Climb By VSC: Episode 22

Vijay Chattha: Today we are honored to have on Alex Brown, co-founder and CEO of Alga Biosciences. Alex, welcome to the show.

Alex Brown: Thanks so much, Vijay. Really appreciate it. Great to be here.

VC: Excellent. So tell us a little bit about yourself. Tell us about Alga, the company, how did you and your team decide to start the company?

AB: Yeah. So, you know, as a quick overview of what we do, we make a feed that stops cows from burping methane, and makes farmers money. That's the entire company. Everything is in that one sentence. So I started it along with my friends Caroline and Daria, who are doing their PhDs in chemistry at UC Berkeley. And so they're my co-founders. And we started that frankly, because we couldn't figure out why nobody else was doing this. It seemed, you know, in my eyes as one of, if not, the most important things to focus on on climate. I thought methane was kind of categorically under focused on and under invested in and could have kind of some of the largest, impacts on our actual global warming trajectory. And so this is kind of how we began. Early 2021, kind of really working on this area, and thinking about, you know, what would a scalable solution look like here? How do we stop these enteric methane emissions, which is cow burps, which are the single largest source of methane in the world. it was really just kind of a wide open brainstorm for a couple of months, reading as much literature as we could, calling as many professors, farmers, industry people as we could, and really thinking about what would a scalable solution look like.

VC: Got it. And then what was the final summation of that? So, like, in terms of sort of the product that you decided to make?

AB: Yeah, great. So for a little bit of history, about roughly five years ago scientists in Australia found this species of red seaweed that has this really remarkable effect that when you add it to the feet of cows, it really dramatically reduces their methane emissions. This is great, but it's really hard to grow. This stuff. So because it's a strange, domesticated species, and so you can't produce enough of it to actually make an impact. And you also can't make it nearly cheap enough for any farmer to actually want it even if you could produce enough so there it's really not something that ends up scaling to address the problem at the magnitude required, and so what we became really interested in is, okay, so this one species isn't going to work isn't going to be the solution because it doesn't scale. However, you know, seaweed as bands and kelp is really remarkable, because of its ability to scale because of the sheer amount of biomass that you can produce this way. And, you know, you see companies in the climate space, taking advantage of this like running tide and you know, lots of companies in the food space and you know, apparel space as well, but we got really interested in is how do we take the seaweed that is that already scales and we already know how to produce that massive quantities, and how do we transform it into being an equivalent of that special, hard to grow red algae. And so that's really what we developed and we developed kind of a biochemical process to transform vascular and kelp into turning it into anti mutagenic feedback. And so that's what we had been working on for, you know, nine months in the lab, of just focusing on that. And that's kind of the core of our technology.

VC: Talk to me about these different stages of the genesis of the business.

AB: Yeah, so at first I was just kind of obsessing over the kelp space and what a solution would look like here. It's kind of funny, it started kind of like tricking Caroline and Daria to spend more time on this where, you know, they were doing their PhDs at Berkeley and say, Come over to San Francisco, like we're, you know, having a party you know, and then it just being me with a whiteboard. We just talked through chemistry for a couple of hours. And then they kind of became more invested in and we all kind of ended up convincing ourselves that it was possible, and that the science was doable. And so then the next step was, well, we need to raise money, and it's kind of a challenge. I'm always perpetually jealous of software companies. You know, being able to really make a lot of progress with just a computer. And so it's a real challenge of biotech companies, you need to have an actual lab to do things. And so it was a little bit of a chicken in the egg because I didn't come really from the startup world. So I was trying to figure out how to talk to investors. And you know, a lot of times investors want to see some evidence that you've made progress on this. And we're like, well, we've got a lot of great plans that we've written down. But that's about it. And so we started doing more chemistry in Darius' kitchen and doing a lot of our experiments there. So we don’t want to work in the Berkeley Labs, we don't want the IP to be owned by the university at all. And finally, we got kind of our first $20,000 from biotech investors. And that was unbelievable, that finally unlocked everything because then we rented a lab immediately. We did our first experiments and got our first data back three weeks later, I think. And then we got another $120,000 from a climate syndicate and then got into Y Combinator. And then things just kind of continue to accelerate from there. So it's just like that first step. That was really the extremely pivotal catalytic stuff.

VC: Awesome. So it sounds like the first step really was a false party promotion at your house that really wasn't a party.

