Seed to Exit
Welcome to Seed to Exit, the ultimate podcast all about startups, scaling, and venture capital. Your host is Riece Keck: Startup veteran and recruitment entrepreneur.
Join us as we dive into the journeys of startup founders and venture capitalists who share their insights, successes, and lessons learned from seed stage to successful exit.
Each episode, we bring you candid conversations with startup founders, executives, and investors. Whether you're looking for inspiration, actionable advice, or a deeper understanding of the startup ecosystem, Seed to Exit offers invaluable knowledge and real-world experiences to help you on your entrepreneurial journey.
Tune in to Seed to Exit and get ready to be inspired, educated, and connected with the exciting and ever-changing world of startups and venture capital.
Seed to Exit
Alfred Johnson, Co-Founder and CEO of Crux | Revolutionizing Clean Energy Finance | The Impact of Transferable Tax Credits and Future Legislation Insights
Alfred Johnson, co-founder and CEO of Crux, joins us to share his fascinating journey from the corridors of the U.S. Treasury Department to the dynamic world of clean energy finance. Promising a new perspective, Alfred walks us through his experiences in government service during the Obama administration, and his pivotal roles at BlackRock and Mobilize, which he founded and later sold. Throughout his career, Alfred's commitment to public service has remained unwavering, even as he transitions into revolutionizing the clean energy space with Crux, a platform pioneering the use of transferable tax credits.
Explore the significant impact of the Inflation Reduction Act and how it has birthed a burgeoning market for transferable tax credits, a groundbreaking resource in clean energy finance. Alfred explains the intricacies of how Crux is capitalizing on this asset class by enabling developers and manufacturers to transact billions of dollars in credits directly with investors, transforming how clean energy projects are funded. As clean energy financing evolves, platforms like Crux are not just meeting market demand but driving it, making them indispensable players in this rapidly changing landscape.
In our conversation, we also navigate the future of clean energy legislation and what it means for companies like Crux. With the IRA's long-term provisions fostering bipartisan support, Alfred offers insights into how evolving policies, including Vice President Kamala Harris's proposals, could shape the industry's trajectory. Drawing from his experiences as a second-time founder, he reflects on the challenges and opportunities in building mission-driven companies, while sharing valuable lessons learned along the way. Join us as we uncover how Crux is positioned to thrive in the ever-expanding clean energy finance market.
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President Biden was the president who signed the Inflation Reduction Act. Kamala Harris obviously his vice president over that period has been a huge proponent of the law. It's interesting actually recently, in her latest economic proposals, she introduced a notion of another $100 billion of tax credits for advanced industries of various kinds related to AI, biotech, things like that and I think what that reflects is not only are the Democrats quite convinced that this has been a successful law that is driving capital where it needs to go for clean energy. I think we have also observed that the market has been successful and that the mechanism of transferable tax credits may work in other categories beyond clean energy.
Speaker 2:Hi everyone. Thanks for tuning in to Seed to Exit. Today. I'm welcoming Alfred Johnson. Alfred is the co-founder and CEO of Crux, the sustainable finance technology company that's changing the way that clean energy and manufacturing products are financed in the United States. The company's first offering is the platform for buyers, sellers and intermediaries to transact and manage transferable tax credits.
Speaker 2:Before founding Crux, alfred served as the Deputy Chief of Staff to the United States Department of the Treasury and, prior to the Treasury, alfred was the co-founder and CEO of Mobilize, the events management platform and network acquired by EveryAction in 2020. Earlier in his career, alfred was a vice president in financial markets advisory at BlackRock, senior advisor for financial markets at the US Treasury and special assistant to the White House chief of staff. Now this is a special episode. We're going to talk about the election and we are releasing this episode on election day, and we're going to talk a little bit about what the ramifications of what the election might look like, depending on who ultimately ends up as the victor. So I hope you enjoy and don't forget to vote.
Speaker 3:You're listening to the seed to exit podcast with your host, reese Keck. Here you'll learn from startup executives, founders, investors and industry experts. You'll learn from the best about building amazing products, scaling companies, raising capital, hiring the right people and more. Subscribe and listen in for new episodes and enjoy the show.
