We primarily talk about pulling carbon dioxide out of the atmosphere and ocean and storing it. But there are some places where we should actually be using it productively. Is graphite for lithium-ion batteries one of those places?
Makoto Eyre is the Founder and CEO of Homeostasis, a Tacoma-based company making graphite from carbon dioxide. In the future they aim to colocate their reactors with carbon capture and/or removal to create a modular and distributed system of graphite production.
Before the Industrial Revolution we had artisanal production and cottage industries. Then we had centralization and automation. What will production look like when centralization is no longer necessary to provide the economies of scale we had always thought it needed?
The conventional ways graphite is produced is also not so ecologically-inclined. What if the future were both simpler on supply chains and ecology?
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Full Transcript
Ross Kenyon: You have found yourself at the Reversing Climate Change podcast. I’m Ross Kenyon, I’m the host. Before we get started today, I want to tell you about the sponsors of this episode. I’m so grateful we have a new one, which is cool: CDRjobs. Surely if you work in carbon removal or aspire to, you have been on the CDRjobs website. They are the place to find all of the CDR jobs. No adulteration, no other adjacency. It’s carbon removal. So that’s the place to look.
One of the things that is very cool about being a CDR job posting site is that they get a lot of data on employment in CDR, and they have not slept on their data duties. In fact, last year they did a CDR salary report, which details how much people make in the space, if there’s any discrepancies across gender or race, of which countries, where are jobs being created in carbon removal. They gathered over 800 data points, 400 individual responses, and 400 salaries from job openings, which represents only a partial sample size. But even still, that report generated a four-figure amount, which is a lot of times to download a report. People want this information, and they’re doing another survey this year.
They’re doing another survey this year. So recently I put out a small episode about why I think this kind of work is important, about HR decisions, about pay transparency. Why I think that’s on net a good strategy if you are an employer, and also if you’re an employee, why you should talk to your colleagues about salary and destigmatize conversations around that topic, and why they can be really useful. And I think the CDRjobs 2025 salary survey is a really powerful way to anchor that conversation, to give you something to talk about, because it makes sure that employers are creating a trustful environment. And it’s also making sure that employees are not being taken advantage of in any way.
I don’t suspect that is happening. CDR is a small place that is very mission driven, but it is beneficial for us to work together to make sure that, you know, our peers are taken care of, or we ourselves are taken care of. And if you are in a position of power, that you are creating a kind of environment where people really want to love the company that they’re at. And this is potentially one way that you can do that. So I would say if you are already working inside of carbon removal, please go fill out the 2025 salary survey. The link is in the show notes. And also if you’re looking for a job in carbon removal, cdrjobs.earth, that’s where they are.
Go look through them, go apply for them. If you’re at a company and you want to sponsor their work, that’s also a possibility where you can get better visibility for your jobs. So thank you. New sponsor means a lot. Thank you, CDRjobs team. I appreciate your work and hope it continues for a long time. We also have our beloved longtime sponsor, Arbonics, back again. Arbonics is fascinating forestry work in the EU, primarily in the Baltic States, and they just released a new report on the state of European forest carbon credits in 2025. It’s a practical guide to how forest credits are generated, verified, and how developers handle permanence, leakage, and social integrity in a European context.
What’s cool about it is that it also breaks down how methodologies differ and how pricing differs between these methodologies, and why the timing matters in a supply constrained market. Unless you are a deep, very special type of nerd, this content is hard to parse. But I think the work that Arbonics is doing to try to make this easily graspable by busy people is really important. And, you know, there’s really just not that many European forest carbon credits. With demand rising and afforestation projects taking years to mature, many high quality credits are sold out before issuance, which I’m sure you’ve seen this or at least heard about it. This report is a timely overview of bottlenecks in the space and the actors who are looking to solve it. You can find this report in the show notes. In any case, thank you, CDRjobs and Arbonics, for your sponsorship. Means so much to me. And now we will allow the show to begin in earnest.
Hey, thanks for listening to the Reversing Climate Change podcast. I’m Ross Kenyon. I’m the host of the show and a veteran of the carbon removal industry. Today, I’m doing a show with Makoto Eyre, founder and CEO of Homeostasis, which is a company down in Tacoma turning captured CO2 into graphite for lithium-ion batteries. We talked about to what degree the trade war and the focus on critical minerals and materials is important for Homeostasis. We discussed what the graphite industry looks like now. And we also spend a lot of time talking about industrial paradigms and the move from artisanal production and cottage industries to centralized production and the assembly line, Taylorism, Fordism, and then whether we’re doubling back on that now with much more distributed high tech models of modular industrialization like additive manufacturing, 3D printing, etcetera.
