...The tech downturn has also led to greater uncertainty overwhat startups are really worth. “People are still not exactly sure where to price things,” said Jenny Fielding, managing partner at The Fund. Founders are reluctant to agree to lower valuations in funding rounds — deals known as down rounds, which are dreaded by startups. “I’ve talked to a few founders who said, ‘Yeah, the round is stalled.’ I’m like, ‘Great, lower the price,’ ” Fielding said. “It is about supply and demand.”
Founders are loath to lower prices, and VCs are reluctant to invest if they don’t. “There’s a little bit of a disconnect. A lot of founders haven’t gotten the message that valuations are coming down,” Fielding said. For investors, she said, the stakes are higher than they were before. “No one wants to look like an idiot.” —Priya Anand
An MIT vet wants to revolutionize the steel industry. But finding funding for big swings in climate tech isn’t easy
April 21, 2023
“Hertha Metals is the future,” Laureen Meroueh, founder of the one-year-old sustainable steel producer startup told me. This may sound like a familiar, hyperbolic sentiment to those in the world of Silicon Valley, but Meroueh, who says she created a one-of-a-kind method for creating sustainable steel without carbon, is being literal.
Steel is crucial to modern industry—and its demand is only growing. Nearly two billion metric tons of steel are produced every year worldwide. Yet the process of making steel contributes to over 9% of global carbon dioxide emissions, making the way it’s currently produced untenable for a green future. “This metal is so important and fundamental, and there’s hardly any innovation in the sector,” Meroueh said. “I realized it was this trillion-dollar market, and yet no one was really getting deep into the weeds and figuring out how to address it.”
But to think big, you often have to think long-term. Meroueh has been working on creating sustainable metal production technology over the past ten years, she explained. Before founding Hertha Metals, she cofounded Alchemr, a company that produces green hydrogen through scrap aluminum and water. She started Texas-based Hertha Metals last year, yet the startup won’t be at its full-scale commercialization stage, a two-million-ton per-year plant, anytime soon—and she hopes that’s just the beginning. Meroueh explained that Hertha Metals’ sustainable steel will likely go to market for commercial use in the next decade, while smaller samples of the product will be available to a few select customers in the next few years. “Nothing worthwhile is built overnight,” she said. Yet she also thinks there should be more funding avenues for companies like hers, that may not fit into the timeline of VCs’ usual funds.
I spoke to her last week about how she built her company and why more climate tech investors should think long-term when investing in sustainable technology. Our conversation has been edited for length and clarity.
Term Sheet: How did you design the technology for Hertha Metals? Did you know you were going to found a company?
Meroueh: I am an engineer by training and an entrepreneur by heart. I’m a mechanical engineer, civil engineer, and material scientist. I did my master’s and Ph.D. at MIT. While I was there, I kept seeing these technology breakthroughs in MIT News every single day, and I would say to myself, ‘Wow, this technology can have such an impact on the world, where did it go?’ And it went nowhere. Why? Because to have an impact with technology, you need to scale it up and you need to commercialize it. That’s what really drove me into entrepreneurship.
I did a minor in business and entrepreneurship at MIT and really dove into that world. I then asked myself, ‘Where does the world need attention to decarbonize and hit our net zero 2050 goals?’ I studied all the hard-to-abate sectors which are cement, steel, heavy-duty transport, and really fell in love with the challenge that steel presents. I thought, ‘Now, what would a commercial green steel reactor look like?’ and really developed that idea. I founded Hertha Metals [last year] and we were off to the races.
The technique you use for manufacturing steel is the first of its kind, can you explain for those of us who aren’t familiar with engineering how it works?
Today, the [traditional] way steel is made is through a coal-based process, which can be done with either high-grade iron ore or low-grade ore, but low-grade ore is more commonly used because it is cheaper and more abundant. There’s one sustainable solution for green steel that already exists, which is close to commercial scale, called hydrogen direct. This technique uses reduced iron coupled with an electric furnace to replace carbon. The issue is that this solution is unfortunately only economical when using high-grade iron ore, and less than 15% of the world’s iron ore is of that high grade, so it’s a massive challenge.
That’s where Hertha Metals comes in. Our solution has the ability to use low-grade iron ore, so now we are no longer dependent on high-grade iron ore, which is a very limited and expensive resource. What comes out of our system is a pure molten steel. That steel is the same as the steel that we are used to that we make every day. It’s the same product, we just made it in a different way.
Why is it important to have new, fresh steel as opposed to recycled steel?
