Episode Transcript
[00:00:00] Speaker A: The other example I use is like playing my daughter and I play Super Mario Brothers sometimes. And it has this map that's like clouded of the world, you know, this fictitious world. And it's, I feel like that's like the business landscape and you can't see what the whole world looks like. But you kind of have to conquer these levels one level at a time and then you can see a little bit more of the horizon. And I think that's true for a lot of things. For us, it's we kind of just have to solve one problem at a time and then you can see probably, you know, 10 more feet or 100 more feet in front of you and work on the next problem. Foreign I want to welcome you to another episode of the Movers and Makers podcast, brought to you by Diagon, where you'll hear us talk about all things manufacturing and factory building. Before we get started, we want to talk about an event for movers and makers. We're going to be doing our fourth Movers and Makers event here in Silicon Valley. Event will be at the end of January, so mark your calendars. It's currently on January 30th and we'll provide a link below if you want to join it. But if you want to jump right in. Will and I were at a battery conference last week called Advanced Automotive Battery Conference hosted in Las Vegas, and I thought we could get started and talk about kind of what the vibe was there and what some of our takeaways are. I'll start with asking you, Will, like what was your general sentiment or coming out of that conference last week?
[00:01:20] Speaker B: It was a really interesting conference. I think that there's been a lot of speculation about the battery market and how viable it's going to be over the next few years. For the last year there's been some questions about softening demand in the EV market, which I think is maybe overplayed in a sense. And then also now with the new administration coming in, the Trump administration, I think that there's also some speculation that like they're not going to be as pro renewable energy as previous administrations have, like the Democrat administration under Biden Harris, which I also think that, you know, maybe just based off of some of my sentiments and takeaways from the conference might have been a little overplayed. So yeah, I'll say that generally my takeaway was that things people were really optimistic about the future of the battery market. You know, people were taking away a sense of a need there for battery solutions, both for the EV market and also for storage solutions. Big utility companies also need batteries for storing energy for the times when they need it. And overall it seemed to me like most of the hesitation that companies were having about whether to move forward with their plans on their battery plants. There was just a lot of uncertainty in the air before the election and now after the election, it seems like things, things are starting to move forward again. I think with this administration we're definitely going to see a very like America first agenda with very high priority placed on manufacturing jobs in the U.S. i think that energy independence is going to be one of the hallmarks of this administration. And that was something I got a sense of from the conference. I'm feeling like personally more optimistic about what the prospects are for 2025.
[00:03:01] Speaker A: I don't know.
[00:03:01] Speaker B: I' curious to hear what your takeaways were from that.
[00:03:04] Speaker A: No. And I think we'll talk towards the end of the episode about like looking forward to 25. And I think there's a lot of reasons to be optimistic. I think from the conference specifically, I do think there's this asymmetric, there's volatility. And so like for some players the news is bad. For some players the news is good. And like Northvolt is like the big, you know, the big news that's kind of filed for chapter 11 is likely going to still exist, but in like a smaller scale version from what they originally had planned for. So you hear kind of that story gets a lot of play in that battery business. But then there's other news. Like even this week there's two, two big announcements like lighten announced a $650 million at least a letter of intent from an investment fund for their the scaling plans in California and Nevada. And then a Norwegian battery company, Moro, also announced the $130 million funding round as well.
[00:03:54] Speaker B: Yeah, and Liteon actually took advantage of the some of the Kuberg assets. So Kuburg was one of the acquisitions that Northvolt one of the many acquisitions.
[00:04:03] Speaker A: Actually.
[00:04:04] Speaker B: I think that part of the post mortem on Northvolt is that they were just involved in too many things all at once. And so may not have been as widely known, but they had acquired a company called Kuberg in Silicon Valley and they were able to scoop up a lot of their assets. And what was that? Hayward somewhere in East Bay.
[00:04:23] Speaker A: Yeah, and this volatility has opportunity for these companies where we use this example of like Tesla got the new me or Toyota planes in 2008 for basically nothing for like $10 million. And I think it's like the second biggest building in the US by square footage. And you know, that kind of thing put Tesla probably on a different trajectory than it otherwise would have. And I think a bunch of these still scaling battery companies have this opportunity, you know, in a market that's a buyer's market that is super advantageous and you start to see lightning and others kind of take advantage of that. I think the second thing I heard multiple times from different cell makers that are in the process of scaling is that I think they're learning the Northvolt story is probably similar to like an old solar panel story where maybe scaling too fast, too quickly. I'm hearing that still the bad, these new companies are still planning to scale to gigawatt hours, but doing it in a much more measured pace and being very intentional about what their incremental scaling ensuring they, they have, you know, the unit economics make sense. They have customer demand for their products and, and being much more measured. And so again, I think we're super or I'm super bullish long term. But I do think these companies have like to these two disadvantages. A lot of cheap assets out there and then they are taking a more like measured approach to scaling their manufacturing.
