Transcript
Danny Fortson:
Hello, and welcome to Danny in the Valley, your weekly podcast from behind the scenes and inside the minds of the top people in tech. This week, we have a tech and Silicon Valley OG on the show, Sunil Patel is our guest, and Sunil has come on to talk about his new company, it’s called Spring Free EV, which is an electric vehicle financing startup with a really interesting model. And Sunil is fascinating because, just an amazing breadth of experience he brings to this idea, and his journey in tech starts all the way back at AOL, where he was the first and only Internet Product Manager at America Online, as it was then, back when this whole weird internet thing was just getting started and nobody really knew where it was going to go.
Danny Fortson:
He went on to found another couple companies, he went through the dot com bust, the first Cleantech 1.0 bust, navigated the financial crisis, started a ride sharing company way back in 2011, it was called Sidecar, just as Uber and Lyft were tooling up to try to take over the world. Sidecar ended up getting suffocated by those companies, that’s perhaps why you may not have heard of it. That company shut down, I believe, in 2015. It didn’t work for a lot of reasons, which we’ll get into, but we can see is that Sunil has been around the block a couple times, he’s had a bunch of successes, some failures, which is what makes his new company so interesting, because what Spring Free does is make it easier for managers of big vehicle fleets, or other people who drive a lot, to switch to an electric vehicle.
Danny Fortson:
And he does this by charging a per mile fee for these cars, so there’s no upfront fee, there’s no lease, none of that. In other words, if you drive a lot, Spring Free will give you the keys to an EV and charge you for usage. And the whole idea behind this is to accelerate electric vehicle adoption, because, of course, EVs are expensive, which is a blocker.
Danny Fortson:
And so by taking this really interesting FinTech approach to what is effectively a financing problem, the goal is to unlock what remains one of the, still, one of the most consequential avenues when you talk about addressing climate change, which is reducing the number of petrol and diesel cars on the road and replacing them with electrics.
Danny Fortson:
So Sunil, he’s raised some money from some billionaire backers from Reed Hoffman to Mark Pincus, the founder of Zinga, and I think you’ll just find what he has to say really fascinating, not in the least because he has some of these hard lessons he’s learned over the years, he’s applying them to this new waterfront, and it’s obviously a big opportunity, high stakes, and he’s just got a great story to tell. I think you’re really going to get a lot out of this. So with that, I will hand you over now to my conversation with Sunil Patel, the founder of Spring Free EV. Enjoy.
Danny Fortson:
There’s a lot I want to cover, but if we could just start from the top, EVs, what has got you into this whole world, starting a company around it? What’s the origin story?
Sunil Paul:
Yeah. Well, the idea of using a kind of financial FinTech innovation to make vehicles more affordable is something that’s been kicking around in my head for a long time, more than a decade. There were three things that came together to have me realize, oh, I should go do something. One was, do you remember the day of orange here in the Bay area?
Danny Fortson:
I wrote a whole piece around it. For listeners who are not in the Bay area, it was the day where the sun never came out, the sky was like a post apocalyptic orange, and my son, who was three at the time, said, when I was dropping him off at preschool, he said, “Dad, why is it still night time?” And it was just like, oh my God, this is grim, because of the wildfires, of course, this is all the ash in the air that did all this.
Sunil Paul:
Well, like you, it made a huge impression on me, and that, and other wildfire seasons here in the Bay area, I started asking myself, “What more can I do?” I have been a climate investor and activist, and been on boards of companies, there’s a lot of things that I’ve done to try to make a difference. But really I realized that, well, there’s a reason why I decided that I need to activate my skills in being an operator and being an entrepreneur, and my decades of experience, and really my optimism.
Danny Fortson:
Right.
Sunil Paul:
And apply that to the task. But there are two other big things that happened, one is I looked at the calculations. A little more than 10 years ago, I did a study, called the Gigaton Throwdown, that was designed to look at, how do we scale up different approaches to clean energy?
Danny Fortson:
Great name, by the way, the Gigaton Throwdown, I like that.
Sunil Paul:
Yeah. Thanks. So I had some experience around what kind of scale do we need in order to have a climate level impact? And what I’ve found is that, oh wow, we can get to gigaton level impact through electric vehicles, and that we’re not there yet. The current trajectory of all this demand from all the subsidies and all the public infrastructure, none of that is enough to get to net zero by 2050, or just for ground transportation.
Danny Fortson:
Even with what GM and Ford and VW were saying, VW said 85 billion, I think, they’re all tens of billions and talking about the end of the internal combustion engine, and the great electrification after a century of the internal combustion engine.
Sunil Paul:
It’s not enough, and it’s not fast enough.
Danny Fortson:
Right.
Sunil Paul:
To get to net zero, there’s a gap. We need to get to about 200 million electric vehicles on the road, worldwide, by 2030, that’s only eight years away. And then continue to ramp up from there. By then, we’re still not selling, only just about half the cars around the world would be, new cars, would be electric cars on that trajectory.
Danny Fortson:
That’s a huge change.
Sunil Paul:
It is a huge change.
Danny Fortson:
Because, for my sins, when I used to live in London, I covered all things energy and resources, and talking about this, probably seven, eight years ago, and a lot of the arguments were around, well, the typical life of a car is 10 to 15 years, so even if tomorrow all electric cars, every car was electric, it would still take 10 to 15 years before you can turn over the whole fleet just because people aren’t going to sell a perfectly good car even if it’s using gas.
