Chuck Yates Needs A Job

0:00 Oh, it's not that dangerous because they see their family, get it and friends and whatever and do the same fine, or it just gets swept on the rug. And maybe they don't, maybe they don't. We run.

0:13 Okay. That cool. Yeah. No, it is, uh, it is crazy. I mean, y'all are probably too young to remember, but Tiananmen Square. I mean, yeah, there was, that, that felt like that may have

0:27 been kind of the, the start of, of something real. And even though the Communist Party remained in power, they have been more responsive to people than like in my lifetime since then. So yeah,

0:43 it's hard for me to tell. Like even with Tiananmen, people thought Deng Xiaoping was going to be this, whatever really Western democracy, capitalism guy. And then he sent tanks in to just

0:56 absolutely demolish people Yeah, so.

1:02 You know, I think if the party is pushed too far, Dutch take people's heads off and Joe, who's boss and move on from there? Well, the thing I don't understand is the policy in China has always

1:16 been, we have a lot of resources in people. So we'll go ahead and squander our resources somewhat. They build a building and 25 people die building it. They don't really care, right? Yeah, so

1:31 it's really weird to me that they have this zero tolerance COVID policy, particularly when they were limiting births, not too long. Yeah, I think it's a form of control, right? I guess so, yeah.

1:44 I'm not showing how much you need the government.

1:49 I wonder if it's also, they have this real estate sector that's clearly bloated, that's clearly, you know, The stability of society is riding on people's, the value of their homes not going down.

1:59 So they

2:01 don't wanna raise interest rates 'cause that might force down the property sector in China. How do you slow down the economy from overheating and causing too much inflation without raising interest

2:13 rates? You just, you make people not do stuff. So maybe they're just locking people down to slow down the economy without having to raise interest rates. Daughter Sarah has one take on it and

2:25 she's my 17 year old that will run the world one day. We're not sure for good or for evil, but she's gonna run it. The, her take is,

2:43 China

2:47 is defensive about COVID. I probably leaked as an accident out of a lab and to cover up, they're taking COVID very seriously, zero policy, et cetera, that if they didn't really care, They'd be

2:55 ah whatever, but the fact they're taking easy. so seriously looks like, Okay, maybe they weren't responsible for it. And we totally didn't do this. Look at us. You were so looking at us, I

3:07 don't know. But anyway, it's interesting because, I mean, you start talking about China and growth trajectories from here to here really, really matter, you know. Not only for China, but for

3:20 the whole world. Yeah, no, that's exactly right It's like, just today oil prices were down like five bucks and then back up, you know, five bucks just based on the whims of China and whether or

3:33 not they're going to use a bunch of oil. Yeah, no, exactly.

3:39 I

3:57 Hey everybody, welcome to Chuck Yates needs a job, the podcast. My guests today are the Montrose Lane founders. And do y'all have other titles or is it just founders? Is there a managing partner?

4:11 We're both managing partners. I don't eat whatever. You know, we were literally one glass of wine away from me at Caine sending an email saying we're all freaking associates from this moment going

4:25 forward because, oh, so y'all are a small enough shop that y'all don't get this. But boy, we used to have people get so upset about their titles just at any moment. You know, and I was like, I

4:36 don't even know what your title is. Where are you

4:40 going? Jeremy, aren't Ryan Gurney, though, or here. So I'm glad that you guys are. Yeah, it's a mantra. It's late. So real quick, because my mom listens to the podcast, one One of you real

4:52 quick, give the mantra a swing commercial. Who are y'all, what do y'all do? just so mama be caught up. Yeah, I'm happy to do that. We, so we're a private equityventric capital fund.

5:07 We raise funds from investors, so institutions, wealthy individuals, family offices, and those types. And then we take those funds and invest those into technology companies that are selling into

5:22 the broader energy industry And the types of things that we invest in have to hit various criteria, but really what we're looking for are companies that make energy one more affordable, two safer

5:35 for the people of work and energy, and three better for the environment. And so that's our goal. We've invested in 10 companies to date across two funds. Right now, we're at a point where we are

5:50 helping to hopefully help those companies grow, invest additional capital into those companies as needed. and then eventually go out and try to raise a third fund to expand on what we've already

6:03 done. And note of full disclosure, Mom, this is the venture capital fund that I'm on the advisory board of. And so we'll say that. I'm not sure what advisory board means other than maybe like

6:15 older brother, Uncle Chuck, right? Hang out sometimes, hang out sometimes. I would just add on to Jeremy. So the three criteria that we typically have when we invest in the companies. One,

6:27 software is a primary product or service, so we're not investing in anything too hard, we're heavy. Two, customers in the energy space. We've got a broad definition of energy, that can include

6:35 oil and gas, could include other forms of energy, et cetera. We think all those forms of energy are relevant, will grow and be a big part of the overall supply chain, go forward. And then last

6:44 is post revenues. These are companies that have some scale, and then when we invest, that capital goes to help fuel growth after that company has found product market fit So what years were. fund

6:57 one and fund two raised in. Yes, we raised fund one in 2017 and 2018, and then we raised fund two in 2019 and enclosed in

7:10 2020. And how many companies, because you've had a liquidation event, you sold mineral soft and knock on wood, did really well with that. How many companies you got? So nine. So we've invested

7:22 in 10 total, six in each fund, and there's two crossover So that's going to be a minus two there. And then we've got eight active companies today. As you mentioned, we sold one, and then we had

7:33 one that we ended up closing. Gotcha. So because what I get questioned a lot from what people talking about, y'all, I'll just kind of throw this out there, no random order is one, how the

7:49 portfolio do through COVID?

