Saving the Planet with Better AI Data Centers (with Crusoe CEO Chase Lochmiller)

27:05Today, I think we have a really incredible facility and we call it Crusoe Industries that is focused on sort of manufacturing our electrical and data center infrastructure in a very cost -effective manner. That's again, very purpose built and designed around the specific workloads that we're focused on. And that stems from the way we sort of manage the heating and cooling of the systems, the way we manage the electrical feeds, the way we manage the battery backup systems. How much heat do you hear racks and data centers producing? For our cloud computing platform, we typically standardize around a 50 kilowatt rack.

27:41So quite a bit denser than these earlier, seven to 15 kilowatt designs that I was sort of mentioning. Now, what's interesting about that, I guess we didn't talk about it, but the proximity of the hardware to one another actually becomes more important for managing that LAN piece, that high performance local area network. The reason for that is that these cables and the transceivers and all of the components required to interconnect the servers in this high performance RDMA setup are really expensive. And they scale exponentially as you're trying to go further distances. Yeah, this isn't like a serial port that you're hooking up to.

28:20No, exactly. It's not like 200 foot cable is about the same cost as a 10 foot cable. It actually scales pretty exponentially. So being able to deliver these high density racking systems and actually becomes a great strategic advantage. One area where the mining space I think has been quite ahead of leapfrog the data center space in a lot of ways is the adoption of other advanced cooling techniques. And a lot of these were created from the traditional data center sector, but haven't been that widely adopted. I think you're going to start seeing a transformation where people are going to start moving to cold plate or immersion cooled solutions almost by default for some of these more high performance applications.

29:05And to explain what that is, I see you about to ask Ben. So thermals become a big deal when you're talking about running a server that draws 12 kilowatts. It's like, where is that 12 kilowatts of power coming from? And where is it going to? And so a traditional design is you have a chip that's on the actual motherboard and then you have a heat sink attached to it. And that heat sink is typically a lumen or something to diffuse the heat across the surface. Something to diffuse the heat exactly. And so the heat transfers from the chip to the heat sink and then they typically have kind of these fins that you blow air over.

29:38And you want to have a lot of surface area. So as you're blowing that cold air over those heat sinks, you transfer the heat off the chip and sort of dispose of it separately. There's a couple of different advanced cooling solutions. One is cold plate where you're actually running instead of a heat sink, you actually have copper pipes that have cold water running over the chip. And it's actually more efficient to transfer the heat from the chip to the water than it is from the heat sink to the air. It sounds like a nuclear reactor. They kind of are, honestly, it's like kind of crazy. Then there's actually immersion cooling, which is even crazier and there's single phase and there's two phase, but you know, single phase immersion cooling is where you have a non -conductive dielectric fluid that you're actually putting the chips into.

30:27Because obviously you can't put the chips in water or you'd get it. Exactly. It's gonna not end well. So non -conductive, it's like the chips are sitting in a liquid that can't short circuit it. Exactly. You could actually put it into deionized water, funny enough, but if any dust gets into it, you're kind of in trouble. Is that right? That water is only a conductor when it has impurities? Exactly. It's the ions. Yeah. Anyway, either way, you know, there are these non -conductive dielectric fluids that you can immerse the whole system into and that is actually more effective to transfer the heat off the chip.

31:03And there's single phase, which means like you're basically the phase of the fluid is staying as a liquid and you're sort of running the cold fluid over the chip and then it goes out to a heat exchanger, like a dry cooler, and then recycles back through the system. Or there's something called two phase immersion coolant where the fluid actually flows over it and it actually boils at the surface, at the interface between the chip and the fluid. And the boiling process actually strips off heat even more efficiently. Now, the problem with two phase immersion cooling is one, the fluid is very expensive and two, they're generally these fluorocarbon fluids that are very, very bad for the environment in the case that any of it sort of escapes.

31:48You know, it has a global warming potential of something like 250, which means that for an equivalent volume of gas that escapes it has a 250X impact compared to that equivalent of CO2. So it's a really, really nasty foot. It's even earlier than methane. Methane's about 84, these fluorocarbons are quite a bit worse. So it's actually not something that we generally use today. But anyway, there are all these like very cool advanced cooling solutions that I think will become more standard in artificial intelligence and high density computing as the space continues to evolve. That's super cool. So like the traditional cloud providers and the like, we're not really doing this.

32:27This kind of came out of the Bitcoin mining world. It didn't come out of the Bitcoin mining world. It was productionized by the Bitcoin mining world. It was like, you know, probably Bitcoin mining is one of the areas where this is probably happening at the most meaningful scale. There are people from the traditional HPC high performance computing space that have been big pioneers in sort of these immersion cooling and cold plate technologies. But it's certainly being scaled up very rapidly because of Bitcoin's tendency to generate a lot of heat and that thermal transfer being a big component of the overall problem.

33:02Wow. Okay, so that's the thermal structure. Sorry, we're going in a lot of different verticals here. Yeah, I think this is amazing. So I think, definitionally, if you are generating a lot of heat, you're using a lot of energy. Let's talk about the energy piece. So our mission as a company is aligning the future of computing with the future of the climate. So, you know, we take this very energy first approach to the way in which we build computing infrastructure. Some people at the surface may say, well, wait a second, you're working with oil and gas companies and, you know, using oil and gas based products to power your data centers.

33:41What's important to understand here is that what we're using is actually a waste product from the oil production process. When oil companies drill for oil, they drill a hole in the ground and then sort of what flows out of the reservoir is this combination of oil, natural gas, and water. And when that comes out of the ground, it goes through what's called a three phase separator that separates the oil from the gas from the water. And typically what happens, unless you have access to a pipeline on site, the oil can easily be trucked to an oil refinery. The water would be trucked to a water treatment facility.

