Bret Kugelmass [00:00:58] Welcome to another episode of the Energy Impact Podcast. Our guest today is Josh Posamentier, the co-founder and Managing Partner at Congruent Ventures. Josh, great to have you on.

Josh Posamentier [00:01:08] Great to be here. Thanks for having me.

Bret Kugelmass [00:01:11] So before we hear about all your work at Congruent, tell us a little bit about yourself. Where are you from?

Josh Posamentier [00:01:17] I am originally an East Coast native, but I've been in California now longer than anywhere else. I came out to Cal as an undergrad and spent some time in and around the physics department and one of the National Labs and then ended up in semiconductors for a dozen or so years.

Bret Kugelmass [00:01:35] Okay. It feels like you just sort of glossed over, "yadda, yadda, yaddaded" over a whole bunch of stuff there. East Coast kid, so why go to Cal?

Josh Posamentier [00:01:46] So, I did study physics as an undergrad, and Berkeley was one of the top schools at the time and probably still is and it better weather than a bunch of other places on the East Coast.

Bret Kugelmass [00:01:57] Okay.

Josh Posamentier [00:01:58] How beautiful California is.

Bret Kugelmass [00:02:00] You say it's physics, but it was weather and it was being outside and yeah.

Josh Posamentier [00:02:05] It's beautiful. It's the Bay Area.

Bret Kugelmass [00:02:07] Were there family connections or anything? You could have chosen UCLA, but you didn't, so it couldn't have been totally weather.

Josh Posamentier [00:02:14] No, no, definitely the quality of the school. I was a materials guy, mostly carbon compounds actually, even back then.

Bret Kugelmass [00:02:22] Fascinating. What was the origin story for that?

Josh Posamentier [00:02:27] Just something I always loved. I love understanding how things work. I love learning about new things. I had both a math major roommate and a mechanical engineering roommate. You know, as the math major would say, "Physics is just applied math." So I almost got a double major in math also. And then, as I would tell my mechanical engineering roommate, "That's just applied physics." You learn to learn and you learn to figure stuff out from first principles.

Bret Kugelmass [00:02:53] Yeah, fascinating. But I mean, come on, you weren't born loving physics. I mean, maybe you were. If you were, how did you discover that? Like, give us a little bit more than nice weather and physics. Come on.

Josh Posamentier [00:03:10] I've always liked understanding how things work. I think one of the first things that sort of told me that was a physics thing was breaking my leg in seventh grade and then having to spend some time in the library. I ended up reading a book called "Physics for the Inquiring Mind," which is like physics for the layperson. Just very minimal math, and it was like, "Wow, this is pretty cool. Just plug this into that and then you figure out how fast things go and how they interact with one another." So, that was pretty fun.

Bret Kugelmass [00:03:38] Yeah, I guess that would be like the perfect time when you've probably had enough math and enough sense of space in the world for it to capture your attention, right? Then you could sort of build on that over time.

Josh Posamentier [00:03:51] Yeah. Honestly, the more you peel the onion in the field, the more everything ties together. I mean, we're not quite at a single unifying model for everything, but getting there.

Bret Kugelmass [00:04:01] Yeah, maybe with AI we've got a little more horsepower to sort of write that all out, right? Okay, so applied physics, a sense of how the world works. How did the actual career evolve from that?

Josh Posamentier [00:04:17] So I graduated not really knowing anything. Coming out of Cal, it's like a research institution; I was doing research. I decided to bail out of grad school and try to figure out what was next. And let's see... A lot of physicists go into semiconductors mostly on the process development side. Not something I had any interest in. And so, someone who's also a Cal physics graduate pulled me into the semiconductor industry.

Josh Posamentier [00:04:49] One of my very first interviews into that universe, they asked me a bunch of technical questions, and I literally barely knew how a diode worked. I mean, I could tell you how a diode worked from first principles; I couldn't tell you how a transistor works. Which is maybe a little embarrassing and maybe not quite who you want to be designing chips. But fast forward and I got to do a lot of really cool technical work across the spectrum on Intel's earliest wireless chips through a couple of acquisitions, Intel's first optical telecom products, and then ended up in Intel Capital incubating and investing in new businesses.

Bret Kugelmass [00:05:25] Fascinating. Okay, so you went from this understanding where you could describe the theorem but not the processing, to investing in businesses that did that. How did that evolve? You started in the commercial space. You just asked people a bunch of different questions or you went to the library and got 12 different textbooks? How did you go from there to there?

Josh Posamentier [00:05:48] So, my entre into the investing side was actually on the technical side, really. Talking to some of the full time investors at ICAP, being in technical diligence resource and then being like, "This might technically work, but why would anyone buy this thing?" And that was sort of the slippery slope into the business and marketing side.

