Change Makers: Alfred Johnson, Crux CEO

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Hill Vaden:

All right. Welcome back to EnergyCents, an S&P Global Commodity Insights podcast covering all topics on the intersection of energy and finance. This is your host, Hill Vaden with your other host, Sam Humphreys. Sam, how's it going?

Sam Humphreys:

It's all right. Thank you, Hill. How are you?

Hill Vaden:

I'm all right. I warned the listeners that you are still ill from your travels.

Sam Humphreys:

Yeah, this is what happens when you go to events. They are wonderful, and I love meeting people. But spend that much time in an air-conditioned room, you're going to get sick.

Hill Vaden:

Yes. Or an airplane or both?

Sam Humphreys:

Or an airplane. Yeah, just throw the whole mix together. It's great.

Hill Vaden:

I had a person cancel a meeting with me yesterday and opt to do it virtually because she was sick and she said, "I'm not going to come into the office because I'm ill, so let's meet virtually." So I guess I'm today not sick thanks to her behavior.

Sam Humphreys:

It's very COVID-esque, isn't it?

Hill Vaden:

It is. So good for that.

Sam Humphreys:

Good for that. Yay.

Hill Vaden:

So this is a Change Makers episode where we try to interview people doing things in energy from outside of S&P Global, and we were lucky enough to speak with Alfred Johnson, who is the co-founder and CEO of Crux. And Crux as a capital markets platform where supporting transactions on tax credits and more recently debt. So can you set up the listeners on some of the things to listen to from Alfred?

Sam Humphreys:

Yeah, definitely. So what's remarkable about this is the speed at which this company has grown. So it was founded in 2023, and we do go into this, but some of the venture capital backers that have supported the company are of pretty high caliber, and they've raised quite a lot of capital in a relatively short space of time, dealing with this relatively new market. We've talked about the Inflation Reduction Act and the impact that has had on companies and the tax credits that are available and how companies are trading those. But what sets this apart, I think as well, which he goes into is the market intelligence aspect that the company offers. So they're not only facilitating these deals, they're offering that insights into how the market is operating, which is fascinating. It's very apt we're talking to them at the moment. But yeah, and he does a fantastic job of just explaining their growth and their strategy. But what about you? What did you think?

Hill Vaden:

Yeah, one, I really enjoyed meeting and talking with Alfred, who's got a fascinating bio of its own, where he was involved in playing football and climbing mountains and doing all sorts of stuff and working in Washington for prior administrations. And the investment, as you mentioned, the investors behind this company are very well recognized players, and I think it's interesting to talk to somebody doing an asset-light business given so many of the asset-heavy investments on windmills or solar or oil, whatever else, that so much is happening on the steel in the ground side. And this is an interesting asset-light way to play it. So it's a good conversation and we can hand off to Alfred now.

Sam Humphreys:

Enjoy.

Hill Vaden:

All right. Well, Alfred, thanks so much for joining us today. It appears to be a beautiful day outside your home where you're joining us from. Where are we speaking to you from?

Alfred Johnson:

We are currently at the beach, and it is beautiful out there though it looks like it's about to start raining.

Hill Vaden:

Okay. I think it rains every day at the beach, which is generally needed.

Alfred Johnson:

It's part of the charm.

Hill Vaden:

Part of the charm.

Alfred Johnson:

Yeah.

Hill Vaden:

So we're here to talk about your role in your company, Crux, and I'm going to take a slight direct digression. Are you familiar with the phrase crux of the biscuit, and do you know what the crux of the biscuit is?

Alfred Johnson:

This is a new one for me. Tell me.

Hill Vaden:

Well, Sam will know that Frank Zappa is a big fan of EnergyCents. Frank Zappa is no longer around. But the crux of the biscuit is the apostrophe, and that is from his album Apostrophe, which I assume is not a reference to your naming the company Crux. So maybe to set us up, what inspired you to name the company Crux?