34:22And then the gas, because it's in a gaseous state, it is actually very, very difficult to deal with. It's very difficult to transport unless you have a pipeline. There are other existing solutions to do this, things like compress natural gas where you actually compress the gas on site into a 4 ,000 PSI tank or something like that. And then you truck the tank to an injection point or you can liquefy it on site. But all of these things, it takes a lot of energy and it takes a lot of cost, right? So you have to come running that compressor is very, very expensive. And the cost of operating these things typically exceeds the revenue that you actually get from them.

35:01Even though you're selling the natural gas, if you're selling it for $2 per MCF, MCF is 1 ,000 cubic feet. If you're selling it for $2 in MCF, but it costs you $5 in MCF to do it, you just lost $3 in MCF. It's been this sort of conundrum in the oil industry, typically in these cases, the best and most economic thing to do with the gas is to just light it on fire. It's literally. It's completely insane. And this has been a problem, it's not a new problem. This has been a problem since we've been producing oil. Like you can see the trends on flaring from the IEA website and just kind of look back at the history of it.

35:40But the overall concept is, it becomes this waste product. It's not the reason they're drilling a well. They're drilling the well to produce oil. And oil is the product that they're looking to sell and monetize that investment with. Gas is the byproduct and it becomes a nuisance. This is a bad problem for the environment for two different reasons. One is sort of, when you're burning off that gas, you know, obviously it creates a large CO2 emission footprint. But even worse is actually the methane emissions that come off from it. Because not all of the methane gets combusted in the flaring process.

36:10Typically nine to 10 % on the methane escapes uncombusted. And as we were talking about earlier, in terms of global warming potential, methane has a very, very high global warming potential of 84, which means it traps 84 times more heat in the atmosphere than an equivalent amount of CO2. So by volume, what that ends up with is from a flare 70 % of the overall greenhouse gas footprint comes from this methane that sort of escapes uncombusted. Now with Crusoe, when we deploy our equipment to the site, we have these onsite generators, we have these onsite gas capture systems that basically feed that gas into our generators and turbines.

36:52And it becomes a very high efficiency combustion process, something called stoichiometric combustion, where you get the right fuel to air ratio of the overall combustion process. And we're able to get over 99 .9 % destruction efficiency of the methane. And so by doing it this way, we're actually able to eliminate the greenhouse gas footprint of a flare by about 70%. So it's a really meaningful emission reduction compared to the status quo. And so far none of this accounts for the actual benefit of what you're doing with the energy that would have consumed some other form of energy to get that computing out anyway.

37:29This is just a reduction. So there's a reduction from the status quo, but there's also what's called avoided grid emissions, which means if we weren't running this data center here, someone would be demanding that computing somewhere else, and it would be drawing power from some grid somewhere that has some carbon footprint associated with it. So it's sort of a win from an emission standpoint on both those verticals. Now just to give you guys a sense of sort of the magnitude of the flaring problem globally, when I started the company, this was not my domain expertise. This was my co -founder's domain expertise.

38:02He was someone that grew up in the oil industry as sort of a third generation oil and gas family. And it was honestly something that he struggled with a lot. He was an environmentalist and went to Middlebury College as an undergrad, which is a very environmentally progressive school. You guys met in high school? We went to high school together, exactly. You know, he was a Thomas Watson fellow and sort of studied energy impact around the world, always trying to find the right balance between energy's impact on the economy, as well as the environment, and trying to find the right balance in terms of helping people get access to energy so they can raise their quality of life while also being conscious of long -term impacts on the climate and what that's gonna mean for the society in the future.

38:46But all of that aside, he educated me a lot about all of these things. When you look at flaring globally, there's about 14 billion cubic feet of gas that get burned every single day around the world. Now that sounds like a very big number. What does it actually mean in practice? If you were to capture that gas, you could power sub -Saharan Africa with that amount of power production. It's about two thirds of the consumption of Europe. Europe's big. Europe consumes it. So it is this incredible waste that sort of exists within the overall energy ecosystem. But of course, as you mentioned, like you can't economically actually get it to any of those places to use it there.

39:33Exactly. Transportation is the problem. Getting it to a place where it's actually useful, that's the difficulty. People aren't burning this because they hate the environment so much or they don't want to get paid for it. They're burning it because they have no other economic option to manage and deal with this gas. One other, data point, just the amount of gas being burned because of the methane emission footprint of it. It's nearly a gigaton of total greenhouse gas emissions when you account for the global warming potential of the methane emissions. How does that rank in terms of emissions sources?

40:09Globally, as a humanity, our emissions are a little over 50 gigatons. So you're talking about something that's nearly 2 % of total global greenhouse gas emissions. And the crazy thing is that we don't benefit from it. It's one of these things where steel production generates a lot of greenhouse gas emissions, but we end up with skyscrapers. It's cement, a lot of greenhouse gas emissions, but roads are pretty handy. The transportation sector, we're able to get around effectively and conduct commerce. But in the case of flaring, it's this very large greenhouse gas emission source, and there's no beneficial use.

40:47Like nobody's benefiting from this. It's literally a negative externality for everyone. With our digital flaring mitigation solution, where we're co -locating the power generation and the computing infrastructure at the site, we're able to reduce that greenhouse gas emission footprint by roughly 70 % while also capturing a beneficial use. It really does kind of become a win -win. And kind of to your earlier comment around the business and taking computing to the sources of energy, when you think about flaring at the problem, you really nailed it. The issue is a transportation issue. There is no market for the gas in the physical place that it's located.