Josh Posamentier [00:06:07] After a few years of that, I was like, "I should probably go back to business school and actually learn this stuff for real." And so, I did that and went and did a dual degree program between Berkeley and Columbia, ping-ponging back and forth between coasts. And it was a super fun experience, especially as someone with a technical background getting to do business school. I'd worked in the economics department at Cal and Statistics Department as an undergrad because it paid pretty well. I'd never taken a statistics class outside of stat mech and had never taken an economics class. So, I came at those from a very different outside experience, which is fascinating.

Josh Posamentier [00:06:44] I think that's not necessarily how most people approach those, but if you really want to understand how things work in different parts of the world, economics is actually pretty cool, systems dynamics and all that systems modeling. All this interesting academic work going on in econ stats is just absolutely fascinating for someone coming from the tech side.

Bret Kugelmass [00:07:06] Did you find that your sort of technical, and maybe physics, specifically, background gave you a different lens or a different way to understand the economic principles?

Josh Posamentier [00:07:18] Not as much. I had one operations research class where everything kind of looked like a physics problem applied to the real world. So, money goes in, money goes out. Or, you have something called the Bullwhip Effect, which is something you see in supply chains all the time. And there are literally physics models that predict exactly the same behavior. It's just a bunch of springs and masses but they kind of do the same thing. Oh look, the equations are literally the same. And so, it's fun seeing the connection between the real world and the business information world.

Bret Kugelmass [00:07:53] Yeah, I had that experience with some of my math education. And then I took econ and it was like, "We're just talking about integrals and derivatives here." It just never... Like, this is undergrad, so we never really got to that level, but it just killed me... That connection between math, physics, and econ was just crystallized in the first week for me. But it was only because I had that sort of background first, which is unusual. We don't do it that way in our education system now.

Josh Posamentier [00:08:25] Nope. I mean, I'm a proponent of teaching math and science simultaneously. They're all interlinked. I mean, calculus was invented for physics and physics is derivative of calculus, no pun intended. It's fascinating when you actually end up seeing those connections. But I didn't stay for like a full MFE or anything like that, but I certainly had friends that did. So, I got a taste of it, and I said, "I want to go back out into the real world."

Bret Kugelmass [00:08:52] Yeah. No, that's fair. Similarly, I could see how those equations sort of map, but to me it was more of like really understanding things in terms of velocity and slope. It's like super interesting in how I approach the world at least. So, that's cool that you had a similar, probably more academically rigorous experience.

Bret Kugelmass [00:09:11] Okay, so you did your MBA, and then what? Was the idea to switch directly into direct investing, or you just wanted to explore the business world? And where did that take you?

Josh Posamentier [00:09:24] Well, so in the usual "grass is greener" mode, I actually went and started a company, basically last semester of business school. And this was like late 2007 or early 2008. Not the greatest time to raise capital. You know, the world is sort of imploding and liquidity locked up and stuff. And so, I ended up bootstrapping and selling that without actually taking any outside capital, which is definitely a piece of advice I've given to more than one founder. It's like, maybe a smaller overall exit, but you own the whole thing, so that actually has some pretty good math associated with it.

Josh Posamentier [00:10:00] So yeah, I went and did that. And then after selling that company, a company called Blipstream, I was definitely more interested in figuring out a way to get into the energy space, specifically. It seemed like a great and growing space and it overlapped a bit with some of my interests. Like a lot of people, I like cars. And so, I was like, "Huh, it'd be interesting to do something with electric vehicles," which were not even a thing back then. Tesla was just getting booted up, just starting to build stuff. And so, I was lucky enough to basically find support at a big semiconductor company to do what was essentially a little bit of a CEO's pet project, which is go build chips for EVs.

Josh Posamentier [00:10:43] I mean, a modern electric vehicle has something like 10X the silicon of an internal combustion engine car. Just so much more silicon for everything from battery management to communications to power electronics. And so, huge opportunity for a semiconductor company to really get a bigger share of wallet for a growing segment. So, I was lucky enough to get in there and help build that business. Over the next three or four years, we built it into a global business and most EV sockets and most vendors. Not everyone, but the big ones. And so, that was super satisfying.

Josh Posamentier [00:11:20] And of course, as things go, that company got acquired. That was National Semiconductor. It got acquired by Texas Instruments. And I live out here. I had zero desire to move to Texas. And that was definitely the progression were you to stay and wanted to climb the ranks. And so, I joined a friend of mine from business school to jump into what ultimately morphed into Prelude Ventures. So Prelude's a multi-stage climate tech fund out of San Francisco, single LP backed. So, I was the second person there. I spent close to six years building out that core portfolio before kicking off Congruent with a friend of mine, Abe Yokell. The two of us came together and said this really needed a reboot, this early stage climate sector.

