ICEO Technologies (00:00) That's what the investors want and that's what a CEO needs to focus on. There's a lot of people out there that think they know. again, still only one in nine is successful. David Adams is driving the energy transition by leading multi-billion dollar investments in the energy supply chain for Goshen, one of the world's largest energy storage companies with $5 billion in revenue. That's really hard to do. Most companies fail at that. We're talking about a couple billion dollar investment in terms of the land. facility, the equipment, and then on top of that, we tried to make it zero emissions. Over his career, David has also funded three successful companies, raised $90 million in venture capital, early stage investor of two public companies involved in 20M and A's, and achieved a remarkable IRR of 568 % on his personal investments. Getting data to train the AI is really critical. And the problem is that data that is AI means is not available. So how do you train these things? Do you need to license data? Do you need to create synthetic data? How do you do that? These are very large investments and we're just one company. We would look at several billion dollars just for an anode and cathode facilities. would look at several billion dollars for building the pack facilities and the cell manufacturing facilities. That's just here in the United States. We're replicating that Southeast Asia and India and in Europe. We have a new administration in the US that has decided that a trade war with China is more important than this energy transition. And so we're talking about tariffs on products coming in from China. And when you're looking at the vast majority of the battery industry being located in China, suddenly that energy transition has become a lot more expensive. Diego Calligaro (01:42) David, I'm so glad to have you here. You have an impressive career. you've been scaling successful companies, doing IPOs, M&As, a successful investor as well, working Gartner. where we worked in the past. And now you are leading a very large multinational, over 8 billion revenue company within the energy transition. Tell us, what drives you as a leader and what keeps you motivated? David Adams (02:13) Well, it all comes down to continuously learning and changing the world. I got into the energy transition a few years ago because it was a big opportunity. It was very exciting. It was something I'd never done before. I've been in software my whole life and now to go into something completely different was exciting. And every day I go to work, I learn something new. from everybody around me. there's a feeling like we have a purpose and we're doing something important. And that's kind of the motivator of making this all happen. We're trying to solve problems that eventually will solve bigger problems, right? We're talking about an energy transition to reduce carbon footprint, which would eventually, hopefully, combat global warming. And a critical part of that is the battery systems. And being at a company that actually manufactures those batteries, that is learning how to manufacture those at scale and to improve on those batteries is quite an exciting thing to do. Diego Calligaro (03:15) what do you see as the main challenges when it comes to the shift toward renewable energy? David Adams (03:26) There's a lot of challenges. know, what we're looking at is we think of it as, we'll just make electric cars. Well, first of all, just building an electric car is a challenge. There's batteries that need to go into those cars. And there's this trade-off between energy density and weight and the ability to create a car that can go a certain number of miles before needing to be recharged. And then there's the, well, How long does it take to recharge them? And how do we solve those problems? And we think of it just as that. But when you start to look at an entire society actually transitioning over to electric vehicles, you realize all of these vehicles are going to be charging at the same time. And the infrastructure of the electric grid in each area isn't able to handle it yet. And so massive investments need to be made at the grid scale to be able to handle all of those new new cars that are going to be taking energy off the grid. And then when you start looking at that, well, we're still being powered by coal-fired plants. How do we transition that over to, say, renewable energy that has no carbon footprint? And it continues like that. The problem just keeps getting bigger and bigger and bigger. And at each step of the way, we have to solve those problems so that You know, the whole thing actually works, right? We want to reduce the carbon footprint and we have to make sure the entire value chain transitions. And so all the way down to, you know, we're a vertically integrated company and we do the mining and refining and that mining and refining needs to be, you know, reduced in carbon footprint. Every manufacturing facility where we're building a battery cell needs to have a lower carbon footprint. And so it's quite a massive challenge where you need to look at everything and rethink it so that we can reduce the carbon footprint all the way through. Diego Calligaro (05:17) Indeed, big challenges ahead. What do you see like the major advancement here in the field, also when it comes to storage itself and battery that can really change things moving forward? David Adams (05:30) So, you know, the funny thing about energy storage is you generally don't need to solve for too many problems. A car is a much more difficult thing to solve for because a car has limitations, you know, weight and power that it needs to have. When you're talking about energy storage, we're just talking about, you know, long term having something that can store that energy. It could be big. It doesn't need to move. It doesn't really matter how long it takes to recharge usually. You know, it's just a simpler problem to solve. And there's a lot of different technologies out there that at the utility scale, that could work. And in fact, you know, when you look at, say, a container, a five megawatt container of battery storage, the actual cells inside is almost irrelevant. It's just a matter of how much they can store. you know, whether it's sodium ion or lithium or something else that might be new, it really is less of a challenge on the grid scale because you have plenty of space usually, know, acres of land that you can put these on. The real challenge comes down to when you're trying to create a specific use case and that might be a boat, it might be a trailer, it might be a car. Those are different problems to solve. One of the most interesting ones I found was the mining equipment. If you think about all those big massive trucks in mining, they produce a tremendous amount of power. And using diesel engines, a tremendous amount of carbon in the atmosphere. And to electrify them is very difficult because they need a massive amount of power. And at the same time, they run 24 by seven. Now, when you're using diesel, you can just continuously pour diesel into it. How do you do that with electric batteries? How do you recharge something that is in a mine, out in the middle of nowhere, nowhere near the grid, and to ensure that it's 100 % renewable and zero carbon emission? That's a real challenge. And so there are all these challenges on the fringe that... that are sort of driving us forward. And while the easiest part really would be the putting, you know, an acre of land aside