Blockchain with its broad range of applications has the potential to be a catalyst for innovation in the cleantech sector. In the second episode of Blockchain Beyond Hype video series, we talked with the sustainability and clean technology expert from California Global Innovation Exchange, Matthew Vitamante about cleantech startups and corporate venture investments.
Laks: We’re excited to have you here to discuss your thoughts on the blockchain and cleantech. As a business owner with a pure focus on innovation, I’m not surprised you have included blockchain technology into the list of technologies to work with. When was it you started working with blockchain? When the boom came or earlier?
Matthew: Actually, the blockchain technology itself, we started working with it a couple of years ago. Though that being said, the people got more focused on the crypto side of things. That’s where the money was going, and we all know that crypto became a sort of a nice test case to see who’re the real players. How do we flush out the real companies, the real technologies and then what is left after the dust settled? So that’s where we are right now.
Laks: Ok. Could you tell us more about how an exchange like California Global Innovation Exchange (CAGIX) works? What are you actually helping those SMEs with? Getting funding? Getting their strategies in place?
Matthew: So just a bit of a background. This was born out of the Los Angeles clean technology incubator. The founders, myself and my team all came from venture capital investment banking startups. We were operators, we were advisors. So we had a nice mix of investment banking, venture capital, and startups.
California, as you know, is sort of the hub and the home for innovation or it was, and it’s now obviously starting to expand into other areas. But what we did was we helped companies or startups that were admitted into the incubator, what is a very difficult process. You’ve got to have a really good due diligence checked out, and then we would help build that company with them. Help them get investor ready, coach them and then close deals, bring in the right capital partners and then act as their investor relations. All these companies will always need additional funding down the road, so what you want to do is build a bit of a track record and then also a following. But the right followers.
Laks: How do you evaluate which project is actually truly innovative and worth your attention?
Matthew: So first and foremost, I can’t speak for everybody, but for me, the mantra of CAGIX is focused on the team. So we could talk about technology until we’re blue in the face, but if the team is not emotionally aware or emotionally intelligent, then we won’t work with them. They may have the next Tesla, yada yada yada. But we’re interested in people that we can work with as a partner verse having them feed into their ego. So that’s first and foremost.
Second, is it a growing pathway to scale? Meaning, that we want to make sure that we’re learning from each other. So each technology, each group, each person that I’m working with or working for or vice versa that we’re all learning to a certain extent and that ingredient is also important.
Third, what purpose it is serving. Is it another game? Nah, not interested. Is it faster internet? No, not really. What I’m interested in is how do we clean up the earth. So if we start with health and the health of the earth and health and people in general and work our way back to what’s most important and how do we use technology, how do we use business in a way that will clean up the industrial mess that we’ve left behind. And that’s why blockchain is very interesting because it’s scalable, it’s integratable into any business.
Then, is the total addressable market big enough? Is it scalable? Part of the reason why we’re a California Global is because this isn’t only about California. It’s about the globe. So is it scalable? Is it tweakable? Is it customizable for different regions around the world?
Laks: So as a well known VC expert in the market, I am sure you were flooded with requests for help from various startups working on implementing blockchain into their business models. How many RFQs have you been receiving?
Matthew: A lot and fortunately and most importantly they’re trusted partners. It’s all about alignment. So if you and I are aligned, then we can build a lot quicker, and we understand each other. But if we’re not we have to spend too much time, I have to spend too much time curating through this stuff that is not going to serve anybody’s purpose and then it goes back and forth. So alignment is the most important. We’re receiving an enormous amount of post-ICO mortem syndrome. Maybe we can make up a new symbol around this or new acronym. But all these great technologies are now like ‘Okay, I wasn’t able to scam Mr. and Mrs. Smith on their investments and the ICO market lost a half a trillion dollars in 2018. Now we don’t have any money, but we had this great technology.’ OK. So then we get creative and figure out ways to bring in money.
The one thing we don’t want to do is deal with a broken company itself. Though we’re in the process of potentially putting together a $50 million post-ICO fund, a distressed one to pick up some of the technologies and then help them scale. But we do have a lot of inquiries, and everybody’s asking for help, and they think that if you give them advice, all of that is for free. But you know we’re in the business of business too. I have my shareholders, and we all have to be financially sustainable. But most important is to make sure that the partners that are sourcing from their inner sort of ecosystems are very clear with what we’re looking for and vice versa.
