The honest journey of taking on a trillion-dollar market with Joe McDonald (tem) and Adam Chirkowski (Albion VC)

0:00Joe McDonald:I don't care what you index on, what you think your outcome is going to be, and I've lived this. I don't think any founder is that happy when they sell their company. I have not yet met someone who is. So I've learned that the journey is important for me. So it self-selects also the kind of people you can bring in and the people that stay and the kind of leaders then you can develop at an organizational level.

0:24Adam Chirkowski:A big warm welcome to another 40 Minute Mental Live. I am very excited to have Joe and Adam here today to hear all about TEM's incredible scaling story. There are lots of things I'd love to discuss, but we really should start with proper introductions. So if you don't mind, maybe we'll start with you, Joe. Can you just introduce yourself and tell us a bit about TEM?

0:45Joe McDonald:Yeah, so I'm Joe, one of the co-founders and CEO at TEM. A little bit about my role, really, I'm kind of unchanged since the beginning, right? I'm there to look after the product strategy, to make sure we're making the right bets, to ensure that kind of meta problem solving of all the smart people I have who can't solve those problems kind of arrive at my doorstep and then evangelize that mission, storytell, and make sure we have enough money in the bank to build a generational company. So just a few things really. Yeah, it sounds like a small job. Actually a little bit about what I did before as well.

1:15Joe McDonald:I've actually been in the energy space for about 15 years. I joined a company as a very naive 21-year-old, thinking I was joining a startup with smoothies. I was actually founding a company with two other guys in the energy space. We sold that to Shell in 2019. So scaled the company, sub-hundred million dollar exit, but amazing set of learnings. Before that, I was getting rejected from Google. Before that, I was doing some odd sales jobs. And before that, I was actually rejecting the law because I actually qualified as a lawyer back in the day. A little bit about Tem. So Tem is a Series B company.

1:43Joe McDonald:We are building the kind of AI native infrastructure for electricity transactions. What that actually means is that we do price discovery and we move money way more efficiently between the users of a system, right? People who need to pay for the energy they use and the people that need to get paid for the energy they generate. And we use quite a complex machine learning and reinforcement learning infrastructure combined with a gentic kind of operating system that just strips out the entire intermediary and labor cost of running an energy company. and ultimately puts more money back into the pockets of our users, right?

2:15Joe McDonald:So a school was saving$75 ,000 a year and they can have another teacher again and a rugby club might solve their problem of 14 ,000 extra costs that they shouldn't be paying, all the way through to data centers we work with that are saving over like$2 million a year through our transaction infrastructure on their energy costs. Incredible.

2:32Adam Chirkowski:And I always have huge respect for anyone that's been a founder before and then wants to go again. So we'll probably get into that. It's enough to traumatize a lot of us, but we're all broken somehow that's the way i think of it indeed well thank you i can't wait to dig into the story in more detail but adam my name's adam i'm a partner at albion vc we have been around for 30 odd years which in uk vc terms is one of the longest standing especially in london we invest fundamentally in founders that are looking to change the world everything from from pre-seed through to series A and generalist.

3:07Adam Chirkowski:We've got clusters in fintech and cyber and big data and AI. And from my sins, I've done quite a bit in the energy space. And that's because I've been at Albion 4 getting on for 13 years now. And back then, we actually didn't just do tech. We didn't just do B2B tech. We did some infrastructure investing as well. And I helped raise and deploy about 150 million into renewable energy generating assets back when they were fit subsidized by the government. So knew enough about renewable energy and the energy system to have some idea what Joe was talking about. Interesting. Thank you very much. We're going to get into this story, but we should probably start with how you actually met.