Sunil Paul:
You got it, and that is one of the reasons why we have to get to such huge volumes by 2030.
Danny Fortson:
Right.
Sunil Paul:
In order to get to net zero, so why is net zero by 2050 matter? Because when everyone talks about maintaining temperatures at just 1.5 degrees Celsius rise, all of that presumes we get to net zero by 2050, and then we go negative on carbon after 2050. And that sounds like it’s far away, but it is not.
Danny Fortson:
Yeah.
Sunil Paul:
For reasons like that, because the cars that we put out on the road are going to be there for a while.
Danny Fortson:
Yep.
Sunil Paul:
So that was an important aha moment. I actually wrote a blog about it, I think it was called Can MPAs, which is our first product mileage purchase agreement. Can an MPA get to a gigaton? Or can it have climate impact, or something like that. There was a third component, which was, I kind of looked around and said, “Who’s going to do this? Who has the experience? Who has the background?” And I was like, “That’s me.” We are the ones we’ve been waiting for.
Danny Fortson:
That’s funny. I don’t know how many entrepreneurs I’ve talked to who always have this moment where they’re like, “There’s this big problem I’ve come upon, but I’m just going to look around for the adult in the room, or the person who’s going to do it.” And then they keep looking around. And they keep looking around, and they’re like, “Oh, that’s me.”
Sunil Paul:
Yeah.
Danny Fortson:
“I guess I’ll do it.”
Sunil Paul:
I wasn’t looking for the adult in the room. I am the adult in the room. I’m the one that other people bring in to be the adult in the room.
Danny Fortson:
Right. Right.
Sunil Paul:
I was under no illusion about that. I was just, yeah, look, I’ve tried to give away this idea for 10 years, and it was an important realization that those three things came together. Apocalyptic experiences, realization that we can use FinTech innovation to get to climate level impact, and realizing, yeah, I can do this. Not only I can do this, I must do this.
Danny Fortson:
Right.
Sunil Paul:
I am the person to go do this. And for those you don’t know, I-
Danny Fortson:
Yeah, so this perfectly leads to, yeah, so we can go back a decade and talk about the early years of ride sharing and what that was, because that obviously provides very useful context.
Sunil Paul:
Sure. So I incubated Getarounds, and even before Getaround, I was on the board of one of the first car sharing organizations back in the early 2000s.
Danny Fortson:
Ride sharing in the early 2000s?
Sunil Paul:
Car sharing.
Danny Fortson:
Car sharing.
Sunil Paul:
Very common confusion between the two.
Danny Fortson:
Right, right, right, right, right.
Sunil Paul:
And to be honest, I’m to on blame for that, I coined the term ride sharing to refer to what we do today. And I coined it because we had already been doing car sharing, and I was like, oh, well, it’s kind of like car sharing, you’re using other people’s cars, but you’re getting a ride. So it’s ride sharing.
Danny Fortson:
Right.
Sunil Paul:
Yeah, so car sharing, I was involved in the early days, there’s Getaround, but then I later I got a law passed in California to help enable peer-to-peer car sharing. That’s been copied in several states. And then later, gosh, two or three years later, I started Sidecar as the first ride sharing company, and the TNC, the Transportation Network Company, rules that California made ride share fully 100% legal versus kind of being in a gray area.
Danny Fortson:
Yeah.
Sunil Paul:
Those were based on things that we developed. So my point is, yeah, like this has been a long time coming and I’ve been involved in it.
Danny Fortson:
So Sidecar was 2011? You started that?
Sunil Paul:
Yeah. Yeah.
Danny Fortson:
And that was, I think Uber started 2010, and Lyft was around the same time. It was this kind of explosion of-
Sunil Paul:
Lyft started right after us, before that they were called Zimride.
Danny Fortson:
That’s right.
Sunil Paul:
And their ride sharing product was launched, I don’t know, maybe four months after us.
Danny Fortson:
Right. Right. It’s just interesting looking at that industry now, Uber us still on the road, so to speak, to profitability, it’s a hard old business.
Sunil Paul:
Yes, it is.
Danny Fortson:
Trying to actually make something that actually washes its face financially.
Sunil Paul:
I started into car sharing and ride sharing because I thought that efficiency could make a huge difference in reducing greenhouse gases. And, sort of that same realization that you were talking about earlier, about, it’s 16 years, I think, is the average lifetime of a US car, that because of that you needed something that could move the needle much faster. I wasn’t alone. Lots of other folks, including other founders of these companies, thought that car sharing and ride sharing could make a big difference. What we did not fully account for is that the rebound effect, which is basically that when things get more efficient, people use more of them. And I remember being asked this question, “Well, what happens when you make it easier to move around? Won’t people move around more?” And my answer at the time was, “Well, people don’t want to spend all their time in a car.”
Danny Fortson:
Yeah.
Sunil Paul:
They’ve got better things to do than sit around, driving around. But I think I did not fully appreciate that neighborhoods would change, that people would move to different neighborhoods because they had easier transportation. The Mission, for example, has become much more desirable because, it used to be a kind of transportation desert, parking was impossible, transit was terrible. And now, people can live there much more easily because of ride sharing.