Josh Posamentier [00:12:08] Prelude's multi-stage. Most of the early stage investors in the sector had gone away after the Clean Tech 1.0 bubble burst and had not really come back. And so, that whole early stage sector of the economy in climate was just nonexistent. And so, one of the things we did was basically try to reinvigorate that. Take a very collaborative model, very syndicate friendly. Work with everyone we can. Bring mainstream tech investors into climate deals, and basically just chase good returns with the thesis that one of the most impactful things we can do is actually show you can make good money in climate. And yeah, so far, so good. That's kind of bringing us to the current day.

Bret Kugelmass [00:12:55] Yeah, fascinating. Let's peel back some of that Prelude experience and then into Congruent. So you'd kind of did energy... I mean, electric vehicles. But then, Prelude would have been your first introduction into the broader sort of energy ecosystem.

Josh Posamentier [00:13:13] Well, technically, I ended up running everything from grid scale energy storage to... Inherited the smart grid business unit as well while still in the semiconductor space. So, I kind of had some entre to basically all things grid and grid connected. But, that's still a limited space. I hadn't really touched advanced materials or food and agriculture or industrial and supply chain where it comes to carbon footprint reduction. A lot of that was new and learned over the last dozen years or so.

Bret Kugelmass [00:13:43] Yeah, so you were appropriately sandbagging your experience there. You had some, so you had broader sense than, "Yeah, just a little bit." If I don't call you out on it, you'll keep doing it. Okay, so was there like a conscious decision then with Prelude? Were you looking for that opportunity to move more buy-side, move more energy market focused, or it was just the relationships that you had with the folks there at the time? They called you up and said, "Hey man, we want you to come join us."

Josh Posamentier [00:14:16] I generally was sort of done with the corporate world for a little more time, and I didn't really have the bandwidth in terms of attention span to go back and do another startup. And honestly, I think the best way to do startups is when you have an idea, then you do it. You don't do it and then figure out an idea to go do it with. So, I didn't have something brilliant anyway. And I think I have, like most investors or most venture investors anyway, a good, healthy dose of professional ADHD. And so, there's really no better way to scratch that itch than to basically spend all that time every day with different companies. So, I'm lucky enough to get to do that all the time.

Bret Kugelmass [00:14:56] Fascinating. What years, roughly, was Prelude? I'm just trying to understand sort of the history.

Josh Posamentier [00:15:06] It was like '11 through '16.

Bret Kugelmass [00:15:07] Okay. Man, so you were shale all the way through the next sort of mini oil crash. Interesting. And like, RES was sort of a thing, but not really. So yeah, how did your thesis evolve over that five, six year period? I mean, there was a lot of change in energy markets during that time.

Josh Posamentier [00:15:28] So, I was lucky enough to watch the whole explosion, implosion of the US solar market while I was on the other side of the table. And that was definitely interesting to watch. So, I learned a lot. Throughout that time, I mean, there were a lot of fields that had really been underinvested in. Really, batteries had been one of them, more on the conventional battery side than any kind of fancy stuff. And so, I made a few battery investments. Dabbled in a few other places, but really just got deeper and smarter on a bunch of different segments.

Josh Posamentier [00:16:05] So, food and agriculture is a place I have a lot of interest in. I don't have any sort of historical entitlement there. It's all kind of learning on the fly. But I made a couple of CPG food investments. Seem to be going well. Some other stuff on agricultural side, from carbon sequestration to more efficient harvesting techniques and crop management. All of these things are hugely impactful, but the more you peel the onion in terms of where our emissions are, the more you can be a little bit more focused and be like, "Okay, that's clearly a market opportunity. Okay, who's tackling this?"

Josh Posamentier [00:16:45] Take ammonia production or even just straight fertilizer. That's a huge source of anthropogenic emissions, and if you can somehow find a way to make farms more productive without that... So, reduce the inputs and increase yield, it's like two for one. So, made investment and pivot back in the very earliest days. You know, bio-based fertilizers, they use naturally occurring microbes to help fix nitrogen and avoid the need for more chemical fertilizer.

Josh Posamentier [00:17:17] So like, high leverage, really interesting, something that doesn't require... You know, requires a lot of engineering, but by the time we invested, it was clear that some of the core IP worked. And that's usually a pretty safe place. We'll take engineering risk, but not science risk, is usually how we put it.

Bret Kugelmass [00:17:35] Interesting. Yeah, it's interesting to hear how different firms at different stages are thinking about different risks, particularly when it comes to... I'll call it hard tech, but that's sort of unfair. More like the capital intensity and like physical nature of a lot of what we're trying to do, right? So the models from a traditional VC and SaaS like doesn't seem to apply as easily to some of these different aspects. So, that's an interesting take, yeah.