3:51Adam Chirkowski:So I don't mind who goes first on this. Tell us a bit about how you came together. I'll go for that because I can remember it. It was actually on an online demo day, which there can be variable quality online demo days. And every now and again, you get a diamond in the rough. But yeah, I saw Joe pitching on that kind of 10 minutes. It was, I mean, it's happenstance, right? Because it's a renewable energy background that I kind of understood. I had a semblance of understanding of what the kind of problem, high level, what the problem was that Joe was trying to solve, Joe and the team. as in when we had generating assets we were always thinking about ways to try and sell the power more locally kind of direct to the local customer and cut out a whole load of the margins which happen when you go centrally without trying to do it with private wires that was kind of from an infrastructure aspect what joe was talking about was much more from the tech point of view but yeah it was an online demo day and even with that mustache i followed up and kind of went from there I love that.

4:54Adam Chirkowski:And it is one of the best moustaches we've ever had on the podcast. So that's something. We should talk about the origin story of Tem, Joe. So taking back to the very beginning, you're doing online demo days, looking for investment. But where did the original thesis for Tem come from? And tell us a bit more, alluded to it a bit, but a bit more about the mission that you were really setting out upon.

5:14Joe McDonald:It's funny, right? I think you see this a lot in people talking about their journey. I think when you look at historically, it's quite a linear path. It makes sense. At the time, it's all felt like absolute chaos. But I can explain it from that linear standpoint, which is it was built over 10 years, right? Because my first company was solving a peripheral problem in the energy market. It was building like automation and trading services for renewable generators and aggregating battery storage and what we call now virtual power plants. When I joined that, I honestly had no idea when you flick a light switch on how it all worked, right?

5:45Joe McDonald:So I just love the idea that electricity is more like data than it is like a fossil fuel commodity. So there was surely more opportunity if the whole market is shifting to electricity to utilize technology to completely change the way things are done. But I sold that to Shell and I saw probably for the first time, and I was a handful of people in the world that actually seen the end-to-end electricity transaction at that point. And it was that realization and understanding all the systems, all the people, all the reasons, all the behaviors, it kind of came together to like, unless we change the nucleus here, we're never going to actually build true innovation into this market.

6:20Joe McDonald:We're all going to be innovating around peripherals, but it all comes back to actually the transaction of the electricity itself. But I think the moment it flipped, and it really was a moment, it was in one week, it was in 2022 during the energy crisis. I'd been mulling over this, walking the dog thinking like, maybe I'd do like the end of life pension from Shell, and maybe I can just do a nine to five. And I'm sure my partner will be really happy with that. But I met a friend on a Tuesday and she came to me in tears. She was shutting down her catering business after six years because her energy price had just spiked by about 400 % for an external contract.

6:51Joe McDonald:And she just came to me, she was like, I don't understand why. And she was looking for advice. Thursday, I went for dinner with my friend down in London Bridge, who's an energy trader. He'd just been paid about£750 ,000 bonus for the quarter. And it was just this disparity of realizing in the same way, I think maybe people thought about the cost of compute back in the 1970s. Like if we can bring down the cost of the electron in the same way, it really empowers an entire new phase in kind of human history because it's real people that are affected by this cost. Like that was my friend who was affected by that.

7:22Joe McDonald:I just thought there has to be a different way to do this. So with a little bit of the, okay, let's do this again and make sure I take all the learnings. I think I learned what not to do, not necessarily what to do with the next business. And to kind of prove myself, like we talk about growth mindset all the time at Tem, if I wasn't willing to go again, take all those learnings and take a risk. Who am I and what have I stood for for the last few years? It kind of all came together with the three other founders who I'd worked with as well. And I took the idea to them. I expected them to say, you're crazy.

7:49Joe McDonald:This is impossible. They all quit their jobs that week. Right. So that was that initial kind of new. And since then it has been a whirlwind of mistakes as well. But that inception moment, yeah, is incredibly clear. And we still come back to that every single time we think about the decisions we're making at 10. I love that. And And that is the perfect segue, talking about mistakes.

8:06Adam Chirkowski:We would love to talk about the early days in the business. I'm sure there were many challenges, probably things you underestimated. Even though you're a second-time founder, this is such a big problem space. There's always challenges when you're trying to grow a business. So can you talk to some of those early challenges that you have faced and how you overcame them?