Sunil Paul:
Similarly, car sharing, in the early going, we thought that it would reduce car usage. But instead, both these services, car sharing and ride sharing, have either been flat to negative on the use of the vehicles. And then there’s another dynamic, which is when you come up with an efficiency innovation, other people in other industries use it for their own purposes. So we all don’t think anything of like, “Oh, I want pizza from Delphina,” which is a fantastic pizza place in San Francisco. In the old days, you could never get a delivery from them because they didn’t do that. But now, no big deal.
Danny Fortson:
Yeah.
Sunil Paul:
They’ll deliver to you using whatever it is, DoorDash or whoever, and that set innovation, or single day delivery on Amazon. Those kinds of capabilities are kind of adaptations, adoptions, of the ride sharing style innovation, but for a slightly different purpose. It was like I had this set of reflections after Sidecar in the sort of 2016, 17 timeframe, and I was like, okay, that would also kind of set the frame like, okay, it’s kind of a lesson learned, one of the many out of that experience
Danny Fortson:
Before we get to Spring Free, because I think it’s super interesting, is there a reason, or was it just like the avalanche of money that Uber was able to raise, why Sidecar didn’t work? Or why didn’t it work?
Sunil Paul:
I think one of the many things I have learned is when you have a mistake or a problem or a failure, to do a non-emotional, as much as you can, there’s always emotion around it, right? But to do it as calm a reflection on it as possible, and also to ask layers of questions. So, yes, the immediate question was they raised a lot more money. And when you have raised a lot of money in an industry that, as you point out, loses money for a very long time.
Danny Fortson:
Yes.
Sunil Paul:
And is going to lose money for a long time, you must have the most money or you will lose. Well, why did they raise more money? And why did Lyft raise more money? And I think, there, you have to ask the question of, well, Lyft got out in front of us in customer traction. And okay, well why did they get out in front of us for customer traction? And I’ll tell you, it was that pink mustache. I mean-
Danny Fortson:
I was literally going to say you guys needed the pink mustache, but that was a joke.
Sunil Paul:
It was not, it’s not a joke.
Danny Fortson:
Really?
Sunil Paul:
They went from behind us, way behind us, I mean, granted we were talking about period of months, to significantly in front of us and growing faster because they simply had a lot of visibility, like a big fuzzy pink mustache driving down the road, you’re asking what the heck is that?
Danny Fortson:
Right.
Sunil Paul:
Our cars were invisible.
Danny Fortson:
Well, so just so people know, because Lyft isn’t over in the UK, never has been. Back in the days, Lyft, when it was really going head to head with Uber, had these giant pink fuzzy mustaches that they would give out to drivers to put on the front of their cars. And I always just saw them and I was like, that just seems, it’s kind of funny and kind of ridiculous, but I didn’t think much of it, but it’s just funny, I guess when you’re in a land grab like that, the things that seem small can be quite big.
Sunil Paul:
Yeah, and really, in the beginning, they were going after us because one of our engineers overheard, before Lyft launched, overheard what we presume were, there must have been somebody at Lyft, because they were basically complaining about, how are we ever going to catch up with Sidecar?
Danny Fortson:
Right.
Sunil Paul:
I give them credit for, it was a kind of a, I happen to know it was a little bit of a whim that they did that thing. It wasn’t that purposeful. But, credit to them.
Danny Fortson:
Yeah.
Sunil Paul:
And they were willing to go there. But listen, the lesson for me is, visibility and awareness counts a lot, that marketing and brand and positioning matters a lot. Yeah, it’s one of the important lessons out of Sidecar, because I was, frankly, not that attentive to those topics, and yeah, had my ass handed to me as a result.
Danny Fortson:
Right. So Spring Free. So you’ve raised the money, who have you raised the money from? What’s the big idea? When does it actually launch-launch, what’s the goal?
Sunil Paul:
So Spring Free EV, it’s a new company. The idea is, make electric vehicles radically more affordable. And by making them radically more affordable, get the adoption rate to be so fast that we can get to gigaton scale impact.
Danny Fortson:
Right.
Sunil Paul:
How are we going to do that? We’re going to take advantage of the three economic disruptions of the electric car. First, they cost less to operate than a regular gas car. Second, they interact with the grid, and when they interact with the grid in a smart way, they can get paid to do that.
Danny Fortson:
Right.
Sunil Paul:
And third, electric cars last much longer than gasoline powered cars. And that third advantage magnifies the advantage of the first two, in fact-
Danny Fortson:
How much longer? Or do we know, yet?
Sunil Paul:
We don’t know quite yet, but, what we do know is that the number of moving parts in electric cars is dramatically less.
Danny Fortson:
Yeah.
Sunil Paul:
Like hundreds and hundreds of fewer moving parts than a gas one.
Danny Fortson:
Orders of magnitude, yeah.
Sunil Paul:
Yeah, maybe not orders of magnitude, but a lot.
Danny Fortson:
Order.
Sunil Paul:
We’re talking like 33% fewer.
Danny Fortson:
Right, right.
Sunil Paul:
Which is a lot, and it’s a simpler design, there’s no transmission for example, and of course the battery is the big variable.
Danny Fortson:
Yep.
Sunil Paul:
But one of the interesting insights about batteries is that while they are warrantied based on miles, that’s not how they degrade. A battery degrades on charge cycles. So, if you drive your car, whatever, 20 miles every day, and then charge it up every night, that’s a charge cycle. But if you drive your car 200 miles every day, and charge it up, that’s also a charge cycle. So order of magnitude difference in the number of miles, but the same number of charge cycles. So batteries could last order of magnitude more miles than are currently advertised. The average person can’t, battery recycling is not the kind of thing that people keep track of in their heads, but miles are, and so that’s why everyone talks about miles.