to put down energy storage units for the utility. Diego Calligaro (07:42) Yeah, I see. And what are the main initiatives as well that you are taking this direction to really reduce that carbon footprint of battery themselves and drive like more sustainable supply chain there? David Adams (07:56) So one of things that we look at quite a bit is for every facility we build, how do we make it carbon neutral? And that starts with power. And most of these facilities require a massive amount of power, a couple hundred megawatts per facility. And they need to be carbon neutral. And sometimes that's hard to do if they're in a location where solar power is hard to find or excess land. to put the solar power on is difficult. But every facility that we build, we look to build a carbon neutral power plant nearby one way or the other, primarily solar with battery backups so that these facilities can run even at night when there's no sun driving the power. And that's our first step of ensuring the entire supply chain is Is carbon neutral there's there's quite a lot of other a few other areas that we could look at You know transporting these things from one area to another You know, there's there's so many different vehicles that would touch our products in different areas that that we need to look at how we Electrify them as well. But it's a it's a very large problem on a massive scale when you look at these things and and you really have to look at each problem individually. There's no one solution for everything. Diego Calligaro (09:13) Yeah, indeed. Because at the same time, you are meeting a huge demand in the market globally when it comes to storage. Can you maybe walk us through more about this huge demand and also the overall impact that you're having in terms of contribution to this transition by meeting these needs globally? If you can maybe give some data around this. David Adams (09:35) Well, what we're seeing is that every country is doing this transition. It's not just one country. It used to be, say, in software, one country, like the United States, would say, we're going to, know, individually, these companies make the decision to upgrade their technology and they're ahead of other countries. But at this point, when we're talking about the energy transition, every country in the world is trying to do their bit. And that means You know, we might see massive customers in Latin America or in Africa that we wouldn't expect, or Southeast Asia. Countries like the United States are actually quite far behind the rest of the world. If you look at electric vehicle penetration, the largest market in the world is China, where over 50 % of the vehicles sold today are electric in Europe. It's over 25 % while the United States is hovering at 8%. And in reality, most of that is just California. The rest of the country really hasn't picked it up. And so there's sort of unevenness to this, where traditionally we always thought that the US would lead on some of these technology transitions, and this is not one of them. And so we find quite a bit of the work we're doing. is in countries where their grids are already weak. Central America or Latin America, and they want to upgrade it. And they're going to leapfrog the United States in terms of their infrastructure capabilities. We're looking at smaller countries like Chile implementing nine gigawatt hours per year of new solar. And while the United States, that's That's pretty much what you'd see in the entire United States. And that's just one little country in Latin America. And so there's so much going on in the world and on a massive scale. And it's really hard to quantify sometimes. The second thing is a lot of this is being done with Chinese companies. Chinese companies 40, 50 years ago took the lead on battery technologies to a point where you're seeing even in US universities, and you start talking to the material sciences people and the physicists and the chemists, those professors are all Chinese. And they link back to Chinese companies that are looking to use these technologies. And that's where they do this at scale, at a price point that works for the world. It's hard to replicate that outside of China. But that's what we're trying to do. Diego Calligaro (12:05) And also, it's so important at the same time, the role of governments around the world in playing and boosting this transition itself. What would you say, like, how would you say should be the collaboration between businesses like yours and governments to really, you know, drive and accelerate this transition? David Adams (12:27) So there needs to be some level of regulation that provides an incentive for companies to transition. It's a big investment and it feels like a tax to the companies, right? Because they're transitioning, it's just power. Yes, we're going to clean, great, but it costs a lot of money. And so on top of the setting targets, for emissions, for vehicles and regulations like that. Governments need to provide some incentive for that transition in the form of either tax rebates or grants and things like that. And that's going on all around the world. In the United States, California has a mandate for zero emission vehicles in 2035. Meaning you can't sell a car that has any emissions at all after 2035. And that's a big target. And it's the only state in the United States that has that target. And so there is the incentive for the transition to happen, but at the same time, they need to provide investments into these companies so that they can make that transition. We have a new administration in the US that has decided that a trade war with China is more important than this energy transition. so we're talking about tariffs on products coming in from China. And when you're looking at the vast majority of the battery industry being located in China, suddenly that energy transition has become a lot more expensive for businesses in the United States. And we could talk about American businesses manufacturing these batteries, but there really aren't any that can do it at scale. And most have failed already. And we just saw even in Europe, Northvolt going bankrupt is an example of of the difficulty it is to actually do this at scale and do it at a price point that can be successful. And that's why the government needs to step in with incentives to make that happen. And we need to think more broadly about how we do our partnerships and our international politics to ensure that the know-how is transitioned outside of China into other countries. And that's where the real difficulty is today, is to try to figure out how to make that happen. Diego Calligaro (14:29) It looks like your company, let's say it's in a geopolitical storm currently with the new administration as well. Maybe could you tell us more about what's happening as well in the country? David Adams (14:43) Well, we'll take the politics out of it and just think of it geopolitically that the leaders in the battery technology are clearly coming out of China. And if you are thinking about America first, then how do you make America then the center of this new technological revolution? And a lot of people here think, well, let's just go beyond electric and move to other technologies, maybe hydrogen vehicles or something like that, which are near zero emissions as well, but not available today. so a lot of investments going in that direction. I've talked to a congressperson who said, fusion reaction has just actually taken place. And we think within 25 years, we can commercialize