7:53 And did you guys notice kind of any trends during COVID? Maybe that are different than before COVID and

8:02 when you were originally raising the funds? Yeah, I would say, I mean, like in short, 2020 and COVID was challenging.

8:12 That said, I was pleased with terms in terms of how our portfolio performed. When I say it was challenging, most of our companies have customers that are upstream oil and gas operators. In 2020,

8:24 when oil prices go negative, there's a state of shock in those upstream producers. You could have the absolute best technology that delivers a ton of value, et cetera, et cetera. But the issue is

8:37 that state of shock led to kind of chaos in those organizations where your internal champion didn't know if he or she was gonna have a job, let alone the ability to invest in a technology suite and

8:47 change a legacy process. That state of shock and that state of confusion and the state of just kind of disarray made it challenging for our companies to sell new licenses to new customers. In

9:01 contrast, what we found with our existing customers is we didn't lose customers, broadly speaking, maybe with the exception of some MA events. But what we found is a number of heads were removed

9:14 from upstream operators, but then we found our customers leaning more into technology because that technology allowed them to be more efficient with fewer heads. So we were pleased with that, but

9:25 look, when we underwrote these investments at time zero, we anticipated growth year after year, not a flat, effectively year in between. 'Cause that was the theory I've had that I talked about a

9:39 lot on the podcast was I'm gonna lay out the thesis that energy's always been a lottery? the right, business ticket

9:47 end of the day, you can get really rich through no fault of your own. Saudis embargo, oil prices triple, low and behold, you're rich. You can, you know, shoot 3D seismic and all of a sudden

9:58 there's a big, huge structure. No one's ever seen before. You drill it and you got a 10 million barrel, you know, field, whatever the case may be, just a lot of things.

10:10 Like I say, lottery ticket that can make you rich. And so we as an industry spend a lot of money doing lottery, getting ourselves more lottery tickets, if you will. And then the nickel and dime

10:25 type stuff that other businesses run and squeeze efficiencies out of like Amazon or whatever, we just been horrific as a business doing that

10:35 because it didn't give us another lottery ticket. And I think a lot of the technology stuff that you guys invest in are about nickels and dimes in terms of running more efficient type businesses.

10:46 And so it's interesting to hear you say that customers didn't really leave you during that because I feel like there was pretty big seismic shift in terms of no pun intended, in terms of people going,

11:01 okay, nickel and dimes matter now that oil's at37, we're going to really have

11:06 to watch that. Yeah, I think it matters a lot when you have a thin positive margin. I think what happened in 2020, and then I think the sentiment carried over in '21 was a

11:23 we have a broad customer base, but I'm just talking about the oil and gas companies because that industry was just throwing for a huge loop as a result of COVID. At those companies, you didn't have

11:37 thin margins. You had negative margins. You were losing money. People were being fired. The general popular sentiment was that oil and gas was going away, and so the the actual people making

11:50 purchasing decisions. had a lot of volatility in their lives, in their professional lives. And they weren't in the mood to go sign a contract to go spend, you know, thousands, hundreds of

12:00 thousands, millions of dollars on a technology, because that could be a career limiting decision. And in 2020 and 2021 could have put you on the block to get fired, along with a lot of other

12:11 people getting fired in oil and gas. So you have that factor. And then you had the just broader, I think, social sentiment of, as I mentioned, that oil and gas is going away. That BP came out

12:25 and said, we're at peak oil demand. And when a big oil producer comes out and says that, much less a bunch of governments and other groups, Kathy would. Yeah, you know, you can't help but it

12:38 will at least wonder. And I think a lot of people wondered, including people in the oil and gas industry. And you saw a lot of investment shift from, all right, well, we're going to go explore

12:50 for new fields, we're going to go invest in drilling new wells. I mean, of course, you're not going to do that when the very essence of the industry is in question. And so I think what happened

13:02 with a lot of our customer base was that they said, hey, look, we got to spend our time focused on other things. And we got to spend our time wondering if we're going to have a job. I think what

13:13 has changed and sort of back end of 21 and through to today is a real firming up of views, maybe not in the world, but certainly in the oil and gas industry that all right, feels very healthy. I'm

13:27 going to have a job. I still have the capital markets and maybe society as a whole telling me that I need to be very thoughtful about my capital spend and be very thoughtful about drilling new wells.

13:41 So I need to be hyper-efficient in my existing operations. And meanwhile, as Ryan mentioned, a lot of people in my industry lost their jobs and not exactly hustling to go rehire those people in a

13:53 lot of circumstances. And so we have to invest more in technology to allow for the operations of these companies in an efficient manner. And so I think that has been a big tailwind for our companies,

14:07 is the efficiency play. Another big tailwind has been the push towards limiting greenhouse gas emissions, broadly labeled as

14:20 ESG. And that has been a huge tailwind for our companies, primarily because look, the best way you can reduce greenhouse gas emissions, if that is your goal, is to look at existing industry that

14:33 is producing a lot of greenhouse gas emissions and make that industry more efficient, reduce the emissions that that industry is producing. And that in large part is what our companies and the types

14:44 of companies that we invest in go out there and do. So that that has been as second tailwind that's really started to take hold

14:52 through 21 and through today. And I hate this for the humanity side of it, so I don't want to sound like I'm a cheerleader for it in any way, shape or form, and being a victim of the

15:04 acts, if you will, during that period. It also feels like the industry just got a lot younger, too, that a lot of the people that were let go where the older hire paid type folks, and younger

15:19 people are just more adept, more used to using technology than older folks. I think that's exactly right, and there had been a distribution of ages, because not a lot of people came into the

15:32 industry in the prior downturn in the '80s. So as those people leave the industry, they're being replaced by people that are in their

15:40 '30s to '40s that are just in general more receptive to technology, which has been a good trend.

