TTT026 Bringing fusion to the grid – Tina Tosukhowong – TDK Ventures
3:33AM Nov 14, 2023
So in the future, we could see a lot more drought, we need to do things like desalination, where's the energy going to come from. So you can think about intermittent, but we really need energy 24/7. And we also not have a lot of land, I find fusion to be the most compact, clean energy available. 24/7 base load. So I think that's something worth investing. And I think that's something worth fighting for. Or you know, and that's just our generation, but a future generation as well.
Welcome to Tough Tech Today with Meyen and Miller. This is the premier show featuring trailblazers, who are building technologies today to solve tomorrow's toughest challenges.
Welcome to Tough Tech Today. We have the honor of being joined by Tina Tosukhowong, investment director at TDK Ventures. At TDK Ventures, Tina is focused on topics associated with climate technologies, decarbonisation, recycling, and fusion. She and her team have led an investment in Type One Energy Group. And so Tina, welcome. Can you tell us a little bit more, double-click, into these investment areas of interest to you?
Yeah, first of all, thank you so much for having me today. As you mentioned, the climate tech investment at TDK Ventures, and we have a very broad thesis on climate tech investment. And this is because in my mind, climate tech is such a huge problem, perhaps the biggest problem for our generation, and when you want to really decarbonize the industries, you have to know... we looked today, all the gigatons of CO2 emission annually. I think three fourths of that is from the energy in fossil fuels that we use in household we use in the industry and so on. So one of the most important thing is to find technologies to really get away from fossil fuels. So that includes transitioning to electrification, that includes new energy generation, such as from fusion. And it also includes several things that would allow for electrification, like critical metal explorations, as well as recycling, the end applied batteries and critical metals so that we can have renewable, sustainable raw materials, tools, for the electrification in the future. And we also look at all industry that are big energy users, and try to find the technologies to overcome those. So those are some of the example of things that we've been investing with.
I just had a quick quick follow up on, you know, TDK Ventures as a whole. So and before we dive deeper into this week's thing, or this quarter's theme of fusion. So for TDK Ventures, with your seam of green technology, climate tech, how do you measure success of your fund?
Yeah, we measure the success of the fund, just like other financial we see. We wanted to see the company really move the needles, make sustainable contribution to the world. And a good measure of that is that financial return. So we're just like other funds that we want to see the company generate outsized returns. And if they get to that it means they have must have grown the revenue, they must have really scaled their technology, they must have really implemented technology and really zapped a lot of CO2 out of the atmosphere or avoided the CO2 generation. So that's our mission, we tend to invest in the early stage as well, when the technologies have room to grow with the technology still had a low valuation, and then we work alongside the entrepreneur, the syndicate to help build the company, take it out to the market, and really hope to see it be implement. So one time the CEO also asked me like, how do you define success? And I really help the CEO I think success is when your company really put the technology in the market and you generate a real revenue and becoming a sustainable revenue generating company. I think that's when I think we are successful as investor, and the entrepreneur is also successful as the technologists to take it to the market.
My understanding is TDK Ventures is managing I think maybe a little northward of about $350 million, in assets under management. Walk us through some of the investor mindset in terms of investing in, I can say the climate technologies that are not generally 100% software based. So there's a hardware component, which as sometimes I say, hardware is hard and it takes... the timelines can take longer than what some other venture investments in other fields and domains may be accustomed to. How do you think through the kind of the sort of economics and hopefully sort of back-end impact of some of these deeper, more capital intensive projects?
Yeah, thanks for the question. So we are 350 million AUM fund total, that's divided into three funds, fund one 50 millions already fully allocated, we have fund two 150 that's doing both digital and energy transition investment, and the newest fund, the F1 fund solely focused on energy transition. And the core focus is deep tech, early stage company. And these sometimes take much longer horizon, for sure. Because you're talking about having to develop some hardware, and having to really put some things together to make a component, a solution to sell to the customer, the customer have to test that hardware, adopt it in their process, and they have to integrate that and sell their product. So most of the company we have is a b2b company. But, you know, doing something hard doesn't mean that it's not a good thing to do. Because think about it, company that do hard tech like these, often times, they have a very good protection, they generate the IP that is defensible. And once you get to the point where you have a IP that's defensible, and you have successfully launched a product to market, then you have a pretty good chance of taking a pretty good portion of the market share, compared to investing in FinTech, investing in marketplace. I think it's very different dynamics, maybe you can get to the market early, but you could see hundreds of company doing the same thing, because it's very hard to become defensible, customer might be able to switch over the product in a very short timeframe. So for deep tech, high tech, it's higher risk, higher capital, but higher reward as well, in our opinion.