It’s a really fascinating topic. I like having conversations about what captured carbon can be used for and how they can replace supply chains that are either imperiled for trade war and geopolitical reasons or for environmental reasons, or both. I’m just glad we got to do this show. It was a lot of fun and I really liked visiting the Homeostasis facility and getting to see what they’re actually building. One quick request before we start this show, if you wouldn’t mind, please: just open up your podcast app right now, give a great rating and review in that app. It helps this show get out to more people. It’s super low effort, but also high leverage, and I would appreciate it if you could do that for me.
Also, if you’d like to become a paid subscriber of the show, it’s five bucks a month. It gets rid of those ads that Spotify puts in. There’s bonus content that comes out, and you’ll just be a super fan of the show. And it would be massively appreciated if you can do any of those things. Any combination of them, it would be wildly appreciated by me. But in any case, here’s your show with Makoto. Thanks for listening. Here it is.
Makoto, we’re doing this all over again. I came to visit. I almost got to wear a hard hat. I had a recording device in my hand. The audio was bad. I’m so sorry.
Makoto Eyre: No, I — it’s, it’s OK. I appreciate the fact that you came out and you were able to see the fun things that we’re putting together on site.
Ross Kenyon: On a day trip, came down to Tacoma, got to go to the Dockyards area where serious industrial activity is occurring, and then also a bunch of carbon removal and climate tech stuff is also happening in the Tacoma dockyard somehow.
Makoto Eyre: Yeah, yeah. It’s a fun little industrial space. The fact that we’re able to build things up in that location is really a blessing. It’s great.
Ross Kenyon: Makoto, we’ll just start in the most basic way possible. What is Homeostasis? What are you guys working on?
Makoto Eyre: Yeah. So fundamentally we are making graphite, which is a critical material for lithium-ion batteries, but we make it out of CO2. So when you look at incumbent technologies today, graphite, which functions as the anode in lithium-ion batteries, is either mined or it’s made from fossil fuels. This has a range of externalities, and by synthesizing from CO2, not only are we creating a more sustainable product, but we’re creating a lower cost product, and one that is able to be produced anywhere. So something that is historically traded all around the world, we can produce practically right next to the customer.
Ross Kenyon: What kind of scale do you have to be at in order to be cost competitive with conventional sources of graphite?
Makoto Eyre: So fortunately not that big. For graphite for lithium-ion batteries, the kind of price parity standpoint occurs at around in the hundreds of tons per year. And for context, I mean, for people like you and me, 100 tons of material is a lot of material. For the market, that’s a drop in the bucket, right? So individual companies will require like a 10,000 ton supply from a supplier as table stakes right now. Those are going to be larger companies, folks like Panasonic, but the market itself is growing from hundreds of thousands of tons per year to millions of tons per year. So 100 tons per year being the turning point is nice and low.
Ross Kenyon: Does that take into account being able to supply CO2 to the process from CO2 that would be captured from ambient air? Or does that require CO2 being given to you by some concentrated supplier? How does that work?
Makoto Eyre: Yeah, it’s a good question. So there are market prices for CO2. Much of that is going to be reflective of capture from concentrated sources. And the conversations that we’re having with customers largely is rooted in doing capture at their facilities and converting their CO2 into graphite that they could use. So for the time being, we’re looking a lot at concentrated sources, but we love the tagline “mining the sky for graphite.” So keeping an eye on that as well.
Ross Kenyon: Do you have a sense on which kinds of direct air capture technology might be most compatible or most well suited to what you’re doing? Is it solid or liquid sorbents? Something else? What are you looking at?
Makoto Eyre: That’s, I mean, that’s a really good question. The short and most comprehensive answer is we’ll see.
Ross Kenyon: I’ll give you “too early.” That’s fine. If it’s too early, that’s [unclear].
Makoto Eyre: In terms of like baseline chemistry, so like what our technology fundamentally is, it’s called molten carbonate electrolysis, right?
Ross Kenyon: Such a great name.