AB: Yes. Yes, pretty much, pretty much.

VC: That's awesome. Anything in that process between the whiteboard party to YC that you would have done differently or you wish you would have known about the process. And then also, like, how did you decide which investors reached out to do with this Google search? Was it through a network through Berkeley, like just to again, help other founders think through that process?

AB: Yeah, that's a good question. I definitely didn't do it correctly. So I would say, definitely take a more structured approach. I, frankly, didn't really understand how all fundraising works that well. And so began just talking to investors in these climate slack groups that I was in, so like my climate journey work on climate. I had been talking to a lot of folks about the intersection of biology and climate and biotech, and climate. And so began kind of talking to those investors, and so slowly became a bit more you know, structured at understanding what investors want to hear and what they want to know. I think for a company as early as we were, what we needed was something more similar to a fellowship. Activate is a good example. And sort of the money we got was from the PSY Founders Collective, which is a bunch of biotech founders who want to encourage PhD students to drop out of academia. And so that ended up being the right place. So I think what was interesting is like, really making sure the investors are the right fit for your needs. Like I think that was something actually that one of your previous guests was really good about, the point of each round of funding is to get to the next round. And I think in some ways, those rounds at the beginning are super short, like they can be two months long of like, you just need to prove that these first assumptions that you're making about your company, or right, and then all of a sudden, you know, the capital can grow by orders of magnitude. And so like, I think that was the really important realization for us is like, we need $50,000 at the beginning, and that's enough to really all of a sudden unlock all these next conversations and kind of a more proper seed round.

VC: Where are you in terms of sort of currently on the traction with the product?

AB: Where we are at overall as a company is we spent all of 2021 and a half of 2022 making a product and trying it and working with academics and academic labs to see if our assumptions were correct. Does this work? And luckily, it worked really, really well. We had massive methane reductions. And so since then, what we've been focusing on is actually production capacity and producing it and figuring out how to produce the stuff at scale. And so that's what we've been working on for the last three quarters of 2022 is producing the stuff at scale and kicking off our first commercial pilots. And so, for us, a commercial pilot is not a couple 100 head, we're shooting for, you know, 1000s of head on a big feedlot. So a lot of cows, stopping the methane emissions of a lot of cows. That are actually part of, you know, the commercial supply chain. And so, we're just kind of finishing up our first production run right now and are planning to kick off that commercial pilot, the spring.

VC: Talk about that your customer and talk about that process. Talk about the objections they've had and how you handled those. And let's go into that.

AB: Yeah, so our kind of customers are, you know, the beef and dairy producers of America, for starters. And so these are the guys that are making the majority of, of milk, cheese meat that that this country eats. So a lot of the dairy folks are based here in California. A lot of the beef is in Texas or Kansas and Nebraska. And it's really, really fascinating. It's totally like it was really fun being part of YC and hanging out with like that group of people all the time like the YC founders and then going to cattle con and hanging out with those guys the other half of my time. It's totally like a fun culture shock. And so it's really fascinating because, you know, in many ways, the cattle industry is totally different than the tech industry, where we're just by the nature of its, you know, kind of fundamental economics, like it's, it's really really hard to be to be a cattleman honestly and to own a lot of beef. Because the margins are incredibly slim. You often don't get paid for months at a time. Like you can get paid maybe only once a year. And your businesses are really subject to the price of two things totally outside of your control, the price of commodities of your inputs of what, you know people are willing to pay for beef. And so because of that you get a lot of interesting dynamics where you know, it's an industry that's naturally very risk averse. And because one bad year can kind of ruin you. And it's also an industry that is, you know, really wants to see things proven out before they adopt them, which is part of risk averse. That was a very interesting thing for me and what became so important when kind of integrating with this community. And I think with tact like you can you can go say to a roomful of, you know, folks working at tech companies and say “hey, you want to try my product that I'm building? Like, I'll let you try it for free, like for a couple of weeks, and that's it? Sure. Why not?” You know, that's not how it works in the cattle industry. You have to really kind of build a sense of trust and get to know people and have them get to know you before they're gonna believe anything you're saying. And so it was really interesting as I thought most of the, you know, work that I'd have to do was telling people about the product and showing them our scientific papers. But actually it was like, getting to know them and having them get to know me, they're like, “Who are you some dude from, from San Francisco? Telling me how to how to run my business that you know, I've that's been in my family for three generations, no way.” And so that became really, really interesting. And was one of the really fun parts of the process.

