Water Is the Next Constraint After Data Centers

What if the thing limiting AI growth isn't chips or power, but wastewater treatment capacity?

In this episode of KP Unpacked, KP Reddy and Nick unpack why water infrastructure is the next bottleneck. Jacobs has a $22.7B backlog weighted toward water. AECOM intends to double its water business in three years. Stantec's water practice is its single largest vertical. Meta just built a $70M wastewater plant in Idaho. TSMC broke ground on a 15-acre water reclamation facility in Phoenix targeting 90% recycling. The CHIPS Act, EV gigafactories, and hyperscaler water-positive commitments are pulling wastewater treatment capacity onto private campuses at a scale AEC hasn't seen since the petrochemical buildout of the 70s.

KP and Nick reveal Shadow's bet in the space: Western Chemicals, which uses duckweed (a plant that doubles in size every 24 hours) grown on wastewater to filter nitrogen and phosphorus while producing ethanol fuel. The insight? Wastewater treatment consumes 2% of global electricity using heavy machinery to do what biology does for free. Then they pivot to why big ideas need big capital (raising $1M for pre-con AI versus $100M for modular wastewater plants), why college grads complaining about no job offers have recency bias ($250K signing bonuses for 22-year-olds was never normal), and why skepticism from engineering firm LPs is actually an anti-signal Shadow should lean into.

Key questions answered:

• Why is water the next infrastructure constraint after data centers and power?
• What's Shadow's water infrastructure bet, and what is duckweed?
• How does duckweed double in size every 24 hours and filter wastewater for free?
• Why does wastewater treatment consume 2% of global electricity?
• Why are private companies building their own wastewater plants now?
• Should founders raise $1M seed rounds or $100M for big infrastructure ideas?
• Is the college grad job crisis real, or just recency bias from the 2010s?
• Why is skepticism from engineering LP firms an anti-signal for Shadow?
• What's the difference between alpha (non-consensus bets) and beta (consensus with upside)?
• How does Founders Fund operate with only 4 partners managing billions?
• What happened with the Vinod Khosla/Cloudflare co-founder drama?
• Why do co-founder breakups kill more startups than bad products?

If you're wondering where infrastructure investment flows after data centers, trying to understand why wastewater suddenly matters, or deciding whether to raise incrementally or swing for $100M on a big idea, this episode will show you why the next constraint is already visible, and capital is moving faster than you think.

Listen now.

Transcript

SPEAKER_02 0:00

Three, two, one, five.

SPEAKER_00 0:05

How's it going, Nick?

SPEAKER_02 0:07

Good to see you, KP. How are we doing?

SPEAKER_00 0:10

Yeah. Getting there. Getting there. Yeah. Um Yeah, you know, um it's like if you read all this stuff on like Colt Star problem or flywheel effects and all that, it's just so hard to get the frog flywheel moving. I mean, it's not it's not trivial, right? It's it's not one of these things where you know

Pushing The Flywheel Into Motion

SPEAKER_00 0:34

people think about you're in market and just you you nudge the flywheel a little bit, right? It's like you have to put so much energy behind the flywheel, and then you you think it's going and then it like starts slowing down. And then you're like then you know, it's like you just keep pushing it, right? And you know, so anyway, it's it's interesting. I think we're getting there. I think like even I think even the market in a way, right? Like, I think people are starting to have a better understanding. Because I think part of flywheel is right, like it's like how many points on the wheel, right? And how are you getting a compounding effect? And I think some people are viewing like even the market dynamics right now, right? You're you're a big Bitcoin guy, right? I think we're starting to understand allegedly, allegedly. Allegedly, sorry.

SPEAKER_02 1:24

It's been alluded to before, but no one's confirmed or denied that statement.

SPEAKER_00 1:29

But I think we're starting to understand the economy a little bit better of how these things are all interacting, right? How is construction and material supply supply chains, right? Transformers and all this stuff, connecting to power availability, connecting to NVIDIA. I don't know if you saw the Thomas LaFont talk from last week that was public, I was out there.

SPEAKER_02 1:55

I didn't I didn't, but any Thomas Lafont reference I'm you're in there, I'm interested in seeing.

SPEAKER_00 2:01

Yeah. For those of you who don't know who Thomas Lafont is, him and his brother run a little firm called Kotu.

SPEAKER_02 2:05

They've been we've talked about them before on this here podcast.

SPEAKER_00 2:09

But

Capital Flows From AI To Space

SPEAKER_00 2:10

it was interesting, you know, he was looking at the dynamics of capital flows and where they're flowing in private markets and and like the liquidity event that this Friday, right? Um, depending on where you're listening to this, of SpaceX Public IPO. No, and it just did some really that's the great thing with like these huge hedge funds. They have lots of resources, right? And now they have AI and they have even more resources to create lots of charts and graphs and analysis. But it was super interesting when they're when he was looking at like the liquidity event of an anthropic versus SpaceX or an open AI versus the time horizons are just wild, right? And we're also in a time where some of the largest people on the cap tables of these companies are NVIDIA, Google, Microsoft, you know, so it's a it's a very interesting time if you look at the proxy to the public markets and you know, through the public markets to these private investments, right? Like it's it's it's so it's all super interesting, right? We've never seen a time where this many large companies have been investors and startups and have seen this acceleration. So when we think about like the flywheel, right? I think we always try to like analyze the current economic system across what we know. And I don't think that's so I think we're starting to get a better understanding. How does employment employment's ripping? I mean, employment's great as long as you didn't just graduate from college, right? Which by the way, when I graduated from college, half my friends were working retail till they got their first real job. So also, like I don't uh this whole thing about like college grads, like they can't find