41:26So yeah, I mean out in rural Montana, rural Argentina, there's not demand in these oil fields for this massive amount of energy. Like what are you gonna use it for? That's right. When you break our business down to the simplest fashion, really what we're doing is we're unlocking value in these stranded energy resources with computing. And the insight really was that moving gas is difficult. Moving power is difficult. You have to build large transmission lines. These are big infrastructure projects. Moving data is pretty easy. It's a lot easier than moving gas. And by recognizing that if you could actually just create a data pipeline, you essentially create this digital pipeline that you're able to create value in these remote locations with various computing workloads.

42:16Do you know the Iceland story about aluminum? This reminds me a lot of that industry. I know some of it, my co -founder, Koli actually spent a ton of time in Iceland working with the geothermal power production industry there. Oh nice, okay. I mean, it is a geological phenomenon that like Iceland exists. The cost of geothermal power production there is insanely cheap. They always joke that the island's gonna slowly take over the world because it grows a few inches in each direction. Every year from the fault line down the middle, still being active spew of magma. But for listeners that are unfamiliar, the insight that they realized, I think like decades ago in Iceland, which is very similar to this insight that you have with around data is Iceland has tons of geothermal energy and not enough demand for it.

43:03Like so much supply, not enough demand. There's just not a lot of people that live there that country doesn't have huge energy needs. And so what do you do? You look around for other energy intensive applications, one of which is refining aluminum ore. The issue is there's no aluminum ore in Iceland. Naturally, they actually ship in, this is the most economic way to do it. They ship in aluminum ore to the country, use the geothermal energy to refine it there into the aluminum that we use in our lives every day. And then they ship the byproduct out. And as a global society, that is actually the most efficient way to make aluminum.

43:39It's pretty wild. It's crazy. To your point, it's like, well, let's ship our data out to these oil fields. So, Crucio could do something useful with it and ship it back to us. And that's actually way more efficient than moving the gas. I'm wondering, especially thinking about that. Okay, Flaring's been this problem forever. Why haven't, I don't know, aluminum smelter is co -located there. Why haven't, I don't know, car factories located there. I'm imagining the problem is the oil wells are there. Like, they need to run. So you can't just build a factory on top of it. There's a couple of problems.

44:11One is typically a oil and gas well will have some sort of decline curve, which means the amount of gas being produced today will decline in some sort of exponential fashion to the future. And that creates problems because it's hard to create a mobile aluminum smelting factory. It's just sort of difficult to invest the capital to kind of be there for a small period of time. It's measured in years, decades maybe that these things run out of gas, literally. Yeah, the amount of production just declines over the course of time. And then it's also widely dispersed, right? So the nice part about computing is we can deploy sites that require or that are able to generate two megawatts, you know, all the way up to, you know, the largest flare mitigation site that we've done is upwards of 30 megawatts.

45:02But an aluminum smelting facility, you know, might require 500 megawatts, like, you know, all in a single location. So, you know, not being able to sort of chop things up into tiny little blocks makes it quite challenging. So magnitude and durability. Yeah, exactly. The other aspect is it is a challenging environment to operate in. You're dealing with these, you know, oftentimes harsh environmental conditions. You're in remote locations, limited population centers. It can be a challenge to operate in that area with a significant, significant workforce. And so to put a fine point on the thing that you're sort of not saying, but is implicit in all this, your data centers don't require tons of humans.

45:42It doesn't require a huge footprint. It doesn't require building a small city around it. These things are mobile data centers. They don't want to be in one place. Right, you can set them up, have them there for a period of time, and then at some point move them to a different flaring location. That's right. So, you know, everything has been built to be mobile and modular. So you can kind of think of those building blocks that we can move around. Now, obviously, our Bitcoin mining modular data centers are much more mobile and easily to interrupt and move around and sort of gotten excellent at that sort of mobilization process where we can just move a whole site in a single day and kind of get it back up and running.

46:20But the cloud computing data centers, we try to find locations that we are going to be there for a longer period of time and remobilizing is probably not going to be an issue for at least a number of years. It makes sense. You know, we spent all this time talking about the sort of catchy headline of Crusoe, which is we build data centers right next to oil flares. Oil flares are not the only place where energy is stranded. So I'm curious to hear a little bit about the early journey you've done into wind and other power generation where it's also an issue to move the energy. That's right, coming back to our mission of lining the future of computing with the future of the climate, as we think forward in this energy transition that's sort of taking place across the world, we really view it as like there's two big opportunities for Crusoe to be an important component to that transition.

47:13The first is helping extend the climate runway, helping us by time by reducing emissions from legacy industrial sources. So this is what our Flare mitigation business is. It's taking a big source of emissions, reducing it to by empowering computing infrastructure and just sort of reducing the overall footprint of that emissions source as it exists today. Now, the second big opportunity is that as we are thinking about electrifying everything, right? You know, this has been a big trend between electrifying cars, electrifying stoves, electrifying heating and cooling systems. It was researching heat pumps the other day.

47:53Yeah, it pumps are awesome. I installed one in my house about a year ago. Nice. Nice. We can trade notes on it, maybe separately. But, you know, the whole point is, all of these things require a lot more power and we need that power as a society to be coming from carbon -free resources that aren't accelerating a climate crisis. Carbon -free resources that we're really focused on are wind, solar, geothermal, nuclear, and hydro. Those are kind of the big sources that we would consider powering data centers that are grid connected. What is the opportunity for someone like Crusoe that's focused on stranded energy resources?

48:33Well, there's sort of this conundrum that exists within how we build renewable infrastructure. And the conundrum is basically that when you think about investing and building a wind farm and your goal is to produce a lot of power from that wind farm, you want to find somewhere that is very consistently windy. The problem is that isn't necessarily in the same place where you actually have consumers to buy your power. Moving power is hard. Moving power is difficult and you have losses to it too. I mean, there are significant transmission losses when you're moving power over significant distances.