that. And that's the direction we should go. There's a lot of thinking that maybe we shouldn't be using this technology if it's dominated by Chinese companies and the geopolitical dependence on China is not healthy for the United States. So that kind of thinking goes on here on top of the xenophobia and other kinds of issues. And that's not the United States alone. European countries are feeling similar things when it comes to the geopolitical aspect of it. And that's why we see a tremendous amount of investment in European companies to try to bolster their technological capabilities but to date, just hasn't resulted in success. And so we need to think about this a little differently. Diego Calligaro (16:09) Yeah, indeed. And what's like from your side, the ideal positioning or maybe the solution among countries? David Adams (16:21) A very interesting question. I'm not sure I have a good answer. We in the United States just had a very big election and it's difficult to yet understand the implications of it, given that it's so fresh and we still haven't even seen that transition yet to a new administration. But, you know, what we are seeing is a slowdown in the United States in terms of the ability or the interest in that transition, except in areas where they're trying to solve problems. Now, say ERCOT, which is the electric grid in Texas, has had several issues with blackouts that last for weeks because due to even just cold and the equipment so old, it breaks. And so battery backup has become a very big push for them so that the whole grid can stay afloat even when there's a disaster. But it's not because of this energy transition. It's not because they want to reduce carbon footprint. It's because Houston can't go down for three weeks again without power. And so the motivations for know, installing this technology today are different problems that we're solving rather than the big picture that, you know, I think worldwide we're looking at terms of, you know, carbon footprint and greenhouse gases. Diego Calligaro (17:46) this new presidency may have ramifications as well all around the world in terms of impact in the energy transition and also the investments that you have been seeing as well in other country. Or is not the case? You don't think it's going to be like this? David Adams (18:04) Well, I think every case has the every country has their own their own way of thinking, their own thought process, their own issues to solve. If I look at Europe and and the geopolitical issue with the invasion of Ukraine by Russia and the dependence upon Europe on Russian gas, there's a strong need for. for removing that dependence. And this is something that drives them just as strong as the greenhouse emissions and global warming. If you come to the United States, we don't have that need. We have had our past where we were dependent on, say Saudi Arabia and other countries for gas. But the US now produces enough gas that we can fully fully provide our own for the time being, for the future as far as we can see it. And in fact, the new administration says we're gonna drill for more oil. And so we don't have now a geopolitical issue with consuming gas like Europe does. And so then you start to... look at other arguments for why you need to do this energy transition and the list becomes very different than say European countries. Diego Calligaro (19:24) And that's a very compelling need for Europe as well from different angles on the tariff. And I believe your company as well is growing the marketing in Europe, right? Given this. David Adams (19:34) Yeah, our largest shareholder is Volkswagen. And so we partnered with Volkswagen. We built their unified cell, which was a strategy of using one type of cell across all their different vehicles and then changing the modules to, different applications. And that's something that we've done. And we are now building cell and pack facilities across Europe, Slovakia, Morocco, Goettingen, Germany. Diego Calligaro (19:37) Okay. David Adams (19:59) and to supply the European market. And so, you know, we've had a very tight relationship there. Diego Calligaro (20:05) OK, great. Thanks for sharing, David. And I would like as well to move forward in a discussion towards more the investment-related part, because you have been a very successful investor as well. And maybe starting from this type of investment in energy, looking at those investors that want to invest in these new technologies that are emerging. What would you see like are those factors when evaluating the right investments in these emerging energy and clean technologies? David Adams (20:39) Scalability is one of the most important things and that's always been an issue. Let me take a step back and explain to you what I do for investment. So my primary task is to look at investments into new facilities here in the Americas. Those, you know, we're vertically integrated, so we do the mining and refining, we do the cathode and anode materials and separators and electrolytes. and all the way up to building cells, packs and modules for different kinds of use cases. And so our primary goal here is to stand up an entire value chain here in the Americas, which would be an Inflation Reduction Act compliant product. And that's a big challenge in and of itself. The second thing we do is look at all of our partners in that value chain. Most of them have never done battery grade materials. They might need investment to upgrade their facilities. They might need to hire new people to support us. And so I look at our partners to invest in them so that they could scale with us. And then lastly, investing in upstream and say new materials or equipment that might improve our product or lower our costs and then downstream into new applications such as know, electrified trailers or boats or even solar so that we could create a market for our products in this area. And so that's a holistic view of investment into the entire value chain. The one thing that has, from our perspective, been the most difficult part would be to identify new emerging technologies and to incorporate them at scale into our process. There are interesting new technologies that work well in a lab, but once you start to do it at scale, it breaks. It either breaks from a process perspective or from a cost perspective. Hey, a pure silicon anode is 10 times more powerful than a graphite anode. But the problem is how do you do it at scale? right now, you look at group 14 is selling pure silicon at $150,000 a ton. You really need to get that down to $15,000 a ton and to really make use of that as a game changing technology. And it's also difficult to make that happen at scale. Silicon expands when it charges. It's like a sponge and it just expands. And you can imagine having a battery that expands three times. It'll just explode in a car or something like that. There's a lot of really Propeller head level technology that needs to be created in order to harness that kind of a material And and doing that at scale has so far been Beyond us. So when I when I look at an upstream investment, the story is great There what they've built in terms of material looks really interesting when we start looking at how do you actually manufacture that at scale? Things fall apart, right? They're saying they're gonna build a factory that could produce you know, tons and tons. And I said, well, great, but we need 50,000 tons just for us. And you're talking about one or two or five tons. This isn't helpful. know, the amount of