15:48 there's some spillover from other technologies, right? The longer you use one of our portfolio companies in your operations, the more you trust that another technology that solves a different

15:57 problem might actually work. So when we first came into this, it was very little use of digital technology among our customer base, in the types of things that we were investing in. Like

16:09 cloud-based specific,

16:13 specifically either operational or back office or field management or whatever goals, just weren't, people weren't using digital technology to do that. And so I think you have to break through that

16:25 a little bit and say, all right, look, this part has worked out really well for you. Let's see if we can also help out in this other part of the business. Because I think you're getting to a

16:35 point to where if people can't do something on their iPhone, they actually have a problem. I mean, it's, you know, you throw papers, You throw Excel on the computer in front of people and it's

16:48 just, hey, there's gotta be. So I would think there's actually pull now happening of, why don't we have an app that solves this problem? Yeah, I think the phone's broadly. I think changed a lot

17:02 of people's perspectives on technology and how much that can help you. Just this is a total aside, but I find it fascinating. We as people have kind of made this trade I'm going to give up all

17:16 kinds of privacy or whatever privacy is worth to you to have this phone that's on me, at least for me, literally 247, like I sleep next to my phone. And I know that my phone is logging everything

17:32 I'm saying and whether that goes and influences the ads that are on my phone or the ads I get in my email, or that say I'm a super criminal and the NSA is tapping Somewhere in between those, that's

17:45 always happening. And generally I'm okay with that because this thing makes me so efficient that I can just do so many things from anywhere in the world. I save so much time in my day-to-day life

17:56 than I would without this thing that it's unthinkable to get rid of it. And we think that as technology progresses, as business just mindsets and processes progress, that you won't be able to run

18:10 an energy company, really any company without a heavy investment in digital technology. Because similar to how it makes my individual life a lot more efficient, saves me a lot of time so I can go

18:21 do other things. I think from a business standpoint, every day that goes by, we're gonna get a little bit more efficient by leveraging those technologies. And that's gonna be very good for really

18:32 everyone in the industry and the customers of our industry. Yeah, I love the joke about how you're walking through your house, talking to Alexa. you know, whatever and you go, Oh my God. You

18:47 know, Alexa's listening to me and Siri's like, Yeah, she's a bitch.

18:53 'Cause there's no question that they are listening. But I think the other thing that comes into play, or at least what I'm seeing, and I'll say this as a statement, but just get y'all's take on it

19:03 too, is, you know, I've talked, 'cause I hear all the time, you know, people reaching out on Twitter or LinkedIn, whatever, hey, when's capital gonna come back into the industry and talking

19:15 upstream. And I always say it's when a CIO can become a former CIO for not having energy exposure. And, you know, in some way, shape or form, a CIO is graded by the SP 500. There's some take or

19:33 twist or formula based on, but it all comes back to basically the SP 500 And when you're five percent, six percent.

19:44 you can actually still avoid energy and he hit your hurdles or be close enough that you're not gonna be a former CIO. And so I think one of the things that's becoming more apparent to people is my

19:59 capital to go grow my business is actually my cash flow. And I think you hear people talking about nickels and dimes and saving it because that's my future. CapEx is

20:11 coming out of that Yeah, I think that's exactly what I think cash flow is going to be a big part of it. I also think allowing investors, giving investors the ammo to feel good about their

20:21 investment in traditional oil and gas, I think will be important. We are being a good steward and we can show it based on these metrics and this is how we've trended and this is what we've done to

20:30 improve those trends. I think if you can generate cash flow and show that you're a good steward, I think that's where the capital will go and I agree with you, it's only a matter of time. Candidly,

20:41 we're beginning to see it in our business I'd say 2017, not a lot of capital, 1819, things increased. 2021, NADA, back half of '22, we've begun to see some generalists reach out to us saying,

20:54 hey, can you tell us about your portfolio, what's going on here? Because I think they do look at the broad SP and say, what is outperforming energy? Okay, maybe this is a space we should look at

21:04 in the context of software investments. So early innings, but I think it is only a matter of time. Yeah, I think you'll have a re-rate of capital back into the industry, I think it'll take longer

21:13 than we think because, and just to clarify, CIO, you mean Chief Investment Officer, not Chief Information Officer, but

21:23 I think that person has to miss for many quarters. I don't think it's a couple of quarters or even a year. I think it's like eight quarters in a row of the energy segment of the SP outperforming the

21:34 other segments. And it's been doing that so far this year, but I think that it'll take more time you see a lot of the institutional folks come back in and say, okay, we wanna go fund drilling

21:47 programs in the oil and gas industry. But I do think that that inevitably happens because the dearth of capital, as long as capital isn't coming in, those returns are gonna be really high. And so

21:60 it's almost a force or a fact of nature that that capital will be forced back in because the returns are gonna be high. So I think that'll happen And then also with higher cost capital, I mean, the

22:13 Fed funds rate is now 4. You

22:16 know, in a couple of weeks, it'll probably be something higher than that. And a couple of months after that, even higher than that. So discount rates for everything, any capital asset are going

22:27 up, which means the values of any future cash flows are going down. And so I think we'll also have a big, you know, reallocation away from future cash flows, which might be, I got a great thing

22:41 that in 20

22:43 is going to be really valuable and start putting off a lot of cash, you know, in 2020 and 2021, when we had a zero percent Fed funds rate, you could make that make sense. You could make that

22:54 really valuable. And I think that's why you saw a lot of those companies trade for very high values, both publicly and privately. But now with higher cost capital, you need those cash flows today.