Josh Posamentier [00:18:09] It's definitely a different flavor of pattern recognition. I mean, you can't just be a straight SaaS investor and invest in a bunch of hardware companies. It's a good way to lose your shorts. But that being said, a lot of very traditional venture economics still come into play with hardware stuff. Like, we're not going invest in hardware companies with single digit gross margins. Even if they're massive markets, that's still a tough sell given the inevitable capital intensity not being able to recover that quickly enough. So, we're still chasing high margin hardware stuff, software, combination, fintech, you name it.

Bret Kugelmass [00:18:43] Yeah, fascinating. Yeah, maybe that's a good segway as you were describing Congruent and bringing in some of the existing SaaS folks or more mainstream folks. Yeah, maybe talk about what the thesis was there and how that's played out.

Josh Posamentier [00:19:02] So, I love bringing in mainstream investors who are just straight up good investors. That's a good way to bring all the team dynamics and team analysis and helping companies actually just think through that stuff. That's not specific to the sector. I mean, that's something that spans the gamut. So, it's great to have veteran investors on board with us.

Josh Posamentier [00:19:26] Different high profile groups that just have no climate focus or emphasis whatsoever have joined us in deals and it's been super creative. I mean, we've had Sequoia lead a fall-on round, Bond Capital, DCVC, Union Square before they had a climate fund. I would say a lot of these are climate curious, but they really have zero mandate. They're just looking for good deals. And honestly, the help they provide and the insights they bring are super helpful.

Josh Posamentier [00:19:56] I mean, climate venture is still early in its evolution. We're one of the oldest currently operating groups, but there are a ton of folks now. But very few have been in climate for long. So, the best ones are being very thoughtful about going in slow and slowly building. There are definitely a few groups that are out there that have been at it through the first bubble as well. But yeah, I mean, we're definitely lucky to have those guys as co-investors very often.

Bret Kugelmass [00:20:31] Yeah, super cool. Talk to us more about your fund structure, team. Like, what separates you guys versus that sort of growing universe of funds. Has that changed, I guess, from when you first started?

Josh Posamentier [00:20:47] Well, yeah, it certainly changed. I mean, there are definitely more groups around the table now. It's arguably easier now to raise capital in the sector than before just because there are just so many more options. I mean, our team and our differentiation is... It's hard to say really anything without it being super cliche, just admittedly. We've got to poke fun at ourselves. So, we add value, and how can I be helpful?

Bret Kugelmass [00:21:17] As long as things are going well, right? As long as things are going well.

Josh Posamentier [00:21:20] Yeah. But honestly, as things are going sideways, that when you can actually add a lot of value.

Bret Kugelmass [00:21:26] No, that's true.

Josh Posamentier [00:21:27] And things do go sideways with regularity. It's something with the economy or the sector or the tech or team or something. And we roll up our sleeves. We're super active on most of the deals we do; we lead most of them. Three out of four deals, we're the first institutional money in, period. And so, we try to basically set the stage right. We try to help partner with earlier stage entrepreneurs. A significant fraction of the CEOs in the portfolio and co-founders in the portfolio have never really worked at a big company before this. It's like the first thing they're doing out of school, grad school, or research post-doc. And so, there's just a ton of learning. And watching these guys scale from literally straight out of grad school to companies making tens of millions a year and having 300 or 400 people is just crazy. And so, everyone needs a lot of help.

Josh Posamentier [00:22:21] So, we bring our networks, we bring our connections, we bring our customer contacts. We bring everything. And we try to do it in a low latency, helpful, non-pain in the ass way. That at least, I hope, is the ethos we project. I think it helps us win deals, occasionally, when there is actually competition. But you know, again, we're trying to add that value and have that be a self-reinforcing feature.

Bret Kugelmass [00:22:49] Totally. Yeah, it's got to be fun for you too to sort of scratch that itch a little bit, right? I mean, you are... Maybe not recently. You're still a bit of a lifelong operator at heart, I sense. It's just a little bit of a grind to do it...

Josh Posamentier [00:23:01] I think over the last decade, I've gotten a lot better at pretending I'm a board member, not an operator. It is often a frustrating experience when you know full well that you've been in a situation, you could do this better in some ways. But that's not your job anymore, and so you just have to actually change the thinking to say, "I need to enable these CEOs or these founders to do this better than I could do it."

Josh Posamentier [00:23:32] And sometimes they surprise you and absolutely rise to the occasion. And that's the best. And then you're like, "Well, geez, I couldn't have done that. That's great." Or, "I wouldn't thought of that. Great, even better." So at the end of the day, we invest in great teams and we have to trust them.