8:23Joe McDonald:So I think there is incredible power in the naivety of a first-time founder. Because I think if you truly knew, you probably wouldn't do it. And equally, when I was doing it the second time around, I think I was overanalyzing things. Oh, how did I do it last time? Can I do it differently? So I think there is a real power in that naivety. However, an example of that naivety failing me again with the second one was, in my head, I realized if you build the new nucleus of a system, the new infrastructure, and you can win on price, and no one else can compete because this is a technology play, it's a network effect play, you can't just simply reverse engineer this.

8:56Joe McDonald:Every other participant in the energy market will eventually die. So my view is I'll bring it to them and say, look what I've created, this infrastructure, you can use this. And obviously if you don't use this and someone else does, you're going to lose. What I didn't expect is all 20 utilities in the UK to be like, no, why would we use this infrastructure? Why would we cannibalize our own profit streams? Who are you? What kind of proof points do you have? So in my head, I was so excited from that pitch deck. I was like, everyone will get this. And I didn't realize that actually what it ended up meaning is, and this was quite close to the funding realm, we were like, we couldn't get started.

9:29Joe McDonald:We couldn't get liquidity into the infrastructure. So it ended up meaning that we built our own utility. We had to basically build a utility in about eight weeks to get our first few customers in. And then actually Red, which is the product you'll see in the market from us, that is the kind of first UK Neo utility that is built on top of our infrastructure. And that has become our stalking horse in the market. And long story short, three years later, everyone's coming back to us saying, oh, okay, that thing you sold us,

9:55Adam Chirkowski:can we have it now please yeah i love that but that must be very validating and it shows how far you've come it's real i think it's one of the things we really try to focus on the podcast is just regardless of the success of the founder and the story where they are today it's always good to reflect there are those moments of the oh god and that's a perfect one for any founder that's going to listen and watch this adam you clearly saw immense potential in joe genius very early on yes the genius the mustache but they're clearly the team the idea the concept you were hooked so what made it such a great opportunity when you saw that i think there's a there's an element of many stars aligning many tailwinds that go with it i mean the energy market is if you're looking to build big global businesses or you're looking to invest the energy market is a market of true global scale that rivals pretty much every other market so market size is there you always have to ask yourself with that kind of market the why now question because it's been pretty stuck in its ways for what 50 60 years it's like why now why is this market kind of on the cusp of shifting and you had the energy transition going on and a complete 180 shift of the supply model.

11:20Adam Chirkowski:You had a whole load of tech advancements pretty much in the two or three years before you, which kind of enabled what was going to happen. And then you started having the energy crisis where prices were just going through and all of a sudden this stable line in the P &L was killing businesses left, right and centre. So people were actually much more willing to say, right, we're not just going to go with the status quo. We need to find something else. Otherwise, it's kind of what we die. So there's all those kind of tailwinds that makes it exciting. But fundamentally at that early stage, it's down to the team.

11:54Adam Chirkowski:It always is. It's the vast majority of the decision is down to the team. And it's not just Joe, but there's Jay Spartak and Ross as well. And four founders can be problematic. It's actually probably more often problematic than not. But each one of them brought a very specific skillset to the table, which turns out being handpicked for that reason. But they'd also worked together for kind of a decade. And also in energy, I think energy is a very complicated space, which brings real kind of defensibility, potential to build defensibility moats, which in today's age, everyone is craving. But you really need to know what you're doing.

12:37Adam Chirkowski:As Joe said, it's one of the few that's sort of the end-to-end transaction. And you think that can't be true. you know massive global market the venn diagram of skills in terms of the knowledge that in-depth knowledge but also the tech skills and the startup experience and that kind of mindset just does not grow in trees on trees in energy you're getting it more and more but it's a rare combo and then there's the ambition that you just gotta love i mean he said to me we're going to take down big energy and we're in some terrible building by london bridge with little space eaters

13:13Joe McDonald:The first board, it was too cold. So everyone was sitting on these old sofas with coats on and space seats. And he's sitting there going, yeah, we're going to take down big energy.