23:06 And the cash flow today is worth a lot more than the cash flow tomorrow. And so I think industries like oil and gas that are very cash flow positive today. And we see that with each earnings report

23:17 that comes out from particularly the NP companies, those are going to end up attracting more capital in a relative basis, because I want a quick return on my capital, because my capital is very

23:28 expensive. So I think for those two reasons that we will have more capital come into energy and specifically into near term cash flow energy. But I think I continue to think it'll be a little bit,

23:43 because you've also had a lot of investors out there, essentially, either privately or publicly, swear off traditional energy. And it's hard to then circle back and say, all right, well, just

23:55 kidding, never mind. I think that'll come, it'll take some time, and I think to Ryan's point, we gotta make that message easy. And I think our investments do make that message easy for the

24:06 reasons I talked about. If we're going to be using all this energy, gosh, we sure do want it to be affordable, safe for the people that work in it, and as good for the environment as it possibly

24:16 can be. And I think through efficiency and transparency, we can help drive a lot of that. Do you think the war in Ukraine has kind of changed that in terms of what's called, maybe, acceptance is

24:32 too strong a word, but at least somewhat mitigating the anti-hydric carbon bands carbon bands that have happened, because I think, at least what I've heard from one of the large bulge bracket

24:46 investment banks is, it's actually on their ESG list of getting natural gas to Europe, ie, that's a positive now. Does that help or? Yeah, look, I mean, I think the EU is now referring to

24:60 natural gas as a, you know, a green energy source. And so I think it, look, saying that helps is kind of, it feels macabre because, you know, that's fair. We don't want, certainly don't want

25:14 people dying to help something or the view of that. I think where it is change perspective, I guess, is around security. You know,

25:27 I think in 2020 and 2021, there was a view that energy is almost limitless.

25:39 You know, the oil gas core. are always gonna be really cheap, and always gonna be there as a backup plan, and so we should be investing a lot of money and a lot of time, a lot of effort, a lot

25:47 of brain power into what comes next. And I think what Russia rolling tanks into Ukraine showed us is that energy is more than just turning on the light switch. Energy is security. And so much of

26:02 our lives revolve around the availability and the affordability of energy that we need to take that supply chain very seriously and make sure that we have not only access to the supply, but the means

26:16 of production of that supply. So I think that has started to work its way in a little bit, the energy security argument.

26:25 But probably, I still think it just comes down to more than anything, just economics. And I think for opinions to really change, you're gonna have to see people look up And they say, I am, my

26:37 life is worse because we had that energy policy. And I think we're a ways away from that before there's a broad recognition of that. It's easy for us to sit here and talk about it because we have a

26:50 generally more exposure to the energy industry, more experience in the energy industry. But I think for the average person to say, All right, maybe that was a mistake. Maybe we should have spent

27:00 more time

27:03 securing our own production around fossil fuels. I think that's still a ways away Because, I mean, Ryan, there's no doubt the transition is happening. I mean, and it's not for all the

27:17 libertarian in me wanting to say it's big, bad government making us do. It's not, it's consumers have chosen this, companies have chosen this, private entities have chosen this. And I mean, we

27:29 are gonna see a transition. We're gonna see a lot more in the way of renewables, et cetera And so how do you guys see that one kind of. playing out to seeing opportunities in that, et cetera.

27:44 Yeah, I think what I struggle with is, I agree with you, I think transition is happening. I think we should have as many sources of energy as we possibly can. That's a great thing for all parties.

27:55 And in theory, you should lower the cost of energy for all parties. What I struggle with is the vilification of, should say oil and gas in that process. Like it doesn't need to be oil and gas is

28:07 terrible All these other things are gumdrops and fairy land. It's like, okay, let's just capitalize both and grow both as the overall energy demand grows. So I think that's the nuance that we get

28:20 hung up on because it doesn't seem fair to the traditional energy side of the equation. And then it results in a lot of capital going to the transition side and ultimately bidding down potential

28:33 returns 'cause that is a smaller market today So, look, I agree, I think transition is happening, I think we'll have more and more forms and sources of energy, but I feel like it's gone too far

28:44 in terms of vilifying what feeds us today. Yeah, so two things on that. One, from our investment thesis standpoint, we want to invest in technologies that serve A, oil and gas, B, every other

28:59 part of the

29:02 energy spectrum and really any sort of industry around the world. That's the ultimate goal, right? We have a competitive edge in going and investing companies that sell into the energy space. And

29:14 so that's where we spend our time. But ultimately, we want our companies to sell to whoever, you know, governments, other industry, consumers, whoever wants to buy a product or a version of a

29:25 product that our companies are making. So we're pretty indifferent to what the energy mix is from a company investment best companies the in invest want to just. We standpoint thesis

29:40 best services create more, make energy more affordable, safer, and better for the environment, no matter that source of energy.