College Grads Jobs And Recency Bias

SPEAKER_00 3:58

jobs. It's like, yes, that has been the norm. There has never like other than the last 10 years or whatever time horizon, right? Signing bonuses for children, like when did that start, right? These are children, right? My definition of a child is if you can't rent a car, your Fertz will not let you rent a car because your frontal lobe is not developed, you are a child, right? And that number is 25. So quarter million dollar signing bonuses for a child, like no, right? That's just so I think this narrative around oh, the kids, they're not finding jobs, it's like none of us found jobs. Did you get a job straight out of college? You know, I I did actually. And what was your signing bonus like? Did you get like a Ferrari? Like, what'd you get?

SPEAKER_02 4:46

My my first job, I was I think my signing bonus, I looked like I was making it's either like 39,000 or 42,000, something along those lines. There was no signing bonus, no signing bonus. No signing.

SPEAKER_00 4:58

How'd you pay your bills? Were you going out and buying a house in Lake Tahoe with your buddies, or what were you doing?

SPEAKER_02 5:03

No studio apartment. Studio apartment in downtown Tampa. Yeah. Did you eat a lot of hot pockets? I ate what did I eat most nights? Definitely some ramen, definitely some ramen, a lot of a lot of Chipotle. There you go. My dad, who's an amazing person, he sent me a ton of gift cards for food. Right. Like, you know, wouldn't just put money in my account, would specifically send me gift cards to Panera and Chipotle and Chick-fil-A. Yeah. Like stuff that I could afford. And but I it's it's also amazing because he like, you know, was funneling money to me that way. But did your mom know about it? Was it like oh yeah, yeah. It was it's an open thing. She might have disagreed on the on on the idea.

SPEAKER_00 5:48

So he got creative and and uh and giving you sending you total money uh mechanism, sending you total wine gift cards.

SPEAKER_02 5:57

Yeah, but it but it I I think the re I think it's a good point. The recency bias on every college student should get a great job. Like, I mean, how many story like I know so many successful people who started out in completely an unrelated field and just like grunt manual labor, truck driver, you did whatever you could to make to make ends meet and figure out what you wanted to do. I think that's the other thing is like not many 22-year-olds know exactly what they want to do. So they are not optimizing for that first decision and that signing bonus, they're optimizing for life experience and figuring out what is what is optimal for their strengths, what's optimal for their curiosity. And like it even me, so I got a job at 22, like right out of college, and I didn't stay there very long. I didn't didn't really like the work.

SPEAKER_00 6:44

How did you decide which offer to take?

SPEAKER_02 6:46

I had one offer. There you go. Yeah, maybe maybe I had maybe I had two offers, but the yeah, the other one wasn't really when I graduated.

SPEAKER_00 6:53

I had two offers. The retail store that I worked at all through college wanted to make me a store manager after I graduated, which was great in terms of like feeling like, hey, I must have done a good job, but also a little bit like I'm graduating with a civil engineering degree from Georgia Tech, I'm not running your shoe store. Like it just felt weird, right? There was some ego in that, but yeah, instead I took the job making $26,000 a year in 1994 as a civil engineer, and I was out there slumping concrete and inspecting rebar.

SPEAKER_01 7:23

Yeah.

SPEAKER_00 7:24

And by the way, I worked every Thanksgiving and Christmas day for the first two years. I worked every holiday for and I worked seven days a week.

SPEAKER_02 7:34

Yeah.

SPEAKER_00 7:35

Because there's always a concrete pour somewhere. There's always, you know, you're pouring at night, you're pouring during the day. And whenever they're pouring concrete, I had to be there, right? Whenever there was steel and concrete to look at, I was there, and that was seven days a week. And I didn't get overtime. There was no overtime involved. And that's just what it was. It was, and so, you know, without sounding too Gen X, like back in my day, everything sucked, and that's why that's why we're the best generation because we have grit. Without, you know, maybe it might be true, but but my point is like I think this idea, like, I think there's a lot of generations that did not that graduated from college and did not get a job. Right. And I my only thing is I think companies are missing out. There's some amazing talent. We've hired some talent that had no job offer. And I'm like, how does this person not have a job offer?

SPEAKER_02 8:31

Recent grad or recent grad.

SPEAKER_00 8:34

Cool. Recent grad. Like, how does this person not have a job offer?

SPEAKER_02 8:37

Wow.