investment that would need to get up to 50,000 tons is massive, sometimes $100 billion. So we have to figure out how to do this at scale. and bring it to the market in a reasonable time frame. And that's really been the challenge for some of these things. Diego Calligaro (23:57) And maybe can you also give us a bit more visibility on the amount of investment that you do like per year across the supply chain and also the level of investment maybe don't reach your expectation because of the reason, because of these challenges Could you share more about... the level of risk involved as well around this. David Adams (24:20) Well, just from our own facilities, if we want to build a facility that does 40 gigawatt hours of battery cells, which is a very large facility, we're talking about a couple billion dollar investment in terms of the land, the facility, the equipment. And then on top of that, we tried to make it zero emissions. And so we need to build a solar field beside it. We're talking about several billion dollars and, you know, and many years to come to fruition. And this might be a five or six year process where each step along the way, there's a lot of risk and a lot of things to look out for. You know, when, when we started this process in 2019, we didn't think that we would be here now today. in 2024, looking at administration that may not allow us to produce here in the United States, despite the fact that we're already starting to produce. So there's a lot of risks along the way and a long time to get there. These are very large investments and we're just one company. We would look at several billion dollars just for anode and cathode. facilities. would look at several billion dollars for building the pack facilities and the cell manufacturing facilities. That's just here in the United States and we're replicating that in Southeast Asia and India and in Europe. So there's quite a bit of investments being done by a company that's well beyond our current revenue. And so we need to think big and we need to make sure that we don't fail on any given facility because it could be devastating to the company. And so it's quite a big undertaking. And that's just one company. All of our competitors are doing the same thing. Diego Calligaro (26:06) Let's see. Indeed. And what are the typical steps that you take in order to minimize all these major risks that are sometimes about scaling, about geopolitical risk? what are, like, if you can walk through, for example, an example of a case and how you approach this to really minimize this risk and maximize the success of the project and the returns? David Adams (26:33) So looking at, when we think about investments in this space, we're usually thinking about new materials to change the world. And so I get a lot of those coming to the table. Different new materials that have been developed that have better properties that are for use cases and trucks versus cars or there's... There's so many new materials out there that could have a tremendous impact on these new vehicles. But I look at that and the only way I can actually assess this is to take the material to our R &D. We have 6,000 people in R &D looking at these things and to test it to see if it actually does something different than what we are producing ourselves. And if our R &D can look at that and determine that this is something that we could use in our facility without actually changing our processes, which again, if we have to build a new facility for this, it'll be billions of dollars of investment. If we can take this new material and just slide it into our existing process, we can bring it to market quickly and efficiently. And that's usually where things fall apart. Either the material doesn't have the properties that we need to put into our cells, or we can't figure out a way to manufacture that without changing all of our processes, which would mean a new facility and billions of dollars investment. from an investment perspective, there might be a great new material, but you have to work closely with the battery manufacturers themselves in order to determine whether this could be used. If you're a venture investor and you invest in something coming out of a university, and you don't have a partner that's actually manufacturing cells, it's near impossible to make that happen, or to guarantee it happened. You can't reduce the risk unless you've got a cell manufacturer willing to use this in their process. And that's where a lot of these things fall apart. And the other flip side to that is that might be a great new material coming out of Stanford or MIT or some great university here in the United States. But then when we say we have to actually take that technology and use it, it's going to be taken back to China, which causes geopolitical issues. So it's a struggle there on the investment side. It truly is. Diego Calligaro (28:53) And you mentioned that they have a huge R &D. You mentioned 6,000 people, right, in R &D. And so there's a lot of focus on driving new innovation internally. there's also a role, can imagine, terms of M&As, of acquiring specific innovative solution to then bring in internally. or it's more focused on internal innovation development. David Adams (29:19) we have over 6,000 people in R &D. We have partnerships with 10 universities around the world that focus on these technologies. So we are trying to stay at the bleeding edge of new technology. Where it makes sense, where we can create a barrier to entry and competitive advantage, we might acquire a company. that has a new material. But really from an M&A perspective, I see more opportunity looking downstream at new applications. investing in a market for our products is easier than investing in a new material. So we could invest in a new kind of sport vehicle for the ocean, a boat of sorts. There's a mandate in Europe that, you know, the by I believe 2030 and please don't quote me on that because I don't I'm not I'm not focused on Europe, but they they were going to require that all ports be zero emission, meaning for the three kilometers as you go into the port, you need to be you can't use diesel fuel. You have to use something that's electric or wind powered. And and that's a huge incentive for. for that market in terms of building electric boats. And so we could invest in new boat manufacturers and have them use our batteries for those applications and create a market for our product and at the same time, stand up a new emerging boat that hopefully is really exciting and will do well as an investment. We'll do the same with other applications. trailers that need to be electrified, cooling systems for refrigeration across all sorts of businesses. There are a tremendous number of different applications out there where we can invest in a company, they use our products, and they can solve problems out there or set a country up to meet a certain mandate, like the issue with the ports in Europe. And so those types of investments are easier to assess and easier to execute on. If you look at a solar field, once you've got the permitting and the power purchase agreement in place and you've got the ability, the interconnect agreement, so the ability to transmit the power, then the risk has been taken out. You could produce that, it'll operate for 25 years. You've got future cash flow and it's just a matter of pegging an IRR on that when you make your investment. And that's a lot easier to do than to try to do the business development to convince a large corporation