13:20Adam Chirkowski:Can't even afford our own heating. I love that. And the irony got lost to me that you exited your previous business to Shell. I mean, ambition is one thing and having that vision. It can sound glib to say anyone can say that. There's also a real strategic idea of how to get there. And not just sat there, you know, in an armchair in a cold building saying, yeah we're going to take it's like this is how we're going to take down the energy step by step and a thesis on how the world is developing which means that those steps make sense right and that clarity must have given you a lot of confidence and conviction well i was pretty cold but other than that yeah and you've seen these amazing milestones i'd love to hear what you're as an investor what your kind of favorite the bits to stand out to you on the journey so far and particularly how joe and the team have evolved as leaders in that time frame i think when the The platform and Rossa and the whole thing really started to rip.

14:15Adam Chirkowski:The first year, and I think it probably took you guys longer to build than you thought post-funding round, by a good six to eight months. But it was always very purposeful, that build, because it was never, we need to go from zero to one. This needs to be built in a way that can 100 ,000x. So there's no point rushing this and getting it wrong. And then a period of kind of flushing, opening the taps a little, bit just to test and see where water leaks out of the pipes and do that but then turning it on in earnest which was probably i think about 18 months ago and just seeing it rip from there is very satisfying and then i mean the series b that you guys have just done it kind of validates everything because light speed came in and energy there still isn't a space even with all these there's a lot of size and a lot of factors which make you would think make it very attractive it ticks a lot of boxes but it's still not a space that's been properly leaned into by the big kind of global vcs so having one of those the more generous alongside some great kind of energy specialists as kind of validates everything that's awesome and congrats on the series b exciting milestone a lot of the people in this room will have done fundraising before and know how painful it can be.

15:36Adam Chirkowski:A lot of people listening will be either going through that process as founders or have been through it before. So I'd love to hear about your own experience of the fundraising journey and any learnings you can share with our listeners.

15:47Joe McDonald:Yeah, for sure. I mean, my first kind of reflection is try not to compare yourself against anyone else. I always get sucked into that. Oh, they're raising this quickly and this amount. And actually just really focused for me on what do we need to do to achieve our mission, right? We knew we were going to build a generational company, we knew that wouldn't be for everyone. So we had to go in knowing that eight out of 10 people will self-select themselves out even in the investment process. And that's been pretty much the case every time. So we've been very targeted on who we build relationships with well ahead of the funding round.

16:17Joe McDonald:So we have that planned. We then have the materials before we share anything to market. We really go quite deep, which means that we raise money when we don't need it. Because the moment we start raising money in the windows where we need it, everything gets compressed, you rush. And actually, the longer you're out in the market, the worse. It's just a simple fact, right? So for example, our Series B, we closed a$75 million round in two weeks. But we had spent four or five weeks blitzing preparation beforehand. And I'd been speaking to Paul from Lightspeed for nine months before that. Part of the, I think, philosophy that enables this is this idea that we had as founders, which, especially if you're trying to build an insanely ambitious company, don't be greedy.

16:57Joe McDonald:So raising money when you don't need it might mean that you're giving up a little bit on the valuation. Valuation means nothing until exit. I've learned that very firsthand. So it's just a necessary means to protect investors, make sure they're obviously not getting diluted. And my team, obviously, they're not getting diluted too much. But it's just a stepping stone to get there. So finding the right partner, doing all the prep, and then coming out incredibly efficiently in a very clearly timed process has worked well for us and hopefully will continue to work well for us from this point onwards.

17:24Joe McDonald:It's easy though now to see it with the traction, right? When you look at Adam, he was making a bet where everyone else said no, rightfully so, because I couldn't explain it very well. And I was getting way too geeky about it. Whereas now we can be like, okay, zero to nearly a billion dollars in gross revenue for the transaction platform in 24 months. Like that growth story, sixth or seventh fastest growing company in Europe. These things then just help tick the boxes, but it will still come down to the nuance and the explanation of risk and defensibility and why Claude won't just take you out the market.