SPEAKER_00 8:37

And their and their point is like, I didn't even have a chance. Because they're going through the front door of places, or yeah, they're they're because they don't know how to look for a job. Honestly, they just keep filling out websites, right? They just keep filling out websites or on LinkedIn. It's not like they're networking, but part of it is I think what's happening, you know, there's I think there's underemployment happening. I think there are people working jobs now that they took a pay cut to get to have a job. I'm seeing it in the Bay Area, right? If you were like a VP of marketing making 300 at a non-anthropic high flyer job right now, like, hey, I work for a SaaS company, you're maybe making 150 right now, right? And people are trying to hold on to their jobs because with a gen, I mean, in marketing, right? With the agents and this and that, people are like, you know, and the problem is when you have such a concentration of capital around a few successful companies in AI, how many CMOs do you need? How many CFOs do you need? How like you know, you don't need that money. Whereas in past cycles where you had lots of startups, everybody needs a CFO, everybody needs a CMO and a CRO. There's just not that many of those C-suite VP jobs out there anymore because it's gonna be so I so I getting back to my point about like this AI flywheel, right? And the economics around it, I think we're starting to make sense of it a lot better. And it's I think unstoppable. I mean, I just I don't I don't I don't know what like what is what is gonna stop this, right? And I love somebody, I forgot who quote the quote was from, right? But you know, it's only a the bubble only bursts if people

Underemployment And AI Role Compression

SPEAKER_00 10:17

decide to sell, right? Sell and do what? If you had an anthropic allocation right now or SpaceX, they go public, sell and do what with all that cash. Let's say you're training in SpaceX, you were in it, you net 50 million dollars, right? What are you gonna do? You're gonna sell it and do what?

SPEAKER_02 10:35

Yeah, I think the only people that you're gonna see sell in a concentrated way are people that have held the security for a long time. Like I I've talked to a few investors in SpaceX that have held there's one investor I talked to that's held since 2013, which I was like, whoa, that's that's impressive. Because they've had secondary options the whole way, right? But the reason they haven't sold is because the TAM keeps increasing, the company keeps improving. They're the only space frontier company, and there's benefits that keep compounding and occurring to that sort of position. By the way, the same principle applies to the frontier AI companies. Right. So the compounding benefit will likely continue to occur. These are trillion dollar companies, that seems like a ton of money, and it is, however, I think five, 10 years in the future, and what the value of these companies might be when they continue to add more and more capabilities and scale and compute gets more efficient and all those things. So yeah, I'm with I'm I'm with you. I I think there's probably, I guess this is like there's definitely gonna be people that takes take chips off the table, but I think there's gonna be a lot of people who who end up who end up holding. And I actually think like over a six-month period, I think the all those securities will do fairly well.

SPEAKER_00 11:47

Yeah.

SPEAKER_02 11:49

Yeah.

SPEAKER_00 11:49

I think no, look, I I think it's super interesting. I think there's also a question too, like the people that are getting liquidity, a lot of it's employees, right? So what they're gonna go buy a house, like they're these aren't people that are these are engineering brains, they're not gonna go buy five houses in a yacht. They they're they'll probably go buy a 9-11, they'll buy a nice house, maybe a second home up in Truckee or something, you know, like like but they're not splurgers, right? You're not gonna go buy three Ferraris, and it's just not how they're wired, right? And it's not like they haven't been making some money along the way. Um so I don't I don't know. Exactly.

unknown 12:25

Yeah.

SPEAKER_00 12:26

So so I think one of the things that's becomes interesting when you think about like this AI flywheel, right? What does the the downstream ecosystem start to look like? What's the next wave, right? Like a friend of mine during the internet days, people didn't even they weren't even thinking about now about internet security. And he started a company called ISS, Internet Security Systems, and it was like people, it wasn't even on people's radar, like security, right? And he built this security company did up really well. So it's so it's interesting as we think about like AI boom and this flywheel. This is kind of my segue into water.

SPEAKER_02 13:06

Nice, right?

Water Becomes The Next Constraint

SPEAKER_02 13:08

Talk about water, yeah.

SPEAKER_00 13:09

So I think we've identified that water is probably the next big thing. I don't think we're alone. I think everybody kind of sees it, right? In terms of whether you in and and of course a lot of the AI companies have come out and said, hey, we now have other ways to cool. Yep. But generally, when you look at power generation, right? Power generation is usually setting something on fire, heating something up, right? That then you create steam that turns a turbine, right? That's I mean, I don't I don't know. I mean, I'm not an energy engineer or an electrical engineer, I'm just a concrete and steel guy. But that's generally my assumption. That's how it all works, right? Nuclear, you're heating up the water, turning into steam and turning a turbine, right? It's like 80% of the world is powered that way.

SPEAKER_02 14:02

Yeah, I'm trying to think what other way thing I guess hydraulic is like you know, it's like solar and and geothermal and you know, wind turbines. But I yeah, I don't actually I don't have the exact percent that those occupy, but 20% is probably even a stretch.

SPEAKER_00 14:18

Right. So even if we look at data centers get better at cooling themselves and consuming less water, they still have to generate energy. I don't think that energy anytime soon is coming from solar, right? And volume. So it's still all traditional methods. And if you look at nuclear, still water, gotta have water, right? So I gotta create steam. So I think water might be the next thing.