Makoto Eyre: It’s great, it’s great. It rolls off the tongue, right? So straightforward, but it’s descriptive. So we have carbonates, limestone and its cousins. We melt it and then we run electricity through it to cause some chemistry to happen, right? Molten carbonate electrolysis. So the reason I bring that up is, you know, carbonates are a major part of CO2 removal, CO2 capture, Heirloom Carbon being one of the leading figures in that space. And, well, so the way that those direct air capture systems sort of work is they have some kind of a metal oxide that’s exposed to atmosphere, it might be hydrated, reacts to the CO2 to form carbonate, and then they calcinate, right? They burn off the CO2, they bottle it and put it somewhere else, and that replenishes the capture compound.
Our electrolysis step basically replaced that calcination step, where we have a carbonate base, and when we electrochemically reduce it, we end up with carbon, oxygen and metal oxide. Now, the way we run our system today is we just percolate CO2 into that electrolyte, and in the reactor that turns the CO2 and metal oxide back into carbonate, which we could then break down again. But if we wanted to, we might be able to work with someone like an Heirloom or a Carbon Engineering, remove the metal oxide from our system and then expose it to atmosphere based off of their direct air capture approach. So there is some technical kind of overlap there. But again, it kind of comes down to what is the most efficient way of doing all of this, and it might just be easier to percolate CO2. So going back to my first, shorter answer: we’ll see.
Ross Kenyon: What’s happening with graphite right now? Is there a big market opportunity to produce this domestically? I mean, you founded Homeostasis years ago and I imagine the winds of trade war have come and now they’re behind you a little bit, or at least that’s my understanding as an outsider. How true is that?
Makoto Eyre: Yeah. So I would — the trade war is a trade war. I think even just looking at where material is being sourced from, this is a direction that we’ve had to move in anyway. Wall Street Journal recently released something quite interesting looking at different critical materials, some rare earth metals: who owns the supply? Where is it coming from today? And what was interesting was graphite was worse than rare earth metals, right? And everyone’s talking about rare earth metals right now. China owns something like 97% of global graphite reserves. And for rare earth metals, I think it’s something like 94%. So that is just not a good situation for us to be in, right?
Trade war or not, we should have a little bit more diversification of our industry base, of where we’re getting our materials from. And so we’re really responding to that dynamic. The fact that we’re able to produce this kind of wherever, because CO2 is present in pretty much all industrial processes — not all industrial processes; it’s present in many industrial spaces — and it’s also something that could be plucked out of the air, means that there’s a very flexible technology, which is coming out to be a competitive advantage, a strategic advantage for us and our customers.
Ross Kenyon: Is there natural graphite within the United States that has just previously been uneconomical to mine relative to buying it from China? Like, is there a big supply of it? So big? Like surely there must be some graphite here?
Makoto Eyre: There is some graphite here. North American continent in general, there’s a pretty big mine that’s going online in Alaska with a company called Graphite One, and they’re going to be doing refinement in Washington, at least that’s been the plan. There’s another company called Northern Graphite that’s based in Canada that has a few lines over kind of on the eastern side of the continent. And there are a handful of others; people are doing some prospecting in like Minnesota and a couple of other locations. There are a couple reasons why that’s a little bit of a challenging dynamic, right? First, it’s, you know, not the best practice. It’s a lot of strip mining. It doesn’t do a whole lot of good for the local ecology. And so it’s a practice that, you know, would be nicely avoided.
It’s also — like, we’ll walk through some numbers, right, just to kind of wrap our head around the efficiency. Without naming names, there is a new project that’s coming online. They’re thinking about a billion dollars into all the CapEx requirements to get this whole project up and running. Getting a mine up and running is a capital intensive exercise, right? Once that billion dollars is sunk in, they will be extracting something like 3 million tons of material from that mine every year. They need to go through a purification process. You have this material, you have graphite ore, you expose it to hydrofluoric acid to remove any of the contaminants. That’s really nasty stuff. You do a bunch of milling, bunch of sifting, and eventually you have the grains of graphite that you need for batteries.