49:15Moving power is hard. Storing power is even harder. Storing power is even harder, exactly. You can only charge up a gigantic stack of batteries so much. Yeah, and it can only store power for so long. And there's a lot of headway and technological breakthroughs I think we need to make in order to make long -term grid power storage a feasible reality. What sort of happened in the US when you look at sort of people that build and own wind farms? Really, their revenue stream is coming from two sources. When they build a wind farm, they're underwriting against revenue that they expect to get by selling power.

49:53Obviously, they're building a wind farm that generates power. But the second big resource of revenue for them is actually coming from production tax credits. So they get these credits that are incentives to basically build renewable energy for the country, which I think generally is a positive. However, they only get those to the extent they're actually selling the power. So this has led them to building these wind farms in places where it is most consistently windy. One such area is an area like West Texas. And West Texas is consistently very windy, consistently very sunny, and consistently very sparse and depopulated, right?

50:33There's just not very much in West Texas. Isn't that where the Blue Origin launch operations are? It's like, Bayza has his branch and the clock and the mountain and all that stuff. There's a lot of space there. What this has created is actually because of the production tax credit dynamic, wind farm operators will actually sell their power at a negative price, because they still capture the production tax credit and it's still marginally economically beneficial. But again, if you're selling your primary product for a negative price that's generally not a good business to be in, there's essentially no marginal demand for that power that's being produced.

51:09The amount of time that people are getting negative pricing on their power in areas like West Texas can be really significant. Some of our partners, it's on the order of 20 to 30 % of the time that they're generating power, they actually get negative pricing. So not a good model doesn't really incentivize building more renewable capacity and is not an efficient use of energy that's being produced. To Cruciseau, that's a big opportunity. And we've partnered with these renewable energy producers by actually, again, taking the market to them. We bring demand in the form of computing and data center infrastructure directly to these sites of stranded heavily curtailed or negatively priced power, where we can actually, again, unlock value in that stranded energy resource with computing.

51:58And we deliver to them a price floor so that they're sort of eliminates their negative pricing risk where they're not having to pay to dispose of their power. They suddenly have a consumer, which is Cruciseau. And it helps us because it's very much in line with our mission where we're able to actually power our computing and data center infrastructure with these onsite, renewable, carbon free power resources. And there's a lot of different ways that people make claims about being net zero. We believe the best way of doing that is actually with onsite renewables, onsite carbon free power. That's really been the focus for us within this new business line.

52:34We call digital renewables optimization where we can help optimize renewable facilities by bringing digital infrastructure to the source. And for your customers, it doesn't feel any different. They're just getting an AI cloud that happens to be located next to a wind farm instead of an oil field. That's right. It's basically just like a different region to them. The infrastructure is still in the box, inside the data center, it's still the same high performance infrastructure and high performance solutions that we discussed earlier on the episode. And for customers in use cases, especially training, but I guess anything, can the workloads be sharded enough that like you have a big honk in AI workload goes out to various regions and data centers on Crusoe and like kind of doesn't really matter or does it all need to be in one?

53:24Typically, I think the best approach is certainly to be in like a single region for kind of a cluster. There are certain workloads that you can sort of shard in that capacity. There's actually a really cool startup that's building ways to leverage that type of overall architecture is like a layer of indirectioned sort of manage across different GOs with low cost. You know, computing nodes, a company called Together, and that's a really, really neat startup that's doing really, really interesting things in sort of the AI training infrastructure space. Wow, fascinating. Can I ask Chase, how on earth did you come up with this as the solution to, hey, we should do something better with the energy that's currently being flared?

54:12Like now that we're deep into the episode, give me the history. Yeah, bit of backstory. The company honestly is a representation of me and my co -founder is really what a boils down to. Just by way of background, I was sort of in the applied AI research space working as a quant portfolio manager in the finance world where we were using advanced statistical modeling techniques to forecast stock prices and security prices. So I went to MIT as an undergrad, studied math and physics. I went to Stanford for grad school, studied computer science with a focus on AI. You know, I spent that first chapter in my career as a quant and in doing that, I mean, we were, this was sort of the early days of cloud.

54:54We were mostly building the infrastructure ourselves. We hired a lot of people from government laboratories like Lawrence Livermore and Los Alamos that were building this type of infrastructure themselves. People like Shaw Research that were building a lot of cool advanced computing infrastructure. I was always a big user of large computing infrastructure to train models to run big simulations. And at the end of the month, we would get a bill, right? We would get a data center bill. And I was always just kind of like holy crap. How much are we spending on power? That's insane. You can buy a house with that.

55:32You know, it was always just kind of one of these just crazy, crazy things that stuck with me, you know, as I kind of, you know, went on in my career. I ended up getting really deeply interested in the digital asset and cryptocurrency space around 2016. I ended up meeting a guy named Olaf Carlson, we who was the first employee at Coinbase. And he had left Coinbase to start a hedge fund to invest just in digital assets and cryptocurrencies. Here in 2023, there's a million crypto hedge funds and, you know, probably a million more that failed crypto hedge funds. But at that time, that was a very, very unique idea.

56:07There really weren't other crypto hedge funds that were just focused on the digital asset space. So I ended up joining him in 2017 to build out this fund called Polychain Capital. There was a lot of chaos happening that year between, you know, ICO, Mania and people learning about what Ethereum was and, you know, how was going to transform everything with smart contracts. And we were also big within sort of the Bitcoin ecosystem as well. And, you know, I really got sort of this front row seat to understanding proof of work blockchains in a very, very deep capacity. Again, that really stuck with me as well as like something that was this digitally native asset that was protected fundamentally by low cost, decentralized computing infrastructure that required lots and lots of energy.