to change their processes on a billion dollar facility to accept a new type of material. It's just a much more difficult thing to do to invest upstream like that. Diego Calligaro (31:52) Thanks a lot for sharing, David. Very interested in this area. more regarding the technology side as well. You have a huge experience when it comes to technology in general, not only in energy and clean tech. So taking it from the investor perspective here. How would you yourself identify the best opportunity when it comes to early stage technology to invest in? David Adams (32:25) If you're a VC, you're going to make 25 investments and maybe you'll have a couple that really hit it big. You know, one in nine companies that get a VC investment actually have a big exit, a home run. And it's a portfolio approach. It's actually quite hard at early stage investments to win 100 % of the time. And I've never seen it. You always have things that change along the way. Market shift, regulation shift, technology leapfrogging. It's really difficult to say, here's a company that's going to scale and we're going to take an IPO and replicate that every time. software, for example, has a very low investment capex. it's really much easier to build a software company. You're talking about 25, $50 million and you can build a large company, with, with this kind of material science, you're talking about billions. and you know, if you're, if you're going to build 25 facilities and only, you know, one in nine actually hits a big, that's a massive amount of investment where, where there's just too much loss. You have to you have to be more sure about it than that. And so when we look at these things, it's we're making investment in our own facility for our own product, and we don't want to take risk on new technologies. We want to be able to just go straight to scale so that we can sell. And these new emerging technologies take a long time to incorporate into our processes and and You know, just to say it's much more difficult to take that kind of a portfolio approach because the losses would be too great along the way. And, know, if you're looking at a material and you want to do early stage investments and, you know, let's say you create a hundred million dollar fund, you're going to be making two million dollar investments in individual companies. And that's just not enough to move the needle. They sometimes need their own 50 to 100 million. just to build a facility and stand it up and to start selling. And no one company is gonna make that investment and take that risk unless they know that they're doing the off take of that product themselves. And so it really comes down to, is this a company we're gonna use in our process? If so, we can make the investment. If it's not, I can't touch it. I can't make the investment and speculate maybe we will in the future. I have to know. Diego Calligaro (34:42) Yeah, I see. So yeah, this is definitely when it comes to large investments, and especially because there is a lot of upfront cost to launch the company itself. moving towards maybe like early stage company, like software companies across the technology industry itself. You have a lot of visibility as well when it comes to other technologies. Could you give your thoughts in terms of advancement or areas in which you are most interested in technology developments and innovations? David Adams (35:18) From the perspective of my current role, you're saying? Diego Calligaro (35:20) No, I'm talking in generally for a technology sector in general. Maybe there are specific innovations in AI, IoT, other aspects of. David Adams (35:26) Well, so we're- Yeah, so we're clearly seeing a time when every company is trying to see how AI can improve their product. And so if you're out there looking at software companies, almost every single one of them is saying AI this or AI that. And you really have to think about, what truly are they doing? Are they solving a problem? Is this something that's truly going to make a difference? above what the previous technology was doing. used to be machine learning was the big thing, and now they've gone even further. computer vision is becoming more prominent and different forms of AI. In the end, those new technologies have to have an impact, and they have to actually do something better than what was done before. and they have to provide a value prop that's going to cause these companies to want to switch. There are a lot of examples where AI can help. mean, when you're looking at an infrastructure, say an IoT infrastructure, and you've got 100,000 devices that you need to maintain, we've got logs on each one of those devices. How do know which one has been hacked and you need to know real quickly? Well, AI can help with that. And there's companies out there creating AI to to look through those logs and find problems and address them in real time much quicker than any human that could ever do it. So it all comes down to the use case and what they're trying to do. And there are some advancements that really don't have an impact despite the fact that it's AI. we're seeing this sort of which ones are going to be successful and which ones are not right now. But that's why you're seeing there was massive amount of investment going into these early stage AI companies, maybe a massive amount going into some companies that got a little traction. But in the end, they have a problem that they solve, that market has a sizing. We know what that company could do in terms of how big it could grow based on that. We know what the adjacent markets are, whether or not they can impact those. You can think about the market that way. not every company that is using AI is going to be successful because they just might not be solving a problem well enough to justify the increased investment. Diego Calligaro (37:34) Indeed. And there's a huge amount on investment as well in AI. Do you see like, is there a bubble behind or is like they're really gonna deliver like the results as promised, all this investment? What's your feeling about the hype around the AI as well? David Adams (37:50) Well, it's hard to talk about all those different kinds of companies. There's a number of them where getting data to train the AI is really critical. And the problem is that data that this AI needs is not available. So how do you train these things? Do you need to license data? Do you need to create synthetic data? How do you do that? And in some cases, it's just too difficult. In other cases, there needs to be new technologies to be made available in order to train these AIs. Let's just take, for example, generative AI for video. At some point in the near future, all TV commercials will be created using AI. There's just no reason why you need to actually have a camera person come in. and shoot a TV commercial when you just need a spokesperson to say a script and to show something. This all can be done in AI. But the problem is that there needs to be some control over the licensing of the likenesses of the people that are going into there, the licensing of the data that's used to create different lighting angles, different colorizations, different. different camera, camera angles, all those things need to be trained and the universe of data and how to train them has already been used up. All the free data has been used and there's a tremendous amount of data that can be licensed, but no ability to do that directly. It's difficult. And that's just for generative AI for video. There's just a dearth of