Sunil Paul:
Yeah, so it’ll last much longer, but the other interesting thing about this is that because they last longer, it magnifies our advantages, these other two economic advantages. And, here’s another interesting insight that we’ve developed recently is that, those advantages actually increase over time. So think about the cost advantage of operating an electric car versus a gas powered car.
Danny Fortson:
Yep.
Sunil Paul:
The fuel advantage and the maintenance advantage are better, clunker versus clunker, than brand new versus brand new. Your old clunker gas car gets worse gas mileage, and breaks down more often, than your brand new one.
Danny Fortson:
It’s like an old person, not to be too crude about it, but the older you get, the more things go wrong with your body, the more time you spend in the hospital, the more bills you have to pay to keep on the road, so to speak.
Sunil Paul:
Right.
Danny Fortson:
I don’t know if you want to use that in your deck, use a picture of an old person.
Sunil Paul:
So I don’t, yeah, I don’t even know how to make that into a metaphor with electric cars.
Danny Fortson:
Moving swiftly on, anyway, I understand what you’re saying.
Sunil Paul:
And then, also, this idea of the virtual power plant. In other words, the idea that the electric car can serve, all these huge numbers of electric cars, I mean, they are going to represent the largest store of electrons ever. And, meantime, the grid needs to get to zero carbon, and how’s it going to do that? It needs to rely on cheap electricity, which is intermittent. So bringing those three together, solar, winds, that are intermittent, and batteries in EVs, is one of the big challenges, but it’s also one of the biggest economic opportunities. And that value also increases over time because, today, there’s not really that much value, but down the road, because of regulation, because of technology, that value will be greater. So these two economic advantages are appreciating rather than depreciating, which is the traditional way that you think about an automobile.
Danny Fortson:
So what is the model for Spring Free then?
Sunil Paul:
So what do we do? You did say there’s going to be like a couch, so.
Danny Fortson:
It is, I mean, and I’m very comfortable.
Sunil Paul:
I know.
Danny Fortson:
I’m very comfortable.
Sunil Paul:
This not an elevator, dude. This is couch time. This is the couch pitch, not the elevator pitch.
Danny Fortson:
Well, yeah, and it looks like you’re sitting on the floor, so you’re very comfortable.
Sunil Paul:
I am on the floor. Yeah. So here’s what we do. Our first product that takes advantage of that first advantage, that lower cost of operation, we call the Mileage Purchase Agreement.
Danny Fortson:
Yeah.
Sunil Paul:
And it’s pretty simple, we charge cents per mile, I think anywhere from 10 cents up to as much as 30 cents per mile, for use of the car. We use that revenue line to make the capital cost more affordable, and we’re collecting that cents per mile for the life of the vehicle.
Danny Fortson:
Okay.
Sunil Paul:
And that’s largely how we get to a lower cost for the vehicle.
Danny Fortson:
So that is immutable, whatever the level is, 10 cents, 15 cents, whatever. That’s just…
Sunil Paul:
I wouldn’t call it immutable, we have varied that pricing depending on the market.
Danny Fortson:
Right.
Sunil Paul:
Which we’ll talk a little bit, I’m sure, at some point, about who the current market is and who the future market is. But yeah, so that’s one product. The virtual power plant idea, we don’t yet have, but is a kind of upcoming capability that electric cars will have and we, of course, are working on that as well.
Danny Fortson:
Right.
Sunil Paul:
So yeah, a Mileage Purchase Agreement, you’d pay a monthly fee, and the people who are using it today, they’re paying a monthly fee and they’re paying per mile. We are going after high mileage drivers, so often when I tell people this idea, they’re like, “Oh yeah, that’d be great for my car, I don’t drive very much.” I’m like, “No, we don’t want you.”
Danny Fortson:
Right, because it probably wouldn’t make sense.
Sunil Paul:
You’re terrible.
Danny Fortson:
Right?
Sunil Paul:
Yeah. No, I mean, look, an electric car that you park in the garage will never pencil for TCO. An electric car that you drive all the time, that you’re putting like a hundred thousand miles a year on, pencils very quickly. So we want those cars and those situations where people are driving a lot. And if you take the intersection of drive a lot and put a lot of miles on, and there are electric cars today, which is basically sedans, there aren’t really a lot of SUVs or pickup trucks, that intersection is car sharing and ride sharing, and gig delivery. And so that’s our first set of customers, our fleet managers that do car sharing, not ride sharing, but car sharing.
Danny Fortson:
Taxi companies?
Sunil Paul:
No. These are folks who are typically anywhere from five cars to maybe a hundred cars.
Danny Fortson:
Gotcha.
Sunil Paul:
And they are on platforms like Turo, or Getaround, or Hire A Car, which is a small one that actually is focused on the gig economy. And so the end customer is a leisure traveler, someone, like you can use Turo when you’re on vacation and they’re, both Turo and Getaround operate here as well as in a few overseas locations.
Danny Fortson:
Yeah.
Sunil Paul:
It’s like Airbnb for cars, that’s the simplest way to explain it. So fantastic that that is the explanation, and everyone’s like, “Oh yeah.”