Speaker 2:Alfred, welcome on to the show Excited to have you. Thanks for having me, rhys. So there's a lot I want to dive into with you today. You have a really unique company at Crux that you're running, and then also you've had a fairly unique background in terms of your founder journey. So, for those who maybe haven't had the chance to check out your LinkedIn yet, would you mind giving a quick overview of your background?
Speaker 1:Sure, yeah, Rhys. I grew up here in DC, where we live now, and then started my career working in the government was at the Treasury Department, working on the Financial Crisis Response and Recovery Act in the very early days of the Obama administration, getting exposed to these tax credits that we have now built our business around clean energy tax credits that help support energy infrastructure. I got the chance to work on earlier versions of those programs at Treasury. I worked in the White House briefly where I was special assistant to the White House chief of staff it was Bill Daley at the time and then went back to business school. After that went to BlackRock. They had a structured finance advisory practice working with banks and official institutions meaning government. So we worked with the Central Bank of Greece on their banking crisis, on other foreign central banks on US banking issues in the wake of Dodd-Frank, and then got into tech Really had enjoyed building smaller teams earlier in my career, Wanted to do that in that space, Went to a fintech company originally before starting my last business, Mobilize, which we then sold 4 years later.
Speaker 1:It was an event management business and mission-driven category. Sold it to a portfolio company of inside partners. Mission-driven category sold it to a portfolio company of inside partners and I went back to Treasury, started on the first minute of the first day of the Janet Yellen Treasury as the Secretary's Deputy Chief of Staff was working on the COVID response initially so how do we get a trillion dollars out the door as rapidly as possible in alignment with the law? And then also did a lot of work on technology and financial markets, which is really the substance of my background, before leaving the department in the summer of 22 and starting Crux pretty shortly thereafter.
Speaker 2:And your family comes from a fairly deep rooted background in public service, don't you? Was that something that you were always sort of planned on going into in your earlier years?
Speaker 1:Yeah, it's funny, I'm named for my grandfather on my father's side, who was named Alfred I Johnson. He was born on the prairie in Western Minnesota in 1898 and ultimately rose to be the speaker of the Minnesota House of Representatives. Only had an eighth grade education, half of which was in Norwegian, and then my parents met on a presidential campaign, first in Walter Mondale's Senate office right before he ran for president. My mom was his press secretary, my dad ran the campaign, so there was always a thread in the house growing up about politics, government, government service and, of course, living in DC. You're just surrounded by that stuff, and so when I went to college, I studied political science, but I was also always interested in business and finance and, of course, chose to do it in California, where tech is so central, and my career since then has really been a mix of software, financial markets and the government.
Speaker 2:You've obviously done incredibly well for yourself on the business side, but just given the family background and history, was there any sort of like oh no, alfred, what are you doing? You're supposed to be in the government? Or any sort of familial expectations like that?
Speaker 1:Sure, always, but I did it a couple of times. It was the first thing I ever did was first a campaign and then the Treasury Department, and then had the privilege of going back again privilege of going back again starting in 2021. So that has been a really joyful way of serving and certainly I have learned a ton from both of those experiences. And whatever ways I am able to contribute going forward, I would love to do it, and one of the things I love about Crux is we're really integrating the private market with a government program in a really elegant way. That is driving many more dollars billions, hopefully hundreds of billions of dollars into clean energy of all different shapes and sizes.
Speaker 2:Before we get to Crux, which I'm really interested in diving into, I am really curious. You mentioned that you were in the Treasury Department during COVID and you had to get a trillion dollars out the door. I can only imagine how monumental of a task that that was. What was that like? What was that like being in that environment? What was the process?
Speaker 1:Yeah, so I have served at Treasury twice, both during forms of financial and economic crisis. When I was there the first time was very early in my professional life, but it was in the immediate wake of TARP having been passed by the government. Tarp required quite a lot of dollars to be deployed into banks and other kinds of places to support the economy, and that also required the department to build infrastructure. So I saw and participated in the standup of the TARP organization at the time. It grew to a couple hundred people and so I had had the experience of building operational infrastructure to deploy a large program in the department before. That was experience that I brought into my most recent job as Deputy Chief of Staff to Secretary Yellen and drew on it quite a bit.