SPEAKER_02 14:44

Yeah, I mean, I think the other byproduct of heating things up is you need water to cool the devices down. That's like been maybe the most talked-about aspect of data centers. It's now a hugely political top topic, how much water we're expending on data centers. And look, I it's we don't have to get into like the exact political debate, but you know, there's event there's different methods of cooling. There's a you know, there's a closed loop system where you're actually not consuming that water, that much water if you're a data center. Like a lot of it's recycled, right? And so, but the but there are there are methods like evaporative cooling that do consume you know a good amount of water. And those are the headline numbers that you see into inside of data centers. There's also there's also chip cooling. So Microsoft invented a chip cooling method last year that would that would actually reduce the water consumption. So there's like there's efforts in and around the idea of hey, we know we need in order in order to supply water to cool to cool the devices that are now powering the world and that that are now critical infrastructure AI, AI data centers, of course, are being being one of those waters like maybe the most precious resource that is out there. And so when you think about who is responsible for building those systems, those the cooling systems and even the what the water recycling systems, the water treatment systems, because even when that water is recycled, at some point it's gotta be, you know, it's gotta be treated if we're gonna put it back into existing streams, right? So who's doing that treatment either on site or if you're sending it back to a treatment plant? Who's collecting, you know, who's collecting it collecting the industrial spillage and sewage? Like the AC industry is at the center of all of that. We are responsible for figuring out those questions if you, you know, whether you're an environmental engineer or you're actually designing, you know, the the data center infrastructure yourself. And so, yeah, it's an area that I think is like a fairly obvious area, you know, area of growth within our industry specifically. And then for society at large, it's unquestionably maybe the most important issue. No one, no community is excited about seeing the data center stats about water, you know, current day water consumption. And it's a big deterrent for arguably the biggest economic driver in the in the world, right, is water consumption. And so I think there's so many interesting threads to go down related to that topic. And for what it's worth, like we uh at Shadow, we placed a bet in and around that that that space. And I think it'll be a continued area of interest for us is like how do we better optimize water infrastructure specifically and you know, reduce the if reduce the the energy loads that are required to power water-oriented plants, and then also how do we just responsibly treat water over time?

SPEAKER_00 17:37

Yeah, and I think once again, just like we're seeing seeing the repercussions of our ailing electrical infrastructure, right? I think we're also now seeing the the kinks in our water infrastructure as well. For sure. Absolutely.

SPEAKER_02 17:54

Yeah, there's a couple stats that I I saw recently related to AAC and water. And so I'll share a couple stats, then I'll share some anecdotes. The CHIPS Act, the EV Gig factory wave, and the hyperscaler AI water positive commitments of from commitments from 2030 on are pulling wastewater treatment capacity onto private campus campuses at a scale the AC industry has not seen since the petrochemical build out of the 70s. So just in terms of like growth, I haven't seen any any that that sort of growth rate since the 70s. TSMC broke ground on a 15-acre

The New Wave Of Wastewater Buildouts

SPEAKER_02 18:34

industrial water reclamation plan in Phoenix in August. They're targeting 90% recycling and near zero liquid discharge. So I think like one just one example of actually a new just like uh re reengineering and redesigning water water plants in this existing age is something that that increasingly we're seeing firms talk about. I mean existing EV battery gigafactory, so data data centers aside, just you know, EV, if we're we're if we continue on the trend of electrification, roughly 440 million gallons of water a year in discharge, and about half of that is wastewater that has to be cleaned. That the that's the sort of scale that a single gigafactory is is required to clean on you know on site or sending to a plant, send it to a local plant. Meta announced a $70 million wastewater plant in Kuna, Idaho to support its data center campus there. So Meta's, you know, like private companies, industrial companies are are building out their own plants. Google approved in Lancaster, Ohio, 100% non-potable cooling water plant that's that's producing that. And and then, you know, on the AAC side, so Jacobs reported a $22.7 billion backlog in Q3 of 25, weighted toward advanced facilities in water, and now ranks number one in wastewater treatment in ENR. A AECOM intends to double its water and environment environmental business over the next three years, and Stantex water practice is its single largest practice today. Okay, so those are the those are some of the headlines. Anecdotally, in our LP base, we've talked about our concentration of engineering firms and GCs. And yeah, just through chatting with him in in recent months, can confirm that everyone's betting on water being the next big vertical after data centers. And yeah, I think that I don't really see a world if we continue on this path of increasing industrial capacity and increasing data and you know, increasing the development of data centers where water isn't the isn't the sole industry that that the AEC industry is is gravitating towards and just and receiving more and more demand for.

SPEAKER_00 20:53

No, but I think what's fascinating too back to my flywheel conversation, right? It's not slowing down, like the stuff is not slowing down. If anything, it's speeding up, right? And so water, water could be once as we start solving some of the electrical supply challenges, right? The next will be water. I think it feels like we're ahead of it. I think what's interesting as a former recovering civil engineer, it's fascinating to me. Like, man, I should go start a water, you know, a wastewater treatment plant company or something. Like, what is happening, right? But I think it's also interesting. One of the things that you mentioned was batteries, right? And and I've talked about it before. I I think that one of the things that bothers me most about EVs is people tend to overlook how nasty batteries are. From an environmental impact, from you know, just all of it, right? Now you're saying, like, ooh, we need a lot of water too. Like Yeah, right. And we don't know how I can't imagine the the water coming out of a battery factory. I don't think I'm like dipping my Yeti in there and taking a sip, right? It's probably far from.

SPEAKER_01 22:14

Yeah. Yeah.

SPEAKER_00 22:15

And so all of a sudden the methods of treatment start to get more complicated.

unknown 22:21

Yep.

SPEAKER_00 22:21

And I don't think we know. And we don't know what we're doing with all these used batteries, right? We don't know what's happening with that.

SPEAKER_01 22:28

Yep.

SPEAKER_00 22:29

So I think it's interesting. I mean, I think it's Shadow, right? We have to make bets that are within our scope, right? Well, it's up to me. We might be doing private development of water treatment plans. Like, let's go, right? And just like people, you know, some of our peers have created data center development funds, right? At least at Shadow, we have a civil engineer on the on the payroll, so to speak. That's right.