As soon as those barriers really help the companies, you know, build the moats as they grow. One question I have for you is when you're looking at, like time horizon in deep tech, sometimes you seem to have a larger time horizon. That's a concern that some people have, but it's kind of balanced with, like you said, the larger moat and kind of building the intellectual property. For some technologies like fusion, that horizon is definitely far off. Do you see potential returns on an immediate timeline, like between now and when we get to kind of that breakthrough of net positive fusion? Or is your approach to kind of be more evergreen investment approach and give most of the returns, you know, down the line?
Yeah, I think we are still like other financial VC firm where we want to see the exit outcome within sort of a 10 year horizon. And the way we approach fusion is that we've seen sort of like the first wave of initial startup that, unfortunately, has been around for a long time and haven't exited yet. So when I first looking into fusion investment thesis, I was very hesitant so try to make heads and tail for this space. But in the end, we think that the inflection point is now because you'll start to see the breakthrough in material science, the high temperature superconductor, and we have done quite a lot of landscape analysis. And we wanted to invest in technologies that has been derisked in terms of physics risk in the national labs around the world. And then take the technology that is closest to be connected to the grid and closest to generate a net gain, and then make a bet on that. So I think the Type One checks all the boxes in terms of having a physics risk, then mostly derisked by the national labs. The most famous one is the national labs in Germany, W7-X stellarator. That's $1.4 billion project in Germany to derisk the technology. So we think that they are pretty close to be connected to the grid. So I think for fusion, we don't recommend thoughts to invest in technology that is still super risky that you have to derisk the science risk; we rather derisk the engineering risk, and then go with that investment.
So you mentioned W7-X at Max Planck and I understand that that's the world's largest sort of fusion stellarator machine. And it soudns like there's been a tremendous amount of learnings coming out of the construction of that. And then the science, the physics that emerged from that. Can you walk us through broadly the kind of like fusion landscape in the US and in the world? I mean, W7-X is a German installation. So the world's best physicists there. Princeton has a plasma physics lab that I think, recently, a couple years ago, spun out, Princeton stellerators. Type One Energy associated to University of Wisconsin in Madison, and it's spinning out of there in 2019. Can you walk us through how, as you were sort of coming into the opportunity space of like, wow fission could be a thing, and it may be investable now, and not later, and not too early, you know, how you thought about that?
Yeah, I mean, as I mentioned, we're able we look at the overall climate tech investment thesis, we have a lot of CO2 to decarbonize. And we have wind and solar that doing pretty well, in the past decade, the cost of solar has dropped 90%. But we still have to figure out you know, the land, you need to put it on, the fact that it's intermittent. So there needs to be something else that would provide the best load so that you can finally shut down a coal fired power plant. And there's not a lot of things out there. You can look at hydro, geothermal, but those are geographically limited. Fission is producing a lot of radioactive waste. So we were like, okay, we need to look at fusion, but we weren't sure if this would be close to getting to the grid or not. So we did the landscape scan of the fusion. And I would say that the approach wise, you have three main different category: one is the magnetic confinement fusion, which is mimicking the sun, you try to bring the hydrogen closer together with the gravity force for the sun, and then once it's get close enough, then it fuse and then you release a lot of energy. And then another approach is the laser fusion, where you have the fuel pellets. And then you try to compress the atom together by you use the laser to heat up the shell of the pellet. And then it's an implosion, it just fuse the atom together, it has short bursts of energy tons. And then the third category is something in between, it's called magneto-inertial fusion. Some company try to do the so-called Z-pinch approach, which mimic how you got the lightning through the rod. And once you have the current flowing through it generate the magnetic field that compress and can generate and can compress the atom together and generate fusion energy. We looked at all of these and we found that there are perhaps four reactor configuration that is very close to the energy breakeven which is the energy out compared to the energy in. So far to fuse the atom to get it generate energy, it costs a lot of penalty on the energy that you have to force the fuel together. And the four technology that is close to the breakeven is the tokamak, the stellarator, the laser, and then the MagLIF, which is one of the variation of the Z-pinch approach. And there are several labs that has been