The graphite that is at the purity level required for batteries is something like 60,000 tons per year out of the 3 million tons of material that they’re using. And then out of that, the amount that can actually be used as anode material because of particle size selection is — off the top of my head, it escapes me exactly, but it’s something like 20,000 tons, right? So you’re looking at a really small fraction of total product that can be produced for this industry relative to the amount of material that’s getting moved. Now let’s look at that 20,000 tons per year relative to the North American market based off of a DOE report. Looking at all the batteries that are being produced on the North American continent, we need something like 1.3 million tons of graphite per year. So we’re going through all this effort, putting in a billion dollars of investment into this new mine to produce, again, a pretty small fraction of the amount of material that the continent needs. So the reserves are there, but it takes a lot of effort, a lot of capital for marginal returns.
Ross Kenyon: When you’re talking about what the continent needs, is that assuming that within the current geopolitics, the US is going to be a bigger battery manufacturer than it currently is? Is that for a projected demand where we’re no longer getting as many lithium-ion batteries from China? Something else?
Makoto Eyre: This is based on announced capacities, right? So announced projects, steel in the ground. So we’re pulling from not speculative reports, but things that the DOE reports on based on the companies that are reporting to them.
Ross Kenyon: Like currently existing users of commercial graphite.
Makoto Eyre: I mean, a lot of these are projects that are being built, right? So current and/or near future users.
Ross Kenyon: What do your potential future customers think about what you’re doing? Does it sound sci-fi to them? Are they interested in the co-location prospects? How do they feel about it?
Makoto Eyre: Yeah, people are pretty excited. So some of the more fun conversations that we have are with customers who both have CO2 somewhere in their process and a need for this graphite material. So on that front, we’re solving a couple of problems at the same time for that customer. I think this is a good thing. No one has responded to this in a manner that’s like, “wow, that sounds like sci-fi.” People are impressed with the technology. People like the level of crystallinity of our material. That’s one of the measures of just how good it’s going to function as an anode — degree of graphitization or degree of crystallinity. So people are really happy with the technical outputs of our process. But yeah, nothing that’s like, “wow, this is sci-fi.”
Ross Kenyon: Sure. You’re producing a very high quality — that type of graphite, it sounds like, and that allows for higher performance.
Makoto Eyre: Yeah. So I mean, there are several measures — and sorry, I’m having my smoothie here.
Ross Kenyon: You can enjoy a smoothie here. I would’ve told you you can enjoy a smoothie. Go right ahead.
Makoto Eyre: Appreciate it. Yeah. So there are a handful of measures that you need — material properties that you need to look for to determine the performance that the graphite will have in batteries. Degree of graphitization or crystallinity is one of them. Purity is another. Grain size and shape is yet another. Grain size and shape can be broken out into the particle diameter and then the total surface area per gram of material. So you’re kind of measuring all these things, right? And then once you identify that you’re within the brackets of what people are looking for, you place that material into a battery and then you’re going to look at the battery performance and typically measure that against the control. So making sure that the only thing that’s different between your battery and a conventional battery is that material change, and you’re going to want to see either as good or better performance.
Ross Kenyon: The idea that you would have these different qualities breaks my brain for the same reason that when we were hanging out, like, half of the podcast ended up being — the chemical composition of graphite is just C. It’s just carbon, an enormous quantity of carbon atoms together in big long arrays. And I don’t understand, but what —
Makoto Eyre: Sorry, what? What?
Ross Kenyon: I just said that’s right.
Makoto Eyre: Yeah.
Ross Kenyon: And it’s like having quality differences within that where it sounds like — as a non-chemist, it just sounds uniform already. Like, how could there be variation when there’s such molecular simplicity? It seems like it should be simpler than you just described it. What am I missing? I mean, as a layperson.
Makoto Eyre: Yeah. So I mean, I guess there are a few ways of thinking about this, right? The kind of tangent that we went off on in the previous conversation —
Ross Kenyon: Not a tangent. It was core. It was core to this entire thing.
Makoto Eyre: — was just like leaning into the appreciation for how shape, how geometry has an effect on material properties. My co-founder, who’s the chemist on the team, suggested the use of water as an analogy. Right, when you have liquid water, it’s a bunch of molecules — an oxygen, two hydrogens — floating around, not really forming any kind of structure with each other. They have their slight polarity and that gives its ability to dissolve things like salts. But it’s when you bring the temperature down low enough that they begin to form a structured relationship with each other. And that fundamentally changes the thing that we’re looking at in ice.