Bret Kugelmass [00:23:49] Yeah. Especially... you said first institutional capital. So I assume mostly C, maybe some Series A?

Josh Posamentier [00:23:56] Yeah, we'll go anywhere from pre-C through Series A. I mean it really comes down to how big's the round, how much you're raising, and what's it for.

Bret Kugelmass [00:24:04] Got it. So it's still pretty team oriented and maybe a little bit of market traction or a little bit of tech definition. Talk to us a little about that diligence process. Especially on the team building side, is there a pretty process oriented rubric approach? Is it like, "Oh, I want to get this person super drunk one night and just see that they're not an asshole?" Without sharing secret sauce, what's your process?

Josh Posamentier [00:24:36] So, I'd say we're pretty boring as these things go, if that's at least the spectrum you're used to. We're a bit old school. We underwrite deals on on the quality of the team, their relevant experience or their potential to sort of execute on this, their entitlement. We focus a ton on go-to-market. A lot on technology, although to date, it's almost never the technology that's a cause of failure. That just generally isn't the case. It's always something to do with misunderstanding the market or having a team dynamic that didn't work. So, we spend way more time on go-to-market and team than necessarily on technology. But we also have a ton of pattern recognition. We see thousands of companies a year.

Josh Posamentier [00:25:18] As far as the team goes, we've put together what I think is a pretty broad team. People come from lots of different backgrounds and we have people from chemistry, originally. From chemical engineering, civil engineering, social sciences. Lots of different backgrounds. And most recently, not everyone has been a deep venture investor, historically. But of the five partners, everyone's been in and around climate or the space for most of their career in one form or another. Be it running ESG practice at a big public advisory and building UN SDGs to building solar and wind farms as a civil engineer. There are a ton of different backgrounds. And we're all kind of generalists. No one's got a special niche they exclusively focus on. So, it's kind of fun having the ability to span a wide range of companies. You just learn a lot more that way.

Bret Kugelmass [00:26:20] Yeah, super interesting. Maybe talk a little bit more about how you structure that. Everyone a bit of a generalist, everyone sort of hunting for opportunities. How do you coordinate the team? Do you do like quarterly or annual thematic updates? How do you actually go about sourcing?

Josh Posamentier [00:26:39] So later stage funds can do things like create a thesis then go boil the ocean for every single company in that space and pick one. We can't do that because as often as not, the companies we find did not exist a quarter ago, and so it's just a little bit of an opportunistic deal flow. But preparation is the best strategy for happenstance actually working out in your favor.

Josh Posamentier [00:27:02] So, we actually do somewhat regular thesis development around new areas. Sometimes that's kicked off by something interesting we saw. You know, a company doing "X, Y and Z." We're like, "Huh, that's interesting. Not a thing I've looked at." And then we go super deep and build out a more complete thesis. But sometimes you do that and you literally don't find a deal for seven or eight years.

Josh Posamentier [00:27:24] Our alternative protein deal, Meati, came out of a thesis developed... I put that together probably seven or eight years ago at this point. And so, having a company finally show up that sort of meets what we were looking for is huge. It allows you to move super fast because you've already basically done a lot of groundwork.

Josh Posamentier [00:27:50] One of these days, maybe we'll find something in carbon sequestering plant traits. We've done a lot work in that space. Or, built environment materials. We know what we want to see in that universe and just haven't seen it yet. So, we'll wait and keep looking.

Bret Kugelmass [00:28:07] Yeah, I mean, can you share some of those? Like, what are you looking for? I mean, I feel like I've at least seen different companies that on the surface would be in those spaces. Like, what are you looking for that you haven't seen?

Josh Posamentier [00:28:18] So, it might be that these things are not practical or not possible. But, you know, we've still get a thesis. In built environment, we'd love to see things that are carbon negative and cost competitive with current technology and yet have decent margins. So, that applies to, say, mass timber construction or lower costs... Carbon negative concrete and cement to everything in between. Better binders, more light weighting of concrete that enables you to use less of it for a large building. We've looked at all of these things, and for one reason or another, we haven't done them.

Bret Kugelmass [00:29:02] You just named the three legs of the stool, right? It's like, pick two of those, right? I think a little bit.

Josh Posamentier [00:29:09] I mean, that's usually the problem. And every once in a while, a unicorn shows up and you're like, "Oh, that's what we've been looking for." I mean, life's too short to do the deals that are sort of on the outside of the margin.

Bret Kugelmass [00:29:23] Fair enough, fair enough. Okay, what other deals? You mentioned a couple. Can you take us a little bit more inside one or two of the deals that you've been most excited about or maybe that are the most recent or that you think are the most unique?