Danny Fortson:
That’s an indication of the time we are in the innovation cycle, where previous innovation is the shorthand for the next one.
Sunil Paul:
Yeah, exactly. So there’s a lot of these folks in the United States. Turo just released their S1, and in it they say that there’s 85,000 hosts.
Danny Fortson:
Wow.
Sunil Paul:
And we know that, from not just this marketplace, from many other marketplaces, that usually it’s about 20% that end up representing most of the volume, and they tend to run as businesses rather than hobbyists. So your neighbor might have a car out on Turo, but that’s not our target. Our target are the people who’ve said, “Hey, I can make a living at this. I’m going to quit my job and go run a fleet of 10 cars.”
Danny Fortson:
Right.
Sunil Paul:
And so, yeah, those are our customers right now, and that’s our product that we call InstaFleet, which, kind of the name is what it’s all about. You can quickly expand your fleet. And by the way, this is almost always displacing gas powered cars.
Danny Fortson:
Right.
Sunil Paul:
Which is part of what I love about it.
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Danny Fortson:
And so is the idea then that there is no, you’re not having to put money down for a lease, or buy a car, or is it just this monthly fee plus whatever the mileage is? So is the idea that-
Sunil Paul:
Yeah.
Danny Fortson:
You can do that instantly and get five cars, or whatever?
Sunil Paul:
Yeah, that’s right. So there’s no personal guarantees, there’s a security deposit, but there’s no down payment, so it’s a very affordable way to expand your fleet, and without messing up your personal credit.
Danny Fortson:
Got you.
Sunil Paul:
And it’s the reason why we’re getting really strong traction there. So that’s car sharing, as distinct from ride sharing, where we have announced something that won’t launch until the Fall. And that is a something we call Free EV, and Free EV is the ability to get, if you’re a high mileage driver, really only if you’re a high mileage driver, you can get a car for just cents per mile, as low as 30 cents per mile. And that’s also done really well, we’ve got well over 500 signups. We announced 500 signups after one week. So, anyway, that’s a whole different segment because it’s just typically one driver, one car.
Danny Fortson:
Yeah.
Sunil Paul:
But, what they have in common is they also use sedans, and they also do a lot of miles, and they make money on the cars. So this is like the beginning of our market entry.
Danny Fortson:
Got you.
Sunil Paul:
We will do more, but you’ve got to start with the niche that really, really wants you, and we’ve definitely found that niche.
Danny Fortson:
So where are you sourcing the cars from? Given that there aren’t a lot of EVs around. Obviously, there’s a lot of ramping up going on, but do you have some kind of supply deals with Tesla or somebody else, or how does that work?
Sunil Paul:
Yeah. We have supply deals with Nissan, we have a fleet relationship with Tesla, we have a strategic partnership with Cox Automotive, which listeners may not be familiar with, but it’s a huge privately held company that processes more cars than anyone else, six million cars a year.
Danny Fortson:
What does processing a car mean?
Sunil Paul:
Well, the biggest thing they do is they run the largest car auction.
Danny Fortson:
I see.
Sunil Paul:
Called Manheim. But they also have some consumer brands like Kelly Blue Book.
Danny Fortson:
Oh yeah.
Sunil Paul:
And Autotrader, things like that, they have a lot of, their brand names are-
Danny Fortson:
Yeah.
Sunil Paul:
They have a whole universe of brands. So we have a partnership with them for being able to secure the cars, and logistics for nationwide ability to operate, condition the cars, and to deliver the cars, and deal with paperwork. There’s a lot of things that you’ve got to do in order to be able to manage a large car fleet, and Cox has been a fantastic partner in that. So yeah, that’s how we get supply, and then we’re also working with other OEMs that we haven’t announced yet to get supply from the factory, and continue to talk to more.
Danny Fortson:
Was it hard to line up, or do you have multiple financial partners, or banks, or what have you, to line up the financing lines, because obviously it’s a different type of model. How did that come about? Or what was that process like?
Sunil Paul:
It’s pretty interesting. At the time I thought it was so novel, but I think we’re actually following a FinTech playbook, which is, start out with high net worth individuals for the financing, figure out a way that they benefit, kind of preferentially, because they’re individual investors, which we’ve done. Then move to institutional capital.
Danny Fortson:
Yep.
Sunil Paul:
Which we are in the process of doing. And then ultimately either go to public markets, there’s debt offerings, asset backed securities that are offered in the debt markets, or become a bank, or buy a bank, to get to very low cost to capital. And that progression is very much what we have in mind.
Sunil Paul:
So far, what we’ve actually delivered on and are executing on is individual capital. So, we figured out some very interesting tax advantages and tax structures that provide a great return for an individual. And we’ve used that, plus the fact that when you’re providing capital for these cars, you’re having a significant greenhouse gas impact. Every car that we deploy, because they’re high mileage cars and they’re almost always displacing a gas powered car, every car is displacing about nine tons of CO2 per year. What does that mean? The average US household emits less than eight tons per year.
Danny Fortson:
Right.
Sunil Paul:
So it’s a lot, it’s a big impact.
Danny Fortson:
Right.
