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Soluna Raises $35M From Spring Lane Capital

Season 2: Episode 6


Business, CEO, Crypto Mining, Data Centers, Investors, Renewable Computing, Startup

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Soluna has recently secured $35 million in project financing to continue our mission of developing green data centers co-located with renewable energy assets.

We’re honored to have a pioneering sustainability project finance firm–Spring Lane Capital–back our model of leveraging excess clean energy to generate low-cost computing.

We share a conviction that this is the future of green bitcoin mining and green data centers.

In this episode, we talk to Rob Day, Co-Founder and Partner at Spring Lane Capital.

Spring Lane Capital is a private equity firm focused on investments for sustainable solutions in the energy, water, food, and waste sectors. Their investment in our data center projects is a part of their strategy focused on hybrid project capital for sustainability solutions in the energy industry.

Prior to co-founding Spring Lane Capital, Rob was a Partner at Black Coral Capital, a cleantech investing firm, and Principal at several cleantech VC firms. Rob brings his expertise from two decades of investing in energy tech.

This episode will be a bit different.

Melissa Baldwin, the Senior Vice President of Tigercomm, which is Soluna’s public relations agency of record, will be hosting today’s conversation between Soluna Computing CEO John Belizaire and Rob as we dive into the details of this project financing deal, what it means for Soluna’s development, and what it represents for the future of clean computing.

[2:21] Rob, could just tell us a bit more about the work that you do at Spring Lane Capital?

Rob Day: Sure, happy to. And again, thanks to you both for having us. So Spring Lane Capital is a firm that we launched after, as John said, many years of working together in different contexts. We just came to realize that there’s funding out there for a lot of the emerging solutions in sustainability, particularly in environmental sustainability: energy, food, water, waste, transportation, etc, there’s funding to help develop the ideas and there’s funding once mainstream project finance has gotten into the ideas and they’re starting to deploy them at scale, but there’s a gap in between in that first institutional project capital. And that’s the gap that we look to serve.

We have expertise not only in understanding the solutions themselves but in understanding how to structure project finance and project capital so that it will be institutional-grade and ready for that following capital. But what we found is quite often by the time a company needs a billion dollars, where a project needs a billion dollars, there are lots of people on Wall Street who are ready and willing to step in and provide that.

In the early stages of deploying these solutions, though, the developers, and the companies often need a lot less than that. And like I said, the expertise in how to structure it, in some cases expertise from our team, is important. They could use some help with understanding what the asset management is going to look like, what the institutional project finance looks for, and the like. So that’s what we look to bring to the table. We bring the structure, we bring assistance in project delivery, and of course, we bring the capital to get these projects up and running. All with the shared goal of making these projects as mainstream as possible over time.

Melissa Baldwin: That’s great. So you’re filling that middle lane between companies that are just getting started and companies that are really ready for that larger institutional investment. That’s excellent. So you’ve invested in sustainable fuels, EVs, wastewater treatment, indoor agriculture, and organics.

[13:03] Why Soluna? What was it about this company in particular that interested you? Had you been approached by other Bitcoin mining companies? What made them stand out?

Rob Day: Yes, absolutely. And also to your point about the swing in between extremes, I mean, you should see my Twitter timeline. It’s an absolute mess because I follow people from both of those extremes.

Always amusing to see one tweet right next to another tweet and be like, how are these both from the same marketplace? This is amazing. I can only imagine what Elon’s going to do with that over the next couple of years here.

I wish him luck. So, in particular, what Soluna is doing — and John will put this much better than I will because he lives it — but what’s really struck us is how they partner with a particular wind or solar farm that has a spilled power problem. And by spilled power, that basically means because of pricing and/or transmission constraints (obviously the two are interrelated), there are times when there are really good winds when there’s really good sun, and they cannot sell it without taking a loss. And so what do they do? They waste it. And that’s what’s called spilled power.

Soluna’s solution is to partner with those types of projects and give them a floor price on power, and to directly buy the power from that solar or wind farm. And it’s not just saying, okay, great, we have a PPA with a solar or wind farm. It is specifically saying when you otherwise wouldn’t be able to sell this without taking a loss, sell it to us and we’ll give you something for it. That’s something that is a cost advantage for Soluna, it seems to us. From a sheer business model perspective, that’s interesting.