Josh Posamentier [00:29:41] Oh, geez. Well, we've made 51 investments over the life of the fund. So, it's kind of a lot of companies, and they're all my favorite children.

Bret Kugelmass [00:29:49] I know, I know. Every investor says something to that effect, so that's why I try to give you options. Like, which are more unique, which are more topical right now? Share one or two of them just to give us insight into practically how these views work in a real example?

Josh Posamentier [00:30:10] Well, I mean, one that's sort of top of mind because they just got a ton of press this morning was Fervo Energy, which does geothermal electricity project development, tech-enabled project development. That team is right out of the oil patch. One of the co-founders, an expert in reservoir modeling. The other is a well completions engineer. And they put Fervo together to focus on basically geothermal development using all the R&D and all the tools that have gone into oil and gas over the last 15, 20 years. And geothermal's been a really sleepy backwater in that universe for whatever reason. And it's just a shame that historically all of that R&D has not been brought to bear on such a target rich environment.

Josh Posamentier [00:30:55] And so they've just announced this morning their first full completed well 30-day load test at three-and-a-half megawatts, which is like world record for a single bore. And that's the first project, the very first one. They have a ton of power under under contract already. They have one of the biggest land positions around for the space. So, the entitlement's huge. But it's really the fact that this team had this knowledge entitlement from the oil and gas sector and chose to pivot into alternative energy in a very differentiated way. I mean, there's just not a lot of geothermal companies full stop, and even fewer who are using these modern tools that enable you to do lower cost development, lower cost exploration, higher output from the same kinds of well bores, just one good thing after another. So we've been supportive since the first real institutional round, I don't know, four or five years ago. I don't even remember how long it's been, but we're pretty enthusiastic, needless to say. So, that's one.

Josh Posamentier [00:32:04] This was not even on the radar. I mean, I'd looked at a handful of geothermal companies and just nothing was even remotely close prior to that. So, still incredibly bullish. And now they've just got this huge head start in terms of land position, tech stack, team. Just A++ across the board. So, that's one.

Josh Posamentier [00:32:24] That came out of pure opportunistic left field. I met the CEO through... I can't remember if it was originally Stanford Energy Ventures class where I was lecturing or one of the early cohorts at the Cyclotron Road Activate program, but within a few weeks of each other. So, that was a fun one. It continues to go well.

Josh Posamentier [00:32:48] One of the ones that came out of a long-held thesis was Meati Foods, alternative protein company. I built that thesis a long time ago. I was looking for something with amazing unit economics competitive with other sources of protein like chicken. So if you can beat chicken at wholesale, if you can be healthy, clean ingredient list, and ideally not genetically modified, not because I have any issue with it, but because a big chunk of the world does... If you could do all those things and have really compelling unit economics and be scalable, that's super exciting. So, Meati's out there shipping to thousands of stores, making good money, margin across the board. That's ridiculously exciting. Literally, the first one to check those boxes.

Josh Posamentier [00:33:36] And this is where maybe a little bit of a tooth-type thesis. I mean, I saw Beyond a few times before and passed, unfortunately. Could have made a bunch of money there. But you know, these things happen. We'll see how this one works.

Bret Kugelmass [00:33:49] It's hard to be like resulting on your investment decisions too, right? You have a thesis. You're never going to get every one, right? You just can't do it.

Josh Posamentier [00:34:01] They say you're supposed to have an anti-portfolio that's a multiple of your portfolio. I'm working on it.

Bret Kugelmass [00:34:06] Yeah, it just happens over time, right? You can't possibly hit them all. If you don't have the level of deal flow that you have misses, then you're probably not actually doing the good ones anyway, so that makes a lot of sense.

Josh Posamentier [00:34:19] Yeah, I mean, being a seed stage investor, we are fully expecting losses. We tell our LPs we're going to have a high loss ratio, but that's fine. The math works. So, we're willing to take risks.

Bret Kugelmass [00:34:32] Yeah, I think that's the part for me that's so sort of counter to any of my institutional investment sort of training. Especially in the energy space, project space, and commodity space, that power law doesn't exist the same way. There's no counter to everything that like I learned. I've come around a little bit to that idea of TAM, team, and you call it... What's the word that you've used? It's actually the first time I've heard it, but I like it. Entitlement, right? Like, that sort of marriage of of market size, team capability, and thesis is pretty interesting and is probably what matters at the root of most businesses. It's just not how I'm used to thinking about it.

Josh Posamentier [00:35:25] Yeah, at this particular corner of the investment world, that's kind of it, right? We're looking for the outliers. And you look at what makes big funds successful and it's like one to two deals. It's rarely ten or twenty or half the portfolio. And so, especially at the earliest stage, there's always going to be a lot of fall out. And the key is identifying what's going well and what's not as early as possible so you don't keep putting good money after bad.