infrastructure in place. to allow these companies to specialize in certain kinds of video. We're finding that's the case in other areas too. And even within the battery industry, where we're trying to figure out how best to manage a battery, using AI to look at data, determine how best to charge and discharge batteries to make the longevity of the battery better. so that it can keep its charge longer. That requires a tremendous amount of data. How do you create that data? And so today we take logs and we look at it. But if we want to look at a battery over 20 years, it's really hard to do. And so lots of thinking needs to be done in terms of, how do we train that AI to become a battery management system that will optimize these batteries. So each problem becomes very difficult to solve when you're looking at some of these things. Diego Calligaro (40:14) Okay, so it looks like you're investing as well significantly in this area internally in Gotium when it comes to AI. Yeah. David Adams (40:20) I'm looking at it for sure. As a company, we're investing in our own R &D. But when it comes down to actually solving these problems, if you want to do a battery management system that includes AI, you've got to figure out, do I create a use case and get the data for that so that we can improve the product? It's a heavy lift. Diego Calligaro (40:45) Yeah, indeed. then, so coming back to the investment part, know, and taking it from the side of the founders as well, because you been a founder as well, you've been scaling companies. So you have a huge background when it comes to scaling companies. So I would like to get your feedback, you know, and understanding. when it comes to raise funds, when it comes to CEOs that are in the early stages and they really try to make the company as most attractive as possible to move from early stage to Series A to give you an example. As an investor, as a founder, what would you say... are actually the main aspects that the founder should take into consideration to make the company fundable and attractive for investors. David Adams (41:35) I, you know, at a very early stage, you're looking at an idea and a team and whether they can execute on it. we're talking about pre-seed and seed stage. You're really looking at the team and their ability to execute. And part of that is how they present the opportunity. They present the opportunity well. It reflects well on their capabilities as a team. When you start to look to get to a series A, an investor wants to see product market fit. And that is a repeatable and predictable sales process. That's really hard to do. Most companies fail at that. And so at that early stage, when you're in your seed stage, you need to be proving that there's a market there. You're looking at problem solution fit. That is, you found a problem and you've created a solution for that. And a company is willing to pay for that solution. Now, it doesn't have to be completely automated. Maybe there's components in there we have to do by hand, but you solve their problem and you show them that they're willing to pay for that. And you can then use that as a case study to show the impact you're to have on that company. That's what you're trying to accomplish at the seed stage. When you're getting to the series A, you need to show that you understand your go-to-market, that you've got channels, that your messaging works, that you're targeting the right people in the organization, that you really understand the sales process and where you need sales engineers to get involved in. You know, what are the implications around some of the testing that they might do along the way? The getting to product market fit is really understanding your sales process well enough that you can show that on a quarter by quarter basis that you understand, you you're accurate in your forecast and you understand every dollar that you invest into the sales process, you know exactly how much in sales is going to come out on the other side. And that's usually where most of these companies fail. They, they, they've got early success. They've got maybe four or five different use cases that they're working on, but not one of them that they've been able to repeat predictably. And, and so that's where some investors make their mistake where they make an investment thinking this has got so many different opportunities that this is going to be very large. And yet not a single customer is the same. And, and, and eventually. they're going to find that they can't continue to sell because they're not finding new opportunities, new problems to solve. They need to focus on solving that same problem over and over again for companies and being able to target the companies that have that exact problem, bring them into the sales process and know exactly what it's going to take to bring them over the finish line in the sale. That's what the investors want and that's what a CEO needs to focus on. Diego Calligaro (44:00) Yeah. David Adams (44:09) and it's very hard to do. Diego Calligaro (44:10) And when do you understand that that is the right time to move to the next level, that the company is really scalable, reach in scalability? It's about five customers, 10 customers. Of course, it's about the deal size as well of it. But when would you identify that the company now is really repeating sales and it's the right time to invest? David Adams (44:32) Well, that's a really difficult question. There's a lot of people out there that think they know. And again, still only one in nine is successful. We tried to solve this problem when I was working at Gartner in our tech CEO practice where we worked with startups. I went about mapping out this process, the problem solution fit at the early stage moving into product market fit and then to scaling the business and to look at all the different activities that needed to happen and then to try to create metrics and milestones along the way that we could measure. And then to take data from surveys that we did with companies to sort of get an idea of what those metrics might look like so that we could build a diagnostic for a company so that they could, you know, take a simple test and answer 50 questions, which might include some metrics. And then to use that to diagnose whether or not the companies actually achieve product market fit or where they are in that continuum. And so we built that product to help clients. But it's also something that investors could use to think about, where exactly are they in that continuum? And we might be looking at sales lead times, or we might be looking at price points, or how long it takes for a salesperson to come up to speed and be productive. There's all sorts of different metrics we might want to look at. Year over year, month over month sales growth, pipeline growth. percentage that goes from the top of the funnel all the way down to the bottom and how long that takes. I mean, you can look at all those things and see improvement on those metrics and then determine whether or not what you're doing is actually getting the product market fit. But for every company, it's going to be different. You're going to look at things slightly different. They've got different processes. And so it becomes difficult. We can only say, here's some tools to try to figure it out. And most investors say, I know product market fit when I see it, but they can't actually define it. And so having some of those metrics behind you will help you determine whether or not you feel that you're there. But