While we are in the world of sustainability, we are, at the end of the day, project finance investors institutionally backed looking to make our returns. So we really like to see compelling economic value propositions with the teams that we partner with and with the projects that we back. But from a sustainability solution as well, to that wind or solar farm operator what that says is, hey, rather than retiring that project early because it wasn’t making the returns that you expected, keep it going. That’s a real direct benefit.

That operator is most often a developer of other projects, and they have other projects in their pipeline that now will be able to reap those same economic benefits from partnering with Soluna. And that’s going to push them on projects that otherwise would have penciled out maybe marginally into saying, great, thumbs up, let’s go, right. Greenlight that project. And that’s really exciting for us.

That’s what I get to with additionality, because, at the end of the day, Soluna while benefiting themselves, is providing more revenue to these wind and solar developers. And when you provide revenue to something, you encourage more of it. So that’s where they’re distinct versus other folks that approached us saying they were green Bitcoin mining operations.

For instance, I’ve seen efforts trying to take stranded oil and gas assets and leverage them, where what they’re doing is in some ways mitigating methane emissions and combusting natural gas that otherwise might have leaked into the atmosphere. So there’s a rational argument that these folks make, but ultimately at the end of the day, they are providing more revenue to remote oil and gas operations.

And like I said, if you want to see more of something, provide it with more revenue. I don’t necessarily want to see more oil and gas operations out in remote areas. And so that’s where Soluna’s approach of directly and purposefully partnering with renewable project developers really stood out for me.

Melissa Baldwin: Excellent. And next, I want to hear you talk, Rob, about how this energy, Bitcoin mining, additionally, and renewables, how does it fit into your overall portfolio at Spring Lane?

[17:10] How does Soluna fit into your overall portfolio at Spring Lane?

Rob Day: Yes, so like I said, we are in the business of investing in sustainable solutions, but we do that because we happen to believe that there are these megatrends that are going to drive huge swings in the world’s largest markets of energy; food, water, waste, transportation. And one of the clear megatrends that any institutional investor will tell you that they’re now having to account for is climate change. And so within that wide spectrum of industries, we’re fairly omnivorous, right. We are in the business of finding emerging solutions and being the ones to help them get access to that institutional-grade capital and expertise and skillsets.

And so for us, when we find something, whether it’s indoor agriculture or electric vehicle charging, where we see these fast-growing markets with a wide range of solutions being brought forth, and then we find a really compelling team, that’s where we try to step in.

So how does this fit in for us? I mean, we are invested in all sorts of waste-to-value types of projects. We’re invested in renewable energy projects, we’re invested in electric vehicle charging. Soluna is going to be our first time stepping into crypto in particular. But it’s all part of what we do, which is finding these areas within fast-emerging markets where there are compelling solutions that have an efficiency advantage and therefore an economic advantage and helping them become mainstream much more rapidly than they would without access to that capital and expertise.

Melissa Baldwin: That’s really helpful. This next question is for both of you, and I’d like John to go first. I know, John, when you’ve talked about the conversations that you’ve had with those renewable energy developers, one of the things I’ve heard you say is, “We’re not the first Bitcoin mining company that they’ve talked to”, and they said, “But you guys are different.” And I’m also hearing Rob say the same thing.

[19:10] So what do you think, John, makes Soluna different from those other Bitcoin mining companies?

John Belizaire: I think it’s the problem-solution dynamic. We are in the business of solving problems for large industries. So in phase one of our business, we were really focused on taking the Bitcoin mining or crypto-mining feature and using it to solve a problem in the renewable energy space. What we do really well is we’ve productized that solution, if you will.

So when we talk to renewable energy power plant owners, and infrastructure funds, some of the largest in the world at this point, about assets that are dealing with these challenges, we don’t just talk conceptually about how we’re going to solve their problem. We really do walk them through a very well-thought-through analysis model. So we take them through an assessment first, where we understand how bad the problem is for them. We show them through a simulation, what happens when we introduce our facility and how we can recover that revenue, and what it looks like going forward. And that gives them very interesting insight for them to plan around this asset and other assets.