SPEAKER_02 22:54

That's right.

SPEAKER_00 22:54

Not that I could design anything right now, but I mean maybe I could. I posted a great picture of my bookshelf over the weekend.

SPEAKER_02 23:01

Oh, that was great.

SPEAKER_00 23:02

Yeah. It's like my dad's books, my books.

SPEAKER_02 23:05

Zoomed in on all the books, they looked amazing.

SPEAKER_00 23:07

Yeah. So maybe there's a water treatment plan book uh out there. I can go read up this weekend. But but no, I I think it's it's interesting. And you know, and so we we did what we could in scope, right? For our font size. And we made a really cool investment, and I I got to learn all about duckweed.

SPEAKER_02 23:26

That's right. So the invet the investment that we made is a company called Western Chemicals, and they are using duckweed

Duckweed As Wastewater Treatment And Fuel

SPEAKER_02 23:36

generated from wastewater treatment plants, grown and farmed at, you know, on site at wastewater plants to produce fuel. So ethanol, and then they can do drop-in fuel basically for for any any type of fuel. But the idea is that so duckweed is this, you know, this flower, this algae-like substance that when you see it, you're like, how in the world will, how in the world can that produce fuel? But it's basically a biomass, and it can be a perfect feedstock corn feedstock replacement when you're creating ethanol. And so when you actually run the math on the cost, it the the cost that one might consume in order to produce the volume of duckweed compared to the volume of corn that we produce for ethanol, which by the way, 50% of all corn grown in the US is used for ethanol production, not for consuming food, which is just like kind of a problem. Why are we why are we using food sources up for, you know, for for for ethanol production when we don't have to? And so that that that's kind of the core premise of the of the of the biology biology aspect of Western chemicals is like we have this abundant plant-like substance that grows on wastewater, grows on wastewater because wastewater is nutritious, right? Nutritious not in the sense that we would be able to consume it, but nutritious for growth.

SPEAKER_01 25:01

Yeah.

SPEAKER_02 25:02

And so what it does with the waste, what the the interesting thing the duckwheat does when you start thinking about the production of ethanol is it filters out nitrogen and phosphorus at like an unbelievable rate. So duck re duckweed's growth growth rate when it starts growing on you know on wastewater, grows it doubles in size every 24 hours, basically.

SPEAKER_00 25:23

Wow.

SPEAKER_02 25:24

So the biomass accumulation happens really, really fast. You basically just need to seed a pond or a you know, what you know, a container with wastewater. And yeah, it doubles every 24 hours. So you're like constantly heart harvesting, harvesting it, but it continuously grows. You just, you know, I've you you basically are harvesting 20% of it daily, and then you know, it's continuing to double in size there thereafter. And so the biomass accumulation, it's a little hard to imagine like how can we get enough mass to produce to produce fuel and ethanol at scale, but the but the the the growth rate is so high that it's actually not that difficult and it's free, right? It literally grows for free. It just needs sunlight and CO2, which you know, you get both of those just from being outside.

SPEAKER_00 26:10

Yeah, it's kind of it's kind of like the kudzu of of wastewater treatment plants.

SPEAKER_02 26:14

It just keeps growing. Now, to tie this into the wastewater plant, the reason this is interesting for a wastewater facility, like they don't care about what Western Chemicals is doing for fuel production. What they care about is filtering their wastewater, cleaning it and treating it, right? The methods to treat it today require energy. You have to, you have to basically, you know, you have to remove the nitrogen and phosphorus, phosphorus via heavy machinery and you know, shock, shock it out, clean, you know, clean it, filter it. And it's just like it's a lot of machinery and energy that powers the machinery, and it's incredibly inefficient. Yet there's a by, you know, there's a piece of biology that does that same method completely for free. And it's actually more efficient at removing the same, you know, the same byproducts out of the water itself. And so I was in a meeting last week with a a head, the head of wastewater for a very large GC that we work with, environmental engineer. He's been in wastewater his whole life, 30 years, and he's like in this uh in the side, but he's like, I can't believe that the world came to sludge water. Like everyone's interested in the thing that like the dirtiest aspect of critical infrastructure and engineering. And like, I've been, you know, like no one's wanted to talk to me for 30 years, and now I'm like the hottest girl in town. So yeah, but but anyway, he so his so he lives in Hawaii. The energy cost in Hawaii to power wastewater plants. I mean, they're running at like 50 cents per kilowatt hour. Yeah, it's insane. Yeah. And so these plants also are large in size. And so, like, you actually do the math on the electricity that all these plants are generating just to treat water. It's like two percent of global electricity just to treat the water. And it's not that it's not very efficient, it's not very good at what it does. And so that that's that's what Western Chemicals intends to do for the wastewater plants is much more efficiently via biology, via clever pump systems. Like they'll set up their, you know, they'll set up modular tanks to pump, tump, pump the treated water in, get in different streams. There's you know, multiple different streams at a wastewater plant, and then they'll treat the water and then they'll filter, filter it back into the new stream, and then maybe they treat it again. But basically you're eliminating the entire electricity spend. And that's really interesting for a wastewater plant because it's expensive. So and there's a you know, there's a nice revenue share opportunity for them. So, yeah, anyway, that's in a nutshell. And then at the same time, Western Chemicals gets to harvest all the biomass created. They're just, you know, the duckweeds doing the the heavy lifting that the heavy machinery is is doing most days inside the plant. And then they harvest the the biomass and they use it for fuel production. And they have react, they've built a novel reactor system to also more efficiently produce that fuel.