Speaker 1:Right after the president, president Biden, took office, the Congress passed the American Rescue Plan, the ARP, which included about a trillion dollars of subsidy of various kinds that needed to be deployed by the US Treasury Department to states and other forms of localities and tribes and cities and nonprofits and companies, and the Treasury was really the center of a lot of that activity and the statute mandated that some of those funds be dispersed very rapidly, so, similar to TARP, we had to stand up. Operational infrastructure became known as the Office of Recovery Programs in the Treasury Department and it had to grow really quickly to be able to meet the needs of the country at the time and what the law required. And building that sort of thing under with a lot of economic impact to the work was something that was really rewarding and I'm really proud of the work that the department did during that period.
Speaker 2:What was the inspiration to start Crux so?
Speaker 1:my so dad passed away pretty shortly before we sold the last company, happened at around exactly the same time. Sold, the company immediately made the decision to go back into the Treasury Department, moved my family. We were living in New York at the time. It was the pandemic and we moved down to DC. I went into the department and around that same time, a few months after I got there, we got pregnant with our second son, who was born about 18 months after I started at the department, and that ended up being a good time to step away and think about what I really wanted to do.
Speaker 1:It was obviously a privilege to be able to serve, particularly with Secretary Yellen, who is so inspiring on so many different levels, but I had really loved building another small company that had gotten to a successful exit in a mission-driven space, and with the two boys at that point I was thinking a lot about what are the forms of impact that I can have that would be most durable for them and help them live the healthiest, happiest lives. And I remember a particular conversation with my wife where we went out and she was like I really think the next thing that you should do, that we should do together. Like I really think the next thing that you should do, that we should do together, should relate to the climate, and that really stuck with me and particularly with the two sons and personally enjoying the outdoors so much. I love being outside it's the thing that makes me the happiest and being in beautiful places I was quite motivated to find a way of making a difference.
Speaker 2:I love that and I will also say on the side now kudos to you for being a startup founder with two young ones. That is not for the faint of heart.
Speaker 1:Yeah, I was starting up the family too.
Speaker 2:Yep. So for the unfamiliar, could you explain and break down what transferable tax credits are and how they benefit clean energy and manufacturing products, because I feel like, in order to explain what Crux does, we need to have a baseline understanding of what that is.
Speaker 1:Yeah. So governments generally everywhere subsidize energy in some way, and they have since the beginning of time right, and with the United States in particular, we make significant use of the tax code to encourage people to build the kind of energy projects that we want in the US, and we started doing that with oil and gas in 1916, around the time that World War I was starting, and we wanted to encourage domestic production of oil because of more demand coming from the war. So we used the tax code to do that. We have used the tax code in the form of tax credits for renewable energy for decades, and as long as we have been using tax credits, there's a fundamental dynamic that needs to be dealt with, which is that credits are very useful and directly applicable if you are a company that pays more tax than the credit that you have received. If you are not in that situation which most project development companies, particularly in renewables, are not they pay less tax than the credits that they receive. They need to find somebody that can be their partner to monetize the credits directly, sell them. Project developers used to be required to have an external investor invest in the asset, invest in the solar project, invest in the wind facility in order for that investor to receive the tax benefits associated with that facility. That market is called the traditional tax equity market. It's existed for decades.
Speaker 1:What Congress did with the IRA is pass the largest climate law that has ever been passed by any government ever, about two thirds of which is tax credits. With the increase in the volume of tax credits that were in the law, congress needed to also deal with the monetization of those credits and looked at the existing tax equity market and did not believe that it would have the capacity to be able to support the level of investment that was foreseen. And to solve that problem they created transferability, which allows the developers, the manufacturers, the benefit from the credits to be able to sell them directly to a third-party investor that pays tax, that can take the credits, to be able to sell them directly to a third party investor that pays tax, that can take the credits and apply on their taxes. And so, in the process of doing that, congress created a multi hundred billion dollar asset class and transferable credits, and that market has taken off at a much faster rate than anybody anticipated.
Speaker 2:And so Crux then is the platform where, if you're saying I need to and I'm probably going to butcher this, but if I have this tax credit that I would like to transfer I can go on and find someone who is willing to purchase it from me. Is that more or less the model?