Laks: So is that how you filter them then by making sure that the partners that are looking at their system know exactly what you’re looking for?
Matthew: Yes, and then also are these technologies implementable or integrable into the large WeChat companies or IBM that we work with? Is it integrable into them, is there a way? What’s the technology? We’re not really focused too much on helping blockchain companies get started. It’s really more about the greentech side of things, the technologies that are actually the boots on the ground, cleaning up the earth and providing free energy sort of thing and utilizing blockchain technology to systematize it and make it more optimized.
Laks: Okay. Were you offered shares or equity or tokens?
Matthew: All of the above. The way we operate is we only get behind a company that 1) we would want equity in a company and then 2) we never bought into the ICO thing at all. I was part of the dot-com boom and bust back in the late 90s, and I worked for the Credit Suisse tech team so I got to see that, and I knew this was coming. Maybe if CAGIX does the ICO with one of our blockchain partners in Singapore, then I would obviously buy my own token, but right now I’m not interested in anybody else’s token. That all being said, STOs are the way to go. So we’re now focused on helping companies go STO.
Laks: So have you onboarded the ones that had been knocking on your doors then?
Matthew: We had, but it was based on either their technology was deployable to one of our corporate partners, or we were paid a consulting fee. So what we do is we get these companies investor ready and all of that. If it’s the blockchain, we have to almost untrain them. We have to pull apart what they learned in their ideas about ISOs so that they’re not coming back. And that if you don’t raise private equity money and startup money, you won’t be able to capture the real institutional money when you really need it to grow. So there’s that, and then the rethinking around how can these companies go STO. Because if you’re familiar with STOs, it’s a way for them to be able to use their token but in a more compliant financial regulatory way. That’s the way to go. That’s a great hybrid solution. So if they’re not willing to rethink it and unlearn what they learned, then it’s a pass, and I’m sure there are plenty of people that will help them out.
Laks: Working with clean technologies and contributing to the overall sustainability is a great career path. Most companies know they need to innovate to stay ahead of the competition, but are they doing this only with profits in mind?
Matthew: Great question. My background is in tech and cleantech investment banking and all that. Once I started waking up to the fact that we’re wrecking our Earth, I thought about how I could help with my business skills, how we could drive capital into all of these projects that need funding.
The one lesson that I will share with everybody, if you have a great clean technology concept, etc. lead the concept with the idea of profits and not saving the earth.
So it’s about efficiency, it’s about education, it’s about scale, it’s about redesigning and rethinking how you’re going to process something, etc. And ‘oh, by the way, out of all of that once you do that you just reduced your CO2 carbon footprint. You just reduced the toxicity around whatever your byproduct is or yada yada yada.’ I’m a hippie at heart, and so the mistake I made was ‘We’ve got to save the earth,’ and everybody’s like ‘Yeah, that’s great. That’s really nice. Yeah, that’s cute. Come back to us in ten years.’
So what I learned is drive with ‘Hey, this is gonna save you money. Transparency, accuracy, quality, efficiency.’
Laks: What happens to the startups that you work with? Are they getting acquired by giant corporations that want to stay afloat or talk about being innovative? Or maybe corporations are actually putting more thoughts into sustainable development, hence the interest in innovative solutions?
Matthew: We’re doing investments, we’re bringing in corporate venture investments from large conglomerates like Volvo, BMW, Caterpillar, Black&Decker, WeChat. Because the technology that they’re servicing or the technology that they’re investing in they will use that as a preferred service and use that technology to beta test whether they want to acquire it and then become their own business development arm with all their existing contracts and all their existing relationships.
So we’ve got three or four of those companies right now that we just closed these deals with. When I say close the deal, they made $15-20 million investments, and now they want to buy the company and why it makes sense for the shareholders of the existing startup technology and also for the corporate is that the startup technology doesn’t have the corporate infrastructure nor the business execution ability to gain access to the global market. So if it’s Caterpillar and it’s a $30 billion company, well you’re going to have access to all of their customers.
Corporates are now waking up to ‘Oh, we missed the boat on the green investing, the first wave of green investing, but wait we can make money, we can save efficiency.’ And unfortunately, it also cuts your employment staff a bit because the technologies are superseding the need for manpower.
So the corporations are like ‘Oh, this is great. And by the way, it’s quieter, it’s cleaner, it’s free. Once we buy the company, once we make the capital investment into this technology, it’s free. Free energy from there on and we get to market it.’ Then they say ‘Oh, here’s to our shareholders, our biggest shareholders in the world and the world, we’re green.’