SPEAKER_00 29:04

So yeah, we're pretty excited about it. So what you're saying is we should create a duckweed trading desk and start selling future.

SPEAKER_02 29:14

The moment duckweed futures start start being traded, I think we've we've we've won that.

SPEAKER_01 29:19

Uh yeah.

SPEAKER_02 29:22

I like it. I like it.

SPEAKER_00 29:24

No, it's true. Look, I I think that's one of those things like, you know, we get so many inbound at shadow from different startups and founders, and and we just have such a bias around like big ideas that kind of we don't we don't think other people could understand, you know, these big ideas that people can't understand and aren't aren't mainstream, right? Aren't mainstream necessarily, and we've we've made some of those bets, and those bets have been our best bets, right? But the challenge with, you know, we we can't get into SpaceX. There's certain stuff we're just like kind of uh hands handstrung, hamstrung a little bit on the

Why Big Capital Chases Big Ideas

SPEAKER_00 30:00

capital side where you know what what did we say the other day was some company it was like doing a $200 million round, and I was like, Yeah, I can get us a slice, or like, well, we're gonna put a million dollars on a 200, like like what's the point? And I'm like, I don't know, so we can be in it, right? Like it's you know, we we might look at it, but it, you know, it's it's really hard. And I think what you're seeing right now is there's such a a good appetite from the capital side to do big ideas, right? I mean, it's it's almost I think it's you know, and founders hate it when I say this stuff. If you're you know, if you're raising a million dollar seed round or pre-seed round for some AI, pre-con, whatever you're doing, like good luck with that, right? Because you're better off saying, like, no, we're gonna create modular wastewater treatment plants, and I need to raise a hundred million dollars for my seed round. You're more likely to get funded because I think some of the concentration of capital that's happening, and even if you look at some of these look, some of the liquidity that might come out of these IPOs, nobody can deploy that stuff a million dollars at a time. And it and it's it's very bizarre. I mean, it's taken me to understand this stuff, right? Not not I have no classical finance degree or anything else, but there's like a workload to investing, right? And for a lot of these managers, we've heard it from some of the institutional people when they're like, hey, we'd love to invest in your fund. Let us know when you when you do a 250 million dollar fund. And we're like, okay, sure, right? Like, sure, we'll call you right back, you know. But they they can only manage so many investments at a time when you're managing lots of capital, and it doesn't, and I think everybody else has started to realize it doesn't scale well with people. I think people went through that cycle. Let's go hire 300 associates and we can. It's not true, right? I think people have realized. I mean, like like our friends at founders find what is it, like four partners now? It's crazy, yeah. I think it's like 12 people total. I guess like 12 people total, right? Something like that, right? Because money scales well, right? You just wire more money, like you don't need more, you don't need more people to add the zeros onto the wire transfer. The deal diligence, it's kind of the same. So, why overoptimize for number of bodies? Which, if anyone is interested, like it'd be really interesting to see AUM versus number of employees. That'd be really interesting to understand in terms of how some of these companies are thinking about deploying capital. But you know, if you have that big idea, I think you'd need big money. I don't think it's incremental, right? I don't think it's like create an MVP, show demand. It's like, no, I've got a big idea, I need $100 million. Let's go. Yeah.

SPEAKER_02 32:47

Yeah, I think you're one of the points you're getting at related to a founders fund, for instance, is they can't do because they have four partners, they can't do 500 deals, right? If you're in Drees and Horowitz and you have 100 partners, you can do more, you can do smaller, you know, more more, you know, seed-round early stage oriented deals. What founders fund and a lot of firms that are scaling with capital do is they just concentrate, they concentrate their investments. They want to do later stage investments. They want to, you know, they're deploying billions of dollars. And if you think about like in you know, writing a five million dollar check, you know, and scaling an early stage strategy, it's like it's not that it's not that compelling. They might like investing early, but their intent is not to, you know, make a lot of money off the speed round. Their intent is to double and triple and quadruple down, their intent is to do what they did with Android, for instance, right? Where they where they've invested billions of dollars in a single company and are likely to have still an enormous outcome, right?

SPEAKER_00 33:48

So much money, right? Have you since you're more active on X than I am, I'm more like LinkedIn Substack, and you're you're more the on X. What do you think about all this, all the all the jokes about the VC jokes going on right now?