And then we take them through a very thoughtful, structural design around the legal dynamic, the relationships with utilities, and everything that has to happen based on the location of that asset. And then we structure, build and operate. So they don’t even have to understand what a data center is, they don’t have to know what that is, what’s involved with that. So we really bring a turnkey solution to them. And we’ve developed a host of assets to help them understand that framework so that they can go fast and solve their problem quickly.

That’s what they tell us the difference is. We have a team with varied experience, we speak their language, and we understand some of the issues they’re going to talk about. Because we were a developer ourselves, we understand what project finance is and we can fit our solution into their project finance structure. So when they go talk to tax equity and their capital providers we’ve dealt with a lot of the concerns that they might have. So I think it’s this whole approach we’ve taken to bringing a turnkey solution to the power plant owners that have really made us different in the space.

Phase two of our business, as we’ll talk about, is going beyond crypto. And in that case, we’re going to take this large portfolio of assets that we’ll have and point it to solving a problem for the enterprise, where they have a challenge where they want more green computing at a lower cost to power some of these newer applications that are data-centric and AI machine learning-centric.

What we’ll be able to say to them is that we’re a green data center company that can deliver to you a powerful computing platform for these non-mission-critical applications that are batchable. And by solving that problem for you, we’re solving a problem for the planet at the same time. And so there’s a very powerful benefit to going with us that’s not just financial, but it’s better for the planet to put your jobs with our company.

The vision that we’ve laid out, we express to power plant owners, we express it to investors, and I think that it resonates because we’ve thought through what our true mission is. It’s not just about Bitcoin mining, it’s something much bigger than that.

Rob Day: Yes, whenever John paints that picture, it’s really compelling. Even just at the tactical level, it’s been important for us to be able to understand better that Soluna is specifically designing these data centers differently. Not just regarding the overarching environmental benefits of encouraging more wind and solar development as we mentioned, but specifically, we found that these are highly efficient designs. That itself has major benefits as well.

John Belizaire: Indeed. Yes, we’ve designed a different type of facility. We do spend time disabusing the audience about what we mean by data center, it’s not one of these gigantic monolithic buildings that you’ve seen before or powered before with some of your power plants. It’s specifically designed to solve this problem. These facilities are designed to convert wasted energy efficiently to computing so we can do lots of it, build scalable solutions like a Lego block to build very large utility-scale solutions to eat a lot of that spilled energy. And then we can mesh them together into even larger facilities to provide very powerful computing power to the crypto networks or to enterprises in the future. And that insight also is very compelling to folks that we talk to because it solidifies this concept that we’re doing something different and we’re purposefully doing it to solve a problem.

Melissa Baldwin: So, Rob, you said something earlier the last time we spoke, I wondered if you could say it again? You talked about how Soluna fixes wind’s spilled energy problem and they also fix Bitcoin’s green energy problem. And perhaps I didn’t paraphrase that correctly, but would you agree with that?

Rob Day: Yes. Not just wind, I mean, solar increasingly have a spilled energy problem as well, and it’s really driven by transmission constraints and the like. It’s a simple fact, let’s take Texas as one example because it’s a prime example at the moment. You have tremendous wind and solar resources out in West Texas, but where do people actually live in Texas? East Texas, right. And my family is all from Texas, so I’m pretty familiar, it’s a huge, huge state and everybody basically lives in the lower right-hand quarter of it. And so you have the demand centers far away from the resources.

And there are a number of different ways that you could resolve that. If we could build huge transmission lines overnight, that would be one way to address it. But that’s unlikely, right? So being able to not have solar and wind farm development in the best-resourced areas and not be dependent upon the slow pace of building out transmission lines in this country, that’s pretty compelling.

Melissa Baldwin: Yes, excellent. And we’re going to get into the next section of our conversation here where we’re going to talk more about the data centers in phase one and phase two. This next question is for you, John. Tell us more about what is phase one and phase two. You spoke about it earlier, but talk more about that.

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[25:55] Tell us what phase one and phase two of Soluna’s business are.