the one thing we do know is once you see month over month sales growth that lasts for over a year and continues on, you know you have product market fit. It just might be too late for that investment because Somebody else might have already made the investment or taken the risk a little earlier. So it's not a science yet. And there's a lot of different things that you could look at. Diego Calligaro (46:53) Do you have an example to share of a company that you believed you thought you got the market fit? You thought they had the market fit, but then after investing, you realized that they weren't there yet. David Adams (47:06) Well, I mean, a classic example, I invested in a company that did product returns. So when you're a very large company, a B2B sales company, you're building a component for a larger product, there's always some form of returns. The disposition of those returns depends on individual contracts. And quite often, you know, the company makes a return and it shouldn't be allowed. So we built this software to manage returns. And when you're talking about billions and billions of dollars of product going to the market with returns, it could be a massive problem where if you were to manage it and be able to say, no, for the contract, you're not allowed to return, or you have to pay us to take that return, that could save hundreds of millions of dollars for a company. So we made the investment at the seed stage, and very quickly, we found a customer. And it was very large customer. seed stage company getting a $2 million initial investment from a customer. And we focus on making that happen. The problem was that we spent all of our time building the product for that customer, definitely to make sure that that customer is successful, not looking at, well, what does the next customer need? And is it the same set of problems to be solved? And what we found was that when we tried to go out and sell to another customer, they operated differently. And the way we implemented for the first customer wasn't necessarily useful for the next customer. And this company ended up with five million in revenue. That's great for a startup. And if you were looking at it, and a lot of companies would say, I should have a hundred million dollar valuation by now, but they only had one customer. And that customer eventually was done making investment and the revenue went to zero. And so this can happen. quite often and that's one of the lessons learned in the venture industry is to look at the distribution of customers. And if one customer is more than 10 % or 25 % of the total revenue, then you start to get worried. And so that distribution or concentration in customers, revenue concentration to a single customer can be an issue. And so those are lessons you learn as an investor to look at in your due diligence. And it's something that a CEO of a startup should learn that that you need to be able to show that you've got a number of customers doing the same thing over and over again, that you've created something cookie cutter that could be replicated in a sales process. So, you know, that that happens a lot. You you get one customer and then that's it. Diego Calligaro (49:26) which is very difficult as well from the founder perspective to take like this diversified approach sometimes in a way because they got a big customer, maybe it's easier to upsell and grow there while they're building a huge exposure to risk there. So from a founder perspective, like how would you approach like the same situation that you mentioned before, for example, you know. How would you approach this in order to avoid these mistakes that sometimes when you grow, you tend to go to the bigger customer and grow the revenue there, while you should maybe spend more sales energy in other channels to grow other customer and diversify the risk? David Adams (50:08) Well, the example I gave you, really hard because it's hard to say no to that much revenue for a startup that has zero revenue. But quite often what happens is companies come to the CEO and say, we think you can solve our problem. And it's a different problem than the other customers. And it might represent a good sale for the company. Another half a million or a million in revenue is always attractive at that seed stage. And the problem really becomes Is it distracting? Is it causing you to focus on a completely different problem that you can't replicate? you're looking to be able to find the same kind of problem and to solve that over and over again and to prove that you can do that on a repeatable and predictable manner. And then you can go to the next problem once you've solved that one and add and expand by by solving different problems. What you find a lot is that the CEO at that very early stage will be solving one problem after another in different companies, doing different things in different industries and never actually figuring out where they can scale. so some of it is trial and error. Maybe the first one you go after isn't the right one for you to scale on, but you need to prove that you could do something and you need to start driving revenue. But at some point you need to make that decision when you're going from problem solution fit at that very early stage where you've got five different problems and five different solutions to which one can I scale and a repeatable, predictable manner to get to product market fit. You've got that sales channel to do it over and over again the same way. Your salesperson has a script. They know the process for this problem. That's where they wanna get to. And it's very difficult for them. at that early stage to say no to a customer, that might be a distraction. But that's what they need to do at some stage. They need to be able to focus so that they can start to scale. Every time that they go to a new problem, it's a bigger investment for them. It's writing code, it's a different problem in their messaging, a different kind of customer. different sales process, a different channel to get there, they eventually could start selling in that market. And it might be a great market for them, but they need to figure out which one to go after first. so that's a challenge. You need to look at a few different ones to make that assessment, which is the best for you. On the other hand, you don't want to just continuously look at different problems because you're never going to be able to scale. Diego Calligaro (52:20) Mm-hmm. Yeah. And it's probably about finding the right balance between the two until you find the right channel, which is probably more of an art than a science, I believe. Or you... David Adams (52:43) Every company, yeah, every company talks about a pivot and that's pivot, right? It's like, thought we were going to solve this problem, but we went to the market and we found this problem. And in fact, that's one we could scale. That happens all the time. And you need to be thinking about it that way. Is this the one where I can scale? And you'll find that maybe going from the education market into the, Diego Calligaro (52:46) Yeah. David Adams (53:07) the hospitality market would be better for whatever reason. That's the way you need to be thinking about it. And that's hard sometimes. Diego Calligaro (53:15) Yeah, and about this pivot, which is, I believe, more you grow, more it's difficult to implement, to really pivot. As the company grows and maybe you want to change the strategy, to pivot significantly, once you are smaller, more agile, maybe it's easier. When