56:55I ended up leaving that in 2018 to go pursue a personal passion, which was, I grew up in Colorado around the mountains and I had always wanted to climb Mount Everest. So I, I left, I knew we had to work this into the episode. So yeah, okay. I'm glad that it's coming up. Yeah, I left to go climb Mount Everest. And, you know, I sort of had this like, you know, self -discovery expedition of climbing to the highest point in the world because, you know, at the time, I like didn't, I didn't have a plan, right? I didn't have a plan on what I was going to do next. And that was like a, what, a four month?

57:30It was about two months. It was very, two month experience. Two months in Nepal. For other aspiring entrepreneurs that are kind of out there listening, I do think that there's something very unique and special about the blank slate and just like the, the stillness of having nothing there. It can be particularly challenging for very ambitious people, right? Because it's like, before I left high school, I knew exactly where I was going to college. Before, you know, the fall of my senior year, I knew exactly what job I had already accepted. Like, when I left that first job and went to grad school, I knew that before I left the job.

58:04You know, it was kind of like, I always had the next thing planned before I left the previous thing. Having that stillness and that void of like, I could do anything. What should I do? And just really having that openness to, you know, being open -minded to, you know, honestly doing anything, was really, really important to me. And you did sum it, right? I did sum it. Yes. That's crazy. Yeah, yeah. It was the ultimate adventure, so much fun. A lot of really cool memories came out of it. And actually one of our core company values came out of this whole expedition as well. So one of our very, very unique company values is actually to think like a mountaineer.

58:42And we're not expecting everyone to climb Mount Everest. We're not expecting everyone to be a mountaineer. But we want them to channel the mindset of a mountaineer. One of the ideas when you're climbing a mountain is that one, getting up is optional, getting down is mandatory. So you have to have a safety -oriented mindset, which means you have to be thinking about what could go wrong. You know, you're gonna have a plan A that's like, if everything goes to plan, you know, we're gonna follow this route, we're gonna climb this path, and we're gonna do this crux, and then we're gonna get to the top, and then we're gonna come down this way.

59:12But the weather could change, the route could change, an avalanche could happen. All of these things are possible, and you have to be prepared going into it with like, what am I gonna do if this goes wrong? That's a core component to, you know, Crusoe culture is thinking like a mountaineer and really being prepared for things to break, for things to go wrong, because they inevitably do. As they do it, Eddie start up, but I'm imagining like, just given the physical realities of everything we've been talking about here, I imagine a lot of things break all the time. Totally, totally, and you just gotta put in the right processes and preparation to make sure that you can avoid those, or you have a plan in place to mitigate those risks.

59:54But anyway, coming full circle on sort of the entrepreneurial story, I came back from that Mount Everest trip. I think one of the things that stood out to me was living through this AI landscape that we were using a lot of advanced statistical modeling techniques when I was a quant, and kind of when the deep learning boom happened, you had the initial like cap paper published, and people were like, oh, there's these multi -layer, deep learning solutions that multi -layer neural networks that you can utilize that are crushing every single benchmark. We started to utilize some of these things in our own sort of strategies and solutions that we were building.

1:00:32Really, I sort of had this recognition that a lot of these things, they weren't like big scientific breakthroughs, right? Like multi -layer neural networks had existed for decades. They're just like an interesting nonlinear modeling technique that you can model some sort of statistical representation of the data set that you have. Now, what had changed is that data had become far more abundant, so there was a lot more data that you could utilize to train these networks, and computing had gotten a lot cheaper. And those were the unlocks that actually enabled this technology to start to make meaningful breakthroughs for society.

1:01:11And I really felt that those were the two verticals that were going to continue to drive those breakthroughs, increased access and availability to data and unique data sets that are meant to represent your overall data set, and cheaper computing costs. And so I was thinking about what do I want to do? And I was thinking about, I was really excited about kind of building at this infrastructure layer of computing. I was thinking about how do you make compute cheaper? How do I make it more efficient? Well, I could go design a new chip and compete with NVIDIA. Oh, they seem pretty good at the paralyzed computing stuff.

1:01:45Like maybe I'll avoid that. But ended up kind of meeting up with my co -founder when I was back in Colorado where I grew up, we ended up kind of going on a climbing trip together, and he was telling me all about struggling firsthand with this flaring problem, where again, he's very much an environmentalist that grew up in this oil and gas family and was dealing firsthand with this problem of flaring where he felt like he was stuck between a rock and a hard place, where the best thing economically to do for his stakeholders was to flare this gas. And yet it was a massive negative for everyone else and for the environment.

1:02:23And he was struggling with this and telling me about the problem and saying like, what could we do here? Like is there a better solution? Is there something that can be done? We kind of came up with this concept that we could solve the computing industry's problem of compute is expensive because power is expensive. By simultaneously solving the problem of flaring is a problem because there's no demand for the gas in its current location. And we do that by sort of co -locating these computing solutions and facilities on site with these waste sources of energy. It's clever, it's just crazy. Totally insane.

1:02:59Like I just can't get over how perfectly the puzzle pieces fit together if you go into lots of pain to make it true. Yeah, well, and the other thing I'll say is that we probably never would have gotten off the ground if we had started with building a cloud. Yeah, Bitcoin probably made this like possible, right? Bitcoin made this possible. You could throw everything into a container and drop it in, right? Yeah, because you have to remember we're solving problems for two different counter parties in this situation. We're solving a problem for the energy company and we're solving a problem for the computing customer.

1:03:31You were a trader, listen to you with counter parties.