[00:05:46] Speaker B: Absolutely. I mean we should maybe definitely talk about this at some point but you know, in the line of work that we do, we come across surplus assets all the time. When I was at Tesla, there were times when you know, we would have a program that gets pushed out from like 2016-20, 2018 and all the equipment that we've placed orders for, made some initial payments for and kicked off tooling and building of, we then need to go back to those suppliers and tell them, hey, I'm really sorry to do this to you, but we're not going to move forward with this order for quite some time. And then these companies are left holding the bag with these surplus assets. And so that's part of the pain that they're feeling at the moment on the equipment supplier side. But if you were, let's say a growing company at this point in time that's looking for assets to build at a pilot or production scale, you could literally build a factory for, you know, if not pennies, then quarters on the dollar and get some very, I'll call it high spec equipment at a pretty low price and a pretty immediate turnaround time. Because the other thing that people don't talk enough about is how the lead times for this equipment can be, you know, anywhere from 18 to 24 months, depending on what you want.
So, you know, that's something that we've noticed in our line of work here at Diagon. And I think that, you know, if companies are really smart about this, then they will also try to take advantage of some of the surplus assets on the market right now.
[00:07:16] Speaker A: Yeah, no, we see that a lot and I think the challenge there is, it's hard to find. You know, that's what like we did a handful of these kind of transactions at Tesla, but it's like you have to know a guy or know a person that's, that used to work at GM and they bought a machine that they're not using anymore or whatever it might be. It's mostly just personal network or you may, in certain circumstances, like Northvolt maybe, you know, they have assets and you can kind of reach out directly to them. But it's a very one on one personal relationship thing. And yeah, it does feel like there has to be a better way of like, you know, creating liquidity in this, like either used or surplus market.
[00:07:54] Speaker B: Yeah, there's a bit of forensics involved in it as well because it's also not always straightforward who owns or has custody of those assets. There's always this gray line once a company starts making payments on that equipment, like is it Tesla's equipment or is it the supplier's equipment? And depending on whether that company has a security interest, sometimes these suppliers will take out a lien on that equipment until it's fully paid for, where they actually technically own the rights to sell it. So part of it is really also unraveling the chain of ownership where that could either be the original equipment manufacturer, the oem, it could be the, you know, the buyer, like the manufacturer, you know, the automotive or cell manufacturer, or in the event of a liquidation, it could actually be an asset. What do they call it? Abc. Sorry, there's a term for it that's escaping me. But these are custodians that take custody of the assets on behalf of the shareholders to figure out how to divide them and how to offload them. And they all have very different routes of resolution depending on which one you're dealing with.
[00:09:01] Speaker A: Yeah, that's fascinating. So I think there's more, a lot more we could talk about here for sure. So I was going to use. We're recording this at the end, kind of leading into the holiday season. I'll probably come out in the first few weeks of January, but I wanted to take the opportunity to reflect on the year we've been, I think formally building the business for almost two years. But I think this is our full first calendar year as an incorporated company. And I thought we'd talk about some of the challenges both as company building and maybe just in the business rocks trying to work on. But what comes to mind is like maybe the one or two biggest challenges of the year for you.
[00:09:36] Speaker B: You know, it's crazy to even think that February and January were in this same calendar year. They feel like they were so far away. But if I were to think back, I would say some of the highlights were our fundraise. So we, we completed our first priced round, we raised the $4.3 million round and you know, I would say that that's a, was a huge highlight. You know, for every company that goes through fundraising. I mean maybe there are select few that, that don't feel the, the, the pain of like having to go pitch after pitch and dealing with the rejection after rejection. But you maybe even 80 calls in before we, we're ready to wrap up our round. And I'm really happy with the investors that we came out with on the other side. But you know, that was a lot of work and I think I'm really happy that we, you know, we persevered. It gave us a few years of Runway, which is great and it'll kind of lead into this next topic here. But you know, just having enough Runway to be able to not worry about fundraising for a little while and to really focus on building the business, customer acquisition and building the product like that was all I wanted. I was desperate for that time back when we were in the throes of it.