29:50 As it relates to the energy transition, I think it came on really strong and fast, there's just my personal views, because of cheap capital. As I mentioned, when you have a 0 fed fund rate, you

30:02 have a really low discount rate You've got the 10-year treasury trading near

30:09 zero, government bonds in Europe trading in negative returns. Capital is essentially close to free. If you have a great technology that if this really hits, it could be worth a lot, then even

30:24 today is worth a lot. I think what is a huge threat to energy transition, at least for lack of a better word, the fringe of your further out cash flow opportunities, I think interest rates are a

30:37 huge threat to that.

30:39 will slow down, maybe not today, maybe not next year, but it will eventually slow down, the capital flows into that space, which I think will be a big challenge for the energy transition space.

30:51 I don't think that's a challenge for wind and solar, which is already out there, but I think it is a challenge for, say, building out a whole hydrogen ecosystem and infrastructure around all that.

31:04 Another aspect of that is,

31:07 I used to work at a TP. agent. Dan Pickering always used to say, Nobody should ever say this time it's different. And, you know, it's

31:19 like an exaggerated version of the first clean tech wave that was in the 2000s, right? A lot less capital went into that. I think there was a lot less belief in that. And the argument that time

31:33 around was more around independence Middle East fossil fuels than it was. around saving the environment, reducing climate change, et cetera. So you have some differences, but at the end of the

31:46 day, you have some very similar things. You had very low interest rates coming, coming out of the dot-com bust mixed with 911. And then you saw interest rates start to grant back up in '06, '07,

31:59 '08. And you saw the collapse of that clean tech wave. This looks pretty similar in that regard, right? I mean, you've had very, very low interest rates, very low cost capital, and now that's

32:09 ramping up very, very quickly. So we'll see if it can survive. But my guess is that the quantum of capital, and certainly the pricing of that capital, will change dramatically, which will change

32:22 the dynamic of

32:24 what people believe has value. So one kind of funny story to that point, Jim Wazell, who is one of my dad's best friends from high school, was president. of Houston natural gas when it merged

32:39 with Inner North to become Enron. And as he likes to say, I'm a dirt under the fingernails type guy. Ken Lay liked his MBA types. And so I was gently shown the door and all. But so back when I

32:55 was at Stevens in the late '90s, early 2000s, I became a power technology guy because oil was at 8 a barrel and nothing was happening So flywheels, fuel cell batteries, all that sort of stuff, I

33:10 was spending a lot of time there. And Jim and I would go eat lunch and he was so well versed in all this stuff that I was like, this is amazing that you're keeping up. And his story was always, Oh,

33:21 Chuck, we've been doing that. We did it in the '60s.

33:26 We did it in the '70s. We did it in the '80s. These technologies aren't really that new. It seems like they pop up every 10 to 12 years and we refine them and spend more capital on them for various

33:35 sorts of reasons. I kind of always found that story pretty funny that he knew all about that stuff. The second thing that I think is really important and I'll probably close with asking you that

33:50 guys these questions, this has kind of been my question of the year on the podcast is if I made you energies are and you could put one policy in place, what is that policy? We'll get to that. But

34:02 if I ask that to myself, I think the key to any of this transition is, I mean, if we look back, we've spent, I forget what Curry Goldman said, what, four trillion dollars on this. And we've

34:18 gone from 82 of our electricity be generated by hydrocarbons 81. So in effect, we've only really had addition. We haven't had had transition, if you will But to be able to transition. to not

34:37 spend, let's call it 150 trillion and maybe only spend 25 trillion or whatever the math is. I think one of the things you have to appreciate is the technologies that went out are usually the ones

34:52 that are incremental to the existing energy infrastructure that we have because you're always competing with the marginal barrel or the marginal MCF coming off that. And so yeah, if we were starting

35:06 an energy system today, would we use hydrogen? Maybe so, but we're not. And we've got pipes everywhere that do this and that. And so I think that's one of the things that I think is really

35:20 important and deserves a thoughtful conversation as opposed to a bunch of demagoguing because at the end of the day, that's going to happen. And I think that's where you guys are going to The

35:32 important is that stuff's gotta talk to each other, you know. The grid is only getting increasingly complex and the energy supply chain is getting increasingly complex. So how do you make sense of

35:44 that? And how do you optimize that system that I think software can do a lot better than people can. It tells me like I heard that same curry, uh, uh, uh, Curie, Curie, how he pronounces it

35:56 that Goldman guys, uh, podcast and, uh, what struck me is I wonder how he's, I wonder whatever statistic he's looking at for the 82 to 81. What if you were to lump in biomass with hydrocarbons

36:10 because, you know, what is biomass, but like a modern coal? You just haven't given it time to age, you're just burning a tree instead of burning an old tree. It's fresh wine. Yeah. Yeah. You

36:20 just have to chop down the tree, uh, versus dig it up from underground, um, but I bet if you'd lumped in biomass, which is generally considered a green fuel oddly, that it's actually like

36:33 probably on a percentage basis, hydrocarbons have gone up.

36:37 So I tend to agree with you. Everything's gonna compete on the margin.