Now, we’re not talking about, you know, the different ability for water to function as a battery material, right? But just kind of conceptually, the fact that what we’re observing when water turns into ice is fundamentally a relationship between molecules, and the molecules themselves are made of the same things, is kind of representative of what we’re looking at when we’re talking about different flavors of graphite. When we’re talking about carbon nanotubes and how that’s just carbon as well, how charcoal is just carbon — right, all these different materials that are just carbon, but it comes down to the shape.
Another analogy that kind of comes to mind, and this is rooted in a point of frustration that I’ve had recently, is in purchasing Brussels sprouts. You could only really get them in these crazy nets, right? Or you can get them on the stalk and then they’re extremely expensive. It’s just like, I need to choke a turtle or buy this crazy-looking stalk in order to make it happen. Why are these my two Brussels sprout options? But let’s think about that net, right? Because, I mean, fundamentally the way that graphite functions in a battery is like that net, and the Brussels sprouts themselves, we could call them being the lithium ions.
What’s effectively happening is you have these sheets, right? This kind of net, this lattice structure, this crystalline material of graphite, these sheets, and they have space between them, and the lithium ions are getting trapped between these sheets. The sheets of graphite, of graphene forming graphite, hold on to the individual lithium ions. The net holds on to the Brussels sprouts. If the spacing gets too large, then you’re not going to be very good at holding on to the individual piece of graphite, right? If the net meshing is too large, then the lithium ions are just going to fall through the — excuse me, the Brussels sprouts are just going to fall out of the bag. And so you need to have the right geometry in place for the proper molecular interactions that then result in something like holding a charge in a battery. Does that make sense?
Ross Kenyon: It does make sense, although I’m cracking up over here because of the example you chose. Do you know that Brussels sprouts and broccoli and cauliflower, they’re all the same plant? They’re all the same Brassica plant. They’re just speciated or quasi-speciated based around what we want out of them to produce. I thought you were going to say diamonds and graphite and graphene. They’re all just C, but they’re also just expressed in different ways because they’ve been selected for. Maybe the biological versus geological way of expressing this is different. I don’t know what the difference is between graphite and diamonds. I imagine diamonds are just much more highly pressurized and heated to some great extent. Maybe that’s right, maybe that’s wrong. But the Brussels sprout analogy also maybe works in a second unexpected way for you. I think that might [unclear].
Makoto Eyre: That’s great. I love that. I did not know that, and this is going to have to be my weekend reading now, is reading up on what — what is it, family tree, species tree — looks like. I’m not a biologist.
Ross Kenyon: Everyone listening at this point now, they’re just — they’re so stuck back when you said that something about choking a turtle. Everyone’s left, you know. It’s something about nets floating around in the ocean, right? It’s not good. It’s not good.
Makoto Eyre: To answer the difference between graphite and diamond, though — that is a good point. So again, both are just carbon. Perhaps one of the more shocking ones. Graphite is two-dimensional crystal structures, right? So like sheets of paper that are stacked on top of each other. That’s it, right? And that’s why it makes good writing material, because you can shear those individual planes away from each other.
Ross Kenyon: Yeah, we talked way too much about mechanical pencils. That featured into the previous podcast more than its share.
Makoto Eyre: Hey, pencils are good. It’s not — diamonds, meanwhile, form a three-dimensional crystalline structure. So the bonds that the individual carbon atoms are making with each other, rather than existing on a two-dimensional plane, extend into the third dimension. That creates a very strong material, right? If you imagine having two pieces of paper sliding on top of each other versus kind of like gluing those two pieces of paper together, you have a fundamentally different structural aspect.
Ross Kenyon: And for some reason it makes it all transparent and beautiful.
Makoto Eyre: That’s — again, at that point, we’re going to have to bring in my co-founder again to really dive into how that begins to impact things like optics.
Ross Kenyon: But graphite is one of the softest things you can have, and diamonds are one of the hardest, if not the hardest. And they’re the same chemical composition.
Makoto Eyre: Same chemical composition, just different geometry.
Ross Kenyon: Yeah. Wow. What were you going to say, though? I’m sorry, cut you off.
Makoto Eyre: Oh, that’s all. Just going into the mechanical properties that, you know, as a mechanical engineer, that component of it makes sense. How that begins to impact things like how light can move through the material is above my head at the moment.