Alfred Johnson:

It's funny, Hill. So we set out with this intention of building a capital markets platform for the clean economy, and we found that there was a real market that needed to form in the transferable tax credits that were created by the Inflation Reduction Act. I was approaching the problem for the second time with the same co-founder. I had started another business before with Allen Kramer and we were looking at this space and it was a really exciting dynamic time in the market. The credits had just been made transferable at the start of 2023. We went out to raise capital for the early company, and we're really excited about the opportunity to have Lowercarbon lead our seed round. Clay Dumas there who sits on our board, and Chris Sacca had participated in the last company all the way from the beginning until the end, and they are just excellent and incisive about the importance of a name.

And so we had all these terrible names for the company, and they were basically insistent that we change it, which at the time I thought was very opinionated of them about a pretty particular thing. But it turned out that they were so right and we kept working on it until we found something that we loved. And the thing we loved about Crux was these transactions are really complicated. Energy project finance is really complicated. And the tax financing component of it is especially difficult to crack, but once the tax credit piece of a transaction is solved and you find a buyer for the credits or somebody to participate in the investment of tax equity into the project, so many other things come downstream of that.

And so the tax financing really is kind of the crux of the project finance capital stack, and we found that to be the case. So since we launched the market for transferable tax credits, we have found that our clients, our developer manufacturer, clients and investors on the other side of the platform are really eager to look for other kinds of capital through a market type mechanism like the one that we offer for the transferable credits. And we've launched a debt marketplace earlier this year. There's been just a ton of interest in that product because again, there's a lot of complexity and a lot of need to source capital for these projects.

Sam Humphreys:

So can you sort of expand on this a little bit? Who are the main customers that you are trying to facilitate here to access some of this financing for these projects, and how have you gone about that to start with?

Alfred Johnson:

Yeah, so I'll back up a little bit further to talk about the transferable credit market and how that led to the formation of a central market for capital around projects because it's material to answering the question of who the participants are. So the Inflation Reduction Act was passed in 2022. What it did was expand certain credits that had already been in the tax code for carbon capture, wind and solar. And it extended those credits for a very long period of time, so extended it well into the 2030s.

The law also provided for tax credits for a wide range of other technologies, nuclear, hydrogen, the advanced manufacturing credits, which are supportive of all different kinds of manufacturing for batteries and solar and wind and critical minerals. The credits were extended and provided to categories like clean fuels. And what that really did was take all of these otherwise heterogeneous project finance markets for all of these different kinds of technology and created common collateral in the form of tax credits that all of those different kinds of projects received.

And so all of a sudden there was a central market or a need for a central clearinghouse of the tax credits, and that then opened up the need for other kinds of financing to flow through a similar mechanism. So our clients on the sell side of the market as we think of it or the borrowing side of the market, are project developers building all kinds of different technologies. They are manufacturers that are operating manufacturing facilities and accessing capital to support that. They're people that are building carbon capture kinds of facilities. And so there's a really wide range. And then on the buy side of the market and tax credits, buyers tend to be corporations that pay US federal taxes. And the investors are a wide range of private credit, family offices, banks of all sizes, pensions, insurance companies that are looking to source opportunities to invest directly in US energy and manufacturing real assets.

Hill Vaden:

And so can you talk a little bit about the size of the platform in terms of... So the IRA unleashed this investment in clean tech and whatever else. Is every tax credit coming out of the IRA on your platform or what's the size of participation both from the credit providers and those who are buying it? Is this dozens? Is this hundreds? Is this thousands of entities and credits?

Alfred Johnson:

There are thousands of companies that receive the credits in one form or another. The market in total in 2023 was, we estimate, about 7 to 9 billion in total transfers. The market in '24 was about 30 billion in total transfers. And here I'm talking about just the transferable tax credit. There is another market that is directly adjacent called the tax equity market where investments are made into projects and some amount of tax attributes are retained by a project ownership structure that is formed for the specific purpose of managing the tax credit.

So in total tax equity and transferable credits in 2024, we estimate it was about a $50 billion market, the transfers and the tax equity. As far as Crux, we've now done more than 80 transactions of all different kinds. We've done deals in wind, solar, battery storage, bioenergy, geothermal, advanced manufacturing, critical minerals of all different shapes and sizes. Our smallest deals have been in the five digits, so the tens of thousands. Our largest deals have been in the hundreds of millions. And in the debt market, we're seeing similar diversity in terms of different kinds of project developers, manufacturers that are sourcing all kinds of different capital. And we're currently facilitating loans of all sizes into those markets.

