I invite them into and surround them by.

• 1:18:08Patrick O'Shaughnessy?

  And I was listening to this interesting thing the other day, which was noting that it's really only been a last couple hundred years phenomenon that like a dad and his son aren't working together all the time for the son's whole life. And now you've got this circumstance where a dad and a son, or a mother and a daughter, or any combination thereof, aren't together for major parts of their waking lives. Your parents did it the right way. And so I'm curious if there's anything that you could share with myself and the other parents out there that want to like copy what works and do it for their kids because it's obviously what we all want for our kids.

• 1:18:42Speaker 02

  I'll borrow from what Ravi Gupta has said on the pod, which is his concept of demanding and supportive. You hold your children to a really high bar and you expect a lot out of them, but you're there to support them with unconditional love. And I think it's a push and pull from mom and dad sometimes, and sometimes it comes from one and sometimes it comes from the other. And my parents are just such great partners that that push and pull, I think, worked. Really well. Another way to say it is pleased but not satisfied. I think I was in the sixth or seventh grade and I was in kind of an advanced math class and I was really proud of that because my dad really emphasized the importance of math. And I got like our first test back and I got a 99. And I went to call my dad after school and I called him and I was like, Dad, you're never gonna believe it. First test, I got a 99.

• 1:19:27Speaker 02

  And he was like, what happened to the last point? You ran for the touchdown and you fumbled the ball on the one yard line. That sucked with me and it wasn't this like, oh, my dad doesn't love me, not proud of me. It's just, no, I gotta be better. My mom is an elite endurance athlete. She did the Ironman World Championships. She's completed a bunch of half Ironmans. She's got all kinds of course records and cycling races. And a lot of what I learned about hard work and determination and perseverance is really from her and leading by example in that way. But we used to go on these really long bike rides. You'd be climbing a hill. And she's of course 20 yards in front of me and I'm panting and trying to catch her. There was one time in particular where it was this red car parked at the top of the hill.

• 1:20:08Speaker 02

  It was a long ride. It could have been 60 or 70 miles or something and we're pretty far into it and I was really struggling. And she's like, just get to the red car, get to the red car. And I'm grinding, trying to get there. And of course, as I approached the red car, the red car drives away and drives up the hill. And after the ride, we kind of had this conversation about this is what life is like sometimes. You see the red car and you're like, if I can just get there, I'm gonna make it. And then the red car starts its engine and pulls away. Both of my parents, whether it's the 99 on the test or the red car or the way that they operate. And my dad, you know, 40 years in, he's still the CEO of the company. That red car is still driving away for him. He's not like, oh, well, you know, we did pretty good. We built a big business.

• 1:20:52Speaker 02

  He's reinvented the thing three times and he's still having as much fun as he had in the early days. And it's so fun to see him doing that and having the fun that he's having running his business. And I think it's just this infinite game mentality, always trying to get better, always trying to improve. But then the supportive element of you have potential, you can do great things, but you've got to push yourself and you've got to set big goals.

• 1:21:14Patrick O'Shaughnessy?

  Well, one of the most fun segments of kindest thing that I've ever had. I'm glad we expanded on it. Zach, thanks again so much for your time.

• 1:21:21Speaker 02

  Thank you, Patrick.

• 1:21:23Patrick O'Shaughnessy?

  If you enjoyed this episode, visit joincolossus.com where you'll find every episode of this podcast complete with hand-edited transcripts. You can also subscribe to Colossus Review, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn more at joincolossus.com/subscribe.