36:43 Whatever measure BTUs or whatever measure of energy or heat you wanna measure it

36:47 on, you're gonna end up competing there. And different energy forms are better for different uses, like flying an airplane is pretty hard to do with electricity. But ultimately that all competes,

36:60 and that's a really good thing because it allows us as a society to try out different things, see what is competitive, see what's not competitive, and then spend more time, money, effort, et

37:10 cetera, going after the things that are best for humanity. I think the really hard thing sitting in y'all's seat, and again, I'll say this is a statement, and you guys, both the pine on this, I

37:23 think the hard thing for you guys is looking at this wave that's gonna happen, and it is happening, transition. I mean, we're just gonna throw a lot of money at it. It really comes down to you've

37:38 got to be able to be alpha pickers. I mean, you've really got to get in there and figure out what's going to win and what's not going to win, what's not going to win because at the end of the day,

37:51 with that much money being thrown at things, yeah, things will continue to go up in value, but at the same time, it'll stop at some point You've seen that with every bubble that's ever happened,

38:04 starting with the tulips or with the internet, with the trains in England in the 1800s. And so I think that's going to be the big challenge for you guys sitting there sorting through that stuff is

38:16 just, okay, what is actually going to be a winner versus what is just getting caught up in this tide? Yeah, 100 agree And, you know, look, I think that's through all this, that's a lot of the

38:32 reason that we stayed the courses that were on all forms of energy, not just new energy or alternatives. It would be much easier for us to just say, hey, we're never financing another company that

38:46 goes and sells into the oil and gas space. And so you can, dear, whatever institutional investors, you can invest in us with a clean conscience

38:58 and so forth. But A, I just don't think that's good for humanity But B, I think that we can differentiate ourselves by saying, look, we're going to look at the entire energy spectrum. We're

39:07 going to look at how are these companies making that energy spectrum better for the end consumer and for that industry itself? And then we can compare, hey, what is the market size? What is the

39:19 pricing? Where can I get a, for lack of a better phrase, better deal in that and compare across that? So we think that that is very, very important because otherwise you're going to find yourself.

39:34 just investing in whatever the current wave is because you've limited yourself to what you will go out there and do. So for us, investing across that energy spectrum is very, very important. And

39:48 helping that entire energy spectrum is very, very important. 'Cause they all will compete and they'll all hopefully get a little bit better every day. Give me something that you know today about

39:58 investing in companies that you didn't in 2017 when you started this It's a long list. Yeah, I was about to say we could do a whole series of the podcasts on that. Yeah, look, it's a great

40:12 question. I would say a couple things. One, I'll state the obvious, then I'll give some detail, but at the end of the day, it's all about people that you invest in. It's the classic saying of

40:25 an A team with a C product is going to be a good outcome. C team with an A product is going to be a terrible outcome.

40:33 what we've seen time and time again. It's all about the people and putting the appropriate and competent leaders in place. Have you figured out how to get better judging people over time? And what

40:47 I'll even go first on this is what I figured out is that my gut from early meetings was generally right and I just needed to start listening to it more and more And I had to be willing to just walk

41:04 away. Yeah, and I think what happens is, I couldn't agree more because what happens is you might not be certain about the person, but you get excited about the opportunity and the market and well,

41:14 maybe with some tweaks, it'll be okay. Then you realize after you get married to that person it only gets, I shouldn't say it only gets worse, but kind of does. Like those things that you were

41:25 concerned about only become bigger and bigger and more of an issue So, totally agree and I think trusting your gut is critical. Ken Harsh has a great line. Yellow lights rarely go green. So true.

41:40 Yeah, no, it rarely gets better over time. Especially with people. If your gut is that this is a weird technology or a weird market or something, I think you can find enough evidence with further

41:53 research and whatever to convince yourself that no, my initial instinct was wrong on that. Now I believe that this is a big enough market or what have you. With people, people are just so complex

42:03 that you don't. There really is no more investigating. You can talk to everyone they've ever known and you're still, I think, reliant on that gut feeling. And to answer your question, I wish

42:10 that we would have spent, or given more credence to that initial, out of the gut feeling of this is

42:25 or is not the right person to run this company.

42:29 Because that is where I think we have probably made

42:33 Yeah. And I would say just to be clear, I think an hour we sit, we're very pleased with our management teams. And I think we're in a good spot with some really great leaders that are doing great

42:42 things. But it's definitely been a journey along the way and major learnings for us. Yeah. It's

42:53 always in hindsight you sit there. And when you're being intellectually honest with yourself, you're like, man, I saw that in the first meeting. You know, the guy or the gal said this. And I'm

43:05 like, that didn't make any sense or whatever. So yeah, it's just a it's just a feeling. Yeah. But yeah, I think that is by far the biggest from my seat. Yeah. So how you guys operate, do you

43:19 all ever fight? Because I've never seen y'all fight Only physically.

43:25 Just like just like digital wildcatters, we have an octagon.

43:29 I would say, and look, that's also been a journey for us. We had never worked. together. And we started the company together and learned how to operate together. I would say, Jeremy and I were

43:42 and remain great friends throughout all this. And that is one thing that has remained very much consistent. We disagree all the time, all the time.

43:55 But not in a bad way. It's in a healthy way. It's the way we both respect one another, and we challenge each other, and we push, pull, et cetera. And I think we end up in a better outcome

44:05 because of that. And I would say no plans for this. But if I were to ever do something again in the future, you don't want somebody that thinks the exact same way as you. I think that is not a

44:17 good recipe for success. You want somebody that is kind of truly that yin yang, which I think Jeremy and I have been able to accomplish. 100. I mean, my kind's my former business partner, King.

44:28 Greatest guy on the planet. I mean, really is. Like my brother, you know, to this day and all. But I think one of the issues we had is we were probably too much alike in terms of things.