Sam Humphreys:

So if I was a customer, I'm just trying to get this in my head, and say I am an investment bank and I want to purchase some tax credits from someone. What is the typical timeframe that Crux facilitates that sort of deal to happen? Is it days, is it months, is it longer?

Alfred Johnson:

It's generally weeks or months. So to put it in context, the tax equity deal, these very complicated project structures, might take six to nine months to fully effectuate. The transferable credits are much simpler. And so we see deals that close for production tax credits on average in six weeks or less. For investment tax credits we see that number more like three months. It's a bit of a more complicated origination and underwriting exercise in investment tax credits. But the speed of the deals really depends a lot on how urgent both sides are to get the deal done. When deals have that time pressure associated to them, they can go a lot faster. The fastest deal we have done is 17 days from the indication of interest to closing between a utility seller and a Fortune 250 buyer. We're currently working on a transaction that I think we'll close faster than that deal.

Sam Humphreys:

Wow.

Hill Vaden:

How hands-on is Crux in this process? Is it a, call it a passive platform where these two parties are interacting through the technology that Crux has built? Or are you guys hands-on throughout, in kind of a meeting-maker type relationship?

Alfred Johnson:

We're quite hands-on. So we think about these transactions in four different stages. There's the planning stage where the tax credit seller or the borrower is thinking about the way that they will structure the capitalization of the project and looking for market intelligence and data to understand things like pricing and how deals will come together. Then there's the matching stage where buyers and sellers or borrowers and lenders are looking to connect with each other and unlock the financing, identify the specific commercial terms that might be associated with the deal. Then there's transaction where the parties are getting to a term sheet, are navigating that transaction, are doing diligence, the buyer is doing diligence on the credit, and then there's the management of the deal after it has closed. And we really think of ourselves as the facilitator, enabler of the transaction through all stages.

We deliver liquidity in the tax credits and loan markets that we operate. We deliver efficiency by building software that helps to make these transactions simpler. And we deliver intelligence in the form of market data that we deliver to participants in the market and also integrate directly within our platform so that when a buyer is looking at a tax credit for example, they're able to see the market estimate price on that directly within the platform. And that's based on our internal data of more than $30 billion worth of transaction information and algorithms that help us process it for a specific transaction that the buyer may be looking at. So really, we're trying to make this orchestration of all these moving parts across lots of different stakeholders through those four stages as simple and well-orchestrated and efficient as possible.

Sam Humphreys:

I'm really interested in the market intelligence angle that your company offers. Can you give a little bit more insights behind that because I think that's a really key piece of this whole picture that I think is really fascinating?

Alfred Johnson:

Yeah. So we found in 2023, this was a brand new market, right? Nobody knew how the credits would trade, at what prices, what deal dynamics would look like, what market standard documents would have to be. In fact, they didn't exist in 2023. And one of the things that people within the market kept telling us is that there really needed to be transparency. Transparency in price, transparency in deals, transparency and risk. And we put out in early '24, after the market had closed on 2023, a market intelligence report in the form of a PDF available via our website that showed all that information. We did a survey that aggregated up details on the market from participants within it. We augmented that with our platform data and found some instances of publicly announced deals or deals that had been filed on financial statements or were available through the financial statements.

And that initial PDF had just a remarkable amount of uptake. It was downloaded thousands of times within weeks. We found that people were quoting pricing back to us from the report that we issued. And in that we really found that there was this authentic deep hunger for information around these transactions. And since then we've continued to invest in those capabilities. We've launched additional reports. We now view them regularly. We just released a report on the project finance debt market. We integrate the information, as I mentioned, directly within the platform. And really what we are doing there is trying to arm participants in these transactions with transparent market data so that they can make the best decisions that make sense for their company as they're navigating what would otherwise be a really complicated, obfuscated and not transparent transaction.

Hill Vaden:

And can you talk a little bit more about the debt marketplace, which I think is one of the newest projects that you guys have released, and how that fits into the original Crux idea? Is that somewhat of a hedge with the policy concerns around transferability?