looking at things in the US. If you're looking at the tokamak, MIT has a center, the UK has the JET, the Joint European Torus, they've been doing amazing work in terms of generating the energy. And there's international consortium that has put together the biggest tokamak called the ITER Project in France, that 20 billion project that has been under construction for two decades and still not done. And unfortunately, it was built upon the old technology, low temperature superconductor. So and then you start seeing a private company, Commonwealth Fusion Systems that is going to build a spark project here in Massachusetts, with the high temperature superconductor, and prove that you can take the magnetic confinement fusion in the tokamak configuration to net gain. So it's exciting that we'll see something like this in the US. And for the stellarator, we talk about the world's largest project, in Germany, W7-X: that's a very exciting project, and they are gonna be able to show that you are going to be able to really hold the fusion condition for 30 minutes. So when you talk to them about tokamak, when you talk about laser, those are post-process, once you show that it's getting to the net gain, you have figure out how to become a continuous power generation plan. But I think that W7-X will how that you can have a new reactor configuration that can actually generate and hold steady state for what period of time. And then for the laser, the NIF, the National Ignition Facility at Lawrence Livermore National Labs, they have a very famous record, scientific energy gain experiment around Christmas last year. So that's the place where you can find a novel and breakthrough laser approach. And then the the XEP page approach that you have several facility, there's a Sandia National Labs that are doing the experiment on the magLIF. And there are a number of private fusion company that's looking at the technology in this area as well. So it's very vibrant communities, you'll find a lot of private fusion at startup. I think there are more than 40 private fusion startup companies, right now, so.
So, in March, you invested in Type One Energy Group. Was it March?
Yeah, we closed in March.
Amazing. And so when, when you are looking at this... it's such a diverse field of approaches, with lots of different companies? Can you dive in a little deeper about, you know, Type One Energy Group? What really excited you about them? And what made you confident that their approach was, you know, the right one at this time?
Yeah, absolutely. As I mentioned, our investment thesis in fusion is that we want to get to the point where, one day, you could shut down a coal fired power plant, and then you can generate energy 24/7 without radioactive waste that have to be treated. So when we look at fusion and we look at the top of four concepts that are close to breakeven, the stellerators stood up for us because it's the only concept that can generate fusion power continuously. The difficult things about stellarator is that it's hard to build because the magnetic field, the magnets surrounded around the reactor is not in an easy shape to build: it's three dimensional, non-planar magnet, but they're also very powerful magnet, if you can build it, then you have a wonderful fusion power plant that can run continuously. And another anecdote about me is that I used to be an intern in power plant. So I feel like with that engineering background, I get a lot of appreciation that for the industry, for the power plant that can run so long, thirty years, forty years, it needs to be, you know, fullproof, the operation needs to be simple, you turn it out and walk away, it run continuously. So we strongly believe that that's the most fundamental things that will eventually replace a coal fired plant. So that's how we look at the stellarator. And we've done we've looked at a bunch of startup companies, and we found the scientific tea,m scientific founders, they have built three or four stellarator in the past. So the team came together from the University of Wisconsin, they have the HSX stellarator. Professor Anderson built those, operate those, and has developed a lot of theory that optimize the modern stellarator. Today, Professor Patterson, who is currently the CTO was director at W7-X. He worked on the diverter physics, which is a key component that you need to exhaust some of the inert particle. And it's always something that not very obvious, but if you don't have that working correctly, then you're not going to have a very robust power plant. So and then, we have two other scientific founders, from Oak Ridge National Labs, who have been doing the optimization for a decade. So I think this is the strongest technical team in the stellarator physics. And the management team, Christopher Murray joined the company at the end of last year, he came from GE Hydro, so he spent years in utility. And he also spent time in SMR nuclear fission as a CEO, and also previously the former CEO of General Fusion. And he's also the chairman of the Fusion Industry Association. So I think it's a combination of strong team, strong technology that would be able to pull off. For such a hard technology like this... probably the hardest technology we've invested in so far. So without a strong team, I don't think this will be an easy challenge.