44:41 Because when you look at the great kind of private equity firms out there that have grown up, they always have people with complementary skills. And they usually talk about the outside person and

44:52 the inside person. The inside person is detailed, big on processes, et cetera, outside, tells a great story The fundraise, or probably couldn't identify a good investment opportunity if you

45:06 spotted them. You know, it's something that, yeah, no, it's, I think that's, that's really well, well-put. And you guys have a great built-in crum-mudge and is maybe what we'll call them,

45:20 but we'll say that with love with Mark Mills, because Mark's a great resource. Yeah, I think he's a great skeptic, right? Much nicer than crum-mudge. Yeah. Sorry, Mark and call your promoting.

45:34 And look, I think that is extremely valuable when you're investing in technology companies because technology by its very nature is complex, it's new. And so I think you have to have a skeptical

45:48 eye towards, you know, is this real, if it is real, how big could it be, et cetera? And Mark is very good at that. So what are investors saying these days in terms of energy, investing in

46:04 private equity, all of the above? Yeah, I would say at the highest level, and we're not actively fundraising at the moment. So we don't have, you

46:16 know, kind of a 100 pulse on things. But what we have heard is it remains challenged from an allocation perspective. And I think what we've seen of late is the general view that, okay, public

46:27 marks have come down, Private marks have not come down. at the same rate, so now private appears to be overallocated, so as you think about allocating to private equity, venture capital, etc,

46:38 it feels like it's a higher bar because those allocations are out of whack. I think that's the short-term headwind for any private allocation that ultimately

46:50 trues up. And then after that, I would say we have seen, it goes back to the generalist investor looking at our portfolio from an acquire or investor perspective. We are seeing more folks say,

47:03 okay, turns out energy is going to be, it is here to stay, including oil and gas. What are some interesting ways that we can get exposure to this? And we've had some productive conversations

47:13 along that. So it kind of goes back to, it feels like it's thawing, but still early innings with a short-term headwind of kind of the allocation denominator effect Yeah, I agree. I think a lot of

47:27 an individual investor is just going to speak his or her mind. He's speaking for him or himself. The institutional folks are speaking for a whole institution. And what we hear a lot is, hey, I

47:40 think there's a lot of opportunity in traditional energy. What do you guys think about that? And then we ask, oh, are you allocating more money there? Is that a place where you're investing? Oh,

47:50 no, no, no. I could never get that through the investment committee. But I think there is the early innings of a - all right, I see the opportunity here And that, to your point, is then a few

48:02 quarters away from, all right, I've missed the last few quarters because I'm not allocated enough to this, so I need to allocate more to it. Because I think just to add on to what you said, Ryan,

48:14 is so private marks haven't come down as much. That's typical GPs not marking down their portfolio, probably as quickly as they should have But actually, the energy portfolio has gone up. you feel

48:32 overallocated to private and to some degree, institutions feel overallocated to energy because the energy has performed well and there's probably more backing up the marks up in energy and so it is

48:47 some wood to chop there. But then at the end of the day, if you ask Ken Hirsch back in 1998, raising NGP3, he'd say, Yeah,

48:60 it's really hard, you know, it's always been hard. Right, raising funds is challenging, especially private funds that are locked up for 10 years. Yeah. That's a real commitment. Yeah. And I

49:10 think it's, I think the other thing you guys brought up that's important for folks to understand 'cause I don't think a lot of people do is, a CIO, a chief investment officer at an institution

49:24 creates a portfolio mix and their whole goal is not to make money on every investment. make, because if they do that, they probably screwed up, even though that would be a good outcome, the

49:36 process would have been bad, right? And they want to, they've run the scenario where oil goes to minus 37. Well, that means cheap gasoline and the Amazon trucks are going to be flooding

49:50 everywhere. So I make sure I own some Amazon too. I always joke that it's concentration that makes you rich, it's diversification that keeps you there. And so I think that's kind of an important

50:02 thing that you brought up is this portfolio effect. And I'll get some pushback on Twitter or something where somebody will say, oh, but you know, you did a dumb deal or whatever. And it's like,

50:14 well, my clients were paying me for energy exposure. Well, you should make money on every deal. And I go, do you want to make money on life insurance? I mean, that's something you want to lose

50:25 money on You know, 'cause you hope to live to be 85 or 90 or whatever it is. Yeah, it's a different way to look at it an individual investor versus actually an institution. Yeah, absolutely.

50:39 Yeah, totally agree in it. That kind of affects our psyches a little bit because look, our big thing is we wanna go invest in the things that we told our LPs we were gonna go invest in. If we told

50:54 you we were gonna go invest in energy technology and then we went and bought a commercial real estate building, I would feel pretty bad about that. But look, we wanna go make good investments in

51:07 the good companies that are doing exactly what we said we were gonna do and you as an LP have decided you want exposure to that. I think where you get into trouble or into a difficult situation with

51:23 your LPs as a GP is when you stray from that and you start doing things that you said you wouldn't do. So that's something we're very focused on. So even times when they're a good days, when we

51:36 feel like we've made RLP's money, they're not good days, which are very challenging when we feel like we have lost our RLP's money. But

51:45 through that, as long as you're going and investing in the things, you said you're gonna invest in giving exposure, you said you're gonna give, and then you can go to sleep reasonably well. Half

51:56 your jobs to make money, the other half is not to look stupid And style drift is the quickest way to let students do. 'Cause that's question number one. What do you guys know about a real estate

52:06 building? Yeah. And so, all right, let's close this down. I told y'all I was gonna ask you this question. I'll let either one of you go first, but I'm gonna make you energies are of the whole

52:18 wide world, you get to put in place one policy law, eat it, whatever you wanna call that, lay it on me I would.