Scrap steel and steel recycling are fantastic, and we should continue to optimize that process. However, there are two challenges. One, there is not enough scrap steel in the world to meet demand, even if demand stays the same. But demand is increasing. Second, you cannot make all grades of steel from scrap, because scrap steel comes with these other alloying elements and impurities. So when you’re talking about the high-grade steel required in a certain part of an automobile, for example, you have to make that from iron ore. Roughly 60% of steel comes from scrap, and the other 40% has to come from iron ore.
Who are your customers and prospective customers?
Customers and partners consist of today’s traditional producers, whether they are “mini mills” or integrated steel producers. Other customers are also the end user. For example, the companies that make your cars or make package food cans or install your H-VAC systems. So, we really dip our hands into all of those profiles.
What does your timeline look like in terms of commercialization?
We don’t want to wait eight to 10 years to start engaging with the market and selling products to our customers, and this is something that all of these companies like mine need to think about, right? How do you start engaging with customers and selling products before you reach that final large scale?
We have no doubt in the future of green steel and we have customers that also recognize that we will be getting to a final two-million-ton per-year plant in the next decade. But due to this customer appetite, we are going to be offering products before then, within the next couple of years.
What has your experience been like raising capital as a startup with a longer time horizon?
Companies that have these long-term time horizons to reach final commercial scale, in my opinion, are the most rewarding types of companies to build. What they’re building is going to be massive, and the reward will be massive. So it’s that end vision that really keeps us going and makes it all worthwhile. And it’s that end vision that our investors also believe in.
I’ve leveraged different types of financing buckets. So, we’ve dipped into forms of grants, such as through the Breakthrough Energy Fellows Program, which is funded by the Gates Foundation. We’ve also dipped into equity financing from venture capitalists. There are also public grants from entities such as the Department of Energy. There are also other financing vehicles that do debt financing and also a kind of convertible note to pay for pilot plants. Those are really important for the type of company I’m building and we need more of those available for startups. (When asked about who her venture investors are, Meroueh explained that the company is not disclosing its venture investors at the moment.)
Do you think investors are paying an appropriate amount of attention to longer-term climate startups?
There should absolutely be more firms focused on investing in longer-term companies, such as nuclear companies, cement companies, steel, etc. There aren’t nearly enough of those people and organizations out there to support these kinds of companies that are beneficial for the world. That being said, there are more and more people seeing the vision.
I encourage venture capital firms to embrace risk. Think about the big picture—the future is coming, whether you’re on board or not. It’s going to be more expensive to ignore climate goals than to pursue them. There are these fantastic companies, such as mine, working towards disrupting [traditional] infrastructure. So I encourage venture capitalists and other types of funders to take that risk and capture the opportunities that are in front of you right now. It’s the time.
Thanks for reading Hyperdrive, Bloomberg’s newsletter on what’s reshaping the auto world. Read today’s featured story online here.
Where Robocars Are Going, They’ll Need Roads
On Tuesday, the central Silicon Valley city of San Jose, California, made a surprising choice: It granted initial authorization for a plan to develop a network of autonomous cars that will need their own dedicated roads.
The system, known as personal rapid transit, or PRT, will feature sleek four-person electric pods that ferry passengers between San Jose Mineta International Airport and the city’s central Diridon Station, which serves as a hub for regional transit and maybe, one day, California’s beleaguered high-speed rail project. If everything goes according to plan, cars reminiscent of the angular coupe that Tom Cruise escaped from in Steven Spielberg’s Minority Report could be zooming on narrow paths running alongside traffic-clogged roads as soon as 2028.
San Jose’s decision is a repudiation of both more conventional mass-transit options, such as buses and subways, and the orthodoxy in artificial intelligence circles that fleets of autonomous cars will soon be suitable for public roads. After the city began soliciting proposals for an airport connector in 2019, officials received 21 responses, including bids from companies developing electric buses, trams and automated minibuses. One came in from Elon Musk’s Boring Company to dig a tunnel between the airport and the train station for the self-driving cars that the Tesla boss has predicted — year after year — are just around the corner.
A prototype Glydcar autonomous vehicle at the company’s testing facility in Concord, California. Photographer: David Paul Morris/Bloomberg
Instead, the city selected a team led by developer Plenary Americas and Glydways, an untested seven-year-old startup based in South San Francisco. The companies pitched a network of automated cars that operate on 5.5-foot-wide paths instead of the typical 12-foot-wide lanes on streets. City officials were intrigued by the novelty, efficiency and low carbon footprint of the project — as well as the promised savings relative to building conventional mass transit. “What is potentially exciting is taking a project that in other cities has cost multiple billions and structuring it around new technology and a public-private partnership,” says San Jose Mayor Matt Mahan. “In a sprawling city like San Jose, local light rail is a tough proposition.”