John Belizaire: Yes. So when we started to conceive the business model and roadmap for our business, we were a developer and we were pivoting away from just being a developer solving our own problem to being a clean technology company taking computing to go solve other people’s problems. And we had to think about, how do we build a very big company doing that?

To do that, you would have to look at the different markets that you can point that computing towards and plan that out, right? So to go after the enterprise, which is ultimately the holy grail, it’s multiple times the size of crypto, there’s a huge, fast-growing opportunity in that space, why not go there first, John? I get that a lot. The answer is, I could go there first, but there are certain table stakes capabilities that you need to do that. You need to have a certain size and scale, a certain set of software and architectural capabilities for those facilities, and you have to have location diversity such that, depending on who your potential client is, if they don’t want their data sitting in the United States versus another country, you have enough facilities to put those processes in places where it fits their specific corporate policy.

So that meant that we would have to go after that market, be fairly sizable from day one or have a stack and footprint that made sense for some of these customers that we’re going to go after. So we started thinking to ourselves, how do we get there and bootstrap the company to get to that point? And crypto was the natural answer to that question. Number one, we already knew it, we already had facilities and we understood the space. You don’t have to build a sales force to generate revenue in the crypto space, you have to get access to electrons essentially at a very low cost and have a really good operating facility and process to do that.

And then we thought, well, if we build up a lot of experience and muscle and expertise in the crypto world, will that apply to this next phase, if you will? And fundamentally speaking, what we’re going to get really good at as a company is building and operating very large facilities that are connected to green power plants. Those facilities require very skilled operators to go in, install lots of equipment, and manage it. And then you need a software layer on top to manage that and be able to deliver jobs. All of that we have to build for the crypto space, and then there’ll be a gap analysis, right, of things we need to build for phase two.

So that can all be self-generated if you will. We start out by building an initial facility that generates revenue, we reinvest that into new facilities and then we keep growing our footprint. And then we bring an outside capital to help scale that once we have a repeatable structure. And then once we have enough footprint and monetization happening, we pay back all the infrastructure of those facilities, and now we can reinvest in just the computing side to go after these new markets, invest in general-purpose equipment, new software, and so forth to go after those different markets.

So by breaking it up into a phase one, and phase two approach, allows us to focus and become really, really good from an execution perspective, bring in the right capital partners, partner up with the right power partners, and perfect the design of the facilities such that they can go after these other markets. And then at the right time, and we’re starting that already, is to start to bring in talent that has the enterprise-focused expertise selling and computing architecture expertise, and then start pointing to this asset base that we’ve built to those markets and start with certain use cases and so forth to do that.

So what we did is we wrote it out. In our company, we actually, believe it or not, write all of this stuff down into something we call a playbook, and it looks out three to five years. It has a very specific recipe: for the first three years we’re going to do this, we’re going to be really good at this. And it defines what’s good and what roles we have to do, what challenges we have to focus on, and what’s going to be effective for the business. And then in phase two it says, we’re going to start to move the company toward this and expand in these areas, and these are the skill sets. And all of that is underpinned by a set of assumptions about what’s happening in the marketplace.

And that strategy document actually has been very, very powerful for us, right? As things shift, especially in the crypto spaces, depending on what temperature it is out there, it’s like a new direction. But we don’t have to shift or move around, and what I call thrash in our decision-making and execution as a company because we have clarity of purpose and clarity of direction as a result. So phase one, and phase two is a very thoughtful approach to how we will build and scale the company.

Melissa Baldwin: Excellent. What I find so exciting about this announcement with Spring Lane Capital is that really you are the perfect partner, Rob, because you have this maturing company in Soluna. They’re building those relationships with the power partners, they’re establishing that infrastructure, and Spring Lane Capital is really the perfect partner to come in and assist and support the development of that infrastructure through this project finance.

[31:30] Rob, could you talk a bit more about what you call the hybrid project capital, your strategy at Spring Lane, and how you see that working for Soluna?

Rob Day: Sure. And let me start out by just acknowledging some parts of our strategy are a better fit than other parts in different situations, right? So the reason we call our approach hybrid project capital is that we often provide more than just project capital. We’re working with developers who themselves also need capital at their corporate level. That’s one of the things which we can provide, it makes us a little bit different in that we can become corporate funding partners in addition to project funding partners.