Ross Kenyon: Definitely above my head. What would Homeostasis look like were graphite continuing to be imported from China? Would that change what your outlook is like? Would it change how you’re going to market, just from a commercial strategy point of view? How are you thinking about that?
Makoto Eyre: Yeah, I mean, really this is — as the economy appreciates the efficiency of energy storage, electric vehicles, as data centers get built out and there are more batteries that need to be built up to make up for the fact that transmission is still making progress towards supporting things like that — data centers — there’s just, there... the amount of graphite that’s needed not just on the North American continent, but globally, is massive. It is so large and is growing so quickly that the conventional means of production cannot keep up. So in either case, Homeostasis will be supplying graphite to the economy.
Ross Kenyon: Demand is just that intense right now with all of the various ways the economy is growing, and you’re just kind of set. Even if the trade war was not active, you’d still be in a good spot, you think?
Makoto Eyre: Yeah, yeah. I mean, you know, everybody needs graphite. Europe needs graphite, Asia needs graphite, Middle East needs graphite, North America needs graphite, South America needs graphite, Africa — like, everyone that’s using batteries is going to, and making batteries is going to need graphite. And so we’re here to do that.
Ross Kenyon: One thing that interests me about the way that you’re structured is that I think of the big waves of how production has worked throughout history. The first big wave was artisanal. You have small blacksmiths and shopkeepers who would do things on a very small scale. And then we went through the Industrial Revolution where centralization actually made a lot of sense, much more sense than it did with artisanal production, where when you combine the factors of production in one place, you get economies of scale that allow for unit cost to drop tremendously.
And now we’re coming out the other end of that, where I’m wondering if with 3D printing and modular industrialization, we might see more applications like Homeostasis come online, where rather than having some centralized facility that’s making graphite or mining graphite and refining it, we’re now at a place where maybe we will just have a much more distributed economy where these factors of production could be produced on site to an extent that we probably haven’t seen before. I’m not sure how the economics of that all work out, but I think it’s possible that we’ll see more of this moving forward. And I’d love your thoughts on that.
Makoto Eyre: Yeah, that’s really interesting. And I mean, I think there’s the decentralization component. There’s also like the just like modularity, right? Modular deployment of new technology. We’re seeing that a lot lately, right? How many new industrial tech companies have shipping containers as a part of their renderings, right, or as a part of their initial product offering? That’s just a prolific aspect, and we’re a part of that, right? And it’s funny that you mention economics as being a potential asterisk on this whole thing. I think that that is actually one of the drivers. From a project financing standpoint, it makes a lot of sense.
If you’re — let’s just say hypothetically, a materials company maybe making graphite for lithium-ion batteries, looking to get into hundreds of thousands of tons per year. Rather than going to Bank of America and saying, “hey, we need a billion dollars to finance this, can you give us this billion dollars?” — instead we could say, “hey, we’ve got a pilot that’s going to produce 100 tons per year. It’s one module. If you repeat this 100 times over, then we’re going to have a 10,000 ton per year facility. So can you finance this first pilot as a way of demonstrating our ability to do this production?” And then that acts as a proving point for a larger facility or for wider spread deployment, right? Maybe we only do 10 per facility, but there are 10 different facilities. Either way, it’s proving things out to project financiers that the technology that’s being developed is ready to scale.
So I think that there’s a level of kind of modularity, decentralization that contributes to that. And then even further, there’s — I think one of the interesting things about this whole kind of reindustrialization of the US conversation is this leaning into making things, right? I think I as a person just thoroughly enjoy making things. And the more robust our supply chain is in producing individual components, I as a tinkerer have just greater capability to make more sophisticated things, and I as an individual contributing to the economy then become that much more productive of a member of the economy. So I think actually being able to decentralize things in that way and create this robust supply chain where we have 3D printers who can make these custom parts is a tremendous factor to improving our overall productivity as a society, as an economy, as a country.
Ross Kenyon: Yeah, I like that last point. I’m curious. I’ve been hearing people talk about this for going on 10, 15 years. It seems like it gets closer, like I see more maker spaces. I see some of this technology coming down in cost and being more accessible, but I haven’t seen it impact mainstream production to some huge extent beyond places like Etsy. I’ll see a lot of this technology being used still at the artisanal level, and I’m wondering, like, will it become more mainstream commercial as time goes on?