The idea behind PRT as an alternative to cramming people into subway cars or trams has been kicking around for the last half-century. PRT involves small, automated pod-like cars or mini-trains, operating in tight formation, merging and de-merging to ferry people between stations on a network of roads separated from regular car and pedestrian traffic. In the 1960s, researchers at the congressionally funded nonprofit Aerospace studied the notion and published a book about it. In a 1972 speech to Congress, President Richard Nixon lobbied for federal PRT development, arguing, “If we can send three men to the moon 200,000 miles away, we should be able to move 200,000 people to work three miles away.”
But the attention never led to anything beyond a few demos at various transportation expos. Even today, there are only a few PRT networks in use, including one at Heathrow Airport in London and another in Dubai.
Mark Seeger, an engineer and entrepreneur, founded Glydways in 2016 to change that. The company believes that conventional public transit has become too costly to build and operate. (Exhibits A and B: the 2.25-mile Automated People Mover at LAX and the 1.5-mile Central Subway extension in San Francisco, which cost about $2 billion each to construct.)
Glydways predicts its three-mile airport connector in San Jose will cost less than quarter of that, and unlike every other mass-transit system in the world, it will turn a profit, in part because it’s closely attuned to demand. Instead of running half-empty trains or buses at 2 a.m., Glydways’s bidirectional pods — a ride will cost about $6 — operate only when passengers summon them with a smartphone app.
According to the current plans, rides will cost about $6. Photographer: David Paul Morris/Bloomberg
Only 4% of cities with the population and density to require mass-transit systems such as subways and trams have them, says Seeger, speaking outside the company’s test track at a decommissioned naval base in Concord, California, where its pods roam between three dummy stations, their doors butterflying out to allow test riders aboard. “If we’re able to double that to 8%, imagine what life will look like for another 50 to 80 million people. We’re going to move the needle on the human experience.”
Glydways’s primary backer, venture capitalist Vinod Khosla, is equally rapturous discussing the potential of PRT. A co-founder of Sun Microsystems and an investor in such companies as Stripe, DoorDash and OpenAI, Khosla wrote a paper on his 60th birthday in 2015 that included a paean to autonomous electric cars operating on private roads in an on-demand network. He met Seeger a few years later and transferred his own PRT patents to the startup, which has so far raised $40 million, with Khosla Ventures as the majority investor. (The firm also backed Hyperloop One, another novel transit idea that’s failed to live up to its initial hype.)
If they’re widely deployed, self-driving cars from companies such as Waymo and Cruise will only increase congestion on regular roads, Khosla argues. They “solve the individual problem but make the societal problem much worse,” he says. “They also have to handle every circumstance including chickens crossing the road. We greatly reduce the problem in complexity and with much cheaper vehicles.”
A lot still must happen for these PRT dreams to come true. The San Jose City Council has authorized what’s called a “predevelopment agreement” with Plenary Americas, Glydways and their partners. Next up are environmental and engineering reviews, as well as a validation report in which the companies and the city will jointly review the business case. These steps can bedevil any mass-transit project.
Glydways is also bidding for projects in San Bernardino and Contra Costa County in California, and exploring other projects around the world. At least some transportation analysts are optimistic that PRT’s moment may have finally come.
“Full self-driving isn’t ready for prime time, despite what Elon Musk wants you to believe,” says Nidhi Kalra, a senior information scientist at Rand Corporation. The Glydways proposal “may be a little bit of a litmus test for doing some things differently.” — By Brad Stone
It is hard to alter facts, reverse realities. This is almost as true in geopolitics as in science. I passionately support Ukraine’s battle for survival against Russian aggression. For almost a year, however, I have been arguing that heedless of where justice lies, and no matter how long the war continues, it remains militarily unlikely that Russian President Vladimir Putin can be dispossessed of Crimea, nor probably of the eastern Donbas region.
Russia can boast centuries of history, and considerable success, as an armed robber — sometimes on a continental scale. The most conspicuous example dates from 1945. By the end of World War II, British Prime Minister Winston Churchill was in no doubt that Soviet leader Josef Stalin was a monster, morally indistinguishable from Adolf Hitler.