VC: One thing you sort of brought up when I first met you and it was super valuable is like, at the end of the day, a lot of customers are not buying because of saving the planet right? And now is a big part of your pitch to the community to write about the value prop to them as cattlemen. So can you talk a little bit about that process? Are you really selling and what's working?

AB: Yeah! Honestly, this is like what you're talking about in the founding story, this is the reason I became obsessed with this space. And it's, so for context. What's really special here is there's a hidden cost for these methane emissions for the farmer. And they're totally unacknowledged right now. And this is because methane is chock full of energy, right? Like that's why we use it for fuel. And so when the cows burping, methane, they're losing energy. And so it's about 15% of the calories a farmer feeds his cow. They get turned into this wasteless, useless methane and burped out, totally wasted. And that cost is kind of invisible right now to farmers, because you know, there isn't a way to stop these emissions. But feed costs are the single largest cost for a feedlot farmer. And so this, absolutely, could transform their bottom line. And so that's what got me so excited about this is, there are few areas in climate where both a solution is possible, and the incentives are aligned. Like usually you need a concession from somebody either, like you need a new government regulation saying, Hey, you can't use this old inefficient process anymore. Like you got to buy a more expensive, you know, whatever. But this is a case where it's, you can actually genuinely have a win-win. Where the farmers don't have to care about what the methane target of the United States is, we don't have to care about what we want our methane levels to get to. All they care about is making their cows more efficient. And so that's what got me really, really excited and that's what we've started to see in our studies. And so that's kind of the long term value prop for farmers here is, you know, sure there's going to be methane regulation coming down the line like we see this already in California. But really, like we're doing this as a way to just increase the efficiency of your operation. Also, kind of in the near term, we're also working before we kind of finalize, proving out those efficiency gains, because we want to make sure that we reprove it on a really big operation. Like one of these big commercial farms and really proving that out. And so we're going to prove that we can reduce these methane emissions, and sell carbon credits. That to kickstart these pilots.

VC: Got it and tell me about the carbon credit process. How does that functionally work?

AB: It's been getting trashed the past couple of weeks. Which, you know, I think probably right, rightly so. Some of them but there's a lot of bullshit carbon credits out there, I think. But it's really interesting because there's kind of two carbon credit markets. There's the Voluntary Carbon credit market, and there's the regulatory carbon credit market. The EU has this, it is like a cap and trade scheme. California also has a regulatory carbon credit market, which is really interesting, we can talk about. These are pretty efficient markets. Yeah, there's like an actual price that a ton of carbon trades for. In the EU. It's roughly $75, it's somewhere around there. And in California, it's roughly $30. And, however, the Voluntary Carbon credit market is still the Wild West. The Voluntary Carbon credit market it comes from mostly companies acting to hit their internal targets that aren't yet imposed by, say a government. But you know, they've made ESG commitments or commitments to shareholders or they want to market being a carbon neutral company. And so, these are, you know, companies buying carbon credits or carbon offsets, purely out of voluntary, without any legal need. And so as a result you've got a really wide range of price and quality on the Voluntary Carbon credit market. And, you know, prices range from $2 a tonne to $2,000 per ton, which, you know, if everything's a ton of carbon, it shouldn't matter. Like that price should be exactly the same, but it's not. And it's because like, the stuff at the really low end, are things where it's really hard to prove whether you're actually reducing emissions. I think a good example are forestry. credits. You know, you can sell carbon credits associated with owning a forest and saying, “we're not going to chop it down.” And so that's obviously pretty inexpensive, but it's also hard to verify that you really were gonna chop it down where you're not paid this money. Also verify that there isn't leakage like another forest isn't going to just get chopped down instead. And then all the way up to the really high end, which is like really amazing projects that direct air capture, where it's actually sucking co2 out of the atmosphere and say putting in concrete. And so those are like the really high quality ones where you get this massive span. And so it's really important for us to have a high quality credit. It’s both having really good validation, you know, showing that “hey, look at we're not giving you an estimate of the methane reductions. We've got hard data showing what these reductions are and so you know exactly what you're paying for.” And, you know, these reductions are real. And also, you know, we're lucky that the additionality is super clear here. These farmers wouldn't be adopting this feed additive were it not for the carbon credit. And so all you have to know is that during this period that methane wasn't released, we aren't like storing it and promising it'll never release. We're just stopping it during this period. And so that is what kind of allows us that's a recipe for having very high quality carbon credits, which I think is important because like if, if we're actually going to use carbon credits and hit global warming targets, we need them to be really easy to account for and have a lot less blurry numbers around them.