I’ve got some thoughts on that project financing piece you’re discussing. One of the big problems of project finance, as I understand it, is that for a lot of these projects, those ticket sizes are too small for them to be interested in. There’s also questions about, OK, if you fund like a smaller modular unit, there’s also no guarantee that when you go up in order of magnitude, those same dynamics are playing as equally fundable. And it’s hard to know unless you build something that’s properly a pilot. And I think in some cases, some funders would rather fund one big ticket than having some distributed modular model that might require diligence in 15 or 20 deals versus one very big facility. I think it’ll probably take a very specific kind of project financier to put deals like that together. They’re probably out there, I just don’t know them yet. I’d be curious if you’ve spoken with any of them, or how you’re seeing them.
Makoto Eyre: That’s super observant, yeah. There is a gap. And the unspoken part of the story that I was telling there is, that first pilot, that one 100 ton per year box — we’d probably not be speaking with Bank of America to get financing for it, right? That would be a smaller project financer. And it’s through proving at that point that we would be able to get larger financers into the —
Ross Kenyon: Warren Buffett’s retiring. So I think, like, your chances are as good as ever to get them to take some risks.
Makoto Eyre: Fantastic. But yeah, so there is a gap. That being said, people have identified that there is a gap. And one of the beautiful things about the market is when people recognize that there’s a gap and that there’s value in filling that gap, people begin to fill it. So it looks like there are a number of entities that are beginning to fill that role that kind of exist as a mix between like venture capitalist, private equity, loan provider. It’s like this blended model. I think people aren’t exactly sure what to call it yet, is the signal that I’m getting. But people have noticed that between proving out the technology and having that initial pilot, to then getting to first of a kind, to then getting to nth of a kind — those are different buckets of financiers. And really getting to that first of a kind is a challenge, it seems.
Ross Kenyon: Yeah. The deals that I’ve seen put together like this have seen more project equity happening. Or the company that you’re selling products to might become an equity holder of either the project or the company itself with corporate equity, just as a way of dogfooding it, but also making sure that they have enough skin in the game where they can make managerial decisions if needed. I’m seeing deals like that take place even at these smaller scales, just because it seems like it’s necessary. It’s not like a huge amount of money, it’s like $100 million, but it’s still enough money where people would be pretty sad if it turned up empty.
Makoto Eyre: Yeah, yeah. The people would be pretty sad if it turned up empty. And I think that’s why we’re seeing that blended model, right? Because there is the ability to have equity in the project, there is the ability to have equity in the TopCo, there’s the ability to loan money to the project, to loan money to the TopCo. So I think for the people we’re looking at filling this gap, they are making that hybrid structure so that there’s some flexibility in terms of how they finance these individual projects. But it’s quite a bit.
But this is a total tangent. But you said something about dogfooding — dogfooding it, what? I’ve never heard that expression. What is that?
Ross Kenyon: It’s when you consume your own product. I guess it’s, if you work at a dog food company, it’s like, does your own dog like it? I don’t know if that’s where it comes from, but that’s kind of how I imagine it. Maybe if you’re talking to a corporate VC, maybe they want to invest in you, but they also want to make sure, like, would we actually want to consume this ourselves? And then there’s some sort of like accounting shenanigans I’ve never understood how it’s totally ethical, where a CVC can invest in a supplier like that, and then also that supplier gets to post sales that shows, oh, the company that the CVC is at then bought from us, and then it creates this valuation loop that always struck me as somewhat suspicious. But deals like that do happen, I think. I think it’s like how you de-risk early stage technology that is hardware oriented plays, as far as I know.
Makoto Eyre: Yeah, yeah.
Ross Kenyon: I don’t know, it’s like one of those pressures. I’ve never heard a good answer where, like, does that ever become an ethical — or does that cause confusion over what is the true valuation of a company? Because there’s a little bit of a conflict of interest here and there’s not enough separation between these entities and how they’re behaving. But I’ve never fully understood it. If you understand it, send me a note, I’d love to know.
Makoto Eyre: I would — this is me just kind of having my hand at it, from my understanding. Like, I could see how there’s that argument for a conflict of interest. There’s also the element that strategics tend to go into these things not necessarily to make a bunch of money off of their investment, though that is of course going to be a fortunate component to it. But the key term there is strategic, right? They’re going into this because they’ve identified that they have some bottleneck the TopCo is going to be dealing with. For that strategic, it’s going to be dealing with a large market and they have encountered some problem.