[00:10:48] Speaker A: Yeah, let me, and let me just maybe add a comment and ask a question that I saw an interview with Jeff Bezos the other day and I was shocked to say like maybe this is not exactly true, but he said something like the hardest thing he ever did building Amazon was raising his first angel like his first angel round. It was, I think he only raised a million dollars and he just said it was the hardest thing. And I think it's like it's just an idea and probably a young kid or maybe actually he was in his. He was at probably a similar age to you or I.
[00:11:17] Speaker B: He was a mid career founder. He's like, you know the guy that I point to when I'm like look, we don't all have to be 20 something year old Stanford dropout.
[00:11:25] Speaker A: Exactly. But I just, I was shocked that of all the things like at least what he said was like this was one of the hardest things I did. And I think it probably is this. Like, it's just an idea, whether it's our business or his. Just sounded kind of insane at the beginning.
[00:11:38] Speaker B: I can really empathize with that. I mean, it's. When you're a founder, you're really starting with this idea, and when you don't have the capital to bootstrap it on your own, and you've got to go out to, you know, angel investors or institutional investors and sell them on this idea, you're dealing with all types of dynamics there. And there are a lot of reasons why people say no to a deal that aren't just always, hey, they could believe in your idea. And maybe the fund math doesn't work with. With what they're investing in. Maybe it's outside of their thesis. You know, maybe they think the time horizon is going to be too long and sometimes the check size is too small for. For certain types of investors. Which, you know, was the first time I really thought about. I thought about that when we were fundraising. So, yeah, I think I can understand why he would say that's one of the hardest things that he's ever had to do. Convince people that the majority of sales and commerce is going to be done over the Internet at some point. It must have sounded like a crazy idea back in 1999 when he was.
[00:12:42] Speaker A: Doing this, I think even he said a big part of it was explaining what the Internet was. So you start there and then you're like, no, everything's going to be bought over. So it's like, it's. Yeah, I don't doubt it was difficult. And I think even in that fundraising market, you know, venture capital has kind of started to recover by the end of 23 and 24, early 24, like, the venture markets are still pretty tight. You know, hopefully things are starting to pick up pace a little bit now. Yeah, yeah.
[00:13:08] Speaker B: So that was. That was how we started the year. You know, for people that are close to the company, too, you might know that we pivoted our business model a bit. At the start of the year, we were building procurement software, and that was really procurement software aimed at helping. Helping companies source machinery and equipment. That was a really hard product to build. I think that there is something to be said for building a type of solution where you've got to get a certain type of customer profile that buys into it and that understands enough about what you're doing to see the value in it and want to pay some money for it. And I'd say halfway through the year we had this meeting as the founding team that this isn't working.
I commend us for doing that because I think it, there are lots of companies, I think it's really hard to come to that determination because you also never know. Sometimes you can keep working on something and eventually there's a breakthrough. But I think for us what we saw was less about this solution never working, just more like, hey, this might not be on our timeline. And the willingness to pay from customers, we just didn't see it there. But when we started unpacking this problem, when it came to surplus equipment, the sellers that wanted to get rid of it, the buyers that wanted to buy it, and also just thinking about like how, how much these companies are willing to pay for these types of assets, that's when we decided to make this pivot into building the marketplace. And I think that that was one of the best decisions that we made as a company.
[00:14:42] Speaker A: Like my experience of is interesting and I think it's like post, you know, probably four, maybe four or five months kind of post to that pivot. I think one thing is like the how we're solving the problem change, but like the what of the problem is still the same. It's like trying to people the source equipment is, I would say like modernizing equipment procurement, you know, trying to bring it into like the digital age. And we kind of tried procurement or maybe a SaaS style tool. And that didn't feel right. But a marketplace does, does feel like the right approach. But I think maybe the contrast for me was it was hard to sell. We had to explain it a lot to people to convince them that it was like a solution they needed. And then it was getting increasingly more complex to build it. Like the more we worked on it, the more complicated it got. And those problems seem to be getting kind of harder and harder, not easier and easier. And then I think like with the marketplace, it's just the opposite. When you show someone the marketplace, they just understand it conceptually. When they see the equipment we're listing, if they're the right people, they understand it immediately. And then to build it's like been much, much easier. I think it's like a lot conceptually. It's building a marketplace is easier. I think when you start to find some elements of product market fit, it's like the pull is there. Like customers understand it, buyers and sellers get it. And then it's even easier to build for the same reasons. And it's just interesting to see that contrast. Like if it's that Difficulty. Sometimes it's like maybe it should be hard. But I think now I get a sense like we still have to work hard to make the marketplace work, but there's the gravity is kind of pulling us in, not, not pushing us out, if that makes sense.