17:51Joe McDonald:All of these things do matter and being prepared really, really helps. Yeah, definitely.

17:55Adam Chirkowski:Adam, when you look at particularly impact-driven founders like Joe, what do you look for to distinguish between kind of true conviction for the space and just like a good pitch, narrative, great presenter? And how do you sort of test for that to sort of work out who's worth the risk? I think a lot of it, A, comes down to really knowing the value proposition or really knowing the pain point. and not just kind of having scanned the horizon and gone oh that looks interesting i think people that have really almost lived the pain that they're trying to solve lived the problem like i said these guys had been in energy for you know 10 to 15 years so they it was day in day out kind of really understanding it also that also helped because i know i know joe's not going to sell for 100 million because the problem won't have been solved so it would keep him up at night right he'd have nicer sheets but he'd be lying there going i haven't solved the problem like the underlying motivation which i think you've said before in your case is that injustice that you're talking about you know the friend going out of business versus that kind of injustice hadn't been solved so it's really understanding the motivation i think for impact driven especially I've done a fair amount in the climate space, energy space.

19:15Adam Chirkowski:I think it's very important to me, I always look at things that are at the intersection of economic and say environmental impact, right? If you're not having the economic impact, as much as you would like to think that it shouldn't matter, that's not how the world works. You need to have an economic impact to scale, to get to a scale that any other kind of impact actually moves the needle. So, I mean, these guys, yes, behind it, there's a lot of renewable energy, etc. But they're selling on the basis of cheaper power, right? 30 % cheaper power, up to 30 % cheaper power. That's why you scale quickly, right?

19:55Adam Chirkowski:Because at the end of the day, the P &L impact, it's why people go out of business. Totally. Yeah. Thanks for sharing. And that combination of purpose and profit is clearly compelling from an investor standpoint. but also from a talent perspective, we see it every day. When we talk to execs who are often very good, very cappy in their roles, the things they will consider are purpose-driven businesses where they can get behind the mission. And this is one I'd imagine everyone coming through the door, the applications you'll get, hopefully a few more after this podcast will validate that. I know you are very passionate about building a really strong people function.

20:29Adam Chirkowski:It's really important to you, which we here at Amplify Group are really super excited to hear that. Can you share a bit about why it's so important to you and what that actually looks like in a TEM context?

20:40Joe McDonald:Yeah, I think it really boils down for me for two reasons. One, actually just sharing an experience is with our first company, we had a great culture. We were an in-office small team. We didn't invest in our culture and our structure and we didn't sort of innovate on what we needed to be as a company. and then by the time we got to about 130, 140 people, just the wheels started falling off. And what we learned was you can't put those back on. Once your culture started getting eroded and you moved to like 60 % developer churn because there's friction in the company and we're still all in the same office.

21:14Joe McDonald:So I realized that for me, if I can build a remote first company that allows me to get diversity of talent at an extreme level, which is gonna be necessary for us to solve the problem, it doesn't actually matter if I'm in person or not. It matters about having the right people and the right structures to support them. So I knew I had to be very, very intentional about culture and what I call like company market fit. So almost the moment after we found product market fit, I have spent, I'd say 70 % of my time on company market fit. That is thinking about culture, organizational structure. We call it our heartbeat, like our execution process, our empowerment, our progression.

21:47Joe McDonald:I got that very wrong. I've tried different things. Sometimes I've tried to reinvent the wheel. My general advice would be don't try that. But right now there is a new world emerging of how to build a new company. And that's probably only become possible in the last four months. So I've become very obsessive about ensuring I have other people in the company. And I would say the people team itself is also changing. It's not necessarily just your traditional people team and HR and processes now. It's about finding people who can understand how to embed and embody and protect the culture, think about the operational efficiency, build your intelligence layers, like work on standardized processes for how you hire great talent, how you bring people into a tribe.