VC: One thing we didn't actually like to really get to was the pitch to the farmer. So you're saying more efficiency. Does that mean less food and spend per cow? Are you saying less cost? Like specifically how does that break down?

AB: Yeah, so we're actually starting with risk averse farmers and also we want to make sure that we're always keeping our word to the farmers and our customers. So we start with saying, “hey, you know, we haven't proved the efficiency gains yet. You know, a massive commercial feedlot. So we're not going to chart, we're not going to guarantee them, we're not going to promise you you'll get them but what we are going to do is give you the feed out of them for free. And, you know, generate carbon credits here. And give you a slice of the carbon credit revenue.” And so basically, you can get a free trial, and you can see how this works. And actually generate some money as well. And so that's kind of the intro, but then as you mentioned, the real value is these efficiency gains. And what this looks like can actually vary from farm to farm a bit. Typically like in beef cattle, what you'll see is the cow eats 10% less but grows to the same size, and that's great. That's just like super easy math. You know, we just have 10% Feed savings. That's worth a lot of money. You know, on a dairy farm a lot of times what you'll see is the cow eats the same amount, but she's producing an extra eight pounds of milk per day and like, that's also really easy math there of calculating the value. But I mean, ultimately, it's one number which is feed conversion efficiency. It's basically how much output are you getting from what you feed your animal. And so that is the number that we really target and we really focus on and our farmers, that's top of their mind as well.

VC: Yeah, amazing. And feed conversion efficiency? Was that what you said? Is that a new KPI that you made or is that one of those in the market before you came?

AB: That was in the market, but it's probably new to most of our investors for their investor updates. It's not a KPI that really a lot of their other startups are reporting. But yeah, no, I mean, it's interesting, like what I was saying, when I was at cattle Con last year it was one of the hot products that everyone was talking about, feed conversion efficiency. 2% was considered a big deal. That just gives you some insight into how thin the margins are in this business and how important that number is, and also gives you some insight into when we're saying, “Hey, we think we'll have 10% plus conversion efficiency improvements.” It's really unprecedented. And the amount of energy that we can conserve here, that’s kind of the context of that number in the industry.

VC: Got it. And sort of back to the areas of passion for our firm. What’s been the role of storytelling and awareness, especially for these audiences, like the cattlemen. Has publicity ever helped? What kind of marketing have you learned matters at what stage?

AB: I've found maybe the most interesting thing and helpful at least in understanding this market is really listening and understanding to the cattle industry, and the way they approach these problems. So I think historically, like the cattle industry has felt very maligned by environmentalists, because they think “hey, listen, I care about you know, conserving, you know, this land. What do you mean that I'm bad for the environment. I care about conserving this land. I pass it on to my kids. I got it from my dad. Like I absolutely care about conservation. And, you know, I, I don't want to hear that all of a sudden, you know, methane is this massive issue when we've had cows here forever. And before that there were Buffalo and I don't understand why I'm being unfairly attacked here.” And I think on the other side, the environmentalists often don't understand the cattle industry, like and partially they don't understand methane. There's some truth in what the farmers are saying, like the total amount of methane produced by the cows hasn't really changed over the years and so you aren't getting that it's a little different than cars. And so I think it’s bridging that gap of saying that we're not approaching this from an angle of we are a new thing that's terrible for the environment, and we need to get rid of immediately. It's approaching it from a perspective of “hey, we're approaching this from an efficiency gains perspective.” And we want to bridge this conversation between these two groups, because I think this is another reason why solutions like ours haven't been developed. There isn't that much communication between the folks who are working on sustainability and the folks in the middle in the heart of the beef and dairy industry. And I think that's changing, which is really good. But I think we need to continue having those conversations, and really figuring out what folks' perspective is because it's genuinely very, very different.

VC: Yeah, that's amazing. And I think we're at our time. So Alex, I want to thank you for a fantastic discussion. I always enjoy our conversations, and I'm really thankful that now we could share these insights with our community. I keep loving the beef side behind you. I'm glad you have no beef with these different communities.So we want to thank Alga biosciences, and you can find them online at Alga.bio, and they are hiring. The company is hiring so go to the website.