Josh Posamentier [00:35:50] But you know, it was a very noisy environment for the last few years with a lot of capital flooding in with maybe less experienced investors in this sector just deploying and thinking about things in terms of like enterprise SaaS multiples. It's like, "Oh, maybe that doesn't make any sense here." I'm not going lie that some of our companies took advantage of that. But cheap capital while you can get it is just fine. But you've got to be realistic about how companies trade in this sector. It's a very big sector with a lot of different corners. We do enterprises SaaS deals too, and they trade on enterprise SaaS multiples. Go figure.

Bret Kugelmass [00:36:31] Yeah. Maybe give us some of your perspective on just market volatility over the last like six to nine months, maybe twelve. I mean, it's been super interesting. Have you had to field more LP calls? Are opco's changing strategies or is just part of cycles and sort of Steady Eddie?

Josh Posamentier [00:36:54] I mean, the good thing about being an early stage investor is most of the time we invest pre-revenue and oftentimes pre-product. So there's usually a gap of years between our investment and when someone hits the market. So a lot of our investments, even with this volatility, are still in the R&D phase. It's just, "We're developing products. We're piloting and we're testing them." Nothing has slowed down in that space. And so, this is a really good place to be in crazy volatile times.

Josh Posamentier [00:37:21] We do have a few later stage investments, most of which did some form of runway extension, be it raise a little more money, just re-up the last round, do a small riff, whatever. Just trying to extend the timeline on the assumption that it's going be harder to raise capital at later stages at huge uprounds.

Josh Posamentier [00:37:43] Market volatility-wise, there's still a lot of unpredictability. I think we have not yet seen the full correction at the early stages. We have definitely seen a lot of correction at the later stages. No surprises on any of that. But there's still a lot of questionable valuations all across the spectrum right now. I think it's only a matter of time before we see the full correction.

Bret Kugelmass [00:38:12] Yeah, interesting. I think it's just generally so hard... There's enough of cross-commodity and regulatory overlays. I think it is really hard to... Well, I imagine it must be really hard to come on evaluation in a pretty binary outcome, right? Or, like mostly binary outcome. I mean, maybe that's not fair.

Josh Posamentier [00:38:39] Most of our companies are not looking at binary outcomes. I mean, usually binary outcome is because something happened with the team and it imploded. Or, I suppose in the biotech and pharma space, something just did not work in field trials or clinical trials. We rarely have that. It's much more of a continuum. Like, "Oh, this thing came in at like higher cogs, lower margins. Anything that's going to be valued here, the multiple's going to be lower. But we can still find a home for it, it'll still be an okay outcome. It won't be a home run." So, it's much more of a continuum in this space, because usually companies are solving an actual problem of some sort.

Josh Posamentier [00:39:23] As long as you're solving a real problem for a real customer, you've got some intrinsic value, as long as you don't totally screw it up. If you can't figure out how to sell something, that's a different story. That's another place where sometimes there can be a little bit of binary outcome. You literally just run out of money and can't raise more because you couldn't figure out how to sell the thing you invented. So, this is why we spend all this time focusing on go-to-market, path-to-market, channel development. That is, as often as not, just as important as whatever you develop for your product.

Bret Kugelmass [00:39:54] Totally, totally. That makes sense. That makes a lot of sense. Okay, very cool. So, what are you looking forward to then? Sounds like you've a couple of theses on the sideline waiting for the opportunity. You'll continue to meet some inbounds. Like, if we were having this conversation five years from now, what would we be talking about?

Josh Posamentier [00:40:18] Five years from now? Well, hopefully... We have a nuclear fusion company we've been in for a couple of years. Hopefully they're showing net gain.

Bret Kugelmass [00:40:27] I thought you don't take science risk.

Josh Posamentier [00:40:28] Well, not usually. Always an exception to the rule. We'll take a complete flier once or twice in the portfolio for fun, but we certainly won't do more than that. So we're in Avalanche Energy, which is kind of a novel approach. And they had some early indicators, all simulated, that probably some flavor of this is probably going to work. It's all in the margins, like where it doesn't work, of course. So, we'll see. Like in five years, we should know. So that might go to zero; that might be really, really exciting. I'm betting on the exciting side.

Josh Posamentier [00:41:03] I think in five years we're going to see a lot more quality exits out of the space for real companies doing real things at real revenue run rates. So, that'll be exciting. Hopefully the IPO window will have reopened and we'll see legit exits across the spectrum. Not just...

Bret Kugelmass [00:41:19] Big SPAC fan, it sounds like.