1:03:36But on the oil side, it's like, if I came to an oil company, I said, hey, I can solve your flaring problem. I just need a couple of years to build this whole high performance cloud platform. I need to go find customers that will utilize it. I need to build the infrastructure and then co -locate it. And they're like, dude, I need my flare gone tomorrow. Meanwhile, you go to the AI customers and you're like, I've got a great solution for you. It's going to be cheaper. It's going to be better. It's going to be ready in five years. It's going to be like, dude, don't care. Bitcoin mining bootstrapped your demand side of the marketplace.

1:04:11Exactly. And Bitcoin by being an open permissionless network, you could rapidly scale it up and scale it down. It's a very elastic demand for computing where we could basically plop a data center filled with Bitcoin mining rigs directly on site with this waste gas and utilize it and soak it all up. I think about Bitcoin as being a bit of a power sponge. It can soak up waste energy to the extent it's there. It can modulate and flow with capacity available. And if it needs to be turned down and erupted, all of these things are ultimately no big deal. And we actually have very big plans for how Bitcoin mining will be integrated into these large DRO behind the meter of computing facilities co -located alongside of our high performance computing cloud data centers as well.

1:05:05Because again, you can kind of think of them as these power sponge that really modulate and can create the most high performance campus in terms of being able to drive efficiencies without getting rid of any sort of reliability or redundancy that you need for a large high performance computing data center. It's like the ultimate elastic computing workload, right? Because like, hey, I training fairly like elastic, like, you know. It's the ultimate spot instance. Or the ultimate spot instance, yeah. Exactly. Assuming you believe that the output has value which it's a whole nother episode of debate.

1:05:39And there's lots of credible reasons why you do. Sure. Yeah. Right. You know, exactly. You know, I believe it has value because there's a market that tells me it has value. I can literally go on to Coinbase and observe the value of it. It's Bitcoin's all the way down. Okay.

1:05:59So, let me chase the story. I hope as promised upfront listeners, you find this as incredible as we do. Two more things we want to cover. One is your capital structure and how you've financed all this. But two, maybe before we do that, we've mentioned in video a few times on the episode so far. I mean, anybody listening has got to be on their minds. Like, they're pretty important to you guys. Yeah. Absolutely. For our cloud platform, you know, because we've very much focused on the GPU market, Nvidia is the 800 pound gorilla. In fact, they're like a 10 ,000 pound gorilla. And... Hey, AMD exists.

1:06:41AMD does exist. And AMD's actually building some really interesting cool solutions. There's been a lot of money poured into AI accelerators and interesting new technologies to tackle this AI problem. The problem is for those other competitors that Nvidia's really, really, really good at it. And they're investing lots and lots of money and they've built a full ecosystem between CUDA, Nickel, which is the package that helps manage these high performance networking solutions for the server to server communication. They've really nailed the full, complete suite between hardware and software. We, as a company, because we didn't have any previous baggage, we hadn't tried to build our own high performance fabric from scratch.

1:07:33We hadn't tried to build our own chips from scratch. We really wanted to take the best things in the market and what really what the market was demanding and deliver that to customers. And that really was kind of this Nvidia stack of computing solutions. We've been able to build, you know, honestly a great relationship with Nvidia. They've been a very good and key supplier to Crusoe. They're very aligned with our values of trying to deliver advanced computing solutions that are both cleaner and cheaper than a lot of traditional other offerings. Like Nvidia, I don't think they like that their GPUs take a lot of power or that power is hard.

1:08:15So I think they probably like making power easier. No, and I think a lot of people are starting to see this issue just as in crypto, right? Initially it was like, oh cool, people are doing this decentralized computing thing and they're doing proof of work to create value for this global monetary ecosystem. And then as soon as the economic incentives were put in place and things started to ramp up and people start doing on GPUs and then people started building A6 for it. And those created just a lot of power demand. People are like, wait, this is consuming how much power? Like that's crazy. I think we're at the very early innings of that with AI.

1:08:55And I think there's an opportunity to really get ahead of the climate impact of AI. A lot of people are talking about responsible AI and AI ethics. One of the key components that should be part of that discussion is actually the climate impact of AI. And I think that's really where our energy first approach to things really plays a major role. It's sort of just like the nature of humanity that Nvidia will come up with a much more efficient chip. And then people just use a lot more of that. And the overall power consumption actually goes up. And it's like, well, that's, it's hard to think. That's hard to think.

1:09:32It's hard to think. I mean, my unbelievably fast iPhone 13 mini because I still love the mini is not running the same apps as the iPhone 3G. Like we get more compute. We use it. Yeah, it's exactly right. People design things around more computing being available. And that's important progress, right? I mean, at the end of the day, the potential for human progress and sort of uplifting human prosperity through computing at lead innovations is absolutely enormous. And I think it's going to be one of the greatest transformations of our lifetime. And we want to make that possible, but we want to do it without having to pay a huge climate impact cost.

1:10:13But back to Nvidia, they have this very, very important place in the overall ecosystem. And from my experience in working with Nvidia, they are a company that cares very deeply about the end customers, people that are using the hardware and people that are wanting to get the best experience for running AI, high performance computing, graphics solutions. It's been really kind of amazing to kind of watch them grow and scale into this opportunity. There are sort of significant supply chain constraints. They have been kind of, I think, taxed because of this step function increase in demand that's not like a software demand, step function increase.

1:10:55It's like everything down from the supply chain at the foundry level with TSMC needs to be scaled up to be able to provide more waifers to Nvidia that needs to... ASMR needs to make some more... ASMR needs to make more eUVs. Drumph needs to make more very high -power specialised lasers. Like there's a lot. Yeah. Yeah, the supply chain is big, complex, and it doesn't rapidly scale. So I think that's all the more why, it's important that Nvidia really cares about and customer needs. I think being a bespoke independent cloud provider compared to a AWS, a Microsoft, or a Azure, or GCP, we are afforded the flexibility of really purpose building the architecture and delivering it in the best way possible to customers.