And so by investing in a couple of startups that might be able to resolve that problem for them and purchasing from them — like, yes, that improves their valuation, but fundamentally, as the TopCo, it just enables their ability to continue servicing their customers. It alleviates their bottleneck. And I think that that’s where the real value is. So, and then if those companies grow and then they get to service other companies in that space, and that, you know, continues the flywheel. So I think that that’s how the calculus is done. But I think you’re right, there are ways to use that information to raise a valuation that is unjustified in some way.
Ross Kenyon: But also raising at a higher valuation than you need is also perilous. So like, maybe what I just said cancels itself out. Like, the risks of doing that are not actually beneficial to the nefarious party. I don’t know.
Makoto Eyre: I think that there are a lot of ways of raising a valuation that are questionable. The past decade and a half has shown that stuff. And things can get crazy when — I mean, you know, with all the systems and organizations and rules that we have in place, at the end of the day, it’s all humans. The emperor wears no clothes, right? We’re all just people figuring it out together.
Ross Kenyon: So do you feel at home in a financial environment like this, for venture backed startups? That’s sort of like the model for what you’re doing in a lot of cases. Does that fit your sort of deep tech, hardware oriented way of being in the world, or would you prefer something else?
Makoto Eyre: Yeah, that’s an interesting question. Do I feel at home?
Ross Kenyon: Are they just looking for software companies? And you’re like, sorry to disappoint you, but no, that’s not what we do.
Makoto Eyre: Well, so there’s — this is a very multifaceted question and it’s a bit of a Rorschach, so...
Ross Kenyon: Really, go any direction you want.
Makoto Eyre: So I think fundamentally what’s really cool about this whole thing is it enables people like my co-founder and I, who have an ambition, who have an idea, to pull together resources and have our shot at it. I can’t, you know, outside of an abundance of grants being deployed, I would find it difficult to imagine a scenario where we’re able to really have shots at building an entirely new industrial technology. I also really like the small business model, right? There’s something really cool about a coffee shop making its own coffee beans — like roasting its own coffee beans and distributing it to local grocery stores. Like, that’s...
Ross Kenyon: Like a lifestyle business? Like non-venture?
Makoto Eyre: No, I’m not — that is not — I’m not saying that that’s an aspiration for Homeostasis.
Ross Kenyon: If you can bootstrap it like that, you should do it.
Makoto Eyre: That would be amazing. Bootstrap — I mean, at the end of the day, revenue is king, right? If you’re able to get the revenue as soon as possible, that is absolutely best. For certain applications like industrial materials, it can be difficult to get to the scale required to make meaningful revenue where you’re actually self-sufficient. So, you know, there are things that we’re exploring, like how early can we bring the point of revenue and then the point of profitability. And I think if you’re in this, you have to be asking those questions all the time. If you’re planning on surviving on venture capital until you’re a mega company, then there’s some people who’ve made it doing it that way, but I think you’re significantly reducing your probabilities of success. So, but that’s an opinion. That’s my stance.
Ross Kenyon: Can you explain what the current status of Homeostasis is and where you’re going next?
Makoto Eyre: Yeah. So we recently completed the build of our latest prototype called Block 3. With Block 3, we are producing materials for a list of companies that have signed up for our wait list. So there are a bunch of companies who are really interested in the materials that we’re producing. The one condition was they need to see a certain volume and we need to increase that capacity. So we’ve reached that point. We’re now running the prototype. We’re really excited to get the material out there into the hands of select customers and partners. So that’s the exciting step.
Ross Kenyon: And then part two is, what’s next?
Makoto Eyre: Yes, continuing to scale. Yeah, that is true. But like, I mean, the full answer to that is moving through the qualification steps for getting material ready for lithium-ion battery usage, right? So for most battery cell producers, there are a handful of steps that are required, looking at different components, different metrics for evaluating how well the material is functioning under their particular battery stack. And as you go along, you’re just going to need to provide more and more material. And so we’re going down that chain by deploying material.
Ross Kenyon: Nice. Yeah. Well, thanks for being here, Makoto. Very fun. This is great.
Makoto Eyre: Yeah, no, I really appreciate the conversation. Thanks. Thanks for hosting. Thanks for the time. This is a good chat.