Yeah, that's a rockstar team that they pulled together there. So that's definitely key to success.
And world class investment requires, I think, world class due diligence. And so it sounds like it was... would you classify it, Tina, as kind of a sort of systematic almost brute force in terms of being able to to go through you mentioned like the the four sort of best pathways from a physics perspective to get to like, sort of net positive energy; within that it's like a hydra, it seems like now there's 40 different organizations or companies that are working to make any one of those four pathways potentially a commercial success, if not, at least a physics success, right? Because those are two different aspects is showing that the physics permits this to happen. The math and stuff looks like it suggests it could be possible. But then there's from an investor lens, that commercial aspect, and I'm a little foggy in terms of how do we think about when we should... like guess the Department of Energy should be putting money into fusion... that makes sense. But then as private capital, professional capital, that has an obligation to its limited partners and other interests to put every dollar in to try to get 10 or $100 out, that calculation with fusion seems a little bit more like well... can you help me get more so comfortable with that?
Yeah, yeah, I think that's just why I think there are many fusion companies right and they are the two spectrums. The spectrum that takes the technologies that are very well proven among the top four up there in terms of getting to the energy... And then there are another category that try to make a cheap devices, and not a lot of proof. And I think the one that's tried to focus on building cheap devices, without a lot of physics proved, I think that may not get to the exit. And yeah, for us. And we are, of course bias, right? We think that investors should invest in the technologies that has already been derisked and only takes the engineering risk. Otherwise, you may never get to the exit, because you're just gonna keep putting capital, building a new machine, do experiment... Oh we just learned a new physics, and then do this and it could become never-ending. Because if you look at the tokamak, it takes 70 years to get to this point; stellarator, it's the same. And if you're coming out with a new idea, that hasn't been peer review, it could take another 70 years to get somewhere to get the physics that makes sense. So I think for us when we underwrite Type One Energy investment, we are looking at a very outsized returns to compensate for the amount of time that it will take: this is not going to be three year exit, probably become like seven to 10 years and things like that. So it's on that, you know, long end of the spectrum for the fund lifetime. But for sure, we are confident that if it works, it will be an outsized return. Because if you're talking about energy generation to replace coal fire power: it's not a billion dollar market, it's a trillion dollar market. So whoever get there first will get a good financial returns. And there are already example of fusion company that have billions of dollar valuations. CFS, TAE are a good example for that. So we think that the company that can get to the energy game, for sure will have billions of dollars of value.
So you're kind of painting the vision of what the returns, you know, could be like. Can you just describe what a world would look like with successful fusion? Like, how would that change our relationship with the climate, but also how we use energy as well?
Yeah, I think if the world is successful with fusion, what we are seeing is that you can really drop in a fusion reactor in the existing coal fired power plant, and then you can generate heat and electricity to turn the turbine, just like the way you really use the coal boiler. But things are gonna be very compact, that is gonna be clean energy. And when we get there, there's gonna be, you know, new job, new capabilities that will be needed, because there are certain things like the material science has to be developed to really sustain that industry. So I think, if we can get there, then I would be, I think I will probably die peacefully, if you will. Because knowing that there is a way to actually limit the temperature rise within 1.5 degrees, so my kids don't have to suffer. Right now, it's hard to figure out what we're going to do, because, I mean, when I first graduated, first got my job in the industry, I know that the carbon capture technology exists. And I've even done the simulation, techno economics for that. But I keep saying that it never happened. Because to do something drastic like that, you need a lot of energy. And in the future, we're gonna see a lot more drought, you need to do things like desalination, where's the energy is going to come from? So you can think about intermittent, but we really need energy 24/7. And we also don't have a lot of land. I find fusion to be the most compact, clean energy available. 24/7 base load. So I think that's something worth investing and I think that's something worth fighting for, or you know, and that's just our generation but the future generation as well.