Sunil Paul:
So anyway, that’s the starting point, is individuals. We’re out in market right now talking to institutional capital for asset finance. In other words, buying cars, and that’s going quite well. We’re in the midst of landing that process, and we expect that doing an ABS, Asset Backed Security, we are going to try to do as soon as possible. We know we need to have a certain scale to do that, and what we know from solar is that, Solar City did the first solar ABS, and actually the guy who did that, inside Solar City, is an investor, David Arfin. And if you can go look at those filings, they had about three years of experience on those solar PPAs, solar leases.
Sunil Paul:
So the question for us, and ultimately for public investors, is, how much time do we need? This is a much, much better characterized asset class, people have been financing cars for more than a century, so it’s much better understood than solar. But, it’s a new style of investment, it’s a new financial structure, it’s got the technology overlay. Anyway, we are hopeful that we can get to ABS sooner than solar did.
Danny Fortson:
Got you. Got you. So, how much money have you raised up to this point? Because you have some well known folks backing this, right?
Sunil Paul:
We’ve been very fortunate to get some very high profile people involved in the company. Folks like Reed Hoffman, Founder of LinkedIn.
Danny Fortson:
Yep.
Sunil Paul:
Mark Pincus, Founder of Zinga, Ev Williams, Founder of Twitter, already mentioned David Arfin, who pioneered solar leases, Ron Fisher at SoftBank, all kinds of very interesting folks that are involved in the company. We haven’t disclosed the specific amount, but yeah, it’s enough that we’ve deployed well over a hundred cars using that capital.
Danny Fortson:
And when did the company actually officially start?
Sunil Paul:
Yeah, the official incorporation was July of last year.
Danny Fortson:
Gotcha. And so here we are, it’s 2022, you have Tesla worth a trillion dollars, which is insane. You have Detroit and every other big car making center of excellence around the world fully going all in on electrification. It feels like we’re kind of, on a much bigger scale relative to say ride sharing a decade ago, we’re at the beginning of a new phase here with huge amounts of money and behavioral shifts in flux. So I’m just curious, from your previous experience, to use your words, how do you not get your ass handed to you again?
Danny Fortson:
What is the key to, because it does feel like, and people who listen to this podcast will know, we’re doing more and more on climate tech because it does feel like there is a big shift happening both in terms of money, talent, brain power, institutional money, there’s a big shift happening. And there’s a lot of excitement, and a lot of stuff happening, there’s going to be a lot of experiments, a lot of them aren’t going to work, a lot of them are. But it just feels like it’s very frothy and interesting right now, and you’re right at the cusp of that.
Sunil Paul:
Yeah. Well, first of all, I’m so excited that we’ve got all these things that you mentioned, top of the list, talent. The fact that we’ve got so many people that are excited, feel like they want to go do something that makes a big difference in the world, it all starts with great talent. Capital is the second big thing. And you ask, how is this business defensible? Another way of saying, how do I not have my ass handed to me? And look, really, there are several layers to the answer. I used to be a big believer that you have to focus on the moat. I now believe you have to build a fortress. There’s certainly a piece of the defensibility, but you have to link it up with a strong brand. A strong band by itself will not work, but it’s a piece of the whole thing.
Sunil Paul:
The significant piece of our defensibility is all of these fleet managers, all these car sharing hosts, they are our customers today, but they will also be a channel for future offerings. For example, Free EV, which is a long term product, not a daily or weekly product, rental, it’s something that, you’re going to hold onto this car for a long time. We’re going to work with these fleet managers to deploy that product. Well, that’s pretty powerful, because now we already have many dozens of fleet managers around the country that we can work with to deploy it. So, that’s one. And there’s all kinds of things we’re doing to reinforce and make their lives better, and work with them.
Sunil Paul:
The second is, and another important lesson out of Sidecar, is just do not be out raised, and there is value in having the largest pool of capital. In FinTech, it is especially true because we have to get to the lowest cost of capital. And we want to get to the lowest cost of capital not just to lower our prices for everyone and to build defensive advantage, but because it’s a climate imperative, our whole reason to exist is to get to very large scale. And so everything kind of fits together. If we can’t get to large scale, there’s no point in continuing.
Danny Fortson:
Right.
Sunil Paul:
That’s what we’re all about is, get to large scale. So that by itself is a form of defensibility because it’s not that easy to get to large scale. And once you’re there, you have access to getting to an ABS, for example, Asset Backed Security, is not that easy, and once you do it, once you’ve built the relationships and the track record, yes, other people can do it, but they also have to be at pretty significant scale to be able to do it.
Sunil Paul:
There are other layers and other aspects of our fortress, that’ll take another little podcast to go through all the details, but there are other ways that we are very consciously thinking about, how do we build defensibility into the business? And I got to say, it’s not just for the sake of defensibility, it is, at its core, driven by how do we deliver great value for our customers, that’s number one core value around it. And then number two is, what I already mentioned, how do we get to large scale and have climate level impact?
Sunil Paul:
So, I said earlier, I’ve been trying to give away this idea for 10 years.
Danny Fortson:
Yeah.
Sunil Paul:
Well, if Elon Musk had gone around for 10 years trying to convince the car companies to make electric cars, nothing would happen.
Danny Fortson:
Yep.
Sunil Paul:
They’d all still be making crappy compliance cars. The reason why it’s happened is because Tesla is worth a trillion dollars. And so now boardroom are like, wait a minute, okay, that flaky little company that we thought was going to go away, it’s worth more than you and all our competitors combined.
Danny Fortson:
Yeah.