[00:16:16] Speaker B: Yeah, for sure. I would put an exclamation point on the, on the ease of use. There are so many learning curves that you need to get up with your customers when you're building something new and building a product that's familiar to people. You know, everyone's got experience buying or selling something in a marketplace. People know what Amazon is, they know what ebay is. They, you know, in the business world maybe heard of McMaster Car and, or have used it. So that wasn't something that we, we didn't have to people how to do that mechanism. They just understood that intuitively. You know, the challenge that we face now is getting them to think about it for a different category of spend. But it's not like we're creating something completely brand new. And I also find that it's easier to have a customer explain back to me what we do. Where earlier it was like, you know, people would say fumble around, like, I don't know, they're building this supply chain something. And now people are like, oh yeah, those guys are doing the equipment marketplace. It's just much easier for customers to regurgitate like what they hear and what they know about what we're building.
[00:17:20] Speaker A: Yeah, and I think the other part of like the pivot too, like, I think there's a lot of elements of things we worked on the procurement platform that we will probably build in as tools that will sort of sit under the marketplace. It's like the marketplace is like the primary way to interact with customers. This makes sense. It's like you can see the machines that both what they are technically capable of, what they look like, how much they cost, but then like they're pretty. These are super sophisticated buyers and process for procurement can take even a year sometimes just to cut a purchase order. There's probably a whole suite of tools will build under the marketplace to help both buyers and sellers to navigate these like high complexity purchases. And so in some ways, maybe we just started at the wrong place, but it's like, that's okay. There's a lot of that. Like those tools we built that may just sit underneath the marketplace instead of being like the primary thing that people interact with, it'll be kind of secondary. You'll find the equipment and the supplier and then we'll kind of funnel you into, like, a set of procurement tools that'll help you go from selecting a machine to cutting a PO and even through, you know, manufacturing eventually.
[00:18:25] Speaker B: Yeah, absolutely. I would say one of my biggest learnings and just startup learnings this year was there's no such thing as starting in the wrong place. Like, you're actually. Maybe the better learning is you're always going to start in the wrong place. And your goal is to figure out how do you get to the right place as quickly as possible and using customer signals to figure out your way there.
[00:18:47] Speaker A: Yeah, there's like two analogies. One is like, I've heard this. We're trying to cross a jungle and you're trying to get to the other side and you're just swinging on vines. And obviously you just wish you could get to the other side of the jungle, but there's no shortcuts, and you just got to grab the closest vine and start swinging. And sometimes you go sideways, sometimes you go forwards, maybe sometimes you go backwards, but you just gotta kind of grab the closest vine and start trying to go in the right direction and kind of go from there. But the other example I use is like playing my daughter and I play Super Mario Brothers sometimes. And it has this map that's like clouded of the world, you know, this fictitious world. And I feel like that's like the business landscape and you can't see what the whole world looks like. But you kind of have to conquer these levels one level at a time, and then you can see a little bit more of the horizon. And. And I think that's true for a lot of things. For us, we kind of just have to solve one problem at a time, and then you can see probably 10 more feet or 100 more feet in front of you and work on the next problem.
[00:19:45] Speaker B: Yeah, so I would say 2024 was that year for us, just kind of clearing some of the clouds away from the landscape and trying to understand where we want to go for 2025.
[00:19:56] Speaker A: So maybe let's talk about that. Let's look forward a little bit. And I have some anecdotal signals. I think some you can see more obviously. Actually, just yesterday, I think the stock market went a bit haywire with, like, the Fed announcing that it's likely not going to cut rates as fast as they previously thought, which can be a negative signal for investors. But it likely means, like, the economy is in better shape and is going to kind of continue at a higher clip than they expected. So I think that's actually a good economic indicator of the economy's in good shape. A few other anecdotal things that I've heard in the last three weeks is one of our really close real estate partners for commercial real estate told us that post election their activities have really picked up meaningfully and people are willing to commit to leases and purchases for new commercial real estate. We talked directly to two battery cell manufacturing companies that plan to kick off procurement in January specifically for new factories in the US And I think just in general, there's just a lot of customer activity, there's a lot of people building and buying things and it just. There seems to be this kind of tailwind that I hadn't felt in the previous quarters of the year.