SPEAKER_02 34:01

Yeah, it's a bit it's been there's some interesting commentary. So, yeah, for everyone who is not super active on X, there was a post last week. I think it was like Cloudflare, I think. Just yeah, the the former founder of Cloud Cloudfare. And I think he posted out of the blue. I was trying to I was trying to figure out like why he posted this, but he posted a screenshot and a story of a an experience he had with Fanode Kosla, who's a very famous

VC Founder Drama And Cofounder Risk

SPEAKER_02 34:30

VC, founder of Coastal Ventures, but you know, son, son microsystems and you know, very, very famous technologist and and venture capitalist. Not known to be the you know, maybe the the the the the kindest, or you know, I don't know, I don't know how to describe him, but basically the story is he was at a den the founder of Cloudfair was at a dinner with his two co-founders in Vinode. And his two co-founders at the end of the dinner, they get up to go to the bathroom, and Vinode, you know, whispers over to the co-founder, still still sitting there, and he's like, Hey, I'm really impressed with you. I'm not so impressed with your two co-founders. How about we've we fire them and I'll give you all their stock? And the founder of Cloudfair was very offended by that. I mean, obviously, like you got to have your co-founders back, is was his mentality. And he basically said they never chatted after that experience. But there's been a lot of comments. So, anyway, X was a buzz based on that post, and you had a lot of founders sharing a lot of negative VC VC experiences like that, and then a lot of positive of like, hey, this is not true in my experience. Here's like a number of times where you know I had a fantastically positive experience pitching and working with some of the well most well-known VCs in the world. But yeah, so that's been that's been the X timeline. Did anybody complain about you? I don't think I didn't see any posts about me. I thought I was gonna see a complaint or two about you, but I didn't see any. Yeah. KP KP has some Vinod Kosla in him. Indian uncles, man. Indian uncles. But you know, and uh so yesterday, Vinod, interestingly, he started responding to some of the why, some of the complaints. He kind of was, you know, he was just defending himself, which is you know, somewhat silly. I think uh it's the rationale for why he said that is not, you know, it's not hard to think about why he did that. Co-founder breakups and having weak, you know, weak, weak co-founder links, like that it's fatal for for for startups, right? Yeah, I mean, we see it all the time. Like, if you have a co-founder breakup, like there's a really there's a massive existential threat, you know, looming for the company. And we've seen it in the portfolio. Like we've we've we've had companies go to zero due to co-founder relationships, not necessarily due to the product.

SPEAKER_00 36:51

Yeah, it's interesting too. Like, you know, I think I spend a lot of time talking about like cognitive overload that we're all experiencing. I think I I think if you're not experiencing cognitive overload, you're probably not working hard enough. But but there's an emotional thing, this dark cloud around emotional stuff when it comes and and and it I think it's even a bigger zap on you know being able to function as a founder. And you know, that's one of them, right? When you have a co-founder that's not like I've been in situations where I've had co-founders that it just wasn't I started to see it wasn't gonna work out, and it just occupied so much of my space in my brain, like just so much of my for for no real reason, right? Quite honestly, because you start to realize, like, you know, you analyze and say, hey, can this be course corrected? Right, that's one thing. You also look at it and say, I mean, what's my role in this? Uh, you know, and am I willing? I mean, it's like couples therapy, right? It's like, what's my role in this? Right. So, and it's it's just like any couple going through couples therapy because they're having issues, it's a massive burden on your day-to-day, right? It's just a lot, it's just it's a lot. And so I think in startup world, I think so I I know the note kind of, right? We there's an organization that I helped start in Atlanta, the Atlanta chapter called Ty, which is like Indian entrepreneurs, and he he was the one who started it, started it. So the early days in 1998, when we were getting going, he'd come through Atlanta and host dinners because he's always been a rock star, especially within the Indian within the Indian community at that time in the night in the late 90s, there were there weren't a lot of C-suite Indians, like there were like very few. But I think you know, the insights to me, you know, maybe delivery was not great, right? But if he did see something, I think he could have said, like, hey, this is a risk. Like, I'm not sure if you're co-founded, like, I'm not sure if the if you guys are gonna last, right, as a as a founding team, but maybe the approach was wrong. But I think it's interesting, like it's just of course our friend Grim over at Andrew was he was like doing his thing on X, you know. Oh, he posted about Trey.

SPEAKER_02 39:08

Yeah, that was that was great. So yeah, you saw you saw like a there was a series of posts of complaints about V seats, and Grim Grim just like had a nice fantastical tale about how nasty Trey Trey Stevens was to meet in person at a grocery store. Yeah, that was pretty good. Trey's wonderful.

SPEAKER_00 39:29

I like Trey. I like both those guys, honestly. Like I've I will say, like those two guys, I've learned so much from them. I mean, I tell people all the time, and you know, like my relationship with that, it's like I've learned so much from those guys, not just around like I don't know, like, you know, they're they're younger than me, right? But I think they've between their palantier days and just being in the the sphere of Peter, right? I think you just get so many at-bats and conversations that you you build so much wisdom so quickly that's beyond your number of years, right? And and especially when I moved out here, I just it's been it's been nice to be able to have, you know, I don't know. Um that's why whenever I, you know, people like to get negative on Palant on whether it's Palantir or Andrew or whatever. I'm like, hey, like I got no bucks in it, they're just friends. So I don't really care, you know, you have whatever opinion you you want to have. Someone like nail me down the other day about Andrew, like just talking smack, and I'm like, yeah, cool. Just go tweet about it. Like, I don't like you're not gonna get anything out of me on this, right? Because I have nothing in it, right? Yeah, totally, totally.

SPEAKER_02 40:41

Well, to c to close out the I went on a little bit of a tangent there, but to close out the theme of of water, I think a few interesting observations I've had since we announced the Western Chemicals investment is no one else has really made a, I mean, at least in the in the venture community, I don't think I've seen any other firms investing in hardware, deep tech, and and then even AEC that have said, like, oh wow, we're gonna invest in water in a big way. And and I've gotten several emails, and then last week I was in Los Angeles and we did an event for this company, and I met a few other VCs there, and they're like, You said and you you did what everyone was thinking, and it's just cool to see that level of conviction because everyone knows, everyone was like, you know, in the background knowing and aware of what was coming in water, but yeah, I don't think anyone was willing to make like a an early an early bet in that space because it's wastewater, right?