I think the public has a general understanding, maybe a little misinformation on or incomplete information on, say fission. I've said our historical familiarity with nuclear energy. Could you help us draw a distinction of grid-scale fission to grid-scale fusion? And what the differences to the public there may be, if any?
Yeah, yeah, good question. I think we are very familiar with fission. And the catastrophe, right, because fission, you start with a heavy atom like uranium, and you generate energy by... you bombard the uranium with neutron at that break apart, and then it spit out more neutron, and though have more neutron, it hit the heavy atom, and then it just caused a chain reaction and it can generate energy, a lot and it can become uncontrollable. So you need to have the cooling water to extract that energy out. So then you can control the the temperature because if the temperature go higher, then it's just going to create even more chain reaction and cause catastrophe meltdown. And what's worse is that it's not controlled, it's not safe. And then the waste at the end of life, don't start they'll a lot of heavy add on thorium and whatnot. And those can last hundred thousands of years. So there are startup companies that try to reclaim some of the waves and reduce the radioactive part of life up to like, a hundreds of years, but that's still quite a bit of work to be done in terms of making it's safe, and then remediate the ways. Fusion is the opposite. Fusion you start with isotope hydrogen, and then you try to use them together... it's very hard, because at the nucleus of every atom, you have proton, and when they get close, they tend to repel each other and, you know, stay away from each other. So for fusion to happen, you really need a massive force to overcome the electrostatic repulsion. And once you lose that temperature, or the force, it's a stop. So, it's inherently safe, and it's hard to make it happen. And the radioactive waste, typically, you get tritium, but tritium's half life is like 12 years or so. So it doesn't create, like a very severe, like skin symptom and things like that. So the level of the persistence in the environment is a lot shorter. And it's fail-safe, I would say, so I think if you are looking for something that would be base load, it's a much safer profile. I got a vote for fusion. Hands down. Yeah.
I have a question. Just out of curiosity on your personal background. So you earned a PhD from Georgia Institute of Technology in chemical engineering in 2006. What did your path look like going from, you know, PhD in chemistry to a venture capitalist? That's a very unique path, so help the audience understand how you got there?
Yeah, happy to share. I was just talking to my classmate from Georgia Tech yesterday. And yeah, I think when I graduated, I just did the same things as my classmate which is going into a petrochemical company, or oil and gas. Those were like secure jobs back then. But I think after a couple of years, I realized that at the time, I just started to appreciate and learn about climate change for the first time. I learned about the movie called "The Inconvenient Truth". I think when I went to undergrad, I thought, I love chemistry and love math and love physics: chemical engineering sounds like the place to go. But I didn't recognize that using fossil fuel actually cause climate change. Once I started working, I become understanding of that and that was the beginning of the cleantech 1.0 as well. And what I did was I jumped into startup to commercialize the technology to convert CO2 and sugar to chemical, renewable chemical building block, through fermentation. I stayed there for eight years, scaling technology, once the commercial plan was up and running, moved into business development. So I've done several jobs in startups. And once it got acquired, I thought I would go to another startup, but the opportunity presents itself to become investor and support other entrepreneurs. And so I decided to switch the seat. So become the investor. And it's very rewarding, because I feel like I understood how hard it is to be an entrepreneur, to raise funds, to really try to accelerate your technology to see it go into the market. And I really, also enjoy getting to know all sorts of new technologies, learning from other people who are smarter than me. And really, also, appreciate the passion that I've seen from talking to entrepreneurs.
It's a really cool journey. And I think it's something that maybe, Tina, maybe you'll echo this in terms of that there are so many different ways to... and different kinds of backgrounds that can work well within, say, venture capital environments, in particular, within so like the tough tech realm, where there is an enhanced value on a very technical background, but it's not necessary required. I think you may also agree with that; it's not that there are places for non technical folks too, but in your situation where you know how to research and very deeply on technical topics to add a lot more, say wood behind the arrow so to say, on the hypothesis that we need clean energy, fusion is a way to do it, fusion may be ready for investability, and here's why. And then x, y, z.