Josh Posamentier [00:41:20] No. I mean, I personally benefited from that. One of my old companies went public via SPAC and it was one of the few that held up for a long time. But no. It's insane for companies, in my opinion... Obviously opinions vary, but it's insane for companies to go public way pre-revenue and below some threshold of critical mass. It's just the wrong move especially if you're using it as a capitalization event rather than a liquidity event. So, I think IPOs should largely be liquidity events. Companies should be healthy and growing with a decent top line. That's just sort of the responsible thing to do, and that should be a liquidity opportunity and maybe capitalize the company a little more to grow even faster. But that is 100% not the case for most of those SPAC companies. That other shoe is going to drop one of these days.

Bret Kugelmass [00:42:26] It feels like it sort of has. At least that market, sort of where we're at... It certainly appears to... The announcements continue to come, but the actual SPAC process seems to have dried up a little bit. I share your view. I mean, it's... Yeah.

Josh Posamentier [00:42:41] Oklo was just a few days ago, so.

Bret Kugelmass [00:42:45] Yeah, we will see. Again, the announcement, right? It's easy to make an announcement. There's a certain alignment of incentives there between the SPAC management and getting a transaction done that I don't love. I share your...

Josh Posamentier [00:43:01] No. It's a ton of friction. It's a ton of overhead, and it's not usually conducive to actually growing the market. So that's... We'll see. I mean, multiple of our companies got approached by SPACs and some of them have ex-public company CFOs who were just like, "Over my dead body we go in that direction. That's just insane. Like, you have to be nuts." And I have friends and colleagues at or backing existing SPAC companies who were like, "That was an absolute, unmitigated disaster." So, I think we maybe dodged a bullet, mostly because the portfolio is still a bit on the young side for that era of willy-nilly SPACs, but whatever. I mean, at the end of the day, we're fiduciaries to our LPs. We're here to maximize returns to them within our space. So, we'll do the right thing.

Bret Kugelmass [00:43:54] Yes. It's got to be nice to apply some of that perspective, sort of going back to being a board member versus an operator. I mean, you certainly have seen a number of cycles and sort of fads on both sides, even going back to '07, like literally bootstrapping a business in '07, '08 that hopefully your founders sort of appreciate, right? Like, you've at least been there on the other side and you can kind of share some of those historical echoes.

Josh Posamentier [00:44:26] Yeah, I mean, it's a tough thing to convince companies that are on the verge of hypergrowth to go slow and be conservative about team build. Some CEOs get it intrinsically. Like, we have one who's probably more conservative than I am, and it's a constant fight to get them to hire salespeople. It's like, "No, no, no. Every time you get a salesperson, you dramatically increase what you're selling. Look, the data's right there. Just hire more salespeople and sell more stuff." But it's like, "Well, that's going to shorten my run." Like, "Yeah, maybe." But if it's all recurring revenue and it's enterprise SaaS kinds of margins, more the merrier.

Josh Posamentier [00:45:05] So, there's always a healthy tension, especially with the better, more experienced CEOs who have already been through a crunch of some sort. I come with my own scars from that era. Different people come with different scars. So, the best we can do is be like that voice of reason to be like, "Let's be deliberate. Let's think about the strategy for next fundraising and where you need to be and what you need to accomplish and key milestones, yadda, yadda, yadda."

Bret Kugelmass [00:45:30] Yeah, totally. Totally makes sense. Cool. And then, we're sort of running up on time. What have we not talked about that we should?

Josh Posamentier [00:45:47] Well, I don't know what your listener base is like, but one thing I always encourage and have seen in a high-quality way is amazing people coming into the climate sector from mainstream tech. So anything, anything we can do to encourage that. I mean, a good operator in one place, it doesn't necessarily translate to a good operator in another place, but it mostly does. It rhymes, whatever you want to call it. And so, we do our best to surround our... Especially our early stage companies that have been founded by hard core tech founders with people who have also built real businesses elsewhere. And in every case I can think of, that's been super helpful.

Josh Posamentier [00:46:25] So, insofar as you're at a big company and you really want to dabble in climate, learn a little more before jumping in with both feet, there are tons of opportunities to do that, too. So, I put a plug in for Climate Draft which is one of those organizations that helps both educate and make connections with really experienced operators and founders from the founder community. We do our best to sort of pay it forward in that universe as well.

Bret Kugelmass [00:46:59] Fantastic. Yeah, what a way to end it with a call to action for filling out the operating profile or pipeline. Yeah, amazing. Josh, thanks so much. Really a pleasure hearing your take and look forward to hearing about fusion five years in.

Josh Posamentier [00:47:19] It's coming one of these days. We're not 10 years off anymore, just to be clear. All right. good talking to you.