Laks: Turning businesses into sustainable companies means that there needs to be an increased focus on the triple bottom line. Same attention needs to be given to environmental and social impacts as we give to the economic impact. But how does this translate to innovation? Are sustainable innovations more expensive?
Matthew: So that what’s driving innovation is corporate profits. Keeping impressing your shareholders. Those big corporate investors are now seeing that you can be green and actually make money around it. So it’s fueling innovation. Innovation is kind of like the Internet. We looked at the Internet as to how can we do things better instead of dropping a piece of mail off. Now nobody even uses email anymore. We use WeChat to download documents because it’s faster. Then there’s blockchain, and there will be another blockchain type 2.0 or 3.0 in the coming years. And so that will continue to fuel.
My concern about that is that with that happening in parallel with AI, there won’t be any jobs. So we as business leaders and the universities and the governments really have to wake up to how do we train these people to continue to learn blockchain, to learn green technology, to continue to learn innovative ways to get these companies funded.
Laks: Are sustainable innovations then more expensive?
Matthew: Let’s just say that they’re becoming more in favor now. Because we just went through the first tranche, the first 10 years of sustainable technologies and investments. There was a lot of failures. I was part of a lot of bankruptcies. I was also part of the things that did work. Lots of government money went in there. Just one thing about the government – the government is not in the business of innovation. We cannot rely on the government to come up with – ‘Why is the government not cleaning up the water?’. It’s about all of us in this room. It’s about you, it’s about me, it’s about all of our people that we know and then how do we bring it to the government.
But people are relying too much on the government. So in terms of expensive, no. Actually, there are certain things that you’ll pay a premium for depending on what it is. Water is the biggest issue on this planet, and we keep avoiding it. We keep avoiding it. So water is going to be the new gold in the coming years. Because we can’t survive without one, we can’t function whatsoever. Our bodies are 80 percent water, right? So I think water technology will go way up. Solar, wind and all of that stuff that is a supplement to other types of fossil fuel energies those will be commoditized, and they already are. So it’s dirt cheap, and it’ll be part of the ecosystem.
But you really want to focus on the necessities. Clean food and clean water. And we can talk about blockchain till we’re blue in the face about all these great tinker things that we can do. But if we don’t have clean food and water, then you can’t blockchain yourself out of that one.
Laks: Does it take more time to build something that is more aligned with sustainability objectives?
Matthew: The answer is yes and then also no because anything that’s being built now is already thinking in a more sustainable designed way from its genesis. Nobody is going to come out with a new oil, right? Or a new plastic bottle unless the plastic bottle you can chew on and swallow, and it makes you strong and gives you energy. But that’s not going to happen. So investors won’t invest in companies that are not sustainable in its thinking.
But they also don’t want to invest in pie in the sky sort of things. Coming from California, I’ve seen some incredibly interesting things that we knew wouldn’t get funded. Maybe they get funded in a couple of years or 10 years because it’s a nice idea. But we have to think about the infrastructure first. How the infrastructure and the ecosystem are interconnected or integrated in a way that they’re serving a sustainable need. And that’s where we’re still early on this. But sustainable investments in general, everything is sustainable in a lot of ways. If you’re cutting time of freight deliveries by two days, that’s sustainable. Because maybe instead of sending it to you in Ubud, maybe somebody has an Amazon locator here, and instead of having it shipped from Singapore to Ubud there’s something right around the corner here, and then you just saved on carbon and fuel. So there are different layers and different dimensions of sustainable design.
Laks: How is blockchain technology usage placed as an answer to those questions?
Matthew: So we’re working with a couple of companies right now. One of them, in particular, is Entrade-X which is a 12-year old German waste to energy company. So they take waste, gasify it and then they sell the energy either back to the grid, or they use the heat to drive other energy systems in the house or the building. And if you’re global the blockchain allows for you to be transparent, optimize efficiency, reduce costs, reduce errors which are costly and increase your profit margins.
Laks: Innovation requires a specific change in mindset. You don’t become an eco-friendly company overnight. Every person in the company needs to have this in mind, it needs to be part of a bigger purpose. Not sure if Tesla is the best example, but it has certainly shown how to accelerate the adoption of electric cars and reduce air pollution. Which project have you lately onboarded which ticked all those boxes?