For a lot of companies, that can solve some real chicken and egg problems for them. It can give them development phase capital, it can help them build their team, and build their sales pipeline. In the case of Soluna, which is a publicly-traded company rapidly maturing and growing as of right now, we’re really just project capital partners with them, not hybrid capital partners with them. And that’s great because for us when we do corporate investments it’s a means to an end and it’s to help companies get to the point where Soluna already is today.

So what we see is instead of our strategy we’re stepping in and hopefully being that bridge to the institutional but big check, de-risked project capital that comes after us. And everything we do is geared around that, whether it’s designing project structures, or the legal documents so that it’s going to be truly institutional grade and ready for others to take the baton from us and carry it forward at the right time for Soluna.

All the work that we’re doing with the Soluna team, members of my team, and members of John’s team have been in regular contact now for months as we’ve together looked at how they’ve been doing the work on developing their projects. I mean, to be very clear, they’re doing the work, we’re learning from them and watching them do it and providing some advice where we can be helpful. But to borrow and twist the old phrase, those who can, do; those who can’t, invest. And so we’re the investors, right?

But still, we have people on our team who’ve generally built, I like to say, one of everything. And certainly, there’s a lot of commonality around what it means to be an institutional-grade project developer, to be institutional-grade at project construction. And John and the team are really strong at all of that, but these are really complex activities and everything that we can do to be helpful in terms of bringing in our expertise around how to work with EPCs, or procurement, or whatever they need, we’re standing by to help.

Melissa Baldwin: Excellent. And so now we want to transition, we want to talk more about those projects and look ahead. So this investment, the 35 million, is going to help build three behind-the-meter projects that are going to convert wasted renewable energy into clean computing.

[34:35] John, what can you tell us about some of those projects? What should listeners expect to see next?

John Belizaire: Well, we do have a growing portfolio of projects. We’ve been in discussions now for months with a host of different renewable energy power partners, we call them folks who have very large portfolios of projects in the United States and beyond. And what we’re going to do is to partner with Rob and his team to select certain projects over time, three to be exact, that we’ll deploy that capital into.

The first of that set is a project we’ve been working on in Texas called the Dorothy Project. It is, I’d say, one of our flagship projects that deliver on this integration model with renewable assets behind the meter solving wasted energy. We name our projects after famous women scientists, so Dorothy is named in honor of the African American mathematician and human-computer, as she was called, Dorothy Vaughn. And we’re expecting to energize that project late this summer. And that’s going to coincide with a launch of a local stem program that we’re putting in place in that part of Texas.

The Dorothy project is a 100-megawatt data center, it has a 50-megawatt initial phase, and Spring Lane is going to be investing in that initial phase. It’ll be connected to a wind farm that’s over 150 megawatts in size, and it produces electricity for the grid, of course, but a good portion of it for the last few years has never made it to the grid. And so we’re going to be bringing more revenue, as Rob said, to that project.

Our Soluna data center is underway there, construction has started. We’re really excited about it. We will generate a number of jobs. We’re estimating somewhere around 25 to 50 skilled jobs. This includes data center technicians, electrical, staff, security, et cetera, that will be deployed in that area. We hope to really lift up the economy in that region. There isn’t a lot going on because where these projects are based tends to be in remote locations that have high winds and great interconnection to the Texas grid system.

But we’re really excited about this project, again, because if you were to fly a helicopter over that location, you’ll see a very powerful green resource adding to the green energy that goes to the grid. And you’ll now see a purposely built facility that’s sitting next to it that’s designed to enhance its ability to do that and to reduce the congestion that’s caused by that power plant and other power plants in that area to get more green electrons integrated into the grid system. It’s going to be a great story to be told as that comes out of the ground. And we have several more behind it that are similar in nature, and we’re just excited to see just how many people are reaching out to us and calling us and saying, “We want to learn more about the Soluna solution.”

Melissa Baldwin: Excellent. And this will be the final question, it’s for both of you before we move on to the lightning round.

[37:58] What do you think is the future of institutional investment for clean computing projects and green data centers like this?