Speaker 1:That's exactly right. So you are a developer of solar wind, battery storage, bioenergy, you're a manufacturer of solar panels here in the United States? Whatever you are categorically, you can list the credits On Crux. The credits are seen anonymously by buyers that are in our system as well as buyer advisors that are looking for credits and finding liquidity. Via Crux.
Speaker 1:You'll receive bids, in most cases within the first week of listing your credit. Often you're receiving multiple bids. With multiple bids, you're able to accept, reject, counter directly within the system. You're able to ask questions of the buyer and then, as you proceed through the deal stages, you sign an NDA, you're prompted to join a data room. The data room is built specifically for these purposes. You can use standard crux transaction documents and we're really supporting the process from the bid all the way to the close through software, which otherwise would take hundreds of emails and spreadsheets and documents and all of those sorts of things across dozens of counterparties, and so, in that sense, we're really trying to make this market much more standardized, much more efficient, in order to be able to accommodate hundreds of billions of dollars of annual supply.
Speaker 2:And then, from a monetization perspective, I'd imagine you'd take a percentage of each transaction that successfully goes through on the platform.
Speaker 1:That's right. The developer can list on Crux without paying us a fee and then, if we're successful, we monetize based on the transaction. We're increasingly finding, because the software is getting more and more powerful, that there will be other opportunities for us to monetize. The software is getting more and more powerful. There will be other opportunities for us to monetize the software directly, but currently the way that we do it is via the transaction.
Speaker 2:How did you grow about growing user growth on the platform from 0 to 1? There was huge market need.
Speaker 1:So this market formed basically overnight. The market formed basically overnight. The treasury had to put out some guidance and buyers and sellers needed to find a way to connect with each other and so pretty organically from the start we saw inbound interest from all sides of intermediaries, so buyer advisors, who could be tax advisors, or other renewable energy or ESG consulting kind of firms or specialty syndicators in the space. Those kinds of intermediaries can also use Crux as a mechanism of sourcing supply or demand and by being a value-added partner to other participants in the market, we've also been able to allow them to bring their supply and demand to the marketplace, and all of that has really borne out. We've now seen more than $20 billion of credits listed on the platform. We've seen $17 billion worth of bids on the platform. We see significant overcoverage of demand versus supply, particularly in larger credit categories, and we've been able to do deals in wind, solar, battery storage, bioenergy, electrochromatic windows, 45x, advanced manufacturing of multiple different kinds, from very small deals to very large ones. That's incredible.
Speaker 2:You obviously have a very good far better than the vast majority of startup founders insider's view on Washington and how the policy creation works. How have you navigated the potential changes in government policy when it comes to your strategy for Crux?
Speaker 1:So you always, when you're building in a space, changes in government policy when it comes to your strategy for Crux. So you always, when you're building in a space that is so directly related to policy, it's important to understand the underlying dynamics of the law, and in this case, the IRA responds to a very real problem, which is that people were increasingly aware of the need to transition our energy infrastructure. That awareness was acute in the summer of 2022, right after Putin had launched the war with Ukraine and energy prices were higher, and energy prices were higher, and it was coinciding with a lot more interest by citizens in climate change, and that was the context for the IRA. It was put in place for 10 years, or until we get to 25% of 2022 greenhouse gas emissions levels, so this is current law for a very long time. Often, when tax policy changes, it changes because Congress allows it to lapse or expire, but these credits are in place until we're well into the 2030s.
Speaker 1:And then I've obviously, like everybody in the industry, been closely watching what people in Congress have been saying about the law, what the different parties and presidential candidates have been saying about the law, what the different parties and presidential candidates have been saying about it, and in Congress you've seen a broad acceptance that the law is generating real value across America.
Speaker 1:There were 18 members of the House Republican caucus who wrote a letter recently to Speaker Johnson saying that the credits were very valuable within their communities and the money is flowing quite broadly into rural areas and red states, and so that is reflected in that position. Also, you saw Speaker Johnson respond very directly to the question of the IRA. He said that if it were to be changed, that Republicans would use a scalpel as opposed to a sledgehammer. And then former President Trump has been quite intentional about the use of and the advocacy for things like growing domestic manufacturing, being a large energy producer here in the United States, a large energy producer here in the United States has spoken with particular reference to nuclear as an example of a clean energy technology that they're quite supportive of, and so, even though there is some rhetoric that comes out, particularly from the Republican side, about taking the IRA away, I think the likelihood of that is diminishingly likely as time goes on.