Matthew: So I would say that free wired technologies which, by the way, interestingly enough it’s a lithium-ion powered remote charging module. So it means that you can remotely charge cars, you can remotely charge industries and companies.
Caterpillar actually just invested in them and they use their lithium-ion battery technology which by the way has some relationship to Tesla’s battery technology because you may take a piece of that and then customize it for this module.
So free wired technologies are really interesting. They use the blockchain obviously for their global operations and for expanding into Japan and all of that. They also connect homes which is a sustainable prefab retrofitted house that uses sustainable materials and to be able to accelerate their production they use the blockchain technologies.
Laks: What is the major disruption and shift the blockchain technology is bringing to the table in the cleantech sector?
Matthew: Blockchain enables these unsexy or not sexy technologies and these processes to become sexier. Right? And to be able to grow into other markets that they probably wouldn’t have access to. Because at the end of the day their suppliers or their end users will get a cheaper and more reliable product and energy due to the blockchain. So if we see blockchain as a generic way of extrapolating as much as you can, extrapolating as much margin and efficiency and being as clear and focused as possible, blockchain helps within that. And then the smart contracts and all of that, it takes away the arguments, it takes away the stress. The beauty of blockchain in a lot of ways is that it’s safe for the most part, it’s encrypted, and then it’s done. And it allows everybody to be focusing on the bigger picture which is how do we make this better, how do we clean up the earth, how do we drive this into a new market.
Laks: So thank you for telling us about CAGIX. We do like to ask all our guests how do you envision blockchain changing the world?
Matthew: Well. To be quite honest, I see it driving a bit of panic. Because the delta, the rate of change that’s happening within all industries due to the blockchain is wiping out existing businesses. And so I do not think that blockchain development, innovation, and education will be able to replace those jobs for people. Because if you’re talking about brick and mortar or maybe it’s not even brick and mortar, maybe it’s even Web 2.0 stuff or maybe it’s just a business that is going to cut 10% of their workforce now because they don’t need the lawyers now, they’ve got smart contacts. You know, whatever the case may be. So I do think that’s going to happen and it’s already happening in parallel with AI right now.
That’s what’s a bit concerning for me. The flip side of it is, we’ll figure it out, and something will emerge out of it — new types of universities. Going to school for four years now is kind of erroneous. There’s no need to be getting a degree anymore because there are no jobs out there. You’re a startup, either to be invested or acquired by a corporation. Or you’re a technology developer. And that’ll be in the next five years and is also happening now. But I think it will also alleviate if the governments wake up and provide some sort of value added tax where people are now living paycheck to paycheck. To buy ourselves some time for employment to catch up because that’s the laggard of the indicator. Then I think it will serve its purpose that it should, and there will be new emerging technologies coming out of blockchain.
Laks: How do you think the blockchain-based solutions market will evolve?
Matthew: The actual market itself is going to get faster. More and more accurate and spread like wildfire into all the businesses. And I think that’s what will happen. But I’m relatively new in blockchain and really been around it for a couple of years. So I’m not sure I can provide a real vision to it. But if you’re not part of the blockchain, then you will definitely be left behind. But there’s another piece to this. If the STO market doesn’t go as strong as I was hoping or what I’m predicting, a lot of these earlier stage companies will have a tough time getting funded because nobody is going to invest in their coin unless there is government regulation.
So the real key to all of this right now is the STO market, having regulation and making sure that grown-ups are running the business. Not 18-year-old kids in their basement trying to program away. Nothing wrong with that. It’s just that you can’t accept other people’s money if you don’t have a compliant business. And you want to drag in the institutional money. You want to drag in the government money. You want to drag in the IBM money. But you’re going to have to do it in a financial regulatory compliant way.
Laks: All right. This has been fascinating. Thank you for coming to speak with us at Blockchain Zoo about CAGIX and cleantech. We wish you luck on all your current and future projects.
BBH Guest: Matthew Vitamante, CEO at California Global Innovation Exchange
Matthew is a venture consultant and investor advisor with expertise in cleantech and startups. He is a CEO of California Global Innovation Exchange, providing diverse and innovative investment structures and advising companies from the US and EU, that are transferring or expanding into Asia. He has been working with venture capital in various forms for over 20 years. In his earlier career, Matthew held senior positions in banks and enjoyed teaching as a Professor of MBA Business Program in Paris. His current business activities are focused on marrying CleanTech and Blockchain technology.