Sunil Paul:
That’s where we need to be. We need to be in that position where the boardrooms of companies that today, frankly, they look at electric vehicle financing as minor and not that important.
Danny Fortson:
Yeah.
Sunil Paul:
They need to be saying, “Wow, Spring Free EV is worth more than us and our competitors combined, what are we doing to stand up something that is like that?” That’s where we’re headed.
Danny Fortson:
So just thinking about the company, it feels like there’s a brand that is very specific to people who drive cars, fleet managers, et cetera. And then it’s almost like it’s a bank slash financial institution, which is, I’m trying to conceptualize how this would be seen on the public markets, for example. Are you seen as a bank? Or a consumer brand that helps people get into electric cars? Or both? It’s an interesting kind of juxtaposition. I don’t know how you think about that, or is it both?
Sunil Paul:
There are examples out there that I think are instructive, Affirm, SunRun. I mean, these are companies that have B2B presence, and they have a consumer awareness and a consumer brand. They serve as financial entities, but they also have a very strong technology component that is fundamental to their existence and the ability to deliver their product. Those are examples, there are many others. We are a FinTech company, and that means we’re a platform that enables capital to be channeled into specific demand of a product that we have formulated and that is made possible through our technology. And that general description fits Affirm and SunRun and Lending Club and SoFi, and on and on and on.
Danny Fortson:
Before I let you go, I just want to zoom out a bit, because you’re like a tech OG, an internet OG, if you will. So if you could just give people a quick sense of your involvement going back, because I think you were, early days, at AOL, if I’m not mistaken. Because I also want to just get a sense of, I mean, you’ve seen this whole internet movie play out, right? And now the biggest companies of the world are tech companies. It seems to me, we are at the cusp of a new wave, when you have people like Stanley Fink at BlackRock saying the next thousand billionaires are going to be climate tech billionaires.
Danny Fortson:
It does feel like, again, going back to the idea of this big secular shift, this awakening in all the capital markets, et cetera, around climate, and just trying to put that in context of what you have seen in your career, going back to the early days of tech, that weird thing called the internet, what that has turned into, and if there’s any parallels you can see or comparison you can make.
Sunil Paul:
Yeah. Cool question, that’s yet another whole couch talk. But in brief, I was lucky enough to land the job as the Internet Product Manager, at a company called America Online, before it was officially changed to AOL.
Danny Fortson:
Right.
Sunil Paul:
Back when there was just one Internet Product Manager, that was it, and I kind of winged it.
Danny Fortson:
One Internet Product Manager at an internet company. That’s fantastic.
Sunil Paul:
Right. And it’s because I had been messing around with this strange new thing called the internet, at this government think tank, this congressional agency that I worked at, at the time, Office of Technology Assessment.
Danny Fortson:
Yeah.
Sunil Paul:
And jumping from government to private sector is usually pretty hard. Anyway, it was very early, very early, it was the days of Prodigy and Copy Serve and America Online.
Danny Fortson:
And 56K dial up, yeah.
Sunil Paul:
And 56, 56K was fast.
Danny Fortson:
Yeah.
Sunil Paul:
That was the fast modem. So I experienced and lived through and started a company at the beginning of the dot com craziness. I sold that company, actually started it with Mark Pincus, who went on to start Zinga, as well as many other companies. And then sold that company, and moved out to the Bay area and started my second company, Brightmail. And that was, interestingly enough, also during the dot com boom, where I watched a lot of my friends go through that crazy rise and then crash. And weirdly enough, Brightmail actually did really well after the crash.
Danny Fortson:
Oh.
Sunil Paul:
Our business picked up. We were an email security company.
Danny Fortson:
Right, right, right.
Sunil Paul:
So that was kind of, boom bust, cycle one.
Danny Fortson:
Yep.
Sunil Paul:
And then, after selling Brightmail, we built that company to profitability, filed an S1, we were ready to go public, got a great offer from Symantec and sold, I started entering Cleantech investing, back in, that would be now the mid 2000s.
Danny Fortson:
Ooh, yikes.
Sunil Paul:
Yeah. That mostly did not turn out so well, so, boom bust, cycle number two.
Danny Fortson:
Yep.
Sunil Paul:
Quickly followed by 2008, which was more secular, economy wide, boom bust. And so, interestingly enough, the company that was most successful out of my investments in Cleantech 1.0 is a FinTech company, Solar Mosaic. And of course, back then we didn’t call them FinTech companies. But that, following the evolution of that company has deeply influenced my thinking about this company, and kind of what are the leverage points in climate tech?
Danny Fortson:
Right.
Sunil Paul:
I would say one other important thing that’s shaped my thinking is that Gigaton Throwdown study, where we looked at, and this was recently, a big study, we had, I don’t know, maybe 20 or so people out of academia, and another 20 or so out of industry, that worked together to try to figure out how do we scale up? What are the obstacles to scaling up to meaningful impact? And we defined it as one gigaton of carbon dioxide reduction within a decade.
Sunil Paul:
And the pathways that we could see clearly could get there were solar and wind, which turned out to be correct. And then we identified the obstacles in the others. And the reason I say all that is that there’s a lot of focus in climate world, climate tech, climate investing on, what’s the big breakthrough idea that’s going to, whatever, some new technology that’s going to get us there. And I think there’s a role for some of these breakthrough technologies, but they are mostly things that need to start being deployed in like 2040. Carbon draw down reduction, like whether it’s cement, or direct air capture, all of those kinds of technologies need to start being deployed at scale in that timeframe.