Speaker 2:Has Kamala spoken much on the clean energy component?
Speaker 1:Yes, so President Biden was the president who signed the Inflation Reduction Act. Kamala Harris obviously his vice president over that period has been a huge proponent of the law. It's interesting actually recently, in her latest economic proposals, she introduced a notion of another $100 billion of tax credits for advanced industries of various kinds related to AI, biotech, things like that and I think what that reflects is not only are the Democrats quite convinced that this has been a successful law that is driving capital where it needs to go for clean energy. I think we have also observed that the market has been successful and that the mechanism of transferable tax credits may work in other categories beyond clean energy. So do we?
Speaker 2:feel fairly comfortable, then, since it sounds like both sides are proponents that the future of cleantech, at least as it relates to legislation, is going to be in good hands, regardless of who wins the election.
Speaker 1:Political views aside, so I would say Democrats are unqualified proponents and have been quite pleased with the progress of the IRA. I would say that Republicans, increasingly, are observing the benefits that the law provides and how widely distributed they are, both geographically and in technology, and the IRA is quite broad in the way that it is constructed. There are 12 different kinds of technologies that benefit from the IRA in this particular section of transferable credits, and those are technologies like wind, solar and battery storage that are well understood in the clean energy space. There are also categories like carbon capture and storage, nuclear bioenergy lots of different categories that have different levels of support across the country. So different states have different energy infrastructure and that means that the elected representatives of those states tend to be advocates of different things. So Republicans, I think, are increasingly aware that taking the law away, particularly as demand growth starts to increase, would not be a good idea for American domestic manufacturing and energy security.
Speaker 2:Interesting. What do you think the next few years looks like, both in terms of what the overall market looks like and then how Crux fits into that?
Speaker 1:So we released a third quarter market update this week that shows that the market in the first half of the year was about 9 to 11 to $11 billion in terms of total size.
Speaker 1:We think another $7 billion or so transacted in the third quarter on route to $22 billion to $25 billion this year.
Speaker 1:So the market is increasing quite rapidly in size in diversity of credits that are transacting both small credits and large credits, but also many different kinds of technology that are finding the both small credits and large credits, but also many different kinds of technology that are finding the market and at good pricing.
Speaker 1:I think that trend is likely to continue as the market continues to grow and more facilities come online with more credits associated and more buyers continue to see the benefits of participating in the market. So I think five years from now, this will remain a really critical way in which clean energy is financed. And then, importantly, we're also seeing that it is changing the way that the rest of the capital forms around these projects. So with the transferable credit come other kinds of loans that may be collateralized by or taken out by the sale of the credit, and we're seeing a lot of innovation around that sort of thing right now and participating in it, which I think is quite constructive to the cost of capital and our ability as a country to build out the level of infrastructure that we need to over this period.
Speaker 2:I want to start to talk a little bit more about Crux itself and the development of the company, rather than the market, probably more my, where I'm a little bit more qualified to speak anyway. So this is your second time now as a founder. So you mentioned that you'd founded Sold Mobilize and that it was a little bit more of a mission-driven company. First of all, I'm just curious what does a mission-driven company mean in the context of events management?
Speaker 1:Yeah, so we helped mission-driven organizations, campaigns, nonprofits, cities, states, school districts and mission-driven companies, so companies that had some sort of mission focus, organized events. Those events were distributed, existed in the context of a network context of a network, so organizations could send their members to other organizations, events and the broadest set of people could discover events that were on the system and then Mobilize, really focused on pulling people that signed up for an event into an action on behalf of the organizing group, no matter what form they came in. And that became quite a powerful principle, quite a powerful product construction, basically workflow and management software that pulls people into events at higher rates, and a network that drives more people into the top of the funnel. And so we were really happy to be able to sell that company to EveryAction, which was owned by Insight Partners at the time, and it's still a very important piece of infrastructure for movement groups and also campaigns to be able to pull people into the events that they're organizing for.