Most British people, however, together with many Americans, felt a huge gratitude to “Uncle Joe” and the Russian nation for having borne the lion’s share of the human sacrifice needed to destroy Nazism. They lacked sympathy with Churchill’s fury toward Stalin, who was tyrannizing his new empire in Eastern Europe. Britons had grown weary of their elderly prime minister, and especially of his seeming eagerness to seek out new enemies for them to fight now that Hitler was gone.
Churchill had exceptional sentiment, a special anger, about the Poles. In September 1939, Britain and France had declared war on Germany explicitly in response to Hitler’s unprovoked assault on Poland. Yet those allies’ armed forces were pathetically weak. Some prominent British people — not all of them paid-up appeasers — declared that it was grotesque to try to fight Hitler to succor a faraway East European nation that Britain’s army, navy and air force could do nothing immediately to assist.
A clever young Grenadier Guards officer named David Fraser, who later became a general, wrote:
The mental approach of the British to hostilities was distinguished by their prime faults — slackness of mind and wishful thinking … The people of the democracies need to believe that good is opposed to evil — hence the spirit of crusade. All this, with its attempted arousal of moral and ideological passions, tends to work against that cool concept of war as an extension of policy defined by Clausewitz, an exercise with finite, attainable objectives.
In Warsaw, naïve Poles cheered and sang outside the British Embassy, where the ambassador shouted from the balcony: “We shall fight side by side against aggression and injustice!” In truth, the British did nothing of the sort. They reneged on a prewar pledge to launch an immediate bomber offensive against Germany because they were fearful of Nazi retaliation.
The French had likewise promised the Poles that, in the event of war, their army would attack Germany from the west within 13 days of mobilization. In reality, on Sept. 7, 10 French divisions merely advanced five miles into the German Saarland. Then they stopped, and stayed stopped. Was this not rather like Western European nations today, in their less-than-wholehearted support for Ukraine?
By Oct. 5, 1939, the campaign was over. The Germans occupied Poland, which became the only nation in their empire where, in the ensuing five years, there was virtually no collaboration between the conquerors and their subjects. The dirtiest aspect of Hitler’s shameless act of aggression was that the Germans retired into western Poland, relinquishing control of its east to Stalin, in accordance with the secret terms of the August 1939 Nazi-Soviet Pact.
Russia ruled the Poles with even more brutality than did the Germans. The fate of the Jews is well known to posterity, but the Nazis and Russians also accounted for the deaths of something approaching a million non-Jewish Poles before “peace” came in 1945.
All these memories were in Churchill’s mind as he raged at the condition of post-Hitler Poland, its people bound with new Russian chains even as Western Europe celebrated its freedom from Nazism. Impulsively, the prime minister seized on the notion that if Stalin continued flagrantly to breach the terms of February 1945’s Yalta Agreement on Poland’s free governance, the West must enforce them at gunpoint. General Sir Alan Brooke, chairman of Britain’s chiefs of staff, was astounded when Churchill demanded to know the prospects of the Anglo-American armies successfully liberating the Poles.
“Winston delighted,” Brooke wrote in his diary on May 13. “He gives me the feeling of already longing for another war! Even if it entailed fighting the Russians!” Ten days later, after further bitter brooding, the prime minister formalized his request. With the “Russian bear sprawled over Europe,” he instructed the chiefs of staff to explore the prospects of challenging the Red Army’s occupation before the British and US armies were demobilized.
He requested the planners to consider means “to impose upon Russia the will of the United States and the British Empire” to secure “a square deal for Poland.” They were told to assume the support of American and British public opinion (which in truth would never have been forthcoming). Even more implausibly, military leaders were invited to expect that they could “count on the use of German manpower and what remains of German industrial capacity.” The target date for launching such an offensive would be July 1, 1945.
The Foreign Office recoiled in horror from Churchill’s proposal. Marshal Georgy Zhukov, commander of the Soviet occupation zone, wrote later in his memoirs that he had been informed by secret sources that Field Marshal Bernard Law Montgomery, British commander-in-chief in Germany, had been instructed by London to stockpile captured Nazi weapons for prospective use against the Russians.
The Soviets delivered an outraged protest to a subsequent meeting of the Allied Control Commission in Germany. Zhukov wrote: “We stressed that history knew few examples of such perfidy and betrayal of allies’ obligations and duty.” Here was an example, familiar once more in 2022-23, of the Russians’ turning truth on its head, mobilizing their infinite appetite for grievance, even as Soviet firing squads were executing anticommunist Poles by the score.