Alfred Johnson:

So the initial intention behind the debt marketplace was part of the theory of the company from the very beginning. If you go back to that deck that we were pitching in early 2023 where Lowercarbon said the name wasn't good enough, there are slides within that deck that talk about how transferable credits are this essential piece of the capital stack, but developers, manufacturers need to find the rest of the capital for their projects and there's an opportunity to build the deep and liquid market for the transferable credits and extend into debt capital markets. So that was always part of the story that we were telling, always part of the vision. When we raised the Series A from Andreessen Horowitz, that was even clearer in our minds as something that we needed to do. Starting this time last year, a little bit before, we brought in an individual named Andrew Hsiung, who I had worked with at BlackRock who really started to work with our developer manufacturer clients and would be investors in the market to understand what a debt offering could look like adjacent to the transferable credit market.

And we found that there was, again, just a huge amount of need for other kinds of capital into these projects. So we did our first deal at the end of 2024. We launched the marketplace in March of this year. Developers and manufacturers have now received about a billion and a half of term sheets through the marketplace, of which 700 million have been signed and are starting to close. And what we're finding there again is that there's this real need for transparency, efficiency, liquidity and intelligence in these transactions, and that software can be really helpful to navigating them.

To your question about a hedge to policy, it's certainly no secret that there is very active consideration right now about the future of tax credits and how the new bill that's working its way through the House and Senate will treat these tax credits that were provided under the Inflation Reduction Act. What we are finding is that there are categories of the market that even if you expect that the House and Senate will pass the most restrictive version of legislation, there's still substantial categories of the market that will be protected. One key example there is nuclear, which again, even in the House version of the bill, which is expected to be moderated in what the Senate produces, nuclear credits are extended until the 2030s. And the same is true of other categories like manufacturing and critical minerals and clean fuels.

So we have an expectation that the transferable credit market will remain a really important cornerstone of energy project finance. But it's also no secret that the debt markets for project finance for all of these different kinds of projects are enormous. If the tax credit market is a $30 billion annual market, the debt market for these projects is a $230 billion annual market. So we are finding that by providing multiple kinds of capital, and particularly leaning into debt capital, we can drive a lot of transaction value through the platform.

Sam Humphreys:

So one thing I did want to ask, maybe I should have asked this to start with, is obviously this Crux started in what, 2023? And in a relatively short time, you've received an incredible amount of investment from various partners. I think the most recent one was what, last month with MassMutual? Or was it this month?

Alfred Johnson:

Yes.

Sam Humphreys:

Can you talk a little bit about some of the partners and investors that have backed this company because it is a significant statement that there's been so many in a very short space of time.

Alfred Johnson:

Yes. So we've raised 77 million of total venture and strategic capital across four rounds. Our seed round was led by Lowercarbon. That was 4.6 million. We did a seed extension pretty shortly on the back of that, that Arden Venture Partners led in that round. We added some strategic investors. So Orsted, LS Power, Hartree all participated in that round. That 9 million of initial capital allowed us to really lean into the market in 2023. Andreessen Horowitz then led our Series A, that was another 18 million in that round. We brought in more strategic investors, Pattern, Intersect, EDFR all invested in the company as well, as some new net venture investors.

And then as the market really started to form in 2024 and we started to close a lot of deals and progress into other parts of the capital stack, we saw a lot of interest in further capitalizing the company. So raised a $50 million Series B very recently. Lowercarbon again led that. And into that round we brought some strategic investors from the other side of the transaction ledger, from the investment side of it, MassMutual Ventures participated, Liberty Mutual Ventures also participated, and OMERS the Ontario Municipal Employees system.

And really what we were trying to do there through all of these capital raises was bring the best venture capital investors in the world around the company, people with specialty in energy and climate tech and FinTech and tech marketplaces alongside the largest participants in these markets, the sellers and the people that were going to be building billions of dollars of infrastructure, and investors and lenders that all have a categorical imperative to deploy billions of dollars within these markets. And if we could bring those strategic investors next to the venture investors in this platform, we could build a platform that is central to energy manufacturing project finance.