Sunil Paul:
But first we got to get to net zero and then we got to go below in order to stabilize the climate. So getting to net zero, we have the technology, we have the macro technology, the atoms. We’ve got electric cars, they are on a learning curve. We have floatable tank, that’s on a learning curve. We have wind, it’s on a learning curve. It’s getting cheaper as we increase the volume.
Danny Fortson:
Yeah.
Sunil Paul:
What’s missing are the financial and information technology tools to weave it together. And honestly, that’s one of the lessons, look, one of the lessons out of Cleantech 1.0 is that building a big successful electric car company is actually possible, and that’s easily the biggest success.
Danny Fortson:
Yeah.
Sunil Paul:
But the other big successes are FinTech companies, SunRuns and Mosaics of the world, GoodLeap, all the rest, that have proven that proper coordination of information and money can move markets. Yeah, so anyway, I think there’s huge leverage. We, especially Silicon alley culture, we are deeply immersed in the power of information technology and how it can totally transform the world. And I do think that we, as a broader community, it pays to continue to lean into that power rather than think that it’s going to be some new anecdote or whatever. Those technologies do need to exist, but I personally am not excited about betting against someone else’s learning curve.
Danny Fortson:
Yeah.
Sunil Paul:
Learning curves are incredibly powerful. They are incremental, and yet, over time, 5% a year, 10% a year improvements are revolutionary over time, and they’re basically slower versions of Moore’s Law.
Danny Fortson:
Well, it’s funny. Like I said, I used to cover energy in the UK, and I remember 10 years ago writing about solar as this heavily subsidized boondoggle that just was so wildly uncompetitive, and now it’s come down 90%.
Sunil Paul:
Right.
Danny Fortson:
And now it’s the single biggest source of new energy installations in America. And that’s, as you say, it’s been steady, steady, steady, and then all of a sudden it’s a revolution. You’re like, oh my goodness. Wow.
Sunil Paul:
The power of compounding returns.
Danny Fortson:
Yeah, exactly. Exactly.
Sunil Paul:
Yeah.
Danny Fortson:
Given all of the ups and downs of your career, I usually ask this question to everybody I have on this pod, which is, what was your worst day of work? I imagine you must have something that kind of bubbles up, just like a flash bulb moment.
Sunil Paul:
I’ve had some extraordinary bad days at work. Unfortunately, a few have involved sort of risks of physical violence, which-
Danny Fortson:
Oh, wow.
Sunil Paul:
That is not the kind of stuff you want to-
Danny Fortson:
No.
Sunil Paul:
That’s a bad day.
Danny Fortson:
No.
Sunil Paul:
And in one case, actual physical violence.
Danny Fortson:
Oh my goodness.
Sunil Paul:
But sticking to this theme that we’ve been on, I’ve got to say one of the worst days was learning that Lyft had raised a huge round from Andreessen. That was a bad day.
Danny Fortson:
Because that was kind of a death knell for you guys.
Sunil Paul:
It turns out, yes.
Danny Fortson:
Right.
Sunil Paul:
We didn’t necessarily know it at the time, but we certainly knew it was bad news.
Danny Fortson:
Right, right, right. Hence the need to get big and get funding, as much as possible, as quickly as possible. But I mean, it’s a different world now, obviously you have soft banks, and tigers, and people who are willing to write very big checks and choose winners, and almost make them so, if at all possible, by just giving them so much money that other people are scared to try.
Sunil Paul:
Yeah. Money is, well, look, especially in FinTech, like I said earlier, in some of these earlier network effect companies, I think there was a desire to just use money to build network to be so big that the network effect was impossible to overcome, to also just, frankly, drive competitors away, or out. And now, I mean, in the case of FinTech, it’s almost a necessary part. When we talk about raising a billion or 10 billion dollars, that’s not so that we can drive out competitors or build massive network effect, it’s just what we need to do.
Danny Fortson:
That’s just what’s required. Right. Right.
Sunil Paul:
Right.
Danny Fortson:
Well, I wish you luck. I think it’s a fascinating company at a fascinating time. I think there’s going to be lots of really interesting stuff happening, and it feels like the electrification of everything is going to be frustratingly slow in some ways, and blindingly fast in others.
Sunil Paul:
Well said.
Danny Fortson:
But we shall see.
Sunil Paul:
We shall see, we just have to get it out to the 99% rather than the 1%, which is, you and me are getting our electric cars and our induction cook tops, but we’ve got to get it out to the 99%.
Danny Fortson:
Correct. Correct. Well, look, thank you very much for taking the time, I really appreciate it.
Sunil Paul:
Great being here. Thank you so much.
Danny Fortson:
And that is all the time we have. I want to thank Sunil for taking the time to chat. I want to thank you all for taking the time to listen, for the ratings, for the reviews, for telling your friends and neighbors, your enemies, your frenemies, your loved ones, anyone, everyone. It always helps when you spread the word, so thank you, thank you, always.
Danny Fortson:
This week in the Sunday Times, I’ll be writing about, believe it or not, Elon Musk, and some other social media stuff. So do check that out at thetimes.co.uk. You can also find me on Twitter @dannyfortson, and you can email me at danny.fortson@sunday-times.co.uk. That is it for me this week, thank you, thank you, for listening, and have a fabulous weekend.