1:11:45Amazon, for instance, made an acquisition of a company called Anaperna Labs. They've been trying to build their own AI accelerator chips called Training and Infrarencia. Through that acquisition, they've also built their own high -performance networking solution called EFA, elastic fabric adapter. And they're very committed to sort of utilising those things. And the problem is, frankly, that the market today is demanding the Nvidia solutions. Even with the market demanding the Nvidia solutions, AWS is implementing their RDMA non -blocking fabric through EFA, not through Infiniband. There are some significant trade -offs that are being made there.

1:12:23Just having the flexibility that we want to build the platform that delivers the best experience to customers with the lowest environmental impact really gives us the opportunity to build things I think in the right way. You have no vertical horizontal strategy conflict. You're trying to sell one thing to customers, and so you're trying to make that experience as great as possible. And when you sell a whole bunch of stuff, sometimes there's conflicts. Yeah, that's right. I mean, I think there's certainly kind of a frenemy type relationship when you look at the issues with Amazon building, training and Infrarencia, Google building, the TPU.

1:12:59These are meant to replace Nvidia. I mean, at the end of the day, like, big tech, they have a very complex set of relationships that for you and Nvidia is very simple. Yeah, we're a customer. We want to deliver Nvidia and its greatest glory to end customers. And I think that's a positive. And I also think Nvidia has been very supportive of wanting to create a broader ecosystem of solutions than just AWS, Azure and GCP. You've seen this emerging and burgeoning set of independent cloud services providers that are coming at it with their own solutions and delivering to end customers cool and unique ways of delivering infrastructure and enabling AI workloads.

1:13:40It's cool. Well, before you run, you've financed this company in a very unique way. Can you talk a little bit through sort of a capital structure? How much have you raised in equity? What type of folks have financed this company? And what are you doing that's unique? Yeah, so obviously our business is not like just a pure enterprise SaaS business, right? It's pretty far from it. We have quite a bit of CapEx. We build technology. We build software solutions, but we also have physical infrastructure and big pieces of heavy machinery that are involved in the overall process. And so that's led us to this unique hybrid solution of being a fast growing startup that has gotten some venture equity funding.

1:14:22We've raised about 500 million in venture equity funding to date coming from groups like founders fund being capital ventures, valor equity partners and those unfamiliar with valor, they were very instrumental in helping Elon build a lot of his early companies between Tesla, SpaceX, foreign company, Nurelink. They've been heavily involved. And really where they excel is around kind of the operational expertise oftentimes with either software or physical infrastructure companies, but they've gone deep with us on a lot of the physically operationally challenging aspects to our business and been very helpful in that regard.

1:15:01And then most recently in our series, see our primary lead was a group called G2 Venture Partners or G2VP. It was formerly the Green Growth Fund at Cliner Perkins and they spun out, but they're very focused on decarbonizing technologies and that are ready for scalability and growth. That's kind of our core equity stack. We've had a bunch of strategics and other interesting investors get involved. One of the big areas of flaring, for instance, is the Middle East, right? So 38 % of the global flaring happens in the mean, mean region that actually led to a handful of sovereign wealth funds like Mubadala, the sovereign wealth fund of Abu Dhabi, as well as OIA and IDO, the sovereign wealth funds of Oman to invest in Crusoe, not just as a way to generate a financial return, but also as a way to bring an interesting, fast growing technology solution to help solve a domestic problem that is an issue for areas in the Middle East like Oman and Abu Dhabi.

1:16:02We've certainly done a lot of equity, but on the CapEx side, right? We've done a bunch of very interesting things around how do we actually scale the business without just plowing equity dollars into CapEx, right? Because at the end of the day, that's not really what we want to do. And maybe actually for listeners who don't come from the finance side of things, why is it a bad idea to just finance all the CapEx with equity and when in a business's lifecycle, can you explore other options? What level of predictability do you need? Well, there's a bunch of FinTech startups that will give you a whole bunch of different answers, but everything from revenue, financing, to customer financing, I don't know, there's a million different ways to finance everything these days, it seems.

1:16:49In our case, we really didn't want to finance big physical assets with equity dollars, because there is collateral there at the end of the day versus... It's like a mortgage versus venture investment. These are different things. Exactly, exactly. Most people don't buy their house with 100 % cash, right? Because they can get a low interest mortgage, and the bank's happy to make that loan because there's existing collateral if you stop making your payments, they can just take over your house and liquidate it for more than the outstanding loan that they have with you. In our case, we have large pieces of power generation equipment that we've been able to finance with asset -backed financing.

1:17:29There was one group that we have a large facility with called Generate. There's another group that we did something with called North Base, and another group called Spark Fund, all on sort of the electrical and asset -backed financing for electrical systems and power generation equipment. Now, what's cool about that is one, the way our structure is they are asset -backed, which means it isn't debt that sort of defaults up to the parent company necessarily. If we stop paying, they'd come, and they'd take the generator, and then they'd go liquidated on a secondary market, they'd get made whole that way, and it's not like an incremental liability for Crusoe, the company.

1:18:12Now, that's not our plan. You know, if my debt holders are listening to the show right now, we're not entirely intent. We're not entirely intent to liquidate. To continue to make all of our payments. But it's useful for listeners to understand how those sorts of things work, and how it connects to the parent company. And this is how mostly. It's how most of the non -tech business world works. You know, like if you're, I don't know, proctoring gamble or something, like you're not financing your assembly lines with equity. Yep. We also set up on our Bitcoin mining business. You know, essentially we have four big pieces of CapEx.