Speaker 2:What was that like when you went through the exit I know you mentioned your father passed away around the same time. I can imagine that must have been a strange feeling having like the highest high of an exit and kind of the lowest low at the same time. What was that period like?
Speaker 1:Yeah, I mean these companies become such an important part of your life, right, you know you have the opportunity're, you have the yeah, you have the opportunity to build a thing completely from scratch and then other people decide that your idea is a good idea and they give you money and they are willing to come work for it, and you know, all of that helps to bring something into the world that you know has real value, both impact value and enterprise value. And whenever you're lucky enough to be able to sell a company, there's some part of that that is affirmative and beautiful and like a really great transition that allows for the perpetuation of that product for a much longer period of time. And all of that was true with the Mobilize acquisition.
Speaker 1:It was also, as you mentioned, a tough personal time for me and there was a lot of change that was happening at the same time. So I'm very lucky to have the family that I have. My wife, emily, is a psychiatrist and is just a wonderful person and empathetic mother and spouse, so I'm really lucky to have her support and the support of my kids through that period of time. And four years later, it was actually four years since my dad passed this week. I think about him a lot and I miss him. But life moves on and I'm quite happy our son is named after him, so I get to remember him through my younger son.
Speaker 2:I love that. What lessons did you bring as a second time founder to founding Crux that you're grateful for, or that really have come in handy, that you learned from Mobilize?
Speaker 1:Well, first of all, I should say that I am doing Crux with the same co-founder as Mobilize, Alan Kramer.
Speaker 3:I noticed that.
Speaker 1:Yeah. So the lessons that we have learned and I have learned I learned together with Alan and there's a real benefit to doing this again with the same partner who is as talented as he is. I'd say I can't believe that anybody is successful the first time starting a company. You just make so many mistakes. You make mistakes in the way that you set it up and the people that you hire and the way you think about goals and success and fundraising and everything. So I couldn't possibly enumerate all of the lessons. It informs that previous experience informs everything about how we thought about setting up this company and I feel very grateful that we got to have an experience that culminated the last time in a successful outcome. So we know how to do that too.
Speaker 2:So it sounds like you had a great starting point, both in terms of your founding experience and then also coming into a really strong and in-demand market for this, like you mentioned, market that got created overnight. Have there been any road bumps or you know times when you felt uncertainty about the future of the company?
Speaker 1:Always right. If any startup founder tells you that there haven't been bumps in the road, then they haven't been driving, so you know. It's just part of the ride. And there are so many ways in which our thinking has evolved in the market. There are so many ways in our positioning and the product that we offer has changed, and I think for better or worse. I'm sort of a glass half full kind of person and I mostly think about the bumps in the road as data that we're able to implement and figure out how to find the actual market, and so I could point to a bunch of examples on the way that we position the product very early, on, the way that we thought about the role of intermediaries and what the software we need to do for them. But everything that has happened along the way we've learned from, and I think the company is much better for it.
Speaker 2:Yeah, I think so too. I mean, there's no such thing as losses, there's wins and learning lessons, right? Yeah, so in five years, if we were to fast forward a bit, what do you think and I know we mentioned what we think the market will look like? But what do you think Crux looks like over the course of the next couple?
Speaker 1:of years. We are very rapidly building what I think is going to be a diversified clean energy finance platform. It is first, we are first building the market in transferable tax credits, need that market to be vibrant and efficient and liquid, and as we build that market, we are observing that there are lots of other opportunities for us to support the sellers who are developers, manufacturers and buyers of the credits, and there are many other ways in which people who are trading their tax credits on Crux may want to source other forms of capital. So, as time goes on, we will be more of a one-stop shop for other kinds of capital In the context, again, of a network. We work quite closely with banks, with tax advisors, with law firms, with private investors, and we're really trying to build a mechanism of financing clean energy that is much more efficient, with lots of partners that need to be configured around the table in order to drive the capital that we need to into developers and manufacturers at scale.
Speaker 2:Awesome. Well, it sounds like you have a solid plan. I will be cheering you along from the sidelines and really appreciate the conversation. Thanks for coming on today. Thanks for having me, Rhys.
Speaker 3:Thanks for listening to C2Exit. If you enjoyed the episode, don't forget to subscribe and we'll see you next time.