Yeah, I think for a company or for venture to be successful, we need people from really diverse backgrounds. And I think when we put together a syndicate for the ventures, we have all sorts of investors from various backgrounds, some may not be very technical, but they may have a lot of financial backgrounds. So I think diversity really complement each other. And of course, I can contribute on the technical side. And similarly, we like to see the same thing for startup companies. Having good technical team, you always have to have a very good commercial team to balance out: that's how you will come up the all-star team and all-star investor syndicate as well.
Yeah, building on that, what kind of advice you know do you have for entrepreneurs kind of getting their start and trying to... let's say they've formed an initial team, they've got an idea, but they really haven't solidified the path that they're gonna take... as they kind of look forward to how they built their company. What advice would you have?
Yeah, I think entrepreneurs really need to, you have to find your good lifelong partner. Because building a deep tech company, it's a long journey. So you want to find someone to complement you. If you just graduate from your PhD program or without industrial experience. You need to bring in somebody with commercial background so that you don't drink your own Kool Aid and just develop technology that doesn't have a market. You want to understand customer pain point. That's the most important thing to have a successful company, understand customer painpoint, and try to find the product-market fit as quickly as possible, because deep tech is very capital intensive. And the more you get lost in product-market fit, the more you burn through your cash. That will lead to a very bad outcome. You want to talk to the customer, you want to figure out which sector has a real need, a real urgency that you can really bring the product, and then they gonna want to try the product, do the pilot with you... things like that. So I think the technical team, sometimes we have a filter, try to perfect the technology, but you really want the rest of the team to balance you out and bring in the full team with both technical and commercial expertise to be successful.
Awesome. So kind of like on a venture capital firm, you want that kind of diversity of experience, and very good points on, you know, getting to your product-market fit as soon as possible. You don't want to be burning your capital, getting you closer to the finish line, not figuring out where to start.
Tina, if you could be, like, lord of the land for a day, what would you like to see change from a policy... like from policy or other aspects like in the government to help us as the humans on this planet, you know... because we don't have, you know, a backup planet. So how do we motivate the changes that are needed for decarbonisation, fusion systems that may come online? Maybe as early as 2030. But that doesn't solve all the problems? There's no, from what I see no, one shot, hail mary kind of thing. What would you like to see different?
Yeah in climate tech in general, I think we get into the valley of death, and not what.... clean tech 1.0 or the climate tech we are in right now. And you get a lot of funding in the early stage. But a lot of startup have a hard time getting the loan, getting the capital to build the first of its kind plan because bank is not instrument to give a loan to technology that is first of its kind. So this is where I think the funding gaps is a problem. And I think the government is trying to fix that with the loan guarantee. But it's still quite hard. And I feel like there's a lot to be done to really address the climate change. And there has to be a bridge to bankability to support the startup that are bringing the new technology to do the decarbonisation. So yeah, I think that is one way to look at it. And I certainly feel like there has to be more funding to what private fusion company as well to help them accelerate the commercialization so that they can get to, you know, the first fusion power plant that connect to the grid sooner rather than later. We cannot wait until 2050 to build fusion power plant, we have to build it in the 30s so that we are on track to net-zero 2050. If you don't start now, we'll never get there.
Certainly. So what's next for TDK Ventures? What are you looking at on the horizon? Where do you think your next big plays are gonna be?
Yeah, I think we want to decarbonize hard to abate sector, whether it's abrogation, shipping, cement, steel, industrial heat, these are the big ticket items that contribute to a big portion to the global climate change. And not to mention the building sector as well. The building sector contribute to like 30-40% of the global greenhouse gas. So we are diligently looking at technologies that can become venture-scalable and address climate change and decarbonisation of all these different sectors.
For audience members who may know of a company that may fit this thesis or perhaps have skillsets that they think may be of use for someone in a group within the portfolio company. What's the best way for them to start a conversation with you or TDK in general?
Yeah. So please reach out. We can be contacted via our email email@example.com or go to our website and then you'll find a lot of information about our company, our investment thesis, and deep explorations that we are looking at. So that would be a good way to start a conversation.
I'm Tina Tosukhowong from TDK Ventures. Stay tough.