Hill Vaden:

Yeah, that's a great roster of investors and probably a challenge managing all those investors. I'm going to use that as a segue to ask you about some of your resume, which I looked at. So you've gotten into Crux having climbed... You spent a semester at sea. You've played tight end at Stanford, and you've climbed Mount Marcus Baker, who I didn't know, but he's got a fantastic mustache if you Google him, in looking at Wikipedia. How does this entrepreneurship compare to those experiences? And can you talk a little bit about some of your experience climbing Mount Marcus Baker?

Alfred Johnson:

Listen, Hill, it's been a varied and unusual path. I feel compelled to say that I was a defensive end as opposed to a tight end at Stanford. And the reason that it's an important correction is the reason I didn't play tight end is I was not very good at catching. So they put me in the role where I had less of the nuance of the position.

Hill Vaden:

You just catch the people.

Alfred Johnson:

And it was more about tackling people. And that experience was probably the most important single experience that I had in college. I went to Stanford and was really lucky to play on a team right before Coach Harbaugh came in and really turned the program around. We say that we were in the foundation building phase of Stanford football, and that was also really fun because as the team went on to win a number of BCS bowls and really have a ton of success, I retroactively became a better football player because the team was so much better than when I was there.

And then the Marcus Baker thing, I was going back to business school. So I had worked in the Treasury Department in the White House in the 2009 through 2012 period, working on the financial crisis response and working in the West Wing of the White House for Bill Daley when he was President Obama's chief of staff, and was going back to business school and really was trying to lose 10 pounds before I went to business school, get in shape. And so I had found this thing called NOLS, the National Outdoor Leadership School, and they had this program called Alaska Mountaineering, which sounded hard, so I signed up for it. And the timing was right, and it turned out that it was a group of climbers that were preparing to summit Denali as a group, and they just put me into it. And they were attempting in precedence of that to go after the third-largest peak in Alaska, which is this Mount Marcus Baker on the Matanuska Glacier.

And I call it the most accidentally difficult thing that I ever did in my life. It was just terrible. We were on this glacier for two weeks with only the food that we had packed in on our backpacks. It was a real starvation kind of journey. And then we tried to summit the peak, but a big storm came in as we were doing it. So again, I have to correct the record, Hill, even though it is more generous to me. We didn't successfully summit the peak, but that team that I was doing it with went on and did do Denali.

Hill Vaden:

But you lived on a glacier in a storm that... Don't sell yourself short.

Alfred Johnson:

I've walked around a glacier for two weeks and ate a lot of trail mix, and it achieved the objective.

Hill Vaden:

Yes.

Sam Humphreys:

Can't beat trail mix. Well, I mean that sounds phenomenal. As someone who loves climbing, that sounds phenomenal. We could talk about that for a long time. But in the awareness of time, we always like to sort of round these conversations up with some highlights and some things to watch out for. So if you want to let people know some key things we should be looking out for with Crux in the next six to 12 months, now is your chance.

Alfred Johnson:

Thank you. So it's been an exciting year so far, having launched this debt platform. There's a lot of additional investments that we will make in that platform from a technical capabilities and a market growth perspective. I would keep an eye out for other kinds of products that we will start to enable through the platform as well as we look to be the central operating system that developers, manufacturers are using across multiple different capital raises.

We are also going to continue to place a lot of investment in the efficiency of these deals. So we have already made really great headway in offering standard documents for the transactions that can be populated through a term sheet builder that we have available within the system. We've launched our sort of V2 of our data room that is now used by 80%-plus of transactions. We are finding that we're really well situated to implement solutions in the transaction journey that make these deals significantly more efficient. And it is a real benefit that we started the company at basically the exact same time that AI became commercially available. So we are using it extensively within the four walls of Crux. It is part of the way that we do the algorithmic delivery of the tax credit pricing within the system. I would keep an eye out for all of the other places where there are opportunities to significantly enhance the transaction journey with LLMs among other things.

Hill Vaden:

All right. Well, very good. This has been very interesting. And as Sam said, we could continue this conversation for a very long time to talk about Crux or to talk about your incredible biography, which seems to have all sorts of nooks and crannies to explore. But we can adjourn, and I really appreciate the time that you're spending with us, and I look forward to watching Crux go forward from here.