52:31 remove all subsidies. And that includes any tax advantages. So just make the market free across the energy spectrum. Interesting. That's, that's kind of David Ramsen Woods take is at the at the

52:45 end of the day, let's free up all the subsidies, maybe even add some tweaks to deal with reliability type stuff. Okay, solar wind, you got to be able to, you got to be able to provide

52:58 electricity for 48 straight hours to the grid, or you pay a penalty or something. So I think you just get rid of the subsidies and that take gets taken care of because the people, look, I mean,

53:11 you know, your XYZ governor of the state, and you're, you're not going to stay governor very long of the power shutting off every other day. So I think that, you know, politics on the market

53:22 will take care of the reliability part. I think the subsidies create unreliability because you get weird outcome. when you subsidize things, you get weird outcomes. And those weird outcomes lead

53:34 to a lack of reliability. Gotcha. So energy libertarian, we got it here. All right. Honestly, I was honestly

53:43 going to say the same thing, which doesn't seem like we think differently in challenge.

53:53 But no, I tend to agree and just let the best man win as it relates to energy source. And I think nuclear would be a big part of that. And maybe I should, maybe the tweak is remove subsidies and

54:05 significant regulations and restrictions around things like nuclear, obviously within reason. But I think with that, I think nuclear becomes a bigger part. I think the general cost of energy comes

54:16 down. I think security increases. The one thing maybe

54:22 is playing secretary of energy within y'all's administration that I could actually be talked into. get the slippery slope argument, and that's ultimately why this may wind up being a bad idea. I

54:37 could actually live with a carbon tax. I mean, because hydrocarbon pollution, even the most ardent supporter of the energy business would acknowledge driving behind a car that's blasting some smoke

54:53 at you is pollution. You know, so I could actually live in the framework of what's get rid of all subsidies. Maybe we put some reliability type constraints on power sources, or maybe not. Maybe

55:07 that's just mandated by that. I could also live with a carbon tax of some sort just because there is a cost to that. I think broadly - Defining that cost would be tough, but - And broadly, people

55:21 want clean air, people want less emissions Uh, you know, I - It wasn't by government edict or regulation that people started using a lot more natural gas when it became cheaper and set a coal. It

55:32 was just that natural gas is now the same price as coal and natural gas is cleaner and that's kind of nice so we're just going to use that. There are a

55:42 lot of government edicts around cars and stuff but like today I think most people want an efficient, saying it with a gasoline car wanting an efficient gasoline engine that gets high mileage, that

55:54 isn't wasteful, that isn't putting out a bunch of exhausts, they like a cleaner car. So I think people when they get rich enough, they want nicer things and one of those nice things is clean air.

56:06 So I think that that happens naturally and I think most of the clean air we've seen that declines in emissions that we've seen in the United States has been because of the market working and in large

56:16 part because of natural gas working and because people want cleaner stuff, uh, more, more efficient stuff. But then You know, my, my qualm with the carbon tax is all right. So you tax everyone

56:30 in the United States for their use of carbon fine. I think that just makes us less competitive on the, on the global scale. And yeah, maybe you convince every other country on earth to put up a

56:41 similar carbon tax. I just don't, I don't believe that actually happens. I think that's a fairy tale land just like, you know, my, my fairy tale of, of, of my, you know, libertarian energy

56:52 policy Um, I know that doesn't ever happen, but we got to be honest that other countries are not going to fall a suit here on the carbon tax. And so yes, we can go tax ourselves and yes, that I

57:02 think that will reduce carbon emissions because taxation, whenever you tax something, you get less of it. Um, but I don't know that that makes this country better. Um, and some people just don't

57:14 care, I guess, if this country's better, uh, they, they care more about, you know, making sure that the earth is healthy and safe and et cetera. And look, I get that argument, but I think we

57:23 have to be prepared. say that the United States will be weaker and more, you know, less independent with a carbon tax than without one. Fair enough, fair enough. This was funny. So Toby Rice

57:37 came to our Fuse Conference and he was one of the keynote speakers and he laid out, he does a really nice job of laying out the case for natural gas and what it's done and what it could do for

57:48 worldwide emissions And after he gave his speech, he did a live CNBC interview. So he's on the stage at Fuse, hooked up, doing the interview, and the reporter that ended the conversation with

58:03 Toby said, and that was Toby Rice, CEO of EQT from what appears to be a concert.

58:11 So anyway, we're like, okay, that's cool. Our energy conference is a concert So I think the EQT decks are spot on with their, you know, the emissions decks they put out. I think very accurate

58:26 and how I would think about things of, look, clean things are better. Natural gas is very clean. That's why we use more natural gas. But that's a function of the market. That's not a function of

58:36 someone taxing something else. That's not a function of the government deciding to subsidize natural gas. That's a function of we figured out how to make gas cheap. It's a far superior,

58:48 you know, in terms of it's burning in emissions to coal. So we use more of it

58:54 Well, you guys were really cool to come on. Thank you. Appreciate you having us. Absolutely. Yeah, always fun Chuck. Thanks for having us. There we go. Thanks for the digital wildcatters,

59:02 guys. Absolutely. So nice we didn't have mills here to gum everything up.

59:08 Just kidding, Cremogen.