[00:21:08] Speaker B: Yeah, I agree with that. I mean, I've been seeing things pick up almost like, you know, a sharp ramp going into the end of the year where I was expecting things to maybe kind of taper down a little bit and easily. This has been one of the three busiest weeks of the year, if I'm really honest. I think that's a great thing. And the momentum, I think, speaks to just like the sentiment that people have. I think we're going to see a lot more investment announcements over the next year. The next year. And for a company like ours, there is a significant amount of learning that you need to do before that we needed to do before we would be even in a position to help support some of these customers. So I think, you know, at the time when we were starting in 2023, end of 2022, it was kind of a bleak landscape. Like valuations were way down, investments were also way down. And so people were like, you know, is this the best time to start a business? But I would say that starting in a time where business is really slow, figuring your way out and getting a few pilot customers, that's like really important. Those are really important first steps before you get into a boom market. Because if we were just starting this company In January of 2025, we would have a hard time getting up to speed quickly in a market where everything is kind of going off at the same time.
[00:22:33] Speaker A: I think you're right. There's all these stats of a lot of the big tech companies were formed in either post.com bust of 2001 or 2008. There was a bunch of. A lot of the really great companies came out of that. And I think they talk about the, you know, there's a lot of companies that were built in this like, ZURP era where there was Just like excess capital given to a lot of companies which can just make it hard. It's like whether it's from a valuation standpoint or you just kind of can be undisciplined too if you, if you've kind of built a business during a very, like a very lucrative period. So I agree. I kind of feel the same way. It's probably been harder for the first couple years for those reasons, but now that we have kind of some clarity around like our go to market strategy and the, like the business model and then now to have some economic tailwinds, it's like I do feel like a lot of momentum going into the air both for the economy broadly and for us individually.
[00:23:27] Speaker B: Yeah, I'm feeling it too.
[00:23:28] Speaker A: All right. Anything else you want to talk about, any other topics or anything else that concerns you or anything else on the horizon?
[00:23:38] Speaker B: I'm excited about 2025, and I'm thinking a lot about where we take diagon from here. I think that we've been up until now really kind of spread all over the place in a bunch of different industries. So doubling down on the battery industry and having a little bit more focus there is actually going to help us really support customers that are in that industry. And so I think that over the next few months, we'll definitely be talking a lot more about just developments in that industry, maybe bringing in some guest speakers from battery materials companies, cell manufacturers and that are doing applications with those batteries. So I'm looking forward to maybe talking a little bit more about that in the new year.
[00:24:23] Speaker A: Yeah, I'm super excited about that too. So we've talked a lot about this. It's not a pivot, but it's like a focus to focus on the battery market that is going through sort of a volatile time. But I think we, and a lot of people are bullish long term that it's a growing very, you know, it's going to be a huge business. And so I'm really excited about that. And there's just like a bunch of clarity whether it's from like the way we build the marketplace itself, the way we organize and categorize equipment and how we sell to both buyers and to sellers. It's just, it's super clarifying to have that focus and it will help a lot. It just makes our jobs easier and I think it will make, you know, make more sense to the customers we work with. And yeah, I'm super excited. And even like a funny anecdote that I worked in the oil industry for a decade. And even at the battery conference last week my old employer Exxon Mobil was, was there and they're getting in the battery business too. And so it's really interesting to see we had a private dinner with a small group and and there's a bunch of their folks there. They're getting in the lithium business and other things. And so it's interesting to see even those kind of legacy energy companies trying to, to get a foothold in this, this new and growing industry.
[00:25:32] Speaker B: It'll be a brave new world.
[00:25:33] Speaker A: It is. It is definitely not going to be a boring 2025. I know that.
[00:25:37] Speaker B: Yeah, not at all.
[00:25:38] Speaker A: So we can wrap things up from there. So we'll, we'll be back in a couple of weeks and so appreciate you listening. We'll have more topics on the battery business, building factories and what's going on in the broader market. So thanks for listening and we'll catch you guys in the next episode.