1:18:50We have generators and electrical infrastructure supporting the power generation side. We have GPUs and associated networking equipment and servers. We have Bitcoin mining hardware. So ASICs that are used to whatever run the SHA -256D hashing algorithm. And then we have data center infrastructures. The actual physical boxes or buildings that we build to sort of house the actual equipment. Our belief is that the best way to structure financing is actually have each of those individually with different asset -backed loan facilities. And then we use equity capital to essentially continue to grow, invest in technology, hire the team, and also come up with our piece of the loan, essentially, where it's like, you know, you typically don't get a hundred percent loan to value on something just like when you buy a house, it's typically not a zero percent down payment.

1:19:46You typically put in whatever 20, 30 percent as a down payment on a house. We do a similar thing with generators or GPUs with these asset -backed financing facilities. And I would imagine what's cool is there's, pools of capital out there that are interested in the specific risk and return profiles of each of those different things, right? Exactly. We did a project financing facility with a really clever and creative credit fund called Upper 90. And this was actually focused on our Bitcoin mining business. And it had equity -like constructs to it, but it had debt -like constructs to it. And it was actually one of the keys to helping us get off the ground was through this facility.

1:20:27And it was cool to see investors like that that were really willing to think deep and creatively about what our actual revenue stream was, independent of where we were at in terms of stage of the company. Because we did that around our series A. It ended up being a total of 55 million total that we deployed through these facilities that really enabled us to grow and scale that digital currency mining business in a way that didn't dramatically dilute our equity cap. Right, otherwise you would have been adding on another $55 million to your series A. And that would have sucked. Exactly, exactly, exactly.

1:21:07There are just creative financing solutions that people by default think they just have to go raise the next series of funding. And I don't think that's the case. And I think there's a lot of ways that founders can end up owning a larger percentage of their company by finding the right investor for the right component of their overall capital stack and capital structure. Did you have these relationships from your time in the finance and quant world? Or like how did you go about putting all this together? Some, one of the founders of Upper 90, I knew he was at Goldman for a long time and he was at Barclays for a long time.

1:21:48And I just kind of knew him through the finance world and then he set up this like bespoke credit fund. And I was like, oh, it was really cool. On the venture side, you know, a lot of it was just kind of getting introductions from friends. People that I talked to that think my business was really cool. They'd be like, oh, you should meet my friend, Scott Nolan, who's a partner of founders fund or Sillil Deshpande, who's a partner of being capital ventures. And that was kind of the early start for us and really leveraging kind of our network of people that helped us break into or like get into the community of venture investors.

1:22:26Well, this is a great takeaway, I think, for founders among many on this episode. But if you really do shoot for the moon and you do something unique and challenging and good for the world and clever, there are people who want to help your business succeed. There are doors that get open for you because people are genuinely shocked, impressed, excited and want to introduce you to their most valuable contact. You know, like David and I approached you 18, 24 months ago and said, we normally don't cover companies at this stage but like maybe at the time it was the LP show, now it's ACQ2, like can we come talk with you about it just because we're fascinated.

1:23:03It just opens doors for you that if you're starting the next great SaaS company that helps you do project management, like people are gonna be like, cool, all right, later.

1:23:15Nothing to get SaaS, different set of challenges. But yeah, there's always room for a new SaaS company. Yeah, I guess that wasn't my point. But no, no, I mean, Hopefully many of them will be, you know, Crusoe AI infrastructure customers. It is hard to differentiate. And I think we're, you know, we're probably gonna see a wave of AI being the new platform and we're already seeing it, frankly, it's just, you know, the amount of innovation, the amount of cool things being built by young startups, leveraging AI as a mechanism to unlock new productivity potential is absolutely insane. And inspiring and I'm very, very optimistic for a lot of these cool things being built.

1:23:56It's always been a bad idea if you're a venture investor to stop investing in software startups. So like, you know, we should always invest in software startups in addition to super cool. Not fit wrong with 80 % gross margins and super skill. Totally, totally. And, you know, maybe they go up with AI, we'll see. Yeah. Well, Chase, I think that's a great place to leave it. Where can listeners find you? How can people, if they want to be customers or Crusoe employees or, I mean, invest in these different facets of the business, how can they get in touch and who should reach out? We're always looking for highly talented people that are motivated by our mission to align the future of computing with the future of the climate.

1:24:41The scope of employees that we have are probably much wider than most traditional tech startups. We have a wide ranging from high performance software engineers and infrastructure engineers to oil field mechanics and electricians and welders and technicians. So it's not your typical software startup. You're not limited to just that audience. We're not limited to just that audience. We have a wide range of open roles. So we're always interested in talking to talented folks. You can visit our website, it's crucioenerg .com, CRUSOEENERGY .com, that has a lot of our open listings. For those interested in leveraging our cloud computing platform that's focused on GPU cloud computing, you can visit cruciocloud .com, CRUSOEcloud .com, there you'll be able to get more information on the instance types that we offer, the pricing and cost savings that we're able to deliver compared to many other incumbents.

1:25:41Or just straight up availability of GPUs would be nice. And availability, yeah, yeah. It is a rush right now. On the energy side, I think we're always interested in talking to new partners that are dealing with stranded or underutilized energy resources that we may be able to help them create more economic outcomes and more environmentally friendly outcomes. So folks struggling with flaring is a problem. If there's any listeners from the oil and gas sector or any renewable energy producers that are struggling with curtailment or negative power pricing, we'd love to speak with you and see how we might be able to unlock value in that stranded energy with computing.

1:26:21Awesome. Chase, thank you so much. Thanks for having me. And listeners, we'll see you next time. We'll see you next time.