SPEAKER_00 41:40

Yeah, I mean, it's it's I think we we have this pattern, I think, where we have made investments in the past that like made sense, it was rational, like it makes sense, and then we'd almost overoptimized towards who else was investing, right? And that was like some kind of positive signal to us. And most of those have gone like okay, right? They're not but I think like learn uh you know, I think this is the learning, right? The journey of a VC, if people care about that, right? Is building like your self-confidence to get to a place of conviction and then hold steady, right? Because we have some deals where we have we still have high conviction. Founders aren't making it easy on us, but they we still have conviction, right? And I think it's important like how you build how you have conviction at the beginning, because a lot of these take time.

SPEAKER_02 42:38

Sure.

SPEAKER_00 42:39

And how do you keep the conviction up? I think that that's something that getting in lots of reps as a venture investor and just seeing a lot, I think gets you more comfortable there.

SPEAKER_02 42:51

Yeah, absolutely.

SPEAKER_00 42:53

Yeah, I don't think I don't think it can be taught, right? I don't think it can be taught 100%.

SPEAKER_02 42:58

And I I think one thing I've one thing that that's helped me with that, because it's it's a hard, it's a it's a very hard thing to step out on a ledge and do a deal that maybe doesn't look consensus to your investors because they're gonna question you. And I think what's interesting about us, like I think about this all the time. We have the largest share of engineering firms in the world as our LP base, and they're just skeptic, they're skeptical people, right? And they want to know every single detail and get in the weeds on you know, first principle, first principle level, like what is this technology doing? How does it function? Right. And so I go, you know, I go into our monthly calls with some of these LPs, and I'm like, I'm preparing for a battle, you know, like and so what uh oftentimes when I'm thinking about doing a deal, you know, I'm I'm thinking about like, you know, not necessarily would they be excited about this, right? And almost as an anti signal, like would they would they be skeptical about this in some ways? Because our job. Is not to generate beta. Beta is what is what found is is what the big funds, founders fund, Andreeson beta is investing in something that's consensus, but has a very high multiple potential after the fact. That would be like investing in SpaceX in 2020, for instance, right? Or in Drupal today. Like the thing is established and known and it's fairly consensus, but the convicted bet is that the compounding benefit continues to grow. Today, investing in a weight in a you know, in a wastewater deal, not consensus. Like no one's like not every large firm is signing up for that sort of deal. And so that's considered alpha, where you step up and you're the first to place the bet in a specific category. And that's what emerging managers who can't compete with founders fund and inreason on the on the on the check size of beta, that's what we have to do. Like that's the only way for us to compete and win.

SPEAKER_00 44:51

Yeah. No, it is pretty wild to like what you're not saying, which I might say out loud, is sometimes the lack of consensus we get from our engineering firms is actually a positive.

SPEAKER_02 45:06

Yeah, it can be an anti-signal. Yeah.

SPEAKER_00 45:08

Yeah, it's the anti-signal. That's kind of what you're not saying, and maybe because you don't want to make anyone mad, but sometimes it's like, oh, they don't love this, then we need to look at it more seriously. It's kind of like a friend of mine at one of the big firms was talking about he's doing some more complicated investments, and he was like, Yeah, you know, I was thinking about hiring a PhD type to be on the team to look at these deals with me. And then I decided that if I did, I would never do a good deal.

SPEAKER_02 45:36

They're gonna give me 30 35 reasons this will never work.

SPEAKER_00 45:40

Right. And that's the way you like I was like, Yeah, but you hire them to do the exact opposite of whatever they tell you. Yeah. So yeah, I mean, I look, I think ventures change, it's it's changing. And I I you know, I think it's the you know, I think we we we play in these niches, we see things. I you know, we always say we're we're mostly right. We're just we're we're pretty much right on the if. The when is a different conversation that would start timing is our biggest risk. Yeah, timing is our biggest, like we just don't know when it happens, right?

SPEAKER_02 46:15

For sure. Well, on that note, we're gonna have a robotics and construction conversation on Thursday. Special guest. It's gonna be a surprise, surprise. We won't mention who it is, but yeah, someone in construction robotics, and we're gonna do a deep dive on different ways, different systems architecture. If you're building a robotics company, it should be a fun conversation.

SPEAKER_00 46:36

Yeah, that'll be really cool. Oh, by the way, so my email address is kp at kpready.co. If you want to send us stuff, like we don't really have I was someone was saying, like, so I get text messages and substacks and

Robotics Tease And Listener Email

SPEAKER_00 46:50

all from people that already know me, but I don't think we have a great mechanism for strangers that might be listening to this to email us. So you can email me at that email address. And if you have questions about robotics and construction and all that, maybe we'll have some, maybe we'll have a mail bag. That'd be great. Listener mail.

SPEAKER_02 47:10

Send them in, people. Send them in.

SPEAKER_00 47:12

You can also send me commentary on and um that kind of thing. Those are also good comments. I'll read those out loud.

SPEAKER_02 47:20

Any comments on we'll uh we'll we'll we'll edit that part out of the show, but that's okay. Keep sending them in, it's all good.