Rob Day: I think you’re going to see a big rise in institutional investment into clean computing projects, into green crypto. I’m old enough to remember the dot-com era when all of a sudden the innovation around the internet was coming fast and furious, and not every idea worked out. But at the same time, you look back with the benefit of over two decades now of seeing what it all became, and it became huge. And I think crypto and just the blockchain, in general, can represent exactly that same type of long-run fits and starts, but long-run emerging market opportunity. And that’s by itself going to draw a lot of institutional investment.

Like I said before, I’m also a fervent believer that there is a climate change megatrend that is going on that is affecting every industry, every geography, and every economy, and is therefore going to touch computing, and is going to touch and affect crypto and blockchain approaches as well. I mean, everything is becoming affected by the climate one way or another. And so I think that’s, again, going to mean there’s going to be a lot of attention by institutional investors into clean computing projects.

As John said, we’re also seeing institutional buyers, users, and holders of cryptocurrency increasing their stakes over time. I was just reading about all these large Canadian pension funds that are continuing to double down on the sector, for instance. And these are some of the world’s most sophisticated, largest institutional investors out there. What I would really love to see is the emergence of a clean computing standard. A set of standards around, okay, when we say this is green computing, what does that actually mean? Where is the additionality? And what are the methodologies for being able to demonstrate that and prove that?

And that’s one of the things which I’m personally most excited about with this partnership we’re now farming with Soluna. I would love for the big tech giants, the big Wall Street firms of the world that are making these large bets, to start to get really serious about, okay, but what does this actually mean if we want to turn this into a force for climate good? And by the way, here’s this tremendous example of Soluna, let’s talk about how we would love to see their approaches and their methodologies be much more widespread out there because that becomes the new de facto standard of when we say clean computing or green Bitcoin, this is what we mean.

Melissa Baldwin: Absolutely. That makes a lot of sense. John, what would you add to that?

John Belizaire: I don’t think I should add anything, I think we should end the podcast right now. That was perfect. Done. Drop the mic.

Melissa Baldwin: Force for climate good.

John Belizaire: Yes. I would agree with Rob 100%. There’s definitely going to be a shift, I think a major shift, in this industry. What we’re hoping to do is to really have folks rethink the way they look at grid infrastructure and grid resources. I think people are closed in terms of what they see like that, right? They see the transmission lines, they see the power generation systems, and they see batteries as part of the infrastructure. But computing is just seen as a demand element, right? It’s just a user of energy. It’s not actually seen as an addition to the system that retroactively adds flexibility to the grid that it very much needs in order to get the transition to the point that it needs to get to.

There have been discussions that there are gigawatts of demand and response capability that are going to be needed in order to get the grid to convert to the percentages of green power that it wants to get to. A number of states have come out with very large, ambitious programs to convert their entire systems to green electrons. But many of them, as they start to design that and architect that they realize, holy smokes, we’re going to need a lot of flexible capability on the grid when we do that when we add all this intermittent power. And batteries are not sufficient to solve that problem today. And what else do we have?

And in most of my conversations, what I’ve noticed with utilities and some of these policymakers is that they never thought of computing that way, because honestly there was nobody ever talked about computing in this flexible format and so forth that can be added to the grid, solve a wasted of the renewable energy problem, and then become a resource for the grid to manage its intermittent energy.

Once that shift in thinking takes place, it will unlock a massive amount of capital into the space, because suddenly there’s an instant solution that’s available today that’s very scalable for dealing with some of these challenges. And if you juxtapose that with the amount of capital rushing into the industry to build out new plants, I mean, I was at the Scottsdale event earlier this year, over 2,500 renewable energy professionals, and all they were talking about was, there’s capital that has … they don’t know where to put the capital, so many projects that they need to build out.

That only points to an exacerbation of this wasted energy issue, and they’re going to need a solution to that. And that’s why a lot of our power partners are talking to us about, hey, John, I’m looking at this particular area to go build a power plant, but I actually would pass on that because of this potential issue. But now with your solution, I actually think I can build that project where I otherwise would not. And that just changes the nature of our role. We’re now a resource just like they are and batteries are that just change the whole dynamic.

That change is an innovation that has a massive amount of scale potential on a global basis. And once capital awakens to that, I think is going to completely change the industry for a very long time.