you are growing as well and you have a different customer, not all scalable at the same time, then probably becomes more challenging as well to maintain in terms of cash flow operation internally. David Adams (53:43) Well, I mean, that's what a growth strategy is all about. You focus on initial market, you start to bring that to scale. But then what happens is you start to see some slowdown, right? The market gets saturated. You've got competition, your margins get lower. And you start to think about, how do I expand? And that's when you start looking at these adjacent markets, where, you know, when you originally were were at that early seed stage, you found five different markets and you picked one. Now it's time when you start to get to scale on the first one to look at that second one and say, can I scale that one now? I've got more resources and people and reputation on the market. Do I have that ability to scale that second market now? And that's the growth strategy. Can you have successive markets, one on top of another to grow your business? which is a lot easier to do once you're of scale. It's impossible to do when you're a seed stage doing one customer after another. Diego Calligaro (54:42) few final reflection with you. If you can share your piece of advice for CEOs that are trying to scale their business. David Adams (54:51) Well, that's a pretty broad question. I always say, when you're starting a new business, start with the customer. Understand the customer need. You can have a hypothesis as to what problem they have and they're trying to solve. But then you need to validate that with real customers. And you need to talk to them about how the impact of that is on their business. So you might do a you know, a pilot, you know, a proof of concept where that that proof of concept will solve this problem. And it's not totally automated, but you can prove it. You then need to measure that impact and to ensure that you're actually solving a problem for customers that they're willing to pay for. Being customer focused and hearing from the customer is is critical in going through that process. And I I see so many companies say, yes, we have a hypothesis and we're building X. But they haven't actually talked to the customers yet to determine and validate that that's actually the case. And then when they take their product and they try to sell it, it doesn't match the needs. So it's really critical to have the customer at the center of their attention right from the very start before even talking to investors. What is that problem those customers are trying to solve? And everything you do needs to be around, you know, solving that problem, validating that it drives value, validating that they actually get value out of it and willing to pay for it and then start to look at, okay, how do I scale this? What do I need for finance to get there? And, you know, this isn't about raising money for the sake of raising money. This is about building a business and raising capital in order Execute on a plan that you've already created I know now after doing this first problem solution fit phase where we talked to ten different customers We talked about their problem. We identify a set of problems that they all shared that they're all willing to to pay for that solution and Then we take that and try to scale it and that's why I need the capital, right? That's what an investor wants to hear that at the customers at the center of what they're doing Diego Calligaro (56:51) Yeah. And tell us as well, looking at your career, is there something that you wish you have done differently? David Adams (57:02) I've been involved in businesses that were at a very early stage. I built a platform to overlay internet content on top of a live TV broadcast using a standard TV chipset. That was in 2006. Flew out to Seoul, convinced Samsung to build the first smart TVs, which rolled out in 2009. But if you want to make a business out of that, You really need an install base to start monetizing it. And it was slow at adoption initially. I ended up selling that company in 2011, but being first to market isn't always the best. Understanding that these markets sometimes take a long time to develop is really tough. And so I would look at trying to solve the problem instead of boiling the ocean. identifying something where you can build upon. I could drive some revenue here. I could build a company out and then I could be there for that later market. And that's what's critical sometimes. Just having the longevity to stick around so that you can be there when the market does evolve and mature. Diego Calligaro (58:08) And one final question here, looking at the rapid acceleration of change that we have today, so that technology is evolving fast, what concerns you have about the digital future and also what excites you most about this? David Adams (58:25) Well, AI represents a lot of change. And there's some scary parts about it. mean, generative AI for video is at a point now where you can create a video of anybody doing anything you want them to do. There's lots of examples of bad actors creating stuff. I mean, by bad actors, I mean companies that are doing things with that video. You could get a politician to say something that they never said. You could create evidence for a court case that didn't actually happen. These are dangerous things. And there needs to be some level of regulation around that. And I'm not sure our government has fully thought this through. The impact on politics for generative AI for video is immense. There are clear problems to be solved. If you are a celebrity or a blogger, an influencer, an athlete, Your likeness is something that you sell, right? And that's an existing market today. I want a spokesperson for my product, but that doesn't necessarily need to be that person live on camera. You can create that with generative AI and you can train a model on somebody and have them say whatever you want them to say. So there needs to be a platform in place for that kind of licensing. But you know, that doesn't exist yet. And, you know, there's a free for all in terms of how current videos of people can be used for training and for use down the road in nefarious areas. That can be scary. We are truly at a point now where we don't know what the truth is if somebody can create a video that most of world will believe is true. and fiction and truth become blurred. That scares me. Things also scare me in terms of autonomous driving, what happens if that car fails and somebody gets killed, a run over child? Who's responsible? We don't know yet. Is it the person in the car that was using the autonomous vehicle or is it the platform that made the mistake and ran the child over? We haven't gone down that process yet. And there's going to be a lot of hurt along the way, I think, before we get there and get it right. And it's going to be uneven around the world how we solve those problems. just as two examples. So there's There's a lot of unknowns out there and a lot we still have to do. But obviously these new technologies are powerful. They could do amazing things and could do great things for society. I just need to understand how we're going to put rules and regulations around it so that it isn't used improperly. Diego Calligaro (1:01:00) David, thanks a lot for being with us today. It's been a really great pleasure and definitely gonna speak again in the future. Thank you. David Adams (1:01:05) My pleasure. Thank you very much. Thanks for allowing me to speak.