The British war cabinet’s Joint Planning Staff proceeded to draft a detailed proposal for what was codenamed Operation Unthinkable — a Western Allied offensive against the Russians. I have spent many hours poring over this fascinating 100-page document in our National Archives.
The planners in their preamble were at pains to state that even if the British and Americans advanced east with the sole objective of securing “a square deal for Poland … That does not limit the military commitment. A quick success might induce the Russians to submit to our will … but it might not. That is for the Russians to decide. If they want total war, they are in a position to have it … There is virtually no limit to the distance to which it would be necessary for the Allies to penetrate into Russia in order to render further resistance impossible.
“To achieve the decisive defeat of Russia would require a) the deployment in Europe of a large proportion of the vast resources of the United States b) the re-equipment and re-organization of German manpower and of all the Western European allies.”
The planners conceded that Western air power could be used effectively against Soviet communications, but “Russian industry is so dispersed that it is unlikely to be a profitable air target.”
They proposed that 47 American and British divisions should be committed, 14 of these armored. More than 40 other formations would be retained in reserve, to meet a likely Soviet counteroffensive. The Russians could deploy in response 170 divisions, 30 of them armored: “It is difficult to know to what extent our tactical air superiority and the superior handling of our forces will redress the balance, but the above odds would clearly render the launching of an offensive a hazardous undertaking.”
The word “hazardous” is used eight times to characterize the proposed operation. The war planners warned that communists in Western Europe would seek to sabotage the offensive. While it might be true that the German General Staff would collaborate with the Allies, German soldiers would be unlikely to enthuse about resuming conflict with the Russians.
The British chiefs of staff were never in doubt that the Unthinkable plan was, indeed, unthinkable by anyone save the prime minister. Brooke wrote on May 24: “The idea is of course quite fantastic and the chances of success quite impossible.” In short, Stalin’s Red Army could see off the much smaller US and British forces, even if GIs and Tommies could be persuaded to take up arms against their erstwhile ally.
General Hastings Ismay, the prime minister’s personal chief of staff, told Churchill that the armed forces chiefs would be happy to explain to him why they regarded Unthinkable as impracticable, “but the less put on paper about this the better.” The chiefs did record, however, in a commentary on the draft plan: “Once hostilities began, it would be beyond our power to win a quick but limited success, and we should be committed to a protracted war against heavy odds. These odds, moreover, would become fanciful if the Americans grew weary and indifferent and began to be drawn away by the magnet of the Pacific war.”
It should not be forgotten that this debate in London took place even while the allied struggle against the Japanese continued, notably on Okinawa. Churchill responded to the chiefs of staff on June 10 by admitting that the Russian armies might be capable, if Stalin so decreed, of smashing forward to the Channel coast of Europe. As for Unthinkable, “the Staffs will realize that this remains a precautionary study of what, I hope, is still a purely hypothetical contingency.”
A month later, the Unthinkable file was closed, when the Americans dismissed out of hand the idea of fighting the Russians for Poland or indeed any other Soviet-imprisoned nation in Eastern Europe. President Harry S. Truman cabled from Washington that he saw no grounds for delaying the scheduled Anglo-American withdrawal westward to the occupation zones agreed at Yalta in February.
Stalin got his new empire, and Russia kept this until the collapse of the Soviet Union in the last decade of the 20th century — because the Red Army had got there first. If Churchill or the Western allies had wanted to preserve Poland, Czechoslovakia, Hungary, Romania or the Baltic States from Stalin’s maw, it would have been necessary to stage D-Day in 1943 rather than 1944, and fight a massively costly campaign in northwest Europe a year earlier.
As it was, the Russians had created facts which nobody save Churchill and US General George Patton was willing to dispute at gunpoint. I suggest, with absolute lack of pleasure, that much the same is true today of Putin’s grasp upon Crimea. The only moment at which this could credibly have been challenged was in 2014, when the Russians seized the peninsula and the West largely acquiesced.
All geopolitics demands calculations in which justice, fairness and freedom play only a limited role. A host of people today say: “If the Russians are allowed to keep one hectare of Ukrainian soil, democracy and Western security will be shockingly compromised.” This is true. But just as most of the peoples of the democracies were unwilling to fight a new war for Poland in 1945, so it seems unlikely that they will support a fight to the finish today, to free Crimea. That is ugly, but it is a reality that cannot be reversed.